<PAGE>
As filed with the Securities and Exchange Commission on October 5, 1994.
Registration No. 33-55417
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
WESTAMERICA BANCORPORATION
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
California 6025 94-2156203
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1108 Fifth Avenue, San Rafael, California 94901, (415) 257-8000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
________________
DAVID L. PAYNE
Chairman, President and Chief Executive Officer
Westamerica Bancorporation
1108 Fifth Avenue
San Rafael, California 94901
(415) 257-8000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
________________
Copies to:
JONATHAN D. JOSEPH, ESQ. JOSEPH G. MASON, ESQ.
GABRIELLA A. LOMBARDI, ESQ. Bronson, Bronson & McKinnon
Pillsbury Madison & Sutro 505 Montgomery Street
P.O. Box 7880 San Francisco, California 94111-2514
San Francisco, California 94120-7880 (415) 986-4200
(415) 983-1000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[_]
________________
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 said Section 8(a),
may determine.
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<PAGE>
WESTAMERICA BANCORPORATION
Cross-Reference Sheet pursuant to Item 501(b) of Regulation S-K showing the
location in the Proxy Statement/Prospectus of the information required by Part I
of Form S-4.
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<CAPTION>
Form S-4 Caption Location in Proxy Statement/Prospectus
---------------- --------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION.
---------------------------------
Item 1 Forepart of Registration Statement and Outside Outside front cover page; facing page
Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Available Information; Incorporation of Certain
Prospectus Documents by Reference; Table of Contents
Item 3 Risk Factors, Ratio of Earnings to Fixed Summary; The Meeting; Certain Considerations;
Charges and Other Information The Merger
Item 4 Terms of the Transaction Summary; The Meeting; The Merger; Dissenters'
Rights of Appraisal; Market Price and
Dividend Information; Management's Discussion and
Analysis of Financial Condition and Results of
Operation of PV Financial; Certain Differences in Rights
of Shareholders; Description of Westamerica Capital Stock
and Indebtedness; Description of PV Financial Capital Stock
Item 5 Pro Forma Financial Information Summary; Pro Forma Combined Financial Information
Item 6 Material Contracts with the Company Summary; The Meeting; The Merger
Being Acquired
Item 7 Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8 Interests of Named Experts and Counsel Not Applicable
Item 9 Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT.
--------------------------------
Item 10 Information with Respect to S-3 Registrants Not Applicable
Item 11 Incorporation of Certain Information Incorporation of Certain Documents by Reference
by Reference
Item 12 Information with Respect to S-2 or Not Applicable
S-3 Registrants
Item 13 Incorporation of Certain Information Not Applicable
by Reference
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Caption Location in Proxy Statement/Prospectus
---------------- --------------------------------------
<C> <S> <C>
Item 14 Information with Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
--------------------------------------------
Item 15 Information with Respect to S-3 Companies Not Applicable
Item 16 Information with Respect to S-2 or Available Information; Incorporation of Certain
S-3 Companies Documents by Reference; Summary; Supplemental
Historical Information; Market Price and Dividend
Information; Information about PV Financial;
Management's Discussion and Analysis of
Financial Condition and Results of Operations of PV
Financial; Description of PV Financial Capital Stock;
Index to Financial Statements
Item 17 Information with Respect to Companies Not Applicable
Other Than S-2 or S-3 Companies
D. VOTING AND MANAGEMENT INFORMATION.
---------------------------------
Item 18 Information if Proxies, Consents or Incorporation of Certain Documents by Reference;
Authorizations Are to Be Solicited Summary; Introduction; The Meeting; The Merger;
Dissenters' Rights of Appraisal; Information about
Westamerica; Information about PV Financial; Solicitation
of Proxies; Proposals of Security Holders
Item 19 Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be
Solicited or in an Exchange Offer
</TABLE>
2
<PAGE>
October __, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders
of PV Financial to be held at the McHenry Branch of Pacific Valley National
Bank, 1524 McHenry Avenue, Modesto, California, at 5:00 p.m., local time, on
November 14, 1994 (the "Meeting").
At the Meeting, PV Financial shareholders will be asked to consider and
vote upon a proposal to approve and adopt an Agreement and Plan of
Reorganization dated as of July 25, 1994, as amended (the "Agreement"), by and
among Westamerica Bancorporation ("Westamerica"), PV Financial and Pacific
Valley National Bank and an Agreement of Merger (the "Merger Agreement") between
Westamerica and PV Financial (collectively, the "Agreements") and the
transactions contemplated thereby, including without limitation, the amendment
of the PV Financial 1991 Director Stock Option Plan and certain provisions
benefiting directors, executive officers and employees of PV Financial, as more
fully described in the accompanying Proxy Statement/Prospectus. Copies of the
Agreements are attached to the Proxy Statement/Prospectus as Annex A. As more
fully described therein, pursuant to the Agreements, PV Financial will merge
with and into Westamerica (the "Merger"). No other business is expected to be
transacted at the Meeting other than matters incidental to conduct of the
Meeting.
As a result of the Merger, each share of PV Financial common stock, no par
value ("PV Financial Common Stock") outstanding at the effective time of the
Merger (other than shares with respect to which dissenters' rights are
perfected) will be converted into the right to receive .5450 of a share of
Westamerica common stock, without par value ("Westamerica Common Stock"),
subject to certain potential downward adjustments described in the Agreement. No
fractional shares of Westamerica Common Stock shall be issued to holders of
shares of PV Financial Common Stock and, in lieu thereof, cash will be paid to
PV Financial shareholders in accordance with the Agreement.
Under the California General Corporation Law, the approval and adoption of
the Agreements and the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the outstanding shares of PV
Financial Common Stock. The proposed Merger is also subject to certain
regulatory approvals and satisfaction of the conditions contained in the
Agreement. Your Board of Directors has determined that the Agreements and the
Merger are in the best interests of PV Financial and its shareholders.
THE PV FINANCIAL BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL DIRECTORS,
HAS APPROVED THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
---
AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY AT THE MEETING.
The accompanying Notice and Proxy Statement/Prospectus describe the matters
to be acted upon at the Meeting. Shareholders are urged to review carefully the
attached Proxy Statement/Prospectus, including the annexes thereto. Such
documents contain a detailed description of the Merger, its terms and conditions
and the transactions contemplated thereby.
Your continuing interest in the business of PV Financial and Pacific Valley
National Bank is appreciated, and we hope you will attend the Meeting in person.
It is important that your shares be represented at the Meeting. Accordingly,
whether or not you plan to attend the Meeting, please sign, date and mail the
enclosed Proxy promptly in the postage-paid envelope that has been provided to
you for your convenience. If you wish to vote in accordance with
<PAGE>
the recommendations of your Board of Directors, it is not necessary to specify
your choices; you may merely sign, date and return the enclosed Proxy.
Sincerely,
Robert J. Cardoza
Chairman of the Board
<PAGE>
PV FINANCIAL
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 14, 1994
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PV
Financial will be held at the McHenry Branch of Pacific Valley National Bank,
1524 McHenry Avenue, Modesto, California on November 14, 1994 at 5:00 p.m.,
local time (the "Meeting"), for the following purposes, all of which are more
fully described in the accompanying Proxy Statement/Prospectus:
To consider and vote upon a proposal to adopt and approve the Agreement and
Plan of Reorganization dated as of July 25, 1994, as amended (the
"Agreement"), by and among Westamerica Bancorporation ("Westamerica"), PV
Financial and Pacific Valley National Bank and an Agreement of Merger (the
"Merger Agreement") between Westamerica and PV Financial (collectively, the
"Agreements") and the transactions contemplated thereby, including without
limitation, the amendment of the PV Financial 1991 Director Stock Option
Plan and certain provisions benefitting directors, executive officers and
employees of PV Financial and the proposed merger of PV Financial with and
into Westamerica (the "Merger Proposal").
The Agreements are set forth in Annex A to the accompanying Proxy
Statement/Prospectus.
No other business will be transacted at the Meeting, other than matters
incidental to the conduct of the Meeting.
The PV Financial Board of Directors has fixed the close of business on
September 23, 1994, as the record date for the Meeting. Only PV Financial
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Meeting. Approval of the Merger Proposal requires
the affirmative vote of the holders of not less than a majority of the
outstanding shares of PV Financial common stock, no par value.
Your vote is important regardless of the number of shares you own. Each
shareholder, even though he or she may now plan to attend the Meeting in person,
is requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any shareholder present in person at the Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Meeting.
By Order of the Board of Directors,
Sylvia J. Rudy
Vice President-Secretary
October ___, 1994
Modesto, California
THE BOARD OF DIRECTORS OF PV FINANCIAL UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSAL.
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PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
SUBJECT TO COMPLETION, DATED OCTOBER 5, 1994
PV FINANCIAL
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 14, 1994
---------------
WESTAMERICA BANCORPORATION
PROSPECTUS
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to shareholders of PV Financial in connection with the solicitation of
Proxies by the Board of Directors of PV Financial for use at the Special Meeting
of Shareholders of PV Financial to be held at the McHenry Branch of Pacific
Valley National Bank, 1524 McHenry Avenue, Modesto, California on November 14,
1994 at 5:00 p.m. local time, and any adjournment or postponement thereof (the
"Meeting").
At the Meeting, the shareholders of record of PV Financial common stock, no
par value ("PV Financial Common Stock" or "PV Financial Shares"), as of the
close of business on September 23, 1994 will consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Reorganization dated as of July
25, 1994, as amended, (the "Agreement") by and among Westamerica Bancorporation
("Westamerica"), PV Financial and Pacific Valley National Bank and an Agreement
of Merger (the "Merger Agreement") between Westamerica and PV Financial
(collectively, the "Agreements") and the transactions contemplated thereby,
including without limitation, the amendment of the PV Financial 1991 Director
Stock Option Plan and certain provisions benefiting directors, executive
officers and employees of PV Financial, as more fully described herein. Copies
of the Agreements are attached to this Proxy Statement/Prospectus as Annex A. As
more fully described herein, pursuant to the Agreements, PV Financial will merge
with and into Westamerica (the "Merger"), and each share of PV Financial Common
Stock outstanding at the effective time of the Merger (other than fractional
shares and shares with respect to which dissenters rights have been perfected)
will be converted into .5450 of a share (the "Exchange Ratio") of common stock
of Westamerica, without par value (the "Westamerica Common Stock" or
"Westamerica Shares"), subject to potential adjustments under certain
circumstances. The Exchange Ratio will be adjusted downward pursuant to formulas
set forth in the Agreement if (i) the average of the closing price per share of
Westamerica Common Stock quoted on the National Association of Securities
Dealers' Automated Quotation System, National Market ("Nasdaq") for the twenty
consecutive trading days prior to two business days prior to the effective date
of the Merger (the "Determination Date") (such average price, the "Average
Price") is more than $32.06; or (ii) as a result of any Significant Liabilities
(as defined herein) arising prior to the effective date of the Merger in an
amount which would result in a maximum adjustment of .0275 of a Westamerica
Share, as more fully described herein. If the Average Price on the Determination
Date is less than $28.43, the parties have the right, but not the obligation, to
renegotiate the Exchange Ratio. Should the parties fail in good faith to
renegotiate the Exchange Ratio, the Agreement may be terminated by PV
Financial.
Based on the closing price on Nasdaq of Westamerica Common Stock on October
4, 1994 of $32.25 per share, each holder of PV Financial Common Stock would
receive the equivalent of $17.52 per share for each share of PV Financial Common
Stock, assuming that the Average Price on the Determination Date is $32.25 if
there is no adjustment for Significant Liabilities and $16.64 per share if the
maximum Significant Liability adjustment occurs.
This Proxy Statement/Prospectus and the accompanying letter of the
Chairman, Notice of Special Meeting and form of Proxy are first being mailed to
shareholders of PV Financial on or about October __, 1994.
This Proxy Statement/Prospectus also serves as a prospectus for Westamerica
under the Securities Act of 1933, as amended (the "Securities Act"), for the
issuance of shares of Westamerica Common Stock (including the associated
Westamerica Common Stock purchase rights described under "Description of
Westamerica Capital Stock and Indebtedness-Shareholder Rights Plan" with respect
to such shares) in the Merger. On October 4, 1994, the closing price of
Westamerica Common Stock on Nasdaq was $32.25 and the average of the bid and
asked price of PV Financial Common Stock on the Pink Sheets (as defined herein)
was $16.25.
This Proxy Statement/Prospectus does not cover resales of Westamerica
Common Stock to be received by PV Financial shareholders upon consummation of
the Merger, and no person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
<PAGE>
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE STRONGLY URGED
TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.
----------------------
THE SECURITIES TO BE ISSUED IN THE MERGER 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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS OCTOBER __, 1994
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<PAGE>
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ..................................................6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................6
SUMMARY ................................................................8
Information about the Parties .....................................8
The Meeting and Vote Required .....................................8
Certain Considerations ............................................9
Reasons for the Merger; Recommendation of the Board of
Directors ....................................................9
Opinion of Financial Advisors ....................................10
Effective Date of the Merger .....................................10
Exchange Ratio; Possible Adjustments to Exchange Ratio ...........10
Treatment of Stock Options .......................................11
Conditions and Regulatory Approvals ..............................11
Stock Option Agreement ...........................................12
Employment Agreement .............................................12
Noncompetition Agreements ........................................12
Certain Tax Consequences .........................................13
Amendment and Termination ........................................13
Expenses .........................................................14
Accounting Treatment .............................................14
Interests of Certain Persons in the Merger .......................14
Dissenters' Rights of Appraisal ..................................15
Market Price and Dividend Data ...................................15
Differences in Charter Documents .................................16
Amendment of the PV Financial 1991 Director Stock Option Plan ....16
Selected Historical and Pro Forma Financial Data .................16
INTRODUCTION ..........................................................20
THE MEETING ...........................................................21
Matters to be Considered at the Meeting ..........................21
Certain Agreements ...............................................22
CERTAIN CONSIDERATIONS ................................................22
Adverse Economic and Drought Conditions ..........................22
Shares Eligible for Future Sale; Dilution ........................23
Organizational Structure and Management ..........................23
Operations After the Merger ......................................23
Effect of Shareholder Rights Plan ................................24
Legislative and Regulatory Environment ...........................24
THE MERGER ............................................................24
Background of the Merger .........................................24
Reasons for the Merger; Recommendation of the Board of
Directors ...................................................26
Opinion of PV Financial's Financial Advisor ......................27
Effective Date of the Merger .....................................36
Exchange Ratio; Conversion of Shares of PV Financial Common
Stock .......................................................36
Possible Adjustments to Exchange Ratio or Termination of the
Agreement ...................................................36
Exchange of PV Financial Stock Certificates; Fractional
Interests ...................................................37
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<PAGE>
Treatment of Stock Options .......................................38
Covenants of Westamerica and PV Financial; Conduct of
Business Prior to the Merger ................................41
Management and Operations Following the Merger ...................42
Representations and Warranties; Conditions to the Merger .........43
Required Regulatory Approvals ....................................44
Stock Exchange Listing ...........................................44
Stock Option Agreement ...........................................45
Employment Agreement .............................................48
Noncompetition Agreements for Directors of PV Financial,
Directors and Officers of the Bank and Robert J. Cardoza ....49
Certain Tax Consequences .........................................49
Amendment; Termination ...........................................50
Expenses .........................................................52
Accounting Treatment .............................................52
Resales of Westamerica Common Stock ..............................53
Interests of Certain Persons in the Merger .......................53
DISSENTERS' RIGHTS OF APPRAISAL .......................................54
PRO FORMA COMBINED FINANCIAL INFORMATION ..............................56
SUPPLEMENTAL HISTORICAL INFORMATION ...................................64
MARKET PRICE AND DIVIDEND INFORMATION .................................66
Market Quotations ................................................66
Dividends and Dividend Policy ....................................68
INFORMATION ABOUT WESTAMERICA .........................................69
INFORMATION ABOUT PV FINANCIAL ........................................69
Litigation .......................................................70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PV FINANCIAL ............................70
Results of Operations ............................................70
Net Earnings ................................................70
Net Interest Income .........................................71
Provision for Possible Loan Losses ..........................74
Total Noninterest Income ....................................75
Total Noninterest Expense ...................................75
Loans .......................................................75
Investment in Real Estate Joint Venture .....................78
Other Real Estate Owned .....................................79
Commitments and Letters of Credit ................................79
Liquidity ........................................................79
Interest Rate Sensitivity ........................................80
Capital ..........................................................81
Investment Securities ............................................82
Deposits .........................................................84
Selected Ratios...................................................84
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS .........................85
General ..........................................................85
Quorum Requirements ..............................................85
Indemnification of Directors and Executive Officers ..............85
Shareholder Meetings and Action by Written Consent ...............87
Filling Vacancies on the Board of Directors ......................88
Notice of Shareholder Business ...................................88
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<PAGE>
Notice of Director Nominations ...................................88
Westamerica "Interested Person" Provision ........................89
DESCRIPTION OF WESTAMERICA CAPITAL STOCK AND INDEBTEDNESS .............89
Common Stock .....................................................89
Preferred Stock and Class B Common Stock .........................90
Debt Agreements ..................................................90
Shareholder Rights Plan ..........................................91
DESCRIPTION OF PV FINANCIAL CAPITAL STOCK .............................92
Common Stock .....................................................92
Preferred Stock ..................................................92
EXPERTS ...............................................................93
LEGAL MATTERS .........................................................93
SOLICITATION OF PROXIES ...............................................93
PROPOSALS OF SECURITY HOLDERS .........................................93
INDEX TO PV FINANCIAL FINANCIAL STATEMENTS ...........................F-1
Annex A Agreement and Plan of Reorganization, As Amended, and
Agreement of Merger
Annex B Fairness Opinion of Hoefer & Arnett
Annex C Restated Stock Option Agreement
Annex D California General Corporation Law Chapter 13--Dissenters'
Rights
-5-
<PAGE>
NO PERSON IS AUTHORIZED BY WESTAMERICA OR PV FINANCIAL TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR
REPRESENTATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, IN CONNECTION WITH
THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY STATEMENT/PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
THE SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH A SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF WESTAMERICA OR
PV FINANCIAL SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Westamerica and PV Financial are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by Westamerica and PV
Financial with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and the New York Regional Office, Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material also can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Westamerica Common Stock
is listed on Nasdaq and the PV Financial Common Stock is traded on the over-the-
counter market and quoted on the "pink sheets" published by the National
Quotation Bureau, Inc. (the "Pink Sheets"). Reports, proxy statements and other
information concerning Westamerica can also be inspected at the offices of the
National Association of Securities Dealers at 1735 K Street, N.W., Washington,
D.C. 20006-1506.
Westamerica has filed with the Commission a Registration Statement on Form
S-4 (No. 33-55417) under the Securities Act of 1933, as amended, relating to the
shares of Westamerica Common Stock to be issued in connection with the Merger
(together with any amendments thereto, the "Registration Statement"). This Proxy
Statement/Prospectus also constitutes the Prospectus of Westamerica filed as
part of the Registration Statement and does not contain all the information set
forth in the Registration Statement and exhibits thereto. The Registration
Statement and the exhibits thereto may be inspected and copied, at prescribed
rates, at the public reference facilities maintained by the Commission at the
addresses set forth above.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus relating to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE BY WESTAMERICA (OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
-6-
<PAGE>
M. KITTY JONES, CORPORATE SECRETARY, WESTAMERICA BANCORPORATION, 1108 FIFTH
AVENUE, SAN RAFAEL, CALIFORNIA 94901 (TELEPHONE (415) 257-8000). THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE BY PV FINANCIAL (OTHER THAN CERTAIN EXHIBITS TO
SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM SYLVIA J. RUDY,
CORPORATE SECRETARY, PV FINANCIAL, 1524 MCHENRY AVENUE, MODESTO, CALIFORNIA
95350 (TELEPHONE (209) 575-2900). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS IN ADVANCE OF THE MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES, ANY REQUEST SHOULD BE MADE BY NOVEMBER 7, 1994.
The following documents of Westamerica are hereby incorporated by reference
in this Proxy Statement/Prospectus and shall be deemed to be a part hereof from
the date of filing of those documents: Westamerica's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993; Westamerica's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994; Westamerica's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994; Westamerica's Current Report
on Form 8-K dated July 28, 1994; and all other reports and documents filed by
Westamerica pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus and prior to the
termination of the offering of Westamerica Common Stock to which this Proxy
Statement/Prospectus relates.
The following documents of PV Financial are hereby incorporated by
reference in this Proxy Statement/Prospectus and shall be deemed to be a part
hereof from the date of filing of those documents: PV Financial's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993; PV Financial's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994; PV
Financial's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994;
PV Financial's Current Report on Form 8-K dated July 25, 1994; PV Financial's
Proxy Statement, dated March 24, 1994; and all other reports and documents filed
by PV Financial pursuant to Sections 13(a) and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus and prior to the
termination of the offering of Westamerica Common Stock to which this Proxy
Statement/Prospectus relates.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that such
statement is modified or replaced by a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference into this Proxy Statement/Prospectus. Any such statement so
modified or superseded shall not be deemed, except as so modified or replaced,
to constitute a part of this Proxy Statement/Prospectus.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO
WESTAMERICA HAS BEEN SUPPLIED BY WESTAMERICA, AND ALL INFORMATION RELATING TO PV
FINANCIAL HAS BEEN SUPPLIED BY PV FINANCIAL. NEITHER WESTAMERICA NOR PV
FINANCIAL WARRANTS THE ACCURACY OR COMPLETENESS OF INFORMATION RELATING TO THE
OTHER PARTY.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Proxy Statement/Prospectus, in the attached Annexes and in the documents
incorporated herein by reference. Shareholders are urged to read carefully this
Proxy Statement/Prospectus and the attached Annexes in their entirety. Certain
capitalized terms which are used but not defined in this Summary are defined
elsewhere in this Proxy Statement/Prospectus.
INFORMATION ABOUT THE PARTIES
Westamerica is a bank holding company, headquartered in San Rafael,
California, incorporated under the laws of the State of California and
registered under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Westamerica's banking subsidiaries, Westamerica Bank, Napa Valley Bank
and Bank of Lake County, are California state chartered banks insured by the
Federal Deposit Insurance Corporation (the "FDIC"). Westamerica Bank is also a
member of the Federal Reserve System. Westamerica's subsidiary banks presently
operate 49 banking offices in eleven counties in Northern California.
Westamerica's subsidiary, Community Banker Services Corporation ("CBSC"),
provides centralized services to Westamerica's banking subsidiaries. CBSC's
subsidiary, Weststar Mortgage Corporation, also conducts mortgage servicing
activities. Westamerica also owns all of the capital stock of Westcore, an
inactive company. On September 1, 1994, Westamerica filed an application with
the Federal Reserve Bank of San Francisco to commence an employee benefit
consulting business through Westcore. At June 30, 1994, Westamerica had
consolidated assets of approximately $2.03 billion, deposits of approximately
$1.71 billion and shareholders' equity of approximately $158.6 million.
Westamerica's principal executive offices are located at 1108 Fifth Avenue, San
Rafael, California 94901, and Westamerica's telephone number at that location is
(415) 257-8000.
PV Financial is a bank holding company, headquartered in Modesto,
California, incorporated under the laws of the State of California and
registered under the BHC Act. PV Financial owns all of the outstanding shares
of Pacific Valley National Bank, a national banking association (the "Bank").
At June 30, 1994, PV Financial had consolidated assets of approximately $170
million, deposits of approximately $150 million and shareholders' equity of
approximately $18 million. PV Financial's principal executive offices are
located at 1524 McHenry Avenue, Modesto, California 95350, and PV Financial's
telephone number at that location is (209) 575-2900.
THE MEETING AND VOTE REQUIRED
The Meeting (including any adjournments or postponements thereof) will be
held at the McHenry Branch of the Bank, 1524 McHenry Avenue, Modesto,
California, on November 14, 1994, at 5:00 p.m., local time. At the Meeting,
holders of PV Financial Common Stock will consider and vote upon a proposal to
adopt and approve the Agreements and the transactions contemplated thereby,
including without limitation the amendment of the PV Financial 1991 Director
Stock Option Plan and certain provisions benefitting directors, executive
officers and employees of PV Financial, and the Merger. Only holders of record
of PV Financial Common Stock at the close of business on September 23, 1994 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting. See
"The Meeting."
The consideration and vote by PV Financial shareholders on the proposal to
approve and adopt the Agreements and the transactions contemplated thereby,
including but not limited to, the amendment of the PV Financial 1991 Director
Stock Option Plan, is referred to herein as the "vote on the Merger," and the
approval and adoption thereof is referred to as the "approval of the Merger."
The approval of the Merger by the PV Financial shareholders will constitute
approval and adoption of the Agreements and each of the transactions
contemplated thereby, including, without limitation, the amendment of the PV
Financial 1991 Director Stock Option Plan and certain provisions benefiting
directors, executive officers and employees of PV Financial, as more fully
described herein. See "The Merger-Interests of Certain Persons in the Merger."
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The affirmative vote of the holders of a majority of the outstanding shares
of PV Financial Common Stock entitled to vote at the Meeting is required to
approve and adopt the Agreements and the transactions contemplated thereby
including the amendment of the PV Financial 1991 Director Stock Option Plan.
Such approval is a condition to, and required for, consummation of the Merger.
See "The Meeting" and "The Merger-Representations and Warranties; Conditions to
the Merger."
As of the Record Date, there were 2,176,593 shares of PV Financial Common
Stock outstanding, of which 463,808 shares were beneficially owned by executive
officers and directors of PV Financial and their respective affiliates. The
directors and executive officers of PV Financial and their respective affiliates
have agreed to vote the shares of PV Financial Common Stock held by them for the
approval of the Merger. To Westamerica's knowledge, as of the Record Date,
directors and executive officers of Westamerica did not beneficially own any
shares of PV Financial Common Stock. Accordingly, approval of the Merger at the
Meeting is expected to require the affirmative vote of an additional 624,489
shares of PV Financial Common Stock outstanding on the Record Date, voted by the
remaining shareholders of PV Financial.
Approval of the Merger by Westamerica's shareholders is not required.
A PV Financial shareholder giving a Proxy has the power to revoke that
Proxy prior to exercise. See "The Meeting-Matters to be Considered at the
Meeting."
CERTAIN CONSIDERATIONS
See "Certain Considerations" for a discussion of certain factors which
should be considered by PV Financial shareholders in deciding whether to vote
for approval of the Merger.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
Background of the Merger. The PV Financial Board of Directors has
determined that the terms of the Merger are fair to and in the best interests of
PV Financial and its shareholders and unanimously recommends that the
shareholders of PV Financial vote "FOR" the proposal to approve and adopt the
Agreements and the Merger and the transactions contemplated by the Agreements.
The terms of the Agreements are the results of arm's-length negotiations between
the representatives of PV Financial, the Bank and Westamerica. The PV Financial
Board of Directors has carefully considered the terms and conditions of the
Agreements. After consideration of various factors, including a review of the
strategic alternatives, the business, financial condition, earnings and
prospects of PV Financial and the Bank, historical and current market prices for
PV Financial Common Stock, the competitive position of PV Financial and the
Bank, and the viability of possible alternative transactions, the PV Financial
Board of Directors, by unanimous vote, has approved the Agreements and the
Merger. In addition, and as stated in the Agreement, the PV Financial Board of
Directors conditioned the consummation of the Merger on the receipt of an
opinion from its financial advisor, Hoefer & Arnett Incorporated ("Hoefer"),
that the Exchange Ratio is fair from a financial point of view to the holders of
PV Financial Common Stock. See "The Merger-Opinion of PV Financial's Financial
Advisor."
In evaluating the recommendations of the Board of Directors summarized
above, shareholders should carefully consider the matters described under
"Certain Considerations" and "The Merger-Background of the Merger" and "-Reasons
for the Merger; Recommendation of the Board of Directors."
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OPINION OF FINANCIAL ADVISORS
Hoefer has rendered its written opinion, dated October 4, 1994, confirming
its earlier verbal opinions (the "Fairness Opinion"), to the PV Financial Board
of Directors that the Exchange Ratio, as defined in the Agreement, is fair from
a financial point of view to the holders of PV Financial Common Stock. The text
of the Fairness Opinion, which sets forth certain assumptions made, matters
considered and limits on the review undertaken by Hoefer, is attached to this
Proxy Statement/Prospectus as Annex B. PV Financial shareholders are urged to
read the Fairness Opinion in its entirety. The Agreement does not require that
such Fairness Opinion be updated prior to the Effective Date (as defined below).
See "The Merger-Opinion of PV Financial's Financial Advisor," which also
contains a discussion of the fees to be paid to Hoefer. The fees to be paid to
Hoefer are generally contingent upon consummation of the Merger.
EFFECTIVE DATE OF THE MERGER
The Merger will be effective upon the date of the filing with the
California Secretary of State of a duly executed Merger Agreement and the
officers' certificates prescribed by Section 1103 of the California General
Corporation Law (the "GCL") or upon any subsequent date specified in the Merger
Agreement (the "Effective Time"). The date on which the Merger is effective as
specified in the Merger Agreement is referred to herein as the "Effective Date."
EXCHANGE RATIO; POSSIBLE ADJUSTMENTS TO EXCHANGE RATIO
On the Effective Date, each issued and outstanding share of PV Financial
Common Stock (except for fractional shares and shares as to which dissenters'
rights have been perfected) shall be converted into the right to receive .5450
of a share (the "Exchange Ratio") of Westamerica Common Stock.
If, as of two business days preceding the Effective Date, the average of
the closing price of Westamerica Common Stock quoted on Nasdaq (calculated by
taking an average of the closing prices quoted on Nasdaq as reported in The Wall
--------
Street Journal on each of the twenty consecutive trading days prior to two
- --------------
business days prior to the Effective Date, rounded to four decimal places,
whether or not trades occurred on those days (the "Average Price")) is below
$28.43, then Westamerica and PV Financial shall have the right but not the
obligation to renegotiate in good faith the Exchange Ratio. In the event the
parties renegotiate the Exchange Ratio pursuant to the foregoing provision,
depending upon the circumstances under which said Exchange Ratio was
renegotiated, the shareholders of PV Financial may be required to vote upon and
approve the terms of any renegotiated transactions. Should the parties fail to
renegotiate the Exchange Ratio despite good faith efforts to do so, PV Financial
may terminate the Agreement.
The Exchange Ratio will be adjusted downward for any Significant
Liabilities (as defined herein) in an amount not to exceed .0275. PV Financial
and Westamerica have agreed commencing immediately following receipt of all
Government Approvals (as defined in the Agreement) to identify any categories
or events reasonably believed by either of them to be Significant Liabilities.
Upon identification of a Significant Liability, the parties will attempt to
agree upon the amount of said Significant Liability within seven days. If no
mutual agreement is reached within the seven days the parties shall immediately
hire an independent expert qualified to render an opinion regarding the amount
of the particular Significant Liability, if any. The parties will fully
cooperate with any such independent expert and will equally split the costs of
said expert. The opinion of the expert shall be binding on the parties for
purposes of the Agreement. As a result of any Significant Liabilities through
the close of business on the day preceding the Effective Date, the Exchange
Ratio or Adjusted Exchange Ratio shall be reduced by subtracting therefrom the
fraction obtained by dividing the amount of Significant Liabilities (on a net
after-tax per share basis) by the Average Price, in no event to exceed
.0275.
At the date of this Prospectus, the parties have not identified any
category or event as a Significant Liability; however, one pending litigation
matter in which the Bank is a defendant could fall under the definition of a
Significant Liability prior to the Effective Date based on the circumstances
of the matter then existing. See "Information About PV Financial --
Litigation."
If the Average Price is above $32.06, the Exchange Ratio will be adjusted
downward by one half of the amount by which the Average Price is above $32.06,
according to a formula provided in the Agreement. Based on Westamerica's closing
Common Stock price on October 4, 1994 (and assuming this is the Average Price)
the Exchange Ratio would be .5434 if there is not an adjustment for Significant
Liabilities and .5159 if the maximum Significant Liability adjustment occurs.
Shareholders are urged to carefully review the description of the Merger under
the captions "The Merger-Exchange Ratio; Conversion of Shares of PV Financial
Common Stock" and "-Possible Adjustment to Exchange Ratio or Termination of the
Agreement" and the Agreements attached as Annex A hereto.
Immediately following consummation of the Merger, based on the number of
shares of Westamerica Common Stock and PV Financial Common Stock outstanding on
the Record Date, the former shareholders of PV Financial will hold approximately
13% of the shares of the issued and outstanding common stock of the combined
company resulting from the Merger assuming the Exchange Ratio remains at .5450.
Each share of Westamerica Common Stock issued and outstanding immediately prior
to consummation of the Merger will remain outstanding and unchanged as a result
of the Merger. See "The Merger-Exchange Ratio; Conversion of Shares of PV
Financial Common Stock."
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TREATMENT OF STOCK OPTIONS
Options to purchase shares of PV Financial Common Stock are outstanding
under the following PV Financial stock option plans: the 1982 Stock Option
Plan, the 1991 Director Stock Option Plan and the 1992 Employee Stock Option
Plan. Following the Effective Date, any then outstanding and unexercised
options under the PV Financial 1982 Stock Option Plan and the PV Financial 1992
Employee Stock Option Plan will be replaced by options for shares of Westamerica
Common Stock in accordance with the terms of the Agreement. Prior to the
Effective Date, all options outstanding under the PV Financial 1982 Stock Option
Plan and the PV Financial 1992 Employee Stock Option Plan may be exercised in
accordance with the terms of the Agreement. The Agreement provides that no
options outstanding under the PV Financial 1991 Director Stock Option Plan may
be exercised prior to the Effective Date, and each director/holder of
options under said Plan has agreed to such restriction. Following the Effective
Date, all outstanding options under the PV Financial 1991 Director Stock Option
Plan will be replaced by options for an equivalent number of shares of
Westamerica Common Stock with an equivalent exercise price, calculated in
accordance with the Exchange Ratio or the Adjusted Exchange Ratio (as defined in
the Agreement), as applicable, but otherwise on terms and conditions that are
consistent with the terms and conditions of the existing PV Financial options,
except that, to the extent that an option was not fully vested on or before June
15, 1994, the unvested portion of such option will become exercisable for
shares of Westamerica Common Stock after the Effective Date in increments of
one-third (1/3) on each anniversary of the Effective Date. See "The Merger-
Treatment of Stock Options."
CONDITIONS AND REGULATORY APPROVALS
The respective obligations of Westamerica and PV Financial to effect the
Merger are subject to various conditions described in "The Merger-
Representations and Warranties; Conditions to the Merger."
The Merger will occur only if all required governmental approvals are in
effect or have been obtained (without the imposition of any materially
burdensome conditions as determined by Westamerica in good faith), the
Agreements are approved by the majority of the outstanding shares of PV
Financial Common Stock, and the representations and warranties of the parties
are true and correct in all material respects on and as of the Effective Date.
Consummation of the Merger is subject to satisfaction of certain other
conditions or the waiver of such conditions by the party entitled to do so. Such
conditions include, among other things, the following: (i) the absence of a
material adverse change since March 31, 1994, in the business, financial
condition or result of operations of either party; (ii) the absence of legal
impediments to the Merger; (iii) the effectiveness of a registration statement
with respect to the Westamerica Shares to be issued to former shareholders of PV
Financial as a result of the Merger; (iv) the receipt of a tax opinion or ruling
to the effect that, among other things, under federal and state tax laws, the
Merger will not result in any unrecognized gain or loss to Westamerica or PV
Financial and, except for cash received in lieu of fractional shares or in
payment pursuant to the exercise of dissenters' rights, no gain or loss will be
recognized by holders of PV Financial Common Stock who receive Westamerica
Common Stock in exchange for the PV Financial Common Stock which they hold; (v)
receipt of letters and reports from PV Financial's independent public
accountants relating to the Registration Statement; (vi) receipt by PV Financial
of a fairness opinion from its financial advisors; and (vii) receipt of a letter
from Westamerica's independent public accountants to the effect that the Merger
will qualify for the pooling of interests method of accounting in accordance
with generally accepted accounting principles.
In addition, certain other conditions must be satisfied, or must be waived
by Westamerica, in order for Westamerica to be obligated to consummate the
Merger, including but not limited to the conditions that (i) the aggregate
number of shares of PV Financial's Common Stock held by persons who have taken
all of the steps required to perfect their right (if any) to be paid the fair
market value of such shares as dissenting shares under the GCL shall not exceed
9% of the outstanding shares of PV Financial Common Stock; (ii) Westamerica has
received noncompetition agreements (which contain certain noncompetition
provisions for a period of two years following the Merger) from each director of
PV
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Financial and the Bank (including Robert J. Cardoza) and PV Financial has used
its best efforts to obtain noncompetition agreements from certain officers of
the Bank; and (iii) PV Financial has received all consents of third parties
which are required to be received by it, if any.
STOCK OPTION AGREEMENT
Immediately following the execution of the Agreement, PV Financial, as a
condition to, and in consideration for entering into, the Agreement, granted
Westamerica an option, exercisable only in the event certain triggering events
have occurred, to purchase 19.9% of the outstanding shares of PV Financial
Common Stock without giving effect to the issuance of shares pursuant to an
exercise of said stock option and which, as of the Record Date, would involve
the issuance of 433,142 fully paid and nonassessable shares of PV Financial
Common Stock at an exercise price of $12.25 per share. See "The Merger-Stock
Option Agreement."
EMPLOYMENT AGREEMENT
On July 25, 1994, PV Financial, the Bank and Westamerica entered into an
employment agreement with Robert J. Cardoza, Chairman, President and Chief
Executive Officer of PV Financial and the Bank providing for a twenty-four month
period of employment commencing on the Effective Date. The employment agreement
provides that Mr. Cardoza will serve as the Chairman, President and Chief
Executive Officer of the Bank so long as the Bank remains a separate subsidiary
of Westamerica. The parties expect that upon the merger of the Bank into
Westamerica Bank, Mr. Cardoza is expected to serve as Senior Vice President and
Regional Market Manager of Westamerica Bank in Modesto. See "The Merger-
Management and Operations Following the Merger." Mr. Cardoza would be entitled
to resign and receive severance payments if he is assigned to a position less
than Senior Vice President of any successor to the Bank. For a discussion of
other terms and conditions of the employment agreement, see "The Merger-
Employment Agreement."
NONCOMPETITION AGREEMENTS
As a condition to consummation of the Merger under the Agreement, the
directors of PV Financial and the Bank (including Robert J. Cardoza) (the "PV
Financial and Bank Directors and Cardoza") have entered into noncompetition
agreements (the "Noncompetition Agreements") with Westamerica pursuant to which
they are not permitted, without Westamerica's written consent, to engage in
activities which are similar to the activities of Westamerica, Westamerica Bank,
PV Financial or the Bank within Stanislaus, San Joaquin or Merced counties in
the State of California. The Noncompetition Agreements expire two years after
the Effective Time.
PV Financial has also agreed to use its best efforts to have certain
executive officers of the Bank (the "Bank Officers") enter into noncompetition
agreements which are substantially similar to the Noncompetition Agreements
which the PV Financial and Bank Directors and Cardoza have entered into, except
that the length of time as to which each of the Bank Officers would agree not to
compete will not be longer than a number of months determined by calculating the
ratio of the amount of any severance package payable to such Bank Officer to the
Bank Officer's annual base salary.
In addition, the noncompetition agreements require the PV Financial and
Bank Directors and Cardoza and the Bank Officers to treat as confidential all
information concerning the records, properties, books, contracts, commitments
and affairs of Westamerica, PV Financial or their respective subsidiaries even
if a noncompetition agreement is terminated. See "The Merger-Noncompetition
Agreements For Directors of PV Financial, Directors and Officers of the Bank and
Robert J. Cardoza."
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CERTAIN TAX CONSEQUENCES
It is anticipated that the principal federal income tax consequences of the
Merger for PV Financial shareholders will be as follows: (i) the Merger will
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "IRC"); (ii) no gain or loss will
be recognized by the shareholders of PV Financial who receive Westamerica Common
Stock in exchange for the PV Financial Common Stock which they hold, except in
respect of cash received for fractional shares or pursuant to the exercise of
dissenters' rights; (iii) the holding period of the Westamerica Common Stock in
the hands of the former PV Financial shareholders will generally include the
holding period of their exchanged PV Financial Common Stock; and (iv) the tax
basis of the shares of Westamerica Common Stock received by the shareholders of
PV Financial will be the same as the tax basis of their exchanged PV Financial
Common Stock. As a condition to the consummation of the Merger, Westamerica and
PV Financial each must receive an opinion of Westamerica's legal counsel,
Pillsbury Madison & Sutro, to the effect that the Merger will have the foregoing
and certain other tax consequences. For a detailed discussion of the income tax
consequences of the Merger, see "The Merger-Certain Tax Consequences."
Shareholders should consult their personal tax advisors as to the consequences
of the Merger to them under United States federal, state or local law, or
applicable foreign tax laws.
AMENDMENT AND TERMINATION
The Agreement may be amended by Westamerica and PV Financial at any time
prior to the Effective Date without the approval of the shareholders of
Westamerica or the shareholders of PV Financial with respect to any of their
terms except the terms relating to the form or amount of consideration to be
delivered to the PV Financial shareholders in the Merger. The Agreements may be
terminated by the mutual consent of the Boards of Directors of both Westamerica
and PV Financial at any time prior to the consummation of the Merger.
The Agreements may be terminated by Westamerica as follows: (i) on or after
March 31, 1995, if (A) any of the conditions to which the obligations of
Westamerica are subject has not been fulfilled, or (B) such conditions have been
fulfilled or waived by Westamerica and PV Financial shall have failed to
complete the Merger; (ii) if (A) Westamerica has become aware of any facts or
circumstances of which it was not aware on the date of the Agreement and which
materially adversely affect PV Financial or its properties, operations,
financial condition or prospects, (B) a materially adverse change shall have
occurred since March 31, 1994, in the business, financial condition, results of
operations, properties or prospects of PV Financial, (C) there has been failure
or prospective failure on the part of PV Financial to comply with its
obligations under the Agreements, or any failure or prospective failure to
comply with any of the conditions to closing set forth in Section 7 of the
Agreement, or (D) PV Financial fails to act or refrains from doing any act
required of PV Financial in connection with a bona fide offer for a Business
Combination (as such term is defined in the Agreement) based on the continuing
fiduciary duties of the PV Financial Board of Directors to the shareholders of
PV Financial; (iii) if Westamerica determines that it would be inadvisable or
inexpedient to continue to carry out the terms of, or to attempt to consummate,
the Merger by reason of any material legal impediment to the Merger having
arisen, or any material pending or threatened litigation, investigation or
proceeding; or (iv) if any person (other than Westamerica or any subsidiary
thereof) shall become the beneficial owner of 20% or more of the then
outstanding shares of PV Financial or any person (other than Westamerica or a
subsidiary thereof) shall have commenced a bona fide tender offer or exchange
offer to acquire at least 20% of the then outstanding shares of PV Financial.
In addition to the termination rights set forth above, Westamerica shall
have the following rights (the "Special Termination Rights"): at any time after
July 25, 1994 through and including the date that is 30 days after the date PV
Financial delivers to Westamerica all remaining portions of the disclosure
schedule which was provided by PV Financial pursuant to the Agreement in form
and detail of presentation reasonably satisfactory to Westamerica, to terminate
the Agreement if Westamerica shall identify any circumstance which, in the
reasonable business judgment of the Westamerica Board of Directors (which
includes a committee thereof), acting in good faith and with due regard for
principles of fair dealing, could (i) materially and adversely impact the
reasonably
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expected financial or business benefits to Westamerica of the transactions
contemplated by the Agreement; (ii) be inconsistent in any material and adverse
respect with any of the representations and warranties of PV Financial contained
in the Agreement; (iii) materially and adversely affect the business,
operations, properties, financial condition, results of operations or prospects
of PV Financial and its subsidiaries on a consolidated basis; or (iv) deviate
materially and adversely from PV Financial's financial statements for the year
or the quarter ended December 31, 1993. The Special Termination Rights are
expected to terminate on October 6, 1994.
The Agreements may be terminated by PV Financial as follows: (i) on or
after March 31, 1995, if (A) any of the conditions to which the obligations of
PV Financial are subject have not been fulfilled, or (B) such conditions have
been fulfilled or waived but Westamerica shall have failed to complete the
Merger; provided, however, that if Westamerica is engaged at the time in
litigation relating to an attempt to obtain one or more of the government
approvals or if Westamerica shall be contesting in good faith any litigation
which seeks to prevent consummation of the Merger, such nonfulfillment shall not
give PV Financial the right to terminate the Agreements until the earlier of (X)
fifteen (15) months after the date of the Agreement or (Y) sixty (60) days after
the completion of such litigation and of any further regulatory or judicial
action pursuant thereto; or (ii) if on or before the Effective Date (A) PV
Financial has become aware of any facts or circumstances of which it was not
aware on the date of the Agreement and which can or do materially adversely
affect Westamerica or its properties, operations or financial condition, (B) a
materially adverse change shall have occurred since March 31, 1994, in the
business, financial condition, results of operations or assets of Westamerica,
(C) there has been failure or prospective failure on the part of Westamerica to
comply with its obligations under the Agreement or any failure or prospective
failure to comply with any condition set forth in Section 8 of the Agreement,
(D) Westamerica shall make any offer to any third party or accept any offer from
any third party regarding a Business Combination (as such term is defined in the
Agreement) of Westamerica with any other entity that is not conditioned upon
performance by Westamerica or its successor of the obligations of Westamerica
under the Agreement, or (E) the Average Price of Westamerica Common Stock is
less than $28.43 and the parties have not in good faith satisfied the conditions
in Section 2.1(b)(i) of this Agreement.
EXPENSES
Westamerica and PV Financial have each agreed to pay their own costs
incurred incident to the performance of their obligations under the Agreements.
See "The Merger-Expenses."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests, and
it is a condition to Westamerica's obligation to consummate the Merger that
Westamerica shall have received a letter from KPMG Peat Marwick LLP,
Westamerica's independent public accountants, to the effect that the Merger will
qualify for such accounting treatment. Among other things, the Agreement
provides in the event the holders of 9% or more of the shares of PV Financial
Common Stock outstanding immediately prior to the Effective Date are then
seeking to perfect dissenters' rights under the GCL with respect to such shares,
the Merger will not be consummated if Westamerica is unable to receive, as a
result of such action, a letter from its accountants to the effect that the
Merger will qualify for pooling of interests accounting treatment. See "The
Merger-Representations and Warranties; Conditions to the Merger" and "-
Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Under the terms of the Agreement, Westamerica has agreed to indemnify,
defend and hold harmless each person who is a director or executive officer of
PV Financial with respect to all reasonable expenses arising out of claims and
legal proceedings against said persons as a result of actions by said directors
and officers after July 25, 1994, to the extent such claims are not covered by
insurance. See "The Merger-Interests of Certain Persons in the Merger."
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For purposes of the PV Financial 1991 Director Stock Option Plan only,
which Plan will remain in effect after the Merger, Westamerica will offer each
current director of the Bank a position as director or advisory director of the
Bank and a position as advisory director to any successor-in-interest to the
Bank. See "The Merger-Treatment of Stock Options" and "-Interests of Certain
Persons in the Merger."
On July 25, 1994, as contemplated by the Agreement, PV Financial, the Bank
and Westamerica entered into an employment agreement with Robert J. Cardoza,
Chairman, President and Chief Executive Officer of PV Financial and the Bank.
Commencing on the Effective Date, Mr. Cardoza will serve as Chairman, President
and Chief Executive Officer of the Bank under the terms of said employment
agreement. See "The Merger-Employment Agreement" and "-Interests of Certain
Persons in the Merger."
As of the Record Date, the directors and executive officers of PV Financial
beneficially owned an aggregate of 463,808 shares of PV Financial Common Stock
and held options to acquire an additional 395,641 shares of PV Financial Common
Stock. See "The Merger-Treatment of Stock Options."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of PV Financial Common Stock who exercise dissenters' rights with
respect to the Merger in accordance with the statutory procedures prescribed in
the GCL may be entitled to receive cash for their stock if such shareholders did
not vote "FOR" approval and adoption of the Agreements and the transactions
contemplated thereby and otherwise act to perfect their rights as dissenting
shareholders pursuant to the GCL. For a description of dissenters' rights under
the GCL and the method of perfecting such rights, see "The Meeting" and
"Dissenters' Rights of Appraisal."
MARKET PRICE AND DIVIDEND DATA
Westamerica Common Stock is listed and traded on Nasdaq under the symbol
"WABC." PV Financial Common Stock is traded in the over-the-counter market and
quoted on the "pink sheets" published by the National Quotation Bureau, Inc.
(the "Pink Sheets") under the symbol "PVFI.U."
The following table sets forth the last reported sales price per share for
PV Financial Common Stock as quoted in the Pink Sheets and Westamerica Common
Stock as reported on Nasdaq prior to July 25, 1994, the date of the public
announcement of the Merger, and on October __, 1994, the latest practicable
trading day before the printing of this Proxy Statement/Prospectus, and
equivalent per share prices for PV Financial Common Stock based on the prices of
Westamerica Common Stock.
<TABLE>
<CAPTION>
EQUIVALENT
MARKET VALUE PRO FORMA
PER SHARE MARKET VALUE(1)
------------------------------ ---------------
HISTORICAL HISTORICAL
PV FINANCIAL WESTAMERICA PV FINANCIAL
------------ --------------- ---------------
<S> <C> <C> <C>
Last Trade Prior to:
July 25, 1994........ $12.25 $30.25 $16.49
October __, 1994.....
------ ------ ------
</TABLE>
- -----------------------
(1) The equivalent pro forma market value per share of PV Financial Common
Stock represents the last reported sales price per share of
Westamerica Common Stock multiplied by the Exchange Ratio. The
Exchange Ratio is subject to adjustment as provided in the Agreement.
See "The Merger-Possible Adjustment to Exchange Ratio or Termination
of the Agreement."
-15-
<PAGE>
Following the Merger, no shares of PV Financial Common Stock will be
outstanding and Westamerica Common Stock will continue to be traded on Nasdaq.
Westamerica has paid quarterly cash dividends since it commenced operations
on January 1, 1973. Westamerica's Board of Directors considers the advisability
and amount of proposed dividends each quarter. Westamerica's primary source of
funds for the payment of dividends is its principal banking subsidiary,
Westamerica Bank, whose ability to pay dividends to Westamerica is subject to
various legal and regulatory restrictions. See "Market Price and Dividend
Information-Dividends and Dividend Policy." Westamerica is subject to certain
restrictions on its ability to pay dividends under the terms of certain of its
debt agreements. See "Description of Westamerica Capital Stock and
Indebtedness-Debt Agreements."
PV Financial was incorporated in 1982 and its primary source of funds for
the payment of dividends is the Bank, its wholly owned subsidiary. The ability
of the Bank and PV Financial to pay dividends is subject to various legal and
regulatory restrictions. See "Market Price and Dividend Information-Dividends
and Dividend Policy." From time to time, the PV Financial Board of Directors
considers the payment of dividends. In 1983, the PV Financial Board of
Directors effected a two-for-one stock split and also declared a cash dividend.
From 1989 through 1992, cash dividends were declared and paid semi-annually and
in 1993 and 1994, cash dividends were declared and paid quarterly. In addition,
stock dividends were declared in 1991 and 1992. See "Market Price and Dividend
Information-Dividends and Dividend Policy."
DIFFERENCES IN CHARTER DOCUMENTS
Westamerica and PV Financial are both organized under the corporate law of
California and, accordingly, similarities in rights exist for shareholders of
Westamerica and PV Financial. Nevertheless, there are differences in their
respective charter documents. See "Certain Differences in Rights of
Shareholders."
AMENDMENT OF THE PV FINANCIAL 1991 DIRECTOR STOCK OPTION PLAN
Section 5(d) of the PV Financial 1991 Director Stock Option Plan has been
amended by the PV Financial Board of Directors, to be effective on the Effective
Date, to state that a director's status as a member of the PV Financial Board of
Directors for purposes of the PV Financial 1991 Director Stock Option Plan only,
does not terminate as long as he or she remains a director or advisory director
of the Bank, or the Bank's successor by merger. This amendment also requires
the approval of the shareholders of PV Financial. At the Meeting, the proposal
to approve and adopt the Agreements and the transactions contemplated thereby
includes the amendment of the PV Financial 1991 Director Stock Option Plan. See
"The Meeting-Matters to be Considered at the Meeting" and "The Merger-Treatment
of Stock Options."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present selected historical and pro forma combined
consolidated financial information for Westamerica and PV Financial. The
following financial data should be read in conjunction with the historical
consolidated financial statements, the unaudited interim historical consolidated
financial statements, and the unaudited pro forma combined consolidated
financial information and the notes to such statements, certain of which are
included elsewhere in this Proxy Statement/Prospectus. The unaudited pro forma
combined financial information presents selected financial information based on
the historical financial statements of the parties, giving effect to the
proposed Merger under the pooling of interests method of accounting and the
assumptions and adjustments described in the notes thereto. See "Pro Forma
Combined Financial Information." The unaudited pro forma combined and pro forma
equivalent financial statements do not indicate the results or financial
position that would have occurred if the Merger had been in effect on the dates
or for the periods indicated or that may occur in the future.
-16-
<PAGE>
WESTAMERICA
UNAUDITED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------------------
1994 1993(1) 1993(1) 1992(1) 1991(1) 1990(1) 1989(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Interest income................. $ 65,860 $ 70,238 $ 136,916 $ 154,753 $ 176,552 $ 187,550 $ 181,645
Interest expense................ 19,703 22,672 42,271 58,892 87,357 98,653 94,021
Net interest income............. 46,157 47,566 94,645 95,861 89,195 88,897 87,624
Provision for loan losses....... 3,210 6,242 9,452 7,005 10,418 8,138 7,958
Noninterest income.............. 10,216 13,362 23,946 23,827 23,976 22,339 19,121
Noninterest expense............. 35,536 57,558 96,645 89,604 84,943 81,641 82,242
Net income (loss)............... 12,017 (1,051) 9,455 15,222 11,977 14,619 11,542
Balance sheet (end of period):
Total assets.................... $2,030,257 $1,912,501 $2,004,419 $1,981,349 $1,966,081 $1,920,405 $1,903,758
Net loans....................... 1,042,900 1,104,238 1,089,152 1,166,205 1,242,108 1,277,417 1,274,900
Deposits........................ 1,708,758 1,729,423 1,731,228 1,789,918 1,789,301 1,723,099 1,734,713
Other borrowed funds............ 116,349 17,524 69,064 12,038 9,570 35,099 21,982
Shareholders' equity............ 158,552 141,023 152,447 143,674 129,420 119,811 107,726
Financial ratios:
Total capital to
risk-adjusted assets........... 14.90% 12.24% 14.40% 12.01% 10.82% 10.55% 9.24%
Tier 1 capital to average
total assets................... 7.76 7.20 7.57 7.43 6.70 6.26 5.99
Reserve for loan losses to
total loans.................... 2.55 2.17 2.30 2.08 1.88 1.47 1.24
Return on average assets........ 1.19 (0.11) 0.48 0.77 0.62 0.77 0.64
Return on average equity........ 15.77 (1.46) 6.51 11.16 9.52 12.87 12.02
Nonperforming assets to
total assets................... 1.05 2.06 1.36 2.55 2.69 2.09 1.46
Per share:
Net income (loss)............... $ 1.49 $ (0.13) $ 1.17 $ 1.92 $ 1.52 $ 1.89 $ 1.51
Dividends declared.............. $ 0.30 $ 0.28 $ 0.57 $ 0.51 $ 0.44 $ 0.41 $ 0.37
Book value...................... $ 19.62 $ 17.49 $ 18.87 $ 17.96 $ 16.49 $ 15.44 $ 13.98
Average shares outstanding...... 8,075 8,037 8,054 7,933 7,855 7,736 7,633
</TABLE>
(1) The financial data for Westamerica and for Westamerica and PV Financial (pro
forma combined) reflects restatements for the April 15, 1993 merger between
Westamerica and Napa Valley Bancorp and the February 29, 1992 merger between
Westamerica and John Muir National Bank, each of which was accounted for by
Westamerica as a pooling of interests.
-17-
<PAGE>
PV FINANCIAL
UNAUDITED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Interest income................. $ 6,480 $ 5,944 $ 12,288 $ 11,808 $ 13,549 $ 13,197 $ 12,051
Interest expense................ 1,781 1,906 3,729 4,591 5,893 6,048 5,523
Net interest income............. 4,699 4,038 8,559 7,217 7,656 7,149 6,528
Provision for loan losses....... 172 261 543 490 93 - 380
Noninterest income.............. 694 645 1,669 1,596 807 798 1,123
Noninterest expense............. 3,364 3,060 6,447 5,578 5,625 5,225 4,544
Net income...................... 1,061 798 1,958 1,635 1,618 1,735 1,613
Balance sheet (end of period):
Total assets.................... $170,191 $162,477 $177,157 $160,036 $147,638 $133,621 $113,429
Net loans....................... 133,302 123,885 130,685 111,288 109,303 94,086 82,938
Deposits........................ 150,246 144,962 158,047 142,527 130,435 117,573 97,948
Other borrowed funds............ - - - - - - -
Shareholders' equity............ 18,281 16,489 17,480 15,875 14,257 12,803 11,547
Financial ratios:
Total capital to
risk-adjusted assets.......... 13.54% 13.11% 12.97% 13.75% 12.47% 12.23% 13.44%
Tier 1 capital to average
total assets.................. 10.86 10.50 10.82 10.81 10.58 10.52 10.83
Reserve for loan losses to
total loans................... 1.42 1.45 1.41 1.46 1.47 1.54 1.75
Return on average assets........ 1.26 1.02 1.21 1.11 1.20 1.42 1.51
Return on average equity........ 11.83 9.89 11.82 10.79 11.96 14.38 14.28
Nonperforming assets to
total assets.................. 0.29 1.45 0.95 0.68 0.70 0.13 -
Per share:
Net income...................... $ 0.49 $ 0.37 $ 0.88 $ 0.76 $ 0.77 $ 0.83 $ 0.77
Dividends declared.............. $ 0.12 $ 0.10 $ 0.21 $ 0.20 $ 0.23 $ 0.24 $ 0.20
Book value...................... $ 8.41 $ 7.68 $ 7.81 $ 7.39 $ 6.78 $ 6.09 $ 5.52
Average shares outstanding...... 2,174 2,146 2,237 2,147 2,103 2,101 2,091
</TABLE>
-18-
<PAGE>
WESTAMERICA AND PV FINANCIAL
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------------
1994 1993(1) 1993(1) 1992(1) 1991(1) 1990(1) 1989(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Interest income................. $ 72,340 $ 76,182 $ 149,204 $ 166,561 $ 190,101 $ 200,747 $ 193,696
Interest expense................ 21,484 24,578 46,000 63,483 93,250 104,701 99,544
Net interest income............. 50,856 51,604 103,204 103,078 96,851 96,046 94,152
Provision for loan losses....... 3,382 6,503 9,995 7,495 10,511 8,138 8,338
Noninterest income.............. 10,910 14,007 25,615 25,423 24,783 23,137 20,244
Noninterest expense............. 38,900 60,681 103,092 95,182 90,568 86,866 86,786
Net income (loss)............... 13,078 (253) 11,413 16,857 13,595 16,354 13,155
Balance sheet (end of period):
Total assets.................... $2,200,448 $2,074,978 $2,181,576 $2,141,385 $2,113,719 $2,054,026 $2,017,187
Net loans....................... 1,176,207 1,228,123 1,219,837 1,277,493 1,351,411 1,371,503 1,357,838
Deposits........................ 1,859,003 1,874,385 1,889,275 1,932,445 1,919,736 1,840,672 1,832,661
Other borrowed funds............ 116,349 17,524 69,064 12,038 9,570 35,099 21,982
Shareholders' equity............ 176,833 157,512 169,927 159,549 143,677 132,614 119,273
Financial ratios:
Total capital to
risk-adjusted assets.......... 14.76% 12.32% 14.26% 12.15% 10.95% 10.67% 9.48%
Tier 1 capital to average
total assets.................. 8.00 7.44 7.82 7.67 6.95 6.51 6.25
Reserve for loan losses
to total loans................ 2.42 2.10 2.20 2.02 1.85 1.47 1.27
Return on average assets........ 1.20 (0.02) 0.53 0.80 0.66 0.81 0.69
Return on average equity........ 15.36 (0.32) 7.06 11.12 9.76 13.01 12.26
Nonperforming assets to
total assets.................. 0.99 2.01 1.33 2.41 2.55 1.97 1.37
Per share:(2)
Net income (loss)............... $ 1.41 $ (0.03) $ 1.23 $ 1.85 $ 1.51 $ 1.84 $ 1.50
Book value...................... $ 19.09 $ 17.05 $ 18.35 $ 17.50 $ 16.20 $ 15.11 $ 13.68
Average shares outstanding...... 9,260 9,207 9,273 9,103 9,001 8,881 8,773
Equivalent pro forma
PV Financial per share:(3)
Net income (loss)............. $ 0.77 $ (0.01) $ 0.67 $ 1.01 $ 0.82 $ 1.00 $ 0.82
Book value.................... $ 10.40 $ 9.29 $ 10.00 $ 9.54 $ 8.83 $ 8.24 $ 7.45
</TABLE>
(1) The financial data for Westamerica and for Westamerica and PV Financial (pro
forma combined) reflects restatements for the April 15, 1993 merger between
Westamerica and Napa Valley Bancorp and the February 29, 1992 merger between
Westamerica and John Muir National Bank, each of which was accounted for by
Westamerica as a pooling of interests.
-19-
<PAGE>
(2) The pro forma combined per share data for net income has been
calculated using pro forma combined average shares outstanding. Pro
forma combined average shares outstanding has been calculated using
Westamerica's average number of common shares outstanding during the
periods presented increased by the shares of Westamerica Common
Stock to be issued to PV Financial shareholders using the Exchange
Ratio multiplied by the average shares of PV Financial Common Stock
outstanding as if these shares were outstanding during each of the
periods presented. The pro forma combined book value per share has
been calculated using Westamerica Common Stock outstanding at the
end of each period increased by the Westamerica Common Stock issued
to PV Financial shareholders using the Exchange Ratio multiplied by
the shares of PV Financial Common Stock outstanding at the end of
each period as if these shares were outstanding at the end of each
period presented. Such pro forma per share data assumes no
dissenting PV Financial shareholders and no exercise of outstanding
Westamerica or PV Financial stock options or stock appreciation
rights. The Exchange Ratio is subject to adjustment in certain
circumstances as provided in the Agreement. See "The Merger-Exchange
Ratio; Conversion of Shares of PV Financial Common Stock" and "-
Possible Adjustment to Exchange Ratio or Termination of the
Agreement." See also "Pro Forma Combined Financial Information."
(3) The equivalent pro forma PV Financial per share information has been
calculated by multiplying the pro forma combined per share data by
the Exchange Ratio.
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of PV
Financial in connection with the solicitation of Proxies by the PV Financial
Board of Directors for use at the special meeting of shareholders of PV
Financial to be held at the McHenry Branch of Pacific Valley National Bank (the
"Bank"), 1524 McHenry Avenue, Modesto, California, on Monday, November 14, 1994
at 5:00 p.m., local time, and at any adjournments or postponements thereof (the
"Meeting").
At the Meeting, the shareholders of record of PV Financial common stock, no
par value per share ("PV Financial Common Stock" or "PV Financial Shares"), as
of the close of business on September 23, 1994 (the "Record Date") will consider
and vote upon a proposal to approve and adopt the Agreement and Plan of
Reorganization, dated as of July 25, 1994, as amended (the "Agreement"), by and
among Westamerica Bancorporation ("Westamerica"), PV Financial and the Bank,
and an Agreement of Merger between Westamerica and PV Financial (the "Merger
Agreement" and, collectively with the Agreement, the "Agreements") and the
transactions contemplated thereby, including but not limited to, the amendment
of the PV Financial 1991 Director Stock Option Plan. Copies of the Agreements
are attached as Annex A hereto and more fully described herein. The Agreements
provide, among other things, that PV Financial will merge (the "Merger") with
and into Westamerica and, except as described herein, each share of PV Financial
Common Stock will be converted into a right to receive .5450 (the "Exchange
Ratio") of a fully paid and nonassessable share of Westamerica common stock,
without par value ("Westamerica Common Stock" or "Westamerica Shares"), subject
to certain potential downward adjustments as set forth in the Agreement. See
"The Merger-Exchange Ratio; Conversion of Shares of PV Financial Common Stock,"
"Possible Adjustment to Exchange Ratio or Termination of the Agreement" and "-
Treatment of Stock Options." The date on which this Proxy Statement/Prospectus
is first being sent to shareholders of PV Financial is on or about October __,
1994.
This Proxy Statement/Prospectus also serves as a prospectus for Westamerica
under the Securities Act of 1933, as amended (the "Securities Act"), for the
Westamerica Common Stock and certain common stock purchase rights associated
therewith to be issued in connection with consummation of the Merger.
-20-
<PAGE>
THE MEETING
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of record of PV Financial Common Stock will
consider and vote upon a proposal to approve and adopt the Agreements and the
transactions contemplated thereby, including the Merger and the amendment of the
PV Financial 1991 Director Stock Option Plan.
THE PV FINANCIAL BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENTS
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE AMENDMENT OF THE PV
FINANCIAL 1991 DIRECTOR STOCK OPTION PLAN, AND RECOMMENDS THAT PV FINANCIAL
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Only holders of record of PV Financial Common Stock at the close of
business on September 23, 1994 ("the Record Date") will be entitled to notice
of, and to vote at, the Meeting. As of the Record Date, there were
2,176,593 shares of PV Financial Common Stock outstanding. Each PV Financial
Share will entitle the holder thereof to one vote per share held.
Under the California General Corporation Law (the "GCL"), the approval and
adoption of the Agreements and the transactions contemplated thereby requires
the affirmative vote of the holders of a majority of the outstanding shares of
PV Financial Common Stock. Holders of at least a majority of the outstanding
shares of PV Financial Common Stock must be represented, either in person or by
proxy, at the Meeting for a quorum to be present.
Each properly completed Proxy returned in time for voting at the Meeting,
unless revoked by the shareholder, will be voted in accordance with the
instructions indicated on the Proxy, or, if no instructions are provided, will
be voted "FOR" approval and adoption of the Agreements and the transactions
contemplated thereby, including the amendment of the PV Financial 1991 Director
Stock Option Plan. No other matters other than those referred to in this Proxy
Statement/Prospectus will be brought before the Meeting, except for procedural
matters. PV Financial has agreed in the Agreement that neither PV Financial nor
any member of its Board of Directors will submit any other matters for approval
at the Meeting, except with Westamerica's prior approval. The grant of a Proxy
will also confer discretionary authority on the persons named in the Proxy to
vote on matters incident to the conduct of the Meeting, including any
adjournment or postponement thereof.
A PV Financial shareholder may revoke a Proxy at any time before it is
voted by filing with the Corporate Secretary of PV Financial, 1524 McHenry
Avenue, Modesto, California 95350, a written instrument revoking the Proxy, by
submitting a duly executed Proxy bearing a later date or by attending the
Meeting and voting in person.
Shares which abstain from voting and "broker non-votes" (shares as to which
brokerage firms have not received voting instructions from their clients and
therefore do not have the authority to vote the shares at the Meeting) will be
counted for purposes of determining a quorum. Because the affirmative vote of at
least a majority of the outstanding shares of PV Financial Common Stock is
required to approve the Merger, both abstentions and broker non-votes will have
the same legal effect as votes against the Merger; however, holders of broker
non-votes or abstaining shares will be entitled, if they choose, to exercise
dissenters' rights under the GCL. See "Dissenters' Rights of Appraisal."
PV FINANCIAL SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXIES. A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF
PV FINANCIAL STOCK CERTIFICATES WILL BE MAILED TO EACH PV FINANCIAL SHAREHOLDER
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE MERGER.
-21-
<PAGE>
On the Record Date, the directors and executive officers of PV Financial
and their respective affiliates as a group beneficially owned an aggregate of
463,808 shares of the then outstanding shares of PV Financial Common Stock, or
approximately 21% of the shares of PV Financial Common Stock then outstanding
and entitled to vote at the Meeting. The directors and executive officers of PV
Financial and their respective affiliates have indicated to PV Financial that
they intend to vote their PV Financial Common Stock for approval and adoption of
the Agreements and the transactions contemplated thereby, including without
limitation, the amendment of the PV Financial 1991 Director Stock Option Plan.
Each PV Financial director has entered into an agreement with Westamerica to
vote all of his PV Financial Common Stock for approval and adoption of the
Agreements and the transactions contemplated thereby. Accordingly, approval and
adoption of the Agreements and the transactions contemplated thereby at the
Meeting is expected to require the affirmative vote of an additional 646,254
shares of PV Financial Common Stock or approximately 30% of the shares of PV
Financial Common Stock outstanding on the Record Date, voted by the remaining
shareholders of PV Financial.
CERTAIN AGREEMENTS
Pursuant to the Agreement, the members of PV Financial's Board of Directors
each have entered into agreements with Westamerica in which they have confirmed
to Westamerica that they have voted in favor of the Agreements in their
capacities as directors, agreed to use their reasonable efforts to cause the
shareholders of PV Financial to approve the transactions contemplated by the
Merger and agreed to vote all PV Financial Shares beneficially owned or
controlled by each said director in favor of the Merger. In addition, in
consideration of Westamerica's agreement to provide indemnification in
accordance with the provisions of Section 3.1(g) of the Agreement, each director
of PV Financial has agreed that all agreements, contracts or understandings
between said director and PV Financial and/or the Bank regarding indemnification
will be terminated as of the Effective Date.
Westamerica has the right to terminate the Agreement and not complete the
Merger if any of the directors of PV Financial who signed such agreements fail
to perform and comply in all material respects with all of the terms and
conditions contained in such agreements. See "The Merger-Amendment;
Termination."
CERTAIN CONSIDERATIONS
In deciding whether to approve the Merger, PV Financial shareholders should
consider the following factors, in addition to the other matters set forth or
incorporated by reference herein:
ADVERSE ECONOMIC AND DROUGHT CONDITIONS
Commencing in 1990, and continuing to date, the California economy has been
affected by the economic recession which has affected most of the United States.
California has also suffered from drought conditions which have had an
especially harmful effect upon agribusiness, an industry important to the entire
economy of the San Joaquin Valley where PV Financial operates. At June 30, 1994,
agriculture loans constituted 21% of PV Financial's and 1% of Westamerica's loan
portfolio, respectively. Rainfall during the 1993-1994 season was below average,
and there can be no assurance that drought conditions and changes in allocations
of water by governmental agencies will not continue to have an adverse impact on
agribusiness or the local economy in which PV Financial operates. A continuation
or worsening of current economic or drought conditions, or changes in
allocations of water by governmental agencies, could have an adverse effect on
the market for Westamerica's stock and its business, including the demand for
new loans, the ability of borrowers to repay outstanding loans, and the value of
real estate and other collateral. PV Financial's nonperforming assets decreased
to $482,000 or .28% of total assets at June 30, 1994, from $1.4 million or .80%
of total assets at December 31, 1993, $1.1 million or .66% of total assets at
December 31, 1992, and $487,000 or .33% of total assets at December 31, 1991.
Westamerica's nonperforming assets decreased to $21.3 million or 1.05% of total
assets, at June 30, 1994, from $27.3 million or 1.36% of total assets at
December 31, 1993, from $50.6 million or 2.55% of total assets at December 31,
1992, and from $52.9 million or 2.69% of total assets at December 31, 1991. See
-22-
<PAGE>
"The Merger-Reasons for the Merger; Recommendation of the Board of Directors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of PV Financial," and "Incorporation of Certain Documents by
Reference."
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of Westamerica Common Stock eligible for future sale could have a
dilutive effect on the market for Westamerica's securities, and could adversely
affect the market price. Sales of substantial amounts of Westamerica Common
Stock in the public market following the Merger could adversely affect the
market price of Westamerica Common Stock. There are no restrictions in the
Agreement preventing Westamerica from issuing additional shares. Westamerica has
previously announced its intention to pursue acquisitions of other financial
institutions from time to time where such acquisitions are believed by
Westamerica to enhance shareholder value or satisfy other strategic objectives
of Westamerica. To that end, Westamerica is engaged in active negotiations with
several potential financial institution targets. Such acquisitions, if any,
could be accomplished by the issuance of additional shares of Westamerica Common
Stock or other securities convertible into or exercisable for such Westamerica
Common Stock. The Articles of Incorporation of Westamerica authorize the
issuance of 20,000,000 shares of common stock of which 8,079,000 shares were
outstanding at June 30, 1994. At June 30, 1994, Westamerica had outstanding
stock appreciation rights, restricted performance shares and options to purchase
an aggregate of 424,000 shares of Westamerica Common Stock pursuant to its stock
option plans. Such options have exercise prices of between $8.88 and $28.06 per
share. As of June 30, 1994, 162,000 shares of Westamerica Common Stock remained
available for option grants under Westamerica's stock option plans. See "Pro
Forma Combined Financial Information" and "Description of Westamerica Capital
Stock and Indebtedness."
There can be no assurance given as to the market value of Westamerica
Common Stock after the Merger. For a discussion and analysis of Westamerica's
financial results, including its rate of return on average total assets, its
rate of return on average common shareholders' equity, its ratio of common
shareholders' equity to total assets and its earnings per common and common
equivalent share, see Westamerica's 1993 Annual Report on Form 10-K for the year
ended December 31, 1993. See "Incorporation of Certain Documents by
Reference."
ORGANIZATIONAL STRUCTURE AND MANAGEMENT
Upon the consummation of the Merger, the separate corporate existence of PV
Financial will cease and PV Financial will be merged with and into Westamerica,
and the Bank will be a subsidiary of Westamerica. Subject to receipt of
regulatory approvals, subsequent to the Effective Date, the Bank will be merged
into Westamerica Bank, which is Westamerica's primary banking subsidiary. It is
anticipated that Robert J. Cardoza will serve as Senior Vice President and
Regional Market Manager of the Modesto region following the Bank's merger into
Westamerica Bank.
OPERATIONS AFTER THE MERGER
Westamerica anticipates that after the Effective Date, a significant
percentage of PV Financial's existing employees and customers will be retained.
It is possible, however, that a greater than expected number of PV Financial
customers will move their banking relationships to other financial institutions.
It is also possible that a greater than anticipated number of PV Financial
employees will not be retained. In addition, while Westamerica expects to
achieve operating cost savings through the consolidation of certain operations,
the elimination of duplicative corporate and administrative expenses and the
elimination of certain positions at PV Financial, there can no assurance that
Westamerica will be able to realize such cost savings. See "The Merger-
Covenants of Westamerica and PV Financial; Conduct of Business Prior to the
Merger" and "-Management and Operations Following the Merger."
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<PAGE>
EFFECT OF SHAREHOLDER RIGHTS PLAN
Westamerica has a Shareholder Rights Plan which is implemented pursuant to
an Amended and Restated Rights Agreement (the "Amended and Restated Rights
Agreement") that could discourage potential takeover attempts and which could
eliminate the possibility that shareholders might realize a premium of the kind
which often results from actual or rumored takeover attempts. The Amended and
Restated Rights Agreement entitles the holders of each share of Westamerica
Common Stock to the right (each, a "Right") to purchase from Westamerica one
share of Westamerica Common Stock at a price of $65 per share subject to
adjustment in certain circumstances. The Rights are attached to the Westamerica
Common Stock. The Rights only become exercisable and trade separately from the
Westamerica Common Stock following the earlier of (i) a public announcement that
a person or group of affiliated or associated persons has become the beneficial
owner of Westamerica securities having 15% or more of Westamerica's voting power
(an "Acquiring Person") or (ii) 10 days following the commencement of, or a
public announcement of an intention to make, a tender or exchange offer which
would result in any Acquiring Person having beneficial ownership of securities
having 15% or more of such voting power. See " Description of Westamerica
Capital Stock and Indebtedness -- Shareholder Rights Plan."
LEGISLATIVE AND REGULATORY ENVIRONMENT
The banking and financial services businesses in which Westamerica and PV
Financial engage are highly regulated. The laws and regulations affecting such
businesses are under constant review by Congress and applicable regulatory
agencies and may be changed dramatically in the future. Such changes could
affect the business of bank holding companies and banks. For example, in
September 1994, the President signed legislation amending the Bank Holding
Company Act of 1956, as amended, and the Federal Deposit Insurance Act to
provide for interstate banking and branching. Such changes may affect the amount
of capital that banks and bank holding companies are required to maintain, the
premiums paid for or the availability of deposit insurance or other matters
directly affecting earnings. It is not certain what changes will occur or the
effect that any such changes would have on the profitability of the combined
company, its ability to achieve certain cost savings or compete effectively or
its ability to take advantage of new opportunities after the Merger. See "The
Merger-Management and Operations Following the Merger," "Supplemental Historical
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of PV Financial-Results of Operations," and "Incorporation
of Certain Documents by Reference."
Certain rules and requirements are imposed on banks and bank holding
companies that are larger than the Bank and PV Financial. Insured depository
institutions with assets greater than $500 million are required to have annual
audits conducted by independent public accountants, and audit committees
composed of outside directors. The Riegle Community Development and Regulatory
Improvement Act of 1994 which was signed by the President in September 1994,
would increase the maximum asset threshold from $100 million to $250 million for
certain well run institutions to have an extended 18 month examination cycle,
rather than a 12 month examination cycle. The Federal banking agencies have also
proposed regulations to exempt qualified institutions with $250 million in
assets or less from full scale Community Reinvestment Act compliance
examinations if such institutions satisfy certain other criteria. Additionally,
the federal banking agencies have certain subjective standards for measuring
compliance with various safety and soundness standards that depend, in part,
upon the size of the insured depository institution.
THE MERGER
BACKGROUND OF THE MERGER
The following is a brief description of the events that resulted in the
execution of the Agreement among PV Financial, the Bank and Westamerica, and
the execution of the Restated Stock Option Agreement between PV Financial and
Westamerica, each dated as of July 25, 1994.
The PV Financial Board of Directors has, in recent years, considered
various business issues related to the competitive and regulatory environment
for financial institution holding companies and their bank subsidiaries,
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<PAGE>
such as PV Financial and the Bank, and the costs and difficulty of raising
capital and expanding operations under such circumstances. Also, from time to
time in recent years, the PV Financial Board of Directors has been approached by
other financial institutions interested in discussing the merits of a merger or
other combination transaction with PV Financial and the Bank. During 1993,
mergers and acquisitions of financial institutions similar to PV Financial in
Northern California were becoming more common. For all of these reasons, on
November 18, 1993, the PV Financial Board of Directors retained Hoefer & Arnett
Incorporated ("Hoefer"), to render financial advisory and investment banking
services to PV Financial, including evaluating capital needs and sources, and
identifying opportunities for maximizing shareholder value such as through a
merger or other combination.
Hoefer thereafter commenced a due diligence review of the financial
condition, results of operations and prospects of PV Financial and also analyzed
opportunities to increase shareholder value by identifying potential buyers.
With PV Financial's consent, Hoefer contacted six bank holding companies with
bank subsidiary operations in California regarding their interest in a possible
merger transaction with PV Financial. At that time, three of the bank holding
companies, including Westamerica, expressed an interest in PV Financial, and a
preliminary package of due diligence information regarding PV Financial was
provided to each of them. On December 6, 1993, Westamerica signed a
confidentiality agreement in order to conduct a more extensive due diligence
review of information regarding PV Financial, including an on-site review of
information maintained at the Modesto headquarters of PV Financial.
From December 1993 through April 1994, various meetings were held between
representatives of PV Financial and Westamerica, and between representatives of
PV Financial and each of the other two bank holding companies which had
expressed interest in a possible merger transaction with PV Financial. During
this period of time, Hoefer attended meetings of the PV Financial Board of
Directors and provided advice regarding the financial factors and relative
advantages and disadvantages of proceeding with a merger transaction with any of
the three bank holding companies.
On April 22, 1994, Westamerica submitted to Hoefer a statement of the
general terms on which it would be willing to proceed to consummate a merger
with PV Financial. The PV Financial Board of Directors held a meeting on May
10, 1994 to discuss the Westamerica proposal, at which time a principal of
Hoefer reviewed the strategic alternatives available to PV Financial, including
a possible merger with Westamerica. The PV Financial Board of Directors
determined, with the analysis and advice of Hoefer regarding various financial
factors, that the Westamerica proposal should be further considered and
authorized the Chairman of the Board of Directors of PV Financial and a special
committee of the PV Financial Board of Directors to enter into negotiations with
the representatives of Westamerica for a possible merger transaction. After
further discussions with Westamerica representatives, on May 19, 1994 the
Chairman of the Board of Directors of PV Financial and the special committee and
other members of the PV Financial Board of Directors held a meeting with
representatives of Bronson, Bronson & McKinnon, corporate legal counsel to PV
Financial, and reviewed in detail the terms of a draft agreement and plan of
reorganization which had been prepared by Westamerica and submitted to PV
Financial for the purpose of progressing to a definitive agreement. Thereafter,
the Chairman of the Board of Directors of PV Financial, with the advice of
Hoefer and legal counsel, engaged in further negotiations with the
representatives of Westamerica regarding the proposed terms of such an
agreement. Although each of the three bank holding companies expressed
continuing interest in a merger transaction, and each appeared to have the
financial ability to complete a merger transaction, PV Financial management
concluded, based in part on the advice of Hoefer, that a merger transaction with
Westamerica was in the overall best interests of the shareholders of PV
Financial.
The Agreement and the Restated Stock Option Agreement were reviewed by the
Board of Directors of PV Financial and the Bank during a special joint meeting
held on July 25, 1994. A principal of Hoefer presented to the meeting his
analysis of the financial factors related to those agreements and rendered the
verbal opinion of Hoefer that the Exchange Ratio was fair from a financial point
of view to the shareholders of PV Financial. The Board of Directors of PV
Financial and the Bank, after review of the proposed final terms and conditions
of the Agreement and the Restated Stock Option Agreement and with the advice of
Hoefer and PV Financial's legal advisors regarding such terms and conditions,
approved the Merger and authorized the execution and delivery of the Agreement
and the Restated Stock Option Agreement.
Hoefer confirmed its verbal fairness opinion by a letter to the Board of
Directors of PV Financial dated August 31, 1994. Thereafter, on September 8,
1994, Westamerica, PV Financial and the Bank entered into a First Amendment to
Agreement and Plan of Reorganization to restate Section 2.6 of the Agreement
regarding the treatment of stock options, and on October 4, 1994, Westamerica,
PV Financial and the Bank entered into a Second Amendment to Agreement and Plan
of Reorganization to add a new Section 2.1(b)(iii) to the Agreement regarding a
potential downward adjustment of the Exchange Ratio for Significant Liabilities.
Said Amendments were made effective as of July 25, 1994, the date of the
Agreement. Prior to the signing of each Amendment, a principal of Hoefer
reconfirmed to the Board of Directors of PV Financial, based on Hoefer's review
and analysis of each Amendment, the earlier opinion of Hoefer that the Exchange
Ratio was fair from a financial point of view to the shareholders of PV
Financial.
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<PAGE>
Annex A to this Proxy Statement/Prospectus contains copies of the
Agreements. The Agreements are described herein under "The Merger." The Restated
Stock Option Agreement is described herein under "The Merger-Stock Option
Agreement." Annex B to this Proxy Statement/Prospectus contains the Fairness
Opinion (as defined below) of Hoefer and Annex C to this Proxy
Statement/Prospectus contains the Restated Stock Option Agreement. See "-Reasons
for the Merger; Recommendation of the Board of Directors" and "-Opinion of PV
Financial's Financial Advisor" below.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The terms of the Agreement and the Restated Stock Option Agreement are the
results of arm's-length negotiations between the representatives of PV
Financial, the Bank and Westamerica. The PV Financial Board of Directors
believes that the Merger is fair to and in the best interests of the
shareholders of PV Financial. In reaching its conclusion to approve the Merger,
the PV Financial Board of Directors considered a number of factors. The PV
Financial Board of Directors did not assign any relative or specific weights to
the factors considered. Among other things, the PV Financial Board of Directors
considered the following:
(1) the fact that Hoefer identified and contacted a number of qualified
and capable banking organizations; that of those contacted, three had an
interest in proceeding; that of the three, only Westamerica chose to
conduct on-site due diligence; and that of the proposals received, the
Westamerica proposal was superior, in terms of value offered;
(2) the opinion of Hoefer that the Exchange Ratio is fair from a
financial point of view to the shareholders of PV Financial. In this
regard, the PV Financial Board of Directors also took into account the
premium represented by the consideration offered to shareholders in
relation to the book value per share of PV Financial Common Stock. The PV
Financial Board of Directors was of the view that the Exchange Ratio
represented a fair multiple of PV Financial's per share book value and
historical and projected earnings. The PV Financial Board of Directors also
considered the financial terms of other recent business combinations in the
banking industry and determined that the financial terms of the Merger
compared favorably to such other transactions;
(3) the Board's review with Hoefer and PV Financial's legal advisors of
the provisions of the Agreements;
(4) the fact that the Merger will be tax-free for federal income tax
purposes for the holders of PV Financial Common Stock (other than in
respect to cash paid in lieu of fractional shares and for dissenters'
rights);
(5) the fact that the due diligence examination of Westamerica
conducted by representatives of PV Financial, including Hoefer, indicated
to them that Westamerica has strong management, capital and earnings;
(6) their belief that holders of PV Financial Common Stock who exchange
their shares may have greater potential to receive dividends from shares of
Westamerica Common Stock after the Merger;
(7) the market liquidity of Westamerica Common Stock;
(8) the financial condition, results of operations, current business
and expansion opportunities and constraints, and projections and prospects
of future performance and earnings of PV Financial and the Bank on a stand-
alone basis;
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<PAGE>
(9) the current and prospective economic and regulatory environment and the
burdens and constraints affecting banking organizations and commercial banks
such as PV Financial and the Bank, and the constantly changing competitive
environment in which banking services are now marketed in the areas served by PV
Financial and Westamerica; and
(10) the likelihood that the Merger will not introduce significant changes
which would negatively impact customers and employees and the communities served
by PV Financial (primarily through the Bank) in that PV Financial's Board of
Directors believed that Westamerica pursues a community banking philosophy
similar to that of PV Financial.
THE PV FINANCIAL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
AGREEMENTS, THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENTS BE
ADOPTED AND APPROVED BY ALL SHAREHOLDERS OF PV FINANCIAL.
The proposed Merger reflects the judgment of the PV Financial Board of
Directors that PV Financial's business can be benefited by the resources and
experience of Westamerica, that the Merger will produce an entity better able to
meet competitive challenges inherent in the banking industry, and that the
affiliation of Westamerica and PV Financial could provide operational benefits
and efficiencies.
OPINION OF PV FINANCIAL'S FINANCIAL ADVISOR
PV Financial's Board of Directors retained Hoefer to render financial
advisory and investment banking services in connection with the Merger. Hoefer
has rendered a written opinion (the "Fairness Opinion") to the PV Financial
Board of Directors confirming its earlier verbal opinions, to the effect that
the Exchange Ratio, which definition includes certain possible adjustments, is
fair to the holders of PV Financial Common Stock from a financial point of view.
No limitations were imposed by the PV Financial Board of Directors upon Hoefer
with respect to the investigations made or procedures followed in rendering the
Fairness Opinion.
A COPY OF THE FAIRNESS OPINION OF HOEFER, DATED AS OF OCTOBER 4, 1994,
WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN BY HOEFER, IS ATTACHED HERETO AS ANNEX B. PV FINANCIAL
SHAREHOLDERS ARE URGED TO READ THE FAIRNESS OPINION IN ITS ENTIRETY. THE
FOLLOWING SUMMARY OF THE PROCEDURES AND ANALYSIS PERFORMED, AND ASSUMPTIONS USED
BY HOEFER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF SUCH FAIRNESS
OPINION. HOEFER'S FAIRNESS OPINION IS DIRECTED TO THE PV FINANCIAL BOARD OF
DIRECTORS ONLY AND IS DIRECTED ONLY TO THE EXCHANGE RATIO AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY PV FINANCIAL SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEETING.
In arriving at its opinion, Hoefer reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) Annual Reports to Shareholders of
PV Financial and Westamerica and Annual Reports on Form 10-K of PV Financial and
Westamerica for the three years ended December 31, 1993; (iii) Quarterly Reports
on Form 10-Q of PV Financial and Westamerica for the quarters ended March 31,
1994 and June 30, 1994; (iv) certain other publicly available financial and
other information concerning PV Financial and Westamerica and the trading
markets for the publicly traded securities of PV Financial and Westamerica; (v)
publicly available information concerning other banks and holding companies, the
trading markets for their securities and the nature and terms of certain other
merger transactions Hoefer believed relevant to its inquiry; and (vi)
evaluations and analyses prepared and presented to the PV Financial Board of
Directors or a committee thereof in connection with the business combination
with Westamerica. Hoefer held discussions with senior management of PV Financial
and of Westamerica concerning their past and current operations, financial
condition and prospects, as well as the results of regulatory examinations.
Hoefer also discussed with the independent auditors of each company their review
of such company's financial and accounting affairs.
Hoefer reviewed with senior management of PV Financial earnings projections
for 1994 through 1998 for PV Financial as a stand-alone entity, assuming the
Merger does not occur, prepared by PV Financial. Hoefer
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<PAGE>
reviewed with the senior management of Westamerica earnings projections for 1994
through 1998 for Westamerica as a stand-alone entity, assuming the Merger does
not occur, as well as possible operating cost savings potentially attainable in
each such year resulting from the Merger. Such projections were prepared by
Hoefer based partially upon discussions with Westamerica's senior management and
Hoefer's own assessment of the operating costs savings realizable in the Merger.
Certain pro forma financial projections for the years 1994 through 1998 for the
combined entity were derived by Hoefer based upon the information discussed
above, as well as Hoefer's assessment of general economic, market and financial
conditions. In certain cases, such combined pro forma financial projections
included the possible operating cost savings believed by Hoefer to be realizable
in the Merger.
In conducting its review and in arriving at its opinion, Hoefer relied upon
and assumed the accuracy and completeness of the financial and other information
provided to it or publicly available and did not attempt independently to verify
the same. Hoefer relied upon the respective management of PV Financial and
Westamerica as to the reasonableness of the financial and operating forecasts,
projections and possible operating cost savings (and the assumptions and bases
therefor) provided to it, and Hoefer assumed that such forecasts, projections
and possible operating cost savings reflect the best currently available
estimates and judgments of the applicable management. Hoefer also assumed,
without independent verification, that the aggregate allowances for loan losses
for PV Financial and Westamerica are adequate to cover such losses. Hoefer did
not make or obtain any evaluations or appraisals of the properties of PV
Financial or Westamerica, nor did it examine any individual loan credit files.
For purposes of its opinion, Hoefer assumed that the Merger will have the tax,
accounting and legal effects (including, without limitation, that the Merger
will be accounted for as a pooling of interests) described in the Agreement.
Hoefer's opinion is limited to the fairness, from a financial point of view, to
the holders of PV Financial Common Stock of the Exchange Ratio in the Merger and
does not address PV Financial's underlying business decision to proceed with the
Merger.
As more fully discussed below, Hoefer considered such financial and other
factors as Hoefer deemed appropriate under the circumstances, including among
others the following: (i) the historical and current financial position and
results of operations of PV Financial and Westamerica, including interest
income, interest expense, net interest income, net interest margin, provision
for loan losses, noninterest income, noninterest expense, earnings, dividends,
internal capital generation, book value, intangible assets, return on assets,
return on shareholders' equity, capitalization, the amount and type of
nonperforming assets, loan losses and the allowance for loan losses, all as set
forth in the financial statements for PV Financial and for Westamerica; (ii) the
assets and liabilities of PV Financial and Westamerica, including the loan,
investment and mortgage portfolios, deposits, other liabilities, historical and
current liability sources and costs and liquidity; and (iii) the nature and
terms of certain other merger transactions involving banks and bank holding
companies. Hoefer also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Hoefer's Fairness Opinion is necessarily based upon
conditions as they existed and could be evaluated on the date of its opinion and
the information made available to it through that date.
In connection with rendering its Fairness Opinion to the PV Financial Board
of Directors, Hoefer performed certain financial analyses, which are summarized
below. Hoefer believes that its analysis must be considered as a whole and that
selecting portions of such analysis and the factors considered therein, without
considering all factors and analysis, could create an incomplete view of the
analysis and the processes underlying the Fairness Opinion. The preparation of
a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description. In its
analyses, Hoefer made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of PV Financial and Westamerica. Any estimates contained in
Hoefer's analysis are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
None of the financial analyses performed by Hoefer was assigned a greater
significance by Hoefer than any other.
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<PAGE>
The financial forecasts and projections of PV Financial and Westamerica
prepared by Hoefer were based on projections provided by the respective
companies as well as Hoefer's own assessment of general economic, market and
financial conditions. All such information was reviewed with the respective
managements of PV Financial and Westamerica. Neither PV Financial nor
Westamerica publicly discloses internal management financial forecasts and
projections of the type provided to Hoefer in connection with its review of the
proposed Merger. Such forecasts and projections were not prepared with a view
towards public disclosure. The forecasts, projections and possible operating
cost savings prepared by Hoefer were based on numerous variables and assumptions
which are inherently uncertain, including, without limitation, factors related
to general economic and market conditions. Accordingly, actual results could
vary significantly from those set forth in such forecasts and projections.
Set forth below is a brief summary of the analyses performed by Hoefer in
rendering the Fairness Opinion. Hoefer assumed for purposes of its opinion that
the Merger will be accounted for as a pooling of interests transaction under
generally accepted accounting principles. Unless otherwise noted in this
summary, Hoefer used the Exchange Ratio at which PV Financial Common Stock would
be exchanged if the Effective Date were the same as the date of the Fairness
Opinion. The analysis also focused on core financial and operating projections
and statistics which were not specifically adjusted for nonrecurring charges,
unless otherwise stated.
Pro Forma Merger and Contribution Analysis. Hoefer compared the changes in
the amount of earnings, book value and dividends attributable to one share of PV
Financial Common Stock before the Merger with the amounts attributable to the
shares of Westamerica Common Stock for which such shares of PV Financial would
be exchanged under the Agreement. The following assumptions regarding earnings
and dividends underlie the pro forma results.
The analysis assumes, unless otherwise stated, Merger-related possible
operating cost savings projected by Hoefer based partially upon discussions with
the senior management of Westamerica and Hoefer's own assessment of the cost
savings realizable in the Merger to phase in during 1995 and 1996, assuming the
Merger is completed during the first quarter of 1995. These possible operating
cost savings represent approximately 1.22%, 1.59%, 1.44%, and 1.31% of the
combined entity's projected noninterest expense in 1995, 1996, 1997 and 1998,
respectively, on a pre-tax basis. This level of possible operating cost savings,
expressed as a percentage of the combined institution's projected noninterest
expense, is within the range of the level of operating cost savings, expressed
as a percentage of the combined institutions' projected noninterest expense,
announced in similar transactions reviewed by Hoefer.
After reviewing earnings projections for Westamerica and PV Financial and
Merger-related possible operating cost savings, Hoefer performed a pro forma
merger analysis. In addition, Hoefer analyzed certain pro forma merger
scenarios in order to assess the impact on PV Financial of some levels of
volatility in Westamerica's and PV Financial's projected earnings as well as
volatility of the possible levels of Merger-related operating cost savings.
The impact on PV Financial of volatility in Westamerica's earnings and the
level of Merger-related operating cost savings was shown by calculating pro
forma results assuming Westamerica's earnings as projected, as well as 75% and
125% of Westamerica's projected earnings. In order to measure the impact on PV
Financial of volatility of PV Financial's earnings to the pro forma results,
Hoefer also examined the earnings impact on PV Financial resulting at those
levels of Westamerica earnings if PV Financial achieved 75% and 125% of its
projected earnings. The Exchange Ratio was used to make the calculations in
each case, unless otherwise stated.
In order to assess the impact on PV Financial shareholders of variability
of the possible operating cost savings projected by Hoefer to be realizable in
the Merger, Hoefer compared the earnings, book value and dividends attributable
to one share of PV Financial Common Stock before the Merger with the earnings,
book value and dividends attributable to the shares of Westamerica Common Stock
for which such shares of PV Financial Common Stock would be exchanged, assuming
75% and 50% of the possible operating cost savings are realized. In general,
failure to fully realize the projected operating cost savings in the Merger does
not significantly affect the conclusions of the analysis, although the changes
in earnings, book value and indicated dividends attributable to one share of PV
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<PAGE>
Financial Common Stock as a result of the Merger are less favorable than those
shown for the analysis assuming full realization of the possible operating cost
savings.
In order to assess the impact on PV Financial shareholders resulting from
potential variability of the Exchange Ratio, Hoefer performed an analysis of the
changes in earnings, book value and indicated dividends attributable to one
share of PV Financial Common Stock before the Merger to one share of PV
Financial Common Stock after the Merger assuming the above-described Exchange
Ratio of .545 as well as the Exchange Ratio adjusted to .5175. The latter
Exchange Ratio was derived by Hoefer using the maximum downward adjustment of
the Exchange Ratio for Significant Liabilities as defined in Section 2.1(b)(iii)
of the Agreement. Hoefer & Arnett determined that variability of the Exchange
Ratio does not affect the conclusions of the analysis, although changes in
earnings, book value and indicated dividends attributable to one share of PV
Financial Common Stock as a result of the merger are less favorable using an
Exchange Ratio adjusted to .5175 than those shown for the analysis assuming an
Exchange Ratio of .545.
Hoefer concluded that changes in earnings per share, dividends and book
value attributable to ownership of shares of Westamerica Common Stock as a
result of the Merger are more favorable than the comparable attributes of
ownership of shares of PV Financial Common Stock as a stand alone entity.
The following table presents the results of an analysis of differences in
earnings, book value and dividends attributable to one share of PV Financial
Common Stock before the Merger and the portion of a share of Westamerica Common
Stock for which such shares of PV Financial Common Stock would be exchanged,
under the above described methodologies:
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PROJECTED CHANGES IN BOOK VALUE, EARNINGS PER SHARE AND DIVIDENDS
<TABLE>
<CAPTION>
PERCENTAGE OF POSSIBLE COST SAVINGS REALIZED
1994 1995 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100% 75% 50% 100% 75% 50% 100% 75% 50%
------ ------ ------ ------ ------ ------ ------ ------ ------
PERCENTAGE OF PROJECTED
EARNINGS ACHIEVED BY:
PV FINANCIAL/WESTAMERICA
- -------------------------------------
100% / 100%
Change in book value 25.45% 25.45% 25.45% 25.77% 25.69% 25.61% 26.14% 25.98% 25.81%
Change in earnings per share 56.83 56.83 56.83 60.28 59.40 58.51 61.01 60.20 58.59
Change in dividends 50.59 50.59 50.59 54.20 53.30 52.40 55.28 54.11 52.94
75% / 125%
Change in book value 32.38 32.38 32.38 39.52 39.43 39.35 46.78 46.59 46.40
Change in earnings per share 150.67 150.67 150.67 164.59 163.38 162.17 176.47 174.23 173.10
Change in dividends 44.67 44.67 44.67 52.99 52.25 51.51 59.53 58.55 57.57
125% / 75%
Change in book value 18.80 18.80 18.80 13.31 13.25 13.18 8.47 8.33 8.18
Change in earnings per share -0.25 -0.25 -0.25 1.13 0.44 -0.25 -0.25 -0.87 -2.10
Change in dividends 60.47 60.47 60.47 62.05 60.87 59.70 60.25 58.76 57.27
75% / 75%
Change in book value 24.78 24.78 24.78 24.34 24.26 24.19 24.03 23.86 23.69
Change in earnings per share 55.85 55.85 55.85 61.89 60.69 59.48 62.96 61.84 59.59
Change in dividends 50.59 50.59 50.59 55.52 54.29 53.06 57.14 55.50 53.87
PERCENTAGE OF POSSIBLE COST SAVINGS REALIZED
1997 1998
-------------------------- --------------------------
100% 75% 50% 100% 75% 50%
------ ------ ------ ------ ------ ------
PERCENTAGE OF PROJECTED
EARNINGS ACHIEVED BY:
PV FINANCIAL/WESTAMERICA
- -------------------------------------
100% / 100%
Change in book value 29.60% 29.34% 29.08% 32.65% 32.32% 31.98%
Change in earnings per share 61.01 59.54 58.81 60.34 59.68 58.34
Change in dividends 54.85 53.79 52.72 54.47 53.50 52.53
75% / 125%
Change in book value 57.52 57.22 56.93 68.12 67.73 67.34
Change in earnings per share 185.41 184.37 182.28 195.65 193.70 192.73
Change in dividends 65.03 64.12 63.20 70.76 69.91 69.06
125% / 75%
Change in book value 7.15 6.93 6.70 5.74 5.46 5.17
Change in earnings per share -2.58 -3.13 -4.22 -4.65 -5.13 -6.11
Change in dividends 56.59 55.26 53.93 53.05 51.87 50.69
75% / 75%
Change in book value 27.02 26.74 26.47 29.73 29.36 28.99
Change in earnings per share 63.09 61.00 59.96 62.41 60.47 59.49
Change in dividends 56.68 55.16 53.64 56.26 54.84 53.43
</TABLE>
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Analysis of Other Merger Transactions. Hoefer analyzed other bank and bank
holding company merger and acquisition transactions in California for the
periods January 1, 1988 to August 2, 1994 where the total consideration paid had
a value between $5 million and $100 million. Hoefer compared price/earnings,
price/book value and price/tangible book value multiples of the Exchange Ratio
to the high, median and low multiples of all transactions. California
transactions were reviewed exclusively due to the difference in the economic
climate between California and the rest of the country. Hoefer assumed
Westamerica Common Stock prices of $30.25, $31.63 and $33.25, the closing market
price at July 25,1994, August 31, 1994 and September 30, 1994, respectively, and
PV Financial's annualized earnings and book value for or at the period ended
June 30, 1994.
Set forth below is certain information relating to the Exchange Ratio
described above, and the high, median and low transaction multiples summarized
above:
<TABLE>
<CAPTION>
PROPOSED
WESTAMERICA/
PV FINANCIAL MERGER*
CALIFORNIA TRANSACTIONS GREATER THAN $5 -------------------------------------------
MILLION AND LESS THAN $100 MILLION EXCHANGE EXCHANGE EXCHANGE
JANUARY 1, 1988 TO AUGUST 2, 1994 RATIO (0.545X) RATIO (0.545X) RATIO (0.5353X)
--------------------------------------- ----------------------------------------------
JULY 25, AUGUST 31, SEPTEMBER 30,
HIGH MEDIAN LOW 1994 1994 1994
--------------------------------------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Price to earnings 48.35x 16.13x (2.94)x 16.82x 17.58x 17.80x
Price to book value 2.98 1.64 0.61 1.96 2.05 2.11
Price less tangible book 14.82% 6.53% (5.38)% 11.75% 12.79% 13.61%
value to total deposits
</TABLE>
- ------
*Not adjusted for poential Significant Liabilities as set forth
in the Agreement
The bank merger and acquisition transactions for the period from January 1, 1988
to August 2, 1994 included in the above multiples are set forth below. Except as
otherwise noted, the acquiror and the acquiree are both located in the State of
California.
ACQUIROR ACQUIREE
- ----------------------------------- -----------------------------
First Interstate Bancorp Levy Bancorp
Business & Professional Bancorp Sacramento First National
ValliCorp Holdings, Inc. Bank One Fresno
National Bank of the Redwoods Codding Bank of Rohnert Park
ValliCorp Holdings, Inc. Mineral King Bancorp
SJNB Financial Corp Business Bancorp
Mid Peninsula Bancorp San Mateo County Bancorp
California Bancshares Bank of Livermore
California State Bank Bank of Anaheim
CVB Financial Western Industrial National Bank
Trico Bancshares Country National Bank
California Bancshares MBC Corp
First Interstate Bancorp First State Bank of the Oaks
First Interstate Bancorp Cal Rep Bancorp
Westamerica Bancorporation Napa Valley Bancorp
CVB Financial Fontana First National Bank
ValliCorp Holdings, Inc. Pacific Bancorporation
Westamerica Bancorporation John Muir National Bank
Eldorado Bancorp San Clemente Bancorp
Wells Fargo & Co. Citizens Holdings
Bank of Fresno Madera Valley Bank
-32-
<PAGE>
Home Interstate Bancorp Torrance National Bank
Citicorp DeAnza Bank
California State Bank Empire Bancorp
Comerica Inc. (Michigan) InBancshares
Security Pacific Santa Clarita National Bank
City National Warner Center Bank
Pacific Capital Bancorp Pajaro Valley Bancorp
Security Pacific La Jolla Bancorp
Bank of the West Central Banking System
Wells Fargo & Co. Torrey Pines Group, Inc.
Wells Fargo & Co. Valley National Bank
Alameda Bancorp Westside Bank
Commerce Bancorp California City Bank
Security Pacific Southwest Bank
Community Bank Bank of Redlands
First Interstate Alex Brown Financial
Mission Valley Bancorp Lamorinda National Bank
Discounted Cash Flow Analysis. Hoefer examined the results of a discounted
cash flow analysis designed to compare the present value, under certain
assumptions, of cash flows that would be attained if PV Financial remained
independent through 1998, with the present value of the earnings projected to be
achieved by the combined entities during the same period. The results produced
in the analysis did not purport to be indicative of actual values or expected
values of PV Financial or the shares of the PV Financial Common Stock.
In calculating the present values through the discounted cash flow
analysis, Hoefer analyzed the effect of possible earnings variability and
possible Merger-related operating cost savings variability, among other items,
by assuming varying levels of projected earnings for PV Financial and
Westamerica. The three cases examined were: PV Financial earnings as projected
and Westamerica earnings as projected; PV Financial earnings at 75% of projected
earnings and Westamerica earnings at 125% of projected earnings; and PV
Financial earnings at 125% of projected earnings and Westamerica earnings at 75%
of projected earnings. Pro forma combined cash flows were calculated assuming
the combinations of the cash flows in each of these cases, and were compared to
the cash flows of PV Financial on a stand-alone basis as well as to the cash
flows of PV Financial acquired in 1998 by a larger financial institution. All
cases were analyzed assuming realization of the possible operating cost savings,
projected by Hoefer, in the amounts and time periods previously indicated,
unless otherwise stated. See "--Pro Forma Merger and Contribution Analysis."
The discount rates used ranged from 10.0% to 18.0%, which Hoefer believes
to be the range of investor return required for an investment having the risk
profile associated with investments of this type. For the PV Financial stand-
alone analyses, the terminal price multiples applied to 1998 estimated book
value ranged from 1.00x to 2.00x. The lower levels of the price/book value
multiples range reflected an estimated future trading range of PV Financial,
while the higher levels of the price/book value multiples range were more
indicative of a future sale of PV Financial's stock to a larger financial
institution. For the pro forma combined analyses, the terminal price to book
multiples also ranged from 1.00x to 2.00x.
For the PV Financial stand-alone analyses, the cash flows were comprised of
the projected stand alone dividends per share in years 1994 through 1998 plus
the terminal value of PV Financial's Common Stock at year-end 1998 (calculated
by applying each one of the assumed terminal price to book value multiples as
stated above to 1998 projected PV Financial book value per share). For the pro
forma combined analyses, the cash flows were comprised of the projected pro
forma combined dividends per share in years 1994 through 1998 plus the terminal
value of the pro forma combined entity's stock at year-end 1998 (calculated by
applying each one of the assumed terminal price to book value multiples as
stated above to 1998 projected pro forma combined book value per share). The
discount rates described above were then applied to these cash flows to obtain
the present values per share of PV Financial Common Stock.
-33-
<PAGE>
Hoefer also calculated the present value that would be attained if 50% and
75% of the possible operating cost savings were realized. The PV Financial
stand-alone analysis would not change under this scenario; however, the present
values attributable to one share of PV Financial Common Stock in the Merger
would be lower than those shown for the analysis assuming full realization of
the possible operating cost savings. Despite these lower values, failure to
realize the possible operating cost savings in the Merger would not
significantly affect the conclusions of the analysis.
The following table presents the results of the discounted cash flow
analysis described above using a discount rate of 14%, the mid-point of the
range of discount rates employed in the analysis:
PROJECTED PRESENT VALUE OF DISCOUNTED CASH FLOWS
<TABLE>
<CAPTION>
PERCENTAGE OF POSSIBLE COST SAVINGS REALIZED
1.50x BOOK VALUE 2.00x BOOK VALUE
--------------------------- ---------------------------
100% 75% 50% 100% 75% 50%
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF PROJECTED
EARNINGS ACHIEVED BY
PV FINANCIAL/WESTAMERICA
- ------------------------
100% / 100%
PV Financial stand alone $12.70 $12.70 $12.70 $16.65 $16.65 $16.65
Pro forma combined 17.03 16.99 16.94 22.27 22.21 22.15
Percentage change in PV Financial 34.09% 33.78% 33.39% 33.75% 33.39% 33.03%
75% / 125%
PV Financial stand alone $11.26 $11.26 $11.26 $14.74 $14.74 $14.74
Pro forma combined 18.84 18.80 18.75 24.69 24.63 24.57
Percentage change in PV Financial 67.32% 66.96% 66.52% 67.50% 67.10% 66.69%
125% / 75%
PV Financial stand alone $14.28 $14.28 $14.28 $18.75 $18.75 $18.75
Pro forma combined 15.58 15.53 15.48 20.30 20.24 20.18
Percentage change in PV Financial 9.10% 8.75% 8.40% 8.27% 7.95% 7.63%
75% / 75%
PV Financial stand alone $11.26 $11.26 $11.26 $14.74 $14.74 $14.74
Pro forma combined 14.81 14.77 14.72 19.33 19.27 19.21
Percentage change in PV Financial 31.53% 31.17% 30.73% 31.14% 30.73% 30.33%
</TABLE>
The analysis showed that use of a higher (lower) level of projected
Westamerica earnings raised (lowered) the resulting present value for a given
level of PV Financial earnings, on a pro forma combined basis. The analysis
also showed that use of a lower (higher) discount rate or a higher (lower)
terminal price to book value multiple raised (lowered) the calculated present
values. In all cases, for a given discount rate and a given price to book value
multiple, the analysis showed that the financial terms of the Merger offered a
higher present value per share of PV Financial Common Stock than if PV Financial
remained independent through 1998 or was acquired in 1998 by a larger financial
institution. However, the examples shown above do not necessarily indicate that
a direct comparison of the present values obtained using the same terminal price
to book value multiple and/or discount rate for the PV Financial stand-alone, PV
Financial acquired in 1998 by a larger financial institution, and pro forma
combined entity cash flows is the only comparison which can be made.
-34-
<PAGE>
Comparable Company Analysis. Hoefer examined recent historical data on PV
Financial and Westamerica based upon information from each company's 1993 Annual
Report to Shareholders and subsequent quarterly information through June 30,
1994. Hoefer analyzed certain credit and operating statistics for PV Financial
and Westamerica, comparing these statistics to data for a peer group of
California banks and bank holding companies using the publicly published Hoefer
& Arnett California Independent Bank Index (the "Index"), comprised of 50
institutions. Both Westamerica and PV Financial are participants in the Index.
The comparisons made are as of or for the period ending March 31, 1994, unless
otherwise noted. The following table presents the results of the comparable
company analysis described above:
COMPARABLE COMPANY ANALYSIS
(AS OF MARCH 31, 1994)
<TABLE>
<CAPTION>
WESTAMERICA PV FINANCIAL INDEX MEDIAN
------------ ------------- -------------
<S> <C> <C> <C>
Total assets $2,031,531 $169,939 $253,495
Market capitalization 232,185 23,943 18,311
Price to tangible equity per share 1.50x 1.34x 1.00x
Tangible equity to tangible assets 7.63% 10.53% 8.37%
Risk based capital ratio 14.87 13.49 13.52
Nonperforming assets to total assets 1.21 1.52 1.94
Loan loss reserve to nonperforming assets 105.42 74.85 59.83
Return on assets 1.19 1.20 0.89
Return on equity 15.85 11.36 9.90
Net interest margin 4.98 5.70 5.37
Noninterest expense to average earning assets 3.88 4.17 5.17
</TABLE>
Hoefer concluded based on the comparable company analysis that the
attributes of ownership of shares of Westamerica Common Stock as a result of the
Merger are more favorable than the attributes of ownership of shares of PV
Financial Common Stock as a stand-alone entity.
Hoefer is an investment banking firm continually engaged in the valuation
of businesses and securities, including financial institutions and their
securities, in connection with mergers and acquisitions, underwritings, private
offerings of securities, secondary distributions of listed and unlisted
securities and valuations for estate, corporate and other purposes.
As a normal part of its business, Hoefer also analyzes securities of
financial institutions for the purposes of providing, among other things,
transactional advice and assistance, investment research and capital financing
activities. Hoefer currently conducts dealer markets in the shares of more than
120 independent financial institutions, including Westamerica and PV Financial.
In that regard, Hoefer and its principals owned less than 1% of the outstanding
shares of Westamerica Common Stock as of the date of this Proxy
Statement/Prospectus. In addition, the principals of Hoefer have substantial
experience in investment and commercial banking, some of which may be deemed
applicable to the Fairness Opinion. Although Hoefer has not previously provided
services to either Westamerica or PV Financial, it has provided services to Bank
of Lake County and Napa Valley Bancorp (prior to its acquisition by
Westamerica).
Financial Advisory Fees. PV Financial has agreed to pay Hoefer for merger
advisory and other services, including its Fairness Opinion, as follows:
(a) $75,000 payable upon the public announcement by PV Financial of its
execution and delivery of a definitive written agreement to enter into a
combination transaction; plus
(b) An additional fee equal to (i) 1.25% of the aggregate consideration paid
if the aggregate consideration paid is less than or equal to 2.0 times PV
Financial's shareholders' equity as reported on its most recent consolidated
quarterly report filed with the Commission on or before the signing of the
definitive agreement
-35-
<PAGE>
or (ii) 1.45% of the aggregate consideration paid if the aggregate consideration
paid is greater than 2.0 times the PV Financial's shareholders' equity as
reported on its most recent consolidated quarterly report filed on or before the
signing of the definitive agreement; in both instances such additional fee to be
reduced by the $75,000 payable under (a) above, contingent upon consummation of
a combination transaction and payable at closing.
PV Financial also has agreed to reimburse Hoefer for certain of its
reasonable out-of-pocket expenses not to exceed $10,000 and to indemnify Hoefer
against certain liabilities, including liabilities under the federal securities
laws.
EFFECTIVE DATE OF THE MERGER
The Agreement provides that the Merger will be effective upon the date of
the filing with the California Secretary of State of a duly executed Merger
Agreement and officers' certificates prescribed by Section 1103 of the GCL or
upon any subsequent date set forth in the Merger Agreement (the "Effective
Time"). The date on which the Merger is effective as specified in the Merger
Agreement is referred to herein as the Effective Date. Although the parties have
not adopted any formal timetable, it is presently anticipated that the Merger
will be consummated on or prior to March 31, 1995, assuming all the conditions
set forth in the Agreement are theretofore satisfied or waived.
EXCHANGE RATIO; CONVERSION OF SHARES OF PV FINANCIAL COMMON STOCK
At the Effective Time, by virtue of the Merger and without any action on
the part of the holders of PV Financial Shares, each issued and outstanding PV
Financial Share (other than fractional shares or any shares as to which
dissenters' rights have been perfected) will be converted into .5450 of a fully
paid and nonassessable Westamerica Share, subject to certain potential downward
adjustments. See "-Possible Adjustment to Exchange Ratio or Termination of the
Agreement." All such PV Financial Shares shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the Westamerica Shares into which such PV Financial Shares have been converted.
Certificates previously representing PV Financial Shares shall be exchanged for
certificates representing whole shares of Westamerica Common Stock issued in
consideration therefor upon the surrender of such certificates. From and after
the Effective Time, the holders of certificates formerly representing PV
Financial Shares shall cease to have any rights with respect thereto other than
any dissenters' rights they may perfect pursuant to Chapter 13 of the GCL.
Any shares of PV Financial Common Stock that may be owned by Westamerica or
any subsidiary of Westamerica (other than shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) would be canceled and retired and shall cease to exist and no stock of
Westamerica or other consideration shall be delivered in exchange therefor.
However, no such shares are owned by Westamerica or any subsidiary of
Westamerica.
POSSIBLE ADJUSTMENTS TO EXCHANGE RATIO OR TERMINATION OF THE AGREEMENT
The Agreement provides that the Exchange Ratio may be adjusted as more
fully described below. The effect of the adjustments would be to reduce the
Exchange Ratio below .5450.
If the average of the closing price of Westamerica Common Stock quoted on
the National Association of Securities Dealers' Automated Quotation System,
National Market ("Nasdaq") (calculated by taking an average of the closing
prices quoted on Nasdaq as reported in The Wall Street Journal for each of the
twenty consecutive trading days prior to two business days prior to the
Effective Date, rounded to 4 decimal places, whether or not trades occurred on
those days (the "Average Price")) is above $32.06 (with no adjustment if the
Average Price is
-36-
<PAGE>
between $28.43 and $32.06), the Exchange Ratio will be adjusted
downward by one half of the amount by which the Average Price is above $32.06,
according to the following formula (referred to as the "Adjusted Exchange
Ratio"):
.5450 x (Average Price + $32.06)/2 = Adjusted Exchange Ratio
--------------------------
Average Price
The following table illustrates a range of possible Adjusted Exchange
Ratios assuming Average Prices of Westamerica Common Stock between $32.25 and
$35.00 per share.
<TABLE>
<CAPTION>
Average Price of Adjusted
Westamerica Common Stock Exchange Ratio
------------------------ --------------
<S> <C>
$32.25 .5434
32.50 .5413
32.75 .5393
33.00 .5372
33.25 .5352
33.50 .5333
33.75 .5314
34.00 .5295
34.25 .5276
34.50 .5257
34.75 .5239
35.00 .5221
</TABLE>
If the Average Price is below $28.43, Westamerica and PV Financial shall
have the right, but not the obligation, to renegotiate in good faith the
Exchange Ratio and, should the parties decide to exercise such right to
renegotiate, the parties have agreed to use their respective best efforts to
agree to a new Exchange Ratio; however, should the parties fail to renegotiate
the Exchange Ratio despite good faith efforts to do so, PV Financial may
terminate the Agreement. In the event the parties renegotiate the Exchange Ratio
pursuant to the foregoing provision, depending upon the circumstances under
which said Exchange Ratio was renegotiated, the shareholders of PV Financial may
be required to vote upon and approve the terms of any renegotiated transactions.
See "-Amendment; Termination."
The Exchange Ratio will be adjusted downward in an amount not to exceed
.0275 for any Significant Liabilities. "Significant Liabilities" has been
defined in the Agreement to mean those liabilities or expenses relating to
categories and events which Westamerica has not consented to in writing as
follows: (1) new or extended contractual obligations other than those arising in
the ordinary course of PV Financial's business; (2) new or extended leases of
real or personal property other than the Ceres branch lease; (3) acquisition of
capital assets (or commitments to do so) except for assets required in the
ordinary course for the Ceres branch; (4) contingent liabilities based upon
threatened or pending litigation, other proceedings or hazardous or toxic
substances and legal fees and costs (whether actual or estimated) related
thereto; (5) any unbooked expenses, fines, fees, penalties or similar
obligations except those arising in the ordinary course of PV Financial's
business; (6) any new, expanded or accelerated pension or other employee
benefits including employment contracts and severance payments, whether or not
vested except as contemplated in Section 2.6 of the Agreement; and (7) an amount
which would equal the amount necessary to bring PV Financial's allowance for
loan losses to one hundred percent (100%) of PV Financial's nonperforming loans
as of the calendar quarter preceding the Effective Date.
PV Financial and Westamerica have agreed to identify any categories or
events reasonably believed by either of them to be Significant Liabilities
commencing immediately following receipt of all Government Approvals (as defined
in the Agreement). Upon identification of a Significant Liability, the parties
will attempt to agree upon the amount of said Significant Liability within seven
days. If no mutual agreement is reached within the seven days the parties shall
immediately hire an independent expert qualified to render an opinion regarding
the amount of the particular Significant Liability, if any. The parties will
fully cooperate with any such independent expert and will equally split the
costs of said expert. The opinion of the expert shall be binding on the parties
for purposes of the Agreement. As a result of any Significant Liabilities
through the close of business on the day preceding the Effective Date, the
Exchange Ratio or Adjusted Exchange Ratio shall be reduced by subtracting
therefrom the fraction obtained by dividing the amount of Significant
Liabilities (on a net after-tax per share basis) by the Average Price, in no
event to exceed .0275.
At the date of this Prospectus, the parties have not identified any
category or event as a Significant Liability; however, one pending litigation
matter in which the Bank is a defendant could fall under the definition of a
Significant Liability prior to the Effective Date based on the circumstances of
the matter then existing. See "Information About PV Financial -Litigation."
Based on Westamerica's closing Common Stock price on October 4, 1994 (and
assuming this is the Average Price), the Exchange Ratio would be .5434 if
there is no adjustment for Significant Liabilities and .5159 if the
maximum Significant Liability adjustment occurs.
EXCHANGE OF PV FINANCIAL STOCK CERTIFICATES; FRACTIONAL INTERESTS
Prior to the Effective Date, Westamerica has agreed to appoint Chemical
Trust Company of California or its successor, or any other bank or trust company
(having capital of at least $50 million) mutually acceptable to PV Financial and
Westamerica, as exchange agent (the "Exchange Agent") for the purpose of
exchanging certificates representing the Westamerica Shares, and at and after
the Effective Date, Westamerica shall issue and deliver to the Exchange Agent
certificates representing the Westamerica Shares, as shall be required to be
delivered to holders of PV Financial Shares. As soon as practicable after the
Effective Date, each holder of PV Financial Shares, upon surrender to the
Exchange Agent of one or more certificates for such PV Financial Shares for
cancellation, will be entitled to receive a certificate representing the number
of Westamerica Shares into which such number of PV Financial Shares will have
been converted and a payment in cash with respect to fractional shares, if any.
Each certificate representing Westamerica Shares will bear a notation
incorporating the terms of the Amended and Restated Rights Agreement by
reference and will evidence the Rights as set forth in and subject to the terms
of the Amended and Restated Rights Agreement. Certificates issued for the
Westamerica Shares shall be deemed to be certificates for said Rights. For a
discussion of the Amended and Restated Rights Agreement see "Description of
Westamerica Capital Stock and Indebtedness--Shareholder Rights Plan."
-37-
<PAGE>
No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Westamerica Shares on or after the
Effective Date will be paid to persons entitled to receive such certificates for
Westamerica Shares until such persons surrender their certificates representing
PV Financial Shares. Upon surrender of certificates representing PV Financial
Shares, the holder thereof shall be paid, without interest, any dividends or
other distributions with respect to the Westamerica Shares as to which the
record date and payment date occurred on or after the Effective Date and on or
before the date of surrender.
If any certificate for Westamerica Shares is to be issued in a name
other than that in which the certificate for PV Financial Shares surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
costs, taxes or other expenses required by reason of the issuance of
certificates for such Westamerica Shares in a name other than the registered
holder of the certificate surrendered, or such persons shall establish to the
satisfaction of Westamerica and the Exchange Agent that such costs, taxes or
other expenses have been paid or are not applicable.
All dividends or distributions, and any cash to be paid in lieu of
fractional shares, if held by the Exchange Agent for payment or delivery to the
holders of unsurrendered certificates representing PV Financial Shares and
unclaimed at the end of one year from the Effective Date, shall (together with
any interest earned thereon) at such time be paid or redelivered by the Exchange
Agent to Westamerica, and after such time any holder of a certificate
representing PV Financial Shares who has not surrendered such certificate to the
Exchange Agent shall, subject to applicable law, look as a general creditor only
to Westamerica for payment or delivery of such Westamerica Shares and dividends
or distributions or cash, as the case may be.
No fractional shares of Westamerica Common Stock shall be issued to
holders of PV Financial Shares. In lieu thereof, each such holder entitled to a
fraction of a share of Westamerica Common Stock shall receive, at the time of
surrender of the certificate or certificates representing such holder's PV
Financial Shares, an amount in cash equal to the Average Price multiplied by the
fraction of a share of Westamerica Common Stock to which such holder otherwise
would be entitled. No such holder shall be entitled to dividends, voting
rights, interest on the value of, or any other rights in respect of a fractional
share.
TREATMENT OF STOCK OPTIONS
Each person holding one or more options to purchase PV Financial Shares
pursuant to the PV Financial 1982 Stock Option Plan, 1991 Director Stock Option
Plan or 1992 Employee Stock Option Plan (collectively, the "Option Plans") shall
have the right, in his or her discretion, to:
(i) prior to the Effective Date, exercise any options granted under the
Option Plans that are vested; provided, however, all options (vested or
unvested) granted to Directors of PV Financial may not be exercised until
after the Effective Date. If an optionee with respect to the PV Financial
1982 Stock Option Plan has not terminated his or her employment with PV
Financial or the Bank before July 25, 1994, his or her options that are not
vested on that date shall become fully exercisable prior to the Effective
Date following notice by PV Financial in accordance with the terms of the PV
Financial 1982 Stock Option Plan; provided, however, the right to exercise
these options on an accelerated basis shall terminate on the Effective Date;
and/or
(ii) have any options that are not exercised converted into an option to
purchase shares of Westamerica Common Stock.
As of the Record Date, options to acquire 61,758 shares of PV
Financial Common Stock were outstanding under the PV Financial 1982 Stock Option
Plan; options to acquire 185,220 shares of PV Financial Common Stock were
outstanding under the PV Financial 1991 Director Stock Option Plan; and options
to acquire 148,663 shares of PV Financial Common Stock were outstanding under
the PV Financial 1992 Employee Stock Option Plan. See "-Interests of Certain
Persons in the Merger."
General Conversion Rules. Following the Effective Date, shares of
Westamerica Common Stock shall be substituted under the options for PV Financial
Shares based on the Exchange Ratio or Adjusted Exchange Ratio, as applicable, in
a form acceptable to Westamerica. Specifically, each option shall be deemed to
continue as an option to
-38-
<PAGE>
purchase the number of shares of Westamerica Common Stock equal to the Exchange
Ratio or Adjusted Exchange Ratio, as applicable, multiplied by the number of PV
Financial Shares previously covered by such option at an option exercise price
for each such share of Westamerica Common Stock equal to the previous option
exercise price for each PV Financial Share divided by the Exchange Ratio or
Adjusted Exchange Ratio, as applicable. Except as noted below, each PV Financial
option shall otherwise continue on terms and conditions that are consistent with
those that were applicable on the Effective Date.
Conversion Rules for PV Financial 1991 Director Stock Option Plan. The
Agreement provides that the options under the PV Financial 1991 Director Stock
Option Plan will be amended by PV Financial to state that no such option may be
exercised until after the Effective Date, and that to the extent such an option
was not vested on June 15, 1994, that unvested portion of the option will become
exercisable after the Effective Date in increments of one-third (1/3) on each
anniversary of the Effective Date. The substitute Westamerica options will
contain the same vesting provision. In addition, the Agreement provides that the
PV Financial 1991 Director Stock Option Plan will be amended by PV Financial to
provide that, for purposes of the PV Financial 1991 Director Stock Option Plan
only, a Director's service does not terminate as long as he remains a director
or advisory director of the Bank on and after the Effective Date. Westamerica
has covenanted that it will, for purposes of the PV Financial 1991 Director
Stock Option Plan only, at or immediately following the Effective Date, offer
each current Director of the Bank a position as director or advisory director of
the Bank and that should the Bank be merged into any other subsidiary of
Westamerica, each current Bank Director shall be offered a position, for
purposes of the PV Financial 1991 Director Stock Option Plan only, as an
advisory director of the successor in interest to the Bank.
PV Financial has agreed to amend the Option Plans and obtain any
required shareholder approval of such Option Plan amendments and will amend, as
necessary, any and all option agreements (including obtaining any required
participant consents) prior to the Effective Date.
In accordance with the requirements of the Agreement, as described
above, the PV Financial Board of Directors has amended the PV Financial 1991
Director Stock Option Plan. The PV Financial Board of Directors has approved an
amendment of Section 5(d) of said Plan to make clear that a director's right to
exercise his or her options will not terminate if he or she continues as an
advisory director of the Bank or the successor-in-interest to the Bank
(Westamerica intends to merge the Bank with and into Westamerica Bank) after the
Effective Date. Set forth below is Section 5(d) of said Plan, as amended and
restated by action of the PV Financial Board of Directors (the sentence added
has been underlined):
"(d) Termination of Tenure on the Board. Unless the
----------------------------------
Committee determines otherwise, upon the termination of an
optionee's status as a member of the Board, his or her rights to
exercise an option then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's tenure on the Board
is terminated by death or disability, such optionee or such
optionee's qualified representative (in the event of the optionee's
mental disability) or the optionee's estate (in the event of
optionee's death) shall have the right for a period of twelve (12)
months following the date of such death or disability to exercise
the option to the extent the optionee was entitled to exercise such
option on the date of the optionee's death or disability; provided
the actual date of exercise is in no event after the expiration of
the term of the option. An optionee's "estate" shall mean the
optionee's legal representative or any person who acquires the right
to exercise an option by reason of the optionee's death.
OTHER REASONS: If an optionee's tenure on the Board is
terminated for any reason other than those mentioned above under
"Death or Disability," the optionee may, within three (3) months
following such termination, exercise the option to the extent such
option was exercisable by the optionee on the date of such
termination; provided the date of exercise is in no event after the
expiration of the term of the option.
-39-
<PAGE>
Notwithstanding the foregoing, an optionee's status as a
--------------------------------------------------------
member of the Board will not terminate, for purposes of this Plan
-----------------------------------------------------------------
only, as long as he or she remains a director or advisory director
------------------------------------------------------------------
of Pacific Valley National Bank or its successor by merger."
-----------------------------------------------------------
The amendment of Section 5(d) of the PV Financial 1991 Director Stock
Option Plan, as approved by the PV Financial Board of Directors, is subject to
approval by the shareholders of PV Financial and is also subject to consummation
of the Merger. Assuming the shareholders approve the amendment, it would become
effective on the Effective Date.
Subsequent to the Effective Date, Westamerica intends to register some
or all of the Option Plans under the Securities Act by filing one or more Form-8
Registration Statements with the Commission. The 1982 Stock Option Plan and the
1992 Employee Stock Option Plan may be terminated as of the Effective Date, but
options granted pursuant to said Plans and outstanding on or prior to the
Effective Date which are converted into options to purchase Westamerica Shares
will continue to be governed by terms and conditions consistent with said Plans.
As stated in this Proxy Statement/Prospectus under the caption "The
Meeting-Matters to be Considered at the Meeting," the proposal to approve and
adopt the Agreements and the transactions contemplated thereby includes the
amendment of the PV Financial 1991 Director Stock Option Plan. A vote in favor
of the Merger proposal will also constitute a vote to adopt and approve the
amendment of the PV Financial 1991 Director Stock Option Plan.
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COVENANTS OF WESTAMERICA AND PV FINANCIAL; CONDUCT OF BUSINESS PRIOR TO THE
MERGER
The Agreement contains covenants of Westamerica and PV Financial
concerning, among other things, (i) the cooperation of each party to obtain all
necessary or appropriate government approvals in order to cause the Merger to be
consummated; (ii) the prompt notification by either party of any event which
would cause or constitute a breach of any of the representations and warranties
of that party; (iii) the right of each party to review the other party's books
and records and the delivery of financial statements; (iv) the cooperation by
both parties in the issuance of any press releases; (v) restrictions by either
party to enter into a merger, consolidation, or other takeover proposal
involving any third party; (vi) restrictions on the payment of dividends; (vii)
the merging of PV Financial's employee welfare benefits plan into Westamerica's
employee welfare benefits plan; (viii) the outsourcing of various PV Financial
banking functions (which shall include, but are not limited to, item processing,
data processing, loan documentation, facilities management, investment portfolio
management, loan review, internal audit and account servicing) to Westamerica;
and (ix) use of PV Financial's best efforts to sell or lease to a third party
its interest in its headquarters building.
The Agreement provides that PV Financial and the Bank shall conduct their
respective businesses in the ordinary course as such businesses were conducted
prior to entering into the Agreement. The Agreement further provides that PV
Financial and the Bank will not, without the prior written consent of
Westamerica, among other things, (i) commit to any loan with a principal amount
in excess of $250,000 and/or aggregate debt over $1,000,000; (ii) purchase any
investment security with a maturity in excess of two years, or sell any
investment security in which a gain is recognized; (iii) issue any certificate
of deposit with a rate of interest in excess of 6%; (iv) commit to new capital
expenditures in excess of $25,000; (v) commit to any new contract or extend any
existing contract that would obligate PV Financial and the Bank for an aggregate
amount over time in excess of $25,000; (vi) accelerate the vesting of pension or
other benefits; (vii) grant any new stock options or accelerate the vesting of
any existing stock options; and (viii) make or approve any increase in the
compensation payable to any director, officer, employee or agent with an annual
salary in excess of $40,000.
Except with the prior written consent of Westamerica, neither PV Financial
nor the Bank will amend its Articles of Incorporation or Articles of
Association, as the case may be, or Bylaws; make any change in their respective
authorized, issued or outstanding capital stock or any other equity security;
issue, sell, pledge, assign or otherwise encumber or dispose of, or purchase,
redeem or otherwise acquire, any of their shares of capital stock or other
equity securities or enter into any agreement, call or commitment of any
character so to do; grant or issue any stock option relating to, right to
acquire, or security convertible into, shares of their capital stock or other
equity security; purchase, redeem, retire or otherwise acquire (other than in a
fiduciary capacity) any shares of, or any security convertible into, capital
stock or other equity security of their respective companies, or agree to do any
of the foregoing.
PV Financial shall promptly notify Westamerica in writing upon becoming
aware of the occurrence of any of the following: (i) the classification of any
loan as substandard, doubtful or loss; (ii) the filing or commencement of any
legal action or other proceeding or investigation against PV Financial or the
Bank (or any director or executive officer); or (iii) the monthly pretax
earnings of PV Financial are less than $250,000.
Business Combination. Subject to the fiduciary obligations of PV Financial's
Board of Directors, PV Financial and the Bank have agreed they will not prior to
the Effective Time, make any offer to any third party or accept any offer from
any third party regarding a business combination ("Business Combination"),
acquire or agree to acquire any of their own capital stock or the capital stock
or assets of any other entity, or commence any proceedings for winding up and
dissolution effecting either of them other than the transactions explicitly
contemplated by the Agreements. In addition, neither PV Financial nor the Bank,
nor any officer, director or affiliate thereof, nor any investment banker,
attorney, accountant or other agent, advisor or representative retained by PV
Financial or the Bank, shall (i) solicit or encourage or take any other actions
to facilitate or enter into any Business Combination; (ii) disclose any
nonpublic information to any corporation or entity concerning the business and
properties of PV Financial or the Bank or afford any such party access to the
properties, books or records of PV Financial or the Bank; or (iii) furnish or
cause to be furnished any information concerning the business,
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financial condition, operations, property or prospects of PV Financial or the
Bank to another person having any actual or prospective role with respect to any
such transaction. The Agreement also requires PV Financial to notify Westamerica
immediately of the receipt by it of any indication of interest in any Business
Combination, as such term is defined in the Agreement.
In the event the Boards of Directors of PV Financial or the Bank receive a
bona fide offer for a Business Combination and reasonably determine that their
duty to act or refrain from acting pursuant to the Agreement is inconsistent
with their continuing fiduciary duties to the shareholders of PV Financial,
their duty to act or refrain from acting pursuant to the Agreement is excused
and will not constitute a breach of the Agreement, or create any claim or cause
of action asserting any liability against any member of the Board of Directors
of PV Financial or the Bank. In the event PV Financial fails to act or refrains
from doing any act other than as contemplated by the Agreement, Westamerica is
entitled to terminate the Agreement without any liability to PV Financial or the
Bank. If PV Financial or the Bank enter into or agree to a Business Combination
which affects over 20% of PV Financial's or the Bank's common stock, assets or
branches, PV Financial will be required to pay to Westamerica, upon demand, the
sum of $1,000,000 in order to reimburse Westamerica for its expenses and costs
and the time committed by its personnel and representatives in connection with
the Merger. See "-Expenses."
PV Financial has also agreed to make available to Westamerica, upon
request, a list of its shareholders and their addresses, a list showing all
transfers of PV Financial Common Stock and such other information as Westamerica
reasonably requests regarding both ownership and prior transfers of such stock.
In addition, PV Financial must use its best efforts to satisfy any such request
for similar information relating to stock ownership and prior stock transfers
involving the Bank.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
On the Effective Date, PV Financial will be merged into Westamerica, at
which time the Bank will become a wholly owned subsidiary bank of Westamerica.
Upon consummation of the Merger, the separate corporate existence of PV
Financial will cease. All rights, franchises and interests of PV Financial will
be assumed by and vested in Westamerica. The Articles of Incorporation and
Bylaws of Westamerica in effect immediately prior to the Effective Date shall be
and continue to be the Articles of Incorporation and Bylaws of Westamerica
following the Merger and the directors and officers of Westamerica prior to the
Effective Date will be the directors and officers of Westamerica following the
Merger.
As soon as practical following the Effective Date, Westamerica intends to
merge the Bank into Westamerica Bank. Subject to regulatory approval, the
branches of the Bank will become branches of Westamerica Bank, and a new region
within Westamerica Bank will be created. In furtherance of this objective,
Westamerica Bank intends to file applications with the Superintendent of Banks
of the State of California (the "Superintendent") and the Federal Reserve Bank
of San Francisco seeking permission to merge the Bank into Westamerica Bank.
Westamerica Bank is a California state chartered member of the Federal Reserve
System. It is expected that this new region will be managed by the Bank's
current Chairman, President and Chief Executive Officer, Robert J. Cardoza, as
the new Senior Vice President and Regional Market Manager. This new region, to
be headquartered in Modesto, will also include a new regional credit hub,
responsible for underwriting commercial, commercial real estate, agricultural
and other small business loans. See "Certain Considerations" and "-Employment
Agreement."
PV Financial has agreed that PV Financial's employee benefit plans, as
defined in section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), may be terminated, modified or merged into Westamerica's
employee benefit plans before, on or after the Effective Date, as determined by
Westamerica in its sole discretion. PV Financial has also agreed that the PV
Financial 401(k) Plan may be terminated, frozen, modified or merged into the
Westamerica 401(k) Plan immediately before, on or after the Effective Date, as
determined by Westamerica in its sole discretion.
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It is expected that all data processing, check processing, bookkeeping,
consumer lending, residential real estate lending, accounting, and all other
administrative functions of the Bank, except for the branch functions and
regional commercial credit functions described above, will be centralized with
Westamerica Bank's other similar functions.
Each current member of the Board of Directors of PV Financial and the Bank
will be offered a position as a director or advisory director of the Bank
commencing on the Effective Date and upon the merger of the Bank into
Westamerica Bank, each such director will be offered a position as an advisory
director of Westamerica Bank. Those current directors who elect to continue as
advisory directors will assist Westamerica Bank in business development and will
serve as a new regional advisory board to Mr. Cardoza and Westamerica Bank. See
"Certain Considerations."
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The Agreement contains representations and warranties by Westamerica and PV
Financial regarding, among other things, their respective organization,
authorization to enter into the Agreements, corporate power to carry out the
terms of the Agreements, capitalization and the accuracy of their respective
financial statements. PV Financial has made further representations and
warranties to Westamerica regarding regulatory proceedings, the timely filing of
tax returns, title to its real property, certain environmental liabilities,
employment contracts and benefits and various aspects of its loans and other
assets.
The Merger will occur only if all required government approvals are in
effect or have been obtained (without the imposition of any materially
burdensome conditions as determined by Westamerica in good faith) (see "-
Required Regulatory Approvals"), the Agreements are approved by the majority of
the outstanding shares of PV Financial Common Stock and the representations and
warranties of the parties are true and correct in all material respects on and
as of the Effective Date.
Consummation of the Merger is subject to satisfaction of certain other
conditions or the waiver of such conditions by the party entitled to do so. Such
conditions include, among other things, the following: (i) the absence of a
material adverse change since March 31, 1994, in the business, financial
condition or results of operations of either party; (ii) the absence of legal
impediments to the Merger; (iii) the effectiveness of a registration statement
with respect to the Westamerica Common Stock to be issued to PV Financial
shareholders as a result of the Merger; (iv) the receipt, by Westamerica and PV
Financial, of opinions of counsel to Westamerica to the effect that, among other
things, under federal and state tax laws, the Merger will not result in any
recognized gain or loss to Westamerica or PV Financial and, except for any cash
received in lieu of any fractional shares, no gain or loss will be recognized by
holders of PV Financial Common Stock who receive Westamerica Common Stock in
exchange for the PV Financial Common Stock which they hold (see "-Certain Tax
Consequences"); (v) receipt of letters and reports from PV Financial's
independent public accountants relating to the Registration Statement and PV
Financial's unaudited financial statements; (vi) receipt by PV Financial of a
fairness opinion from its financial advisors; and (vii) receipt of a letter from
Westamerica's independent public accountants to the effect that the Merger will
qualify for the pooling of interests method of accounting in accordance with
generally accepted accounting principles (see "-Accounting Treatment").
In addition, certain other conditions must be satisfied in order for
Westamerica to be obligated to consummate the Merger, or be waived by
Westamerica, including the condition that (i) the aggregate number of shares of
PV Financial Common Stock held by persons who have taken all of the steps
required to perfect their right (if any) to be paid the fair market value of
such shares under the GCL shall not exceed 9% of the outstanding shares of PV
Financial Common Stock; (ii) Westamerica has received noncompetition agreements
(which contain certain noncompetition provisions for a period of two years
following the Merger) from each director of PV Financial and the Bank, including
Robert J. Cardoza, and PV Financial has used its best efforts to obtain similar
noncompetition agreements from certain officers of the Bank; (iii) the
Employment Agreement (as defined below) among Robert J. Cardoza, Westamerica,
PV Financial and the Bank remains in full force and effect and has not been
breached as of the Effective Date; (iv) PV Financial has delivered to
Westamerica an opinion of its loan review examiner, acceptable to Westamerica,
to the effect that all loan losses in excess of
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$25,000 have been identified; and (v) PV Financial has received all consents of
third parties which are required to be received by it, if any.
REQUIRED REGULATORY APPROVALS
The Merger must be approved by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the provisions of the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). This federal
statute provides that no transaction may be approved which would result in a
monopoly or which (i) would be in furtherance of any combination or conspiracy
to monopolize, or to attempt to monopolize, the business of banking in any part
of the United States, or (ii) whose effect in any section of the country may be
substantially to lessen competition, or to tend to create a monopoly, or which
in any manner would be in restraint of trade, unless the Federal Reserve Board
finds that the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served. In conducting a
review of any application for a merger, the Federal Reserve Board is required to
consider the financial and managerial resources and future prospects of the
companies and the banks concerned, and the convenience and needs of the
community to be served. The Federal Reserve Board has the authority to deny an
application if it concludes that the requirements of the Community Reinvestment
Act of 1977, as amended ("CRA"), are not satisfied.
Westamerica expects to file a final application to merge PV Financial into
Westamerica in October 1994. Receipt of final regulatory approval by the
Federal Reserve Board is a pre-condition to the consummation of the Merger under
the terms of the Agreement. See "-Representations and Warranties; Conditions to
the Merger." Westamerica expects the Federal Reserve Board will act on and
approve its application late in the fourth quarter of 1994 or in the first
quarter of 1995.
A transaction approved by the Federal Reserve Board may not be consummated
for 30 days after such approval. During such period, the Department of Justice
may commence a legal action challenging the transaction under federal antitrust
laws. If, however, the Department of Justice does not commence a legal action
during such 30-day period, it may not thereafter challenge the transaction
except in an action commenced under the antimonopoly provisions of Section 2 of
the Sherman Antitrust Act of 1890, as amended (the "Sherman Antitrust Act").
The BHC Act provides for the publication of notice and the opportunity for
administrative hearings relating to an application for approval under the BHC
Act and authorizes the Federal Reserve Board to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could substantially delay the regulatory approval required for
consummation of the Merger.
Based on current precedents, the respective managements of Westamerica and
PV Financial believe that the Merger will be approved by the Federal Reserve
Board and the Merger will not be subject to challenge by the Department of
Justice under federal antitrust laws. However, no assurance can be provided that
the Federal Reserve Board or the Department of Justice will concur in this
assessment or that, in connection with the grant of any approval by the Federal
Reserve Board, any action taken, or statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger will not contain conditions
which are materially burdensome to Westamerica within the meaning of the
Agreement. If a materially burdensome condition is imposed in connection with a
government approval, a condition to Westamerica's obligation to consummate the
Merger will be deemed not to have occurred and Westamerica would have the right
to terminate the Merger.
STOCK EXCHANGE LISTING
The Westamerica Common Stock is listed on Nasdaq. Westamerica intends to
cause the shares of Westamerica Common Stock to be issued in the Merger and the
shares of Westamerica Common Stock to be reserved for issuance upon the exercise
of existing PV Financial stock options to be approved for listing on Nasdaq,
subject to official notice of issuance prior to the Effective Date.
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The PV Financial Common Stock is currently traded on the over-the-counter
market and quoted on the "pink sheets" published by the National Quotation
Bureau, Inc. (the "Pink Sheets"). If the Merger is consummated, such shares will
cease to be quoted on the Pink Sheets and public trading of such shares will
cease.
STOCK OPTION AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE RESTATED
STOCK OPTION AGREEMENT ENTERED INTO BETWEEN WESTAMERICA AND PV FINANCIAL
IMMEDIATELY FOLLOWING THE EXECUTION OF THE AGREEMENT (THE "RESTATED STOCK OPTION
AGREEMENT"), A COPY OF WHICH IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF THE RESTATED STOCK OPTION
AGREEMENT SET FORTH IN ANNEX C. CERTAIN CAPITALIZED TERMS WHICH ARE USED BUT NOT
DEFINED IN THIS SUBSECTION ARE DEFINED IN THE RESTATED STOCK OPTION AGREEMENT.
Shares Subject to the Option. The Restated Stock Option Agreement provides
for the purchase by Westamerica of up to 433,142 shares, subject to certain
adjustments, of PV Financial Common Stock (the "Option Shares") at an exercise
price, subject to certain adjustments, of $12.25 per share, payable in cash (the
"Stock Option"). The Option Shares, if issued pursuant to the Restated Stock
Option Agreement, would represent approximately 19.9% of the issued and
outstanding shares of PV Financial's Common Stock without giving effect to the
issuance of any shares pursuant to an exercise of the Stock Option, and in no
event will the number of Option Shares exceed 19.9% of issued and outstanding PV
Financial Common Stock.
Adjustment of Number of Shares Subject to the Option. The number of shares
of PV Financial Common Stock subject to the Stock Option will be increased to
the extent that PV Financial issues additional shares of PV Financial Common
Stock (otherwise than pursuant to an exercise of the Stock Option) such that the
number of Option Shares will continue to equal 19.9% of the then issued and
outstanding shares of PV Financial Common Stock without giving effect to the
issuance of shares pursuant to an exercise of the Stock Option.
Exercise of the Option. Westamerica or any other holder or holders of the
Stock Option (collectively, the "Holder") may exercise the Stock Option, in
whole or in part, subject to regulatory approval, at any time within 30 days
(subject to extension as provided in the Restated Stock Option Agreement) after
both an "Initial Triggering Event" and a "Subsequent Triggering Event" (as such
terms are hereinafter defined) occur prior to termination of the Stock Option.
"Initial Triggering Event" is defined as the occurrence of any of the
following events:
(i) PV Financial or the Bank, without Westamerica's prior written consent,
enters into an agreement with any person or group (other than Westamerica or any
subsidiary thereof) to engage in, or the PV Financial Board of Directors
recommends that the PV Financial Common Shareholders approve or accept (other
than as contemplated by the Agreement), (x) a merger or consolidation, or
similar transaction, involving PV Financial or the Bank, (y) the purchase,
lease, or other acquisition representing 15% or more of the consolidated assets
of PV Financial and the Bank, or (z) the purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of any class of
securities of PV Financial or the Bank (each of the transactions described in
the preceding clauses (x), (y) and (z) being referred to herein as an
"Acquisition Transaction");
(ii) PV Financial or the Bank, without having received Westamerica's prior
written consent, shall have authorized, recommended, proposed or publicly
announced its intention to authorize, recommend or propose, an agreement to
engage in an Acquisition Transaction with any person other than Westamerica or a
subsidiary thereof, or the PV Financial Board of Directors shall have publicly
withdrawn or modified, or publicly announced its intent to withdraw or modify,
its recommendation that the shareholders of PV Financial approve the
transactions contemplated by the Agreement;
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(iii) any person or group (other than Westamerica, any subsidiary thereof
or any PV Financial subsidiary acting in a fiduciary capacity) shall acquire
beneficial ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of PV Financial Common Stock;
(iv) any person or group (other than Westamerica or any subsidiary
thereof) shall make a bona fide proposal to PV Financial or its shareholders by
public announcement or written communication, that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction;
(v) a third party shall make a proposal to PV Financial or its
shareholders to engage in an Acquisition Transaction, followed by PV Financial
breaching any covenant or obligation contained in the Agreement, such breach
entitling Westamerica to terminate the Agreement, and such breach shall not be
cured prior to the date that Westamerica sends notice of its exercise of the
Stock Option to PV Financial; or
(vi) any person or group (other than Westamerica or any subsidiary
thereof), other than in connection with a transaction to which Westamerica has
given its prior written consent, shall file an application or notice with the
Federal Reserve Board or other federal or state bank regulatory authority, which
application or notice has been accepted for processing for approval to engage in
an Acquisition Transaction.
"Subsequent Triggering Event" is defined as either (A) the acquisition by
any person or group of beneficial ownership of 20% or more of the then
outstanding shares of PV Financial Common Stock, or (B) the occurrence of the
Initial Triggering Event described in clause (i) above, except that the
percentage referenced in subclause (z) thereof shall be 20%.
Termination of the Option. The Restated Stock Option Agreement terminates
(i) at the Effective Time of the Merger, (ii) upon termination of the Merger
Agreement in accordance with the terms thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event, or (iii) 12 months after
termination of the Merger Agreement following the occurrence of an Initial
Triggering Event (provided that if an Initial Triggering Event occurs after or
continues beyond such termination, the Stock Option will terminate 12 months
from the expiration of the last Initial Triggering Event, but in no event more
than 18 months after such termination).
Within 30 days (subject to extension as provided in the Restated Stock
Option Agreement) after a Subsequent Triggering Event and prior to the
termination of the Stock Option, Westamerica (on behalf of itself or any
subsequent Holder) may demand that the Stock Option and the related Option
Shares be registered under the Securities Act. Upon such demand, PV Financial
must promptly prepare, file and keep current a shelf registration subject to
certain exceptions. Westamerica is entitled to two such registrations so long as
the second request is within 18 months of the first request.
Notwithstanding any other provision of the Restated Stock Option
Agreement, if a Holder, the owner of the Option Shares from time to time (the
"Owner"), or certain related parties offer or propose to engage in an
Acquisition Transaction (other than as contemplated by the Merger Agreement)
without the prior written consent of PV Financial, then (i) in the case of a
Holder or related party thereof, the Stock Option held by it will immediately
terminate and be of no further force or effect and (ii) in the case of an Owner
or any related party thereof, the Option Shares held by it will be repurchasable
by PV Financial immediately at the then applicable Stock Option exercise price.
If the Stock Option terminates under certain circumstances as described in
the Restated Stock Option Agreement, Westamerica (or any subsequent Holder) may
have as many as 30 days subsequent to such termination to exercise the Stock
Option (or Substitute Option (as hereinafter defined)) in connection with the
resale of PV Financial Common Stock or other securities pursuant to a
registration statement as provided in the Restated Stock Option Agreement.
Repurchase at Option of Westamerica. Within 30 days (subject to extension
as provided in the Restated Stock Option Agreement) after a Subsequent
Triggering Event and prior to an Exercise Termination Event,
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subject to regulatory approval, PV Financial is required (i) at the request of
the Holder, to repurchase the Stock Option from the Holder at a price (the
"Option Repurchase Price") equal to the amount by which (x) the "market/offer
price" (as hereinafter defined) exceeds (y) the then applicable Stock Option
exercise price, multiplied by the number of shares for which the Stock Option
may then be exercised plus Westamerica's Out-of-Pocket Expenses (as hereinafter
defined) to the extent not previously reimbursed; and (ii) at the request of the
Owner, to repurchase such number of Option Shares from the Owner as the Owner
designates at a price per share (the "Option Share Repurchase Price") equal to
the "market/offer price" multiplied by the number of Option Shares so designated
plus Westamerica's Out-of-Pocket Expenses to the extent not previously
reimbursed. "Out-of-Pocket Expenses" means Westamerica's reasonable out-of-
pocket expenses incurred in connection with the transactions contemplated by the
Merger Agreement, including legal, accounting, and investment banking fees.
"Market/offer price" means the highest of (A) the highest price per share of PV
Financial Common Stock at which a tender offer or exchange offer therefor has
been made, (B) the price per share of PV Financial Common Stock to be paid by
any third party pursuant to an agreement with PV Financial, (C) the highest
closing price for shares of PV Financial Common Stock quoted on the Pink Sheets
or other principal trading market, if applicable, within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of the Stock Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (D) in the event of a sale
representing 15% or more of PV Financial's net assets, the sum of the price paid
in such sale for such assets and the current market value of the remaining
assets of PV Financial as determined by a nationally recognized investment
banking firm, selected by the Holder or the Owner, as the case may be, divided
by the number of shares of PV Financial Common Stock outstanding at the time of
such sale.
Substitute Option. In the event that, prior to an Exercise Termination
Event, PV Financial enters into an agreement (i) to consolidate with or merge
into any entity other than Westamerica or any subsidiary thereof and shall not
be the continuing or surviving corporation of such consolidation or merger, (ii)
to permit any entity other than Westamerica or any subsidiary thereof to merge
into PV Financial with PV Financial as the continuing or surviving corporation,
but in connection therewith the then outstanding shares of PV Financial are
changed into or exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of PV Financial Common
Stock after such merger represent less than 50% of the outstanding shares or
share equivalents of the merged company, or (iii) to sell or transfer all or
substantially all of its assets to any entity other than Westamerica or any
subsidiary thereof, then the Stock Option will be converted into, or exchanged
for, an option (a "Substitute Option") to purchase shares of common stock of, at
the Holder's option, either the continuing or surviving corporation of a merger
or a consolidation, the transferee of all or substantially all of PV Financial's
assets, or the person controlling such continuing or surviving corporation or
transferee. The number of shares subject to the Substitute Option and the
exercise price per share will be determined in accordance with a formula in the
Restated Stock Option Agreement. To the extent possible, the Substitute Option
will contain other terms and conditions that are the same as those in the
Restated Stock Option Agreement (after giving effect to the provisions described
in the following paragraph).
Repurchase of Substitute Option or Shares. Subject to regulatory approval,
the issuer of a Substitute Option will be required to repurchase such option at
the request of the holder thereof and to repurchase any shares ("Substitute
Shares") of such issuer's common stock ("Substitute Common Stock") issued upon
exercise of a Substitute Option at the request of the owner thereof. The
repurchase price for a Substitute Option will equal the amount by which (A) the
"Highest Closing Price" (as hereinafter defined) exceeds (B) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may be exercised, plus
Westamerica's Out-of-Pocket Expenses. The repurchase price for Substitute Shares
shall equal the "Highest Closing Price" multiplied by the number of Substitute
Shares to be repurchased, plus Westamerica's Out-of-Pocket Expenses. As used
herein, "Highest Closing Price" means the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Holder gives notice of the required repurchase of the Substitute Option
or the Owner gives notice of the required repurchase of Substitute Shares, as
the case may be.
Assignability. Neither Westamerica nor PV Financial may assign any of its
respective rights and obligations under the Restated Stock Option Agreement or
the Stock Option to any other person without the other
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party's written consent, except that if a Subsequent Triggering Event occurs
prior to termination of the Stock Option, within 30 days thereafter (subject to
extension as provided in the Restated Stock Option Agreement), Westamerica,
subject to the Restated Stock Option Agreement, may assign in whole or in part
its rights and obligations thereunder. In addition, until 30 days after the
Federal Reserve Board approves an application by Westamerica to acquire the
Option Shares, Westamerica may not assign its rights under the Stock Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of PV Financial, (iii) an assignment to a single party for the
purpose of conducting a widely dispersed public distribution on Westamerica's
behalf, or (iv) any other manner approved by the Federal Reserve Board.
Notice of Exercise. In the event Westamerica (or any subsequent Holder)
wishes to exercise the Stock Option, it must send to PV Financial a written
notice (the date of which is referred to as the "Notice Date") specifying (i)
the total number of shares it will purchase pursuant to such exercise and (ii) a
"Closing Date" not less than three nor more than 60 days from the Notice Date.
If the purchase and sale of the Stock Option cannot be consummated because of an
applicable judgment, decree, order, law or regulation, the period of time
referred to in this paragraph shall run from the date that the restriction on
consummation lapses. If prior notification to or approval by the Federal Reserve
Board is required, Westamerica (or any subsequent Holder) will promptly file the
required notice or application. In such a case, the period of time referred to
in this paragraph will run from the date the notification period expires or any
necessary approval is granted.
The rights and obligations of Westamerica under the Restated Stock Option
Agreement are subject to receipt of any required regulatory approval. Generally,
without the prior approval of the Federal Reserve Board, Westamerica may not
acquire more than 5% of the outstanding Common Stock of PV Financial.
Westamerica intends to file an application for such approval as soon as
practicable. See "-Required Regulatory Approvals."
The Stock Option could have the effect of discouraging persons who now or
prior to the Effective Time might be interested in acquiring all or a
significant interest in PV Financial from considering or proposing such an
acquisition, even if such persons were prepared to pay more consideration per
share for PV Financial Common Stock than the consideration per share payable
under the Merger Agreement.
EMPLOYMENT AGREEMENT
Pursuant to Section 7(u) of the Agreement, on July 25, 1994, Robert J.
Cardoza entered into a twenty-four (24) month employment agreement with PV
Financial, the Bank and Westamerica (the "Employment Agreement") to be effective
as of the Effective Date. Under the Employment Agreement, Mr. Cardoza will serve
as the Chairman, President and Chief Executive Officer of the Bank, so long as
the Bank remains a subsidiary of Westamerica, commencing on the Effective Date.
Upon the merger of the Bank into another banking subsidiary of Westamerica
during the term of the Employment Agreement, Mr. Cardoza will serve in such
other positions as the Board of Directors of the successor-in-interest to the
Bank shall designate; provided, however, that should Mr. Cardoza be assigned
to a position less than Senior Vice President, he would be entitled to resign
and receive severance pay as if he had been terminated without cause pursuant to
the terms of the Employment Agreement. Mr. Cardoza is entitled to severance pay
equal to his salary for the remainder of his twenty-four (24) month period of
employment if the Bank terminates his employment without cause. As soon as
practical following the Effective Date, Westamerica intends to merge the Bank
into Westamerica Bank. It is expected that Mr. Cardoza will be appointed to the
position of Senior Vice President and Regional Market Manager for a new
Westamerica region headquartered in Modesto. See "-Management and Operations
Following the Merger." During the term of the Employment Agreement and subject
to its terms, Mr. Cardoza will be entitled to an annual base salary of $145,000,
subject to annual review and possible adjustment, plus bonus payments under the
Westamerica Senior Management Incentive Plan and other benefits made available
to senior officers of Westamerica generally, plus certain other perquisites
substantially the same as those provided under his existing employment agreement
with PV Financial and the Bank.
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NONCOMPETITION AGREEMENTS FOR DIRECTORS OF PV FINANCIAL, DIRECTORS AND OFFICERS
OF THE BANK AND ROBERT J. CARDOZA
The directors of PV Financial and the Bank (including Robert J. Cardoza)
(the "PV Financial and Bank Directors and Cardoza") have entered into
noncompetition agreements (the "Noncompetition Agreements") with Westamerica.
Under the Noncompetition Agreements, as of the Effective Time, except as a
director, officer or employee of Westamerica or any subsidiary thereof, the PV
Financial and Bank Directors and Cardoza have agreed that, without the prior
written consent of Westamerica, they will not at any time within the two (2)
year period immediately following the consummation of the Merger (i) directly or
indirectly, within Stanislaus, San Joaquin or Merced Counties (the "Counties")
in the State of California, whether or not for compensation, engage in, or have
any material interest in, any person, firm, corporation, or business (whether as
an employee, officer, director, agent, shareholder holding, directly or
indirectly, 5% or more of the voting securities thereof, partner, consultant,
adviser, holder of any substantial beneficial ownership interest or otherwise)
that engages in any activity within any of the Counties which is the same as,
similar to, or competitive with any activity now engaged in by PV Financial or
the Bank or any activity which will be engaged in by Westamerica or its
subsidiaries as long as PV Financial, Westamerica, or any transferee of all or
substantially all of the assets of Westamerica, PV Financial or their
subsidiaries or any other successor thereof shall engage in such activity,
except that nothing shall prohibit any of the PV Financial and Bank Directors
and Cardoza from providing professional services, such as legal or accounting
advice, to clients; or (ii) induce any employee of PV Financial or the Bank to
leave the employ of Westamerica or any subsidiary thereof.
PV Financial has agreed to use its best efforts to have certain officers of
the Bank (the "Bank Officers") enter into noncompetition agreements which are
substantially similar to the Noncompetition Agreements which the PV Financial
and Bank Directors and Cardoza have entered into, except that the length of time
as to which each of the Bank Officers would agree not to compete will not be
longer than a number of months determined by calculating the ratio of the amount
of any severance package payable to such Bank Officer to such Bank Officer's
annual base salary.
The PV Financial and Bank Directors and Cardoza have also agreed and the
Bank Officers are expected to agree to treat as confidential all information
concerning the records, properties, books, contracts, commitments and affairs of
Westamerica, PV Financial or their respective subsidiaries including but not
limited to, information regarding accounts, shareholders, finances, strategies,
marketing, customers and potential customers (their identities, preferences,
likes and dislikes) and other information of a similar nature not available to
the public. If a noncompetition agreement is terminated or expires, the PV
Financial and Bank Directors and Cardoza and the Bank Officers shall continue to
treat all such information as confidential and shall return such documents and
any electronic storage media containing such information as shall reasonably be
requested by Westamerica.
CERTAIN TAX CONSEQUENCES
As a condition to consummation of the Merger, PV Financial and Westamerica
must each receive, with respect to United States federal income tax law and
California state tax law, an opinion from Westamerica's counsel to the effect
that, based upon the assumptions and understandings contained in the opinion,
the Merger will constitute a reorganization within the meaning of section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "IRC"), and
that, accordingly, for United States federal income tax and for California
personal income and franchise tax purposes:
(i) the Merger will not result in any recognized gain or
loss to Westamerica or PV Financial;
(ii) no gain or loss will be recognized by holders of PV
Financial Common Stock who receive solely Westamerica Common Stock
in exchange for the PV Financial Common Stock which they hold;
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(iii) the holding period of Westamerica Common Stock
exchanged for PV Financial Common Stock will include the holding
period of the PV Financial Common Stock for which it is exchanged,
assuming the shares of PV Financial Common Stock are capital assets
in the hands of the holder thereof at the Effective Date;
(iv) a holder of PV Financial Common Stock receiving cash
in the exchange in lieu of a fractional interest in Westamerica
Common Stock will be treated as if such holder actually received
such fractional share interest which was subsequently redeemed by
Westamerica, resulting in the cash such holder receives in lieu of
such fractional share interest being treated as having been received
as full payment in exchange for stock redeemed as provided in
section 302(a) of the IRC; and
(v) the basis of the Westamerica Common Stock received in
the exchange will be the same as the basis of the PV Financial
Common Stock for which it was exchanged, less any basis attributable
to fractional shares for which cash is received.
Westamerica and PV Financial believe that each person who holds an
unexercised option to acquire PV Financial Common Stock pursuant to the Option
Plans on the Effective Date and who receives an option to acquire Westamerica
Common Stock in exchange therefor will not recognize any gain or loss at the
time of the exchange. In addition, Westamerica and PV Financial believe that
any such unexercised option to acquire PV Financial Common Stock which was an
"incentive stock option" prior to the Merger should remain an "incentive stock
option" after its conversion into an option to acquire Westamerica Common Stock.
A shareholder who perfects dissenters' rights and receives payment for
such shareholder's PV Financial Common Stock will be treated as if such shares
were redeemed. In general, if the PV Financial Common Stock is held as a
capital asset on the Effective Date, a dissenting shareholder will recognize a
capital gain or loss measured by the difference between the amount of cash
received and the basis of the PV Financial Common Stock. However, if such
dissenting shareholder owns, directly or constructively through application of
section 318 of the IRC, any shares of PV Financial Common Stock as to which
dissenters' rights are not exercised and perfected, or otherwise directly or
constructively holds Westamerica Common Stock, such shareholder may be treated
as having received a dividend in the amount of cash paid to the shareholder in
exchange for the shares as to which dissenters' rights are perfected. The
constructive ownership rules of section 318 of the IRC apply in certain
specified circumstances to attribute ownership of stock of a corporation from
the shareholder actually owning the stock, whether an individual, a trust, a
partnership or a corporation, to certain members of the individual's family or
to certain individuals, trusts, partnerships or corporations in which that
shareholder has an ownership or beneficial interest, or which have an ownership
or beneficial interest in that shareholder; a shareholder is also considered
under these rules to own any stock with respect to which that shareholder holds
exercisable options. Each shareholder who intends to dissent from the Merger
should consult such shareholder's own tax advisor with respect to the
application of the constructive ownership rules to the shareholder's particular
circumstances.
THE UNITED STATES FEDERAL INCOME TAX, CALIFORNIA PERSONAL INCOME TAX
AND CALIFORNIA FRANCHISE TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. EACH PV FINANCIAL SHAREHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
AMENDMENT; TERMINATION
The Agreements may be amended by Westamerica and PV Financial at any
time prior to the Effective Time without the approval of the shareholders of
Westamerica and the shareholders of PV Financial with respect to any of their
terms except the terms relating to the form or amount of consideration to be
delivered to the
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PV Financial shareholders in the Merger. The Agreements may be
terminated by the mutual consent of the Boards of Directors of both Westamerica
and PV Financial at any time prior to the consummation of the Merger.
The Agreement may be terminated by Westamerica as follows: (i) on or after
March 31, 1995, if (A) any of the conditions to which the obligations of
Westamerica are subject has not been fulfilled, or (B) such conditions have been
fulfilled or waived by Westamerica and PV Financial shall have failed to
complete the Merger; (ii) if (A) Westamerica has become aware of any facts or
circumstances of which it was not aware on the date of the Agreement and which
materially adversely affect PV Financial and the Bank taken as a whole or their
respective properties, operations or financial condition taken as a whole; (B) a
materially adverse change shall have occurred since March 31, 1994, in the
business, financial condition, results of operations or properties of PV
Financial or the Bank taken as a whole; (C) there has been failure or
prospective failure on the part of PV Financial to comply with its obligations
under the Agreements, or any failure or prospective failure to comply with any
of the conditions to closing set forth in Section 7 of the Agreement; (D) PV
Financial fails to act or refrains from doing any act required of PV Financial
in connection with a bona fide offer for a Business Combination based on the
continuing fiduciary duties of the PV Financial Board of Directors to the
shareholders of PV Financial; (iii) if Westamerica determines that it would be
inadvisable or inexpedient to continue to carry out the terms of, or to attempt
to consummate the transactions contemplated in the Agreement, by reason of any
material legal impediment to the Merger having arisen, or any material pending
or threatened litigation, investigation or proceeding; or (iv) if any person
(other than Westamerica or any subsidiary thereof) shall become the beneficial
owner of 20% or more of the then outstanding shares of PV Financial or any
person (other than Westamerica or a subsidiary thereof) shall have commenced a
bona fide tender offer or exchange offer to acquire at least 20% of the then
outstanding shares of PV Financial.
In addition to the termination rights set forth above, Westamerica has the
following rights (the "Special Termination Rights"): at any time after July 25,
1994 through and including the date that is 30 days after the date PV Financial
delivers to Westamerica all remaining portions of the disclosure schedule
provided by PV Financial pursuant to the Agreement in form and detail of
presentation reasonably satisfactory to Westamerica, to terminate the Agreement
if Westamerica shall identify any circumstance which, in the reasonable business
judgment of the Board of Directors (which includes a committee thereof) of
Westamerica, acting in good faith and with due regard for principles of fair
dealing, could (i) materially and adversely impact the reasonably expected
financial or business benefits to Westamerica of the transactions contemplated
by the Agreement; (ii) be inconsistent in any material and adverse respect with
any of the representations and warranties of PV Financial contained in the
Agreement; (iii) materially and adversely affect the business, operations,
properties, financial condition, results of operations or prospects of PV
Financial and its subsidiaries on a consolidated basis; or (iv) deviate
materially and adversely from PV Financial's financial statements for the year
or the quarter ended December 31, 1993. Westamerica may exercise the Special
Termination Rights by written notice to PV Financial. The Special Termination
Rights are expected to terminate on October 6, 1994.
The Agreements may be terminated by PV Financial as follows: (i) on or
after March 31, 1995, if (A) any of the conditions to which the obligations of
PV Financial are subject have not been fulfilled, or (B) such conditions have
been fulfilled or waived but Westamerica shall have failed to complete the
Merger; provided, however, that if Westamerica is engaged at the time in
litigation relating to an attempt to obtain one or more of the government
approvals or if Westamerica shall be contesting in good faith any litigation
which seeks to prevent consummation of the Merger, such nonfulfillment shall not
give PV Financial the right to terminate the Agreements until the earlier of (X)
fifteen (15) months after the date of the Agreement or (Y) sixty (60) days after
the completion of such litigation and of any further regulatory or judicial
action pursuant thereto; or (ii) if on or before the Effective Date (A) PV
Financial has become aware of any facts or circumstances of which it was not
aware on the date of the Agreement and which can or do materially adversely
affect Westamerica or its properties, operations or financial condition; (B) a
materially adverse change shall have occurred since March 31, 1994, in the
business, financial condition, results of operations or assets of Westamerica;
(C) there has been failure or prospective failure on the part of Westamerica to
comply with its obligations under the Agreement or any failure or prospective
failure to comply with any condition set forth in Section 8 of the Agreement;
(D) Westamerica shall make any offer to any third party or accept any offer from
any third party regarding a Business Combination
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of Westamerica with any other entity that is not conditioned upon performance by
Westamerica or its successor of the obligations of Westamerica under the
Agreement; or (E) the Average Price of Westamerica Common Stock is less than
$28.43 and the parties have not in good faith satisfied the conditions of
Section 2.1(b)(i) of the Agreement.
The power of termination under the Agreement may be exercised by
Westamerica or PV Financial, as the case may be, only by giving written notice,
signed on behalf of such party by its Chairman of the Board or President, to the
other party.
If there has been a material breach by either party in the performance of
any obligations under the Agreement, which shall not have been cured within ten
(10) business days after written notice thereof has been given to the defaulting
party, the nondefaulting party shall have the right to terminate the Agreement
upon written notice to the other party. In any event, the nondefaulting party
shall have no obligation to consummate any transaction or take any further steps
toward such consummation contemplated under the Agreement until such breach is
cured.
Termination of the Agreement does not terminate or affect the obligations
of Westamerica or PV Financial to pay expenses (see "-Expenses"), to maintain
the confidentiality of the other party pursuant to Section 3.3 of the Agreement
or the provisions of Sections 13(a), (d) or (e) or the second sentence of
Section 13(b) of the Agreement and shall not affect any agreement after such
termination.
EXPENSES
Westamerica and PV Financial have each agreed to pay, without right of
reimbursement from the other party and whether or not the transactions
contemplated by the Agreement or the Merger Agreement shall be consummated,
their own costs incurred incident to the performance of its obligations under
the Agreements, including without limitation, costs incident to the preparation
of the Agreements, this Proxy Statement/Prospectus (including the audited
financial statements of PV Financial contained herein) and incident to the
consummation of the Merger and of the other transactions contemplated in the
Agreement and in the Merger Agreement, including the fees and disbursements of
counsel, accountants, consultants and financial advisers employed by such party
in connection therewith. Notwithstanding the foregoing, Westamerica shall be
solely responsible for all fees payable pursuant to state "blue-sky" securities
laws, fees related to obtaining a revenue ruling or tax opinion and the fee
required to be paid to the Commission to register the Westamerica Shares.
PV Financial shall bear its own costs of printing and distributing
(including postage) this Proxy Statement/Prospectus and other information
relating to these transactions to its shareholders.
If the Agreement is terminated by Westamerica pursuant to Section
12(b)(iii)(D) or Section 12(b)(iv) of the Agreement relating to a Business
Combination by PV Financial or the acquisition by a third party of 20% or more
of PV Financial Common Stock, or if any of the events specified in Section
12(b)(iv) of the Agreement occurs within twelve (12) months following
termination of the Agreement for any of the reasons stated in Section 12(b) of
the Agreement (provided that such termination for a reason stated in Section
12(b) of the Agreement results from the interference of a third party or group
who thereafter attempts to acquire PV Financial or the Bank), PV Financial shall
pay to Westamerica, on demand, the sum of $1,000,000.
If the Agreement is terminated by PV Financial pursuant to Section
12(b)(vii)(E) of the Agreement by reason of a Business Combination, Westamerica
shall pay to PV Financial, on demand, the sum of $3,000,000. See "-Amendment;
Termination."
ACCOUNTING TREATMENT
PV Financial and Westamerica expect that the Merger will qualify for
pooling of interests accounting treatment. Under this method of accounting,
Westamerica's prior period financial statements will be restated on
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a combined basis with those of PV Financial, with all intercompany accounts
being eliminated and all expenses relating to the Merger being deducted from
combined income.
It is a condition to Westamerica's obligation to consummate the Merger
that, among other things, Westamerica receive a letter from KPMG Peat Marwick
LLP ("KPMG"), its independent public accountants, to the effect that KPMG
believes that the Merger will qualify for the pooling of interests method of
accounting in accordance with generally accepted accounting principles and all
applicable rules, regulations and policies of the Commission. In addition, it
also is a condition to such obligation of Westamerica that no determination will
have been made by any court, tribunal, regulatory agency or other governmental
entity that the Merger fails or will fail to qualify for pooling of interests
accounting treatment and holders of no more than 9% of the shares of PV
Financial Common Stock immediately prior to the Effective Date have sought to
perfect dissenters' rights under the GCL with respect to their shares.
RESALES OF WESTAMERICA COMMON STOCK
The Westamerica Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any PV
Financial shareholder who may be deemed to be an "affiliate" of Westamerica or
PV Financial for purposes of Rule 145 under the Securities Act. Each director of
PV Financial and the Bank is deemed to be such an affiliate. It is expected that
each such director and each other person deemed to be an affiliate will enter
into an agreement with Westamerica providing that such person will not transfer
any Westamerica Common Stock received in the Merger, except in compliance with
the Securities Act and applicable rules thereunder. See "-Representations and
Warranties; Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Agreement provides that, from and after the Effective Date, Westamerica
will indemnify, defend and hold harmless each person who is a director or
executive officer of PV Financial on July 25, 1994 with respect to all
reasonable expenses arising out of claims and legal proceedings against said
persons as a result of actions by said directors or officers after said date, in
each case to the extent PV Financial would have been permitted under Section 317
of the GCL and its articles of incorporation and bylaws, but only to the extent
not otherwise covered by any insurance policy of PV Financial or the Bank. For a
discussion of the indemnification currently permitted to directors and executive
officers of PV Financial and the Bank, see "Certain Differences in Rights of
Shareholders-Indemnification of Directors and Executive Officers." Also upon the
Effective Date, any PV Financial executive officer or director who becomes an
officer or director of Westamerica (including any subsidiary such as Westamerica
Bank) shall be included under Westamerica's Director & Officer Insurance Policy.
Advisory directors will not be included under this policy.
Pursuant to the Agreement, all existing indemnification agreements between
PV Financial and any director shall be deemed terminated at the Effective Date.
Each director of PV Financial has agreed to such termination. See "The Meeting-
Certain Agreements." The Agreement does not prevent PV Financial from purchasing
tail insurance coverage under the Director & Officer Insurance Policy maintained
by PV Financial with respect to claims arising from facts or events which occur
prior to the Effective Date and PV Financial intends to purchase such tail
coverage for a period of one year from the Effective Date at a cost of
approximately $14,000.
As of the Record Date, directors and executive officers of PV Financial
beneficially owned an aggregate of 463,808 shares of PV Financial Common Stock.
In addition, as of the Record Date, the nonofficer directors of PV Financial
held options to acquire an aggregate of 185,220 shares of PV Financial Common
Stock pursuant to the PV Financial 1991 Director Stock Option Plan, of which
105,840 shares were fully vested as of June 15, 1994. Options to purchase shares
of PV Financial Common Stock are outstanding under the following PV Financial
stock option plans: the 1982 Stock Option Plan, the 1991 Director Stock Option
Plan and the 1992 Employee Stock Option Plan. Following the Effective Date, any
then outstanding and unexercised options under
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the PV Financial 1982 Stock Option Plan and the PV Financial 1992 Employee Stock
Option Plan will be replaced by options for shares of Westamerica Common Stock
in accordance with the terms of the Agreement. Prior to the Effective Date, all
options outstanding under the PV Financial 1982 Stock Option Plan and the PV
Financial 1992 Employee Stock Option Plan may be exercised in accordance with
the terms of the Agreement. The Agreement provides that all options outstanding
under the PV Financial 1991 Director Stock Option Plan may not be exercised
prior to the Effective Date, and each director/holder of options under said Plan
has agreed to such restriction. Following the Effective Date, all outstanding
options under the PV Financial 1991 Director Stock Option Plan will be replaced
by options for an equivalent number of shares of Westamerica Common Stock with
an equivalent exercise price, calculated in accordance with the Exchange Ratio
or the Adjusted Exchange Ratio, as applicable, but otherwise on terms and
conditions that are consistent with the terms and conditions of the existing PV
Financial options, except that, to the extent that an option was not fully
vested on or before June 15, 1994, the unvested portion of such options will
become exercisable for shares of Westamerica Common Stock after the Effective
Date in increments of one-third (1/3) on each anniversary of the Effective Date.
See "-Treatment of Stock Options."
PV Financial, the Bank and Westamerica have entered into an employment
agreement dated July 25, 1994, with Robert J. Cardoza, Chairman, President and
Chief Executive Officer of PV Financial and the Bank. Under the terms of the
employment agreement, which provides for a term of employment of twenty-four
(24) months commencing on the Effective Date, Mr. Cardoza will serve as
Chairman, President and Chief Executive Officer of the Bank as a subsidiary of
Westamerica. The parties expect that upon the merger of the Bank into
Westamerica Bank, which is expected to occur as soon as practical after the
Effective Date, Mr. Cardoza will serve as Senior Vice President and Regional
Market Manager of a new region of Westamerica Bank headquartered in Modesto. See
"-Management and Operations Following the Merger" and "-Employment Agreement."
As of the Record Date, Robert J. Cardoza held options to acquire 89,064
shares of PV Financial Common Stock pursuant to the PV Financial 1992 Employee
Stock Option Plan, all of which options are fully vested. Under the terms of the
Agreement, none of said options may be exercised prior to the Effective Date.
Following the Effective Date, all of said options will be replaced by fully
vested options for the appropriate number of shares of Westamerica Common Stock,
calculated by reference to the Exchange Ratio or the Adjusted Exchange Ratio, as
applicable, but otherwise on terms and conditions that are consistent with Mr.
Cardoza's existing PV Financial options. See "-Treatment of Stock Options."
DISSENTERS' RIGHTS OF APPRAISAL
If the Agreement is approved by the required vote of PV Financial
shareholders and is not abandoned or terminated, shareholders of PV Financial
who vote against the Merger may be entitled to certain dissenters' appraisal
rights under Chapter 13 of the GCL.
The following discussion is not a complete statement of the GCL relating to
dissenters' rights, and is qualified in its entirety by reference to sections
1300 through 1312 of the GCL attached to this Proxy Statement/Prospectus as
Annex D and incorporated herein by reference. This discussion and sections 1300
through 1312 of the GCL should be reviewed carefully by any holder who wishes to
exercise statutory dissenters' rights or wishes to preserve the right to do so,
since failure to comply with the required procedures will result in the loss of
such rights.
If the Merger is consummated, those shareholders of PV Financial who elect
to exercise their dissenters' rights and who in a timely and proper fashion
perfect such rights will be entitled to receive the "fair market value" of their
shares in cash. Pursuant to section 1300(a) of the GCL, such "fair market value"
would be determined as of the day before the first announcement of the terms of
the Merger, excluding any appreciation or depreciation in consequence of the
proposed Merger, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter. PV Financial believes that such
"fair market value" is equal to the last bid price of PV Financial Common Stock
as reported on the Pink Sheets for July 25, 1994, or $12.25.
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Shares of PV Financial Common Stock must satisfy each of the following
requirements to qualify as dissenting shares ("Dissenting Shares") under the
GCL: (i) the shares of PV Financial Common Stock must have been outstanding on
the Record Date (and, therefore, shares acquired after such Record Date upon
exercise of options to purchase PV Financial Common Stock may not constitute
Dissenting Shares); (ii) the shares of PV Financial Common Stock must have not
been voted "FOR" approval and adoption of the Agreements and the transactions
contemplated thereby; and (iii) the holder of such shares of PV Financial Common
Stock must submit certificates for endorsement (as described below). ONLY IF A
HOLDER OF PV FINANCIAL COMMON STOCK VOTES "FOR" THE APPROVAL AND ADOPTION OF THE
AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY (INCLUDING BY EXECUTING AND
RETURNING A PROXY TO PV FINANCIAL WITH NO VOTING INSTRUCTIONS INDICATED) WILL
SUCH HOLDER LOSE ANY DISSENTERS' RIGHTS THAT MAY EXIST WITH RESPECT TO THE
SUBJECT SHARES.
If the Merger is approved at the Meeting, PV Financial will, within
ten days after such approval, mail to any shareholder who may have a right to
require PV Financial to purchase his or her shares for cash as a result of
making such a demand, a notice that the required shareholder approval and
adoption of the Agreements and the transactions contemplated thereby was
obtained (the "Notice of Approval") accompanied by a copy of Sections 1300
through 1304 of the GCL. The Notice of Approval will set forth the price
determined by PV Financial to represent the "fair market value" of any
Dissenting Shares (which shall constitute an offer by PV Financial to purchase
such Dissenting Shares at such stated price), and will set forth a brief
description of the procedures to be followed by such holders who wish to
exercise their dissenters' rights.
Within 30 days after the date on which the Notice of Approval was
mailed: (i) PV Financial or its transfer agent must receive the demand of the
dissenting shareholder which is required by law to contain a statement
concerning the number and class of shares of PV Financial Common Stock held of
record by such dissenting shareholder which the dissenting shareholder demands
that PV Financial purchase, and a statement of what such dissenting shareholder
claims to be the fair market value of the Dissenting Shares as of the day before
the announcement of the proposed Merger (the statement of fair market value in
such demand by the dissenting shareholder constitutes an offer by the dissenting
shareholder to sell the Dissenting Shares at such price); and (ii) the
dissenting shareholder must submit share certificate(s) representing the
Dissenting Shares to PV Financial at PV Financial's principal office or at the
office of its transfer agent. The certificate(s) will be stamped or endorsed
with a statement that the shares are Dissenting Shares or will be exchanged for
certificates of appropriate denomination so stamped or endorsed. If the price
contained in the Notice of Approval is acceptable to the dissenting shareholder,
the dissenting shareholder may demand the same price. THIS WOULD CONSTITUTE AN
ACCEPTANCE OF THE OFFER BY PV FINANCIAL TO PURCHASE THE DISSENTING SHAREHOLDERS'
STOCK AT THE PRICE STATED IN THE NOTICE OF APPROVAL.
If PV Financial and a dissenting shareholder agree upon the price to
be paid for the Dissenting Shares, upon the dissenting shareholder's surrender
of the certificates representing the Dissenting Shares, such price (together
with interest thereon at the legal rate on judgments from the date of the
agreement between PV Financial and the dissenting shareholder) is required by
law to be paid to the dissenting shareholder within 30 days after such agreement
or within 30 days after any statutory or contractual conditions to the Merger
are satisfied, whichever is later, subject to the surrender of the certificates
therefor.
If PV Financial and a dissenting shareholder disagree as to the price
for such Dissenting Shares or disagree as to whether such Dissenting Shares are
entitled to be classified as Dissenting Shares, such holder may, within six
months after the Notice of Approval is mailed, file a complaint in the Superior
Court of the proper county requesting the court to make such determinations or,
alternatively, may intervene in any pending action brought by any other
dissenting shareholder. Costs of such an action (including compensation of
appraisers) are required to be assessed as the Court considers equitable, but
must be assessed against PV Financial if the appraised value as determined by
the Court exceeds the price offered by PV Financial.
The court action to determine the fair market value of the shares will
be suspended if litigation is instituted to test the sufficiency or regularity
of the votes of the shareholders in authorizing the Merger. Furthermore, no
shareholder who has appraisal rights under Chapter 13 of the GCL shall have any
right to attack the validity of
-55-
<PAGE>
the Merger or to have the Merger set aside or rescinded except in an action to
test whether the number of shares required to authorize or approve the Merger
has been legally voted in favor of the Merger.
Dissenting Shares may lose their status as such and the right to
demand payment will terminate if (i) the Merger is abandoned (in which case PV
Financial shall pay on demand to any dissenting shareholder who has initiated
proceedings in good faith as provided under Chapter 13 of the GCL all necessary
expenses and reasonable attorneys' fees incurred in such proceedings); (ii) the
shares are transferred before being submitted for endorsement or are surrendered
for conversion into shares of another class; (iii) the dissenting shareholder
and PV Financial do not agree upon the status of the shares as Dissenting Shares
or upon the price of such shares and the dissenting shareholder fails to file
suit against PV Financial or intervene in a pending action within six months
following the date on which the Notice of Approval was mailed to the
shareholder; or (iv) the dissenting shareholder withdraws his or her demand for
the purchase of the Dissenting Shares with the consent of PV Financial.
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Statements give
effect to the Merger on a pooling of interests basis. The Unaudited Pro Forma
Combined Balance Sheet assumes the Merger was effective on June 30, 1994. The
Unaudited Pro Forma Combined Statements of Income assume the Merger was
effective as of the beginning of each period presented. For a description of
the pooling of interests accounting with respect to the Merger, see "The Merger-
Accounting Treatment." This pro forma financial data and the accompanying notes
should be read in conjunction with and are qualified in their entirety by the
historical consolidated financial statements of Westamerica and PV Financial,
including the respective notes thereto, and the condensed consolidated
historical and other pro forma financial information, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus or incorporated
herein by reference.
As described in the Notes to Unaudited Pro Forma Combined Financial
Statements, the effect of expenses incurred or expected to be incurred by
Westamerica and PV Financial in connection with the Merger has been reflected in
the Unaudited Pro Forma Combined Balance Sheet; however, since such expenses are
nonrecurring, they have not been reflected in the Unaudited Pro Forma
Consolidated Statements of Income. The pro forma financial data do not give
effect to any cost savings which might result from the Merger.
The pro forma financial data are presented for illustrative purposes
only and are not necessarily indicative of the future operating results or
future financial position that would have occurred had the Merger been
consummated as of the dates or the beginning of the periods indicated or that
may be obtained in the future.
-56-
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans............. $51,803 $57,154 $110,892 $125,922 $149,622
Interest and dividends on
investment securities................. 20,360 18,643 37,589 38,524 38,035
Trading account interest............... 1 4 6 4 54
Other interest income.................. 176 381 717 2,111 2,390
------- ------- -------- -------- --------
Total interest income................. 72,340 76,182 149,204 166,561 190,101
Interest Expense
Interest on deposits................... 17,804 22,714 42,047 60,392 88,813
Interest on funds purchased and
other short-term borrowings........... 2,223 834 1,937 729 1,826
Interest on long-term debt............. 1,487 1,030 2,016 2,362 2,611
------- ------- -------- -------- --------
Total interest expense................ 21,484 24,578 46,000 63,483 93,250
------- ------- -------- -------- --------
Net Interest Income..................... 50,856 51,604 103,204 103,078 96,851
Loan loss provision..................... 3,382 6,503 9,995 7,495 10,511
------- ------- -------- -------- --------
Net Interest Income After Loan
Loss Provision......................... 47,474 45,101 93,209 95,583 86,340
Noninterest Income
Service charges on deposit accounts.... 6,285 6,729 13,383 12,954 12,523
Net investment securities gains........ 482 69 68 1,116 1,634
Other.................................. 4,143 7,209 12,164 11,353 10,626
------- ------- -------- -------- --------
Total noninterest income.............. 10,910 14,007 25,615 25,423 24,783
Noninterest Expense
Salaries and related benefits.......... 19,375 23,061 42,182 43,679 43,259
Premises and equipment................. 6,411 9,160 15,910 14,859 14,816
FDIC insurance and other assessments... 2,162 2,260 4,415 4,285 3,791
Other.................................. 10,951 26,137 40,585 32,359 28,702
------- ------- -------- -------- --------
Total noninterest expense............. 38,899 60,681 103,092 95,182 90,568
------- ------- -------- -------- --------
Income (Loss) Before
Income Taxes........................... 19,485 (1,510) 15,732 25,824 20,555
Provision (benefit) for
income taxes.......................... 6,407 (1,257) 4,319 8,984 7,046
------- ------- -------- -------- --------
Net Income (Loss) Before
Extraordinary Items.................... 13,078 (253) 11,413 16,840 13,509
Extraordinary items tax
benefit on net operating loss
carryforward.......................... - - - 17 86
------- ------- -------- -------- --------
Net Income (Loss)....................... $13,078 $ (253) $ 11,413 $ 16,857 $ 13,595
======= ======= ======== ======== ========
Average shares outstanding(1)........... 9,260 9,207 9,273 9,103 9,001
Net income (loss) from continuing
operations per share(1)................ $ 1.41 $ (0.03) $ 1.23 $ 1.85 $ 1.51
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-57-
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................... $45,811 $5,992 $ $51,803
Interest and dividends on
investment securities....................... 20,048 312 20,360
Trading account interest..................... 1 - 1
Other interest income........................ - 176 176
------- ------ -------
Total interest income....................... 65,860 6,480 72,340
Interest Expense
Interest on deposits......................... 16,023 1,781 17,804
Interest on funds purchased and
other short-term borrowings................. 2,223 - 2,223
Interest on long-term debt................... 1,457 - 1,457
------- ------ -------
Total interest expense....... 19,703 1,781 21,484
------- ------ -------
Net Interest Income........................... 46,157 4,699 50,856
Loan loss provision.......................... 3,210 172 3,382
------- ------ -------
Net Interest Income After Loan
Loss Provision............................... 42,947 4,527 47,474
Noninterest Income
Service charges on deposit accounts.......... 5,958 327 6,285
Net investment securities gains
(losses).................................... 539 (57) 482
Other........................................ 3,719 424 4,143
------- ------ ------
Total noninterest income..... 10,216 694 10,910
Noninterest Expense
Salaries and related benefits................ 17,688 1,687 19,375
Premises and equipment....................... 5,831 580 6,411
FDIC insurance and other assessments......... 1,994 168 2,162
Other........................................ 10,023 928 10,951
------- ------ -------
Total noninterest expense.... 35,536 3,363 38,899
------- ------ -------
Income Before Income Taxes.................... 17,627 1,858 19,485
Provision for income taxes... 5,610 797 6,407
------- ------ -------
Net Income Before Extraordinary Items......... 12,017 1,061 13,078
Extraordinary items....................... - - -
------- ------ -------
Net Income.................................... $12,017 $1,061 $13,078
======= ====== =======
Average shares outstanding(1)................. 8,075 2,174 9,260
Net income from continuing
operations per share(1)...................... $ 1.49 $ 0.49 $ 1.41
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-58-
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1993
------------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................. $51,728 $5,426 $ $57,154
Interest and dividends on
investment securities..................... 18,339 304 18,643
Trading account interest................... 4 - 4
Other interest income...................... 167 214 381
------- ------ -------
Total interest income..................... 70,238 5,944 76,182
Interest Expense
Interest on deposits....................... 20,808 1,906 22,714
Interest on funds purchased and
other short-term borrowings............... 834 - 834
Interest on long-term debt................. 1,030 - 1,030
------- ------ -------
Total interest expense..... 22,672 1,906 24,578
------- ------ -------
Net Interest Income......................... 47,566 4,038 51,604
Loan loss provision........................ 6,242 261 6,503
------- ------ -------
Net Interest Income After Loan
Loss Provision............................. 41,324 3,777 45,101
Noninterest Income
Service charges on deposit accounts........ 6,450 279 6,729
Net investment securities gains............ 69 - 69
Other...................................... 6,843 366 7,209
------- ------ ------
Total noninterest income... 13,362 645 14,007
Noninterest Expense
Salaries and related benefits.............. 21,570 1,491 23,061
Premises and equipment..................... 8,616 544 9,160
FDIC insurance and other assessments....... 2,092 168 2,260
Other...................................... 25,280 857 26,137
------- ------ -------
Total noninterest expense................. 57,558 3,060 60,681
------- ------ -------
Income (Loss) Before Income Taxes........... (2,872) 1,362 (1,510)
Income tax (benefit) provision............ (1,821) 564 (1,257)
------- ------ -------
Net Income (Loss) Before
Extraordinary Items........................ (1,051) 798 (253)
Extraordinary items..................... - - -
------- ------ -------
Net Income (Loss)........................... $(1,051) $ 798 $ (253)
======= ====== =======
Average shares outstanding(1)............... 8,037 2,146 9,207
Net income (loss) from continuing
operations per share(1).................... $ (0.13) $ 0.37 $ (0.03)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-59-
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................. $ 99,607 $11,285 $ $110,892
Interest and dividends on
investment securities..................... 37,005 584 37,589
Trading account interest................... 6 - 6
Other interest income...................... 298 419 717
-------- ------- -------
Total interest income..................... 136,916 12,288 149,204
Interest Expense
Interest on deposits....................... 38,318 3,729 42,047
Interest on funds purchased and
other short-term borrowings............... 1,937 - 1,937
Interest on long-term debt................. 2,016 - 2,016
-------- ------- -------
Total interest expense..... 42,271 3,729 46,000
-------- ------- -------
Net Interest Income......................... 94,645 8,559 103,204
Loan loss provision........................ 9,452 543 9,995
-------- ------- -------
Net Interest Income After Loan
Loss Provision............................. 85,193 8,016 93,209
Noninterest Income
Service charges on deposit accounts........ 12,809 574 13,383
Net investment securities gains............ 68 - 68
Other...................................... 11,069 1,095 12,164
-------- ------- -------
Total noninterest income... 23,946 1,669 25,615
Noninterest Expense
Salaries and related benefits.............. 39,007 3,175 42,182
Premises and equipment..................... 14,820 1,090 15,910
FDIC insurance and other assessments....... 4,079 336 4,415
Other...................................... 38,739 1,846 40,585
-------- ------- -------
Total noninterest expense................. 96,645 6,447 103,092
-------- ------- -------
Income Before Income Taxes.................. 12,494 3,238 15,732
Provision for income taxes................. 3,039 1,280 4,319
-------- ------- -------
Net Income Before Extraordinary Item........ 9,455 1,958 11,413
Extraordinary items..................... - - -
-------- ------- --------
Net Income.................................. $ 9,455 $ 1,958 $ 11,413
======== ======= ========
Average shares outstanding(1)............... 8,054 2,237 9,273
Net income from continuing
operations per share(1).................... $ 1.17 $ 0.88 $ 1.23
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-60-
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
------------------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................. $115,357 $10,565 $125,922
Interest and dividends on
investment securities..................... 37,647 877 38,524
Trading account interest................... 4 - 4
Other interest income...................... 1,745 366 2,111
-------- ------- --------
Total interest income..................... 154,753 11,808 166,561
Interest Expense
Interest on deposits....................... 55,832 4,560 60,392
Interest on funds purchased and
other short-term borrowings............... 698 31 729
Interest on long-term debt................. 2,362 - 2,362
-------- ------- --------
Total interest expense..... 58,892 4,591 63,483
-------- ------- --------
Net Interest Income......................... 95,861 7,217 103,078
Loan loss provision........................ 7,005 490 7,495
-------- ------- --------
Net Interest Income After Loan
Loss Provision............................. 88,856 6,727 95,583
Noninterest Income
Service charges on deposit accounts........ 12,437 517 12,954
Net investment securities gains
(losses).................................. 1,066 50 1,116
Other...................................... 10,324 1,029 11,353
-------- ------- --------
Total noninterest income... 23,827 1,596 25,423
Noninterest Expense
Salaries and related benefits.............. 40,826 2,853 43,679
Premises and equipment..................... 13,826 1,033 14,859
FDIC insurance and other assessments....... 4,021 264 4,285
Other...................................... 30,931 1,428 32,359
-------- ------- --------
Total noninterest expense................. 89,604 5,578 95,182
-------- ------- --------
Income Before Income Taxes.................. 23,079 2,745 25,824
Provision for income taxes................. 7,874 1,110 8,984
-------- ------- --------
Net Income Before Extraordinary Item........ 15,205 1,635 16,840
Extraordinary items..................... 17 - 17
-------- ------- --------
Net Income.................................. $ 15,222 $ 1,635 $ 16,857
======== ======= ========
Average shares outstanding(1)............... 7,933 2,147 9,103
Net income from continuing
operations per share(1).................... $ 1.92 $ 0.76 $ 1.85
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-61-
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
-----------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................. $137,656 $11,966 $ $149,622
Interest and dividends on
investment securities..................... 36,651 1,384 38,035
Trading account interest................... 54 - 54
Other interest income...................... 2,191 199 2,390
-------- ------- --------
Total interest income..................... 176,552 13,549 190,101
Interest Expense
Interest on deposits....................... 83,069 5,744 88,813
Interest on funds purchased and
other short-term borrowings............... 1,677 149 1,826
Interest on long-term debt................. 2,611 - 2,611
-------- ------- --------
Total interest expense..... 87,357 5,893 93,250
-------- ------- --------
Net Interest Income......................... 89,195 7,656 96,851
Loan loss provision........................ 10,418 93 10,511
-------- ------- --------
Net Interest Income After Loan
Loss Provision............................. 78,777 7,563 86,340
Noninterest Income
Service charges on deposit accounts........ 12,056 467 12,523
Net investment securities gains
(losses).................................. 1,742 (108) 1,634
Other...................................... 10,178 448 10,626
-------- ------- --------
Total noninterest income... 23,976 807 24,783
Noninterest Expense
Salaries and related benefits.............. 40,252 3,007 43,259
Premises and equipment..................... 13,923 893 14,816
FDIC insurance and other assessments....... 3,545 246 3,791
Other...................................... 27,223 1,479 28,702
-------- ------- --------
Total noninterest expense................. 84,943 5,625 90,568
-------- ------- --------
Income Before Income Taxes.................. 17,810 2,745 20,555
Provision for income taxes................. 5,919 1,127 7,046
-------- ------- --------
Net Income Before Extraordinary Item........ 11,891 1,618 13,509
Extraordinary items..................... 86 - 86
-------- ------- --------
Net Income.................................. $ 11,977 $ 1,618 $ 13,595
======== ======= ========
Average shares outstanding(1)............... 7,855 2,103 9,001
Net income from continuing
operations per share(1).................... $ 1.52 $ 0.77 $ 1.51
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
-62-
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1994
----------------------------------------------------------
PRO FORMA PRO FORMA
WESTAMERICA PV FINANCIAL ADJUSTMENTS(2) COMBINED
----------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents............... $ 110,752 $ 14,466 $ $ 125,218
Interest bearing deposits in
other banks............................ 250 - 250
Trading account securities.............. 15 - 15
Investment securities available-
for-sale............................... 167,538 11,415 178,953
Investment securities held-to-
maturity............................... 619,981 6,996 626,977
Loans, net of reserve for loan losses... 1,042,900 133,302 1,176,202
Other real estate owned and loan
collateral substantively foreclosed.... 12,030 55 12,085
Land held for development............... 1,466 - 1,466
Premises and equipment, net............. 24,328 1,054 25,382
Interest receivable and other assets.... 50,997 2,903 53,900
---------- -------- ----------- ----------
Total Assets.......................... $2,030,257 $170,191 $ $2,200,448
========== ======== =========== ==========
Liabilities
Deposits:
Noninterest bearing.................... $ 364,292 $ 33,298 $ $ 397,590
Interest bearing....................... 1,344,466 116,948 1,461,414
Funds purchased and other short-
term borrowings........................ 116,349 - 116,349
Other liabilities....................... 46,598 1,664 750 49,012
---------- -------- ----------- ----------
Total Liabilities...................... 1,871,705 151,910 750 2,024,365
Commitments and contingent liabilities... - - -
Shareholders' Equity..................... 158,552 18,281 (750) 176,083
---------- -------- ----------- ----------
Total Liabilities and
Shareholders' Equity.................. $2,030,257 $170,191 $ - $2,200,448
========== ======== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statement
-63-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The pro forma combined per share data for net income has been
calculated using pro forma combined average shares outstanding.
Pro forma combined average shares outstanding has been
calculated using the average number of shares of Westamerica
Common Stock outstanding during the periods presented increased
by the shares of Westamerica Common Stock issued to PV
Financial shareholders using an Exchange Ratio of .5450 of a
share of Westamerica Common Stock for each of the average
shares of PV Financial Common Stock outstanding as if these
shares were outstanding during each of the periods presented.
Such pro forma per share data assumes no dissenting PV
Financial shareholders and no exercise of outstanding
Westamerica or PV Financial stock options or stock appreciation
rights. The Exchange Ratio is subject to downward adjustment
in certain circumstances as provided in the Agreement. See
"The Merger-Exchange Ratio; Conversion of Shares of PV
Financial Common Stock" and "-Possible Adjustments to Exchange
Ratio."
(2) Reflects all remaining Westamerica and PV Financial estimated
merger related expenses not accrued as of June 30, 1994. Such
estimated merger related expenses are summarized below on an
after tax basis (in thousands):
<TABLE>
<CAPTION>
WESTAMERICA PV FINANCIAL TOTAL
----------- ------------ -----
<S> <C> <C> <C>
Financial advisory.................. $ - $500 $500
Professional fees................... 120 100 220
Printing and other.................. 20 10 30
---- ---- ----
Total......................... $140 $610 $750
==== ==== ====
</TABLE>
SUPPLEMENTAL HISTORICAL INFORMATION
The following unaudited tables provide certain additional historical and
pro forma combined financial information for Westamerica and PV Financial. The
unaudited pro forma combined financial information assume that the Merger is
accounted for as a pooling of interests and gives effect to the Merger as if the
Merger had occurred on June 30, 1994. The information presented below should be
read in conjunction with the financial information set forth in the "Summary-
Selected Historical and Pro Forma Financial Data," "Pro Forma Combined Financial
Information," and the historical financial statements of Westamerica and PV
Financial and the notes thereto incorporated by reference or included elsewhere
herein. This Supplemental Historical Information is presented for informational
purposes only and should not be considered to be indicative of actual results or
financial position after the Merger.
-64-
<PAGE>
On a pro forma basis at June 30, 1994, the loan portfolio of the combined
entity is as follows:
UNAUDITED PRO FORMA
TYPES OF LOANS, NET OF
UNEARNED FEE INCOME
JUNE 30, 1994
<TABLE>
<CAPTION>
PRO FORMA
WESTAMERICA PV FINANCIAL COMBINED
----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial loans................. $ 555,963 $ 92,496 $ 648,459
Real estate-construction......... 37,834 5,933 43,767
Real estate-residential.......... 174,428 3,732 178,160
Installment and personal......... 275,349 4,732 280,081
Agricultural..................... 26,569 28,343 54,912
Lease financing.................. - - -
---------- -------- ----------
Total loans..................... 1,070,143 135,236 1,205,379
Less: Reserve for loan losses... 27,243 1,934 29,177
---------- -------- ----------
Total loans, net................ $1,042,900 $133,302 $1,176,202
========== ======== ==========
</TABLE>
At June 30, 1994, nonperforming assets for the combined entity are shown in
the following table on a pro forma basis.
UNAUDITED PRO FORMA
NONPERFORMING ASSETS
JUNE 30, 1994
<TABLE>
<CAPTION>
PRO FORMA
WESTAMERICA PV FINANCIAL COMBINED
------------ ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans 90 or more days past due and still
accruing interest.......................... $ 154 20 174
Nonaccrual loans:
Performing................................. 1,498 43 1,541
Nonperforming.............................. 7,639 384 8,023
------- ------- -------
Total nonaccrual loans.................... 9,137 427 9,564
------- ------- -------
Total nonperforming loans.................. 9,291 447 9,738
Loan collateral substantively repossessed... 2,270 - 2,270
Other real estate owned..................... 9,759 55 9,814
------- ------- -------
Total nonperforming assets................. $21,320 $ 502 $21,822
======= ======= =======
Reserve for loan losses as a percentage
of nonperforming loans..................... 293% 433% 300%
Nonperforming loans as a percentage of
total loans................................ 0.87 0.34 0.81
Nonperforming assets as a percentage of
total assets............................... 1.05 0.29 0.99
</TABLE>
-65-
<PAGE>
The following tables present the actual regulatory capital positions of
each of Westamerica and PV Financial as of June 30, 1994, and a pro forma
combined regulatory capital position giving effect to the Merger:
UNAUDITED PRO FORMA REGULATORY CAPITAL POSITION
AS OF JUNE 30, 1994
<TABLE>
<CAPTION>
PRO FORMA
WESTAMERICA PV FINANCIAL COMBINED
------------------ ---------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- -------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital................. $ 159,175 12.12% $ 18,281 12.25% $ 177,456 12.13%
Minimum requirement............ 52,553 4.00 5,970 4.00 58,523 4.00
---------- ----- -------- ----- ---------- -----
Excess......................... $ 106,622 8.12% $ 12,311 8.25% $ 118,933 8.13%
========== ===== ======== ===== ========== =====
Total Capital.................. $ 195,732 14.90% $ 20,147 13.50% $ 215,879 14.75%
Minimum requirement............ 105,107 8.00 11,941 8.00 117,048 8.00
---------- ----- -------- ----- ---------- -----
Excess......................... $ 90,625 6.90% $ 81,206 5.50% $ 98,831 6.75%
========== ===== ======== ===== ========== =====
Risk-adjusted assets........... $1,313,837 $149,259 $1,463,096
========== ======== ==========
Tier 1 Capital................. $ 159,175 7.76% $ 18,281 10.86% $ 177,456 8.00%
Minimum leverage requirement... 82,044 4.00 6,733 4.00 88,777 4.00
---------- ----- -------- ----- ---------- -----
Excess......................... $ 77,131 3.76% $ 11,548 6.86% $ 88,679 4.00%
========== ===== ======== ===== ========== =====
Average total assets........... $2,051,105 $168,330 $2,219,435
========== ======== ==========
</TABLE>
MARKET PRICE AND DIVIDEND INFORMATION
MARKET QUOTATIONS
Westamerica Common Stock is listed and traded on Nasdaq and PV Financial
Common Stock is traded on the over-the-counter market and quoted on the Pink
Sheets. As of the Record Date, there were approximately 6,590 holders of
record of Westamerica Common Stock and approximately 990 holders of record of PV
Financial Common Stock, respectively.
-66-
<PAGE>
The following table sets forth for Westamerica Common Stock the high and
low closing prices for the quarters indicated. The table sets forth for PV
Financial Common Stock the approximate high and low bid prices of which PV
Financial is aware, which prices reflect interdealer prices without retail mark-
up, mark-down or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
WESTAMERICA PV FINANCIAL
COMMON STOCK COMMON STOCK
---------------------- -------------------
HIGH LOW HIGH LOW
------------ ------ --------- -------
<S> <C> <C> <C> <C>
1992
First Quarter........... $20.63 $18.88 $ 7.00 $ 6.00
Second Quarter.......... 22.25 18.50 7.00 6.37
Third Quarter........... 22.25 18.25 7.25 6.00
Fourth Quarter.......... 23.75 19.50 6.75 5.75
1993
First Quarter........... $30.25 $22.13 $ 6.87 $ 5.75
Second Quarter.......... 28.75 23.88 7.63 6.25
Third Quarter........... 28.50 25.13 9.25 7.00
Fourth Quarter.......... 28.50 25.75 9.63 8.50
1994
First Quarter........... $29.00 $25.50 $ 9.25 $ 9.25
Second Quarter.......... 32.50 27.38 11.50 9.25
Third Quarter........... 33.25 29.25 17.50 11.25
Fourth Quarter through
October 4, 1994.......
</TABLE>
On July 25, 1994, the day prior to the first public announcement of the
Merger, the high, low and closing prices for Westamerica Common Stock on Nasdaq
were $30.25, $30.00 and $30.25, respectively.
On July 25, 1994, the last day in which trades in PV Financial Common Stock
were quoted on the Pink Sheets prior to the first public announcement of the
Merger, the bid and asked prices for PV Financial Common Stock as quoted on the
Pink Sheets were $11.25 and $12.25, respectively.
-67-
<PAGE>
DIVIDENDS AND DIVIDEND POLICY
The following table sets forth the per share cash dividends declared by
Westamerica and PV Financial during each quarter since January 1, 1992.
<TABLE>
<CAPTION>
WESTAMERICA PV FINANCIAL
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
1992
First Quarter.... $0.12 $ -
Second Quarter... 0.13 0.10
Third Quarter.... 0.13 -
Fourth Quarter... 0.13 0.10
1993
First Quarter.... 0.14 0.05
Second Quarter... 0.14 0.05
Third Quarter.... 0.14 0.05
Fourth Quarter... 0.15 0.06
1994
First Quarter.... 0.15 0.06
Second Quarter... 0.15 0.06
Third Quarter.... 0.17 0.06
</TABLE>
Westamerica has paid quarterly cash dividends since it commenced operations
on January 1, 1973. Westamerica and PV Financial are subject to certain
regulatory and contractual restrictions on their respective ability to pay
dividends. Holders of Westamerica Common Stock and PV Financial Common Stock
are entitled to receive dividends as and when declared by the Board of Directors
of Westamerica and PV Financial, respectively, out of funds legally available
therefor under the laws of the State of California. The GCL provides that a
corporation may make a distribution to its shareholders if the corporation's
retained earnings equal at least the amount of the proposed distribution. The
GCL further provides that in the event sufficient retained earnings are not
available for the proposed distribution a corporation may nevertheless make a
distribution to its shareholders if, after giving effect to the distribution, it
meets two conditions, which generally stated are as follows: (i) the
corporation's assets must equal at least 125% of its liabilities; and (ii) the
corporation's current assets must equal at least its current liabilities or, if
the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 125% of its current liabilities.
Westamerica is also subject to certain restrictions on its ability to pay
dividends under the terms of certain of its debt agreements. See "Description
of Westamerica Capital Stock and Indebtedness-Debt Agreements."
The Agreement prohibits Westamerica from paying any dividends other than
its regular quarterly cash dividend in amounts substantially equivalent to
dividends paid in the pattern of declarations and payments established in the 18
months prior to July 25, 1994. A declaration by Westamerica of a quarterly
dividend up to 2 cents per share per quarter higher (on a cumulative basis) than
the most recent previous quarterly dividend will be deemed to meet this 18-month
standard. The Agreement also prohibits PV Financial from paying any dividend
other than regular quarterly dividends in amounts of 6 cents per share.
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<PAGE>
INFORMATION ABOUT WESTAMERICA
Westamerica is a bank holding company registered under the BHC Act and was
incorporated in the State of California in 1972. At June 30, 1994, Westamerica
had total consolidated assets of approximately $2.03 billion, deposits of
approximately $1.71 billion and shareholders' equity of approximately $158.6
million. Westamerica's banking subsidiaries, Westamerica Bank, Napa Valley Bank
and Bank of Lake County, are California state-chartered banks, with 49 banking
offices in eleven counties in Northern California.
Westamerica was formed pursuant to a plan of reorganization among three
previously unaffiliated banks: Bank of Marin, Bank of Sonoma County and First
National Bank of Mendocino County (formerly First National Bank of Cloverdale).
After incorporation, Westamerica subsequently acquired the Bank of Lake County
(1974), Gold Country Bank (1979), Vaca Valley Bank (1981) and John Muir National
Bank (1992). In 1993, Westamerica acquired Napa Valley Bancorp, its wholly
owned banking subsidiaries Napa Valley Bank and Suisun Valley Bank, and Napa
Valley Development, a California corporation which owned, developed and marketed
real estate and provided real estate consulting services to Napa Valley Bancorp.
Suisun Valley Bank was subsequently merged into Westamerica Bank. In addition,
Westamerica acquired Napa Valley Bancorp's majority interest in Sonoma Valley
Bank, which was subsequently sold, and Bank of Lake County.
Westamerica's subsidiary, Community Banker Services Corporation ("CBSC"),
provides centralized services to Westamerica's banking subsidiaries. Through
its subsidiary, Weststar Mortgage Corporation, CBSC conducts mortgage servicing
activities. Westamerica also owns all of the capital stock of Westcore, an
inactive company. On September 1, 1994, Westamerica filed an application with
the Federal Reserve Bank of San Francisco to commence an employee benefit
consulting business through Westcore.
Westamerica, through its banking subsidiaries, provides checking and
savings deposit services as well as commercial, real estate and personal loans.
In addition, most branches offer safe deposit facilities, automated teller
units, collection services and other investment services.
Westamerica's principal executive offices are located at 1108 Fifth Avenue,
San Rafael, California 94901, and its telephone number is (415) 257-8000.
For additional information relating to Westamerica and the combined company
that would result from the Merger, see "The Merger-Management and Operations
Following the Merger" and "Pro Forma Combined Financial Information."
INFORMATION ABOUT PV FINANCIAL
PV Financial was incorporated under the laws of the State of California on
February 2, 1982 and is registered as a bank holding company under the BHC Act.
PV Financial's principal executive offices are located at 1524 McHenry Avenue,
Modesto, California 95350, and its telephone number is (209) 575-2900.
PV Financial owns all of the outstanding shares of the Bank, which is a
national banking association. The Bank engages in the general commercial
banking business. The Bank offers its services in offices located at 1524
McHenry Avenue, 1302 J. Street and 1600 Kansas Avenue in Modesto, at 600 East
Main Street in Turlock and at 2918 East Whitmore in Ceres, California. The Bank
offers a full range of commercial banking services to its customers, including
savings and checking deposits, commercial, installment and real estate loans,
safe deposit boxes, sale of travelers cheques, and other customary bank
services. The Bank emphasizes service to customers in commercial business, food
production and agriculture.
The Bank has major California banks as correspondents and works with its
customers to secure international banking services from these banks as needed.
The Bank has established its primary correspondent
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<PAGE>
correspondent banking relationships with the Federal Reserve Bank of San
Francisco, Bank of America NT&SA, Wells Fargo Bank, N.A. and The Bank of
California, N.A.
At June 30, 1994, PV Financial and the Bank had 74 full-time-equivalent
employees, all of whom were employed by the Bank.
LITIGATION
The Bank, one of its directors and a Bank employee are defendants in a
lawsuit, filed in the United States District Court, Eastern District of
California, which claims that they and certain other defendants violated the
Sherman Antitrust Act and the federal RICO statute. The Bank (and its director
and employee) has denied all allegations by the plaintiffs and intends to
vigorously defend against the claims. A motion by the Bank to dismiss the
Sherman Antitrust Act and RICO claims was denied by order dated April 14, 1993;
however, by stipulation, the parties dismissed common law claims for fraud,
intentional interference with a contractual relationship, unfair and deceptive
trade practices and civil conspiracy in June of 1993. The plaintiffs are seeking
compensatory damages, treble and punitive damages and attorney fees and costs.
The Bank expects to file a motion for summary judgment which is currently
scheduled to be heard by the court on or about November 21, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PV FINANCIAL
The following analysis of PV Financial's financial condition and results of
operations for the six months ended June 30, 1994 and 1993 and the years ended
December 31, 1993, 1992 and 1991 should be read in conjunction with PV
Financial's consolidated financial statements and related notes thereto and the
unaudited interim historical financial statements of PV Financial appearing
elsewhere herein and other information presented elsewhere in this Proxy
Statement/Prospectus. Average balances, including balances used in calculating
certain financial ratios, are generally comprised of average daily balances.
Amounts shown are consolidated unless stated otherwise.
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings increased in 1993 to $1,958,211 from $1,634,996 in 1992, which
was up from $1,618,130 in 1991. During periods of changing interest rates, PV
Financial's earnings can be affected as floating rates on the majority of
earning assets reprice immediately, while interest rates paid on certificates of
deposit change only at their maturity. Therefore, an increase in interest rates
will have a short-term positive impact on earnings, while a decrease in interest
rates will have a short-term negative impact on earnings. Although interest
rates declined slightly in 1993, PV Financial was able to increase the net
interest spread by loan growth and repricing maturing deposits at current market
rates. In 1992, PV Financial was able to offset the decrease in net interest
income, due to declining interest rates, by increased noninterest income and
decreased noninterest expenses. On a per share basis, net earnings increased
15.79% to $0.88 per share in 1993 from $0.76 per share in 1992 which was a 1.30%
decrease from $0.77 per share in 1991.
Consolidated net earnings for the six months ended June 30, 1994 and 1993
were $1,061,195 and $797,634, respectively. Net earnings per share for the six
months ending June 30, 1994 and 1993 were $0.49 and $0.37, respectively.
-70-
<PAGE>
NET INTEREST INCOME
PV Financial's primary source of revenue is net interest income
representing the difference between interest income generated from interest
earning assets and interest expense on interest bearing liabilities. Net
interest income increased $1,342,252, or 18.60%, between 1992 and 1993. This
increase was the result of an increase in total interest income of $480,357 and
a decrease in total interest expense of $861,895. In 1992, net interest income
decreased by $439,427, or 5.74%, over 1991. This decrease was the result of
decreases in total interest income of $1,741,144 and decreases in total interest
expense of $1,301,717.
Changes in the level of interest income are affected by changes in the
rates earned and the volume of interest earning assets. The increase in total
interest income of $480,357, from 1992 to 1993, was comprised of approximately
$1,121,000 attributable to the $14,387,000 increase in average interest earning
assets in 1993. This is offset by a $641,000 decrease attributable to the
decreases in the yields on interest earning assets of 53 basis points. The
decrease in total interest income of $1,741,144 in 1992 over 1991 was made up of
a $641,000 increase associated with a $10,205,000 increase in average interest
earning assets and a decrease of $2,382,000 associated with the decrease in
yield of 212 basis points. The total yield on average interest earning assets
in 1993 was 8.26% compared to 8.79% in 1992 and 10.91% in 1991. In 1993,
average loans were 83.31% of average earning assets compared to 83.79% in 1992
and 83.86% in 1991.
Interest expense is a function of the volume of and rates paid on interest
bearing liabilities. The decrease of $861,895 in total interest expense in 1993
over 1992 was comprised of a $195,000 increase related to the $8,289,000
increase in total average interest bearing liabilities and a decrease of
$1,057,000 related to a decrease of 108 basis points on yields paid. In 1992,
total interest expense decreased by $1,301,717 from 1991. This decrease was
comprised of a $201,000 increase related to the $6,640,000 increase in average
interest bearing liabilities and a decrease of 162 basis points or $1,503,000
related to the yield paid. Through the end of 1993, the average balances of
noninterest bearing deposits continued to increase; therefore, the yield changes
were mainly the results of the declining interest rate environment. For the
period ended June 30, 1994, noninterest bearing deposits fell to $33,298,000
from $43,715,000 at December 31, 1993, largely due to declines in escrow
deposits from two title companies. Management of PV Financial believes that the
June 30, 1994, levels of noninterest bearing deposits are within a range which
should continue in the foreseeable future.
Net interest income increased to $4,699,722 for the six months ended June
30, 1994, from $4,037,828 for the same period in 1993. This net increase was
composed of increased total interest income of $536,353 and decreased total
interest expense of $125,541.
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<PAGE>
The tables below set forth consolidated average daily balances of each
principal category of assets, liabilities and shareholders' equity, interest on
interest earning assets, and interest on interest bearing liabilities, and the
average yields earned or rates paid thereon for the periods indicated. The
tables also show the net interest earnings and the net yield on average earning
assets. Averages were computed based upon daily balances.
CONSOLIDATED AVERAGE DAILY BALANCES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1993 1992 1991
-------------------------------- ------------------------------- ------------------------------
INTEREST RATES INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
---------- -------- -------- --------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold and
securities sold under
repurchase agreement........ $ 13,197 $ 419 3.18% $ 9,346 $ 303 3.24% $ 3,576 $ 159 4.45%
Interest bearing deposits in
other banks................. - - - 1,339 63 4.71 581 40 6.88
Securities (taxable)......... 11,628 584 5.02 11,098 877 7.90 15,889 1,384 8.71
Loans(1)(2).................. 123,944 11,285 9.10 112,599 10,565 9.38 104,131 11,966 11.49
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total Earning Assets....... 148,769 $12,288 8.26% 134,382 $11,808 8.79% 124,177 $13,549 10.91%
======= ---- ======= ---- ======= -----
Cash and due from banks...... 11,454 10,721 8,295
Allowance for possible loan
losses...................... (1,852) (1,550) (1,537)
Premises & equipment......... 1,023 1,199 1,143
Other assets................. 2,125 2,124 2,712
-------- -------- --------
Total Assets............... $161,519 $146,876 $134,790
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest bearing demand
deposits.................... $ 39,626 $ 925 2.33% $ 34,711 $ 1,155 3.33% $ 32,800 $ 1,501 4.58%
Savings deposits............. 13,360 369 2.76 9,908 369 3.72 5,081 249 4.90
Other time deposits.......... 60,115 2,435 4.05 59,740 3,036 5.08 58,354 3,994 6.84
Federal funds purchased...... - - - 74 3 4.05 182 10 5.49
Short term debt.............. - - - 379 28 7.39 1,755 139 7.92
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total interest bearing
liabilities............... 113,101 3,729 3.30 104,812 4,591 4.38 98,172 5,893 6.00
Noninterest bearing funds.... 35,668 - - 29,570 - - 26,005 - -
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total Supporting
Liabilities............... 148,769 $ 3,729 2.51 $134,382 $ 4,591 3.42 $124,177 $ 5,893 4.75
======= ======= =======
Noninterest bearing deposits. 30,886 25,528 22,044
Other Liabilities............ 968 1,383 1,049
Shareholders' Equity......... 16,564 15,153 13,525
Less: Non interest bearing
funds....................... (35,668) (29,570) (26,005)
-------- -------- --------
Total Liabilities and
Shareholders'
Equity..................... $161,519 $146,876 $134,790
======== ======== ========
Net Interest Rate Margin..... 5.75% 5.37% 6.16%
==== ======= =====
</TABLE>
- ----------
(1) Nonaccruing loans not yet charged off are included in the loan balance.
(2) Loan fees of $804,193 in 1993, $593,980 in 1992, and $627,730 in
1991 were included in interest on loans.
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<PAGE>
CONSOLIDATED AVERAGE DAILY BALANCES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
--------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold and securities
sold under repurchase agreement...... $ 9,589 $ 176 3.70% $ 13,584 $ 214 3.18%
Interest bearing deposits in
other banks.......................... - - - - - -
Securities (taxable).................. 14,129 312 4.45 10,730 304 5.71
Loans(1)(2)........................... 131,107 5,992 9.22 119,964 5,426 9.12
-------- ------ ------- -------- ------ -------
Total Earning Assets................. 154,825 $6,480 8.44% 144,278 $5,944 8.31%
====== ======= ====== =======
Cash and due from banks............... 11,528 10,643
Allowance for possible loan losses.... (1,935) (1,782)
Premises & equipment.................. 918 1,062
Other assets.......................... 2,994 1,969
-------- --------
Total Assets......................... $168,330 $156,170
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest bearing demand deposits...... $ 43,161 $ 456 2.13% $ 37,777 $ 459 2.45%
Savings deposits...................... 15,465 202 2.63 12,827 181 2.85
Other time deposits................... 58,766 1,123 3.85 60,685 1,266 4.21
Federal funds purchased............... - - - - - -
Short term debt....................... - - - - - -
-------- ------ ------- -------- ------ -------
Total interest bearing
liabilities......................... 117,392 1,781 3.06 111,289 1,906 3.45
Non interest bearing funds............ 37,433 - - 32,989 - -
-------- ------ ------- -------- ------ -------
Total Supporting Liabilities......... 154,825 $1,781 2.32 144,278 $1,906 2.66
====== ======
Non interest bearing deposits......... 31,666 27,712
Other Liabilities..................... 1,285 1,000
Stockholders' Equity.................. 17,987 16,169
Less: Non interest bearing funds...... (37,433) (32,989)
-------- --------
Total Liabilities and Shareholders'
Equity............................... $168,330 $156,170
======== ========
Net Interest Rate Margin.............. 6.12% 5.65%
======= =======
</TABLE>
- --------------------------------------
(1) Nonaccruing loans not yet charged off are included in the loan balance.
(2) Loan fees of $394,157 for the six months ended June 30, 1994 and $375,493
for the six months ended June 30, 1993 were included in interest on loans.
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<PAGE>
Rate and Volume Variances. The following table sets forth a summary of the
changes in average assets and liability balances (volume) and changes in average
interest rates for the periods indicated. Changes not solely attributable to
volume or rates have been allocated to volume.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------
1994 OVER 1993 1993 OVER 1992 1992 OVER 1991
------------------------- ---------------------------- -----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------ ------ ------- -------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans................................ $507 $ 59 $ 566 $1,035 $ (315) $ 720 $ 796 $(2,197) $(1,401)
Securities........................... 75 (67) 8 27 (320) (293) (378) (129) (507)
Interest bearing deposits in other
banks.............................. - - - (63) - (63) 36 (13) 23
Federal funds sold and securities
purchased under resale agreement... (73) 35 (38) 122 (6) 116 187 (43) 144
---- ----- ----- ------ ------- ------ ----- ------- -------
Total................................ 509 27 536 1,121 (641) 480 641 (2,382) (1,741)
---- ----- ----- ------ ------- ------ ----- ------- -------
Interest Bearing Liabilities
Interest bearing demand deposits..... 57 (60) (3) 117 (347) (230) 64 (410) (346)
Savings deposits..................... 35 (14) 21 95 (95) - 180 (60) 120
Other time deposits.................. (35) (108) (143) 14 (615) (601) 63 (1,021) (958)
Federal funds purchased.............. - - - (3) - (3) (4) (3) (7)
Short term borrowings................ - - - (28) - (28) (102) (9) (111)
---- ----- ----- ------ ------- ------ ----- ------- -------
Total................................ 57 (182) (125) 195 (1,057) (862) 201 (1,503) (1,302)
---- ----- ----- ------ ------- ------ ----- ------- -------
Net Change in Interest Income.......... $452 $ 209 $ 661 $ 926 $ 416 $1,342 $ 440 $ (879) $ (439)
==== ===== ===== ====== ======= ====== ===== ======= =======
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The adequacy of the allowance for possible loan losses is based upon
periodic reviews of the loan portfolio by management. Economic factors, loan
portfolio composition, industry strength, and management's estimates of future
possible losses are some of the factors that are taken into consideration. Loans
are charged against the allowance when classified as a loss by management or by
the regulatory agencies. Each year PV Financial management, with the assistance
of an outside independent expert, reviews the loan portfolio. Based upon
management's assessment of the overall quality of the loan portfolio, external
economic conditions and other factors, $543,000, $490,000 and $93,500 was
expensed for possible losses for 1993, 1992 and 1991, respectively. Loans
totaling $354,444 were charged off during 1993 and $29,582 was collected in
recoveries, leaving a balance of $1,873,194 in the allowance, or 1.41 percent of
gross loans outstanding at December 31, 1993, compared with 1.46 percent at
December 31, 1992. Loans charged off totaled $517,335 in 1992 and $139,211 in
1991, while recoveries totaled $47,528 and $200,305, respectively. As a percent
of average net loans outstanding during the year, net loans charged off were
0.22 percent in 1993, 0.42 percent in 1992 and -0.06 percent in 1991. Management
has taken into account the general decline of real estate values in California,
as well as toxic waste and environmental clean up costs when evaluating the
loans secured by real estate. Also, if a drought condition re-occurs in
California, it could have a material adverse impact on agricultural credits,
which totaled $28,342,748 or 20.84% of outstanding loans at June 30, 1994.
For the six months ended June 30, 1994 and 1993, $172,467 and $261,200,
respectively, were charged to the provision for possible loan losses. Management
continues to review the adequacy of the allowance for possible loan losses,
keeping in mind economic factors, loan portfolio composition, industry strength,
the general level of real estate values, the California recession, toxic waste
and environmental clean up costs and other factors considered to be relevant by
management. At June 30, 1994, management considered PV Financial's allowance to
be adequate as an allowance against foreseeable losses in its portfolio.
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<PAGE>
TOTAL NONINTEREST INCOME
Total noninterest income increased to $1,669,326 in 1993 from $1,596,144 in
1992 and $807,213 in 1991. Service charges on deposit accounts increased to
$573,710 in 1993 from $517,026 in 1992 and $467,318 in 1991 as a result of
customer analysis fees charged and an increased customer base. Other
noninterest income increased to $370,863 in 1993 from $264,898 in 1992 and
$159,975 in 1991, due to increases in fees for packaging mortgage loans
originated by other financial institutions and operating gains on a real estate
joint venture. Gains on sale of loans consist of gains on the sale of the
guaranteed portion of Small Business Administration ("SBA") guaranteed
loans. In 1993, these gains decreased to $724,744 from $764,709 in 1992 which
had increased from $287,518 in 1991. For the period ended June 30, 1994, gains
totaled $297,000 compared to $211,000 for the period ended June 30, 1993. The
decline in gains on the sale of SBA loans for 1993 compared to 1992 resulted
primarily from changes adopted by the SBA in its regulations during 1993 which
generally caused the level of premiums paid on such loans to decline. PV
Financial anticipates this will cause the level of gain on the sale of SBA loans
for all of 1994 to be less than 1993 levels.
For the six months ended June 30, 1994 and 1993, total noninterest income
was $694,483 and $645,276, respectively. This net increase in 1994 was due to
increased service charges on deposit accounts, increases in gains on the sale of
the guaranteed portion of the SBA loans and decreased fees for processing
mortgage loans. The decreased fees for processing mortgage loans is attributable
to the decrease in demand for residential loan originations and refinancings.
Securities losses increased $57,420 for the six months ended June 30, 1994 from
June 30, 1993, as a result of the sale of mutual funds previously held in PV
Financial's available-for-sale securities portfolio. PV Financial is in the
process of liquidating the balance of its mutual fund holdings.
TOTAL NONINTEREST EXPENSE
Total noninterest expense increased by $868,860, or 15.58%, from 1992 to
1993 and decreased $46,960, or 0.83%, from 1991 to 1992. Salaries and employee
benefits increased in 1993 to $3,174,784 from $2,853,036 in 1992 which
decreased from $3,007,280 in 1991. These changes resulted from changes in the
employee base and costs of benefits. Occupancy expense increased to $1,089,539
in 1993 from $1,032,750 in 1992, and $892,966 in 1991. The increases in 1993
and 1992 was due primarily to the relocation of one of the Bank's branches and
the opening of its fourth branch. Federal Deposit Insurance Corporation ("FDIC")
insurance assessments also increased due to deposit growth and increased rates
charged by the FDIC. Other operating expense increased to $1,846,644 in 1993
from $1,428,321 in 1992 which had decreased from $1,478,821 in 1991. These
changes were attributed to increased costs of item processing and variances in
the normal cost of operations.
For the six months ended June 30, 1994 and 1993, total noninterest expense
was $3,363,643 and $3,059,570, respectively. The increase of $304,073 was due
to three factors. Salaries and employee benefits increased $196,308 for the six
months ended June 30, 1994 from June 30, 1993, due to changes in the employee
base and costs of benefits. Occupancy costs were higher in the 1994 period by
$36,310 due to increased rents and depreciation costs. Other operating expenses
were $71,455 higher in the 1994 period than in the 1993 period mainly due to
increased data processing and item processing costs.
LOANS
Management is aware of the need to maintain conservative credit standards.
PV Financial is not involved in foreign lending. PV Financial generates loans
primarily within the geographic market area of Stanislaus, southern San Joaquin,
and northern Merced counties. The principal industries are agriculture,
commercial business, and real estate and real estate development. In
management's view, the economic diversity of its target market, coupled with the
emphasis on providing customers with proven products, has enabled PV Financial
to avoid activities which have proven risky to other financial institutions in
recent years.
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<PAGE>
The following table sets forth certain information regarding PV Financial's
loan portfolio.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ ------------ ------------ ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Construction............ $ 5,932,878 $ 9,008,668 $ 9,196,551 $ 8,786,209 $11,876,169 $ 9,388,566
Commercial.......................... 50,632,423 47,317,164 43,093,680 42,537,636 34,951,693 30,783,147
Commercial Secured by Real Estate... 46,350,015 42,559,318 29,092,029 28,757,963 23,112,158 20,963,755
Agricultural........................ 28,342,748 30,062,150 28,172,339 27,821,667 23,036,765 19,868,952
Installment......................... 1,376,356 558,836 778,485 1,328,164 1,758,704 2,066,189
Other............................... 3,355,937 3,748,924 3,124,520 2,143,183 1,305,508 1,803,721
------------ ------------ ------------ ------------ ----------- -----------
Total loans......................... $135,990,357 $133,255,060 $113,457,604 $111,374,822 $96,040,997 $84,874,330
</TABLE>
The following table sets forth cumulative maturity distributions as of the
dates indicated for loans with fixed and floating interest rates. PV Financial
is unable to present the information by category of loan without undue burden
and expense.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
MATURING
--------------------------------------------------------
AFTER ONE
ONE YEAR OR YEAR THROUGH GREATER THAN
LESS FIVE YEARS FIVE YEARS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed...... $ 6,395,229 $ 5,688,862 $ 3,543,032 $ 15,627,123
Floating... 57,141,772 27,146,453 33,339,712 117,627,937
----------- ----------- ----------- ------------
Total...... $63,537,001 $32,835,315 $36,882,744 $133,255,060
=========== =========== =========== ============
JUNE 30, 1994
MATURING
--------------------------------------------------------
AFTER ONE
ONE YEAR OR YEAR THROUGH GREATER THAN
LESS FIVE YEARS FIVE YEARS TOTAL
----------- ------------ ------------ ------------
Fixed...... $ 7,325,705 $ 7,101,660 $ 3,139,396 $ 17,566,761
Floating... 55,217,008 32,104,853 31,101,735 118,423,596
----------- ----------- ----------- ------------
Total...... $62,542,713 $39,206,513 $34,241,131 $135,990,357
=========== =========== =========== ============
</TABLE>
The performance of loans, other than real estate and installment loans, is
evaluated primarily on the basis of a thorough review of each customer
relationship over a period of time and the judgment of senior lending officers
as to the ability of the borrowers to continue in business and to meet the
repayment terms of the loans. Real estate and installment loans are evaluated
on the basis of underlying collateral and the ability of the borrowers to make
scheduled payments. The ongoing credit control process includes a risk rating
system, combined with the development and monitoring of credit policies and
procedures, as well as a loan review process. The loan approval process is tied
to the risk rating system and is subject to management's and the board's
established guidelines on diversification. On a quarterly basis, management
employs an independent credit consultant whose sole purpose is to evaluate the
loan portfolio with special emphasis on new credits and potentially troubled
loans.
Loans on which the borrowers fail to perform under the original terms of
the obligation are considered non-performing loans. Non-performing loans fall
into two categories: loans past due 90 days or more and still accruing interest
and loans on nonaccrual status. Loans on which principal or interest has been
in default for a period of 90 days or longer must be well secured and in the
process of collection, or they will be placed on nonaccrual status. Loans are
placed on nonaccrual status when it has been determined by management that there
is reasonable doubt as to the collectibility of interest or principal. When
loans are placed on nonaccrual status, unpaid interest is reversed from
earnings.
-76-
<PAGE>
The following table presents data regarding PV Financial's loans more than
90 days past due and still accruing interest, nonaccrual loans, total
nonperforming loans and total nonperforming assets, which includes nonperforming
loans and other real estate owned ("OREO").
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------- ---------------------------
1994 1993 1992
--------- ------------- -----------
<S> <C> <C> <C>
Loans Past Due 90 Days or More
and Still Accruing Interest........... $ 20,039 $ 251,702 $ 33,722
Nonaccrual Loans....................... 427,026 166,058 1,059,529
-------- ---------- ----------
Total Nonperforming Loans.............. $447,065 $ 417,760 $1,093,251
OREO................................... 55,288 1,258,870 -
-------- ---------- ----------
Total Nonperforming Assets............. $502,353 $1,676,630 $1,093,251
======== ========== ==========
Nonperforming Assets as a Percentage
of Loans and OREO..................... 0.38% 1.27% 0.98%
Nonperforming Assets as a Percentage
of Total Assets....................... 0.29% 0.95% 0.68%
</TABLE>
Loan reviews are performed using grading criteria similar to those used by
bank regulatory agencies. Loans receiving lesser grades are called "classified
assets," which include all potential problem loans where known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with the present loan repayment
terms and which may become nonperforming assets. Other than as disclosed in the
table below, at June 30, 1994, management was not aware of any other material
credits about which there was serious doubt regarding the ability of the
borrower to repay according to the terms of the loan. The following table sets
forth data regarding classified loans.
Total loans classified for regulatory purposes as loss, doubtful or
substandard on the dates indicated were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------- ---------------------------
1994 1993 1993 1992
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Substandard........................ $3,081,984 $4,377,056 $2,316,758 $2,810,375
Doubtful........................... 284,427 249,984 114,166 110,910
Loss............................... 81,771 5,226 - -
---------- ---------- ---------- ----------
Total Loans Classified............. $3,448,182 $4,632,266 $2,430,924 $2,921,285
========== ========== ========== ==========
Classified Loans as a Percentage
of Total Loans.................... 2.59% 3.74% 1.86% 2.62%
</TABLE>
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS
114"), which addresses the accounting treatment of certain impaired loans and
amends FASB Statements No. 5 and No. 15. SFAS 114 does not address the overall
adequacy of the allowance for loan losses. SFAS 114 is effective January 1, 1995
but earlier implementation is encouraged. A loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Under SFAS 114, impairment is measured based on the present value of
the expected future cash flows discounted at the loan's effective interest rate.
Alternatively, impairment may be measured by using the loan's observable market
price or the fair value of the collateral if repayment is expected to be
provided solely by the underlying collateral.
PV Financial intends to implement SFAS 114 in January 1995. The impact of
implementation of SFAS 114 on PV Financial's financial statements has not been
determined, since measurement will be contingent upon the inventory of impaired
loans outstanding as of January 1, 1995.
-77-
<PAGE>
An analysis of the changes in the allowance for loan losses, including
chargeoffs and recoveries stated by loan categories, is presented below.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, DECEMBER 31,
----------- --------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ------------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.... $1,873,194 $1,655,056 $1,634,863 $1,480,269 $1,482,567 $1,390,967
Chargeoffs:
Commercial and Industrial....... $ 114,431 $ 331,473 $ 468,832 $ 122,952 $ 218,711 $ 400,932
Agricultural.................... - - - - - -
Other........................... 41,527 22,971 48,503 16,259 5,416 58,707
---------- ---------- ---------- ---------- ---------- ----------
Total loans charged off........... $ 155,958 $ 354,444 $ 517,335 $ 139,211 $ 224,127 $ 459,639
Recoveries:
Commercial and Industrial....... $ 42,502 $ 23,918 $ 46,569 $ 191,886 $ 199,436 $ 107,467
Agricultural.................... - - - - - -
Other........................... 1,298 5,664 959 8,419 22,393 63,772
---------- ---------- ---------- ---------- ---------- ----------
Total loan recoveries............. $ 43,800 $ 29,582 $ 47,528 $ 200,305 $ 221,829 $ 171,239
---------- ---------- ---------- ---------- ---------- ----------
Net chargeoffs.................... $ 112,158 $ 324,862 $ 469,807 $ (61,094) $ 2,298 $ 288,400
Provision charged to operations... $ 172,467 543,000 490,000 93,500 - 380,000
---------- ---------- ---------- ---------- ---------- ----------
Balance end of period............. $1,933,503 $1,873,194 $1,655,056 $1,634,863 $1,480,269 $1,482,567
========== ========== ========== ========== ========== ==========
Ratio of net charged of loans
during period to average
loans outstanding............... .09% .22% .42% (.06)% N/A .38%
Allowance for possible loan
losses to total loans........... 1.42 1.41 1.46 1.47 1.54 1.75
</TABLE>
The following table sets forth certain information regarding PV Financial's
allocation of the allowance for loan losses.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------------------
1994 1993 1992 1991
-------------------- ------------------------- -------------------------- ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF LOAN OF LOAN OF LOAN OF LOAN
CATEGORY CATEGORY CATEGORY CATEGORY
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
---------- ------- ---------- ------------ ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Industrial........ $1,510,753 75.68% $1,429,162 74.21% $1,191,138 71.73% $1,162,185 71.90%
Agricultural Loans... 375,427 20.84 400,955 22.56 424,888 24.83 437,756 24.98
Other Loans.......... 47,323 3.48 43,077 3.23 39,030 3.44 34,922 3.12
---------- ------ ---------- ------ ---------- ------ ---------- ------
Total Reserves....... $1,933,503 100.00% $1,873,194 100.00% $1,655,056 100.00% $1,634,863 100.00%
========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
INVESTMENT IN REAL ESTATE JOINT VENTURE
The increased value in the investment in real estate joint venture from
$893,711 on December 31, 1993 to $921,374 on June 30, 1994 is due to earnings
being accounted for under the equity method.
PV Financial has a 27% interest in a real estate joint venture. The
primary investment of the joint venture is an office building in which PV
Financial maintains its executive and administrative offices which occupy 12% of
the rentable square footage of the office building. As a part of the
contemplated Merger with Westamerica, PV Financial intends to vacate its
executive and administrative offices in the building and, pursuant to the
Agreement, has agreed to use its best efforts to sell its interest in the joint
venture or sublease the vacated office space.
-78-
<PAGE>
OTHER REAL ESTATE OWNED
OREO includes real estate acquired through foreclosure, or by obtaining a
deed in lieu of foreclosure. In the third quarter of 1993, PV Financial
acquired a commercial property through foreclosure with a book value of
$1,258,870. In the first quarter of 1994, PV Financial sold this property and
made a loan to facilitate the sale which bears interest at a floating rate equal
to prime plus 2% for a term of 26 years.
Other real estate owned at June 30, 1994 of $55,288 consisted of two
properties acquired in foreclosure during the first half of 1994.
COMMITMENTS AND LETTERS OF CREDIT
PV Financial is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit in
the form of loans or through standby letters of credit, and involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet.
PV Financial's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. PV Financial uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk at June
30, 1994 were as follows:
<TABLE>
<CAPTION>
VALUE
------------
<S> <C>
Undisbursed loan commitments... $33,901,736
Reserve lines.................. 1,159,916
Credit cards................... 1,654,624
Letters of credit.............. 1,543,729
-----------
Total.......................... $38,260,005
===========
</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
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. PV Financial evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by PV Financial upon extension of credit, is based on
management's credit evaluation.
Standby letters of credit are conditional commitments issued by PV
Financial 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.
LIQUIDITY
The objective of liquidity management is to maintain sufficient cash flow
to satisfy both changes in loan demand and deposit fluctuations while maximizing
the yield available from the instruments being used. Liquidity is managed from
both the asset and liability sides of the balance sheet. Liquid assets consist
of cash and due from banks, interest bearing deposits in other financial
institutions, federal funds sold, securities and maturing loans. On the
liability side of the balance sheet, liquidity is provided by core deposits,
lines of credit, borrowings in the capital markets and other liabilities.
-79-
<PAGE>
In order to provide liquidity when unexpected needs arise and to meet the
cyclical requirements of PV Financial's customers, management has established
informal federal funds purchase lines totaling $8,500,000 through four financial
institutions. Also available to PV Financial is access to a seasonal discount
line, $3,000,000 as of June 30, 1994, with the Federal Reserve Bank of San
Francisco, as well as a reverse repurchase agreement with a major brokerage
house. At December 31, 1993 and June 30, 1994, PV Financial had no outstanding
borrowings against these lines.
Cash and cash equivalents equaled $17,696,562 at December 31, 1993 and
$21,783,624 at December 31, 1992, and securities and securities purchased under
resale agreements equaled $24,048,222 and $23,828,000, respectively.
Cash and cash equivalents equaled $14,466,108 at June 30, 1994 and
$17,696,562 at December 31, 1993, and securities available-for-sale totaled
$11,414,705 and $17,044,866, respectively. The decrease in the six months ended
June 30, 1994 of $3,230,454 in cash and cash equivalents, the decrease in
securities of $5,637,886 and the increase in net loans of $2,617,161 offset a
decrease in deposits of $7,801,419 during the same period. A decrease in
noninterest bearing deposits from $43,714,950 at December 31, 1993 to
$33,298,004 at June 30, 1994, accounted for most of the deposit decrease, and
was due to decreased title company escrow deposits. Management believes that
the demand deposit levels at June 30, 1994 are consistent with the current rise
in interest rates as compared to the level at December 31, 1993 when they were
larger due to increased loan originations or refinancings due to the then lower
interest rates. An increase of $2,946,311 in time deposits over $100,000 for
the period ended June 30, 1994, to $33,096,439 for the period ended December 31,
1993, helped offset the decrease in noninterest bearing deposits.
Due to the continued low interest rate environment in 1993, there was
intense competition for deposit funds from alternative non-bank products such as
mutual funds. In spite of this pressure, PV Financial was able to increase its
deposit base by 10.89%, from $142,526,719 in 1992 to $158,046,992 in 1993. The
historic trend of faster growth in interest bearing deposits than in noninterest
bearing deposits did not continue in 1993, and as a result, noninterest bearing
deposits represented 27.66% of total deposits at December 31, 1993 as compared
to 22.42% at December 31, 1992. At December 31, 1993, there were $43,714,950 in
noninterest bearing checking accounts and $41,830,523 in interest bearing
checking accounts. Certificates of deposit under $100,000 and regular savings
were $42,351,391, while certificates of deposits over $100,000 were $30,150,128
at December 31, 1993. The comparative figures for December 31, 1992 were
$31,947,865 in noninterest bearing checking, $37,651,248 in interest bearing
checking, $40,008,428 in certificates of deposits under $100,000 and regular
savings, and $32,919,178 in certificates of deposits over $100,000.
INTEREST RATE SENSITIVITY
The operating income and net income of PV Financial depend to a substantial
extent on "rate differentials," i.e., the difference between the income PV
Financial receives from loans, securities and other earning assets, and the
interest expense it pays on deposits and other liabilities.
The interest rate sensitivity is measured over time and is based on PV
Financial's ability to reprice its assets and liabilities. The opportunity to
reprice assets in the same dollar amounts and at the same time as liabilities
tends to minimize interest rate risk in any interest rate environment. The
difference between the amount of assets and liabilities repriced at the same
time is referred to as the "gap." This represents the risk, or opportunity, in
repricing. Fluctuation in interest rates in the market place exposes banks to
potential gains and losses. These market fluctuations have a two-fold effect
upon banks; they influence the direction of future net interest income either
upward or downward and they determine the market value of PV Financial's
portfolio of rate sensitive assets and liabilities in a reciprocal direction.
Because of the possible influence of unpredictable and uncontrollable external
forces, management and the Board of Directors of PV Financial have established
limits of interest rate risk deemed acceptable and measure the current exposure
against those limits. At June 30, 1994, management believed that PV Financial's
exposure to interest rate risk was within established limits.
-80-
<PAGE>
At June 30, 1994, PV Financial was asset sensitive with $50,595,000 more
assets than liabilities subject to repricing within 90 days. This is a
disadvantage in a declining interest rate environment such as experienced in
1992 and 1993 but tends to be an advantage in a rising interest rate environment
as assets tend to reprice more quickly than liabilities.
The interest sensitivity analysis shown provides a simplified
representation of the exposure at a point in time. The asset/liability
management process relies upon a periodic, in-depth analysis of balance sheet
dynamics.
The following table presents the interest rate sensitivity of PV
Financial's assets and liabilities at June 30, 1994:
<TABLE>
<CAPTION>
AMOUNTS REPRICEABLE
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 DAY
TO 3 3 TO 12 1 TO 5 AFTER 5
1 DAY MONTHS MONTHS YEARS YEARS
------- --------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
Interest earning assets
Loans................................ $50,100 $70,058 $ 4,379 $ 9,289 $ 2,164
Securities........................... - 13,135 1,964 2,994 317
------- ------- -------- ------- -------
Total interest earning assets.............. $50,100 $83,193 $ 6,343 $12,283 $ 2,481
======= ======= ======== ======= =======
Interest bearing liabilities
Interest bearing checking accounts... $40,385 $ - $ - $ - $ -
Savings accounts..................... 16,659 - - - -
Time deposits........................ - 25,654 26,946 7,304 -
------- ------- -------- ------- -------
Total interest bearing liabilities......... $57,044 $25,654 $ 26,946 $ 7,304 $ -
======= ======= ======== ======= =======
Interest sensitivity gap per period........ $(6,944) $57,539 $(20,603) $ 4,979 $ 2,481
Cumulative interest sensitivity gap........ (6,944) 50,595 29,992 34,971 37,452
Cumulative interest sensitivity
gap as a percentage of total
interest earning assets................... (4.50)% 32.77% 19.42% 22.65% 24.26%
Cumulative ratio of interest sensitive
assets to interest sensitive
liabilities.......................... 0.88 1.61 1.27 1.30 1.32
</TABLE>
Floating rate loans are shown as maturing at the earliest repricing date.
Interest bearing checking accounts and savings accounts are shown as maturing
immediately. Noninterest bearing checking accounts, which are considered core
deposits, tend not to be sensitive to changes in interest rates and are not
included. All other categories are repriced by maturity date.
CAPITAL
Historically, PV Financial has relied on its earning ability to generate
the capital to satisfy capital requirements. Shareholders' equity at year end
1993 consisted of $12,007,862 in common stock, plus $5,564,982 in retained
earnings and minus $93,113 in net unrealized holding losses on securities
available-for-sale, for a total of $17,479,731. Shareholders' equity at year end
1992 consisted of $11,303,907 in common stock, plus $4,688,496 in retained
earnings and minus $117,594 in net unrealized holding losses on bond mutual
funds, for a total of $15,874,809. Shareholders' equity increased by 10.11% in
1993 over 1992. Shareholders' equity to assets was 9.90% in 1993 and 9.94% in
1992. Earnings for the two years ended December 31, 1994 have been adequate to
provide for the growth that has occurred, and management believes that the
present equity, plus anticipated earnings, will be sufficient to support
presently projected growth.
The Federal Reserve Board, Office of Comptroller of the Currency (the
"Comptroller") and FDIC have adopted guidelines designed to make capital
requirements more sensitive to differences in risk among banking organizations,
including off-balance sheet exposures, and to make the definition of bank
capital more uniform internationally. Under these risk-based capital
guidelines, a financial institution is required to maintain Tier I capital equal
to at least 8% of its assets, weighted by risk. Additionally, to be considered
well capitalized, a financial institution must maintain total capital equal to
at least 10% of risk adjusted assets.
-81-
<PAGE>
As of June 30, 1994, PV Financial's Tier I total risk-based capital ratio
was 12.25% and PV Financial's total risk-based capital ratio was 13.50%. There
are legal limitations under both federal and state law on the ability of the
Bank to provide funds to PV Financial. The Bank's retained earnings of
$8,141,601 were not restricted as of June 30, 1994.
INVESTMENT SECURITIES
PV Financial adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS No. 115"), at December 31, 1993. Under SFAS No. 115, PV
Financial classifies its debt and marketable equity securities into one of two
categories: available-for-sale or held-to-maturity. Held-to-maturity
securities are those securities which PV Financial has the ability and intent to
hold until maturity. All other securities are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of related
tax effect, on available-for-sale securities are excluded from earnings and are
reported as a separate component of shareholders' equity until realized.
Summary yield and maturity information regarding PV Financial's investment
securities available-for-sale and investment securities held-to-maturity
portfolios at June 30, 1994 are set forth in the following table.
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
------------------- --------------------- -------------------- --------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ------ ---------- -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available-for-Sale
U.S. Government
Agencies................ $ - - $6,097,935 4.38% - $ % $ - -%
Repurchase
Agreements.............. 5,000,000 4.50% - - - - - -
Mutual Funds.............. - - - - - - 316,770 5.69%
---------- ---- ---------- ---- --------- ----- --------- -----
Estimated Fair Value...... $5,000,000 4.50% $6,097,935 4.38% - $ -% $316,770 5.69%
========== ==== ========== ==== ========= ===== ======== =====
Securities Held-to-Maturity
U.S. Treasury............. $ - -% $ 996,524 5.34% - $ -% $ - -%
U.S. Government
Agencies................ 1,000,000 6.13% 4,999,107 4.43% - - - -
---------- ---- ---------- ---- --------- ----- --------- -----
Carrying Value............ $1,000,000 6.13% $5,995,631 4.58% - $ - $ - -
========== ==== ========== ==== ========= ===== ======== =====
Estimated Fair Value...... $1,005,813 $5,878,622 - $ -
========== ========== ========= ========
</TABLE>
-82-
<PAGE>
The following table sets forth the carrying values and fair values of
securities at December 31, 1993:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
Securities Available-for-Sale
U.S. Treasury Securities....... $ -
U.S. Government Agencies....... 6,340,196
Other Securities............... 10,704,670
-----------
Carrying Value................ $17,044,866
===========
Fair Value.................... $17,044,866
===========
Securities Held-to-Maturity
U.S. Treasury Securities....... $ 1,006,445
U.S. Government Agencies....... 5,996,911
Other Securities............... -
-----------
Carrying Value................ $ 7,003,356
===========
Fair Value.................... $ 7,024,371
===========
</TABLE>
Prior to December 31, 1993, PV Financial classified securities as
securities held-for-sale or investment securities. Securities held-for-sale and
investment securities were recorded at amortized cost or fair value with
unrealized gains and losses on bond mutual funds reported as a separate
component of shareholders' equity.
The following table sets forth the carrying values and fair values of
securities at December 31, 1992:
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------
<S> <C>
Securities Held-for-Sale
U.S. Treasury Securities... $ -
U.S. Government Agencies... 9,145,594
Other Securities........... -
----------
Carrying Value............ $9,145,594
==========
Fair Value................ $9,198,220
==========
Investment Securities
U.S. Treasury Securities... $ -
U.S. Government Agencies... -
Other Securities........... 682,406
----------
Carrying Value............ $ 682,406
==========
Fair Value................ $ 682,406
==========
</TABLE>
-83-
<PAGE>
DEPOSITS
The following table sets forth, by time remaining to maturity, PV
Financial's domestic time deposits in amounts of $100,000 or more.
<TABLE>
<CAPTION>
JUNE 30,
1994
--------
<S> <C>
Time Remaining To Maturity
3 months or less............. $16,816
Over 3 through 6 months...... 4,981
Over 6 through 12 months..... 7,572
Over 12 months............... 3,727
-------
Total...................... $33,096
=======
</TABLE>
SELECTED RATIOS
The following table sets forth PV Financial's return on average assets and
average equity, as well as PV Financial's dividend payout ratio.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1994 1993 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on average assets.......... 1.26% 1.02% 1.21% 1.11% 1.20%
Return on average equity.......... 11.83 9.89 11.82 10.79 11.96
Dividend payout ratio............. 25 27 24 25 27
</TABLE>
-84-
<PAGE>
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
GENERAL
Westamerica and PV Financial are incorporated under and subject to all the
provisions of the GCL.
Upon consummation of the Merger, except for those persons, if any, who
perfect appraisal rights under the GCL and except for the Westamerica option to
purchase shares of PV Financial Common Stock, which will be canceled as a result
of the Merger (see "The Merger-Restated Stock Option Agreement" and "Dissenters'
Rights of Appraisal"), the shareholders of PV Financial will become shareholders
of Westamerica.
Westamerica is a California corporation and, accordingly, is governed by
the GCL and by its Articles of Incorporation (the "Westamerica Articles") and
Bylaws (the "Westamerica Bylaws"). While PV Financial is also governed by the
GCL, its Articles of Incorporation (the "PV Financial Articles") and Bylaws (the
"PV Financial Bylaws") differ in certain material respects from the Westamerica
Articles and Westamerica Bylaws. In addition, unlike PV Financial Common Stock,
each outstanding share of Westamerica Common Stock is accompanied by Rights.
See "Description of Westamerica Capital Stock and Indebtedness-Shareholder
Rights Plan."
The following is a general comparison of certain similarities and material
differences between the rights of Westamerica shareholders and the rights of PV
Financial shareholders under their respective Articles of Incorporation and
Bylaws. This discussion is only a summary of certain provisions and does not
purport to be a complete description of such similarities and differences, and
is qualified in its entirety by reference to the GCL, the common law thereunder
and the full text of the Westamerica Articles, Westamerica Bylaws, PV Financial
Articles and PV Financial Bylaws.
Some of the provisions in the Westamerica Articles and the Westamerica
Bylaws discussed below may deter efforts to obtain control of Westamerica on a
basis which some shareholders might deem favorable. Such provisions are
designed to encourage any person attempting a change in control of Westamerica
to enter into negotiations with the Board of Directors of Westamerica.
QUORUM REQUIREMENTS
The Westamerica Bylaws provide that the presence in person or by proxy of
the holders of one-third of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business. The PV
Financial Bylaws require the presence in person or by proxy of the holders of a
majority of the shares entitled to vote for a quorum to exist.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Section 317 of the GCL ("Section 317") expressly grants to each California
corporation the power to indemnify its directors, officers and agents against
certain liabilities and expenses incurred in the performance of their duties.
Rights to indemnification beyond those provided by Section 317 may be valid to
the extent that such rights are authorized in the corporation's articles of
incorporation. Indemnification may not be made, however, with respect to
liability incurred in connection with any of the following acts for which the
liability of directors may not be limited under the GCL: (i) acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law;
(ii) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director; (iii) any transaction from which a
director derived a personal benefit; (iv) acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that
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amounts to an abdication of the director's duty to the corporation or its
shareholders; (vi) acts or omissions arising out of certain interested party
transactions; or (vii) acts in connection with illegal distributions, loans or
guarantees.
With respect to all proceedings other than shareholder derivative actions,
Section 317 permits a California corporation to indemnify any of its directors,
officers or other agents only if such person acted in good faith and in a manner
such person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. In the case of derivative actions, a
California corporation may indemnify any of its directors, officers or agents
only if such person acted in good faith and in a manner such person believed to
be in the best interests of the corporation and its shareholders. Furthermore,
in derivative actions, no indemnification is permitted (i) with respect to any
matter with respect to which the person to be indemnified has been held liable
to the corporation, unless such indemnification is approved by the court; (ii)
of amounts paid in settling or otherwise disposing of a pending action without
court approval; or (iii) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval. To the extent
that a director, officer or agent of a corporation has been successful on the
merits in defense of any proceeding for which indemnification is permitted by
Section 317, a corporation is obligated by Section 317 to indemnify such person
against expenses actually and reasonably incurred by him in connection with the
proceeding.
The Westamerica Articles and PV Financial Articles both eliminate the
liability of their directors for monetary damages to the fullest extent
permissible under California law and grant to Westamerica and PV Financial the
power to indemnify their directors, officers and agents through agreements with
such persons or through bylaw provisions, or both, in excess of the
indemnification otherwise permitted by Section 317, subject to applicable
statutory prohibitions upon indemnification.
The Westamerica Bylaws obligate Westamerica to indemnify its directors and
provide that Westamerica has the right but not the obligation to indemnify its
officers and other agents against liabilities and expenses incurred in the
performance of their duties, subject to the prohibitions of the GCL. The PV
Financial Bylaws provide that PV Financial is obligated to indemnify its agents
(including directors, officers, other employees and agents) against liabilities
and expenses incurred if they are sued in their capacities as agents of PV
Financial or any predecessor corporation or any other organization at PV
Financial's request, subject to the prohibitions in the GCL.
Both Westamerica and PV Financial maintain directors' and officers'
liability insurance policies that indemnify their directors and officers against
certain losses in connection with claims made against them for certain wrongful
acts. In addition, Westamerica has entered into separate indemnification
agreements with its directors and officers that require Westamerica, among other
things, (i) to maintain directors' and officers' insurance in reasonable amounts
in favor of such individuals; and (ii) to indemnify them against certain
liabilities that may arise by reason of their status or service as agents of
Westamerica to the fullest extent permitted by California law. Similar
agreements between PV Financial and its directors and officers also provide for
indemnification against liabilities and expenses to which they may become
subject in their capacity as agents of PV Financial to the fullest extent
permitted by the PV Financial Bylaws. Such agreements and the PV Financial
Bylaws do not obligate (although they permit) PV Financial to purchase liability
insurance on behalf of such agents and permit PV Financial to make
indemnification in excess of that permitted by Section 317 of the GCL-for
example: (i) PV Financial may indemnify for amounts paid in settling an action
without court approval; (ii) a presumption is established that any agent seeking
indemnification meets the standard of conduct required to make indemnification
under Section 317; and (iii) PV Financial has the burden of proving in any case
that such standard of conduct has not been met.
The Westamerica Bylaws and indemnification agreements with the directors
entitle the directors of Westamerica to be indemnified against liabilities and
reasonable expenses incurred in connection with any claims brought against them
by reason of the fact that they are or were directors and are expressly stated
to be contract rights. Westamerica directors have been granted the right to be
paid by Westamerica the expenses incurred in defending the proceedings specified
above in advance of their final disposition, but the agreements require the
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directors to undertake to return any amounts advanced to the extent that it is
ultimately determined that they were not legally entitled to be indemnified by
Westamerica in the proceeding. The Westamerica Bylaws and the indemnification
agreements both grant to the directors the right to bring suit against
Westamerica to recover unpaid amounts claimed with respect to indemnification
and any expenses incurred in bringing such an action. Both the Westamerica
Bylaws and the indemnification agreements provide that while it is a defense to
such a suit that indemnification is prohibited by the GCL, the burden of proving
such a defense is on Westamerica.
The Westamerica Bylaws and the indemnification agreements obligate
Westamerica to indemnify its directors except (i) where such indemnification is
prohibited by law; (ii) with respect to settlements made by the directors
without the prior approval of Westamerica; and (iii) for any expenses or
liabilities incurred in connection with proceedings brought by the directors
against Westamerica, other than actions brought to enforce its indemnification
obligations.
The PV Financial Bylaws and indemnification agreements entitle PV Financial
directors (and certain PV Financial officers) to be indemnified against
liabilities and expenses reasonably incurred in defense of actions brought (or
threatened to be brought) against them in their capacity as agents of PV
Financial. Expenses which a director or officer incurs in defense of such
actions are required to be advanced by PV Financial upon receipt of the
director's or officer's undertaking to repay such amounts advanced unless it is
determined that the director or officer is entitled to be indemnified. In any
action to enforce or interpret the agreements, the officer or director is
entitled to be paid all court costs and expenses (including reasonable
attorneys' fees) unless the court determines that the agent's material
assertions and/or defenses in such case were frivolous and not made in good
faith. Such agreements obligate PV Financial automatically to indemnify the
indemnified party within the scope of any change in law, rule or statute which
expands the scope of indemnification, and provide that any change in such law,
rule or regulation which narrows indemnification rights shall not affect rights
under the agreement unless such changes are required to be applied to the
agreements by such law, rule or regulation.
Federal law authorizes the FDIC to limit, by regulation or order, the
payment of indemnification by insured banks or bank holding companies to their
directors and officers. Pursuant to this authority, the FDIC has proposed a
regulation that permits the payment of indemnification by banks and bank holding
companies to institution-affiliated directors, officers and other parties only
if certain requirements are satisfied. If adopted as presently written, this
regulation would permit an institution to make an indemnification payment to, or
for the benefit of, a director, officer or other party only if the institution's
board of directors, in good faith, certifies that the individual has a
substantial likelihood of prevailing on the merits and that the payment of
indemnification will not adversely affect the institutions' safety and
soundness. Further, the board of directors must provide the FDIC and any other
appropriate bank regulatory agency with prior written notice of any
authorization of indemnification. In addition, indemnification payments (within
the scope of the regulations) are limited to the payment or reimbursement of any
liability or legal expense incurred in conjunction with the individual's
involvement in an administrative proceeding or civil action instituted by any
federal or state bank regulatory agency. Finally, the director, officer or
other party must agree in writing to reimburse the institution for any
indemnification payments received should the proceeding result in a final order
being instituted against the individual assessing a civil money penalty,
removing the individual from office, or requiring the individual to cease and
desist from certain institutional activity.
The drafters of the proposed regulation expressly state that the regulation
is intended to apply to existing agreements between institutions and
institution-affiliated parties to make indemnification payments in the future.
If the proposed regulation is placed into effect, therefore, it may be applied
retroactively to indemnification agreements presently existing between
Westamerica and PV Financial and their respective directors and officers.
SHAREHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
The PV Financial Bylaws and Westamerica Bylaws are comparable with respect
to shareholder action to fill vacancies on the Board of Directors and amend the
bylaws.
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FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Westamerica Bylaws provide that vacancies occurring on the Westamerica
Board of Directors may be filled by a vote of a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, except
that a vacancy created by the removal of a director by the shareholders or by
court order may only be filled by the vote of a majority of the shares entitled
to vote represented at a duly held meeting or by written consent of a majority
of the outstanding shares entitled to vote. The Westamerica Bylaws also provide
that the shareholders may elect a director at any time to fill any vacancy not
filled by the directors, except that any election by written consent, other than
to fill a vacancy created by removal of a director, requires the consent of a
majority of the outstanding shares entitled to vote. In addition, the GCL
provides that if, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders constitute
less than a majority of the directors then in office, (i) any holder or holders
of an aggregate of 5% or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of shareholders; or (ii) the California Superior Court of the proper
county shall, upon application of such shareholder or shareholders, summarily
order a special meeting of shareholders, to be held to elect the entire Board of
Directors.
The PV Financial Bylaws are comparable.
NOTICE OF SHAREHOLDER BUSINESS
Under the Westamerica Bylaws, a shareholder must give 14 to 50 days prior
notice to Westamerica's Corporate Secretary of any business the shareholder
wishes to bring before an annual meeting of shareholders, except that if less
than 21 days notice of the date of the meeting is given to shareholders, a
shareholder must provide notice to Westamerica within seven days of the date
Westamerica mailed notice of the annual meeting. The notice must contain a
brief description of the business, the reasons for conducting such business at
the meeting, the name and residential address of the proposing shareholder, the
number of shares the shareholder owns and any material interest of the
shareholder in the business.
No comparable restrictions upon the right of PV Financial shareholders to
bring matters before the annual meeting of shareholders are contained in the PV
Financial Bylaws.
NOTICE OF DIRECTOR NOMINATIONS
Under the Westamerica Bylaws, a shareholder must give 14 to 50 days prior
notice to Westamerica's Corporate Secretary if the shareholder wishes to
nominate any person for election as a Westamerica director at any meeting called
for the election of directors, except that if less than 21 days notice of the
meeting is given to shareholders, a shareholder must provide notice to
Westamerica within seven days of the date Westamerica mailed notice of the
meeting. The notice of the shareholder to nominate must contain the following
information: the name and address of each proposed nominee; the principal
occupation of each proposed nominee; the total number of shares of stock of
Westamerica that the shareholder expects will be voted for each proposed
nominee; the name and residence address of the shareholder; and the number of
shares of stock of Westamerica owned by the shareholder.
Under the PV Financial Bylaws, a shareholder must give 21 to 60 days prior
written notice delivered or mailed to the President of PV Financial if the
shareholder wishes to nominate any person for election as a PV Financial
director at any meeting called for the election of directors, except that if
less than 21 days notice of the meeting is given to shareholders, a shareholder
must provide notice to PV Financial's president within 10 days of the date PV
Financial mailed the notice of the meeting and if notice of the meeting is sent
to shareholders via third-class mail, no notice of intention to make nominations
is required of the shareholders. The notice of the
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shareholder to nominate must contain the following information: the name and
address of each proposed nominee; the principal occupation of each proposed
nominee; the number of shares of capital stock of PV Financial owned by each
proposed nominee; the name and residence address of the notifying shareholder;
and the number of shares of capital stock of PV Financial owned by the notifying
shareholder.
WESTAMERICA "INTERESTED PERSON" PROVISION
The Westamerica Articles contain an "interested person" provision which
applies to transactions with persons or entities holding 10% or more of the
outstanding shares of Westamerica Common Stock (an "Interested Person").
Subject to certain exceptions, the Interested Person provision requires that the
affirmative vote of 80% of the outstanding shares of Westamerica Common Stock is
required to authorize any of the following transactions with an Interested
Person: (i) a merger or consolidation; (ii) the sale or disposition of all or a
substantial part of Westamerica's assets to an Interested Person; (iii) the
purchase or other acquisition by Westamerica of all or a substantial part of the
assets of an Interested Person; or (iv) any other transaction with an Interested
Person which requires the approval of the Westamerica shareholders pursuant to
the GCL.
The special approval requirements of the Interested Person provision do not
apply if the transaction in question was (i) approved by the Westamerica Board
of Directors before the other person or entity involved became an Interested
Person; or (ii) approved by a majority of the Westamerica Board of Directors
while the other person or entity was an Interested Person and the consideration
to be received by Westamerica shareholders is not less per share than the
highest price per share (including brokerage commissions and/or dealer fees)
paid by the Interested Person for any shares of Westamerica stock from the time
the Interested Person obtained beneficial ownership in excess of 5% of the
outstanding shares of Westamerica Common Stock. This Interested Person
provision may have the effect of deterring efforts to change control of
Westamerica on a basis which some shareholders may deem favorable.
The PV Financial Articles do not contain an "interested person" provision
or similar provision restricting the ability of any person to acquire control of
PV Financial.
DESCRIPTION OF WESTAMERICA CAPITAL STOCK AND INDEBTEDNESS
The authorized capital stock of Westamerica consists of 20,000,000 shares
of Westamerica Common Stock, without par value, and 1,000,000 shares each of
Class B Common Stock and Preferred Stock. As of the Record Date, 8,074,851
shares of Westamerica Common Stock and no shares of either the Class B Common
Stock or the Preferred Stock were outstanding and an additional 660,202 shares
of the authorized Westamerica Common Stock were available for future grant and
reserved for issuance to holders of outstanding stock options and restricted
performance shares under Westamerica's stock option plans.
COMMON STOCK
Holders of Westamerica Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders, except that,
upon giving the notice required by the Westamerica Bylaws, shareholders may
cumulate their votes for the election of directors. Shareholders are entitled
to receive ratably such dividends as may be legally declared by Westamerica's
Board of Directors. There are legal and regulatory restrictions on the ability
of Westamerica to declare and pay dividends. See "Market Price and Dividend
Information-Dividends and Dividend Policy." Westamerica is also subject to
certain restrictions on its ability to pay dividends and the amount thereof
under the terms of certain of its debt agreements. See "-Debt Agreements." In
the event of a liquidation, common shareholders are entitled to share ratably in
all assets remaining after payment of liabilities and securities with a
preference over the Westamerica Common Stock. Attached to each outstanding
share of Westamerica Common Stock is a Right which entitles the holder to
certain rights as set forth
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in the Amended and Restated Rights Agreement. See "-Shareholder Rights Plan."
Shareholders of Westamerica Common Stock have no preemptive or conversion
rights. Westamerica Common Stock is not subject to calls or assessments. The
transfer agent and registrar for Westamerica Common Stock is Chemical Trust
Company of California.
PREFERRED STOCK AND CLASS B COMMON STOCK
The Westamerica Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions of the Preferred Stock and the Class B
Common Stock and may establish series of such stock and determine the variations
between series. If and when any Preferred Stock is issued, the holders of
Preferred Stock may have a preference over holders of Westamerica Common Stock
upon the payment of dividends, upon liquidation of Westamerica, in respect of
voting rights and in the redemption of the capital stock of Westamerica. The
Westamerica Articles provide that except as otherwise provided by law or by the
Westamerica Board of Directors, shares of Class B Common Stock shall have no
voting rights. The issuance of any Preferred Stock or Class B Common Stock may
have the effect of delaying, deferring or preventing a change in control of
Westamerica without further action of its shareholders. The issuance of such
stock with voting and conversion rights may adversely affect the voting power of
the holders of Westamerica Common Stock. Westamerica has no present plans to
issue any shares of Preferred Stock or Class B Common Stock.
DEBT AGREEMENTS
Westamerica is a party to certain debt agreements containing restrictions
on the payment of dividends and the amount thereof, as well as financial and
other covenants, as described below.
Westamerica has entered into a Consolidated Note Agreement dated May 15,
1984 (the "Consolidated Note Agreement") with certain institutional investors,
pursuant to which two promissory notes (the "Notes") are outstanding with
aggregate principal amounts of $196,000 and $2,100,000, respectively, as of June
30, 1994. The Notes contain certain restrictions on, among other things,
Westamerica's rights to (i) incur indebtedness; (ii) subject its properties to
liens; (iii) enter into certain mergers, consolidations or dispositions of
assets; (iv) make certain investments; and (v) pay cash dividends. The Notes
mature on September 1, 1996; however, Westamerica has notified the institutional
investors of these Notes that it intends to retire the Notes in full during the
fourth quarter of 1994.
Westamerica, as successor in interest to Napa Valley Bancorp ("NVBC"), is
party to that certain Note Purchase Agreement, dated as of May 25, 1988 (the
"NVBC Note Purchase Agreement"), with an institutional investor, pursuant to
which NVBC issued $5,000,000 aggregate principal amount of its 10.87% Senior
Notes due June 30, 1995 (the "NVBC Notes"). As of June 30, 1994, the entire
$5,000,000 aggregate principal amount of the NVBC Notes was outstanding. The
NVBC Note Purchase Agreement contains certain restrictions on, among other
things, Westamerica's rights to (i) subject its property to liens; (ii) incur
indebtedness; (iii) permit certain of its subsidiaries to incur indebtedness;
(iv) enter into certain leases for real and personal property; (v) pay cash
dividends on Westamerica Common Stock; and (vi) sell, lease, transfer or
otherwise dispose of all or any part of its property if such transaction
involves a substantial part of its property. In addition, the NVBC Note Purchase
Agreement prohibits Westamerica from merging with any person unless the entity
into which Westamerica is merged expressly assumes the due and punctual payment
of the principal and interest on the NVBC Notes and certain additional
conditions are satisfied.
The Consolidated Note Agreement and the NVBC Note Purchase Agreement do not
prohibit Westamerica from executing and delivering the Agreements or
consummating the Merger.
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SHAREHOLDER RIGHTS PLAN
On December 18, 1986, the Board of Directors of Westamerica adopted a
"Shareholder Rights Plan" by declaring a dividend distribution of one Right for
each outstanding share of Westamerica Common Stock, payable to shareholders of
record on January 20, 1987 and future Westamerica Shares. The terms of the
Rights were amended by the Westamerica Board of Directors on September 28, 1989.
When exercisable, each Right entitles the holder to purchase from Westamerica
one share of Westamerica Common Stock at a price of $65 per share (the "Exercise
Price"), subject to adjustment in certain circumstances. The description and
terms of the Rights are set forth in the Amended and Restated Rights Agreement.
Pursuant to an Appointment and Acceptance Agreement effective May 25, 1992 (the
"Appointment Agreement"), Chemical Trust Company of California was substituted
as the Rights Agent under the Amended and Restated Rights Agreement.
Until a Distribution Date occurs, as described below, the Rights are not
exercisable and remain attached to the shares of Westamerica Common Stock
associated therewith. The Rights will become exercisable and trade separately
from the Westamerica Common Stock and a Distribution Date will occur on the
tenth day (or such later date as a majority of the Westamerica Board of
Directors may determine) following the earlier to occur of (i) a public
announcement that an Acquiring Person has become the beneficial owner of
securities having 15% or more of Westamerica's voting power; or (ii) 10 days
(unless such date is extended by the Westamerica Board of Directors) following
the commencement of, or a public announcement of an intention to make, a tender
or exchange offer which would result in any Acquiring Person having beneficial
ownership of securities having 15% or more of such voting power.
Unless the Rights are earlier redeemed, in the event that a person or group
of affiliated or associated persons becomes the beneficial owner of securities
having 15% or more of the voting power of all then outstanding voting securities
of Westamerica (unless pursuant to a tender or exchange offer for all
outstanding shares of Westamerica Common Stock at a price and on terms
determined by at least a majority of the members of the Board of Directors who
are not officers of Westamerica to be in the best interests of Westamerica and
its shareholders), then each holder of a Right (other than an Acquiring Person,
whose rights will thereupon become null and void) will for a 60-day period
thereafter have the right to receive upon exercise that number of shares of
Westamerica Common Stock having a market value of twice the exercise price of
the Right, to the extent available, and then (after all authorized and
unreserved shares of Westamerica Common Stock have been issued) a common stock
equivalent (such as preferred stock or another equity security with at least the
same economic value as the Westamerica Common Stock) having a market value of
twice the exercise price of the Right (the "Subscription Right").
Unless the Rights are earlier redeemed, in the event that, after the first
date of public announcement by Westamerica or an Acquiring Person that an
Acquiring Person exists, (i) Westamerica is acquired in a merger or
consolidation; (ii) any bank subsidiary of Westamerica is acquired in a merger
or consolidation; or (iii) 50% or more of Westamerica's assets or earnings power
are sold, then each holder of a Right (other than such Acquiring Person) will
thereafter have the right to receive, upon exercise and payment of the exercise
price of the Right, that number of shares of common stock of the surviving
entity in the business combination, which at the time of such transaction would
have a market value of at least two times the exercise price of the Right.
At any time prior to a person becoming an Acquiring Person without
Westamerica's consent, Westamerica may redeem the Rights in whole, but not in
part, at a price of $0.05 per Right (the "Redemption Price"). The Rights may
also be redeemed under certain circumstances: (i) following an event giving rise
to, and the expiration of the exercise period for, the Subscription Right if and
for as long as an Acquiring Person beneficially owns securities having less than
15% of Westamerica's voting power and at the time of redemption there are no
other persons who are Acquiring Persons; or (ii) in connection with a business
combination involving Westamerica but not involving an Acquiring Person.
Immediately upon the action of the Westamerica Board of Directors
authorizing redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
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Redemption Price. Unless earlier redeemed by Westamerica, the Rights will
expire at the close of business on December 31, 1999. The foregoing description
of the Amended and Restated Rights Agreement and the Rights is qualified in its
entirety by reference to the Amended and Restated Rights Agreement and the
Appointment Agreement.
The Westamerica Shareholder Rights Plan may discourage or make more
difficult or expensive certain mergers, tender offers or other purchases of
Westamerica Common Stock. The Westamerica Shareholder Rights Plan therefore may
deprive shareholders in certain circumstances of an opportunity to sell some or
all of their shares at a premium over then prevailing market prices. Moreover,
the Westamerica Shareholder Rights Plan may decrease the likelihood that a
person or group would take control of Westamerica through such a tender offer,
merger or other purchase of stock and remove incumbent management even if the
holders of a majority of Westamerica's voting stock would favor such a change of
control. Dilution of stock interests under the Westamerica Shareholder Rights
Plan generally would not result from a proxy contest to take control of
Westamerica, even if the proxy contest were to be successful. However, the
Westamerica Shareholder Rights Plan will effectively limit to less than 15% the
percentage of the Westamerica Common Stock outstanding which may be beneficially
owned by the person or group soliciting proxies in opposition to the Westamerica
Board of Directors. This may discourage a person or group from waging, or
decrease its prospects for winning, a proxy contest.
PV Financial does not have a plan comparable to the Westamerica Shareholder
Rights Plan.
DESCRIPTION OF PV FINANCIAL CAPITAL STOCK
The authorized capital stock of PV Financial consists of 20,000,000 shares
of PV Financial Common Stock, no par value, and 1,000,000 shares of Preferred
Stock ("PV Financial Preferred Stock"). As of the Record Date, 2,176,593 shares
of PV Financial Common Stock and no shares of PV Financial Preferred Stock were
issued and outstanding and an additional 212,409 shares of the authorized PV
Financial Common Stock were available for future grant, and 395,641 PV Financial
Shares reserved for issuance to holders of outstanding and unexercised stock
options under PV Financial's stock option plans.
COMMON STOCK
Holders of PV Financial Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders, except
that, upon giving the notice required by the PV Financial Bylaws, shareholders
may cumulate their votes for the election of directors. Shareholders are
entitled to receive ratably such dividends as may be legally declared by PV
Financial's Board of Directors. There are regulatory restrictions on the
ability of PV Financial to declare and pay dividends. See "Market Price and
Dividend Information-Dividends and Dividend Policy." In the event of a
liquidation, common shareholders are entitled to share ratably in all assets
remaining after payment of liabilities and securities. PV Financial Common
Stock is not subject to calls or assessments. The transfer agent and registrar
for PV Financial Common Stock is First Interstate Bank of California.
PREFERRED STOCK
PV Financial has never issued and has no present plan to issue any shares
of PV Financial Preferred Stock. The Board of Directors of PV Financial is
authorized to fix the rights, preferences, privileges and restrictions of the
preferred stock and may establish series of such stock and determine the
variations between series. If PV Financial Preferred Stock were to be issued,
the holders of PV Financial Preferred Stock could have a preference over holders
of PV Financial Common Stock upon the payment of dividends, upon liquidation of
PV Financial, in respect of voting rights and in the redemption of the capital
stock of PV Financial. The issuance of PV Financial Preferred Stock could have
the effect of delaying, deferring or preventing a change in control of PV
Financial without further action of its shareholders.
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The issuance of such stock with voting and conversion rights
could adversely affect the voting power of the holders of PV Financial Common
Stock.
EXPERTS
The Consolidated Financial Statements of Westamerica incorporated by
reference in Westamerica's Annual Report on Form 10-K for the year ended
December 31, 1993, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG, incorporated herein
by reference, and upon the authority of said firm as experts in accounting and
auditing.
The Consolidated Financial Statements of PV Financial as of December 31,
1993 and 1992, and for each of the years in the three-year period ended December
31, 1993, incorporated by reference and included herein and elsewhere in this
Proxy Statement/Prospectus have been incorporated by reference and included
herein and in the Registration Statement in reliance upon the report of Grant
Thornton, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Westamerica Common Stock offered hereby and
certain legal matters in connection with the Merger will be passed upon for
Westamerica by Pillsbury Madison & Sutro, San Francisco, California.
SOLICITATION OF PROXIES
PV Financial will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of PV Financial may solicit proxies from the shareholders by telephone
or telegram or in person. Such persons will not be additionally compensated,
but will be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation. Arrangements will also be made with
brokerage firms, nominees, fiduciaries and other custodians, for the forwarding
of solicitation materials to the beneficial owners of shares held of record by
such persons, and PV Financial will reimburse such persons for their reasonable
out-of-pocket expenses in connection therewith.
PROPOSALS OF SECURITY HOLDERS
As specified in PV Financial's Proxy Statement dated March 24, 1994, the
deadline for shareholders to submit proposals for inclusion in the proxy
statement and form of proxy for the 1995 Annual Meeting of Shareholders of PV
Financial is November 15, 1994. All proposals should be submitted by certified
mail-return, receipt requested, to the Secretary, PV Financial, 1524 McHenry
Avenue, Modesto, California 95353. However, if the Merger is consummated as
contemplated by the Agreements, PV Financial will no longer exist as a separate
legal entity and there will be no 1995 Annual Meeting of Shareholders.
-93-
<PAGE>
INDEX TO PV FINANCIAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1992.......................................... F-3
Consolidated Statements of Earnings for the Years Ended December 31, 1993, 1992 and 1991.............. F-4
Consolidated Statement of Stockholders' Equity for the Three Years Ended December 31, 1993, 1992 and
1991................................................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991............ F-6
Notes to Consolidated Financial Statements............................................................ F-7
Consolidated Balance Sheets as of June 30, 1994 (Unaudited) and December 31, 1993..................... F-21
Consolidated Statements of Earnings for the Six Months Ended June 30, 1994 and 1993 (Unaudited)....... F-22
Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1994 (Unaudited)
and the Year Ended December 31, 1993................................................................. F-23
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1994 and 1993 (Unaudited)..... F-24
Notes to Consolidated Financial Statements for the Six Months Ended June 30, 1994 (Unaudited) ........ F-7, F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PV Financial
We have audited the accompanying consolidated balance sheets of PV Financial and
Subsidiary as of December 31, 1993 and 1992, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1993. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PV Financial and
Subsidiary as of December 31, 1993 and 1992, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As described in Note 1, Investments, the Company changed its method of
accounting for securities as of December 31, 1993.
/s/ Grant Thornton
GRANT THORNTON
Stockton, California
January 14, 1994
F-2
<PAGE>
PV FINANCIAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1993 1992
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2)................................. $ 17,696,562 $ 9,981,124
Interest bearing deposits in other banks......................... - 2,500
Federal funds sold............................................... - 11,800,000
------------ ------------
Total Cash and Cash Equivalents............................ 17,696,562 21,783,624
Securities purchased under resale agreement...................... - 14,000,000
Securities available-for-sale (Note 3)........................... 17,044,866 -
Securities held-to-maturity (Note 3)............................. 7,003,356 -
Securities held-for-sale (Note 3)................................ - 9,145,594
Investment securities (Note 3)................................... - 682,406
Loans (Note 4)................................................... 133,255,060 113,457,604
Less: Deferred loan fees.................................. (696,751) (514,697)
Allowance for possible loan losses (Note 5)......... (1,873,194) (1,655,056)
------------ ------------
Net Loans.................................................. 130,685,115 111,287,851
Federal Reserve Bank stock....................................... 225,000 225,000
Investment in real estate joint venture.......................... 893,711 844,744
Premises and equipment, net (Note 6)............................. 920,454 1,012,247
Foreclosed real estate........................................... 1,258,870 -
Accrued interest and other assets (Note 8)....................... 1,428,787 1,054,095
------------ ------------
Total Assets............................................... $177,156,721 $160,035,561
============ ============
LIABILITIES
Interest bearing deposits........................................ $114,332,042 $110,578,854
Noninterest bearing deposits..................................... 43,714,950 31,947,865
------------ ------------
Total Deposits (Notes 3 and 7)............................. 158,046,992 142,526,719
Other liabilities................................................ 1,629,998 1,634,033
------------ ------------
Total Liabilities.......................................... 159,676,990 144,160,752
Stockholders' Equity (Notes 10 and 12)
Common Stock, no par value
Shares authorized-20,000,000
Shares issued-2,168,014 in 1993 and
2,052,515 in 1992.................................... 12,007,862 11,303,907
Retained earnings................................................ 5,564,982 4,688,496
Net unrealized holding losses on securities
available-for-sale.............................................. (93,113) -
Unrealized decline in fair value of
bond mutual funds.......................................... - (117,594)
------------ ------------
Total Stockholders' Equity................................. 17,479,731 15,874,809
------------ ------------
Total Liabilities and Stockholders' Equity................. $177,156,721 $160,035,561
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
----------- ----------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $11,285,134 $10,564,519 $11,965,598
Interest on securities.................................... 583,678 877,249 1,384,497
Interest on federal funds sold............................ 99,976 152,988 158,749
Interest on deposits in other banks and repurchase
agreements.......................................... 319,438 213,113 40,169
----------- ----------- -----------
Total Interest Income............................... 12,288,226 11,807,869 13,549,013
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposit accounts.............................. 3,729,317 4,560,347 5,743,436
Interest on securities sold under repurchase agreements... - 2,994 10,202
Interest on borrowings.................................... - 27,871 139,291
----------- ----------- -----------
Total Interest Expense.............................. 3,729,317 4,591,212 5,892,929
----------- ----------- -----------
Net interest income....................................... 8,558,909 7,216,657 7,656,084
Provision for possible loan losses (Note 5)............... 543,000 490,000 93,500
----------- ----------- -----------
Net Interest Income After Provision for Possible
Loan Losses........................................ 8,015,909 6,726,657 7,562,584
----------- ----------- -----------
NONINTEREST INCOME
Service charge on deposit accounts........................ 573,710 517,026 467,318
Other noninterest income.................................. 370,863 264,898 159,975
Gain on sale of loans..................................... 724,744 764,709 287,518
Securities gains (losses)................................. 9 49,511 (107,598)
----------- ----------- -----------
Total Noninterest Income............................ 1,669,326 1,596,144 807,213
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits (Note 12).................. 3,174,784 2,853,036 3,007,280
Occupancy................................................. 1,089,539 1,032,750 892,966
FDIC insurance assessment................................. 336,000 264,000 246,000
Other operating expense................................... 1,846,644 1,428,321 1,478,821
----------- ----------- -----------
Total Noninterest Expense........................... 6,446,967 5,578,107 5,625,067
----------- ----------- -----------
Earnings Before Income Taxes.............................. 3,238,268 2,744,694 2,744,730
Income taxes (Note 8)..................................... 1,280,057 1,109,698 1,126,600
----------- ----------- -----------
Net Earnings........................................ $ 1,958,211 $ 1,634,996 $ 1,618,130
=========== =========== ===========
Weighted average common shares outstanding................ 2,236,699 2,146,699 2,102,649
Net Earnings per share (Note 11).......................... $0.88 $0.76 $0.77
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET CHANGE IN
NET CHANGE IN SECURITIES
COMMON RETAINED BOND MUTUAL AVAILABLE-
STOCK EARNINGS FUND FOR-SALE TOTAL
----------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1991........ $10,508,598 $2,811,240 $(516,821) $ - $12,803,017
Stock Options Exercised
(6,400 shares)................ 17,000 - - - 17,000
Cash Dividends Declared............ - (430,713) - - (430,713)
Net change in Unrealized
Decline in Fair Value of
Bond Mutual Funds............. - - 249,205 - 249,205
Net Earnings....................... - 1,618,130 - - 1,618,130
----------- ---------- ------------- ------------- -----------
Balances at December 31, 1991...... 10,525,598 3,998,657 (267,616) - 14,256,639
Stock Options Exercised
(87,868 shares)............... 240,702 - - - 240,702
Cash Dividends Declared............ - (407,550) - - (407,550)
Stock Dividends (93,497 shares).... 537,607 (537,607) - - -
Net change in Unrealized
Decline in Fair Value of
Bond Mutual Funds............. - - 150,022 - 150,022
Net Earnings....................... - 1,634,996 - - 1,634,996
----------- ---------- ------------- ------------- -----------
Balances at December 31, 1992...... 11,303,907 4,688,496 (117,594) - 15,874,809
Stock Options Exercised
(13,230 shares).................... 75,000 - - - 75,000
Cash Dividends Declared............ - (452,770) - - (452,770)
Stock Dividends (102,269 shares)... 628,955 (628,955) - - -
Net change in Unrealized
Decline in Fair Value of
Bond Mutual Funds............. - - 22,264 - 22,264
Net Unrealized Holding Losses
in Securities Available-
for-Sale...................... - - 95,330 (93,113) 2,217
Net Earnings....................... - 1,958,211 - - 1,958,211
----------- ---------- ------------- ------------- -----------
Balances at December 31, 1993...... $12,007,862 $5,564,982 $ - $(93,113) $17,479,731
=========== ========== ============= ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings............................................ $ 1,958,211 $ 1,634,996 $ 1,618,130
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization.................... 278,932 424,025 308,754
Provision for possible loan losses............... 543,000 490,000 93,500
(Gain) loss in real estate joint venture......... (48,967) (29,751) 43,442
(Decrease) increase in deferred loan fees........ 182,054 77,378 (37,059)
(Gain) loss on sale of securities................ (9) (49,511) 107,598
(Increase) decrease in other assets.............. (374,692) 353,584 176,658
Increase (decrease) in other liabilities......... 72,289 (477,057) 452,775
------------ ------------ ------------
Cash provided by operating activities........... 2,610,818 2,423,664 2,763,798
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest bearing deposits in bank........... - 200,000 -
Maturities of securities................................ 5,323,121 7,672,475 4,394,140
Sale of securities...................................... 1,000,000 6,522,075 3,490,293
Purchase of securities.................................. (10,517,969) (8,011,721) (4,068,037)
Net decrease (increase) of securities purchased under
resale agreement.................................. 4,000,000 (14,000,000) 1,000,000
Sale of premises and equipment.......................... 5,000 1,112,900 -
Purchase of premises and equipment...................... (191,451) (337,529) (922,292)
Net increase in loans................................... (27,193,566) (11,266,373) (18,291,460)
Proceeds from sale of loans............................. 5,812,377 8,713,784 3,018,729
Investment in real estate joint venture................. - (144,500) -
------------ ------------ ------------
Cash used in investing activities............... (21,762,488) (9,538,889) (11,378,627)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Dividends paid..................................... (530,665) (387,565) (467,380)
Issuance of Common Stock................................ 75,000 240,702 17,000
Net increase in demand deposits......................... 19,324,885 10,026,414 9,556,559
Net (decrease) increase in time certificates............ (3,804,612) 2,065,343 3,305,483
Net decrease in Western Farm Bank Borrowings............ - (218,637) (1,352,796)
Payments on notes payable............................... - (952,682) (5,347)
Proceeds from notes payable............................. - 4,000 593,000
------------ ------------ ------------
Cash provided by financing activities........... 15,064,608 10,777,575 11,646,519
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents.... (4,087,062) 3,662,350 3,031,690
Cash and Cash Equivalents at Beginning of Year.......... 21,783,624 18,121,274 15,089,584
------------ ------------ ------------
Cash and Cash Equivalents at End of Year................ $ 17,696,562 $ 21,783,624 $ 18,121,274
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for
Interest.......................................... $ 3,756,778 $ 4,686,443 $ 5,676,728
Income Taxes...................................... $ 1,717,578 $ 1,344,454 $ 1,147,108
NON-CASH INVESTING AND FINANCING ACTIVITIES
</TABLE>
PV Financial foreclosed on a loan with a balance
of $1,258,870 in 1993.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of PV Financial and subsidiary conform to
generally accepted accounting principles and to general practices within the
banking industry. The following is a description of the most significant of
these policies.
Principles of Consolidation
The consolidated financial statements include the accounts of PV Financial and
its wholly owned subsidiary, Pacific Valley National Bank (the "Bank"). An
investment in a real estate joint venture representing a 27% interest in an
office building is carried on the equity method. Intercompany accounts and
transactions have been eliminated in consolidation.
Fair Values of Financial Instruments
The financial statements include various estimated fair value information as of
December 31, 1993 and 1992, as required by Financial Accounting Standards Board
Statement 107. Such information, which pertains to the Bank's financial
instruments, is based on the requirements set forth in Statement 107 and does
not purport to represent the aggregate net fair value of the Bank. Further, the
fair value estimates are based on various assumptions, methodologies and
subjective considerations, which vary widely among different financial
institutions and which are subject to change.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Securities (including mortgage-backed securities): Fair values for securities
are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments. Securities purchased under repurchase agreements are carried at the
contract price.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans (e.g., commercial real estate, commercial and
industrial loans, and agricultural loans) are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. The carrying amount of
accrued interest approximates its fair value.
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
credit standing of the counterparties.
Deposit liabilities: The fair values disclosed for demand deposits (interest and
non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date i.e., their carrying amounts. The carrying amounts for variable-
rate, fixed-term money market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of the aggregate expected monthly maturities on time deposits. The
carrying amount of accrued interest payable approximates its fair value.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short term borrowings
approximate their fair values.
Investments
For the year ended December 31, 1992, securities were classified as investments,
when management determined that PV Financial has both the ability and the intent
to hold these to maturity. Unrealized decline in fair value of
F-7
<PAGE>
bond mutual funds is carried in stockholders' equity. Securities available-for-
sale are recorded at the lower of cost or market. Gains or losses from the sale
of securities are recognized using the specific identification method.
In May 1993, the Financial Accounting Standards Board issued Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". A
significant provision of this statement is the change in accounting and
reporting for certain investments in debt and equity securities. These
securities will be classified into one of three categories: held-to-maturity,
available-for-sale, or trading. Held-to-maturity securities will continue to be
measured at amortized cost and available-for-sale and trading securities will be
measured at fair value. Unrealized holding gains and losses for trading
securities shall be included in earnings. Unrealized holding gains and losses
for available-for-sale securities shall be excluded from earnings as a net
amount in a separate component of stockholders' equity. PV Financial has
adopted and implemented SFAS No. 115 as of December 31, 1993.
At December 31, 1993, fixed rate U.S. Government agencies and variable rate
U.S. Government agencies with remaining maturities of less than 3 years were
classified as Held-to-maturity. All other U.S. Government agencies were
classified as Available-for-sale.
Loans
Interest on all loans is accrued daily based on outstanding loan balances. When
reasonable doubt exists as to the collectibility of the interest, the accrual of
such income is discontinued. PV Financial's general policy is to cease accruing
interest on loans when they are contractually past due ninety days or more as to
principal and/or interest payments, or when other factors indicate collection is
unlikely. Loans placed on nonaccrual status are accounted for thereafter on the
cash or cost recovery method until qualified for return to accrual status.
However, loans that are in the process of renewal in the normal course of
business, or that are well secured and in the process of collection, may not be
placed on nonaccrual status in the judgment of management.
Restructured loans are those for which concessions, including reduction of
interest rates to below current market rates or deferral of interest or
principal payments, and certain modifications to contractual terms have been
granted by the Bank to borrowers experiencing financial difficulties. Interest
on restructured loans is accrued at the restructured rates. If the borrower's
ability to meet the revised payment schedule is uncertain, the loan is placed on
nonaccrual status.
Loan origination and commitment fees, net of certain direct loan origination
costs, are deferred and recognized as yield adjustments over the contractual
life of the loan. If a loan is paid in full before the designated maturity
date, any remaining deferred loan fees are recognized as interest income.
Sale of SBA Loans
PV Financial originates loans to customers under the Small Business
Administration ("SBA") program that generally provides for SBA guarantees of 68%
to 90% of each loan. PV Financial sells the guaranteed portion of certain loans
to a third party and retains only the unguaranteed portion in its portfolio.
In accordance with Emerging Issues Task Force ("EITF") Abstract No. 88-11, PV
Financial's investment in the SBA loan is allocated among the retained portion
of the loan and the sold portion of the loan based on the relative fair market
value of each portion. A gain is recognized on the sold portion based on its
allocated fair market value and the rate differential between the rate paid by
the borrower to PV Financial and the rate paid by PV Financial to the purchaser
by reducing the carrying value of the retained portion which increases the
future yield.
Allowance for Possible Loan Losses
Loans deemed uncollectible by management are charged to the allowance for
possible loan losses, and recoveries are credited to the allowance. The
provision for possible loan losses is presented as a reduction of net interest
income.
The evaluation of the adequacy of the allowance is determined by management
based on a continuous credit review of the loan portfolio using various
judgements and assumptions, including, but not necessarily limited to, current
F-8
<PAGE>
and projected economic conditions, loan portfolio composition, and prior loan
loss experience. PV Financial considers the allowance for possible loan losses
adequate to cover losses inherent in the loan portfolio.
Foreclosed Real Estate
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at fair value at the date of foreclosure establishing a new
cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of cost or fair value
minus estimated costs to sell. Revenue and expenses from operations are
included in other income and other expenses.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
computed on the straight-line method over the estimated useful lives of the
assets. Improvements are depreciated over the term of the lease or their
estimated useful lives, whichever is shorter.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Prior to 1993, the Bank reflected deferred tax
assets and liabilities at the rate in effect at the time the deferred tax asset
or liability originated.
Cash Flow Reporting
PV Financial's statements of cash flow are prepared utilizing the indirect
method of presenting cash flows from operating activities. For purposes of
reporting cash flows, cash and cash equivalents include cash on hand, amounts
due from banks, interest bearing deposits with maturities of 90 days or less in
other banks, and federal funds sold. Generally, federal funds are purchased and
sold for one-day periods.
Reclassifications
Certain reclassifications have been made in the 1991 and 1992 financial
statements to conform to those used in 1993.
NOTE (2) CASH RESTRICTIONS
The Federal Reserve requires banks to maintain reserve balances based on average
funds on deposit. The Bank maintained average balances of $1,844,046 in 1993
and $1,686,143 in 1992 consisting of vault cash maintained in all branches and
actual balances held by the Federal Reserve Bank of San Francisco.
F-9
<PAGE>
NOTE (3) SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government Agencies.......... $ 6,336,408 $ 5,047 $ (1,259) $ 6,340,196
Repurchase Agreements............. 10,000,000 - - 10,000,000
Mutual Funds...................... 704,670 - - 704,670
----------- ------- -------- -----------
Total Securities Available-
for-Sale........................ 17,041,078 5,047 (1,259) 17,044,866
SECURITIES HELD-TO-MATURITY
U.S. Treasury Securities.......... 1,006,445 1,675 - 1,008,120
U.S. Government Agencies.......... 5,996,911 35,535 (16,195) 6,016,251
----------- ------- -------- -----------
Total Securities Held-
to-Maturity..................... 7,003,356 37,210 (16,195) 7,024,371
----------- ------- -------- -----------
Total Securities................. $24,044,434 $42,257 $(17,454) $24,069,237
=========== ======= ======== ===========
DECEMBER 31, 1992
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ------------
SECURITIES HELD-FOR-SALE
U.S. Government Agencies.......... $ 9,145,594 $69,413 $(16,787) $ 9,198,220
----------- ------- -------- -----------
Total Securities Held-for-Sale... 9,145,594 69,413 (16,787) 9,198,220
----------- ------- -------- -----------
INVESTMENT SECURITIES
Mutual Funds...................... 682,406 - - 682,406
----------- ------- -------- -----------
Total Investment Securities...... 682,406 - - 682,406
----------- ------- -------- -----------
Total Securities................. $ 9,828,000 $69,413 $(16,787) $ 9,880,626
=========== ======= ======== ===========
</TABLE>
F-10
<PAGE>
The amortized cost and estimated fair value of securities at December 31, 1993
and 1992, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------
AMORTIZED ESTIMATED FAIR
COST VALUE
----------- --------------
<S> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
Due in one year or less.................. $10,000,000 $10,000,000
Due after one year through five years.... 6,336,408 6,340,196
Due after five years through ten years... - -
Due after ten years...................... - -
Mutual Funds and Investments............. 704,670 704,670
----------- -----------
Total Securities Available-for-Sale..... 17,041,078 17,044,866
SECURITIES HELD-TO-MATURITY
Due in one year or less.................. 1,006,445 1,008,120
Due after one year through five years.... 5,996,911 6,016,251
Due after five years through ten years... - -
Due after ten years...................... - -
----------- -----------
Total Securities Held-to-Maturity....... 7,003,356 7,024,371
----------- -----------
Total Securities........................ $24,044,434 $24,069,237
=========== ===========
</TABLE>
Proceeds from sales and maturities of securities during 1993 and 1992 were
$6,323,121 and $14,194,550, respectively. Net gains of $9 and losses of $49,511
for 1993 and 1992, respectively, were realized on securities transactions.
At December 31, 1993 securities having a carrying value of $4,730,000 were
pledged to secure deposits of public funds.
NOTE (4) LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1993 1993 1992 1992
------------ ------------ ------------- ------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Real Estate Construction............ $ 9,008,668 $ 9,008,668 $ 9,196,551 $ 9,196,551
Commercial.......................... 47,317,164 47,365,413 43,093,680 43,222,925
Commercial Secured by Real Estate... 42,559,318 43,631,009 29,092,029 29,888,939
Agricultural........................ 30,062,150 30,085,972 28,172,339 28,236,272
Installment......................... 558,836 566,019 778,485 769,043
Other............................... 3,748,924 3,748,924 3,124,520 3,124,520
------------ ------------ ------------ ------------
Total Loans..................... $133,255,060 $134,406,005 $113,457,604 $114,438,250
============ ============ ============ ============
</TABLE>
Management has determined that excessive amounts of time and money would be
incurred to determine the fair value of nonaccrual loans. This is primarily due
to the uncertainty of cash flows and the difficulty in predicting the timing of
cash flows. The aggregate carrying amount of nonaccrual loans was $166,058,
with an effective rate of 8.79% for an average term of 115 months at December
31, 1993. The carrying amount of nonaccrual loans at December 31, 1992 was
$1,059,529 with an effective rate of 8.06% for an average term of 71 months.
F-11
<PAGE>
The gross interest income that would have been recorded for loans placed on
nonaccrual status was $6,992 and $58,526 for the years ended December 31, 1993
and 1992, respectively. Interest recorded on these nonaccrual loans for the
years ended December 31, 1993 and 1992, was $3,876 and $157, respectively.
PV Financial's customers are primarily located in Stanislaus, southern San
Joaquin and northern Merced counties. Approximately 23% of PV Financial's loans
are agricultural related; 7% are for real estate construction and 32% are
commercial loans secured by real estate. Approximately 35% of the loans are for
commercial uses including professional, retail and small business. Generally,
real estate loans are secured by real property and repayment is generally
expected from the proceeds of the sales of property. Commercial and other loans
are secured by funds on deposit, business or personal assets, and repayment is
generally expected from cash flows of the borrowers.
PV Financial has had, and expects to have in the future, loan transactions in
the ordinary course of business with directors, officers, principal shareholders
and their associates, on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable transactions
with other persons.
Loans to officers, directors, and their associates:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Principal outstanding at January 1... $2,264,304 $1,988,785
New loan additions................... 2,541,481 772,957
Repayments of loans.................. (261,219) (497,438)
---------- ----------
Balances at End of Year.............. $4,544,566 $2,264,304
========== ==========
</TABLE>
NOTE (5) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes the changes in the allowance for possible loan
losses for the years ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1992 1991
------------- ------------- ------------
<S> <C> <C> <C>
Balance at beginning of year............................... $1,655,056 $1,634,863 $1,480,269
Loans charged off.......................................... (354,444) (517,335) (139,211)
Recoveries on loans previously charged off................. 29,582 47,528 200,305
Provision for possible loan losses......................... 543,000 490,000 93,500
---------- ---------- ----------
Balance at End of Year..................................... $1,873,194 $1,655,056 $1,634,863
========== ========== ==========
NOTE (6) PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<CAPTION>
DECEMBER 31,
-------------------------
USEFUL LIVES 1993 1992
------------ ---------- ----------
<S> <C> <C> <C>
Premises and improvements.................................. 10-40 years $ 858,253 $ 853,713
Furniture, fixtures and equipment.......................... 5-15 years 1,149,315 1,077,062
Automobiles................................................ 5 years 18,270 18,270
---------- ---------- ----------
2,025,838 1,949,045
Less accumulated depreciation.............................. 1,105,384 936,798
---------- ----------
Total Premises and Equipment........................ $ 920,454 $1,012,247
========== ==========
</TABLE>
PV Financial conducts a portion of its operations using leased facilities under
noncancellable operating leases expiring at various dates through 2002. At the
end of the lease terms, all of the leases are renewable for periods
F-12
<PAGE>
of 3 to 5 years, at the then fair rental value. Premises leases are adjusted
either annually or bi-annually for the term of the lease, including any
extensions, by the percentage change that occurs in the Consumer Price Index.
The minimum lease commitments under operating leases are as follows:
<TABLE>
<CAPTION>
Years Amount
------------------------
<S> <C>
1994......... $569,039
1995......... 564,047
1996......... 523,790
1997......... 397,385
1998......... 45,300
Thereafter... 143,450
</TABLE>
Expense for all operating leases for the years ended December 31, 1993, 1992 and
1991 were $558,023, $219,658, and $207,054, respectively.
Rental expense of premises and depreciation expense were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------------ ------------- ------------
<S> <C> <C> <C>
Rental expense of premises................................ $ 566,820 $ 453,403 $ 402,991
Depreciation expense...................................... 278,244 314,195 261,415
</TABLE>
NOTE (7) DEPOSITS
Comparative year end detail of total deposits is presented in the following
table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1993 1993 1992 1992
------------ ------------ ------------ -----------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INTEREST BEARING DEPOSITS
Checking accounts.............................. $ 41,830,523 $ 41,830,523 $ 37,651,248 $ 37,651,248
Savings accounts............................... 15,241,063 15,241,063 11,862,538 11,862,538
Time deposits
Under $100,000................................ 27,110,328 27,247,130 28,145,890 28,374,635
$100,000 and over............................. 30,150,128 30,235,854 32,919,178 32,952,523
------------ ------------ ------------ ------------
114,332,042 114,554,570 110,578,854 110,840,944
Noninterest bearing deposits......................... 43,714,950 43,714,950 31,947,865 31,947,865
------------ ------------ ------------ ------------
Total Deposits................................ $158,046,992 $158,269,520 $142,526,719 $142,788,809
============ ============ ============ ============
</TABLE>
NOTE (8) INCOME TAXES
Effective January 1, 1993, PV Financial adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the liability method in accounting for income taxes. Prior year
financial statements have not been restated to reflect the new accounting
method. The effect of this new standard on income tax expense for the year
ended December 31, 1993 is not material.
F-13
<PAGE>
The provision for income taxes for the years ended December 31, 1993, 1992 and
1991 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
CURRENTLY PAYABLE
Federal....................................................... $1,157,338 $1,028,446 $ 990,557
State......................................................... 449,652 387,155 355,459
---------- ---------- ----------
Total........................................ 1,606,990 1,415,601 1,346,016
---------- ---------- ----------
DEFERRED
Federal....................................................... (218,085) (222,542) (156,807)
State......................................................... (108,848) (83,361) (62,609)
---------- ---------- ----------
Total........................................ (326,933) (305,903) (219,416)
---------- ---------- ----------
Total Currently Payable and Deferred Taxes... $1,280,057 $1,109,698 $1,126,600
========== ========== ==========
</TABLE>
A reconciliation of income taxes computed at the federal statutory rate and the
provision for income taxes for the years ended December 31, 1993, 1992 and 1991
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Income taxes at statutory rates........................ 34% 34% 34%
State income taxes,net of federal income tax benefit... 7% 7% 7%
Other.................................................. (1)% (1)% -
---- ---- ----
Effective tax rate..................................... 40% 40% 41%
==== ==== ====
</TABLE>
The tax effect of temporary differences giving rise to PV Financial's deferred
income tax asset at December 31, 1993 is as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Deferred loan fees....................... $ 317,000
Allowance for loan losses................ 544,000
Foreclosed real estate................... 32,000
State income taxes....................... 97,000
Other.................................... 7,000
---------
Total........... 997,000
---------
DEFERRED LIABILITIES
Depreciation on property and equipment... (396,000)
Other.................................... (1,000)
---------
Total........... (397,000)
---------
DEFERRED INCOME TAX ASSET................ $ 600,000
=========
</TABLE>
NOTE (9) COMMITMENTS AND CONTINGENCIES
PV Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
loans or through standby letters of credit, and involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet.
PV Financial's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
F-14
<PAGE>
instruments. PV Financial uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
COMMITMENT
VALUE
------------
<S> <C>
Undisbursed loan commitments... $32,254,166
Reserve lines.................. 1,966,716
Credit cards................... 1,023,553
Letters of credit.............. 466,848
-----------
Total.......................... $35,711,283
===========
</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 and may
require payment of a fee. The estimated fair value of unused commitments is
based on fees currently charged for similar agreements. The estimated fair
value of undisbursed loan commitments is $483,812 and for letters of credit is
$7,003, for a total of $490,815. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. PV Financial evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by PV Financial upon extension of credit, is based on
management's credit evaluation.
Standby letters of credit are conditional commitments issued by PV Financial 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.
Litigation, contingent liabilities and claims against PV Financial arising in
the ordinary course of business are not expected to involve any settlements or
judgements which would be material to the financial position or operations of PV
Financial.
Real Estate Joint Venture
PV Financial and Fifteen-24 McHenry Investors have outstanding $9,740,304 in
long-term financing for an office building. This is a ten year loan, secured by
a deed of trust on the property.
NOTE (10) COMMON STOCK
Dividends
There are legal limitations on the ability of the Bank to provide funds to PV
Financial. Under national banking laws, the Bank may not declare dividends in
any calendar year that exceed the total of its net profits for that year
combined with its retained net profits for the two preceding years, without the
approval of the Office of the Comptroller of the Currency. The Bank's retained
earnings of $7,181,812 were not restricted as of December 31, 1993.
Regulatory Matters
Banks are required to maintain a minimum leverage-capital ratio of Tier I
capital to total assets based on bank ratings under the regulatory rating
system. For the Bank, Tier I capital consists of common stockholders equity.
Currently, a rating of "one" is required to maintain a minimum leverage-capital
ratio of 3%. Institutions with other ratings are required to have an additional
100 to 200 basis points. In addition, banks must maintain a ratio of total
capital to risk-weighted assets of 8% and a ratio of Tier I capital to risk-
weighted assets of 4%. The Bank exceeded its capital requirements at December
31, 1993.
F-15
<PAGE>
Stock Option Plans
PV Financial has three stock option plans. Under the 1982 Stock Option Plan,
which expired on November 15, 1992, either nonstatutory or incentive stock
options could be granted to certain employees to purchase up to 320,000 shares
of the authorized, but unissued, common stock at a price not less than fair
market value on the date of grant. The plan generally provided for options with
terms up to ten years from the date of grant and vesting ratable over the first
five years. However, in the case of an incentive stock option granted under the
plan to an employee who, immediately before the option was granted, owned stock
representing more than ten percent of the total combined voting power of all
classes of stock of the PV Financial, the maximum exercise term of the option
was five years. The plan limited the value of incentive stock options that
could be exercised by an optionee to $100,000 during a calendar year.
The following is a summary of the unexercised options under the 1982 Stock
Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
SHARES
AVAILABLE FOR PRICE PER
GRANT SHARES SHARE
------------- -------- -----------
<S> <C> <C> <C>
Balances, January 1, 1991......... 46,766 258,634 $3.66-$7.26
Granted........................... (11,000) 11,000 5.71
Exercised......................... - (3,400) 5.00
Canceled.......................... 600 (600) 5.00
-------- -------- -----------
Balances, December 31, 1991....... 36,366 265,634 3.66-7.26
5% Stock Dividend................. 2,369 12,731 -
Granted........................... (20,000) 20,000 6.67
Exercised......................... - (87,868) 4.65-4.76
Canceled.......................... 100,393 (100,393) 4.76-7.00
Expired........................... 37,629 (37,629) 4.65-7.80
Expired with plan................. (156,757) - -
-------- -------- -----------
Balances, December 31, 1992....... - 72,475 3.66-7.26
5% Stock Dividend................. - 3,615 -
-------- -------- -----------
Balances, December 31, 1993....... - 76,090 $3.66-$7.26
======== ======== ===========
</TABLE>
Exercisable options totaled 51,057 at December 31, 1993.
Under the PV Financial 1991 Director Stock Option Plan, nonstatutory stock
options may be granted to non-employee members of the Board of Directors to
purchase an aggregate of 220,000 shares of the authorized, but unissued, common
stock at 100% of the fair market value on the date of the grant. All options
vest as to 20% of the shares on each successive anniversary of the date of the
grant, beginning one year after the date of grant. Each option will be fully
vested on the fifth anniversary of the date of grant. Each option has a
termination date of ten years from the date of the grant.
F-16
<PAGE>
The following is a summary of the unexercised options of the PV Financial 1991
Director Stock Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------
AVAILABLE FOR PRICE PER
GRANT SHARES SHARE
-------------- -------- ---------
<S> <C> <C> <C>
Balances, January 1, 1991..... - - -
Authorized.................... 220,000 - -
Granted....................... (180,000) 180,000 $5.67
-------- ------- -----
Balances, December 31, 1991... 40,000 180,000 5.67
5% Stock Dividend............. 2,000 9,000 -
-------- ------- -----
Balances, December 31, 1992... 42,000 189,000 5.67
5% Stock Dividend............. 2,100 9,450 -
Exercised..................... - (13,230) 5.67
-------- ------- -----
Balances, December 31, 1993... 44,100 185,220 $5.67
======== ======= =====
</TABLE>
Exercisable options totaled 66,150 at December 31, 1993.
Under the 1992 Employee Stock Option Plan, which replaced the 1982 Employee
Stock Option Plan, nonstatutory or incentive stock options may be granted to
certain employees to purchase up to 302,279 shares of the authorized, but
unissued, common stock at a price not less than fair market value on the date of
grant. However, in the case of an incentive stock option granted under the plan
to an employee who, immediately before the option was granted, owned stock
representing more than ten percent of the total combined voting power of all
classes of stock of the PV Financial, the maximum exercise term of the option
was five years. The plan limited the value of incentive stock options that
could be exercised by an optionee to $100,000 during a calendar year. The plan
generally provides for options with terms up to ten years from the date of grant
and vesting ratable over the first five years.
The following is a summary of the unexercised options of the 1992 Employee Stock
Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ---------------------
AVAILABLE FOR PRICE PER
GRANT SHARES SHARE
-------------- ------- -----------
<S> <C> <C> <C>
Balances, January 1, 1992..... - - -
Authorized.................... 302,279 - -
Granted....................... (117,393) 117,393 $ 5.82
-------- ------- -----------
Balances, December 31, 1992... 184,886 117,393 5.82
5% Stock Dividend............. 9,243 5,870 -
Granted....................... (19,500) 19,500 6.50-9.75
-------- ------- -----------
Balances, December 31, 1993... 174,629 142,763 $5.82-$9.75
======== ======= ===========
</TABLE>
Exercisable options under the 1992 Employee Stock Option Plan totaled 100,583 at
December 31, 1993.
F-17
<PAGE>
NOTE (11) EARNINGS PER SHARE
Net earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding. The exercise of
outstanding stock options with option prices below market were included in the
computations. All computations have been adjusted for the 5% stock dividend
declared on November 20, 1991, and distributed on January 20, 1992 and the 5%
stock dividend declared on November 19, 1992 and distributed on January 15,
1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1993 1992 1991
--------------- ----------------- ------------------
<S> <C> <C> <C>
Net Earnings................... $1,958,211 $1,634,996 $1,618,130
========== ========== ==========
<CAPTION>
NUMBER EARNINGS NUMBER EARNINGS NUMBER EARNINGS
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Common
Shares Outstanding............ 2,149,860 $ 0.91 2,104,486 $ 0.78 2,065,677 $ 0.78
Stock Options Outstanding
Option Price Below Market..... 86,839 (0.03) 42,213 (0.02) 36,972 (0.01)
---------- ------ ---------- ------ ---------- ------
Total Weighted Average
Number of Shares........ 2,236,699 $ 0.88 2,146,699 $ 0.76 2,102,649 $ 0.77
========== ====== ========== ====== ========== ======
</TABLE>
NOTE (12) EMPLOYEE BENEFIT PLANS
Profit Sharing and Bonus Programs
On January 21, 1993, the Board of Directors established the 1993 Profit Sharing
Plan and the 1993 Executive Officer Profit Sharing Plan, which provided for the
distribution of cash payments to non-officer employees and to executive officers
of PV Financial and the Bank. Payments for these plans were based on the Bank's
1993 fiscal year-end profits, after profit sharing and bonus payments, after
meeting the established loan loss requirements, provisions for taxes, and
exclusive of extraordinary income. The Board of Directors also adopted the 1993
Bonus Program, which is an incentive program for marketing and lending officers
of the Bank. These plans replaced the 1992 Profit Sharing Plans. Under the
terms of the 1993 Executive Officer Profit Sharing Plan, 3% of the Bank's net
profits was distributed, at the discretion of the Board of Directors, to the
Senior Vice President-Credit, Senior Vice President-Chief Financial Officer,
Senior Vice President-Operations, and Vice President-Corporate Secretary of the
Bank. The 1993 Bonus Program provided marketing and lending officers with
incentive bonuses based on levels of deposits, loans, and fee income brought
into the Bank.
Under the terms of the 1993 Profit Sharing Plan, which includes all employees
not included in the above plans, those employed on the date of distribution
received a cash payment based on the Bank's 1993 fiscal year-end profits and
returns on average equity ranging from 12% to 17%. Employees were eligible to
participate in the Plan upon commencement of employment. Employees with less
than one full calendar year received a prorated profit share based on length of
employment.
There were payments and accruals of $197,782 under these Plans for the year
ended December 31, 1993, on which date the Plans terminated. There were
payments and accruals of $111,805 made under the 1992 Profit Sharing Plans, and
$209,715 made under the 1991 Profit Sharing Plan.
Retirement Savings Plan
On January 2, 1985, PV Financial established a Retirement Savings Plan for all
eligible employees who have completed one year of service. Eligible employees
may contribute up to 9% of their monthly gross salary. PV Financial makes a
matching contribution of a specified percentage of an employee's annual salary.
The matching contributions are subject to a vesting schedule. The Bank of
California was appointed Trustee for the Retirement Savings Plan Trust in 1988.
Under the provisions of the Trust, each plan participant may direct the
investment of his or her account among the four investment vehicles offered by
The Bank of California and/or in shares of
F-18
<PAGE>
PV Financial Common Stock. PV Financial contributed $107,909, $117,886 and
$125,459 to the Plan in 1993, 1992 and 1991, respectively.
There are no other postretirement benefits.
NOTE (13)
PV FINANCIAL
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1993 1992
----------- -----------
<S> <C> <C>
ASSETS
Noninterest bearing deposits with banks... $ 43,318 $ 28,291
Interest bearing deposits with banks...... 1,206,826 902,464
----------- -----------
Total Cash and Cash Equivalents..... 1,250,144 930,755
Securities held-for-sale.................. - 149,370
Investment in bank subsidiary............. 14,681,812 12,851,219
Loans, net................................ 920,230 1,415,331
Premises and equipment.................... 17,709 -
Investment in real estate joint venture... 893,711 844,744
Other assets.............................. 25,944 40,807
----------- -----------
Total Assets........................ $17,789,550 $16,232,226
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities......................... $ 309,819 $ 357,417
Equity.................................... 17,479,731 15,874,809
----------- -----------
Total Liabilities and Equity........ $17,789,550 $16,232,226
=========== ===========
</TABLE>
PV FINANCIAL
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>
REVENUE
Net earnings of subsidiaries....... $1,806,112 $1,466,370 $1,568,435
Interest income.................... 142,781 220,302 340,707
Other.............................. 610,790 480,731 420,476
---------- ---------- ----------
Total Revenue................ 2,559,683 2,167,403 2,329,618
---------- ---------- ----------
EXPENSES
Interest expense................... - 27,871 139,291
Other expense...................... 568,211 486,388 537,397
---------- ---------- ----------
Total Expense................ 568,211 514,259 676,688
---------- ---------- ----------
Net earnings before income taxes... 1,991,472 1,653,144 1,652,930
Income taxes....................... 33,261 18,148 34,800
---------- ---------- ----------
Net Earnings....................... $1,958,211 $1,634,996 $1,618,130
========== ========== ==========
</TABLE>
F-19
<PAGE>
PV FINANCIAL
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net Income.............................................. $ 1,958,211 $ 1,634,996 $ 1,618,130
Adjustment to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization........................... 807 (374) 346
(Gain) loss in real estate joint venture................ (48,967) (29,751) 43,442
Decrease in other assets................................ 14,863 42,173 86,257
Increase (decrease) in other liabilities................ 30,298 (165,154) (22,329)
Equity in earnings of subsidiaries...................... (1,806,112) (1,466,370) (1,568,435)
----------- ----------- -----------
Cash provided by operating activities................... 149,100 15,520 157,411
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in subsidiaries.............................. - - 240,000
Maturities of securities................................ 150,000 660,000 -
Sale of premises and equipment.......................... - 1,112,900 -
Purchase of premises and equipment...................... (19,147) (36,270) (573,105)
Net decrease in loans................................... 495,101 484,231 1,225,456
Investment in real estate joint venture................. - (144,500) -
----------- ----------- -----------
Cash provided by investing activities................... 625,954 2,076,361 892,351
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Cash dividends paid..................................... (530,665) (387,566) (430,713)
Issuance of common stock................................ 75,000 240,702 17,000
Decrease in Western Farm Credit Bank borrowings......... - (218,637) (1,352,796)
Payments on notes payable............................... - (952,682) (5,347)
Proceeds from notes payable............................. - 4,000 593,000
----------- ----------- -----------
Cash used in financing activities....................... (455,665) (1,314,183) (1,178,856)
----------- ----------- -----------
Net (decrease) increase in cash......................... 319,389 777,698 (129,094)
Cash at beginning of period............................. 930,755 153,057 282,151
----------- ----------- -----------
Cash and cash equivalents at year end................... $ 1,250,144 $ 930,755 $ 153,057
=========== =========== ===========
</TABLE>
F-20
<PAGE>
PV FINANCIAL
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 14,466,108 $ 17,696,562
Federal Funds Sold.............................................. - -
------------ ------------
Total cash and cash equivalents................................. 14,466,108 17,696,562
Securities available for sale (Note 2).......................... 11,414,705 17,044,866
Securities held to maturity (Note 2)............................ 6,995,631 7,003,356
Loans (Note 3).................................................. 135,990,357 133,255,060
Less: Deferred loan fees........................................ (754,578) (696,751)
Allowance for possible loan losses (Note 4)..................... (1,933,503) (1,873,194)
------------ ------------
Net Loans....................................................... 133,302,276 130,685,115
Federal Reserve Bank Stock...................................... 225,000 225,000
Investment in real estate joint venture......................... 921,374 893,711
Premises and equipment, net..................................... 1,054,035 920,454
Other Real Estate Owned......................................... 55,288 1,258,870
Other assets.................................................... 1,756,171 1,428,787
------------ ------------
Total Assets.................................................... $170,190,588 $177,156,721
============ ============
LIABILITIES
Interest bearing deposits....................................... $116,947,569 $114,332,042
Noninterest bearing deposits.................................... 33,298,004 43,714,950
------------ ------------
Total Deposits (Note 5)......................................... 150,245,573 158,046,992
Other liabilities............................................... 1,664,298 1,629,998
------------ ------------
Total Liabilities............................................... 151,909,871 159,676,990
------------ ------------
STOCKHOLDERS' EQUITY
Common stock; no par value. Authorized 20,000,000 shares;
issued and outstanding; 2,176,593 in June 1994 and 2,168,014
in December 1993............................................... 12,065,158 12,007,862
Retained Earnings............................................... 6,364,986 5,564,982
Net unrealized holding losses on securities available for
sale........................................................... (149,427) (93,113)
------------ ------------
Total Stockholders' Equity...................................... 18,280,717 17,479,731
------------ ------------
Total Liabilities and Stockholders' Equity...................... $170,190,588 $177,156,721
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1994 1993
------------ -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................. $5,992,233 $5,425,644
Interest on investment securities........................... 311,850 303,674
Interest on federal funds sold.............................. 30,799 52,674
Interest on deposits in other banks/repurchase agreements... 145,559 162,096
---------- ----------
Total Interest Income....................................... 6,480,441 5,944,088
---------- ----------
INTEREST EXPENSE
Interest on deposit accounts................................ 1,780,719 1,906,260
---------- ----------
Total Interest Expense...................................... 1,780,719 1,906,260
---------- ----------
Net interest income......................................... 4,699,722 4,037,828
Provision for possible loan losses (Note 4)................. 172,467 261,200
---------- ----------
Net Interest Income After Provision for possible loan
losses..................................................... 4,527,255 3,776,628
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts......................... 327,125 278,780
Other operating income...................................... 127,377 155,442
Gain on sale of loans....................................... 297,401 211,045
Security (losses) gains..................................... (57,420) 9
---------- ----------
Total Noninterest Income.................................... 694,483 645,276
NONINTEREST EXPENSE
Salaries and employee benefits.............................. 1,687,007 1,490,699
Occupancy................................................... 580,593 544,283
FDIC insurance assessment................................... 168,000 168,000
Other operating expense..................................... 928,043 856,588
---------- ----------
Total Noninterest Expense................................... 3,363,643 3,059,570
---------- ----------
Earnings Before Income Taxes................................ 1,858,095 1,362,334
Income Taxes................................................ 796,900 564,700
---------- ----------
Net Earnings................................................ $1,061,195 $ 797,634
========== ==========
Net Earnings Per Share...................................... $0.49 $0.37
Dividends Declared Per Share................................ $0.12 $0.10
Average Shares Outstanding.................................. 2,173,618 2,146,309
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
RETAINED SECURITIES
COMMON EARNINGS NET AVAILABLE-
STOCK (DEFICIT) CHANGE FOR-SALE TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances December 31, 1992... $11,303,907 $4,688,496 $(117,594) $ - $15,874,809
Stock Options Exercised
(13,230 shares)............. 75,000 - - - 75,000
Cash Dividends Declared...... - (452,770) - - (452,770)
Stock Dividend Paid
(102,269 shares)............ 628,955 (628,955) - - -
Net change in Unrealized
Decline in Fair Value
of Bond Mutual Funds........ - - 22,264 - 22,264
Net Unrealized Holding
Gains in Securities
Available-for-Sale.......... - - 95,330 (93,113) 2,217
Net Earnings................. - 1,958,211 - - 1,958,211
----------- ---------- ---------- ---------- -----------
Balances December 31, 1993... 12,007,862 5,564,982 - (93,113) 17,479,731
Stock Options Exercised
(8,579 shares).............. 57,296 - - - 57,296
Cash Dividends Declared...... - (261,191) - - (261,191)
Net Unrealized Holding
Losses in Securities
Available-for-Sale.......... - - - (56,314) (56,314)
Net Earnings................. - 1,061,195 - - 1,061,195
----------- ---------- ---------- ---------- -----------
Balances at June 30, 1994.... $12,065,158 $6,364,986 $ - $(149,427) $18,280,717
=========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
PV FINANCIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net Earnings............................................ $ 1,061,195 $ 797,634
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......................... 170,785 122,433
Provision for possible credit losses.................. 172,467 261,200
Gain in real estate joint venture..................... (27,663) (21,717)
Increase in deferred loan fees........................ 57,827 156,303
Loss(gain) on sale of securities available-for-sale... 57,420 (9)
Increase in other assets.............................. (278,678) (106,525)
Increase (decrease) in other liabilities................ 33,255 (196,415)
------------ ------------
Cash provided by operating activities................... 1,246,608 1,012,904
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Sale of securities available-for-sale.................. 342,580 1,001,875
Maturities of securities............................... 1,123,920 3,040,912
Purchase of securities................................. (996,094) (5,515,625)
Net decrease in securities under resale agreement...... 5,000,000 7,000,000
Purchase of premises and equipment..................... (299,326) (153,327)
Cash paid at foreclosure for other real estate owned... (55,288) -
Net increase in loans.................................. (5,087,688) (14,717,107)
Proceeds from sale of loans............................ 3,499,104 1,702,083
------------ ------------
Cash provided by (used in) investing activities......... 3,527,208 (7,641,189)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Cash Dividends paid.................................... (260,147) (315,186)
Stock options exercised................................ 57,296 -
Net (decrease) increase in short term deposits......... (10,444,836) 3,186,214
Net increase (decrease) in time certificates........... 2,643,417 (750,446)
------------ ------------
Cash (used in) provided by financing activities......... (8,004,270) 2,120,582
------------ ------------
Net (decrease) in cash and cash equivalents............. (3,230,454) (4,507,703)
Cash and cash equivalents at January 1,................. 17,696,562 21,783,624
------------ ------------
Cash and cash equivalents at June 30,................... $ 14,466,108 $ 17,275,921
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................... $ 1,688,874 $ 1,859,775
Income Taxes........................................... 991,135 809,578
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
PV FINANCIAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
NOTE (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes in PV Financial's significant
accounting policies during the six months ended June 30, 1994 from
those presented in Note (1) in the December 31, 1993 Annual Report
to Shareholders. Management has presented, for comparison purposes,
its unaudited consolidated balance sheet as of June 30, 1994, its
unaudited consolidated statements of earnings and cash flows for the
six months ended June 30, 1994 and 1993, and the unaudited
consolidated statement of shareholders equity for the six months
ended June 30, 1994. These financial statements contain, in the
opinion of management, all necessary normal recurring adjustments
and are not intended to be indicative of results that can be
expected for the full year.
NOTE (2) INVESTMENT SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1994
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government Agencies....... $ 6,211,266 $ 1,537 $(114,868) $ 6,097,935
Repurchase Agreements.......... 5,000,000 - - 5,000,000
Mutual Funds................... 400,000 - (83,230) 316,770
----------- ------- --------- -----------
Total Available-for-Sale...... $11,611,266 $ 1,537 $(198,098) $11,414,705
=========== ======= ========= ===========
SECURITIES HELD-TO-MATURITY
U.S. Treasury Securities....... $ 996,524 $ - $ (11,524) $ 985,000
U.S. Government Agencies....... 5,999,107 7,191 (106,863) 5,899,435
----------- ------- --------- -----------
Total Held-to-Maturity........ $ 6,995,631 $ 7,191 $(118,387) $ 6,884,435
=========== ======= ========= ===========
DECEMBER 31, 1993
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
SECURITIES AVAILABLE-FOR-SALE
U.S. Government Agencies....... $ 6,336,408 $ 5,047 $ (1,259) $ 6,340,196
Repurchase Agreements.......... 10,000,000 - - 10,000,000
Mutual Funds................... 704,670 - - 704,670
----------- ------- --------- -----------
Total Available-for-Sale...... $17,041,078 $ 5,047 $ (1,259) $17,044,866
=========== ======= ========= ===========
SECURITIES HELD-TO-MATURITY
U.S. Treasury Securities....... $ 1,006,445 $ 1,675 $ - $ 1,008,120
U.S. Government Agencies....... 5,996,911 35,535 (16,195) 6,016,251
----------- ------- --------- -----------
Total Held-to-Maturity........ $ 7,003,356 $37,210 $ (16,195) $ 7,024,371
=========== ======= ========= ===========
</TABLE>
The amortized cost and estimated fair value of securities by contractual
maturity at June 30, 1994 and December 31, 1993 are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
F-25
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993
------------------------- --------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
Due in one year or less........ $ 5,000,000 $ 5,000,000 $10,000,000 $10,000,000
Due one year - five years...... 6,211,266 6,097,935 6,336,408 6,340,196
Due five years - ten years..... - - - -
Due after ten years............ - - - -
Mutual Funds................... 400,000 316,770 704,670 704,670
----------- ----------- ----------- -----------
Total Available-for-Sale...... $11,611,266 $11,414,705 $17,041,078 $17,044,866
=========== =========== =========== ===========
SECURITIES HELD-TO-MATURITY
Due in one year or less........ $ 1,000,000 $ 1,005,813 $ 1,006,445 $ 1,008,120
Due one year - five years...... 5,995,631 5,878,622 5,996,911 6,016,251
Due five years - ten years..... - - - -
Due after ten years............ - - - -
----------- ----------- ----------- -----------
Total Held-to-Maturity........ $ 6,995,631 $ 6,884,435 $ 7,003,356 $ 7,024,371
=========== =========== =========== ===========
</TABLE>
Proceeds from sales and maturities of securities available-for-sale during the
six months ended June 30, 1994 were $342,580. There were realized losses on the
sale of these available-for-sale securities of $57,420.
At June 30, 1994 securities having a carrying value of $4,730,000 were pledged
to secure deposits of public funds.
NOTE (3) LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------ -------------
<S> <C> <C>
Real Estate Construction............ $ 5,932,878 $ 9,008,668
Commercial.......................... 50,632,423 47,317,164
Commercial Secured by Real Estate... 46,350,015 42,559,318
Agricultural........................ 28,342,748 30,062,150
Installment......................... 1,376,356 558,836
Other............................... 3,355,937 3,748,924
------------ ------------
Total Loans......................... $135,990,357 $133,255,060
============ ============
</TABLE>
F-26
<PAGE>
The aggregate amounts of restructured troubled debt and nonaccrual loans
included in the above loan balances are as follows:
<TABLE>
<CAPTION>
JUNE 1994 DECEMBER 1993
--------- -------------
<S> <C> <C>
Troubled debt restructurings... $ - $ -
Nonaccrual loans............... 427,026 166,058
-------- --------
$427,026 $166,058
======== ========
</TABLE>
NOTE (4) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes the changes in the allowance for possible loan
losses during the six months ended June 30, 1994 and the twelve months ended
December 31, 1993:
<TABLE>
<CAPTION>
JUNE 1994 DECEMBER 1993
------------- --------------
<S> <C> <C>
Balance beginning of period................................................. $ 1,873,194 $ 1,655,056
Loans charged off........................................................... (155,958) (354,444)
Recoveries on loans
previously charged off..................................................... 43,800 29,582
Provision for possible
loan losses................................................................ 172,467 543,000
------------ ------------
Balance at end of period.................................................... $ 1,933,503 $ 1,873,194
============ ============
</TABLE>
NOTE (5) DEPOSITS
Comparative detail of total deposits is presented in the following table:
<TABLE>
<CAPTION>
JUNE 1994 DECEMBER 1993
------------ -------------
<S> <C> <C>
Interest bearing deposits
Checking accounts........................................................... $ 40,384,578 $ 41,830,523
Savings accounts............................................................ 16,659,118 15,241,063
Time deposits
Under $100,000............................................................. 26,807,434 27,110,328
$100,000 and over.......................................................... 33,096,439 30,150,128
------------ ------------
116,947,569 114,332,042
Noninterest bearing deposits................................................ 33,298,004 43,714,950
------------ ------------
Total deposits.............................................................. $150,245,573 $158,046,992
============ ============
</TABLE>
F-27
<PAGE>
ANNEX A
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
Among
WESTAMERICA BANCORPORATION,
PV FINANCIAL
And
PACIFIC VALLEY NATIONAL BANK
DATED AS OF JULY 25, 1994,
AS AMENDED
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C>
1. THE MERGER............................................................. 1
1.1 Effective Time................................................... 1
1.2 Effect of the Merger............................................. 1
2. CONVERSION AND CANCELLATION OF SHARES.................................. 2
2.1 Conversion of Common Stock of PV Financial....................... 2
2.2 Fractional Shares................................................ 3
2.3 Surrender of PV Financial Shares................................. 3
2.4 No Further Transfers of PV Financial Shares...................... 4
2.5 Adjustments...................................................... 4
2.6 Treatment of Stock Options....................................... 4
3. COVENANTS OF THE PARTIES............................................... 5
3.1 Covenants of Westamerica......................................... 5
(a) Reservation, Issuance and Registration of
Westamerica Common Stock................................... 5
(b) Government Approvals....................................... 5
(c) Notification of Breach of Representations, Warranties
and Covenants.............................................. 5
(d) Financial Statements...................................... 5
(e) Press Releases............................................ 6
(f) Business Combinations..................................... 6
(g) Director & Officer Liability.............................. 6
(h) Subsidiary Banks.......................................... 7
(i) Extraordinary Dividends................................... 7
3.2 Covenants of PV Financial and the Bank.......................... 7
(a) Approval by PV Financial Shareholders..................... 7
(b) Shareholder Lists and Other Information................... 7
(c) Government Approvals...................................... 7
(d) Capital Commitments and Expenditures...................... 8
(e) Notification of Breach of Representations, Warranties
and Covenants............................................. 8
(f) Financial Statements...................................... 8
(g) Compensation.............................................. 9
(h) Conduct of Business in the Ordinary Course................ 9
(i) Press Releases............................................ 11
(j) No Merger or Solicitation................................. 11
(k) PV Financial 401(k) Plan.................................. 12
(l) Outsourcing to Westamerica................................ 12
(m) Changes in Capital Stock.................................. 13
(n) Dividends................................................. 13
(o) Accounting Methods........................................ 13
(p) Affiliates................................................ 13
(q) Additional Agreements..................................... 13
(r) Access to Properties, Books and Records;
Confidentiality........................................... 13
(s) Employee Welfare Benefit Plans............................ 13
(t) Execution and Delivery of Stock Option Agreement.......... 14
(u) Sale of Premises.......................................... 14
3.3 Covenants of the Parties........................................ 14
4. REPRESENTATIONS AND WARRANTIES OF PV FINANCIAL AND THE BANK........... 14
(a) Corporate Status and Power to Enter Into
Agreements......................................... 14
(b) Articles, Bylaws, Books and Records................ 15
(c) Compliance With Laws, Regulations and Decrees...... 15
(d) Capitalization..................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
(e) Equity Interests.......................................... 16
(f) Financial Statements, Regulatory Reports.................. 16
(g) Tax Returns............................................... 16
(h) Material Adverse Change................................... 17
(i) No Undisclosed Liabilities................................ 17
(j) Properties and Leases..................................... 18
(k) Material Contracts........................................ 19
(l) Classified Loans.......................................... 19
(m) Restrictions on Investments............................... 19
(n) Employment Contracts and Benefits......................... 19
(o) Compliance With ERISA..................................... 20
(p) Collective Bargaining and Employment Agreements........... 21
(q) Compensation of Officers and Employees.................... 21
(r) Legal Actions and Proceedings............................. 21
(s) Execution and Delivery of the Agreement................... 22
(t) Retention of Broker or Consultant......................... 22
(u) Insurance................................................. 22
(v) Loan Loss Reserves........................................ 22
(w) Transactions With Affiliates.............................. 23
(x) Information in Westamerica Registration Statement......... 23
(y) Accuracy of Representations and Warranties................ 23
(z) No Brokered Deposits...................................... 23
5. REPRESENTATIONS AND WARRANTIES OF WESTAMERICA......................... 24
(a) Corporate Status and Power to Enter Into Agreement........ 24
(b) Corporate Status and Power of Westamerica................. 24
(c) Certificate, Bylaws, Books and Records.................... 24
(d) Compliance With Laws, Regulations and Decrees............. 24
(e) Financial Statements...................................... 24
(f) Tax Returns............................................... 25
(g) Material Adverse Change................................... 25
(h) No Undisclosed Liabilities................................ 26
(i) Employee Benefits......................................... 26
(j) Legal Actions and Proceedings............................. 26
(k) Insurance................................................. 26
(l) Execution and Delivery of the Agreement................... 26
(m) Information in Westamerica Registration Statement......... 27
(n) Accuracy of Representations and Warranties................ 27
(o) Capitalization............................................ 27
(p) Retention of Broker or Consultant......................... 28
(q) Loan Loss Reserves........................................ 28
(r) Classified Loans.......................................... 28
6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934............... 28
(a) Preparation and Filing of Registration Statement.......... 28
(b) Effectiveness of Registration Statement................... 28
(c) Sales and Resales of Common Stock......................... 29
(d) Rule 145.................................................. 29
7. CONDITIONS TO THE OBLIGATIONS OF WESTAMERICA.......................... 29
(a) Representations and Warranties............................ 29
(b) Compliance and Performance Under Agreement................ 29
(c) Material Adverse Change................................... 29
(d) Approval of Agreement..................................... 30
(e) Officer's Certificate..................................... 30
(f) Opinion of Counsel........................................ 30
(g) Absence of Legal Impediment............................... 30
(h) Effectiveness of Registration Statement................... 30
(i) Government Approvals...................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(j) Tax Opinion or Ruling...................................... 30
(k) Management or Accountant's Letter.......................... 31
(l) Dissenting Shares.......................................... 31
(m) Unaudited Financials....................................... 31
(n) Noncompetition Agreement................................... 31
(o) Closing Documents.......................................... 31
(p) Consents................................................... 31
(q) Fairness Opinion........................................... 32
(r) Losses in Investment and Loan Portfolios................... 32
(s) Satisfaction of Spending or Other Commitments.............. 32
(t) Pooling-of-Interests Accounting Treatment;
Dissenters' Rights........................................ 32
(u) Employment Agreements...................................... 32
(v) Compliance Examinations.................................... 32
(w) Opinion of Loan Review Examiner............................ 32
(x) Regulatory Examination..................................... 33
(y) Stock Option Agreement..................................... 33
8. CONDITIONS TO THE OBLIGATIONS OF PV FINANCIAL.......................... 33
(a) Representations and Warranties............................. 33
(b) Compliance and Performance Under Agreement................. 33
(c) Material Adverse Change.................................... 33
(d) Approval of Agreement...................................... 33
(e) Officer's Certificate...................................... 33
(f) Opinion of Counsel......................................... 33
(g) Effectiveness of Registration Statement.................... 33
(h) Government Approvals....................................... 34
(i) Tax Opinion or Ruling...................................... 34
(j) Closing Documents.......................................... 34
(k) Absence of Legal Impediment................................ 34
(l) Fairness Opinion........................................... 34
(m) Pooling-of-Interests Accounting Treatment.................. 34
9. CLOSING................................................................ 34
(a) Closing Date............................................... 34
(b) Delivery of Documents...................................... 34
(c) Filings.................................................... 34
10. POST-CLOSING MATTERS................................................... 34
11. EXPENSES............................................................... 35
12. AMENDMENT; TERMINATION................................................. 35
(a) Amendment.................................................. 35
(b) Termination................................................ 35
(c) Notice..................................................... 36
(d) Breach of Obligations...................................... 36
(e) Termination and Expenses................................... 36
(f) Special Westamerica Rights of Termination.................. 37
13. MISCELLANEOUS.......................................................... 37
(a) Notices.................................................... 37
(b) Binding Agreement.......................................... 38
(c) No Survival of Representations and Warranties.............. 38
(d) Governing Law.............................................. 38
(e) Attorneys' Fees............................................ 38
(f) Entire Agreement; Severability............................. 38
(g) Counterparts............................................... 38
(h) Specific Performance....................................... 39
</TABLE>
-iii-
<PAGE>
SCHEDULE OF EXHIBITS
- --------------------
Exhibit A - Merger Agreement
Exhibit B - Non-Competition Agreement for PV Financial Directors
Exhibit B-1 - Non-Competition Agreement for Bank Directors
Exhibit B-2 - Non-Competition Agreement for Robert J. Cardoza
Exhibit C - Certificate and Agreement of PV Financial Directors
Exhibit D - Opinion of PV Financial Counsel
Exhibit E - Certificate of Affiliates
Exhibit F - Schedule of Non-Competition Agreement Signatories
Exhibit G - Employment Agreement
Exhibit H - Opinion of Westamerica Counsel
-iv-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of July 25, 1994
("Agreement"), is between WESTAMERICA BANCORPORATION, a California corporation
--------------------------
("Westamerica"), PV FINANCIAL, a California Corporation ("PV Financial") and
------------
PACIFIC VALLEY NATIONAL BANK, a national banking association ("Bank").
- ----------------------------
W I T N E S S E T H:
A. The Boards of Directors of Westamerica and PV Financial deem it
advisable and in the best interests of Westamerica, PV Financial and their
respective shareholders to consummate the business combination provided for
herein whereby Westamerica would acquire PV Financial and the goodwill
associated therewith through the merger of PV Financial with and into
Westamerica (the "Merger").
B. This Agreement and the Merger Agreement, as defined herein, have been
approved by the Boards of Directors of Westamerica and PV Financial and this
Agreement has been approved by the Board of Directors of the Bank, and will be
submitted for approval of the shareholders of PV Financial at a special meeting
of its shareholders.
C. The Merger is intended to qualify as a tax-free reorganization within
the meaning of the provisions of Section 368 of the Internal Revenue Code of
1986, as amended (the "IRC").
D. Pursuant to the Merger and subject to the terms and conditions herein,
each holder of common stock of PV Financial will receive, in exchange for common
stock of PV Financial, Westamerica common stock in the ratio of .5450 of a share
of Westamerica common stock for each share of PV Financial common stock, subject
to adjustment as more fully set forth in this Agreement.
E. As a condition and inducement to Westamerica's willingness to enter
into this Agreement, Westamerica and PV Financial are entering into immediately
after the execution and delivery hereof a Stock Option Agreement dated as of the
date hereof (the "Stock Option Agreement") pursuant to which PV Financial shall
grant Westamerica an option to purchase shares of the common stock of PV
Financial.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements provided for or contained
herein, the parties hereto agree as follows:
1. THE MERGER.
----------
1.1 Effective Time. Subject to the terms and conditions of this
--------------
Agreement, upon the filing with the California Secretary of State of a duly
executed Merger Agreement substantially in the form which is attached hereto as
Exhibit A ("Merger Agreement") and officers' certificates prescribed by Section
1103 of the California General Corporation Law ("GCL") or at such time
thereafter as is provided in the Merger Agreement (the "Effective Time") the
Merger shall become effective. The date on which the merger is effective as
specified in the Merger Agreement shall be referred to herein as the "Effective
Date."
1.2 Effect of the Merger. Subject to the terms and conditions of this
--------------------
Agreement and the Merger Agreement, at the Effective Time on the Effective Date,
PV Financial shall be merged with and into Westamerica and Westamerica shall be
the surviving corporation ("Surviving Corporation") in the Merger. All assets,
rights, goodwill, privileges, immunities, powers, franchises and interests of PV
Financial and Westamerica in and to every type of property (real, personal and
mixed) and chooses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests as
-1-
<PAGE>
trustee, executor, administrator, registrar of stocks and bonds, guardian of
estate, assignee, receiver and in every other fiduciary capacity, shall pass and
be transferred to and vest in the Surviving Corporation by virtue of the Merger
at the Effective Time without any deed, conveyance or other transfer; the
separate existence of PV Financial shall cease and the corporate existence of
Westamerica as the Surviving Corporation shall continue unaffected and
unimpaired by the Merger; and the Surviving Corporation shall be deemed to be
the same entity as each of PV Financial and Westamerica and shall be subject to
all of their duties and liabilities of every kind and description. The
Surviving Corporation shall be responsible and liable for all the liabilities
and obligations of each of Westamerica and PV Financial; and any claim existing
or action or proceeding pending by or against Westamerica or PV Financial may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of either Westamerica or PV Financial shall be impaired by
reason of the Merger.
2. CONVERSION AND CANCELLATION OF SHARES.
-------------------------------------
2.1 Conversion of Common Stock of PV Financial. At the Effective Time, by
------------------------------------------
virtue of the Merger and without any action on the part of the holder of any
common stock of PV Financial (a "PV Financial Share" or "PV Financial Shares"):
(a) Each issued and outstanding PV Financial Share (other than fractional
shares or any shares as to which dissenters' rights have been perfected) shall
be converted into .5450 of a fully paid and nonassessable share of the common
stock, without par value, of Westamerica ("Westamerica Common Stock" or
"Westamerica Shares"), subject to adjustment as specified in subsection (b)
herein ("Exchange Ratio"). All such PV Financial Shares shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously representing any such shares shall
thereafter represent the Westamerica Shares into which such PV Financial Shares
has been converted. Certificates previously representing PV Financial Shares
shall be exchanged for certificates representing whole shares of Westamerica
Common Stock issued in consideration therefor upon the surrender of such
certificates in accordance with Section 2.3.
(b) If, as of two business days preceding the Effective Date, the average
of the closing price of Westamerica Common Stock quoted on the Nasdaq National
Market ("Nasdaq") (calculated by taking an average of the closing prices quoted
on Nasdaq as reported in The Wall Street Journal on each of the twenty
-----------------------
consecutive trading days prior to two business days prior to the Effective Date,
rounded to 4 decimal places, whether or not trades occurred on those days (the
"Average Price")) is above $32.06 or below $28.43 (with no adjustment if the
Average Price is between $28.43 and $32.06), the Exchange Ratio will be adjusted
as follows, rounded to 4 decimal places:
(i) If the Average Price is below $28.43, Westamerica and PV Financial
shall have the right, but not the obligation, to renegotiate the
Exchange Ratio and, should the parties decide to exercise such right
to renegotiate, the parties agree to use their respective best efforts
to agree to a new Exchange Ratio; however, should the parties fail to
renegotiate the Exchange Ratio despite good faith efforts to do so, PV
Financial may terminate this Agreement pursuant to the provisions of
Section 12(b).
(ii) If the Average Price is above $32.06, the Exchange Ratio will be
adjusted downward by one half of the amount by which the Average Price
is above $32.06, according to the following formula (referred to as
the "Adjusted Exchange Ratio"):
.5450 x (Average Price + $32.06)/2 = Adjusted Exchange Ratio
--------------------------
Average Price
(iii) The Exchange Ratio or Adjusted Exchange Ratio shall be further
adjusted downward for any Significant Liabilities (as defined below) provided
that the maximum adjustment pursuant to this Section 2.1(b)(iii) shall not
exceed .0275. "Significant Liabilities," as used in this Agreement, shall relate
to the following categories or events unless Westamerica has consented in
writing to such matter: (1) new or extended contractual obligations other than
those arising in the ordinary course of PV Financial's business; (2) new or
extended leases of real or personal property other than the Ceres branch lease;
(3) acquisition of capital assets (or commitments to do so) except for assets
required in the ordinary course for the Ceres branch; (4) contingent liabilities
based upon threatened or pending litigation, other proceedings or hazardous or
toxic substances and legal fees and costs (whether actual or estimated) related
thereto; (5) any unbooked expenses, fines, fees, penalties or similar
obligations except those arising in the ordinary course of PV Financial's
business; (6) any new, expanded or accelerated pension or other employee
benefits including employment contracts and severance payments, whether or not
vested except as contemplated in Section 2.6; and (7) an amount which would
equal the amount necessary to bring PV Financial's allowance for loan losses to
one hundred percent (100%) of PV Financial's nonperforming loans as of the
calendar quarter preceding the Effective Date. PV Financial and Westamerica
shall identify any categories or events reasonably believed by either of them to
be Significant Liabilities commencing immediately following receipt of all
Government Approvals (as defined in Section 3.1(b)). Upon identification of a
Significant Liability, the parties shall attempt to agree upon the amount of
said Significant Liability within seven days. If no mutual agreement is reached
within said period the parties shall immediately hire an independent expert
qualified to render an opinion regarding the amount of the particular
Significant Liability. The parties will fully cooperate with any such
independent expert and will equally split the costs of said expert. The opinion
of said expert shall be binding on the parties for purposes of this Agreement.
As a result of any Significant Liabilities through the close of business on the
day preceding the Effective Date, the Exchange Ratio or Adjusted Exchange Ratio
shall be reduced by subtracting therefrom the fraction obtained by dividing the
amount of Significant Liabilities (on a net after tax per share basis) by the
Average Price, subject to the first sentence of this Section 2.1(b)(iii).
(c) From and after the Effective Time, the holders of certificates formerly
representing PV Financial Shares shall cease to have any rights with respect
thereto other than
-2-
<PAGE>
any dissenters' rights they have perfected pursuant to Chapter 13 of the
California Corporations Code.
2.2 Fractional Shares. Notwithstanding any other provision hereof, no
-----------------
fractional shares of Westamerica Common Stock shall be issued to holders of PV
Financial Shares. In lieu thereof, each such holder entitled to a fraction of a
share of Westamerica Common Stock shall receive, at the time of surrender of the
certificate or certificates representing such holder's PV Financial Shares, an
amount in cash equal to the Average Price (defined in Section 2.1(b)) multiplied
by the fraction of a share of Westamerica Common Stock to which such holder
otherwise would be entitled. No such holder shall be entitled to dividends,
voting rights, interest on the value of, or any other rights in respect of a
fractional share.
2.3 Surrender of PV Financial Shares.
--------------------------------
(a) Prior to the Effective Date, Westamerica shall appoint Chemical Trust
Company of California or its successor, or any other bank or trust company
(having capital of at least $50 million) mutually acceptable to PV Financial and
Westamerica, as exchange agent (the "Exchange Agent") for the purpose of
exchanging certificates representing the Westamerica Shares and at and after the
Effective Date, Westamerica shall issue and deliver to the Exchange Agent
certificates representing the Westamerica Shares, as shall be required to be
delivered to holders of PV Financial Shares pursuant to Section 2.1 of this
Agreement. As soon as practicable after the Effective Date, each holder of PV
Financial Shares converted pursuant to Section 2.1, upon surrender to the
Exchange Agent of one or more certificates for such PV Financial Shares for
cancellation, will be entitled to receive a certificate representing the number
of Westamerica Shares determined in accordance with Section 2.1 and a payment in
cash with respect to fractional shares, if any, determined in accordance with
Section 2.2. Each certificate representing Westamerica Shares will bear a
notation incorporating the Amended Rights Agreement (as that term is defined in
Section 5(o) herein), by reference and certificates representing the Westamerica
Shares will evidence and entitle the holders thereof to certain rights as set
forth in and subject to the terms of the Amended Rights Agreement ("Rights").
Certificates issued for the Westamerica Shares shall be deemed to be
certificates for said Rights.
(b) No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Westamerica Shares after the Effective
Date will be paid to persons entitled to receive such certificates for
Westamerica Shares until such persons surrender their certificates representing
PV Financial Shares. Upon surrender of such certificate representing PV
Financial Shares, the holder thereof shall be paid, without interest, any
dividends or other distributions with respect to the Westamerica Shares as to
which the record date and payment date occurred on or after the Effective Date
and on or before the date of surrender.
(c) If any certificate for Westamerica Shares is to be issued in a name
other than that in which the certificate for PV Financial Shares surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
costs, taxes or other expenses required by reason of the issuance of
certificates for such Westamerica Shares in a name other than the registered
holder of the certificate surrendered, or such persons shall establish to the
satisfaction of Westamerica and the Exchange Agent that such costs, taxes or
other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to
Section 2.2 in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing PV
Financial Shares and unclaimed at the end of one year from the Effective Date,
shall (together with any interest earned thereon) at such time be paid or
redelivered by the Exchange Agent to Westamerica, and after such time any holder
of a certificate representing PV Financial Shares who has not surrendered such
certificate to the Exchange Agent shall, subject to applicable law, look as a
general creditor only to Westamerica for payment or delivery of such dividends
or distributions or cash, as the case may be.
-3-
<PAGE>
2.4 No Further Transfers of PV Financial Shares. At the Effective Date,
-------------------------------------------
the stock transfer books of PV Financial shall be closed and no transfer of PV
Financial Shares theretofore outstanding shall thereafter be made.
2.5 Adjustments. If, between the date of this Agreement and the Effective
-----------
Date, the outstanding shares of Westamerica common stock shall have been changed
into a different number of shares or a different class by reason of any
reclassification, recapitalization, split up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within such period, the number of Westamerica Shares to be issued and delivered
in the Merger in exchange for each outstanding PV Financial Share shall be
correspondingly adjusted.
2.6 Treatment of Stock Options. Each person holding one or more options
--------------------------
to purchase PV Financial Shares pursuant to the 1982 Stock Option Plan, the 1991
Director Stock Option Plan, or the 1992 Employee Stock Option Plan (collectively
the "Option Plans") shall have the right, in his or her discretion, to:
(a) Exercise any options granted under the Option Plans that were vested
prior to the Effective Date; provided, however, all options (vested or unvested)
granted to Directors of PV Financial may not be exercised until after the
Effective Date. If an optionee with respect to the 1982 Stock Option Plan has
not terminated his or her employment with PV Financial or the Bank before July
25, 1994, his or her options that are not vested on that date shall become fully
exercisable prior to the Effective Date following notice by PV Financial in
accordance with the terms of the 1982 Stock Option Plan; provided, however, the
right to exercise these unvested options on an accelerated basis shall terminate
on the Effective Date; and/or
(b) Have any options that are not exercised converted into an option to
purchase shares of Westamerica common stock.
General Conversion Rules. Following the Effective Date, shares of
------------------------
Westamerica common stock shall be substituted under the options for PV Financial
Shares based on the Exchange Ratio or Adjusted Exchange Ratio in a form
acceptable to Westamerica. Specifically, each option shall be deemed to
continue as an option to purchase the number of shares of Westamerica common
stock equal to the Exchange Ratio or Adjusted Exchange Ratio multiplied by the
number of PV Financial Shares previously covered by such option at an option
exercise price for each such share of Westamerica common stock equal to the
previous option exercise price for each PV Financial Share divided by the
Exchange Ratio or Adjusted Exchange Ratio. Except as noted below, each PV
Financial stock option shall otherwise continue on terms and conditions that are
consistent with those that were applicable on the Effective Date.
Conversion Rules for 1991 Director Stock Option Plan. The options under
----------------------------------------------------
the 1991 Director Stock Option Plan shall be amended by PV Financial to state
that no such option may be exercised until after the Effective Date, and that to
the extent such an option was not vested on June 15, 1994, that unvested portion
of the option will become exercisable after the Effective Date in increments of
1/3 on each anniversary of the Effective Date. The substitute Westamerica
options will contain the same vesting provision. In addition, the 1991 Director
Stock Option Plan will be amended by PV Financial to provide that for purposes
of the 1991 Director Stock Option Plan only, a Director's service does not
terminate as long as he remains a director or advisory director of the Bank on
and after the Effective Date. Westamerica covenants that it will, for purposes
of the 1991 Director Stock Option Plan only, at or immediately following the
Effective Date, offer each current Director of the Bank a position as director
or advisory director of the Bank and that should the Bank be merged into any
other subsidiary of Westamerica each current Bank Director shall be offered a
position, for purposes of the 1991 Director Stock Option Plan only, as an
advisory director of the successor in interest to the Bank.
PV Financial shall amend the Option Plans and obtain any required
shareholder approval of such Option Plan amendments and shall amend, as
necessary, any and all option agreements
-4-
<PAGE>
(including obtaining any required participant consents) prior to the Effective
Date to make them consistent with this Section 2.6.
3. COVENANTS OF THE PARTIES.
------------------------
3.1 Covenants of Westamerica.
------------------------
(a) Reservation, Issuance and Registration of Westamerica Common Stock.
------------------------------------------------------------------
Westamerica shall reserve and make available for issuance in connection with the
Merger and in accordance with the terms of this Agreement (i) the Westamerica
Shares; and (ii) the maximum number of shares of common stock of Westamerica to
which the option holders of PV Financial may be entitled pursuant to Section 2.6
above at or after the Effective Date. All Westamerica Shares will, when issued
and delivered pursuant to and in accordance with the terms of this Agreement be
duly authorized, validly issued, fully paid and nonassessable. Westamerica
shall file and cause to be declared effective pursuant to the Securities Act of
1933, as amended (the "1933 Act") one or more registration statements covering
all such shares and shall cause all such shares to be issued in compliance with
the 1933 Act and in compliance with all applicable state securities laws and
regulations.
(b) Government Approvals. Prior to the Effective Date, Westamerica, with
--------------------
the cooperation of PV Financial and Bank, shall use its best efforts in good
faith to take or cause to be taken as promptly as practicable all such steps as
shall be necessary to obtain (i) the prior approval of the Merger by the Board
of Governors of the Federal Reserve System (the "FRB") under the Bank Holding
Company Act of 1956, as amended ("BHC Act"), and (ii) all other consents and
approvals of government agencies as are required by law or otherwise, and shall
do any and all acts deemed by Westamerica to be necessary or appropriate in
order to cause the Merger to be consummated on the terms provided in this
Agreement as promptly as practicable. All approvals referred to in clauses (i)
and (ii) of this Section 3.1(b) are hereinafter referred to as the "Government
Approvals."
(c) Notification of Breach of Representations, Warranties and Covenants.
-------------------------------------------------------------------
Westamerica shall promptly give written notice to PV Financial upon becoming
aware of the occurrence or impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants of Westamerica contained or referred to in the Merger Agreement or
this Agreement and shall use its best efforts to prevent the same or remedy the
same promptly.
(d) Financial Statements.
--------------------
(i) Westamerica has delivered or shall deliver to PV Financial prior
to the Effective Date true and correct copies of consolidated statements of
income, changes in shareholders' equity and statements of cash flows for
the three (3) months ended March 31, 1994, any subsequent quarter ends and
for the years ended December 31, 1993, 1992, 1991, 1990 and 1989, and
consolidated balance sheets at March 31, 1994, December 31, 1993, 1992,
1991 and 1990. Such consolidated financial statements at and for the years
ended December 31, 1993, 1992, 1991, 1990 and 1989 have been audited by
KPMG Peat Marwick ("KPMG") and include an opinion of such accounting firm
to the effect that such financial statements have been prepared in
accordance with Generally Accepted Accounting Principles ("GAAP") and
present fairly, in all material respects, the consolidated financial
position, results of operations and cash flow of Westamerica at the dates
indicated and for the periods then ending. The opinions of such accounting
firm do not and shall not contain any qualifications.
(ii) Westamerica has provided or shall provide to PV Financial at or
prior to the Effective Date copies of all financial statements and proxy
statements, issued or to be issued to Westamerica's shareholders and/or
directors after December 31, 1993 and at or prior to the Effective Date.
-5-
<PAGE>
(iii) Westamerica has provided or shall provide to PV Financial prior
to the Effective Date copies of (a) its Annual Report on Form 10-K for the
years ended December 31, 1993 and 1992 as filed with the Securities and
Exchange Commission (the "Commission"); (b) all periodic reports required
to be filed by it pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") since December 31, 1991;
and (c) all proxy statements, annual reports and other written materials
furnished to Westamerica shareholders since December 31, 1991, all other
material reports relating to Westamerica filed by Westamerica or any of its
subsidiaries with the California Superintendent of Banks
("Superintendent"), the FRB or the Commission during 1992, 1993, 1994 and
in 1995 prior to the Effective Date. As of their respective dates, each of
the documents provided hereunder complied or will comply in all material
respects with all legal and regulatory requirements applicable thereto.
(e) Press Releases. Westamerica shall not issue any press release or
--------------
written statement for general circulation to the public relating to the Merger,
this Agreement or the Merger Agreement unless previously provided to PV
Financial for review and approval (which approval will not be unreasonably
withheld or delayed) and shall cooperate with PV Financial in the development
and distribution of all news releases and other public information disclosures
with respect to this Agreement or the Merger; provided that Westamerica may,
without the consent of PV Financial, make any disclosure with regard to this
Agreement or the Merger that it determines is required under any applicable law
or regulation.
(f) Business Combinations. Westamerica shall not make any offer to any
---------------------
third party or accept any offer from any third party regarding a Business
Combination of Westamerica with any other entity unless such offer is expressly
conditioned upon the performance by Westamerica or its successor in interest of
Westamerica's obligations under this Agreement. In the event Westamerica fails
to comply with the provisions of this Section 3.1(f), PV Financial shall be
entitled to terminate this Agreement without any liability to Westamerica or any
agent thereof pursuant to Section 12(b), provided, however, that the obligations
and liabilities of Westamerica set forth in Section 12(e) hereof shall continue
in full force and effect. As used in this Agreement, "Business Combination"
shall mean any tender or exchange offer, proposal for a merger, consolidation,
or other takeover proposal involving any party hereto (except as explicitly
contemplated in this Agreement) or any offer or proposal to acquire in any
manner a substantial equity interest in, or a substantial portion of any party
hereto other than transactions contemplated hereunder.
(g) Director & Officer Liability. From and after the Effective Time,
----------------------------
Westamerica shall indemnify, defend and hold harmless each person who is a
director or executive officer of PV Financial on the date hereof with respect to
all reasonable expenses arising out of claims and legal proceedings against said
persons as a result of actions by said directors or officers after the date
hereof, in each case to the extent PV Financial would have been permitted under
section 317 of the GCL and its articles of incorporation and bylaws (subject,
however, to any applicable provisions of federal law or regulation) but only to
the extent not otherwise covered by any insurance policy of PV Financial or the
Bank. Nothing herein shall prevent PV Financial, prior to the Effective Date,
from purchasing tail insurance coverage under the current policies of directors'
and officers' liability insurance maintained by PV Financial with respect to
claims arising from facts or events which occurred before the Effective Date;
provided, however, that the annual premium payment for such insurance shall not
- -----------------
exceed $14,341, and provided, further, that such tail coverage shall be for a
-----------------
period no longer than 12 months from the Effective Date. At the Effective Time
and subject to the preceding sentence, PV Financial agrees that all existing
indemnification agreements between PV Financial and any director or executive
officer shall be deemed to be terminated. Each director of PV Financial shall
agree to said termination by executing a Certificate and Agreement in the form
attached as Exhibit C. Upon the Effective Date, any PV Financial executive
officer or director who becomes an officer or director of Westamerica (including
any subsidiaries) shall be included in Westamerica's Director & Officer
insurance policy.
-6-
<PAGE>
(h) Subsidiary Banks. At the Effective Date, Westamerica will be a
----------------
multibank holding company owning Westamerica Bank, Bank of Lake County, Napa
Valley Bank, and Pacific Valley National Bank. Each of these subsidiary banks
shall be a separate legal entity, with its own branches.
(i) Extraordinary Dividends. Prior to the Effective Date, Westamerica
-----------------------
shall not declare, set aside or pay any dividend or other distribution in
respect of its common stock (including, without limitation, any stock dividend
or distribution) other than regular quarterly dividends on its common stock in
amounts substantially equivalent to dividends paid in the pattern of
declarations and payments established in the 18 months prior to the date hereof
(it being understood that declaration of a quarterly dividend up to 2 cents per
share per quarter higher (on a cumulative basis) than the most recent previous
quarterly dividend will be deemed to meet this standard). Nothing herein shall
prohibit the issuance of shares pursuant to Westamerica's Dividend Reinvestment
Plan or Amended Rights Agreement (as defined in Section 5(p) herein).
3.2 Covenants of PV Financial and the Bank.
--------------------------------------
(a) Approval by PV Financial Shareholders. PV Financial shall cause the
-------------------------------------
Merger, this Agreement and the Merger Agreement to be submitted promptly for the
approval of its shareholders at a special meeting to be called and held in
accordance with applicable laws. Subject to its continuing fiduciary duty to
the shareholders of PV Financial, the Board of Directors of PV Financial, in
authorizing the execution and delivery of this Agreement by PV Financial,
unanimously recommends that this Agreement and the Merger be approved. PV
Financial shall use its best efforts to cause such meeting of its shareholders
to take place not later than December 1, 1994, subject to effectiveness of the
Westamerica Registration Statement (as defined in Section 6(a)(i)). In
connection with the call of such meeting, PV Financial shall cause such proxy
materials, with any amendments thereto that may in the judgment of its counsel
be necessary or desirable, to be mailed to its shareholders (the proxy
materials, together with any amendments or supplements thereto, being herein
referred to as the "Proxy Statement"). Subject to its continuing fiduciary duty
to the shareholders of PV Financial, the Board of Directors of PV Financial
shall at all times prior to and during such meeting of PV Financial shareholders
recommend that the transactions contemplated hereby be adopted and approved,
and, subject to such fiduciary duty, use its best efforts to cause such adopted
and approval. Within 15 business days after the time of execution and delivery
of this Agreement, members of the Board of Directors of PV Financial shall
deliver to Westamerica undertakings in the form attached hereto as Exhibit C
confirming such directors' approval of the transactions contemplated hereby,
setting forth such directors' commitment to vote his shares of PV Financial
stock in favor of the transactions contemplated hereby, setting forth such
director's agreement pursuant to section 3.1(g) herein and setting forth such
directors' commitment to use his best efforts to cause the shareholders of PV
Financial to adopt and approve the transactions contemplated hereby, subject to
their above-mentioned continuing fiduciary duties to the shareholders of PV
Financial. Except with the prior approval of Westamerica, neither PV Financial
nor any member of its Board of Directors shall, at the PV Financial
Shareholders' meeting, submit any other matters for approval of its
shareholders.
(b) Shareholder Lists and Other Information. After execution hereof, PV
---------------------------------------
Financial shall from time to time make available to Westamerica, upon request, a
list of its shareholders and their addresses, a list showing all transfers of
the PV Financial common stock and such other information as Westamerica shall
reasonably request regarding both the ownership and prior transfers of the PV
Financial common stock, provided that no such information shall be required for
any period prior to January 1, 1992.
(c) Government Approvals. PV Financial and Bank will cooperate in all
--------------------
reasonable respects with Westamerica in their undertaking pursuant to Section
3.1(b) to obtain the Government Approvals and PV Financial further agrees,
subject to the continuing fiduciary duty of the Board of Directors of PV
Financial to the shareholders of PV Financial, to take such actions as may be
reasonably requested by Westamerica to cause the Merger to be consummated
-7-
<PAGE>
on the terms provided in the Merger Agreement and this Agreement as promptly as
is practicable.
(d) Capital Commitments and Expenditures. After the execution of this
------------------------------------
Agreement, no new capital commitments shall be entered into, and no capital
expenditures in excess of $25,000 shall be made by PV Financial or the Bank,
except for capital commitments specific to the Ceres branch, a budget copy of
which has been provided to Westamerica. The Bank shall not create any new
branches or, except as permitted pursuant to Section 3.2(h), enter into any
acquisitions or leases of real property, including both new leases and lease
extensions without the prior approval of Westamerica.
(e) Notification of Breach of Representations, Warranties and Covenants.
-------------------------------------------------------------------
PV Financial shall promptly give written notice to Westamerica upon becoming
aware of the occurrence or impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants of PV Financial or the Bank contained or referred to in this Agreement
and shall use its best efforts to prevent the same or remedy the same promptly.
(f) Financial Statements.
--------------------
(i) PV Financial has delivered or shall deliver to Westamerica prior
to the Effective Date true and correct copies of consolidated statements of
income, changes in shareholders' equity and statements of cash flows for
the three months ended March 31, 1994, any subsequent quarter ends, and for
the fiscal years ended December 31, 1993, 1992, 1991, 1990 and 1989 and
consolidated balance sheets at March 31, 1994 (and any subsequent quarter
ends), December 31, 1993, 1992, 1991, 1990 and 1989. Such consolidated
financial statements at December 31, 1993, 1992, 1991, 1990 and 1989 and
for the fiscal years ended December 31, 1993, 1992, 1991, 1990, and 1989
(and for the fiscal year ending December 31, 1994) have been or shall be
audited by Grant Thornton in each case as independent public accountants
for PV Financial during the relevant periods, and include or shall include
an opinion of such accounting firm to the effect that such financial
statements have been prepared in accordance with GAAP and present fairly,
in all material respects, the consolidated financial position, results of
operations and cash flows of PV Financial at the dates indicated and for
the periods then ending. The opinions of such accounting firm do not and
shall not contain any qualifications.
(ii) PV Financial shall provide to Westamerica, at or prior to the
Effective Date, copies of all financial statements and proxy statements
issued or to be issued to PV Financial's shareholders and/or directors
after December 31, 1993, and at or prior to the Effective Date.
(iii) PV Financial or the Bank has delivered or shall deliver, to
Westamerica true and complete copies of PV Financial's Annual Report to
Shareholders for the years ended December 31, 1989, 1990, 1991, 1992, 1993
and 1994, all periodic reports required to be filed by it pursuant to
Section 13(a) or 15(d) of the 1934 Act since December 31, 1988, all proxy
statements and other written material furnished to PV Financial's
shareholders since December 31, 1988, and all other material reports,
including call reports, relating to PV Financial or the Bank filed by PV
Financial or the Bank with the Federal Deposit Insurance Corporation
("FDIC"), FRB, or the Office of the Comptroller of the Currency
("Comptroller") during 1990 through 1993 and in 1994 and 1995 prior to the
Effective Date. As of their respective dates, each of the documents
described in the preceding sentence complied or shall comply in all
material respects with all legal and regulatory requirements applicable
thereto.
(iv) PV Financial shall cause to be delivered to Westamerica letters
of Grant Thornton, PV Financial's independent auditors, dated a date within
two
-8-
<PAGE>
business days before the date on which the S-4 shall become effective and
two business days before the Closing and addressed to Westamerica, in form
and substance reasonably satisfactory to Westamerica, and in scope and
substance consistent with applicable professional standards for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
(g) Compensation. PV Financial and Bank shall not make or approve any
------------
increase in the compensation payable or to become payable by PV Financial to any
of their directors, officers, employees or agents with annual salaries in excess
of $40,000 at the date hereof (including but not limited to compensation through
any profit sharing, pension, retirement, severance, incentive or other employee
benefit program or arrangement), nor shall any bonus payment or any agreement or
commitment to make a bonus payment be made (except with Westamerica's prior
approval which shall not be unreasonably withheld), nor shall any stock option,
warrant or other right to acquire capital stock be granted, or employment
agreement (other than any such employment agreement that may arise by operation
of law upon the hiring of any new employee) or consulting agreement be entered
into by PV Financial or the Bank with any such directors, officers, employees or
agents unless Westamerica has given its prior written consent. Nothing herein
shall prevent the payment to PV Financial or Bank employees (with salaries of
$40,000 or less at the date hereof) of regular salary increases, consistent with
past practices in connection with regular salary reviews consistent with past
practices, as heretofore disclosed to Westamerica. Without the prior consent of
Westamerica, neither PV Financial nor Bank shall hire any new employee at an
annual rate in excess of current customary practice or, in any event, in excess
of $40,000 per year, except with the prior written consent of Westamerica.
(h) Conduct of Business in the Ordinary Course. Prior to the Effective
------------------------------------------
Time:
(i) PV Financial and Bank shall conduct their businesses in the
ordinary course as heretofore conducted. For purposes of this Agreement,
the "Ordinary Course of Business" shall consist of the banking and related
businesses as presently conducted by PV Financial and the Bank and
permitted under the BHC Act, National Banking Act and other applicable
laws. Unless Westamerica has given its previous written consent to any act
or omission to the contrary, PV Financial and the Bank shall, until the
Effective Date, cause their respective officers to:
A. use their best efforts to preserve its business and business
organizations intact;
B. use their best efforts to preserve the goodwill of customers and
others having business relations with it and take no action that would
materially impair the benefit to Westamerica of the goodwill of PV
Financial, the Bank or the other benefits of the Merger;
C. consult with Westamerica as to the making of any decisions or the
taking of any actions in matters other than in the Ordinary Course of
Business;
D. maintain its properties in customary repair, working order and
condition (reasonable wear and tear excepted);
E. comply in all material respects with all laws, regulations and
decrees applicable to the conduct of its business;
F. keep in force at not less than its present limits all policies of
insurance (including deposit insurance of the FDIC) to the extent
reasonably practicable in light of the prevailing market conditions in the
insurance industry;
-9-
<PAGE>
G. use its best efforts, subject to Section 3.2(g), to keep available
to Westamerica the services of its present officers and employees (it being
understood that PV Financial and Bank shall have the right to terminate the
employment of any officer or employee in accordance with its established
employment procedures);
H. comply with all orders, agreements and memoranda of understanding
made by or with the Federal Reserve Bank of San Francisco ("FRBSF"), the
FDIC, the Comptroller or any other regulatory authority of competent
jurisdiction, and promptly forward to Westamerica all communications
received from any such authority that are not prohibited by such authority
from being so disclosed and inform Westamerica of any material restrictions
imposed by any governmental authority on the business of PV Financial or
the Bank;
I. file in a timely manner (taking into account any extensions duly
obtained) all reports, tax returns and other documents required to be filed
with federal, state, local and other authorities;
J. conduct an environmental audit prior to foreclosure on any
property concerning which PV Financial or the Bank has knowledge, or should
have knowledge, that asbestos or asbestos-containing materials, PCB's or
PCB-contaminated materials, any petroleum product, or hazardous substance
or waste (as defined under any applicable environmental laws) was or is
present, manufactured, recycled, reclaimed, released, stored, treated, or
disposed of, and provide the results of such audit to and consult with
Westamerica regarding the significance of the audit prior to the
foreclosure on any such property;
K. not sell, lease, pledge, assign, encumber or otherwise dispose of
any of its assets except in the Ordinary Course of Business, for adequate
value, without recourse and consistent with its customary practice;
L. with respect to any extension of credit in excess of $10,000, not
waive or release any right or collateral or cancel or compromise any debt
or claim, except in the Ordinary Course of Business;
M. not make, renegotiate, renew, increase, extend or purchase any
loans, advances or loan commitments, in each case to any of its officers,
directors or any affiliated or related persons of such directors or
officers except in the Ordinary Course of Business consistent with its
established loan procedures and in compliance with FRB Regulation O;
N. not take any action to create, relocate or terminate the
operations of any banking office or branch, or to form any new subsidiary
or affiliated entity, except the new Ceres branch may be created; and
O. not settle or otherwise take any action to release or reduce any
of its rights with respect to any litigation involving a claim of more than
$10,000 in which it is a party.
(ii) Neither PV Financial or the Bank will, without first having
obtained the written consent of Westamerica, cause the officers of PV
Financial or the Bank to:
A. commit to any loan with a principal amount in excess of $250,000
and/or aggregate debt over $1MM provided that Westamerica's consent shall
be deemed given unless it objects and states the basis of its objection in
writing, or verbally with prompt written confirmation, within two business
days after receipt of written notice directed to authorized Westamerica
personnel, together
-10-
<PAGE>
with sufficient supporting information to allow Westamerica to make an
informed judgment, and Westamerica shall not unreasonably withhold its
consent; provided, further, that any consent given by Westamerica shall be
binding only if given by Westamerica personnel identified on a list signed
by Westamerica's President;
B. purchase any investment security with a maturity in excess of two
years, or sell any investment security in which a gain is recognized.
C. issue any certificate of deposit with a rate of interest in excess
of 6%;
D. commit to new capital expenditures in excess of $25,000; or
E. commit to any new contract or extend any existing contract that
would obligate PV Financial or the Bank for an aggregate amount over time
in excess of $25,000 except pursuant to Section 3.2(l). This includes data
processing, servicing or any other agreement or contract.
F. accelerate the vesting of pension or other benefits.
G. grant any new stock options or accelerate the vesting of any
existing stock options.
H. PV Financial shall promptly notify Westamerica in writing upon
becoming aware of the occurrence of any of the following:
(1) the classification of any loan as substandard, doubtful or
loss;
(2) the filing or commencement of any legal action or other
proceeding or investigation against PV Financial or the Bank (or any
director or executive officer); or
(3) the monthly pretax earnings of PV Financial are less than
$250,000.
(i) Press Releases. Neither PV Financial or the Bank shall issue any press
--------------
release or written statement for general circulation relating to this Agreement
or the Merger unless previously provided to Westamerica for review and approval
(which approval will not be unreasonably withheld or delayed) and shall
cooperate with Westamerica in the development and distribution of all news
releases and other public information disclosures with respect to this Agreement
or the Merger; provided that PV Financial may, without the consent of
Westamerica, make any disclosure with regard to this Agreement or the Merger
that it determines is required under any applicable law or regulation. Except
as required by applicable law, prior to July 25, 1994, PV Financial shall not
disclose this Agreement or any terms of this Agreement, either orally or in
writing, except in a written statement that has been reviewed and approved by
Westamerica.
(j) No Merger or Solicitation.
-------------------------
(i) Subject to the continuing fiduciary duty of the Board of
Directors of PV Financial to the shareholders of PV Financial, prior to the
Effective Time, neither PV Financial or the Bank shall effect or agree to
effect any Business Combination (as defined in Section 3.1(f)), acquire or
agree to acquire any of its own capital stock or the capital stock (except
in a fiduciary capacity) or assets (except in the Ordinary Course of
Business) of any other entity, or commence any proceedings for winding up
and dissolution affecting either of them.
-11-
<PAGE>
(ii) Subject to the continuing fiduciary duty of the Board of
Directors of PV Financial to the shareholders of PV Financial, prior to the
Effective Date, neither PV Financial, the Bank nor any officer, director or
affiliate of PV Financial or the Bank, nor any investment banker, attorney,
accountant or other agent, advisor or representative retained by PV
Financial or the Bank shall (A) solicit or encourage, directly or
indirectly, any inquiries, discussions or proposals for, continue, propose
or enter into discussions or negotiations looking toward, or enter into any
agreement or understanding providing for, any Business Combination; or (B)
disclose, directly or indirectly, any nonpublic information to any
corporation, partnership, person or other entity or group concerning the
business and properties of PV Financial or the Bank or afford any such
party access to the properties, books or records of PV Financial or the
Bank or otherwise assist or encourage any such party in connection with the
foregoing, or (C) furnish or cause to be furnished any information
concerning the business, financial condition, operations, properties or
prospects of PV Financial or the Bank to another person, having any actual
or prospective role with respect to any such transaction.
(iii) PV Financial shall notify Westamerica immediately of the
details of any indication of interest of any person, corporation, firm,
association or group to acquire by any means a controlling interest in PV
Financial or the Bank or engage in any Business Combination with PV
Financial or the Bank.
(iv) In the event the Board of Directors of PV Financial receives a
bona fide offer for a Business Combination with another entity, and
reasonably determines, upon advice of counsel, that as a result of such
offer, any duty to act or to refrain from doing any act pursuant to this
Agreement is inconsistent with the continuing fiduciary duties of said
Board of Directors to the shareholders of PV Financial, such failure to act
or refrain from doing any act shall not constitute the failure of any
condition, breach of any covenant or otherwise constitute any breach of
this Agreement, provided, however, that any such failure to act or refrain
from doing any act shall entitle Westamerica to terminate this Agreement
pursuant to Section 12(b) and provided further, that the obligations and
liabilities of PV Financial set forth in Section 12(e) hereof shall
continue in full force and effect.
(v) In the event PV Financial or the Bank enters into another
agreement for a Business Combination which affects over 20% of PV
Financial's or the Bank's common stock, assets or branches, then PV
Financial shall, upon demand, and in no event more than two days after said
demand, pay to Westamerica, by wire transfer of immediately available
federal funds, the sum of $1,000,000 to reimburse it for its substantial
expenses and costs and the considerable time committed by its personnel and
representatives in connection with the transactions contemplated hereunder.
Such payment shall not limit any other damages or relief which might be
available to Westamerica at law or in equity.
(k) PV Financial 401(k) Plan. PV Financial agrees the PV Financial 401(k)
------------------------
Plan (the "Plan") may be terminated, frozen, modified or merged into the
Westamerica 401(k) Plan immediately before, on or after the Effective Date, as
determined by Westamerica in its sole discretion.
(l) Outsourcing to Westamerica. PV Financial shall endeavor to, and
--------------------------
cooperate with Westamerica to, outsource various PV Financial banking functions
to Westamerica. These functions include, but are not limited to, item
processing, data processing, loan documentation, facilities management,
investment portfolio management, loan review, internal audit and account
servicing. Arms-length contracts between PV Financial and Westamerica to
document these outsourcing arrangements shall include appropriate compensation
for services provided, as well as provisions to terminate the contracts as
appropriate, for example, if this Merger
-12-
<PAGE>
Agreement is terminated. In the event of termination, Westamerica agrees to
cooperate in an orderly transition back to a satisfactory operating condition of
these functions by PV Financial.
(m) Changes in Capital Stock. At or after the date hereof and at or prior
------------------------
to the Effective Time, except with the prior written consent of Westamerica
neither PV Financial or the Bank will amend its Articles of Incorporation or
Articles of Association, as the case may be, or Bylaws; make any change in their
respective authorized, issued or outstanding capital stock or any other equity
security; issue, sell, pledge, assign or otherwise encumber or dispose of, or
purchase, redeem or otherwise acquire, any of their shares of capital stock or
other equity securities or enter into any agreement, call or commitment of any
character so to do; grant or issue any stock option relating to, right to
acquire, or security convertible into, shares of their capital stock or other
equity security; purchase, redeem, retire or otherwise acquire (other than in a
fiduciary capacity) any shares of, or any security convertible into, capital
stock or other equity security of their respective companies, or agree to do any
of the foregoing, except that nothing herein shall prohibit the execution of the
Stock Option Agreement or issuance of shares pursuant to the Option Plans with
respect to options outstanding at the date of this Agreement (except as limited
in Section 2.6).
(n) Dividends. PV Financial shall not declare, set aside or pay any
---------
dividend or other distribution in respect of its common stock (including,
without limitation, any stock dividend or distribution) other than regular
quarterly dividends on its common stock in amounts of 6 cents per share.
(o) Accounting Methods. PV Financial shall not change its methods of
------------------
accounting in effect at December 31, 1993, except as required by changes in GAAP
as concurred in by its independent auditors.
(p) Affiliates. At least 40 days prior to the Closing, PV Financial shall
----------
deliver to Westamerica a letter identifying all persons who are, at the time
this Agreement is submitted for approval to the shareholders of PV Financial,
"affiliates" of PV Financial for purposes of Rule 145 under the 1933 Act. PV
Financial shall use all reasonable efforts to cause each person named in the
letter delivered by it to deliver to Westamerica prior to the Closing a written
"affiliates" agreement, in customary form, providing that such person shall
dispose of the Westamerica Common Stock to be received by such person in the
Merger only in accordance with applicable law and, in addition, in such
agreement, such affiliate shall represent that they have no present plan or
intention to dispose of any such shares of Westamerica Common Stock.
(q) Additional Agreements. In case at any time after the Effective Time
---------------------
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of PV
Financial, or the Bank the proper officers and directors of each party to this
Agreement shall take all such necessary or appropriate action.
(r) Access to Properties, Books and Records; Confidentiality. Prior to the
--------------------------------------------------------
Effective Time, PV Financial and the Bank shall give Westamerica and its counsel
and accountants full access, during normal business hours and upon reasonable
request, to all of its properties, books, contracts, commitments and records
including, but not limited to, the corporate, financial and operational records,
papers, reports, instructions, procedures, tax returns and filings tax
settlement letters, material contracts or commitments, regulatory examinations
and correspondence and shall allow Westamerica to make copies of such materials
(to the extent not legally prohibited) and shall furnish Westamerica with all
such information concerning its affairs as Westamerica may reasonably request.
PV Financial shall also use its best efforts to cause Grant Thornton to make
available to Westamerica, its accountants, counsel and other agents, to the
extent reasonably requested in connection with such review, Grant Thornton's
work papers and documentation relating to its work papers and its audits of the
books and records of PV Financial.
(s) Employee Welfare Benefit Plans. PV Financial agrees that PV
------------------------------
Financial's employee welfare benefit plans, as defined in Section 3(1) of
Employee Retirement Income
-13-
<PAGE>
Security Act of 1974, as amended ("ERISA"), may be terminated, modified or
merged into Westamerica's welfare benefit plans before, on or after the
Effective Date, as determined by Westamerica in its sole discretion.
(t) Execution and Delivery of Stock Option Agreement. The parties agree
------------------------------------------------
that the Stock Option Agreement shall be executed and delivered immediately
following the execution and delivery of this Agreement.
(u) Sale of Premises. PV Financial agrees that prior to the Effective Date
----------------
it will use its best efforts to sell to a third party its interest in its
headquarters building or vacate the premises and sublease the space at a rent at
least equal to the amount currently paid by it as rent.
3.3 Covenants of the Parties. Each party shall use its best efforts to
------------------------
cause its officers, directors, employees, auditors, agents, and attorneys to
cooperate with the other in the reasonable requests for information by the other
parties hereto. Each party shall treat as confidential all such information in
the same manner as each party treats similar confidential information of its
own, and if this Agreement is terminated, each party shall continue to treat all
such information as confidential and to cause its employees to keep all such
information confidential and shall return such documents theretofore delivered
by the other party as the other party shall request, and shall use such
information, or cause it to be used, solely for the purposes of evaluating and
completing the transactions contemplated hereby; provided that each party may
disclose any such information to the extent required by federal or state
securities laws or otherwise required by any governmental agency or authority,
or by generally accepted accounting principles. The foregoing confidentiality
obligations shall not apply in respect of any information publicly available or
to any information previously known to the party in question, the use of which
is not otherwise restricted.
4. REPRESENTATIONS AND WARRANTIES OF PV FINANCIAL AND THE BANK.
-----------------------------------------------------------
PV Financial and the Bank (as to the Bank only) represent and warrant to
Westamerica, except as disclosed to Westamerica in writing promptly after the
date hereof (the "PV Financial Disclosure Statement"), that:
(a)(1) Corporate Status and Power to Enter Into Agreements. PV Financial
---------------------------------------------------
(i) is a bank holding company duly incorporated, validly existing and in good
standing under the laws of California, (ii) subject to the approval of this
Agreement and the transactions contemplated hereby by the shareholders of PV
Financial and the FRB, it has all necessary corporate power to enter into this
Agreement and to carry out all of the terms and provisions hereof and thereof to
be carried out by it, and (iii) is in full compliance with any agreements,
understandings or orders of the FRB or FRBSF, the FDIC, the Comptroller or any
other regulatory authority having jurisdiction over its business or any of its
assets or properties. Neither the scope of the business of PV Financial nor the
location of its properties requires it to be licensed to do business in any
jurisdiction other than the State of California.
(a)(2) Corporate Status and Power to Enter Into Agreements. The Bank (i)
---------------------------------------------------
is a national banking association duly incorporated, validly existing and in
good standing under the National Banking Act, (ii) subject to the approval of
this Agreement and the transactions contemplated hereby by the shareholders of
PV Financial and the FRB, has all necessary corporate power to enter into this
Agreement and to carry out all of the terms and provisions hereof and thereof to
be carried out by it (iii) holds a currently valid license issued by the
Comptroller to engage in the commercial banking business in California at its
banking offices, and (iv) is not subject to any directive, order (formal or
informal) or agreement, of the FDIC, the Comptroller or any other regulatory
authority having jurisdiction over its business or any of its assets or
properties. Neither the scope of its business of the Bank nor the location of
its properties requires it to be licensed to do business in any jurisdiction
other than the State of California. The Bank's
-14-
<PAGE>
deposits are insured by the FDIC to the maximum extent permitted by applicable
law and regulation.
(b) Articles, Bylaws, Books and Records. The copies of the Articles of
-----------------------------------
Incorporation or Association as the case may be and Bylaws of PV Financial and
the Bank to be delivered to Westamerica promptly after the date hereof are
complete and accurate copies thereof as in effect on the date hereof. The
minute books of PV Financial and the Bank made available to Westamerica contain
a complete and accurate record of all meetings of the respective Boards of
Directors (and committees thereof) and shareholders. The corporate books and
records (including financial statements) of PV Financial and the Bank fairly
reflect the material transactions to which PV Financial and the Bank are a party
or by which its properties are subject or bound, and such books and records have
been properly kept and maintained. The Articles of Incorporation or Association
and Bylaws of PV Financial and the Bank and all amendments thereto have been
duly approved by all requisite corporate action and by the appropriate regulator
to the extent required by law.
(c) Compliance With Laws, Regulations and Decrees. PV Financial and the
---------------------------------------------
Bank (i) each have the corporate power to own or lease its properties and to
conduct its business as currently conducted, (ii) have each complied with, and
are not in default of any laws, regulations, ordinances, orders or decrees
applicable to the conduct of its business and the ownership of its properties,
including but not limited to all federal and state laws (including but not
limited to the Bank Secrecy Act), rules and regulations relating to the offer,
sale or issuance of securities, and the operation of a commercial bank, other
than where such noncompliance or default is not likely to result in a material
limitation on the conduct of its business or is not likely to otherwise have a
material adverse effect on PV Financial and the Bank taken as a whole (iii) each
have not failed to file with the proper federal, state, local or other
authorities any material report or other document required to be so filed, (iv)
each have all approvals, authorizations, consents, licenses, clearances and
orders of, and have currently effective all registrations with, all governmental
and regulatory authorities which are necessary to the business and operations of
PV Financial and the Bank as now being conducted, (v) PV Financial and the Bank
have received no notification, formally or informally, from any agency or
department of any federal, state or local government or any regulatory agency or
the staff thereof (A) asserting that PV Financial and the Bank are not in
compliance with any of the statutes, regulations or ordinances which such
government or regulatory authority enforces, or (B) threatening to revoke any
licenses, franchise, permit or governmental authorization of PV Financial and
the Bank.
(d) Capitalization. The authorized capital stock of PV Financial consists
--------------
of 20,000,000 shares of PV Financial common stock, no par value, of which
2,176,593 are duly authorized, validly issued, fully paid and nonassessable and
currently outstanding. Said stock has been issued in compliance with all
applicable securities laws. No other equity securities of PV Financial have
been issued or are outstanding. There are currently outstanding options to
purchase 395,641 shares of PV Financial common stock, at a weighted average
exercise price of $5.99 per share, issued pursuant to the Option Plans. Said
options were issued and, upon issuance in accordance with the terms of the
outstanding options said shares shall be issued, in compliance with all
applicable securities laws. Otherwise, there are no outstanding (i) options,
agreements, calls or commitments of any character which would obligate PV
Financial to issue, sell, pledge, assign or otherwise encumber or dispose of, or
to purchase, redeem or otherwise acquire, any PV Financial common stock or any
other equity security of PV Financial, or (ii) warrants or options relating to,
rights to acquire, or debt or equity securities convertible into, shares of PV
Financial common stock or any other equity security of PV Financial. Attached
to the PV Financial Disclosure Statement is a list of all option holders and the
number of vested and unvested options as of June 15, 1994. The outstanding
common stock of PV Financial has been duly and validly registered with the
Commission pursuant to the 1934 Act, to the extent required thereunder.
The authorized capital stock of the Bank consists of 800,000 shares of the
Bank's common stock, $5.00 par value, of which 750,000 shares are duly
authorized, validly issued, fully paid and, except as provided in the National
Banking Act, nonassessable and currently
-15-
<PAGE>
outstanding. Said stock has been issued in compliance with all applicable
securities laws. PV Financial owns all of the issued and outstanding equity
securities of the Bank. There are no outstanding (i) options, agreements, calls
or commitments of any character which would obligate the Bank to issue, sell,
pledge, assign or otherwise encumber or dispose of, or to purchase, redeem or
otherwise acquire, any of the Bank's common stock or any other equity security
of the Bank, or (ii) warrants or options relating to, rights to acquire, or debt
or equity securities convertible into, shares of the Bank common stock or any
other equity security of the Bank.
(e) Equity Interests. Except as listed below or as collateral for
----------------
outstanding loans held in its loan portfolios, neither PV Financial or the Bank
own, directly or indirectly, any equity interest in any bank, corporation, or
other entity.
Subsidiaries/Investments Ownership
------------------------ ---------
Pacific Valley National Bank Wholly Owned
Fifteen - 24 McHenry Investors 27% interest held by PV Financial
(f) Financial Statements, Regulatory Reports. No financial statement or
----------------------------------------
other document provided or to be provided to Westamerica as required by Section
3.2(f) hereof, as of the date of such document, contained, or as to documents to
be delivered after the date hereof, will contain, any untrue statement of a
material fact, or, at the date thereof, omitted or will omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements were or will be made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of any earlier date. PV Financial and the Bank
have filed all material documents and reports relating to PV Financial and the
Bank required to be filed by it with the Comptroller, the Commission, the FRB or
FRBSF, the FDIC, or any other governmental authority having jurisdiction over
its business or any of its assets or properties. All such reports conform in
all material respects with the requirements promulgated by such regulatory
agencies. All compliance or corrective action relating to PV Financial and the
Bank required by governmental authorities and regulatory agencies having
jurisdiction over PV Financial have been taken. Neither PV Financial or the
Bank has received notification, formally or informally, from any agency or
department of any federal, state or local government or any regulatory agency or
the staff thereof (A) asserting that PV Financial or the Bank is not in
compliance with any of the statutes, regulations or ordinances which such
government or regulatory authority enforces, or (B) threatening to revoke any
license, franchise, permit or governmental authorization of PV Financial or the
Bank. Neither PV Financial or the Bank is subject to any order, agreement or
written directive with any regulatory authority with respect to its assets or
business except for matters of general application. PV Financial and the Bank
have paid all assessments made or imposed by any governmental agency. PV
Financial shall deliver to Westamerica copies of all annual management letters
and opinions, and shall make available to Westamerica for inspection all
reviews, correspondence and other documents in the files of PV Financial
prepared by Grant Thornton or any other certified public accountant engaged by
PV Financial and delivered to PV Financial since January 1, 1988. The
consolidated financial records of PV Financial have been, and are being and
shall be, maintained in all material respects in accordance with all applicable
legal and accounting requirements sufficient to insure that all transactions
reflected therein are, in all material respects, executed in accordance with
management's general or specific authorization and recorded in conformity with
GAAP at the time in effect. The data processing equipment, data transmission
equipment, related peripheral equipment and software used by PV Financial in the
operation of its business to generate and retrieve its financial records are
adequate for the current needs of PV Financial.
(g) Tax Returns.
-----------
(i) PV Financial and the Bank have timely filed all federal, state,
county, local and foreign tax returns required to be filed by it,
including, without limitation, estimated tax, use tax, excise tax, real
property and personal property tax reports and returns, employer's
withholding tax returns, other withholding
-16-
<PAGE>
tax returns and Federal Unemployment Tax Returns, and all other reports or
other information required or requested to be filed by each of them, and
each such return, report or other information was, when filed, complete and
accurate in all material respects. PV Financial and the Bank have paid all
taxes, fees and other governmental charges, including any interest and
penalties thereon, when they have become due, except those that are being
contested in good faith, which contested matters have been disclosed in
writing to Westamerica. Neither PV Financial or the Bank has been
requested to give or has given any currently effective waivers extending
the statutory period of limitation applicable to any tax return required to
be filed by either of them for any period. There are no claims pending
against PV Financial or the Bank for any alleged deficiency in the payment
of any taxes, and neither PV Financial or the Bank knows of any pending or
threatened audits, investigations or claims for unpaid taxes or relating to
any liability in respect of any taxes. There have been no events,
including a change in ownership, that would result in a reappraisal and
establishment of a new base-year full value for purposes of Articles XIII.A
of the California Constitution, of any real property owned in whole or in
part by PV Financial or the Bank or to the best of PV Financial's or the
Bank's knowledge, of any real property leased by PV Financial.
(ii) PV Financial shall deliver to Westamerica copies of all its and
its subsidiaries' tax returns with respect to taxes payable to the United
States of America and the State of California for the fiscal years ended
December 31, 1993, 1992, 1991 and 1990.
(iii) No consent has been filed relating to PV Financial or the Bank
pursuant to Section 341(f) of the IRC.
(h) Material Adverse Change. Except as heretofore disclosed in writing by
-----------------------
PV Financial to Westamerica, since December 31, 1993, there has been (i) no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of PV Financial or the Bank taken
as a whole (whether or not in the ordinary course of business), (ii) no change
in any of the assets, licenses, permits or franchises of PV Financial or the
Bank or that has had or, to PV Financial's knowledge, can reasonably be expected
to have a material adverse effect on any of the items listed in clause (h)(i)
above, (iii) no damage, destruction, or other casualty loss (whether or not
covered by insurance) that has had or can reasonably be expected to have a
material adverse effect on any of the items listed in clause (h)(i) above, (iv)
no amendment, modification, or termination of any existing, or entering into of
any new, contract, agreement, plan, lease, license, permit or franchise that is
material to the business, financial condition, assets, liabilities or operations
of PV Financial or the Bank taken as a whole, except in the Ordinary Course of
Business; (v) no disposition by PV Financial or the Bank of one or more assets
that, individually or in the aggregate, are material to PV Financial or the Bank
taken as a whole, except sales of assets in the Ordinary Course of Business.
(i) No Undisclosed Liabilities. Except for items for which reserves have
--------------------------
been established in the unaudited consolidated balance sheets of PV Financial as
of March 31, 1994, neither PV Financial or the Bank has incurred or discharged,
and is not legally obligated with respect to, any indebtedness, liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar arrangement) or obligation (accrued or
contingent, whether due or to become due, and whether or not subordinated to the
claims of its general creditors), other than as a result of operations in the
Ordinary Course of Business after such date. No agreement pursuant to which any
loans or other assets have been or will be sold by PV Financial or the Bank
entitled the buyer of such loans or other assets, unless there is material
breach of a representation or covenant by the seller, to cause PV Financial or
the Bank to repurchase such loan or other asset or the buyer to pursue any other
form of recourse against PV Financial or the Bank. Neither PV Financial or the
Bank has knowingly made or shall make any representations or covenants in any
such agreement that contained or shall contain any untrue statement of a
material fact or omitted or shall omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which such
-17-
<PAGE>
representations and/or covenants were made or shall be made, not misleading.
Except for regular quarterly cash dividends of 6 cents per share, no cash, stock
or other dividend or any other distribution with respect to the stock of PV
Financial has been declared, set aside or paid, nor have any shares of the stock
of PV Financial or the Bank been purchased, redeemed or otherwise acquired,
directly or indirectly, by PV Financial or the Bank since March 31, 1994.
(j) Properties and Leases.
---------------------
(i) PV Financial and the Bank have good and marketable title, free
and clear of all liens and encumbrances and the right of possession,
subject to existing leaseholds, to all real properties and good title to
all other property and assets, tangible and intangible, reflected in the PV
Financial consolidated balance sheet as of March 31, 1994 (except property
held as lessee under leases disclosed in writing prior to the date hereof
and except personal property sold or otherwise disposed of since March 31,
1994 in the Ordinary Course of Business), except (a) liens for taxes or
assessments not delinquent, (b) such other liens and encumbrances and
imperfections of title as do not materially affect the value of such
property as reflected in the PV Financial consolidated balance sheet as of
March 31, 1994, or as currently shown on the books and records of PV
Financial and which do not interfere with or impair the present and
continued use, or (c) immaterial exceptions disclosed in title reports and
preliminary title reports, copies of which shall be provided to
Westamerica. All tangible properties of PV Financial and the Bank conform
in all material respects with all applicable ordinances, regulations and
zoning laws. All tangible properties of PV Financial and the Bank are in a
good state of maintenance and repair and are adequate for the current
business of PV Financial and the Bank. No properties of PV Financial and
the Bank, and, to the best of PV Financial's and the Bank's knowledge, no
properties in which it holds a collateral or contingent interest or
purchase option, are the subject of any pending or threatened
investigation, claim or proceeding relating to the use, storage or disposal
on such property of or contamination of such property by any toxic or
hazardous waste material or substance. To PV Financial's and the Bank's
knowledge, neither PV Financial or the Bank owns, possesses or has a
collateral or contingent interest or purchase option in any properties or
other assets which contain or have located within or thereon any hazardous
or toxic waste material or substance unless the location of such hazardous
or toxic waste material or other substance or its use thereon conforms in
all material respects with all federal, state and local laws, rules,
regulations or other provisions regulating the discharge of materials into
the environment. As to any asset not owned or leased by PV Financial or
the Bank, neither PV Financial or the Bank has controlled, directed or
participated in the operation or management of any such asset or any
facilities or enterprise conducted thereon, such that it has become an
owner or operator of such asset under applicable environmental laws.
(ii) All properties held by PV Financial and the Bank under leases
are held under valid, binding and enforceable leases, with such exceptions
as are not material and do not interfere with the conduct of the business
of PV Financial and the Bank, and PV Financial or the Bank enjoys quiet and
peaceful possession of such leased property. Neither PV Financial or the
Bank is in default in any material respect under any material lease,
agreement or obligation regarding its properties to which it is a party or
by which it is bound.
(iii) Except as disclosed to Westamerica in the PV Financial
Disclosure Statement, all of PV Financial's and the Bank's rights and
obligations under the leases referred to in Section 4(j)(ii) above do not
require the consent of any other party to the transaction contemplated by
this Agreement. Where required, PV Financial or the Bank shall obtain,
prior to the Effective Date, the consent of all parties to any such
transactions.
-18-
<PAGE>
(k) Material Contracts. Except as disclosed to Westamerica in the PV
------------------
Financial Disclosure Statement and excluding loans, lines of credit, loan
commitments or letters of credit to which the Bank is a party, neither PV
Financial or the Bank is a party to or bound by any contract or other agreement
made in the Ordinary Course of Business which involves aggregate future payments
by or to it of more than $50,000 and which is made for a fixed period expiring
more than one year from the date hereof, and neither of them is a party to or
bound by any agreement not made in the Ordinary Course of Business which is to
be performed at or after the date hereof. Each of the contracts and agreements
disclosed to Westamerica pursuant to this Section 4(k) is a legal and binding
obligation (subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general applicability), and no breach or default (and no
condition which, with notice or passage of time, or both, could become a breach
or default) exists with respect thereto. No power of attorney or similar
authorization given directly or indirectly by PV Financial or the Bank is
currently outstanding.
(l) Classified Loans. Except as disclosed to Westamerica in the PV
----------------
Financial Disclosure Statement, there are no loans presently owned by PV
Financial or the Bank that have been classified by any bank examiner, outside
loan reviewer, accountant or the management of PV Financial or the Bank as
"Other Loans Especially Mentioned," "Substandard," "Doubtful," or "Loss" or
classified using categories with similar import and all loans or portions
thereof classified "Loss" have been charged off. Notwithstanding the above, PV
Financial shall be under no obligation to disclose to Westamerica any such
classification by any bank examiner where such disclosure would violate any
obligation of confidentiality of PV Financial or the Bank imposed by the
Comptroller, FDIC, Federal Reserve, or other regulator. PV Financial and the
Bank regularly review and appropriately classify loans in accordance with all
applicable legal and regulatory requirements and generally accepted banking
practices. All loans and investments of PV Financial and the Bank are legal,
valid and binding obligations enforceable in accordance with their respective
terms and are not subject to any setoffs, counterclaims or disputes (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of general
applicability), except as disclosed to Westamerica in the PV Financial
Disclosure Statement or reserved for in the unaudited consolidated balance sheet
of PV Financial as of March 31, 1994, and were duly authorized under and made in
compliance with applicable federal and state laws and regulations. PV Financial
and the Bank do not have any extensions of credit, investments, guarantees,
indemnification agreements or commitments for the same (including without
limitation commitments to issue letters of credit, to create acceptances, or to
repurchase securities, federal funds or other assets) other than those
documented on the books and records of PV Financial or the Bank.
(m) Restrictions on Investments. Except for pledges to secure public and
---------------------------
trust deposits and repurchase agreements in the Ordinary Course of Business,
none of the investments reflected in the PV Financial consolidated balance sheet
as of March 31, 1994, and none of the investments made by PV Financial or the
Bank since March 31, 1994, is subject to any restriction, whether contractual or
statutory, which materially impairs the ability of PV Financial or the Bank
freely to dispose of such investment at any time.
(n) Employment Contracts and Benefits.
---------------------------------
(i) PV Financial has delivered to Westamerica an accurate list
setting forth all bonus, incentive compensation, profit-sharing, pension,
retirement, stock purchase, stock option, deferred compensation, severance,
hospitalization, medical, dental, vision, group insurance, death benefits,
disability and other fringe benefit plans, trust agreements, arrangements
and commitments of PV Financial and the Bank (including but not limited to
such plans, agreements, arrangements and commitments applicable to former
employees or retired employees, or for which such persons are eligible), if
any, together with copies of all such plans, agreements, arrangements and
commitments that are documented, any and all contracts of employment and
has made available to
-19-
<PAGE>
Westamerica any Board of Directors' minutes (or committee minutes)
authorizing, approving or guaranteeing such plans and contracts.
(ii) With respect to each employee benefit plan (as defined in
Section 3(3) of ERISA) which is listed in subSection (n) and which is
subject to the reporting, disclosure and record retention requirements set
forth in the IRC and Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been fully met on a
timely basis.
(iii) With respect to each employee benefit plan (as defined in
Section 3(3) of ERISA) which is listed in subSection (n) and which is
subject to Part 4 of Subtitle B of Title I of ERISA, none of the following
now exists or has existed within the six-year period ending on the date
hereof:
(1) Any act or omission constituting a material violation of Section
402 of ERISA;
(2) Any act or omission constituting a violation of Section 403 of
ERISA;
(3) Any act or omission by PV Financial or any of its subsidiaries, or
by any director, officer or employee thereof, constituting a violation of
Sections 404 and 405 of ERISA;
(4) To the knowledge of PV Financial or any of its subsidiaries, any
act or omission by any other person constituting a violation of Sections
404 or 405 of ERISA;
(5) Any act or omission which constitutes a violation of Sections 406
or 407 of ERISA and is not exempted by Section 408 of ERISA or which
constitutes a violation of Section 4975(c) of the IRC and is not exempted
by Section 4975(d) of the IRC; or
(6) Any act or omission constituting a violation of Sections 503, 510
or 511 of ERISA.
(iv) All contributions, premiums or other payments due from PV
Financial and its subsidiaries to (or under) any plan listed in subsection
(n) have been fully paid or adequately provided for on the Audited
Financials for the year ended December 31, 1993 and period ended March 31,
1994. All accruals thereon (including, where appropriate, proportional
accruals for partial periods) have been made in accordance with GAAP
consistently applied on a reasonable basis.
(v) Each plan listed in subsection (n) complies with all applicable
requirements of (A) the Age Discrimination in Employment Act of 1967, as
amended, and the regulations thereunder and (B) Title VII of the Civil
Rights Act of 1964, as amended, and the regulations thereunder.
(vi) Each plan listed in subsection (n) complies with all applicable
requirements of (A) the health care continuation coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, and the regulations
thereunder.
(vii) PV Financial shall disclose in writing to Westamerica the names
of each director, officer and employee of PV Financial and the Bank.
(o) Compliance With ERISA. PV Financial has not, since its inception,
---------------------
either maintained or contributed to an employee pension benefit plan, as defined
in Section 3(2) of
-20-
<PAGE>
ERISA, including multiemployer plans, other than the Plan and a true and
accurate copy of which has been provided to Westamerica. With respect to the
Plan and its related trust (the "Trust"), as of the Effective Time (i) the Plan
will in all material respects be (and currently is) in compliance with all the
applicable requirements of Section 401(a) of the IRC, and the Trust will be
exempt from income tax under Section 501(a) of the IRC; (ii) an application for
a determination letter as to the qualified status of the Plan, as adopted and
effective under Section 401(a) of the IRC was filed with the Internal Revenue
Service ("IRS"), (the "Determination Letter"), and PV Financial will adopt any
amendments required by the IRS in order to obtain the favorable Determination
Letter; (iii) PV Financial shall not have amended the Plan or administered the
Plan in such a manner since filing for a Determination Letter that would
preclude the issuance of a favorable Determination Letter to the Plan and Trust;
(iv) no contributions have exceeded the limitations set forth in Section 415 of
the IRC; (v) all required and necessary filings with the IRS, Department of
Labor and any other governmental agencies with respect to the Plan and the Trust
for all periods ending at or prior to the Effective Time will have been made on
a timely basis by PV Financial and the plan administrator; (vi) there shall have
been no material violation of Parts 1 and 4 of Subtitle B of Title I of ERISA or
of Section 4975 of the IRC; and (vii) there shall have been no action, claim or
demand of any kind known to PV Financial brought or threatened by any potential
claimant or representative of such claimant under the Plan or Trust where PV
Financial may be either (A) liable directly on such action, claim or demand, or
(B) obligated to indemnify any person, group of persons or entity with respect
to such action, claim or demand, unless such action, claim or demand is covered
by adequate reserves reflected in PV Financial's March 31, 1994 financial
statements or an insurer of PV Financial has agreed to defend against and pay
the amount of any resulting liability without reservation.
(p) Collective Bargaining and Employment Agreements. Except as provided in
-----------------------------------------------
this Agreement or as previously disclosed to Westamerica in writing, PV
Financial and the Bank do not have any union or collective bargaining or written
employment agreements (except an employment agreement with Robert Cardoza),
contracts or other agreements with any labor organization or with any member of
management, or any management or consultation agreement not terminable at will
by PV Financial without liability and no such contract or agreement has been
requested by, or is under discussion by management with, any group of employees,
any member of management or any other person. There are no material
controversies pending between PV Financial or the Bank and any current or former
employees, and to the best of their knowledge, there are no efforts presently
being made by any labor union seeking to organize any of such employees.
(q) Compensation of Officers and Employees. Except as disclosed to
--------------------------------------
Westamerica in writing, (i) no officer or employee of PV Financial or the Bank
is receiving aggregate direct remuneration at a rate exceeding $40,000 per
annum, and (ii) the consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional or
further acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from PV Financial, the Bank or Westamerica to any
employee of PV Financial or the Bank.
(r) Legal Actions and Proceedings. Except as previously disclosed to
-----------------------------
Westamerica in writing, PV Financial and the Bank are not parties to, or so far
as either of them is aware, threatened with any legal action or other proceeding
or investigation before any court, any arbitrator of any kind or any government
agency, and neither PV Financial or the Bank is subject to any potential adverse
claim, the outcome of which could involve the payment or receipt by PV Financial
or the Bank of any amount in excess of $50,000, unless an insurer of PV
Financial has agreed to defend against and pay the amount of any resulting
liability without reservation, or, if any such legal action, proceeding,
investigation or claim will not involve the payment by PV Financial or the Bank
of a monetary amount, which could materially adversely affect PV Financial or
the Bank or its business or property or the transactions contemplated hereby.
PV Financial has no knowledge of any pending or threatened claims or charges
under the Community Reinvestment Act, before the Equal Employment Opportunity
Commission, the California Department of Fair Housing & Economic Development,
the California Unemployment Appeals Board, or any human relations commission.
There is no labor dispute,
-21-
<PAGE>
strike, slow-down or stoppage pending or, to the best of the knowledge of PV
Financial, threatened against PV Financial.
(s) Execution and Delivery of the Agreement.
---------------------------------------
(i) The execution and delivery of this Agreement has been duly
authorized by the respective Boards of Directors of PV Financial and the
Bank and, when this Agreement and the Merger have been duly approved by the
affirmative vote of the holders of a majority of the outstanding shares of
PV Financial common stock at a meeting of shareholders duly called and
held, this Agreement and the Merger will be duly and validly authorized by
all necessary corporate action on the part of PV Financial and the Bank.
(ii) This Agreement has been duly executed and delivered by PV
Financial and the Bank and (assuming due execution and delivery by
Westamerica) constitutes the legal and binding obligations of PV Financial
and the Bank.
(iii) The execution and delivery by PV Financial and the Bank of this
Agreement and the consummation of the transactions herein (A) do not
violate any provision of the Articles of Incorporation or Association or
Bylaws of PV Financial and the Bank, any provision of federal or state law
or any governmental rule or regulation (assuming (1) receipt of the
Government Approvals, (2) receipt of the requisite PV Financial shareholder
approval referred to in Section 4(s)(i) hereof, (3) due registration of the
Westamerica Shares under the 1933 Act, (4) receipt of appropriate permits
or approvals under state securities or "blue sky" laws, and (5) accuracy of
the representations of Westamerica set forth herein), and (B) do not
require any consent of any person under, conflict with or result in a
breach of, or accelerate the performance required by any of the terms of,
any material debt instrument, lease, license, covenant, agreement or
understanding to which PV Financial or the Bank is a party or by which it
is bound or any order, ruling, decree, judgment, arbitration award or
stipulation to which PV Financial or the Bank is subject, or constitute a
default thereunder or result in the creation of any lien, claim, security
interest, encumbrance, charge, restriction or similar right of any third
party upon any of the properties or assets of PV Financial or the Bank.
(t) Retention of Broker or Consultant. No broker, agent, finder,
---------------------------------
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by PV Financial or is entitled to be paid
based upon any agreements, arrangements or understandings made by PV Financial
in connection with any of the transactions contemplated by this Agreement,
except that PV Financial has engaged the firm of Hoefer & Arnett, Inc. to act as
its financial advisor and to render an opinion regarding the fairness of the
Merger. PV Financial shall provide Westamerica with a true and accurate copy of
its agreement(s) with Hoefer & Arnett, Inc.
(u) Insurance. PV Financial is and continuously since its inception has
---------
been, insured with reputable insurers against all risks normally insured against
by banks, and all of the insurance policies and bonds maintained by PV Financial
are in full force and effect, PV Financial is not in default thereunder and all
material claims thereunder have been filed in due and timely fashion. In the
best judgment of the management of PV Financial, such insurance coverage is
adequate for PV Financial and the Bank. Since December 31, 1990, there has not
been any damage to, destruction of, or loss of any assets of PV Financial not
covered by insurance that could materially and adversely affect the business,
financial condition, properties, assets or results of operations of PV Financial
and the Bank.
(v) Loan Loss Reserves. The reserve for loan losses in the PV Financial
------------------
consolidated balance sheets dated December 31, 1993, March 31, 1994, June 30,
1994, December 31, 1994, and as of the Effective Date are or will be adequate in
all material respects under the requirements of all applicable state and federal
laws and regulations to provide for possible loan losses on outstanding loans,
net of recoveries, but in no event will be less than 100% of total
-22-
<PAGE>
Nonperforming Loans outstanding. For purposes of this Agreement, Nonperforming
Loans means the sum of all accruing loans over 90 days past due in the payment
of principal or interest plus any loans no longer accruing interest.
Nonperforming Loans does not include Other Real Estate Owned or Loan Collateral
Substantively Repossessed. PV Financial has disclosed to Westamerica in writing
prior to the date hereof, and will promptly inform Westamerica of the amounts of
all loans, leases, other extensions of credit or commitments, or other interest-
bearing assets of PV Financial or the Bank, that have been classified as of the
date hereof or hereafter by any internal bank examiner or any bank regulatory
agency as "Other Loans Especially Mentioned", "Substandard", "Doubtful", "Loss",
or words of similar import in the case of loans (or that would have been so
classified, in the case of other assets, had they been loans). Notwithstanding
the above, PV Financial shall be under no obligation to disclose to Westamerica
any such classification by any bank regulatory agency where such disclosure
would violate any obligation of confidentiality of PV Financial imposed by such
bank regulatory agency. PV Financial has furnished and will continue to furnish
to Westamerica true and accurate information concerning the loan portfolio of PV
Financial, and no material information with respect to the loan portfolio has
been or will be withheld from Westamerica.
(w) Transactions With Affiliates. Except as may arise in the Ordinary
----------------------------
Course of Business, PV Financial and the Bank have not extended credit,
committed to extend credit, or transferred any asset to or assumed or guaranteed
any liability of the employees or directors of PV Financial or the Bank, or any
spouse or child of any of them, or to any of their "affiliates" or "associates"
as such terms are defined in Rule 405 under the 1933 Act. PV Financial and the
Bank have not entered into any other transactions with the employees or
directors of PV Financial or the Bank or any spouse or child of any of them, or
any of their affiliates or associates, except as disclosed in writing to
Westamerica. Any such transactions have been on terms no less favorable than
those which would prevail in an arms-length transaction with an independent
third party.
(x) Information in Westamerica Registration Statement. The information
-------------------------------------------------
pertaining to PV Financial and the Bank which has been or will be furnished to
Westamerica for or on behalf of PV Financial for inclusion in the Westamerica
Registration Statement, the Prospectus or the Proxy Statement (each as
hereinafter defined), or in the applications to be filed to obtain the
Government Approvals (the "Applications"), does not and will not contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that information of a later date shall be deemed
to modify information as of an earlier date. All financial statements of PV
Financial included in the Prospectus and Proxy Statement will present fairly the
financial condition and results of operations of PV Financial at the dates and
for the periods covered by such statements in accordance with GAAP consistently
applied throughout the periods covered by such statements. PV Financial shall
promptly advise Westamerica in writing if prior to the Effective Time PV
Financial shall obtain knowledge of any facts that would make it necessary to
amend the Westamerica Registration Statement, the Proxy Statement or any
Application, or to supplement the Prospectus, in order to make the statements
therein not misleading or to comply with applicable law.
(y) Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty by PV Financial or the Bank, and no statement by PV Financial in any
certificate, agreement, schedule or other document furnished in connection with
the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty or statement not misleading
to Westamerica; provided, however, that information as of a later date shall be
deemed to modify information as of an earlier date.
(z) No Brokered Deposits. The Bank does not now have and shall not accept
--------------------
prior to or have on the Effective Date any "brokered deposits" as such deposits
are defined by the FDIC.
-23-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF WESTAMERICA.
---------------------------------------------
Westamerica represents and warrants to PV Financial that:
(a) Corporate Status and Power to Enter Into Agreement. Westamerica (i) is
--------------------------------------------------
a corporation duly incorporated, validly existing and in good standing under
California law and is a registered bank holding company under the BHC Act (ii)
subject to the approval of this Agreement and the transactions contemplated
hereby by the FRB, has all necessary corporate power to enter into this
Agreement and to carry out all of the terms and provisions hereof and thereof to
be carried out by it, (iii) Westamerica Bank holds a currently valid license
issued by the Superintendent to engage in the commercial banking business in
California at the offices in which such business is conducted (iv) neither
Westamerica nor any of its subsidiaries is subject to any order of the FRB or
FRBSF, the Superintendent or any other regulatory authority having jurisdiction
over its or their business or any of its or their assets or properties.
(b) Corporate Status and Power of Westamerica. Prior to and as of the
-----------------------------------------
Effective Time, Westamerica will be a corporation duly incorporated, validly
existing and in good standing under California law and will have the corporate
power to enter into the Merger Agreement and to carry out all of the terms and
provisions thereof to be carried out by it.
(c) Certificate, Bylaws, Books and Records. The copies of the Articles of
--------------------------------------
Incorporation and Bylaws of Westamerica to be delivered to PV Financial are
complete and accurate copies thereof as in effect on the date hereof. The
minute books of Westamerica made available to PV Financial contain a complete
and accurate record of all meetings of Westamerica's Board of Directors (and
committees thereof) and shareholders. The corporate books and records
(including financial statements) of Westamerica fairly reflect the material
transactions to which Westamerica or any of its subsidiaries is a party or by
which any of their properties are subject or bound, and such books and records
have been properly kept and maintained. The Articles of Incorporation and
Bylaws of Westamerica and all amendments thereto have been duly approved by all
requisite corporate action and said Certificate of Incorporation and all
amendments thereto have been duly filed with the California Secretary of State.
(d) Compliance With Laws, Regulations and Decrees. Westamerica and each of
---------------------------------------------
its subsidiaries each (i) has the corporate power to own its properties and to
conduct its business as currently conducted, (ii) has complied with, and is not
in default of any laws, regulations, ordinances, orders or decrees applicable to
the conduct of its business and the ownership of its properties, including but
not limited to all federal and state laws (including but not limited to the Bank
Secrecy Act), rules and regulations relating to the offer, sale or issuance of
securities, and the operation of its subsidiary commercial banks, other than
where such non-compliance or default is not likely to result in a material
limitation on the conduct of the business of Westamerica or its subsidiaries
taken as a whole or is not likely to otherwise have a material adverse effect on
Westamerica and its subsidiaries taken as a whole, (iii) has not failed to file
with the proper federal, state, local or other authorities any material report
or other document required to be so filed, and (iv) has all material approvals,
authorizations, consents, licenses, clearances and orders of, and has currently
effective all registrations with, all governmental and regulatory authorities
which are necessary in all material respects to the respective businesses and
operations of Westamerica and its subsidiaries as they are now being conducted.
(e) Financial Statements. No financial statement or other document
--------------------
provided or to be provided to PV Financial as required by Section 3.2(f) hereof,
as of the date of such document, contained, or as to documents delivered after
the date hereof, will contain, any untrue statement of a material fact, or, at
the date thereof, omitted or will omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which such statements were or will be made, not misleading; provided,
however, that information as of a later date shall be deemed to modify
information as of any earlier date. Westamerica has filed all material
documents and reports relating to Westamerica or its subsidiaries required to be
filed by it with the FDIC, the FRB, the Comptroller or any other governmental
authority having jurisdiction over its business or any of its assets or
-24-
<PAGE>
properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to Westamerica or its subsidiaries required by
governmental authorities and regulatory agencies having jurisdiction over
Westamerica or its subsidiaries has been taken. Except as disclosed in writing
to PV Financial, Westamerica and its subsidiaries have received no notification,
formally or informally, from any agency or department of any federal, state or
local government or any regulatory agency or the staff thereof (A) asserting
that Westamerica or its subsidiaries are not in compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, or (B) threatening to revoke any license, franchise, permit
or governmental authorization of Westamerica or its subsidiaries. Except as
disclosed in writing to PV Financial, neither Westamerica nor any of its
subsidiaries is subject to any order, agreement, or written directive with any
regulatory authority with respect to its assets or business except for matters
of general application. Westamerica and its subsidiaries have paid all
assessments made or imposed by any governmental agency. Westamerica shall
deliver to PV Financial copies of all annual management letters and opinions,
and shall make available to PV Financial for inspection all reviews,
correspondence and other documents in the files of Westamerica prepared by KPMG,
or any other certified public accountant engaged by Westamerica, and delivered
to Westamerica since January 1, 1990. The financial records of Westamerica have
been, and are being and shall be, maintained in all material respects in
accordance with all applicable legal and accounting requirements sufficient to
insure that all transactions reflected therein are, in all material respects,
executed in accordance with management's general or specific authorization and
recorded in conformity with GAAP at the time in effect.
(f) Tax Returns.
-----------
(i) Westamerica has timely filed all federal, state, county, local
and foreign tax returns required to be filed by it or its subsidiaries,
including, without limitation, estimated tax, use tax, excise tax, real
property and personal property tax reports and returns, employer's
withholding tax returns, the withholding tax returns and Federal
Unemployment Tax Act returns, and all other reports or other information
required or requested to be filed by each of them, and each such return,
report or other information was, when filed, complete and accurate in all
material respects. Westamerica and each of its subsidiaries have paid all
taxes, fees and other governmental charges, including any interest and
penalties thereon, when they have become due, except those that are being
contested in good faith, which contested matters shall be disclosed to PV
Financial. Except as disclosed in writing to PV Financial, neither
Westamerica nor any of its subsidiaries has been requested to give or has
given any currently effective waivers extending the statutory period of
limitation applicable to any tax return required to be filed by any of them
for any period. Except as disclosed in writing to PV Financial, there are
no material claims pending against Westamerica or any of its subsidiaries
for any alleged deficiency in the payment of any taxes, and neither
Westamerica nor any of its subsidiaries knows of any pending or threatened
audits, investigations for claims for unpaid taxes or relating to any
liability in respect of any taxes.
(ii) Westamerica shall make available to PV Financial copies of all
of its and its subsidiaries' tax returns with respect to taxes payable to
the United States of America and the State of California for the fiscal
years ended December 31, 1991, 1992, and 1993.
(iii) No consent has been filed relating to Westamerica or any of its
subsidiaries pursuant to Section 341(f) of the IRC.
(g) Material Adverse Change. There has been no material adverse change in
-----------------------
the financial condition, results of operation or assets of Westamerica from the
financial condition, results of operation or assets indicated in the financial
statements of Westamerica at March 31, 1994, which financial statements have
been heretofore provided to PV Financial.
-25-
<PAGE>
(h) No Undisclosed Liabilities. Except for items for which reserves have
--------------------------
been established in the unaudited consolidated balance sheet of Westamerica as
of March 31, 1994, neither Westamerica or any of its subsidiaries has incurred
or discharged, and neither Westamerica or any of its subsidiaries is legally
obligated with respect to, any material indebtedness, liability (including,
without limitation, a liability arising out of an indemnification, guarantee,
hold harmless or similar arrangement) or obligation (accrued or contingent,
whether due or to become due, and whether or not subordinated to the claims of
its general creditors), other than as a result of operations in the ordinary
course of business after such date. Westamerica is not obligated in any
material respect for any of the liabilities or obligations of any of its
subsidiaries and Westamerica is not aware of any reasonable basis for the
assertion against Westamerica of any such indebtedness, liability or other
obligation.
(i) Employee Benefits.
-----------------
(i) Westamerica shall deliver upon request to PV Financial an
accurate list setting forth all profit sharing, pension, retirement, stock
purchase, stock option, deferred compensation, severance, hospitalization,
group insurance, death benefits, disability and other fringe benefit plans,
trust agreements, arrangements and commitments of Westamerica, if any,
together with copies of plans that are documented.
(ii) Each employee benefit plan (as defined in Section 3(3) of ERISA)
which is listed in subsection (j)(i) is in material compliance with the
requirements of ERISA.
(j) Legal Actions and Proceedings. Except as disclosed to PV Financial in
-----------------------------
writing, neither Westamerica nor any of its subsidiaries is a party to, nor so
far as any of them is aware, threatened with, and to Westamerica's knowledge,
there is no reasonable basis for, any legal action or other proceeding or
investigation before any court, any arbitrator of any kind or any government
agency, and neither Westamerica nor any of its subsidiaries is subject to any
potential adverse claim, the outcome of which could involve the payment by
Westamerica or its subsidiaries of any amount in excess of $500,000, unless an
insurer of Westamerica has agreed to defend against and pay the amount of any
resulting liability without reservation, or, if any such legal action,
proceeding, investigation or claim will not involve the payment by Westamerica
or any of its subsidiaries of a monetary amount, which could materially
adversely affect Westamerica or its business or property or the transactions
contemplated hereby. Neither Westamerica nor any of its subsidiaries has any
knowledge of any pending or threatened claims or charges under the Community
Reinvestment Act, before the Equal Employment Opportunity Commission, the
California Department of Fair Housing & Economic Development, the California
Unemployment Appeals board, or any human relations commission. There is no
labor dispute, strike, slowdown or stoppage pending or, to the best of the
knowledge of Westamerica, threatened against Westamerica or any of its
subsidiaries.
(k) Insurance. Westamerica and each of its subsidiaries are, and
---------
continuously since their respective inception have been, insured with reputable
insurers against all risks normally insured against by bank holding companies,
banks and leasing companies respectively, and all of the insurance policies and
bonds maintained by Westamerica and each of its subsidiaries are in full force
and effect, neither Westamerica nor any of its subsidiaries is in default
thereunder, and all material claims thereunder have been filed in due and timely
fashion. In the best judgment of the management of Westamerica such insurance
coverage is adequate for Westamerica and each of its subsidiaries. Since
December 31, 1990, there has not been any damage to, destruction of, or loss of
any assets of Westamerica or any of its subsidiaries not covered by insurance
that could materially and adversely affect the business, financial condition,
properties, assets or results of operations of Westamerica and its subsidiaries
taken as a whole.
(l) Execution and Delivery of the Agreement.
---------------------------------------
(i) The execution and delivery of this Agreement has been duly and
validly authorized by the Board of Directors of Westamerica and this
Agreement
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<PAGE>
will be duly and validly authorized by all necessary corporate action on
the part of Westamerica.
(ii) This Agreement has been duly executed and delivered by
Westamerica and (assuming due execution and delivery by PV Financial)
constitutes a legal and binding obligation of Westamerica.
(iii) The execution and delivery by Westamerica of this Agreement and
the consummation of the transactions herein contemplated (A) do not and
will not violate any provision of the Articles of Incorporation or Bylaws
of Westamerica, any provision of federal or state law or any governmental
rule or regulation (assuming (1) receipt of the Government Approvals, (2)
due registration of the Westamerica Shares under the 1933 Act, (3) receipt
of appropriate permits or approvals under state securities or "blue sky"
laws, and (4) accuracy of the representations of PV Financial set forth
herein, and (B) do not require any consent of any person under, conflict
with or result in a breach of, or accelerate the performance required by
any of the terms of, any material debt instrument, lease, license,
covenant, agreement or understanding to which Westamerica is a party or by
which it is bound or any order, ruling, decree, judgment, arbitration award
or stipulation to which Westamerica is subject, or constitute a default
thereunder or result in the creation of any lien, claim, security interest,
encumbrance, charge, restriction or right of any third party of any kind
whatsoever upon any of the properties or assets of Westamerica.
(m) Information in Westamerica Registration Statement. The information
-------------------------------------------------
pertaining to Westamerica and each of its subsidiaries which will appear in the
Westamerica Registration Statement, the Prospectus or the Proxy Statement, in
the form filed with the Commission, in the Applications, will contain no untrue
statement of any material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however, that
the information as of a later date shall be deemed to modify information as of
an earlier date. All financial statements of Westamerica included in the
Prospectus or the Proxy Statement will present fairly the consolidated financial
condition and results of operations of Westamerica and its consolidated
subsidiaries at the dates and for the periods covered by such statements in
accordance with GAAP consistently applied throughout the periods covered by such
statements. Westamerica shall promptly advise PV Financial in writing if prior
to the Effective Time Westamerica shall obtain knowledge of any facts that would
make it necessary to amend the Westamerica Registration Statement, the Proxy
Statement or any Application, or to supplement the Prospectus, in order to make
the statements therein not misleading or to comply with applicable law.
(n) Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty by Westamerica and no statement by Westamerica in any certificate,
agreement, schedule or other document furnished in connection with the
transactions contemplated by this Agreement or the Merger Agreement, contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary to make such representation, warranty or
statement not misleading to PV Financial; provided, however, that information as
of a later date shall be deemed to modify information as of an earlier date.
(o) Capitalization. As of June 30, 1994, the authorized capital stock of
--------------
Westamerica consisted of 1,000,000 shares of Class B Common Stock and 1,000,000
shares of preferred stock, without par value, of which no Class B or preferred
shares were issued or outstanding, and 20,000,000 shares of common stock,
without par value, of which 8,079,233 shares were duly authorized, fully paid,
validly issued, nonassessable and are currently outstanding. Attached to each
outstanding share of Common Stock is a Common Stock Purchase Right which
entitles the holder of each Westamerica Share to certain Rights as set forth in
the Amended Rights Agreement between Westamerica and Chemical Trust Company of
California, dated September 28, 1989 ("Amended Rights Agreement").
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(p) Retention of Broker or Consultant. No broker, agent, finder,
---------------------------------
consultant or other party (other than legal and accounting advisors) has been
retained by Westamerica or is entitled to be paid based upon any agreements,
arrangements or understandings made by Westamerica in connection with any of the
transactions contemplated by this Agreement.
(q) Loan Loss Reserves. The reserve for loan losses in the Westamerica
------------------
consolidated balance sheet dated March 31, 1994 and as of the Effective Date are
or will be adequate in all material respects under the requirements of all
applicable state and federal laws and regulations to provide for possible loan
losses on outstanding loans, net of recoveries, outstanding as of such time.
Westamerica will promptly inform PV Financial of the amounts of all loans,
leases, other extensions of credit or commitments, or other interest-bearing
assets of Westamerica which exceed $1,000,000, that have been classified as of
the date hereof or hereafter by any internal bank examiner or any bank
regulatory agency as "Substandard", "Doubtful", "Loss", or words of similar
import in the case of loans (or that would have been so classified, in the case
of other interest-bearing assets, had they been loans). Notwithstanding the
above, Westamerica shall be under no obligation to disclose to PV Financial any
such classification by any bank regulatory agency where such disclosure would
violate any obligation of confidentiality of Westamerica imposed by such bank
regulatory agency. Westamerica will continue to furnish to PV Financial true
and accurate information concerning the loan portfolio of Westamerica, and no
material information with respect to the loan portfolio has been or will be
withheld from PV Financial.
(r) Classified Loans. Except as disclosed to PV Financial in writing,
----------------
there are no loans presently owned by Westamerica or its subsidiaries in excess
of $750,000 that have been classified by any bank examiner, accountant or the
management of Westamerica as "Substandard", "Doubtful", or "Loss" or classified
using categories with similar import and all loans or portions thereof
classified "Loss" have been charged off or will be charged off within ninety
(90) days of classification as "Loss". Notwithstanding the above, Westamerica
shall be under no obligation to disclose to PV Financial any such classification
by any bank examiner where such disclosure would violate any obligation of
confidentiality of Westamerica imposed by banking regulators. Westamerica
regularly reviews and appropriately classifies its loans in accordance with all
applicable legal and regulatory requirements and generally accepted banking
practices.
6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
-------------------------------------------------------
(a) Preparation and Filing of Registration Statement. Westamerica shall
------------------------------------------------
promptly prepare and file with the Commission (i) a registration statement on
the appropriate form (the "Westamerica Registration Statement") under and
pursuant to the provisions of the 1933 Act for the purpose of registering the
Westamerica Shares and, (ii) shall prepare and file, as soon as practicable, one
or more registration statements or amendments to existing registration
statements under the 1933 Act for the purpose of registering the maximum number
of shares of common stock of Westamerica to which the option holders of PV
Financial may be entitled pursuant to Section 2.7 above at or after the
Effective Date. Westamerica and PV Financial shall promptly prepare a proxy
statement (the "Proxy Statement") for the purpose of submitting this Agreement
and the Merger to the shareholders of PV Financial for approval. PV Financial
shall cooperate in all reasonable respects with regard to the preparation of the
Proxy Statement. The Proxy Statement in definitive form is expected to serve as
the prospectus (the "Prospectus") to be included in the Westamerica Registration
Statement. Westamerica and PV Financial shall each provide promptly to the
other such information concerning its business and financial condition and
affairs as may be required or appropriate for inclusion in the Westamerica
Registration Statement, the Prospectus or the Proxy Statement, and shall cause
its counsel and auditors to cooperate with the other's counsel and auditors in
the preparation of the Westamerica Registration Statement, the Prospectus and
the Proxy Statement.
(b) Effectiveness of Registration Statement. Westamerica and PV Financial
---------------------------------------
shall use their best efforts to have the Westamerica Registration Statement and
any amendments or supplements thereto declared effective under the 1933 Act as
soon as practicable, and thereafter PV Financial shall distribute the Proxy
Statement to holders of its common stock in accordance
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<PAGE>
with applicable laws and its Articles of Incorporation and Bylaws. PV Financial
shall not mail or otherwise furnish the Proxy Statement to its shareholders
unless and until Westamerica shall have received a letter from Grant Thornton
dated the effective date of the Westamerica Registration Statement, as provided
in Section 3.2(f)(iv) hereof.
(c) Sales and Resales of Common Stock. Westamerica shall not be required
---------------------------------
to maintain the effectiveness of the Westamerica Registration Statement for the
purpose of sale or resale of the Westamerica Shares by any person.
(d) Rule 145. Securities representing Westamerica Shares issued to
--------
affiliates of PV Financial (as determined by counsel to Westamerica) under Rule
145 of the Rules and Regulations under the 1933 Act pursuant to the Merger
Agreement may be subject to stop transfer orders and may bear a restrictive
legend in substantially the following form:
The security represented by this instrument has been issued or transferred
to the registered holder as the result of a transaction to which Rule 145
under the 1933 Act applies. The security represented by this instrument
may not be sold, hypothecated, transferred or assigned, and the issuer
shall not be required to give effect to any attempted sale, hypothecation,
transfer or assignment, except (i) pursuant to a then current effective
registration under the 1933 Act, or (ii) in a transaction which, in the
opinion of counsel satisfactory to the issuer is not required to be
registered under the 1933 Act.
Should any opinion of counsel described in clause (ii) of the foregoing legend
indicate that the legend and any stop transfer order then in effect with respect
to the shares may be removed, Westamerica will upon request substitute
unlegended securities and remove any stop transfer orders. Westamerica shall
endeavor to timely file annual and quarterly reports pursuant to the 1934 Act.
7. CONDITIONS TO THE OBLIGATIONS OF WESTAMERICA.
--------------------------------------------
The obligations of Westamerica under this Agreement are, at its option,
subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Westamerica at any time at or prior
to the Effective Time:
(a) Representations and Warranties. The representations and warranties in
------------------------------
Section 4 hereof shall be true and correct in all material respects on the date
hereof and as of the Effective Date, with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically relates to a specified date
and not contain any material inaccuracies or omissions the circumstances as to
which either individually or in the aggregate have, or reasonably could be
expected to have, a Material Adverse Effect on PV Financial or the Bank.
(b) Compliance and Performance Under Agreement. PV Financial and the Bank
------------------------------------------
shall have performed and complied in all material respects with all terms of
this Agreement required to be performed or complied with by them at or prior to
the Effective Date. Each of the directors of PV Financial also shall have
performed and complied in all material respects with all of the terms and
conditions of the undertaking referred to in Section 3.2(a) above. PV Financial
acknowledges that its failure to obtain Westamerica's prior written approval for
any material transaction pursuant to this Agreement and not in the Ordinary
Course of Business shall be within the scope of this paragraph.
(c) Material Adverse Change. No materially adverse change shall have
-----------------------
occurred since March 31, 1994, in the business, financial condition or results
of operations of PV Financial or the Bank and neither PV Financial or the Bank
shall be a party to or, so far as PV Financial is aware, threatened with, and to
PV Financial's knowledge there is no reasonable basis for, any legal action or
other proceeding before any court, any arbitrator of any kind or
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<PAGE>
any government agency if, in the reasonable judgment of Westamerica, such legal
action or proceeding could materially adversely affect PV Financial or the Bank,
or their business, financial condition, results of operations or prospects taken
as a whole.
(d) Approval of Agreement. This Agreement and the Merger shall have been
---------------------
duly approved by (i) the affirmative vote of the holders of a majority of the
outstanding shares of PV Financial common stock at the meeting of shareholders
duly called and held after distributing the Proxy Statement to all shareholders
entitled to vote at such meeting as required by Section 6 hereof.
(e) Officer's Certificate. Westamerica shall have received a certificate,
---------------------
dated the Effective Date, signed on behalf of PV Financial by its President and
Chief Executive Officer and Chief Financial Officer, to the effect that the
conditions in Sections 7(a)-(d) have been satisfied.
(f) Opinion of Counsel. PV Financial shall have delivered to Westamerica
------------------
such documents as may reasonably be requested by Westamerica to evidence
compliance by PV Financial with the provisions of this Agreement including an
opinion of its counsel in substantially the form attached hereto as Exhibit D.
(g) Absence of Legal Impediment. No legal impediment to the Merger shall
---------------------------
have arisen in the reasonable opinion of Westamerica and no litigation,
proceeding or investigation shall be pending or threatened before any court or
government agency relating to the transactions contemplated by this Agreement
which affords a material basis in the reasonable opinion of Westamerica, for a
determination that it would be inadvisable or inexpedient to continue to carry
out the terms of, or to attempt to consummate the transactions contemplated by
this Agreement.
(h) Effectiveness of Registration Statement. The Westamerica Registration
---------------------------------------
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act, no stop order suspending the effectiveness of such
Registration Statement shall be in effect and no proceedings for such purpose
shall have been initiated or threatened by or before the SEC. All state
securities and "blue sky" permits or approvals required to consummate the
transactions contemplated by this Agreement shall have been received and remain
in effect.
(i) Government Approvals. All Government Approvals shall be in effect, and
--------------------
all conditions or requirements prescribed by law or by any such Approval shall
have been satisfied; provided, however, that no Government Approval shall be
deemed to have been received if it shall require the divestiture or cessation of
any of the present businesses or operations conducted by either of the parties
hereto or shall impose any other condition or requirement, which divestiture,
cessation, condition or requirement Westamerica in its reasonable judgment shall
deem to be materially burdensome (in which case Westamerica shall promptly
notify PV Financial). For purposes of this agreement no condition shall be
deemed to be "materially burdensome" if such condition does not materially
differ from conditions regularly imposed by the FRB in orders approving
transactions of the type contemplated by this Agreement and compliance with such
condition would not (A) require the taking of any action inconsistent with the
manner in which Westamerica or PV Financial has conducted its business
previously, (B) have a material adverse effect upon the business, financial
condition or results of operations of Westamerica or PV Financial, or (C)
preclude satisfaction of any of the conditions to consummation of the
transactions contemplated by this Agreement.
(j) Tax Opinion or Ruling. Westamerica and PV Financial shall have
---------------------
received either a ruling from the IRS under federal income tax law and an
equivalent ruling from the California Franchise Tax board, or, to the extent
such rulings have not been received on or before the Effective Date, an opinion
of Westamerica's counsel, subject to assumptions and exceptions normally
included, in form and substance reasonably satisfactory to Westamerica and its
counsel, substantially to the effect that under federal income tax law and
California income and franchise tax law:
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<PAGE>
(i) The Merger will not result in any recognized gain or loss to
Westamerica or PV Financial.
(ii) Except for any cash received in lieu of any fractional share, no
gain or loss will be recognized by holders of PV Financial Shares who
receive Westamerica Shares in exchange for the PV Financial Shares which
they hold;
(iii) The holding period of Westamerica Shares exchanged for PV
Financial Shares will include the holding period of the PV Financial Shares
for which it is exchanged, assuming the shares of PV Financial Shares are
capital assets in the hands of the holder thereof at the Effective Date;
and
(iv) The basis of the Westamerica Shares received in the exchange
will be the same as the basis of the PV Financial Shares for which it was
exchanged, less any basis attributable to fractional shares for which cash
is received.
(k) Management or Accountant's Letter. Westamerica shall have received a
---------------------------------
letter addressed to Westamerica from Grant Thornton prepared pursuant to the
provisions of Section 3.2(f)(iv).
(l) Dissenting Shares. The aggregate number of shares of PV Financial
-----------------
common stock held by persons who have taken all of the steps required at or
prior to the shareholders' meeting referenced in Section 3.2(a) to perfect their
right (if any) to be paid the value of such shares under the GCL ("Dissenting
Shares") shall not exceed 9% of the outstanding shares of PV Financial common
stock.
(m) Unaudited Financials. Not later than three business days prior to the
--------------------
Effective Date, PV Financial shall have furnished Westamerica a copy of its most
recently prepared unaudited year-to-date consolidated financial statements,
including a balance sheet and year-to-date statement of income and statement of
cash flows of PV Financial, each prepared in accordance with GAAP. At least
five business days prior to the Effective Time, all attorneys, accountants,
investment bankers and other advisors and agents for PV Financial and the Bank
shall have submitted to PV Financial (with a copy to Westamerica) estimates of
their fees and expenses for all services rendered in any respect in connection
with the transactions contemplated hereby to the extent not already paid, and
based on such estimates, PV Financial shall have prepared and submitted to
Westamerica a summary of such fees and expenses for the transaction which shall
be reflected in the foregoing financial statement. At the Effective Time, (i)
such advisors shall have submitted their final bills for such fees and expenses
to PV Financial and the Bank for services rendered, with a copy to be delivered
to Westamerica, and based on such summary, PV Financial shall have prepared and
submitted to Westamerica a final calculation of such fees and expenses, (ii) PV
Financial shall have accrued and paid, and have caused the Bank to have accrued
and paid, the amount of such fees and expenses as calculated above after
Westamerica has been given an opportunity to review all such bills and
calculation of such fees and expenses, and (iii) such advisors shall have
released Westamerica from liability for any fees and expenses.
(n) Noncompetition Agreement. The current directors of PV Financial and
------------------------
the Bank shall have entered into written noncompetition agreements in the form
attached hereto as Exhibit B and Exhibit B-1, respectively. PV Financial shall
use its best efforts to have the officers listed on Exhibit F execute
noncompetition agreements substantially similar to Exhibit B-1, provided the
length of time which each such officer shall not compete shall be no more than
the length of time which the amount of any severance package represents as a
percentage of said officers annual base salary.
(o) Closing Documents. Westamerica shall have received such certificates
-----------------
and other closing documents as counsel for Westamerica shall reasonably request.
(p) Consents. PV Financial shall have received, or Westamerica shall have
--------
satisfied itself that PV Financial will receive, all consents of other parties
to and required by material
-31-
<PAGE>
mortgages, notes, leases, franchises, agreements, licenses and permits
applicable to PV Financial, in each case in form and substance reasonably
satisfactory to Westamerica, and no such consent or license or permit shall have
been withdrawn or suspended.
(q) Fairness Opinion. The Board of Directors of PV Financial shall have
----------------
received an opinion of Hoefer & Arnett, Inc. dated the effective date of the
Proxy Statement/Prospectus, to the effect that the terms of the Merger are fair,
from a financial point of view, to PV Financial and its shareholders.
(r) Losses in Investment and Loan Portfolios. At and as of the Effective
----------------------------------------
Date, losses actually realized by PV Financial from the sale of securities held
in PV Financial's investment portfolios after March 31, 1994 and prior to the
Effective Date shall be reflected in the financial statements of PV Financial as
of the last day of the calendar month preceding the calendar month in which the
Effective Date occurs. Additionally, the aggregate amount of loans on the books
of PV Financial which are classified by any bank examiner, PV Financial or
Westamerica or any loan review consultant engaged by PV Financial or Westamerica
for the purpose of examining loans (using standard banking practice) as "Loss"
shall have been charged off. If any portion of any loan held by any PV
Financial or Westamerica subsidiary is classified as "Substandard", "Doubtful",
or "Loss", then any other portion of that loan held by any PV Financial
subsidiary shall also be classified at the lowest level. PV Financial shall
also have an allowance for loan losses that is at least equal to 100% of
nonperforming loans, as reflected in the financial statements of PV Financial as
of the last day of the calendar month and the last day of the calendar quarter
preceding the calendar month in which the Effective Date occurs and PV Financial
has recognized any credit losses that Westamerica reasonably determines are
appropriate in the Bank's loan and asset portfolios, and to utilize
Westamerica's standards, methodology and system in determining the adequacy of
PV Financial's loan loss reserves for the period ending December 31, 1994, the
quarter end preceding the Effective Date and the month end preceding the
Effective Date.
(s) Satisfaction of Spending or Other Commitments. There shall have been
---------------------------------------------
no failure by PV Financial to perform the obligations or satisfy the conditions
set forth in Sections 2.6, 3.2(d) and 3.2(h)(ii) of this Agreement and the
undertakings required from each PV Financial director pursuant to section 3.2(a)
shall have been delivered within 15 business days after the date hereof.
(t) Pooling-of-Interests Accounting Treatment; Dissenters' Rights.
-------------------------------------------------------------
Westamerica shall have received a letter from KPMG to the effect that the Merger
shall qualify for the pooling-of-interests method of accounting in accordance
with GAAP and all applicable rules, regulations and policies of the Commission.
In addition, there shall have been no determination by any court, tribunal,
regulatory agency or other governmental entity, that the Merger fails or will
fail to qualify for pooling-of-interests accounting treatment and no more than
nine (9%) percent of PV Financial's Shares shall have the right to dissent under
the GCL.
(u) Employment Agreements. Robert J. Cardoza shall have entered into (i) a
---------------------
letter agreement as of the date hereof with the Bank substantially in the form
attached as Exhibit G and (ii) a noncompetition agreement as of the Effective
Date in the form of Exhibit B-2 hereto, which agreements shall become and remain
in full force and effect at and as of the Effective Date.
(v) Compliance Examinations. During the twelve months prior to the
-----------------------
Effective Date, the Bank shall have undergone a full compliance examination,
including Community Reinvestment Act compliance, and shall have taken all
corrective action recommended by or resulting from such examinations and any
significant regulatory compliance violations shall have been corrected by PV
Financial prior to the Effective Date.
(w) Opinion of Loan Review Examiner. PV Financial shall have delivered to
-------------------------------
Westamerica an opinion of its loan review examiner, Paul Hogan, which opinion
shall be acceptable to Westamerica and be to the effect that all loan losses in
excess of $25,000 have
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<PAGE>
been identified with respect to loans and related assets on the books of PV
Financial and its subsidiaries as of a date no earlier than four months
preceding the Effective Date.
(x) Regulatory Examination. During the fourteen months prior to the
----------------------
Effective Date, the Bank shall have undergone a full regulatory examination, and
shall be in compliance with all requirements arising from the regulatory
examination.
(y) Stock Option Agreement. Immediately following the execution and
----------------------
delivery of this Agreement, PV Financial and Westamerica shall have executed and
delivered the Stock Option Agreement.
8. CONDITIONS TO THE OBLIGATIONS OF PV FINANCIAL.
---------------------------------------------
The obligations of PV Financial under this Agreement are, at its option,
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions provided, however, that any one or more of such conditions
may be waived by the Board of Directors of PV Financial at any time at or prior
to the Effective Time:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Westamerica in Section 5 hereof shall be true and correct in all material
respects on the date hereof and as of the Effective Date, with the same effect
as though such representations and warranties had been made on and as of such
date except as to any representation or warranty which is specifically related
to a specified date and does not contain any inaccuracies or omissions the
circumstances as to which either individually or in the aggregate have, or
reasonably could be expected to have, a material adverse effect on Westamerica.
(b) Compliance and Performance Under Agreement. Westamerica shall have
------------------------------------------
performed and complied in all material respects with all of the terms of this
Agreement required to be performed or complied with by them at or prior to the
Effective Time.
(c) Material Adverse Change. No materially adverse change shall have
-----------------------
occurred since March 31, 1994, in the business, financial condition, results of
operations or properties of Westamerica and its subsidiaries taken as a whole,
and Westamerica shall not be engaged in, or a party to or so far as Westamerica
is aware, threatened with, and to Westamerica's knowledge no grounds shall exist
for, any legal action or other proceeding before any court, any arbitrator of
any kind or any government agency if, in the reasonable judgment of PV
Financial, such legal action or proceeding could materially adversely affect
Westamerica or its business, financial condition, results of operations or
assets.
(d) Approval of Agreement. This Agreement and the Merger shall have been
---------------------
duly approved by the affirmative vote of a majority of the outstanding shares of
PV Financial common stock at a meeting of shareholders duly called and held.
(e) Officer's Certificate. PV Financial shall have received a certificate,
---------------------
dated the Effective Date, signed on behalf of Westamerica by its President and
Chief Executive Officer and Chief Financial Officer, certifying to the
fulfillment of the conditions stated in Sections 8(a)-(d) hereof.
(f) Opinion of Counsel. Westamerica shall have delivered to PV Financial
------------------
such documents as may reasonably be requested by PV Financial to evidence
compliance by Westamerica with the provisions of this Agreement including an
opinion of its counsel in substantially the form attached hereto as Exhibit H.
(g) Effectiveness of Registration Statement. The Westamerica Registration
---------------------------------------
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act. No stop order suspending the effectiveness of the
Westamerica Registration Statement shall be in effect and no proceedings for
such purpose shall have been initiated or threatened by or before the
Commission. All state securities and "blue sky" permits or approvals
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<PAGE>
required to consummate the transactions contemplated by this Agreement and the
Merger Agreement shall have been received and remain in effect.
(h) Government Approvals. The Government Approvals shall have been
--------------------
received and shall be in effect, and all conditions or requirements prescribed
by law or by any such approval shall have been satisfied.
(i) Tax Opinion or Ruling. Westamerica and PV Financial shall have
---------------------
received the opinions or tax rulings referred to in Section 7(j) hereof which
opinions or rulings shall meet the requirements of such Section.
(j) Closing Documents. PV Financial shall have received such certificates
-----------------
and other closing documents as counsel for PV Financial shall reasonably
request.
(k) Absence of Legal Impediment. No legal impediment to the Merger shall
---------------------------
have arisen in the reasonable opinion of PV Financial and no litigation,
proceeding or investigation shall be pending or threatened before any court or
government agency relating to the transactions contemplated by this Agreement
which affords a material basis, in the reasonable opinion of PV Financial, for a
determination that it would be inadvisable or inexpedient to continue to carry
out the terms of, or to attempt to consummate the transactions contemplated by
this Agreement.
(l) Fairness Opinion. The Board of Directors of PV Financial shall have
----------------
received an opinion of Hoefer & Arnett, Inc., dated the effective date of the
Proxy Statement/Prospectus, to the effect that the terms of the Merger are
financially fair, from a financial point of view, to PV Financial and its
shareholders.
(m) Pooling-of-Interests Accounting Treatment. Westamerica shall have
-----------------------------------------
received a letter from KPMG to the effect that the Merger shall qualify for the
pooling-of-interests method of accounting in accordance with GAAP and all
applicable rules, regulations and policies of the Commission. In addition,
there shall have been no determination by any court, tribunal, regulatory agency
or other governmental entity, that the Merger fails or will fail to qualify for
pooling-of-interests accounting treatment.
9. CLOSING.
-------
(a) Closing Date. The closing (the "Closing") shall, unless another date,
------------
time or place is agreed to in writing by Westamerica and PV Financial, be held
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, California on the Effective Date.
(b) Delivery of Documents. At the Closing, the opinions, certificates and
---------------------
other documents required to be delivered by this Agreement shall be delivered.
(c) Filings. At the Closing, Westamerica and PV Financial shall instruct
-------
their respective representatives to make or confirm such filings as shall be
required in the opinion of counsel to Westamerica and PV Financial to give
effect to the Merger.
10. POST-CLOSING MATTERS.
--------------------
Westamerica will prepare and file with the Commission on the appropriate
form as soon as practicable the results of combined operations of Westamerica
and PV Financial for the first full calendar month after the Effective Date as
contemplated in Exhibit E.
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11. EXPENSES.
--------
Westamerica and PV Financial hereto agree to pay, without right of
reimbursement from the other party and whether or not the transactions
contemplated by this Agreement or the Merger Agreement shall be consummated, the
costs incurred by each such party incident to the performance of its obligations
under this Agreement and the Merger Agreement, including without limitation,
costs incident to the preparation of this Agreement, the Westamerica
Registration Statement, Prospectus and the Proxy Statement (including the
audited financial statements of the parties contained therein) and incident to
the consummation of the Merger and of the other transactions contemplated herein
and in the Merger Agreement, including the fees and disbursements of counsel,
accountants, consultants and financial advisers employed by such party in
connection therewith. Notwithstanding the foregoing, Westamerica shall be
solely responsible for all fees payable pursuant to state "blue-sky" securities
laws, fees related to obtaining a revenue ruling or tax opinion and the fee
required to be paid to the Commission to register the Westamerica Shares.
PV Financial shall bear its own costs of printing and distributing (including
postage) the Proxy Statement and other information relating to these
transactions to its shareholders.
12. AMENDMENT; TERMINATION.
----------------------
(a) Amendment. This Agreement and the Merger Agreement may be amended by
---------
Westamerica and PV Financial at any time prior to the Effective Time without the
approval of the shareholders of Westamerica and shareholders of PV Financial
with respect to any of their terms except the terms relating to the form or
amount of consideration to be delivered to the PV Financial shareholders in the
Merger.
(b) Termination. This Agreement and the Merger Agreement may be terminated
-----------
as follows:
(i) By the mutual consent of the Boards of Directors of both
Westamerica and PV Financial at any time prior to the consummation of the
Merger.
(ii) By the Board of Directors of Westamerica on or after March 31,
1995, if (A) any of the conditions in Section 7 to which the obligations of
Westamerica are subject have not been fulfilled, or (B) such conditions
have been fulfilled or waived by Westamerica and PV Financial shall have
failed to complete the Merger.
(iii) By the Board of Directors of Westamerica if (A) it has become
aware of any facts or circumstances of which it was not aware on the date
hereof and which materially adversely affect PV Financial and the Bank
taken as a whole or their respective properties, operations or financial
condition taken as a whole, (B) a materially adverse change shall have
occurred since March 31, 1994, in the business, financial condition,
results of operations or properties of PV Financial or the Bank taken as a
whole, (C) there has been failure or prospective failure on the part of PV
Financial or the Bank to comply with its obligations under this Agreement,
or any failure or prospective failure to comply with any of the conditions
set forth in Section 7 hereof, or (D) PV Financial fails to act or refrains
from doing any act pursuant to Section 3.2(j)(iv).
(iv) By Westamerica if, after the date hereof, any person (other than
Westamerica or any subsidiary thereof) shall become the beneficial owner of
20% or more of the then outstanding shares of PV Financial Shares or any
person (other than Westamerica or a subsidiary thereof) shall have
commenced a bona fide tender offer or exchange offer to acquire at least
20% of the then outstanding shares of PV Financial.
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<PAGE>
(v) By the Board of Directors of Westamerica if it determines that it
would be inadvisable or inexpedient to continue to carry out the terms of,
or to attempt to consummate the transactions contemplated by this
Agreement, by reason of any material legal impediment to the Merger having
arisen, or any material pending or threatened litigation, investigation or
proceeding, including, but not limited to any of the preceding that relate
to the transactions contemplated by this Agreement which affords a material
basis, in the reasonable opinion of such Board, for such determination.
(vi) By the Board of Directors of PV Financial on or after March 31,
1995, if (A) any of the conditions contained in Section 8 to which the
obligations of PV Financial are subject have not been fulfilled, or (B)
such conditions have been fulfilled or waived but Westamerica shall have
failed to complete the Merger; provided, however, that if Westamerica is
engaged at the time in litigation (including an administrative appeal
procedure) relating to an attempt to obtain one or more of the Governmental
approvals or if Westamerica shall be contesting in good faith any
litigation which seeks to prevent consummation of the transactions
contemplated hereby, such nonfulfillment shall not give PV Financial the
right to terminate this Agreement until the earlier of (A) fifteen (15)
months after the date of this Agreement and (B) sixty (60) days after the
completion of such litigation and of any further regulatory or judicial
action pursuant thereto, including any further action by a governmental
agency as a result of any judicial remand, order or directive or otherwise
or any waiting period with respect thereto.
(vii) By the Board of Directors of PV Financial if (A) it has become
aware of any facts or circumstances of which it was not aware on the date
hereof and which can or do materially adversely affect Westamerica or its
properties, operations or financial condition, (B) a materially adverse
change shall have occurred since March 31, 1994 in the business, financial
condition, results of operations or assets of Westamerica, (C) there has
been failure or prospective failure on the part of Westamerica to comply
with its obligations under this Agreement or any failure or prospective
failure to comply with any condition set forth in Section 8, (D) the
Average Price of Westamerica Common Stock pursuant to Section 2.1(b) is
less than $28.43 and the parties have not in good faith satisfied the
conditions in Section 2.1(b)(i), or (E) Westamerica fails to comply with
the provisions of Section 3.1(f).
(c) Notice. The power of termination hereunder may be exercised by
------
Westamerica or PV Financial, as the case may be, only by giving written notice,
signed on behalf of such party by its Chairman of the Board or President, to the
other party.
(d) Breach of Obligations. If there has been a material breach by either
---------------------
party in the performance of any of the obligations herein which shall not have
been cured within ten business days after written notice thereof has been given
to the defaulting party, the nondefaulting party shall have the right to
terminate this Agreement upon written notice to the other party. In any event,
the nondefaulting party shall have no obligation to consummate any transaction
or take any further steps toward such consummation contemplated hereunder until
such breach is cured.
(e) Termination and Expenses. Termination of this Agreement shall not
------------------------
terminate or affect the obligations of the parties to pay expenses as provided
in Section 11, to maintain the confidentiality of the other party's information
pursuant to Section 3.3, or the provisions of this Section 12(e) or of Sections
13(a), (d) or (e) or the second sentence of Section 13(b) below and shall not
affect any agreement after such termination. If this Agreement shall be
terminated by Westamerica pursuant to Section 12(b)(iii)(D) or Section
12(b)(iv), or if any of the events specified in Section 12(b)(iv) occurs within
twelve (12) months following termination of this Agreement for any of the
reasons stated in Section 12(b) (provided that such termination for a reason
stated in Section 12(b) results from the interference of a third party or group
who
-36-
<PAGE>
thereafter attempts to acquire PV Financial or the Bank), PV Financial shall pay
to Westamerica, on demand, the sum of $1,000,000. If this Agreement shall be
terminated by PV Financial pursuant to Section 12(b)(vii)(E) by reason of a
Business Combination, Westamerica shall pay to PV Financial, on demand, the sum
of $3,000,000. Any payment required pursuant to the preceding two sentences
shall be paid no more than two days after demand by the party entitled to make
such demand by wire transfer of immediately available federal funds. Except as
provided in Section 3.1(f) or Section 3.2(j)(iv), PV Financial and Westamerica
agree that any termination of this Agreement shall not in any manner release or
be construed as so releasing the nonterminating party or parties from any
liability or damage to the other party or parties arising out of, in connection
with or otherwise relating to, directly or indirectly, such parties' failure in
performance of any of its covenants or agreements hereunder.
(f) Special Westamerica Rights of Termination. PV Financial shall deliver
-----------------------------------------
to Westamerica all remaining portions of the PV Financial Disclosure Schedule
not heretofore delivered to Westamerica as promptly as practicable after the
date hereof and in no event more than 10 days after the date hereof.
Notwithstanding any investigation made by or information known to Westamerica
prior to the date hereof and notwithstanding anything to the contrary herein,
and in recognition of the fact that Westamerica, as of the date hereof, has not
had an opportunity to complete its due diligence review of PV Financial and that
PV Financial has not, as of the date hereof, delivered to Westamerica all
portions of the PV Financial Disclosure Schedule, in addition to the termination
rights set forth above, Westamerica shall have the following rights (the
"Special Termination Rights"): at any time after the date of this Agreement
through and including the date that is 30 days after the date PV Financial
delivers to Westamerica all remaining portions of the PV Financial Disclosure
Schedule in form and detail of presentation reasonably satisfactory to
Westamerica, to terminate this Agreement if Westamerica shall identify any
circumstance which, in the reasonable business judgment of the Board of
Directors (which includes a committee thereof) of Westamerica, acting in good
faith and with due regard for principles of fair dealing, could (w) materially
and adversely impact the reasonably expected financial or business benefits to
Westamerica of the transactions contemplated by this Agreement, (x) be
inconsistent in any material and adverse respect with any of the representations
and warranties of PV Financial contained in this Agreement, (y) materially and
adversely affect the business, operations, properties, financial condition,
results of operations or prospects of PV Financial and its subsidiaries on a
consolidated basis or (z) deviate materially and adversely from PV Financial's
financial statements for the year or the quarter ended December 31, 1993.
Westamerica may exercise the Special Termination Rights by written notice to PV
Financial.
13. MISCELLANEOUS.
-------------
(a) Notices. Any notice or other communication required or permitted under
-------
this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight express or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
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<PAGE>
To WESTAMERICA: To PV FINANCIAL:
David L. Payne, President & Robert J. Cardoza
Chief Executive Officer Chairman of the Board
Westamerica Bancorporation PV Financial
1108 Fifth Avenue 1425 McHenry
San Rafael, CA 94901 Modesto, CA 95350
With a copy to: With a copy to:
Jonathan D. Joseph, Esq. Victor J. Bacigalupi, Esq.
Pillsbury Madison & Sutro Bronson, Bronson & McKinnon
P.O. Box 7880 505 Montgomery Street
San Francisco, CA 94120 San Francisco, CA 94111
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
(b) Binding Agreement. This Agreement is binding upon and are for the
-----------------
benefit of Westamerica and PV Financial and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any person,
firm, corporation or association not a party hereto (except as provided in
Section 3.1(g)), and no other person, firm, corporation or association shall
acquire or have any right under or by virtue of this Agreement. No party may
assign this Agreement or any of its rights, privileges, duties or obligations
hereunder without the prior written consent of the other party to this
Agreement.
(c) No Survival of Representations and Warranties. No investigation by
---------------------------------------------
Westamerica or PV Financial made before or after the date of this Agreement
shall affect the representations and warranties which are contained in this
Agreement and such representations and warranties shall survive such
investigation, provided that, except with respect to covenants and agreements to
be performed in whole or in part subsequent to the Effective Date (as to which
the related representations and warranties shall survive until their
performance) which covenants and agreements shall survive the Closing, the
representations, warranties, covenants and agreements of Westamerica and PV
Financial contained in this Agreement shall not survive the Closing.
(d) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California.
(e) Attorneys' Fees. In any action at law or suit in equity in relation to
---------------
this Agreement, the prevailing party in such action or suit shall be entitled to
receive a reasonable sum for its attorneys' fees and all other reasonable costs
and expenses incurred in such action or suit.
(f) Entire Agreement; Severability. This Agreement and the documents,
------------------------------
certificates, agreements, letters, schedules and exhibits attached or required
to be delivered pursuant hereto set forth the entire agreement and understanding
of the parties in respect of the transactions contemplated hereby, and supersede
all prior agreements, arrangements and understandings relating to the subject
matter hereof. Each provision of this Agreement shall be interpreted in a
manner to be effective and valid under applicable law, but if any provision
hereof shall be prohibited or ruled invalid under applicable law, the validity,
legality and enforceability of the remaining provisions shall not, except as
otherwise required by law, be affected or impaired as a result of such
prohibition or ruling. KPMG shall be the sole arbiter of any disagreement about
the application of GAAP pursuant to this Agreement.
(g) Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE>
(h) Specific Performance. The parties hereby acknowledge and agree that
--------------------
the failure of PV Financial or the Bank to fulfill any of its respective
covenants and agreements hereunder, including the failure to take all such
actions as are necessary on its part to cause the consummation of the Merger,
will cause irreparable injury to Westamerica for which damages, even if
available, will not be an adequate remedy. Accordingly, PV Financial and the
Bank hereby consent to the issuance of injunctive relief by any court of
competent jurisdiction to compel performance of PV Financial's obligations and
to the granting by any such court of the remedy of the specific performance by
PV Financial of their obligations hereunder.
IN WITNESS WHEREOF, Westamerica, PV Financial and the Bank have each
caused this Agreement and Plan of Reorganization to be signed by its Chairman of
the Board or President and its corporate seal to be hereunto affixed and
attested by the signature of its Secretary all as of the day and year first
above written.
ATTEST: WESTAMERICA BANCORPORATION
/s/ M. Kitty Jones /s/ David L. Payne
------------------------- --------------------------
Secretary Chairman, President & CEO
ATTEST: PV FINANCIAL
/s/ Sylvia J. Rudy /s/ Robert J. Cardoza
------------------------- -----------------------------
Secretary Chairman of the Board & CEO
ATTEST: PACIFIC VALLEY NATIONAL BANK
/s/ Sylvia J. Rudy /s/ Robert J. Cardoza
------------------------- -----------------------------
Secretary Chairman of the Board
-39-
<PAGE>
Exhibit A
Form of Agreement of Merger
THIS AGREEMENT OF MERGER, dated as of ___________, 1995 (this "Merger
Agreement"), is made and entered into by and between PV FINANCIAL, a California
------------
corporation ("PV Financial") and WESTAMERICA BANCORPORATION, a California
--------------------------
corporation ("Westamerica").
W I T N E S S E T H:
A. The Boards of Directors of Westamerica and PV Financial have
approved, and deem it advisable and in the best interests of Westamerica, PV
Financial and their respective shareholders, that Westamerica and PV Financial
consummate the business transaction provided for herein in which PV Financial
would merge with and into Westamerica (the "Merger").
B. Westamerica and PV Financial have entered into an Agreement and
Plan of Reorganization, dated as of July 25, 1994 (the "Agreement"), providing,
among other things, for the execution and filing of this Merger Agreement and
the consummation of the Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained in this Merger Agreement, the parties to this Merger Agreement hereby
agree that PV Financial shall be merged with and into Westamerica in accordance
with the provisions of the laws of the State of California upon the terms and
subject to the conditions set forth as follows:
1. The Merger.
----------
1.1 Effective Time. [On ______________, 1995 and] upon the filing with
--------------
the California Secretary of State of a duly executed counterpart of this Merger
Agreement with the officers' certificates prescribed by Section 1103 of the
California General Corporation Law attached thereto ("Effective Date") the
Merger shall become effective. The effective time of the Merger on the
Effective Date shall be [5:00] p.m.
----
1.2 Effect of the Merger. On the Effective Date, PV Financial shall be
--------------------
merged with and into Westamerica and the separate corporate existence of PV
Financial shall cease. Westamerica shall be the surviving corporation (the
"Surviving Corporation") in the Merger. It shall thereupon succeed, without
other transfer, to all rights and properties of, and shall be subject to all the
debts and liabilities of, PV Financial and the separate existence of Westamerica
as a California corporation, with all its purposes, objects, rights, powers,
privileges and franchises shall continue unaffected and unimpaired by the
Merger.
2. Corporate Governance Matters.
----------------------------
2.1 From and after the Effective Date and until thereafter amended as
provided by law: (a) the Articles of Incorporation of Westamerica as in effect
immediately prior to the Effective Date shall be and continue to be the Articles
of Incorporation of the Surviving Corporation; and (b) the Bylaws of Westamerica
as in effect immediately prior to the Effective Date shall be and continue to be
the Bylaws of the Surviving Corporation.
2.2 On the Effective Date: (a) the directors of the Surviving Corporation
shall be those persons who are the directors of Westamerica immediately prior to
the Effective Date; and (b) the officers of the Surviving Corporation shall be
those persons who are the officers of Westamerica at the Effective Date.
Additional members of the Board of Directors and officers of the Surviving
Corporation may be elected or appointed subsequent to the Effective Date
pursuant to the terms of the Agreement and in accordance with the Bylaws of the
Surviving Corporation. Such directors and officers shall continue to hold
office from and after the Effective Date until they shall have resigned or shall
have been legally removed or until their respective successors shall have been
elected and qualified. Removal and replacement of such
-1-
<PAGE>
directors and officers, subject to any contractual rights they may have, shall
be governed by the Bylaws of the Surviving Corporation and the General
Corporation Law of the State of California. If, at the Effective Date, a
vacancy shall exist on the Board of Directors or in the officers of Westamerica,
such vacancy may be filled in the manner provided in the Bylaws of the Surviving
Corporation.
3. Manner of Common Stock of PV Financial.
--------------------------------------
3.1 Conversion of PV Financial Shares. As of the Effective Date, by
---------------------------------
virtue of the Merger and without any action on the part of the holder of any
common stock of PV Financial (a "PV Financial Share" or "PV Financial Common
Stock"):
(a) Each issued and outstanding PV Financial Share (other than
fractional shares, or any shares as to which dissenters' rights have been
perfected) shall be converted into [.5450] shares of the common stock,
without par value, of Westamerica ("Westamerica Common Stock" or a
"Westamerica Share").
(b) From and after the Effective Date, the holders of certificates
formerly representing PV Financial Shares shall cease to have any rights
with respect thereto other than any dissenters' rights they have perfected
pursuant to Chapter 13 of the California General Corporation Law.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no
-----------------
fractional shares of Westamerica Common Stock shall be issued to holders of PV
Financial Shares. In lieu thereof, each such holder entitled to a fraction of a
share of Westamerica Common Stock shall receive, at the time of surrender of the
certificate or certificates representing such holder's PV Financial Shares, an
amount in cash equal to the market value per share of the Common Stock of
Westamerica, calculated by taking the average of the closing price quoted on the
Nasdaq, as reported in The Wall Street Journal, for each of the twenty
consecutive trading days prior to two business days prior to the Effective Date,
rounded to 4 decimal places, (whether or not there were any trades in
Westamerica Common Stock on such days), multiplied by the fraction of a share of
Westamerica Common Stock to which such holder otherwise would be entitled. No
such holder shall be entitled to dividends, voting rights, interest on the value
of, or any other rights in respect of, a fractional share.
3.3 Surrender of PV Financial Shares.
--------------------------------
(a) Prior to the Effective Date, Westamerica shall appoint Chemical Trust
Company of California or its successor, or any other bank or trust company
(having capital of at least $50 million) mutually acceptable to PV Financial and
Westamerica, as exchange agent (the "Exchange Agent") for the purpose of
exchanging certificates representing the Westamerica Common Stock and at and
after the Effective Date, Westamerica shall issue and deliver to the Exchange
Agent certificates representing the Westamerica Common Stock, as shall be
required to be delivered to holders of PV Financial Shares pursuant to Section
3.1 of this Merger Agreement. As soon as practicable after the Effective Date,
each holder of PV Financial Shares converted pursuant to Section 3.1, upon
surrender to the Exchange Agent of one or more certificates for such PV
Financial Shares for cancellation, will be entitled to receive a certificate
representing the number of shares of Westamerica Common Stock determined in
accordance with Section 3.1 and a payment in cash with respect to fractional
shares, if any, determined in accordance with Section 3.2. Each certificate
representing Westamerica Common Stock will bear a notation incorporating the
Amended Rights Agreement (as that term is defined in Section 5(o) of the
Agreement) by reference and certificates representing the Westamerica Common
Stock will evidence and entitle the holders thereof to certain rights as set
forth in and subject to the terms of the Amended Rights Agreement ("Rights").
Certificates issued for the Westamerica Common Stock shall be deemed to be
certificates for said Rights.
(b) No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Westamerica Common Stock after the
Effective Date will be paid
-2-
<PAGE>
to persons entitled to receive such certificates for Westamerica Common Stock
until such persons surrender their certificates representing PV Financial
Shares. Upon surrender of such certificates representing PV Financial Shares,
the holder thereof shall be paid, without interest, any dividends or other
distributions with respect to the Westamerica Common Stock as to which the
record date and payment date occurred on or after the Effective Date and on or
before the date of surrender.
(c) If any certificate for a Westamerica Share is to be issued in a name
other than that in which the certificate for a PV Financial Share surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
costs, taxes or other expenses required by reason of the issuance of
certificates for such Westamerica Share in a name other than the registered
holder of the certificate surrendered, or such persons shall establish to the
satisfaction of Westamerica and the Exchange Agent that such costs, taxes or
other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to
Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing PV
Financial Shares and unclaimed at the end of one year from the Effective Date,
shall (together with any interest earned thereon) at such time be paid or
redelivered by the Exchange Agent to Westamerica, and after such time any holder
of a certificate representing a PV Financial Share who has not surrendered such
certificate to the Exchange Agent shall, subject to applicable law, look as a
general creditor only to Westamerica for payment or delivery of such dividends
or distributions or cash, as the case may be. Westamerica shall not be liable
to any holder of a share of PV Financial Common Stock for such share (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
4. Termination and Amendment.
-------------------------
4.1 The obligations of the parties to effect the Merger shall be subject
to all the terms and conditions contained in the Agreement. Notwithstanding the
approval of this Merger Agreement by the shareholders of PV Financial, this
Merger Agreement shall terminate forthwith in the event that the Agreement shall
be terminated as therein provided.
4.2 This Merger Agreement may be amended by Westamerica and PV Financial
at any time prior to the Effective Date without the approval the shareholders of
PV Financial with respect to any of its terms except the terms relating to the
form or amount of consideration to be delivered to the PV Financial shareholders
in the Merger. This Merger Agreement may not be amended, except by an
instrument in writing signed on behalf of each of the parties hereto.
-3-
<PAGE>
4.3 This Merger Agreement may be signed in any number of counterparts,
each of which shall be deemed an original, and all of which shall be deemed but
one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first written above.
WESTAMERICA BANCORPORATION
By _____________________________
DAVID L. PAYNE, President
By ____________________________
M. KITTY JONES, Secretary
PV FINANCIAL
By ____________________________
ROBERT J. CARDOZA, President
By ____________________________
SYLVIA J. RUDY, Secretary
-4-
<PAGE>
OFFICERS' CERTIFICATE
Robert J. Cardoza and Sylvia J. Rudy hereby certify that:
1. They are the President and Secretary, respectively, of PV
FINANCIAL, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by
the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of
outstanding shares which equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares
outstanding is ________________.
___________________________
ROBERT J. CARDOZA, President
____________________________
SYLVIA J. RUDY, Secretary
The undersigned declare under penalty of perjury under the laws of the
State of California that they have read the foregoing certificate and know the
contents thereof and that the same is true of their own knowledge. Executed at
Modesto, Stanislaus County, California on ____________ __, 1995.
____________________________
ROBERT J. CARDOZA
____________________________
SYLVIA J. RUDY
-5-
<PAGE>
OFFICERS' CERTIFICATE
David L. Payne and M. Kitty Jones hereby certify that:
1. They are the President and Secretary, respectively, of WESTAMERICA
BANCORPORATION, a corporation organized under the laws of the State of
California.
2. The Merger Agreement in the form attached was duly approved by the
Board of Directors of the corporation.
3. The Merger Agreement was entitled to be and was approved by the
Board of Directors alone under the provisions of Section 1201 of the California
General Corporation Law.
___________________________
DAVID L. PAYNE, President
____________________________
M. KITTY JONES, Secretary
The undersigned declare under penalty of perjury under the laws of the
State of California that they have read the foregoing certificate and know the
contents thereof and that the same is true of their own knowledge. Executed at
San Rafael, Marin County, California on ____________ __, 1995.
____________________________
DAVID L. PAYNE
____________________________
M. KITTY JONES
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<PAGE>
ANNEX B
October 4, 1994
Members of the Board of Directors
PV Financial
1425 McHenry
Modesto, CA 95350
Members of the Board:
You have requested written confirmation of our verbal opinion rendered on July
25, 1994 as investment bankers as to the fairness, from a financial point of
view, to the shareholders of PV Financial of the Exchange Ratio, as defined in
the Agreement and Plan of Reorganization, dated as of July 25, 1994 (the
"Agreement"), in the proposed merger (the "Merger") of PV Financial with and
into Westamerica Bancorporation, pursuant to the Agreement and subject to the
terms and conditions therein, each holder of common stock of PV Financial will
receive, in exchange for common stock of PV Financial, Westamerica common stock
in the ratio of .5450 of a share of Westamerica common stock for each share of
PV Financial common stock, subject to adjustment as more fully set forth in the
Agreement, including adjustment for Significant Liabilities as defined in
Section 2.1(b)(iii) of the agreement.
You have also requested written confirmation of our verbal opinions rendered on
September 8, 1994 and on October 4, 1994, with respect to the First Amendment to
Agreement and Plan of Reorganization and the Second Amendment to Agreement and
Plan of Reorganization, respectively, made effective as of July 25, 1994
(together, the "Amendments").
We have acted for PV Financial and for the Board of Directors as financial
advisor in connection with this transaction and will receive a fee for our
services. We have previously provided investment banking and financial advisory
services to PV Financial in connection with general discussions on mergers and
acquisitions and have been a market maker in PV Financial's Common Shares since
1989. Hoefer & Arnett is currently a market maker in Westamerica
Bancorporation's Common Stock and has been since 1994.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement and the Amendments; (ii) Annual Reports to
Shareholders of PV Financial and Westamerica Bancorporation and Annual Reports
on Form 10-K of PV Financial and Westamerica Bancorporation for the three years
ended December 31, 1993; (iii) Quarterly Reports on Form 10-Q of PV Financial
and Westamerica Bancorporation for the quarters ended March 31, 1994 and June
30, 1994; (iv) certain other publicly available financial and other information
concerning PV Financial and Westamerica Bancorporation and the trading markets
for the publicly traded securities of PV Financial and Westamerica
Bancorporation; (v) publicly available information concerning other banks and
holding companies, the trading markets for their securities and the nature and
terms of certain other merger transactions we believe relevant to our inquiry;
and (vi) evaluations and analyses prepared and presented to the Board of
Directors of PV Financial or a committee thereof in connection with this
business combination with Westamerica Bancorporation. We have held discussions
with senior management of PV Financial and of Westamerica Bancorporation
concerning their past and current operations, financial condition and prospects,
as well as the results of regulatory examinations. We have also discussed with
the independent auditors of each company their review of such company's
financial and accounting affairs.
We have reviewed with senior management of PV Financial earnings projections for
1994 through 1998 for PV Financial as a stand-alone entity, assuming the Merger
does not occur, prepared by PV Financial. We reviewed with the senior
management of Westamerica Bancorporation earnings projections for 1994 through
1998 for Westamerica Bancorporation as a stand-alone entity,
<PAGE>
PV Financial
October 4, 1994
Page 2
assuming the Merger does not occur, as well as projected operating cost savings
expected to be achieved in each such year resulting from the Merger. Such
projections were prepared by Westamerica Bancorporation senior management.
Certain pro forma financial projections for the years 1994 through 1998 for the
combined entity were derived by us based partially upon the projections
discussed above, as well as our own assessment of general economic, market and
financial conditions. In certain cases, such combined pro forma financial
projections included the projected operating cost savings derived by us
partially based upon the projections discussed above to be realizable in the
Merger.
In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available and have not attempted independently to
verify the same. We have relied upon the managements of PV Financial and
Westamerica Bancorporation as to the reasonableness of the financial and
operating forecasts, projections and projected operating cost savings (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts, projections and projected operating cost savings reflect the best
currently available estimates and judgments of the applicable managements. We
have also assumed, without independent verification, that the aggregate
allowances for loan losses for PV Financial and Westamerica Bancorporation are
adequate to cover such losses. We have not made or obtained any evaluations or
appraisals of the property of PV Financial or Westamerica Bancorporation, nor
have we examined any individual loan credit files. For purposes of this
opinion, we have assumed that the Merger will have the tax, accounting and legal
effects (including, without limitation, that the Merger will be accounted for as
a pooling-of-interest) described in the Agreement and the Amendments and assumed
the accuracy of the disclosures set forth in the Agreement and the Amendments.
Our opinion as expressed herein is limited to the fairness, from a financial
point of view, to the holders of the Common Shares of PV Financial of the
Exchange Ratio in the Merger and does not address PV Financial's underlying
business decision to proceed with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of PV
Financial and Westamerica Bancorporation, including interest income, interest
expense, net interest income, net interest margin, provision for loan losses,
non-interest income, non-interest expense, earnings, dividends, internal capital
generation, book value, intangible assets, return on assets, return on
shareholders' equity, capitalization, the amount and type of non-performing
assets, loan losses and the reserve for loan losses, all as set forth in the
financial statements for PV Financial and for Westamerica Bancorporation; (ii)
the assets and liabilities of PV Financial and Westamerica Bancorporation,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
It is understood that this letter is for the information of the Board of
Directors of PV Financial only and may not be relied upon by any other person or
used for any other purpose without our prior written consent. This letter does
not constitute a recommendation to the Board of Directors or to any shareholder
of PV Financial with respect to any approval of the Merger.
<PAGE>
PV Financial
October 4, 1994
Page 3
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the Exchange Ratio in the Merger is fair,
from a financial point of view, to the holders of the Common Shares of PV
Financial.
Very truly yours,
/s/ Hoefer & Arnett, Incorporated
HOEFER & ARNETT, INC.
<PAGE>
ANNEX C
RESTATED STOCK OPTION AGREEMENT
THIS RESTATED STOCK OPTION AGREEMENT, dated as of July 25, 1994,
between WESTAMERICA BANCORPORATION, a California corporation ("Grantee"), and
PV FINANCIAL, a California corporation ("Issuer"). This Agreement amends and
restates that certain Stock Option Agreement between Grantee and Issuer, dated
as of July 25, 1994.
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Reorganization Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Agreement; and
WHEREAS, as a condition to Grantee's entering into the Reorganization
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Reorganization Agreement,
the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 433,142
fully paid and nonassessable shares of Issuer's Common Stock, no par value per
share ("Common Stock"), at a price of $12.25 per share; provided, however, that
-----------------
in the event Issuer issues or agrees to issue any shares of Common Stock (other
than as permitted under the Reorganization Agreement) at a price less than
$12.25 per share (as adjusted pursuant to subsection (b) of Section 5), such
price shall be equal to such lesser price (such price, as adjusted if
applicable, the "Option Price"); provided further that in no event shall the
----------------
number of shares for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding common shares. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date hereof (or any treasury shares
held by Issuer have been or are sold after July 22, 1994) (other than pursuant
to this Agreement), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, its equals 19.9% of the number
of shares of Common Stock then issued and outstanding without giving effect to
any shares subject to or issued pursuant to the Option. Nothing contained in
this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Reorganization Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option,
in whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
--------
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 30 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time of
the Merger; (ii) termination of the Reorganization Agreement in accordance with
the provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event; or (iii) the passage of 12 months after termination of
the Reorganization Agreement if such termination follows the occurrence of an
Initial Triggering Event (provided that if an Initial Triggering Event continues
--------
or occurs beyond such termination, the Exercise Termination Event shall be 12
months from the expiration of the Last Triggering Event but in no event more
than 18 months after such termination). The "Last Triggering Event" shall mean
the last Initial Triggering Event to occur. The term "Holder" shall mean the
holder or holders of the Option.
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<PAGE>
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act, and the rules and regulations thereunder) other than Grantee
or any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction other than as contemplated by
the Reorganization Agreement. For purposes of this Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the SEC) of Issuer, (y) a
purchase, lease or other acquisition representing 15% or more of the
consolidated assets of Issuer and its Subsidiaries, or (z) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of any class of securities of Issuer or any Significant Subsidiary of
Issuer;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have publicly withdrawn or modified, or publicly
announced its interest to withdraw or modify, its recommendation that the
shareholders of Issuer approve the transactions contemplated by the
Reorganization Agreement;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 10% or
more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Reorganization
Agreement and such breach (x) would entitle Grantee to terminate the
Reorganization Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
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<PAGE>
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided, that if the
--------
closing of the purchase and sale pursuant to the Option (the "Closing") cannot
be consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and provided further, without
----------------
limiting the foregoing, that if prior notification to or approval of the Federal
Reserve Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. Any exercise of the Option shall be deemed to occur on the Notice
Date relating thereto. In the event (i) Grantee receives official notice that
an approval of the Federal Reserve Board or any other regulatory authority
required for the purchase of Option Shares (as hereinafter defined) would not be
issued or granted, or (ii) Holder (or Substitute Holder) shall have the right
pursuant to the last sentence of Section 7 (or Section 9) to exercise the Option
(or Substitute Option), Grantee shall nevertheless be entitled to exercise its
right as set forth in Section 7 and Grantee or Holder (or Substitute Holder)
shall be entitled to exercise the Option (or Substitute Option) in connection
with the resale of Issuer Common Stock or other securities pursuant to a
registration statement as provided in Section 6.
(f) At the Closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
--------
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such Closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be
-3-
<PAGE>
provided to the holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the Securities Act; (ii)
the reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder or the Issuer
shall have failed or refused to designate the bank account described in
subsection (f) of this Section 2. Issuer shall pay all expenses, and any and
all United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock (and other securities issuable pursuant to Section 5(a)) so that
the Option may be exercised without additional authorization of Common Stock (or
such other securities) after giving effect to all other options, warrants,
convertible securities and other rights to purchase Common Stock (or such other
securities); (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to time
be required (including (x) complying with all premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. (S) 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended ("BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an
-4-
<PAGE>
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option shall be subject to adjustment from time to time as provided in this
Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted so that Grantee shall receive upon exercise of the
Option and payment of the aggregate Option Price hereunder the number and
class of shares or other securities or property that Grantee would have
received in respect of Common Stock if the Option had been exercised in
full immediately prior to such event, or the record date therefor, as
applicable.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event (or as otherwise provided in the last sentence
of Section 2(e)), Issuer shall, at the request of Grantee delivered within 30
days after such Subsequent Triggering Event (or such trigger date as is provided
in the last sentence of Section 2(e)) (whether on its own behalf or on behalf of
any subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the Securities Act covering any shares issued
and issuable pursuant to this Option and shall use its best efforts to cause
such registration statement to become effective and remain current in order to
permit the sale or other disposition of any shares of Common Stock issued upon
total or partial exercise of this Option ("Option Shares") in accordance with
any plan of disposition requested by Grantee. Issuer will use its best efforts
to cause such registration statement first to become effective and then to
remain effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee for a
period of 18 months following such first request shall have the right to demand
a second such registration if reasonably necessary to effect such sales or
dispositions. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Holder's Option or Option Shares would interfere
with the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; and provided, however, that after
-----------------
any such required reduction the number of Option Shares to be included in such
offering for the account of the Holder shall constitute at least 25% of the
total number of shares to be sold by the Holder and Issuer in the aggregate; and
provided further, however, that if such reduction occurs, then the Issuer shall
- ----------------
file a registration statement for the balance as promptly as practical and no
reduction shall thereafter occur (and such registration shall not be charged
against the Holder). Each such Holder shall provide all information reasonably
requested by Issuer for inclusion in any registration statement to be filed
hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Issuer. Upon
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<PAGE>
receiving any request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days after such occurrence (or such later period as provided
in Section 10 or the last sentence of Section 2(e)), Issuer (or any successor
thereto) shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to (x) the amount by which (A) the market/offer price
(as defined below) exceeds (B) the Option Price, multiplied by the number of
shares for which this Option may then be exercised plus (y) Grantee's Out-of-
Pocket Expenses (as defined below) (to the extent not previously reimbursed) and
(ii) at the request of the owner of Option Shares from time to time (the
"Owner"), delivered within 30 days after such occurrence (or such later period
as provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to (x) the market/offer price multiplied by the number
of Option Shares so designated plus (y) Grantee's Out-of-Pocket Expenses (to the
extent not previously reimbursed). The term "Out-of-Pocket Expenses" shall mean
Grantee's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by the Reorganization Agreement, including, without
limitation, legal, accounting and investment banking fees. The term
"market/offer price" shall mean the highest of (i) the highest price per share
of Common Stock at which a tender offer or exchange offer therefor has been
made, (ii) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer, (iii) the highest bid price per share as
quoted on the National Association of Securities Dealers Automated Quotation
Systems, (or, if the shares of Common Stock are not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) within the six-month period immediately preceding the date
the Holder gives notice of the required repurchase of Option Shares, as the case
may be, or (iv) in the event of a sale of assets representing 15% or more of the
consolidated assets of Issuer and its Subsidiaries, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, divided by the number
of shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
-----------------
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder
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<PAGE>
and/or the Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices as promptly as practicable in order to accomplish
such repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock obtained by multiplying the number of shares of Common Stock for
which the surrendered Stock Option Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, or (B)
to the Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to the
date of the notice by Issuer described in the first sentence of this subsection
(c), or shall be scheduled to occur at any time before the expiration of a
period ending on the thirtieth day after such date, the Holder shall nonetheless
have the right to exercise the Option until the expiration of such 30 day
period.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
--------
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
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(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
- --------
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (after giving
effect for such purpose to the provisions of Section 9), which agreement shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by
a nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
Substitute Option Holder"), the issuer of the Substitute Option (the "Substitute
Option Issuer") shall repurchase the Substitute Option from the Substitute
Option Holder at a price (the "Substitute Option Repurchase Price") equal to (x)
the amount by which (i) the Highest Closing Price (as hereinafter defined)
exceeds (ii) the exercise price of the Substitute Option, multiplied by the
number of shares of Substitute Common Stock for which the Substitute Option may
then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent not
previously reimbursed), and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provision of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing
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<PAGE>
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
-----------------
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its best
efforts to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred prior
to the date of the notice by the Substitute Option Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30 day period.
10. The 30-day period for exercise of certain rights under Sections 2, 6,
7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the Exchange Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer. This Agreement is the valid and legally binding
obligation of Issuer, enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this
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Agreement in accordance with its terms will have reserved for issuance upon the
exercise of the Option, that number of shares of Common Stock equal to the
maximum number of shares of Common Stock at any time and from time to time
issuable hereunder, and all such shares, upon issuance pursuant hereto, will be
duly authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
(c) Except as disclosed pursuant to the Reorganization Agreement, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation pursuant to any provisions of the Articles of Incorporation or by-laws
of Issuer or any Subsidiary of Issuer or, subject to obtaining any approvals or
consents contemplated hereby, result in any violation of any loan or credit
agreement, note, mortgage, indenture, lease, plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or any
Subsidiary of Issuer or their respective properties or assets which violation
would have a material adverse effect on Issuer.
12. Grantee hereby represents and warrants that it is acquiring the Option
for its own account and not with a view to or for sale in connection with any
distribution.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 30
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 30 days
-----------------
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Market upon
official notice of issuance and applying to the Federal Reserve Board under the
BHCA for approval to acquire the shares issuable hereunder, but Grantee shall
not be obligated to apply to state banking authorities for approval to acquire
the shares of Common Stock issuable hereunder until such time, if ever, as it
deems appropriate to do so.
15. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any Related Person thereof is a person making without the
prior written consent of Issuer an offer or proposal to engage in an Acquisition
Transaction (other than the transaction contemplated by the Reorganization
Agreement), then (i) in the case of a Holder or any Related Person thereof, the
Option held by it shall immediately terminate and be of no further force or
effect, and (ii) in the case of an Owner or any Related Person thereof, the
Option Shares held by it shall be immediately repurchasable by Issuer at the
Option Price. A Related Person of a Holder or Owner means any Affiliate (as
defined in Rule 12b-2 of the rules and regulations under the Exchange Act) of
the Holder or Owner and any person that is the beneficial owner of 20% or more
of the voting power of the Holder or Owner, as the case may be.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
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<PAGE>
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder or Substitute Option Holder is not permitted to acquire, or
Issuer or Substitute Option Issuer is not permitted to repurchase pursuant to
Section 7 or Section 9, as the case may be, the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
Section 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Reorganization Agreement.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein or in the Reorganization
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in the Reorganization
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
23. In the event of any exercise of the Option by Grantee, Issuer and
Grantee shall execute and deliver all other documents and instruments and take
all other action that may be reasonably necessary in order to consummate the
transactions provided for by such exercise.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Reorganization Agreement.
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<PAGE>
IN WITNESS WHEREOF, Grantee and Issuer have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
WESTAMERICA BANCORPORATION
By: /s/ David L. Payne
------------------------------------------
Name: David L. Payne
----------------------------------------
Attest: /s/ M. Kitty Jones Title: Chairman, President & CEO
------------------------- ----------------------------------------
Name: M. Kitty Jones
--------------------------
Title: Secretary
--------------------------
PV FINANCIAL
By: /s/ Robert J. Cardoza
------------------------------------------
Name: Robert J. Cardoza
----------------------------------------
Attest: /s/ Sylvia J. Rudy Title: Chairman/President/CEO
------------------------- ----------------------------------------
Name: Sylvia J. Rudy
-------------------------
Title: Vice President-Secretary
------------------------
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ANNEX D
CALIFORNIA GENERAL CORPORATION LAW
(S) 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATION
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (d). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in * * * subparagraph
(A) or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in * * * subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the effective
date of a short-form merger; provided, however, that * * * subparagraph (A)
rather than * * * subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather than
at a meeting.
(3) Which the dissenting shareholder has determined that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
(S) 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections
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1300, 1302, 1303, 1304 and this section, a statement of the price determined by
the corporation to represent the fair market value of the dissenting shares, and
a brief description of the procedure to be followed if the shareholder desires
to exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(S) 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
(S) 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificates securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
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<PAGE>
(S) 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considered equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
(S) 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of
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payment, but subordinate to all other creditors in any liquidation proceeding,
such debt to be payable when permissible under the provisions of Chapter 5.
(S) 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
(S) 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
(S) 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
enforcement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
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<PAGE>
(S) 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger subdivision (a) shall not apply
to any shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
-5-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors,
officers, employees and other agents of the corporation ("Agents") in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended.
Article VII of the Registrant's Restated Articles of Incorporation, as
amended, authorizes the Registrant to indemnify its Agents, through bylaw
provisions, agreements, votes of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California Corporations Code, subject to the applicable limits set forth
in Section 204 of the California Corporations Code with respect to actions for
breach of duty to the Registrant and its shareholders. Article VII also
authorizes the Registrant to provide insurance for Agents provided that, in
cases where the Registrant owns all or a portion of the shares of the company
issuing the insurance policy, such company and/or the policy must meet certain
conditions set forth in Section 317. Article V of the Registrant's Bylaws
provides for mandatory indemnification of each director of the Registrant except
as prohibited by law.
The Registrant maintains a directors and officers liability insurance
policy that indemnifies the Registrant's directors and officers against certain
losses in connection with claims made against them for certain wrongful acts.
In addition, the Registrant has entered into separate indemnification agreements
with its directors and officers that require the Registrant, among other things,
(i) to maintain directors' and officers' insurance in reasonable amounts in
favor of such individuals, and (ii) to indemnify them against certain
liabilities that may arise by reason of their status or service as Agents of the
Registrant to the fullest extent permitted by California law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Note: Exhibits marked with a + are incorporated by reference to the
Registrant's Registration Statement on Form S-4 (No. 33-52146). Each such
Exhibit had the number in parentheses immediately following the description of
the Exhibit herein. Exhibits marked with an * have been previously filed.
(A) Exhibits.
Exhibit
Number
------
2.1 Agreement and Plan of Reorganization among the Registrant,
PV Financial and Pacific Valley National Bank, dated as of
July 25, 1994, as amended by First Amendment to Agreement
and Plan of Reorganization, dated as of July 25, 1994, among
the Registrant, PV Financial and Pacific Valley National
Bank, and as amended by Second Amendment to Agreement and
Plan of Reorganization, dated as of October 4, 1994, among
the Registrant, PV Financial and Pacific Valley National
Bank (included as Annex A to the Proxy Statement/Prospectus
(without certain exhibits)).
4.1+ Specimen of the Registrant's Common Stock certificate with
Rights Legend. (4.1)
4.2+ Amended and Restated Rights Agreement, dated as of September
28, 1989, between the Registrant and Bank of America, NT&SA,
as amended by the Appointment and Acceptance Agreement,
dated as of May 25, 1992, between the Registrant and
Chemical Trust Company of California. (4.2)
4.3 The Registrant and certain of its consolidated subsidiaries
have outstanding certain long-term debt. None of such debt
exceeds 10% of the total assets of the Registrant and its
consolidated subsidiaries; therefore, copies of the
constituent instruments defining the rights
II-1
<PAGE>
of the holders of such debt are not included as exhibits to
this Registration Statement. The Registrant agrees to
furnish copies of such instruments to the SEC upon request.
5.1* Opinion of Pillsbury Madison & Sutro.
10.1* Restated Stock Option Agreement, dated as of July 25, 1994,
between the Registrant and PV Financial (included as Annex C
to the Proxy Statement/Prospectus).
23.1 Consent of KPMG Peat Marwick LLP (see Page II-6).
23.2* Consent of Grant Thornton.
23.3* Consent of Pillsbury Madison & Sutro (included in Exhibit
5.1).
23.4 Consent of Hoefer & Arnett Inc.
24.1* Power of Attorney.
99.1 Form of proxy to be used in soliciting shareholders of PV
Financial for its Special Meeting.
(B) Financial Statement Schedules: Not applicable.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes: (1) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; (iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; (2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; (3) to remove from registration by means of a post-
effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(4) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection
II-2
<PAGE>
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the 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 director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Rafael,
State of California, on the 5 day of October, 1994.
WESTAMERICA BANCORPORATION
By /s/ David L. Payne
-------------------------
David L. Payne
Chairman, President and
Chief Executive Officer
Pursuant to the requirement of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Etta Allen* Director October 5, 1994
- ---------------------------
Etta Allen
/s/ James M. Barnes* Executive Vice President October 5, 1994
- --------------------------- and Chief Financial Officer
James M. Barnes (Principal Financial
Officer)
/s/ Louis E. Bartolini* Director October 5, 1994
- ---------------------------
Louis E. Bartolini
/s/ Charles I. Daniels, Jr.* Director October 5, 1994
- ----------------------------
Charles I. Daniels, Jr.
II-4
<PAGE>
Signature Title Date
--------- ----- ----
Director
- -----------------------------
Don Emerson
/s/ Dennis R. Hansen* Senior Vice President and October 5, 1994
----------------------------- Controller (Principal
Dennis R. Hansen Accounting Officer)
/s/ Arthur C. Latno* Director October 5, 1994
- ------------------------------
Arthur C. Latno
Director
- ------------------------------
Patrick D. Lynch
Director
- ------------------------------
Catherine Cope MacMillan
/s/ James A. Maggetti* Director October 5, 1994
- -------------------------------
James A. Maggetti
/s/ Dwight H. Murray, Jr., M.D.* Director October 5, 1994
- -------------------------------
Dwight H. Murray, Jr., M.D.
Director
- -------------------------------
Ronald A. Nelson
Director
- -------------------------------
Carl R. Otto
/s/ David L. Payne Chairman of the Board, October 5, 1994
- ------------------------------- President and Chief
David L. Payne Executive Officer
Director
- -------------------------------
Edward B. Sylvester
By: /s/ David L. Payne
---------------------------
Attorney-in-fact
II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Westamerica Bancorporation:
We consent to incorporation by reference in Amendment No. 1 to the Registration
Statement (No. 33-55417) on Form S-4 of Westamerica Bancorporation of our report
dated January 25, 1994 relating to the consolidated balance sheets of
Westamerica Bancorporation and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993, which report appears in the December 31, 1993, annual report
on Form 10-K of Westamerica Bancorporation. In addition, we consent to the
reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus which is included in the Registration Statement on Form
S-4.
/s/ KPMG Peat Marwick LLP
San Francisco, California
October 4, 1994
II-6
<PAGE>
Consent of Independent Certified Public Accountants
We have issued our report dated January 14, 1994, accompanying the consolidated
financial statements of PV Financial and Subsidiary, contained in the Form S-4
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
/s/ Grant Thornton
Stockton, California
September 8, 1994
II-7
<PAGE>
EXHIBIT INDEX
Note: Exhibits marked with a + are incorporated by reference to the Registrant's
Registration Statement on Form S-4 (No. 33-52146). Each such Exhibit had
the number in parentheses immediately following the description of the
Exhibit herein. Exhibits marked with an * have been previously filed.
<TABLE>
<CAPTION>
Exhibit
Number Document Description/*/ Page
- ------- -------------------------------------- ----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization
among the Registrant, PV Financial and
Pacific Valley National Bank, dated as of
July 25, 1994, as amended by First
Amendment to Agreement and Plan of
Reorganization, dated as of July 25, 1994,
among the Registrant, PV Financial and
Pacific Valley National Bank, and as amended
by Second Amendment to Agreement and Plan of
Reorganization, dated as of October 4, 1994,
among the Registrant, PV Financial and
Pacific Valley National Bank (included
as Annex A to the Proxy Statement/Prospectus
(without certain exhibits)).
4.1+ Specimen of the Registrant's Common
Stock certificate with Rights Legend.
(4.1)
4.2+ Amended and Restated Rights Agreement,
dated as of September 28, 1989,
between the Registrant and Bank of
America, NT&SA, as amended by the
Appointment and Acceptance Agreement,
dated as of May 25, 1992, between the
Registrant and Chemical Trust Company
of California. (4.2)
4.3 The Registrant and certain of its
consolidated subsidiaries have outstanding
certain long-term debt. None of such
debt exceeds 10% of the total assets of
the Registrant and its consolidated
subsidiaries; therefore, copies of the
constituent instruments defining the rights
of the holders of such debt are not
included as exhibits to this Registration
Statement. The Registrant agrees to furnish
copies of such instruments to the SEC upon
request.
5.1* Opinion of Pillsbury Madison & Sutro.
10.1* Restated Stock Option Agreement, dated as
of July 25, 1994, between the Registrant
and PV Financial (included as Annex C to
the Proxy Statement/Prospectus).
23.1 Consent of KPMG Peat Marwick LLP
(see Page II-6).
23.2* Consent of Grant Thornton.
23.3* Consent of Pillsbury Madison & Sutro
(included in Exhibit 5.1).
23.4 Consent of Hoefer & Arnett Inc.
24.1* Power of Attorney.
99.1 Form of proxy to be used in soliciting
shareholders of PV Financial for its
Special Meeting.
</TABLE>
<PAGE>
EXHIBIT 23.4
HOEFER & ARNETT
Incorporated
CONSENT OF HOEFER & ARNETT, INCORPORATED
We consent to the inclusion in the Westamerica Bancorporation and PV Financial
Registration Statement/Proxy Statement on Form S-4, and any amendments thereto,
of our Fairness Opinion, and reference to our names and the statements with
respect to us, as appearing under the heading "Opinion of Financial Advisors."
San Francisco, California
October 4, 1994
Hoefer & Arnett, Incorporated
By /s/ Hoefer & Arnett Incorporated
----------------------------------
<PAGE>
EXHIBIT 99.1
PROXY
-----
PV FINANCIAL
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS
October __, 1994
The undersigned holder of Common Stock acknowledges receipt of a copy of
the Notice of Special Meeting of Shareholders of PV Financial and the
accompanying Proxy Statement/Prospectus dated October __, 1994 (the "Proxy
Statement"), and, revoking any Proxy heretofore given, hereby constitutes and
appoints Robert J. Cardoza and Sarah Thompson, and each of them, with full power
of substitution, as attorneys and proxies to appear and vote all of the shares
of Common Stock of PV Financial, a California corporation, standing in the name
of the undersigned which the undersigned could vote if personally present and
acting at the Special Meeting of Shareholders of PV Financial, to be held at the
McHenry Branch of Pacific Valley National Bank, 1524 McHenry Avenue, Modesto,
California, on Monday, November 14, 1994, at 5:00 p.m. local time, or at
any adjournment or postponement thereof, upon the following items as set forth
in the Notice of Meeting and Proxy Statement and to vote according to their
discretion on all matters which may be properly presented for action at the
Special Meeting or any adjournment or postponement thereof.
To adopt and approve the Agreement and Plan of Reorganization dated as of
July 25, 1994, as amended (the "Agreement"), by and among Westamerica
Bancorporation ("Westamerica"), PV Financial and Pacific Valley National Bank,
and an Agreement of Merger (the "Merger Agreement") between Westamerica and PV
Financial (collectively, the "Agreements") and the transactions contemplated
thereby, including but not limited to, the amendment of the PV Financial 1991
Director Stock Option Plan and the merger of PV Financial with and into
Westamerica.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY IS SOLICITED BY AND ON THE BEHALF OF THE BOARD OF DIRECTORS AND MAY
BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY
<PAGE>
THE SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSALS SET FORTH.
Shareholder(s):_____________________________
Signature___________________________________
Signature___________________________________
Date________________________________________
Please date and sign exactly as your name(s)
appear opposite. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title. If more
than one trustee, all should sign. All
joint owners should sign.
I/WE do [_] or I/WE do not [_] expect to
attend the Special Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE SIGN AND RETURN THIS
PROXY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED ENVELOPE.
