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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1995.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
Commission file number 0-11008
CU BANCORP
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(Exact name of registrant as specified in its charter)
California 95-3657044
(State or other jurisdiction) (I.R.S. Employer
of incorporation or organization) Identification Number)
16030 Ventura Boulevard
Encino, California 91436
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 907-9122
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(title of class)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 220.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K [ x ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1996: $53,134,221
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Common Stock, no par value -
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The number of shares outstanding of the issuer's classes of common stock as of
February 28, 1996:
Common Stock, no par value 5,285,333 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Part III is hereby incorporated by reference from sections of the Registrant's
Definitive Proxy Statement which will be filed within 120 days of fiscal year
ended December 31, 1995.
This document contains 60 pages.
Exhibit Page begins on Page 61
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
Part Number Item Page
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<S> <C> <C> <C>
I 1. Business 4
I 2. Properties 21
I 3. Legal Proceedings 22
I 4. Submission of Matters to a Vote 22
of Security Holders
I 4.A. Executive Officers of the Registrant 22
II 5. Market for the Company's Common Stock 25
and Related Stockholder Matters
II 6. Selected Financial Data 25
II 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 26
II 8. Financial Statements and Supplementary
Data 38
II 9. Changes in and Disagreements with *
Accountants on Accounting and
Financial Disclosure
III 10. Directors and Executive Officers of **
the Company
III 11. Executive Compensation **
III 12. Security Ownership of Certain **
Beneficial Owners and Management
III 13. Certain Relationships and Related **
Transaction
IV 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 58
</TABLE>
* This item is omitted because it is either inapplicable or the answer
thereto is in the negative.
** Incorporated by reference from the Company's proxy statement which
will be filed within 120 days of fiscal year ended December 31, 1995.
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PART I
Item 1. BUSINESS
General Development of Business
CU Bancorp, (the "Company") was incorporated under the laws of
the State of California on September 3, 1981. It is the parent of California
United Bank, a National Banking Association (the "Bank") which is a wholly
owned subsidiary of the Company and the sole subsidiary of the Company.
DESCRIPTION OF BUSINESS
Commercial Banking Business
CU Bancorp is a California corporation incorporated in 1981 and is
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended. The Company does not conduct any activities other than in
connection with its ownership of the Bank which is CU Bancorp's sole
subsidiary. The company functions primarily as the sole stockholder of the
Bank and establishes general policies and activities for the Bank. The Bank
was founded in April 1982 and provides an extensive range of commercial banking
services.
The Bank is a commercial bank which delivers a mix of banking products
and services to middle market businesses, the entertainment industry and high
net worth individuals. The Bank offers lending, deposit, accounts receivable
financing, letters of credit, cash management, SBA and international trade
services from seven full -service offices. The Bank's primary focus is to
engage in middle market lending to businesses, professionals, the entertainment
industry, and high net-worth individuals. While the Bank does not actively
solicit retail or consumer banking business, it offers these services primarily
to owners, officers, and employees of its business customers, and customers of
accounting and business management firms with which the Bank regularly does
business.
The Entertainment Division specializes in meeting the banking needs of
Southern California's entertainment industry, including motion picture and
television financing, record labels, talent agencies, business managers,
commercial houses and a variety of other related business activities. This
division offers certain specialty products aimed at the entertainment industry
and related individuals.
The SBA division offers financing alternatives to businesses in the
Bank's market through the use of government guaranteed loans. This division
offers both term and shorter term credit products.
The International Trade Services Group offers a broad range of
services to support the import/export activities of customers. The division
has direct correspondent relationships with major overseas banks, providing
business customers with a broad international reach. The division facilitates
a wide variety of international banking transactions, including letters of
credit, short term trade related financing, domestic and foreign collections,
wire transfers, standby commitments and government assisted programs.
The Bank attracts customers and deposits by offering a personalized
approach and a high degree of service. The key to the Bank's deposit
generation is personal contacts and services rather than rate competition. A
significant portion of its business is with business customers who conduct
substantially all of their banking business with the Bank.
Either alone or in concert with correspondent banks, the Bank offers a
wide variety of credit and deposit services to its customers. Management
believes that its current and prospective customers favorably respond to the
individualized tailored banking services that the Bank provides. Deposit
services,
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which the Bank offers, include personal and business checking accounts and
savings accounts, insured money market deposit accounts, interest-bearing
negotiable orders of withdrawal ("NOW") accounts, and time certificates of
deposit, along with IRA and Keogh accounts. The Bank offers sophisticated on
line banking capabilities to customers through its electronic banking programs.
The Bank has not requested and does not have regulatory approval to offer trust
services; nor does it have any present intention to seek such approval. The
Bank has made arrangements with a number of trust companies to refer
prospective customers, in connection with which the Bank may receive a referral
fee.
Continued development of a diversified commercial oriented deposit and
lending base is the Bank's highest priority. Loans and time and demand
deposits are actively solicited by the directors, officers, and employees of
the Bank. The executive and senior officers of the Bank have had substantial
experience in soliciting bank deposits and in serving the comprehensive banking
needs of small and mid-size businesses.
During 1995, the Bank serviced the commercial banking business from
five offices including: its head office at 16030 Ventura Boulevard, in Encino,
California 91436, a suburb of Los Angeles; an office in West Los Angeles,
located at 10880 Wilshire Boulevard, Los Angeles California 90024, in the
Westwood commercial and retail district, with close freeway access; a Ventura
County (Camarillo) Regional Office; a South Bay Regional office in Gardena,
California; and a San Gabriel Valley Regional Office, located in City of
Industry, which serves the San Gabriel Valley and northern Orange County. In
January 1996, the Bank added branches in Santa Ana and Anaheim in Orange
County as a result of its merger with Corporate Bank.
In January 1996, the Company completed the acquisition of Corporate
Bank of Santa Ana California which was merged into the Bank. Corporate Bank
served both small and mid market business entities, as well as offering certain
consumer based products such as home equity lines of credit and auto loans and
leases. It is contemplated that upon full integration of the Corporate Bank
business that the business of these offices will mirror those of the Bank as a
whole.
On January 10, 1996, the Bank announced an agreement to merge with
Home Interstate Bancorp, parent of Home Bank, based in the South Bay.
The merger with Home Bank is expected to be completed in mid - 1996, and
will create a Bank with 22 branches and over $800 million in assets.
Historical Regulatory Matters
In 1992, the Bank and Bancorp both consented to agreements with their
primary regulators, a Formal Agreement with the OCC and a Memorandum of
Understanding with the Federal Reserve Bank of San Francisco. In June of 1992,
a new management team replaced substantially all of prior management. In
November of 1993, following the first OCC examination subsequent to new
management's implementation of internal controls and other new management
techniques, the OCC released The Bank from the Formal Agreement and later that
same month the Federal Reserve Bank of San Francisco determined that Bancorp
had met all the requirements of the Memorandum of Understanding and terminated
that document. The Bank's capital ratios, as of December 31, 1995, are in
excess of all minimums imposed by law and regulation and qualify to rate the
Bank as a "well capitalized" bank. For further information see Note 16 to the
Financial Statements.
The Formal Agreement required the implementation of certain policies
and procedures for the operation of the Bank to improve lending operations and
management of the loan portfolio. The Formal Agreement required the Bank to
maintain a Tier 1 risk weighted capital ratio of 10.5% and a 6% Tier 1 capital
ratio based on adjusted total assets. The Formal Agreement mandated the
adoption of a written program to essentially reduce criticized assets, maintain
adequate loan loss reserves and improve bank administration, real estate
appraisal, asset review management and liquidity policies, and restricted the
payment of dividends.
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The agreement specifically required the Bank to: 1) create a
compliance committee; 2) have a competent chief executive officer and senior
loan officer, satisfactory to the OCC, at all times; 3) develop a plan for
supervision of management; 4) create and implement policies and procedures for
loan administration; 5) create a written loan policy; 6) develop and implement
an asset review program; 7) develop and implement a written program for the
maintenance of an adequate Allowance for Loan and Lease Losses, and review the
adequacy of the Allowance; 8) eliminate criticized assets; 9) develop and
implement a written real estate appraisal policy; 10) obtain and improve
procedures regarding credit and collateral documentation; 11) develop a
strategic plan; 12) develop a capital program to maintain adequate capital
(this provision also restricts the payment of dividends by the Bank unless :(a)
the Bank is in compliance with its capital program; (b) the Bank is in
compliance with 12 U.S.C. Sections 55 and 60; and (c) with the prior written
approval of the OCC Regional Administrator; 13) develop and implement a written
liquidity, asset and liability management policy; 14) document and support the
reasonableness of any management and other fees to any director or other party;
15) correct violations of law; and 16) provide reports to the OCC regarding
compliance.
The Company's Memorandum of Understanding ("MOU") with the Federal
Reserve required: 1) a plan to improve the financial condition of CU Bancorp
and the Bank; 2) development of a formal policy regarding the relationship of
CU Bancorp and the Bank, with regard to dividends, intercompany transactions,
tax allocation and management or service fees; 3) a plan to assure that CU
Bancorp has sufficient cash to pay its expenses; 4) ensure that regulatory
reporting is accurate and submitted on a timely basis; 5) prior approval of the
Federal Reserve Bank prior to the payment of dividends; 6) prior approval of
the Federal Reserve Bank prior to CU Bancorp incurring any debt and 7)
quarterly reporting regarding the condition of the Company and steps taken
regarding the Memorandum of Understanding.
The release of both agreements indicates that the Company has
complied with the Formal Agreement and the Memorandum of Understanding,
including improvement of asset and management quality, the development and
implementation of policies and procedures as well as reporting methodologies
and the maintenance of the required capital ratios.
The Company
Bancorp is a legal entity separate and distinct from the Bank. There
are various legal limitations on the ability of the Bank to finance or
otherwise supply funds to Bancorp. In particular, under federal banking law, a
national bank, such as the Bank, may not declare a dividend that exceeds
undivided profits, and the approval of the OCC is required if the total of all
dividends declared in any calendar year exceeds such bank's net profits, as
defined, for that year combined with its retained net profits for the preceding
two years. In addition, federal law significantly limits the extent to which
the Bank may supply funds to Bancorp, whether through direct extensions of
credit or through purchases of securities or assets, issuance of guarantees or
the like. Generally, any loan made by the Bank to Bancorp must be secured by
certain kinds and amounts of collateral and is limited to 10% of the Bank's
capital and surplus (as defined), and all loans by the Bank to Bancorp are
limited to 20% of the Bank's capital and surplus. The Bank may extend credit
to Bancorp without regard to these restrictions to the extent such extensions
of credit are secured by specific kinds of collateral such as obligations of or
guaranteed by the U.S. Government or its agencies and certain bank deposits.
Mortgage Banking
Until November 1993, the Bank operated in two distinct segments,
commercial banking and mortgage banking. The Bank sold the origination portion
of its mortgage banking division in November 1993 to Republic Bancorp of Ann
Arbor Michigan. This division had been established in February of 1988. The
purpose of this division was to underwrite residential mortgages and
subsequently sell them into the secondary market. Mortgages were originated on
both a servicing retained and servicing released basis.
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Substantially all the loans originated by this division were presold to
institutional investors or government agencies and are only originated subject
to this forward commitment.
The Bank retained the mortgage servicing portfolio after the sale of
the division, although it retained the former division to service the loans.
At December 31, 1995 substantially all of the mortgage loan servicing portfolio
had been sold. See Management's Discussion and Analysis for further
amplification on operating contributions of this division and the effect of the
sale.
Entertainment Division
The Bank's entertainment division, based in its West Los Angeles
Regional Office, is designed specifically to serve the needs of accountants and
business managers serving artists and other entertainment industry related
companies and individuals, while providing a more diverse source of deposits
for the Bank as a whole.
Customers and Business Concentration
The Bank believes that there is no single customer whose loss would
have a material adverse effect on the Bank. At year end 1995, the Bank
obtained approximately 7.2% of its deposits from companies associated with the
real estate business, primarily title and escrow companies. While this
appears to be a significant deposit concentration, because these deposits are
attributable to a large number of companies in a diverse market (from small
single family homes to larger projects), the Bank does not believe there is a
problematical concentration in any one industry. To account for seasonal and
economic variations in this industry, the Bank has taken a number of steps to
insure liquidity. Regarding business concentrations in both lending and
deposit activities, see Management's Discussion and Analysis.
Competition
The Company does not conduct any business unrelated to the business of
the Bank and thus is affected by competition only in the Banking industry.
The Bank's primary commercial banking market area consists of the area
encompassed in an approximately sixty mile radius from the downtown Los Angeles
area, including much of Ventura County, the San Fernando Valley, Beverly Hills,
West Los Angeles, the San Gabriel Valley, the South Bay area and metropolitan
areas of the City and County of Los Angeles. The Bank also serves Orange
County.
The banking and financial services business in California generally,
and in the Bank's market areas specifically, is highly competitive. The
increasingly competitive environment is a result primarily of changes in
regulation, changes in technology and product delivery systems, and the
accelerating pace of consolidation among financial services providers. The
Bank competes for loans and deposits and customers for financial services with
other commercial banks, savings and loan associations, securities and brokerage
companies, mortgage companies, insurance companies, finance companies, money
market funds, credit unions and other nonbank financial service providers.
Many of these competitors are much larger in total assets and capitalization,
have greater access to capital markets and offer a broader array of financial
services than the Bank. In order to compete with the other financial services
providers, the Bank principally relies upon local promotional activities,
personal relationships established by officers, directors and employees with
its customers, and specialized services tailored to meet its customers' needs.
In those instances where the Bank is unable to accommodate a customer's needs,
the Bank will arrange for those services to be provided by its correspondents.
To compete with major financial institutions, the Bank relies upon
specialized services, responsive handling of customer needs, local promotional
activity, and personal contacts by its officers, directors, and staff, as
opposed to large multi-branch banks which compete primarily by rate and
location of branches.
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For customers whose loan demands exceed the Bank's lending limit, the Bank
seeks to arrange for such loans on a participation basis with correspondent
banks.
In the past, an independent bank's principal competitors for deposits
and loans have been other banks (particularly major banks), savings and loan
associations, and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies, and insurance
companies. In the past several years, the trend has been for other financial
intermediaries to offer financial services traditionally offered by banks.
Other institutions, such as brokerage houses, credit card companies, and even
retail establishments, have offered new investment vehicles such as
money-market funds or cash advances on credit card accounts. This led to
increased cost of funds for most financial institutions. Even within the
Banking industry, the trend has been towards offering more varied services,
such as discount brokerage, often through affiliate relationships. The
direction of federal legislation seems to favor and foster competition between
different types of financial institutions and to encourage new entrants into
the financial services market. However, it is not possible to forecast the
impact such developments will have on commercial banking in general, or on the
Bank in particular.
Effect of Governmental Policies and Recent Legislation
Banking is a business that depends on rate differentials. In general,
the difference between the interest rate paid by the Bank on its deposits and
its other borrowings and the interest rate received by the Bank on loans
extended to its customers and securities held in the Bank's portfolio comprise
the major portion of the Company's earnings. These rates are highly sensitive
to many factors that are beyond the control of the Bank. Accordingly, the
earnings and growth of the Company are subject to the influence of domestic and
foreign economic conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by general
economic conditions but is also influenced by the monetary and fiscal policies
of the federal government and the policies of regulatory agencies, particularly
the Federal Reserve Board. The Federal Reserve Board implements national
monetary policies (with objectives such as curbing inflation and combating
recession) by its open-market operations in United States Government
securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements and by varying the discount
rates applicable to borrowings by depository institutions. The actions of the
Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other
financial institutions are frequently made in Congress, in the California
legislature and before various bank regulatory and other professional agencies.
The likelihood of any major legislative changes and the impact such changes
might have on the Company are impossible to predict. See "Item 1. Business -
Supervision and Regulation."
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain
laws which relate to the regulation of the Company and the Bank. The
description does not purport to be complete and is qualified in its entirety by
reference to the applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA").
The Company is required to file with the Federal
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Reserve Board quarterly and annual reports and such additional information as
the Federal Reserve Board may require pursuant to the BHCA. The Federal
Reserve Board may conduct examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, the Company
must file written notice and obtain approval from the Federal Reserve Board
prior to purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a
bank holding company and its nonbanking subsidiaries are prohibited from
requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, the
Company is required by the Federal Reserve Board to maintain certain levels of
capital. See "Item 1. Business - Supervision and Regulation - Capital
Standards."
The Company is required to obtain the prior approval of the Federal
Reserve Board for the acquisition of more than 5% of the outstanding shares of
any class of voting securities or substantially all of the assets of any bank
or bank holding company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company and another bank
holding company.
The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company, subject to the prior
approval of the Federal Reserve Board, may engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making any such determination, the Federal Reserve
Board is required to consider whether the performance of such activities by the
Company or an affiliate can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to
differentiate between activities commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern.
The FRB has determined, by regulation, that certain activities are so
closely related to banking as to be a proper incident thereto within the
meaning of the BHC Act. These activities include, but are not limited to:
opening an industrial loan company, industrial bank, Morris Plan Bank, mortgage
company, finance company, credit card company, or factoring company; performing
certain data processing operations; providing investment and financial advice;
operation as a trust company in certain instances; selling traveler's checks,
U.S. Savings Bonds, and certain money orders; providing certain courier
services; providing real estate appraisals; providing management consulting
advice to non affiliated depository institutions in some instances; acting as
an insurance agent for certain types of credit related insurance; leasing
property or acting as agent, broker, or advisor for leasing property on a "full
payout basis"; acting as a consumer financial counselor, including tax planning
and return preparation; performing futures, options, and advisory services,
check guarantee services and discount brokerage activities; operating a
collection or credit bureau; or performing personal property appraisals.
Recent amendments to this list allow bank holding companies to own
savings associations, arrange commercial real estate equity financing, engage
in certain securities brokerage activities, underwrite and deal in government
obligations and money market instruments, conduct foreign exchange advisory and
transactional services, act as a futures commission merchant, provide
investment advice on financial futures
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and options on futures, provide consumer financial counseling, provide tax
planning and preparation, operate a check guarantee service, operate a
collection agency, and operate a credit bureau. The Company has no present
intention to engage in any of such newly permitted activities.
The FRB has determined that certain other activities are not so
closely related to banking as to be a proper incident thereto within the
meaning of the BHC Act. Such activities include: real estate brokerage and
syndication; real estate development; property management; underwriting of life
insurance not related to credit transactions; and, with certain exceptions
previously noted, securities underwriting and equity funding. The area of
securities underwriting is under review and will likely be expanded. In the
future, the FRB may add or delete from the list of activities permissible for
bank holding companies.
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving
as a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both. This doctrine has become known as the
"source of strength" doctrine. Although the United States Court of Appeals for
the Fifth Circuit found the Federal Reserve Board's source of strength doctrine
invalid in 1990, stating that the Federal Reserve Board had no authority to
assert the doctrine under the BHCA, the decision, which is not binding on
federal courts outside the Fifth Circuit, was recently reversed by the United
States Supreme Court on procedural grounds. The validity of the source of
strength doctrine is likely to continue to be the subject of litigation until
definitively resolved by the courts or by Congress.
The Company is also a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such, the Company and its
subsidiaries are subject to examination by, and may be required to file reports
with, the California State Banking Department.
Finally, the Company is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended, including but not limited
to, filing annual, quarterly and other current reports with the Securities and
Exchange Commission.
The Bank
The Bank, as a national banking association, is subject to primary
supervision, examination and regulation by the Comptroller of the Currency (the
"Comptroller"). If, as a result of an examination of a Bank, the Comptroller
should determine that the financial condition, capital resources, asset
quality, earnings prospects, management, liquidity or other aspects of the
Bank's operations are unsatisfactory or that the Bank or its management is
violating or has violated any law or regulation, various remedies are available
to the Comptroller. Such remedies include the power to enjoin "unsafe or
unsound practices," to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order that
can be judicially enforced, to direct an increase in capital, to restrict the
growth of the Bank, to assess civil monetary penalties, and to remove officers
and directors. The FDIC has similar enforcement authority, in addition to its
authority to terminate a Bank's deposit insurance in the absence of action by
the Comptroller and upon a finding that a Bank is in an unsafe or unsound
condition, is engaging in unsafe or unsound activities, or that its conduct
poses a risk to the deposit insurance fund or may prejudice the interest of its
depositors. The Bank is not currently subject to any such actions by the
Comptroller or the FDIC.
The deposits of the Bank are insured by the FDIC in the manner and to
the extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. See "Item 1. Business - Supervision and Regulation
Premiums for Deposit Insurance." The Bank is also subject to certain
regulations of the
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Federal Reserve Board and applicable provisions of California law, insofar as
they do not conflict with or are not preempted by federal banking law.
Various other requirements and restrictions under the laws of the
United States and the State of California affect the operations of the Bank.
Federal and California statutes and regulations relate to many aspects of the
Bank's operations, including reserves against deposits, interest rates payable
on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices, capital requirements and disclosure
obligations to depositors and borrowers. Further, the Bank is required to
maintain certain levels of capital. See "Item 1. Business - Supervision and
Regulation - Capital Standards."
Restrictions on Transfers of Funds to the Company by the Bank
The Company is a legal entity separate and distinct from the Bank.
The Company's ability to pay cash dividends is limited by state law.
There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Bank. The prior approval of
the Comptroller is required if the total of all dividends declared by a
national bank in any calendar year exceeds the bank's net profits (as defined)
for that year combined with its retained net profits (as defined) for the
preceding two years, less any transfers to surplus.
The Comptroller also has authority to prohibit the Bank from engaging
in activities that, in the Comptroller's opinion, constitute unsafe or unsound
practices in conducting its business. It is possible, depending upon the
financial condition of the bank in question and other factors, that the
Comptroller could assert that the payment of dividends or other payments might,
under some circumstances, be such an unsafe or unsound practice. Further, the
Comptroller and the Federal Reserve Board have established guidelines with
respect to the maintenance of appropriate levels of capital by banks or bank
holding companies under their jurisdiction. Compliance with the standards set
forth in such guidelines and the restrictions that are or may be imposed under
the prompt corrective action provisions of federal law could limit the amount
of dividends which the Bank or the Company may pay. The Superintendent may
impose similar limitations on the conduct of California-chartered banks. See
"Item 1. Business - Supervision and Regulation - Prompt Corrective Regulatory
Action and Other Enforcement Mechanisms" and - "Capital Standards" for a
discussion of these additional restrictions on capital distributions.
At present, substantially all of the Company's revenues, including
funds available for the payment of dividends and other operating expenses, is,
and will continue to be, primarily dividends paid by the Bank and exercise of
options and warrants to purchase shares of the Company.
The Bank is subject to certain restrictions imposed by federal law on
any extensions of credit to, or the issuance of a guarantee or letter of credit
on behalf of, the Company or other affiliates, the purchase of or investments
in stock or other securities thereof, the taking of such securities as
collateral for loans and the purchase of assets of the Company or other
affiliates. Such restrictions prevent the Company and such other affiliates
from borrowing from the Bank unless the loans are secured by marketable
obligations of designated amounts. Further, such secured loans and investments
by the Bank to or in the Company or to or in any other affiliate is limited to
10% of the Bank's capital and surplus (as defined by federal regulations) and
such secured loans and investments are limited, in the aggregate, to 20% of the
Bank's capital and surplus (as defined by federal regulations). Additional
restrictions on transactions with affiliates may be imposed on the Bank under
the prompt corrective action provisions of federal law. See "Item 1. Business
- - Supervision and Regulation - Prompt Corrective Action and Other Enforcement
Mechanisms."
Capital Standards
The Federal Reserve Board, the Comptroller and the FDIC have adopted
risk-based minimum capital guidelines intended to provide a measure of capital
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets and
11
<PAGE> 12
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which includes off balance sheet
items, against both total qualifying capital (the sum of Tier 1 capital and
limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
primarily of common stock, retained earnings, noncumulative perpetual preferred
stock (cumulative perpetual preferred stock for bank holding companies) and
minority interests in certain subsidiaries, less most intangible assets. Tier
2 capital may consist of a limited amount of the allowance for possible loan
and lease losses, cumulative preferred stock, long term preferred stock,
eligible term subordinated debt and certain other instruments with some
characteristics of equity. The inclusion of elements of Tier 2 capital is
subject to certain other requirements and limitations of the federal banking
agencies. The federal banking agencies require a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1
capital to risk-adjusted assets of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the
minimum leverage ratio must be at least 100 to 200 basis points above the 3%
minimum, or 4% to 5%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates on
the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed
would be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency. Because this proposal has only recently been issued,
the Bank currently is unable to predict the impact of the proposal on the Bank
if the policy statement is adopted as proposed.
In January 1995, the federal banking agencies issued a final rule
relating to capital standards and the risks arising from the concentration of
credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The
federal banking agencies have not imposed any quantitative assessment for
determining when these risks are significant, but have identified these issues
as important factors they will review in assessing an individual bank's capital
adequacy.
In December 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among other
things, establishes certain benchmark ratios of loan loss reserves to
classified assets. The benchmark set forth by such policy statement is the sum
of (a) assets classified loss; (b) 50 percent of assets classified doubtful;
(c) 15 percent of assets classified substandard; and (d) estimated credit
losses on other assets over the upcoming 12 months.
12
<PAGE> 13
Federally supervised banks and savings associations are currently
required to report deferred tax assets in accordance with SFAS No. 109. See
"Item 1. Business -- Supervision and Regulation -- Accounting Changes." The
federal banking agencies recently issued final rules, effective April 1, 1995,
which limit the amount of deferred tax assets that are allowable in computing
an institution's regulatory capital. The standard has been in effect on an
interim basis since March 1993. Deferred tax assets that can be realized for
taxes paid in prior carryback years and from future reversals of existing
taxable temporary differences are generally not limited. Deferred tax assets
that can only be realized through future taxable earnings are limited for
regulatory capital purposes to the lesser of (i) the amount that can be
realized within one year of the quarter-end report date, or (ii) 10% of Tier 1
Capital. The amount of any deferred tax in excess of this limit would be
excluded from Tier 1 Capital and total assets and regulatory capital
calculations.
Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of the Bank to grow and could restrict the amount of
profits, if any, available for the payment of dividends. The banking agencies
have issued a final rule which requires them to revise their risk based capital
guidelines to ensure that their standards take adequate account of interest
rate risk ("IRR"). These amendments to risk-based capital guidelines had not
been finalized for banks as of December 31, 1995.
The following table presents the amounts of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Minimum
Capital
Requirement Actual Ratio
----------- ------ -----
<S> <C> <C>
Leverage ratio 10.52% 4.0%
Tier 1 risk-based ratio 14.92 4.0
Total risk-based ratio 16.19 8.0
</TABLE>
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt
corrective action to resolve the problems of insured depository institutions,
including but not limited to those that fall below one or more prescribed
minimum capital ratios. The law required each federal banking agency to
promulgate regulations defining the following five categories in which an
insured depository institution will be placed, based on the level of its
capital ratios: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
13
<PAGE> 14
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal
law. An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:
<TABLE>
<S> <C>
"Well capitalized" "Adequately capitalized"
------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4% (3% if
the institution receives the
highest rating from its
primary regulator)
"Undercapitalized" "Significantly undercapitalized"
------------------ --------------------------------
Total risk-based capital less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 4% (3% if the Leverage ratio less than 3%.
institution receives the highest rating
from its primary regulator)
"Critically undercapitalized"
-----------------------------
Tangible equity to total assets less than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or "undercapitalized" may be
treated as though it were in the next lower capital category if the appropriate
federal banking agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured
depository institution is subject to more restrictions. The federal banking
agencies, however, may not treat an institution as "critically
undercapitalized" unless its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot
accept a capital plan unless, among other things, it determines that the plan
(i) specifies the steps the institution will take to become adequately
capitalized, (ii) is based on realistic assumptions and (iii) is likely to
succeed in restoring the depository institution's capital. In addition, each
company controlling an undercapitalized depository institution must guarantee
that the institution will comply with the capital plan until the depository
institution has been adequately capitalized on an average basis during each of
four consecutive calendar quarters and must otherwise provide adequate
assurances of performance. The aggregate liability of such guarantee is
limited to the lesser of (a) an amount equal to 5% of the depository
institution's total assets at the time the institution became undercapitalized
or (b) the amount which is necessary to bring the institution into compliance
with all capital standards applicable to such institution as of the time the
institution fails to comply with its capital restoration plan. Finally, the
appropriate federal banking agency may impose any of the additional
restrictions or sanctions that it may impose on significantly undercapitalized
institutions if it determines that such action will further the purpose of the
prompt correction action provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or in a material
respect to implement, an acceptable capital restoration plan, is
14
<PAGE> 15
subject to additional restrictions and sanctions. These include, among other
things: (i) a forced sale of voting shares to raise capital or, if grounds
exist for appointment of a receiver or conservator, a forced merger; (ii)
restrictions on transactions with affiliates; (iii) further limitations on
interest rates paid on deposits; (iv) further restrictions on growth or
required shrinkage; (v) modification or termination of specified activities;
(vi) replacement of directors or senior executive officers; (vii) prohibitions
on the receipt of deposits from correspondent institutions; (viii) restrictions
on capital distributions by the holding companies of such institutions; (ix)
required divestiture of subsidiaries by the institution; or (x) other
restrictions as determined by the appropriate federal banking agency. Although
the appropriate federal banking agency has discretion to determine which of the
foregoing restrictions or sanctions it will seek to impose, it is required to
force a sale of voting shares or merger, impose restrictions on affiliate
transactions and impose restrictions on rates paid on deposits unless it
determines that such actions would not further the purpose of the prompt
corrective action provisions. In addition, without the prior written approval
of the appropriate federal banking agency, a significantly undercapitalized
institution may not pay any bonus to its senior executive officers or provide
compensation to any of them at a rate that exceeds such officer's average rate
of base compensation during the 12 calendar months preceding the month in which
the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on
insured depository institutions that are critically undercapitalized. For
example, a critically undercapitalized institution generally would be
prohibited from engaging in any material transaction other than in the ordinary
course of business without prior regulatory approval and could not, with
certain exceptions, make any payment of principal or interest on its
subordinated debt beginning 60 days after becoming critically undercapitalized.
Most importantly, however, except under limited circumstances, the appropriate
federal banking agency, not later than 90 days after an insured depository
institution becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
shareholders or creditors for consenting in good faith to the appointment of a
receiver or conservator or to an acquisition or merger as required by the
regulator.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices
in conducting their businesses or for violations of any law, rule, regulation
or any condition imposed in writing by the agency or any written agreement with
the agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
Safety and Soundness Standards
In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA. The
guidelines set forth operational and managerial standards relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation,
fees and benefits. Guidelines for asset quality and earnings standards will be
adopted in the future. The guidelines establish the safety and soundness
standards that the agencies will use to identify and address problems at
insured depository institutions before capital becomes impaired. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an
accepted plan may result in enforcement action.
15
<PAGE> 16
In December 1992, the federal banking agencies issued final
regulations prescribing uniform guidelines for real estate lending. The
regulations, which became effective on March 19, 1993, require insured
depository institutions to adopt written policies establishing standards,
consistent with such guidelines, for extensions of credit secured by real
estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory limits
prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan
or investment, including mortgage-backed securities.
Premiums for Deposit Insurance
Federal law has established several mechanisms to increase funds to
protect deposits insured by the Bank Insurance Fund ("BIF") administered by the
FDIC. The FDIC is authorized to borrow up to $30 billion from the United
States Treasury; up to 90% of the fair market value of assets of institutions
acquired by the FDIC as receiver from the Federal Financing Bank; and from
depository institutions that are members of the BIF. Any borrowings not repaid
by asset sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The result of these provisions is that the assessment rate
on deposits of BIF members could increase in the future. The FDIC also has
authority to impose special assessments against insured deposits.
The FDIC implemented a final risk-based assessment system, as required
by FDICIA, effective January 1, 1994, under which an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," 1.25%, the
total amount raised from BIF members by the risk-based assessment system may
not be less than the amount that would be raised if the assessment rate for all
BIF members were .023% of deposits. On August 8, 1995, the FDIC announced that
the designated reserve ratio had been achieved and, accordingly, issued final
regulations adopting an assessment rate schedule for BIF members of 4 to 31
basis points effective on June 1, 1995. On November 14, 1995, the FDIC further
reduced deposit insurance premiums to a range of 0 to 27 basis points effective
for the semi-annual period beginning January 1, 1996.
16
<PAGE> 17
Under the risk-based assessment system, a BIF member institution such
as the Bank is categorized into one of three capital categories (well
capitalized, adequately capitalized, and undercapitalized) and one of three
categories based on supervisory evaluations by its primary federal regulator
(in the Bank's case, the Comptroller). The three supervisory categories are:
financially sound with only a few minor weaknesses (Group A), demonstrates
weaknesses that could result in significant deterioration (Group B), and poses
a substantial probability of loss (Group C). The capital ratios used by the
Comptroller to define well-capitalized, adequately capitalized and
undercapitalized are the same in the Comptroller's prompt corrective action
regulations. The BIF assessment rates are summarized below; assessment figures
are expressed in terms of cents per $100 in deposits.
Assessment Rates Effective Through the First Half of 1995
<TABLE>
<CAPTION>
Group A Group B Group C
-------------------------------------
<S> <C> <C> <C>
Well Capitalized . . . . . . . . . . . . 23 26 29
Adequately Capitalized . . . . . . . . . 26 29 30
Undercapitalized . . . . . . . . . . . . 29 30 31
</TABLE>
Assessment Rates Effective through the Second Half of 1995
<TABLE>
<CAPTION>
Group A Group B Group C
-------------------------------------
<S> <C> <C> <C>
Well Capitalized . . . . . . . . . . . . 4 7 21
Adequately Capitalized . . . . . . . . . 7 14 28
Undercapitalized . . . . . . . . . . . . 14 28 31
</TABLE>
Assessment Rates Effective January 1, 1996
<TABLE>
<CAPTION>
Group A Group B Group C
-------------------------------------
<S> <C> <C> <C>
Well Capitalized . . . . . . . . . . . . 0* 3 17
Adequately Capitalized . . . . . . . . . 3 10 24
Undercapitalized . . . . . . . . . . . . 10 24 27
</TABLE>
*Subject to a statutory minimum assessment of $1,000 per semi-annual
period (which also applies to all other assessment risk
classifications).
At December 31, 1995, the Bank was well capitalized (Group A).
A number of proposals have recently been introduced in Congress to
address the disparity in bank and thrift deposit insurance premiums. On
September 19, 1995, legislation was introduced and referred to the House
Banking Committee that would, among other things: (i) impose a requirement on
all SAIF member institutions to fully recapitalize the SAIF by paying a
one-time special assessment of approximately 85 basis points on all assessable
deposits as of March 31, 1995, which assessment would be due as of January 1,
1996; (ii) spread the responsibility for FICO interest payments across all
FDIC-insured institutions on a pro-rata basis, subject to certain exceptions;
(iii) require that deposit insurance premium assessment rates applicable to
SAIF member institutions be no less than deposit insurance premium assessment
rates applicable to BIF member institutions; (iv) provide for a merger of the
BIF and the SAIF as of January 1, 1998; (v) require savings associations to
convert to state or national bank charters by January 1, 1998; (vi) require
savings associations to divest any activities not permissible for commercial
banks within five years; (vii) eliminate the bad-debt reserve deduction for
17
<PAGE> 18
savings associations, although savings associations would not be required to
recapture into income their accumulated bad-debt reserves; (viii) provide for
the conversion of savings and loan holding companies into bank holding
companies as of January 1, 1998, although unitary savings and loan holding
companies authorized to engage in activities as of September 13, 1995 would
have such authority grandfathered (subject to certain limitations); and (ix)
abolish the OTS and transfer the OTS' regulatory authority to the other federal
banking agencies. The legislation would also provide that any savings
association that would become undercapitalized under the prompt corrective
action regulations as a result of the special deposit premium assessment could
be exempted from payment of the assessment, provided that the institution would
continue to be subject to the payment of semiannual assessments under the
current rate schedule following the recapitalization of the SAIF. The
legislation was considered and passed by the House Banking Committee's
Subcommittee on Financial Institutions on September 27, 1995, and has not yet
been acted on by the full House Banking Committee.
On September 20, 1995, similar legislation was introduced in the
Senate, although the Senate bill does not include a comprehensive approach for
merging the savings association and commercial bank charters. The Senate bill
remains pending before the Senate Banking Committee.
The future of both these bills is linked with that of pending budget
reconciliation legislation since some of the major features of the bills are
included in the Seven-Year Balanced Budget Reconciliation Act. The budget
bill, which was passed by both the House and Senate on November 17, 1995 and
vetoed by the President on December 6, 1995, would: (i) recapitalize the SAIF
through a special assessment of between 70 and 80 basis points on deposits held
by institutions as of March 31, 1995; (ii) provide an exemption to this rule
for weak institutions, and a 20% reduction in the SAIF-assessable deposits of
so-called "Oakar banks;" (iii) expand the assessment base for FICO payments to
include all FDIC-insured institutions; (iv) merge the BIF and SAIF on January
1, 1998, only if no insured depository institution is a savings association on
that date; (v) establish a special reserve for the SAIF on January 1, 1998; and
(vi) prohibit the FDIC from setting semiannual assessments in excess of the
amount needed to maintain the reserve ratio of any fund at the designated
reserve ratio. The bill does not include a provision to merge the charters of
savings associations and commercial banks.
In light of ongoing debate over the content and fate of the budget
bill, the different proposals currently under consideration and the uncertainty
of the Congressional budget and legislative processes in general, management
cannot predict whether any or all of the proposed legislation will be passed,
or in what form. Accordingly, the effect of any such legislation on the Bank
cannot be determined.
Interstate Banking and Branching
In September 1994, the Riegel-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate
Act, beginning one year after the date of enactment, a bank holding company
that is adequately capitalized and managed may obtain approval under the BHCA
to acquire an existing bank located in another state without regard to state
law. A bank holding company would not be permitted to make such an acquisition
if, upon consummation, it would control (a) more than 10% of the total amount
of deposits of insured depository institutions in the United States or (b) 30%
or more of the deposits in the state in which the bank is located. A state may
limit the percentage of total deposits that may be held in that state by any
one bank or bank holding company if application of such limitation does not
discriminate against out-of-state banks. An out-of-state bank holding company
may not acquire a state bank in existence for less than a minimum length of
time that may be prescribed by state law except that a state may not impose
more than a five year existence requirement.
18
<PAGE> 19
The Interstate Act also permits, beginning June 1, 1997, mergers of
insured banks located in different states and conversion of the branches of the
acquired bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the
laws of that state, subject to the same requirements and conditions as for a
merger transaction.
In October 1995, California adopted "opt in" legislation under the
Interstate Act that permits out-of-state banks to acquire California banks that
satisfy a five-year minimum age requirement (subject to exceptions for
supervisory transactions) by means of merger or purchases of assets, although
entry through acquisition of individual branches of California institutions and
de novo branching into California are not permitted. The Interstate Act and
the California branching statute will likely increase competition from
out-of-state banks in the markets in which the Company operates, although it is
difficult to assess the impact that such increased competition may have on the
Company's operations.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. The Bank's compliance with CRA is monitored by the
Comptroller, which assigns the Bank a publicly available CRA rating. An
assessment of CRA compliance is required by both the Comptroller and the
Federal Reserve Board in connection with applications for approval of certain
activities such as mergers with or acquisitions of other banks or bank holding
companies. In April of 1995, the federal regulatory agencies issued a
comprehensive revision to the rules governing CRA compliance. In assigning a
CRA rating to a bank, the new regulations place greater emphasis on
measurements of performance in the areas of lending (specifically the bank's
home mortgage, small business, small farm and community development loans),
investment (the bank's community development investments) and service (the
bank's community development services and the availability of its retail
banking services), although examiners are still given a degree of flexibility
in taking into account unique characteristics and needs of the bank's community
and its capacity and constraints in meeting such needs. The new regulations
also require increased collection and reporting of data regarding certain kinds
of loans. Although the new regulations became generally effective on July 1,
1995, various provisions have different effective dates, and the new CRA
evaluation criteria will go into effect for examinations beginning on July 1,
1997. Although management cannot predict the impact of the substantial changes
in the new rules on the Bank's CRA rating, it will continue to take steps to
comply with the requirements in all respects.
In addition to substantial penalties and corrective measures that may
be required for a violation of certain fair lending laws, the federal banking
agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. The Comptroller has rated the
Bank "satisfactory" in complying with its CRA obligations.
In May 1995, the federal banking agencies issued final regulations
which change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements. In March 1994, the Federal Interagency Task Force on
Fair Lending issued a policy statement on discrimination in lending. The
policy statement describes the three methods that federal agencies will
19
<PAGE> 20
use to prove discrimination: overt evidence of discrimination, evidence of
disparate treatment and evidence of disparate impact.
Accounting Changes
In February 1992, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 109, "Accounting for Income Taxes," which superseded SFAS No.
96 of the same title. SFAS No. 109, which was adopted by the Company effective
January 1, 1993, employs an asset and liability approach in accounting for
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted tax laws. Adoption by the Company of
SFAS No. 109 did not have a material impact on the Company's results of
operations.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan". SFAS No. 114 prescribes the recognition criterion
for loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled debt restructurings. SFAS No. 114
states that a loan is impaired when it is probable that a creditor will be
unable to collect all principal and interest amounts due according to the
contracted terms of the loan agreement. A creditor is required to measure
impairment by discounting expected future cash flows at the loan's effective
interest rate, or by reference to an observable market price, or by determining
that foreclosure is probable. SFAS No. 114 also clarifies the existing
accounting for in-substance foreclosures by stating that a collateral-dependent
real estate loan would be reported as real estate owned only if the lender had
taken possession of collateral.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. To accomplish
that it eliminated the provisions in SFAS No. 114 that described how a creditor
should report income on an impaired loan. SFAS No. 118 did not change the
provisions in SFAS No. 114 that require a creditor to measure impairment based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the observable market
price of the loan or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends the disclosure requirements in SFAS No. 114 to
require information about the recorded investments in certain impaired loans
and about how a creditor recognizes interest income related to those impaired
loans. The Company adopted SFAS No. 114 and No. 118 as of January 1, 1995.
The Bank had previously measured the allowance for loan losses using methods
similar to that prescribed in SFAS 114. As a result, no additional provision
was required by the adoption of this pronouncement.
In December 1990, FASB issued SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions" effective for fiscal years
beginning after December 15, 1992. In November 1992, FASB issued Statement of
Financial Standards No. 112, "Employers' Accounting For Post-Employment
Benefits," effective for fiscal years beginning after December 15, 1993. SFAS
No. 106 and SFAS No. 112 focus primarily on post-retirement health care
benefits. The Company does not provide post-retirement benefits, and SFAS No.
106 and SFAS No. 112 will have no impact on net income in 1996.
In May 1993, the FASB issued SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" addressing the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. These investments
would be classified in three categories and accounted for as follows: (i) debt
and equity securities that the entity has the positive intent and ability to
hold to maturity would be classified as "held to maturity" and reported at
amortized cost; (ii) debt and equity securities that are held for current
resale would be classified as trading securities and reported at fair value,
with unrealized gains and losses included in operations; and (iii) debt and
equity securities not classified as either securities
20
<PAGE> 21
held to maturity or trading securities would be classified as securities
available for sale, and reported at fair value, with unrealized gains and
losses excluded from operations and reported as a separate component of
shareholders' equity. The Company adopted SFAS No. 115 in 1993. The adoption
of SFAS 115 did not have a material impact on the financial position or results
of operations of the Bank.
EMPLOYEES
As of December 31, 1995, the Company had three employees, its
President ,Chief Executive Officer and Chief Financial Officer. At December
31, 1995, the Bank had 115 full-time employees or equivalents. Of these
employees, 11 held titles of senior vice president or above. At December 31,
1995, none of the executive officers of the Bank served pursuant to written
employment agreements. None of the Company's or the Bank's employees are
represented by a labor union. The Company considers its relationship and the
Bank's relationship with each company's respective employees to be excellent.
Item 2. PROPERTIES
The principal offices of the Company are located in a
multi-story office building located at 16030 Ventura Boulevard, Encino,
California 91364 for which it pays a monthly rental of $60,000. The lease
contains a ceiling on cost on living adjustments of 5% per year. The lease is
renewable. The Bank also has certain month to month or short term leases for
offices in West Los Angeles, the South Bay, Ventura and the San Gabriel Valley.
Each of these leases is short term in nature and is not material to the
Company. Management believes that the existing leases will provide for their
space requirements for the foreseeable future, at least until the completion of
the proposed merger with Home Interstate Bancorp.
21
<PAGE> 22
Item 3. LEGAL PROCEEDINGS
In the normal course of business the Bank occasionally becomes
a party to litigation. In the opinion of management, based upon consultation
with legal counsel, pending or threatened litigation involving the Bank will
have no adverse material effect upon its financial condition, or results of
operations. For further information, see Note 15 to the Consolidated Financial
Statements of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were presented for a vote of shareholders during
fourth quarter 1995.
Item 4(A). EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are brief summaries of the background and business experience
of each of the directors and executive officers of the Company and the Bank as
of December 31, 1995:
<TABLE>
<CAPTION>
POSITION AND POSITION AND DIRECTOR OF
------------ ------------ -----------
OFFICE WITH CU OFFICE WITH THE COMPANY AND BANK
-------------- --------------- ----------------
NAME AGE BANCORP BANK SINCE:
---- --- ------- ---- ------
<S> <C> <C> <C> <C>
Kenneth L. Bernstein 53 Director Director 1994
Stephen G. Carpenter 56 Chairman, Chief Chairman, Chief 1992
Executive Officer Executive Officer
Richard H. Close 51 Director, Director, 1981
Secretary Secretary
Paul W. Glass 50 Director Director 1984
Ronald S. Parker 51 Director Director 1993
David I. Rainer 39 Director, Director, 1992
President, Chief President, Chief
Operating Officer Operating Officer
</TABLE>
None of the directors or officers of CU Bancorp or CU Bank were
selected pursuant to any arrangement or understanding other than with the
directors and officers of CU Bancorp and CU Bank acting in their capacities as
such. There are no family relationships between any two or more of the
directors, or officers.
Set forth below are brief summaries of the background and business
experience, including principal occupation, of the directors.
KENNETH L. BERNSTEIN, was elected to the Board of CU Bancorp and CU
Bank in December 1993, and assumed the positions in February 1994. He is the
President of BFC Financial Corporation and has served in such capacity since
1965. BFC Financial Corporation performs a variety of service for both the
finance industry and clients of that industry.
22
<PAGE> 23
STEPHEN G. CARPENTER, joined CU Bank in 1992 from Security Pacific
National Bank where he was Vice Chairman in charge of middle market lending
from July 1989 to June 1992. Mr. Carpenter was previously employed at Wells
Fargo Bank from July 1980 to July 1989, where he was an Executive Vice
President. He assumed the additional role of Chairman of CU Bank in February,
1994 and Chairman of CU Bancorp in 1995.
RICHARD H. CLOSE has been a principal in the law firm of Shapiro,
Rosenfeld & Close, a Professional Corporation, in Los Angeles, California,
since 1977.
PAUL W. GLASS is a certified public accountant and has been a
principal in the accountancy firm of Glass & Rosen, in Encino, California,
since 1980.
RONALD S. PARKER has been the Chairman of Parker, Mulcahy &
Associates, a regional merchant banking firm, since May 1992. Prior to that he
was the Executive Vice President and Group Head of the Corporate Banking Group
of Security Pacific National Bank from March of 1991 to May of 1992. He held a
similar position at Wells Fargo National Bank from 1984 to 1991. Mr. Parker
resigned from the Board in December 1993. He was reappointed in 1994.
DAVID I. RAINER was appointed Executive Vice President of CU Bank in
June 1992 and assumed the position of Chief Operating Officer in late 1992. He
assumed the additional title of President of CU Bank in February, 1994 and
President and Chief Operating Officer of CU Bancorp in 1995. He was elected to
the Board of Directors of CU Bancorp and California United Bank in 1993. From
July 1989 to June 1992, Mr. Rainer was employed by Bank of America (Security
Pacific National Bank) where he held the position of Senior Vice President.
From March 1989 to July 1989, Mr. Rainer was a Senior Vice President at Faucet
& Company, where he co-managed a stock and bond portfolio. From July 1982 to
March 1989, Mr. Rainer was employed by Wells Fargo Bank, where he held the
positions of Vice President and Manager.
No director, officer or affiliate of CU Bancorp or of CU Bank, no
owner of record or beneficially of more than five percent of any class of
voting securities of CU Bancorp or no associate of any such director, officer
or affiliate is a party adverse to CU Bancorp or CU Bank in any material
pending legal proceed
The following are officers of CU Bancorp and the Bank as of December
31, 1995:
<TABLE>
<CAPTION>
POSITION AND POSITION AND
OFFICES WITH THE OFFICES WITH OFFICER
NAME AGE COMPANY THE BANK SINCE
---- --- ------- --------- -----
<S> <C> <C> <C> <C>
STEPHEN G. CARPENTER 56 Director, Chief Chairman, Chief 1992
Executive Officer Executive Officer
DAVID I. RAINER 39 Director, Director, 1992
President, Chief President, Chief
Operating Officer Operating Officer
ANNE WILLIAMS 38 Chief Credit Chief Credit 1992
Officer Officer
PATRICK HARTMAN 46 Chief Financial Chief Financial 1992
Officer Officer
</TABLE>
23
<PAGE> 24
Set forth below are brief summaries of the background and business
experience, including principal occupation, of the executive officers of CU
Bancorp who have not previously been discussed herein.
PATRICK HARTMAN has been employed by CU Bank since November, 1992.
Prior to assuming his present positions he was Senior Vice President/Chief
Financial Officer for Cenfed Bank for a period during 1992. Mr. Hartman held
the post of Senior Vice President/Chief Financial Officer of Community Bank,
Pasadena, California, for thirteen years.
ANNE WILLIAMS joined CU Bank in 1992 as Senior Loan Officer. She was
named to the position of Chief Credit Officer in July 1993. Prior to that time
she spent five years at Bank of America / Security Pacific National Bank, where
she was a credit administrator in asset based lending, for middle market in the
Los Angeles Area. Ms. Williams was trained at Chase Manhattan Bank in New
York, and was a commercial lender at Societe Generale in Los Angeles and Boston
Five Cents Savings Bank where she managed the corporate lending group.
24
<PAGE> 25
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for information relative to the market for
the Company's Common Stock.
Holders of Company's Common Stock
As of the close of business on December 31, 1995 there were 416 record
holders of the Company's issued and outstanding Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
CU BANCORP AND SUBSIDIARY
Amounts in thousands of dollars, except per share data and amounts expressed as
percentages
<TABLE>
<CAPTION>
AS OF THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Securities held to maturity $ 66,735 $ 74,153 $ 88,034 $ 84,724 $ 59,533
Securities available for sale 6,345
Net loans 183,696 167,175 134,148 193,643 273,126
Total earning assets 289,276 261,328 251,559 281,723 429,480
Total assets 325,309 304,154 279,206 353,923 516,762
Total deposits 284,510 264,181 238,928 318,574 473,125
Total shareholders' equity 33,006 29,744 26,990 24,632 32,598
Regulatory risk based capital ratio 16.19% 15.40% 16.71% 12.87% 12.31%
Regulatory capital leverage ratio 10.52% 10.44% 9.16% 6.12% 6.91%
Allowance for loan losses to:
Period end total loans 3.64% 4.25% 4.63% 6.28% 4.33%
Nonperforming loans 677% 20,631% 473% 95% 75%
Nonperforming assets 677% 20,631% 283% 95% 59%
CONSOLIDATED OPERATING RESULTS
Net interest income $ 15,536 $ 13,881 $ 14,431 $ 20,625 $ 25,681
Other operating income 2,065 5,408 26,423 21,499 10,537
Provision for loan losses 0 0 450 17,090 14,267
Operating expenses 12,554 14,735 36,883 37,493 27,843
Net income (loss) 2,894 2,574 2,098 (8,190) (3,637)
Fully diluted income/(loss) per $ .60 $ .56 $ 0.47 $ (1.90) $ (0.83)
common & equivalent share
Net interest margin 5.68% 5.99% 5.86% 6.07% 6.99%
Return on average shareholders' 9.38% 9.12% 8.12% (26.06)% (10.27)%
equity
Return on average assets 0.97% 0.97% 0.69% (1.89)% (0.76)%
Cash dividends per common share $ .08 ----- ----- ----- $ 0.150
</TABLE>
<PAGE> 26
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
The Company earned $2.9 million, or $0.60 per share, during in 1995, compared
to $2.6 million, or $0.56 per share, in 1994 and $2.1 million, or $.47 per
share in 1993. Composition of the earnings has changed substantially in 1995.
Prior to that, a substantial portion of the Bank's earnings had been
attributable to the Mortgage Banking operation, which was sold in November
1993. The Mortgage origination operation contributed about two thirds of the
earnings for 1993, and approximately 56% of the earnings in 1994 were
attributable to a gain on the sale of mortgage servicing rights retained when
the origination operation was sold. Since then, the earnings of the core
commercial bank have grown steadily as the mortgage related income has been
eliminated. For the year ended December 31, 1995, income related to sales of
mortgage servicing was less than 8% of the Bank's earnings.
The Bank's asset quality ratios continue to be exceptionally strong. At
December 31, 1995, nonperforming assets were $1 million, compared with $36
thousand in 1994. The Bank did not have any real estate acquired through
foreclosure at December 31, 1995 or December 31, 1994. The Bank's allowance for
loan losses as a percent of both nonperforming loans and nonperforming assets
at December 31, 1995 was 677%, compared to 1994 levels of 20,631%.
Capital ratios are strong, substantially exceeding levels required for the
"well capitalized" category established by bank regulators. The Total
Risk-Based Capital Ratio was 16.19%, the Tier 1 Risk-Based Capital Ratio was
14.92%, and the Leverage Ratio was 10.52% at December 31, 1995, compared to
15.40%, 14.12%, and 10.44%, respectively, at year-end 1994. Regulatory
requirements for Total Risk-Based, Tier 1 Risk-Based, and Leverage capital
ratios are a minimum of 8%, 4%, and 3%, respectively, and for classification as
well capitalized, 10%, 6%, and 5%, respectively.
The Bank's strong capital and asset quality position allows the Bank to
continue to grow its core business which provides relationship based services
to middle market customers and positions the Bank for its acquisition
strategy. During the year ended December 31, 1995, the Bank generated
approximately $135 million in new loan commitments, compared with about $121
million and $101 million for the comparable periods of 1994 and 1993.
The Bank announced actions taken in 1995 and early 1996 that supplement the
Bank's successful internal growth with strategically selected mergers and
acquisitions. In March of 1995, the Bank had announced the signing of an
agreement to acquire Corporate Bank, a Santa Ana based community bank with
approximately $70 million in assets. This purchase was completed in January of
1996. In January 1996, the Bank also announced the signing of an agreement to
merge with Home Interstate Bancorp, the parent of Home Bank, based in the South
Bay. This merger, targeted to be completed near the end of the second quarter
of 1996, would create a combined bank with over $800 million in assets and 22
branches.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO COMPOSITION AND CREDIT RISK
The Bank's loan portfolio at December 31, 1995 has maintained the high
standards of credit quality that have been established as the commercial loan
portfolio has been built over the past three years. Non performing assets have
been reduced to insignificant levels and exposures to real estate have been
greatly reduced to consist primarily of loans secured by real estate made to
the Bank's core middle market customers as a secondary part of their total
business relationship.
Total loans at December 31, 1995 increased by $16 million during the year.
Portfolio growth in the last three quarters of 1995 were partially offset by
the decline of $6 million in the first quarter of 1995. Loan paydowns for the
first quarter were unusually high, with Entertainment related loans declining
$7 million as a number of project related loans paid off, combined with
normal payoffs and seasonality in the commercial portfolio.
26
<PAGE> 27
The Bank's focus on middle market lending, in its infancy at year-end 1992,
gained momentum in 1993 and further accelerated in 1994. Total loans
increased $34 million during 1994. Offsetting this, the remaining Held for
Sale mortgages of $10.4 million at December 31, 1993 were sold in the first
quarter of 1994. Excluding this planned liquidation, loans increased by $44
million, or 34%, for the year ended December 31, 1994.
TABLE 1 LOAN PORTFOLIO COMPOSITION
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & Industrial Loans $164,966 87% $142,885 82% $ 93,549 67% $ 87,999 43% $127,553 45%
Real Estate Loans:
Commercial 20,190 10 26,528 15 28,901 21 35,751 17 38,437 1
Held for Sale 0 0 10,426 7 40,167 19 40,350 14
Mortgages 5,470 3 4,773 3 6,559 5 36,320 18 52,785 19
Construction 0 416 1,226 2,392 1 14,368 5
Term federal funds sold 0 0 0 4,000 2 12,000 4
-------- --- -------- --- -------- --- -------- --- -------- ---
Total loans net of unearned
fees $190,626 100% $174,602 100% $140,661 100% $206,629 100% $285,493 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
TABLE 1A: LOAN PORTFOLIO MATURITIES AT DECEMBER 31, 1995
(in Thousands)
<TABLE>
<CAPTION>
WITHIN AFTER ONE AFTER
ONE BUT WITHIN FIVE
YEAR FIVE YEARS YEARS TOTAL
-------- ---------- ------ --------
<S> <C> <C> <C> <C>
Commercial & Industrial Loans $126,834 $33,029 $5,103 $164,966
Real Estate - Commercial & Mortgage 6,918 15,797 2,945 25,660
-------- ------- ------ --------
Total loans $133,752 $48,826 $8,048 $190,626
======== ======= ====== ========
Loans due after one year with
predetermined interest rates $3,911 $1,464
Loans due after one year with
floating or adjustable rates 44,915 6,584
------- ------
$48,826 $8,048
======= ======
</TABLE>
Table 1a above summarizes the maturities of the loan portfolio based upon the
contractual terms of the loans. The Bank does not automatically rollover any
loans at maturity. Maturing loans must go through the Bank's normal credit
approval process in order to receive a new maturity date.
The Bank lending effort is focused on business lending to middle market
customers. Current credit policy permits commercial real estate lending
generally only as part of a complete commercial banking relationship with a
middle market customer. Commercial real estate loans are secured by first or
second liens on office buildings and other structures. The loans are secured by
real estate that had appraisals in excess of loan amounts at origination.
Monitoring and controlling the Bank's allowance for loan losses is a continuous
process. All loans are assigned a risk grade, as defined by credit policies, at
origination and are monitored to identify changing circumstances that could
modify their inherent risks. These classifications are one of the criteria
considered in determining the adequacy of the allowance for loan losses.
27
<PAGE> 28
The amount and composition of the allowance for loan losses is as follows:
TABLE 2 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Amounts in thousands of dollars
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amounts in thousands of dollars
Commercial & Industrial Loans $6,594 $7,096 $5,699 $11,597 $11,147
Real estate loans - Held for Sale 0 0 67 368 90
Real estate loans - Mortgages 0 0 225 249 28
Real estate loans - Construction 0 0 10 62 100
Other loans 0 0 0 19 0
------ ------- ------ ------- -------
Loans 6,594 7,096 6,001 12,295 11,365
Unfunded commitments and letters of
credit 336 331 512 691 1,002
------ ------ ------ ------- -------
Total Allowance for loan losses $6,930 $7,427 $6,513 $12,986 $12,367
====== ====== ====== ======= =======
</TABLE>
Adequacy of the allowance is determined using management's estimates of the
risk of loss for the portfolio and individual loans. Included in the criteria
used to evaluate credit risk are, wherever appropriate, the borrower's cash
flow, financial condition, management capabilities, and collateral valuations,
as well as industry conditions. A portion of the allowance is established to
address the risk inherent in general loan categories, historic loss experience,
portfolio trends, economic conditions, and other factors. Based on this
assessment a provision for loan losses may be charged against earnings to
maintain the adequacy of the allowance. The allocation of the allowance based
upon the risks by type of loan, as shown in Table 2, implies a degree of
precision that is not possible when using judgments. While the systematic
approach used does consider a variety of segmentations of the portfolio,
management considers the allowance a general reserve available to address risks
throughout the entire loan portfolio.
Activity in the allowance, classified by type of loan, is as follows:
TABLE 3 ANALYSIS OF THE CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at January 1 $7,427 $6,513 $12,986 $12,367 $4,128
----- ----- ------ ------ -----
Loans charged off:
Real estate secured loans 529 486 3,266 4,425 1,220
Commercial loans secured and unsecured loans 543 820 6,582 12,562 5,422
Loans to individuals, installment and other loans 17 107 901 813 258
-- --- --- --- ---
Total charge-offs 1,089 1,413 10,749 17,800 6,900
----- ----- ------ ------ -----
Recoveries of loans previously charged off:
Real estate secured loans 58 586 393 249 15
Commercial loans secured and unsecured 522 1,735 3,189 1,001 819
Loans to individuals, installment and 12 6 244 79 38
-- - --- ---- ----
Total recoveries of loans previously charged off 592 2,327 3,826 1,329 872
--- ----- ----- ----- ----
Net charge-offs 497 (914) 6,923 16,471 6,028
Provision for loan losses 0 0 450 17,090 14,267
-- - --- ------ ------
Balance at December 31 $6,930 $7,427 $6,513 $12,986 $12,367
===== ===== ===== ====== ======
Net loan charge-offs (recoveries) as a percentage
of average gross loans outstanding during the
year ended December 31 .28% (0.61)% 3.49% 6.70% 2.36%
==== ======= ===== ===== =====
</TABLE>
The Bank's policy concerning nonperforming loans is more conservative than is
generally required. It defines nonperforming assets as all loans ninety days
or more delinquent, loans classified nonaccrual, and foreclosed, or in
substance foreclosed real estate. Nonaccrual loans are those whose interest
accrual has been discontinued because the loan has become ninety days or more
past due. In addition, it includes loans where there exists reasonable doubt
as to
28
<PAGE> 29
the full and timely collection of principal or interest. When a loan is placed
on nonaccrual status, all interest previously accrued but uncollected is
reversed against operating results. Subsequent payments on nonaccrual loans are
treated as principal reductions. At December 31, 1995, nonperforming loans
amounted to $1 million compared with $36 thousand at December 31, 1994.
Potential problem loans are defined as loans as to which there are serious
doubts about the ability of the borrowers to comply with present loan repayment
terms. It is the policy of the Bank to place all potential problem loans on
nonaccrual status. At December 31, 1995, therefore, the Bank had no potential
problem loans other than those disclosed in Table 4 as nonperforming loans.
TABLE 4: NONPERFORMING ASSETS
Amounts in thousands of dollars
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans not performing (1) $1,024 $36 $ 378 $ 8,978 $14,955
Insubstance foreclosures 0 0 1,000 4,652 1,512
------ --- ------- ------- -------
Total nonperforming loans 1,024 36 1,378 13,630 16,467
Other real estate owned 0 0 920 0 4,564
------ --- ------- ------- -------
Total nonperforming assets $1,024 $36 $2,298 $13,630 $21,031
====== ==== ====== ======= =======
Allowance for loan losses as a percent of:
Nonperforming loans 677% 20,631% 473% 95% 75%
Nonperforming assets 677 20,631 283 95 59
Nonperforming assets as a percent of total assets 0.3 0 0.8 3.8 4.2
Nonperforming loans as a percent of total loans 0.5 0 1.0 6.6 5.8
Note 1:
Loans not performing $1,024 $36 $ 9 $ 2,895 $4,783
Performing as agreed 0 0 369 1,075 1,531
Partial performance 0 0 0 5,008 8,641
------ --- ------- ------- --------
Not performing $1,024 $36 $ 378 $ 8,978 $14,955
====== === ======= ======= ========
Nonaccrual:
Loans $1,024 $36 $ 378 $ 7,728 $11,357
Troubled debt restructurings 0 0 0 1,250 1,326
Loans past due ninety or more days(a): 0 0 0 0 2,272
</TABLE>
(a) Past due with respect to principal and/or interest and continuing to
accrue interest.
SECURITIES
The Securities Held to Maturity portfolio totaled $67 million at December 31,
1995, compared with $74 million at year-end 1994. In the fourth quarter of
1995, the Bank performed a one-time reassessment of the designations of
securities as held to maturity or available for sale, in accordance with a
special report issued by the Financial Accounting Standards Board on the
subject of investments. As a result of this assessment, $5.9 million of
collateralized mortgage obligations were transferred out of the held to
maturity portfolio into the available for sale portfolio.
The Securities Available for Sale portfolio totaled $6.3 million at December
31, 1995, with no investments being included in this category in 1994.
Included in the December 31, 1995 balance is an unrealized gain of $143
thousand.
There have been no realized gains or losses on securities in 1995 or 1994.
Gains of $77 thousand were realized in 1993. At December 31, 1995, there were
unrealized gains of $623 thousand and losses of $244 thousand in the securities
held to maturity portfolio.
Additional information concerning securities is provided in the footnotes to
the accompanying financial statements.
29
<PAGE> 30
OTHER REAL ESTATE OWNED
There was no Other Real Estate Owned on the Bank's balance sheet at December
31, 1995 and 1994. The Bank's policy is to carry properties acquired in
foreclosure at fair value less estimated selling costs, which is determined
using recent appraisal values adjusted, if necessary, for other market
conditions. Loan balances in excess of fair value are charged to the allowance
for loan losses when the loan is reclassified to other real estate. Subsequent
declines in fair value are charged against a valuation allowance for other real
estate owned, created by charging a provision to other operating expenses.
The Bank has not had any significant expenses related to Other Real Estate
Owned in 1995 or 1994. In 1993, expenses related to Other Real Estate Owned
totaled $234 thousand.
DEPOSIT CONCENTRATION
Prior to 1992, the Bank's focus on real estate-related activities resulted in a
concentration of deposit accounts from title insurance and escrow companies.
As the Bank has changed its focus to commercial lending, the amounts of title
and escrow related deposits has declined for the past three years. These
deposits are generally noninterest bearing transaction accounts that contribute
to the Bank's interest margin. Noninterest expense related to these deposits
is included in other operating expense. The Bank monitors the profitability of
these accounts through an account analysis procedure.
The Bank offers products and services allowing customers to operate with
increased efficiency. A substantial portion of the services, provided through
third party vendors, are automated data processing and accounting for trust
balances maintained on deposit at the Bank. These and other banking related
services, such as deposit courier services, will be limited or charged back to
the customer if the deposit relationship profitability does not meet the Bank's
expectations.
Noninterest bearing deposits represent nearly the entire title and escrow
relationship. These balances have been reduced substantially as the Bank
focused on middle market business loans. The balance at December 31, 1995, was
$20 million compared to $44 million at December 31, 1994. The bank has
greatly reduced their reliance on title and escrow deposits, with these
relationships representing approximately 7% of deposits in 1995, and 17% at
year end 1994.
TABLE 5 REAL ESTATE ESCROW AND TITLE
INSURANCE COMPANY DEPOSITS AMOUNTS IN
THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
AVERAGE BALANCE
YEAR ENDED 12 MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995
----------------- -----------------
PERCENT OF PERCENT PERCENT OF PERCENT
TOTAL OF TOTAL OF
AMOUNT DEPOSITS CLASS AMOUNT DEPOSITS CLASS
-------- --------------- ------ ------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
1995 Balances
Noninterest bearing demand deposits $19,633 6.9% 20.9% $21,747 7.6% 23.1%
Interest-bearing demand & savings deposits 877 .3 .5 1,274 .5 .7
------- --- -------
Total deposit concentration $20,510 7.2% $23,021 8.1%
======= ==== ======= ====
1994 Balances $45,645 17.3% $46,171 19.8%
======= ===== ======= =====
</TABLE>
The Bank had $45 million in certificates of deposit larger than $100 thousand
dollars at December 31, 1995. The maturity distribution of these deposits is
relatively short term, with $31 million maturing within 3 months and $43
million maturing within 12 months.
30
<PAGE> 31
LIQUIDITY AND INTEREST RATE SENSITIVITY
The objective of liquidity management is to ensure the Bank's ability to meet
cash requirements. The liquidity position is managed giving consideration to
both on and off-balance sheet sources and demands for funds.
Sources of liquidity include cash and cash equivalents (net of Federal Reserve
requirements to maintain reserves against deposit liabilities), securities
eligible for pledging to secure borrowings from dealers pursuant to repurchase
agreements, loan repayments, deposits, and borrowings from a $25 million
overnight federal funds line available from a correspondent bank. Potential
significant liquidity requirements are withdrawals from noninterest bearing
demand deposits and funding of commitments to loan customers.
From time to time the Bank may experience liquidity shortfalls ranging from one
to several days. In these instances, the Bank will either purchase federal
funds, and/or sell securities under repurchase agreements. These actions are
intended to bridge mismatches between funding sources and requirements, and are
designed to maintain the minimum required balances. The Bank has had no Fed
Funds purchased or borrowings under repurchase agreements during 1994 or 1995.
During 1994 and 1995, loan growth for the Bank outpaced growth of deposits from
the Banks commercial customers. The Bank funded this growth, combined with the
Bank's reduced concentration in title and escrow deposits, in part with
certificates of deposit from customers from outside the Bank's normal service
area. These out of area deposits are certificates of deposit of $90,000 or
greater, that are priced competitively with similar certificates from other
financial institutions throughout the country. At December 31, 1995, the Bank
had approximately $83 million of these out of area deposits, up from $55
million at December 31, 1994. The Bank's experience with raising out of area
deposits for the past two years indicates that the balances are quite stable
when priced to the current market.
The Bank's portfolio of large certificates of deposit (those of $100 thousand
or more), includes both deposits from its base of commercial customers and out
of area deposits. At December 31, 1995 this funding source was 17% of average
deposits, compared to 16% at December 31, 1994.
TABLE 6 INTEREST RATE MATURITIES OF EARNING ASSETS AND FUNDING LIABILITIES AT
DECEMBER 31, 1995
Amounts in thousands of dollars
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING IN
-------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN
3 MONTHS BUT 6 MONTHS BUT 9 MONTHS BUT
LESS THAN LESS THAN LESS THAN LESS THAN 12 MONTHS
3 MONTHS 6 MONTHS 9 MONTHS 12 MONTHS & OVER
Amounts in thousands of dollars ----------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Earning Assets
Gross Loans $184,535 $ 421 $ 294 $ 82 $ 5,293
Investments 6,973 4,505 5,049 5,109 51,444
Federal funds sold & other 32,500 0 0 0 0
-------- -------- ------- ------- -------
Total earning assets 224,008 4,926 5,343 5,191 56,738
-------- -------- ------- ------- -------
Interest bearing deposits:
Savings and interest bearing demand 74,413 0 0 0 0
Time certificates of deposit:
Under $100 33,766 17,141 5,451 7,390 7,118
$100 or more 31,164 8,233 1,100 2,351 2,284
Non interest bearing demand deposits 13,920 0 0 0 0
-------- -------- ------- ------- -------
Total interest bearing liabilities 153,263 25,374 6,551 9,741 9,402
-------- -------- ------- ------- -------
Interest rate sensitivity gap 70,745 (20,448) (1,208) (4,550) 47,336
-------- -------- ------- ------- -------
Cumulative interest rate sensitivity gap 70,745 50,297 49,089 44,539 91,875
Off balance sheet financial instruments 0 0 0 0 0
- - -- - -
Net cumulative gap $ 70,745 $ 50,297 $49,089 $44,539 $91,875
======== ======== ======= ======= =======
Adjusted cumulative ratio of rate sensitive
assets to rate sensitive liabilities(1) 1.46% 1.28% 1.27% 1.23% 1.45%
===== ===== ===== ==== =====
</TABLE>
(1) Ratios greater than 1.0 indicate a net asset sensitive position. Ratios
less than 1.0 indicate a liability sensitive position. A ratio of 1.0
indicates risk neutral position.
31
<PAGE> 32
Assets and liabilities shown on Table 5 are categorized based on contractual
maturity dates. Maturities for those accounts without contractual maturities
are estimated based on the Bank's experience with these customers. Noninterest
bearing deposits of title and escrow companies, having no contractual maturity
dates, are considered subject to more volatility than similar deposits from
commercial customers. The net cumulative gap position shown in the table above
indicates that the Bank does not have a significant exposure to interest rate
fluctuations during the next twelve months.
CAPITAL
Total shareholders' equity was $33 million at December 31, 1995, compared to
$30 million at year-end 1994. This increase was due to earnings, plus the
exercise of stock options and warrants. The Bank is guided by statutory
capital requirements, which are measured with three ratios, two of which are
sensitive to the risk inherent in various assets and which consider off-balance
sheet activities in assessing capital adequacy. During 1995 and 1994, the
Bank's capital levels substantially exceeded the "well capitalized" standards,
the highest classification established by bank regulators.
TABLE 7 CAPITAL RATIOS
<TABLE>
<CAPTION>
REGULATORY STANDARDS
--------------------
DEC 31, DEC 31, WELL -
1995 1994 CAPITALIZED MINIMUM
------- ------- ----------- --------
<S> <C> <C> <C> <C>
Total Risk Based Capital 16.19% 15.40% 10.00% 8.00%
Tier 1 Risk Based Capital 14.92 14.12 6.00 4.00
Equity to Average Assets 10.52 10.44 5.00 3.00
</TABLE>
In February of 1995, the Company declared a dividend of $.02 per share payable
March 13, 1995 to shareholders of record February 20, 1995. The Company also
declared a dividend of $.02 per share for the quarter ended June 30, 1995,
payable September 4, 1995 to shareholders of record August 15, 1995. During
the third quarter, the company declared a dividend $.02 per share, payable
November 27 to shareholders of record November 13. For the fourth quarter of
1995, the company declared a dividend of $.02 per share, payable February 28 to
shareholders of record January 31. The dividend payout ratio was 13% for the
year ending December 31, 1995. No dividends were paid in 1994 .
The common stock of the Company is listed on the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market Systems where
it trades under the symbol CUBN.
TABLE 8 STOCK PRICES - UNAUDITED
<TABLE>
<CAPTION>
1995 1994
------------------- ------------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter $7.50 $6.75 $7.50 $6.50
Second Quarter 7.50 6.88 7.00 5.75
Third Quarter 8.75 6.94 7.50 6.00
Fourth Quarter 10.25 8.38 8.00 6.75
</TABLE>
32
<PAGE> 33
EARNINGS BY LINE OF BUSINESS
Prior to the sale of the mortgage origination operation in November, 1993, the
Bank operated a commercial bank and a mortgage bank as two distinct business
segments. Since 1994, real estate lending is generally only done as part of a
commercial banking relationship. After 1993, therefore, the Bank operates as
only a single segment, the commercial banking operation. Table 9 shows the
pre-tax operating contributions.
TABLE 9 PRE-TAX OPERATING CONTRIBUTION BY LINE OF BUSINESS (i)
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ --------------------------------------------
COMMERCIAL MORTGAGE
CONSOLIDATED CONSOLIDATED CONSOLIDATED BANKING BANKING
------------ ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Net interest income $15,536 $13,881 $14,431 $13,844 $587
Provisions for loan losses 0 0 450 200 250
- - --- --- ---
Risk adjusted net interest income 15,536 13,881 13,981 13,644 337
Noninterest revenue 1,682 2,836 24,940 1,032 23,908
----- ----- ------ ----- ------
Total revenues 17,218 16,717 38,921 14,676 24,245
------ ------ ------ ------ ------
Salaries and related benefits 6,834 6,335 11,020 6,151 4,869
Other operating expenses 5,720 7,800 25,416 7,738 17,678
----- ----- ------ ----- ------
Total operating expenses 12,554 14,135 36,436 13,889 22,547
------ ------ ------ ------ ------
Operating income 4,664 2,582 2,485 787 1,698
Gain on sale of mortgage origination 1,483
operation
Gain on sale of mortgage servicing 383 2,572
portfolio
Restructuring charge (600)
Reserve for branch relocation - - (447)
------ ------ ------
Income before taxes $5,047 $4,554 $3,521 $787 $1,698
====== ====== ====== ==== ======
</TABLE>
(i) Inter-divisional transactions for 1993 have been eliminated at the
division level.
33
<PAGE> 34
NET INTEREST INCOME AND INTEREST RATE RISK
Net interest income is the difference between interest and fees earned on
earning assets and interest paid on funding liabilities. Net interest income
was $15.5 million for the year ended December 31, 1995 compared to $13.9
million in 1994 and $14.4 million in 1993. The change in 1995 is attributable
to changes in volume and deposit mix. The Bank's net interest income has
improved with the growth of the commercial loan portfolio from 1994 to 1995.
This improvement was offset in part by the change in deposit mix away from non
interest bearing title and escrow deposits, and the increase in certificates of
deposit. The change in 1994 is primarily attributable to lower levels of
average loans and deposits in 1994 being offset by favorable rate variations.
TABLE 10 ANALYSIS OF CHANGES IN NET INTEREST INCOME (1)
Amounts in thousands of dollars
Increases(Decreases)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 COMPARED TO 1994 1994 COMPARED TO 1993
--------------------------------- -------------------------------------
Volume Rate Total Volume Rate Total
------ ----- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans, net $3,032 $1,625 $4,657 $(4,466) $2,015 $(2,451)
Investments 124 691 815 1,149 175 1,324
Federal Funds Sold 531 444 975 213 251 464
----- ------ ------ ------- ------ ------
Total interest income 3,687 2,760 6,447 (3,104) 2,441 (663)
----- ------ ------ ------- ------ ------
Interest Expense
Interest bearing deposits:
Demand 341 (457) (116) 185 (49) 136
Savings (22) 40 18 (73) 13 (60)
Time Certificates of deposit:
Under $100 2,761 531 3,292 (179) 197 18
$100 or more 1,129 557 1,686 (177) 166 (11)
Federal funds purchased/Repos 0 0 0 (79) (0) (79)
Other borrowings (70) (18) (88) (135) 18 (117)
----- ------ ------ ------- ------ ------
Total interest expense 4,139 653 4,792 (458) 345 (113)
----- ------ ------ ------- ------ ------
Net interest income $(452) $2,107 $1,655 $(2,646) $2,096 $ (550)
====== ====== ====== ======== ====== ========
</TABLE>
(1) The change in interest income or interest expense that is attributable to
both change in average balance and average rate has been allocated to the
changes due to (i) average balance and (ii) average rate in proportion to the
relationship of the absolute amounts of the changes in each.
Yields on earning assets were approximately 8.9% for the year ended December
31, 1995, compared to 7.8% in 1994 and 7.6% in 1993. The higher average yield
on earning assets in 1995 is the result of both an increase in the prime rate
from an average of 7.1% in 1994 to an average of 8.8% in 1995, and an
increasing percentage of assets being held in loans.
The higher average yield on earning assets in 1994 is largely due to the higher
yield on loans as the prime rate began to rise in 1994. The average prime rate
of 7.1% compares with 6% for 1993. Through October 8, 1993, net interest
income continued to benefit from an interest rate swap agreement, discussed
below.
Rates on interest bearing liabilities resulted in an average cost of funds of
4.2% in 1995, compared with 3.0% for the comparable period of 1994 and 2.9% for
1993. In addition to the generally higher level of interest rates in 1995,
certificates of deposit represent a higher proportion of the funding
liabilities, rather than lower cost money market or savings accounts.
Expressing net interest income as a percent of average earning assets is
referred to as margin. Margin was 5.66% for 1995, compared to 5.99% in 1994
and 5.85% for 1993. The Bank's margin is strong because it has funded itself
with a
34
<PAGE> 35
significant amount of noninterest bearing deposits. Margin in 1995 is somewhat
lower than 1994 due to the lower level of non interest bearing title and escrow
deposits in the current year. Margin in 1994 was higher than 1993 as the
benefits of rising interest rates offset the maturing of the interest rate swap
agreement discussed below.
Through October 8, 1993, the Bank continued to benefit from an interest rate
swap agreement entered into October 8, 1991, which had a notional amount of
$100 million. Under this arrangement, the Bank received a fixed rate of 8.18%
and paid interest at prime rate, which was 6.0% during 1993. The income earned
from the interest rate swap agreement was $0 in 1994 and 1995, compared to
$1.7 million in 1993.
TABLE 11 AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
Interest Interest Interest
Income or Yield or Income or Yield or Income or Yield or
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- -------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans, Net(1) $170,511 $18,693 10.96% $141,878 $14,036 9.89% $188,967 $16,487 8.72%
Investments(2) 70,569 3,818 5.41 66,891 2,966 4.43 37,534 1,558 4.15
Certificates of Deposit
in other banks 48 2 4.17 1,010 39 3.88 4,102 123 3.00
Federal Funds Sold 32,614 1,893 5.80 22,100 918 4.15 15,927 454 2.85
-------- ------- ----- -------- ------- ----- -------- ------- ----
Total Earning Assets 273,742 24,406 8.92 231,879 17,959 7.74 246,530 18,622 7.55
------- ----- ------- ---- ------- ----
Non Earning Assets
Cash & Due From Banks 22,294 29,559 41,243
Other Assets 7,774 7,351 15,645
-------- -------- --------
Total Assets $303,810 $268,789 $303,418
======== ======== ========
Interest Bearing Liabilities
Demand $ 87,815 1,614 1.84 $ 71,821 1,730 2.41 $ 64,179 1,594 2.48
Savings 9,101 273 3.00 9,893 255 2.58 12,741 315 2.47
Time Certificates of Deposits
Less Than $100 68,103 4,289 6.30 22,144 997 4.50 26,577 979 3.68
More Than $100 40,959 2,459 6.00 19,713 773 3.92 24,737 784 3.17
Federal Funds Purchased/
Repos 0 0 0 0 0 0 2,712 79 2.91
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total Interest Bearing
Liabilities 205,978 8,635 4.19 123,571 3,755 3.04 130,945 3,751 2.86
Non Interest Bearing Deposits 58,088 0 0 109,004 0 0 137,485 0 0
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total Deposits 264,066 8,635 3.27 232,575 3,755 1.61 268,431 3,751 1.40
Other Borrowings 3,791 235 6.20 4,909 323 6.58 6,964 440 6.32
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total Funding Liabilities 267,857 8,870 3.31 237,484 4,078 1.72 275,395 4,191 1.52
------- ----- ------- ---- ------- ----
Other Liabilities 5,085 3,264 2,175
Shareholders' Equity 30,868 28,006 25,848
-------- -------- --------
Total Liabilities and
Shareholders' Equity $303,810 $268,754 $303,418
======== ======== ========
Net Interest Income $15,536 5.68% $13,881 5.99% $14,431 5.85%
======= ==== ======= ==== ======= ====
Shareholders' Equity to
Total Assets 10.16% 10.42% 8.52%
===== ===== ====
</TABLE>
(1) Non-accrual loans are included in average loan balances, and loan fees
earned have been included in interest income on loans.
(2) Tax exempt securities do not materially affect reported yields.
OTHER OPERATING INCOME
A significant portion of other operating income in 1994 was earned as mortgage
servicing rights were sold for a gain of $2.6 million. The Bank reported a gain
of $383 thousand on the sale of mortgage servicing in 1995, representing final
35
<PAGE> 36
settlement payments received related to open issues on servicing sales from
prior quarters. At year end 1995, the Bank did not own any further servicing
rights.
The majority of other operating income for 1993 was earned as the Mortgage
Banking Operation originated and sold mortgage loans.
The Mortgage Banking Operation earned fee income on loans originated and gains
as loans were sold to permanent investors. Loans for which servicing was
retained were conventional mortgages under approximately $200 thousand which
were sold to the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and other institutional investors. Excess servicing
rights were capitalized, and related gains recognized, based on the present
value of the servicing cash flows discounted over a period of seven years.
When loan prepayments occurred within this period, the remaining capitalized
cost associated with the loan was written off.
The servicing rights were retained by the Bank following sale of the mortgage
origination operation. The Bank entered into an agreement with the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation to
dispose of any remaining portion of this portfolio by the end of 1994 because,
with the sale of the mortgage origination operation, the Bank was no longer a
qualified seller/servicer of such loans. During 1994, the bank sold the
retained servicing rights realizing gains of $2.6 million in 1994 and $383
thousand in 1995.
The trends and composition of other operating income are shown in the following
table.
TABLE 12 OTHER OPERATING INCOME
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
COMMERCIAL MORTGAGE
CONSOLIDATED CONSOLIDATED BANKING BANKING CONSOLIDATED
------------ ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Documentation fees $104 $99 $104 $826 $930
Gain on sale of SBA loans 262 65
Other service fees and charges 1,177 1,100 851 399 1,250
Gain on sale of mortgage servicing 383 2,572
Gain on sale of other real estate owned 139 585
Gain on sale of mortgage origination operation 1,483 1,483
Processing fees 1,143 1,143
Capitalization of excess servicing rights 207 207
Fees on loans sold 15 1,182 1,182
Premium on sales of mortgage loans (8) 18,022 18,022
Gain on sale of securities 77 77
Service income 980 2,129 2,129
------ ------ ------ ------- -------
Total $2,065 $5,408 $1,032 $25,391 $26,423
====== ====== ====== ======= =======
</TABLE>
OPERATING EXPENSE
Total operating expenses for the Bank were $12.6 million year ended December
31, 1995 , compared to $14.7 million in 1994 and $36.9 million for 1993. The
year ended December 31, 1995 reflected lower expenses, in part because of a
reduction in FDIC insurance premiums paid, from $.23 to $.04 per $100 of
deposits. The current level of operating expense is deemed to be adequate and
will be leveraged further as the core middle market business is expanded.
The Bank restructured its branch operations functions in 1994, re-engineering
its entire work flow and information handling activities. This resulted in a
one time charge of $600 thousand for severance pay and other expenses
associated with the changes to the operating policies and procedures. Operating
expense for the commercial bank excluding this charge was
36
<PAGE> 37
$12.6 million in 1995, compared to $14.1 million in 1994 and $13.9 million in
1993. Operating expenses for the consolidated Bank declined in 1994, primarily
due to the sale of the mortgage origination operation at the end of 1993.
Expenses for the Mortgage Banking Division were $22.5 million in 1993. Premium
on sales of mortgage loans included in other operating income is directly
related to these expenses and subject to the same factors and conditions. The
premium on sales of mortgage loans was $18.0 million in 1993.
PROVISION FOR LOAN LOSSES
The Bank has made no provision for loan losses in 1995 or 1994 , compared with
$450 thousand for 1993. No loan loss provision has been deemed necessary for
1995 and 1994, due to the declining levels of nonperforming assets, net
recoveries received in 1994, and the strong reserve position. The relationship
between the level and trend of the allowance for loan losses and nonperforming
assets, combined with the results of the ongoing review of credit quality,
determine the level of provisions.
LEGAL AND REGULATORY
In the normal course of business the Bank occasionally becomes a party to
litigation. In the opinion of management, based upon consultation with legal
counsel, the Bank believes that pending or threatened litigation involving the
Bank will have no adverse material effect upon its financial condition, or
results of operations.
Since June 1992, the Bank has developed a very positive and proactive
relationship with its primary regulators. Results of regular safety and
soundness examinations have documented the progress the Bank has achieved.
Management is committed to the continuation of this process and maintaining our
high standing with our regulators. The following comments refer to regulatory
situations that existed in prior years that are reflected in the prior period
financial statements provided herein. All of these situations have been
successfully resolved and repaired as management transitioned the Bank to its
present condition and performance.
In June 1992, the Bank entered into an agreement with the Office of the
Comptroller of the Currency (OCC), the Bank's primary federal regulator, which
required the implementation of certain policies and procedures for the
operation of the bank to improve lending operations and management of the loan
portfolio. In November 1993, after completion of its annual examination, the
OCC released the Bank from the Formal Agreement. Following this, the Federal
Reserve Bank of San Francisco ("Fed") notified the Company on November 29,
1993, that the Memorandum of Understanding, which it had signed, was terminated
because the requirements of the agreement were satisfied.
MARKET EXPANSION AND ACQUISITIONS
The Bank is committed to expanding the market penetration of the commercial
bank, including the creation of new branches and pursuing acquisition
opportunities. During 1995, the Bank converted its former loan production
offices in Ventura County, the San Gabriel Valley and the South Bay to full
service banking offices in improved facilities. This expanded the Bank's
branch system to five full service locations serving the greater Los Angeles
area.
37
<PAGE> 38
In March, 1995, the Company entered into an agreement to acquire Santa Ana
based Corporate Bank. The agreement was subsequently amended in October 1995
and the transaction was completed on January 12, 1996 for stock and cash. This
acquisition brings two Orange County branches to the Bank, representing an
important geographic expansion.
Table 13 is an approximation of how the Bank's balance sheet would have
appeared had the acquisition of Corporate Bank closed by December 31, 1995:
On January 10, 1996, the Bank announced an agreement to merge with Home
Interstate Bancorp, parent of Home Bank, based in the South Bay. The merger
with Home Bank is expected to be completed in mid - 1996, and will create a
Bank with 22 branches and over $800 million in assets.
Table 13: Pro Forma Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
California United Corporate Bank Combined
----------------- --------------- --------
Bank
----
<S> <C> <C> <C>
Cash and due from banks $28,376 $ 4,479 $ 32,855
Federal funds sold 32,500 13,000 45,500
------ ------ ------
Total cash and cash equivalents 60,876 17,479 78,355
Securities held to maturity 66,735 66,735
Securities available for sale 6,345 4,336 10,681
Loans, net 183,696 46,079 228,675
Other real estate owned 0 0 0
Premises and other assets 7,657 1,635 13,186
----- ----- ------
Total Assets $325,309 $69,529 $397,632
======== ======= ========
Demand deposits $ 94,099 $26,354 $120,453
Savings and interest bearing demand 74,413 22,511 96,924
Time deposits 115,998 12,258 128,256
------- ------ -------
Total deposits 284,510 61,123 345,633
Other Liabilities 7,796 1,628 12,504
Shareholders' equity 33,003 6,778 39,495
------ ----- -------
Total Liabilities and shareholders' equity $325,309 $69,529 $397,632
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page
- --------------------------------------------------- ----
<S> <C>
1. Report of Independent Public Accountants dated January 19, 1996 39
2. Consolidated Statements of Financial Condition as of December 31, 1995 and 1994; 40
3. Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993, 41
4. Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
1995, 1994, and 1993; 42
5. Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993; 43
6. Notes to Consolidated Financial Statements - December 31, 1995 44
</TABLE>
38
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of CU Bancorp and Subsidiary:
We have audited the accompanying consolidated statements of financial
conditions of CU Bancorp and Subsidiary (the Company) as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
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 financial position of CU Bancorp and Subsidiary as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 19, 1996
39
<PAGE> 40
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CU BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
DECEMBER 31,
Amounts in thousands of dollars, except share data 1995 1994
----- -----
<S> <C> <C>
ASSETS
Cash and due from banks $28,376 $35,397
Federal funds sold 32,500 20,000
------ ------
Total cash and cash equivalents 60,876 55,397
Securities held to maturity (Market value of $67,114 and $71,423 66,735 74,153
at December 31, 1995 and 1994, respectively)
Securities available for sale, at market value 6,345 0
----- -
Total Securities 73,080 74,153
Loans, (Net of allowance for loan losses of $6,930 and
$7,427 at December 31, 1995 and 1994, respectively) 183,696 167,175
Premises and equipment, net 1,111 996
Other real estate owned, net 0 0
Accrued interest receivable and other assets 6,546 6,433
----- -----
Total Assets $325,309 $304,154
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $94,099 $112,034
Savings and interest bearing demand 74,413 67,896
Time deposits under $100 70,866 47,836
Time deposits of $100 or more 45,132 36,415
------ ------
Total deposits 284,510 264,181
Accrued interest payable and other liabilities 7,793 10,229
----- ------
Total liabilities 292,303 274,410
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized -- 10,000,000 shares
No shares issued or outstanding in 1995 or 1994 -- --
Common stock, no par value:
Authorized - 24,000,000 shares
Issued and outstanding - 4,636,462 in 1995, and 4,467,318 in 1994 27,264 26,430
Retained earnings 5,841 3,314
Unrealized gain on securities available for sale, net of taxes 83 --
Unearned Compensation (182) --
----- ---
Total Shareholders' equity 33,006 29,744
------ ------
Total liabilities and shareholders' equity $325,309 $304,154
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
40
<PAGE> 41
CONSOLIDATED STATEMENTS OF INCOME CU BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
Amounts in thousands of dollars, except per share data 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $18,693 $14,036 $14,761
Benefits of interest rate hedge transactions 0 0 1,726
Interest on taxable investment securities 3,781 2,947 1,525
Interest on tax exempt securities 37 19 33
Interest on time deposits with other financial institutions 2 39 123
Interest on federal funds sold 1,893 918 454
------ ------ ------
Total revenue from earning assets 24,406 17,959 18,622
------ ------ ------
COST OF FUNDS:
Interest on savings and interest bearing demand 1,887 1,985 1,909
Interest on time deposits under $100 4,289 997 979
Interest on time deposits of $100 or more 2,459 773 784
Interest on federal funds purchased & securities sold under 0 0 79
agreements to repurchase
Interest on other borrowings 235 323 440
------ ------ ------
Total cost of funds 8,870 4,078 4,191
------ ------ ------
Net revenue from earning assets before provision for loan 15,536 13,881 14,431
losses
PROVISION FOR LOAN LOSSES 0 0 450
------ ------ ------
Net revenue from earning assets 15,536 13,881 13,981
------ ------ ------
OTHER OPERATING REVENUE:
Capitalization of excess servicing rights 0 0 207
Servicing income - mortgage loans sold 0 980 2,129
Service charges and other fees 1,682 1,121 955
Fees on loans sold 0 15 1,182
Premium on sales of mortgage loans 0 (8) 18,022
Other fees and charges - mortgage 0 143 2,368
Gain on sale of mortgage servicing portfolio 383 2,572 0
Gain on sale of mortgage origination operation 0 0 1,483
Gain on sale of other real estate owned 0 585 0
Gain on sale of investment securities (before taxes of $11 in 1993) 0 0 28
Gain on sale of securities available for sale (before taxes of $20 in 0 0 49
1993) - - --
Total other operating revenue 2,065 5,408 26,423
----- ------ ------
OTHER OPERATING EXPENSES:
Salaries and related benefits 6,834 6,335 11,020
Selling expenses - mortgage loans 0 333 12,193
Restructuring Charge 0 600 0
Other operating expenses 5,720 7,467 13,670
------ ------ ------
Total operating expenses 12,554 14,735 36,883
------ ------ ------
Income before provision for income taxes 5,047 4,554 3,521
Provision for income taxes 2,153 1,980 1,423
------ ------ ------
NET INCOME $2,894 $2,574 $2,098
====== ====== ======
EARNINGS PER COMMON AND EQUIVALENT SHARE $0.60 $0.56 $ 0.47
===== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE> 42
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CU BANCORP AND SUBSIDIARY
COMMON STOCK
----------------------------------------------------------------------------
Amounts in thousands of dollars except share data UNREALIZED GAIN
NUMBER RETAINED ON SECURITIES UNEARNED
OF SHARES AMOUNT EARNINGS AVAILBLE FOR SALE COMPENSATION TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 4,366,850 $25,990 $(1,358) $24,632
Exercise of stock options 57,456 260 0 260
Net income for the year 0 0 2,098 2,098
--------- ------- ------- --- ----- -------
Balance at December 31, 1993 4,424,306 26,250 740 26,990
Exercise of stock options 1,000 5 0 5
Exercise of director warrants 42,012 175 0 175
Net Income for the year 0 0 2,574 2,574
--------- ------- ------- --- ----- -------
Balance at December 31, 1994 4,467,318 26,430 3,314 29,744
Exercise of stock options 15,120 87 87
Exercise of director warrants 135,024 562 562
Cash dividend declared ($.08 per share) (367) (367)
Restricted stock issued 19,000 185 $(185) 0
Compensation expense 3 3
Unrealized gains on securities available
of sale, net of tax $83 83
Net Income for the year 0 0 2,894 0 0 2,894
--------- ------- ------- --- ----- -------
Balance at December 31, 1995 4,636,462 $27,264 $ 5,841 $83 $(182) $33,006
========= ======= ======= === ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements
42
<PAGE> 43
CONSOLIDATED STATEMENTS OF CASH FLOWS
CU BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
Amounts in thousands of dollars FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,894 $2,574 $2,098
------ ------ ------
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation and amortization 553 459 821
Amortization of real estate mortgage servicing rights 0 15 983
Provision for losses on loans and other real estate owned 0 0 450
Provision (benefit) of deferred taxes 1,138 (1,180) 1,510
Gain on sale of investment securities, net 0 0 (77)
Increase/(decrease) in other assets (785) 3,781 2,628
Increase/(decrease) in other liabilities (2,845) (3,035) 2,582
(Increase)/decrease in accrued interest receivable (526) (766) 494
Increase/(decrease) in deferred loan fees (130) 160 48
Capitalization of excess mortgage servicing rights 0 0 (207)
Increase/(decrease) in accrued interest payable 412 (24) (11)
Net amortization of (discount)/premium on investment securities 610 972 48
Accrued benefits from interest rate hedge transactions 0 0 485
------ ------ ------
Total adjustments (1,573) 382 9,754
------ ------ ------
Net cash provided by operating activities 1,321 2,956 11,852
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investment securities sold or matured 17,782 52,882 78,545
Purchase of investment securities (17,176) (39,973) (81,826)
Net decrease in time deposits with other financial institutions 0 1,377 1,979
Net (increase)/decrease in loans (16,391) (33,187) 58,997
Purchases of premises and equipment, net (668) (531) 290
------ ------ ------
Net cash provided (used in) by investing activities (16,453) (19,432) 57,985
-------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand and savings deposits (11,418) (11,949) (81,848)
Net increase/(decrease) in time certificates of deposit 31,747 37,202 2,202
Proceeds from exercise of stock options and director warrants 649 180 260
Cash dividend paid (367) 0 0
------ ------ ------
Net cash provided (used) by financing activities 20,611 25,433 (79,386)
------ ------ --------
Net increase (decrease) in cash and cash equivalents 5,479 8,957 (9,549)
Cash and cash equivalents at beginning of year 55,397 46,440 55,989
------ ------ -------
Cash and cash equivalents at end of year $60,876 $55,397 $46,440
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest $8,457 $4,102 $4,179
Taxes 2,400 2,201
Supplemental disclosure of noncash investing activities:
Loans transferred to OREO 0 700 1,503
</TABLE>
The accompanying notes are an integral part of these consolidated statements
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CU BANCORP AND SUBSIDIARY
DECEMBER 31, 1995
(Amounts in thousands unless otherwise specified)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
CU Bancorp, a bank holding company (the Company), is a California corporation.
The accounting and reporting policies of the Company and its subsidiary conform
with generally accepted accounting principles and general practice within the
banking industry. The following comments describe the more significant of those
policies.
(a) Principles of consolidation --
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, California United Bank N.A. (the
Bank). All significant transactions and accounts between the Company and the
Bank have been eliminated in the consolidated financial statements.
(b) Investment portfolio --
The Bank's investment portfolio is separated into two groups, Securities Held
to Maturity and Securities Available for Sale. Securities are segregated in
accordance with management's intention regarding their retention. Accounting
for each group of securities follows the requirements of SFAS 115 "Accounting
for Certain Investments in Debt and Equity Securities". The adoption of SFAS
115 in 1993 did not have a material impact on the financial position or results
of operations of the Bank.
The Bank has the intent and ability to hold Securities Held to Maturity until
maturity. Securities in this classification are carried at cost, adjusted for
amortization of premiums and accretion of discounts on a straight-line basis.
This approach approximates the effective interest method. Gains and losses
recognized on the sale of investment securities are based upon the adjusted
cost and determined using the specific identification method.
Securities Available for Sale are those where management has the willingness to
sell under certain conditions. This category of securities is carried at
current market value with unrealized gains or losses recognized as a tax
affected adjustment to shareholders' equity in the statement of financial
condition.
(c) Loans --
Loans are carried at face amount, less payments collected, allowance for loan
losses, and unamortized deferred fees. Interest on loans is accrued monthly on
a simple interest basis. The general policy of the Bank is to discontinue the
accrual of interest and transfer loans to non-accrual (cash basis) status where
reasonable doubt exists with respect to the timely collectibility of such
interest. Payments on non-accrual loans are accounted for using a cost recovery
method. No interest income is recorded on non-accrual loans.
Loan origination fees and commitment fees, offset by certain direct loan
origination costs, are deferred and recognized over the contractual life of the
loan as a yield adjustment.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can reasonably be anticipated. Management considers
the nature of the portfolio, current economic conditions, historical loan loss
experience, and other factors in determining the adequacy of the allowance. The
allowance is based on estimates and ultimate losses may differ from current
estimates. These estimates are reviewed periodically and as adjustments become
necessary, they are charged to earnings in the period in which they become
known. The allowance is increased by provisions charged to operating expenses,
increased for recoveries of loans previously charged-off, and reduced by
charge-offs.
The Bank adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
and SFAS 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," as of January 1, 1995. SFAS 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate. When the measure of
the impaired loan is less than the recorded balance of the loan, the impairment
is
44
<PAGE> 45
recorded through a valuation allowance included in the allowance for loan
losses. The Bank had previously measured the allowance for loan losses using
methods similar to the prescribed in SFAS 114. As a result, no additional
provision was required by the adoption of this pronouncement.
The Bank considers all loans where reasonable doubt exists as to the payment of
interest or principal to be impaired loans. All loans that are ninety days or
more past due are automatically included in this category. An impaired loan
will be charged off when the Bank determines that repayment of principal has
become unlikely or subject to a lengthy collection process. All loans that are
six months or more past due and not well secured or in the process of
collection are charged off.
(d) Mortgage Banking Division --
The bank's real estate Mortgage Banking Division became operational in 1988.
The mortgage origination operation was sold November 10, 1993. The Bank
carried the first trust deed loans generated and held for sale by this
Operation at the lower of aggregate cost or market. As of December 31, 1993,
cost approximated market value. All loan inventory held for sale by this
division had been sold prior to the end of 1994.
During 1993, the Bank capitalized $207 in connection with the right to service
real estate mortgage loans originated in that Operation. This excess servicing
asset, included in other assets, was initially capitalized at its discounted
present value and amortized over a period of five to seven years. Amortization
for 1995, 1994, and 1993, was $0, $15, and $983 respectively.
(e) Premises and equipment --
Premises and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation is computed on the straight-line method over the
estimated useful life of the asset. Amortization is computed on the
straight-line method over the useful life of leasehold improvements or the
remaining term of the lease, whichever is shorter.
(f) Other real estate owned --
Other real estate owned, acquired through direct foreclosure or deed in lieu of
foreclosure, is recorded at the lower of the loan balance or estimated fair
market value. When a property is acquired, any excess of the loan balance over
the estimated fair market value is charged to the allowance for loan losses.
Subsequently, the assets are recorded at the lower of the new cost basis at
foreclosure or fair market value less estimated selling expenses. Subsequent
write-downs, if any, are included in other operating expenses in the period in
which they become known. Gains or losses on sales are recorded in conformity
with standards which apply to accounting for sales of real estate. The Bank had
no real estate owned at December 31, 1995, and at December 31, 1994.
(g) Interest Rate Derivatives --
The Company enters into interest rate hedge agreements which involve the
exchange of fixed and floating rate interest payments periodically over the
life of the agreement without the exchange of the underlying principal amounts.
The differential to be paid or received is accrued as interest rate change and
recognized over the life of the agreements as an adjustment to interest
expense.
Fees received in connection with loan commitments are deferred in other
liabilities until the loan is advanced and are then recognized over the term of
the loan as an adjustment of the yield. Fees on commitments that expire unused
are recognized in fees and commission revenue at expiration. Fees received for
guarantees are recognized as fee revenue over the term of the guarantees.
(h) Income taxes --
As discussed in Note 8, effective January 1, 1993, the Bank adopted the
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets or liabilities are
computed based on the difference between the financial statement and income tax
basis of assets and liabilities using the enacted marginal tax rate. Deferred
income tax expenses or credits are based on the changes in the asset or
liability from period to period.
45
<PAGE> 46
(i) Earnings per share (amounts in whole numbers) --
Earnings per share are computed based on the weighted average number of shares
and common stock equivalents outstanding during each year of 4,857,221 in 1995,
4,593,103 in 1994, and 4,489,861 in 1993, retroactively restated for stock
dividends and stock splits. Common stock equivalents include the number of
shares issuable on the exercise of outstanding options and warrants reduced by
the number of shares that could have been purchased with the proceeds from the
exercise of the options and warrants plus any tax benefits, based on the
average price of common stock.
(j) Statements of cash flows --
The Company presents its cash flows using the indirect method and reports
certain cash receipts and payments arising from customer loans and deposits,
and deposits placed with other financial institutions on a net basis. For
purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold. Generally, federal funds are sold for
one-day periods.
(k) Post-retirement benefits --
The Company provides no post-retirement benefits. Accordingly, the accounting
prescribed by Statement of Financial Accounting Standards No. 106 "Accounting
for Post-Retirement Benefits" has no effect on the Company's consolidated
financial statements.
(l) Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation". SFAS 123 requires all companies to change what they disclose
about their employee stock-based compensation plans, recommends that they
change how they account for these plans and requires those companies who do not
change their accounting to disclose what their earnings and earnings per share
would have been if they had changed their method of accounting pursuant to this
pronouncement. The Company has elected to continue to account for their
Stock-Based Compensation in accordance with Accounting Principles Board Opinion
(APBO 25) and to adopt only the disclosure requirements of SFAS 123. As a
result, the adoption of SFAS 123 will not have an impact on the financial
position or results of operations of the company.
(m) Reclassifications --
Certain amounts have been reclassified in the prior years to conform to
classifications followed in 1995.
(n) Accounting Estimates --
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. NATURE OF OPERATIONS --
The Bank engages in the commercial banking business serving the greater
Southern California metropolitan area, with offices located in the San Fernando
Valley, West Los Angeles, the San Gabriel Valley , the South Bay portion of
the County of Los Angeles, and Ventura County. The Bank's primary focus is to
engage in middle market lending to businesses, professionals, the entertainment
industry and high net-worth individuals. Retail or consumer banking business
is generally limited to the owners, officers and employees of its commercial
customers, and customers of accounting and business management firms with which
the Bank regularly does business. Deposit services which the Bank offers
include personal and business checking accounts and savings accounts, insured
money market deposit accounts, NOW accounts, and time certificates of
deposits, along with IRA and Keogh accounts. The Bank also provides other
customary banking services incidental to maintaining the commercial customer
relationships.
46
<PAGE> 47
3. AVERAGE FEDERAL RESERVE BALANCES --
The average cash reserve balances required to be maintained at the Federal
Reserve Bank, under the Federal Reserve Act and Regulation D, were
approximately $2.4 million and $6.0 million for the years ended December 31,
1995 and 1994, respectively.
4. INVESTMENT PORTFOLIO --
A summary of Securities Held to Maturity at December 31, 1995 and 1994, is as
follows:
<TABLE>
<CAPTION>
HELD TO MATURITY GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
1995
U.S. Treasury securities $66,704 $623 $ (244) $67,083
U.S. Government agency securities 31 -- 31
------- ---- ------- -------
Total investment portfolio $66,735 $623 $ (244) $67,114
======= ==== ======= =======
1994
U.S. Treasury securities $67,140 -- $(2,535) $64,605
U.S. Government agency securities 105 -- -- 105
State and municipal bonds 750 $ 9 -- 759
Mortgage-backed securities 5,725 -- (204) 5,521
Federal Reserve Bank stock 433 -- -- 433
------- ---- ------- -------
Total investment portfolio $74,153 $ 9 $(2,739) $71,423
======= ==== ======= =======
</TABLE>
A summary of Securities Available for Sale for December 31, 1995 is as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
------ ---- -- ------
<S> <C> <C> <C> <C>
1995
Mortgage -backed securities $5,769 $143 $5,912
Federal Reserve Bank stock 433 -- -- 433
------ ---- -- ------
$6,202 $143 $0 $6,345
====== ==== == ======
</TABLE>
Investments with a book value of $27,900 and $29,200 were pledged as of
December 31, 1995 and 1994, respectively, to secure court deposits and for
other purposes as required or permitted by law. Included in interest on
investments in 1995, 1994, and 1993, is $0, $19, and $33, respectively, of
interest from tax-exempt securities.
Actual maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
The amortized cost and market value of Securities Held to Maturity as of
December 31, 1995, by maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST YIELD VALUE
---- ----- -----
<S> <C> <C> <C>
Due in one year or less $21,714 5.3% $21,691
Due after one through five years 45,021 5.6 45,423
------- -------
$66,735 $67,114
======= =======
</TABLE>
47
<PAGE> 48
At December 31, 1995, the securities available for sale portfolio consisted of
Federal Reserve Bank stock and mortgage backed securities. The Federal Reserve
Bank stock, with a 6% yield, has no stated maturity. The actual maturity of
the mortgage-backed securities is determined by the rate of repayment of the
loan pools collateralizing the securities. Actual cash maturities of the
Bank's mortgage-backed securities, with an approximate yield of 7%, are
expected to be from one to five years.
In December 1995, as permitted by a Special report of the Financial Accounting
Standards Board "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities", the Bank made a one time
transfer of investment securities into the Available for Sale portfolio. These
securities had an amortized cost and market value of $5,769 and $5,912,
respectively.
At December 31, 1994, there were no Securities Available for Sale.
Proceeds from the sales and maturities of debt securities during 1995, 1994,
and 1993 were $17,722, $52,882, and $78,545, respectively. Gains of $0, $0,
and $77 were realized on those transactions. There were no realized losses on
sales in 1995, 1994, and 1993.
5. LOANS --
The loan portfolio, net of unamortized deferred fees of $522 at December 31,
1995, and $652 at December 31, 1994, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------ --------
<S> <C> <C>
Commercial and industrial loans $164,966 $142,885
Commercial real estate loans 20,190 26,528
Real estate loans -- mortgages 5,470 4,773
Real estate loans -- construction 0 416
-------- --------
Gross Loans 190,626 174,602
Less - Allowance for loan losses (6,930) (7,427)
-------- --------
Net loans $183,696 $167,175
======== ========
</TABLE>
At December 31, 1995, the Bank had $1,000 in impaired loans, against which a
loss allowance of $318 has been provided. The recorded loss allowance
for all impaired loans has been calculated based on the present value of
expected cash flows discounted at the loan's effective interest rate. All
impaired loans are on nonaccrual status, and as such no interest income is
recognized. The Bank had an average investment in impaired loans of
approximately $352 for the year ended December 31, 1995.
Total non-performing loans were $4,000 and $36 at December 31, 1995 and 1994,
respectively. The interest income, which would have been recognized had
non-accrual loans been current, amounted to $ 82, $6, and $469, in 1995, 1994,
and 1993, respectively. No interest income has been reported on non-accrual
loans for the years 1995, 1994, or 1993.
An analysis of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- --------
<S> <C> <C> <C>
Balance, beginning of period $ 7,427 $ 6,513 $ 12,986
Loans charged off (1,089) (1,413) (10,749)
Recoveries on loans previously charged off 592 2,327 3,826
Provision for loan losses 0 0 450
------- ------- --------
Balance, end of period $ 6,930 $ 7,427 $ 6,513
======= ======= ========
</TABLE>
48
<PAGE> 49
6. LOANS TO RELATED PARTIES --
There were no loans to directors and their affiliates for the years ended 1995
and 1994.
7. PREMISES AND EQUIPMENT --
Book value of premises and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
------ ------
<S> <C> <C>
Furniture, fixtures and equipment $4,056 $3,796
Leasehold improvements 834 690
------ ------
Cost 4,890 4,486
Less - accumulated depreciation and amortization 3,779 3,490
------ ------
Net Book Value $1,111 $ 996
====== ======
</TABLE>
The amounts of depreciation and amortization included in noninterest expense
were $553, $459, and $821 for the years ended December 31, 1995, 1994 and 1993,
respectively, and are based on estimated lives of 1 to 10 years for furniture,
fixtures and equipment, and leasehold improvements.
The Bank leases facilities under renewable operating leases. Rental expense for
premises included in occupancy expenses were $833 in 1995, $741 in 1994,
$1,133 in 1993. As of December 31, 1995, the approximate future lease payable
under the lease commitments is as follows:
<TABLE>
<S> <C>
Year ended December 31,--
1996 $ 851
1997 851
1998 811
1999 790
2000 215
Thereafter 0
------
$3,518
======
</TABLE>
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership interest in
an entity or a contract that both imposes contractual obligations and rights to
exchange cash, and/or other financial instruments on the parties to the
transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, Due From Banks and Federal Funds Sold
For these short term investments, the carrying amount is a reasonable estimate
of fair value.
Securities
Quoted market prices are available for substantially all of the securities
owned by the Bank, both in the Held to Maturity and Available for Sale
portfolios. These market quotes have been used to estimate fair value.
<PAGE> 50
Loans
The fair value of loans was estimated by discounting the future cash flows
using current market rates adjusted for approximated credit risk, operating
costs and interest rate risk inherent in the portfolios. Future cash flows are
aggregated based upon the payment terms and maturities of the loans. The
discount rate is calculated as the sum of the risk-free rate, a credit quality
factor, an operating expense factor and a prepayment option price. The
risk-free rate is based on the U.S. treasury curve for the stated maturity.
The credit quality factor is based on a combination of the Bank's loss
experience and industry standards for various categories of loans. The
operating expense factor is based on an internal analysis of the Bank's costs
to deliver and service products.
Deposit Liabilities
Fair value for deposit liabilities without contractual maturities is equal to
the carrying value of those liabilities. This includes the bank's demand
deposits, NOW, savings and money market accounts. Fair value for certificates
of deposit are calculated by discounting the future cash flows using a current
market rate. The Bank's certificate of deposit portfolio has a fair value
which reasonably approximates carrying value, due to the short duration of the
portfolio.
Off Balance Sheet Items
The Bank's loan commitments are generally for variable rate loans representing
current market rates of interest. The Bank's letters of credit are generally
short term and are at terms consistent with the current market. Current
valuation of these off balance sheet instruments is immaterial. See footnote
11 for further description of these commitments.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
BOOK VALUE, ESTIMATED BOOK VALUE, ESTIMATED
NET FAIR VALUE NET FAIR VALUE
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash & Due From Banks $ 28,376 $ 28,376 $ 35,397 $ 35,397
Federal Funds Sold 32,500 32,500 20,000 20,000
Securities 72,937 73,459 74,153 71,423
Loans 183,696 191,352 167,175 175,023
Certificates of Deposit 115,998 116,798 84,251 84,251
Other Deposit Liabilities 168,512 168,512 179,930 179,930
Other Borrowed Money 3,768 3,768 3,794 3,794
Off Balance Sheet Items 0 0 0 0
</TABLE>
Estimations of fair value of financial instruments are subject to significant
uncertainty because active and liquid markets do not exist for a majority of
them. The estimates include assumptions concerning financial conditions, risk
characteristics, expected future losses, and market interest levels, among
other factors, and if changed could have a significant impact on them. The
resulting presentations of estimated fair value is not necessarily indicative
of the value realizable in an actual exchange of financial instruments.
9. INCOME TAXES -
The provisions (benefits) for income taxes for the years ended December 31,
1995, 1994 and 1993 for financial reporting were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current -
Federal $ 614 $ 2,876 $ (89)
State 401 284 2
------ ------ ------
Total current provision 1,015 3,160 (87)
------ ------ ------
Deferred -
Federal 891 (1,404) 1,268
State 247 224 242
------ ------ ------
Total deferred provisions 1,138 (1,180) 1,510
------ ------ ------
Total provisions for income taxes $2,153 $1,980 $1,423
====== ====== ======
</TABLE>
50
<PAGE> 51
As of December 31, 1995 and 1994, the temporary differences which give rise to
a significant portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Allowance for loan losses $ 3,084 $ 3,348
Deferred loan fees 0 294
Depreciation 138 196
Other expense accruals 898 1,631
-------- -------
Total deferred tax assets 4,120 5,469
-------- -------
Accretion of discounts on securities (140) 0
Unrealized gain on securities available for sale (60) 0
State tax expense (188) (353)
Other (1) (1)
-------- -------
Total deferred tax liabilities (389) (354)
Valuation allowance (1,218) (1,404)
-------- -------
Net deferred tax asset $ 2,513 $ 3,711
======== =======
</TABLE>
The Bank maintains a valuation reserve against net deferred tax assets to
reflect the inherent uncertainty of the ultimate realization of those assets.
The value of the Bank's largest deferred tax assets represent expenses, such
as the loan loss provision, which will become deductible on a future tax
return when an actual loss is incurred. Realization of deferred tax assets
are dependent on the availability of taxable income in the future or prior
years to offset these deductions. Because the State of California does not
currently allow net operating loss carrybacks, realization of deferred tax
assets related to California Franchise Taxes is subject to a greater degree of
uncertainty.
The provisions (benefits) for income taxes varied from the Federal statutory
rate of 34% for 1995, 1994, and 1993, for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- ------------------ ----------------------
Amount Rate Amount Rate Amount Rate
------ ----- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Provisions (benefit) for income at $1,716 34.0% $1,548 34.0% $1,198 34.0 %
statutory rate
Interest on state and municipal bonds
and other tax exempt transactions (22) (.5%) (25) (.5%) (25) (.7)%
State franchise taxes, net of federal
income tax benefit 428 8.5% 335 7.3% 256 7.3 %
Other, net 31 .6% 122 2.7% (6) (0.2)%
------ ---- ------ ---- ------ ----
$2,153 42.6% $1,980 43.5% $1,423 40.4 %
====== ==== ====== ==== ====== ====
</TABLE>
The total net deferred tax of $2,513 in 1995 and $3,711 in 1994 is included in
Other Assets in the Consolidated Statements of Financial Condition.
At December 31, 1993, the Company had a California Franchise Tax carryforward
of $1.9 million, with the entire operating loss carryforward being utilized in
1994. The Bank had no operating loss carryforwards at December 31, 1994 or
1995.
10. SHAREHOLDERS' EQUITY -
The Company has three employee stock option plans. The 1983 plan, which
authorized the issuance of 400,075 shares of common stock, and the 1985 plan,
which authorized the issuance of 350,000 shares of common stock, expired in
1993 and 1995 respectively. The 1993 plan, authorizing the issuance of
400,000 shares of common stock, expires in 2003. Options are granted at a
price not less than the fair market value of the stock at the date of grant.
Options under these
51
<PAGE> 52
plans expire up to ten years after the date of grant. The options granted
under the 1983 and 1985 plans are incentive stock options, as defined in the
Internal Revenue Code. Options under the 1993 plan can be either incentive
stock options or non- qualified options. No shares remain available for future
grants for the 1983 and 1985 plans, although outstanding options remain and are
exercisable over the period designated by those plans.
In 1987, a special stock option plan was approved that is limited to directors
of the Company and provides for the issuance of 120,960 shares of common stock.
The plan expires in 1997. Options granted under the plan are non-qualified
stock options. Each of the directors of the Company, at the time the special
stock option plan was approved, received stock options to purchase 15,120
shares at $5.78 per share, which was in excess of the then prevailing market
price. Options expire 10 years after the date of grant. There are no remaining
options available for grant under the 1987 special stock plan.
In 1994, a non-employee director stock option plan was approved that provides
for the issuance of 200,000 shares of common stock. The plan expires in 2004.
Options granted under the plan are non-qualified stock options. During 1994,
options were granted to purchase 27,500 shares at $6.25 per share , which was
equal to the market price at the date of grant. During 1995, 27,500 options
were granted at $6.88 per share. Options expire 10 years from the date of grant
The following table summarizes information on stock options outstanding for the
years ended December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Average Average
Price Shares Price Shares
----- ------ ----- ------
<S> <C> <C> <C> <C>
Options outstanding beginning of year $5.98 629,410 $5.55 355,906
Granted $7.07 125,500 $6.59 289,500
Exercised $5.78 (15,120) $4.75 (1,000)
Canceled $8.91 (8,270) $7.78 (14,996)
------- -------
End of year $6.14 731,520 $5.98 629,410
======= =======
</TABLE>
During 1994, 1,000 non-qualified stock options under the 1985 plan were
exercised at $4.75 per share. In 1995, 15,120 non-qualified stock options under
the 1987 plan were exercised at $5.78 per share. No other stock options were
exercised in 1994 or 1995.
The following information is presented concerning the stock option plans as of
December 31, 1995:
<TABLE>
<CAPTION>
SHARES SUBJECT TO NUMBER OF SHARES
OPTION RANGE OF EXERCISE PRICES EXERCISABLE
----------------- ------------------------ ----------------
<S> <C> <C> <C>
Employee plans
1983 Plan 49,030 $5.00 29,418
1985 Plan 243,250 $4.75 - $15.21 139,690
1993 Plan 256,000 $6.63 - $7.13 68,603
Non employee directors plan
1987 Plan 30,240 $5.78 30,240
1994 Plan 153,000 $6.25 - $6.85 6,875
</TABLE>
In 1984, certain members of the Board of Directors were granted warrants to
purchase up to 360,067 shares of common stock at $4.17 per share, primarily for
guaranteeing a capital note issued by the Company. These warrants became
exercisable when the capital note was paid off in 1987, and had a maturity date
of February 15, 1995. During 1995, all outstanding warrants were exercised.
During 1995 and 1994, warrants for 135,024 and 57,012 shares were
52
<PAGE> 53
exercised. In 1994, warrants to purchase 7,500 shares of common stock at the
fair market value at date of grant of $7.00 per share, with an expiration date
of February 1, 1999 , were issued to the former chairman of the board.
On June 29, 1995, the Company's shareholders approved adoption of a CU Bancorp
1995 Restricted Stock Plan, providing for the issuance of Common Stock to
employees, subject to restrictions on sale or transfer. The restrictions on
sale or transfer expire over a period of five years. During 1995, 19,000
restricted shares were issued with a market value of $185. This amount
was recorded as unearned compensation and is shown as a separate component of
shareholders' equity. Unearned compensation is being amortized to expense over
the five year vesting period, with expense of $3 recorded for 1995.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND COMMITMENTS AND
CONTINGENCIES --
The consolidated statements of financial condition do not reflect various
commitments relating to financial instruments which are used in the normal
course of business. These instruments include commitments to extend credit,
standby and commercial letters of credit, and interest rate floor and swap
agreements. Management does not anticipate that the settlement of these
financial instruments will have a material adverse effect on the Bank's
financial position.
These financial instruments carry various degrees of credit and market risk.
Credit risk is defined as the possibility that a loss may occur from the
failure of another party to perform according to the terms of the contract.
Market risk is the possibility that future changes in market prices may make a
financial instrument less valuable.
The Bank primarily grants commercial and real estate loan commitments with
variable rates of interest and maturities of one year or less to customers in
the greater Los Angeles area. The contractual amounts of commitments to extend
credit and standby and commercial letters of credit represent the amount of
credit risk. Since many of the commitments and letters of credit are expected
to expire without being drawn, the contractual amounts do not necessarily
represent future cash requirements. For interest rate floor and swap
agreements, the notional amounts do not represent exposure to credit loss.
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Bank evaluates the
creditworthiness of each customer. The amount of collateral obtained, if deemed
necessary by the Bank upon the extension of credit, is based upon management's
evaluation. Collateral held varies, but may include securities, accounts
receivable, inventory, personal property, equipment, and income- producing
commercial or residential property.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. Standby letters of credit
generally have terms of up to one year.
Commercial letters of credit are issued to customers to facilitate foreign and
domestic trade transactions. They represent a substitution of the Bank's
credit for the customer's credit. Such letters of credit are generally short
term in nature and are collateralized by the merchandise covered by the
transaction. At December 31, 1995 and 1994 there were $1.0 million and $1.5
million outstanding, respectively. These amounts reduce the availability under
the applicable customer's loan facility.
Interest rate swaps and floors may be created to hedge certain assets and
liabilities of the Bank. These transactions involve either an exchange of fixed
or floating rate payment obligations on an underlying notional amount. In the
case of a rate floor, there is a guaranteed payment of a rate differential on a
notional amount, should a specific market rate fall below a specific agreed
upon level. Credit risk related to interest rate swaps is limited to the
interest receivable from the counterparty less the interest owed that party or,
in the case of rate floors, to interest receivable on the differential between
the specific rate contracted in the floor agreement and actual rates in effect
at various settlement dates. Market risk fluctuates with interest rates.
53
<PAGE> 54
The following is a summary of various financial instruments with off-balance
sheet risk at December 31,1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
AMOUNTS IN MILLIONS OF DOLLARS 1995 1994
---- ----
<S> <C> <C>
Standby letters of credit $ 3 $ 7
Undisbursed loans 87 69
</TABLE>
In response to continued economic declines and anticipating interest rate
declines, the Bank entered into an interest rate swap agreement effective
October 8, 1991, for $100 million. Terms of this agreement were that the Bank
would receive a fixed rate of 8.18% over two years in exchange for paying the
average prime rate. Accrued benefits from this transaction amounted to $1,726
in 1993, and are included in interest income. Amounts due the Bank or
counterparty were settled quarterly. This agreement expired on October 8, 1993.
In the normal course of business, the Company occasionally becomes a party to
litigation. See footnote 15.
12. OTHER OPERATING EXPENSES --
Other operating expenses included the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Promotional expenses $273 $264 $393
Data processing for customers 564 737 920
Director and advisory fees 104 107 146
Legal fees 109 455 1,370
Other professional fees 356 419 495
Messenger services 357 408 583
Other data processing fees 438 301 455
Regulatory assessments 357 648 1,036
Expenses for other real estate owned 1 22 234
Amortization of mortgage servicing rights 0 15 983
Occupancy expense 1,840 1,710 2,488
Reserve for branch relocation 0 58 447
Other 1,321 2,323 4,120
------ ------ -------
Total operating expenses $5,720 $7,467 $13,670
====== ====== =======
</TABLE>
13. CONDENSED FINANCIAL INFORMATION OF CU BANCORP --
At December 31, 1995 and 1994, the condensed unconsolidated balance sheets of
the Company are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Balance Sheets
Cash $ 590 $ 426
Prepaid expenses 0 0
Investment in California United Bank N.A. 32,681 29,507
------ ------
Total assets $33,271 $29,933
======= =======
Other liabilities $268 $189
Shareholders' equity 33,003 29,744
------ ------
Total liabilities and shareholders' equity $33,271 $29,933
======= =======
</TABLE>
54
<PAGE> 55
For the years ended December 31, 1995, 1994, and 1993, the condensed
unconsolidated statements of income of the Company are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statements of Income
Equity in earnings of the Bank $3,090 $2,785 $2,265
Operating expenses 210 221 167
Interest Income 14 9 0
------ ------ ------
Net income $2,894 $2,573 $2,098
====== ====== ======
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, the condensed
unconsolidated statements of cash flows are as follows:
Amounts in thousands of dollars
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,894 $ 2,573 $ 2,098
Equity in undistributed earnings of subsidiaries (3,090) (2,785) (2,265)
Other, net 78 115 85
------- ------- -------
Net cash (used) by operations (118) (97) (82)
Cash flows from financing activities
Proceeds from exercise of stock options and director warrants 649 180 260
Cash dividend paid (367) -- --
------- ------- -------
Net cash provided by financing activities 282 180 260
Net increase in cash and cash equivalents 164 83 178
Cash and cash equivalents at beginning of the year 426 343 165
------- ------- -------
Cash and cash equivalents at end of year $ 590 $ 426 $ 343
======= ======= =======
</TABLE>
Under National banking law, the Bank is limited in its ability to declare
dividends to the Company to the total of its net income for the year, combined
with its retained net income for the preceding two years less any required
transfers to surplus. The effect of this law was to preclude the bank from
declaring any dividends at December 31, 1994 and 1993. The Bank has received
permission from the OCC to pay dividends to the Company in 1995, in
anticipation of the cash dividends paid by the Company. No dividends were
actually paid by the Bank in 1995,1994 or 1993.
14. SUBSEQUENT EVENTS
In March of 1995, the Bank had announced the signing of an agreement to acquire
Corporate Bank, a Santa Ana based community bank with approximately $70 million
in assets. This purchase was completed in January 1996, with Corporate Bank
being acquired in exchange for the issuance of approximately 649 thousand
shares of CU Bancorp common stock and $1.7 million cash. The acquisition of
Corporate Bank will be reflected using the purchase method of accounting in the
first quarter of 1996. Also in January 1996, the Bank announced the signing of
an agreement to merge with Home Interstate Bancorp, the parent of Home Bank,
based in the South Bay. Home Bank provides retail and business banking from
its principal office in Signal Hill and fourteen additional branch locations.
The agreement with Home Bank provides for the combination to be effected
through the exchange of common stock, and is expected to be accounting for as a
pooling of interests. This merger, which is targeted to be completed near the
end of the second quarter of 1996, would create a combined bank with over $800
million in assets and 22 branches.
55
<PAGE> 56
15. LEGAL MATTERS
In the normal course of business the Bank occasionally becomes a party to
litigation. In the opinion of management, based upon consultation with legal
counsel, the Bank believes that pending or threatened litigation involving the
Bank will have no adverse material effect upon its financial condition, or
results of operations.
Until third quarter 1995, the Bank was a defendant in multiple lawsuits related
to the failure of two real estate investment companies, Property Mortgage
Company, Inc., ("PMC") and S.L.G.H., Inc. ("SLGH"). The lawsuits, consisted of
a federal action by investors in PMC and SLGH (the "Federal Investor Action"),
at least three state court actions by groups of Investors (the "State Investor
Actions"), and an action filed by the Resolution Agent for the combined and
reorganized bankruptcy estate of PMC and SLGH (the "Neilson" Action). An
additional action was filed by an individual investor and his related pension
and profit sharing plans (the "Individual Investor Action"). Other defendants
in these multiple actions and in related actions include financial
institutions, title companies, professionals, business entities and
individuals, including the principals of PMC and SLGH. The Bank was a
depository bank for PMC, SLGH and related companies and was a lender to certain
principals of PMC and SLGH ("Individual Loans"). Plaintiffs alleged that
PMC/SLGH was or purported to be engaged in the business of raising money from
investors by the sale and issuance of interests in loans evidenced by
promissory notes secured by real property. Plaintiffs alleged that false
representations were to the Bank's conduct with regard to the depository
accounts, the lending relationship with the principals and certain collateral
taken , pledged by PMC and SLGH in conjunction with the Individual Loans. The
lawsuits alleged inter alia violations of federal and state securities laws,
fraud, negligence, breach of fiduciary duty, and conversion as well as
conspiracy and aiding and abetting counts with regard to these violations. The
Bank denied all allegations of wrongdoing. Damages in excess of $100 million
were alleged, and compensatory and punitive damages were sought generally
against all defendants, although no specific damages were prayed for with
regard to the Bank. A former officer and director of the Bank was also been
named as a defendant.
The Bank entered into a settlement agreement with the representatives of
the various plaintiffs, which has now been consummated, with the dismissal of
all of the above referenced cases, with prejudice, against the Bank, its
officers and directors, with the exception of the officer/director previously
named pending. Court approval of these settlements has been received. In
connection with the settlement, the Bank released its security interest in
certain disputed collateral and cash proceeds thereof, which the Bank received
from PMC, SLGH, or the principals, in connection with the Individual Loans.
This collateral had been a subject of dispute in the Neilson Action, with both
the Bank and the representatives of PMC/SLGH asserting the right to such
collateral. All the Individual Loans have been charged off. The Bank also
made a cash payment to the Plaintiffs in connection with the settlement. The
effect of this settlement on CU Bancorp or the Bank's financial statements was
immaterial. In connection with the settlement the Bank assigned its rights, if
any, under various insurance policies, to the Plaintiffs. The settlement does
not resolve the claims asserted against the officer/director. The Bank is
still providing a defense to its former director/officer who continues as a
defendant and who retains his rights of indemnity, if any, against the Bank
arising out of his status as a former employee. At this time the only viable
claims which appear to remain against the former director/employee are claims
of negligence in connection with certain depository relationships with
PMC/SLGH. While the Bank's Director and Officer Liability Insurer has not
acknowledged coverage of any potential judgment or cost of defense, the Insurer
is on notice of the action and has participated in various aspects of the case.
16. REGULATORY MATTERS
Since June 1992, the Bank has developed a very positive and proactive
relationship with its primary regulators. Results of regular safety and
soundness examinations have documented the progress the Bank has achieved.
Management is committed to the continuation of this process and maintaining a
high standing with the regulators. The following comments refer to regulatory
situations that existed in prior years that are reflected in the prior period
financial statements provided herein. All of these situations have been
successfully resolved and repaired as management transitioned the Bank to its
present condition and performance.
56
<PAGE> 57
On November 2, 1993, the Office of the Comptroller of the Currency
("OCC"), after completion of their annual examination of the Bank, terminated
the Formal Agreement entered into in June, 1992. In December 1993, the Fed
terminated the Memo of Understanding entered into in August, 1992.
The Formal Agreement had been entered into in June 1992 and required the
implementation of certain policies and procedures for the operation of the Bank
to improve lending operations and management of the loan portfolio. The Formal
Agreement required the Bank to maintain a Tier 1 Risk Weighted Capital ratio of
10.5% and a 6.0% Tier 1 Leverage Ratio. The Formal Agreement mandated the
adoption of a written program to essentially reduce criticized assets, maintain
adequate loan loss reserves and improve bank administration, real estate
appraisal, asset review management and liquidity policies, and restricted the
payment of dividends.
The agreement specifically required the Bank to: 1) create a compliance
committee; 2) have a competent chief executive officer and senior loan
officer, satisfactory to the OCC, at all times; 3) develop a plan for
supervision of management; 4) create and implement policies and procedures for
loan administration; 5) create a written loan policy; 6) develop and implement
an asset review program; 7) develop and implement a written program for the
maintenance of an adequate Allowance for Loan and Lease Losses, and review the
adequacy of the Allowance; 8) eliminate criticized assets; 9) develop and
implement a written real estate appraisal policy; 10) obtain and improve
procedures regarding credit and collateral documentation; 11) develop a
strategic plan; 12) develop a capital program to maintain adequate capital
(this provision also restricts the payment of dividends by the Bank unless (a)
the Bank is in compliance with its capital program; (b) the Bank is in
compliance with 12 U.S.C. Section 55 and 60 and (c) the Bank receives the
prior written approval of the OCC District Administrator); 13) develop and
implement a written liquidity, asset and liability management policy; 14)
document and support the reasonableness of any management and other fees to any
director or other party; 15) correct violations of law; and 16) provide reports
to the OCC regarding compliance.
The Memorandum of Understanding was executed in August 1992 and required
1) a plan to improve the financial condition of CU Bancorp and the Bank; 2)
development of a formal policy regarding the relationship of CU Bancorp and the
Bank, with regard to dividends, inter-company transactions, tax allocation and
management or service fees; 3) a plan to assure that CU Bancorp has sufficient
cash to pay its expenses; 4) ensure that regulatory reporting is accurate and
submitted on a timely basis; 5) prior approval of the Federal Reserve Bank
prior to the payment of dividends; 6) prior approval of the Federal Reserve
Bank prior to CU Bancorp incurring any debt and 7) quarterly reporting
regarding the condition of the Company and steps taken regarding the Memorandum
of Understanding.
57
<PAGE> 58
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
NONE.
Part III
Incorporated by reference from Registrant's definitive proxy statement to be
filed within 120 days of fiscal year ended December 31, 1995.
Part IV. Exhibits, Financial Statement Schedules and Reports on Form 8 K.
(A)
(1) and (2) Financial Statements and Financial Statement
Schedules - See index at Item 8 of this report.
(3) Exhibits
2. Plan of Acquisition, Reorganization
arrangement, liquidation or succession.
a) Amended and Restated Agreement and Plan
of Reorganization between CU Bancorp,
California United Bank, N.A. and Corporate
Bank dated October 11, 1995 -- incorporated
by reference from Registrant's Registration
Statement on Form S-4 dated October 26,
1995 (33-63729).
b) Agreement and Plan of Reorganization
dated January 10, 1996 between CU Bancorp
and California United Bank, N.A. and Home
Interstate Bancorp and Home Bank and
Exhibits thereto.
c) Amendment Number One to Agreement and
Plan of Reorganization between CU Bancorp
and California United Bank, N.A. and Home
Interstate Bancorp and Home Bank.
10. Material Contracts
a) CU Bancorp Restricted Stock Plan
11. Statements re computation of per share
earnings
See footnote 1(i) to the financial
statements included at Item 8 of this
report.
21. Subsidiaries of the Registrant
27. Financial Data Schedule
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1996 C U BANCORP
STEPHEN G. CARPENTER
By
Stephen G. Carpenter
President and Chief
Executive Officer
PATRICK HARTMAN
By
Patrick Hartman
Chief Financial Officer
59
<PAGE> 60
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------- ----
<S> <C> <C>
KENNETH BERNSTEIN Director March 28, 1996
_________________
Kenneth Bernstein
STEPHEN G. CARPENTER
__________________________________ Director, March 28, 1996
Stephen G. Carpenter Chairman/
Chief Executive
Officer
________________________________ Director March 28, 1996
Richard H. Close Secretary
PAUL W. GLASS
___________________________________ Director March 28, 1996
Paul W. Glass
RONALD S. PARKER Director March 28, 1996
____________________
Ronald S. Parker
DAVID I. RAINER
____________________ Director, March 28, 1996
David I. Rainer President, Chief
Operating Officer
</TABLE>
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrant Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
The proxy statement with respect to the annual meeting of the shareholders
shall be furnished to shareholder subsequent to the filing of this Form 10-K
and shall also be furnished to the Securities and Exchange Commission.
60
<PAGE> 61
EXHIBIT INDEX
2. Plan of Acquisition, Reorganization arrangement, liquidation or
succession.
a) Amended and Restated Agreement and Plan of
Reorganization between CU Bancorp,
California United Bank, N.A. and Corporate
Bank dated October 11, 1995 --
incorporated March 28, 1996 by reference
from Registrant's Registration Statement
on Form S-4 dated October 26, 1995
(33-63729).
b) Agreement and Plan of Reorganization dated
January 10, 1996 between CU Bancorp and
California United Bank, N.A. and Home
Interstate Bancorp and Home Bank and
Exhibits thereto.
c) Amendment Number One to Agreement and Plan
of Reorganization between CU Bancorp and
California United Bank, N.A. and Home
Interstate Bancorp and Home Bank.
10. Material Contracts
a) CU Bancorp Restricted Stock Plan
11. Statements re computation of per share earnings
See footnote 1(i) to the financial statements
included at item 8 to this report.
21. Subsidiaries of the Registrant
27. Financial Data Schedule
61
<PAGE> 1
EXHIBIT 2.(a)
AMENDED AND RESTATED
AGREEMENT
AND
PLAN OF REORGANIZATION
By and Among
CU BANCORP;
CALIFORNIA UNITED BANK, NATIONAL ASSOCIATION;
and
CORPORATE BANK
OCTOBER 11, 1995
1
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
This Amended and Restated Agreement and Plan of Reorganization
("Agreement") is made and entered into as of October 11, 1995 by and among CU
Bancorp, a California corporation ("Bancorp"); California United Bank, National
Association, a national banking association and a wholly-owned subsidiary of
Bancorp ("CUB"); and Corporate Bank, a California state chartered bank
("CorpBank"), replacing, amending and restating that certain Agreement and Plan
of Reorganization dated as of March 27, 1995 by and among the same parties.
RECITALS
This Agreement provides for the acquisition of CorpBank by Bancorp by
means of a merger ("Merger") of CorpBank with and into CUB, all in accordance
with the terms of this Agreement and an agreement of merger to be entered into
by and among Bancorp, CorpBank and CUB substantially in the form of Exhibit A
hereto ("Agreement of Merger"). The parties hereto have previously entered into
an Agreement and Plan of Reorganization dated March 27, 1995, which is hereby
replaced, amended and restated in its entirety by the following.
In consideration of the mutual covenants, agreements and representations
contained herein, the parties hereto agree as follows:
1. THE MERGER AND RELATED MATTERS
1.1 The Merger. The Merger shall become effective upon the filing of the
Agreement of Merger with the Office of the Comptroller of the Currency ("OCC")
and the Secretary of State of the State of California, in accordance with the
provisions of the National Banking Act, the California Corporations Code and the
California Financial Code. The date and time of the filing with the OCC is
referred to herein as the "Effective Time of the Merger." At the Effective Time
of the Merger the following transactions will be deemed to have occurred
simultaneously:
(a) Merger of CorpBank Into CUB. CorpBank shall be merged with and into
CUB (the "Bank Merger"), and the separate corporate existence of CorpBank shall
cease. CUB as the entity surviving the Merger is sometimes referred to herein as
the "Surviving Association."
1
<PAGE> 3
(b) Purchase Price / Conversion of Shares. At the Effective Time of the
Merger:
(i) Purchase Price. The Purchase Price shall be equal to
CorpBank's Shareholders' Equity, (as defined in Subsection (v) below) as of
November 30, 1995 (the "Audit Date"), plus or minus, as the case may be, an
amount equal to the pro rata net income or net loss from operations for the
eleven month period prior to the Audit Date (the "Audit Period") (which pro rata
net income shall not include extraordinary gains which for purposes of this
measurement shall include, but not be limited to, any recovery from the Bond
Claim, as defined below) for the period from the Audit Date to the Calculation
Date (the "Applicable Period"). There shall be added to the Purchase Price the
amount of any net recovery under the Bond Claim during the Applicable Period
(after taxes, expenses and retention), all as determined by Arthur Andersen LLP
("AA") as set forth below. To the extent that the Closing Date is scheduled at a
time which is more than seventy-five (75) days after the Audit Date, AA shall
conduct an additional review of the period from November 30, 1995 through the
month end prior to such Closing Date, and any adjustments to Corporate's
internally prepared financial statements for such period which are required by
AA as a result thereof, shall be included in the Purchase Price as if they
occurred prior to the Audit Date.
(ii) Subject to Sections 1.2, 1.4 and clause (iv) of this Section
1.1 (b), each outstanding share of CorpBank Stock (as defined in Section 3.2)
will be converted into the right to receive: (A) a number of shares of Bancorp
common stock, without par value ("Bancorp Common"), equal to the "Conversion
Ratio" plus an amount of cash set forth below. The Conversion Ratio shall be a
fraction of which the numerator shall be not less than seventy five percent
(75%) and not more than ninety percent (90%) (hereinafter referred to as the
"Elected Stock Percentage") of the Purchase Price Per Share and the denominator
("Denominator") shall be $8.00 ("Bancorp Stock Value"); and (B) cash in an
amount equal to not more than twenty-five percent (25%) and not less than ten
percent (10%) (hereinafter referred to as the "Elected Cash Percentage") of the
Purchase Price Per Share.
(iii) Purchase Price Per Share shall be a fraction of which the
numerator is the Purchase Price and the Denominator is the number of outstanding
shares of CorpBank on the Calculation Date on a fully diluted basis. Dissenting
Shares, as defined in Section 1.4 below, shall be considered outstanding in
calculating the number of outstanding shares on the Calculation Date.
(iv) The Elected Stock Percentage shall be not less than
seventy-five percent (75%) and not more than ninety percent (90%) and the
Elected Cash
2
<PAGE> 4
Percentage shall not be less than ten percent (10%) and not more than twenty
five percent (25%). The Elected Stock Percentage plus the Elected Cash
Percentage shall equal one hundred percent (100%), and shall both be determined
by Bancorp, in its sole discretion, no later than the Closing Date. The
Elected Stock Percentage and the Elected Cash Percentage shall collectively be
referred to herein as the "Elected Percentage".
(v) Except as specifically set forth in this Agreement to the
contrary, Shareholders' Equity shall be defined pursuant to Generally Accepted
Accounting Principles, consistently applied ("GAAP") as set forth in CorpBank's
audited financial statements as of the Audit Date. Arthur Andersen, LLP ("AA")
shall perform an audit of the CorpBank financial statements and results of
operations for the Audit Period (or such later date as the parties shall agree
to, in writing) and as of the Audit Date. The examination shall be accompanied
by AA's unqualified opinion as to the financial statements. The determination of
AA as to CorpBank's shareholders' equity, net income (loss) (which shall for the
purposes set forth herein include all expenses and legal fees of the transaction
contemplated herein, (including, due inquiry into expenses which can be
ascertained, whether or not yet billed) and the net after tax effect of any sale
or recovery of the "Bond Claim" as defined below (whether or not it occurs prior
to the Audit Date or during the Applicable Period) shall be binding on both
parties, subject to Section 8.1 herein. To the extent that the Closing Date is
scheduled at a time which is more than seventy-five (75) days after November 30,
1995, an additional review shall be conducted by AA and the determination of AA
as to appropriate adjustments to CorpBank's internally prepared financial
statements as a result of such review shall be binding on both parties, subject
to Section 8.1 herein.
(vi) Audits
(A) The audit to be conducted by AA shall include a review of
the loan and lease portfolio with the scope equal to: all loans in principal
amount in excess of $10,000 classified: doubtful, substandard or "especially
mentioned" (or a similar rating); non accrual loans and loans past due 30 days
or more, in principal amount in excess of $25,000; all loans in excess of
$100,000; all construction loans; all REO; and such sampling of other loans such
that 65% of the aggregate principal dollar amount of the total loan and lease
portfolio should be reviewed.
(B) In addition, CorpBank shall cause Buccola and Associates
to conduct a review of the loan and lease portfolio of similar scope to that
required in Subsection (vi)(A) above, as of October 12, 1995 (to be completed by
November 30, 1995). To the extent the Closing is scheduled to take place more
than forty-five (45) days after November 30, 1995, Buccola and Associates shall
be required to update their review to the extent of all new credits, all credits
which in the interim
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are reclassified or which are 60 days or more delinquent and such other matters
as may be agreed to among the parties.
(vii) The Calculation Date shall be the last business day of the
week preceding the Closing Date or such other date as may be mutually agreed
upon. The Calculation Date shall not be more than five (5) business days prior
to the Closing Date, except pursuant to the mutual agreement of the parties
hereto.
(c) Exception for Shares Held by Bancorp or CorpBank. Each share of
CorpBank Stock which immediately prior to the Effective Time of the Merger is
owned by CorpBank or Bancorp or their wholly-owned subsidiaries (other than
shares held in a fiduciary capacity) shall, at the Effective Time of the Merger,
be canceled and retired and cease to exist, without the payment of any
consideration therefor or any conversion thereof into Bancorp Common. For
purposes of this Agreement, a Bank shall be deemed wholly-owned by CorpBank or
Bancorp if all of such Bank's stock is owned directly by CorpBank or Bancorp (as
applicable) or indirectly through one or more other wholly-owned subsidiaries.
(d) Effect on CorpBank Stock Options. In accordance with Section 5.12
and prior to the Closing Date (as defined in Section 2.1), CorpBank shall make
arrangements satisfactory to Bancorp and CUB for the exercise, surrender or
cancellation of all outstanding options to purchase CorpBank Stock, such
cancellation to become effective at the Effective Time of the Merger. Any
exercise of options must take place prior to the Calculation Date.
(e) Effect on CorpBank Fixed Rate, Non-Convertible 8.5% Subordinated
Capital Notes Maturing June 30, 1997. In accordance with the provisions of the
capital notes (the "Capital Notes"), CUB will assume the Capital Notes.
1.2 No Fractional Shares. No fractional shares of Bancorp Stock shall be
issued. Bancorp will pay or cause to be paid cash in lieu of fractional shares
of Bancorp Stock which would otherwise be issuable pursuant to Section 1.1.
1.3 Conversion of CorpBank Stock / Exchange of Certificates.
(a) Election Procedures. Subject to the terms of this Agreement, each
record holder of shares of CorpBank Stock will have the right to specify such
holder's election to have his shares of CorpBank Stock converted into Bancorp
Common or cash, or to specify that such holder has no election, in accordance
with the following procedures:
(i) Not later than the Closing Date, a form of letter of
transmittal
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<PAGE> 6
and election statement providing for such a specification of election and for
the tender to the Exchange Agent (as defined in Section 1.3 (c) herein) of the
related share certificates (an "Election Statement") will be mailed to the
holders of record of CorpBank Stock as of a date determined by Bancorp and
CorpBank. CorpBank will also provide forms of the Election Statement to all
persons who become holders of record of CorpBank Stock during the period
between such record date and the Election Deadline (as defined in subsection
(iv) below) and will make such forms available at its executive offices and
such other places as Bancorp and CorpBank deem appropriate.
(ii) Any record holder of CorpBank Stock may specify, in an
Election Statement meeting the requirements of this SubArticle that, as to all
shares of CorpBank Stock covered by such Election Statement:
(A) All such shares shall be converted to Bancorp Common
("Stock Election Shares");
(B) All shares shall be converted to cash ("Cash Election
Shares"); or
(C) A designated portion of such shares shall be converted
to cash as Cash Election Shares and a portion of such shares shall be converted
to Bancorp Common as Stock Election Shares; or
(D) The shareholder has no preference and accordingly makes
no election.
(iii) Any record holder of CorpBank Stock who is holding such
shares for a beneficial owner, or as a nominee for one or more beneficial
owners, may submit an Election Statement on behalf of any such beneficial
owners. Any beneficial owner of CorpBank Stock on whose behalf a record owner of
CorpBank Stock has submitted an Election Statement in accordance with this
SubArticle, will be considered a separate holder of CorpBank Stock for purposes
of this Agreement.
(iv) An Election Statement will be effective only if a properly
completed and signed copy thereof accompanied by stock certificates for the
shares of CorpBank Stock which such Election Statement covers, shall have been
actually received by the Exchange Agent no later than 5:00 P.M., Pacific Time,
on the business day mutually selected by Bancorp and CorpBank (such time and day
being herein referred to as the "Election Deadline"). If no such day is mutually
agree to, the Election Deadline shall be the date fifteen (15) days following
the mailing of the form of letter of transmittal and election statement to the
CorpBank shareholders. An Election Statement which meets the requirements of
this provision is hereinafter referred to as an "Effective Election Statement."
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<PAGE> 7
(v) Shares of CorpBank Stock as to which a record holder makes
no election pursuant to an Effective Election Statement, or as to which no
Effective Election Statement is filed, are hereinafter referred to as "No
Election Shares".
(vi) Any record holder of CorpBank Stock who has submitted an
Effective Election Statement may at any time until the Election Deadline amend
such Election Statement if the Exchange Agent actually receives, no later than
the Election Deadline, a later-dated, properly completed and signed, amended
Effective Election Statement.
(vii) Any record holder of CorpBank Stock may at any time prior to
the Election Deadline revoke his Election Statement and withdraw certificates
for shares of CorpBank Stock deposited therewith by written notice actually
received by the Exchange Agent no later than the Election Deadline. Any notice
of withdrawal shall be effective only if it is executed and specifies the record
holder of the shares to be withdrawn and the serial numbers shown on the
certificates representing the shares to be withdrawn. All Election Statements
shall automatically be revoked if the Merger is abandoned for any reason,
whereupon the certificates (or guarantees of delivery, as the case may be) for
the shares of CorpBank Stock to which each Election Statement relates shall be
promptly returned to the person submitting the same. The stock transfer books of
CorpBank will be closed and no share transfers will be permitted after the
Election Deadline unless the Merger is subsequently abandoned by the parties.
(viii) Bancorp and CorpBank will have the right to make rules, not
inconsistent with the terms of this Agreement, governing the form, terms and
contents of Election Statements, the validity and effectiveness of Election
Statements and the manner and extent to which they are to be taken into account
in making the determination prescribed by Section 1.3 (b) herein, the issuance
and delivery of certificates evidencing Bancorp's Common and cash into which
shares of CorpBank Stock are converted in the Merger pursuant to SubArticles
1.1(b) (ii) and (iv) and the payment for fractional interests as prescribed by
Section 1.2 herein.
(b) Allocation Procedures. The allocation among holders of CorpBank
Stock of Bancorp Common or cash pursuant to this Section 1.3 shall be effected
as follows:
(i) Not less than the Elected Percentage of the CorpBank Shares
issued and outstanding at the Effective Time of the Merger (including dissenting
Shares) will be converted into Bancorp Common (the "Stock Conversion Number").
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<PAGE> 8
(ii) If less than the Elected Percentage of CorpBank Stock issued
and outstanding at the Effective Time of the Merger (including Dissenting
Shares) are Stock Election Shares, allocation of Bancorp Common and cash will be
made as follows:
(A) First, all Stock Election Shares shall be converted into
Bancorp Common;
(B) Second, the Exchange Agent shall convert all No Election
Shares to Stock Election Shares ("Additional Stock Election Shares") in the
event that the aggregate No Election Shares so converted, when added to shares
converted into Bancorp Common pursuant to clause (ii) (A) above, are equal to or
less than the Stock Conversion Number;
(C) Third, in the event that conversion of all No Election
Shares to Additional Stock Election Shares pursuant to clause (ii) (B) would
result in the issuance of a number of shares of Bancorp Common, when added to
the shares of Bancorp Common to be issued in respect of the Stock Election
Shares, in excess of the Stock Conversion Number, the number of No Election
Shares converted to Additional Stock Election Shares shall be reduced so that
the aggregate number of shares of Bancorp Common to be issued as a result of the
Merger does not exceed the Stock Conversion Number; and the aggregate Additional
Stock Election Shares created upon the conversion of No Election Shares shall
then be allocated pro rata to each holder of No Election Shares in the
proportion the total No Election Shares of such holder bears to the total number
of No Election Shares of all shareholders;
(D) Fourth, in the event that conversion of all No Election
Shares to Additional Stock Election Shares pursuant to clause (ii) (B) would
result in the issuance of a number of shares of Bancorp Common to be issued in
respect of the Stock Election, which is less than the Stock Conversion Number,
in addition to all No Election Shares, the Exchange Agent shall convert an
aggregate number of Cash Election Shares to Additional Stock Election Shares,
such that the aggregate number of Stock Election Shares and all Additional Stock
Election Shares shall equal the Stock Conversion Number; and the aggregate
Additional Stock Election Shares to be created upon the conversion of Cash
Election Shares shall then be allocated pro rata to each holder of Cash Election
Shares in the proportion that the total Cash Election Shares of such holder bear
to the total number of Cash Election Shares of all shareholders; and
(E) Fifth, after the allocation in clauses (ii) (A) through
(D) have been made, all remaining shares of CorpBank Stock shall be converted
into cash.
(iii) If more than the Elected Percentage of the total number of
shares of CorpBank Stock issued and outstanding at the Effective Time of the
Merger (including Dissenting Shares) are Stock Election Shares, allocation of
Bancorp Common and cash will be made as follows:
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<PAGE> 9
(A) First, all Cash Election Shares and No Election Shares
shall be converted into cash;
(B) Second, the Exchange Agent shall convert an aggregate
number of Stock Election Shares to Cash Election Shares ("Additional Cash
Shares") so that the aggregate number of shares to be converted into cash as a
result of the Merger equals the total number of shares of CorpBank Stock
immediately prior to the Effective Time of the Merger minus the Stock Conversion
Number; and the aggregate Additional Cash Election Shares created upon
conversion of Stock Election Shares shall then be allocated pro rata to each
holder of Stock Election Shares in the proportion that the total Stock Election
Shares of such holder have to the total number of Stock Election Shares of all
shareholders; and
(C) Any Stock Election Shares not converted to Additional
Cash Election Shares pursuant to clause (iii) (B) above shall be converted into
Bancorp Common.
(c) Exchange Procedures.
(i) On or before the Effective Time of the Merger, Bancorp will
(i) promptly deliver to a financial institution designated by it to serve as
exchange agent (the "Exchange Agent") certificates, registered in the name of
the Exchange Agent in its capacity as exchange agent, representing the Bancorp
Common issuable in the Merger and cause the Exchange Agent to distribute shares
of Bancorp Common in accordance with this Section 1.3, (ii) provide to the
Exchange Agent on a timely basis funds necessary to pay cash payable pursuant to
Section 1.1 and any cash payable in lieu of fractional shares of Bancorp Common
as provided in Section 1.2 and cause the Exchange Agent to distribute such funds
in accordance with paragraph (a) of this Section 1.3 and (iii) cause the
Exchange Agent to distribute funds on account of dividends and other
distributions in accordance with paragraph (b) of this Section 1.3.
(ii) Bancorp and the Exchange Agent shall agree that the Exchange
Agent shall, with respect to any matter on which the holders of record of
Bancorp Common determined as of a record date after the day on which the
Effective Time of the Merger occurred shall be entitled to vote or consent, (A)
request instructions from the holders of record immediately prior to the
Effective Time of the Merger of certificates which immediately prior to the
Effective Time of the Merger represented shares of CorpBank Stock and which have
not yet been surrendered to the Exchange Agent in exchange for Bancorp Common as
to how or whether to vote or consent with respect to the shares of Bancorp
Common to which such holders are entitled and which are then held by the
Exchange Agent and (B) vote or express consent in writing with respect to any
shares of Bancorp
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<PAGE> 10
Common held by it from time to time hereunder only in accordance with such
instructions. Bancorp and the Exchange Agent shall further agree that the
Exchange Agent shall receive and hold all dividends and other distributions
paid with respect to such shares for the account of the persons entitled
thereto.
(iii) As soon as practicable after the Election Deadline, the
Exchange Agent will implement the procedures set forth in Section 1.3(b) and
send written notice to each record holder of certificates representing shares of
CorpBank Stock converted pursuant to Section 1.3(b) of the results thereof.
(iv) Upon surrender for cancellation to the Exchange Agent
(either prior to the Election Deadline or otherwise duly surrendered after the
Election Deadline) of one or more certificates for shares of CorpBank Stock
("Old Certificates"), accompanied by a duly executed letter of transmittal in
proper form, the Exchange Agent shall, promptly after the Effective Time of the
Merger, in the case of Old Certificates surrendered prior to the Election
Deadline, and as promptly as practical in the case of Old Certificates
surrendered after the Election Deadline, deliver to each holder of such
surrendered Old Certificates new certificates representing the appropriate
number of shares of Bancorp Common ("New Certificates") or checks for the
appropriate amount of cash, as applicable, together with checks for payment of
cash in lieu of fractional interests to be issued in respect of the Old
Certificates. No holder of any Old Certificate shall have any rights as a holder
of Bancorp Common until such Old Certificate is surrendered for exchange as
provided herein. The holder of an Old Certificate(s) shall have no rights with
respect to such shares other than to surrender such certificate or certificates
pursuant to this Section 1.3 or to perfect the right of appraisal which such
holder may have pursuant to Section 1300 et. seq. of the California Corporations
Code ("Section 1300") and 12 U.S.C. Section 215a ("Section 215a").
(v) Unless and until any Old Certificate shall have been
surrendered and exchanged as herein provided for New Certificates, each
outstanding Old Certificate shall represent, on and after the Effective Time of
the Merger, the right to receive the shares of Bancorp Common and/or the cash
into which the shares of CorpBank Stock shown thereon have been converted. No
dividend or other distribution payable to the holders of record of Bancorp
Common as of any time subsequent to the Effective Time of the Merger shall be
paid to the holder of any Old Certificate prior to such exchange, but upon such
surrender of any Old Certificate there shall be paid to the record holder of the
Old Certificate, the amount of dividends or other distributions which
theretofore became payable with respect to the number of shares of Bancorp Stock
represented by the certificate or certificates so issued in exchange.
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<PAGE> 11
(vi) No transfer taxes shall be payable by any shareholder in
respect of the issuance of Certificates for Bancorp Common, except that if any
certificates for Bancorp Common is to be issued in a name other than that in
which the CorpBank Certificate surrendered shall have been registered, it shall
be a condition of such issuance that the that the person requesting such
issuance shall properly endorse the certificate or certificates and shall pay to
Bancorp any transfer taxes payable by reason thereof, or any prior transfer of
such surrendered certificate or establish to the satisfaction of Bancorp that
such taxes have been paid or are not payable.
(vii) Notwithstanding anything to the contrary set forth herein,
if the holder of CorpBank Stock shall be unable to surrender his certificates
because such certificates have been lost or destroyed, such holder may deliver
in lieu thereof an indemnity bond in form and substance and with surety
satisfactory to Bancorp.
1.4 Dissenting Shares. Notwithstanding anything to the contrary contained in
this Agreement, shares of CorpBank Stock which are issued and outstanding
immediately prior to the Effective Time of the Merger and which are held by
shareholders who have not voted such shares in favor of adoption and approval of
this Agreement and the Agreement to Merge and have properly exercised their
dissenters' rights under Section 1300 and Section 215a ("Dissenting Shares")
shall not be converted into or be exchangeable for the right to receive shares
of Bancorp Stock and cash or cash in lieu of fractional shares provided for in
Section 1.2 herein, but shall be entitled to receive such consideration as shall
be determined pursuant to Section 1300 and 215a; provided, however, that if any
holder of such shares shall have failed to perfect or shall have effectively
withdrawn or lost the holder's right to dissent and receive payment under
Section 1300 and 215a, such holder's shares shall thereupon be deemed to have
been converted into and to have become exchangeable for, at the Effective Time
of the Merger, the right to receive shares of Bancorp Common and cash and cash
in lieu of fractional shares pursuant to Section 1.2 herein, without any
interest thereon. No payment for Dissenting Shares may be made prior to the
Calculation Date.
1.5 Effect of the Merger. By virtue of the Merger and at the Effective Time
of the Merger, all of the rights, privileges, powers and franchises and all
property and assets of every kind and description of CorpBank shall be vested in
and be held and enjoyed by the Surviving Association, without further act or
deed, and all the estates and interests of every kind of CorpBank, including all
debts due to it, shall be as effectively the property of the Surviving
Association as they were of CorpBank, and the title to any real estate vested by
deed or otherwise in CorpBank shall not revert or be in any way impaired by
reason of the Merger; and all rights of creditors and liens upon any property of
CorpBank shall be preserved unimpaired
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and all debts, liabilities and duties of CorpBank shall be debts, liabilities
and duties of the Surviving Association and may be enforced against it to the
same extent as if such debts, liabilities and duties had been incurred or
contracted by it, and none of such debts, liabilities or duties shall be
expanded, increased, broadened or enlarged by reason of the Merger.
1.6 Name of Surviving Association. The name of the Surviving Association
shall be "California United Bank, National Association".
1.7 Articles of Association and Bylaws of Surviving Association. The
Articles of Association and Bylaws of CUB as in effect immediately prior to the
Effective Time of the Merger shall continue to be the Articles of Association
and Bylaws of the Surviving Association.
1.8 Directors and Officers of Surviving Association. The directors of CUB
immediately prior to the Effective Time of the Merger shall be the directors of
the Surviving Association until their successors have been chosen and qualified
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Association. The officers of CUB immediately prior to the Effective Time of the
Merger shall be the officers of the Surviving Association until they resign or
are replaced or terminated by the Board of Directors of the Surviving
Association or otherwise in accordance with the Surviving Association's Articles
of Association or Bylaws.
1.9 Special Agreements. Pursuant to Section 6.2(i), not later than five (5)
business days after the Execution Date, as a condition subsequent to Bancorp and
CUB entering into this Agreement and as a material inducement for Bancorp and
CUB to enter into this Agreement, all directors of CorpBank, and all
Shareholders of CorpBank holding more than 5% of the outstanding shares of
CorpBank Stock (the "Shareholders") shall each enter into separate agreements
with Bancorp and CUB substantially in the form attached hereto as Exhibit B
pursuant to which each of the Shareholders shall agree to vote or cause to be
voted all such shares of CorpBank Stock with respect to which each such
Shareholder has voting power on the date hereof or hereafter to approve the
transactions contemplated hereby and all requisite matters related thereto and
pursuant to which each of the Shareholders shall make certain representations
and warranties to Bancorp and CUB. Additionally, each director of CorpBank shall
agree not to sell Bancorp stock received pursuant to the transactions
contemplated in the Agreement for a period of two full calendar quarters,
following the quarter in which the Effective Date occurs. Further each director
of CorpBank shall agree to either (i) designate his shares as Stock Election
Shares or (ii) designate his shares as part Stock Election Shares and Cash
Election Shares in no less than the proportion the Elected Stock
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Percentage bears to the Elected Cash Percentage.
1.10 Adjustment to Shareholders' Equity /Bond Claim / Additional Payment.
(a) Bond Claim. CorpBank filed a Bond Claim approximately September 29,
1995 to demand reimbursement under its Bankers' Blanket Bond Policy (Carrier -
Chubb and Policy Number 81193606-H) for losses incurred in connection with the
actions of former officers as detailed in that certain report and exhibits
prepared by The Audit Group and dated July 12, 1995 and supplemented in a letter
from CorpBank's counsel (the "Bond Claim").
(b) In the event a recovery under the Bond Claim is received prior to
the Calculation Date, the balance, net of taxes, costs, expenses and retention,
shall be treated as required by GAAP, as if such recovery occurred prior to the
Audit Date. AA shall prepare a calculation of Shareholders' Equity including the
effect of the Bond Claim recovery, if any. For purposes of this provision, a
recovery shall have been deemed to occur in the event the Carrier makes a
payment or payments to CorpBank or CorpBank receives consideration from some
third party for the assignment and sale of the Bond Claim. This provision shall
be deemed to provide a waiver from provisions below restricting CorpBank's
ability to sell assets other than in the ordinary course of business, for the
sale of the Bond Claim in any manner deemed prudent and appropriate by CorpBank,
and in accordance with such principals of law and regulation as may be
applicable thereto.
(c) Additional Payment. In the event that there is no recovery from the
Bond Claim prior to the Calculation Date, the Purchase Price shall be increased
by $200,000.
(d) Sale to third party. In the event of an assignment and sale of the
Bond Claim to a third party, whether or not related to CorpBank or an affiliate
of CorpBank, CorpBank shall provide CUB and Bancorp with the following:
(i) The assignment and sale is in accordance and compliance with
all provisions of applicable law, including but not limited to the California
Financial Code and California Corporations Code;
(ii) CorpBank has received the non disapproval of all necessary
governmental or regulatory agencies, including but not limited to California
Superintendent of Banks and the Federal Deposit Insurance Corporation, if
required;
(iii) CUB shall have received an opinion of counsel to CorpBank as
to compliance with subsections (i) and (ii) above.
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(e) Indemnity. In the event of a sale and assignment of the Bond Claim,
CUB and Bancorp shall be indemnified and held harmless by the Purchaser, against
any damage, costs, expenses, actions, claims or other matter relative to the
Bond Claim. Such indemnity shall include reimbursement for costs and expenses,
including outside legal fees incurred in connection with any claim against CUB
or Bancorp in connection with the Bond Claim or requests for documents,
testimony or other action on the part of CUB or Bancorp.
1.11 Other Agreements
(a) All prior agreements between Bancorp and CUB on the one hand and
Corporate and / or its affiliates (as "affiliates" are defined under Federal
Securities Laws and Regulations, including but not limited to the Securities and
Exchange Act of 1934, as amended) are hereby terminated in their entirety,
except to the extent that confirmations in the form of Exhibit 1.11 herein, as
applicable are received from affiliates within five (5) days of execution of
this Amended and Restated Agreement and Plan of Reorganization.
(b) All parties intend that this transaction qualify as a tax-free
reorganization under Internal Revenue Code Section 368(a)(1)(A) and
368(a)(2)(D), (the forward triangular merger provision), and corresponding state
provisions. AA will review all tests for qualification as a tax-free
reorganization immediately prior to the Closing Date. If, based on the review of
these tests, the parties to the Agreement believe there is a significant risk of
the transaction disqualifying as a tax-free reorganization, the parties will
amend the Agreement to reduce such risks.
2. THE CLOSING
2.1 Closing Date; Transactions Contemplated by this Agreement.
(a) Date of Closing. Consummation of the transactions contemplated by
this Agreement ("Closing") shall, unless another date or place is agreed in
writing by the parties hereto, take place at the offices of CUB, 16030 Ventura
Boulevard, Encino, California 91436, on the first Friday following the business
week in which the following occurred: the last to occur of (i) the receipt of
all approvals and consents and expiration of all waiting periods specified in
Sections 6.1(a) and (c) hereof and (ii) satisfaction of the conditions precedent
set forth in Section 6.2(t) or written waiver of such conditions by Bancorp and
CUB in their sole discretion (the "Closing Date").
(b) Transactions Contemplated. The transactions contemplated by this
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Agreement include, without limitation, the Bank Merger (as defined in Section
1.1 (a).
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<PAGE> 16
2.2 Execution of Agreement of Merger. Prior to the Closing Date, and as
soon as practicable after adoption and approval of this Agreement by the
shareholders of CorpBank and the shareholder of CUB, the Agreement of Merger (as
amended, if necessary, to conform to any requirements of any regulatory
authority having authority over the Merger) shall be executed by Bancorp, CUB
and CorpBank. On the Closing Date, the Agreement of Merger, together with all
requisite certificates, shall be duly filed with the OCC in accordance with
applicable laws and regulations and with the California Secretary of State.
2.3 Documents to be Delivered. At the Closing, the parties shall deliver,
or cause to be delivered, such documents or certificates as may be necessary, in
the reasonable opinion of counsel for any of the parties, to effectuate the
transactions called for in this Agreement. If, at any time after the Effective
Time of the Merger, Bancorp or the Surviving Association or its successors or
assigns shall determine that any further conveyance, assignment or other
documents or any further action is necessary or desirable to further effectuate
the transactions set forth herein or contemplated hereby, the officers and
directors of the parties hereto shall execute and deliver, or cause to be
executed and delivered, all such documents as may be reasonably required to
effectuate such transactions.
3. REPRESENTATIONS AND WARRANTIES OF CORPBANK AND CORPBANK SUBSIDIARIES
CorpBank and CorpBank Subsidiaries (as defined in Section 3.3) represent and
warrant to Bancorp and CUB as follows (exceptions to the representations and
warranties set forth below and reflected in a Schedule shall be clearly labeled
to identify the Schedule to which they apply and shall only be necessary at
inception of the Agreement to the extent that the schedules as of August 1, 1995
previously provided shall require updating, thereafter schedules shall be
updated as required herein):
3.1 Organization, Standing and Power. CorpBank is a California corporation,
duly chartered as a California state chartered bank, duly organized, validly
existing and in good standing under the laws of the state of California.
CorpBank has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. CorpBank is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all states or other
jurisdictions (all of which are listed in Schedule 3.1(a)) in which such
qualification or authorization is necessary, and there has not been any claim by
any other state or jurisdiction to the effect that CorpBank is required to
qualify or otherwise be authorized to do business as a foreign corporation
therein. Schedule 3.1(b) contains true and correct copies of CorpBank's Articles
of
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<PAGE> 17
Incorporation and Bylaws, as amended and in effect as of the date hereof.
3.2 Capitalization. As of the date of this Agreement, the authorized
capitalization of CorpBank consists solely of Five Million (5,000,000) shares of
common stock, without par value ("CorpBank Stock"), of which Five Hundred
Thousand (500,000) shares are issued and outstanding and One Million Dollars
($1,000,000) in principal amount of capital notes due June 30, 1997 ("Capital
Notes"). All outstanding shares of capital stock of CorpBank are duly authorized
and validly issued and are fully paid and nonassessable except, as provided for
in Section 662 of the California Financial Code. The capital notes are validly
issued and are held by eleven (11) holders. Except for stock options covering
not more than 92,500 shares of CorpBank Stock granted pursuant to CorpBank's
1991 Employee Stock Option Plan, there are no outstanding options, warrants,
commitments, agreements or other rights in or with respect to the unissued
shares of CorpBank Stock, CorpBank Preferred Stock, or stock of any CorpBank
Subsidiary or any other securities convertible into CorpBank Stock, CorpBank
Preferred Stock, or stock of any CorpBank Subsidiary. 92,500 shares of CorpBank
Stock are reserved for exercise of outstanding stock options under the 1991
Employee Stock Option Plan. Schedule 3.2(b) sets forth the name of each holder
of a CorpBank Stock option, the number of shares of CorpBank Stock covered by
each such holder's option, the exercise price per share and the expiration date
of each such holder's option. Immediately prior to the Effective Time of the
Merger, all issued and outstanding CorpBank Stock will have been either
outstanding on the date of this Agreement, or issued upon exercise of stock
options outstanding pursuant to the 1991 Employee Stock Option Plan.
3.3 Subsidiaries. CorpBank does not own, directly or indirectly (except as
pledgee pursuant to loans which are not in default), any equity position or
other voting interest in any corporation, partnership, joint venture or other
entity, except as set forth on Schedule 3.3. Schedule 3.3 correctly lists each
Subsidiary of CorpBank (individually "CorpBank Subsidiary" or collectively
"CorpBank Subsidiaries"). Each CorpBank Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as stated in Schedule 3.3 and has the corporate
power and authority to carry on its business as it is now conducted and to own,
lease and operate its properties. Each CorpBank Subsidiary is duly qualified and
in good standing as a foreign corporation, and is authorized to do business, in
all states or other jurisdictions (all of which are listed in Schedule 3.3) in
which such qualification or authorization is necessary, and there has not been
any claim by any other state or jurisdiction to the effect that an CorpBank
Subsidiary is required to qualify or otherwise be authorized to do business as a
foreign corporation therein. Except as set forth in Schedule 3.3, CorpBank owns
of record and beneficially 100% of each class of the
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outstanding capital stock of each CorpBank Subsidiary free and clear of any
lien, encumbrance or security interest and of any adverse claim of any kind.
3.4 Corporate Bank. CorpBank is authorized by the California Superintendent
of Banks (the "Superintendent") to conduct a general banking business. CorpBank
is not a member of the Federal Reserve System. CorpBank's deposits are insured
by the Federal Deposit Insurance Corporation ("FDIC") in the manner and to the
full extent provided by law.
3.5 Reports and Financial Statements. CorpBank has previously furnished to
CUB true and complete copies of its (i) Annual Report to Shareholders for the
years ended December 31, 1994, 1993 and 1992, (ii) Quarterly Call Reports for
the calendar quarters ended March 31, and June 30, 1995 (iii) proxy statements
relating to all meetings of shareholders (whether special or annual) during
1995, 1994, 1993 and 1992, and (iv) all other reports, registration statements
or filings made by CorpBank with the Superintendent, the FDIC or the Securities
and Exchange Commission ("SEC") since January 1, 1992 (collectively the
"CorpBank Filings"). As of their respective dates, the CorpBank Filings and any
other materials distributed to shareholders, including but not limited to proxy
statements for annual shareholder meetings in 1992, 1993, 1994, and 1995, were
in compliance, in all material respects, with the requirements of their
respective forms and were true and complete in all material respects and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. CorpBank
has also furnished to CUB its audited consolidated financial statements for the
years ended December 31, 1992 and 1993, certified by Grant Thornton ("GT"). The
audited consolidated financial statements of CorpBank provided to CUB or to be
provided in the future and the unaudited consolidated interim financial
statements previously furnished to CUB or included in the CorpBank Filings
(collectively the "CorpBank Financial Statements") were (or will be) prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP") and except as disclosed in the CorpBank Financial Statements or
the notes thereto and present fairly the consolidated financial position of
CorpBank and the CorpBank Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flow for the periods then
ended, subject, in the case of the unaudited consolidated interim financial
statements, to normal recurring adjustments. Neither the financial statements
referred to above nor any report (including, without limitation, annual reports
to shareholders, prospectus or definitive proxy statement), or any amendment or
supplement thereto, filed, or to be filed, prior to the Effective Time of the
Merger with the Superintendent, FDIC, OCC, or SEC by or on behalf of CorpBank
contains (or will contain when furnished or filed) any untrue statement
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of a material fact or omits (or will omit when furnished or filed) to state a
material fact necessary in order to make the statements contained therein not
misleading.
3.6 CorpBank's and CorpBank Subsidiaries' Authority. The execution and
delivery by CorpBank and CorpBank Subsidiaries of this Agreement and the
Agreement of Merger and, subject to the requisite approval of the shareholders
of CorpBank, the consummation of the transactions contemplated hereunder or
thereunder have been duly and validly authorized by all necessary corporate
action on the part of CorpBank and CorpBank Subsidiaries, and this Agreement is,
and the Agreement of Merger will be upon due certification, execution,
acknowledgment and filing thereof in accordance with applicable law, a valid and
binding obligation of CorpBank and CorpBank Subsidiaries, enforceable in
accordance with their terms, except as the enforceability hereof or thereof may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and by general equitable principles. Except as
set forth in Schedule 3.6, neither the execution and delivery by CorpBank and
CorpBank Subsidiaries of this Agreement or the Agreement of Merger, nor the
consummation of the transactions contemplated herein or therein, nor compliance
by CorpBank and CorpBank Subsidiaries with the provisions hereof or thereof,
will (i) conflict with or result in a breach of any provision of their
respective Articles of Incorporation or Bylaws; (ii) constitute a breach of, or
result in a default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
CorpBank or any CorpBank Subsidiary is a party, or by which CorpBank or any
CorpBank Subsidiary or any of their respective properties or assets are bound,
except where such breach or default would not have a material adverse effect on
the consolidated financial condition, results of operations or prospects of
CorpBank; (iii) constitute a breach of, or result in a default (or give rise to
any rights of termination, acceleration or cancellation, or any right to acquire
any securities or assets) under any material agreement to which CorpBank or any
CorpBank Subsidiary or any of their respective properties or assets are bound;
or (iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to CorpBank or any CorpBank Subsidiary. No consent or approval of,
notice to or filing with any governmental authority having jurisdiction over any
aspect of the business or assets of CorpBank or any CorpBank Subsidiary, and
except as set forth in Schedule 3.6 no consent or approval of or notice to or
filing with any other person or entity, is required in connection with the
execution and delivery by CorpBank and CorpBank Subsidiaries of this Agreement
or the Agreement of Merger or the consummation by CorpBank and CorpBank
Subsidiaries of the transactions contemplated hereunder or thereunder, except
approval of the Merger by the
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shareholders of CorpBank, and such approvals as may be required by the OCC
pursuant to Sections 215a and 1828(c) of Title 12 of the United States Code or
any successor statutes ("Merger Statutes") or the Superintendent pursuant to
California Financial Code Section 2071 or otherwise with respect to the Merger,
or other applicable law; and the declaration by the SEC and state securities
law regulatory authorities that the Registration Statement (as defined in
Section 5.11) is effective and that Bancorp Stock to be issued in connection
with the Merger is qualified under applicable state securities laws.
3.7 Insurance. Except as set forth in Schedule 3.7, CorpBank and the
CorpBank Subsidiaries have, and at all times within five years of the date of
this Agreement have had, in full force and effect policies of insurance and
bonds (including, without limitation, bankers' blanket bond, fidelity coverage,
director and officer liability, fire, third party liability, use and occupancy)
with respect to their respective assets and businesses and against casualties
and contingencies which in the judgment of CorpBank and the CorpBank
Subsidiaries are adequate and appropriate to cover their respective assets and
businesses and are in amounts and coverages customarily provided for by similar
institutions. Set forth in Schedule 3.7 is a schedule of all policies of
insurance and bonds (other than title or credit insurance) carried and owned by
CorpBank and the CorpBank Subsidiaries, showing the name of the insurance or
bonding company, a summary of the coverage, the amounts, the deductible feature,
the annual premiums and the expiration dates. If any such policy or bond is
changed, terminated or modified following the date of this Agreement, such
termination, change or modification shall be promptly disclosed to Bancorp and
CUB in writing. Neither CorpBank nor any CorpBank Subsidiary is in default under
any such policy of insurance or bond such that it could be canceled and all
material claims thereunder have been filed in timely fashion. CorpBank and each
CorpBank Subsidiary have filed claims with or given notice of claim to their
respective insurers or bonding companies with respect to all material matters
and occurrences for which they believe they have coverage.
3.8 Proxy Statement. The Proxy Statement required pursuant to Section 5.11
and any other documents to be filed with the Superintendent, OCC, FDIC, the SEC
or any regulatory authority in connection with the transactions contemplated by
this Agreement with respect to all information set forth therein relating to
CorpBank and the CorpBank Subsidiaries, the Merger and in respect to this
Agreement and the Agreement of Merger will, at the respective times such
documents are filed or become effective, and with respect to the Proxy
Statement, at the time of mailing to shareholders, and at the time of the
shareholders' meeting:
(a) comply in all material respects with the provisions of all
applicable
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regulations issued by the SEC or the OCC pursuant to the Securities Exchange
Act of 1934, as amended ("1934 Act"), and all other applicable laws and
regulations; and
(b) not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or omit any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which have become false or misleading.
3.9 Books and Records.
(a) The minute books of CorpBank and the CorpBank Subsidiaries contain
(i) true, accurate and complete records of all meetings and actions taken by the
respective Boards of Directors, Board committees and shareholders of CorpBank
and the CorpBank Subsidiaries and (ii) true and complete copies of their
respective charter documents and bylaws and all amendments thereto. The books
and records of CorpBank and the CorpBank Subsidiaries accurately reflect in all
material aspects their respective businesses and affairs.
(b) CorpBank and each of the CorpBank Subsidiaries have records which
accurately and validly reflect, in all material respects, their respective
transactions and accounting controls sufficient to insure that such transactions
are (i) in all material respects, executed in accordance with management's
general or specific authorization, and (ii) recorded in conformity with GAAP;
such records, to the extent they contain important information pertaining to
CorpBank or any CorpBank Subsidiary which is not easily and readily available
elsewhere, have been duplicated, and such duplicates are stored safely and
securely pursuant to procedures and techniques reasonably adequate for companies
of the sizes of CorpBank and the CorpBank Subsidiaries and in the respective
businesses in which CorpBank and the CorpBank Subsidiaries are engaged; and the
data processing equipment, data transmission equipment, related peripheral
equipment and software used by CorpBank and the CorpBank Subsidiaries in the
operations of their respective businesses (including any disaster recovery
facility) to generate and retrieve such records are reasonably adequate for
companies of the sizes of CorpBank and the CorpBank Subsidiaries and in the
respective businesses in which CorpBank and the CorpBank Subsidiaries are
engaged.
3.10 Title to Assets. CorpBank and the CorpBank Subsidiaries have good and
marketable title to all material properties and assets, other than real
property, owned or purported to be owned by CorpBank and CorpBank Subsidiaries
free
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and clear of all mortgages, liens, encumbrances, pledges or charges of any kind
or nature, except for (i) liens for current taxes not yet due and payable; (ii)
liens incurred in the ordinary course of business and which do not materially
impair the business of CorpBank or any CorpBank Subsidiary or materially
detract from the usefulness of the properties subject thereto; or (iii) such
liens as are disclosed in the CorpBank Financial Statements of December 31,
1994 or in Schedule 3.10.
3.11 Real Estate.
(a) Schedule 3.11(a) contains a list of all real property, including
leaseholds, owned by CorpBank and CorpBank Subsidiaries. True, correct and
complete copies of all such leases are included in Schedule 3.11(a). Schedule
3.11(b) contains, among other things, an accurate summary of all material
commitments which CorpBank or any CorpBank Subsidiary has to improve real estate
owned by it. Schedule 3.11(c) contains a list of other real estate owned
("OREO") by CorpBank and CorpBank Subsidiaries. CorpBank and CorpBank
Subsidiaries have good and marketable title to all the real property and valid
leasehold interests in the leaseholds described in Schedules 3.11(a), (b) and
(c), free and clear of all mortgages, covenants, conditions, restrictions,
easements, liens, security interests, charges, claims, assessments and
encumbrances, except for (i) rights of lessors, co-lessees or sublessees in such
matters which are reflected in the leases; (ii) current taxes not yet due and
payable; (iii) such as are described in any title policies delivered pursuant to
this Section 3.11; (iv) such imperfections of title and encumbrances, if any, as
do not in the aggregate materially and adversely detract from the value of or
materially and adversely interfere with the present use of such property; and
(v) as described in Schedule 3.11(d). True, correct and complete copies of title
policies for properties described in Schedules 3.11(a) and (c) as owned by
CorpBank or any CorpBank Subsidiary are included therein. To the best knowledge
of CorpBank and CorpBank Subsidiaries, the activities of CorpBank and CorpBank
Subsidiaries with respect to all real property and leaseholds owned by any of
them for use in connection with their respective operations are in all material
respects permitted and authorized by applicable zoning laws, ordinances and
regulations and all laws and regulations of any governmental department or
agency relative to environmental matters affecting such properties, except as
otherwise disclosed in Schedule 3.11(e). CorpBank and CorpBank Subsidiaries
enjoy peaceful and undisturbed possession under all material leases to which
they are parties, and all of such leases are valid and in full force and effect.
Except as set forth in Schedule 3.11 (g) neither CorpBank or any CorpBank
Subsidiary are engaged in real estate development or in any business other than
commercial banking, and have not been so engaged since August 1, 1991.
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(b) Except as set forth in Schedule 3.11(f), there has not been any
generation, use, handling, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the conduct of the
business of CorpBank or any CorpBank Subsidiary that has or might result in any
liability under any Environmental Law and there has never been a use of any of
the real property owned by CorpBank or any CorpBank Subsidiary, that has or
might result in any liability under any Environmental Law; no underground
storage tanks or surface impoundments are on or in the real property owned by
CorpBank or any CorpBank Subsidiary; and no asbestos or polychlorinated
biphenyls are contained or located on any of the real property owned by CorpBank
or any Corp Bank Subsidiary.
The term "Hazardous Substances" as used herein shall mean (i)
substances that are defined or listed in, or otherwise classified pursuant to,
or the use or disposal of which are regulated by, any Environmental Law as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity;" (ii) oil, petroleum or petroleum derived from substances and drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal resources;
(iii) any flammable substances or explosives, any radioactive materials, any
hazardous wastes or substances, any toxic wastes or substances or any other
materials or pollutants which pose a hazard to any property or to Persons on or
about such property; and (iv) asbestos in any form or electrical equipment which
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.
The term "Environmental Law" as used herein shall mean any federal,
state, provincial or local statute, law, ordinance, rule, regulation, order,
consent, decree, judicial or administrative decision or directive of the United
States or other jurisdiction whether now existing or as hereinafter promulgated,
issued or enacted relating to: (A) pollution or protection of the environment,
including natural resources; (B) exposure of persons, including employees, to
Hazardous Substances or other products, materials or chemicals; (C) protection
of the public health or welfare from the effects of products, by-products,
wastes, emissions, discharges or releases of chemical or other substances from
industrial or commercial activities; or (D) regulation of the manufacture, use
or introduction into commerce of substances, including, without limitation,
their manufacture, formulation, packaging, labeling, distribution,
transportation, handling, storage and disposal. For the purposes of this
definition the term "Environmental Law" shall include, without limiting the
foregoing, the following statutes, as amended from time to time: (1) the Clean
Air Act, as amended, 42 U.S.C. Section 7401 et seq.; (2) the Federal Water
Pollution
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Control Act, as amended, 33 U.S.C. Section 1251 et seq.; (3) the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et
seq., (4) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (including the Superfund Amendments and Reauthorization
Act of 1986), 42 U.S.C. Section 2601 et seq.; (5) the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 2601 et seq.; (6) the Occupational Safety
and Health Act, as amended, 29 U.S.C. Section 651; (7) the Emergency Planning
and Community Right-To-Know Act of 1986, 42 U.S.C. Section 1101 et seq.; (8)
the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et
seq.; (9) the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and (10)
all comparable state and local laws, laws of other jurisdictions or orders and
regulations including, but not limited to, the Carpenter-Presley-Tanner
Hazardous Substance Account Act, Cal. Health & Safety Code Section 25300 et
seq.
3.12 Legal Proceedings; Agreements with Banking Authorities.
(a) Except as set forth on Schedule 3.12(a), there is no private or
governmental suit, claim, action, arbitration or proceeding pending, nor any
private or governmental suit, claim, action, arbitration or proceeding to
CorpBank's or any CorpBank Subsidiary's knowledge threatened, nor does CorpBank
or any CorpBank Subsidiary know of any facts or circumstances which would form a
basis for any such suit, claim, action, arbitration or proceeding against
CorpBank or any CorpBank Subsidiary or against any of their respective
directors, officers or employees relating to the performance of their duties in
such capacities or against or affecting any properties of CorpBank or any
CorpBank Subsidiary. Also, except as provided on Schedule 3.12(a), there are no
judgments, decrees, stipulations or orders against CorpBank or any CorpBank
Subsidiary enjoining it or any of its respective directors, officers or
employees in respect of, or the effect of which is to prohibit, any business
practice or the acquisition of any property or the conduct of business in any
area. Schedule 3.12(b) contains summary reports of CorpBank's and CorpBank
Subsidiaries' attorneys on all pending litigation to which CorpBank or any
CorpBank Subsidiary is a party and which names CorpBank or any CorpBank
Subsidiary as a defendant or cross-defendant. Schedule 3.12(c) contains a true,
correct and complete list of all pending litigation in which CorpBank or any
CorpBank Subsidiary is a named party.
(b) Except as set forth on Schedule 3.12(d), neither CorpBank nor any
CorpBank Subsidiary is a party to any agreement or memorandum of understanding
with any federal, state or foreign governmental or regulatory authority charged
with the supervision or regulation of banks or bank holding companies or engaged
in the insurance of bank deposits that restricts the conduct of its business, or
in any manner relates to its capital adequacy, its credit or investment policies
or its management.
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3.13 Taxes. Except as set forth on Schedule 3.13, (i) all federal income tax
returns, all state tax returns, and all real and personal property, sales, use
and other tax returns and reports that are required by law to be filed by or on
behalf of CorpBank or any CorpBank Subsidiary have been duly prepared and filed;
(ii) all taxes shown to be due and payable by CorpBank or any CorpBank
Subsidiary on those returns, or which are otherwise due and payable, whether
disputed or not, have been paid or the liability therefor is reflected in the
CorpBank Financial Statements; (iii) CorpBank and CorpBank Subsidiaries have
paid or deposited all taxes, tax penalties or interest owed by them or which
they are obligated to withhold and deposit from amounts paid to any employee,
creditor, depositor or third party; and (iv) CorpBank and CorpBank Subsidiaries
have complied with all reporting requirements of the Internal Revenue Code of
1986 or its predecessor statutes as applicable (the "Code") including, but not
limited to, obtaining taxpayer identification numbers. The current status of any
audits of those returns by the Internal Revenue Service or other applicable
agencies is as set forth in Schedule 3.13. There are no agreements by CorpBank
or any CorpBank Subsidiary waiving a statute of limitations or extending the
time for assessment or payment of any taxes payable by any of them.
3.14 Compliance with Laws and Regulations.
(a) Except as set forth on Schedule 3.14, neither CorpBank nor any
CorpBank Subsidiary is in default under or in breach of any law, ordinance,
rule, regulation, order, judgment or decree applicable to it promulgated by any
governmental agency having authority over it, where such default or breach would
have the lesser of: (I)a material adverse effect on the consolidated financial
condition, results of operations, business or prospects of CorpBank; or (ii) a
$15,000 cost or penalty.
(b) CorpBank and each of the CorpBank Subsidiaries have conducted their
businesses in accordance with all applicable federal, foreign, state and local
laws, regulations and orders including, without limitation, disclosure, usury,
equal credit opportunity, truth in lending, equal employment, fair credit
reporting, antitrust, licensing and other laws, regulations and orders, and the
forms, procedures and practices used by CorpBank and each of the CorpBank
Subsidiaries are in compliance with such laws, regulations and orders except for
such violations or non-compliance as will not have a material adverse effect on
the consolidated financial condition, results of operations, business or
prospects of CorpBank.
3.15 Performance of Obligations. Except as set forth on Schedule 3.15,
CorpBank and CorpBank Subsidiaries have performed in all respects all of the
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obligations required to be performed by them to date and are not in default
under or in breach of any term or provision of any covenant, contract, lease,
indenture or any other covenant to which CorpBank or any CorpBank Subsidiary is
a party or is subject or is otherwise bound, and no event has occurred which,
with the giving of notice or the passage of time or both, would constitute such
default or breach, where such default or breach would have a material adverse
effect on the consolidated financial condition, results of operations, business
or prospects of CorpBank. No party with whom CorpBank or any CorpBank
Subsidiary has an agreement which is material to the consolidated financial
condition, results of operations or prospects of CorpBank is in default
thereunder, except for certain loans made by the Bank which have been
identified to Bancorp and CUB.
3.16 Employees. Except as set forth in Schedule 3.16(a), there are no
understandings for the employment of any officer or employee of CorpBank or any
CorpBank Subsidiary which are not terminable by CorpBank or any CorpBank
Subsidiary without liability on not more than 30 days' notice. Except as set
forth in Schedule 3.16(b), there are no material controversies pending or
threatened between (i) CorpBank or any CorpBank Subsidiary and (ii) any of their
respective current or former employees. Except as disclosed in the CorpBank
Financial Statements at December 31, 1993 or 1994 or on Schedule 3.16(c), all
material sums due for employee compensation and benefits (including vacation and
sick leave ) have been duly and adequately paid or provided for and all deferred
compensation obligations are fully funded. Neither CorpBank nor any CorpBank
Subsidiary is a party to any collective bargaining agreement with respect to any
of their respective employees or any labor organization to which their employees
or any of them belong. Except as set forth on Schedule 3.16(c), no director,
officer or employee of CorpBank or any CorpBank Subsidiary is entitled to
receive any payment of any amount under any existing employment agreement,
severance plan or other benefit plan as a result of the consummation of any
transaction contemplated by this Agreement.
3.17 Brokers and Finders. Neither CorpBank nor any CorpBank Subsidiary is a
party to any agreement with any investment banker, broker or finder relating to
the transactions contemplated hereby, and neither the execution of this
Agreement nor the consummation of the transactions provided for or contemplated
herein will result in any liability to any such investment banker, broker or
finder. CorpBank agrees to indemnify and hold Bancorp and CUB harmless from and
against any and all claims, liabilities or obligations with respect to any fees,
commissions or expenses asserted by any person on the basis of any act,
statement, agreement or commitment alleged to have been made by CorpBank or any
CorpBank Subsidiaries or affiliates relating to the employment of any such
investment broker, broker or finder relating to the execution of this Agreement
or the consummation
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of the transactions contemplated hereby.
3.18 Material Contracts. Except as set forth on Schedule 3.18 or excepted
below, neither CorpBank nor any CorpBank Subsidiary is a party to any material
contract, agreement, understanding, commitment or offer, whether written or
oral, which may become a binding obligation if accepted by another person
(collectively referred to as an "Understanding") including the following:
(a) Any loan, letter of credit, pledge, security agreement, lease
(excluding leases of real property listed on Schedule 3.11(a)), guarantee,
commitment or subordination agreement or other similar or related type of
Understanding as to which CorpBank or any CorpBank Subsidiary is a debtor,
pledgor, lessee or obligor;
(b) Any Understanding dealing with advertising, brokerage, licensing,
dealership, representative or agency relationships providing for an aggregate
annual payment in excess of $5,000;
(c) Any profit-sharing, group insurance, bonus, deferred compensation,
stock option, severance pay, pension, retirement or other employee benefit plan;
(d) Any written correspondent banking contracts;
(e) Any Understanding (other than this Agreement) for the sale of their
respective assets other than in the ordinary course of business or for the grant
of any preferential right to purchase any of their respective assets, properties
or rights, or any Understanding which requires the consent of any third party to
the transfer and assignment of any assets, properties or rights;
(f) Any Understanding which provides for an annual payment in excess of
$5,000 in the aggregate to purchase, sell or provide services, materials,
supplies, merchandise, facilities or equipment and which is not terminable
without penalty on not more than 30 days' notice;
(g) Any Understanding for any one capital expenditure or series of
capital expenditures which is in excess of $5,000 individually or $10,000 in the
aggregate;
(h) Any Understanding to make, renew or extend the term of a loan (not
fully disbursed or funded as of DECEMBER 31, 1994) to any person or to any
affiliate of such person, which undisbursed or unfunded amounts, when aggregated
with all outstanding indebtedness of such person or any affiliate of such person
to
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CorpBank or any CorpBank Subsidiary, would exceed $25,000. The term "person" as
used herein and throughout this Agreement shall mean any individual,
corporation, association, partnership, joint venture or other entity or any
government or governmental department or agency. The term "affiliate of" or a
person "affiliated with" a specific person as used herein and throughout this
Agreement shall mean a person that directly or indirectly through one or more
intermediaries controls or is controlled by or under common control with the
persons specified;
(i) Any Understanding of any kind, except for deposit relationships,
with any director or officer of CorpBank or any CorpBank Subsidiary or with any
affiliate or any member of the immediate family of any such director or officer.
Such understandings shall include, but not be limited to, any director or
officer indemnification agreements. The term "immediate family" as used herein
and throughout this Agreement shall mean a person's spouse, parents, in-laws,
children and siblings;
(j) Any Understanding which would be terminable other than by CorpBank
or any CorpBank Subsidiary as a result of the consummation of the transactions
contemplated by this Agreement;
(k) Any contract of participation with any other bank in any loan
entered into by CorpBank or any CorpBank Subsidiary subsequent to December 31,
1994 in excess of $100,000 or any sales of assets of CorpBank or any CorpBank
Subsidiary with recourse of any kind to CorpBank or any CorpBank Subsidiary
except the sale of mortgage loans, servicing rights, repurchase or reverse
repurchase agreements, securities or other financial transactions in the
ordinary course of business;
(l) Any Understanding of any kind that binds CorpBank or any CorpBank
Subsidiary and contains a covenant not to compete or restricts in any other
manner the ability of CorpBank to engage in or conduct any activity; or
(m) Any Understanding not otherwise disclosed or excepted pursuant to
this Section 3.18 which is material to the consolidated financial condition,
results of operations, assets or business of CorpBank.
True and correct copies of all documents relating to the foregoing
Understandings are attached as Schedule 3.18.
3.19 Absence of Certain Changes. Except as set forth on Schedule 3.19, since
JUNE 30, 1995 the businesses of CorpBank and CorpBank Subsidiaries have been
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conducted diligently and only in the ordinary course, in the same manner as
theretofore conducted, and there has not been any:
(a) Material adverse change in, or development which is likely to
result in a material adverse change in or affect, the business, prospects,
financial position, management, shareholders' equity or results of operations of
CorpBank on a consolidated basis;
(b) Damage, destruction or loss to property (whether or not covered by
insurance) individually or in the aggregate that materially and adversely
affects the financial condition, property, business or prospects of CorpBank on
a consolidated basis;
(c) Material contract, agreement, license or understanding which
CorpBank or any CorpBank Subsidiary has entered into or to which CorpBank or any
CorpBank Subsidiary is a party which has been terminated or amended other than
in the ordinary course of business;
(d) Capital expenditure exceeding $5,000 individually or $25,000 in the
aggregate;
(e) Labor trouble, dispute or problem of any character involving
employees having a material adverse effect upon the financial condition,
property, business or prospects of CorpBank on a consolidated basis;
(f) Change in accounting policies or practices;
(g) Material revaluation by CorpBank on a consolidated basis of any of
its assets except as required by GAAP;
(h) Increase in the salary schedule, compensation, rate, fees or
commissions, or the declaration, payment, commitment or obligation of any kind
directly or indirectly through the payment by CorpBank or any CorpBank
Subsidiary of a bonus or other additional salary, compensation, fee or
commission to any person, except for additional sums for increases paid in
accordance with employment contracts disclosed in Schedule 3.18 or paid in a
manner consistent with past practice in accordance with policies of CorpBank and
CorpBank Subsidiaries disclosed to Bancorp and CUB in writing prior to the date
hereof;
(i) Sale, assignment or transfer of any asset of CorpBank or any
CorpBank Subsidiary except in the usual and ordinary course of business;
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(j) Mortgage, pledge or encumbrance of any asset of CorpBank or any
CorpBank Subsidiary other than liens for taxes not yet due, pledges or security
interests given in connection with the acceptance of repurchase agreements or
government deposits, and as set forth in Sections 3.10 and 3.11;
(k) Declaration, setting aside or payment of any interest or dividend
with respect to any CorpBank security;
(l) Waiver or release of any right or claim of CorpBank or any CorpBank
Subsidiary except in the usual and ordinary course of business; or
(m) Declaration, setting aside or payment of any dividend or
distribution with respect to CorpBank Stock, or the stock of any CorpBank
Subsidiary or the issuance of any shares of, or options to purchase, CorpBank
Stock, or any other securities of CorpBank or any securities of any CorpBank
Subsidiary, or the direct or indirect redemption, acquisitions, repurchase or
other acquisition of securities of CorpBank or any CorpBank subsidiary by
CorpBank or any CorpBank subsidiary.
3.20 Licenses and Permits. CorpBank and CorpBank Subsidiaries have all
licenses and permits which are necessary for the conduct of their respective
businesses and such licenses are in full force and effect. The properties and
operations of CorpBank and CorpBank Subsidiaries are and have been maintained
and conducted, in all material respects, in compliance with all applicable laws
and regulations.
3.21 Undisclosed Liabilities. Neither CorpBank nor any CorpBank Subsidiaries
have any liabilities or obligations, either accrued or contingent, which are
material to CorpBank on a consolidated basis and which have not been either (i)
reflected or disclosed in the CorpBank Financial Statements as of December 31,
1994 or as of June 30, 1995; (ii) incurred subsequent to December 31, 1994 in
the ordinary course of business; or (iii) disclosed in Schedule 3.21. CorpBank
knows of no basis for the assertion against it or any CorpBank Subsidiary of any
liability, obligation or claim (including, without limitation, that of any
regulatory authority or Environmental Law or Hazardous Substance) that might
result in or cause material adverse change in the consolidated financial
condition, results of operations or prospects of CorpBank which is not fairly
reflected in the CorpBank Financial Statements or otherwise disclosed in the
Schedules to this Agreement.
3.22 Loans and Investments. All loans and investments of CorpBank and
CorpBank Subsidiaries are in all material respects legal, enforceable and
authorized under applicable federal and state laws and regulations except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
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other similar laws affecting the rights of creditors generally and by general
equitable principles. Except as set forth in Schedule 3.22, no loans or
investments held by CorpBank or CorpBank Subsidiaries are, at June 30, 1995 (i)
more than 60 days past due with respect to any scheduled payment of principal
or interest; (ii) classified as "loss," "doubtful," "substandard," "special
mention" or "criticized" by federal or state banking regulators; or (iii) on a
non-accrual status in accordance with CorpBank and CorpBank Subsidiaries' loan
review procedures. None of such investments are subject to any restriction,
contractual, statutory or other, that would materially impair the ability of
the entity holding such investment to dispose freely of any such investment at
any time, except restrictions on the public distribution or transfer of such
investments under the Securities Act of 1933, as amended ("Securities Act"),
and the regulations thereunder, or state securities laws.
(a) As to the loans made by CorpBank and each of them, except as set
forth on Schedule 3.22(a):
(i) CorpBank is the sole owner and holder of each such loan and
the documents related thereto;
(ii) CorpBank has full right and authority to sell, assign and
transfer such Loan, in the event such a sale is desired;
(iii) No participation has been sold in such loan;
(iv) Such loan complied, as of its date of origination with, or
is exempt from, applicable state or federal laws, regulations and other
requirements pertaining to usury, any and all other requirements of any federal,
state or local laws, including, without limitation, truth in lending, real
estate settlement procedures, equal credit opportunity or disclosure laws, all
laws applicable to such loans have been complied with since the date of origin
of such loan;
(v) The origination, servicing and collection practices used by
CorpBank with respect to each Loan have been in all respects legal, proper and
prudent and have met customary standards utilized by lenders in their relevant
lending business;
(vi) Each of the related note and other agreements executed in
connection therewith with regard to any loan, is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting he enforcement of creditors'
rights generally, and by general principles of equity, and there is no offset,
defense, counterclaim or right
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to rescission with respect to the note, any guaranty, pledge or other
agreements;
(vii) The loan or any of the terms or conditions thereof have not
been waived, modified, altered, satisfied, canceled or subordinated in any
respect or rescinded and no collateral for the loan has been released in whole
or in any part, except as set forth in the written loan records of CorpBank;
(viii) There is no default, breach, violation or event of
acceleration existing under the Loan or the related documents or note, and no
event (other than payments due but not yet delinquent) has occurred which, with
the passage of time or with notice and the expiration of any grace or cure
period, would, constitute a default, breach, violation or event of acceleration
which is not set forth in the books and records of CorpBank; CorpBank has not
waived any material default, breach, violation or event of acceleration of any
of the foregoing, except as set forth in the books and records of CorpBank; and
(ix) The related note and other agreements contain customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization of the benefits of any security or
collateral.
3.23 Employee Benefit Plans.
(a) Neither CorpBank nor any CorpBank Subsidiary has, or contributes
to, any pension, profit-sharing, option, other incentive plan, or any other type
of Employee Benefit Plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), or has any obligation or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Schedule
3.23(a). Attached as Schedule 3.23(b) are true and correct copies signed by the
Chief Executive Officer and Chief Financial Officer of CorpBank of all documents
evidencing plans, obligations or arrangements referred to in Schedule 3.23(a)
(or true and correct written summaries as initialed of such plans, obligations
or arrangements to the extent not evidenced by documents) and true and correct
copies of all documents evidencing trusts related to any such plans. The
documents attached to Schedule 3.23(a) shall include: (i) the Form 5500 which
was filed in each of the three most recent plan years or such shorter period of
time during which each of the plans was in existence, including without
limitation all schedules thereto; (ii) the most recent determination letter from
the Internal Revenue Service; (iii) the statement of assets and liabilities as
of the most recent valuation date for each of the defined benefit pension plans;
(iv) the most recent plan document, together with all amendments; (v) the most
recent summary plan description for each plan, to the extent it is required by
law, and (vi) the most
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recent trust agreement for each plan, to the extent required by law, together
with all amendments.
(b) If any Employee Benefit Plan of CorpBank or any CorpBank Subsidiary
were to be terminated not later than the day prior to the date of the Closing,
(i) no liability under Title IV of ERISA would be incurred by CorpBank or any
CorpBank Subsidiary and (ii) all benefits accrued to such day prior to the
Closing Date (whether or not vested) under any defined benefit plan would be
fully funded in accordance with the assumptions contained in the regulations of
the Pension Benefit Guaranty Corporation governing the funding of terminated
defined benefit plans. All accrued liabilities (for contributions or otherwise)
of CorpBank or any CorpBank Subsidiary as of the Closing Date to each Employee
Benefit Plan and with respect to each obligation to or customary arrangement
with employees for bonuses, incentive compensation, vacations, severance pay,
insurance or other benefits have been paid and no payment to any such Employee
Benefit Plan or with respect to any such obligation or arrangement since
December 31, 1994 has been disproportionately large compared to prior payments.
For purposes of the preceding sentence, accrued liabilities shall include a pro
rata contribution to each Employee Benefit Plan or with respect to each such
obligation or arrangement for that portion of a plan year or other applicable
period which precedes the Closing Date, and accrued liabilities for any portion
of a plan year or other applicable period shall be determined by multiplying the
liability for the entire such year or period by a fraction, the numerator of
which is the number of days preceding the date of the Closing Date in such year
or period and the denominator of which is the number of days in such year or
period, as the case may be.
(c) There has been no violation of the reporting and disclosure
requirements imposed either under ERISA or the Code for which a penalty has been
or may be imposed with respect to any such Employee Benefit Plan of CorpBank or
any CorpBank Subsidiary. No such Employee Benefit Plan or related trust has any
liability of any nature, accrued or contingent, including without limitation
liabilities for federal, state, local or foreign taxes, other than for routine
payments to be made in due course to participants and beneficiaries, except as
set forth in Schedule 3.23(c). There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal) or investigation pending,
or to the knowledge of CorpBank or any CorpBank Subsidiary, threatened (or any
basis therefor known to CorpBank or any CorpBank Subsidiary) with respect to any
such Employee Benefit Plan or related trust or with respect to any fiduciary, or
to the knowledge of CorpBank or any CorpBank Subsidiary, administrator or
sponsor (in its capacity as such) of any such Employee Benefit Plan. No such
Employee Benefit Plan or related trust and no obligation or arrangement is in
violation of, or in default
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with respect to, any law, rule, regulation, order, judgment or decree nor is
CorpBank or any CorpBank Subsidiary or any such Employee Benefit Plan or any
related trust required to take any action in order to avoid violation or
default. No event has occurred or (to the knowledge of CorpBank and CorpBank
Subsidiaries) is threatened or about to occur which would constitute a
prohibited transaction under Section 406 of ERISA.
(d) The Internal Revenue Service has issued determinative letters to
the effect that each Pension Plan (as defined in Section 3(2) of ERISA)
maintained for the employees of CorpBank or any CorpBank Subsidiary that is
intended by CorpBank to be a qualified plan under Section 401(a) of the Code and
any related trust is an exempt trust under Section 501 of the Code. and nothing
has occurred that would jeopardize the tax qualified status of such Pension Plan
or the tax exempt status of its associated trust. No event has occurred that
will subject any such Pension Plan to a material amount of tax under Section 511
of the code. Any such Pension Plan which has engaged in a merger, consolidation
with any other plan or transfer of assets or liabilities from any other plan,
has done so incompliance with applicable law in all material respects. Each such
Pension Plan has been operated in accordance with its terms. To the best
knowledge of CorpBank and CorpBank Subsidiaries, no investigation or review by
the Internal Revenue Service is currently pending or is contemplated in which
the Internal Revenue Service has asserted or may assert that any such Pension
Plan which is intended by CorpBank to be qualified is not qualified under
Section 401(a) of the Code or that any related trust is not exempt under Section
501 of the Code. No assessment of any federal income taxes has been made or (to
the knowledge of CorpBank and CorpBank Subsidiaries) is contemplated against any
CorpBank- or any CorpBank Subsidiary-related trust or any Pension Plan or the
basis of a failure of such qualification or exemption. Form 5500's have been
timely filed with respect to all such Pension Plans to the extent required under
applicable law. No event has occurred or (to the knowledge of CorpBank and
CorpBank Subsidiaries) is threatened or about to occur which would constitute a
reportable event within the meaning of Section 4043(b) of ERISA. No notice of
termination has been filed by the plan administrator pursuant to Section 4041 of
ERISA or issued by the Pension Benefit Guaranty Corporation pursuant to Section
4042 of ERISA with respect to any such Pension Plan.
(e) Neither CorpBank nor any CorpBank Subsidiary contributes to any
multi-employer Pension Plan within the meaning of Section 3(37) of ERISA.
(f) Each Pension Plan maintained by CorpBank or to which CorpBank
contributes has been amended to comply with the requirements of the Tax Reform
Act of 1986 and later legislation on a timely basis and has been submitted or
will be
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submitted to the Internal Revenue Service for a determination on such Pension
Plan's qualifies status prior to the expiration of the remedial amendment
period set forth under Section 401(b) of the Code.
(g) Neither CorpBank nor any CorpBank subsidiary sponsor or participate
in, and has not sponsored or participated in, any employee benefit pension plan
to which Section 4021 of ERISA applies that would create a material amount of
liability to CorpBank or any CorpBank Subsidiary under Title IV of ERISA.
(h) All group health plans of CorpBank have been operated in compliance
with the group health plan continuation coverage requirements of Section 4980B
of the Code in all material respects, to the extent such requirements are
applicable.
(i) Except as referred to on Schedule 3.23(a) CorpBank does not
maintain any employee benefit plan or employment agreement pursuant to which any
material benefit or other payment will be required to be made by CorpBank or
pursuant to which any other material benefit will accrue on or vest in any
director, officer or employee of CorpBank, in either case solely as a result of
consummation of the transactions contemplated in this Agreement.
3.24 Loan Servicing Portfolio. Except as set forth on Schedule 3.24, neither
CorpBank nor any CorpBank Subsidiary services loans owned in whole or in part by
other persons.
3.25 Filings. Since January 1, 1995, CorpBank and each CorpBank Subsidiary
have filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were required to be
filed with (a) the Superintendent (b) the Federal Reserve Bank of San Francisco
("Fed") or any Federal Reserve Bank, (c) the FDIC, and (d) any other applicable
federal, foreign, state or local governmental or regulatory authorities. Since
January 1, 1993, CorpBank and each CorpBank Subsidiary have filed all required
call reports of condition and income with all appropriate bank regulatory
agencies. All such reports, registrations and filings are collectively referred
to as the "CorpBank Regulatory Filings." Upon request by CUB and subject to
applicable legal restrictions, CorpBank will promptly provide to CUB all
CorpBank Regulatory Filings filed by CorpBank or any CorpBank Subsidiary since
January 1, 1993 together with copies of any orders or other administrative
actions taken in connection with such CorpBank Regulatory Filings. As of their
respective dates, each of the past CorpBank Regulatory Filings (a) was true and
complete in all material respects (or was amended so as to be so promptly
following discovery of any discrepancy); and (b) complied in all material
respects with all of the statutes, rules and
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regulations enforced or promulgated by the governmental or regulatory authority
with which it was filed (or was amended so as to be so promptly following
discovery of any such noncompliance) and none contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any of such Filings that was intended to present the
financial position of the entities or entity to which it related fairly
presented the financial position of such entities or entity and was prepared in
accordance with GAAP or applicable banking regulations consistently applied
except as stated therein during the periods involved.
3.26 Powers of Attorney. No material power of attorney or similar
authorization given by CorpBank or any CorpBank Subsidiary is presently in
effect or outstanding other than powers of attorney given in the ordinary course
of business with respect to routine matters.
3.27 Accuracy and Current Status of Information Furnished. The
representations and warranties made by CorpBank and CorpBank Subsidiaries hereby
or in the Schedules attached hereto and or the schedule previously delivered as
of August 1, 1995 (which are incorporated herein by reference and which fully
disclose any exceptions to CorpBank warranties for the period from December 31,
1994 to August 1, 1995, as if required and set forth herein), contain no
statements of fact which are untrue or misleading, or omit any material fact
which is necessary under the circumstances to prevent the statements contained
herein or in such Schedules from being misleading. CorpBank and CorpBank
Subsidiaries hereby covenant that they shall, not later than the 15th day of
each calendar month between the date hereof and the Closing Date, amend or
supplement the Schedules prepared and delivered pursuant to this Article 3 to
ensure that the information set forth in such Schedules accurately reflects the
then-current status of CorpBank and all CorpBank Subsidiaries. CorpBank and
CorpBank Subsidiaries shall further amend or supplement the Schedules as of the
Closing Date if necessary to reflect any additional changes in the status of
CorpBank or any CorpBank Subsidiary.
3.28 Effective Date of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of CorpBank
and CorpBank Subsidiaries set forth in this Agreement shall be deemed to be made
on and as of the date hereof (unless otherwise set forth in the Schedules
hereto) and as of the Closing Date. The representations, warranties, covenants
and agreements of CorpBank set forth in the Schedules previously delivered as of
August 1, 1995, shall be deemed to made on and as of the date hereof (unless
otherwise set forth in the Schedules hereto) and of the Closing Date.
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3.29 Sale of Real Estate Development Subsidiary. The sale of Corporate
Investment Company by CorpBank was a sale of all the outstanding shares and
interests held by CorpBank in such entity. Such sale was without recourse and
all representations or warranties made by CorpBank in connection with such
transaction have been terminated. CorpBank has no indemnity obligations to any
party for breaches of representations, warranties, covenants or any agreements
in connection with such sale.
3.30 Information furnished by CorpBank and CorpBank Subsidiaries. No
information relating to CorpBank or CorpBank Subsidiaries furnished to CUB or
Bancorp for the Registration Statement referred to in Section 5.11, including al
amendments and supplements thereto, will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. In the event
of any occurrence prior to the effective date of the Registration Statement
which would cause any material information relating to CorpBank or CorpBank
subsidiaries to be untrue or misleading, CorpBank shall so notify CUB and
Bancorp and shall furnish CUB and Bancorp with such information as may be
necessary to correct any such deficiencies.
4. REPRESENTATIONS AND WARRANTIES OF BANCORP AND CUB
Bancorp and CUB represent and warrant to CorpBank as follows (exceptions to
the representations and warranties herein shall be listed on schedules as listed
below and shall be necessary only to the extent of changes from those schedules
previously delivered to CorpBank by Bancorp and CUB):
4.1 Organization, Standing and Power. Bancorp is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. CUB is a national banking association, duly organized and validly
existing and in good standing under the laws of the United States of America and
has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted.
4.2 Bancorp Capital Stock. The authorized capital stock of Bancorp at
December 31, 1994 consisted of 20,000,000 shares of Bancorp Stock, without par
value ("Bancorp Common Stock"), of which there were 4,467,318 issued and
outstanding, and 10,000,000 shares of preferred stock, without par value
("Bancorp Preferred Stock"), of which there were none issued and outstanding.
All of the outstanding shares of Bancorp Stock are duly authorized, validly
issued and are fully
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paid and nonassessable. When issued, Bancorp Stock to be issued pursuant to
the Merger will have been duly and validly authorized, issued and outstanding
and will be fully paid and nonassessable.
4.3 Subsidiaries. With the exception of CUB, Bancorp does not own, directly
or indirectly (except as pledgee pursuant to loans which are not in default),
any equity position or other voting interest in any corporation, partnership,
joint venture or other entity. Bancorp owns of record and beneficially 100% of
each class of the outstanding capital stock of CUB free and clear of any lien,
encumbrance or security interest and of any adverse claim of any kind.
4.4 California United Bank, National Association. CUB is authorized by the
OCC to conduct a general banking business. CUB is a member of the Federal
Reserve System. CUB's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") in the manner and to the full extent provided by law. The
authorized capital stock of CUB at December 31, 1994, consisted of 540,000
shares of CUB Common Stock, $5.00 par value, of which there were 472,973 issued
and outstanding. All of the outstanding shares of CUB Stock are validly issued,
fully paid and nonassessable, except as provided for in Section 55 of Title 12
of the United States Code.
4.5 Bancorp Reports. Bancorp has previously furnished to CorpBank true and
complete copies of its (i) Annual Report on Form 10-K for the years ended
December 31, 1994, 1993 and 1992, (ii) Quarterly Reports on Form 10-Q for the
calendar quarters ended March 31, and June 30, 1995, (iii) proxy statements
relating to all meetings of shareholders (whether special or annual) during 1994
and 1995, and (iv) all other reports, registration statements or filings made by
Bancorp with the SEC since January 1, 1993. Such reports, registration
statements and other filings, together with any amendments thereof, are
collectively referred to as the "Bancorp SEC Filings". As of their respective
dates, the Bancorp SEC Filings were (or will be when filed) in compliance, in
all material respects, with the requirements of their respective forms and were
(or will be when filed) true and complete in all material respects and did not
(or will not when filed) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and the unaudited interim
financial statements included in the Bancorp SEC Filings were (or will be)
prepared in accordance with GAAP and present (or will present) fairly the
consolidated financial position of Bancorp and its subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flow for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal recurring adjustments. Neither the financial statements
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referred to above nor any report (including, without limitation, Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K),
prospectus, or any amendment or supplement thereto, filed, or to be filed,
prior to the Effective Time of the Merger with the SEC by or on behalf of
Bancorp contained (or will contain when furnished or filed) any untrue
statement of a material fact or omitted (or will omit when furnished or filed)
to state a material fact necessary in order to make the statements contained
therein not misleading.
4.6 Bancorp's and Bancorp Subsidiaries' Authority. The execution and
delivery by Bancorp and CUB of this Agreement and the Agreement of Merger and,
subject to the requisite approval of the shareholder of CUB, the consummation of
the transactions contemplated hereunder or thereunder, have been duly and
validly authorized by all necessary corporate action on the part of Bancorp and
CUB, and this Agreement is, and the Agreement of Merger will be upon due
certification, execution, acknowledgment and filing thereof in accordance with
applicable law, a valid and binding obligation of Bancorp and CUB, enforceable
in accordance with their terms, except as the enforceability hereof or thereof
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and by general equitable principles.
Except as set forth in Schedule 4.6, neither the execution and delivery by
Bancorp and CUB of this Agreement or the Agreement of Merger, nor the
consummation of the transactions contemplated herein or therein, nor compliance
by Bancorp and CUB with the provisions hereof or thereof, will (i) conflict with
or result in a breach of any provision of their respective Articles of
Incorporation, Articles of Association or Bylaws; (ii) constitute a breach of,
or result in a default (or give rise to any rights of termination, cancellation
or acceleration, or any right to acquire any securities or assets) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
Bancorp CUB is a party, or by which Bancorp or CUB or any of their respective
properties or assets are bound, except where such breach or default would not
have a material adverse effect on the consolidated financial condition, results
of operations or prospects of Bancorp; (iii) constitute a breach of, or result
in a default (or give rise to any rights of termination, acceleration or
cancellation, or any right to acquire any securities or assets) under any
material agreement to which Bancorp or CUB or any of their respective properties
or assets are bound; or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Bancorp or CUB. No consent or approval
of, notice to or filing with any governmental authority having jurisdiction over
any aspect of the business or assets of Bancorp or CUB, and except as set forth
in Schedule 4.6 no consent or approval of or notice to or filing with any other
person or entity, is required in connection with the execution and delivery by
Bancorp and CUB of this Agreement or the Agreement of Merger or the consummation
by Bancorp and CUB of the
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transactions contemplated hereunder or thereunder, except approval of the
Merger by the shareholder of CUB, and such approvals as may be required by the
OCC pursuant to Sections 215a and 1828(c) of Title 12 of the United States Code
or any successor statutes ("Merger Statutes") with respect to the Bank Merger;
such approvals as may be required by the Federal Reserve Board with respect to
the transactions contemplated herein and in the Merger Agreement, such
approvals by the Superintendent as may be required and the declaration by the
SEC and state securities law regulatory authorities that the Registration
Statement (as defined in Section 5.11) is effective and that Bancorp Stock to
be issued in connection with the Merger is qualified under applicable state
securities laws.
4.7 Insurance. Except as set forth in Schedule 4.7, Bancorp and CUB have,
and at all times within two years of the date of this Agreement have had, in
full force and effect policies of insurance and bonds (including, without
limitation, bankers' blanket bond, fidelity coverage, director and officer
liability, fire, third party liability, use and occupancy) with respect to their
respective assets and businesses and against casualties and contingencies which
in the judgment of Bancorp and CUB are adequate and appropriate to cover their
respective assets and businesses and are in amounts and coverages customarily
provided for by similar institutions. Set forth in Schedule 4.7 is a schedule of
all policies of insurance and bonds (other than title or credit insurance)
carried and owned by Bancorp and CUB, showing the name of the insurance or
bonding company, a summary of the coverage, the amounts, the deductible feature,
the annual premiums and the expiration dates. Neither Bancorp nor CUB is in
default under any such policy of insurance or bond such that it could be
canceled and all material claims thereunder have been filed in timely fashion.
Bancorp and CUB have filed claims with or given notice of claim to their
respective insurers or bonding companies with respect to all material matters
and occurrences for which they believe they have coverage.
4.8 Registration Statement. The Registration Statement required pursuant to
Section 5.11 and any other documents to be filed with the OCC, the SEC or any
regulatory authority in connection with the transactions contemplated by this
Agreement with respect to all information set forth therein relating to Bancorp
and CUB, the Merger and in respect to this Agreement and the Agreement of Merger
will, at the respective times such documents are filed or become effective, and
with respect to the Proxy Statement, at the time of mailing to shareholders, and
at the time of the shareholders' meeting:
(a) comply in all material respects with the provisions of all
applicable regulations issued by the SEC or the OCC pursuant to the Securities
Exchange Act of 1934, as amended ("1934 Act"), and all other applicable laws and
regulations;
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and
(b) do not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or omit any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which have become false or misleading.
4.9 Books and Records.
(a) The minute books of Bancorp and CUB contain (i) true, accurate and
complete records of all meetings and actions taken by the respective Boards of
Directors, Board committees and shareholders of Bancorp and CUB and (ii) true
and complete copies of their respective charter documents and bylaws and all
amendments thereto. The books and records of Bancorp and CUB accurately reflect
in all material aspects their respective businesses and affairs.
(b) Bancorp and CUB have records which accurately and validly reflect,
in all material respects, their respective transactions and accounting controls
sufficient to insure that such transactions are (i) in all material respects,
executed in accordance with management's general or specific authorization, and
(ii) recorded in conformity with GAAP; such records, to the extent they contain
important information pertaining to Bancorp or CUB which is not easily and
readily available elsewhere, have been duplicated, and such duplicates are
stored safely and securely pursuant to procedures and techniques reasonably
adequate for companies of the sizes of Bancorp and CUB and in the respective
businesses in which Bancorp and CUB are engaged; and the data processing
equipment, data transmission equipment, related peripheral equipment and
software used by Bancorp and CUB in the operations of their respective
businesses (including any disaster recovery facility) to generate and retrieve
such records are reasonably adequate for companies of the sizes of Bancorp and
CUB and in the respective businesses in which Bancorp and CUB are engaged.
4.10 Title to Assets. Bancorp and CUB have good and marketable title to all
material properties and assets, other than real property, owned or purported to
be owned by Bancorp and CUB free and clear of all mortgages, liens,
encumbrances, pledges or charges of any kind or nature, except for (i) liens for
current taxes not yet due and payable; (ii) liens incurred in the ordinary
course of business and which do not materially impair the business of Bancorp or
CUB or materially detract from the usefulness of the properties subject thereto;
or (iii) such liens as are disclosed in the Bancorp Financial Statements of
December 31, 1994 or in Schedule 4.10.
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4.11 Real Estate. Schedule 4.11(a) contains a list of all real property,
including leaseholds, owned by Bancorp and CUB. True, correct and complete
copies of all such leases are included in Schedule 4.11(a). Schedule 4.11(b)
contains, among other things, an accurate summary of all material commitments
which Bancorp or CUB has to improve real estate owned by it. Schedule 4.11(c)
contains a list of other real estate owned ("OREO") by Bancorp and CUB. Bancorp
and CUB have good and marketable title to all the real property and valid
leasehold interests in the leaseholds described in Schedules 4.11(a), (b) and
(c), free and clear of all mortgages, covenants, conditions, restrictions,
easements, liens, security interests, charges, claims, assessments and
encumbrances, except for (i) rights of lessors, co-lessees or sublessees in such
matters which are reflected in the leases; (ii) current taxes not yet due and
payable; (iii) such as are described in any title policies delivered pursuant to
this Section 4.11; (iv) such imperfections of title and encumbrances, if any, as
do not in the aggregate materially and adversely detract from the value of or
materially and adversely interfere with the present use of such property; and
(v) as described in Schedule 4.11(d). True, correct and complete copies of title
policies for properties described in Schedules 4.11(a) and (c) as owned by
Bancorp or any Bancorp Subsidiary are included therein. To the best knowledge of
Bancorp and CUB, the activities of Bancorp and CUB with respect to all real
property and leaseholds owned by any of them for use in connection with their
respective operations are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations and all laws and regulations
of any governmental department or agency relative to environmental matters
affecting such properties, except as otherwise disclosed in Schedule 4.11(e).
Bancorp and CUB enjoy peaceful and undisturbed possession under all material
leases to which they are parties, and all of such leases are valid and in full
force and effect.
4.12 Legal Proceedings; Agreements with Banking Authorities.
(a) Except as set forth on Schedule 4.12(a), there is no private or
governmental suit, claim, action, arbitration or proceeding pending, nor any
private or governmental suit, claim, action, arbitration or proceeding to
Bancorp's or CUB's knowledge threatened, nor does Bancorp or CUB know of any
facts or circumstances which would form a basis for any such suit, claim,
action, arbitration or proceeding against Bancorp or CUB or against any of their
respective directors, officers or employees relating to the performance of their
duties in such capacities or against or affecting any properties of Bancorp or
CUB which individually, or in the aggregate, could have a material adverse
effect upon the consolidated financial condition, business or results of
operations of Bancorp or the transactions contemplated hereunder. Also, except
as provided on Schedule 4.12(a), there are no judgments, decrees, stipulations
or orders against Bancorp or CUB enjoining it or
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any of its respective directors, officers or employees in respect of, or the
effect of which is to prohibit, any business practice or the acquisition of any
property or the conduct of business in any area. Schedule 4.12(b) contains
summary reports of Bancorp's and CUB' attorneys on all pending litigation to
which Bancorp or CUB is a party and which names Bancorp or CUB as a defendant
or cross-defendant. Schedule 4.12(c) contains a true, correct and complete
list of all pending litigation in which Bancorp or CUB is a named party.
(b) Neither Bancorp nor CUB is a party to any agreement or memorandum
of understanding with any federal, state or foreign governmental or regulatory
authority charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits that restricts the
conduct of its business, or in any manner relates to its capital adequacy, its
credit or investment policies or its management.
4.13 Taxes. Except as set forth on Schedule 4.13, (i) all federal income tax
returns, all state tax returns, and all real and personal property, sales, use
and other tax returns and reports that are required by law to be filed by or on
behalf of Bancorp or CUB have been duly prepared and filed; (ii) all taxes shown
to be due and payable by Bancorp or CUB on those returns, or which are otherwise
due and payable, whether disputed or not, have been paid or the liability
therefor is reflected in the Bancorp Financial Statements; (iii) Bancorp and CUB
have paid or deposited all taxes, tax penalties or interest owed by them or
which they are obligated to withhold and deposit from amounts paid to any
employee, creditor, depositor or third party; and (iv) Bancorp and CUB have
complied with all reporting requirements of the Internal Revenue Code of 1986 or
its predecessor statutes as applicable (the "Code") including, but not limited
to, obtaining taxpayer identification numbers. The current status of any audits
of those returns by the Internal Revenue Service or other applicable agencies is
as set forth in Schedule 4.13. There are no agreements by Bancorp or CUB waiving
a statute of limitations or extending the time for assessment or payment of any
taxes payable by any of them.
4.14 Compliance with Laws and Regulations.
(a) Except as set forth on Schedule 4.14, neither Bancorp nor CUB is in
default under or in breach of any law, ordinance, rule, regulation, order,
judgment or decree applicable to it promulgated by any governmental agency
having authority over it, where such default or breach would have a material
adverse effect on the consolidated financial condition, results of operations,
business or prospects of Bancorp.
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(b) Bancorp and CUB have conducted their businesses in accordance with
all applicable federal, foreign, state and local laws, regulations and orders
including, without limitation, disclosure, usury, equal credit opportunity,
equal employment, fair credit reporting, antitrust, licensing and other laws,
regulations and orders, and the forms, procedures and practices used by Bancorp
and CUB are in compliance with such laws, regulations and orders except for such
violations or non-compliance as will not have a material adverse effect on the
consolidated financial condition, results of operations, business or prospects
of Bancorp.
4.15 Performance of Obligations. Except as set forth on Schedule 4.15,
Bancorp and CUB have performed in all respects all of the obligations required
to be performed by them to date and are not in default under or in breach of any
term or provision of any covenant, contract, lease, indenture or any other
covenant to which Bancorp or CUB is a party or is subject or is otherwise bound,
and no event has occurred which, with the giving of notice or the passage of
time or both, would constitute such default or breach, where such default or
breach would have a material adverse effect on the consolidated financial
condition, results of operations, business or prospects of Bancorp. No party
with whom Bancorp or CUB has an agreement which is material to the consolidated
financial condition, results of operations or prospects of Bancorp is in default
thereunder, except for certain loans made by the Bank which have been identified
to Bancorp and CUB.
4.16 Employees. Except as set forth in Schedule 4.16(a), there are no
understandings for the employment of any officer or employee of Bancorp or CUB
which are not terminable by Bancorp or CUB without liability on not more than 30
days' notice. Except as set forth in Schedule 4.16(b), there are no material
controversies pending or threatened between (i) Bancorp or CUB and (ii) any of
their respective employees. Except as disclosed in the Bancorp Financial
Statements at December 31, 1994 or on Schedule 4.16(c), all material sums due
for employee compensation and benefits have been duly and adequately paid or
provided for and all deferred compensation obligations are fully funded. Neither
Bancorp nor CUB is a party to any collective bargaining agreement with respect
to any of their respective employees or any labor organization to which their
employees or any of them belong. Except as set forth on Schedule 4.16(c), no
director, officer or employee of Bancorp or CUB is entitled to receive any
payment of any amount under any existing employment agreement, severance plan or
other benefit plan as a result of the consummation of any transaction
contemplated by this Agreement.
4.17 Brokers and Finders. Neither Bancorp nor CUB is a party to any
agreement with any investment banker, broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for or contemplated herein
will result
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in any liability to any such investment banker, broker or finder. Bancorp
agrees to indemnify and hold CorpBank harmless from and against any and all
claims, liabilities or obligations with respect to any fees, commissions or
expenses asserted by any person on the basis of any act, statement, agreement
or commitment alleged to have been made by Bancorp or CUB relating to the
employment of any such investment broker, broker or finder relating to the
execution of this Agreement or the consummation of the transactions
contemplated hereby.
4.18 Material Contracts. Except as set forth on Schedule 4.18 or excepted
below, neither Bancorp nor CUB is a party to any material contract, agreement,
understanding, commitment or offer, whether written or oral, which may become a
binding obligation if accepted by another person (collectively referred to as an
"Understanding") including the following:
(a) Any loan, letter of credit, pledge, security agreement, lease
(excluding transactions in the ordinary course of the banking business and
leases of real property listed on Schedule 4.11(a)), guarantee, commitment or
subordination agreement or other similar or related type of Understanding as to
which Bancorp or CUB is a debtor, pledgor, lessee or obligor;
(b) Any Understanding dealing with advertising, brokerage, licensing,
dealership, representative or agency relationships providing for an aggregate
annual payment in excess of $25,000;
(c) Any profit-sharing, group insurance, bonus, deferred compensation,
stock option, severance pay, pension, retirement or other employee benefit plan;
(d) Any written correspondent banking contracts;
(e) Any Understanding (other than this Agreement) for the sale of their
respective assets other than in the ordinary course of business or for the grant
of any preferential right to purchase any of their respective assets, properties
or rights, or any Understanding which requires the consent of any third party to
the transfer and assignment of any assets, properties or rights. For purposes of
this provisions sales of CUB's mortgage servicing portfolio shall be considered
to be in the ordinary course of business;
(f) Any Understanding which provides for an annual payment in excess of
$250,000 in the aggregate to purchase, sell or provide services, materials,
supplies, merchandise, facilities or equipment and which is not terminable
without penalty on not more than 30 days' notice;
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(g) Any Understanding for any one capital expenditure or series of
capital expenditures which is in excess of $200,000 individually or $500,000 in
the aggregate;
(h) Any Understanding to make, renew or extend the term of a loan (not
fully disbursed or funded as of December 31, 1994) to any person or to any
affiliate of such person, which undisbursed or unfunded amounts, when aggregated
with all outstanding indebtedness of such person or any affiliate of such person
to Bancorp or CUB, would exceed $2,500,000. The term "person" as used herein and
throughout this Agreement shall mean any individual, corporation, association,
partnership, joint venture or other entity or any government or governmental
department or agency. The term "affiliate of" or a person "affiliated with" a
specific person as used herein and throughout this Agreement shall mean a person
that directly or indirectly through one or more intermediaries controls or is
controlled by or under common control with the persons specified;
(i) Any Understanding of any kind, except for deposit relationships,
and overdraft lines of credit or credit cards not exceeding $25,000
individually, with any director or officer of Bancorp or CUB or with any
affiliate or any member of the immediate family of any such director or officer.
The term "immediate family" as used herein and throughout this Agreement shall
mean a person's spouse, parents, in-laws, children and siblings;
(j) Any Understanding which would be terminable other than by Bancorp
or CUB as a result of the consummation of the transactions contemplated by this
Agreement;
(k) Any contract of participation with any other bank in any loan
entered into by Bancorp or CUB subsequent to December 31, 1994 in excess of
$2,500,000 or any sales of assets of Bancorp or CUB with recourse of any kind to
Bancorp or CUB except the sale of mortgage loans, servicing rights, repurchase
or reverse repurchase agreements, securities or other financial transactions in
the ordinary course of business;
(l) Any Understanding of any kind that binds Bancorp or CUB and
contains a covenant not to compete; or
(m) Any Understanding not otherwise disclosed or excepted pursuant to
this Section 4.18 which is material to the consolidated financial condition,
results of operations, assets or business of Bancorp.
True and correct copies of all documents relating to the foregoing Under-
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standings are attached as Schedule 4.18.
4.19 Absence of Certain Changes. Except as set forth on Schedule 4.19, since
December 31, 1994 the businesses of Bancorp and CUB have been conducted
diligently and only in the ordinary course, in the same manner as theretofore
conducted, and there has not been any:
(a) Material adverse change in, or development which is likely to
result in a material adverse change in or affect, the business, prospects,
financial position, management, shareholders' equity or results of operations of
Bancorp on a consolidated basis;
(b) Damage, destruction or loss to property (whether or not covered by
insurance) individually or in the aggregate that materially and adversely
affects the financial condition, property, business or prospects of Bancorp on a
consolidated basis;
(c) Material contract, agreement, license or understanding which
Bancorp or CUB has entered into or to which Bancorp or CUB is a party which has
been terminated or amended other than in the ordinary course of business;
(d) Capital expenditure exceeding $200,000 individually or $500,000 in
the aggregate;
(e) Labor trouble, dispute or problem of any character involving
employees having a material adverse effect upon the financial condition,
property, business or prospects of Bancorp on a consolidated basis;
(f) Change in accounting policies or practices;
(g) Material revaluation by Bancorp on a consolidated basis of any of
its assets except as required by GAAP;
(h) Increase in the salary schedule, compensation, rate, fees or
commissions, or the declaration, payment, commitment or obligation of any kind
directly or indirectly through the payment by Bancorp or CUB of a bonus or other
additional salary, compensation, fee or commission to any person, except for
additional sums for increases paid in accordance with employment contracts
disclosed in Schedule 4.18 or paid in the ordinary course of business in a
manner consistent with past practice (which provides for annual performance
reviews during the first quarter of each year and which may result in salary
increases and/or bonuses at such time);
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(i) Sale, assignment or transfer of any asset of Bancorp or CUB except
in the usual and ordinary course of business;
(j) Mortgage, pledge or encumbrance of any asset of Bancorp or CUB
other than liens for taxes not yet due, pledges or security interests given in
connection with the acceptance of repurchase agreements or government deposits;
(k) Waiver or release of any right or claim of Bancorp or CUB except in
the usual and ordinary course of business; or
(l) Declaration, setting aside or payment of any dividend or
distribution with respect to Bancorp Stock, or the stock of Bancorp or the
issuance of any shares of, or options to purchase, Bancorp Stock, or any other
securities of Bancorp or any securities of Bancorp with the exception of not
more than $.02 per share dividend per quarter, $90,000 dividends to the
shareholder of CUB per quarter and the issuance of stock options to employees
and directors and set forth in respective stock option plans and in accordance
with the ordinary conduct of their respective businesses.
4.20 Licenses and Permits. Bancorp and CUB have all licenses and permits
which are necessary for the conduct of their respective businesses and such
licenses are in full force and effect. The properties and operations of Bancorp
and CUB are and have been maintained and conducted, in all material respects, in
compliance with all applicable laws and regulations.
4.21 Undisclosed Liabilities. Neither Bancorp nor CUB have any liabilities
or obligations, either accrued or contingent, which are material to Bancorp on a
consolidated basis and which have not been either (i) reflected or disclosed in
the Bancorp Financial Statements as of December 31, 1994; (ii) incurred
subsequent to December 31, 1994 in the ordinary course of business; or (iii)
disclosed in Schedule 4.21. Bancorp knows of no basis for the assertion against
it or CUB of any liability, obligation or claim (including, without limitation,
that of any regulatory authority) that might result in or cause material adverse
change in the consolidated financial condition, results of operations or
prospects of Bancorp which is not fairly reflected in the Bancorp Financial
Statements or otherwise disclosed in the Schedules to this Agreement.
4.22 Loans and Investments. All loans and investments of Bancorp and CUB are
in all material respects legal, enforceable and authorized under applicable
federal and state laws and regulations except as the enforceability thereof may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of
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creditors generally and by general equitable principles. Except as set forth
in Schedule 4.22, no loans or investments held by Bancorp or CUB are, at
December 31, 1994 (i) more than 90 days past due with respect to any scheduled
payment of principal or interest; (ii) classified as "loss," "doubtful,"
"substandard," "special mention" or "criticized" by federal banking regulators;
or (iii) on a non-accrual status in accordance with Bancorp and CUB' loan
review procedures. None of such investments are subject to any restriction,
contractual, statutory or other, that would materially impair the ability of
the entity holding such investment to dispose freely of any such investment at
any time, except restrictions on the public distribution or transfer of such
investments under the Securities Act of 1933, as amended ("Securities Act"),
and the regulations thereunder, or state securities laws.
4.23 Employee Benefit Plans.
(a) Neither Bancorp nor CUB has, or contributes to, any pension,
profit-sharing, option, other incentive plan, or any other type of Employee
Benefit Plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), or has any obligation or customary arrangement
with employees for bonuses, incentive compensation, vacations, severance pay,
insurance, or other benefits, except as set forth in Schedule 4.23(a). Attached
as Schedule 4.23(b) are true and correct copies signed by the Chief Executive
Officer and Chief Financial Officer of Bancorp of all documents evidencing
plans, obligations or arrangements referred to in Schedule 4.23(a) (or true and
correct written summaries as initialed of such plans, obligations or
arrangements to the extent not evidenced by documents) and true and correct
copies of all documents evidencing trusts related to any such plans.
(b) There has been no material violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
material penalty has been or may be imposed with respect to any such Employee
Benefit Plan of Bancorp or CUB. No such Employee Benefit Plan or related trust
has any material liability of any nature, accrued or contingent, including
without limitation liabilities for federal, state, local or foreign taxes, other
than for routine payments to be made in due course to participants and
beneficiaries, except as set forth in Schedule 4.23(c). There is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal) or
investigation pending, or to the knowledge of Bancorp or CUB, threatened (or any
basis therefor known to Bancorp or CUB) with respect to any such Employee
Benefit Plan or related trust or with respect to any fiduciary, or to the
knowledge of Bancorp or CUB, administrator or sponsor (in its capacity as such)
of any such Employee Benefit Plan. No such Employee Benefit Plan or related
trust and no obligation or arrangement is in material violation of, or in
default with respect to, any law, rule, regulation, order, judgment or decree
nor
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is Bancorp or CUB or any such Employee Benefit Plan or any related trust
required to take any action in order to avoid violation or default. No event
has occurred or (to the knowledge of Bancorp and CUB) is threatened or about to
occur which would constitute a prohibited transaction under Section 406 of
ERISA.
(c) The Internal Revenue Service has issued determinative letters to
the effect that each Pension Plan (as defined in Section 3(2) of ERISA)
maintained for the employees of Bancorp or CUB that is intended by Bancorp to be
a qualified plan under Section 401(a) of the Code and any related trust is an
exempt trust under Section 501 of the Code. Each such Pension Plan has been
operated materially in accordance with its terms. To the best knowledge of
Bancorp and CUB, no investigation or review by the Internal Revenue Service is
currently pending or is contemplated in which the Internal Revenue Service has
asserted or may assert that any such Pension Plan which is intended by Bancorp
to be qualified is not qualified under Section 401(a) of the Code or that any
related trust is not exempt under Section 501 of the Code. No assessment of any
federal income taxes has been made or (to the knowledge of Bancorp and CUB) is
contemplated against any Bancorp- or CUB-related trust or any Pension Plan or
the basis of a failure of such qualification or exemption. Form 5500's have been
timely filed with respect to all such Pension Plans to the extent required under
applicable law. No event has occurred or (to the knowledge of Bancorp and CUB)
is threatened or about to occur which would constitute a reportable event within
the meaning of Section 4043(b) of ERISA. No notice of termination has been filed
by the plan administrator pursuant to Section 4041 of ERISA or issued by the
Pension Benefit Guaranty Corporation pursuant to Section 4042 of ERISA with
respect to any such Pension Plan.
(d) Neither Bancorp nor CUB contributes to any multi-employer Pension
Plan within the meaning of Section 3(37) of ERISA.
4.24 Loan Servicing Portfolio. Except as set forth on Schedule 4.24, neither
Bancorp nor CUB services loans owned in whole or in part by other persons.
4.25 Filings. Since January 1, 1994, Bancorp and CUB have filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (a) the Office of the
Comptroller of the Currency (b) the Federal Reserve Bank of San Francisco
("Fed") or any Federal Reserve Bank, (c) the FDIC, (d) the Securities and
Exchange Commission and; (e) any other applicable federal, foreign, state or
local governmental or regulatory authorities. Since January 1, 1994, Bancorp and
each Bancorp Subsidiary have filed all required call reports of condition and
income with all appropriate regulatory agencies. All such reports, registrations
and filings are
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collectively referred to as the "Bancorp Regulatory Filings." Upon request by
CorpBank and subject to applicable legal restrictions, Bancorp will promptly
provide to CorpBank all Bancorp Regulatory Filings filed by Bancorp or CUB
since January 1, 1990 together with copies of any orders or other
administrative actions taken in connection with such Bancorp Regulatory
Filings. As of their respective dates, each of the past Bancorp Regulatory
Filings (a) was true and complete in all material respects (or was amended so
as to be so promptly following discovery of any discrepancy); and (b) complied
in all material respects with all of the statutes, rules and regulations
enforced or promulgated by the governmental or regulatory authority with which
it was filed (or was amended so as to be so promptly following discovery of any
such noncompliance) and none contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Any financial statement contained in any of such
Filings that was intended to present the financial position of the entities or
entity to which it related fairly presented the financial position of such
entities or entity and was prepared in accordance with GAAP or applicable
banking regulations consistently applied except as stated therein during the
periods involved.
4.26 Powers of Attorney. No material power of attorney or similar
authorization given by Bancorp or CUB is presently in effect or outstanding
other than powers of attorney given in the ordinary course of business with
respect to routine matters.
4.27 Accuracy and Current Status of Information Furnished. The
representations and warranties made by Bancorp and CUB hereby or in the
Schedules attached hereto contain no statements of fact which are untrue or
misleading, or omit any material fact which is necessary under the circumstances
to prevent the statements contained herein or in such Schedules from being
misleading. Bancorp and CUB hereby covenant that they shall, not later than the
15th day of each calendar quarter between the date hereof and the Closing Date,
amend or supplement the Schedules prepared and delivered pursuant to this
Article 4 to ensure that the information set forth in such Schedules accurately
reflects the then-current status of Bancorp and CUB. Bancorp and CUB shall
further amend or supplement the Schedules as of the Closing Date if necessary to
reflect any additional changes in the status of Bancorp or CUB.
4.28 Effective Date of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of Bancorp and
CUB set forth in this Agreement shall be deemed to be made on and as of the date
hereof (unless otherwise set forth in the Schedules hereto) and as of the
Closing Date.
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4.29 Bancorp's and CUB's Authority. The execution and delivery by Bancorp
and CUB of this Agreement and the Agreement of Merger and the consummation of
the transactions contemplated hereunder or thereunder have been duly and validly
authorized by all necessary corporate action on the part of Bancorp and CUB, and
this Agreement is, and the Agreement of Merger will be upon due certification,
execution, acknowledgment and filing thereof in accordance with applicable
provisions of the National Banking Act and the Bank Merger Act, a valid and
binding obligation of Bancorp and CUB, enforceable in accordance with their
terms, except as the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors generally and by general equitable principles. Except as set forth in
Schedule 4.29, neither the execution and delivery by Bancorp and CUB of this
Agreement or the Agreement of Merger, nor the consummation of the transactions
contemplated herein or therein, nor compliance by Bancorp and CUB with the
provisions hereof or thereof, will (i) conflict with or result in a breach of
any provision of their respective Certificates of Incorporation, Certificate of
Association or Bylaws; (ii) constitute a breach of, or result in a default (or
give rise to any rights of termination, cancellation or acceleration, or any
right to acquire any securities or assets) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, franchise, license,
permit, agreement or other instrument or obligation to which Bancorp or CUB is a
party, or by which Bancorp or CUB or any of their properties or assets is bound;
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Bancorp or CUB. No consent or approval of, notice to or
filing with any governmental authority having jurisdiction over any aspect of
the business or assets of Bancorp or CUB, and no consent or approval of or
notice to any other person or entity, is required in connection with the
execution and delivery by Bancorp and CUB of this Agreement or the Agreement of
Merger or the consummation by Bancorp and CUB of the transactions contemplated
hereunder or thereunder, except such approvals as may be required by Bancorp as
the sole shareholder of Bank; the Fed pursuant to the applicable requirements of
the BHCA; the OCC pursuant to the Merger Statutes with respect to the Bank
Merger (as defined in Section 1.1(a); the filing of the Agreement of Merger with
the OCC; and the declaration by the SEC and state securities law regulatory
authorities that the Registration Statement (as defined in Section 5.11) is
effective and that Bancorp Stock to be issued in connection with the Merger is
qualified under applicable state securities law.
4.30 No Material Change. There has been no material adverse change in the
financial condition, results of operation or prospects of Bancorp since December
31, 1994. There are no facts or circumstances that, individually or in the
aggregate, materially and adversely has affected or is so affecting, or, may
reasonably be
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expected in the future to affect the financial condition or results of
operations or prospects of Bancorp that have not been disclosed in the Bancorp
SEC Filings, excluding changes in laws or regulations or economic conditions
which affect banking institutions generally.
4.31 Accuracy of Information Furnished. The representations and warranties
made by Bancorp and CUB hereunder or in the Schedules hereto contain no material
statements of fact which are untrue or misleading, or omit any material fact
which is necessary under the circumstances to prevent the statements contained
herein or in such Schedules from being misleading.
4.32 Registration Statement. The Registration Statement required pursuant to
Section 5.8 and any other documents to be filed with the SEC or any regulatory
authority in connection with the transactions contemplated by this Agreement
with respect to all information set forth therein relating to Bancorp, the
Merger and in respect to this Agreement and the Agreement of Merger will, at the
respective times such documents are filed or become effective:
(a) comply in all material respects with the provisions of the
Securities Act and the regulations thereunder, and all other applicable laws and
regulations; and
(b) (except with regard to information furnished by CorpBank) not
contain any untrue statement of a material fact and will not 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 were made, not
misleading.
4.33 Information Furnished by Bancorp and CUB. No information relating to
Bancorp or CUB furnished to CorpBank by Bancorp and CUB for inclusion in the
Proxy Statement or the applications referred to in Section 5.11, including all
amendments and supplements thereto, will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. In the event
of any occurrence prior to the CorpBank shareholders' meeting which would cause
any material information relating to Bancorp and CUB included in the Proxy
Statement to be untrue or misleading, Bancorp or CUB shall so notify CorpBank
and shall furnish CorpBank such information as may be necessary to correct any
such deficiencies.
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ARTICLE 5.
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME OF MERGER
5.1 Access.
(a) Bancorp and CUB and CorpBank, respectively, shall have the right,
on reasonable notice and during ordinary business hours, to examine through
their agents, auditors or attorneys all of the books, records and properties of
the respective party, including, but not limited to, all loan, investment,
accounting, property and legal records and files. Such examination shall be made
in a manner that will not unreasonably interfere with the conduct of the
business. CUB and CorpBank shall provide adequate space and facilities, to the
end that such examination shall be completed expeditiously, completely and
accurately. All parties shall retain in strict confidence all information gained
thereby, and shall not reveal it to anyone except as may be necessary for the
accomplishment of the purposes of such examination and the consummation of the
transactions provided for hereby. In the event the Merger provided for hereby is
not consummated for any reason, Bancorp and CUB and CorpBank, respectively,
shall not, directly or indirectly: (i) utilize for their own benefit any
Proprietary Information (as hereinafter defined) or (ii) disclose to any person
any Proprietary Information, except as such disclosure may be required in
connection with this Agreement or by law. "Proprietary Information" shall mean
all confidential business information concerning the pricing, costs, profits and
plans for the future development of any party's business and the identity,
requirements, preferences, practices and methods of doing business of specific
customers of any party or otherwise relating to the business and affairs of any
party, other than information which (i) was lawfully in the possession of a
party prior to January 1, 1995; (ii) is obtained by any party after the date
hereof from a source other than a party hereto not under an obligation of
confidentiality; or (iii) is in the public domain when received or thereafter
enters the public domain through no action of the other party. In the event the
Merger is not consummated for any reason, each party shall return to the other
all copies, notes and records obtained in the course of such examination.
(b) CorpBank agrees that on and after the date that all requisite
regulatory approvals are obtained, CUB, acting through its agents, employees and
representatives, may, at CUB's option and at CUB's own expense, on notice to
CorpBank and in a manner reasonably calculated to avoid undue interruption of
any operations of CorpBank, have reasonable access to the premises of the Bank
for the purposes of (i) training CorpBank's employees in the procedures,
techniques,
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methods or other banking practices of CUB; (ii) (subject to CUB's obligation to
bear the expense of removal and restoration should this Agreement be
terminated) installing telecommunications equipment, lines and facilities,
including, without limitation, telephones, branch terminal systems and
telecopiers; and (iii) (subject to CUB's obligation to bear the expense of
removal and restoration should this Agreement be terminated) installing
automated teller machines and comparable customer service equipment.
5.2 Limitation on Conduct of CorpBank and CorpBank Subsidiaries Prior to
Closing. Between the date hereof and the Effective Time of the Merger:
(a) CorpBank agrees to conduct its business and to cause the CorpBank
Subsidiaries to conduct their respective businesses only in the normal and
customary manner and in accordance with sound business practices and with
respect to CorpBank, in accordance with safe and sound banking practices;
(b) CorpBank shall not, without the prior written consent of CUB and
Bancorp (which consent shall not be unreasonably withheld and which consent
shall be deemed granted if within five (5) business days of receipt of notice by
CUB written notice of objection is not received by CorpBank) take any of the
following actions or allow any CorpBank Subsidiary to take any of the following
actions:
(i) carry on its business except in substantially the same
manner as heretofore conducted or introduce any new method of management or
operation in respect of its business and properties, except in a manner
consistent with prior practice and in the ordinary course of business;
(ii) amend, modify, or, except as they may be terminated in
accordance with their terms, terminate any Understanding or materially default
in the performance of any of its obligations under any Understanding where such
action would have a material adverse effect on the consolidated financial
condition, results of operations or prospects of CorpBank;
(iii) terminate or unilaterally fail to renew any existing
insurance or bonding coverage;
(iv) amend, modify, terminate or fail to renew or preserve its
business organization, material rights, franchises, permits and licenses, or
take any action which would jeopardize the continuance of the goodwill of its
customers where such action would have a material adverse effect on the
consolidated financial condition, results of operations or prospects of
CorpBank;
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(v) enter into any Understanding, except (A) deposits incurred,
and short-term debt securities (obligations maturing within one year) issued, in
the ordinary course of business and consistent with prior practice, and
liabilities arising out of, incurred in connection with, or related to the
consummation of this Agreement, (B) commitments to make loans or other
extensions of credit in compliance with clauses (vii) or (xii) of this
subsection (b) and (C) loan sales in the ordinary course of business, without
any recourse except to a reserve account funded by an interest rate spread
otherwise payable to the servicer of the loans sold, provided that no commitment
to sell loans shall extend beyond the Effective Time of the Merger;
(vi) enter into any new leases (regardless of dollar amount) or
contracts requiring annual payments of more than $1,000, or having a term in
excess of six months without prior approval of CUB, which approval shall not be
unreasonably withheld or enter into any leases or contracts requiring annual
payments of more than $10,000, which are not new, without the prior approval of
CUB, which approval shall not be unreasonably withheld;
(vii) make any loan or other extension of credit, or enter into
any commitment to make any loan or other extension of credit or enter into any
agreement, with or to any CorpBank or CorpBank Subsidiary director, officer or
employee or 5% shareholder, except in accordance with existing practice or
policy;
(viii) except as required by any existing contract, grant any
general or uniform increase in the rates of pay of employees or employee
benefits or any increase in salary or employee benefits of any officer, employee
or agent or pay any bonus to any person;
(ix) sell, transfer, mortgage, encumber or otherwise dispose of
any assets or any liabilities except in the ordinary course of business and
consistent with prior practice or as required by any existing contract or for
ordinary repairs, renewals or replacements or as contemplated by this Agreement;
(x) except pursuant to the exercise of outstanding stock
options, issue, sell, redeem or acquire for value, or agree to do so, any debt
securities or any shares of the capital stock or other ownership interests, or
securities convertible into or options, rights or warrants exercisable for such
shares or interests, of CorpBank or any CorpBank Subsidiary or declare, issue or
pay any dividend or other distribution of assets, whether consisting of money,
CorpBank Stock, CorpBank Preferred Stock, other personal property, real property
or other things of value, to CorpBank's shareholders or with respect to the
Bank's stock or the stock of any other CorpBank
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Subsidiary that is not directly or indirectly wholly owned by CorpBank, or
split, subdivide combine or reclassify any shares of its stock or other equity
security;
(xi) change or amend its charter documents or bylaws;
(xii) make its credit underwriting policies, standards or
practices relating to the making of loans and other extensions of credit, or
commitments to make loans and other extensions of credit, less stringent than
those in effect on June 30, 1995;
(xiii) make any capital expenditures, or commitments with respect
thereto, except those in the ordinary course of business which do not exceed
$5,000 individually or $10,000 in aggregate;
(xiv) make special or extraordinary payments to any person or
enter into any agreement which could result in such special or extraordinary
payments other than $20,000 payments to each of the President and Vice Chairman
/ Executive Vice President and $15,000 to the Chief Financial Officer of
CorpBank as of the Closing, or as contemplated, or as disclosed, in this
Agreement as of the date hereof;
(xv) except for transactions in the ordinary course of business,
make any material investments, by purchase of stock or securities, contributions
to capital, property transfers, purchases of any property or assets or
otherwise, in any other individual, corporation or other entity;
(xvi) compromise or otherwise settle or adjust any assertion or
claim of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency except in a form
previously approved by CUB in writing or file or amend any federal, foreign or
state tax return or report or make any tax election or change any method or
period of accounting unless required by GAAP or applicable law;
(xvii) except as contemplated in this Agreement, terminate any
plan or enter into any new employment agreement or other employee benefit
arrangement, or modify any employment agreement or other employee benefit
arrangement in effect on the date of this Agreement to which CorpBank or any
CorpBank Subsidiary is a party; or
(xviii) agree to take or make any commitment to take any actions
prohibited by this Section 5.2.
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5.3 Limitation on Conduct of Bancorp and CUB Prior to Closing. Between the
date hereof and the Effective Time of the Merger:
(a) Bancorp agrees to conduct its business and to cause the Bancorp
Subsidiaries to conduct their respective businesses only in the normal and
customary manner and in accordance with sound business practices and with
respect to the CUB, in accordance with safe and sound banking practices;
(b) Bancorp shall not, without the prior written consent of CorpBank
(which consent shall not be unreasonably withheld and which consent shall be
deemed granted if within five (5) business days of receipt of notice by CorpBank
written notice of objection is not received by Bancorp) take any of the
following actions or allow any Bancorp Subsidiary to take any of the following
actions:
(i) carry on its business except in substantially the same
manner as heretofore conducted or introduce any new method of management or
operation in respect of its business and properties, except in a manner
consistent with prior practice and in the ordinary course of business.
Acquisition of additional banking offices or banking assets or mergers or
combinations with other BIF insured banking institutions shall be deemed to be
in the ordinary course of business;
(ii) amend, modify, or, except as they may be terminated in
accordance with their terms, terminate any Understanding or materially default
in the performance of any of its obligations under any Understanding where such
action would have a material adverse effect on the consolidated financial
condition, results of operations or prospects of Bancorp;
(iii) terminate or unilaterally fail to renew any existing
insurance or bonding coverage, providing however, that CUB may change carriers
and coverage relative to any insurance or bonding coverage, and no notice need
be given unless the amount of coverage is materially less than that held by CUB
at the date of this Agreement;
(iv) amend, modify, terminate or fail to renew or preserve its
business organization, material rights, franchises, permits and licenses, or
take any action which would jeopardize the continuance of the goodwill of its
customers where such action would have a material adverse effect on the
consolidated financial condition, results of operations or prospects of Bancorp;
(v) make any loan or other extension of credit, or enter into
any commitment to make any loan or other extension of credit, to any Bancorp or
CUB Subsidiary director, officer or employee or 5% shareholder, except in
accordance
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with existing practice or policy;
(vi) except in the ordinary course of business and consistent
with prior practice or as required by any existing contract, grant any general
or uniform increase in the rates of pay of employees or employee benefits or any
increase in salary or employee benefits of any officer, employee or agent or pay
any bonus to any person;
(vii) sell, transfer, mortgage, encumber or otherwise dispose of
any assets or any liabilities except in the ordinary course of business and
consistent with prior practice or as required by any existing contract or for
ordinary repairs, renewals or replacements or as contemplated by this Agreement;
(viii) make any capital expenditures, or commitments with respect
thereto, except those in the ordinary course of business which do not exceed
$200,000 individually or $500,000 in aggregate;
(ix) make special or extraordinary payments to any person other
than as contemplated, or as disclosed, in this Agreement as of the date hereof;
(x) compromise or otherwise settle or adjust any material
assertion or claim of a material deficiency in taxes (or interest thereon or
penalties in connection therewith) or file any appeal from an asserted material
deficiency except in a form previously approved by CorpBank in writing or file
or amend in any material manner, any federal, foreign or state tax return or
report or make any material tax election or change any material method or period
of accounting unless required by GAAP or applicable law; or
(xi) agree to take or make any commitment to take any actions
prohibited by this Section 5.3.
5.4 Certain Loans and Other Extensions of Credit.
(a) CorpBank will promptly inform CUB of the amounts and categories of
any loans, leases or other extensions of credit that have been classified by any
bank regulatory authority or by any unit of CorpBank as "Criticized," "Specially
Mentioned," "Substandard," "Doubtful," "Loss" or any comparable classification
("Classified Credits"). CorpBank will furnish to CUB, as soon as practicable,
and in any event within fifteen days after the end of each calendar month,
schedules including the following: (a) Classified Credits (including with
respect to each credit in an amount equal to or greater than $25,000, its
classification category, its type, and the originating unit), and by type and
originating unit, the aggregate dollar
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amount of classified credits of less than $25,000; (b) nonaccrual credits
(including, with respect to each credit in an amount equal to or greater than
$25,000, its type and the originating unit), and by type and originating unit,
the aggregate dollar amount of nonaccrual credits of less than $25,000; (c)
accrual exception credits that are delinquent 90 or more days and have not been
placed on nonaccrual status (including with respect to each accrual exception
credit in an amount equal to or greater than $25,000, its type and the
originating unit), and by type and originating unit, the aggregate dollar
amount of such accrual exception credits of less than $25,000; (d) delinquent
credits (including with respect to each delinquent credit in an amount equal to
or greater than $25,000, its type and the originating unit), including an aging
into 30-59, 60-89, 90-119, and 120+ day categories, and by type and originating
unit, the aggregate dollar amount of delinquent credits of less than $25,000;
(e) participating loans and leases, stating, with respect to each, whether it
is purchased or sold, the loan or lease type, and the originating unit; (f)
loans or leases (including any commitments) by CorpBank or any CorpBank
Subsidiary to any CorpBank or CorpBank Subsidiary director, officer, employee,
or shareholder holding 10% or more of the capital stock of CorpBank, including
with respect to each such loan or lease the identity and, to the best knowledge
of CorpBank, the relation of the borrower to CorpBank or any CorpBank
Subsidiary, the loan or lease type and the outstanding and undrawn amounts; (g)
letters of credit (including with respect to each letter of credit in a face
amount equal to or greater than $25,000, the type and originating unit), and by
type and originating unit, the aggregate dollar amount of all letters of credit
of less than $25,000; (h) loans or leases charged off during the previous month
(including with respect to each such loan or lease, its type and the
originating unit), and by type and originating unit, the aggregate dollar
amount of such loans or leases less than $25,000; (i) loans or leases written
down during the previous month, including with respect to each the original
amount, the write off amount, its type and originating unit; and (j) other real
estate or assets owned, stating with respect to each its type.
(b) CUB will promptly inform CorpBank of the amounts and categories of
any loans, leases or other extensions of credit that have been classified by any
bank regulatory authority or by CUB as "Criticized," "Specially Mentioned,"
"Substandard," "Doubtful," "Loss" or any comparable classification ("Classified
Credits"). CUB will furnish to CorpBank, as soon as practicable, and in any
event within fifteen days after the end of each calendar month, schedules
including the following: (a) Classified Credits (including with respect to each
credit in an amount equal to or greater than $25,000, its classification
category), and the aggregate dollar amount of classified credits of less than
$25,000; (b) nonaccrual credits (including, with respect to each credit in an
amount equal to or greater than $25,000, its classification category, and the
aggregate dollar amount of nonaccrual credits of less than $25,000); (c) accrual
exception credits that are delinquent 90
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or more days and have not been placed on nonaccrual status (including with
respect to each accrual exception credit in an amount equal to or greater than
$25,000, its classification category), and the aggregate dollar amount of such
accrual exception credits of less than $25,000; (d) delinquent credits
(including with respect to each delinquent credit in an amount equal to or
greater than $25,000, its classification category ), including an aging into
30-59, 60-89, 90-119, and 120+ day categories, and the aggregate dollar amount
of delinquent credits of less than $25,000; (e) participating loans and leases,
stating, with respect to each, whether it is purchased or sold, the loan or
lease type, and the originating unit; (f) loans or leases (including any
commitments) by CUB to any Bancorp or CUB Subsidiary director, officer,
employee, or shareholder holding 10% or more of the capital stock of Bancorp,
including with respect to each such loan or lease the identity and, to the best
knowledge of CUB, the relation of the borrower to Bancorp or CUB, the loan or
lease type and the outstanding and undrawn amounts; (g) letters of credit
(including with respect to each letter of credit in a face amount equal to or
greater than $25,000, the classification category), and by type classification
category, the aggregate dollar amount of all letters of credit of less than
$25,000; (h) loans or leases charged off during the previous month (including
with respect to each such loan or lease, its classification category), and by
classification category, the aggregate dollar amount of such loans or leases
less than $25,000; (i) loans or leases written down during the previous month,
including with respect to each the original amount, the write off amount, its
classification category; and (j) other real estate or assets owned, stating
with respect to each its type.
5.5 Negotiations With Other Parties.
(a) CorpBank shall not, nor shall it authorize or knowingly permit any
of its representatives or CorpBank Subsidiaries, directly or indirectly, to,
entertain, solicit or encourage or participate in any discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Bancorp, CUB and their
representatives) concerning any Acquisition Proposal (as hereinafter defined)
other than the Acquisition Proposal set forth in this Agreement. CorpBank shall
notify CUB immediately in the manner set forth in Section 9.3 if any such
inquiry or Acquisition Proposal is received by CorpBank or any CorpBank
Subsidiary, including the terms thereof. For purposes of this Agreement,
"Acquisition Proposal" means any (i) proposal pursuant to which any corporation,
partnership, person or other entity or group, other than Bancorp or CUB, would
acquire or participate in a merger or other business combination involving
CorpBank or any CorpBank Subsidiary; (ii) proposal by which any corporation,
partnership, person or other entity or group, other than Bancorp or CUB, would
acquire the right to vote 5% or more of the capital stock of CorpBank or any
CorpBank Subsidiary entitled to vote thereon for the election of directors,
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other than persons designated as proxy holders by the Board of Directors of
CorpBank or any CorpBank Subsidiary; (iii) acquisition of the assets of
CorpBank or any CorpBank Subsidiary other than in the ordinary course of
business; or (iv) acquisition in excess of five percent (5%) of the outstanding
capital stock of CorpBank or any CorpBank Subsidiary, other than as
contemplated by this Agreement.
5.6 Affirmative Conduct of CorpBank Prior to Closing. Between the date
hereof and the Effective Time of the Merger, CorpBank shall do the following and
shall cause the CorpBank Subsidiaries to do the following:
(a) Use their respective commercially reasonable best efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 6 hereof;
(b) Use and devote their respective commercially reasonable efforts
consistent with this Agreement to maintain and preserve intact their respective
present business organizations and to maintain and preserve their relationships
and goodwill with account holders, borrowers, employees and others having
business relationships with them;
(c) Advise CUB promptly in writing of any material adverse change known
to CorpBank or any CorpBank Subsidiary in the capital structure, financial
condition or business prospects of CorpBank or any CorpBank Subsidiary, or of
any other materially adverse change known to CorpBank respecting the business
and operations of CorpBank on a consolidated basis, or of any matter which would
make the representations and warranties set forth in Article 3 hereof not true
and correct in any material respect at the Closing, or which make the conditions
or other transactions contemplated in this Agreement impossible to perform or
substantially unlikely to be complied with;
(d) Keep in full force and effect all of the existing permits and
licenses of CorpBank and CorpBank Subsidiaries;
(e) Use their respective commercially reasonable best efforts to
maintain insurance or bonding coverage on all properties for which they are
responsible and on their respective business operations, and carry not less than
the same coverage for fidelity, director and officer liability, public
liability, personal injury, property damage and other risks equal to that which
is now in effect; and notify CUB in writing promptly of any facts or
circumstances which could affect CorpBank's or any CorpBank Subsidiary's ability
to maintain such insurance or bonding coverage;
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(f) Perform their respective material contractual obligations and not
become in material default on any of such obligations;
(g) Duly observe and conform to all legal requirements applicable to
their respective businesses;
(h) Duly and timely file all reports and returns required to be filed
with any federal, state or local governmental authority, unless any extensions
have been duly granted by such authority;
(i) Maintain their respective assets and properties in good condition
and repair, normal wear and tear excepted;
(j) Promptly advise CUB in writing of any event or any other
transaction within CorpBank's or any CorpBank Subsidiary's knowledge whereby any
person or related group of persons acquires, directly or indirectly, record or
beneficial ownership (as defined in Rule 13d-3 promulgated by the SEC pursuant
to the 1934 Act) or control of 5% or more of the outstanding shares of CorpBank
Stock prior to the record date fixed for the CorpBank shareholders' meeting or
any adjourned meeting thereof to approve the transactions contemplated herein;
(k) Promptly notify CUB of any event of which CorpBank obtains
knowledge which may materially and adversely affect the financial condition,
results of operations, or business prospects of CorpBank or any CorpBank
Subsidiary, or in the event it determines that the Merger will not be
consummated because of any inability to meet the conditions to the performance
of CUB set forth in Sections 6.2;
(l) Charge off all loans, receivables and other assets, or portions
thereof, deemed uncollectible in accordance with GAAP, applicable law or
regulation, or classified as "loss" or as directed by any regulatory authority;
and maintain the allowance for credit losses of CorpBank at a level which is
adequate to provide for all known and reasonably expected losses on assets
outstanding and other inherent risks in CorpBank's loan portfolio;
(m) Furnish to CUB, as soon as practicable, and in any event within ten
days after it is prepared, (i) a copy of any report submitted to the board of
directors of CorpBank or any CorpBank Subsidiary and access to the working
papers related thereto and copies of other operating or financial reports
prepared for management of any of their businesses and access to the working
papers thereto, provided, however, that CorpBank need not furnish CUB
communications of CorpBank's legal counsel regarding CorpBank's rights against
and obligations to
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CUB or its affiliates under this Agreement, (ii) copies of all reports,
renewals, filings, certificates, statements and other documents filed with or
received from the Superintendent, SEC, Fed, any Federal Reserve Bank, FDIC, or
any other governmental or regulatory body, (iii) separate consolidated monthly
unaudited statements of condition and statements of operations for CorpBank,
consolidated monthly statements of changes in consolidated shareholders' equity
for CorpBank, and separate quarterly unaudited consolidated and consolidating
statements of condition and statements of operations for CorpBank and
statements of changes in consolidated shareholders' equity for CorpBank, in
each case prepared in a manner consistent with past practice, and (iv) such
other reports as CUB may reasonably request relating to CorpBank. Each of the
financial statements delivered pursuant to this subsection (m), except as
stated therein, shall be prepared in accordance with GAAP, except that such
financial statements may omit statements of cash flow and footnote disclosures
required by GAAP. Each of the financial statements of CorpBank or any CorpBank
Subsidiary delivered pursuant to this subsection (m) shall be accompanied by a
certificate of each of the Chief Executive Officer and the Chief Financial
Officer of CorpBank to the effect that such financial statements fairly present
the financial condition and results of operations of CorpBank or the CorpBank
Subsidiary, as appropriate, for the periods covered, and reflect all
adjustments (which consist only of normal recurring adjustments) necessary for
a fair presentation;
(n) CorpBank agrees that through the Effective Time of the Merger, as
of their respective dates, (i) each of the CorpBank Filings will be true and
complete in all material respects; and (ii) each of the CorpBank Filings will
comply in all material respects with all of the statutes, rules and regulations
enforced or promulgated by the governmental or regulatory authority with which
it will be filed and none will contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they will
be made, not misleading. Any financial statement contained in any of such
CorpBank Filings that is intended to present the financial position of the
entities or entity to which it relates will fairly present the financial
position of such entities or entity and will be prepared in accordance with GAAP
or applicable banking regulations consistently applied, except as stated
therein, during the periods involved;
(o) Maintain proper reserves for contingent liabilities in accordance
with GAAP;
(p) Promptly notify CUB of the filing of any litigation, governmental
or regulatory action, or similar proceeding or notice of any claims against
CorpBank or any CorpBank Subsidiary or any of their assets;
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(q) At any time within 60 days of the day on which the Effective Time
of the Merger is expected to occur, at the written request of CUB and on CUB's
certification that it knows of no circumstance that would entitle it to
terminate this Agreement, (i) give, or cause to be given, any written notice to
the employees of CorpBank that CUB reasonably deems necessary or appropriate
under the Worker Adjustment and Retraining Notification Act ("WARN") ; (ii) take
such other actions, as CUB shall reasonably deem necessary or appropriate, to
comply with WARN; and (iii) give notice to its data processing vendors of
termination of the data processing contract at the end of the minimum notice
period provided for therein.
(r) Forward to CUB, not later than the 15th day of each calendar
quarter, CorpBank's list of holders of CorpBank Stock, certified by CorpBank's
transfer agent;
(s) Cooperate with CUB to enable the transactions contemplated by this
Agreement to qualify for the accounting treatment desired by CUB.
(t) Give three business days prior written notice to CUB prior to
approving any loans or leases in excess of $100,000, subsequent to the Execution
Date. Such notice must include copies of the description of the loan utilized
for consideration of the loan by CorpBank and copies of relevant financial
statements and other financial documents utilized by CorpBank in its review.
Notwithstanding the above, CorpBank is not required to obtain CUB's prior "non
disapproval" of any renewals of existing loans, regardless of amount, and is not
required to obtain CUB's prior approval of automobile secured loans, whether or
not such loans are part of a borrowing relationship in excess of $100,000.
CorpBank shall give CUB notice of all loans made, (including renewals) in excess
of $100,000 within ten (10) days of approval thereof. To the extent that CUB
does not "non disapprove" a loan which CorpBank is obligated to submit
hereunder, CUB reserves the right to place a 100% reserve against such loan,
without explanation, as part of its final due diligence provided for herein.
Notwithstanding anything herein to the contrary, CUB shall not have any power to
direct CorpBank to make particular loans or to refrain from making particular
loans and the effect of any comments on CorpBank loans in connection with this
provision shall be limited as set forth herein. CUB agrees that it will review
submitted loans promptly and will advise CorpBank of its determination regarding
any such loan within 3 business days of receipt of request therefore.
(u) Make its best efforts to obtain written general releases, in form
satisfactory to counsel for CUB, from all employees terminated for any reason
subsequent to March 1, 1995, including release of federal, state and common law
causes of action, with the exception of Richard Brown, Gary Wrigley and
Elizabeth Peters.
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(v) Settle or otherwise conclude all litigation as to which CorpBank or
any agent is a defendant and obtain general releases and dismissals with
prejudice in form and content satisfactory to counsel for CUB.
(w) Obtain all necessary consents and opinions from GT and AA to allow
three years audited financial statements with unqualified opinions to be
included in the Registration Statement, if determined to be necessary by
Bancorp.
(x) CorpBank shall purchase a three year tail on its Director and
Officer Liability Insurance, extending at least equivalent coverage to that
currently held by CorpBank to directors of CorpBank after the Merger, whether or
not they are directors of the Surviving Bank."
5.7 Affirmative Conduct of Bancorp Prior to Closing. Between the date
hereof and the Effective Time of the Merger, Bancorp shall do the following and
shall cause CUB to do the following:
(a) Use their respective commercially reasonable best efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 6 hereof;
(b) Use and devote their respective commercially reasonable efforts
consistent with this Agreement to maintain and preserve intact their respective
present business organizations and to maintain and preserve their relationships
and goodwill with account holders, borrowers, employees and others having
business relationships with them;
(c) Advise CorpBank promptly in writing of any material adverse change
known to Bancorp or CUB in the capital structure, financial condition or
business prospects of Bancorp or CUB, or of any other materially adverse change
known to Bancorp respecting the business and operations of Bancorp on a
consolidated basis, or of any matter which would make the representations and
warranties set forth in Article 4 hereof not true and correct in any material
respect at the Closing;
(d) Keep in full force and effect all of the existing permits and
licenses of Bancorp and CUB;
(e) Use their respective commercially reasonable best efforts to
maintain insurance or bonding coverage on all properties for which they are
responsible and on their respective business operations, and carry not less than
the same coverage for fidelity, public liability, personal injury, property
damage and other risks equal
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to that which is now in effect; and notify CorpBank in writing promptly of any
facts or circumstances which could affect Bancorp's or CUB's ability to
maintain such insurance or bonding coverage;
(f) Perform their respective material contractual obligations and not
become in material default on any of such obligations;
(g) Duly observe and conform to all legal requirements applicable to
their respective businesses;
(h) Duly and timely file all reports and returns required to be filed
with any federal, state or local governmental authority, unless any extensions
have been duly granted by such authority;
(i) Maintain their respective assets and properties in good condition
and repair, normal wear and tear excepted;
(j) Promptly notify CorpBank of any event of which Bancorp obtains
knowledge which may materially and adversely affect the financial condition,
results of operations, or business prospects of Bancorp or CUB, or in the event
it determines that the Merger will not be consummated because of any inability
to meet the conditions to the performance of CorpBank set forth in Sections
6.2(d), (g) and (l);
(k) Charge off all loans, receivables and other assets, or portions
thereof, deemed uncollectible in accordance with GAAP, applicable law or
regulation, or classified as "loss" or as directed by any regulatory authority;
and maintain the allowance for credit losses of CUB at a level which is adequate
to provide for all known and reasonably expected losses on assets outstanding
and other inherent risks in the Bancorp and CUB's loan portfolio;
(l) Furnish to CorpBank, as soon as practicable, and in any event
within ten days after it is prepared, (i) a copy of any report submitted to the
board of directors of Bancorp or CUB, provided, however, that CUB need not
furnish communications of CUB's legal counsel regarding CUB's rights against and
obligations to CorpBank or its affiliates under this Agreement, (ii) copies of
all reports, renewals, filings, certificates, statements and other documents
filed with or received from the SEC, OCC, Fed, any Federal Reserve Bank, FDIC,
or any other governmental or regulatory body (except that copies shall not be
provided of Reports of Examination), (iii) copies of monthly financial
statements provided to Bancorp and CUB's Boards of Directors, and (iv) such
other reports as CorpBank may reasonably request relating to Bancorp. Each of
the financial statements
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delivered pursuant to this subsection (m), except as stated therein, shall be
prepared in accordance with GAAP, except that such financial statements may
omit statements of cash flow and footnote disclosures required by GAAP. Each
of the financial statements of Bancorp or CUB delivered pursuant to this
subsection (m) shall be accompanied by a certificate of each of the Chief
Executive Officer and the Chief Financial Officer of Bancorp to the effect that
such financial statements fairly present the financial condition and results of
operations of Bancorp or CUB, as appropriate, for the periods covered;
(m) Bancorp agrees that through the Effective Time of the Merger, as of
their respective dates, (i) each of the Bancorp Filings will be true and
complete in all material respects; and (ii) each of the Bancorp Filings will
comply in all material respects with all of the statutes, rules and regulations
enforced or promulgated by the governmental or regulatory authority with which
it will be filed and none will contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they will
be made, not misleading. Any financial statement contained in any of such
Bancorp Filings that is intended to present the financial position of the
entities or entity to which it relates will fairly present the financial
position of such entities or entity and will be prepared in accordance with GAAP
or applicable banking regulations consistently applied, except as stated
therein, during the periods involved;
(n) Maintain proper reserves for contingent liabilities in accordance
with GAAP; and
(o) Promptly notify CorpBank of the filing of any material litigation,
governmental or regulatory action, or similar proceeding or notice of any claims
against Bancorp or CUB or any of their assets;
(p) Registration Statement and Applications. Bancorp and CUB will use
commercially reasonable efforts to prepare and file or cause to be prepared and
filed: (i) with the SEC, the Registration Statement; (ii) with the Fed, an
application for approval of the Merger or related aspects thereof; (iii) with
the OCC, the required documents for approval of, and to effect, the change in
control of CorpBank and the Bank; and (iv) with the OCC, applications for
approval of the Bank Merger, except that Bancorp shall have no obligation to
file a new registration statement or a post-effective amendment to the
Registration Statement covering any reoffering of Bancorp Stock by CorpBank
Affiliates. Bancorp and CUB will cooperate with CorpBank in the preparation of
the Proxy Statement and covenant and agree that all information furnished by
Bancorp and CUB for inclusion in the Proxy Statement, all applications to
appropriate regulatory agencies for approval
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of or consent to the Merger , and all information furnished by Bancorp and CUB
to CorpBank pursuant to this Agreement, will comply in all material respects
with the provisions of applicable law, including the Securities Act and the
1934 Act and the rules and regulations of the SEC thereunder, and will not
contain any untrue statement of a material fact and will not omit to state any
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading;
(q) Blue Sky. Bancorp covenants and agrees to use its commercially
reasonable best efforts to have the shares of Bancorp Stock qualified or
registered for offering and sale under the securities or Blue Sky laws of each
jurisdiction in which shareholders of CorpBank reside.
(r) Action of Sole Shareholder. Prior to the Effective Time of the
Merger, Bancorp, as sole shareholder of CUB, will take all action necessary or
advisable for the consummation of the Merger by CUB and the carrying out by CUB
of the transactions contemplated hereby;
(s) Stock Exchange Listing. Bancorp will use its commercially
reasonable best efforts to have the shares of Bancorp Stock to be issued
pursuant to the Merger duly listed, subject to official notice of issuance, on
the Nasdaq Stock Exchange.
5.8 CorpBank Accountants. Promptly upon request of CUB, CorpBank will
request its independent accountants to permit CUB or its representatives to
review and examine the work papers relating to CorpBank and CorpBank's audited
financial statements for the years ended December 31, 1992 and 1993, 1994 and
permit such independent accountants to discuss with CUB any matter relating to
the audits of CorpBank. In addition, CorpBank will make available to CUB copies
of each management letter or other letter delivered to CorpBank, or any CorpBank
Subsidiary by Grant Thornton or by AA in connection with such financial
statements or relating to any review of the internal controls of CorpBank, or
any CorpBank Subsidiary since January 1, 1992, and has instructed each of them
to make available to CUB for inspection by CUB or its representatives all
reports and working papers produced or developed by in connection with their
examination of such financial statements, as well as all such reports and
working papers for any periods for which any tax of CorpBank, or CorpBank
Subsidiary has not been finally determined or barred by applicable statutes of
limitation.
5.9 Bancorp Accountants. Bancorp will make available to CorpBank copies of
each management letter or other letter delivered to Bancorp by Arthur Andersen &
Co. ("AA") in connection with such financial statements or relating to any
review by AA of the internal controls of Bancorp or CUB since January 1, 1994.
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5.10 Submission to Shareholders. Subject to satisfaction of applicable
federal and state securities laws, not later than December 15, 1995 (or such
earlier date as is reasonably possible), unless extended with the mutual written
consent of the parties, CorpBank shall hold a shareholder meeting for the
approval of its shareholders of the transactions contemplated herein and all
matters incident thereto. CorpBank hereby agrees that it shall unqualifiedly
recommend that its shareholders vote in favor of approval of the transactions
contemplated hereby.
5.11 Preparation of Registration Statement, Proxy Statement, Application for
Approval by Regulatory Authorities and Redemption Materials.
(a) CorpBank will cooperate with Bancorp in the preparation of a
registration statement (the "Registration Statement") to be filed with the SEC
under the Securities Act for the registration of the Bancorp Stock to be issued
in connection with the Merger, in connection with any listing application to be
filed with the Nasdaq Stock Exchange with respect to the Bancorp Stock, in the
preparation of a proxy statement to be filed with the SEC that will be used by
CorpBank to solicit proxies of its shareholders in connection with the approval
and adoption of the Agreement and the Agreement of Merger (the "Proxy
Statement") and in connection with any statements or applications to any
governmental body in connection with the transactions contemplated by this
Agreement. In connection therewith, CorpBank will furnish all financial or other
information, including accountant comfort letters relating thereto,
certificates, consents, and opinions of counsel concerning CorpBank and CorpBank
Subsidiaries reasonably deemed necessary by Bancorp for the filing or
preparation for filing of the Registration Statement and related matters.
(b) CorpBank will cooperate with Bancorp and provide such information
as may be necessary or advisable for Bancorp or CUB to make its applications
required for regulatory approvals and for any other consents or approvals or to
take any other action necessary or, in the reasonable judgment of Bancorp,
advisable to consummate the Merger and the Bank Merger.
(c) CorpBank covenants and agrees that all information furnished by
CorpBank or any CorpBank Subsidiary for inclusion in the Registration Statement,
the Proxy Statement, all applications to appropriate regulatory agencies for
approval of or consent to the Merger and the Bank Merger, and all information
furnished by CorpBank or any CorpBank Subsidiary to Bancorp or CUB pursuant to
this Agreement, will comply in all material respects with the provisions of
applicable law, including the Securities Act and the 1934 Act and the rules and
regulations of the SEC thereunder, and will not contain any untrue statement of
a material fact
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and will not omit to state any material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(d) Bancorp will cooperate with CorpBank in the preparation of a proxy
statement to be filed with the Superintendent and the FDIC that will be used by
CorpBank to solicit proxies of its shareholders in connection with the approval
and adoption of the Agreement and the Agreement of Merger (the "Proxy
Statement") and in connection with any statements or applications to any
governmental body in connection with the transactions contemplated by this
Agreement. In connection therewith, Bancorp will furnish all financial or other
information, including accountant comfort letters relating thereto,
certificates, consents, and opinions of counsel concerning Bancorp and CUB
reasonably deemed necessary by CorpBank for the filing or preparation for filing
of the Proxy Statement and related matters.
(e) Bancorp covenants and agrees that all information furnished by
Bancorp or CUB for inclusion in the Registration Statement, the Proxy Statement,
all applications to appropriate regulatory agencies for approval of or consent
to the Merger and the Bank Merger, and all information furnished by Bancorp or
CUB to CorpBank pursuant to this Agreement, will comply in all material respects
with the provisions of applicable law, including the Securities Act and the 1934
Act and the rules and regulations of the SEC thereunder, and will not contain
any untrue statement of a material fact and will not omit to state any material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
5.12 Termination of CorpBank Employee Stock Option Plans. CorpBank will take
all steps necessary to cause its stock option plans to be terminated as of or
prior to the Effective Time of the Merger, will grant no additional options
under said plans prior to the Effective Time of the Merger, and will cause any
options outstanding thereunder (irrespective of their exercise price and whether
or not then presently exercisable or fully vested) to be exercised prior to the
Calculation Date or canceled prior to the Calculation Date together with a
release of all claims against CorpBank or Surviving Association related to such
options.
5.13 Agreement of CorpBank Affiliates. CorpBank agrees to use its best
efforts to cause each person who is a CorpBank "affiliate" as defined pursuant
to Rule 145 promulgated by the SEC under the Securities Act ("CorpBank
Affiliate"), at least 30 days prior to the Effective Time of the Merger, to
enter into an Affiliate Agreement, in the form attached hereto as Exhibit E,
which provides that, among other things: (i) the CorpBank Stock owned by the
CorpBank affiliate may not be sold or
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transferred for a period of not less than 30 days prior to the Effective Time
of the Merger; (ii) the Bancorp Stock to be acquired by an CorpBank Affiliate
upon consummation of the Merger (such shares of Bancorp Stock being sometimes
referred to for purposes of this Section 5.13 as "Acquired Shares") will not be
acquired with a view to the sale or distribution thereof except as permitted by
Rule 145 promulgated by the SEC under the Securities Act ("Rule 145"); (iii)
the Acquired Shares will not be disposed of in such a manner as to violate the
Securities Act or the Affiliate Agreement and without Bancorp having first
received an opinion of counsel reasonably satisfactory to Bancorp to the
foregoing effect or other evidence of compliance with Rule 145 and the
Affiliate Agreement, in each case reasonably satisfactory to Bancorp; (iv) none
of the shares of CUB Common Stock received by the CorpBank Affiliate pursuant
to the Merger will be sold, transferred or otherwise disposed of and the
CorpBank Affiliate will not in any other way reduce their risk of ownership or
investment in any of the shares of CUB Common Stock so received until the later
of: (i) financial results covering a period of at least thirty (30) days of
combined operations of CUB and CorpBank following the Effective Time of the
Merger have been published by CUB (provided that the CorpBank Affiliate may
make bona fide gifts or distributions without consideration so long as the
recipients thereof agree not to sell, transfer or otherwise dispose of the CUB
Common Stock except as provided in the Affiliate Agreement);(v) the
certificates representing the Acquired Shares may bear a legend referring to
the foregoing restrictions on disposition, and Bancorp may issue to its
transfer agent appropriate stop transfer instructions with respect to the
Acquired Shares; and (vi) each CorpBank Affiliate will obtain an agreement, and
deliver a copy of such to Bancorp, from each transferee of Acquired Shares
which is substantially similar to an Affiliate Agreement, unless such
transferee may under the Securities Act dispose of the Acquired Shares
transferred to him without registration under the Securities Act.
Notwithstanding anything in this Section 5.13 to the contrary, in the event
that such affiliate is also a director of CorpBank, they shall enter into an
agreement in the form attached hereto as Exhibit E1, which shall provide, inter
alia, that such person will not sell or transfer the Bancorp Stock to be
acquired upon consummation of the Merger for a period of not less than six
months following the publication of financial information for a mimimum of 30
days of combined operation of CUB and CorpBank.
5.14 Bank Merger. At CUB's request, CorpBank and each CorpBank Subsidiary
shall take all necessary corporate and other action including publication
required under the Merger Statutes to approve and to permit the consummation of
the Bank Merger, on the Closing Date. CorpBank agrees that it will execute,
deliver and, when appropriate, file, and will cause each CorpBank Subsidiary to
execute, deliver and, when appropriate, file, any and all agreements,
applications and instruments necessary or desirable to permit the consummation
of the Merger on
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the Closing Date, including, but not limited to, agreements of merger relating
to the Merger, and will take, and will cause each CorpBank Subsidiary to take,
such other action as CUB may reasonably request to permit the consummation of
any transactions contemplated in connection with the Merger. CorpBank shall
not take any action or allow any CorpBank Subsidiary to take any action which
would prevent performance of agreements of merger or any transactions
contemplated in connection with the Merger.
5.15 Resignations. CorpBank shall obtain the resignations, to be effective
as of the Effective Time of the Merger, of the directors and officers of
CorpBank and the directors of all CorpBank Subsidiaries. Not less than ten (10)
days prior to the Closing, CUB shall provide CorpBank with a list of CorpBank
officers whose resignations will not be required.
5.16 Corporate Action. The parties shall each take or cause to be taken all
necessary corporate action required to carry out the transactions contemplated
in this Agreement and the Agreement of Merger.
5.17 Regulatory Approvals. Promptly following execution of this Agreement,
the parties hereto shall prepare, submit and file, or cause to be prepared,
submitted and filed, all applications for approvals and consents as may be
required of any of them, respectively, by applicable law and regulations with
respect to the transactions contemplated by this Agreement and by the Agreement
of Merger, including without limitation any and all applications required to be
filed with the OCC, the Fed and such other governmental or regulatory
authorities as Bancorp may reasonably believe necessary. Each party shall
cooperate with the others in the preparation of all of those applications and
will furnish promptly upon request all documents, information, financial
statements or other materials as may be required in order to complete said
applications. Each party hereto shall afford the others a reasonable opportunity
to review all such applications (except confidential portions thereof) and all
amendments and supplements thereto before filing.
5.18 Necessary Consents. In addition to the regulatory approvals referred to
in Section 5.17, the parties hereto shall each apply for and diligently seek to
obtain all other third party consents or approvals which may be necessary for
the consummation of the Merger, including, without limitation, the written
consent of any lessors of real and personal property which property cannot be
assigned without the written consent of the other such lessors.
5.19 Further Assurances. The parties agree that from time to time, whether
prior to, at or after the Effective Time of the Merger, they will execute and
deliver such
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further instruments of conveyance and transfer and take such other action as
may reasonably be expected to consummate the transactions contemplated hereby.
Bancorp, CUB, CorpBank and CorpBank Subsidiaries each agree to take such
further action as may reasonably be requested by any other party in order to
consummate the transactions contemplated by this Agreement and that are not
inconsistent with the other provisions hereof.
ARTICLE 6.
CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS
6.1 General Conditions. The obligations of each of the parties hereto to
consummate the transactions contemplated herein are further subject to the
satisfaction, on or before the Closing Date, of the following conditions
precedent:
(a) Shareholder Approval. The transactions contemplated hereby shall
have received all requisite approvals of the shareholders of CorpBank, Bancorp,
and CUB.
(b) No Proceedings. No legal, administrative, arbitration,
investigatory or other proceeding by any governmental authority shall have been
instituted and, at what would otherwise have been the Effective Time of the
Merger, remain pending by or before a court or any governmental authority to
restrain or prohibit the transactions contemplated hereby.
(c) Regulatory Approvals. To the extent required by applicable law or
regulation, all approvals or consents of any governmental authority, including
without limitation, those of the OCC, Fed and Superintendent shall have been
obtained or made for the transactions contemplated hereby, and the applicable
waiting period under the BHCA and the Bank Merger Act shall have expired. All
other statutory or regulatory requirements for the valid completion of the
transactions contemplated hereby shall have been satisfied.
(d) Stock Exchange Listing. The shares of Bancorp Stock deliverable
pursuant to this Agreement shall have been duly authorized for listing, subject
to official notice of issuance, on the Nasdaq Stock Exchange.
(e) Registration Statement and Proxy Statement. The Registration
Statement shall have become effective under the Securities Act and copies of the
Proxy Statement shall have been mailed to every shareholder of record of
CorpBank on the record date not less than 20 days prior to the date of the
shareholders' meeting called to act upon the Merger.
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6.2 Conditions to Obligations of Bancorp and CUB. The obligations of
Bancorp and CUB to effect the transactions contemplated hereby shall be subject
to the following conditions, any of which may be waived in writing by Bancorp
and CUB:
(a) Representations and Warranties; Performance of Covenants. Each of
the representations and warranties of CorpBank and CorpBank Subsidiaries set
forth herein shall be true and correct as of the Effective Time of the Merger in
all material respects, as if made on such date; and CorpBank and CorpBank
Subsidiaries shall have performed in all material respects all of the covenants
to be performed by them on or prior to the Effective Time of the Merger.
(b) Opinion of Counsel for CorpBank. Bancorp and CUB shall have
received from Knecht & Hansen, counsel to CorpBank, an opinion dated the
Effective Time of the Merger in substantially the form attached hereto as
Exhibit F.
(c) Authorization of Merger. All action necessary to authorize the
execution, delivery and performance of this Agreement by CorpBank and the
CorpBank Subsidiaries and the consummation of the transactions contemplated
hereunder shall have been duly and validly taken by the Boards of Directors and
shareholders of CorpBank, and the CorpBank Subsidiaries including without
limitation approval by a vote of the holders of at least two thirds of the
outstanding shares of CorpBank Stock pursuant to the National Bank Act and the
California Corporations Code, and CorpBank shall have full power and right to
merge pursuant to the Agreement of Merger.
(d) Dissenters' Rights. Not more than 5% of the outstanding shares of
CorpBank Stock shall have been determined to be "dissenting shares" as defined
in the California Corporations Code, the National Banking Act and other
applicable law and regulation.
(e) Regulatory Approvals and Related Conditions. Any governmental and
regulatory approvals and consents referred to in Sections 6.1(c) and any other
section of this Agreement shall have been granted without the imposition of
conditions that are or would have become applicable to Bancorp, or the Surviving
Association and that Bancorp reasonably and in good faith concludes would
adversely affect the financial condition or operations of Bancorp, or the
Surviving Association, or otherwise would be burdensome.
(f) Third Party Consents. CorpBank shall have obtained all consents of
other parties to their material mortgages, notes, leases, franchises,
agreements, licenses and permits as may be necessary to permit the transactions
contemplated herein to be consummated, without default, acceleration, breach or
loss of rights
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or benefits thereunder.
(g) Absence of Certain Changes. As of the Closing Date there shall not
exist any of the following: (i) any change(s) in the consolidated financial
condition, results of operation or prospects of CorpBank since June 30, 1995
which individually is or in the aggregate are materially adverse to CorpBank on
a consolidated basis; or (ii) any damage, destruction, loss or event materially
and adversely affecting the properties, business or prospects of CorpBank on a
consolidated basis.
(h) Termination of Stock Option Plans. CorpBank shall have caused its
stock option plans to be terminated as of the Calculation Date and shall have
obtained the consents or agreements specified in, and otherwise shall have
complied with the terms of, Section 5.12.
(i) Shareholders' Agreements. All directors of CorpBank and all
Shareholders specified in Section 1.9 shall have entered into agreements in
substantially the form attached hereto as Exhibit B concurrently with the
execution of this Agreement, and each of the persons executing such agreement
shall have performed in all material respects the obligations to be performed by
him under the agreement.
(j) Officers' Certificate. There shall have been delivered to Bancorp
on the Closing Date a certificate executed by the Chairman of the Board, Vice
Chairman of the Board, Chief Executive Officer and the Chief Financial Officer
of CorpBank certifying, to the best of their knowledge, compliance with all of
the provisions of Sections 6.2(a), (c), (d), (f), (g), (h) and (i).
(k) Validity of Transactions. The validity of all transactions herein
contemplated, as well as the form and substance of all opinions, certificates,
instruments of transfer and other documents to be delivered to Bancorp and CUB
hereunder, shall be subject to the approval, to be reasonably exercised, of
counsel for Bancorp and CUB.
(l) Accountants' Letters.
(i) Bancorp shall have received from AA, letters, dated the date
of mailing of the Proxy Statement and the Effective Time of the Merger, in form
and substance satisfactory to Bancorp: (i) confirming that they are independent
public accountants with respect to CorpBank and CorpBank Subsidiaries within the
meaning of the Securities Act and the published rules and regulations
thereunder; (ii) stating that, in their opinion, the audited consolidated
financial statements of CorpBank and CorpBank Subsidiaries, examined by them and
included or
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incorporated by reference in the Proxy Statement and Registration Statement and
reported therein by them, comply as to form in all material respects with the
applicable accounting requirements of the 1934 Act, the Securities Act and the
applicable published rules and regulations thereunder, as appropriate; (iii)
stating in effect that they have made a review of the unaudited consolidated
interim financial statements included or incorporated by reference in the proxy
statement or registration statement for periods subsequent to the most recent
audited consolidated financial statements included or incorporated by reference
in the Proxy Statement and the Registration Statement in accordance with
standards established by the American Institute of Certified Public Accountants
and nothing came to their attention that caused them to believe that such
unaudited consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1934 Act
and the Securities Act, as appropriate, or are not presented in conformity with
generally accepted accounting principles applied on a basis consistent in all
material respects with that of the most recent audited consolidated financial
statements included or incorporated by reference in the Proxy Statement and the
Registration Statement; (iv) stating in effect that, on the basis of certain
procedures and inquiries including a reading of the latest available unaudited
consolidated interim financial statements of CorpBank and CorpBank
Subsidiaries, inquiries of officials of CorpBank and CorpBank Subsidiaries
responsible for financial and accounting matters, and a reading of the minutes
of the meetings of the Boards of Directors and shareholders of CorpBank and
CorpBank Subsidiaries (which procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards and
would not necessarily reveal material adverse changes in the consolidated
financial position or results of operations of CorpBank and CorpBank
Subsidiaries ), nothing came to their attention that caused them to believe
that (A) the unaudited consolidated financial statements of CorpBank and the
CorpBank Subsidiaries incorporated by reference in the Proxy Statement and the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1934 Act and the Securities Act,
as appropriate, or that the unaudited consolidated financial statements are not
in conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated financial
statements or that at a specified date not more than five days prior to the
date of mailing of the Proxy Statement or Effective Date of the Registration
Statement and the Effective Time of the Merger, as applicable, there has been
any material change in the capital stock, other equity securities or other
ownership interests of CorpBank or any of the CorpBank Subsidiaries , or any
increase in consolidated long-term debt of CorpBank or any of the CorpBank
Subsidiaries, or any reduction in consolidated shareholders' equity (excluding
unrealized gain or loss on marketable equity securities) or other ownership
interests as compared with the amounts of
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those items set out in the audited consolidated statement of condition at
December 31, 1994 and with any subsequent unaudited consolidated statement of
condition included or incorporated by reference in the Proxy Statement and
Registration Statement, except for changes and the amount of such reduction, if
any, which are described in such letter or are set forth in the Proxy Statement
and Registration Statement, or (B) since December 31, 1994 any dividends were
paid on the CorpBank Stock except as described in such letter; and (v) in
addition to the review referred to in clause (iii) above and the limited
procedures referred to in clause (iv) above, they have carried out certain
specified procedures, if any, not constituting an audit, with respect to
certain amounts or percentages and financial information which appear in the
Proxy Statement and Registration Statement and which have been reasonably
specified by Bancorp or CorpBank, as described in such letter.
(m) Covenants Not to Compete. Each director of CorpBank who is a
shareholder of CorpBank shall have entered into an "Agreement Not to Compete" in
substantially the form attached hereto as Exhibits G(1), and G(2)(Stanley
Pawlowski).
(n) Registration Statement. The Registration Statement shall have been
declared effective, no stop-order with respect to the Registration Statement
shall have been received by Bancorp and no proceeding for such purpose shall be
pending or threatened before the SEC.
(o) Blue Sky Qualification. The sale of the Bancorp Stock referred to
herein shall have been qualified or registered with the appropriate authorities
of all states in which qualification or registration is required under the state
securities or Blue Sky laws, and such qualifications or registrations shall not
have been suspended or revoked.
(p) Rule 145 Affiliate Agreements. CorpBank shall have delivered to
Bancorp not later than 30 days prior to the Effective Date, all of the executed
Affiliate Agreements specified in Section 5.13.
(q) Resignations. CorpBank shall have delivered the resignations
required by Section 5.15.
(r) Regulatory Approvals for Bank Merger. All approvals or consents of
any governmental authority shall have been obtained or made for the Bank Merger
and all applicable waiting periods shall have expired. All other statutory or
regulatory requirements for the valid completion of the Bank Merger shall have
been satisfied.
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(s) General Releases. The general releases and dismissals of litigation
set forth in Section 5.6 (u) shall have been received and are acceptable to CUB.
(t) Pawlowski. Stanley Pawlowski shall agree that at the Closing he
will become an employee of CUB, on terms and conditions to be agreed upon by CUB
and Pawlowski. He will further agree that in the event CUB or Bancorp offers him
a position as a director of either or both companies, he will accept such
appointment.
6.3 Conditions to Obligations of CorpBank. The obligations of CorpBank to
effect the transactions contemplated hereunder shall be subject to the following
conditions, any of which may be waived in writing by CorpBank:
(a) Representations and Warranties; Performance of Covenants. Each of
the representations and warranties of Bancorp and CUB set forth herein shall be
true and correct as of the Effective Time of the Merger in all material
respects, as if made on such date; and Bancorp and CUB shall have performed in
all material respects all of the covenants to be performed by them on or prior
to the Effective Time of the Merger.
(b) Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Bancorp and CUB and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by the Board of Directors of each of Bancorp and CUB, and CUB
shall have full power and right to merge pursuant to the Agreement of Merger.
(c) Officers' Certificate. There shall have been delivered to CorpBank
on the Closing Date a certificate executed by the Chief Executive Officer and
the Chief Financial Officer of each of Bancorp and CUB certifying, to the best
of their knowledge, compliance with all of the provisions of Sections 6.3(a) and
(c).
(d) Third Party Consents. Bancorp and CorpBank shall have obtained all
consents of other parties to their material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
transactions contemplated herein to be consummated, without default,
acceleration, breach or loss of rights or benefits thereunder.
(e) Absence of Certain Changes. As of the Closing Date there shall not
exist any of the following: (i) any change(s) in the consolidated financial
condition, results of operation or prospects of Bancorp since December 31, 1994
which individually is or in the aggregate are materially adverse to Bancorp on a
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consolidated basis; or (ii) any damage, destruction, loss or event materially
and adversely affecting the properties, business or prospects of Bancorp on a
consolidated basis.
(f) Fairness Opinion. Within ten (10) days of the execution of this
Agreement, CorpBank shall have received a letter from The Findley Group or such
other party as may be acceptable to the parties, substantially in the form
attached hereto as Schedule 6.3(f), to the effect that the transactions
contemplated by this Agreement are fair from a financial point of view to the
shareholders of CorpBank.
(g) Validity of Transactions. The validity of all transactions herein
contemplated, as well as the form and substance of all opinions, certificates,
instruments of transfer and other documents to be delivered to CorpBank
hereunder, shall be subject to the approval, to be reasonably exercised, of
counsel for CorpBank.
ARTICLE 7.
EMPLOYEE BENEFITS PLANS
7.1 Termination of CorpBank Employee Benefit Plans. Prior to the Effective
Time of the Merger, CorpBank will take, and will cause all CorpBank Subsidiaries
to take, all actions necessary to terminate their respective employee benefit
plans and pension plans as of the Effective Time of the Merger. Contributions
under the employee benefit plans and pension plans will be made at the rate
provided in those respective plans through the Effective Time of the Merger.
Except for amendments that are required by the Tax Reform Act of 1986 and later
legislation, no amendments to the employee benefit plans and pension plans shall
be made which increase the obligations of employers under any of the plans.
Distributions from the plans will be made to the participants as soon as
practicable after the termination of the plans in accordance with requirements
of ERISA and the Code.
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ARTICLE 8.
TERMINATION
8.1 Termination of this Agreement.
(a) This Agreement may be terminated:
(i) By mutual agreement of the parties, in writing;
(ii) By (A) Bancorp immediately upon the expiration of 30 days
from the date that Bancorp has given notice to CorpBank of a material breach or
default by CorpBank or any CorpBank Subsidiary in the performance of any
covenant, agreement, representation, warranty, duty or obligation hereunder or
(B) CorpBank immediately upon the expiration of 30 days from the date that
CorpBank has given notice to Bancorp of a material breach or default by Bancorp
or CUB in the performance of any covenant, agreement, representation, warranty,
duty or obligation hereunder; provided, however, that no such termination shall
be effective if, within such 30-day period, the breaching or defaulting party
shall have substantially corrected and cured the grounds for the termination as
set forth in said notice of termination.
(iii) By Bancorp or CUB if any governmental or regulatory
authority denies or refuses to grant the approvals, consents or authorizations
required to be obtained in order to consummate the transactions covered and
contemplated by this Agreement, or if any such approval contains conditions
which, in the reasonable opinion of Bancorp or CUB, are materially burdensome to
its ongoing operations.
(iv) By CorpBank if any governmental or regulatory authority
denies or refuses to grant the approvals, consents or authorizations required to
be obtained in order to consummate the transactions covered and contemplated by
this Agreement other than the Merger.
(v) By Bancorp or CUB at any time prior to the Effective Time of
the Merger, if (A) the Board of Directors of CorpBank approves a transaction (or
CorpBank executes a letter of intent or other document) pursuant to which any
person or entity or related group of persons or entities acquires, directly or
indirectly, record or beneficial ownership (as defined in Rule 13d-3 promulgated
by the SEC pursuant to the 1934 Act) or control of 5% or more of the outstanding
shares of CorpBank Stock; (B) any person or entity or related group of persons
or entities seeks to acquire 5% or more of the outstanding shares of CorpBank
Stock by tender offer
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or otherwise, and the Board of Directors of CorpBank does not advise CorpBank's
shareholders that the Board does not support such tender offer or acquisition
and that it does support the Merger; (C) if CorpBank violates its covenant
pursuant to Section 5.7(j); or (D) the Merger does not receive the requisite
approval of CorpBank shareholders.
(vi) By CUB in the event of any change)s) in the financial
condition, results of operation, business, property, assets (including loan
portfolios), prospects, operations, liquidity, income or condition (financial or
otherwise) or prospects of CorpBank since December 31, 1994 (except those events
related to the Audit Group Report dated June 12, 1995) which individually or in
the aggregate are materially adverse to CorpBank or any damage, destruction,
loss, or event materially and adversely affecting the properties, business or
prospects of CorpBank (a "material adverse change"). For purposes of this
section, only, and with regard only to matters the effect of which can be
reasonably quantified, an event, occurrence, or circumstances shall be deemed to
have occurred if the average Core Deposits for the three month period prior to
the end of the month just prior to the Closing, do not equal or exceed 85% of
the Core Deposits of CorpBank at December 31, 1994. For purposes of this
provision, Core Deposits shall include non interest bearing demand deposit
accounts, interest bearing demand deposit accounts, savings accounts and money
market accounts, but shall not include Certificate of Deposits. Additionally,
for purposes of this provision, CUB shall perform a review of CorpBank's loan
portfolio prior to Closing to determine if a material adverse change has
occurred in CorpBank's loan portfolio. A material adverse change will have
occurred if the reserves which need to be allocated in CUB's opinion and
pursuant to its loan grading and allowance for loan and lease losses policy,
uniformly applied, exceed CorpBank's allowance for loan and lease losses by
approximately 15%. CUB shall also conduct a legal audit prior to Closing to
determine if any legal matters or events constitute a material adverse change. A
material adverse change will also be deemed to have occurred if there is a 10%
negative change in any two or more of the factors affecting the business and
prospects of CorpBank, including but not limited to Core Deposits, allowance for
loan and lease losses or legal exposure.
(vii) By CorpBank in the event of any change(s) in the
consolidated financial condition, results of operation, business, property,
assets (including loan portfolios), prospects, operations, liquidity, income or
condition (financial or otherwise) or prospects of CUB since December 31, 1994,
which individually or in the aggregate are materially adverse to CUB or any
damage, destruction, loss, or event materially and adversely affecting the
properties, business or prospects of CUB on a consolidated basis (a "material
adverse change").
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(viii) By CorpBank or CUB if either reasonably disapproves the
determinations of AA with regard to CorpBank shareholders' equity, net income
(loss), and the net after tax effect of any sale or distribution of the Bond
Claim, providing that the terminating party shall be required to set forth the
reasons for such disapproval in writing.
(b) This Agreement shall be terminated if any conditions specified in
Article VI have not been satisfied or waived in writing by the party authorized
to waive such conditions by February 28, 1996 unless mutually extended by the
parties hereto.
(c) This Agreement may be terminated by Bancorp or CUB if Schedules
provided by CorpBank disclose material contracts, liabilities or potential
liabilities not previously disclosed orally or in writing by CorpBank to CUB or
fail to disclose material contracts, liabilities or potential liabilities which
come to CUB's attention in any other manner.
8.2 Effect of Termination; Survival. No termination of this Agreement under
this Article VIII for any reason or in any manner shall release, or be construed
as so releasing, any party hereto from its obligations pursuant to Sections 5.1,
9.1 or 9.2 hereof or from any liability or damage to any other party hereto
arising out of, in connection with or otherwise relating to, directly or
indirectly, said party's material breach, default or failure in performance of
any of its covenants, agreements, duties or obligations arising hereunder, or
any breaches of any representation or warranty contained herein arising prior to
the date of termination of this Agreement.
ARTICLE 9.
GENERAL PROVISIONS
9.1 Indemnification.
(a) CorpBank agrees to defend, indemnify and hold harmless Bancorp and
CUB, their officers and directors, their attorneys, and each person who controls
Bancorp within the meaning of the Securities Act from and against any costs,
damages, liability and expenses of any nature, insofar as such costs, damages,
liabilities and expenses arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Proxy Statement
or in the Registration Statement or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that CorpBank shall be
liable in any
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such case only to the extent that any such cost, damage, liability or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in said Proxy Statement or Registration
Statement or amendments or supplements thereto, in reliance upon and in
conformity with information with respect to CorpBank or CorpBank Subsidiaries
furnished to Bancorp by or on behalf of CorpBank specifically for use therein.
(b) Bancorp and CUB agree to defend, indemnify and hold harmless
CorpBank, its officers and directors, its attorneys, accountants and each person
who controls CorpBank within the meaning of the Securities Act from and against
any costs, damages, liabilities and expenses of any nature, insofar as any such
costs, damages, liabilities or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Proxy Statement or in the Registration Statement or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make statements therein not misleading; provided, however, that
neither Bancorp nor Bank will be liable in any such case to the extent that any
such cost, damage, liability or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in said Proxy Statement or Registration Statement, or amendments or
supplements thereto, in reliance upon and in conformity with information with
respect to CorpBank or CorpBank Subsidiaries furnished to Bancorp by or on
behalf of CorpBank specifically for use therein.
9.2 Expenses. Each party hereto shall pay its own costs and expenses,
including, but not limited to, those of its attorneys and accountants, in
connection with this Agreement and the transactions covered and contemplated
hereunder.
9.3 Notices. All notices, demands or other communications hereunder shall
be in writing or by telex or facsimile transmission and shall be deemed to have
been duly given on the date of service if delivered (i) in person or by telex or
facsimile transmission (provided that telexed or telecopied notices are also
mailed by first class, certified or registered mail, postage prepaid); or (ii)
72 hours after mailing by United States mail, first-class, certified or
registered, with return receipt requested and postage prepaid, and properly
addressed as follows:
(a) If to CorpBank:
Corporate Bank
2740 North Grand Avenue
Santa Ana, California 94105
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Attention:
Allan Stokke, Chairman
Stanley Pawlowski, Vice Chairman
With copies to:
Richard Knecht, Esq.
Knecht & Hansen
1301 Dove Street, Suite 900
Newport Beach, California 92660
fax: (714) 851 1732
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(b) If to Bancorp and CUB:
CU Bancorp and California United Bank, National Association
16030 Ventura Boulevard
Encino, California 90071
Attention: Stephen G. Carpenter.
Chief Executive Officer
Telecopier Number (818) 907-5024
With copies to:
Anita Y. Wolman, Esq.
General Counsel
California United Bank, N.A.
16030 Ventura Boulevard
Encino, California 91436
Telecopier No. (818) 907-5024
The persons or addresses to which mailings or deliveries shall be made may
change from time to time by notice given pursuant to the provisions of this
Section 9.3.
9.4 Successors and Assigns. All terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective transferees, successors and assigns; provided, however, that, except
as otherwise contemplated herein, this Agreement and all rights, privileges,
duties and obligations of the parties hereto may not be assigned or delegated by
any party hereto without the prior written consent of the other parties to this
Agreement and any purported assignment in violation of this Section 9.4 shall be
null and void.
9.5 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit, or create any right or cause of action in or on
behalf of, any person other than the parties hereto. As used in this Agreement,
the term "party" or "parties" shall refer only to Bancorp, CUB, CorpBank,
CorpBank Subsidiaries, the Surviving Association or any of them.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
9.7 Governing Law. This Agreement is made and entered into in the State of
California and, except to the extent that the provisions of the National Banking
Act
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are mandatorily applicable, the laws of the State of California shall govern
the validity and interpretation hereof and the performance of the parties
hereto of their respective duties and obligations hereunder. The parties
hereto agree to venue in the city of Los Angeles, State of California.
9.8 Captions. The captions contained in this Agreement are for convenience
of reference only and do not form a part of this Agreement.
9.9 Waiver and Modification. No waiver of any term, provision or condition
of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. This Agreement and
the Agreement of Merger, when executed and delivered, may be modified or amended
by action of the Boards of Directors of Bancorp, CUB, CorpBank or CorpBank
Subsidiaries without action by their respective shareholders. This Agreement may
be modified or amended only by an instrument of equal formality signed by the
parties or their duly authorized agents.
9.10 Attorneys' Fees. In the event any of the parties to this Agreement
brings an action or suit against any other party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other party, the
prevailing party, as determined by the court or other body having jurisdiction,
shall be entitled to have and recover of and from the losing party, as
determined by the court or other body having jurisdiction, all reasonable costs
and expenses incurred or sustained by such prevailing party in connection with
such suit or action, including, without limitation, legal fees and court costs
(whether or not taxable as such).
9.11 Jury Waiver. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY MATTER
ARISING OUT OF THIS AGREEMENT OR RELATED TO THIS AGREEMENT OR IN CONNECTION WITH
ANY TRANSACTION OR MATTER CONTEMPLATED IN THIS AGREEMENT.
9.12 Entire Agreement. The making, execution and delivery of this Agreement
by the parties hereto have not been induced by any representations, statements,
warranties or agreements other than those herein expressed. This Agreement
embodies the entire understanding of the parties and there are no further or
other agreements or understandings, written or oral, in effect between the
parties relating to the subject matter hereof, unless expressly referred to by
reference herein.
9.13 Severability. Whenever possible, each provision of this Agreement and
every related document shall be interpreted in such manner as to be valid under
applicable law. However, if any provision of any of the foregoing shall be
invalid
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or prohibited under said applicable law, it shall be construed, interpreted and
limited to effectuate its purpose to the maximum legally permissible extent.
If it cannot be so construed and interpreted so as to be valid under such law,
such provision shall be ineffective to the extent of such invalidity or
prohibition without invalidating the remainder of such provision or the
remaining provisions of this Agreement, and this Agreement shall be construed
to the maximum extent possible to carry out its terms without such invalid or
unenforceable provision or portion thereof.
9.14 Effect of Disclosure. Any list, statement, document, writing or other
information set forth in, referenced to or attached to any Schedule or Exhibit
delivered pursuant to any provision of this Agreement shall be deemed to
constitute disclosure for purposes of any other Schedule or Exhibit required to
be delivered pursuant to any other provision of this Agreement.
9.15 Publicity. The parties hereto agree that they will coordinate on any
publicity concerning this Agreement, and the transactions contemplated hereby.
Except as may be required by law, no party shall issue any press release,
publicity statement or other public notice relating in any way to this Agreement
or any of the transactions contemplated hereby without obtaining the prior
consent of the others, which consent shall not be unreasonably withheld.
9.16 Knowledge. Whenever any statement herein or in any schedule, exhibit,
certificate or other documents delivered to any party pursuant to this Agreement
is made "to the knowledge" or "to the best knowledge" of any party or other
person, such party or other person shall make such statement only after
conducting an investigation reasonable under the circumstances of the subject
matter thereof, and each such statement shall constitute a representation that
such investigation has been conducted.
9.17 Schedules. Notwithstanding anything to the contrary herein, Schedules
to this Reorganization Agreement may be submitted not more than ten (10)
business days following execution of this Reorganization Agreement. If a party
does not object to any Schedule within 3 business days of receipt thereof, it
shall be deemed acceptable.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
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Bancorp: CU BANCORP
By: /s/ STEPHEN G. CARPENTER
--------------------------------
Name: STEPHEN G. CARPENTER
Title: PRESIDENT
By: /s/ PATRICK HARTMAN
--------------------------------
Name: PATRICK HARTMAN
Title: CHIEF FINANCIAL OFFICER
CUB: CALIFORNIA UNITED BANK, NATIONAL
ASSOCIATION
By: /s/ STEPHEN G. CARPENTER
--------------------------------
Name: STEPHEN G. CARPENTER
Title: CHIEF EXECUTIVE OFFICER
By: /s/ DAVID I. RAINER
--------------------------------
Name: DAVID I. RAINER
Title: PRESIDENT
CorpBank: CORPORATE BANK
By: /s/ C. ELLIS PORTER
--------------------------------
Name: C. ELLIS PORTER
Title: PRESIDENT
By: /s/ JAMES HANSEN
--------------------------------
Name: JAMES HANSEN
Title: VICE PRESIDENT
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EXHIBIT 2.(b)
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HOME INTERSTATE BANCORP,
HOME BANK,
CU BANCORP AND
CALIFORNIA UNITED BANK, NATIONAL ASSOCIATION
January 10, 1996
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS................................................................................. 1
ARTICLE II THE MERGER AND RELATED MATTERS.............................................................. 7
2.1. The Merger.................................................................................. 7
2.2. Fractional Shares........................................................................... 8
2.3. Exchange Procedures......................................................................... 8
2.4. Dissenting Shares........................................................................... 9
2.5. Effect of Merger. ......................................................................... 9
2.6. Name of Surviving Company................................................................... 9
2.7. Articles of Incorporation and Bylaws of Surviving Company................................... 9
2.8. Directors and Officers of Surviving Company. ............................................... 9
2.9. Options..................................................................................... 10
2.10. Warrant ................................................................................... 10
ARTICLE III THE CLOSING................................................................................. 11
3.1. Closing Date. ............................................................................. 11
3.2. Execution of Merger Agreements.............................................................. 11
3.3. Documents to be Delivered................................................................... 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HOME AND HOME BANK........................................ 11
4.1. Incorporation, Standing and Power. ........................................................ 11
4.2. Capitalization.............................................................................. 12
4.3. Subsidiaries. ............................................................................. 12
4.4. Financial Statements. ..................................................................... 12
4.5. SEC/Regulatory Filings. ................................................................... 12
4.6. Authority of Home and Home Bank............................................................. 13
4.7. Insurance................................................................................... 13
4.8. Title to Assets. .......................................................................... 14
4.9. Real Estate. ............................................................................... 14
4.10. Litigation. ............................................................................... 14
4.11. Taxes....................................................................................... 14
4.12. Compliance with Laws and Regulations. ..................................................... 15
4.13. Performance of Obligations.................................................................. 15
4.14. Employees. ................................................................................ 16
4.15. Brokers and Finders. ...................................................................... 16
4.16. Material Contracts. ........................................................................ 16
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TABLE OF CONTENTS (CONT'D.)
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4.17. Absence of Material Change. .............................................................. 18
4.18. Licenses and Permits. ..................................................................... 18
4.19. No Material Liabilities; Environmental...................................................... 18
4.20. Employee Benefit Plans...................................................................... 18
4.21. Corporate Records. ........................................................................ 21
4.22. Offices and ATMs............................................................................ 21
4.23. Operating Losses............................................................................ 21
4.24. Loan Portfolio. .......................................................................... 21
4.25. Power of Attorney. ........................................................................ 22
4.26. Disclosure Documents and Applications. .................................................... 22
4.27. Accuracy and Currentness of Information Furnished. ........................................ 22
4.28. Loan Servicing Portfolio.................................................................... 22
4.29. Certain Interests........................................................................... 22
4.30. Investment Securities....................................................................... 22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CU AND CU BANK............................................ 23
5.1. Incorporation, Standing and Power........................................................... 23
5.2. Capitalization.............................................................................. 23
5.3. Subsidiaries. ............................................................................. 23
5.4. Financial Statements........................................................................ 24
5.5. SEC/Regulatory Filings...................................................................... 24
5.6. Authority of CU and CU Bank. .............................................................. 24
5.7. Insurance. ................................................................................ 25
5.8. Title to Assets............................................................................. 25
5.9. Real Estate................................................................................. 25
5.10. Litigation. ............................................................................... 25
5.11. Taxes....................................................................................... 26
5.12. Compliance with Laws and Regulations........................................................ 27
5.13. Performance of Obligations.................................................................. 27
5.14. Employees. ................................................................................ 27
5.15. Brokers and Finders......................................................................... 27
5.16. Material Contracts.......................................................................... 27
5.17. Absence of Material Change. .............................................................. 29
5.18. Licenses and Permits. ..................................................................... 29
5.19. No Material Liabilities; Environmental...................................................... 29
5.20. Employee Benefit Plans...................................................................... 30
5.21. Corporate Records........................................................................... 32
5.22. Offices and ATMs............................................................................ 32
5.23. Operating Losses. ......................................................................... 32
5.24. Loan Portfolio.............................................................................. 32
5.25. Power of Attorney........................................................................... 33
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TABLE OF CONTENTS (CONT'D.)
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5.26. Disclosure Documents and Applications....................................................... 33
5.27. Accuracy and Currentness of Information Furnished........................................... 33
5.28. Loan Servicing Portfolio.................................................................... 33
5.29. Certain Interests........................................................................... 33
5.30. Investment Securities. .................................................................... 34
ARTICLE VI COVENANTS OF HOME AND HOME BANK PENDING EFFECTIVE
TIME OF THE MERGERS......................................................................... 34
6.1. Limitation on Home's and Home Bank's Conduct Prior to Effective Time. ..................... 34
6.2. No Solicitation, etc........................................................................ 36
6.3. Affirmative Conduct of Home and Home Bank Prior to Effective Time........................... 36
6.4. Access to Information....................................................................... 38
6.5. Filings. .................................................................................. 38
6.6. Notices; Reports. ......................................................................... 38
6.7. Home Shareholders' Meeting. .............................................................. 39
6.8. Bank Merger. .............................................................................. 39
6.9. Filings; Applications....................................................................... 39
6.10. Certain Loans and Other Extensions of Credit. ............................................ 39
6.11. Termination of Home Stock Option Plan. ..................................................... 40
6.12. Environmental Audit. ...................................................................... 40
6.13. D&O Coverage. ............................................................................. 40
ARTICLE VII COVENANTS OF CU AND CU BANK PENDING EFFECTIVE TIME
OF THE MERGERS.............................................................................. 40
7.1. Limitation on CU's and CU Bank's Conduct Prior to Effective Time............................ 40
7.2. No Solicitation, etc........................................................................ 42
7.3. Affirmative Conduct of CU and CU Bank Prior to Effective Time............................... 43
7.4. Access to Information....................................................................... 45
7.5. Filings. .................................................................................. 45
7.6. Notices; Reports............................................................................ 45
7.7. CU Shareholders' Meeting.................................................................... 46
7.8. Bank Merger................................................................................. 46
7.9. Filings; Applications....................................................................... 46
7.10. Certain Loans and Other Extensions of Credit................................................ 46
7.11. CU Stock Option Plan........................................................................ 47
7.12. Dividends. ................................................................................ 47
7.13. Articles of Incorporation................................................................... 47
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TABLE OF CONTENTS (CONT'D.)
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ARTICLE VIII GENERAL COVENANTS........................................................................... 47
8.1. Best Efforts................................................................................ 47
8.2. Public Announcements........................................................................ 47
8.3. S-4 and the Proxy Statement................................................................. 47
8.4. Merger of Home Bank and CU Bank............................................................. 47
ARTICLE IX CONDITIONS PRECEDENT TO THE MERGERS......................................................... 48
9.1. Shareholder Approval........................................................................ 48
9.2. No Judgments or Orders...................................................................... 48
9.3. Regulatory Approvals........................................................................ 48
9.4. Tax Opinion................................................................................. 48
9.5. Pooling of Interests Accounting Treatment................................................... 48
9.6. S-4 and Proxy Statement..................................................................... 48
9.7. Dissenters.................................................................................. 48
ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOME AND
HOME BANK .................................................................................. 49
10.1. Legal Opinion............................................................................... 49
10.2. Representations and Warranties; Performance of Covenants.................................... 49
10.3. Authorization of Mergers; Option Plan....................................................... 49
10.4. Absence of Certain Changes.................................................................. 49
10.5. Officers' Certificate....................................................................... 49
10.6. Fairness Opinion............................................................................ 50
10.7. Directors' Voting Agreements................................................................ 50
10.8. Home Warrant Agreement...................................................................... 50
10.9. Appointment of Directors.................................................................... 50
10.10. Validity of Transactions.................................................................... 50
10.11. Third Party Consents........................................................................ 50
10.12. NASDAQ Listing.............................................................................. 50
10.13. CU Board.................................................................................... 50
10.14. Non-Performing Loans. ..................................................................... 50
ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF CU AND CU BANK....................................... 50
11.1. Legal Opinion............................................................................... 51
11.2. Representations and Warranties; Performance of Covenants.................................... 51
11.3. Authorization of Mergers.................................................................... 51
11.4. Regulatory Approvals and Related Conditions................................................. 51
11.5. Third Party Consents........................................................................ 51
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TABLE OF CONTENTS (CONT'D.)
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11.6. Absence of Certain Changes.................................................................. 51
11.7. Officers' Certificate....................................................................... 51
11.8. Fairness Opinion............................................................................ 51
11.9. Validity of Transactions.................................................................... 52
11.10. Blue Sky Matters............................................................................ 52
11.11. Insurance Coverage.......................................................................... 52
11.12. Directors' Voting Agreements................................................................ 52
11.13. CU Warrant Agreement........................................................................ 52
11.14. Affiliate Agreements........................................................................ 52
11.15. Non-Performing Loans........................................................................ 52
11.16. Absence of Excess Remediation............................................................... 52
ARTICLE XII EMPLOYEE BENEFITS........................................................................... 52
12.1. Employee Benefits........................................................................... 52
ARTICLE XIII TERMINATION................................................................................. 53
13.1. Termination................................................................................. 53
13.2. Termination Date............................................................................ 53
13.3. Effect of Termination....................................................................... 54
ARTICLE XIV MISCELLANEOUS............................................................................... 54
14.1. Expenses.................................................................................... 54
14.2. Notices..................................................................................... 54
14.3. Successors and Assigns...................................................................... 55
14.4. Counterparts................................................................................ 55
14.5. Effect of Representations and Warranties.................................................... 55
14.6. Third Parties............................................................................... 55
14.7. Lists; Exhibits; Integration................................................................ 55
14.8. Knowledge................................................................................... 55
14.9. Governing Law............................................................................... 55
14.10. Schedules................................................................................... 55
14.11. Captions.................................................................................... 55
14.12. Severability................................................................................ 55
14.13. Waiver and Modification..................................................................... 56
14.14. Attorney's Fees............................................................................. 56
14.15. Jury Waiver................................................................................. 57
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TABLE OF CONTENTS (CONT'D.)
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EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Bank Merger Agreement
Exhibit C CU Warrant Agreement
Exhibit D Home Warrant Agreement
Exhibit E CU Legal Opinion
Exhibit F CU Shareholders' Agreement
Exhibit G Manatt, Phelps & Phillips Legal Opinion
Exhibit H Home Shareholders' Agreement
Exhibit I Home Affiliate Letter
ANNEX I List of Home Directors Signing Affiliate Agreement
</TABLE>
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is
made and entered into as of the 10th day of January, 1996, by and between Home
Interstate Bancorp, a California corporation ("Home"), and Home Bank, a
California chartered commercial bank ("Home Bank"), and CU Bancorp, a California
corporation ("CU"), and California United Bank, National Association, a national
banking association ("CU Bank").
R E C I T A L S
WHEREAS, Home and CU desire to effect a merger (the "Merger")
in accordance with the terms of this Agreement and the Agreement of Merger (as
defined herein).
WHEREAS, the respective Boards of Directors of Home and CU
believe that the proposed Merger, on the terms and conditions set forth herein,
is in the best interests of their respective corporations and shareholders.
WHEREAS, Home and CU intend to cause the Merger (the "Bank
Merger") of Home Bank and CU Bank at the Effective Time (as hereinafter defined)
or as soon thereafter as practicable.
WHEREAS, Home, Home Bank, CU Bancorp and CU Bank desire to
make certain representations, warranties, covenants and agreements in connection
with the transactions contemplated by this Agreement.
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or unless
the context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:
1.1. "Affiliate" of, or a person "Affiliated" with, a specific
person is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
1.2. "Agreement of Merger" means the Agreement of Merger to be
entered into by and between Home and CU substantially in the form of Exhibit A
hereto, but subject to any changes that may be necessary to conform to any
requirements of any regulatory agency having authority over the Merger.
1.3. "Alternative Transaction" means any of the following involving
Home or Home Bank for purposes of Section 6.2 or CU or CU Bank for purposes of
Section 7.2: any merger, consolidation, share
<PAGE> 9
exchange or other business combination; a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets of Home or Home Bank or CU or CU
Bank (as applicable) representing 10% or more of consolidated assets; a sale of
shares of capital stock (or securities convertible or exchangeable into or
otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock), representing 10% or more of the voting power of Home or
Home Bank or CU or CU Bank (as applicable); a tender offer or exchange offer for
at least 10% of the outstanding shares of Home or CU (as applicable); a
solicitation of proxies in opposition to approval of the Merger by Home's
shareholders or CU's shareholders (as applicable); or a public announcement of a
proposal, plan, or intention to do any of the foregoing.
1.4. "Arthur Andersen" means Arthur Andersen, LLP.
1.5. "ATM" has the meaning set forth in Section 4.22.
1.6. "Average Price of CU Stock" means the average of the Closing
Price of CU Stock (as defined below) for the 10 consecutive trading days
immediately preceding the one trading day prior to the Effective Time (subject
to adjustment as provided below). The term "trading day" shall mean a day on
which trading generally takes place on the NASDAQ and on which trading in CU
Stock has not been halted or suspended. In the event CU pays, declares or
otherwise effects a stock split, reverse stock split, reclassification or stock
dividend or distribution with respect to the CU Stock between the date of this
Agreement and the Effective Time, appropriate adjustments will be made to the
Average Price of CU Stock.
1.7. "Bank Merger" means the merger of Home Bank with and into CU
Bank.
1.8. "Bank Merger Agreement" means the Agreement of Merger between
CU Bank and Home Bank, substantially in the form of Exhibit B hereto.
1.9. "BHC Act" means the Bank Holding Company Act of 1956, as
amended.
1.10. "Business Day" means any day other than Saturday, Sunday or a
day on which commercial banks in California are authorized or required to be
closed.
1.11. "California Secretary" means the Secretary of State of the
State of California.
1.12. "Closing" means the consummation of the Merger (as defined
herein) on the Closing Date (as defined herein) at the offices of Manatt, Phelps
& Phillips, 11355 West Olympic Boulevard, Los Angeles, California, or at such
other place as the parties may agree upon.
1.13. "Closing Date" means a Business Day to be designated by the
Parties.
1.14. "Closing Price of CU Stock" means the closing price of CU
Stock as reported on the NASDAQ and reprinted in the Western Edition of the Wall
Street Journal.
1.15. "Code" means the Internal Revenue Code of 1986, as amended.
1.16. "Conversion Ratio" has the meaning set forth in Section
2.1(c).
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<PAGE> 10
1.17. "Corporate Bank Merger" means the proposed merger of Corporate
Bank, a California banking corporation, with and into CU Bank.
1.18. "Covered Loan" has the meaning set forth in Section 4.24.
1.19. "CU Bank Stock" means the common stock, $5.00 par value, of CU
Bank.
1.20. "CU Options" means options to purchase CU Stock pursuant to
the CU Stock Option Plan.
1.21. "CU Schedules" has the meaning set forth in Section 7.3(k).
1.22. "CU Scheduled Contracts" has the meaning set forth in Section
5.16.
1.23. "CU Shareholders' Meeting" means the meeting of CU's
shareholders referred to in Section 7.7 hereof.
1.24. "CU Stock" means the common stock, no par value, of CU.
1.25. "CU Stock Option Plan" means, collectively, the (i) the 1983
Employee Stock Option Plan, (ii) 1985 Employee Stock Option Plan, (iii) 1987
Special Stock Option Plan, (iv) 1993 Employee Stock Option Plan, (v) Non
Employee Director Stock Option Plan, and (vi) 1995 Restricted Stock Plan.
1.26. "CU Supplied Information" has the meaning set forth in Section
5.26.
1.27. "CU Warrant" means the warrant issued to CU pursuant to the CU
Warrant Agreement.
1.28. "CU Warrant Agreement" means the Warrant Agreement entered
into between CU and Home and attached hereto as Exhibit C, pursuant to which the
CU Warrant is issued.
1.29. "Dissenting Shares" means any shares of CU Stock or Home Stock
(as defined herein) that are (i) issued and outstanding immediately prior to the
Effective Time of the Merger and (ii) "dissenting shares" as that term is
defined in Section 1301 (b) of the California Corporations Code.
1.30. "Effective Time" means the date and time of the filing of the
Agreement of Merger with the California Secretary.
1.31. "Environmental Law" means any federal, state, provincial or
local statute, law, ordinance, rule, regulation, order, consent, decree,
judicial or administrative decision or directive of the United States or other
jurisdiction whether now existing or as hereinafter promulgated, issued or
enacted relating to: (A) pollution or protection of the environment, including
natural resources; (B) exposure of persons, including employees, to Hazardous
Substances or other products, materials or chemicals; (C) protection of the
public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of chemical or other substances from
industrial or commercial activities; or (D) regulation of the manufacture, use
or introduction into commerce of substances, including, without limitation,
their manufacture, formulation, packaging, labeling, distribution
transportation, handling, storage and disposal. For the purposes of this
definition the term "Environmental Law" shall include, without limiting the
foregoing, the following statutes, as amended from time to time: (1) the Clean
Air Act, as amended,
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<PAGE> 11
42 U.S.C. Section 7401 et seq.; (2) the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq.; (3) the Resource Conservation and
Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq., (4) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (including the Superfund Amendments and Reauthorization Act of 1986), 42
U.S.C. Section 2601 et seq; (5) the Toxic Substances Control Act, as amended, 15
U.S.C. Section 2601 et seq.; (6) The Occupational Safety and Health Act, as
amended, 29 U.S.C. Section 651; (7) the Emergency Planning and Community
Right-To-Know Act of 1986, 42 U.S.C. Section 1101 et seq.; (8) the Mine Safety
and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; (9) the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq.; and (10) all comparable
state and local laws, laws of other jurisdictions or orders and regulations
including, but not limited to, the Carpenter-Presley-Tanner Hazardous Substance
Account Act, Cal. Health & Safety Code Section 25300 et seq.
1.32. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.33. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.34. "Exchange Agent" means the financial institution appointed by
CU with the consent of Home, to effect the exchange contemplated by Article II
hereof.
1.35. "FDIC" means the Federal Deposit Insurance Corporation.
1.36. "FDIC Filings of Home" means all reports, registration
statements, proxy statements or other filings made by Home or Home Bank with the
FDIC during the time period from January 1, 1992 through the date of this
Agreement.
1.37. "Financial Statements of CU" means (i) the audited
consolidated financial statements and notes thereto of CU and the related
opinions thereon included in CU's Annual Reports on Form 10-K for the years
ended December 31, 1992, 1993 and 1994, (ii) the unaudited consolidated interim
financial statements and notes thereto of CU included in CU's Quarterly Report
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995.
1.38. "Financial Statements of Home" means (i) the audited
consolidated financial statements and notes thereto of Home and the related
opinions thereon included in Home's Annual Reports on Form 10-K for the years
ended December 31, 1992, 1993 and 1994 and (ii) the unaudited consolidated
interim financial statements and notes thereto of Home included in Home's
Quarterly Reports on Form 1O-Q for the quarters ended March 31, June 30 and
September 30, 1995.
1.39. "FRB" means the Board of Governors of the Federal Reserve
System.
1.40. "FRB Filings of CU" means all reports, registration
statements, proxy statements or other filings made by CU or CU Bank with the FRB
during the time period from January 1, 1992 through the date of this Agreement.
1.41. "FRB Filings of Home" means all reports, registration
statements, proxy statements or other filings made by Home or Home Bank with the
FRB during the time period from January 1, 1992 through the date of this
Agreement.
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<PAGE> 12
1.42. "Hazardous Substances" means (i) substances that are defined
or listed in, or otherwise classified pursuant to, or the use or disposal of
which are regulated by, any Environmental Law as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances," or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or "EP toxicity;" (ii) oil, petroleum or
petroleum derived from substances and drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources; (iii) any flammable substances
or explosives, any radioactive materials, any hazardous wastes or substances,
any toxic wastes or substances or any other materials or pollutants which pose a
hazard to any property or to Persons on or about such property; and (iv)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of 50
parts per million.
1.43. "Home Bank Stock" means the common stock, $0.40 par value per
share, of Home Bank.
1.44. "Home Employee Plans" has the meaning set forth in Section
4.20.
1.45. "Home Options" means options to purchase Home Stock pursuant
to the Home Stock Option Plan.
1.46. "Home Real Property" has the meaning set forth in Section 4.9.
1.47. "Home Scheduled Contracts" has the meaning set forth in
Section 4.16.
1.48. "Home Schedules" has the meaning set forth in Section 6.3(k).
1.49. "Home Shareholders' Meeting" means the meeting of Home's
shareholders referred to in Section 6.7 hereof.
1.50. "Home Stock" means the common stock, no par value, of Home.
1.51. "Home Stock Option Plan" means the Home Interstate Bancorp
Stock Option Plan, which plan expired on March 12, 1995.
1.52. "Home Supplied Information" has the meaning set forth in
Section 4.26.
1.53. "Home Warrant" means the warrant issued to Home pursuant to
the Home Warrant Agreement.
1.54. "Home Warrant Agreement" means the Warrant Agreement entered
between Home and CU and attached hereto as Exhibit D, pursuant to which the Home
Warrant is issued.
1.55. "Immediate Family" means a person's spouse, parents, in-laws,
children and siblings.
1.56. "IRS" means the Internal Revenue Service.
1.57. "Montgomery" means Montgomery Securities.
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<PAGE> 13
1.58. "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
1.59. "New Stock Option Plan" means the CU Stock Option Plan to be
established in connection with the Merger.
1.60. "Non-Performing Loans" means loans or investments held by Home
Bank or CU Bank which are (i) more than ninety (90) days past due with respect
to any scheduled payment of principal or interest, (ii) classified as "loss,"
"doubtful," "substandard," "other assets especially mentioned" or "special
mention," or (iii) on non-accrual status in accordance with Home Bank's or CU
Bank's, as the case may be, loan review procedures.
1.61. "OCC" means the Office of the Comptroller of the Currency.
1.62. "OCC Filings of CU" means all reports, registration
statements, proxy statements or other filings made by CU or CU Bank with the OCC
during the time period from January 1, 1992 through the date of this Agreement.
1.63. "Operating Loss" has the meaning set forth in Section 4.23.
1.64. "Other Real Estate Owned" means any real property owned or
acquired by foreclosure or otherwise, in the ordinary course of collecting a
debt previously contracted for in good faith.
1.65. "Party" means either Home, Home Bank, CU or CU Bank and
"Parties" shall mean Home, Home Bank, CU and CU Bank.
1.66. "Person" means any individual, corporation, association,
partnership, joint venture, other entity, government or governmental department
or agency.
1.67. "Phase I Reports" has the meaning set forth in Sesction 6.12.
1.68. "Phase II Assessments" has the meaning set forth in Section
6.12.
1.69. "Proposed Retention Agreements" means the Retention Agreements
to be entered into between Home Bank and certain executive officers of Home
Bank, pursuant to which certain key employees of Home Bank shall receive certain
payments as a result of the transactions contemplated hereby.
1.70. "Proxy Statement" means the Joint Proxy Statement and
Prospectus that is used to solicit proxies for the Home Shareholders' Meeting
and CU Shareholders' Meeting and to offer and sell the shares of CU Stock to be
issued in connection with the Merger.
1.71. "Related Group of Persons" means Affiliates, members of an
Immediate Family or Persons the obligations of whom would be attributed to
another Person pursuant to the regulations promulgated by the SEC (as defined
herein).
1.72. "SEC" means the Securities and Exchange Commission.
6
<PAGE> 14
1.73. "SEC Filings of CU" means all reports, registration
statements, proxy statements or other filings made by CU with the SEC during the
time period from January 1, 1992 through the date of this Agreement.
1.74. "SEC Filings of Home" means all reports, registration
statements, proxy statements or other filings made by Home with the SEC during
the time period from January 1, 1992 through the date of this Agreement.
1.75. "Secured Loan" has the meaning set forth in Section 4.24.
1.76. "Securities Act" means the Securities Act of 1933, as amended.
1.77. "S-4" means the registration statement on Form S-4 to be filed
with the SEC relating to the registration under the Securities Act of the CU
Stock to be issued in connection with the Merger.
1.78. "Superintendent" means the Superintendent of Banks of the
State of California.
1.79. "Surviving Company" means the corporation surviving the
Merger.
1.80. "Transferred Employees" has the meaning set forth in Section
12.1.
1.81. "Understanding" means any contract, agreement, understanding,
commitment or offer, whether written or oral, which may become a binding
obligation if accepted by another Person.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1. The Merger. The Merger shall become effective upon the filing
of the Agreement of Merger with the California Secretary in accordance with the
provisions of the California Corporations Code. At the Effective Time, the
following transactions will be deemed to have occurred simultaneously:
(a) Home shall be merged with and into CU, and the
separate corporate existence of Home shall cease.
(b) Subject to Section 2.4(a), each share of CU Stock
issued and outstanding immediately prior to the Effective Time shall
remain an issued and outstanding share of common stock of the Surviving
Company and shall not be converted or otherwise affected by the Merger.
(c) Subject to Sections 2.2 and 2.4(b), each share of
Home Stock issued and outstanding immediately prior to the Effective
Time shall, on and after the Effective Time, be automatically canceled
and cease to be an issued and outstanding share of Home Stock and shall
be converted into 1.409 shares of CU Stock (the "Conversion Ratio").
7
<PAGE> 15
2.2. Fractional Shares. No fractional shares of CU Stock shall be
issued in the Merger. In lieu thereof, each holder of Home Stock who would
otherwise be entitled to receive a fractional share shall receive an amount in
cash equal to the product (calculated to the nearest thousandth) obtained by
multiplying (a) the Average Price of CU Stock times (b) the fraction of the
share of CU Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other rights in respect of any such
fraction.
2.3. Exchange Procedures.
(a) On or before the Effective Time, CU will deliver to
the Exchange Agent certificates representing a sufficient number of
shares of CU Stock issuable in the Merger and funds representing a
sufficient amount of cash payable in lieu of fractional shares in the
Merger.
(b) Upon surrender for cancellation to the Exchange Agent
of one or more certificates for shares of Home Stock ("Old
Certificates"), accompanied by a duly executed letter of transmittal in
proper form, the Exchange Agent shall, promptly after the Effective
Time, deliver to each holder of such surrendered Old Certificates new
certificates representing the appropriate number of shares of CU Stock
("New Certificates"), together with checks for payment of cash in lieu
of fractional interests to be issued in respect of the Old
Certificates.
(c) Until Old Certificates have been surrendered and
exchanged as herein provided, each outstanding Old Certificate shall
represent, on and after the Effective Time, the right to receive the
shares of CU Stock and/or the cash into which the number of shares of
Home Stock shown thereon have been converted, as provided herein. No
dividends or other distributions that are declared on CU Stock will be
paid to Persons otherwise entitled to receive the same until the Old
Certificates have been surrendered in exchange for New Certificates in
the manner herein provided, but upon such surrender, such dividends or
other distributions, from and after the Effective Time, will be paid to
such Persons in accordance with the terms of such CU Stock. In no event
shall the Persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or
other distributions.
(d) No transfer taxes shall be payable by any shareholder
in respect of the issuance of New Certificates, except that if any New
Certificate is to be issued in a name other than that in which the Old
Certificate surrendered shall have been registered, it shall be a
condition of such issuance that the Person requesting such issuance
shall properly endorse the certificate or certificates and shall pay to
CU any transfer taxes payable by reason thereof, or of any prior
transfer of such surrendered certificate, or establish to the
satisfaction of CU that such taxes have been paid or are not payable.
(e) Any CU Stock or cash delivered to the Exchange Agent
(together with any interest or profits earned thereon) and not issued
pursuant to this Section 2.3 at the end of six months from the
Effective Time shall be returned to CU.
(f) Notwithstanding anything to the contrary set forth in
Sections 2.3(c) and 2.3(d) hereof, if any holder of Home Stock shall be
unable to surrender his Old Certificates because such certificates have
been lost or destroyed, such holder may deliver in lieu thereof an
indemnity bond in form and substance reasonably satisfactory to CU.
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<PAGE> 16
(g) The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of CU Stock
held by it from time to time hereunder, except that it shall receive
and hold all dividends or other distributions paid or distributed with
respect to such shares of CU Stock for the account of the Persons
entitled thereto.
2.4. Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in
this Agreement, Dissenting Shares of CU Stock which have not
effectively withdrawn or lost their rights under Section 1309 shall
remain issued and outstanding shares of common stock of Surviving
Company after the Effective Time, subject to the right to receive such
consideration as shall be determined pursuant to Chapter 13 of the
California Corporations Code.
(b) Notwithstanding anything to the contrary contained in
this Agreement, Dissenting Shares of Home Stock which have not
effectively withdrawn or lost their rights under Section 1309 shall not
be converted pursuant to Section 2.1 (c), but shall be entitled to
receive such consideration as shall be determined pursuant to Chapter
13 of the California Corporations Code.
2.5. Effect of Merger. By virtue the Merger and at the Effective
Time, all of the rights, privileges, powers and franchises and all property and
assets of every kind and description of Home and CU shall be vested in and be
held and enjoyed by the Surviving Company, without further act or deed, and all
the estates and interests of every kind of Home and CU, including all debts due
to either of them, shall be as effectively the property of the Surviving Company
as they were of Home and CU, and the title to any real estate vested by deed or
otherwise in either Home or CU shall not revert or be in any way impaired by
reason of the Merger; and all rights of creditors and liens upon any property of
Home and CU shall be preserved unimpaired and all debts, liabilities and duties
of Home and CU shall be debts, liabilities and duties of the Surviving Company
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it, and none of such debts,
liabilities or duties shall be expanded, increased, broadened or enlarged by
reason of the Merger.
2.6. Name of Surviving Company. The name of the Surviving Company
shall be mutually agreed upon by the Parties.
2.7. Articles of Incorporation and Bylaws of Surviving Company.
Subject to any changes in the Articles of Incorporation resulting from the
Parties' agreement as to the name of the Surviving Company as provided in
Section 2.6, the Articles of Incorporation and Bylaws of CU as in effect
immediately prior to the Effective Time shall continue to be the Articles of
Incorporation and Bylaws of the Surviving Company.
2.8. Directors and Officers of Surviving Company.
(a) At the Effective Time, the Board of Directors of the
Surviving Company will consist of the five directors designated by the
Board of Directors of Home and the five directors designated by the
Board of Directors of CU.
(b) At the Effective Time, Stephen Carpenter will become
the Chairman and Chief Executive Officer, James Staes will become Vice
Chairman and David Rainer will become President and Chief Operating
Officer of the Surviving Company.
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<PAGE> 17
2.9. Options.
(a) Subject to Section 2.9(b), (c) and (d), each Home
Option issued and outstanding immediately prior to the Effective Time
shall, on and after the Effective Time, be assumed by and be deemed to
be options granted by the Surviving Company pursuant to the New Stock
Option Plan to purchase that number of shares of CU Stock equal to the
Conversion Ratio times the number of shares of Home Stock subject to
the option; provided, however, that no option shall be deemed granted
by the Surviving Company to acquire a fractional share of CU Stock.
(b) Assumption of such options shall be contingent upon
the Closing and upon the execution prior to the Closing by the
particular optionee, CU and Home of a new option agreement providing
for the assumption and conversion of the Home Options. Assumption by CU
of the Home Options will be pursuant to the terms of the New Stock
Option Plan providing for the assumption of such options, which plan
shall be contingent upon approval of the CU shareholders.
(c) To the extent that the assumption of a Home Option by
the Surviving Company would result in the issuance of an option to
purchase a fractional share of CU Stock, such fractional share option
shall be canceled, and the aggregate exercise price of the option to
purchase shares of CU Stock shall be reduced by the proportionate
amount of the aggregate exercise price attributable to the fractional
share.
(d) The assumption by the Surviving Company of Home
Options pursuant to the New Stock Option Plan shall be subject to the
following limitations:
(i) The excess of the aggregate fair market
value of the shares of CU Stock subject to an option
immediately after the assumption over the aggregate option
exercise price of such shares of CU Stock shall not be greater
than the excess of the aggregate fair market value of the
shares subject to the Home Option immediately before the
assumption over the aggregate option exercise price of such
shares of Home Stock.
(ii) For any option, on a share by share
comparison, the ratio of the option exercise price to the fair
market value of the CU Stock subject to the option immediately
after the assumption shall not be more favorable to the
optionee than the ratio of the Home Option exercise price to
the fair market value on the Home Stock subject to the option
immediately before the assumption.
(iii) The optionee shall not receive additional
benefits under the Surviving Company option which he did not
have under the Home Option.
(e) Each CU Option issued and outstanding immediately
prior to the Effective Time shall not be affected by the Merger.
2.10. Warrant. Concurrent with the execution of this Agreement, CU
and Home have executed each of the Home Warrant Agreement and the CU Warrant
Agreement, pursuant to which agreements CU has issued to Home the Home Warrant
and Home has issued to CU the CU Warrant, granting the holder of each such
warrant the right to purchase up to 19.9% of the issued and outstanding shares
of capital stock of
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the other party, on a fully diluted basis (as more specifically set forth in the
Home Warrant Agreement and CU Warrant Agreement), on the terms, and subject to
the conditions set forth in such agreements.
ARTICLE III
THE CLOSING
3.1. Closing Date. The Closing shall take place on the Closing
Date.
3.2. Execution of Merger Agreements. As soon as practicable after
execution of this Agreement, the Agreement of Merger shall be executed by Home
and CU. On the Closing Date, the Agreement of Merger, together with all
requisite certificates, shall be duly filed with the California Secretary as
required by applicable laws and regulations.
3.3. Documents to be Delivered. At the Closing, the parties hereto
shall deliver, or cause to be delivered, such documents or certificates as may
be necessary, in the reasonable opinion of counsel for any of the parties, to
effectuate the transactions contemplated by this Agreement. From and after the
Effective Time, each of the parties hereto hereby covenants and agrees, without
the necessity of any further consideration whatsoever, to execute, acknowledge
and deliver any and all other documents and instruments and take any and all
such other action as may be reasonably necessary or desirable to effectuate the
transactions set forth herein or contemplated hereby, and the officers and
directors of the parties hereto shall execute and deliver, or cause to be
executed and delivered, all such documents as may reasonably be required to
effectuate such transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOME AND HOME BANK
Home and Home Bank represent and warrant to CU as follows:
4.1. Incorporation, Standing and Power. Home has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is registered as a bank holding company
under the BHC Act. Home Bank has been duly incorporated and is validly existing
as a state chartered Bank under the laws of the State of California and is a
member of the Federal Reserve System, and its deposits are insured by the FDIC
in the manner and to the extent provided by law. Home and Home Bank have all
requisite corporate power and authority to own, lease and operate their
respective properties and assets and to carry on their respective businesses as
presently conducted. Neither the scope of the business of Home or Home Bank nor
the location of any of their respective properties requires that Home or Home
Bank be licensed to do business in any jurisdiction other than the State of
California where the failure to be so licensed would, individually or in the
aggregate, have a materially adverse effect on the financial condition, results
of operation or business of Home on a consolidated basis.
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4.2. Capitalization.
(a) As of the date of this Agreement, the authorized
capital stock of Home consists of 20,000,000 shares of Home Stock, of
which 4,187,954 shares are outstanding, and 3,000,000 shares of serial
preferred stock, none of which is outstanding. All of the outstanding
shares of Home Stock are duly authorized, validly issued, fully paid
and nonassessable. As of the date of this Agreement, except for Home
Options covering 168,134 shares of Home Stock granted pursuant to the
Home Stock Option Plan, and 1,082,224 shares covered by the CU Warrant,
there were no outstanding options, warrants or other rights in or with
respect to the unissued shares of Home Stock or Home serial preferred
stock nor any securities convertible into such stock, and Home is not
obligated to issue any additional shares of Home Stock or preferred
stock or any additional options, warrants or other rights in or with
respect to the unissued shares of such stock or any other securities
convertible into such stock. Schedule 4.2 sets forth the name of each
holder of a Home Option, the number of shares of Home Stock covered by
each such Home Option, the exercise price per share and the expiration
date of each such Home Option.
(b) As of the date of this Agreement, the authorized
capital stock of Home Bank consists of 4,000,000 shares of Home Bank
Stock, of which1,938,746 shares are outstanding and all of which are
owned of record by Home. All the outstanding shares of Home Bank Stock
are duly authorized, validly issued, fully paid and nonassessable
(except for assessments that may be made by order of the Superintendent
pursuant to the Section 662 of the California Finance Code). There are
no outstanding options, warrants or other rights in or with respect to
the unissued shares of Home Bank Stock or any other securities
convertible into such stock, and Home Bank is not obligated to issue
any additional shares of its common stock or any options, warrants or
other rights in or with respect to the unissued shares of its common
stock or any other securities convertible into such stock.
4.3. Subsidiaries. Except for Home Bank, a wholly owned subsidiary
of Home, Home does not own, directly or indirectly (except as pledgee pursuant
to loans or upon acquisition in satisfaction of debt previously contracted), the
outstanding stock or other voting interest in any corporation, partnership,
joint venture or other entity.
4.4. Financial Statements. Home has previously furnished to CU a
copy of the Financial Statements of Home. The Financial Statements of Home: (a)
present fairly the consolidated financial condition of Home as of the respective
dates indicated and its consolidated results of operations and changes in
financial position/cash flow, as applicable, for the respective periods then
ended, subject, in the case of the unaudited consolidated interim financial
statements, to normal recurring adjustments; (b) have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as otherwise indicated therein); (c) set forth as of the respective
dates indicated adequate reserves for all foreseeable loan losses and other
contingencies; and (d) are based on the books and records of Home and Home Bank.
4.5. SEC/Regulatory Filings. Since January 1, 1990, Home and Home
Bank have filed all reports, registrations and statements that were required to
be filed with the (i) FDIC; (ii) the FRB; (iii) the SEC; and (iv) any other
applicable federal, state or local governmental or regulatory authority. Home
has previously furnished to CU a copy of the SEC Filings, FDIC Filings and FRB
Filings of Home. As of their respective dates, the SEC Filings, FDIC Filings and
FRB Filings of Home complied in all material respects
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with the requirements of their respective forms and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6. Authority of Home and Home Bank. The execution and delivery by
Home and Home Bank of this Agreement, by Home of the Agreement of Merger and by
Home Bank of the Bank Merger Agreement and, subject to the requisite approval of
the shareholders of Home and the sole shareholder of Home Bank, the consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Home and Home Bank,
and this Agreement is, and the Agreement of Merger and Bank Merger Agreement
will be upon execution by the respective parties thereto, a valid and binding
obligation of Home or Home Bank or both of them, as the case may be, enforceable
in accordance with their respective terms, except as the enforceability thereof
may be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles and by Section 8(b)(6)(D) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b) (6) (D). Except as set
forth in Schedule 4.6, neither the (i) execution and delivery by Home and Home
Bank of this Agreement, by Home of the Agreement of Merger or by Home Bank of
the Bank Merger Agreement; (ii) the consummation of the Merger or Bank Merger or
the transactions contemplated herein or therein; nor (iii) compliance by Home
and Home Bank with any of the provisions hereof or thereof, will: (a) conflict
with or result in a breach of any provision of their respective Articles of
Incorporation, as amended, or Bylaws, as amended; (b) constitute a breach of or
result in a default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
Home or Home Bank is a party, or by which Home or Home Bank or any of their
respective properties or assets is bound, if in any such circumstances, such
event could have consequences materially adverse to Home on a consolidated
basis; or (c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Home or Home Bank or any of their respective properties
or assets, if such violation could have consequences materially adverse to Home
on a consolidated basis. Except as set forth in the Home Schedules, no consent
of, approval of, notice to or filing with any governmental authority having
jurisdiction over any aspect of the business or assets of Home or Home Bank, and
no consent of, approval of or notice to any other Person, is required in
connection with the execution and delivery by Home and Home Bank of this
Agreement, by Home of the Agreement of Merger, by Home and Home Bank of the Bank
Merger Agreement, or the consummation by Home and Home Bank of the Merger or
Bank Merger or the transactions contemplated hereby or thereby, except (i) the
approval of this Agreement and the transactions contemplated hereby by the
shareholders of Home and the sole shareholder of Home Bank; (ii) such approvals
as may be required by the FRB and the OCC; (iii) the filing of the Agreement of
Merger with the California Secretary; (iv) the filing of the Bank Merger
Agreement with the OCC; and (v) the filing with and the approval by the SEC of
the S-4 and Proxy Statement.
4.7. Insurance. Home and Home Bank have policies of insurance and
bonds with respect to their respective assets and businesses against such
casualties and contingencies and in such amounts, types and forms as are
appropriate for their respective businesses, operations, properties and assets.
All such insurance policies and bonds are in full force and effect. To the
knowledge of Home and Home Bank and except as set forth on Schedule 4.7, no
insurer under any such policy or bond has canceled or indicated an intention to
cancel or not to renew any such policy or bond or generally disclaimed liability
thereunder. To the knowledge of Home and Home Bank and except as set forth on
Schedule 4.7, neither Home nor Home Bank is in default under any such policy or
bond and all material claims thereunder have been filed in a timely
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fashion. Set forth on Schedule 4.7 is a list of all policies of insurance
carried and owned by Home or Home Bank, showing the name of the insurance
company, the nature of the coverage, the policy limit, the annual premiums and
the expiration dates. Home has delivered to CU a copy of each such policy of
insurance.
4.8. Title to Assets. Home and Home Bank have good and marketable
title to all their respective material properties and assets, other than real
property, owned or stated to be owned by Home or Home Bank, free and clear of
all mortgages, liens, encumbrances, pledges or charges of any kind or nature
except: (a) as set forth in the Financial Statements of Home; (b) for liens or
encumbrances for current taxes not yet due; (c) for liens or encumbrances
incurred in the ordinary course of business; (d) for liens that are not
substantial in character, amount or extent or that do not materially detract
from the value, or interfere with present use, of the property subject thereto
or affected thereby, or otherwise materially impair the conduct of business of
Home on a consolidated basis; or (e) as set forth on Schedule 4.8.
4.9. Real Estate. Schedule 4.9 sets forth a list of real property,
including leaseholds, owned or leased by Home or Home Bank (the "Home Real
Property"). Home or Home Bank has good and marketable title to the Home Real
Property, and valid leasehold interests in the leaseholds, described on Schedule
4.9, free and clear of all mortgages, covenants, conditions, restrictions,
easements, liens, security interests, charges, claims, assessments and
encumbrances, except (a) for rights of lessors, co-lessees or sublessees in such
matters that are reflected in the lease; (b) for current taxes not yet due and
payable; (c) for liens and encumbrances of public record; (d) for such
imperfections of title, liens and encumbrances, if any, as do not materially
detract from the value of or materially interfere with the present use of such
property; and (e) as described on Schedule 4.9.
4.10. Litigation. Except as set forth in the SEC Filings of Home or
Schedule 4.10, there is no private or governmental suit, claim, action or
proceeding pending, nor to Home's or Home Bank's knowledge, threatened against
Home or Home Bank or against any of their respective directors, officers or
employees relating to the performance of their duties in such capacities or
against or affecting any properties of Home or Home Bank that has had or may
have a material adverse effect upon the business, financial condition or results
of operations of Home on a consolidated basis or the transactions contemplated
hereby or which may involve a payment by Home in excess of $50,000 of applicable
insurance coverage. Also, except as disclosed in the SEC Filings of Home or on
Schedule 4.10, there are no material judgments, decrees, stipulations or orders
against Home or Home Bank enjoining either of them or any of their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area. Home has previously provided to CU summary
reports of Home's and Home Bank's attorneys relating to all pending litigation
to which Home or Home Bank is a party and which names Home or Home Bank as a
defendant or cross- defendant and a true, correct and complete list of all
pending litigation in which Home or Home Bank is a named party.
4.11. Taxes.
(a) Home and/or Home Bank have filed all federal and
foreign income tax returns, all state and local franchise and income
tax, real and personal property tax, sales and use tax, premium tax,
excise tax and other tax returns of every character required to be
filed by it and have paid all taxes, together with any interest and
penalties owing in connection therewith, shown on such returns to be
due in respect of the periods covered by such returns, other than taxes
which are being contested in good faith and for which adequate reserves
have been established. Home and/or Home
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Bank have filed all required payroll tax returns, have fulfilled all
tax withholding obligations and have paid over to the appropriate
governmental authorities the proper amounts with respect to the
foregoing. The tax and audit positions taken by Home and/or Home Bank
in connection with the tax returns described in the preceding sentence
were reasonable and asserted in good faith. Adequate provision has been
made in the books and records of Home and/or Home Bank and, to the
extent required by generally accepted accounting procedures, reflected
in the Financial Statements of Home, for all tax liabilities, including
interest or penalties, whether or not due and payable and whether or
not disputed, with respect to any and all federal, foreign, state,
local and other taxes for the periods covered by such financial
statements and for all prior periods. Schedule 4.11 sets forth the date
or dates through which the IRS has examined the federal tax returns of
Home and/or Home Bank and the date or dates through which any foreign,
state, local or other taxing authority has examined any other tax
returns of Home and/or Home Bank. Schedule 4.11 also contains a
complete list of each year for which any federal, state, local or
foreign tax authority has obtained or has requested an extension of the
statute of limitations from Home and/or Home Bank and lists each tax
case of Home and/or Home Bank currently pending in audit, at the
administrative appeals level or in litigation. Schedule 4.11 further
lists the date and issuing authority of each statutory notice of
deficiency, notice of proposed assessment and revenue agent's report
issued to Home and/or Home Bank within the last twelve (12) months.
Except as set forth in Schedule 4.11, neither the IRS nor any foreign,
state, local or other taxing authority has, during the past three
years, examined or is in the process of examining any federal, foreign,
state, local or other tax returns of Home. To the knowledge of Home,
neither the IRS nor any foreign, state, local or other taxing authority
is now asserting or threatening to assert any deficiency or claim for
additional taxes (or interest thereon or penalties in connection
therewith) except as set forth on Schedule 4.11.
(b) Except as set forth on Schedule 4.11(b), neither Home
nor Home Bank is a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code, as in effect prior to amendment by the
Tax Equity and Fiscal Responsibility Act of 1982. Neither Home nor Home
Bank is or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Neither Home nor Home Bank is a "consenting corporation" under Section
341(f) of the Code. Neither Home nor Home Bank has agreed, nor is it
required to make, any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise.
4.12. Compliance with Laws and Regulations. To Home's and Home
Bank's knowledge, neither of them is in default under or in breach of any
provision of their respective Articles of Incorporation, as amended, or Bylaws,
as amended, or law, ordinance, rule or regulation promulgated by any
governmental agency having authority over either of them, where such default or
breach would have a material adverse effect on the business, financial condition
or results of operations of Home on a consolidated basis. No investigation or
review by any governmental entity or regulatory authority with respect to Home
or Home Bank is pending or, to the knowledge of Home or Home Bank, threatened,
nor has any such governmental entity or regulatory authority indicated to Home
or any Affiliate of Home any intention to conduct the same, other than those the
outcome of which would not have a material adverse affect on the business,
financial condition or results of operations of Home on a consolidated basis.
4.13. Performance of Obligations. Home and Home Bank have performed
in all material respects all of the obligations required to be performed by them
to date, and to the best of their knowledge, are not in default under or in
breach of any term or provision of any covenant, contract, lease, indenture or
any other
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covenant to which either of them is a party, is subject or is otherwise bound,
and no event has occurred that, with the giving of notice or the passage of time
or both, would constitute such default or breach, where such default or breach
would have a material adverse effect on the business, financial condition or
results of operations of Home on a consolidated basis. Except for loans and
leases made by Home Bank in the ordinary course of business, to Home's or Home
Bank's knowledge, no party with whom Home or Home Bank has an agreement that is
of material importance to the business of Home on a consolidated basis is in
default thereunder.
4.14. Employees. There are no controversies pending or threatened
between Home or Home Bank and any of their respective employees that are likely
to have a material adverse effect on the business, financial condition or
results of operation of Home on a consolidated basis. Neither Home nor Home Bank
is a party to any collective bargaining agreement with respect to any of their
respective employees or any labor organization to which their respective
employees or any of them belong. Except as previously disclosed in writing to
CU, there are no Understandings with respect to the employment of any officer or
employee of Home or Home Bank which are not terminable by Home or Home Bank
without liability on not more than thirty (30) days' notice. Except as disclosed
in the Home Financial Statements or as previously disclosed in writing to CU,
all material sums due for employee compensation have been paid or accrued and
all employer contributions for employee benefits, including deferred
compensation obligations, and any benefits under any Home Employee Plan have
been duly and adequately paid or provided for in accordance with plan documents.
Except for the Proposed Retention Agreements and as set forth on Schedule 4.14,
as of the date hereof, no director, officer or employee of Home or Home Bank is
entitled to receive any payment or any amount under any existing Home Employee
Plan, Understanding, severance plan or other benefit plan as a result of the
consummation of any transaction contemplated by this Agreement, the Agreement of
Merger or the Bank Merger.
4.15. Brokers and Finders. Except for any agreements among Home, CU
and Montgomery, and any fees payable thereunder, neither Home nor Home Bank is a
party to or obligated under any agreement with any broker or finder relating to
the transactions contemplated hereby, and neither the execution of this
Agreement nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
4.16. Material Contracts. Except as set forth on Schedule 4.16
hereto (all items listed or required to be listed on Schedule 4.16 being
referred to herein as "Home Scheduled Contracts"), neither Home nor Home Bank is
a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or
consulting contract that requires payment by Home or Home Bank of
$50,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract not terminable by
Home on 30 days' or less notice and which requires payment by Home or
Home Bank of $10,000 or more per annum;
(c) any contract or agreement that restricts Home (or
would restrict any Affiliate of Home after the Effective Time) from
competing in any line of business with any Person or using or employing
the services of any Person;
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(d) any lease of real or personal property providing for
annual lease payments by or to Home or Home Bank in excess of $100,000
per annum other than (i) financing leases entered into in the ordinary
course of business in which Home or Home Bank is lessor and (ii) leases
of real property presently used by Home Bank as banking offices;
(e) any mortgage, pledge, conditional sales contract,
security agreement, option, or any other similar agreement with respect
to any interest of Home or Home Bank (other than as mortgagor or
pledgor in the ordinary course of their banking business or as
mortgagee, secured party or deed of trust beneficiary in the ordinary
course of their business) in personal property having a value of
$100,000 or more;
(f) any agreement to acquire equipment or any commitment
to make capital expenditures of $100,000 or more;
(g) other than agreements entered into in the ordinary
course of business, including sales of Other Real Estate Owned, any
agreement for the sale of any property or assets in which Home or Home
Bank has an ownership interest or for the grant of any preferential
right to purchase any such property or asset;
(h) any agreement for the borrowing of any money (other
than liabilities or interbank borrowings made in the ordinary course of
their banking business and reflected in the Financial Statements of
Home);
(i) any restrictive covenant contained in any deed to or
lease of real property owned or leased by Home or Home Bank (as lessee)
that materially restricts the use, transferability or value of such
property;
(j) any guarantee or indemnification which involves the
sum of $100,000 or more, other than letters of credit or loan
commitments issued in the normal course of business;
(k) any supply, maintenance or landscape contracts not
terminable by Home or Home Bank without penalty on 30 days' or less
notice and which provides for payments in excess of $25,000 per annum;
(l) any agreement which would be terminable other than by
Home or Home Bank as a result of the consummation of the transactions
contemplated by this Agreement;
(m) any contract of participation with any other bank in
any loan entered into by Home or Home Bank subsequent to December 31,
1994 in excess of $100,000 or any sales of assets of Home or Home Bank
with recourse of any kind to Home or Home Bank except the sale of
mortgage loans, servicing rights, repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary
course of business;
(n) any other Understanding of any other kind not
terminable on 30 days' or less notice which involves future payments or
receipts or performances of services or delivery of items requiring
payment of $25,000 or more to or by Home or Home Bank other than
payments made
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under or pursuant to loan agreements, participation agreements and
other agreements for the extension of credit in the ordinary course of
their business; or
(o) any Understanding that is otherwise material to the
business, financial condition, results of operations or prospects of
Home or Home Bank.
Home has delivered to CU copies of all Home Scheduled Contracts, including all
amendments and supplements thereto.
4.17. Absence of Material Change. Since December 31, 1994, the
businesses of Home and Home Bank have been conducted, only in the ordinary
course, in the same manner as theretofore conducted and there has not occurred
any event that has had or may reasonably be expected to have a material adverse
effect on the business, financial condition or results of operation of Home on a
consolidated basis.
4.18. Licenses and Permits. Home and Home Bank have all material
licenses and permits that are necessary for the conduct of their respective
businesses, and such licenses are in full force and effect, except for any
failure to be in full force and effect that would not, individually or in the
aggregate, have a material adverse effect on the business, financial condition
or results of operations of Home on a consolidated basis. The properties and
operations of Home and Home Bank are and have been maintained and conducted, in
all material respects, in compliance with all applicable laws and regulations.
4.19. No Material Liabilities; Environmental.
(a) Schedule 4.19 sets forth all material liabilities of
Home and Home Bank, including liabilities for Hazardous Substances or
under any Environmental Law, contingent or otherwise, that are not
reflected or reserved against in the Home Financial Statements, except
for liabilities incurred or accrued since December 31, 1994 in the
ordinary course of business, none of which has had or could reasonably
be expected to have a material adverse effect on the business,
financial condition, results of operations or prospects of Home on a
consolidated basis. Except as set forth in Schedule 4.19, neither Home
nor Home Bank knows of any basis for the asserting against it of any
liability, obligation or claim that could reasonably be expected to
have a material adverse effect on the business, financial condition, or
results of operations of Home on a consolidated basis.
(b) Except as set forth on Schedule 4.19(b) or the Phase
I Reports or Phase II Assessments, to the actual knowledge of the
executive officers of Home and Home Bank, (i) there has not been any
generation, use, handling, transportation, treatment, storage, release,
or disposal of any Hazardous Substance in connection with the conduct
of business of Home or Home Bank that has resulted or is likely to
result in any liability under any Environmental Law in excess of
$1,000,000; (ii) there has never been a use of the Home Real Property
that has resulted, or is likely to result in any liability under any
Environmental Law in excess of $1,000,000; (iii) no underground storage
tanks or surface impoundments are on or in the Home Real Property; and
(iv) no Hazardous Substances are contained on, under or migrating from
or located on any of the Home Real Property.
4.20. Employee Benefit Plans.
(a) Schedule 4.20 sets forth and describes all employee
benefit plans and any collective bargaining agreements or labor
contracts in which Home or Home Bank participates, or by which
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they are bound, including, without limitation; (i) any profit sharing,
deferred compensation, bonus, stock option, stock purchase, pension,
retainer consulting, retirement, welfare or incentive plan or agreement
whether legally binding or not; (ii) any plan providing for "fringe
benefits" to its employees, including but not limited to vacation, sick
leave, medical, hospitalization, life insurance and other insurance
plans, and related benefits; (iii) any written employment agreement and
any other employment agreement not terminable at will; or (iv) any
other "employee benefit plan" (within the meaning of Section 3(3) of
ERISA) (collectively, the "Home Employee Plans"). Except as set forth
in Schedule 4.20, (i) there are no negotiations, demands or proposals
that are pending or threatened that concern matters now covered, or
that would be covered, by any employment agreements or employee benefit
plans other than amendments to plans qualified under Section 401 of the
Code that are required by the Tax Reform Act of 1986 and later
legislation; (ii) Home is in compliance with the material reporting and
disclosure requirements of Part 1 of Subtitle IB of ERISA and the
corresponding provisions of the Code to the extent applicable to all
such employee benefit plans; (iii) Home has performed all of its
obligations under all such employee benefit plans and employment
agreements required to be performed heretofore; and (iv) there are no
actions, suits or claims (other than routine claims for benefits)
pending or, to the best knowledge of Home and Home Bank, threatened
against any such employee benefit plans and employment agreements or
the assets of such plans, and to the best knowledge of Home, no facts
exist which could give rise to any actions, suits or claims (other than
routine claims for benefits) against such plans or the assets of such
plans.
(b) The "employee pension benefit plans" (within the
meaning of Section 3(2) of ERISA) described on Schedule 4.20 have been
duly authorized by the Board of Directors of Home. Except as set forth
in Schedule 4.20, each such plan and associated trust intended to be
qualified under Section 401(a) and to be exempt from tax under Section
501(a) of the Code, respectively, has either received a favorable
determination letter from the IRS, has applied for such a determination
letter or will apply for such a determination letter before the
expiration of the remedial amendment period set forth in Section 401(b)
of the Code, as the IRS may extend such period, and to the best
knowledge of Home and Home Bank, no event has occurred that will or
could give rise to disqualification of any such plan which is intended
to be qualified under Section 401(a) of the Code or loss of the
exemption from tax of any such trust which is intended to be exempt
from tax under Section 501(a) of the Code. No event has occurred that
will or could subject any such plans to tax under Section 511 of the
Code. None of such plans has engaged in a merger or consolidation with
any other plan or transferred assets or liabilities from any other
plan. No prohibited transaction (within the meaning of Section 409 or
502(i) of ERISA or Section 4975 of the Code) or party-in-interest
transaction (within the meaning of Section 406 of ERISA) has occurred
with respect to any of such plans which could subject Home or Home Bank
to an excise tax or penalty. To the best knowledge of Home and Home
Bank, no employee of Home or Home Bank has engaged in any transactions
which could subject Home or Home Bank to indemnify such person against
liability. All costs of plans have been provided for on the basis of
consistent methods in accordance with sound actuarial assumptions and
practices. No employee benefit plan has incurred any "accumulated
funding deficiency" (as defined in Section 302(2) of ERISA), whether or
not waived, taking into account contributions made within the period
described in Section 412(c)(10) of the Code; nor are there any unfunded
amounts under any employee benefit plan which is required to be funded
under Part 3 of Subtitle IB of ERISA and Section 412 of the Code); nor
has Home or Home Bank failed to make any contributions or pay any
amount due and owing as required by law or the terms of any employee
benefit plan or employment agreement. Subject to amendments that are
required by the
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Tax Reform Act of 1986 and later legislation, since the last valuation
date for each employee pension benefit plan, there has been no
amendment or change to such plan that would increase the amount of
benefits thereunder.
(c) Neither Home nor Home Bank sponsors or participates
in, or has sponsored or participated in, any employee benefit pension
plan to which Section 4021 of ERISA applies that would create a
liability under Title IV of ERISA.
(d) Neither Home nor Home Bank sponsors or participates
in, or has sponsored or participated in, any employee benefit pension
plan that is a "multi-employer plan" (within the meaning of Section
3(37) of ERISA) that would subject such Person to any liability with
respect to any such plan.
(e) All group health plans of Home or Home Bank
(including any plans of Affiliates of Home that must be taken into
account under Section 162(i) or (k) of the Code as in effect
immediately prior to the Technical and Miscellaneous Revenue Act of
1988 and Section 4980B of the Code) have been operated in compliance
with the group health plan continuation coverage requirements of
Section 4980B of the Code to the extent such requirements are
applicable.
(f) There have been no acts or omissions by Home or Home
Bank that have given rise to or may give rise to fines, penalties,
taxes, or related charges under Sections 502(c) or (i) or 4071 of ERISA
or Chapter 43 of the Code which could be imposed on Home or Home Bank.
(g) Except as described in Section 4.20(j), neither Home
or Home Bank maintains any employee benefit plan or employment
agreement pursuant to which any benefit plan or other payment will be
required to be made by Home or Home Bank or pursuant to which any other
benefit will accrue or vest in any director, officer or employee of
Home or Home Bank, in either case as a result of the consummation of
the transactions contemplated by the Agreement.
(h) No "reportable event," as defined in ERISA, has
occurred with respect to any of the employee benefit plans.
(i) All amendments required to bring each of the employee
benefit plans into conformity with all of the provisions of ERISA and
the Code and all other applicable laws, rules and regulations have been
made, or will be made before the expiration of the remedial amendment
period set forth under Section 401(b) of the Code, as such period may
be extended by the IRS.
(j) Schedule 4.20 sets forth the name of each director,
officer, employee, agent or representative of Home or Home Bank and
every other person entitled to receive any benefit or any payment of
any amount under any existing employment agreement, severance plan or
other benefit plan or Understanding as a result of the consummation of
any transaction contemplated in this Agreement, and with respect to
each such person, the nature of such benefit or the amount of such
payment, the event triggering the benefit or payment, and the date of,
and parties to, such employment agreement, severance or other benefit
plan or Understanding. Home has furnished CU with true and correct
copies of all documents with respect to the plans and agreements
referred to in Schedule 4.20 delivered as of the date of the Agreement,
including all amendments and supplements thereto, and all related
summary plan descriptions. For each of the employee pension
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benefit plans of Home and Home Bank referred to in Schedule 4.20
delivered as of the date of the Agreement, Home has furnished CU with
true and correct copies of (i) a copy of the Form 5500 which was filed
in each of the three most recent plan years, including without
limitation, all schedules thereto and all financial statements with
attached opinions of independent accountants to the extent required;
(ii) the most recent determination letter from the IRS; (iii) the
statement of assets and liabilities as of the most recent valuation
date; and (iv) the statement of changes in fund balance and in
financial position or the statement of changes in net assets available
for benefits under each of said plans for the most recently ended plan
year. The documents referred to in subdivisions (iii) and (iv) fairly
present the financial condition of each of said plans as of and at such
dates and the results of operations of each of said plans, all in
accordance with generally accepted accounting principles or on the cash
method of accounting applied on a consistent basis.
4.21. Corporate Records. The minute books of Home and Home Bank
accurately reflect all material actions taken to this date by the respective
shareholders, boards of directors and committees of Home and Home Bank and
contain true and complete copies of the Articles of Incorporation, Bylaws and
other charter documents, and all amendments thereto.
4.22. Offices and ATMs. Schedule 4.22 sets forth the headquarters of
Home and Home Bank (identified as such) and each of the offices and automated
teller machines ("ATMs") maintained and operated by Home Bank (including,
without limitation, representative and loan production offices and operations
centers) and the location thereof. Except as set forth on Schedule 4.22, neither
Home nor Home Bank maintains any other office or ATM nor conducts business at
any other location. Neither Home nor Home Bank has applied for or received
permission to open any additional branch or operate at any other location.
4.23. Operating Losses. Schedule 4.23 sets forth a list of any
Operating Loss (as herein defined) which has occurred at Home Bank during the
period after September 30, 1995. To the knowledge of Home or Home Bank, no
action has been taken or omitted to be taken by any employee of Home or Home
Bank that has resulted in the incurrence by Home Bank of an Operating Loss or
that might reasonably be expected to result in the incurrence of any individual
Operating Loss after September 30, 1995, which, net of any insurance proceeds
payable in respect thereof, would exceed $25,000. For purposes of this Agreement
"Operating Loss" means any loss resulting from cash shortages, lost or misposted
items, disputed clerical and accounting errors, forged checks, payment of checks
over stop payment orders, merchant credit card processing, counterfeit money,
wire transfers made in error, theft, robberies, defalcations, check kiting,
fraudulent use of credit cards or electronic teller machines or other similar
acts or occurrences.
4.24. Loan Portfolio. All loans or other extensions of credit, and
guaranties, security agreements or other agreements supporting any loans or
extensions of credit, and investments of Home or Home Bank are, in all material
respects, legal, enforceable and authorized under applicable federal and state
laws and regulations, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors generally and by general equitable principles. Except as previously
disclosed in writing to CU, no loans or investments held by Home Bank are, as of
September 30, 1995 (i) more than ninety (90) days past due with respect to any
scheduled payment of principal or interest; (ii) classified as "loss,"
"doubtful," "substandard," "special mention," or "criticized" by any federal or
state banking regulators; or (iii) on a non-accrual status in accordance with
Home Bank's loan review procedures. None of such investments are subject to any
restrictions, contractual, statutory or other, that would materially impair the
ability of the entity holding such investment to dispose freely of any such
investment at any time, except restrictions on the public distribution or
transfer of any such investments under the Securities Act and
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the regulations thereunder or state securities laws and pledges or security
interests given in connection with government deposits. Except as previously
disclosed in writing to CU, Home Bank has no loans, leases or other extensions
of credit outstanding, or commitments to make any loans, leases or other
extensions of credit to any Affiliates of Home Bank which are not on
substantially the same terms (including interest rates, repayment terms and
collateral) as would be available for comparable transactions with persons of
similar creditworthiness who are not Affiliates of Home Bank. For each
outstanding loan or extension of credit or commitment to make a loan or
extension of credit where the original principal amount is in excess of $50,000
and which by its terms is either secured by collateral ("Secured Loan") or
supported by a guaranty or similar obligation ("Covered Loan"), in the case of
each Secured Loan, to the best knowledge of Home Bank, the security interest has
been perfected and, in the case of each Covered Loan, the guaranty or similar
obligation has been executed and delivered to Home Bank and is still in full
force and effect.
4.25. Power of Attorney. Neither Home nor Home Bank has granted any
Person a power of attorney or similar authorization that is presently in effect
or outstanding.
4.26. Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of Home or Home Bank ("Home Supplied
Information") for inclusion in the documents to be filed with the SEC, FRB, the
FDIC, or any other governmental entity in connection with the transactions
contemplated in this Agreement will, at the respective times such documents are
filed or become effective, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.27. Accuracy and Currentness of Information Furnished. The
representations and warranties made by Home or Home Bank hereby or in the
schedules hereto contain no statements of fact which are untrue or misleading,
or omit to state any material fact which is necessary under the circumstances to
prevent the statements contained herein or in such schedules from being
misleading.
4.28. Loan Servicing Portfolio. Except as set forth on Schedule
4.28, Home Bank services no loans owned in whole or in part by other parties.
4.29. Certain Interests. Schedule 4.29 sets forth a description of
each instance in which an executive officer or director of Home or Home Bank (a)
has any material interest in any property, real or personal, tangible or
intangible, used by or in connection with the business of Home or Home Bank; (b)
is indebted to Home or Home Bank except for normal business expense advances; or
(c) is a creditor (other than as a deposit holder of Home Bank) of Home or Home
Bank except for amounts due under normal salary and related benefits or
reimbursement of ordinary business expenses. Except as set forth in Schedule
4.29, all such arrangements are arm's length transactions pursuant to normal
commercial terms and conditions.
4.30. Investment Securities. Except as set forth on Schedule 4.30,
all investment securities held by Home or Home Bank are legal investments under
applicable law and regulations.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CU AND CU BANK
CU and CU Bank represent and warrant to Home and Home Bank as follows:
5.1. Incorporation, Standing and Power. CU has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is registered as a bank holding company
under the BHC Act. CU Bank has been duly incorporated and is validly existing as
a national banking association under the laws of the United States, and is
authorized by the OCC to conduct a general banking business; CU Bank's deposits
are insured by the FDIC in the manner and to the extent provided by law. CU and
CU Bank have all requisite corporate power and authority to own, lease and
operate their respective properties and assets and to carry on their respective
businesses as presently conducted. Neither the scope of the business of CU or CU
Bank nor the location of any of their respective properties requires that CU or
CU Bank be licensed to do business in any jurisdiction other than the State of
California where the failure to be so licensed would, individually or in the
aggregate, have a materially adverse effect on the financial condition, results
of operation or business of CU on a consolidated basis.
5.2. Capitalization.
(a) As of the date of this Agreement, the authorized
capital stock of CU consists of 24,000,000 shares of CU Stock, of which
4,621,450 shares are outstanding, and 10,000,000 shares of serial
preferred stock, none of which are outstanding. All of the outstanding
shares of CU Stock are duly authorized, validly issued, fully paid and
nonassessable. As of the date of this Agreement, except for employee
stock options covering 729,240 shares of CU Stock granted pursuant to
the CU Stock Option Plan, outstanding warrants covering 7,500 shares of
CU Stock and 1,492,390 shares covered by the Home Warrant, there were
no outstanding options, warrants or other rights in or with respect to
the unissued shares of CU Stock or CU serial preferred stock nor any
securities convertible into such stock. Except with respect to the
approximately 648,871 shares of CU Stock to be issued in connection
with the Corporate Bank Merger, CU is not obligated to issue any
additional shares of CU Stock or preferred stock or any additional
options, warrants or other rights in or with respect to the unissued
shares of such stock or any other securities convertible into such
stock. Schedule 5.2 sets forth the name of each holder of a CU Option,
the number of shares of CU Stock covered by each such CU Option, the
exercise price per share and the expiration date of each CU Option.
(b) As of the date of this Agreement, the authorized
capital stock of CU Bank consists of 540,000 shares of CU Bank Stock,
of which 472,973 shares are outstanding and all of which are owned of
record by CU. All the outstanding shares of CU Bank Stock are duly
authorized, validly issued, fully paid and nonassessable (except as
provided for in 12 U.S.C. Section55). There are no outstanding options,
warrants or other rights in or with respect to the unissued shares of
CU Bank Stock or any other securities convertible into such stock, and
CU Bank is not obligated to issue any additional shares of its common
stock or any options, warrants or other rights in or with respect to
the unissued shares of its common stock or any other securities
convertible into such stock.
5.3. Subsidiaries. Except for CU Bank, a wholly owned subsidiary of
CU, CU does not own, directly or indirectly (except as pledgee pursuant to loans
or upon acquisition in satisfaction of debt
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previously contracted), the outstanding stock or other voting interest in any
corporation, partnership, joint venture or other entity.
5.4. Financial Statements. CU has previously furnished to Home a
copy of the Financial Statements of CU. The Financial Statements of CU: (a)
present fairly the consolidated financial condition of CU as of the respective
dates indicated and its consolidated results of operations and changes in
financial position/cash flow, as applicable, for the respective periods then
ended, subject, in the case of the unaudited consolidated interim financial
statements, to normal recurring adjustments; (b) have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as otherwise indicated therein); (c) set forth as of the respective
dates indicated adequate reserves for all foreseeable loan losses and other
contingencies; and (d) are based on the books and records of CU and CU Bank.
5.5. SEC/Regulatory Filings. Since January 1, 1990, CU and CU Bank
have filed all reports, registrations, and statements that were required to be
filed with the (i) OCC; (ii) the FRB; (iii) the SEC; and (iv) any other
applicable federal, state or local or governmental or regulatory authority. CU
has previously furnished to Home a copy of the SEC Filings of CU, OCC Filings of
CU, and the FRB Filings of CU. As of their respective dates, the SEC Filings of
CU, the OCC Filings of CU and the FRB Filings of CU complied in all material
respects with the requirements of their respective forms and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.6. Authority of CU and CU Bank. The execution and delivery by CU
and CU Bank of this Agreement, by CU of the Agreement of Merger and by CU Bank
of the Bank Merger Agreement and, subject to the requisite approval of the
shareholders of CU and the sole shareholder of CU Bank, the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of CU and CU Bank, and
this Agreement is, and the Agreement of Merger and Bank Merger Agreement will be
upon execution by the respective parties thereto, a valid and binding obligation
of CU or CU Bank or both of them, as the case may be, enforceable in accordance
with their respective terms, except as the enforceability thereof may be limited
by bankruptcy, liquidation, receivership, conservatorship, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles and by Section 8(b)(6)(D) of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1818(b) (6) (D). Except as set forth in
Schedule 5.6, neither the (i) execution and delivery by CU and CU Bank of this
Agreement, by CU of the Agreement of Merger or by CU Bank of the Bank Merger
Agreement; (ii) the consummation of the Merger or Bank Merger or the
transactions contemplated herein or therein; nor (iii) compliance by CU and CU
Bank with any of the provisions hereof or thereof, will: (a) conflict with or
result in a breach of any provision of their respective Articles of
Incorporation or Association, as amended, as the case may be, or Bylaws, as
amended; (b) constitute a breach of or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which CU or CU Bank is a party, or by which CU or CU
Bank or any of their respective properties or assets is bound, if in any such
circumstances, such event could have consequences materially adverse to CU on a
consolidated basis; or (c) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to CU or CU Bank or any of their respective
properties or assets, if such violation could have consequences materially
adverse to CU on a consolidated basis. Except as set forth in the CU Schedules,
no consent of, approval of, notice to or filing with any governmental authority
having jurisdiction over any aspect of the business or assets of CU or CU Bank,
and no consent of, approval of or notice to any other Person, is required in
connection with the
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execution and delivery by CU and CU Bank of this Agreement, by CU of the
Agreement of Merger, by CU Bank of the Bank Merger Agreement, or the
consummation by CU and CU Bank of the Merger or Bank Merger or the transactions
contemplated hereby or thereby, except (i) the approval of this Agreement and
the transactions contemplated hereby by the shareholders of CU and the sole
shareholder of CU Bank; (ii) such approvals as may be required by the FRB and
the OCC; (iii) the filing of the Agreement of Merger with the California
Secretary; (iv) the filing of the Bank Merger Agreement with the OCC; and (v)
the filing with and the approval by the SEC of the S-4 and the Proxy Statement.
5.7. Insurance. CU and CU Bank have policies of insurance and bonds
with respect to their respective assets and businesses against such casualties
and contingencies and in such amounts, types and forms as are appropriate for
their respective businesses, operations, properties and assets. All such
insurance policies and bonds are in full force and effect. To the knowledge of
CU and CU Bank and except as set forth on Schedule 5.7, no insurer under any
such policy or bond has canceled or indicated an intention to cancel or not to
renew any such policy or bond or generally disclaimed liability thereunder. To
the knowledge of CU and CU Bank and except as set forth on Schedule 5.7, neither
CU nor CU Bank is in default under any such policy or bond and all material
claims thereunder have been filed in a timely fashion. Set forth on Schedule 5.7
is a list of all policies of insurance carried and owned by CU or CU Bank,
showing the name of the insurance company, the nature of the coverage, the
policy limit, the annual premiums and the expiration dates. CU has delivered to
Home a copy of each such policy of insurance.
5.8. Title to Assets. CU and CU Bank have good and marketable title
to all their respective material properties and assets, other than real
property, owned or stated to be owned by CU or CU Bank, free and clear of all
mortgages, liens, encumbrances, pledges or charges of any kind or nature except:
(a) as set forth in the Financial Statements of CU; (b) for liens or
encumbrances for current taxes not yet due; (c) for liens or encumbrances
incurred in the ordinary course of business; (d) for liens that are not
substantial in character, amount or extent or that do not materially detract
from the value, or interfere with present use, of the property subject thereto
or affected thereby, or otherwise materially impair the conduct of business of
CU on a consolidated basis; or (e) as set forth on Schedule 5.8.
5.9. Real Estate. Schedule 5.9 sets forth a list of real property,
including leaseholds, owned or leased by CU or CU Bank (the "CU Real Property").
CU or CU Bank has good and marketable title to the CU Real Property, and valid
leasehold interests in the leaseholds, described on Schedule 5.9, free and clear
of all mortgages, covenants, conditions, restrictions, easements, liens,
security interests, charges, claims, assessments and encumbrances, except (a)
for rights of lessors, co-lessees or sublessees in such matters that are
reflected in the lease; (b) for current taxes not yet due and payable; (c) for
liens and encumbrances of public record; (d) for such imperfections of title,
liens and encumbrances, if any, as do not materially detract from the value of
or materially interfere with the present use of such property; and (e) as
described on Schedule 5.9.
5.10. Litigation. Except as set forth in the SEC Filings of CU or
Schedule 5.10, there is no private or governmental suit, claim, action or
proceeding pending, nor to CU's or CU Bank's knowledge, threatened against CU or
CU Bank or against any of their respective directors, officers or employees
relating to the performance of their duties in such capacities or against or
affecting any properties of CU or CU Bank that has had or may have a material
adverse effect upon the business, financial condition or results of operations
of CU on a consolidated basis or the transactions contemplated hereby or which
may involve a payment by CU in excess of $50,000 of applicable insurance
coverage. Also, except as disclosed in the SEC Filings of CU or on Schedule
5.10, there are no material judgments, decrees, stipulations or orders against
CU or CU
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Bank enjoining either of them or any of their respective directors, officers or
employees in respect of, or the effect of which is to prohibit, any business
practice or the acquisition of any property or the conduct of business in any
area. CU has previously provided to Home summary reports of CU's and CU Bank's
attorneys relating to all pending litigation to which CU or CU Bank is a party
and which names CU or CU Bank as a defendant or cross-defendant and a true,
correct and complete list of all pending litigation in which CU or CU Bank is a
named party.
5.11. Taxes.
(a) CU and/or CU Bank have filed all federal and foreign
income tax returns, all state and local franchise and income tax, real
and personal property tax, sales and use tax, premium tax, excise tax
and other tax returns of every character required to be filed by it and
have paid all taxes, together with any interest and penalties owing in
connection therewith, shown on such returns to be due in respect of the
periods covered by such returns, other than taxes which are being
contested in good faith and for which adequate reserves have been
established. CU and/or CU Bank have filed all required payroll tax
returns, have fulfilled all tax withholding obligations and have paid
over to the appropriate governmental authorities the proper amounts
with respect to the foregoing. The tax and audit positions taken by CU
and/or CU Bank in connection with the tax returns described in the
preceding sentence were reasonable and asserted in good faith. Adequate
provision has been made in the books and records of CU and/or CU Bank
and, to the extent required by generally accepted accounting
procedures, reflected in the Financial Statements of CU, for all tax
liabilities, including interest or penalties, whether or not due and
payable and whether or not disputed, with respect to any and all
federal, foreign, state, local and other taxes for the periods covered
by such financial statements and for all prior periods. Schedule 5.11
sets forth the date or dates through which the IRS has examined the
federal tax returns of CU and/or CU Bank and the date or dates through
which any foreign, state, local or other taxing authority has examined
any other tax returns of CU and/or CU Bank. Schedule 5.11 also contains
a complete list of each year for which any federal, state, local or
foreign tax authority has obtained or has requested an extension of the
statute of limitations from CU and/or CU Bank and lists each tax case
of CU and/or CU Bank currently pending in audit, at the administrative
appeals level or in litigation. Schedule 5.11 further lists the date
and issuing authority of each statutory notice of deficiency, notice of
proposed assessment and revenue agent's report issued to CU and/or CU
Bank within the last twelve (12) months. Except as set forth in
Schedule 5.11, neither the IRS nor any foreign, state, local or other
taxing authority has, during the past three years, examined or is in
the process of examining any federal, foreign, state, local or other
tax returns of CU. To the knowledge of CU, neither the IRS nor any
foreign, state, local or other taxing authority is now asserting or
threatening to assert any deficiency or claim for additional taxes (or
interest thereon or penalties in connection therewith) except as set
forth on Schedule 5.11.
(b) Neither CU nor CU Bank is a party to any safe harbor
lease within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. Neither CU nor CU Bank is or has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section
897(c)(i)(A)(ii) of the Code. Neither CU nor CU Bank is a "consenting
corporation" under Section 341(f) of the Code. Neither CU nor CU Bank
has agreed, nor is it required to make, any adjustment under Section
481(a) of the Code by reason of a change in accounting method or
otherwise.
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5.12. Compliance with Laws and Regulations. To CU's and CU Bank's
knowledge, neither of them is in default under or in breach of any provision of
their respective Articles of Incorporation or Association, as amended, as the
case may be, or Bylaws, as amended, or law, ordinance, rule or regulation
promulgated by any governmental agency having authority over either of them,
where such default or breach would have a material adverse effect on the
business, financial condition or results of operations of CU on a consolidated
basis. No investigation or review by any governmental entity or regulatory
authority with respect to CU or CU Bank is pending or, to the knowledge of CU or
CU Bank, threatened, nor has any such governmental entity or regulatory
authority indicated to CU or any Affiliate of CU an intention to conduct the
same, other than those the outcome of which would not have a material adverse
affect on the business, financial condition or results of operation of CU on a
consolidated basis.
5.13. Performance of Obligations. CU and CU Bank have performed in
all material respects all of the obligations required to be performed by them to
date, and to the best of their knowledge, are not in default under or in breach
of any term or provision of any covenant, contract, lease, indenture or any
other covenant to which either of them is a party, is subject or is otherwise
bound, and no event has occurred that, with the giving of notice or the passage
of time or both, would constitute such default or breach, where such default or
breach would have a material adverse effect on the business, financial condition
or results of operations of CU on a consolidated basis. Except for loans and
leases made by CU Bank in the ordinary course of business, to CU's or CU Bank's
knowledge, no party with whom CU or CU Bank has an agreement that is of material
importance to the business of CU on a consolidated basis is in default
thereunder.
5.14. Employees. There are no controversies pending or threatened
between CU or CU Bank and any of their respective employees that are likely to
have a material adverse effect on the business, financial condition or results
of operation of CU on a consolidated basis. Neither CU nor CU Bank is a party to
any collective bargaining agreement with respect to any of their respective
employees or any labor organization to which their respective employees or any
of them belong. Except as previously disclosed in writing to Home, there are no
understandings with respect to the employment of any officer or employee of CU
or CU Bank which are not terminable by CU or CU Bank without liability on not
more than thirty (30) days notice. Except as disclosed in the CU Financial
Statements or as previously disclosed in writing to CU, all material sums due
for employee compensation have been paid or accrued and all employer
contributions for employee benefits, including deferred compensation
obligations, and any benefits under any CU Employee Plan have been duly and
adequately paid or provided for in accordance with plan documents. Except as set
forth on Schedule 5.14, as of the date hereof, no director, officer or employee
of CU or CU Bank is entitled to receive any payment or any amount under any
existing CU Employee Plan, Understanding, agreement, severance plan or other
benefit plan as a result of the consummation of any transaction contemplated by
this Agreement, the Agreement of Merger or the Bank Merger.
5.15. Brokers and Finders. Except for any agreements among CU, Home
and Montgomery, and any fees payable thereunder, neither CU nor CU Bank is a
party to or obligated under any agreement with any broker or finder relating to
the transactions contemplated hereby, and neither the execution of this
Agreement nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
5.16. Material Contracts. Except as set forth on Schedule 5.16
hereto (all items listed or required to be listed on Schedule 5.16 being
referred to herein as "CU Scheduled Contracts"), neither CU nor CU Bank is a
party or otherwise subject to:
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(a) any employment, deferred compensation, bonus or
consulting contract that requires payment by CU or CU Bank of $50,000
or more per annum;
(b) any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract not terminable by CU
on 30 days' or less notice and which requires payment by CU or CU Bank
of $10,000 or more per annum;
(c) any contract or agreement that restricts CU (or would
restrict any Affiliate of CU after the Effective Time) from competing
in any line of business with any Person or using or employing the
services of any Person;
(d) any lease of real or personal property providing for
annual lease payments by or to CU or CU Bank in excess of $100,000 per
annum other than (i) financing leases entered into in the ordinary
course of business in which CU or CU Bank is lessor and (ii) leases of
real property presently used by CU Bank as banking offices;
(e) any mortgage, pledge, conditional sales contract,
security agreement, option, or any other similar agreement with respect
to any interest of CU or CU Bank (other than as mortgagor or pledgor in
the ordinary course of their banking business or as mortgagee, secured
party or deed of trust beneficiary in the ordinary course of their
business) in personal property having a value of $100,000 or more;
(f) any agreement to acquire equipment or any commitment
to make capital expenditures of $100,000 or more;
(g) other than agreements entered into in the ordinary
course of business, including sales of Other Real Estate Owned, any
agreement for the sale of any property or assets in which CU or CU Bank
has an ownership interest or for the grant of any preferential right to
purchase any such property or asset;
(h) except for any subordinated debt that may be assumed
by CU Bank in connection with the Corporate Bank Merger, any agreement
for the borrowing of any money (other than liabilities or interbank
borrowings made in the ordinary course of their banking business and
reflected in the Financial Statements of CU);
(i) any restrictive covenant contained in any deed to or
lease of real property owned or leased by CU or CU Bank (as lessee)
that materially restricts the use, transferability or value of such
property;
(j) any guarantee or indemnification which involves the
sum of $100,000 or more, other than letters of credit or loan
commitments issued in the normal course of business;
(k) any supply, maintenance or landscape contracts not
terminable by CU or CU Bank without penalty on 30 days or less notice
and which provides for payments in excess of $25,000 per annum;
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(l) any agreement which would be terminable other than by
CU or CU Bank as a result of the consummation of the transactions
contemplated by this Agreement;
(m) any contract of participation with any other bank in
any loan entered into by CU or CU Bank subsequent to December 31, 1994
in excess of $100,000 or any sales of assets of CU or CU Bank with
recourse of any kind to CU or CU Bank except the sale of mortgage
loans, servicing rights, repurchase or reverse repurchase agreements,
securities or other financial transactions in the ordinary course of
business;
(n) any other Understanding of any other kind not
terminable on 30 days' or less notice which involves future payments or
receipts or performances of services or delivery of items requiring
payment of $25,000 or more to or by CU or CU Bank other than payments
made under or pursuant to loan agreements, participation agreements and
other agreements for the extension of credit in the ordinary course of
their business; or
(o) any Understanding that is otherwise material to the
business, financial condition, results of operations or prospects of CU
or CU Bank.
CU has delivered to Home copies of all Scheduled Contracts, including all
amendments and supplements thereto.
5.17. Absence of Material Change. Since December 31, 1994, the
businesses of CU and CU Bank have been conducted, only in the ordinary course,
in the same manner as theretofore conducted and there has not occurred any event
that has had or may reasonably be expected to have a material adverse effect in
the business, financial condition or results of operation of CU on a
consolidated basis.
5.18. Licenses and Permits. CU and CU Bank have all material
licenses and permits that are necessary for the conduct of their respective
businesses, and such licenses are in full force and effect, except for any
failure to be in full force and effect that would not, individually or in the
aggregate, have a material adverse effect on the business, financial condition
or results of operations of CU on a consolidated basis. The properties and
operations of CU and CU Bank are and have been maintained and conducted, in all
material respects, in compliance with all applicable laws and regulations.
5.19. No Material Liabilities; Environmental.
(a) Schedule 5.19 sets forth all material liabilities of
CU and CU Bank, including liabilities for Hazardous Substances or under
any Environmental Law, contingent or otherwise, that are not reflected
or reserved against in the CU Financial Statements, except for
liabilities incurred or accrued since December 31, 1994 in the ordinary
course of business, none of which has had or could reasonably be
expected to have had a material adverse effect on the business,
financial condition, results of operations or prospects of CU on a
consolidated basis. Except as set forth in Schedule 5.19, neither CU
nor CU Bank knows of any basis for the asserting against it of any
liability, obligation or claim that could reasonably be expected to
have a material adverse effect on the business, financial condition, or
results of operations of CU on a consolidated basis.
(b) Except as set forth on Schedule 5.19(b), to the
actual knowledge of the executive officers of CU and CU Bank, (i) there
has not been any generation, use, handling, transportation,
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treatment, storage, release, or disposal of any Hazardous Substance in
connection with the conduct of business of CU or CU Bank that has
resulted or is likely to result in any liability under any
Environmental Law in excess of $1,000,000; (ii) there has never been a
use of the CU Real Property that has resulted, or is likely to result
in any liability under any Environmental Law in excess of $1,000,000;
(iii) no underground storage tanks or surface impoundments are on or in
the CU Real Property; and (iv) no Hazardous Substances are contained or
located on any of the CU Real Property.
5.20. Employee Benefit Plans.
(a) Schedule 5.20 sets forth and describes all employee
benefit plans and any collective bargaining agreements or labor
contracts in which CU or CU Bank participates, or by which they are
bound, including, without limitation, (i) any profit sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer
consulting, retirement, welfare or incentive plan or agreement whether
legally binding or not; (ii) any plan providing for "fringe benefits"
to its employees, including but not limited to vacation, sick leave,
medical, hospitalization, life insurance and other insurance plans, and
related benefits; (iii) any written employment agreement and any other
employment agreement not terminable at will; or (iv) any other
"employee benefit plan" (within the meaning of Section 3(3) of ERISA)
(collectively, the "CU Employee Plans"). Except as set forth in
Schedule 5.20, (i) there are no negotiations, demands or proposals that
are pending or threatened that concern matters now covered, or that
would be covered, by any employment agreements or employee benefit
plans other than amendments to plans qualified under Section 401 of the
Code that are required by the Tax Reform Act of 1986 and later
legislation; (ii) CU is in compliance with the material reporting and
disclosure requirements of Part 1 of Subtitle IB of ERISA and the
corresponding provisions of the Code to the extent applicable to all
such employee benefit plans; (iii) CU has performed all of its
obligations under all such employee benefit plans and employment
agreements required to be performed heretofore; and (iv) there are no
actions, suits or claims (other than routine claims for benefits)
pending or, to the best knowledge of CU and CU Bank, threatened against
any such employee benefit plans and employment agreements or the assets
of such plans, and to the best knowledge of CU, no facts exist which
could give rise to any actions, suits or claims (other than routine
claims for benefits) against such plans or the assets of such plans.
(b) The "employee pension benefit plans" (within the
meaning of Section 3(2) of ERISA) described on Schedule 5.20 have been
duly authorized by the Board of Directors of CU. Except as set forth in
Schedule 5.20, each such plan and associated trust intended to be
qualified under Section 401(a) and to be exempt from tax under Section
501(a) of the Code, respectively, has either received a favorable
determination letter from the IRS, has applied for such a determination
letter or will apply for such a determination letter before the
expiration of the remedial amendment period set forth in Section 401(b)
of the Code, as the IRS may extend such period, and to the best
knowledge of CU and CU Bank, no event has occurred that will or could
give rise to disqualification of any such plan which is intended to be
qualified under Section 401(a) of the Code or loss of the exemption
from tax of any such trust which is intended to be exempt from tax
under Section 501(a) of the Code. No event has occurred that will or
could subject any such plans to tax under Section 511 of the Code. None
of such plans has engaged in a merger or consolidation with any other
plan or transferred assets or liabilities from any other plan. No
prohibited transaction (within the meaning of Section 409 or 502(i) of
ERISA or Section 4975 of the Code) or party-in-interest transaction
(within the meaning of Section 406 of ERISA) has occurred with respect
to any of such
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plans which could subject CU of CU Bank to an excise tax or penalty. To
the best knowledge of CU and CU Bank, no employee of CU or CU Bank has
engaged in any transactions which could subject CU or CU Bank to
indemnify such person against liability. All costs of plans have been
provided for on the basis of consistent methods in accordance with
sound actuarial assumptions and practices. No employee benefit plan has
incurred any "accumulated funding deficiency" (as defined in Section
302(2) of ERISA), whether or not waived, taking into account
contributions made within the period described in Section 412(c)(10) of
the Code; nor are there any unfunded amounts under any employee benefit
plan which is required to be funded under Part 3 of Subtitle IB of
ERISA and Section 412 of the Code); nor has CU or CU Bank failed to
make any contributions or pay any amount due and owing as required by
law or the terms of any employee benefit plan or employment agreement.
Subject to amendments that are required by the Tax Reform Act of 1986
and later legislation, since the last valuation date for each employee
pension benefit plan, there has been no amendment or change to such
plan that would increase the amount of benefits thereunder.
(c) Neither CU nor CU Bank sponsors or participates in,
or has sponsored or participated in, any employee benefit pension plan
to which Section 4021 of ERISA applies that would create a liability
under Title IV of ERISA.
(d) Neither CU nor CU Bank sponsors or participates in,
or has sponsored or participated in, any employee benefit pension plan
that is a "multi-employer plan" (within the meaning of Section 3(37) of
ERISA) that would subject such Person to any liability with respect to
any such plan.
(e) All group health plans of CU or CU Bank (including
any plans of Affiliates of CU that must be taken into account under
Section 162(i) or (k) of the Code as in effect immediately prior to the
Technical and Miscellaneous Revenue Act of 1988 and Section 4980B of
the Code) have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code to the
extent such requirements are applicable.
(f) There have been no acts or omissions by CU or CU Bank
that have given rise to or may give rise to fines, penalties, taxes, or
related charges under Sections 502(c) or (i) or 4071 of ERISA or
Chapter 43 of the Code which could be imposed on CU or CU Bank.
(g) Except as described in Section 5.20(j), neither CU or
CU Bank maintains any employee benefit plan or employment agreement
pursuant to which any benefit plan or other payment will be required to
be made by CU or CU Bank or pursuant to which any other benefit will
accrue or vest in any director, officer or employee of CU or CU Bank,
in either case as a result of the consummation of the transactions
contemplated by the Agreement.
(h) No "reportable event," as defined in ERISA, has
occurred with respect to any of the employee benefit plans.
(i) All amendments required to bring each of the employee
benefit plans into conformity with all of the provisions of ERISA and
the Code and all other applicable laws, rules and regulations have been
made, or will be made before the expiration of the remedial amendment
period set forth under Section 401(b) of the Code, as such period may
be extended by the IRS.
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(j) Schedule 5.20 sets forth the name of each director,
officer, employee, agent or representative of CU or CU Bank and every
other person entitled to receive any benefit or any payment of any
amount under any existing employment agreement, severance plan or other
benefit plan or Understanding as a result of the consummation of any
transaction contemplated in this Agreement, and with respect to each
such person, the nature of such benefit or the amount of such payment,
the event triggering the benefit or payment, and the date of, and
parties to, such employment agreement, severance or other benefit plan
or Understanding. CU has furnished Home with true and correct copies of
all documents with respect to the plans and agreements referred to in
Schedule 5.20 delivered as of the date of the Agreement, including all
amendments and supplements thereto, and all related summary plan
descriptions. For each of the employee pension benefit plans of CU and
CU Bank referred to in Schedule 5.20 delivered as of the date of the
Agreement, CU has furnished Home with true and correct copies of (i) a
copy of the Form 5500 which was filed in each of the three most recent
plan years, including without limitation, all schedules thereto and all
financial statements with attached opinions of independent accountants
to the extent required; (ii) the most recent determination letter from
the IRS; (iii) the statement of assets and liabilities as of the most
recent valuation date; and (iv) the statement of changes in fund
balance and in financial position or the statement of changes in net
assets available for benefits under each of said plans for the most
recently ended plan year. The documents referred to in subdivisions
(iii) and (iv) fairly present the financial condition of each of said
plans as of and at such dates and the results of operations of each of
said plans, all in accordance with generally accepted accounting
principles or on the cash method of accounting applied on a consistent
basis.
5.21. Corporate Records. The minute books of CU and CU Bank
accurately reflect all material actions taken to this date by the respective
shareholders, boards of directors and committees of CU and CU Bank and contain
true and complete copies of the Articles of Incorporation or Association, Bylaws
and other charter documents, and all amendments thereto.
5.22. Offices and ATMs. Schedule 5.22 sets forth the headquarters of
CU and CU Bank (identified as such) and each of the offices and automated teller
machines ("ATMs") maintained and operated by CU Bank (including, without
limitation, representative and loan production offices and operations centers)
and the location thereof. Except as set forth on Schedule 5.22, neither CU nor
CU Bank maintains any other office or ATM nor conducts business at any other
location. Neither CU nor CU Bank has applied for or received permission to open
any additional branch nor operate at any other location.
5.23. Operating Losses. Schedule 5.23 sets forth a list of any
Operating Loss (as herein defined) which has occurred at CU Bank during the
period after September 30, 1995. To the knowledge of CU or CU Bank, no action
has been taken or omitted to be taken by any employee of CU Bank that has
resulted in the incurrence by CU Bank of an Operating Loss or that might
reasonably be expected to result in the incurrence of any individual Operating
Loss after September 30, 1995, which, net of any insurance proceeds payable in
respect thereof, would exceed $25,000. For purposes of this Agreement "Operating
Loss" means any loss resulting from cash shortages, lost or misposted items,
disputed clerical and accounting errors, forged checks, payment of checks over
stop payment orders, merchant credit card processing, counterfeit money, wire
transfers made in error, theft, robberies, defalcations, check kiting,
fraudulent use of credit cards or electronic teller machines or other similar
acts or occurrences.
5.24. Loan Portfolio. All loans or other extensions of credit, and
guaranties, security agreements or other agreements supporting any loans or
extensions of credit, and investments of CU or CU Bank are,
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in all material respects, legal, enforceable and authorized under applicable
federal and state laws and regulations, except as the enforceability thereof may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and by general equitable principles. Except as
previously disclosed in writing to Home, no loans or investments held by CU Bank
are, as of September 30, 1995 (i) more than ninety (90) days past due with
respect to any scheduled payment of principal or interest; (ii) classified as
"loss," "doubtful," "substandard," "special mention," or "criticized" by any
federal or state banking regulators; or (iii) on a non-accrual status in
accordance with CU Bank's loan review procedures. None of such investments are
subject to any restrictions, contractual, statutory or other, that would
materially impair the ability of the entity holding such investment to dispose
freely of any such investment at any time, except restrictions on the public
distribution or transfer of any such investments under the Securities Act and
the regulations thereunder or state securities laws and pledges or security
interests given in connection with government deposits. Except as previously
disclosed in writing to Home, CU Bank has no loans, leases or other extensions
of credit outstanding, or commitments to make any loans, leases or other
extensions of credit to any Affiliates of CU Bank which are not on substantially
the same terms (including interest rates, repayment terms and collateral) as
would be available for comparable transactions with persons of similar
creditworthiness who are not Affiliates of CU Bank. In the case of each Secured
Loan, to the best knowledge of CU Bank, the security interest has been perfected
and, in the case of each Covered Loan, the guaranty or similar obligation has
been executed and delivered to CU Bank and is still in full force and effect.
5.25. Power of Attorney. Neither CU nor CU Bank has granted any
Person a power of attorney or similar authorization that is presently in effect
or outstanding.
5.26. Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of CU or CU Bank ("CU Supplied
Information") for inclusion in the documents to be filed with the SEC, FRB, the
OCC, or any other governmental entity in connection with the transactions
contemplated in this Agreement will, at the respective times such documents are
filed or become effective, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
5.27. Accuracy and Currentness of Information Furnished. The
representations and warranties made by CU or CU Bank hereby or in the schedules
hereto contain no statements of fact which are untrue or misleading, or omit to
state any material fact which is necessary under the circumstances to prevent
the statements contained herein or in such schedules from being misleading.
5.28. Loan Servicing Portfolio. Except as set forth on Schedule
5.28, CU Bank services no loans owned in whole or in part by other parties.
5.29. Certain Interests. Schedule 5.29 sets forth a description of
each instance in which an executive officer or director of CU or CU Bank (a) has
any material interest in any property, real or personal, tangible or intangible,
used by or in connection with the business of CU or CU Bank; (b) is indebted to
CU or CU Bank except for normal business expense advances; or (c) is a creditor
(other than as a deposit holder of CU Bank) of CU or CU Bank except for amounts
due under normal salary and related benefits or reimbursement of ordinary
business expenses. Except as set forth in Schedule 5.29, all such arrangements
are arm's length transactions pursuant to normal commercial terms and
conditions.
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5.30. Investment Securities. Except as set forth on Schedule 5.30,
all investment securities held by CU or CU Bank are legal investments under
applicable law and regulations.
ARTICLE VI
COVENANTS OF HOME AND HOME BANK
PENDING EFFECTIVE TIME OF THE MERGERS
Home and Home Bank covenant and agree with CU and CU Bank as follows:
6.1. Limitation on Home's and Home Bank's Conduct Prior to
Effective Time. Between the date hereof and the Effective Time, except as
contemplated by this Agreement, Home and Home Bank agree to conduct their
respective businesses only in the normal and customary manner and in accordance
with sound banking practices, and Home and Home Bank shall not, without the
prior written consent of CU (which consent shall not be unreasonably withheld
and which consent (except with respect to subparagraph (h) of this Section 6.1)
shall be deemed granted if within five (5) business days of CU's receipt of
written notice of a request for prior written consent, written notice of
objection is not received by Home):
(a) issue any Home Stock (except pursuant to the exercise
of Home Options outstanding as of the date hereof), Home preferred
stock, Home Bank Stock, Home Bank preferred stock, any other securities
(including long term debt) of Home or Home Bank or any rights, options
or securities to acquire any Home Stock, Home preferred stock, Home
Bank Stock, Home Bank preferred stock or any other securities
(including long term debt) of Home or Home Bank;
(b) except in accordance with Home's customary and past
practice of paying dividends in an amount equal to $.085 per quarter,
declare, set aside or pay any dividend or make any other distribution
upon, or purchase or redeem any shares of, Home Stock;
(c) except as may be required to effect the transactions
contemplated herein, amend its respective Articles of Incorporation or
its Bylaws;
(d) grant any general or uniform increase in the rate of
pay of employees or employee benefits;
(e) grant any material increase in salary, incentive
compensation or employee benefits or pay any bonus to any Person except
for payments in the ordinary course of business consistent with past
practices or pursuant to the Proposed Retention Agreements or any
pre-existing contract, arrangement or bonus plan;
(f) make any capital expenditure in excess of $100,000,
except for ordinary repairs, renewals and replacements;
(g) compromise or otherwise settle or adjust any
assertion or claim of a deficiency in taxes (or interest thereon or
penalties in connection therewith), extend the statute of limitations
with
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any tax authority or file any pleading in court in any tax litigation
or any appeal from an asserted deficiency;
(h) grant or commit to grant any new extension of credit
or amend the terms of any such credit outstanding on the date hereof to
any executive officer, director or holder of ten percent (10%) or more
of the outstanding Home Stock, or to any corporation, partnership,
trust or other entity controlled by any such person, except consistent
with practices and policies in existence as of the date of this
Agreement;
(i) close or open any offices at which business is
conducted;
(j) adopt or amend any Home Employee Plan or other
benefit plan or arrangement of any such type except for such amendments
as are required by law or do not materially increase the costs or
benefits of such plan or arrangement, except for the Proposed Retention
Agreements;
(k) change any of Home's or Home Bank's policies and
practices with respect to liquidity management and cash flow planning,
lending, personnel practices, accounting or any other material aspect
of Home's business or operations on a consolidated basis, except such
changes as may be required in the opinion of Home's or Home Bank's
management to respond to economic or market conditions or as may be
required by the rules of the American Institute of Certified Public
Accountants or Financial Accounting Standards Board or by applicable
governmental authorities;
(l) grant any Person a power of attorney or similar
authority;
(m) make any material investment by purchase of stock or
securities, contributions to capital, property transfers or otherwise
in any other Person, except for investments made in the ordinary course
of business consistent with past practice;
(n) amend, modify or terminate, except in accordance with
its terms, any Home Scheduled Contract or enter into any agreement or
contract that would be a Home Scheduled Contract under Section 4.16;
(o) create or incur or suffer to exist any mortgage,
lien, pledge, security interest, charge, encumbrance or restraint of
any kind against or in respect of any property or right of Home and/or
Home Bank;
(p) sell, lease or otherwise dispose of any of its assets
which are material, individually or in the aggregate, to Home or Home
Bank, except in the ordinary course of business consistent with past
practice;
(q) make any extraordinary payment to any Person, other
than with respect to the Proposed Retention Agreements; or
(r) except as required by law, take or cause to be taken
any action which would prevent the transactions contemplated hereby
from qualifying as tax free reorganizations under Section 368 of the
Code.
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6.2. No Solicitation, etc.
(a) Home and Home Bank shall not, and shall cause each of
their respective officers, directors, employees, agents, legal and
financial advisors and Affiliates not to, directly or indirectly,
solicit, initiate or, except as contemplated by Section 6.2(b) hereof,
encourage, entertain or enter into any agreement or agreement in
principle, or announce any intention to do any of the foregoing, with
respect to any Alternative Transaction, other than the Alternative
Transaction contemplated by this Agreement.
(b) Home or Home Bank shall not, and shall cause each of
its officers, directors, employees, agents, legal and financial
advisors and Affiliates not to, directly or indirectly, participate in
any negotiations or discussions regarding, or furnish any information
with respect to, or otherwise cooperate in any way in connection with,
or assist or participate in, facilitate or encourage, any effort or
attempt to effect, any Alternative Transaction with or involving any
Person other than CU or CU Bank, unless Home or Home Bank shall have
received an unsolicited written offer from a Person other than CU or CU
Bank to effect an Alternative Transaction and the Board of Directors of
Home determines, based on an opinion of counsel, that in the exercise
of the fiduciary obligations of the Board of Directors such information
should be provided to or such discussions or negotiations undertaken
with the Person submitting such unsolicited written offer.
(c) Home will promptly communicate to CU the terms of any
proposal which it may receive in respect of any Alternative Transaction
and will keep CU informed as to the status of any actions, including
negotiations or discussions, taken pursuant to subsection (b) of this
Section 6.2.
6.3. Affirmative Conduct of Home and Home Bank Prior to Effective
Time. Between the date hereof and the Effective Time, Home and Home Bank
shall:
(a) use and devote their respective best efforts
consistent with this Agreement to maintain and preserve intact their
respective present business organizations and to maintain and preserve
their respective relationships and goodwill with account holders,
borrowers, employees and others having business relationships with Home
or Home Bank;
(b) use their respective best efforts to keep in full
force and effect all of the existing material permits and licenses of
Home or Home Bank;
(c) use their respective best efforts to maintain
insurance coverage at least equal to that now in effect on all
properties for which they are responsible and on their respective
business operations;
(d) perform their respective material contractual
obligations and not become in material default on any thereof;
(e) duly and timely file all reports and returns required
to be filed with any federal, state or local governmental authority,
unless any extensions have been duly granted by such authority;
(f) duly observe and conform to all lawful requirements
applicable to their respective businesses that are material to the
business of Home on a consolidated basis;
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(g) maintain their respective assets and properties in
good condition and repair, normal wear and tear excepted;
(h) promptly advise CU in writing of any event or any
other transaction within Home's or Home Bank's knowledge whereby any
Person or Related Group of Persons acquires, directly or indirectly,
record or beneficial ownership or control (as defined in Rule 13d-3
promulgated by the SEC under the Exchange Act) of five percent (5%) or
more of the outstanding Home Stock prior to the record date fixed for
the Home Shareholders' Meeting or any adjourned meeting thereof to
approve this Agreement and the transactions contemplated herein;
(i) promptly notify CU regarding receipt from any tax
authority of any notification of the commencement of an audit, any
request to extend the statute of limitations, any statutory notice of
deficiency, any revenue agent's report, any notice of proposed
assessment, or any other similar notification of potential adjustments
to the tax liabilities of Home and/or Home Bank, or any actual or
threatened collection enforcement activity by any tax authority with
respect to tax liabilities of Home and/or Home Bank;
(j) furnish to CU, as soon as practicable, and in any
event within fifteen days after it is prepared, (i) a copy of any
report submitted to the board of directors of Home or Home Bank,
provided, however, that Home need not furnish to CU communications of
Home's legal counsel regarding Home's rights and obligations under this
Agreement or books, records and documents covered by the
attorney-client privilege, or which are attorneys' work product, (ii)
copies of all reports, filings, certificates, correspondence and other
documents filed with or received from the SEC, FRB, FDIC,
Superintendent or any other governmental or regulatory entity, and
(iii) monthly unaudited consolidated balance sheets and consolidated
statements of operations of Home;
(k) not later than the 25th day of each calendar month,
amend or supplement the Schedules prepared and delivered pursuant to
Article IV (the "Home Schedules") to ensure that the information set
forth in such Home Schedules accurately reflects the then-current
status of Home and Home Bank. Home shall further amend or supplement
the Home Schedules as of the Closing Date if necessary to reflect any
additional information that needs to be included in the Home Schedules;
(l) use their respective best efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
amendment, permit or release that is material to the business of Home
on a consolidated basis or that is contemplated or required in
connection with this Agreement, the Merger or Bank Merger;
(m) promptly notify CU of the filing of any material
litigation, or the filing of any governmental or regulatory action,
including any investigation or notice of investigation, or similar
proceeding or notice of any claim against Home or Home Bank or any of
their assets; and
(n) prepare and timely file all tax returns and
amendments thereto required to be filed by them on or before the
Closing Date. CU shall have a reasonable opportunity to review all such
returns and amendments thereto on a pre-filing basis. Home and Home
Bank shall discharge all taxes, assessments and governmental charges in
the nature of taxes upon or against it or any of its
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properties or assets, and all tax liabilities at any time existing,
before the same shall become delinquent and before penalties accrue
thereon, except to the extent and as long as: (i) the same are being
contested in good faith and by appropriate proceedings pursued
diligently and in such manner not to cause any material adverse effect
upon the condition (financial or otherwise) or operations of Home or
Home Bank; and (ii) Home and Home Bank shall have set aside on their
books appropriate reserves in the amount of the demanded principal
imposition together with interest and penalties relating thereto, if
any.
6.4. Access to Information. Home and Home Bank will afford CU and
its representatives, counsel, accountants, agents and employees access during
normal business hours to all of their respective businesses, operations,
properties, books, files and records and will do everything reasonably necessary
to enable CU and its representatives, counsel, accountants, agents and employees
to make a complete examination of the financial statements, businesses, assets
and properties of Home and Home Bank and the condition thereof and to update
such examination at such intervals as CU shall deem appropriate. Such
examination shall be conducted in cooperation with the officers of Home and Home
Bank and in such a manner as to minimize any disruption of, or interference
with, the normal business operations of Home and Home Bank. Upon the request of
CU, Home will request that Arthur Andersen provide reasonable access to
auditors' work papers with respect to the businesses and properties of Home and
Home Bank, including tax accrual work papers prepared for Home and/or Home Bank
during the preceding sixty (60) months, other than (a) books, records and
documents covered by the attorney-client privilege, or that are attorneys' work
product, and (b) books, records and documents that Home or Home Bank is legally
obligated to keep confidential. No examination or review conducted under this
section shall constitute a waiver or relinquishment on the part of CU of the
right to rely upon the representations and warranties made by Home and Home Bank
herein; provided, that CU shall disclose in writing to Home any fact or
circumstance it may discover which CU believes renders any representation or
warranty made by Home or Home Bank hereunder incorrect in any respect. CU
covenants and agrees that it and its representatives, counsel, accountants,
agents and employees will hold in strict confidence all documents and
information concerning Home and Home Bank so obtained (except to the extent that
such documents or information are a matter of public record or require
disclosure in the Proxy Statement or any of the public information of any
applications required to be filed with any governmental or regulatory agency to
obtain the approvals and consents required to effect the transactions
contemplated hereby), and if the transactions contemplated herein are not
consummated, such confidence shall be maintained and all such documents shall be
returned to Home and Home Bank.
6.5. Filings. Home and Home Bank agree that through the Effective
Time, each of their respective reports, registrations, statements and other
filings required to be filed with any applicable governmental or regulatory
authority will comply in all material respects with all the applicable statutes,
rules and regulations enforced or promulgated by the governmental or regulatory
body with which it will be filed and none will contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Any financial statement contained in any
such report, registration, statement or other filing that is intended to present
the financial position of the entity or entities to which it relates will fairly
present the financial position of such entities or entity and will be prepared
in accordance with generally accepted accounting principles consistently applied
during the periods involved.
6.6. Notices; Reports. Home and Home Bank will promptly notify CU
of any event of which Home or Home Bank obtains knowledge which has had or may
reasonably be expected to have a materially adverse effect on the financial
condition, operations, business or prospects of Home on a consolidated basis
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or in the event that Home or Home Bank determines that either is unable to
fulfill any of the conditions to the performance of CU's obligations hereunder,
as set forth in Articles IX or XI herein, and Home and Home Bank will furnish CU
(i) as soon as available, and in any event within thirty (30) days after it is
prepared, any report by Home or Home Bank for submission to the Board of
Directors of Home or Home Bank, (ii) as soon as available, all proxy statements,
information statements, financial statements, reports, letters and
communications sent by Home to its shareholders or other security holders, and
all reports filed by Home or Home Bank with the SEC, FRB or FDIC, and (iii) such
other existing reports as CU may reasonably request relating to Home or Home
Bank.
6.7. Home Shareholders' Meeting. Promptly after the execution of
this Agreement, Home will take all action necessary in accordance with
applicable law and its Articles of Incorporation and Bylaws to convene a meeting
of its shareholders to consider and vote upon this Agreement and the
transactions contemplated hereby. The Board of Directors of Home shall, subject
to its fiduciary duties, recommend that its shareholders approve this Agreement
and the transactions contemplated hereby, and the Board of Directors of Home
shall, subject to its fiduciary duties, use its best efforts to obtain the
affirmative vote of the holders of the largest possible percentage of the
outstanding Home Stock to approve this Agreement and the transactions
contemplated hereby.
6.8. Bank Merger. Home and Home Bank shall (i) take all necessary
corporate and other action, to effect the Bank Merger; (ii) execute, deliver
and, where appropriate, file any and all documents necessary or desirable to
effect the Bank Merger; and (iii) take and cause Home Bank to take any other
action to permit the consummation of any transactions contemplated in connection
with the Bank Merger. Neither Home nor Home Bank shall take any action that
would prevent the performance of the Bank Merger.
6.9. Filings; Applications. Home and Home Bank will cooperate with
CU in the preparation of the Proxy Statement and S-4 and the statements or
applications to be filed to obtain the necessary regulatory approvals to
consummate the transactions contemplated by this Agreement. Home and Home Bank
covenant and agree that all information furnished by Home or Home Bank for
inclusion in the Proxy Statement and S-4 and in all applications or statements
filed with the appropriate regulatory authorities for approval of, or consent
to, the Merger and the Bank Merger will comply in all material respects with the
provisions of applicable law, and will not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
6.10. Certain Loans and Other Extensions of Credit. Home Bank will
promptly inform CU of the amounts and categories of any loans, leases or other
extensions of credit that have been classified by any bank regulatory authority
or by any unit of Home or Home Bank as "Criticized," "Specially Mentioned,"
"Substandard," "Doubtful," "Loss" or any comparable classification ("Classified
Credits"). Home Bank will furnish CU, as soon as practicable, and in any event
within 15 days after the end of each calendar month, schedules, including the
following: (a) Classified Credits (including with respect to each credit its
classification category and the originating unit); (b) nonaccrual credits
(including the originating unit); (c) accrual exception credits that are
delinquent 90 or more days and have not been placed on nonaccrual status
(including its originating unit); (d) credits delinquent as to payment of
principal or interest (including its originating unit), including an aging into
30-89 and 90+ day categories; (e) participating loans and leases, stating, with
respect to each, whether it is purchased or sold and the originating unit; (f)
loans or leases (including any commitments) by Home or Home Bank to any Home or
Home Bank director, officer at or above the senior vice president level, or
shareholder holding ten percent (10%) or more of the capital stock
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of Home, including with respect to each such loan or lease the identity and, to
the knowledge of Home, the relation of the borrower to Home or Home Bank, and
the outstanding and undrawn amounts; (g) letters of credit (including the
originating unit); (h) loans or leases wholly or partially charged off during
the previous month (including with respect to each loan or lease, the
originating amount, the write-off amount and its originating unit); and (i)
other real estate or assets acquired in satisfaction of debt.
6.11. Termination of Home Stock Option Plan. Home will take all
steps necessary to cause the Home Stock Option Plan to be terminated as of or
prior to the Effective Time, and will cause any options outstanding thereunder
to be either exercised (accompanied with the payment provided for in such
exercised option) on or before the Effective Time, or for those options not so
exercised, to obtain at the earliest practicable date and prior to the Effective
Time a revised stock option contract with each holder of such unexercised
options, incorporating such terms as may be necessary in order to make such
option contracts consistent with the New Stock Option Plan.
6.12. Environmental Audit. Home shall deliver to CU a Phase I
Environmental Assessment Report with respect to the property listed on Schedule
4.9 (the "Phase I Reports"), in a form reasonably satisfactory to CU. The
Parties agree to share equally any and all costs incurred in obtaining the Phase
1 Reports requested after the date hereof in connection with this Section 6.12.
Based on the Parties' review of the Phase I Reports, the Parties shall
determine, in good faith based on a reasonable assessment of the results of the
Phase I Reports, whether to obtain Phase II Site Assessments ("Phase II
Assessments") for any Home Real Property. The Parties shall mutually agree on
the environmental consultant to prepare any such Phase II Assessment and shall
share equally any and all costs incurred in obtaining such Phase II Assessments.
If the amount of remediation expenses related to the Home Real Property, as set
forth in the Phase II Assessments, is estimated to exceed $1,000,000, then Home
shall have an additional ninety (90) days from the date of receipt of such Phase
II Assessments within which to cure the excessive remediation costs and to
reduce the estimated costs of remediation to an amount below $1,000,000.
6.13. D&O Coverage. Home shall obtain (i) coverage for a period of
36 months following the Effective Time for the directors and officers of Home
and Home Bank under a directors' and officers' liability insurance policy which
is no less protective in terms of coverage or limitations then now possessed by
Home covering acts or omissions occurring prior to the Effective Time and (ii)
coverage for a period of at least 36 months following the Effective Time under a
bankers' blanket bond which is no less protective in terms of coverage or
limitations then now possessed by Home which covers losses incurred prior to the
Effective Time and actions related to this Agreement.
ARTICLE VII
COVENANTS OF CU AND CU BANK
PENDING EFFECTIVE TIME OF THE MERGERS
CU and CU Bank covenant and agree with Home and Home Bank as follows:
7.1. Limitation on CU's and CU Bank's Conduct Prior to Effective
Time. Between the date hereof and the Effective Time, except as contemplated by
this Agreement, CU and CU Bank agree to conduct their respective businesses only
in the normal and customary manner and in accordance with sound banking
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practices, and CU and CU Bank shall not, without prior written consent of Home
(which consent shall not be unreasonably withheld and which consent (except with
respect to subparagraph (h) of this Section 7.1) shall be deemed granted if
within five (5) business days of Home's receipt of written notice of a request
for prior written consent, written notice of objection is not received by CU):
(a) except in connection with the Corporate Bank Merger,
issue any CU Stock (except pursuant to the exercise of CU Options
outstanding as of the date hereof), CU preferred stock, CU Bank Stock,
CU Bank preferred stock, any other securities (including long term
debt) of CU or CU Bank or any rights, options or securities to acquire
any CU Stock, CU preferred stock, CU Bank Stock, CU Bank preferred
stock or any other securities (including long term debt) of CU or CU
Bank;
(b) except in accordance with CU's customary and past
practice of paying dividends in an amount equal to $.02 per quarter,
declare, set aside or pay any dividend or make any other distribution
upon, or purchase or redeem any shares of, CU Stock;
(c) except as may be required to effect the transactions
contemplated herein, amend its Articles of Incorporation or
Association, as the case may be, or its Bylaws; provided, however, that
CU Bank shall be permitted to amend and restate its Articles of
Association in the form previously submitted to Home's counsel;
(d) grant any general or uniform increase in the rate of
pay of employees or employee benefits;
(e) grant any material increase in salary, incentive
compensation or employee benefits or pay any bonus to any Person except
for payments in the ordinary course of business consistent with past
practices or pursuant to any pre-existing contract, arrangement or
bonus plan;
(f) make any capital expenditure in excess of $100,000,
except for ordinary repairs, renewals and replacements;
(g) compromise or otherwise settle or adjust any
assertion or claim of a deficiency in taxes (or interest thereon or
penalties in connection therewith), extend the statute of limitations
with any tax authority or file any pleading in court in any tax
litigation or any appeal from an asserted deficiency;
(h) grant or commit to grant any new extension of credit
or amend the terms of any such credit outstanding on the date hereof to
any executive officer, director or holder of ten percent (10%) or more
of the outstanding CU Stock, or to any corporation, partnership, trust
or other entity controlled by any such person, except consistent with
practices and policies in existence as of the date of this Agreement;
(i) close or open any offices at which business is
conducted except in connection with Corporate Bank Merger;
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(j) adopt or amend any CU Employee Plan or other benefit
plan or arrangement of any such type except for such amendments as are
required by law or do not materially increase the costs or benefits of
such plan or arrangement;
(k) change any of CU's or CU Bank's policies and
practices with respect to liquidity management and cash flow planning,
lending, personnel practices, accounting or any other material aspect
of CU's business or operations on a consolidated basis, except such
changes as may be required in the opinion of CU's or CU Bank's
management to respond to economic or market conditions or as may be
required by the rules of the American Institute of Certified Public
Accountants or Financial Accounting Standards Board or by applicable
governmental authorities;
(l) grant any Person a power of attorney or similar
authority;
(m) make any material investment by purchase of stock or
securities, contributions to capital, property transfers or otherwise
in any other Person, except for investments made in the ordinary course
of business consistent with past practice;
(n) amend, modify or terminate, except in accordance with
its terms, any CU Scheduled Contract or enter into any agreement or
contract that would be a CU Scheduled Contract under Section 5.16;
(o) create or incur or suffer to exist any mortgage,
lien, pledge, security interest, charge, encumbrance or restraint of
any kind against or in respect of any property or right of CU and/or CU
Bank;
(p) sell, lease or otherwise dispose of any of its assets
which are material, individually or in the aggregate, to CU or CU Bank,
except in the ordinary course of business consistent with past
practice;
(q) make any extraordinary payment to any Person; or
(r) except as required by law, take or cause to be taken
any action which would prevent the transactions contemplated hereby
form qualifying as tax free reorganizations under Section 368 of the
Code.
7.2. No Solicitation, etc.
(a) CU and CU Bank shall not, and shall cause each of
their respective officers, directors, employees, agents, legal and
financial advisors and Affiliates not to, directly or indirectly,
solicit, initiate or, except as contemplated by Section 7.2(b) hereof,
encourage, entertain or enter into any agreement or agreement in
principle, or announce any intention to do any of the foregoing, with
respect to any Alternative Transaction, other than the Alternative
Transaction contemplated by this Agreement.
(b) CU or CU Bank shall not, and shall cause each of its
officers, directors, employees, agents, legal and financial advisors
and Affiliates not to, directly or indirectly, participate in any
negotiations or discussions regarding, or furnish any information with
respect to, or otherwise
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cooperate in any way in connection with, or assist or participate in,
facilitate or encourage, any effort or attempt to effect any
Alternative Transaction with or involving any Person other than Home or
Home Bank, unless CU or CU Bank shall have received an unsolicited
written offer from a Person other than Home or Home Bank to effect an
Alternative Transaction and the Board of Directors of CU determines,
based on an opinion of counsel, that in the exercise of the fiduciary
obligations of the Board of Directors such information should be
provided to or such discussions or negotiations undertaken with the
Person submitting such unsolicited written offer.
(c) CU will promptly communicate to Home the terms of any
proposal which it may receive in respect of any Alternative Transaction
and will keep Home informed as to the status of any actions, including
negotiations or discussions, taken pursuant to subsection (b) of this
Section 7.2.
7.3. Affirmative Conduct of CU and CU Bank Prior to Effective Time.
Between the date hereof and the Effective Time, CU and CU Bank shall:
(a) use and devote their respective best efforts
consistent with this Agreement to maintain and preserve intact their
respective present business organizations and to maintain and preserve
their respective relationships and goodwill with account holders,
borrowers, employees and others having business relationships with CU
or CU Bank;
(b) use their respective best efforts to keep in full
force and effect all of the existing material permits and licenses of
CU or CU Bank;
(c) use their respective best efforts to maintain
insurance coverage at least equal to that now in effect on all
properties for which they are responsible and on their respective
business operations;
(d) perform their respective material contractual
obligations and not become in material default on any thereof;
(e) duly and timely file all reports and returns required
to be filed with any federal, state or local governmental authority,
unless any extensions have been duly granted by such authority;
(f) duly observe and conform to all lawful requirements
applicable to their respective businesses that are material to the
business of CU on a consolidated basis;
(g) maintain their respective assets and properties in
good condition and repair, normal wear and tear excepted;
(h) promptly advise Home in writing of any event or any
other transaction within CU's or CU Bank's knowledge whereby any Person
or Related Group of Persons acquires, directly or indirectly, record or
beneficial ownership or control (as defined in Rule 13d-3 promulgated
by the SEC under the Exchange Act) of five percent (5%) or more of the
outstanding CU Stock prior to the record date fixed for the CU
Shareholders' Meeting or any adjourned meeting thereof to approve this
Agreement and the transactions contemplated herein;
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(i) promptly notify Home regarding receipt from any tax
authority of any notification of the commencement of an audit, any
request to extend the statute of limitations, any statutory notice of
deficiency, any revenue agent's report, any notice of proposed
assessment, or any other similar notification of potential adjustments
to the tax liabilities of CU and/or CU Bank, or any actual or
threatened collection enforcement activity by any tax authority with
respect to tax liabilities of CU and/or CU Bank;
(j) furnish to Home, as soon as practicable, and in any
event within fifteen days after it is prepared (i) a copy of any report
submitted to the board of directors of CU or CU Bank, provided,
however, that CU need not furnish to Home communications of CU's legal
counsel regarding CU's rights and obligations under this Agreement or
books, records and documents covered by the attorney-client privilege,
or which are attorneys' work product, (ii) copies of all reports,
filings, certificates, correspondence and other documents filed with or
received from the SEC, FRB, FDIC, OCC or any other governmental or
regulatory entity, and (iii) monthly unaudited consolidated balance
sheets and consolidated statements of operations of CU;
(k) not later than the 25th day of each calendar month,
amend or supplement the Schedules prepared and delivered pursuant to
Article IV (the "CU Schedules") to ensure that the information set
forth in such CU Schedules accurately reflects the then-current status
of CU and CU Bank; provided, however, that any such amendment or
supplement required solely as a result of the Corporate Bank Merger
shall be due not later than the 60th day after the consummation of the
Corporate Bank Merger. CU shall further amend or supplement the CU
Schedules as of the Closing Date if necessary to reflect any additional
information that needs to be included in the CU Schedules;
(l) use their respective best efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
amendment, permit or release that is material to the business of CU on
a consolidated basis or that is contemplated or required in connection
with the Merger or Bank Merger;
(m) promptly notify Home of the filing of any material
litigation, or the filing of any governmental or regulatory action,
including any investigation or notice of investigation, or similar
proceeding, or notice of any claim against CU or CU Bank or any of
their assets; and
(n) prepare and timely file all tax returns and
amendments thereto required to be filed by them on or before the
Closing Date. Home shall have a reasonable opportunity to review all
such returns and amendments thereto on a pre-filing basis. CU and CU
Bank shall discharge all taxes, assessments and governmental charges in
the nature of taxes upon or against it or any of its properties or
assets, and all tax liabilities at any time existing, before the same
shall become delinquent and before penalties accrue thereon, except to
the extent and as long as: (i) the same are being contested in good
faith and by appropriate proceedings pursued diligently and in such
manner not to cause any material adverse effect upon the condition
(financial or otherwise) or operations of CU or CU Bank; and (ii) CU
and CU Bank shall have set aside on their books appropriate reserves in
the amount of the demanded principal imposition together with interest
and penalties relating thereto, if any.
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7.4. Access to Information. CU and CU Bank will afford Home and its
representatives, counsel, accountants, agents and employees access during normal
business hours to all of their respective businesses, operations, properties,
books, files and records and will do everything reasonably necessary to enable
Home and its representatives, counsel, accountants, agents and employees to make
a complete examination of the financial statements, businesses, assets and
properties of CU and CU Bank and the condition thereof and to update such
examination at such intervals as Home shall deem appropriate. Upon the
consummation of the Corporate Bank Merger, CU and CU Bank will afford Home and
its representatives everything reasonably necessary to evaluate and make a
complete examination of the Corporate Bank Merger. Such examination shall be
conducted in cooperation with the officers of CU and CU Bank and in such a
manner as to minimize any disruption of, or interference with, the normal
business operations of CU and CU Bank. Upon the request of Home, CU will request
that Arthur Andersen provide reasonable access to auditors' work papers with
respect to the businesses and properties of CU and CU Bank, including tax
accrual work papers prepared for CU and/or CU Bank during the preceding sixty
(60) months, other than (a) books, records and documents covered by the
attorney-client privilege, or that are attorneys' work product, and (b) books,
records and documents that CU or CU Bank is legally obligated to keep
confidential. No examination or review conducted under this section shall
constitute a waiver or relinquishment on the part of Home of the right to rely
upon the representations and warranties made by CU and CU Bank herein; provided,
that Home shall disclose in writing to CU any fact or circumstance it may
discover which Home believes renders any representation or warranty made by CU
or CU Bank hereunder incorrect in any respect. Home covenants and agrees that it
and its representatives, counsel, accountants, agents and employees will hold in
strict confidence all documents and information concerning CU and CU Bank so
obtained (except to the extent that such documents or information are a matter
of public record or require disclosure in the Proxy Statement or any of the
public information of any applications required to be filed with any
governmental or regulatory agency to obtain the approvals and consents required
to effect the transactions contemplated hereby), and if the transactions
contemplated herein are not consummated, such confidence shall be maintained and
all such documents shall be returned to CU and CU Bank.
7.5. Filings. CU and CU Bank agree that through the Effective Time,
each of their respective reports, registrations, statements and other filings
required to be filed with any applicable governmental or regulatory authority
will comply in all material respects with all the applicable statutes, rules and
regulations enforced or promulgated by the governmental or regulatory body with
which it will be filed and none will contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Any financial statement contained in any such report,
registration, statement or other filing that is intended to present the
financial position of the entity or entities to which it relates will fairly
present the financial position of such entities or entity and will be prepared
in accordance with generally accepted accounting principles consistently applied
during the periods involved.
7.6. Notices; Reports. CU and CU Bank will promptly notify Home of
any event of which CU or CU Bank obtains knowledge which has had or may
reasonably be expected to have a materially adverse effect on the financial
condition, operations, business or prospects of CU on a consolidated basis or in
the event that CU or CU Bank determines that either is unable to fulfill any of
the conditions to the performance of Home's obligations hereunder, as set forth
in Articles IX or XI herein, and CU and CU Bank will furnish Home (i) as soon as
available, and in any event within thirty (30) days after it is prepared, any
report by CU or CU Bank for submission to the Board of Directors of CU or CU
Bank, (ii) as soon as available, all proxy statements, information statements,
financial statements, reports, letters and communications sent by CU to
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its shareholders or other security holders, and all reports filed by CU or CU
Bank with the SEC, FRB or FDIC, and (iii) such other existing reports as Home
may reasonably request relating to CU or CU Bank.
7.7. CU Shareholders' Meeting. Promptly after the execution of this
Agreement, CU will take all action necessary in accordance with applicable law
and its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby. The Board of Directors of CU shall, subject to its
fiduciary duties, recommend that its shareholders approve this Agreement and the
transactions contemplated hereby, and the Board of Directors of CU shall,
subject to its fiduciary duties, use its best efforts to obtain the affirmative
vote of the holders of the largest possible percentage of the outstanding CU
Stock to approve this Agreement and the transactions contemplated hereby.
7.8. Bank Merger. CU and CU Bank shall (i) take all necessary
corporate and other action to effect the Bank Merger; (ii) execute, deliver and,
where appropriate, file any and all documents necessary or desirable to permit
the Bank Merger; and (iii) take and cause CU Bank to take any other action to
permit the consummation of the Bank Merger. Neither CU nor CU Bank shall take
any action that would prevent performance of the Bank Merger.
7.9. Filings; Applications. CU and CU Bank will prepare promptly
and file the Proxy Statement, the S-4 and any statements or applications
necessary to obtain the regulatory approvals required to consummate the
transactions contemplated by this Agreement. CU and CU Bank covenant and agree
that all information included by CU or CU Bank in the Proxy Statement and S-4
and in all applications or statements filed with the appropriate regulatory
authorities for approval of, or consent to, the Merger and the Bank Merger, and
other transactions contemplated by this Agreement, will comply in all material
respects with the provisions of applicable law, and will not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
7.10. Certain Loans and Other Extensions of Credit. CU Bank will
promptly inform Home of the amounts and categories of any loans, leases or other
extensions of credit that have been classified by any bank regulatory authority
or by any unit of CU or CU Bank as "Criticized," "Specially Mentioned,"
"Substandard," "Doubtful," "Loss" or any comparable classification ("Classified
Credits"). CU Bank will furnish Home, as soon as practicable, and in any event
within 15 days after the end of each calendar month, schedules including the
following: (a) Classified Credits (including with respect to each credit its
classification category and the originating unit); (b) nonaccrual credits
(including the originating unit); (c) accrual exception credits that are
delinquent 90 or more days and have not been placed on nonaccrual status
(including its originating unit); (d) credits delinquent as to payment of
principal or interest (including its originating unit), including an aging into
30-89, and 90+ day categories; (e) participating loans and leases, stating, with
respect to each, whether it is purchased or sold and the originating unit; (f)
loans or leases (including any commitments) by CU or CU Bank to any CU or CU
Bank director, officer at or above the senior vice president level, or
shareholder holding ten percent (10%) or more of the capital stock of CU,
including with respect to each such loan or lease the identity and, to the
knowledge of CU, the relation of the borrower to CU or CU Bank, and the
outstanding and undrawn amounts; (g) letters of credit (including the
originating unit); (h) loans or leases wholly or partially charged off during
the previous month (including with respect to each loan or lease, the
originating amount, the write-off amount and its originating unit); and (i)
other real estate or assets acquired in satisfaction of debt.
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7.11. CU Stock Option Plan. CU will take all steps necessary to
adopt the New Stock Option Plan and take any other actions necessary or
appropriate as of or prior to the Effective Time, in order to effect the
transactions contemplated by Section 2.9. CU shall recommend that its
shareholders approve the New Stock Option Plan and the Board of Directors of CU
shall, subject to its fiduciary duties, use its best efforts to obtain the
affirmative vote of the outstanding CU Stock to approve such New Stock Option
Plan.
7.12. Dividends. Subject to applicable law and regulations and the
good faith determination of the Surviving Company Board of Directors, it is the
intention of CU that the Surviving Company shall pay quarterly dividends to its
shareholders for each of the eight quarters following the Effective Time in an
amount per share which is no less than $.06 per share.
7.13. Articles of Incorporation. CU will take all steps necessary to
amend its Articles of Incorporation, including without limitation obtaining
shareholder approval at the CU Shareholders' meeting, to effect any name change
of the Surviving Company agreed upon by the Parties in accordance with Section
2.6.
ARTICLE VIII
GENERAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other
as follows:
8.1. Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement as promptly as practical.
8.2. Public Announcements. CU and Home will consult with each other
before any Party hereto issues any press release or makes any public statement
with respect to this Agreement or the transactions contemplated hereby, and
except as may be required by applicable law or any listing agreement, neither CU
nor Home will issue any such press release or make any such public statement
prior to such consultation.
8.3. S-4 and the Proxy Statement. Home and CU shall use their
respective best efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable. CU shall take any action required to be taken
under any applicable state securities laws in connection with the issuance of CU
Stock in the Merger, and Home shall furnish all information concerning Home as
may be reasonably requested in connection with any such action. Each Party shall
immediately notify the other Party in writing in the event that such Party
becomes aware that the S-4 or Proxy Statement at any time contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading or that
the S-4 or the Proxy Statement otherwise is required to be amended or
supplemented, which notice shall specify, in reasonable detail, the
circumstances thereof.
8.4. Merger of Home Bank and CU Bank. The parties agree to use
their reasonable efforts between the date of this Agreement and the Closing to
take all actions necessary or desirable, including the filing of any regulatory
applications, so that the Bank Merger will occur substantially concurrently
with, or
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as soon as practicable after, the Effective Time. A copy of the Bank Merger
Agreement is attached hereto as Exhibit B. The original of such Bank Merger
Agreement shall be executed and delivered as soon as practicable after the
execution and delivery of this Agreement.
ARTICLE IX
CONDITIONS PRECEDENT TO THE MERGERS
The obligations of each of the Parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction, on or before
the Closing Date, of the following conditions:
9.1. Shareholder Approval. The transactions contemplated hereby
shall have received all requisite approvals of the shareholders of CU, CU Bank,
Home and Home Bank.
9.2. No Judgments or Orders. No judgment, decree, injunction, order
or proceeding shall be outstanding or threatened by any governmental entity
which prohibits or restricts the effectuation of, or threatens to invalidate or
set aside, the Merger or the Bank Merger substantially in the form contemplated
by this Agreement, unless counsel to the party against whom such action or
proceeding was instituted or threatened renders to the other parties hereto a
favorable opinion that such judgment, decree, injunction, order or proceeding is
without merit.
9.3. Regulatory Approvals. To the extent required by applicable law
or regulation, all approvals or consents of any governmental authority,
including, without limitation, those of the FRB and the OCC shall have been
obtained or granted for the Merger and Bank Merger and the transactions
contemplated hereby, and the applicable waiting period under all laws shall have
expired. All other statutory or regulatory requirements for the valid completion
of the transactions contemplated hereby shall have been satisfied.
9.4. Tax Opinion. CU and Home shall have received an opinion from
Manatt, Phelps & Phillips or Arthur Andersen that the Merger and the Bank Merger
will not result in the recognition of gain or loss for federal income tax
purposes to CU, CU Bank, Home or Home Bank, nor will the issuance of the CU
Stock result in the recognition of gain or loss by the holders of Home Stock who
receive such stock in connection with the Merger.
9.5. Pooling of Interests Accounting Treatment. Arthur Andersen
shall have confirmed in writing to CU and Home that the Merger and Bank Merger
will qualify for pooling of interests accounting treatment.
9.6. S-4 and Proxy Statement. The S-4 shall have become effective
under the Securities Act and shall not be subject to any stop order or
proceeding seeking a stop order and copies of the Proxy Statement shall have
been mailed to every shareholder of record of CU and Home on the record date not
less than 20 days prior to the date of the shareholders' meetings called to act
upon the Merger.
9.7. Dissenters. The sum of (i) the shares of Home Stock that will
not be converted into CU Stock due to the exercise of dissenters' rights granted
under the California Corporations Code and (ii) the shares of CU Stock that
become Dissenting Shares shall not exceed 10% of the aggregate number of issued
and outstanding shares of Home Stock and CU Stock.
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ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOME AND HOME BANK
All of the obligations of Home and Home Bank to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by Home and Home Bank:
10.1. Legal Opinion. Home and Home Bank shall have received the
opinion of Anita Wolman, general counsel of CU and CU Bank, dated as of the
Closing Date, in substantially the form of Exhibit E hereto.
10.2. Representations and Warranties; Performance of Covenants. All
covenants, terms and conditions of this Agreement to be complied with and
performed by CU and CU Bank at or before the Closing Date shall have been
complied with and performed in all material respects; the representations and
warranties of CU and CU Bank contained in Article V hereof shall have been true
and correct in all material respects on and as of the date of this Agreement and
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date. It
is understood and acknowledged that the representations being made on and as of
the Closing Date shall be made with respect to the CU Schedules as updated in
accordance with Section 7.3(k).
10.3. Authorization of Mergers; Option Plan.
(a) All actions necessary to authorize the execution,
delivery and performance of this Agreement, the Agreement of Merger and the Bank
Merger Agreement by CU and CU Bank, as the case may be, and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Board of Directors and shareholders of CU and CU Bank, as
the case may be, as required by applicable law, and CU and CU Bank shall have
full power and right to merge pursuant to the Agreement of Merger and Bank
Merger Agreement, respectively.
(b) The shareholders of CU shall have voted in favor of
the adoption of the New Stock Option Plan.
10.4. Absence of Certain Changes. Between the date of this Agreement
and the Effective Time, there shall not have occurred any event that has had or
could reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations or prospects of CU on a consolidated
basis, whether or not such event, change or effect is reflected in the CU
Schedules as amended or supplemented after the date of this Agreement.
10.5. Officers' Certificate. There shall have been delivered to Home
and Home Bank on the Closing Date a certificate executed by the Chief Executive
Officer and the Chief Financial Officer of CU certifying , to the best of their
knowledge, compliance with all of the provisions of Sections 10.2, 10.3 and
10.4.
10.6. Fairness Opinion. Home shall have received a letter from Piper
Jaffray Inc., dated as of a date within five (5) days of the mailing of the
Proxy Statement and S-4 to the shareholders of Home, to the
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effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the shareholders of Home.
10.7. Shareholder's Voting Agreements. Concurrently with the
execution of this Agreement, the CU directors shall have executed and delivered
to Home an agreement substantially in the form of Exhibit F.
10.8. Home Warrant Agreement. Concurrently with the execution of
this Agreement, CU shall have executed and delivered to Home the Home Warrant
and the Home Warrant Agreement.
10.9. Appointment of Directors. All necessary action shall have been
taken to have the five persons designated by Home elected or appointed to serve,
from and after the Effective Time, as directors of Surviving Company.
10.10. Validity of Transactions. The validity of all transactions
herein contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered to
Home or Home Bank hereunder, shall be subject to the approval, to be reasonably
exercised, of Manatt, Phelps & Phillips, special counsel for Home and Home Bank.
10.11. Third Party Consents. CU and CU Bank shall have obtained all
consents of other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Merger and the Bank Merger and the transactions contemplated herein to be
consummated without a material default, acceleration, breach or loss of rights
or benefits thereunder.
10.12. NASDAQ Listing. The shares of CU Stock issuable pursuant to
this Agreement shall have been duly authorized for listing, subject to notice of
issuance, on the NASDAQ, National Market System or any other national exchange
on which the shares of CU Stock may be listed.
10.13. CU Board. All necessary action shall have been taken to have
the five persons designated by CU elected or appointed to serve, from and after
the Effective Time, as directors of the Surviving Company and CU shall have
delivered to Home the written resignations of those directors of CU who will not
be serving on the Surviving Company's Board of Directors.
10.14. Non-Performing Loans. CU Bank's Non-Performing Loans shall not
exceed 75% of (i) the shareholders' equity of CU Bank plus (ii) the loan loss
reserves of CU Bank.
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF CU AND CU BANK
All of the obligations of CU and CU Bank to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by CU and CU Bank:
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11.1. Legal Opinion. CU and CU Bank shall have received the opinion
of Manatt, Phelps & Phillips., special counsel to Home and Home Bank, dated as
of the Closing Date, in substantially the form of Exhibit G hereto.
11.2. Representations and Warranties; Performance of Covenants. All
the covenants, terms and conditions of this Agreement to be complied with and
performed by Home or Home Bank at or before the Closing Date shall have been
complied with and performed in all material respects; the representations and
warranties of Home and Home Bank contained in Article IV hereof shall have been
true and correct in all material respects on and as of the date of this
Agreement and on and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the Closing Date. It
is understood and acknowledged that the representations being made on and as of
the Closing Date shall be made with respect to the Home Schedules as updated in
accordance with Section 7.3(j).
11.3. Authorization of Mergers. All actions necessary to authorize
the execution, delivery and performance of this Agreement, the Agreement of
Merger and the Bank Merger Agreement by Home and Home Bank, as the case may be,
and the consummation of the transactions contemplated hereby and thereby shall
have been duly and validly taken by the Boards of Directors and shareholders of
Home and Home Bank, as the case may be, as required by applicable law, and Home
and Home Bank shall have full power and right to merge pursuant to the Agreement
of Merger and Bank Merger Agreement, respectively.
11.4. Regulatory Approvals and Related Conditions. Any governmental
and regulatory approvals and consents which are referred to in this Agreement
and are required to consummate the Merger and the Bank Merger shall have been
granted without the imposition of conditions that are or would have become
applicable to CU or the Surviving Bank and that CU reasonably and in good faith
concludes would materially adversely affect the consolidated financial condition
or operations of CU or otherwise would be materially burdensome to CU on a
consolidated basis and all applicable waiting periods shall have expired.
11.5. Third Party Consents. Home and Home Bank shall have obtained
all consents of other parties to their respective material mortgages, notes,
leases, franchises, agreements, licenses and permits as may be necessary to
permit the Merger and Bank Merger and the transactions contemplated herein to be
consummated without a material default, acceleration, breach or loss of rights
or benefits thereunder.
11.6. Absence of Certain Changes. Between the date of this Agreement
and the Effective Time, there shall not have occurred any event that has had or
could reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations or prospects of Home on a
consolidated basis, whether or not such event, change or effect is reflected in
the Home Schedules as amended or supplemented after the date of this Agreement.
11.7. Officers' Certificate. There shall have been delivered to CU
on the Closing Date a certificate executed by the President and the Chief
Financial Officer of each of Home and Home Bank certifying, to the best of their
knowledge, compliance with all of the provisions of Sections 11.2, 11.3, 11.5
and 11.6.
11.8. Fairness Opinion. CU shall have received a letter from Van
Kasper & Company dated as of a date within five (5) days of the mailing of the
Proxy Statement to the shareholders of CU, to the effect that the transactions
contemplated by this Agreement are fair from a financial point of view to the
shareholders of CU.
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11.9. Validity of Transactions. The validity of all transactions
herein contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered to CU
hereunder, shall be subject to the approval, to be reasonably exercised, of
Anita Wolman, general counsel of CU.
11.10. Blue Sky Matters. The issuance of the CU Stock in the Merger
shall have been qualified or registered with the appropriate governmental entity
under state securities or Blue Sky laws, and such qualifications or
registrations are in effect on the Closing Date.
11.11. Insurance Coverage. Home shall have obtained (i) coverage for
a period of 36 months following the Effective Time for the directors and
officers of Home and Home Bank under a directors' and officers' liability
insurance policy covering acts or omissions occurring prior to the Effective
Time and (ii) coverage for a period of at least 36 months following the
Effective Time under a bankers' blanket bond which is no less protective in
terms of coverage or limitations than possessed by Home prior to the Effective
Time which covers losses incurred prior to the Effective Time and actions
related to this Agreement.
11.12. Shareholder's Voting Agreements. Concurrently with the
execution of this Agreement, the Home directors shall have executed and
delivered to CU an agreement substantially in the form of Exhibit H.
11.13. CU Warrant Agreement. Concurrently with the execution of this
Agreement, Home shall have executed and delivered to CU the CU Warrant and the
CU Warrant Agreement.
11.14. Affiliate Agreements. Those persons listed on Annex I hereto
shall have executed and delivered to CU an agreement in substantially the form
of Exhibit I.
11.15. Non-Performing Loans. Home Bank's Non-Performing Loans shall
not exceed 75% of (i) the shareholders' equity of Home Bank as of the month end
prior to the Effective Time plus (ii) the loan loss reserves of Home Bank.
11.16. Absence of Excess Remediation. Subject to Home's right to cure
pursuant to Section 6.12 hereto, the Home Real Property, based on a reasonable
analysis of the Phase II Assessments, shall not require remediation expenses in
excess of $1,000,000.
ARTICLE XII
EMPLOYEE BENEFITS
12.1. Employee Benefits. At and as of the Effective Time the former
officers and employees of Home and Home Bank who become officers and employees
of the Surviving Bank ("Transferred Employees") shall, in that capacity, be
entitled to participate in all employee benefits and benefit programs of the
Surviving Bank in accordance with the terms of such employee benefit programs.
Surviving Bank shall recognize such Transferred Employees' service with Home and
Home Bank for purposes of eligibility and vesting under all such benefit
programs. Surviving Bank shall also cover under its health plans, without the
application of any pre-existing limitation or exclusion, all Transferred
Employees and their covered dependents who are covered under similar Home or
Home Bank health plans as of the Closing Date and who
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change coverage to Surviving Bank's health plans at the time such Transferred
Employees are first provided the option to enroll in Surviving Bank's health
plans.
ARTICLE XIII
TERMINATION
13.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger upon the occurrence of any of the
following:
(a) By mutual agreement of the parties, in writing;
(b) By Home or CU immediately upon the failure of the
shareholders of Home or CU to approve this Agreement and the
transactions contemplated hereby;
(c) By Home immediately upon expiration of twenty (20)
days from delivery of written notice by Home to CU of CU's breach of or
failure to satisfy any covenant or agreement contained herein resulting
in a material impairment of the benefit reasonably expected to be
derived by Home from the performance or satisfaction of such covenant
or agreement (provided that such breach has not been waived by Home and
Home Bank or cured by CU prior to expiration of such twenty (20) day
period);
(d) By CU immediately upon expiration of twenty (20) days
from delivery of written notice by CU to Home of Home's or Home Bank's
breach of or failure to satisfy any covenant or agreement contained
herein resulting in a material impairment of the benefit reasonably
expected to be derived by CU and CU Bank from the performance or
satisfaction of such covenant or agreement (provided that such breach
has not been waived by CU or cured by Home or Home Bank, as the case
may be, prior to expiration of such twenty (20) day period);
(e) By Home or CU upon the expiration of thirty (30) days
after any governmental or regulatory authority denies or refuses to
grant any approval, consent or authorization required to be obtained in
order to consummate the transactions contemplated by this Agreement
unless, within said thirty (30) day period after such denial or
refusal, all parties hereto agree to submit the application to the
regulatory authority that has denied; or refused to grant the approval,
consent or qualification requested; or
(f) By Home, if any conditions set forth in Article X
shall not have been met, by CU if any conditions set forth in Article
XI shall not have been met, or by Home or CU, if any conditions set
forth in Article IX shall not have been met by September 30, 1996, or
such earlier time as it becomes apparent that such conditions cannot be
met.
13.2. Termination Date. This Agreement shall be terminated if the
Closing Date shall not have occurred by September 30, 1996, unless extended in
writing by the parties.
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13.3. Effect of Termination. No termination of this Agreement under
this Article XIII for any reason or in any manner shall release, or be construed
as so releasing, CU or CU Bank or Home or Home Bank from their respective
obligations under the CU Warrant Agreement or Home Warrant Agreement, the last
sentence of Section 6.4, Section 7.4 or under Section 14.1 hereof, or any party
hereto from any liability or damage to any other party hereto arising out of in
connection with or otherwise relating to, directly or indirectly, said party's
material breach, default or failure in performance of any of its covenants,
agreements, duties or obligations arising hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1. Expenses. Each party hereto shall pay its own costs and
expenses, including but not limited to those of its attorneys and accountants,
in connection with this Agreement, the Agreement of Merger, the Bank Merger and
the transactions covered and contemplated hereby and thereby. Notwithstanding
the foregoing, CU and Home shall share equally the cost of printing the Proxy
Statement and S-4.
14.2. Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to another shall be in writing and
delivered personally or by facsimile transmission or sent by registered or
certified mail, postage prepaid, with return receipt requested, addressed as
follows:
To CU or CU Bank: 16030 Ventura Boulevard
Encino, California 91436-4487
Attention: Stephen G. Carpenter
Facsimile Number: (818) 907-5024
With a copy to: Anita Wolman, Esq.
16030 Ventura Boulevard
Encino, California 91436-4487
To Home or Home Bank: Home Bancorp
2633 Cherry Avenue
Signal Hill, California 90806
Attention: Jim Staes
Facsimile Number: (310) 426-4526
With copies to: Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Barbara S. Polsky, Esq.
Facsimile Number: (310) 312-4224
Any such notice, request, instruction or other document shall be deemed
received on the date delivered personally or sent by facsimile transmission, or
on the third business day after it was sent by registered or certified mail,
postage prepaid. Any of the persons shown above may change its address for
purposes of this section by giving notice in accordance herewith.
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14.3. Successors and Assigns. All terms and conditions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns; provided,
however, that this Agreement and all rights, privileges, duties and obligations
of the parties hereto may not be assigned or delegated by any party hereto
without the prior written consent of the other parties hereto.
14.4. Counterparts. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one original
document.
14.5. Effect of Representations and Warranties. The representations
and warranties contained in this Agreement or the Schedules shall terminate
immediately after the Effective Time.
14.6. Third Parties. Each party hereto intends that this Agreement
shall not benefit or create any right or cause of action to any person other
than parties hereto.
14.7. Lists; Exhibits; Integration. Each Schedule, exhibit and
letter delivered pursuant to this Agreement shall be in writing and shall
constitute a part of the Agreement, although Schedules and letters need not be
attached to each copy of this Agreement. This Agreement, together with such
Schedules, exhibits and letters, constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection therewith.
14.8. Knowledge. In all representations and warranties concerning
the knowledge of Home, Home Bank, CU or CU Bank, wherever included herein, the
only knowledge imputed to Home, Home Bank, CU or CU Bank shall be the knowledge
of their respective officers at the level of senior vice-president and above.
14.9. Governing Law. This Agreement is made and entered into in the
State of California, except to the extent that the provisions of federal law are
mandatorily applicable, and the laws of the State of California shall govern the
validity and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder.
14.10. Schedules. The Schedules are an integral part of this
Agreement, and each Schedule shall be applicable as if set forth in full in the
text hereof. In the event there is any absolute unconditional representation
contained in this Agreement, said representation shall be modified by any
contrary information set forth in any Schedule. In the event there is any
representation contained in this Agreement that is modified by a Schedule, said
representation shall also be modified by any other applicable information
contained in any other Schedule.
14.11. Captions. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
14.12. Severability. If any portion of this Agreement shall be deemed
by a court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
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14.13. Waiver and Modification. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. Except as otherwise
required by law, this Agreement, the Agreement of Merger and Bank Merger
Agreement, when executed and delivered, may be modified or amended by action of
the Boards of Directors of CU, CU Bank, Home or Home Bank without action by
their respective shareholders. This Agreement may be modified or amended only by
an instrument of equal formality signed by the parties or their duly authorized
agents.
14.14. Attorney's Fees. In the event any of the parties to this
Agreement brings an action or suit against any other party by reason of any
breach of any covenant, agreement, representation, warranty or other provision
hereof, or any breach of any duty or obligation created hereunder by such other
party, the prevailing party, as determined by the court or other body having
jurisdiction, shall be entitled to have and recover of and from the losing
party, as determined by the court or other body having jurisdiction, all
reasonable costs and expenses incurred or sustained by such prevailing party in
connection with such suit or action, including, without limitation, legal fees
and court costs (whether or not taxable as such).
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14.15. JURY WAIVER. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY
MATTER ARISING OUT OF THIS AGREEMENT OR RELATED TO THIS AGREEMENT OR IN
CONNECTION WITH ANY TRANSACTION OR MATTER CONTEMPLATED IN THIS AGREEMENT.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
this Agreement as of the day and year first above written.
CU BANCORP
By:_______________________________
Name:
Title:
CALIFORNIA UNITED BANK,
NATIONAL ASSOCIATION
By:_______________________________
Name:
Title:
HOME INTERSTATE BANCORP
By:_______________________________
Name:
Title:
HOME BANK
By:_______________________________
Name:
Title:
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EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Merger Agreement") is made and
entered into as of this _____ day of ___________, 1996, by and between CU
Bancorp, a California corporation ("CU") and Home Interstate Bancorp, a
California corporation ("Home"), with reference to the following facts:
RECITALS
1. CU is a California corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with authorized capital of 24,000,000 shares of no par value common stock ("CU
Stock") of which, on the date hereof, there are [4,467,318] shares issued and
outstanding and 10,000,000 shares of serial preferred stock, none of which is
outstanding..
2. Home is a corporation duly organized, validly
existing and in good standing under the laws of the State of California with
authorized capital of 20,000,000 shares of common stock, no par value ("Home
Stock") of which, on the date hereof, there are [4,187,954] shares issued and
outstanding.
3. The respective Boards of Directors of CU and Home
deem it desirable and in the best interests of their respective corporations and
stockholders that Home be merged (the "Merger") with and into CU as provided in
this Merger Agreement pursuant to the laws of the State of California and that
CU be the surviving company (the "Surviving Company").
4. In connection with the Merger, CU and Home, and their
respective wholly-owned banking subsidiaries, entered into an Agreement and Plan
of Reorganization, dated as of January 10, 1996 (the "Reorganization
Agreement").
NOW THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein set forth and for the purpose of
prescribing the terms and conditions of such Merger, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Upon consummation of the Merger at the Effective Time (as
defined in Article IX hereof), Home shall be merged with and into CU which shall
thereupon be the Surviving Company, and the separate corporate existence of Home
shall cease.
ARTICLE II
NAME
The name of the Surviving Company shall be "_____________".
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ARTICLE III
ARTICLES OF INCORPORATION
The Articles of Incorporation of CU as in effect immediately
prior to the Effective Time shall, at and after the Effective Time, continue to
be the Articles of Incorporation of the Surviving Company.
ARTICLE IV
BYLAWS
The Bylaws of CU as in effect immediately prior to the
Effective Time shall, at and after the Effective Time, continue to be the Bylaws
of the Surviving Company.
ARTICLE V
DIRECTORS
The following persons shall, at and after the Effective Time,
serve as the Directors of the Surviving Company until its next annual meeting of
shareholders or until such time as their successors have been elected and
qualified:
[insert names of directors]
ARTICLE VI
RIGHTS AND DUTIES OF SURVIVING COMPANY
At and after the Effective Time, all rights, privileges,
powers and franchises and all property and assets of every kind and description
of CU and Home shall be vested in and be held and enjoyed by the Surviving
Company, without further act or deed, and all the estates and interests of every
kind of CU and Home, including all debts due to either of them, shall be as
effectively the property of the Surviving Company as they were of CU and Home,
and the title to any real estate vested by deed or otherwise in either CU or
Home shall not revert or be in any way impaired by reason of the Merger; and all
rights of creditors and liens upon any property of CU and Home shall be
preserved unimpaired and all debts, liabilities and duties of CU and Home shall
be debts, liabilities and duties of the Surviving Company and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by it.
ARTICLE VII
CONVERSION OF SHARES
In and by virtue of the Merger and at the Effective Time,
pursuant to this Merger Agreement, the shares of CU Stock and Home Stock
outstanding at the Effective Time shall be converted as follows:
(a) Effect on the Home Stock. Each share of Home Stock
issued and outstanding immediately prior to the Effective Time shall, on and
after the Effective Time, be automatically canceled and cease to be an issued
and outstanding share of Home Stock and shall be converted into the right to
receive 1.409 shares of CU Stock. No fractional shares of CU Stock shall be
issued in the Merger. CU
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will pay or cause to be paid cash in lieu of fractional shares of CU Stock which
would otherwise be issuable as provided above.
(b) Effect on CU Stock. Each share of CU Stock issued and
outstanding immediately prior to the Effective Time shall, on and after the
Effective Time, remain outstanding and shall for all purposes be deemed to
represent, one share of common stock of the Surviving Company.
ARTICLE VIII
FURTHER ACTION
The parties hereto shall execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken all further or other action as they may deem necessary or
desirable, in order to vest in and confirm to the Surviving Company title to and
possession of all of CU's and Home's property, rights, privileges, powers and
franchises hereunder, and otherwise to carry out the intent and purposes of this
Merger Agreement.
ARTICLE IX
EFFECTIVE TIME
The Merger will become effective upon the filing, in
accordance with Section 1103 of the California Corporations Code, of a copy of
this Merger Agreement and all other requisite accompanying certificates in the
office of the California Secretary of State (the "Secretary"). The date and time
of such filing with the Secretary is referred to herein as to the "Effective
Time."
ARTICLE X
SUCCESSORS AND ASSIGNS
This Merger Agreement shall be binding upon and enforceable by
the parties hereto and their respective successors, assigns and transferees, but
this Merger Agreement may not be assigned by either party without the written
consent of the other.
ARTICLE XI
GOVERNING LAW
This Merger Agreement has been executed in the State of
California, and the laws of the State of California shall govern the validity
and interpretation hereof and the performance by the parties hereto.
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ARTICLE XII
TERMINATION
This Merger Agreement may, by the mutual consent and action of
the Boards of Directors of CU and Home, be abandoned at any time before or after
approval thereof by the shareholders of CU and Home, but not later than the
filing of this Merger Agreement with the Secretary pursuant to Section 1103 of
the California Corporations Code.
IN WITNESS WHEREOF, CU and Home, pursuant to the approval and
authority duly given by resolution of their respective Board of Directors, have
caused this Merger Agreement to be signed by their respective Presidents and
Secretaries on the day and year first above written.
CU BANCORP
By:_________________________
President
____________________________
Secretary
HOME INTERSTATE BANCORP
By:__________________________
President
_____________________________
Secretary
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EXHIBIT A
WARRANT
No. 1
January 10, 1996 1,082,224 Shares
HOME INTERSTATE BANCORP
This is to certify that, for value received and subject to the terms
and conditions provided for in a Warrant Purchase Agreement dated as of January
10, 1996 (the "Agreement") by and between Home Interstate Bancorp, a California
corporation ("Home"), and CU Bancorp, a California corporation ("CU"), pursuant
to which CU and its assigns are entitled to purchase from Home, on the terms and
conditions set forth therein, 1,082,224 fully paid and nonassessable shares of
common stock of Home ("Common Stock"), subject to adjustment as provided in the
Agreement. Terms not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
This Warrant may be exercised by the holder (except any holder which
shall not be permitted by the Bank Holding Company Act of 1956, as amended ("BHC
Act"), or other applicable law to own, or shall not have obtained all regulatory
approvals required by such Act or other applicable law as a precondition to its
ownership of, the shares of Common Stock covered hereby) as to the whole or any
part of the shares of Common Stock covered hereby at any time when such exercise
shall be permitted under the terms of this Warrant, by surrender of this Warrant
at the principal office of Home or at the office of any transfer agent for the
Warrant and upon payment to Home of the Warrant Price for shares so purchased by
wire transfer to a bank account designated by Home. Thereupon, this Warrant
shall be deemed to have been exercised and the person exercising the same to
have become a holder of record of shares of Common Stock (or of the other
securities or property to which it is entitled upon such exercise) purchased
hereunder for all purposes, and certificates for shares so purchased shall be
delivered to the purchaser. If this Warrant shall be exercised in respect of a
part of the shares of Common Stock covered hereby, the holder shall be entitled
to receive a new Warrant covering the number of shares in respect of which this
Warrant shall not have been exercised, but otherwise identical hereto.
This Warrant is exchangeable, upon the surrender hereof by the holder
hereof at such office or agency of Home, for new Warrants of this tenor
representing in the aggregate the right to
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subscribe for and purchase the number of shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase not less than 1,000 shares of Common Stock (except to
the extent necessary to round out the balance of the number of shares
purchasable hereunder).
Home covenants and agrees that all shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue). Home further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, Home will at all times have authorized, and reserved, a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant, and will at its expense expeditiously upon each
such reservation of shares use its best efforts to procure the listing thereof
(subject to issuance or notice of issuance) on all stock exchanges on which the
shares of Common Stock are then listed, or if Home Shares are not then listed on
a stock exchange on NASDAQ National Market System.
The rights of the holder of this Warrant shall be subject to the
following further terms and conditions:
Section 1.1 Home shall at all times reserve and keep available, free
from preemptive rights, out of its authorized and unissued Common Stock or
shares of Common Stock held in treasury, for the purpose of effecting the
exercise of this Warrant, the full number of shares of Common Stock then
issuable upon the exercise of this and all other outstanding Warrant, computed
on the assumption that the adjustments required by Section 1.11 hereof have
become effective, in the event such is not then the case.
Section 1.2 Home will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock upon exercise of this
Warrant. Home shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the holder of the Warrant or
Warrants to be exercised, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to Home the amount of any such
tax, or has established, to the satisfaction of Home, that such tax has been
paid.
Section 1.3 This Warrant shall not entitle the holder of any rights of
a shareholder of Home, either at law or in equity, or to any notice of meetings
of shareholders or of any other proceedings of Home.
Section 1.4 Subject to Section 1.5 and the terms and conditions set
forth in the Agreement, this Warrant and all rights hereunder are transferable
(in whole or in part), on the books of Home by the registered holder thereof in
person or by duly authorized attorney, upon surrender
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of this Warrant, properly endorsed, to Home (or if Home shall have notified the
registered holder hereof of the appointment of an independent transfer agent for
Warrants, then to such transfer agent). As used herein the term "this Warrant"
shall mean and include any Warrant or Warrants hereafter issued in consequence
of transfers of this Warrant in whole or in part.
Section 1.5 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS WARRANT MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO THIS
WARRANT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT, OR (ii) AN OPINION OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE. THE TRANSFERABILITY OF THIS WARRANT IS FURTHER SUBJECT TO THE
PROVISIONS OF A WARRANT PURCHASE AGREEMENT DATED AS OF JANUARY 10, 1996, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF THE SECRETARY OF HOME
INTERSTATE BANCORP.
Section 1.6 The holder of this Warrant, by the acceptance hereof,
agrees that prior to the exercise of any Warrants, at a time when said Warrants
have not been registered under the Securities Act or any similar Federal
statute, it will, if it has not requested or is then not entitled to such
registration pursuant to the provisions of Article III of the Agreement, deliver
to Home a written representation that it is acquiring the shares of Common Stock
issuable upon the exercise of such Warrants for its own account for investment,
and not with a view to, or for sale in connection with, any distribution
thereof, and not with any present intention of distributing or selling the same.
Section 1.7 (a) This Warrant shall terminate and be of no further
force or effect as provided in Article VII of the Agreement.
(b) Notwithstanding any other provision contained
herein, this Warrant and the rights conferred hereby shall terminate, and the
full consideration paid by CU for this Warrant shall be immediately due and
payable to CU, if Home or CU receives written notice from the Federal Reserve
Board to the effect that the execution and delivery of the Agreement or the
issuance of the Warrants is not consistent with Section 3 of the BHC Act.
Section 1.8 This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
Section 1.9 This Warrant incorporates by reference all of the terms and
conditions of the Agreement.
HOME INTERSTATE BANCORP
By:
---------------------------------
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EXHIBIT A
WARRANT
No.
January 10, 1996 1,492,390 Shares
CU BANCORP
This is to certify that, for value received and subject to the terms
and conditions provided for in a Warrant Purchase Agreement dated as of January
10, 1996 (the "Agreement") by and between Home Interstate Bancorp, a California
corporation ("Home"), and CU Bancorp, a California corporation ("CU"), pursuant
to which Home and its assigns are entitled to purchase from CU, on the terms and
conditions set forth therein, 1,492,390 fully paid and nonassessable shares of
common stock of CU ("Common Stock"), subject to adjustment as provided in the
Agreement. Terms not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
This Warrant may be exercised by the holder (except any holder which
shall not be permitted by the Bank Holding Company Act of 1956, as amended ("BHC
Act"), or other applicable law to own, or shall not have obtained all regulatory
approvals required by such Act or other applicable law as a precondition to its
ownership of, the shares of Common Stock covered hereby) as to the whole or any
part of the shares of Common Stock covered hereby at any time when such exercise
shall be permitted under the terms of this Warrant, by surrender of this Warrant
at the principal office of CU or at the office of any transfer agent for the
Warrant and upon payment to CU of the Warrant Price for shares so purchased by
wire transfer to a bank account designated by CU. Thereupon, this Warrant shall
be deemed to have been exercised and the person exercising the same to have
become a holder of record of shares of Common Stock (or of the other securities
or property to which it is entitled upon such exercise) purchased hereunder for
all purposes, and certificates for shares so purchased shall be delivered to the
purchaser. If this Warrant shall be exercised in respect of a part of the shares
of Common Stock covered hereby, the holder shall be entitled to receive a new
Warrant covering the number of shares in respect of which this Warrant shall not
have been exercised, but otherwise identical hereto.
This Warrant is exchangeable, upon the surrender hereof by the holder
hereof at such office or agency of CU, for new Warrants of this tenor
representing in the aggregate the right to
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subscribe for and purchase the number of shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase not less than 1,000 shares of Common Stock (except to
the extent necessary to round out the balance of the number of shares
purchasable hereunder).
CU covenants and agrees that all shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue). CU further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
CU will at all times have authorized, and reserved, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant, and will at its expense expeditiously upon each such reservation
of shares use its best efforts to procure the listing thereof (subject to
issuance or notice of issuance) on all stock exchanges on which the shares of
Common Stock are then listed, or if CU Shares are not then listed on a stock
exchange on NASDAQ National Market System.
The rights of the holder of this Warrant shall be subject to the
following further terms and conditions:
Section 1.1 CU shall at all times reserve and keep available, free from
preemptive rights, out of its authorized and unissued Common Stock or shares of
Common Stock held in treasury, for the purpose of effecting the exercise of this
Warrant, the full number of shares of Common Stock then issuable upon the
exercise of this and all other outstanding Warrant, computed on the assumption
that the adjustments required by Section 1.11 hereof have become effective, in
the event such is not then the case.
Section 1.2 CU will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock upon exercise of this
Warrant. CU shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that of the holder of the Warrant or Warrants
to be exercised, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to CU the amount of any such tax, or
has established, to the satisfaction of CU, that such tax has been paid.
Section 1.3 This Warrant shall not entitle the holder of any rights of
a shareholder of CU, either at law or in equity, or to any notice of meetings of
shareholders or of any other proceedings of CU.
Section 1.4 Subject to Section 1.5 and the terms and conditions set
forth in the Agreement, this Warrant and all rights hereunder are transferable
(in whole or in part), on the books of CU by the registered holder thereof in
person or by duly authorized attorney, upon surrender of this Warrant, properly
endorsed, to CU (or if CU shall have notified the registered holder hereof of
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the appointment of an independent transfer agent for Warrants, then to such
transfer agent). As used herein the term "this Warrant" shall mean and include
any Warrant or Warrants hereafter issued in consequence of transfers of this
Warrant in whole or in part.
Section 1.5 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS WARRANT MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO THIS
WARRANT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT, OR (ii) AN OPINION OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE. THE TRANSFERABILITY OF THIS WARRANT IS FURTHER SUBJECT TO THE
PROVISIONS OF A WARRANT PURCHASE AGREEMENT DATED AS OF JANUARY 10, 1996, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF THE SECRETARY OF CU
BANCORP.
Section 1.6 The holder of this Warrant, by the acceptance hereof,
agrees that prior to the exercise of any Warrants, at a time when said Warrants
have not been registered under the Securities Act or any similar Federal
statute, it will, if it has not requested or is then not entitled to such
registration pursuant to the provisions of Article III of the Agreement, deliver
to CU a written representation that it is acquiring the shares of Common Stock
issuable upon the exercise of such Warrants for its own account for investment,
and not with a view to, or for sale in connection with, any distribution
thereof, and not with any present intention of distributing or selling the same.
Section 1.7 (a) This Warrant shall terminate and be of no further
force or effect as provided in Article VII of the Agreement.
(b) Notwithstanding any other provision contained herein,
this Warrant and the rights conferred hereby shall terminate, and the full
consideration paid by Home for this Warrant shall be immediately due and payable
to Home, if CU or Home receives written notice from the Federal Reserve Board to
the effect that the execution and delivery of the Agreement or the issuance of
the Warrants is not consistent with Section 3 of the BHC Act.
Section 1.8 This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
Section 1.9 This Warrant incorporates by reference all of the terms and
conditions of the Agreement.
CU BANCORP
By:
---------------------------------
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EXHIBIT B
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Bank Merger Agreement") is made and
entered into as of this _____ day of ___________, 1996, by and between
California United Bank, National Association, a national banking association
("CU Bank") and Home Bank, a California corporation ("Home Bank"), with
reference to the following facts:
RECITALS
1. CU Bank is a national banking association duly organized, validly
existing and in good standing under the laws of the United States, with
authorized capital of 540,000 shares of $5.00 par value common stock ("CU Bank
Stock") of which, on the date hereof, there are [472,973] shares issued and
outstanding. CU Bank has surplus of $____ and undivided profits, including
capital reserves, of $______ as of _____________. CU Bank is the wholly owned
subsidiary of CU Bancorp, a California corporation.
2. Home Bank is a corporation duly organized, validly existing and in
good standing under the laws of the State of California with authorized capital
of [ ] shares of common stock, [ ] par value ("Home Stock") of which, on the
date hereof, there are [ ] shares issued and outstanding. Home Bank has surplus
of $______ and undivided profits, including capital reserves, of $_____ as of
_______. Home Bank is the wholly owned subsidiary of Home Interstate Bancorp, a
California corporation.
3. The respective Boards of Directors of CU Bank and Home Bank, each
acting pursuant to a resolution of its board of directors, adopted by the vote
of a majority of its directors, pursuant to the authority given by and in
accordance with the provisions of 12 U.S.C. Section 215a, deem it desirable and
in the best interests of their respective corporations and shareholders that
Home Bank be merged (the "Bank Merger") with and into CU Bank as provided in
this Bank Merger Agreement pursuant to the laws of the United States of America
and that CU Bank be the surviving bank (the "Surviving Bank").
4. In connection with the Merger, CU Bank, CU Bancorp, a California
corporation ("CU"), Home Bank and Home Interstate Bancorp, a California
corporation ("Home"), entered into an Agreement and Plan of Reorganization,
dated as of January 10, 1996 (the "Reorganization Agreement").
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth and for the purpose of prescribing the
terms and conditions of such Bank Merger, the parties hereto agree as follows:
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ARTICLE I
THE BANK MERGER
Upon consummation of the Bank Merger at the Effective Time of the Bank
Merger (as defined in Article XI hereof), Home Bank shall be merged with and
into CU Bank which shall thereupon be the Surviving Bank, and the separate
corporate existence of Home Bank shall cease.
ARTICLE II
SHAREHOLDER APPROVAL
This Agreement shall be ratified and approved by the written consent of
the shareholders of each of Home Bank and CU Bank owning at least two-thirds of
the outstanding capital stock.
ARTICLE III
NAME
The name of the Surviving Bank shall be "___________."
ARTICLE IV
ARTICLES OF ASSOCIATION
The Articles of Association of CU Bank as in effect immediately prior
to the Effective Time of the Bank Merger shall, at and after the Effective Time
of the Bank Merger, continue to be the Articles of Association of the Surviving
Bank.
ARTICLE V
BYLAWS
The Bylaws of CU Bank as in effect immediately prior to the Effective
Time of the Bank Merger shall, at and after the Effective Time of the Bank
Merger, continue to be the Bylaws of the Surviving Bank.
ARTICLE VI
DIRECTORS
The following persons shall, at and after the Effective Time of the
Bank Merger, serve as the Directors of the Surviving Bank until its next annual
meeting of shareholders or until such time as their successors have been elected
and qualified:
[insert names of directors]
ARTICLE VII
RIGHTS AND DUTIES OF SURVIVING BANK
At and after the Effective Time of the Bank Merger, all rights,
privileges, powers and franchises and all property and assets of every kind and
description of CU Bank and Home Bank shall be vested in and be held and enjoyed
by the Surviving Bank, without further act or deed, and all the estates
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and interests of every kind of CU Bank and Home Bank, including all debts due to
either of them, shall be as effectively the property of the Surviving Company as
they were of CU Bank and Home Bank, and the title to any real estate vested by
deed or otherwise in either CU Bank or Home Bank shall not revert or be in any
way impaired by reason of the Bank Merger; and all rights of creditors and liens
upon any property of CU Bank and Home Bank shall be preserved unimpaired and all
debts, liabilities and duties of CU Bank and Home Bank shall be debts,
liabilities and duties of the Surviving Bank and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
ARTICLE VIII
CONVERSION OF SHARES
In and by virtue of the Bank Merger and at the Effective Time of the
Bank Merger, pursuant to this Bank Merger Agreement, the shares of CU Bank Stock
and Home Bank Stock outstanding at the Effective Time of the Bank Merger shall
be converted as follows:
(a) Effect on the Home Bank Stock. Each share of Home Bank Stock issued
and outstanding immediately prior to the Effective Time of the Bank Merger,
except for shares as to which dissenters' rights are perfected pursuant to 12
U.S.C. 215a(b) ("Perfected Dissenting Shares") shall, on and after the Effective
Time of the Bank Merger, be automatically canceled and cease to be an issued and
outstanding share of Home Bank Stock.
(b) Effect on CU Bank Stock. Each share of CU Bank Stock issued and
outstanding immediately prior to the Effective Time of the Bank Merger, except
for Perfected Dissenting Shares, shall, on and after the Effective Time of the
Bank Merger, remain outstanding and shall for all purposes be deemed to
represent, one share of common stock of the Surviving Bank.
ARTICLE IX
CAPITAL STRUCTURE OF SURVIVING BANK
The amount of capital stock of the Surviving Bank shall be $_____,
divided into ____ shares of common stock, each of $___ par value, and at the
time the Bank Merger shall become effective the Surviving Bank shall have a
surplus of $____ and undivided profits of $______, including capital reserves,
which when combined with the Surviving Bank's capital and surplus will be equal
to the combined capital structures of Home Bank and CU Bank as stated in the
preamble of this Agreement, adjusted, however, for normal earnings and expenses
between ______ and the Effective Time of the Bank Merger.
ARTICLE X
FURTHER ACTION
The parties hereto shall execute and deliver, or cause to be executed
and delivered, all such deeds and other instruments, and will take or cause to
be taken all further or other action as they may deem necessary or desirable, in
order to vest in and confirm to the Surviving Bank title to and possession of
all of CU Bank's and Home Bank's property, rights, privileges, powers and
franchises hereunder, and otherwise to carry out the intent and purposes of this
Agreement.
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CU Bank and Home Bank agree that solely for the purpose of completing
the merger of Home Bank with and into CU Bank or obtaining any necessary
regulatory approval therefor or approving, signing, ratifying or confirming any
related Bank Merger Agreement or conferring any necessary or appropriate
corporate authority related thereto or taking any other corporate act or
satisfying any other corporate requirement necessary therefor, the board of
directors of the Surviving Bank, as it will be constituted upon the
effectiveness of the Bank Merger, may act as such in advance of such
effectiveness, and CU, the shareholder of the Surviving Bank upon such
effectiveness, may act as such in advance of such effectiveness.
ARTICLE XI
EFFECTIVE TIME OF THE BANK MERGER
The Bank Merger will become effective in accordance with 12 U.S.C. 215a
at the time specified in the approval to be issued by the Comptroller of the
Currency. The date and time of such approval specified by the Comptroller is
referred to herein as to the "Effective Time of the Bank Merger."
ARTICLE XII
SUCCESSORS AND ASSIGNS
This Bank Merger Agreement shall be binding upon and enforceable by the
parties hereto and their respective successors, assigns and transferees, but
this Bank Merger Agreement may not be assigned by either party without the
written consent of the other.
ARTICLE XIII
TERMINATION
This Bank Merger Agreement may, by the mutual consent and action of the
Boards of Directors of CU Bank and Home Bank, be abandoned at any time before or
after approval thereof by the shareholders of CU Bank and Home Bank, but not
later than the Effective Time of the Bank Merger. This Agreement shall
automatically be terminated and of no further force and effect if, prior to the
Effective Time of the Bank Merger, the Reorganization Agreement is terminated in
accordance with the terms thereof.
ARTICLE XIV
SATISFACTION OF CONDITION AND OBLIGATIONS
(a) The obligations of CU Bank to proceed with the Closing are subject
to the satisfaction at or prior to the Closing of all of the conditions to the
obligations of CU Bank and CU under the Reorganization Agreement, any one or
more of which, to the extent it is or they are waivable, may be waived, in whole
or in part, by CU Bank.
(b) The obligations of Home Bank to proceed with the Closing are
subject to the satisfaction at or prior to the Closing of all of the conditions
to the obligations of Home and Home Bank under the Reorganization Agreement, any
one or more of which, to the extent it is or they are waivable, may be waived,
in whole or in party, by Home Bank.
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IN WITNESS WHEREOF, CU Bank and Home Bank, pursuant to the approval and
authority duly given by resolution of their respective Board of Directors, have
caused this Bank Merger Agreement to be signed by their respective Presidents
and Secretaries on the day and year first above written.
CALIFORNIA UNITED BANK,
NATIONAL ASSOCIATION
By:
-------------------------
President
----------------------------
Secretary
DIRECTORS OF
CALIFORNIA UNITED BANK, N.A.
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
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HOME BANK
By:
--------------------------
President
-----------------------------
Secretary
DIRECTORS OF HOME BANK
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
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EXHIBIT C
WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT (the "Agreement"), dated as of
January 10, 1996, between CU Bancorp, a California corporation ("CU"), and Home
Interstate Bancorp, a California corporation ("Home") is made with reference to
the following:
RECITALS
A. CU, California United Bank, National Association, a wholly owned
subsidiary of CU ("CU Bank"), Home and Home Bank, a wholly owned subsidiary of
Home ("Home Bank"), have entered into an Agreement and Plan of Reorganization
(the "Merger Agreement") whereby Home and Home Bank would be merged with and
into CU and CU Bank, respectively (collectively, the "Merger").
B. As partial consideration to Home for entering into the Merger
Agreement, CU has agreed to issue to Home a warrant entitling the holder thereof
to purchase up to 19.9% (or 1,492,390) of the outstanding common stock of CU
("Common Stock"), assuming the exercise of all Warrants (as hereafter defined),
and all other options, warrants or other securities convertible into Common
Stock, subject to such restrictions and conditions as may be imposed by bank
regulatory authorities having jurisdiction over Home and CU, respectively.
C. Concurrent with the execution of this Agreement, Home and CU shall
enter into a separate warrant agreement, with substantially identical terms and
conditions as are set forth in this Agreement, pursuant to which Home shall
issue to CU a warrant entitling the holder thereof, upon the occurrence of
certain events as set forth in such agreement, to purchase up to 19.9% (on a
fully diluted basis) of the outstanding common stock of Home.
D. Terms used herein and not otherwise defined shall have the
meanings ascribed to them in Article VI hereof.
In consideration of these premises and of the representations,
covenants and agreements hereinafter set forth, CU and Home hereby agree as
follows:
ARTICLE I
ISSUANCE AND SALE OF WARRANT
Section 1.1 Issuance and Sale of the Warrant. Subject to the
terms and conditions of this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, and in consideration for the execution and
delivery of the Merger Agreement, CU hereby issues to Home one or more warrants
(such warrants, together with any warrants issued pursuant to Section 1.4, the
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"Warrants") entitling the holder thereof to purchase in the aggregate 1,492,390
duly authorized and newly issued shares of Common Stock, subject to adjustment
as provided below. The Warrants being issued at the time of the execution of
this Agreement will be evidenced by a single certificate in the form of Exhibit
A hereto. All Warrants issued pursuant to Section 1.4 will be evidenced by one
or, at Home's request, more certificates in the form of Exhibit A hereto, dated
the date of their issuance, exercisable at the adjusted exercise price at the
time in effect for the Warrants issued pursuant to this Section 1.1.
Section 1.2 Warrant Price. The initial exercise price at which
shares of Common Stock may be acquired pursuant to exercise of the Warrants
shall be $9.834 per share (the "Warrant Price"), subject to adjustment as
provided in Section 1.4.
Section 1.3 Exercise of Warrants.
(a) The Warrants may be exercised in whole or in part only after
the occurrence of an Acquisition Event.
(b) As used herein, an "Acquisition Event" means any of the
following events:
(i) any person (other than Home or an Affiliate of Home)
shall have commenced (as such term is defined in Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), or shall have filed a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with
respect to, a tender offer or exchange offer to purchase any
shares of Common Stock such that, upon consummation of such offer,
such person would own or control 10% or more of the then
outstanding Common Stock;
(ii) CU or CU Bank, without having received Home's prior
written consent or except as permitted by the Merger Agreement,
shall have authorized, recommended, proposed or publicly announced
an intention to authorize, recommend or propose, or entered into,
an agreement with any person (other than Home or any Affiliate of
Home to (A) effect a merger, consolidation or similar transaction
involving CU or CU Bank, (B) sell, lease or otherwise dispose of
assets of CU or CU Bank representing 10% or more of the
consolidated assets of CU or CU Bank, or (C) issue, sell or
otherwise dispose of (including by way of merger, consolidation,
share exchange or any similar transaction) securities representing
10% or more of the voting power of CU or CU Bank (any of the
foregoing an "Acquisition Transaction");
(iii) any person (other than Home or Home Bank or CU or CU
Bank in a fiduciary capacity) shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 under the
Exchange Act) or the right to acquire beneficial ownership of, or
any "group" (as such term is defined in the Exchange Act) shall
have been
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formed which beneficially owns or has the right to acquire
beneficial ownership of, 10% or more of the then outstanding
Common Stock; or
(iv) the holders of Common Stock shall not have approved the
Merger Agreement at the meeting of such stockholders held for the
purpose of voting on the Merger Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of
the Merger Agreement or CU's Board of Directors shall have
withdrawn or modified in a manner adverse to Home the
recommendation of CU's Board of Directors with respect to the
Merger Agreement, in each case after any person (other than Home)
shall have (A) publicly announced a proposal, or publicly
disclosed an intention to make a proposal, to engage in an
Acquisition Transaction or (B) filed an application (or given a
notice), whether in draft or final form, under the BHC Act or the
Change in Bank Control Act for approval to engage in an
Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Home is entitled to and wishes to exercise the
Warrants, it shall send to CU 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 prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, Home shall promptly file
the required notice or application for approval, shall promptly notify CU of
such filing, 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.
(d) At the closing referred to in subsection (c), Home shall pay
to CU the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Warrants in immediately available funds by wire
transfer to a bank account designated by CU, provided that failure or refusal of
CU to designate such a bank account shall not preclude Home from exercising the
Warrants.
(e) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (d), CU shall deliver to
Home a certificate or certificates representing the number of shares of Common
stock purchased by Home.
(f) Upon the giving by Home to CU of the written notice of
exercise of the Warrants provided for under subsection (c) and the tender of the
applicable purchase price in
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immediately available funds, Home 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 CU shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
Home. CU shall pay all expenses, and any and all federal, state and local taxes
or other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates hereunder in the name of Home.
Section 1.4 Additional Warrants; Adjustments to Warrant Price and
Number of Shares. The number of shares to which the Warrants may be exercised
and the Warrant Price shall be subject to adjustment as provided below:
(a) Additional Warrants. If CU shall, on one or more
occasions after the date hereof, issue additional shares of Common Stock, and
if, as a result of any such issuance the shares of Common Stock issued or
issuable upon the exercise of Warrants issued pursuant to Section 1.1 hereof
shall represent less than 19.9% of the outstanding Common Stock, assuming the
exercise of all Warrants and all other options, warrants or other securities
convertible into Common Stock, CU shall issue to Home, promptly upon Home's
demand, without further consideration, Warrants to purchase a number of
authorized but unissued shares of Common Stock which, when added to the shares
issued or issuable upon the exercise of such previously issued Warrants, would
represent 19.9% as the case may be of the outstanding Common Stock.
(b) Adjustment for Stock Splits and Combinations. If CU at
any time or from time to time after the date of this Agreement effects a
subdivision of the Common Stock, the Warrant Price then in effect immediately
before that subdivision shall be proportionately decreased, and conversely, if
CU at any time or from time to time after the date of this Agreement combines
the outstanding shares of Common Stock, the Warrant Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection (b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) Adjustment for Certain Dividends and Distributions. In
the event CU at any time or from time to time after the date of this Agreement
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Warrant Price then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date is fixed, as of the close of business on such record date, by
multiplying the Warrant Price then in effect by a fraction (i) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Warrant Price shall be
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recomputed accordingly as of the close of business on such record date and
thereafter the Warrant Price shall be adjusted pursuant to this subsection (c)
as of the time of actual payment of such dividends or distributions.
(d) Adjustments for Other Dividends and Distributions. In the
event CU at any time or from time to time after the date of this Agreement
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of CU
other than shares of Common Stock, then in each such event provision shall be
made so that the holders of Warrants shall receive upon exercise thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of CU which they would have received had their Warrants
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of exercise of the Warrants, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 1.4.
(e) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the exercise of the Warrants is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
1.4), then and in any such event each holder of Warrants shall have the right
thereafter to receive upon exercise of the Warrants the kind and amount of stock
and other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such Warrants might have been exercised immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided in this Section 1.4.
(f) Reorganization, Mergers, Consolidations and Sales of
Assets. If at any time or from time to time there is a capital reorganization of
the Common Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
1.4), or a merger or consolidation of CU with or into another corporation, or
the sale of all or substantially all of CU's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Warrants shall thereafter be
entitled to receive upon exercise of the Warrants the number of shares of stock
or other securities or property of CU, or of the successor corporation resulting
from such merger or consolidation or sale, to which a holder of Common Stock
deliverable upon exercise of the Warrants would have been entitled in such
capital reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 1.4 and the other terms and conditions with respect to the rights
of the holders of the Warrants after the reorganization, merger, consolidation
or sale to the end that the provisions of this Agreement, including this Section
1.4 (including adjustment of the Warrant Price then in effect and number of
shares purchasable upon exercise of the Warrants) shall be applicable after that
event and be as nearly equivalent to the provisions hereof as may be
practicable.
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(g) Sale of Shares Below Warrant Price.
(i) If at any time or from time to time after the date
of this Agreement, CU issues or sells, or is deemed by the express provisions of
this subsection (g) to have issued or sold, Additional Shares of Common Stock
(as hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in subsection (c) above and other than upon a
subdivision or combination of shares of Common Stock as provided in subsection
(b) above, for an Effective Price (as hereinafter defined) less than the Warrant
Price (or, if an adjusted Warrant Price shall be in effect by reason of a
previous adjustment, then less than such adjusted Warrant Price) then and in
each such case the then existing Warrant Price shall be reduced, as of the
opening of business on the date of such issuance or sale, to a price determined
by multiplying that Warrant Price by a fraction (i) the numerator of which shall
be (A) the number of shares of Common Stock Deemed Outstanding at the close of
business on the day next preceding the date of such issue or sale plus (B) the
number of shares of Common Stock which the aggregate consideration received (or
by express provision hereof deemed to have been received) by CU for the total
number of Additional Shares of Common Stock so issued would purchase at such
Warrant Price, and (ii) the denominator of which shall be the number of shares
of Common Stock Deemed Outstanding at the close of business on the date of such
issuance after giving effect to such issuance of Additional Shares of Common
Stock. For purposes of this paragraph (i), "Common Stock Deemed Outstanding" at
any given time shall mean the sum of (1) the number of shares of Common Stock
actually outstanding at that time, (2) the number of Additional Shares of Common
Stock then deemed to have been issued under paragraphs (iii) or (iv) of this
subsection (g) and (3) the number of shares of Common Stock then issuable upon
exercise of stock options to the extent not already deemed to have been issued
under paragraphs (iii) or (iv) of this subsection (g).
(ii) For the purpose of making any adjustment required
under this subsection (g), the consideration received by CU for any issuance or
sale of securities shall (i) to the extent it consists of cash be computed at
the net amount of cash received by CU after deduction of any expenses payable by
CU and any underwriting or similar commissions, compensation or concessions paid
or allowed by CU in connection with such issue or sale, (ii) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board and (iii) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of CU for a consideration which covers both, be computed as the portion
of the consideration so received that may be reasonably determined in good faith
by the Board to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under
this subsection (g), if at any time or from time to time after the date of this
Agreement CU issues or sells any rights or options for the purchase of, or stock
or other securities convertible into, Additional Shares of Common Stock (such
convertible stock or securities being hereinafter referred to as "Convertible
Securities"), then in each case CU shall be deemed to have issued at the time of
the
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issuance of such rights or options or Convertible Securities the maximum number
of Additional Shares of Common Stock issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if any, received by CU
for the issuance of such rights or options or Convertible Securities plus, in
the case of such options or rights, the amounts of consideration, if any,
payable to CU upon the exercise of such options or rights and, in the case of
Convertible Securities, the amounts of consideration, if any, payable to CU upon
conversion (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities). No further adjustment of the Warrant Price,
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire or be
canceled without having been exercised, the Warrant Price adjusted upon the
issuance of such options, rights or Convertible Securities shall be readjusted
to the Warrant Price which would have been in effect had an adjustment been made
on the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by CU upon such exercise, plus the
consideration, if any, actually received by CU for the granting of all such
rights or options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted plus the
consideration, if any, actually received by CU (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion of such Convertible Securities.
(iv) For the purpose of the adjustment required under
this subsection (g), if at any time or from time to time after the date of this
Agreement CU issues or sells any rights or options for the purchase of
Convertible Securities, then in each such case CU shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion of the total amount
of Convertible Securities covered by such rights or options and to have received
as consideration for the issuance of such Additional Shares of Common Stock an
amount equal to the amount of consideration, if any, received by CU for the
issuance of such rights or options, plus the minimum amounts of consideration,
if any, payable to CU upon the exercise of such rights or options and plus the
minimum amount of consideration, if any, payable to CU (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion of such Convertible Securities. No further
adjustment of the Warrant Price, adjusted upon the issuance of such rights or
options, shall be made as a result of the actual issuance of the Convertible
Securities upon the exercise of such rights or options or upon the actual
issuance of Additional Shares of Common Stock upon the conversion of such
Convertible Securities. The provisions of paragraph (iii) above for the
readjustment of the Warrant Price upon the expiration of rights or options or
the rights of conversion of Convertible Securities shall apply in like manner to
the rights, options and Convertible Securities referred to in this paragraph
(iv).
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(v) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by CU after the date of this Agreement whether or
not subsequently reacquired or retired by CU, other than (i) shares of Common
Stock issued upon exercise of the Warrants and (ii) shares issued by way of
dividend or other distribution on shares of Common Stock excluded from the
definition of Additional Shares of Common Stock by the foregoing clause or
shares of Common Stock resulting from any subdivision or combination of shares
of Common Stock so excluded, or shares issued by way of dividend or other
distribution on, or resulting from any subdivision or combination of, shares of
Common stock excluded from the definition of "Additional Shares of Common Stock"
by the foregoing provision. The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by CU under this subsection (g), into the aggregate consideration
received or deemed to have been received by CU for such issue under this
subsection (i).
ARTICLE II
REPURCHASE OF WARRANTS AND LIMITATIONS ON SALE
Section 2.1 Repurchase of Warrants.
(a) Prior to the occurrence of an Acquisition Event, CU
shall have no right to repurchase the Warrants and Home shall have no right to
require CU to repurchase the Warrants.
(b) At any time after the occurrence of an Acquisition
Event, CU shall have the right to purchase (or to cause a person designated by
CU to purchase), and Home shall have the right to require that CU repurchase
(or, if CU shall so elect, cause a person designated by CU to purchase), (i) all
(but not fewer than all) the Warrants at the time beneficially owned by Home and
its Affiliates at the Warrant Call Price in effect for such Warrants on the date
of closing (as provided below) and (ii) all (but not fewer than all) of the
shares of Common Stock purchased by Home and its Affiliates pursuant to this
Agreement with respect to which Home has beneficial ownership at a price equal
to the aggregate market value for such shares as of the date of closing (as
provided below). Any purchase pursuant hereto shall take place on a Business Day
specified in a notice given by CU to Home or by Home to CU, as the case may be
(but in no event prior to the 30th day following the date of any such notice to
Home or later than the 30th day following the date of any such notice to CU).
(c) The closing of any repurchase of Warrants pursuant to
this Section 2.1 shall take place at 10:00 a.m. Los Angeles Time, on the date
set forth in the applicable notice given by CU or Home, as the case may be, at
the office of Home at the address set forth in Section 8.1. The amount payable
to Home and its Affiliates upon any repurchase of Warrants shall be paid in
lawful money of the United States by a federal funds check or a wire transfer of
immediately available funds to an account designated by Home. Upon receipt of
such payment, Home shall
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deliver or cause to be delivered to CU the certificates representing all the
Warrants being repurchased free and clear of any liens, security interests,
charges or encumbrances.
Section 2.2 Certain Determinations of Market Value. The calculation of
the Market Value, as required herein, shall be calculated in accordance with
this Section 2.2. In the event that Market Value is to be determined pursuant to
the terms hereof and there is not an established trading market for shares of
Common Stock, or more than 50% of the outstanding shares of Common Stock are
held beneficially or of record by persons, each of whom owns (individually or
together with members of any group of which such persons are members) 5% or more
of the outstanding shares of Common Stock, then Home may elect to have an
investment banking firm mutually agreeable to CU and Home determine (i) whether,
in the opinion of such investment banking firm, as a result of the absence of an
established trading market or the concentration of stock holdings, Market Value
(determined in accordance with the provisions of the definition of Market Value
in Article VI) does not accurately reflect the fair market value of a block of
1,000 shares of Common Stock on the date as of which Market Value is to be
determined, and (ii) if such investment banking firm determines that Market
Value (as so determined) does not accurately reflect such fair market value,
such investment banking firm shall make determination of the fair market value
of a share of Common Stock on the date as of which Market Value is to be
determined, based on whatever factors it deems relevant, as soon as possible and
shall promptly give written notice to Home and CU of its determination. The fees
of such investment banking firm in connection with such determination shall be
paid by Home. Such determination shall be final and binding on the parties
hereto and the fair market value so determined shall, if higher than the Market
Value that would otherwise apply, be the Market Value of a share of Common
Stock. In the event such determination is not transmitted to Home and CU prior
to the scheduled closing date with respect to any repurchase of Warrants or
Common Stock, the scheduled closing of such transaction shall not be postponed,
and CU shall make such payments on the closing date as are required based on the
Market Value of a share of Common Stock determined as if Home had not made an
election under this Section 2.4. Within three Business Days after such
investment banking firm's determination is made and conveyed to Home and CU in
writing, CU shall make a payment to Home, or Home shall make a payment to CU, as
the case may be, equal to the difference between the amount paid on the closing
date and the amount that would have been so payable had such amount been
determined on the basis of such investment banking firm's determination of the
Market Value of a share of Common Stock.
Section 2.3 Limit on Proceeds. Home agrees, as long as CU shall not
have defaulted in its obligations to repurchase Warrants pursuant to Section
2.1, to pay over to CU any amount by which the profits received by Home and its
Affiliates upon the sale or transfer of Warrants (net of all selling expenses,
underwriting discounts, and commissions and other expenses incurred by Home in
connection with such exercise and sale) shall exceed $5,000,000.
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ARTICLE III
RESTRICTIONS ON TRANSFERABILITY OF STOCK;
COMPLIANCE WITH SECURITIES ACT OF 1933
Section 3.1 Restrictions on Transferability. The Warrants acquired by
Home or any Affiliate of Home pursuant to this Agreement and the Common Stock
issuable upon exercise of such Warrants and any shares of capital stock received
or issued in respect thereof, including, without limitation, securities issued
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event (such Warrants and all such shares of Common Stock and securities
being collectively called the "Restricted Stock") shall not be hypothecated, nor
shall any claim or liability exist, nor shall any agreement, written or oral, be
entered into by Home or any Affiliate of Home which would cause any claim or
liability to exist with respect to the Restricted Stock, and the Restricted
Stock shall not be transferred except upon the conditions, to the extent
applicable, specified in this Article III. Home will cause any proposed
transferee of Restricted Stock held by Home or any other Affiliate of Home to
agree to take ownership of such Restricted Stock subject to the provisions, to
the extent applicable, of this Article III; provided, however, that the
provisions of this Article shall cease to apply to any Restricted Stock which
shall have been sold in a registered public offering in accordance with the
provisions of this Article III. Home represents that it is purchasing the
Restricted Stock for its own account and not with a view to or for sale in
connection with any distribution of such Restricted Stock.
Section 3.2 Restrictive Legend; Notice of Proposed Transfers.
(a) Each certificate representing Restricted Stock shall (unless
otherwise permitted by the provisions of paragraph (b) of this Section) be
stamped or otherwise imprinted with a legend in substantially the following
form:
THESE SHARES/WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THESE SHARES/WARRANTS MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SAID ACT OR (ii) AN OPINION OF COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE. THE TRANSFERABILITY OF THESE
SHARES/ WARRANTS IS FURTHER SUBJECT TO THE PROVISIONS OF A WARRANT PURCHASE
AGREEMENT DATED AS OF JANUARY 10, 1996, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF CU BANCORP.
(b) Each holder of a certificate representing Restricted Stock
by acceptance thereof agrees to comply in all respects with the provisions of
this Section 3.2(b). Prior to any proposed transfer of any Restricted Stock
other than pursuant to a registration under the Securities Act, the holder
thereof shall give written notice to CU of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer
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of the Restricted Stock to be transferred and shall be accompanied by an
unqualified written opinion of counsel reasonably satisfactory to CU to the
effect that such proposed transfer may be effected without registration under
the Securities Act. Subject to Section 3.11 hereof, upon delivery to CU of such
notice and such opinion of counsel, the holder of such Restricted Stock shall be
entitled to transfer such Restricted Stock in accordance with the terms of such
notice delivered by the holder to CU. Each certificate evidencing Restricted
Stock transferred as above provided shall bear the appropriate restrictive
legend set forth in paragraph (a) above, except that such certificate shall not
bear such restrictive legend if the opinion of counsel referred to above shall
be to the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
Section 3.3 No Transfers Prior to Acquisition Event. Notwithstanding
anything to the contrary set forth in this Agreement or the Restricted Stock,
neither Home nor any Affiliate of Home shall sell, transfer or otherwise dispose
of all or any portion of the Warrants owned by it, other than to an Affiliate of
Home, except after the occurrence of an Acquisition Event; provided, however,
that following an Acquisition Event, if CU or Home shall give notice of its
election to exercise its rights under Section 2.1, then such right of Home and
its Affiliates to sell, transfer or otherwise dispose of the Restricted Stock
shall no longer be exercised unless CU shall have defaulted in its obligation to
repurchase such Restricted Stock on the date specified in any notice.
Section 3.4 Limitations on Transferees and Manner of Transfer.
(a) In the event that Home and its Affiliates become entitled
pursuant to the provisions of Section 3.3 to sell, transfer or otherwise dispose
of Restricted Stock, such Restricted Stock may be sold or transferred (subject
to Section 3.11 hereof) only (i) to a third party (or a third party and its
Affiliates) in a transaction which complies with the provisions of paragraph (b)
of this Section or (ii) to one or more underwriters or dealers in connection
with a broad public distribution complying with the provisions of paragraph (c)
of this Section of the shares of Common Stock issuable pursuant to the exercise
of the transferred Warrants (such shares being hereinafter referred to as the
"Underlying Shares"). The provisions of this Section shall only apply to sales,
transfers or dispositions by Home and its Affiliates, and shall not apply to
sales, transfers or dispositions by transferees of Home or its Affiliates
(except that any sale or disposition by dealers or underwriters shall be
conducted in accordance with the applicable provisions of this Section and
further except that all resales shall be made in accordance with the Securities
Act).
(b) Home and its Affiliates shall be entitled, subject to the
other applicable provisions of this Article III (including Section 3.11) and
Section 2.1, to sell or transfer Restricted Stock in one or more transactions
exempt from the registration requirements of Section 5 of the Securities Act;
provided, however, that the aggregate number of shares of Restricted Stock sold
or transferred to any single purchaser and persons known to Home to be
Affiliates of or persons acting in concert with such purchaser in any such
transaction shall be limited to that amount of Restricted Stock which, when
taken together with the Restricted Stock theretofore sold or transferred to such
purchaser and such Affiliates and persons, would not, upon the exercise in full
of the Warrants so
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transferred, permit the acquisition of more than 2% of the then outstanding
shares of Common Stock, determined as of the date of such sale or transfer. For
purposes of the immediately preceding sentence, it shall be assumed that all
Warrants, if any, that already have been sold or transferred by Home and its
Affiliates are still outstanding and have not been exercised in whole or in part
to purchase shares of Common Stock.
(c) Warrants owned by Home and its Affiliates, unless sold to CU
or an Affiliate of CU or in compliance with paragraph (b) of this Section, may
only be sold or transferred to one or more underwriters or dealers in accordance
with the provisions of this paragraph. Home and its Affiliates may, subject to
the terms and conditions set forth in this paragraph (c), sell or transfer
Warrants in whole or in part to one or more underwriters or dealers who agree in
writing with Home, prior to the effective time of any such sale or transfer, to
exercise such Warrants and offer and sell the Underlying Shares either (i) to
the public in a public offering registered under the Securities Act (or any
successor federal securities laws) pursuant to a distribution in which no single
purchaser and its Affiliates will, to the knowledge of such underwriters or
dealers, acquire Underlying Shares representing more than 2% of the then
outstanding shares of Common Stock or (ii) in other transactions complying with
the requirements of paragraph (b) above. Notwithstanding any other provision of
this Agreement to the contrary, the exercise of any Warrants transferred to
underwriters or dealers in accordance with this Section and the acquisition by
such underwriters or dealers of shares of Common Stock pursuant to such exercise
may be made simultaneously on the date of the closing of the sale or transfer by
Home or its Affiliates of the relevant Warrants to such underwriters or dealers,
provided CU is given written notice of the date of such closing at least five
Business Days prior thereto. At any such closing, against payment of the
exercise price for shares of Common Stock to be acquired pursuant to the
exercise of Warrants, CU will deliver or cause to be delivered certificates
representing the Underlying Shares to such underwriters or dealers, in such
names and denominations as it or they shall designate not fewer than two
Business Days prior to such closing.
Section 3.5 "Demand" Registration. From and after such date as Home and
its Affiliates become entitled pursuant to Section 3.4 to sell or transfer any
Restricted Stock, CU shall, if requested by Home, as expeditiously as possible,
use its best efforts to effect the registration of the Restricted Stock (which
CU has been requested to register on a form in general use under the Securities
Act (or any successor federal securities law) selected by CU, in order to permit
the sale or other disposition of such Restricted Stock in accordance with the
intended method of sale or other disposition set forth in the request (subject
to the provisions of Section 3.4(c)). The right to require registration of the
Restricted Stock under this Section 3.5 may only be exercised once unless Home
is advised in writing by its investment banking firm (a copy of which advice
shall be supplied to CU) that, in the opinion of such firm, an additional or two
additional registrations are appropriate to maximize the benefits to Home of the
proposed distribution of Restricted Stock, in which event Home may exercise once
or twice more, as applicable, its rights under this Section 3.5. Upon the
issuance of a stop order or injunction, CU may withdraw any such registration
statement and abandon the proposed offering which Home shall have demanded, in
which case Home's right shall be reinstated.
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Section 3.6 "Piggyback" Registration. From and after such date as Home
and its Affiliates become entitled pursuant to Section 3.4 to sell or transfer
any Restricted Stock, if at any time CU proposes to register any of its
securities under the Securities Act (or any successor federal securities law),
whether or not for sale for its own account (except with respect to registration
statements filed with respect to the issuance of securities under employee
benefit plans), it will give written notice to Home of its intention to do so.
Upon the written request of Home, given within 15 calendar days after receipt of
CU's notice, CU will use its best efforts to cause to be included in the shares
to be covered by the registration statement proposed to be filed by CU, in
accordance with the request of Home, the Restricted Stock to be sold by dealers
or underwriters in accordance with the provisions of Section 3.4; provided,
however, that CU need not include such Restricted Stock in such registration
statement if CU is advised in writing by its investment banking firm (a copy of
which advise shall be supplied to Home) that the inclusion of such securities
shall, in the opinion of such firm, materially interfere with the orderly sale
and distribution of the CU securities being sold by it. CU may, in its sole
discretion and without the consent of Home, withdraw any such registration
statement and abandon the proposed offering in which Home shall have requested
to participate pursuant to this Section.
Section 3.7 Registration Procedures and Expenses.
(a) If and whenever CU is required by the provisions of this
Article III to use its best efforts to effect the registration of any of the
Restricted Stock under the Securities Act (or any successor federal securities
law), Home and its Affiliates (including the underwriters in the case of a
registration of Underlying Shares) (individually referred to as a "selling
holder" or "holder" and collectively referred to as "selling holders" or
"holders") will furnish in writing such information as is reasonably requested
by CU for inclusion in the registration statement relating to such offering and
such other information and documentation as CU shall reasonably request, and CU
will, as expeditiously as possible:
(i) prepare and file with the SEC or any other federal
agency at the time administering the Securities Act (or a successor federal
securities law) a registration statement with respect to such securities and use
its best efforts to cause such registration statement to become and remain
effective for such period as may be necessary to permit the successful marketing
of such securities, but not exceeding 90 days;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act;
(iii) furnish to each selling holder of Restricted Stock
being registered such number of copies of a prospectus and preliminary
prospectus in conformity with the requirements of the Securities Act (or any
successor federal securities law), and such other
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documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Restricted Stock being registered owned
by such seller;
(iv) furnish, at the request of any holder or holders of
securities being registered pursuant to this Article III, on the date that such
securities are delivered to the underwriters for sale pursuant to such
registration or if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities becomes
effective (A) an opinion dated such date of independent counsel representing CU
for the purposes of such registration, addressed to the underwriters, if any,
and to the holder or holders making such request, stating that such registration
statement has become effective under the Securities Act (or such successor law)
and that (a) to the best of the knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act (or such successor federal securities law); (b) the registration statement,
the related prospectus and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities Act (or
such successor law) and the applicable rules and regulations of the SEC
thereunder, except that such counsel need express no opinion as to financial
information or information provided by selling holders contained therein; (c)
such counsel (subject to such customary limitation on the scope of their
investigation as shall be set forth in such opinion) has no reason to believe
that either the registration statement or the prospectus, or any amendment or
supplement thereto, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading except that such counsel need express no
opinion as to financial information or information provided by selling holders
contained therein; (d) the descriptions in the registration statement and in the
prospectus, or any amendment or supplement thereto, of all legal and
governmental matters and all contracts and other legal documents or instruments
are accurate and fairly present the information required to be shown; and (e)
such counsel does not know of any legal or governmental proceedings, pending or
contemplated, required to be described in the registration statement or
prospectus, or any amendment or supplement thereto, or to be filed as exhibits
to the registration statement which are not described and filed as required; and
(B) a letter dated such date, from the independent certified public accountants
of CU, addressed to the underwriters, if any, and to the holder or holders by or
on behalf of whom a request is made, stating that they are independent certified
public accountants within the meaning of the Securities Act (or such successor
law) and that in the opinion of such accountants the financial statements and
other financial data of CU included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act (or such successor law). Such letter from the independent certified public
accountants shall additionally cover such other financial matters (including
information as to the period ending not more than five business days prior to
the date of such letter) with respect to the registration in respect of which
such letter is being given as the holder of Restricted Stock being registered
may reasonably request;
(v) use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under such other
securities or blue sky laws of such
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jurisdictions as each such selling holder of such Restricted Stock shall
reasonably request and do any and all other acts and things which may be
necessary or reasonably desirable to enable such seller to consummate the public
sale or other disposition in such jurisdictions as may be requested by such
seller; provided, however, that CU shall have no obligation to qualify to do
business in any jurisdiction or to file a general consent to service of process
in any jurisdiction;
(vi) notify each selling holder of Restricted Stock covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act (or any successor Federal
securities law), of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(viii) provide a transfer agent and registrar for all
Restricted Stock covered by such registration statement not later than the
effective date of such registration statement;
(ix) use its best efforts to list all Common Stock covered
by such registration statement on each securities exchange, if any, on which any
of the Common Stock is then listed (unless such Common Stock is already so
listed) if such listing is then permitted under the rules of such exchange or
with the NASDAQ, National Market System; and
(x) undertake to take such further actions as may be
reasonably requested by the underwriters.
(b) If any registration statement pursuant to Section 3.5 or 3.6
shall have been declared effective and, in the judgment of CU, (A) any event
shall occur or state of facts exist (other than as described in clause (B))
which requires a notice to the selling holders of Restricted Stock pursuant to
clause (vi) of paragraph (a) of this Section 3.7 or (B) the offering at the time
of Restricted Stock pursuant to such registration statement would adversely
affect, or would be improper in view of, a public offering, financing,
reorganization, recapitalization, merger, consolidation, acquisition, or other
similar transaction, or negotiations, discussions or pending proposals with
respect thereto, immediately upon receipt of notice to such effect from CU, Home
shall cease to offer or sell any Restricted Stock registered thereunder and
cease to deliver or use the prospectus in use thereunder. In the case of any
matter described in clause (A), CU shall, as promptly as practicable, furnish to
each selling holder a reasonable number of copies of a supple-
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ment to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchaser of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing. In the case of
any matter described in clause (B), CU shall promptly notify Home at such times
as, in CU's judgment, such offering may be recommended (which shall be no later
than 90 days following such suspension); provided that Home may, in its sole
discretion, discontinue such offering with respect to the Restricted Stock
covered thereby, in which event Home shall be entitled to "demand" registration
rights hereunder to the full extent as if such offering had not been requested.
All expenses incurred by CU in complying with Sections 3.5 and 3.6
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disburse ments of counsel for CU and blue sky fees
and expenses are herein called "Registration Expenses," except for all
underwriting discounts and selling commissions applicable to the sales, all fees
and disbursements of counsel for any selling holder or holders (including
counsel designated by any seller for a "due diligence" investigation of CU) and
the expense of any special audits incident to or required by such registration,
all of which are herein called "Selling Expenses." CU shall pay all Registration
Expenses and the selling holder or holders of Restricted Stock being registered
shall pay all Selling Expenses.
Section 3.8 Indemnification. In the event of a registration of any of
the Restricted Stock under the Securities Act (or any successor Federal
securities law) pursuant to this Article III, CU will indemnify and hold
harmless each underwriter of such Restricted Stock, Home and its Affiliates as
the transferors of the Restricted Stock or any portion thereof to underwriters,
and each other person, if any, who controls such seller, assignor or underwriter
within the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter, assignor or controlling person may become subject under the
Securities Act (or such successor law) or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Restricted Stock
shall have been registered under the Securities Act (or such successor law), any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse such
seller, transferor and underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that CU will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, said preliminary prospectus or said
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished to CU through an instrument executed by such
seller, transferor or underwriter specifically for use in the preparation
thereof; and provided further that if any losses, claims, damages or liabilities
arise out of or are based
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upon an untrue statement, alleged untrue statement, omission or alleged omission
contained in any preliminary prospectus which did not appear in the final
prospectus, CU shall not have any such liability with respect thereto to such
seller, transferor or underwriter or any person who controls such seller,
transferor or underwriter within the meaning of Section 15 of the Securities Act
if such seller, transferor or underwriter or any person on their behalf
delivered a copy of the preliminary prospectus to the person alleging such
losses, claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented,
to such person at or prior to the written confirmation of the sale to such
person.
In the event of any registration of any Restricted Stock under the
Securities Act (or a successor Federal securities law) pursuant to this Article
III, each seller of such Restricted Stock (other than any underwriter or dealer
purchasing Underlying Shares), and Home and its Affiliates, as transferors of
Restricted Stock, severally and not jointly, will indemnify and hold harmless
CU, each person, if any who controls CU within the meaning of Section 15 of the
Securities Act, each officer of CU who signs the registration statement and each
director of CU against any and all such losses, claims, damages, or liabilities
arising out of or based upon any untrue statement or alleged untrue statement in
or omission or alleged omission from any such registration statement,
prospectus, amendment or supplement, if the untrue statement or omission or
alleged untrue statement or omission in respect of which such loss, claim,
damage or liability is asserted was made in reliance upon and in conformity with
information furnished in writing to CU by or on behalf of such seller or
transferor specifically for use in connection with the preparation of such
registration statement, preliminary prospectus, prospectus, amendment or
supplement; provided, however, that, if any losses, claims, damages or
liabilities arise out of or are based upon an untrue statement, alleged untrue
statement, omission or alleged omission contained in any preliminary prospectus
which did not appear in the final prospectus, such seller or transferor shall
not have any such liability with respect thereto to CU, any person who controls
CU within the meaning of Section 15 of the Securities Act, any officer of CU who
signed the registration statement of any director of CU if CU or any person on
their behalf delivered a copy of the preliminary prospectus to the person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus, as amended or supplemented if it has been amended
or supplemented, to such person at or prior to the written confirmation of the
sale to such person; and provided further that the liability of any such seller
or transferor so to indemnify shall be limited to an amount equal to the amount
received by such seller upon the sale of such Restricted Stock pursuant to such
registration statement, or by such transferor from the seller, as the case may
be.
Payments in respect of indemnifications required by this Section 3.8
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. Any party which
proposes to assert the right to be indemnified under this Section 3.8 will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim is to be made against
an indemnifying party under this Section 3.8, notify each such indemnifying
party of the commencement of such action, suit or proceeding, enclosing a copy
of all papers served, but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
which
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it may have to any indemnified party otherwise than under this Section 3.8. In
case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party, and after notice from such indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party, when and as incurred, unless (i) the employment of
counsel by such indemnified party has been authorized in writing by the
indemnifying party, (ii) the indemnified party shall have reasonably concluded
that there may be a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying party shall
not in fact have employed counsel to assume the defense of such action. An
indemnifying party shall not be liable for employed counsel to assume the
defense of such action. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent. In no event
shall an indemnifying party be required to pay for more than one counsel for an
indemnified party, exclusive of local counsel.
Section 3.9 Obligations of CU with Respect to Underwritten Offering. In
the event that Restricted Stock shall be sold pursuant to a registration
statement in an underwritten offering pursuant to Section 3.5, CU agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including, without limiting the generality of the
foregoing, customary provisions with respect to indemnification by CU of the
underwriters of such offering. CU shall have the right to approve the managing
underwriters for such offering (which in no event shall include an affiliate of
Home); provided, however, that such approval shall not be unreasonably withheld.
Section 3.10 Rule 144 Requirements. CU shall undertake to make publicly
available and available to the holders of Restricted Stock, pursuant to Rule 144
of the SEC under the Securities Act, such information as shall be necessary, and
to take such further action as any such holder may reasonably request, to enable
the holders of Restricted Stock to make sales of Restricted Stock pursuant to
the Rule. CU shall furnish to any holder of Restricted Stock upon request (after
the preceding sentences shall have become applicable), a written statement
executed by CU as to the steps it has taken to comply with the current public
information requirements of Rule 144.
Section 3.11 Rights of First Refusal.
(a) In the event Home or its Affiliates intend, at any time
after the occurrence of an Acquisition Event to sell, transfer or dispose of any
Restricted Stock (other than
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to an Affiliate of Home in a transaction not intended to circumvent the transfer
restrictions contained in this Agreement) other than (i) pursuant to a sale or
transfer of Warrants to one or more underwriters or dealers in accordance with
Section 3.4(c) (in which case Section 3.11(b) shall govern) or (ii) at any time
after CU has failed for any reason to repurchase such Restricted Stock pursuant
to Article II hereof on the closing date scheduled for such repurchase, then:
(i) Home shall notify CU in writing of its or its
Affiliate's intention to sell, transfer or dispose of such Restricted Stock
specifying the number of shares or amount of Warrants, as the case may be,
proposed to be disposed of, the identity or identities of the prospective
purchaser or purchasers thereof, the proposed purchase price therefor and the
material terms of any agreement relating thereto (the "Sale Notice"); and
(ii) CU shall have the right, by written notice of its
exercise of its right of first refusal given to Home within 15 calendar days
after CU's receipt of such notice of intention from Home, to purchase (or to
cause a Person designated by CU to purchase) all, but not less than all of, the
Restricted Stock specified in such notice of intention for cash at the gross
price set forth therein (including broker's commissions and other transaction
costs of Home or its Affiliate to be paid or absorbed by the prospective
purchaser) if the terms set forth in such notice of intention provide for a cash
sale. If the purchase price specified in such notice of intention include any
property other than cash, the purchase price at which CU shall be entitled to
purchase shall be (x) the amount of cash included in the purchase price
specified in such notice of intention plus (y) property, to the extent feasible,
substantially similar to the property described in such notice of intention and
in any case of equivalent value to such property (as agreed to by CU and Home,
or as determined by a nationally recognized investment banking firm selected by
Home and CU).
If CU shall have exercised its right of first refusal under this
paragraph (a) (including the designation of another purchaser as referred to in
the next subparagraph), the closing of the purchase of the Restricted Stock as
to which such right CU shall have been exercised shall take place as promptly as
practicable, but in no event more than 10 Business Days after CU gives notice of
such exercise, and if such closing does not occur within such 10 days, such
right of first refusal provided for herein (including any assignment thereof)
shall be null and void and of no further force and effect with respect to such
Restricted Stock and this Section 3.11 shall no longer apply to any sale or
dispo sition or proposed sale or disposition of such Restricted Stock; provided
that if prior notification to or approval of the Federal Reserve Board or any
other regulatory authority is required in connection with such purchase, CU
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, as the case
may be, (i) any required notification period has expired or been terminated, or
(ii) such approval has been obtained and, in either event, any requisite waiting
period shall have passed.
If CU elects not to exercise, or fails to exercise or cause to be
exercised, its right of first refusal provided in this paragraph (a) within the
time specified for such exercise or if the Federal Reserve Board or any other
regulatory authority disapproves of CU's proposed purchase, Home and
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its Affiliates shall be free thereafter for a period of 90 days to consummate
the sale, transfer or other disposition with any purchaser or purchasers of the
Restricted Stock who shall have been specified in the sale notice at the price
(or at any price in excess of such price) and on substantially the terms
specified therein.
The right of first refusal provided for in this paragraph (a) may only
be exercised with respect to the initial sale, transfer or other disposition of
the Restricted Stock by Home or an Affiliate (whether in blocks or as a whole)
to a person that is not an Affiliate of Home and not to subsequent sales,
transfers or other dispositions by purchasers of Restricted Stock.
(b) If Home or its Affiliates at any time propose to transfer
any Warrants to any underwriters or dealers pursuant to the provisions of
Section 3.4, other than at any time after CU has failed for any reason to
repurchase such Warrants pursuant to Article II hereof on the closing date
scheduled for such repurchase, then Home shall first notify CU in writing of
such intention, specifying the Warrants which it proposes to sell or transfer
and the name or names of the proposed dealers or of the proposed managing
underwriters in the underwriting syndicate to which the sale or transfer is
proposed to be made. CU shall have the right, exercisable by written notice
given to Home 15 calendar days after CU's receipt of notice from Home pursuant
to the immediately preceding sentence, to repurchase, or to cause a third party
designated by CU to purchase, all, but not fewer than all, the Warrants proposed
to be sold or transferred on the terms and conditions hereinafter set forth. Any
notice given by CU of exercise of its repurchase rights under this paragraph (b)
shall specify a place in Los Angeles and a Business Day not earlier than 10 days
and not later than 15 days after the date of such notice for the closing of the
repurchase of the Warrants being repurchased. The purchase price payable to CU
or its designee for the repurchase of Warrants pursuant to this paragraph (b)
shall be a cash price equal to the product of (x) the number of Underlying
Shares covered by the relevant Warrants (calculated as of the date of the
closing of the repurchase) and (y) the Share Price on such date. At the closing
of a sale of Warrants pursuant to the foregoing provisions, CU or its designee
will make payment to Home of the aggregate price for the Warrants to be
repurchased in one of the manners set forth in Section 2.1(c). At such closing,
Home shall deliver to CU or its designee the certificates representing the
Warrants to be repurchased and CU shall deliver to Home replacement certificates
representing the Warrants (if any) which are not to be repurchased but were
covered by the certificate or certificates surrendered by Home. Any election by
CU pursuant to this paragraph to exercise its repurchase rights in respect of
Warrants shall be irrevocable. In the event CU fails timely to exercise its
repurchase rights in respect of Warrants within the period specified above
during which it must do so or notifies Home in writing prior to the expiration
of such period that it does not intend to exercise such rights or its designee
fails to repurchase Warrants on the date set for the closing of such a purchase,
Home and its Affiliates shall be free thereafter to consummate the sale and
transfer of the Warrants specified in this notice to CU under this paragraph to
any underwriters or dealers who agree to exercise the Warrants and sell the
Underlying Shares in accordance with the provisions of Section 3.4(c), and this
Section 3.11 shall no longer apply to such sale or transfer of such Warrants.
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(c) Home shall have the right to withdraw any notice given by it
pursuant to this Section 3.11 at any time before CU shall have given notice of
its intention to exercise its right of first refusal hereunder (including by
designation of another purchaser).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CU
CU represents and warrants to Home that:
Section 4.1 Authorization of Agreement; No Conflicts.
(a) The execution and delivery of this Agreement by CU and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of CU. This Agreement has been
duly executed and delivered by CU and constitutes a valid and binding obligation
of CU, enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of or default or loss of a material benefit under any
provision of the articles of incorporation, articles or association or bylaws of
CU or CU Bank or, except for the necessity of obtaining Requisite Regulatory
Approvals, any material mortgage, indenture, lease agreement or other material
instrument or any permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to CU or
CU Bank or their respective properties, other than any such conflict, violation,
default or loss which will not have a material adverse effect on CU or CU Bank.
No material consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required in connection
with the execution and delivery of this Agreement by CU and CU Bank or the
consummation by CU of the transactions contemplated hereby except for any
approvals required to be obtained pursuant to the BHC Act or the Policy State
ment of the Board of Governors of the Federal Reserve System on Nonvoting Equity
Investments by Bank Holding Companies, 12 C.F.R. Section 225.143 (the "FRB
Guidelines"), or any other applicable laws, for the execution and delivery of
this Agreement and the issuance of the Warrants by CU.
Section 4.2 Authorized Stock CU has taken all necessary corporate and
other action to authorize and reserve and, subject to obtaining the governmental
and other approvals and consents referred to herein, to permit it to issue, and,
at all times from the date hereof until the obligation to deliver Common Stock
upon the exercise of the Warrants terminates, will have reserved for issuance,
upon exercise of the Warrants, shares of Common Stock necessary for Home to
exercise the Warrants, and CU will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Common Stock or
other securities which may be issued pursuant to this Agreement. The shares of
Common Stock to be issued upon due exercise of the Warrants, including all
additional shares of Common Stock or other securities which may be issuable
pursuant to this
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Agreement, upon issuance pursuant hereto, shall be duly and validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature whatsoever,
including any preemptive rights of any stockholder of CU.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOME
Home represents and warrants to CU that:
Section 5.1 Due Execution of Agreement; No Conflicts.
(a) This Agreement has been duly executed and delivered by Home
and constitutes a valid and binding obligation of Home, enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of or default or loss of a material benefit under, any
provision of the certificate of incorporation or By-laws of Home or, except for
the necessity of obtaining Requisite Regulatory Approvals, any material
mortgage, indenture, lease, agreement or other material instrument, or any
permit, concession, grant, franchise, license, judgment, order decree, statute,
law, ordinance, rule or regulation applicable to Home or its respective
properties, other than any such conflict, violation, default or loss which (i)
will not have a material adverse effect on Home and its Subsidiaries taken as a
whole. No material consent, approval, order or authorization of, or
registration, declaration or filing with, any Govern mental Entity is required
in connection with the execution and delivery of this Agreement by Home or the
consummation by Home of the transactions contemplated hereby, except for (a)
filings required in order to obtain Requisite Regulatory Approvals, and (b) any
approvals required to be obtained pursuant to the BHC Act, or the FRB Guidelines
or any other applicable law for the execution and delivery of this Agreement by
CU, Home and the issuance of the Warrants.
ARTICLE VI
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below (in their singular and plural forms as applicable) shall have the meanings
set forth below.
"Affiliate" or "affiliate" shall mean, with respect to any corporation,
any person that, directly or indirectly, controls or is controlled by or is
under common control with such corporation.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
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"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday in the State of California, on which banks are open for
substantially all their banking business in Los Angeles.
"Change in Bank Control Act" means the Change in Bank Control Act of
1978, as amended.
"Covered Shares" shall mean on any date, with respect to any Warrants,
the maximum number of shares of Common Stock that would be purchasable upon the
exercise on such date of such Warrants, assuming that such Warrants may be
exercised on such date to purchase the maximum number of shares of Common Stock
purchasable pursuant to the terms thereof (including the limitations contained
in the second paragraph of the certificate evidencing each such Warrant) without
regard to any provision therein (other than such limitations) or in this
Agreement or in any law limiting the right of any holder of such Warrants to
acquire shares otherwise purchasable thereunder.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Governmental Entity" shall mean any court, administrative agency or
commission or other governmental authority or instrumentality.
"Market Value" shall mean, on any date, the average of the closing sale
prices of a share of Common Stock on the principal securities exchange on which
the Common Stock is traded, or, if the Common Stock is not at the time listed on
any national securities exchange, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), on the 10 trading days
immediately preceding such date, (or such fewer number of trading days
immediately preceding such date for which shares of Common Stock have been
listed for trading on such exchange or quoted on NASDAQ); provided, however,
that if Home seeks a determination of the fair market value of a share of Common
Stock pursuant to the provisions of Section 2.2, Market Value shall, if required
pursuant to the terms of such Section, mean the fair market value of a share of
Common Stock on such date determined pursuant to such Section.
"Person" or "person" shall mean an individual, corporation,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Regulatory Authority" shall mean any United States federal or state
government or governmental authority the approval of which is legally required
for consummation of the Merger.
"Requisite Regulatory Approvals" shall mean all material permits,
approvals and consents required to be obtained, and all waiting periods required
to expire, prior to the consummation of the issuance of the Covered Shares under
applicable federal laws of the United States or applicable laws of any state
having jurisdiction over Home or CU.
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"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Price" shall mean, with respect to any Warrants, the amount by
which, on the date of the Acquisition Event triggering the exercisability of the
Warrants (i) the Warrant Price on such date is less than (ii) the greatest of:
(i) the Market Value of a share of Common Stock on such
date; and
(ii) the highest price paid on or prior to such date for a
share of Common Stock (including in any merger or consolidation) by a purchaser
or group of purchasers acting in concert of 50% or more of the outstanding
shares of Common Stock, or, in the case of a purchaser of 50% or more of the
consolidated assets of CU (as shown on the books of CU), the Market Value of a
share of Common Stock on the date of consummation of such asset acquisition.
"Subsidiary" shall mean, with respect to any corporation (the
"parent"), any other corporation, association or other business entity of which
more than 50% of the shares of the Voting Stock are owned or controlled,
directly or indirectly, by the parent or by one or more Subsidiaries of the
parent, or by the parent and one or more of its Subsidiaries.
"Voting Stock" shall mean the stock entitling the holders thereof to
vote in the election of the directors or trustees of the corporation,
association, or other business entity in question, except that it shall not
include any stock so entitling the holders thereof to vote only upon the
happening of a contingency, whether or not such contingency has occurred.
"Warrant Call Price" shall mean, when used with respect to any Warrant,
the product of (i) the number of Covered Shares on such date and (ii) the Share
Price on such date; provided that the Warrant Call Price with respect to any
Warrant shall in no event exceed (x) the quotient obtained by dividing
$5,000,000 by the number of Covered Shares subject to all the outstanding
Warrants multiplied by (y) the number of Covered Shares subject to such Warrant.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Subject to Section 7.2, this Agreement may be
terminated in the following circumstances:
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(a) at the effective time of the Merger, as set forth in the
Merger Agreement;
(b) at the termination of the Merger Agreement prior to the
occurrence of an Acquisition Event; or
(c) two years after the occurrence of an Acquisition Event.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 7.1(c), the rights of the parties hereto shall
forthwith become void; provided that, if the Agreement shall terminate pursuant
to Section 7.1(c) and any party has filed an application to purchase securities
with any regulatory authority, the Agreement shall not terminate as provided in
Section 7.1(c), but shall remain in full force and effect until the day which is
30 Business Days (plus any applicable waiting periods) after the receipt or
denial of regulatory approval or consent, at which time the Agreement shall then
terminate.
Section 7.3 Indemnification for Breach. Each party to this Agreement
agrees to indemnify and hold harmless the other party against any loss, claim,
damage or liability arising out of or based upon a Default of this Agreement by
such defaulting party in accordance with the procedures set forth in the last
paragraph of Section 3.8 of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or any such other address for a party as shall be specified
by like notice):
(a) If to CU at:
16030 Ventura Boulevard
Encino, CA 91436
Attn: Stephen G. Carpenter
Fax: (818) 907-5024
with a copy to:
Anita Wolman, Esq.
16030 Ventura Boulevard
Encino, CA 91436
Fax: (818) 907-5024
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(b) If to Home at:
2633 Cherry Avenue
Signal Hill, CA 90806
Attn: James Staes
Phone: (310) 988-9600
Fax: (310) 426-4526
with a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn: Barbara S. Polsky, Esq.
Fax: (310) 312-4224
Section 8.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors or the duly
authorized committees thereof. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
parties hereto agree to make such amendments as may be necessary to respond to
the request of any Regulatory Authority with respect to this Agreement.
Section 8.4 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof.
Section 8.5 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) except as
contemplated in this Agreement, is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder; and (c) except as
contemplated in this Agreement, shall not be assigned by operation of law or
otherwise. CU and Home agree that, except as required by law, it shall not issue
any press release with respect to the transactions contemplated by this
Agreement without consulting with each other party hereto.
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Section 8.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, CU and Home have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
above written.
CU BANCORP
By:
---------------------------------
HOME INTERSTATE BANCORP
By:
---------------------------------
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EXHIBIT D
WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT (the "Agreement"), dated as of January
10, 1996, between CU Bancorp, a California corporation ("CU"), and Home
Interstate Bancorp, a California corporation ("Home") is made with reference to
the following:
RECITALS
A. CU, California United Bank, National Association, a wholly owned
subsidiary of CU ("CU Bank"), Home and Home Bank, a wholly owned subsidiary of
Home ("Home Bank"), have entered into an Agreement and Plan of Reorganization
(the "Merger Agreement") whereby Home and Home Bank would be merged with and
into CU and CU Bank, respectively (collectively, the "Merger").
B. As partial consideration to CU for entering into the Merger
Agreement, Home has agreed to issue to CU a warrant entitling the holder thereof
to purchase up to 19.9% (or 1,082,224 shares) of the outstanding common stock of
Home ("Common Stock"), assuming the exercise of all Warrants (as hereafter
defined), and all other options, warrants or other securities convertible into
Common Stock, subject to such restrictions and conditions as may be imposed by
bank regulatory authorities having jurisdiction over CU and Home, respectively.
C. Concurrent with the execution of this Agreement, CU and Home shall
enter into a separate warrant agreement, with substantially identical terms and
conditions as are set forth in this Agreement, pursuant to which CU shall issue
to Home a warrant entitling the holder thereof, upon the occurrence of certain
events as set forth in such agreement, to purchase up to 19.9% (on a fully
diluted basis) of the outstanding common stock of CU.
D. Terms used herein and not otherwise defined shall have the
meanings ascribed to them in Article VI hereof.
In consideration of these premises and of the representations,
covenants and agreements hereinafter set forth, Home and CU hereby agree as
follows:
ARTICLE I
ISSUANCE AND SALE OF WARRANT
Section 1.1 Issuance and Sale of the Warrant. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties hereinafter set forth, and in consideration for the execution and
delivery of the Merger Agreement, Home hereby issues to CU one or more warrants
(such warrants, together with any warrants issued pursuant to Section 1.4, the
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"Warrants") entitling the holder thereof to purchase in the aggregate 1,082,224
duly authorized and newly issued shares of Common Stock, subject to adjustment
as provided below. The Warrants being issued at the time of the execution of
this Agreement will be evidenced by a single certificate in the form of Exhibit
A hereto. All Warrants issued pursuant to Section 1.4 will be evidenced by one
or, at CU's request, more certificates in the form of Exhibit A hereto, dated
the date of their issuance, exercisable at the adjusted exercise price at the
time in effect for the Warrants issued pursuant to this Section 1.1.
Section 1.2 Warrant Price. The initial exercise price at which shares
of Common Stock may be acquired pursuant to exercise of the Warrants shall be
$12.050 per share (the "Warrant Price"), subject to adjustment as provided in
Section 1.4.
Section 1.3 Exercise of Warrants.
(a) The Warrants may be exercised in whole or in part only after the
occurrence of an Acquisition Event.
(b) As used herein, an "Acquisition Event" means any of the following
events:
(i) any person (other than CU or an Affiliate of CU) shall have
commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or shall have
filed a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to, a tender offer or
exchange offer to purchase any shares of Common Stock such that, upon
consummation of such offer, such person would own or control 10% or
more of the then outstanding Common Stock;
(ii) Home or Home Bank, without having received CU's prior
written consent or except as permitted by the Merger Agreement, shall
have authorized, recommended, proposed or publicly announced an
intention to authorize, recommend or propose, or entered into, an
agreement with any person (other than CU or any Affiliate of CU to (A)
effect a merger, consolidation or similar transaction involving Home or
Home Bank, (B) sell, lease or otherwise dispose of assets of Home or
Home Bank representing 10% or more of the consolidated assets of Home
or Home Bank, or (C) issue, sell or otherwise dispose of (including by
way of merger, consolidation, share exchange or any similar
transaction) securities representing 10% or more of the voting power of
Home or Home Bank (any of the foregoing an "Acquisition Transaction");
(iii) any person (other than Home or Home Bank or CU or CU Bank
in a fiduciary capacity) shall have acquired beneficial ownership (as
such term is defined in Rule 13d-3 under the Exchange Act) or the right
to acquire beneficial ownership of, or any "group" (as such term is
defined in the Exchange Act) shall have been
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formed which beneficially owns or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding Common Stock; or
(iv) the holders of Common Stock shall not have approved the
Merger Agreement at the meeting of such stockholders held for the
purpose of voting on the Merger Agreement, such meeting shall not have
been held or shall have been canceled prior to termination of the
Merger Agreement or Home's Board of Directors shall have withdrawn or
modified in a manner adverse to CU the recommendation of Home's Board
of Directors with respect to the Merger Agreement, in each case after
any person (other than CU) shall have (A) publicly announced a
proposal, or publicly disclosed an intention to make a proposal, to
engage in an Acquisition Transaction or (B) filed an application (or
given a notice), whether in draft or final form, under the BHC Act or
the Change in Bank Control Act for approval to engage in an Acquisition
Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event CU is entitled to and wishes to exercise the
Warrants, it shall send to Home 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 prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, CU shall promptly file the
required notice or application for approval, shall promptly notify Home of such
filing, 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.
(d) At the closing referred to in subsection (c), CU shall pay to
Home the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Warrants in immediately available funds by wire
transfer to a bank account designated by Home, provided that failure or refusal
of Home to designate such a bank account shall not preclude CU from exercising
the Warrants.
(e) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (d), Home shall deliver to CU a
certificate or certificates representing the number of shares of Common stock
purchased by CU.
(f) Upon the giving by CU to Home of the written notice of exercise
of the Warrants provided for under subsection (c) and the tender of the
applicable purchase price in
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immediately available funds, CU 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 Home shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
CU. Home shall pay all expenses, and any and all federal, state and local taxes
or other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates hereunder in the name of CU.
Section 1.4 Additional Warrants; Adjustments to Warrant Price and
Number of Shares. The number of shares to which the Warrants may be exercised
and the Warrant Price shall be subject to adjustment as provided below:
(a) Additional Warrants. If Home shall, on one or more occasions
after the date hereof, issue additional shares of Common Stock, and if, as a
result of any such issuance the shares of Common Stock issued or issuable upon
the exercise of Warrants issued pursuant to Section 1.1 hereof shall represent
less than 19.9% of the outstanding Common Stock, assuming the exercise of all
Warrants and all other options, warrants or other securities convertible into
Common Stock, Home shall issue to CU, promptly upon CU's demand, without further
consideration, Warrants to purchase a number of authorized but unissued shares
of Common Stock which, when added to the shares issued or issuable upon the
exercise of such previously issued Warrants, would represent 19.9% as the case
may be of the outstanding Common Stock.
(b) Adjustment for Stock Splits and Combinations. If Home at any time
or from time to time after the date of this Agreement effects a subdivision of
the Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if Home at any
time or from time to time after the date of this Agreement combines the
outstanding shares of Common Stock, the Warrant Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this subsection (b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Adjustment for Certain Dividends and Distributions. In the event
Home at any time or from time to time after the date of this Agreement makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Warrant Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Warrant Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Warrant Price
shall be
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recomputed accordingly as of the close of business on such record date and
thereafter the Warrant Price shall be adjusted pursuant to this subsection (c)
as of the time of actual payment of such dividends or distributions.
(d) Adjustments for Other Dividends and Distributions. In the event
Home at any time or from time to time after the date of this Agreement makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of Home other
than shares of Common Stock, then in each such event provision shall be made so
that the holders of Warrants shall receive upon exercise thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of Home which they would have received had their Warrants been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
exercise of the Warrants, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 1.4.
(e) Adjustment for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon the exercise of the Warrants is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 1.4),
then and in any such event each holder of Warrants shall have the right
thereafter to receive upon exercise of the Warrants the kind and amount of stock
and other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such Warrants might have been exercised immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided in this Section 1.4.
(f) Reorganization, Mergers, Consolidations and Sales of Assets. If
at any time or from time to time there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 1.4), or a merger
or consolidation of Home with or into another corporation, or the sale of all or
substantially all of Home's properties and assets to any other person, then, as
a part of such reorganization, merger, consolidation or sale, provision shall be
made so that the holders of the Warrants shall thereafter be entitled to receive
upon exercise of the Warrants the number of shares of stock or other securities
or property of Home, or of the successor corporation resulting from such merger
or consolidation or sale, to which a holder of Common Stock deliverable upon
exercise of the Warrants would have been entitled in such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
1.4 and the other terms and conditions with respect to the rights of the holders
of the Warrants after the reorganization, merger, consolidation or sale to the
end that the provisions of this Agreement, including this Section 1.4 (including
adjustment of the Warrant Price then in effect and number of shares purchasable
upon exercise of the Warrants) shall be applicable after that event and be as
nearly equivalent to the provisions hereof as may be practicable.
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(g) Sale of Shares Below Warrant Price.
(i) If at any time or from time to time after the date of this
Agreement, Home issues or sells, or is deemed by the express provisions of this
subsection (g) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in subsection (c) above and other than upon a
subdivision or combination of shares of Common Stock as provided in subsection
(b) above, for an Effective Price (as hereinafter defined) less than the Warrant
Price (or, if an adjusted Warrant Price shall be in effect by reason of a
previous adjustment, then less than such adjusted Warrant Price) then and in
each such case the then existing Warrant Price shall be reduced, as of the
opening of business on the date of such issuance or sale, to a price determined
by multiplying that Warrant Price by a fraction (i) the numerator of which shall
be (A) the number of shares of Common Stock Deemed Outstanding at the close of
business on the day next preceding the date of such issue or sale plus (B) the
number of shares of Common Stock which the aggregate consideration received (or
by express provision hereof deemed to have been received) by Home for the total
number of Additional Shares of Common Stock so issued would purchase at such
Warrant Price, and (ii) the denominator of which shall be the number of shares
of Common Stock Deemed Outstanding at the close of business on the date of such
issuance after giving effect to such issuance of Additional Shares of Common
Stock. For purposes of this paragraph (i), "Common Stock Deemed Outstanding" at
any given time shall mean the sum of (1) the number of shares of Common Stock
actually outstanding at that time, (2) the number of Additional Shares of Common
Stock then deemed to have been issued under paragraphs (iii) or (iv) of this
subsection (g) and (3) the number of shares of Common Stock then issuable upon
exercise of stock options to the extent not already deemed to have been issued
under paragraphs (iii) or (iv) of this subsection (g).
(ii) For the purpose of making any adjustment required under this
subsection (g), the consideration received by Home for any issuance or sale of
securities shall (i) to the extent it consists of cash be computed at the net
amount of cash received by Home after deduction of any expenses payable by Home
and any underwriting or similar commissions, compensation or concessions paid or
allowed by Home in connection with such issue or sale, (ii) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board and (iii) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of Home for a consideration which covers both, be computed as the portion
of the consideration so received that may be reasonably determined in good faith
by the Board to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
subsection (g), if at any time or from time to time after the date of this
Agreement Home issues or sells any rights or options for the purchase of, or
stock or other securities convertible into, Additional Shares of Common Stock
(such convertible stock or securities being hereinafter referred to as
"Convertible Securities"), then in each case Home shall be deemed to have issued
at the time of the
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issuance of such rights or options or Convertible Securities the maximum number
of Additional Shares of Common Stock issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if any, received by Home
for the issuance of such rights or options or Convertible Securities plus, in
the case of such options or rights, the amounts of consideration, if any,
payable to Home upon the exercise of such options or rights and, in the case of
Convertible Securities, the amounts of consideration, if any, payable to Home
upon conversion (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities). No further adjustment of the Warrant
Price, adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities. If any such rights or options or
the conversion privilege represented by any such Convertible Securities shall
expire or be canceled without having been exercised, the Warrant Price adjusted
upon the issuance of such options, rights or Convertible Securities shall be
readjusted to the Warrant Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by Home upon
such exercise, plus the consideration, if any, actually received by Home for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by Home
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion of such Convertible Securities.
(iv) For the purpose of the adjustment required under this
subsection (g), if at any time or from time to time after the date of this
Agreement Home issues or sells any rights or options for the purchase of
Convertible Securities, then in each such case Home shall be deemed to have
issued at the time of the issuance of such rights or options the maximum number
of Additional Shares of Common Stock issuable upon conversion of the total
amount of Convertible Securities covered by such rights or options and to have
received as consideration for the issuance of such Additional Shares of Common
Stock an amount equal to the amount of consideration, if any, received by Home
for the issuance of such rights or options, plus the minimum amounts of
consideration, if any, payable to Home upon the exercise of such rights or
options and plus the minimum amount of consideration, if any, payable to Home
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion of such Convertible Securities. No
further adjustment of the Warrant Price, adjusted upon the issuance of such
rights or options, shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or options or upon the
actual issuance of Additional Shares of Common Stock upon the conversion of such
Convertible Securities. The provisions of paragraph (iii) above for the
readjustment of the Warrant Price upon the expiration of rights or options or
the rights of conversion of Convertible Securities shall apply in like manner to
the rights, options and Convertible Securities referred to in this paragraph
(iv).
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(v) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by Home after the date of this Agreement whether or not
subsequently reacquired or retired by Home, other than (i) shares of Common
Stock issued upon exercise of the Warrants and (ii) shares issued by way of
dividend or other distribution on shares of Common Stock excluded from the
definition of Additional Shares of Common Stock by the foregoing clause or
shares of Common Stock resulting from any subdivision or combination of shares
of Common Stock so excluded, or shares issued by way of dividend or other
distribution on, or resulting from any subdivision or combination of, shares of
Common stock excluded from the definition of "Additional Shares of Common Stock"
by the foregoing provision. The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by Home under this subsection (g), into the aggregate consideration
received or deemed to have been received by Home for such issue under this
subsection (i).
ARTICLE II
REPURCHASE OF WARRANTS AND LIMITATIONS ON SALE
Section 2.1 Repurchase of Warrants.
(a) Prior to the occurrence of an Acquisition Event, Home shall
have no right to repurchase the Warrants and CU shall have no right to require
Home to repurchase the Warrants.
(b) At any time after the occurrence of an Acquisition Event,
Home shall have the right to purchase (or to cause a person designated by Home
to purchase), and CU shall have the right to require that Home repurchase (or,
if Home shall so elect, cause a person designated by Home to purchase), (i) all
(but not fewer than all) the Warrants at the time beneficially owned by CU and
its Affiliates at the Warrant Call Price in effect for such Warrants on the date
of closing (as provided below) and (ii) all (but not fewer than all) of the
shares of Common Stock purchased by CU and its Affiliates pursuant to this
Agreement with respect to which CU has beneficial ownership at a price equal to
the aggregate Market Value for such shares as of the date of closing (as
provided below). Any purchase pursuant hereto shall take place on a Business Day
specified in a notice given by Home to CU or by CU to Home, as the case may be
(but in no event prior to the 30th day following the date of any such notice to
CU or later than the 30th day following the date of any such notice to Home).
(c) The closing of any repurchase of Warrants pursuant to this
Section 2.1 shall take place at 10:00 a.m. Los Angeles Time, on the date set
forth in the applicable notice given by Home or CU, as the case may be, at the
office of CU at the address set forth in Section 8.1. The amount payable to CU
and its Affiliates upon any repurchase of Warrants shall be paid in lawful money
of the United States by a federal funds check or a wire transfer of immediately
available funds to an account designated by CU. Upon receipt of such payment, CU
shall deliver or cause to
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be delivered to Home the certificates representing all the Warrants being
repurchased free and clear of any liens, security interests, charges or
encumbrances.
Section 2.2 Certain Determinations of Market Value. The calculation of
the Market Value, as required herein, shall be calculated in accordance with
this section 2.2 In the event that Market Value is to be determined pursuant to
the terms hereof and there is not an established trading market for shares of
Common Stock, or more than 50% of the outstanding shares of Common Stock are
held beneficially or of record by persons, each of whom owns (individually or
together with members of any group of which such persons are members) 5% or more
of the outstanding shares of Common Stock, then CU may elect to have an
investment banking firm mutually agreeable to Home and CU determine (i) whether,
in the opinion of such investment banking firm, as a result of the absence of an
established trading market or the concentration of stock holdings, Market Value
(determined in accordance with the provisions of the definition of Market Value
in Article VI) does not accurately reflect the fair market value of a block of
1,000 shares of Common Stock on the date as of which Market Value is to be
determined, and (ii) if such investment banking firm determines that Market
Value (as so determined) does not accurately reflect such fair market value,
such investment banking firm shall make determination of the fair market value
of a share of Common Stock on the date as of which Market Value is to be
determined, based on whatever factors it deems relevant, as soon as possible and
shall promptly give written notice to CU and Home of its determination. The fees
of such investment banking firm in connection with such determination shall be
paid by CU. Such determination shall be final and binding on the parties hereto
and the fair market value so determined shall, if higher than the Market Value
that would otherwise apply, be the Market Value of a share of Common Stock. In
the event such determination is not transmitted to CU and Home prior to the
scheduled closing date with respect to any repurchase of Warrants or Common
Stock, the scheduled closing of such transaction shall not be postponed, and
Home shall make such payments on the closing date as are required based on the
Market Value of a share of Common Stock determined as if CU had not made an
election under this Section 2.4. Within three Business Days after such
investment banking firm's determination is made and conveyed to CU and Home in
writing, Home shall make a payment to CU, or CU shall make a payment to Home, as
the case may be, equal to the difference between the amount paid on the closing
date and the amount that would have been so payable had such amount been
determined on the basis of such investment banking firm's determination of the
Market Value of a share of Common Stock.
Section 2.3 Limit on Proceeds. CU agrees, as long as Home shall not
have defaulted in its obligations to repurchase Warrants pursuant to Section
2.1, to pay over to Home any amount by which the profits received by CU and its
Affiliates upon the sale or transfer of Warrants (net of all selling expenses,
underwriting discounts, and commissions and other expenses incurred by CU in
connection with such exercise and sale) shall exceed $5,000,000.
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ARTICLE III
RESTRICTIONS ON TRANSFERABILITY OF STOCK;
COMPLIANCE WITH SECURITIES ACT OF 1933
Section 3.1 Restrictions on Transferability. The Warrants acquired by
CU or any Affiliate of CU pursuant to this Agreement and the Common Stock
issuable upon exercise of such Warrants and any shares of capital stock received
or issued in respect thereof, including, without limitation, securities issued
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event (such Warrants and all such shares of Common Stock and securities
being collectively called the "Restricted Stock") shall not be hypothecated, nor
shall any claim or liability exist, nor shall any agreement, written or oral, be
entered into by CU or any Affiliate of CU which would cause any claim or
liability to exist with respect to the Restricted Stock, and the Restricted
Stock shall not be transferred except upon the conditions, to the extent
applicable, specified in this Article III. CU will cause any proposed transferee
of Restricted Stock held by CU or any other Affiliate of CU to agree to take
ownership of such Restricted Stock subject to the provisions, to the extent
applicable, of this Article III; provided, however, that the provisions of this
Article shall cease to apply to any Restricted Stock which shall have been sold
in a registered public offering in accordance with the provisions of this
Article III. CU represents that it is purchasing the Restricted Stock for its
own account and not with a view to or for sale in connection with any
distribution of such Restricted Stock.
Section 3.2 Restrictive Legend; Notice of Proposed Transfers.
(a) Each certificate representing Restricted Stock shall (unless
otherwise permitted by the provisions of paragraph (b) of this Section) be
stamped or otherwise imprinted with a legend in substantially the following
form:
THESE SHARES/WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THESE SHARES/WARRANTS MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SAID ACT OR (ii) AN OPINION OF COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE. THE TRANSFERABILITY OF THESE
SHARES/ WARRANTS IS FURTHER SUBJECT TO THE PROVISIONS OF A WARRANT PURCHASE
AGREEMENT DATED AS OF JANUARY 10, 1996, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF HOME INTERSTATE BANCORP.
(b) Each holder of a certificate representing Restricted Stock
by acceptance thereof agrees to comply in all respects with the provisions of
this Section 3.2(b). Prior to any proposed transfer of any Restricted Stock
other than pursuant to a registration under the Securities Act, the holder
thereof shall give written notice to Home of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer of the Restricted Stock to be transferred and shall be
accompanied by an unqualified written
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opinion of counsel reasonably satisfactory to Home to the effect that such
proposed transfer may be effected without registration under the Securities Act.
Subject to Section 3.11 hereof, upon delivery to Home of such notice and such
opinion of counsel, the holder of such Restricted Stock shall be entitled to
transfer such Restricted Stock in accordance with the terms of such notice
delivered by the holder to Home. Each certificate evidencing Restricted Stock
transferred as above provided shall bear the appropriate restrictive legend set
forth in paragraph (a) above, except that such certificate shall not bear such
restrictive legend if the opinion of counsel referred to above shall be to the
further effect that such legend is not required in order to establish compliance
with any provisions of the Securities Act.
Section 3.3 No Transfers Prior to Acquisition Event. Notwithstanding
anything to the contrary set forth in this Agreement or the Restricted Stock,
neither CU nor any Affiliate of CU shall sell, transfer or otherwise dispose of
all or any portion of the Warrants owned by it, other than to an Affiliate of
CU, except after the occurrence of an Acquisition Event; provided, however, that
following an Acquisition Event, if Home or CU shall give notice of its election
to exercise its rights under Section 2.1, then such right of CU and its
Affiliates to sell, transfer or otherwise dispose of the Restricted Stock shall
no longer be exercised unless Home shall have defaulted in its obligation to
repurchase such Restricted Stock on the date specified in any notice.
Section 3.4 Limitations on Transferees and Manner of Transfer.
(a) In the event that CU and its Affiliates become entitled
pursuant to the provisions of Section 3.3 to sell, transfer or otherwise dispose
of Restricted Stock, such Restricted Stock may be sold or transferred (subject
to Section 3.11 hereof) only (i) to a third party (or a third party and its
Affiliates) in a transaction which complies with the provisions of paragraph (b)
of this Section or (ii) to one or more underwriters or dealers in connection
with a broad public distribution complying with the provisions of paragraph (c)
of this Section of the shares of Common Stock issuable pursuant to the exercise
of the transferred Warrants (such shares being hereinafter referred to as the
"Underlying Shares"). The provisions of this Section shall only apply to sales,
transfers or dispositions by CU and its Affiliates, and shall not apply to
sales, transfers or dispositions by transferees of CU or its Affiliates (except
that any sale or disposition by dealers or underwriters shall be conducted in
accordance with the applicable provisions of this Section and further except
that all resales shall be made in accordance with the Securities Act).
(b) CU and its Affiliates shall be entitled, subject to the
other applicable provisions of this Article III (including Section 3.11) and
Section 2.1, to sell or transfer Restricted Stock in one or more transactions
exempt from the registration requirements of Section 5 of the Securities Act;
provided, however, that the aggregate number of shares of Restricted Stock sold
or transferred to any single purchaser and persons known to CU to be Affiliates
of or persons acting in concert with such purchaser in any such transaction
shall be limited to that amount of Restricted Stock which, when taken together
with the Restricted Stock theretofore sold or transferred to such purchaser and
such Affiliates and persons, would not, upon the exercise in full of the
Warrants so transferred, permit the acquisition of more than 2% of the then
outstanding shares of Common Stock,
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determined as of the date of such sale or transfer. For purposes of the
immediately preceding sentence, it shall be assumed that all Warrants, if any,
that already have been sold or transferred by CU and its Affiliates are still
outstanding and have not been exercised in whole or in part to purchase shares
of Common Stock.
(c) Warrants owned by CU and its Affiliates, unless sold to Home
or an Affiliate of Home or in compliance with paragraph (b) of this Section, may
only be sold or transferred to one or more underwriters or dealers in accordance
with the provisions of this paragraph. CU and its Affiliates may, subject to the
terms and conditions set forth in this para graph (c), sell or transfer Warrants
in whole or in part to one or more underwriters or dealers who agree in writing
with CU, prior to the effective time of any such sale or transfer, to exercise
such Warrants and offer and sell the Underlying Shares either (i) to the public
in a public offering registered under the Securities Act (or any successor
federal securities laws) pursuant to a distribution in which no single purchaser
and its Affiliates will, to the knowledge of such underwriters or dealers,
acquire Underlying Shares representing more than 2% of the then outstanding
shares of Common Stock or (ii) in other transactions complying with the
requirements of paragraph (b) above. Notwithstanding any other provision of this
Agreement to the contrary, the exercise of any Warrants transferred to
underwriters or dealers in accordance with this Section and the acquisition by
such underwriters or dealers of shares of Common Stock pursuant to such exercise
may be made simultaneously on the date of the closing of the sale or transfer by
CU or its Affiliates of the relevant Warrants to such underwriters or dealers,
provided Home is given written notice of the date of such closing at least five
Business Days prior thereto. At any such closing, against payment of the
exercise price for shares of Common Stock to be acquired pursuant to the
exercise of Warrants, Home will deliver or cause to be delivered certificates
representing the Underlying Shares to such underwriters or dealers, in such
names and denominations as it or they shall designate not fewer than two
Business Days prior to such closing.
Section 3.5 "Demand" Registration. From and after such date as CU and
its Affiliates become entitled pursuant to Section 3.4 to sell or transfer any
Restricted Stock, Home shall, if requested by CU, as expeditiously as possible,
use its best efforts to effect the registration of the Restricted Stock (which
Home has been requested to register on a form in general use under the
Securities Act (or any successor federal securities law) selected by Home, in
order to permit the sale or other disposition of such Restricted Stock in
accordance with the intended method of sale or other disposition set forth in
the request (subject to the provisions of Section 3.4(c)). The right to require
registration of the Restricted Stock under this Section 3.5 may only be
exercised once unless CU is advised in writing by its investment banking firm (a
copy of which advice shall be supplied to Home) that, in the opinion of such
firm, an additional or two additional registrations are appropriate to maximize
the benefits to CU of the proposed distribution of Restricted Stock, in which
event CU may exercise once or twice more, as applicable, its rights under this
Section 3.5. Upon the issuance of a stop order or injunction, Home may withdraw
any such registration statement and abandon the proposed offering which CU shall
have demanded, in which case CU's right shall be reinstated.
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Section 3.6 "Piggyback" Registration. From and after such date as CU
and its Affiliates become entitled pursuant to Section 3.4 to sell or transfer
any Restricted Stock, if at any time Home proposes to register any of its
securities under the Securities Act (or any successor federal securities law),
whether or not for sale for its own account (except with respect to registration
statements filed with respect to the issuance of securities under employee
benefit plans), it will give written notice to CU of its intention to do so.
Upon the written request of CU, given within 15 calendar days after receipt of
Home's notice, Home will use its best efforts to cause to be included in the
shares to be covered by the registration statement proposed to be filed by Home,
in accordance with the request of CU, the Restricted Stock to be sold by dealers
or underwriters in accordance with the provisions of Section 3.4; provided,
however, that Home need not include such Restricted Stock in such registration
statement if Home is advised in writing by its investment banking firm (a copy
of which advise shall be supplied to CU) that the inclusion of such securities
shall, in the opinion of such firm, materially interfere with the orderly sale
and distribution of the Home securities being sold by it. Home may, in its sole
discretion and without the consent of CU, withdraw any such registration
statement and abandon the proposed offering in which CU shall have requested to
participate pursuant to this Section.
Section 3.7 Registration Procedures and Expenses.
(a) If and whenever Home is required by the provisions of this
Article III to use its best efforts to effect the registration of any of the
Restricted Stock under the Securities Act (or any successor federal securities
law), CU and its Affiliates (including the underwriters in the case of a
registration of Underlying Shares) (individually referred to as a "selling
holder" or "holder" and collectively referred to as "selling holders" or
"holders") will furnish in writing such information as is reasonably requested
by Home for inclusion in the registration statement relating to such offering
and such other information and documentation as Home shall reasonably request,
and Home will, as expeditiously as possible:
(i) prepare and file with the SEC or any other federal
agency at the time administering the Securities Act (or a successor federal
securities law) a registration statement with respect to such securities and use
its best efforts to cause such registration statement to become and remain
effective for such period as may be necessary to permit the successful marketing
of such securities, but not exceeding 90 days;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act;
(iii) furnish to each selling holder of Restricted Stock
being registered such number of copies of a prospectus and preliminary
prospectus in conformity with the requirements of the Securities Act (or any
successor federal securities law), and such other
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documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Restricted Stock being registered owned
by such seller;
(iv) furnish, at the request of any holder or holders of
securities being registered pursuant to this Article III, on the date that such
securities are delivered to the underwriters for sale pursuant to such
registration or if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities becomes
effective (A) an opinion dated such date of independent counsel representing
Home for the purposes of such registration, addressed to the underwriters, if
any, and to the holder or holders making such request, stating that such
registration statement has become effective under the Securities Act (or such
successor law) and that (a) to the best of the knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act (or such successor federal securities law); (b) the
registration statement, the related prospectus and each amendment or supplement
thereto comply as to form in all material respects with the requirements of the
Securities Act (or such successor law) and the applicable rules and regulations
of the SEC thereunder, except that such counsel need express no opinion as to
financial information or information provided by selling holders contained
therein; (c) such counsel (subject to such customary limitation on the scope of
their investigation as shall be set forth in such opinion) has no reason to
believe that either the registration statement or the prospectus, or any
amendment or supplement thereto, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading except that such counsel
need express no opinion as to financial information or information provided by
selling holders contained therein; (d) the descriptions in the registration
statement and in the prospectus, or any amendment or supplement thereto, of all
legal and governmental matters and all contracts and other legal documents or
instruments are accurate and fairly present the information required to be
shown; and (e) such counsel does not know of any legal or governmental
proceedings, pending or contemplated, required to be described in the
registration statement or prospectus, or any amendment or supplement thereto, or
to be filed as exhibits to the registration statement which are not described
and filed as required; and (B) a letter dated such date, from the independent
certified public accountants of Home, addressed to the underwriters, if any, and
to the holder or holders by or on behalf of whom a request is made, stating that
they are independent certified public accountants within the meaning of the
Securities Act (or such successor law) and that in the opinion of such
accountants the financial statements and other financial data of Home included
in the registration statement or the prospectus, or any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act (or such successor law). Such
letter from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the period
ending not more than five business days prior to the date of such letter) with
respect to the registration in respect of which such letter is being given as
the holder of Restricted Stock being registered may reasonably request;
(v) use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under such other
securities or blue sky laws of such
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jurisdictions as each such selling holder of such Restricted Stock shall
reasonably request and do any and all other acts and things which may be
necessary or reasonably desirable to enable such seller to consummate the public
sale or other disposition in such jurisdictions as may be requested by such
seller; provided, however, that Home shall have no obligation to qualify to do
business in any jurisdiction or to file a general consent to service of process
in any jurisdiction;
(vi) notify each selling holder of Restricted Stock covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act (or any successor Federal
securities law), of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(viii) provide a transfer agent and registrar for all
Restricted Stock covered by such registration statement not later than the
effective date of such registration statement;
(ix) use its best efforts to list all Common Stock covered
by such registration statement on each securities exchange, if any, on which any
of the Common Stock is then listed (unless such Common Stock is already so
listed) if such listing is then permitted under the rules of such exchange or
with the NASDAQ, National Market System; and
(x) undertake to take such further actions as may be
reasonably requested by the underwriters.
(b) If any registration statement pursuant to Section 3.5 or 3.6
shall have been declared effective and, in the judgment of Home, (A) any event
shall occur or state of facts exist (other than as described in clause (B))
which requires a notice to the selling holders of Restricted Stock pursuant to
clause (vi) of paragraph (a) of this Section 3.7 or (B) the offering at the time
of Restricted Stock pursuant to such registration statement would adversely
affect, or would be improper in view of, a public offering, financing,
reorganization, recapitalization, merger, consolidation, acquisition, or other
similar transaction, or negotiations, discussions or pending proposals with
respect thereto, immediately upon receipt of notice to such effect from Home, CU
shall cease to offer or sell any Restricted Stock registered thereunder and
cease to deliver or use the prospectus in use thereunder. In the case of any
matter described in clause (A), Home shall, as promptly as practicable, furnish
to each selling holder a reasonable number of copies of a supple-
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ment to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchaser of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing. In the case of
any matter described in clause (B), Home shall promptly notify CU at such times
as, in Home's judgment, such offering may be recommended (which shall be no
later than 90 days following such suspension); provided that CU may, in its sole
discretion, discontinue such offering with respect to the Restricted Stock
covered thereby, in which event CU shall be entitled to "demand" registration
rights hereunder to the full extent as if such offering had not been requested.
All expenses incurred by Home in complying with Sections 3.5 and 3.6
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disburse ments of counsel for Home and blue sky fees
and expenses are herein called "Registration Expenses," except for all
underwriting discounts and selling commissions applicable to the sales, all fees
and disbursements of counsel for any selling holder or holders (including
counsel designated by any seller for a "due diligence" investigation of Home)
and the expense of any special audits incident to or required by such
registration, all of which are herein called "Selling Expenses." Home shall pay
all Registration Expenses and the selling holder or holders of Restricted Stock
being registered shall pay all Selling Expenses.
Section 3.8 Indemnification. In the event of a registration of any of
the Restricted Stock under the Securities Act (or any successor Federal
securities law) pursuant to this Article III, Home will indemnify and hold
harmless each underwriter of such Restricted Stock, CU and its Affiliates as the
transferors of the Restricted Stock or any portion thereof to underwriters, and
each other person, if any, who controls such seller, assignor or underwriter
within the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter, assignor or controlling person may become subject under the
Securities Act (or such successor law) or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Restricted Stock
shall have been registered under the Securities Act (or such successor law), any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse such
seller, transferor and underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that Home will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, said preliminary prospectus or said
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished to Home through an instrument executed by
such seller, transferor or underwriter specifically for use in the preparation
thereof; and provided further that if any losses, claims, damages or liabilities
arise out of or are based
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upon an untrue statement, alleged untrue statement, omission or alleged omission
contained in any preliminary prospectus which did not appear in the final
prospectus, Home shall not have any such liability with respect thereto to such
seller, transferor or underwriter or any person who controls such seller,
transferor or underwriter within the meaning of Section 15 of the Securities Act
if such seller, transferor or underwriter or any person on their behalf
delivered a copy of the preliminary prospectus to the person alleging such
losses, claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented,
to such person at or prior to the written confirmation of the sale to such
person.
In the event of any registration of any Restricted Stock under the
Securities Act (or a successor Federal securities law) pursuant to this Article
III, each seller of such Restricted Stock (other than any underwriter or dealer
purchasing Underlying Shares), and CU and its Affiliates, as transferors of
Restricted Stock, severally and not jointly, will indemnify and hold harmless
Home, each person, if any who controls Home within the meaning of Section 15 of
the Securities Act, each officer of Home who signs the registration statement
and each director of Home against any and all such losses, claims, damages, or
liabilities arising out of or based upon any untrue statement or alleged untrue
statement in or omission or alleged omission from any such registration
statement, prospectus, amendment or supplement, if the untrue statement or
omission or alleged untrue statement or omission in respect of which such loss,
claim, damage or liability is asserted was made in reliance upon and in
conformity with information furnished in writing to Home by or on behalf of such
seller or transferor specifically for use in connection with the preparation of
such registration statement, preliminary prospectus, prospectus, amendment or
supplement; provided, however, that, if any losses, claims, damages or
liabilities arise out of or are based upon an untrue statement, alleged untrue
statement, omission or alleged omission contained in any preliminary prospectus
which did not appear in the final prospectus, such seller or transferor shall
not have any such liability with respect thereto to Home, any person who
controls Home within the meaning of Section 15 of the Securities Act, any
officer of Home who signed the registration statement of any director of Home if
Home or any person on their behalf delivered a copy of the preliminary
prospectus to the person alleging such losses, claims, damages or liabilities
and failed to deliver a copy of the final prospectus, as amended or supplemented
if it has been amended or supplemented, to such person at or prior to the
written confirmation of the sale to such person; and provided further that the
liability of any such seller or transferor so to indemnify shall be limited to
an amount equal to the amount received by such seller upon the sale of such
Restricted Stock pursuant to such registration statement, or by such transferor
from the seller, as the case may be.
Payments in respect of indemnifications required by this Section 3.8
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. Any party which
proposes to assert the right to be indemnified under this Section 3.8 will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim is to be made against
an indemnifying party under this Section 3.8, notify each such indemnifying
party of the commencement of such action, suit or proceeding, enclosing a copy
of all papers served, but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
which
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it may have to any indemnified party otherwise than under this Section 3.8. In
case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party, and after notice from such indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party, when and as incurred, unless (i) the employment of
counsel by such indemnified party has been authorized in writing by the
indemnifying party, (ii) the indemnified party shall have reasonably concluded
that there may be a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying party shall
not in fact have employed counsel to assume the defense of such action. An
indemnifying party shall not be liable for employed counsel to assume the
defense of such action. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent. In no event
shall an indemnifying party be required to pay for more than one counsel for an
indemnified party, exclusive of local counsel.
Section 3.9 Obligations of Home with Respect to Underwritten Offering.
In the event that Restricted Stock shall be sold pursuant to a registration
statement in an underwritten offering pursuant to Section 3.5, Home agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including, without limiting the generality of the
foregoing, customary provisions with respect to indemnification by Home of the
underwriters of such offering. Home shall have the right to approve the managing
underwriters for such offering (which in no event shall include an affiliate of
CU); provided, however, that such approval shall not be unreasonably withheld.
Section 3.10 Rule 144 Requirements. Home shall undertake to make
publicly available and available to the holders of Restricted Stock, pursuant to
Rule 144 of the SEC under the Securities Act, such information as shall be
necessary, and to take such further action as any such holder may reasonably
request, to enable the holders of Restricted Stock to make sales of Restricted
Stock pursuant to the Rule. Home shall furnish to any holder of Restricted Stock
upon request (after the preceding sentences shall have become applicable), a
written statement executed by Home as to the steps it has taken to comply with
the current public information requirements of Rule 144.
Section 3.11 Rights of First Refusal.
(a) In the event CU or its Affiliates intend, at any time after
the occurrence of an Acquisition Event to sell, transfer or dispose of any
Restricted Stock (other than to an Affiliate
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of CU in a transaction not intended to circumvent the transfer restrictions
contained in this Agreement) other than (i) pursuant to a sale or transfer of
Warrants to one or more underwriters or dealers in accordance with Section
3.4(c) (in which case Section 3.11(b) shall govern) or (ii) at any time after
Home has failed for any reason to repurchase such Restricted Stock pursuant to
Article II hereof on the closing date scheduled for such repurchase, then:
(i) CU shall notify Home in writing of its or its
Affiliate's intention to sell, transfer or dispose of such Restricted Stock
specifying the number of shares or amount of Warrants, as the case may be,
proposed to be disposed of, the identity or identities of the prospective
purchaser or purchasers thereof, the proposed purchase price therefor and the
material terms of any agreement relating thereto (the "Sale Notice"); and
(ii) Home shall have the right, by written notice of its
exercise of its right of first refusal given to CU within 15 calendar days after
Home's receipt of such notice of intention from CU, to purchase (or to cause a
Person designated by Home to purchase) all, but not less than all of, the
Restricted Stock specified in such notice of intention for cash at the gross
price set forth therein (including broker's commissions and other transaction
costs of CU or its Affiliate to be paid or absorbed by the prospective
purchaser) if the terms set forth in such notice of intention provide for a cash
sale. If the purchase price specified in such notice of intention include any
property other than cash, the purchase price at which Home shall be entitled to
purchase shall be (x) the amount of cash included in the purchase price
specified in such notice of intention plus (y) property, to the extent feasible,
substantially similar to the property described in such notice of intention and
in any case of equivalent value to such property (as agreed to by Home and CU,
or as determined by a nationally recognized investment banking firm selected by
CU and Home).
If Home shall have exercised its right of first refusal under this
paragraph (a) (including the designation of another purchaser as referred to in
the next subparagraph), the closing of the purchase of the Restricted Stock as
to which such right Home shall have been exercised shall take place as promptly
as practicable, but in no event more than 10 Business Days after Home gives
notice of such exercise, and if such closing does not occur within such 10 days,
such right of first refusal provided for herein (including any assignment
thereof) shall be null and void and of no further force and effect with respect
to such Restricted Stock and this Section 3.11 shall no longer apply to any sale
or disposition or proposed sale or disposition of such Restricted Stock;
provided that if prior notification to or approval of the Federal Reserve Board
or any other regulatory authority is required in connection with such purchase,
Home 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, as the
case may be, (i) any required notification period has expired or been
terminated, or (ii) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
If Home elects not to exercise, or fails to exercise or cause to be
exercised, its right of first refusal provided in this paragraph (a) within the
time specified for such exercise or if the Federal Reserve Board or any other
regulatory authority disapproves of Home's proposed purchase,
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CU and its Affiliates shall be free thereafter for a period of 90 days to
consummate the sale, transfer or other disposition with any purchaser or
purchasers of the Restricted Stock who shall have been specified in the sale
notice at the price (or at any price in excess of such price) and on
substantially the terms specified therein.
The right of first refusal provided for in this paragraph (a) may only
be exercised with respect to the initial sale, transfer or other disposition of
the Restricted Stock by CU or an Affiliate (whether in blocks or as a whole) to
a person that is not an Affiliate of CU and not to subsequent sales, transfers
or other dispositions by purchasers of Restricted Stock.
(b) If CU or its Affiliates at any time propose to transfer any
Warrants to any underwriters or dealers pursuant to the provisions of Section
3.4, other than at any time after Home has failed for any reason to repurchase
such Warrants pursuant to Article II hereof on the closing date scheduled for
such repurchase, then CU shall first notify Home in writing of such intention,
specifying the Warrants which it proposes to sell or transfer and the name or
names of the proposed dealers or of the proposed managing underwriters in the
underwriting syndicate to which the sale or transfer is proposed to be made.
Home shall have the right, exercisable by written notice given to CU 15 calendar
days after Home's receipt of notice from CU pursuant to the immediately
preceding sentence, to repurchase, or to cause a third party designated by Home
to purchase, all, but not fewer than all, the Warrants proposed to be sold or
transferred on the terms and conditions hereinafter set forth. Any notice given
by Home of exercise of its repurchase rights under this paragraph (b) shall
specify a place in Los Angeles and a Business Day not earlier than 10 days and
not later than 15 days after the date of such notice for the closing of the
repurchase of the Warrants being repurchased. The purchase price payable to Home
or its designee for the repurchase of Warrants pursuant to this paragraph (b)
shall be a cash price equal to the product of (x) the number of Underlying
Shares covered by the relevant Warrants (calculated as of the date of the
closing of the repurchase) and (y) the Share Price on such date. At the closing
of a sale of Warrants pursuant to the foregoing provisions, Home or its designee
will make payment to CU of the aggregate price for the Warrants to be
repurchased in one of the manners set forth in Section 2.1(c). At such closing,
CU shall deliver to Home or its designee the certificates representing the
Warrants to be repurchased and Home shall deliver to CU replacement certificates
representing the Warrants (if any) which are not to be repurchased but were
covered by the certificate or certificates surrendered by CU. Any election by
Home pursuant to this paragraph to exercise its repurchase rights in respect of
Warrants shall be irrevocable. In the event Home fails timely to exercise its
repurchase rights in respect of Warrants within the period specified above
during which it must do so or notifies CU in writing prior to the expiration of
such period that it does not intend to exercise such rights or its designee
fails to repurchase Warrants on the date set for the closing of such a purchase,
CU and its Affiliates shall be free thereafter to consummate the sale and
transfer of the Warrants specified in this notice to Home under this paragraph
to any underwriters or dealers who agree to exercise the Warrants and sell the
Underlying Shares in accordance with the provisions of Section 3.4(c), and this
Section 3.11 shall no longer apply to such sale or transfer of such Warrants.
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(c) CU shall have the right to withdraw any notice given by it
pursuant to this Section 3.11 at any time before Home shall have given notice of
its intention to exercise its right of first refusal hereunder (including by
designation of another purchaser).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOME
Home represents and warrants to CU that:
Section 4.1 Authorization of Agreement; No Conflicts.
(a) The execution and delivery of this Agreement by Home and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Home. This Agreement has been
duly executed and delivered by Home and constitutes a valid and binding
obligation of Home, enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of or default or loss of a material benefit under any
provision of the articles of incorporation, articles or association or bylaws of
Home or Home Bank or, except for the necessity of obtaining Requisite Regulatory
Approvals, any material mortgage, indenture, lease agreement or other material
instrument or any permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Home or
Home Bank or their respective properties, other than any such conflict,
violation, default or loss which will not have a material adverse effect on Home
or Home Bank. No material consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority is required
in connection with the execution and delivery of this Agreement by Home and Home
Bank or the consummation by Home of the transactions contemplated hereby except
for any approvals required to be obtained pursuant to the BHC Act or the Policy
Statement of the Board of Governors of the Federal Reserve System on Nonvoting
Equity Investments by Bank Holding Companies, 12 C.F.R. Section 225.143 (the
"FRB Guidelines"), or any other applicable laws, for the execution and
delivery of this Agreement and the issuance of the Warrants by Home.
Section 4.2 Authorized Stock Home has taken all necessary corporate and
other action to authorize and reserve and, subject to obtaining the governmental
and other approvals and consents referred to herein, to permit it to issue, and,
at all times from the date hereof until the obligation to deliver Common Stock
upon the exercise of the Warrants terminates, will have reserved for issuance,
upon exercise of the Warrants, shares of Common Stock necessary for CU to
exercise the Warrants, and Home will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Common Stock or
other securities which may be issued pursuant to this Agreement. The shares of
Common Stock to be issued upon due exercise of the Warrants, including all
additional shares of Common Stock or other securities which may be issuable
pursuant to this
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Agreement, upon issuance pursuant hereto, shall be duly and validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature whatsoever,
including any preemptive rights of any stockholder of Home.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CU
CU represents and warrants to Home that:
Section 5.1 Due Execution of Agreement; No Conflicts.
(a) This Agreement has been duly executed and delivered by CU
and constitutes a valid and binding obligation of CU, enforceable in accordance
with its terms.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of or default or loss of a material benefit under, any
provision of the certificate of incorporation or By-laws of CU or, except for
the necessity of obtaining Requisite Regulatory Approvals, any material
mortgage, indenture, lease, agreement or other material instrument, or any
permit, concession, grant, franchise, license, judgment, order decree, statute,
law, ordinance, rule or regulation applicable to CU or its respective
properties, other than any such conflict, violation, default or loss which (i)
will not have a material adverse effect on CU and its Subsidiaries taken as a
whole. No material consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required in
connection with the execution and delivery of this Agreement by CU or the
consummation by CU of the transactions contemplated hereby, except for (a)
filings required in order to obtain Requisite Regulatory Approvals, and (b) any
approvals required to be obtained pursuant to the BHC Act, or the FRB Guidelines
or any other applicable law for the execution and delivery of this Agreement by
Home, CU and the issuance of the Warrants.
ARTICLE VI
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below (in their singular and plural forms as applicable) shall have the meanings
set forth below.
"Affiliate" or "affiliate" shall mean, with respect to any corporation,
any person that, directly or indirectly, controls or is controlled by or is
under common control with such corporation.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
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"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday in the State of California, on which banks are open for
substantially all their banking business in Los Angeles.
"Change in Bank Control Act" means the Change in Bank Control Act of
1978, as amended.
"Covered Shares" shall mean on any date, with respect to any Warrants,
the maximum number of shares of Common Stock that would be purchasable upon the
exercise on such date of such Warrants, assuming that such Warrants may be
exercised on such date to purchase the maximum number of shares of Common Stock
purchasable pursuant to the terms thereof (including the limitations contained
in the second paragraph of the certificate evidencing each such Warrant) without
regard to any provision therein (other than such limitations) or in this
Agreement or in any law limiting the right of any holder of such Warrants to
acquire shares otherwise purchasable thereunder.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Governmental Entity" shall mean any court, administrative
agency or commission or other governmental authority or
instrumentality.
"Market Value" shall mean, on any date, the average of the closing sale
prices of a share of Common Stock on the principal securities exchange on which
the Common Stock is traded, or, if the Common Stock is not at the time listed on
any national securities exchange, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), on the 10 trading days
immediately preceding such date, (or such fewer number of trading days
immediately preceding such date for which shares of Common Stock have been
listed for trading on such exchange or quoted on NASDAQ); provided, however,
that if CU seeks a determination of the fair market value of a share of Common
Stock pursuant to the provisions of Section 2.2, Market Value shall, if required
pursuant to the terms of such Section, mean the fair market value of a share of
Common Stock on such date determined pursuant to such Section.
"Person" or "person" shall mean an individual, corporation,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Regulatory Authority" shall mean any United States federal or state
government or governmental authority the approval of which is legally required
for consummation of the Merger.
"Requisite Regulatory Approvals" shall mean all material permits,
approvals and consents required to be obtained, and all waiting periods required
to expire, prior to the consummation of the issuance of the Covered Shares under
applicable federal laws of the United States or applicable laws of any state
having jurisdiction over CU or Home.
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"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Price" shall mean, with respect to any Warrants, the amount by
which, on the date of the Acquisition Event triggering the exercisability of the
Warrants(i) the Warrant Price on such date is less than (ii) the greatest of:
(i) the Market Value of a share of Common Stock on such
date; and
(ii) the highest price paid on or prior to such date for a
share of Common Stock (including in any merger or consolidation) by a purchaser
or group of purchasers acting in concert of 50% or more of the outstanding
shares of Common Stock, or, in the case of a purchaser of 50% or more of the
consolidated assets of Home (as shown on the books of Home), the Market Value of
a share of Common Stock on the date of consummation of such asset acquisition.
"Subsidiary" shall mean, with respect to any corporation (the
"parent"), any other corporation, association or other business entity of which
more than 50% of the shares of the Voting Stock are owned or controlled,
directly or indirectly, by the parent or by one or more Subsidiaries of the
parent, or by the parent and one or more of its Subsidiaries.
"Voting Stock" shall mean the stock entitling the holders thereof to
vote in the election of the directors or trustees of the corporation,
association, or other business entity in question, except that it shall not
include any stock so entitling the holders thereof to vote only upon the
happening of a contingency, whether or not such contingency has occurred.
"Warrant Call Price" shall mean, when used with respect to any Warrant,
the product of (i) the number of Covered Shares on such date and (ii) the Share
Price on such date; provided that the Warrant Call Price with respect to any
Warrant shall in no event exceed (x) the quotient obtained by dividing
$5,000,000 by the number of Covered Shares subject to all the outstanding
Warrants multiplied by (y) the number of Covered Shares subject to such Warrant.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Subject to Section 7.2, this Agreement may be
terminated in the following circumstances:
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(a) at the effective time of the Merger, as set forth in the
Merger Agreement;
(b) at the termination of the Merger Agreement prior to the
occurrence of an Acquisition Event; or
(c) two years after the occurrence of an Acquisition Event.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 7.1(c), the rights of the parties hereto shall
forthwith become void; provided that, if the Agreement shall terminate pursuant
to Section 7.1(c) and any party has filed an application to purchase securities
with any regulatory authority, the Agreement shall not terminate as provided in
Section 7.1(c), but shall remain in full force and effect until the day which is
30 Business Days (plus any applicable waiting periods) after the receipt or
denial of regulatory approval or consent, at which time the Agreement shall then
terminate.
Section 7.3 Indemnification for Breach. Each party to this Agreement
agrees to indemnify and hold harmless the other party against any loss, claim,
damage or liability arising out of or based upon a Default of this Agreement by
such defaulting party in accordance with the procedures set forth in the last
paragraph of Section 3.8 of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or any such other address for a party as shall be specified
by like notice):
(a) If to CU at:
16030 Ventura Boulevard
Encino, CA 91436
Attn: Stephen G. Carpenter
Fax: (818) 907-5024
with a copy to:
Anita Wolman, Esq.
16030 Ventura Boulevard
Encino, CA 91436
Fax: (818) 907-5024
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(b) If to Home at:
2633 Cherry Avenue
Signal Hill, CA 90806
Attn: James Staes
Phone: (310) 988-9600
Fax: (310) 426-4526
with a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn: Barbara S. Polsky, Esq.
Fax: (310) 312-4224
Section 8.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors or the duly
authorized committees thereof. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
parties hereto agree to make such amendments as may be necessary to respond to
the request of any Regulatory Authority with respect to this Agreement.
Section 8.4 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof.
Section 8.5 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) except as
contemplated in this Agreement, is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder; and (c) except as
contemplated in this Agreement, shall not be assigned by operation of law or
otherwise. Home and CU agree that, except as required by law, it shall not issue
any press release with respect to the transactions contemplated by this
Agreement without consulting with each other party hereto.
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Section 8.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, Home and CU have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
above written.
CU BANCORP
By:
---------------------------------
HOME INTERSTATE BANCORP
By:
---------------------------------
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EXHIBIT F
CU SHAREHOLDER'S AGREEMENT
This SHAREHOLDER'S AGREEMENT (this "Agreement"), dated as of
January 10, 1996, is entered into by and among Home Bank, a California banking
corporation ("Home Bank"), Home Interstate Bancorp, a California corporation
("Home"), and ___________________________ (the "Shareholder").
R E C I T A L S
A. Home, Home Bank, CU Bancorp, a California corporation ("CU"), and
California United Bank, National Association, a national banking association,
entered into that certain Agreement and Plan of Reorganization dated as of
January 10, 1996 (the "Reorganization Agreement").
B. The Shareholder is a beneficial shareholder of shares of common
stock, no par value, of CU (the "CU Stock").
C. The Shareholder is a director of CU.
D. As an inducement to Home and Home Bank to enter into the
Reorganization Agreement, and in order to ensure pooling-of-interests accounting
treatment for the Merger contemplated by the Reorganization Agreement, the
Shareholder desires to enter into this Agreement.
E. Unless otherwise provided in this Agreement, capitalized terms
shall have the meanings ascribed to such terms in the Reorganization Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties and covenants, agreements and conditions contained
herein and in the Reorganization Agreement, and intending to be legally bound
hereby, Home, Home Bank and Shareholder agree as follows:
ARTICLE I
SHAREHOLDER'S AGREEMENT
1.1 Agreement to Vote. Shareholder shall vote or cause to be voted at
any meeting of shareholders of CU to approve the principal terms of the
Reorganization Agreement, the Merger and the transactions contemplated thereby
(the "Shareholders' Meeting"), all of the shares of CU Stock as to which
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Shareholder has sole or shared voting power (the "Shares") as of the record date
established to determine shareholders who have the right to vote at any such
Shareholders' Meeting (the "Record Date").
1.2 Legend. The Shareholder agrees to stamp, print or type on the
face of his certificates of CU Stock evidencing the Shares the following legend:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A SHAREHOLDER'S
AGREEMENT DATED AS OF THE 10TH DAY OF JANUARY, 1996 BY AND AMONG
HOME INTERSTATE BANCORP, HOME BANK AND (THE RECORD OWNER HEREOF),
COPIES OF WHICH ARE ON FILE AT THE OFFICES OF HOME BANK"
1.3 Restrictions on Dispositions. The Shareholder agrees that, from
and after the date of this Agreement and during the term of this Agreement, the
Shareholder will not take any action that will alter or affect in any way the
right to vote the Shares, except (i) with the prior written consent of Home or
(ii) to change such right from that of a shared right of the Shareholder to vote
the Shares to a sole right of the Shareholder to vote the Shares.
1.4 Shareholder Approval. The Shareholder, in his capacity as a
director, shall (i) recommend shareholder approval of the Reorganization
Agreement, the Agreement of Merger and the transactions contemplated thereby at
the Shareholders' Meeting and (ii) advise the CU shareholders to reject any
subsequent proposal or offer received by CU relating to any Alternative
Transaction or purchase, sale, acquisition, merger or other form of business
combination involving CU or any of its assets, equity securities or debt
securities and to proceed with the transactions contemplated by the
Reorganization Agreement; provided, however, that the Shareholder shall not be
obligated to take any action specified in clause (ii) if the Board of Directors
of CU is advised in writing by outside legal counsel (Loeb and Loeb, or such
other counsel that is reasonably acceptable to Home and Home Bank) that, in the
exercise of his fiduciary duties, a director of CU should not take such action.
1.5 Restrictions on Disposition of CU Stock After the Merger.
Notwithstanding any other provisions of this Agreement to the contrary, none of
the shares of CU Stock held by the undersigned at the Effective Time of the
Merger will be sold, transferred or otherwise disposed of and the undersigned
will not in any other way reduce the undersigned's risk of ownership or
investment in any of the shares of CU Stock so held by the undersigned until
financial results covering a period of at least thirty (30) days of combined
operations of CU and Home following the Effective Time of the Merger have been
published by CU (provided that the undersigned may make bona fide gifts or
distributions without consideration so long as the recipients thereof agree not
to sell, transfer or otherwise dispose of the CU Stock except as provided
herein).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to Home and Home Bank that the
statements set forth below are true and correct as of the date of this
Agreement, except those that are specifically as of a different date:
2.1 Ownership and Related Matters.
(a) Schedule 2.1(a) hereto correctly sets forth the number of
Shares beneficially owned by Shareholder and the nature of Shareholder's voting
power with respect thereto. Within five Business Days after the Record Date, the
Shareholder shall amend said Schedule 2.1(a) to correctly reflect the number of
Shares and the nature of Shareholder's voting power with respect thereto as of
the Record Date.
(b) There are no proxies, voting trusts or other agreements or
understandings to or by which the Shareholder or the Shareholder's spouse is a
party or bound or that expressly requires that any of the Shares be voted in any
specific manner other than as provided in this Agreement.
2.2 Authorization and Binding Agreement. The Shareholder has the
legal right, power, capacity and authority to execute, deliver and perform this
Agreement, and this Agreement is the valid and binding obligation of the
Shareholder enforceable in accordance with its terms, except as the enforcement
thereof may be limited by general principles of equity.
2.3 Non-contravention. The execution, delivery and performance of
this Agreement by the Shareholder will not (a) conflict with or result in the
breach of, or default or actual or potential loss of any benefit under, any
provision of any agreement, instrument or obligation to which the Shareholder or
the Shareholder's spouse is a party or by which any of Shareholder's properties
or the Shareholder's spouse's properties are bound, or give any other party to
any such agreement, instrument or obligation a right to terminate or modify any
term thereof; (b) require the consent or approval of any third party; (c) result
in the creation or imposition of any lien, mortgage or encumbrance on any of the
Shares or any other assets of the Shareholder or the Shareholder's spouse; or
(d) violate any law, rule or regulation to which the Shareholder or the
Shareholder's spouse is subject.
ARTICLE III
GENERAL
3.1 Amendments. To the fullest extent permitted by law, this
Agreement and any schedule or exhibit attached hereto may be amended by
agreement in writing of the parties hereto at any time.
3.2 Integration. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and (except for
other documents to be executed pursuant to the Reorganization Agreement)
supersedes all prior agreements and understandings of the parties in connection
therewith.
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3.3 Specific Performance. The Shareholder, Home and Home Bank each
expressly acknowledge that, in view of the uniqueness of the obligations of the
Shareholder contemplated hereby, Home and Home Bank would not have an adequate
remedy at law for money damages in the event that this Agreement has not been
performed by the Shareholder in accordance with its terms, and therefore the
Shareholder, Home and Home Bank agree that Home and Home Bank shall be entitled
to specific enforcement of the terms hereof in addition to any other remedy to
which it may be entitled at law or in equity.
3.4 Termination. This Agreement shall terminate automatically without
further action at the earlier of the Effective Time of the Merger or the
termination of the Reorganization Agreement in accordance with its terms. Upon
such termination of this Agreement, the respective obligations of the parties
hereto shall immediately become void and have no further force and effect.
3.5 No Assignment. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by Home, Home Bank or the Shareholder,
in whole or in part. Any attempted assignment in violation of this prohibition
shall be null and void. Subject to the foregoing, all of the terms and
provisions hereof shall be binding upon, and inure to the benefit of, the
successors of the parties hereto.
3.6 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
3.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to each party hereto.
3.8 Notices. Any notice or communication required or permitted
hereunder, shall be deemed to have been given if in writing and (a) delivered in
person, (b) delivered by confirmed facsimile transmission (c) sent by overnight
carrier, postage prepaid with return receipt requested or (d) mailed by
certified or registered mail, postage prepaid with return receipt requested,
addressed as follows:
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If to Home and Home Bank, addressed to:
Home Interstate Bancorp
2633 Cherry Avenue
Signal Hill, California 90806
Attention: James Staes
Telecopier Number: (310) 426-4526
With a copy addressed to:
Manatt, Phelps & Phillips
11355 West Olympic Blvd.
Los Angeles, CA 90064
Attention: Barbara S. Polsky, Esq.
Telecopier No: (310) 312-4224
If to Shareholder, addressed to:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
With a copy addressed to:
Anita Wolman, Esq.
CU Bancorp
16030 Ventura Boulevard
Encino, California 91436-4224
Telecopier No: (818) 907-5024
or at such other address and to the attention of such other person as a party
may notice to the others in accordance with this Section 3.8. Any such notice or
communication shall be deemed received on the date delivered personally or
delivered by confirmed facsimile transmission, on the first Business Day after
it was sent by overnight carrier, postage prepaid with return receipt requested
or on the third Business Day after it was sent by certified or registered mail,
postage prepaid with return receipt requested.
3.9 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
3.10 Severability and the Like If any provision of this Agreement
shall be held by a court of competent jurisdiction to be unreasonable as to
duration, activity or subject, it shall be deemed to extend only over the
maximum duration, range of activities or subjects as to which such provision
shall be valid and enforceable under applicable law. If any provisions shall,
for any reason, be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability
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shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
3.11 Waiver of Breach. Any failure or delay by Home and Home Bank in
enforcing any provision of his Agreement shall not operate as a waiver thereof.
The waiver by Home and Home Bank of a breach of any provision of this Agreement
shall not operate as a waiver thereof. The waiver by Home and Home Bank of a
breach of any provision of this Agreement by the Shareholder shall not operate
or be construed as a waiver of any subsequent breach or violation thereof. All
waivers shall be in writing and signed by the party to be bound.
IN WITNESS WHEREOF, the parties to this Agreement have caused and duly
executed this Agreement as of the day and year first above written.
HOME INTERSTATE BANCORP
By:
---------------------------------
Title:
------------------------------
HOME BANK
By:
---------------------------------
Title:
------------------------------
SHAREHOLDER
------------------------------------
(Shareholder's Name)
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<PAGE> 142
SPOUSAL CONSENT
I am the spouse of __________________, the Shareholder in the above
Agreement. I understand that I may consult independent legal counsel as to the
effect of this Agreement and the consequences of my execution of this Agreement
and, to the extent I felt it necessary, I have discussed it with legal counsel.
I hereby confirm this Agreement and agree that it shall bind my interest in the
Shares, if any.
------------------------------------
(Shareholder's Spouse's Name)
F-7
<PAGE> 143
EXHIBIT H
HOME SHAREHOLDER'S AGREEMENT
This SHAREHOLDER'S AGREEMENT (this "Agreement"), dated as of January
10, 1996, is entered into by and among California United Bank, National
Association, a national banking association ("CU Bank"), CU Bancorp, a
California corporation ("CU"), and ___________________________ (the
"Shareholder").
R E C I T A L S
A. CU Bank, CU, Home Interstate Bancorp, a California corporation
("Home"), and Home Bank, a California banking corporation ("Home Bank"), entered
into that certain Agreement and Plan of Reorganization dated as of January 10,
1996 (the "Reorganization Agreement").
B. The Shareholder is a beneficial shareholder of shares of common
stock, no par value, of Home (the "Home Stock").
C. The Shareholder is a director of Home.
D. As an inducement to CU Bank and CU to enter into the
Reorganization Agreement, and in order to ensure pooling-of-interests accounting
treatment for the Merger contemplated by the Reorganization Agreement, the
Shareholder desires to enter into this Agreement.
E. Unless otherwise provided in this Agreement, capitalized terms
shall have the meanings ascribed to such terms in the Reorganization Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties and covenants, agreements and conditions contained
herein and in the Reorganization Agreement, and intending to be legally bound
hereby, CU Bank, CU and Shareholder agree as follows:
ARTICLE I
SHAREHOLDER'S AGREEMENT
1.1 Agreement to Vote. Shareholder shall vote or cause to be voted at
any meeting of shareholders of Home to approve the principal terms of the
Reorganization Agreement, the Merger and the transactions contemplated thereby
(the "Shareholders' Meeting"), all of the shares
H-1
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of Home Stock as to which Shareholder has sole or shared voting power (the
"Shares") as of the record date established to determine shareholders who have
the right to vote at any such Shareholders' Meeting (the "Record Date").
1.2 Legend. The Shareholder agrees to stamp, print or type on the
face of his certificates of Home Stock evidencing the Shares the following
legend:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A SHAREHOLDER'S
AGREEMENT DATED AS OF THE 10TH DAY OF JANUARY, 1996 BY AND
BETWEEN CU BANCORP, CALIFORNIA UNITED BANK, N.A. AND (THE RECORD
OWNER HEREOF), COPIES OF WHICH ARE ON FILE AT THE OFFICES OF CU
BANCORP."
1.3 Restrictions on Dispositions. The Shareholder agrees that, from
and after the date of this Agreement and during the term of this Agreement, the
Shareholder will not take any action that will alter or affect in any way the
right to vote the Shares, except (i) with the prior written consent of CU or
(ii) to change such right from that of a shared right of the Shareholder to vote
the Shares to a sole right of the Shareholder to vote the Shares.
1.4 Shareholder Approval. The Shareholder shall, in his capacity as a
director, (i) recommend shareholder approval of the Reorganization Agreement,
the Agreement of Merger and the transactions contemplated thereby at the Home
Shareholders' Meeting and (ii) advise the Home shareholders to reject any
subsequent proposal or offer received by Home relating to any Alternative
Transaction or purchase, sale, acquisition, merger or other form of business
combination involving Home or any of its assets, equity securities or debt
securities and to proceed with the transactions contemplated by the
Reorganization Agreement; provided, however, that the Shareholder shall not be
obligated to take any action specified in clause (ii) if the Board of Directors
of Home is advised in writing by outside legal counsel (Manatt, Phelps &
Phillips, or such other counsel that is reasonably acceptable to CU and CU Bank)
that, in the exercise of his fiduciary duties, a director of Home should not
take such action.
1.5 Restrictions on Disposition of CU Stock Received Pursuant to the
Merger. Notwithstanding any other provisions of this Agreement to the contrary,
none of the shares of CU Stock to be received by the undersigned pursuant to the
Merger will be sold, transferred or otherwise disposed of and the undersigned
will not in any other way reduce the undersigned's risk of ownership or
investment in any of the shares of CU Stock so received by the undersigned until
financial results covering a period of at least thirty (30) days of combined
operations of CU and Home following the Effective Time of the Merger have been
published by CU (provided that the
H-2
<PAGE> 145
undersigned may make bona fide gifts or distributions without consideration so
long as the recipients thereof agree not to sell, transfer or otherwise dispose
of the CU Stock except as provided herein).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to CU and CU Bank that the
statements set forth below are true and correct as of the date of this
Agreement, except those that are specifically as of a different date:
2.1 Ownership and Related Matters.
(a) Schedule 2.1(a) hereto correctly sets forth the number of
Shares beneficially owned by Shareholder and the nature of Shareholder's voting
power with respect thereto. Within five Business Days after the Record Date, the
Shareholder shall amend said Schedule 2.1(a) to correctly reflect the number of
Shares and the nature of Shareholder's voting power with respect thereto as of
the Record Date.
(b) There are no proxies, voting trusts or other agreements or
understandings to or by which the Shareholder or the Shareholder's spouse is a
party or bound or that expressly requires that any of the Shares be voted in any
specific manner other than as provided in this Agreement.
2.2 Authorization and Binding Agreement. The Shareholder has the
legal right, power, capacity and authority to execute, deliver and perform this
Agreement, and this Agreement is the valid and binding obligation of the
Shareholder enforceable in accordance with its terms, except as the enforcement
thereof may be limited by general principles of equity.
2.3 Non-contravention. The execution, delivery and performance of
this Agreement by the Shareholder will not (a) conflict with or result in the
breach of, or default or actual or potential loss of any benefit under, any
provision of any agreement, instrument or obligation to which the Shareholder or
the Shareholder's spouse is a party or by which any of Shareholder's properties
or the Shareholder's spouse's properties are bound, or give any other party to
any such agreement, instrument or obligation a right to terminate or modify any
term thereof; (b) require the consent or approval of any third party; (c) result
in the creation or imposition of any lien, mortgage or encumbrance on any of the
Shares or any other assets of the Shareholder or the Shareholder's spouse; or
(d) violate any law, rule or regulation to which the Shareholder or the
Shareholder's spouse is subject.
H-3
<PAGE> 146
ARTICLE III
GENERAL
3.1 Amendments. To the fullest extent permitted by law, this
Agreement and any schedule or exhibit attached hereto may be amended by
agreement in writing of the parties hereto at any time.
3.2 Integration. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and (except for
other documents to be executed pursuant to the Reorganization Agreement)
supersedes all prior agreements and understandings of the parties in connection
therewith.
3.3 Specific Performance. The Shareholder, CU and CU Bank each
expressly acknowledge that, in view of the uniqueness of the obligations of the
Shareholder contemplated hereby, CU and CU Bank would not have an adequate
remedy at law for money damages in the event that this Agreement has not been
performed by the Shareholder in accordance with its terms, and therefore the
Shareholder, CU and CU Bank agree that CU and CU Bank shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which it may be entitled at law or in equity.
3.4 Termination. This Agreement shall terminate automatically without
further action at the earlier of the Effective Time of the Merger or the
termination of the Reorganization Agreement in accordance with its terms. Upon
such termination of this Agreement, the respective obligations of the parties
hereto shall immediately become void and have no further force and effect.
3.5 No Assignment. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by CU, CU Bank or the Shareholder, in
whole or in part. Any attempted assignment in violation of this prohibition
shall be null and void. Subject to the foregoing, all of the terms and
provisions hereof shall be binding upon, and inure to the benefit of, the
successors of the parties hereto.
3.6 Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
3.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to each party hereto.
3.8 Notices. Any notice or communication required or permitted
hereunder, shall be deemed to have been given if in writing and (a) delivered in
person, (b) delivered by confirmed facsimile transmission (c) sent by overnight
carrier, postage prepaid with return receipt requested
H-4
<PAGE> 147
or (d) mailed by certified or registered mail, postage prepaid with return
receipt requested, addressed as follows:
If to CU and CU Bank, addressed to:
CU Bancorp
16030 Ventura Boulevard
Encino, California 91436-4487
Attention: Stephen G. Carpenter
With a copy addressed to:
Anita Wolman, Esq.
CU Bancorp
16030 Ventura Boulevard
Encino, California 91436-4487
Telecopier No: (818) 907-5024
If to Shareholder, addressed to:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
With a copy addressed to:
Manatt, Phelps & Phillips
11355 West Olympic Blvd.
Los Angeles, CA 90064
Attention: Barbara S. Polsky, Esq.
Telecopier No: (310) 312-4224
or at such other address and to the attention of such other person as a party
may notice to the others in accordance with this Section 3.8. Any such notice or
communication shall be deemed received on the date delivered personally or
delivered by confirmed facsimile transmission, on the first Business Day after
it was sent by overnight carrier, postage prepaid with return receipt requested
or on the third Business Day after it was sent by certified or registered mail,
postage prepaid with return receipt requested.
H-5
<PAGE> 148
3.9 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
3.10 Severability and the Like. If any provision of this Agreement
shall be held by a court of competent jurisdiction to be unreasonable as to
duration, activity or subject, it shall be deemed to extend only over the
maximum duration, range of activities or subjects as to which such provision
shall be valid and enforceable under applicable law. If any provisions shall,
for any reason, be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability shall
not affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
3.11 Waiver of Breach. Any failure or delay by CU and CU Bank in
enforcing any provision of his Agreement shall not operate as a waiver thereof.
The waiver by CU and CU Bank of a breach of any provision of this Agreement
shall not operate as a waiver thereof. The waiver by CU and CU Bank of a breach
of any provision of this Agreement by the Shareholder shall not operate or be
construed as a waiver of any subsequent breach or violation thereof. All waivers
shall be in writing and signed by the party to be bound.
IN WITNESS WHEREOF, the parties to this Agreement have caused and duly
executed this Agreement as of the day and year first above written.
CU BANCORP
By:
--------------------------------
Title:
-----------------------------
CALIFORNIA UNITED BANK,
NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
SHAREHOLDER
-----------------------------------
(Shareholder's Name)
H-6
<PAGE> 149
SPOUSAL CONSENT
I am the spouse of __________________, the Shareholder in the above
Agreement. I understand that I may consult independent legal counsel as to the
effect of this Agreement and the consequences of my execution of this Agreement
and, to the extent I felt it necessary, I have discussed it with legal counsel.
I hereby confirm this Agreement and agree that it shall bind my interest in the
Shares, if any.
------------------------------------
(Shareholder's Spouse's Name)
H-7
<PAGE> 1
EXHIBIT 2.(C)
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
HOME INTERSTATE BANCORP,
HOME BANK,
CU BANCORP AND
CALIFORNIA UNITED BANK, NATIONAL ASSOCIATION
This Amendment No. 1 (the "Amendment") to the Agreement and Plan of
Reorganization dated January 10, 1996 (the "Agreement") by and among Home
Interstate Bancorp ("Home"), Home Bank ("Home Bank"), CU Bancorp ("CU") and
California United Bank, National Association ("CU Bank") (collectively, the
"Parties"), is entered into as of March __, 1996 by and among the Parties.
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Agreement.
R E C I T A L S
WHEREAS, the Agreement provides, among other things, that the Parties
intend to cause the merger of Home Bank, a state bank, with and into CU Bank, a
national Bank, at the Effective Time or as soon as practicable thereafter;
WHEREAS, after discussions with various bank regulatory agencies and an
assessment of the relative costs and benefits of a state bank versus a national
bank, the Parties have decided to modify the original structure of the proposed
merger between Home Bank and CU Bank, as set forth in the Agreement, to provide
for the merger of CU Bank with and into Home Bank, with Home Bank surviving the
merger (the "Surviving Bank"); and
WHEREAS, the Surviving Bank, following the consummation of the merger
between CU Bank and Home Bank, will operate as a state bank;
WHEREAS, as a result of the revised structure of the proposed merger
between CU Bank and Home Bank, certain terms and provisions of the Agreement
require modification;
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1
<PAGE> 2
1. Section 1.7 shall be amended to read in its entirety as
follows:
"'Bank Merger' means the merger of CU Bank with and into Home
Bank, with Home Bank surviving the Merger."
2. As a result of the foregoing amendment, Sections 1.79, 1.80 and
1.81, as originally set forth in the Agreement, shall become Sections 1.80,
1.81 and 1.82, respectively.
3. Section 1.79 shall be amended to read in its entirety as
follows:
"1.79 'Surviving Bank' means Home Bank, following the
consummation of the Bank Merger."
4. The last sentence of Section 4.6 shall be amended to read in
its entirety as follows:
"Except as set forth in the Home Schedules, no consent of,
approval of, notice to or filing with any governmental authority having
jurisdiction over any aspect of the business or assets of Home or Home Bank,
and no consent of, approval of or notice to any other Person, is required in
connection with the execution and delivery by Home and Home Bank of this
Agreement, by Home of the Agreement of Merger, by Home and Home Bank of the
Bank Merger Agreement, or the consummation by Home and Home Bank of the Merger
or Bank Merger or the transactions contemplated hereby or thereby, except (i)
the approval of this Agreement and the transactions contemplated hereby by the
shareholders of Home and the sole shareholder of Home Bank; (ii) such approvals
as may be required by the FRB and the Superintendent; (iii) the filing of the
Agreement of Merger with the California Secretary; (iv) the filing of the Bank
Merger Agreement with the Superintendent and the California Secretary; and (v)
the filing with and approval by the SEC of the S-4 and the Proxy Statement.
5. Section 4.26 shall be amended to read in its entirety as
follows:
"4.26 Disclosure Documents and Applications. None of the
information supplied or to be supplied by or on behalf of Home or Home Bank
("Home Supplied Information") for inclusion in the documents to be filed with
the SEC, FRB, the Superintendent, or any governmental entity in connection with
the transactions contemplated in this Agreement will, at the respective times
such documents are filed or become effective, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading."
2
<PAGE> 3
6. The last sentence of Section 5.6 shall be amended to read in
its entirety as follows:
"Except as set forth in the CU Schedules, no consent of,
approval of, notice to or filing with any governmental authority having
jurisdiction over any aspect of the business or assets of CU or CU Bank, and no
consent of, approval of or notice to any other Person, is required in
connection with the execution and delivery by CU and CU Bank of this Agreement,
by CU of the Agreement of Merger, by CU Bank of the Bank Merger Agreement, or
the consummation by CU and CU Bank of the Merger or Bank Merger or the
transactions contemplated hereby or thereby, except (i) the approval of this
Agreement and the transactions contemplated hereby by the shareholders of CU
and the sole shareholder of CU Bank; (ii) such approvals as may be required by
the FRB and the Superintendent; (iii) the filing of the Agreement of Merger
with the California Secretary; (iv) the filing of the Bank Merger Agreement
with the Superintendent and the California Secretary; and (v) the filing with
the approval by the SEC of the S-4 and the Proxy Statement."
7. Section 5.26 shall be amended to read in its entirety as
follows:
"5.26 Disclosure Documents and Applications. None of the
information supplied or to be supplied by or on behalf of CU or CU Bank ("CU
Supplied Information") for inclusion in the documents to be filed with the SEC,
FRB, the Superintendent, or any other governmental entity in connection with
the transactions contemplated in this Agreement will, at the respective times
such documents are filed or become effective, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading."
8. Section 6.3(j) shall be amended to read in its entirety as
follows:
"(j) furnish to CU, as soon as practicable, and in any event
within thirty days after it is prepared, (i) a copy of any report submitted to
the board of directors of Home or Home Bank, provided, however, that Home need
not furnish to CU communications of Home's legal counsel regarding Home's rights
and obligations under this Agreement or books, records and documents covered by
the attorney-client privilege, or which are attorneys' work product, (ii)
copies of all reports, filings, certificates, correspondence and other
documents filed with or received from the SEC, FRB, FDIC, Superintendent or any
other governmental or regulatory entity, (iii) monthly unaudited consolidation
balance sheets and consolidated statements of operations of Home; (iv) all
proxy statements, information statements, financial statements, reports, sent
by Home to its shareholders or other security holders, and (v) such other
existing reports as CU may reasonably request relating to Home or Home Bank."
9. Section 6.6 shall be amended to read in its entirety as follows:
"6.6 Notices; Reports. Home and Home Bank will promptly notify
CU of any event of which Home or Home Bank obtains knowledge which has had or
may
3
<PAGE> 4
reasonably be expected to have a materially adverse effect on the financial
condition, operations, business or prospects of Home on a consolidated basis or
in the event that Home or Home Bank determines that either is unable to fulfill
any of the conditions to the performance of CU's obligations hereunder, as set
forth in Articles IX or XI herein."
10. Section 7.3(j) shall be amended to read in its entirety as
follows:
"(j) furnish to Home, as soon as practicable, and in any event
within thirty days after it is prepared (i) a copy of any report submitted to
the board of directors of CU or CU Bank, provided, however, that CU need not
furnish to Home communications of CU's legal counsel regarding CU's rights and
obligations under this Agreement or books, records and documents covered by the
attorney-client privilege, or which are attorney's work product, (ii) copies of
all reports, filings, certificates, correspondence and other documents filed
with or received from the SEC, FRB, FDIC, OCC or any other governmental or
regulatory entity, (iii) monthly unaudited consolidated balance sheets and
consolidated statements of operations of CU, (iv) as soon as available, all
proxy statements, information statements, financial statements, reports,
letters and communications sent by CU to its shareholders or other security
holder, and (v) such other existing reports as Home may reasonably request
relating to CU or CU Bank."
11. Section 7.6 shall be amended to read in it entirety as follows:
"7.6 Notices; Reports. CU and CU Bank will promptly notify Home
of any event of which CU or CU Bank obtains knowledge which has had or may
reasonably be expected to have a materially adverse effect on the financial
condition, operations, business or prospects of CU on a consolidated basis or
in the event that CU or CU Bank determines that either is unable to fulfill any
of the conditions to the performance of Home's obligations hereunder, as set
forth in Articles IX or XI herein."
12. Section 9.3 shall be amended to read in its entirety as follows:
"9.3 Regulatory Approvals." To the extent required by applicable
law or regulation, all approvals or consents of any governmental authority,
including, without limitation, those of the FRB and the Superintendent shall
have been obtained or granted for the Merger and Bank Merger and the
transactions contemplated hereby, and the applicable waiting period under all
laws have expired. All other statutory or regulatory requirements for the valid
completion of the transactions contemplated hereby shall have been satisfied."
13. Section 9.4 shall be amended to read in its entirety as follows:
"9.4 Tax Opinion. CU and Home shall have received an opinion
from Arthur Andersen that the Merger and the Bank Merger will not result in the
recognition of gain or loss for federal income tax purposes to CU, CU Bank,
Home or Home Bank, nor will the issuance of the CU Stock result in the
recognition of gain or loss by the holders of Home Stock who receive such stock
in connection with the Merger."
4
<PAGE> 5
14. Section 10.5 shall be amended to read in its entirety as
follows:
"10.5 Officer's Certificate. There shall have been delivered to
Home on the Closing Date a certificate executed by the President and the Chief
Financial Officer of each of CU and CU Bank certifying, to the best of their
knowledge, compliance with all of the provisions of Sections 10.2, 10.3, 10.4
and 10.11."
15. Section 10.14 shall be amended to read in its entirety as
follows:
"10.14 Non-Performing Loans. CU Bank's Non-Performing Loans
shall not exceed 75% of (i) the shareholder's equity of CU Bank as of the month
end prior to the Effective Time plus (ii) the loan loss reserves of CU Bank."
16. The last sentence of Section 11.2 shall be amended to read in
its entirety as follows:
"It is understood and acknowledged that the representations
being made on and as of the Closing Date shall be made with respect to the Home
Schedules as updated in accordance with Section 6.3(k)."
17. Section 12.1 shall be amended to read in its entirety as
follows:
"At and as of the Effective Time, the former officers and
employees of Home and CU Bank who become officers and employees of the
Surviving Company or Surviving Bank ("Transferred Employees") shall, in that
capacity, be entitled to participate in all employee benefits and benefit
programs of the Surviving Company or Surviving Bank, as the case may be, in
accordance with the terms of such employee benefit programs. Surviving Company
or Surviving Bank, as the case may be, shall recognize such Transferred
Employees' service with Home and CU Bank for purposes of eligibility and
vesting under all benefit programs. Surviving Company or Surviving Bank, as the
case may be, shall also cover under its health plans, without the application
of any pre-existing limitation or exclusion, all Transferred Employees and
their covered dependents who are covered under similar Home or CU Bank health
plans as of the Closing Date and who change coverage to Surviving Company's or
Surviving Bank's health plans, as the case may be, at the time such Transferred
Employees are first provided the option to enroll in Surviving Company's or
Surviving Bank's health plans."
18. This Amendment may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to each party hereto.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties to this Amendment have duly executed
this Amendment as of the day and year first above written.
CU BANCORP
By:
-----------------------------------------
Name:
Title:
CALIFORNIA UNITED BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------
Name:
Title:
HOME INTERSTATE BANCORP
By:
-----------------------------------------
Name:
Title:
HOME BANK
By:
-----------------------------------------
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.(a)
CU BANCORP 1995 RESTRICTED STOCK PLAN
1. PURPOSE
This CU BANCORP 1995 RESTRICTED STOCK PLAN (the "Plan") is intended to promote
the interests of CU Bancorp (the "Corporation") and its subsidiaries by
providing a method whereby employees performing services for the Corporation and
its subsidiaries may be offered incentives and rewards which will encourage them
to view the Corporation from an ownership perspective, create shareholder value
and continue in the employ or service of the Corporation or its subsidiaries.
The Plan will become effective upon stockholder approval of the Plan.
2. ADMINISTRATION
The Plan will be administered by a committee or committees (which term includes
subcommittees) appointed by, and consisting of one or more members of, the Board
of Directors of the Corporation (the "Board"). The Board may delegate the
responsibility for administration of the Plan with respect to designated classes
of eligible award recipients to different committees, subject to such
limitations as the Board deems appropriate. The composition of any committee
responsible for administration of the Plan with respect to persons who are
subject to trading restrictions of Section 16(b) of the Securities Exchange Act
of 1934 (the "1934 Act") with respect to securities of the Corporation shall
comply with the applicable requirements of Rule 16b-3 of the Securities and
Exchange Commission (or a successor provision). All of the members of the
Committee shall be "disinterested persons" as provided in Rule 16b-3(c)(2)(i).
Members of a committee will serve for such term as the Board may determine,
subject to removal by the Board at any time. Any committee appointed by the
Board shall have full authority to administer the Plan within the scope of its
delegated responsibilities, including authority to interpret and construe any
relevant provision of the Plan and to adopt such rules and regulations as it may
deem necessary. Decisions of a committee made within the discretion delegated to
it by the Board are final and binding on all persons who have an interest in the
Plan. With respect to any matter, the term "Committee" refers to the committee
that has been delegated authority with respect to such matter. Any action of the
Committee shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
a. Specific Powers
1
<PAGE> 2
The Committee shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
i. To determine any conditions or restrictions imposed
on Restricted Stock acquired pursuant to the Plan
(including, but not limited to, repurchase rights,
forfeiture restrictions and restrictions on
transferability).
ii. Subject to section 6, to construe and interpret the
Plan and the Restricted Stock granted under it, to
construe and interpret any conditions or restrictions
imposed on Restricted Stock acquired pursuant to the
Plan, to define the terms used herein, and to
establish, amend and revoke rules and regulations for
its administration. The Committee, in the exercise of
this power, may correct any defect, omission or
inconsistency in the Plan or in any Agreement in a
manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
iii. Generally, to exercise such powers and to perform
such acts as it deems necessary or expedient to
promote the best interests of the Corporation.
iv. The Committee shall comply with the provisions of
Rule 16b-3 promulgated pursuant to the 1934 Act, as
in effect from time to time, to the extent applicable
to the Plan.
b. Definitions
Subject to the Committee's powers to interpret and modify the Plan and
definitions thereunder, the following definitions shall apply:
i. "Restricted Stock" or "Restricted Shares" is/are
shares of Common Stock which have been awarded to a
Participant subject to the restrictions set forth in
Section 6a herein, so long as such restrictions are
in effect.
ii. Restricted Period means the period or periods
designated by Section 6a or otherwise by the
Committee or the Board of Directors of the
Corporation, as the case may be, in respect of any
award of shares of Common Stock, or any part or parts
of such award with respect to any Participant.
2
<PAGE> 3
3. ELIGIBILITY FOR AWARDS
Awards may be granted under the Plan to those employees of the Corporation and
its subsidiaries (including officers, whether or not they are directors) as the
Committee from time to time selects. However, in no event may an award be made
to any individual who is a director, but not an officer, of the Corporation.
Except as expressly provided otherwise, subsidiary includes, for purposes of the
Plan, any entity in which the Corporation has a directo or indirect significant
ownership interest, and any entity which may become a direct or indirect parent
of the Corporation.
4. STOCK SUBJECT TO THE PLAN
a. Class.
The stock which is the subject of awards granted under the Plan is the
Corporation's authorized but unissued common stock ("Common Stock").
b. Aggregate Award Limit.
The total number of shares made subject to awards issued under the Plan
may not exceed 75,000 shares (subject to adjustment under Section 4(c)
and (e)).
c. Share Counting Rules.
i. For purposes of this Section 4, the number of shares
subject to an award is the maximum, gross number of
shares which could be issued under the award.
ii. The maximum number of shares that may be made subject
to awards under the Plan shall be increased by the
number of shares subject to the Restricted Period
under the Plan if such award is terminated, cancelled
or forfeited for any reason prior to lapse of the
Restricted Period.
d. Adjustments.
In the event any change is made to the Common Stock subject to the Plan
or subject to any outstanding award granted under the Plan
3
<PAGE> 4
(whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares,
exchange of shares, or other change in corporate or capital structure
of the Corporation), then, unless such change results in a Terminating
Event as defined hereinbelow, the Committee shall make appropriate
adjustments to the maximum number of shares subject to the Plan, and
shares previously granted. Any additional shares received by an
individual with respect to shares of Restricted Stock will be subject
to the same restrictions and shall be deposited with the corporation.
FORM AND GRANT OF AWARDS
An award must be in the form of shares of Restricted Stock meeting the
specifications of Section 6, as the Committee may determine. The Committee may
grant awards independently of other compensation or in lieu of compensation that
would otherwise be paid, whether at the election of the grantee or otherwise.
5. RESTRICTED SHARES
The terms, conditions and restrictions to which restricted shares and share
rights are subject shall be evidenced by instruments in such form as the
Committee may from time to time approve and may vary from grant to grant, but
shall conform to the following:
a. Provisions of Restricted Shares.
A Restricted Share issued under the Plan shall consist of a share of
Common Stock, the retention and transfer of which are subject to such
terms, conditions and restrictions (including repurchase and/or
forfeiture rights in favor of the Corporation) as the Committee shall
determine.
Subject to the authority of the Committee to determine restrictions,
the restrictions on each share of Common Stock granted hereunder shall
terminate as follows: Restrictions with regard to 25% of any award
(shares granted at any one time) shall expire and terminate upon the
second anniversary of the grant. Thereafter restrictions shall expire
and terminate as to an additional 25% of such award on each anniversary
of the grant thereof.
b. Restrictions Applicable.
During the Restricted Period the following restrictions shall apply:
4
<PAGE> 5
i. If a Participant ceases to be an employee of the
Corporation for any reason other than death,
disability or retirement, all shares of Restricted
Stock ( which are then still defined as Restricted
Stock) theretofore awarded to him shall, upon such
cessation of employment be forfeited and returned to
the Corporation.
ii. If a Participant ceases to be an employee of the
Corporation by reason of retirement, death or
disability, then any shares of Restricted Stock owned
by such Participant shall become free and clear of
the restrictions imposed by Section 6 and the
Corporation will deliver to him (or his legal
representative, beneficiary or heir) , shares of
Common Stock. In the event that a Participant ceases
to be an employee of the Corporation by reason of his
election to retire before the normal retirement age
as defined in the CU Bancorp and California United
Bank 401K Plan, then the committee, in its
discretion, shall determine whether all or any
portion of the Restricted stock then owned by such
Participant shall be forfeited or become free of such
restrictions, and if so freed of such restrictions
the Corporation will deliver pursuant to Section 6e ,
within 60 days of his retirement, any shares of
Common Stock which have not been forfeited.
c. Agreement.
Each Participant awarded shares of Restricted Stock shall enter into an
agreement with the Corporation in a form specified by the Committee,
agreeing to the terms and conditions of the award and to such other
matters as the Committee shall, in its sole discretion, determine.
d. Certificates.
Each certificate issued in respect of shares of Restricted Stock shall
be registered in the name of the Participant, shall be deposited by him
with the Corporation together with a stock power endorsed in blank and
shall bear the following (or a similar legend):
The transferability of the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture)
contained in Section 6 of the CU Bancorp 1995 Restricted Stock
Plan, as it may be
5
<PAGE> 6
amended from time to time, and an Agreement entered into
between the registered owner and CU Bancorp. A copy of such
Plan and Agreement is on file in the Office of the General
Counsel of CU Bancorp at the principal office of the
Corporation.
e. Expiration of Restrictions.
As and when the restrictions imposed by Section 6 expire, the
Corporation shall deliver to the Participant (or his legal
representative, beneficiary or heir) a certificate without the legend
referred to in Section 6d above, representing the number of shares of
Common Stock equal to the number of shares of Restricted Stock
deposited with it by the Participant pursuant to Section 6d, as to
which the restrictions have expired. When all restrictions have
expired, the Agreement referred to in Section 6c shall be terminated.
6. ASSIGNABILITY
No Restricted Shares granted under the Plan may be sold, assigned or transferred
by the grantee other than by will or by the laws of descent and distribution
during the Restricted Period applicable to such shares., except as hereinafter
provided. Except for such restrictions, the Participant, as owner of such
shares, shall have all the rights of a stockholder, including (but not limited
to) the right to receive all dividends paid on such shares (subject the
provisions of Section 6b ) and the right to vote such shares.
7. WITHHOLDING
The Corporation's obligation to deliver shares upon the settlement of any award
under the Plan is subject to the satisfaction of all applicable federal, state
and local income and employment tax withholding obligations. The Committee may,
in its discretion and subject to such rules as it may adopt, permit the optionee
to satisfy withholding obligations, in whole or in part, by delivering shares of
Common Stock already held by the optionee or by electing that a portion of the
total value of the shares of Common Stock otherwise issuable under the award be
paid in the form of cash in lieu of the issuance of Common Stock and that such
cash payment be applied to the satisfaction of the withholding obligations.
8. ACCELERATION AND TERMINATION OF AWARDS
Not less than thirty (30) days prior to the dissolution or liquidation of the
Corporation (or its principal subsidiary), or a reorganization, merger, or
consolidation of the Corporation (or its principal subsidiary) with one or more
corporations as a result of which the Corporation (or its principal subsidiary)
will not be the surviving or result-
6
<PAGE> 7
ing corporation (or the ownership of 50% of the shares of the corporation or its
principal subsidiary changes as a result of the transaction), or a sale of
substantially all the assets of the Corporation to another person, or a reverse
merger in which the Corporation is the surviving corporation but the shares of
the Corporation's stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property or any other transaction
in which more than 50% of the ownership of the Corporation is transferred (a
"Terminating Event"), all restrictions on any Restricted Shares shall lapse and
the Restricted Period shall immediately terminate.
The Committee shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation or change in control of the
Corporation, as defined by the Committee, (other than a Terminating Event) to
provide for the termination of the Restricted Period as to any Restricted Shares
and/or the settlement of any such award in cash upon or immediately before the
effective time of such event. However, the grant of awards under the Plan will
in no way affect the right of the Corporation to adjust, reclassify, reorganize,
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
9. REGISTRATION OF SHARES.
Certificates shall bear appropriate legends indicating that the Restricted
Shares have not been registered pursuant to the Securities Act of 1933, if
applicable. The Corporation is under no obligation to register such shares or to
comply with any exemption from such registration, including those portions of
Rule 144 under the Act to be complied with by the issuer.
10. VALUATION OF COMMON STOCK
For all valuation purposes under the Plan, the fair market value of a share of
Common Stock will be its closing price, as quoted on the NASDAQ, on the day
immediately prior to the date in question. If there is no quotation available
for such day, then the closing price on the next preceding day for which there
does exist such a quotation shall be used. If, however, the Committee determines
that, as a result of circumstances existing on any date, the use of such price
is not a reasonable method of determining fair market value on that date, the
Committee may use such other method as, in its judgment, is reasonable.
11. EFFECTIVE DATE AND TERM OF PLAN
a. Effective Date.
7
<PAGE> 8
The Plan will become effective on the date it is approved by the
holders of at least a majority of the Corporation's voting stock
represented and voting at a duly held meeting at which a quorum is
present or by written consent. If such shareholder approval is not
obtained within 12 months of adoption by the Board, no awards may be
granted hereunder.
b. Term.
No further grants may be made under the Plan after the third
anniversary of the date of adoption of the Plan by the Board.
12. AMENDMENT OR DISCONTINUANCE
a. Plan.
The Board may amend, suspend or discontinue the Plan in whole or in
part at any time; provided, however, that, such action may not
adversely affect rights and obligations with respect to awards at the
time outstanding under the Plan. The Board may not, without the
approval of the Corporation's shareholders (i) materially increase the
number of shares of Common Stock which may be issued under the Plan
(unless necessary to effect the adjustments required under Section
4(e), (ii) materially modify the eligibility requirements for awards
under the Plan or (iii) make any other change with respect to which the
Board determines that shareholder approval is required by applicable
law or regulatory standards.
b. Awards.
The Committee shall have full power and authority to modify or waive
any or all of the terms, conditions or restrictions applicable to any
outstanding award, to the extent not inconsistent with the Plan;
provided, however, that no such modification or waiver may, without the
consent of the holder, adversely affect the holder's rights thereunder.
13. NO OBLIGATION
Nothing contained in the Plan (or in any award granted pursuant to the Plan)
shall confer upon any person any right to continue in the employ of, or to
provide services to, the Corporation or any affiliate or constitute any contract
or agreement of employment or service or interfere in any way with the right of
the Corporation or an
8
<PAGE> 9
affiliate to reduce such person's compensation from the rate in existence at the
time of the granting of an award or to terminate such person's employment or
services at any time, with or without cause, but nothing contained herein or in
any award shall affect any contractual rights of any person pursuant to a
written employment, consulting or service agreement.
14. REGULATORY APPROVALS
The implementation of the Plan, the granting of any award under the Plan, and
the issuance of Common Stock are subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the awards granted under it or the Common Stock issued pursuant
to it.
15. GOVERNING LAW
To the extent not otherwise governed by federal law, the Plan and its
implementation shall be governed by and construed in accordance with the laws of
the State of California.
9
<PAGE> 1
Exhibit 21. Subsidiaries of the Registrant
California United Bank, National Association (100% owned)
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