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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 30, 1997
STERLING WEST BANCORP.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3712404
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
COMMISSION FILE NUMBER: 0-10794
3287 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90010
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 384-4444
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
NOT APPLICABLE
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
NOT APPLICABLE
ITEM 3 BANKRUPTCY OR RECEIVERSHIP
NOT APPLICABLE
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
NOT APPLICABLE
ITEM 5. OTHER EVENTS
On December 30, 1997, Sterling West Bancorp. ("Registrant"),
Sterling Bank (the "Bank") and The Pacific Bank ("Pacific") entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement"). The
Reorganization Agreement provides for, among other things, the merger ("Merger")
of a subsidiary corporation to be organized by Pacific with and into Registrant,
immediately followed by the merger of Registrant with and into Registrant's
wholly owned subsidiary, the Bank, immediately followed by the merger of the
Bank with and into Pacific (collectively, the "Merger"). The Merger is subject
to, among other customary conditions, regulatory approval and approval by the
shareholders of Registrant and the shareholders of Pacific.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
NOT APPLICABLE
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS
NOT APPLICABLE
(B) PRO FORMA FINANCIAL INFORMATION
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NOT APPLICABLE
(C) EXHIBITS
2.1 Agreement and Plan of Reorganization by and among
Sterling West Bancorp, Sterling Bank and The Pacific Bank,
dated as of December 30, 1997.
ITEM 8. CHANGE IN FISCAL YEAR
NOT APPLICABLE
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
NOT APPLICABLE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
STERLING WEST BANCORP
(Registrant)
Date: January 20, 1998 By /s/ Allan Dalshaug
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Allan Dalshaug
President and
Chief Executive Officer
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Exhibit Index
2.1 Agreement and Plan of Reorganization
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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
THE PACIFIC BANK,
STERLING WEST BANCORP.
AND
STERLING BANK
DATED AS OF DECEMBER 30, 1997
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TABLE OF CONTENTS
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1. THE MERGER................................................................................1
1.1 Effective Time...................................................................1
1.2 Effect of the Merger.............................................................1
2. CONVERSION AND CANCELLATION OF SHARES.....................................................2
2.1 Conversion of Common Stock of BANCORP............................................2
2.2 Purchase Price...................................................................2
2.3 Adjustments to Consolidated Book Value...........................................3
2.4 Surrender of BANCORP Common Stock................................................5
2.5 No Further Transfers of BANCORP Common Stock.....................................5
2.6 Treatment of Stock Options.......................................................5
3. COVENANTS OF THE PARTIES..................................................................6
3.1 Covenants of BANCORP and BANK....................................................6
(a) Approval by BANCORP Shareholders..........................................6
(b) Shareholder Lists and Other Information...................................6
(c) Reports of Board of Directors.............................................7
(d) Government Approvals......................................................7
(e) Capital Commitments and Expenditures......................................7
(f) Notification of Breach of Representations, Warranties and
Covenants..............................................................7
(g) Financial Statements......................................................7
(h) Compensation..............................................................8
(i) Conduct of Business in the Ordinary Course................................9
(j) Press Releases...........................................................13
(k) No Merger or Solicitation................................................13
(l) 401(k) Plan..............................................................14
(m) Changes in Capital Stock.................................................14
(n) Dividends................................................................14
(o) Accounting Methods.......................................................15
(p) Additional Agreements....................................................15
(q) Access to Properties, Books and Records; Confidentiality.................15
(r) Employee Welfare Benefit Plans...........................................15
(s) Nonsolicitation Agreements...............................................15
(t) Litigation Developments..................................................15
(u) Resolution of Assets.....................................................15
(v) Customers of BANK........................................................16
(w) Stock Options............................................................16
(x) Loans in Excess of BANK Credit Authority.................................16
(y) Certain Tax Matters......................................................16
(z) BSC Mortgages............................................................16
(aa) Director and Officer Liability..........................................16
(bb) Loan Committee Participation............................................16
(cc) Employment Issues.......................................................17
(dd) Compliance with the MOUs................................................17
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(ee) Leases..................................................................17
(ff) Quarterly Progress Reports..............................................17
3.2 Covenants of PACIFIC............................................................17
(a) Government Approvals.....................................................17
(b) Notification of Breach of Representations, Warranties and
Covenants.............................................................18
(c) Press Releases...........................................................18
(d) Transferred Employees....................................................18
(e) Indemnification..........................................................18
3.3 Covenants of the Parties........................................................19
4. REPRESENTATIONS AND WARRANTIES OF BANK...................................................19
(a) Corporate Status and Power to Enter Into Agreements......................19
(b) Articles, Bylaws, Books and Records......................................19
(c) Compliance With Laws, Regulations and Decrees............................20
(d) Capitalization...........................................................20
(e) Equity Interests.........................................................20
(f) Financial Statements; Regulatory Reports.................................20
(g) Tax Returns..............................................................21
(h) Material Adverse Change..................................................22
(i) No Undisclosed Liabilities...............................................22
(j) Properties and Leases....................................................23
(k) Material Contracts.......................................................24
(l) Classified Loans.........................................................24
(m) Restrictions on Investments..............................................25
(n) Employment Contracts and Benefits........................................25
(o) Collective Bargaining and Employment Agreements..........................26
(p) Compensation of Officers and Employees...................................27
(q) Legal Actions and Proceedings............................................27
(r) Execution and Delivery of the Agreement..................................27
(s) Insurance................................................................28
(t) Loan Loss Reserves.......................................................28
(u) Transactions With Affiliates.............................................28
(v) SBA Lender...............................................................29
(w) BSC Mortgages............................................................29
(x) Accuracy of Representations and Warranties...............................29
5. REPRESENTATIONS AND WARRANTIES OF BANCORP................................................29
(a) Corporate Status and Power to Enter Into Agreement.......................29
(b) Corporate Status and Power of BANCORP....................................29
(c) Articles, Bylaws, Books and Records......................................29
(d) Compliance With Laws, Regulations and Decrees............................30
(e) Financial Statements, Regulatory Reports.................................30
(f) Material Adverse Change..................................................31
(g) Execution and Delivery of the Agreement..................................31
(h) Accuracy of Representations and Warranties...............................32
(i) Capitalization...........................................................32
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(j) Tax Returns..............................................................32
(k) Retention of Broker or Consultant........................................33
(l) No Undisclosed Liabilities...............................................33
(m) Properties and Leases....................................................33
(n) Material Contracts.......................................................33
(o) Employment Contracts and Benefits........................................33
(p) Compensation of Officers and Employees...................................34
(q) Legal Actions and Proceedings............................................34
(r) Classified Loans.........................................................34
(s) Loan Loss Reserve........................................................35
(t) Compliance With ERISA....................................................35
(u) Equity Interests.........................................................36
6. REPRESENTATIONS AND WARRANTIES OF PACIFIC................................................36
(a) Corporate Status and Power to Enter Into Agreement.......................36
(b) Corporate Status and Power of PACIFIC....................................36
(c) Execution and Delivery of the Agreement..................................36
(d) Government Approvals.....................................................37
(e) Accuracy of Representations and Warranties...............................37
7. CONDITIONS TO THE OBLIGATIONS OF PACIFIC.................................................37
(a) Representations and Warranties...........................................37
(b) Compliance and Performance Under Agreement...............................37
(c) Material Adverse Change..................................................38
(d) Approval of Agreement....................................................38
(e) Officer's Certificate....................................................38
(f) Opinion of Counsel.......................................................38
(g) Absence of Legal Impediment..............................................38
(h) Government Approvals.....................................................39
(i) Accountant's Letter......................................................39
(j) Dissenting Shares........................................................39
(k) Unaudited Financials.....................................................39
(l) Closing Documents........................................................40
(m) Consents.................................................................40
(n) Fairness Opinion.........................................................40
(o) Losses in Investment and Loan Portfolios.................................40
(p) Satisfaction of Spending or Other Commitments............................40
(q) Compliance Examinations..................................................40
(r) Regulatory Deficiencies..................................................41
(s) Regulatory Examination...................................................41
(t) Nonsolicitation Agreements...............................................41
(u) Resignation of Directors and Certain Employees...........................41
(v) SBA Program..............................................................41
(w) Certain Tax Matters......................................................41
(x) Employment Issues........................................................41
(y) The MOUs.................................................................41
(z) Leases...................................................................41
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8. CONDITIONS TO THE OBLIGATIONS OF BANCORP AND BANK........................................42
(a) Representations and Warranties...........................................42
(b) Compliance and Performance Under Agreement...............................42
(c) Officer's Certificate....................................................42
(d) Opinion of Counsel.......................................................42
(e) Government Approvals.....................................................42
(f) Closing Documents........................................................42
(g) Absence of Legal Impediment..............................................43
(h) Fairness Opinion.........................................................43
(i) Approval of Agreement....................................................43
9. CLOSING..................................................................................43
(a) Closing Date.............................................................43
(b) Delivery of Documents....................................................43
(c) Filings..................................................................43
10. EXPENSES................................................................................43
11. AMENDMENT; TERMINATION..................................................................44
(a) Amendment................................................................44
(b) Termination..............................................................44
(c) Notice...................................................................45
(d) Breach of Obligations....................................................45
(e) Termination and Expenses.................................................46
12. MISCELLANEOUS...........................................................................46
(a) Notices..................................................................46
(b) Binding Agreement........................................................47
(c) Governing Law............................................................47
(d) Attorneys' Fees..........................................................47
(e) Entire Agreement; Severability...........................................47
(f) Counterparts.............................................................48
(g) Waivers..................................................................48
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EXHIBITS
EXHIBIT A-1 Merger Agreement (Pacific Merger Sub and Bancorp)
EXHIBIT A-2 Merger Agreement (Bancorp and Bank)
EXHIBIT A-3 Merger Agreement (Bank and Pacific)
EXHIBIT B Certificate and Agreement of Bancorp Directors
EXHIBIT C Nonsolicitation Agreement
EXHIBIT D Schedule of Nonsolicitation Agreement Signatories
EXHIBIT E Opinion of Bancorp and Bank Counsel
EXHIBIT F Opinion of Pacific Counsel
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 30, 1997
("Agreement"), is by and among THE PACIFIC BANK, a national association
("PACIFIC"), STERLING WEST BANCORP., a California corporation ("BANCORP"), and
STERLING BANK, a California banking corporation and wholly-owned subsidiary of
BANCORP ("BANK").
A. The Boards of Directors of PACIFIC, BANCORP and BANK deem it
advisable and in the best interests of PACIFIC, BANCORP, BANK and their
respective shareholders to consummate the business combination provided for
herein whereby PACIFIC would acquire BANCORP and the goodwill associated
therewith through the merger of PACIFIC's merger subsidiary ("PACIFIC Merger
Sub") with and into BANCORP with BANCORP as the survivor, the merger of BANCORP
with and into BANK with BANK as the survivor and then the merger of BANK with
and into PACIFIC immediately thereafter (collectively, the "Merger") such that
on the effective date of the Merger, PACIFIC will be the only surviving
institution.
B. This Agreement and the merger agreements substantially in the form
attached hereto as Exhibits A-1, A-2 and A-3 (collectively, the "Merger
Agreements") have been approved by the Boards of Directors of PACIFIC, BANCORP
and BANK and will be submitted for approval to the shareholders of PACIFIC and
BANCORP at special meetings of their respective shareholders.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements provided for or contained herein, the
parties hereto agree as follows:
1. THE MERGER.
1.1 Effective Time. Subject to the terms and conditions of this
Agreement and after all regulatory approvals have been obtained and the required
waiting periods have passed, upon the filing with the Office of the Comptroller
of the Currency (the "OCC") of a duly executed Merger Agreement substantially in
the form attached hereto as Exhibit A-3 (the "Merger Agreement") and after the
OCC has issued its letter certifying the Merger, the Merger shall become
effective. The date on which the Merger is effective as specified in the Merger
Agreements shall be referred to herein as the "Effective Date."
1.2 Effect of the Merger. Subject to the terms and conditions of this
Agreement and the Merger Agreement, on the Effective Date, PACIFIC Merger Sub
shall be merged with and into BANCORP with BANCORP as the surviving corporation.
Immediately thereafter, BANCORP shall merge with and into BANK with BANK
surviving. Immediately thereafter, BANK shall merge with and into PACIFIC, and
PACIFIC shall be the surviving institution. (PACIFIC after the three mergers
described above is referred to
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herein as the "Surviving Institution"). All assets, liabilities, rights,
goodwill, privileges, immunities, powers, franchises and interests of BANCORP
and BANK in and to every type of property (real, personal and mixed) and choses
in action, as they exist as of the Effective Date, including appointments,
designations and nominations and all other rights and interests as trustee,
executor, administrator, registrar of stocks and bonds, guardian of estate,
assignee, receiver and in every other fiduciary capacity, shall pass and be
transferred to and vest in the Surviving Institution by virtue of the Merger at
the Effective Time without any deed, conveyance or other transfer; and the
separate existence of BANCORP and BANK shall cease and the corporate existence
of PACIFIC as the Surviving Institution shall continue unaffected and unimpaired
by the Merger.
2. CONVERSION AND CANCELLATION OF SHARES.
2.1 Conversion of Common Stock of BANCORP. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders of record
(the "BANCORP Record Holders") of all the issued and outstanding shares of
common stock of BANCORP (the "BANCORP Common Stock"), the outstanding shares of
BANCORP Common Stock (other than any shares as to which dissenters' rights have
been perfected) shall automatically be converted exclusively into, and
constitute only the right of BANCORP Record Holders to receive in exchange for
their shares of BANCORP Common Stock, a payment in cash in an aggregate amount
determined in accordance with the terms and conditions of this Section 2. At the
Effective Time, all such BANCORP Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist. From and
after the Effective Time, the holders of certificates formerly representing
BANCORP Common Stock shall cease to have any rights with respect thereto other
than any dissenters' rights they have perfected pursuant to Chapter 13 of the
California General Corporation Law (the "GCL").
2.2. Purchase Price. The aggregate purchase price (the "Purchase Price")
to be paid by PACIFIC for the BANCORP Common Stock issued and outstanding
immediately prior to the Effective Time shall be a dollar amount calculated as
follows:
(i) One hundred seventy-five percent (175%) of the consolidated book
value of BANCORP determined in accordance with generally accepted accounting
principles within three (3) calendar days preceding the proposed Effective Date
giving effect to all adjustments required by Section 2.3 of this Agreement;
less
(ii) One Hundred Ninety Thousand Dollars ($190,000) in the event that
the tax refund of Six Hundred Three Thousand Dollars ($603,000) is not paid or
otherwise resolved to the reasonable satisfaction of PACIFIC not later than
three (3) calendar days prior to the Effective Date.
In the event such tax refund in the amount of Six Hundred Three Thousand Dollars
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($603,000) is not collected or otherwise resolved to the reasonable satisfaction
of PACIFIC, or the IRS disagrees or has disagreed with BANCORP's position on
such tax refund, and a reduction in the amount of One Hundred Ninety Thousand
Dollars ($190,000) is made in the Purchase Price, such tax refund not to exceed
Six Hundred Three Thousand Dollars ($603,000) shall not be deducted from the
consolidated book value of BANCORP for purposes of calculating the Purchase
Price. Any disallowance or additional claim made by the Internal Revenue Service
(the "IRS") in excess of Six Hundred Three Thousand Dollars ($603,000) shall be
deducted from the consolidated book value of BANCORP for purposes of calculating
the Purchase Price. In addition to the Purchase Price, PACIFIC shall pay the
investment banking fee and expenses of Hoefer & Arnett pursuant to the letter
dated June 27, 1997 between Hoefer & Arnett and BANCORP, but in no event shall
PACIFIC's payment to Hoefer & Arnett exceed Three Hundred Seventy-five Thousand
Dollars ($375,000). Any amount due under such letter agreement in excess of
Three Hundred Seventy-five Thousand Dollars ($375,000) shall be paid by BANCORP
and such payment shall reduce the consolidated book value of BANCORP to the
extent of such excess amount paid.
2.3 Adjustments to Consolidated Book Value.
(a) PACIFIC hereby agrees to the grading of the BANK's and BANCORP's
loans as of July 31, 1997 and further acknowledges BANK's and BANCORP's
methodology for their determination of the allowance for loan losses. Not less
than seven (7) nor more than thirty (30) calendar days prior to the Effective
Date, PACIFIC shall review the loan portfolios of BANCORP and BANK in
cooperation with the management of BANCORP and BANK. BANCORP's and BANK's
allowances for loan losses will be increased or decreased based upon changes
which have occurred since July 31, 1997 in the quality of their respective loan
portfolios, using BANCORP's and BANK's evaluation as of that date as the
reference point. Based upon such review, if the condition of the loan portfolio
of BANCORP or BANK has improved since July 31, 1997, BANCORP's or BANK's, as the
case may be, allowance for loan losses shall be adjusted downward through an
addition to income for any unallocated reserve as a result of such improvement,
except to the extent that a reduction in the relevant allowance for loan losses
has already been made since July 31, 1997. If the condition of the loan
portfolio of BANCORP or BANK has deteriorated since July 31, 1997, BANCORP's or
BANK's, as the case may be, allowance for loan losses shall be adjusted upward
through a charge to income as a result of such deterioration, except to the
extent that an increase in the relevant allowance for loan losses has already
been made since July 31, 1997. Any disagreement between the parties regarding
any adjustment to BANCORP's or BANK's allowance for loan losses will be resolved
by the final determination of The Secura Group. In the event The Secura Group is
not available or has a conflict of interest, then a third party mutually agreed
upon by BANK, BANCORP and PACIFIC shall make such a determination. Any such
determination by such party shall use the loan grading system and the
methodology for the determination of the allowance for loan losses employed by
the BANK and BANCORP. As used in this Agreement the term "loan portfolio" shall
include leases in which BANK or BANCORP is lessor and the term "allowance for
loan losses" shall include losses for such leases.
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(b) Within thirty (30) calendar days prior to the Effective Date, an
independent appraiser mutually approved by PACIFIC and BANCORP shall be engaged
by BANCORP and BANK to review their respective OREO. If the OREO of BANCORP and
BANK are not sold three (3) calendar days preceding the proposed Effective Date,
the net realizable value of the OREO shall be adjusted based on the value
determined by the independent appraiser.
(c) Not less than sixty (60) calendar days prior to the Effective Date
if the loan identified in Section 4(l)(3) of the BANK Disclosure Statement (as
defined in Section 4), has not been paid or resolved to the satisfaction of
PACIFIC, BANK shall obtain an appraisal of the value of the collateral securing
such loan by an independent appraiser mutually agreeable to BANK and PACIFIC.
Based upon such appraisal PACIFIC and BANK shall determine the amount of the
reserve for losses with respect to such loan. Any disagreement between the
parties regarding the amount of the reserve for losses with respect to such loan
will be resolved by the final determination of The Secura Group. In the event
The Secura Group is not available or has a conflict of interest, then a third
party mutually agreed upon by BANK, BANCORP and PACIFIC shall make such a
determination.
(d) Not less than sixty (60) calendar days prior to the Effective Date,
PACIFIC, BANCORP and BANK shall review all asserted claims of any nature against
BANCORP or BANK and all litigation pending in which BANCORP or BANK is a
defendant or a cross-defendant, to determine if any such claims or litigation
may result in a loss to BANCORP or BANK which potential loss, including
attorneys' fees, is not wholly covered by insurance or adequately reserved for
as of December 31, 1997. Any disagreement between the parties regarding the
adequacy of insurance coverage or amount of the reserve for losses with respect
to any such litigation will be resolved by the final determination of an
arbitrator jointly selected under the auspices of the American Arbitration
Association, San Francisco, California.
(e) The consolidated book value of BANCORP shall be adjusted downward
for any Significant Liabilities. "Significant Liabilities," as used in this
Agreement, shall mean those liabilities or expenses (whether operating or
capital in nature) relating to those categories and events described in the next
sentence which have not been reflected as reductions to the consolidated book
value of BANCORP pursuant to generally accepted accounting principles as of June
30, 1997 or any other date prior to the Effective Date. Significant Liabilities
shall consist of the following categories or events occurring since June 30,
1997, provided that Significant Liabilities shall not include any of the
following to which PACIFIC has consented in writing: (i) new or extended
contractual obligations over Fifty Thousand Dollars ($50,000) in amount
(individually or in the aggregate) or more than one year in duration; (ii) new
or extended leases of real or personal property (except leases where BANCORP or
BANK is the lessor and the lease was entered into in the Ordinary Course of
Business, as defined in Section 3.1(i), of BANCORP or BANK) over Fifty Thousand
Dollars ($50,000) in amount (individually or in the aggregate) or more than one
year in duration; (iii) acquisition of capital assets (or commitments to do so);
(iv) new or expanded contingent liabilities arising from claims from purchasers
of mortgages sold by BSC Mortgage Corporation (the "BSC
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Mortgages") or based upon threatened or pending litigation or other proceedings
or hazardous or toxic substances or failure to comply with applicable federal
and state laws and legal fees and costs (whether actual or estimated) related
thereto; (v) any expenses, fines, fees, penalties or similar obligations, except
those which arose in the Ordinary Course of Business, as defined in Section
3.1(i); and (iv) any new, expanded or accelerated pension or other benefits
including employment contracts and severance payments, whether or not vested.
The consolidated book value of BANCORP shall be computed without regard to the
effects of any election under Section 338(g) of the Internal Revenue Code (the
"IRC").
(f) The consolidated book value of BANCORP shall be adjusted downward
for transaction costs. Transaction costs shall include those costs related to
the transactions contemplated by this Agreement, including, but not limited to,
all out-of-pocket expenses (including fees and expenses of attorneys,
accountants, brokers, finders, appraisers, experts, consultants, printers and
costs for obtaining tail-insurance coverage for directors and officers) to
BANCORP, BANK and their affiliates incurred by BANCORP, BANK or their
affiliates. Transaction costs shall also include all costs associated with
employee retention bonuses, employee severance payments and other termination
and related payments made pursuant to contracts or agreements which are amended
or terminated in connection with the consummation of the transactions
contemplated by this Agreement. Transaction costs shall exclude the costs of
terminating the data and item processing services contract dated September 9,
1995 between EDS, Inc. and BANK and such costs shall not reduce the consolidated
book value of BANCORP. Transaction costs shall not include the investment
banking fee and expenses of Hoefer & Arnett pursuant to the letter dated June
27, 1997 between Hoefer & Arnett and BANCORP, which amount shall be paid by
PACIFIC, except to the extent such fees and expenses exceed Three Hundred
Seventy-five Thousand Dollars ($375,000).
2.4 Surrender of BANCORP Common Stock. Prior to the Effective Date,
PACIFIC shall appoint a bank or trust company mutually acceptable to PACIFIC and
BANCORP, as exchange agent (the "Exchange Agent") for the purpose of receiving
certificates representing BANCORP Common Stock pursuant to an agreement mutually
acceptable to PACIFIC and BANCORP. Within twenty-four (24) hours prior to the
Effective Date PACIFIC shall deposit, or cause to be deposited with Chase Mellon
Shareholder Services, the Purchase Price for the benefit of BANCORP Record
Holders of BANCORP Common Stock. Any interest accruing on such deposit shall be
for the benefit of PACIFIC. At and after the Effective Date, the Exchange Agent
shall deliver a cashier's check or wire transfer funds in an amount as shall be
required to be delivered to BANCORP Record Holders of BANCORP Common Stock
pursuant to Section 2.2 of this Agreement.
2.5 No Further Transfers of BANCORP Common Stock. At the Effective Date,
the stock transfer books of BANCORP shall be closed and no
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transfer of BANCORP Common Stock theretofore outstanding shall thereafter be
made.
2.6 Treatment of Stock Options. Subject to the terms of BANCORP's option
plan, each person holding one or more options (an "Option Holder") to purchase
BANCORP Common Stock pursuant to the Sterling Bancorporation 1982 Stock Option
Plan, as amended, (the "Option Plan"), shall be permitted to exercise any vested
options granted under the Option Plan to acquire BANCORP Common Stock prior to
the Effective Date, and BANCORP will facilitate the exercise of those options by
allowing the options to be exercised and taxes paid by BANCORP withholding the
appropriate number of shares from the shares subject to the options or by any
other method permitted by applicable law; provided, however, that PACIFIC shall
reasonably cooperate with BANCORP in effecting any other method of exercise of
the options under the Option Plan provided that such method of exercise does not
affect the aggregate Purchase Price to be paid by PACIFIC for BANCORP Common
Stock and, provided further, that such treatment is consistent with generally
accepted accounting principles.
3. COVENANTS OF THE PARTIES.
3.1 Covenants of BANCORP and BANK.
(a) Approval by BANCORP Shareholders. BANCORP shall cause the
Merger, this Agreement and the Merger Agreements to be submitted promptly for
the approval of its shareholders at a special meeting to be called and held in
accordance with applicable laws. Subject to its continuing fiduciary duties to
the shareholders of BANCORP, the Board of Directors of BANCORP, in authorizing
the execution and delivery of this Agreement by BANCORP, shall recommend that
this Agreement and the Merger be approved. BANCORP shall use its best efforts to
cause such meeting of its shareholders to take place as soon as possible
following execution of this Agreement. In connection with the call of such
meeting, BANCORP shall cause such proxy materials, with any amendments thereto
that may in its judgment be necessary or desirable, to be mailed to its
shareholders (the proxy materials, together with any amendments or supplements
thereto, being herein referred to as the "Proxy Statement"). Subject to its
continuing fiduciary duties to the shareholders of BANCORP, the Board of
Directors of BANCORP shall at all times prior to and during such meeting of
BANCORP shareholders recommend that the transactions contemplated hereby be
adopted and approved, and, subject to such fiduciary duties, use its best
efforts to cause such adoption and approval. Within fifteen (15) business days
after the time of execution and delivery of this Agreement, members of the Board
of Directors of BANCORP shall deliver to PACIFIC undertakings in the form
attached hereto as Exhibit B confirming such directors' approval of the
transactions contemplated hereby, and setting forth such directors' commitment
to vote his shares of BANCORP Common Stock in favor of the transactions
contemplated hereby and setting forth such directors' commitment to use his best
efforts to cause the shareholders of BANCORP to adopt and approve the
transactions contemplated hereby, subject to their above-mentioned continuing
fiduciary duties to the shareholders
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of BANCORP. Except with the prior approval of PACIFIC, which approval shall not
be unreasonably withheld, neither BANCORP nor any member of its Board of
Directors shall submit any other matters for approval of its shareholders, at
BANCORP shareholders' meeting, other than matters incidental to the conduct of
such meeting.
(b) Shareholder Lists and Other Information. After execution of this
Agreement, BANCORP shall from time to time make available to PACIFIC, upon
request, a list of its shareholders and their addresses, a list showing all
transfers of BANCORP Common Stock and such other information as PACIFIC shall
reasonably request regarding both the ownership and prior transfers of BANCORP
Common Stock. Within twenty (20) calendar days after the time of execution and
delivery of this Agreement, BANCORP shall deliver a list of any and all BANK
loans and deposits of shareholders holding five percent (5%) or more of BANCORP
Common Stock and all directors and officers of BANCORP and BANK.
(c) Reports of Board of Directors. After execution of this
Agreement, BANCORP and BANK shall provide to PACIFIC monthly written reports
provided to their respective Boards of Directors within two (2) business days
following each monthly meeting of such Boards of Directors except for privileged
material provided to such Boards of Directors.
(d) Government Approvals. BANCORP shall cooperate in all
reasonable respects with PACIFIC in its undertaking pursuant to Section 3.2(a)
to obtain the Government Approvals (as defined in Section 3.2(a)) including, if
necessary, any approval or consent from the Small Business Administration (the
"SBA") required or deemed by PACIFIC to be appropriate to consummate the Merger
in accordance with the terms of this Agreement. BANCORP further agrees, subject
to the continuing fiduciary duties of the Board of Directors of BANCORP to the
shareholders of BANCORP, to take such actions as may be reasonably requested by
PACIFIC to cause the Merger to be consummated on the terms provided in the
Merger Agreements and this Agreement as promptly as is practicable.
(e) Capital Commitments and Expenditures. After the execution of
this Agreement, no new capital commitments (individually or in the aggregate) in
excess of Twenty-five Thousand Dollars ($25,000) shall be entered into, and no
capital expenditures (individually or in the aggregate) in excess of Twenty-five
Thousand Dollars ($25,000) shall be made by BANCORP or BANK without the prior
written consent of PACIFIC, which consent shall not be unreasonably withheld.
Any such capital commitment or expenditure consented to in writing by PACIFIC
shall be treated as a capital asset of BANCORP or BANK in accordance with
generally accepted accounting principles. Neither BANCORP nor BANK shall enter
into any acquisitions or leases of real property, including both new leases and
lease extensions without the prior written consent of PACIFIC, which consent
shall not be unreasonably withheld.
(f) Notification of Breach of Representations, Warranties and
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Covenants. BANCORP or BANK shall promptly give written notice to PACIFIC upon
becoming aware of the occurrence or impending or threatened occurrence of any
event which would cause or constitute a breach of any of the representations,
warranties or covenants of BANCORP or BANK contained or referred to in this
Agreement and shall use its best efforts to prevent the same or remedy the same
promptly.
(g) Financial Statements.
(i) BANCORP has delivered or shall deliver to PACIFIC prior to
the Effective Date true and correct copies of consolidated statements of income,
changes in shareholders' equity and statements of cash flows of BANCORP and BANK
for the three months ended March 31, 1997, June 30, 1997, any subsequent quarter
ends, and for the fiscal years ended December 31, 1997, 1996, 1995, 1994, 1993
and 1992 and consolidated balance sheets at March 31, 1997, and June 30, 1997,
any subsequent quarter ends, and December 31, 1997, 1996, 1995, 1994, 1993 and
1992. Such consolidated financial statements at December 31, 1997, 1996, 1995,
1994, 1993 and 1992 (and for the fiscal years ended December 31, 1997, 1996,
1995, 1994, 1993 and 1992) have been or shall be audited by KPMG Peat Marwick
LLP ("KPMG") in each case as independent public accountants for BANCORP and BANK
during the relevant periods, and include or shall include an opinion of such
accounting firm to the effect that such financial statements have been prepared
in accordance with generally accepted accounting principles and present fairly,
in all material respects, the consolidated financial position, results of
operations and cash flows of BANCORP and BANK at the dates indicated and for the
periods then ending. The opinions of such accounting firm do not and shall not
contain any qualifications.
(ii) BANCORP shall provide to PACIFIC, at or prior to the
Effective Date, copies of all financial statements and proxy statements issued
or to be issued to BANCORP's shareholders and/or directors after June 30, 1997,
and at or prior to the Effective Date.
(iii) BANCORP has delivered or shall deliver, to PACIFIC true
and complete copies of BANCORP's Annual Report to Shareholders for the years
ended December 31, 1992, 1993, 1994, 1995, 1996 and 1997, all periodic reports
required to be filed by it pursuant to Section 13(a) or 15(d) of Securities
Exchange Act of 1934, as amended (the "1934 Act") since December 31, 1991, all
proxy statements and other written material furnished to BANCORP's shareholders
since December 31, 1991, and all other material reports, including call reports,
relating to BANK filed by BANK with the Federal Deposit Insurance Corporation
(the "FDIC"), the SBA or the California Department of Financial Institutions or
its predecessor the California State Banking Department (collectively, the
"DFI") during 1992 through 1997 and in 1998 prior to the Effective Date. As of
their respective dates, each of the documents described in the preceding
sentence complied or shall comply in all material respects with all legal and
regulatory requirements applicable thereto.
(iv) From the date hereof until the Effective Date, BANCORP
shall
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<PAGE> 14
timely file or shall cause to be timely filed all periodic reports required to
be filed by it pursuant to the 1934 Act.
(v) BANCORP shall deliver to PACIFIC any and all letters of
KPMG, BANCORP's independent accountants, commenting on the audit process or any
related matter for the years 1991 through 1997 and shall use its best efforts to
cause its independent accountants to cooperate in all respects in providing
PACIFIC the information required by this Agreement.
(vi) From the date hereof until the Effective Date, BANCORP
shall timely file or shall cause to be timely filed all other material reports
to be filed by BANK, as required by the FDIC, the SBA or the DFI.
(h) Compensation. BANCORP and BANK shall not make or approve any
increase in the compensation payable or to become payable by BANCORP or BANK to
any of their directors, officers, employees or agents in excess of five percent
(5%) of any individual's total annual compensation (including but not limited to
compensation through any profit sharing, pension, retirement, severance,
incentive or other employee benefit program or arrangement), nor shall any bonus
payment or any agreement or commitment to make a bonus payment be made to such
persons (except with PACIFIC's prior written approval which shall not be
unreasonably withheld), nor shall any stock option, warrant or other right to
acquire capital stock be granted, or employment agreement to such persons (other
than any such employment agreement that may arise by operation of law upon the
hiring of any new employee) or consulting agreement be entered into by BANCORP
or BANK with any such persons (except as permitted under existing contracts,
agreements or plans, including BANK's Salary Administration Plan, Incentive Plan
and any agreements with employees including commissions or any payments made
pursuant to Bank's existing salary plans) unless PACIFIC has given its prior
written consent. Nothing in this Section 3.1(h) shall prevent the payment to
BANCORP and BANK employees of regular salary increases, consistent with past
practices in connection with regular salary reviews consistent with past
practices, as heretofore disclosed to PACIFIC, including any payment made
pursuant to any contract of employment in existence as of the date of this
Agreement. Without the prior written consent of PACIFIC, BANCORP and BANK shall
not hire any new employee (other than an employee to replace a terminated
employee at a comparable salary) at an annual rate in excess of current
customary practice or, in any event, in excess of Forty Thousand Dollars
($40,000) per year, except with the prior written consent of PACIFIC. BANCORP
and BANK may renew the existing contracts of the current Chairman of BANCORP and
President of BANK pursuant to the terms of employment agreements substantially
in the form of the agreements attached to the BANK and BANCORP Disclosure
Statements (as defined in Sections 4 and 5, respectively).
(i) Conduct of Business in the Ordinary Course. From the date of
this Agreement to the Effective Time, BANCORP and BANK shall conduct their
respective businesses in the ordinary course as heretofore
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<PAGE> 15
conducted. For purposes of this Agreement, the "Ordinary Course of Business"
shall consist of the banking and related businesses as presently conducted by
BANCORP and BANK and permitted under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), the California Financial Code, the Federal Deposit
Insurance Act, the Small Business Investment Act of 1958, as amended (the "SB
Act") and other laws applicable to BANCORP and BANK and in compliance with the
Memorandum of Understanding dated October 31, 1997, among the FDIC, the DFI and
BANK and the Memorandum of Understanding dated November 6, 1995, between the
Board of Governors of the Federal Reserve System (the "FRB") and BANCORP
(collectively, the "MOUs" and individually, the "MOU").
1. Unless PACIFIC has given its previous written consent to
any act or omission to the contrary, or unless BANCORP and BANK are otherwise
required by law or regulation to act or refrain from so acting, BANCORP and BANK
each shall, through the Effective Date:
A. use its best efforts to preserve its business and
business organizations intact;
B. use its best efforts to preserve the goodwill of
customers and others having business relations with it and take no action that
would materially impair the benefit to PACIFIC of the goodwill of BANCORP and
BANK, or the other benefits of the Merger;
C. consult with PACIFIC as to the making of any decisions
or the taking of any actions in matters other than in the Ordinary Course of
Business;
D. maintain its properties in customary repair, working
order and condition (reasonable wear and tear excepted);
E. use its best efforts to maintain deposits at the
levels as of the date of this Agreement and use its best efforts to cause its
directors to maintain its current deposits provided BANK is paying market rates;
F. comply in all material respects with all laws,
regulations and decrees applicable to the conduct of its businesses;
G. keep in force at not less than its present limits all
policies of insurance (including deposit insurance of the FDIC) and shall not
add to or delete any such policy without the prior written consent of PACIFIC
which shall not be unreasonably withheld;
H. use its best efforts, subject to Section 3.1(h), to
keep available to PACIFIC the services of its present officers and employees (it
being understood that BANCORP and BANK shall have the right to terminate the
employment of any officer or employee in accordance with its established
employment procedures);
I. comply with all orders, agreements and memoranda of
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<PAGE> 16
understanding made by or with the FRB, the FDIC, the DFI, or any other
regulatory authority of competent jurisdiction, and promptly forward to PACIFIC
all communications received from any such authority that are not prohibited by
such authority from being so disclosed and inform PACIFIC of any material
restrictions imposed by any governmental authority on the business of BANCORP
and BANK;
J. file in a timely manner (taking into account any
extensions duly obtained) all reports, tax returns and other documents required
to be filed with federal, state, local and other authorities;
K. conduct a phase I environmental audit prior to
foreclosure on any real property and provide the results of such audit to and
consult with PACIFIC regarding the significance of the audit prior to the
foreclosure on any such property;
L. inform PACIFIC of problem loan workout strategies, and
obtain PACIFIC's concurrence on any loan loss in excess of Twenty-five Thousand
Dollars ($25,000) or any writedown of other real estate owned which concurrence
shall not be unreasonably withheld; and
M. use its best efforts to maintain its status as a
Certified Lender or a higher classification with respect to the SBA and its
program for lending with the SBA.
2. BANCORP and BANK shall not, without first having obtained
the written consent of PACIFIC which consent shall not be unreasonably withheld:
A. commit to any loan or lease with a principal amount in
excess of One Hundred Thousand Dollars ($100,000) provided that PACIFIC's
consent shall be deemed given unless it objects and states the basis of its
objection in writing, or verbally with prompt written confirmation, within three
(3) business days after receipt of written notice from BANK directed to
authorized PACIFIC personnel, together with sufficient supporting information to
allow PACIFIC to make an informed judgment, and PACIFIC shall not unreasonably
withhold its consent, provided that any consent given by PACIFIC shall be
binding only if given by PACIFIC personnel identified on a list signed by
PACIFIC's Chief Executive Officer and provided further, that PACIFIC reserves
the right to review any loans of any principal amount and to recommend that any
loan or type of loan not be made in which event BANK shall consider PACIFIC's
recommendation and reasonably cooperate therewith;
B. commit to any SBA loan provided that PACIFIC's consent
shall be deemed given unless it objects and states the basis of its objection in
writing, or verbally with prompt written confirmation, within three (3) business
days after receipt of written notice from BANK directed to authorized PACIFIC
personnel, together with sufficient supporting information to allow PACIFIC to
make an informed judgment, and PACIFIC shall not unreasonably withhold its
consent, provided that any consent given by PACIFIC shall be binding only if
given by PACIFIC personnel identified on a list signed by PACIFIC's Chief
Executive Officer and delivered to BANK upon execution of
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<PAGE> 17
this Agreement;
C. purchase any investment security with a maturity in
excess of two (2) years and that is not rated "AA" or better by a nationally
recognized rating firm;
D. issue any certificate of deposit for a term greater
than twelve (12) months or maintain any interest-bearing accounts with an annual
percentage yield of interest in excess of fifty (50) basis points higher than
the average yield paid by institutions on BANK's rate survey or for a term
greater than twelve (12) months;
E. commit to new capital commitments or expenditures in
excess of Twenty-five Thousand Dollars ($25,000);
F. commit to any new contract or extend any existing
contract that would obligate BANCORP for an aggregate amount over time in excess
of Twenty-five Thousand Dollars ($25,000) (including data processing, servicing
or any other agreement or contract);
G. accelerate the vesting of benefits (other than
pursuant to the terms of agreements existing on the date of this Agreement, or
needed to hire new personnel reasonably agreeable to PACIFIC);
H. issue any new stock or grant any new stock options or
accelerate the vesting of any existing stock options (other than pursuant to the
terms of agreements existing on the date of this Agreement, or needed to hire
new personnel reasonably agreeable to PACIFIC);
I. fail to promptly notify PACIFIC in writing upon
becoming aware of the occurrence of any of the following:
(1) the classification of any loan as special
mentioned, substandard, doubtful or loss;
(2) the filing or commencement of any legal action or
other proceeding or investigation by or against BANCORP or BANK (or any director
or executive officer relating to BANCORP's or BANK's business); or
(3) the failure of BANCORP or BANK to comply with the
MOUs in any material respects;
J. sell any loans or any held-to-maturity investments,
except SBA loans in the Ordinary Course of Business;
K. sell, lease, pledge, assign, encumber or otherwise
dispose of any of its assets (except leases in the Ordinary Course of Business,
where BANCORP or BANK is the lessor, subject to subparagraph A of this
subsection);
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L. with respect to any extension of credit in excess of
Fifty Thousand Dollars ($50,000), waive or release any right or collateral or
cancel or compromise any debt or claim, except in the Ordinary Course of
Business;
M. make, renegotiate, renew, increase, extend or purchase
any loans, advances or loan commitments, in each case to any of its officers,
directors or any affiliated or related persons of such directors or officers
except in the Ordinary Course of Business consistent with its established loan
procedures and policies and in compliance with FRB Regulation O;
N. take any action to create, relocate or terminate the
operations of any banking office or branch, or to form any new subsidiary or
affiliated entity; or
O. settle or otherwise take any action to release or
reduce any of its rights with respect to any litigation involving a claim of
more than Twenty-five Thousand Dollars ($25,000) in which it is a party.
(j) Press Releases. Neither BANCORP or BANK shall issue any press
release or written statement for general circulation relating to this Agreement
or the Merger unless previously provided to PACIFIC for review and approval
(which approval will not be unreasonably withheld or delayed) and shall
cooperate with PACIFIC in the development and distribution of all news releases
and other public information disclosures with respect to this Agreement or the
Merger; provided that BANCORP may, without the consent of PACIFIC, make any
disclosure with regard to this Agreement or the Merger that it determines is
required under any applicable law or regulation and shall provide a copy thereof
to PACIFIC.
(k) No Merger or Solicitation.
(i) Subject to the continuing fiduciary duties of the Board of
Directors of BANCORP to the shareholders of BANCORP, prior to the Effective
Time, neither BANCORP nor BANK shall effect or agree to effect any Business
Combination (as defined below), acquire or agree to acquire any of its own
capital stock or the capital stock (except in a fiduciary capacity) or assets
(except in the Ordinary Course of Business) of any other entity, or commence any
proceedings for winding up and dissolution affecting either of them. As used in
this Agreement, "Business Combination" shall mean any tender or exchange offer,
proposal for a merger, consolidation, or other takeover proposal involving any
party hereto (except as explicitly contemplated in this Agreement) or any offer
or proposal to acquire in any manner a ten percent (10%) or greater equity
interest in, or a substantial portion of any party hereto other than
transactions contemplated hereunder.
(ii) Subject to the continuing fiduciary duties of the Board of
Directors of BANCORP to the shareholders of BANCORP, prior to the Effective
Date, BANCORP and BANK shall not, and BANCORP and BANK shall use their best
efforts to ensure that no officer, director or affiliate of BANCORP or BANK, nor
any investment banker,
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attorney, accountant or other agent, advisor or representative retained by
BANCORP shall (A) solicit or encourage, directly or indirectly, any inquiries,
discussions or proposals for, continue, propose or enter into discussions or
negotiations looking toward, or enter into any agreement or understanding
providing for, any Business Combination; or (B) disclose, directly or
indirectly, any nonpublic information to any corporation, partnership, person or
other entity or group concerning the business and properties of BANCORP or
afford any such party access to the properties, books or records of BANCORP or
otherwise assist or encourage any such party in connection with the foregoing,
or (C) furnish or cause to be furnished any information concerning the business,
financial condition, operations, properties or prospects of BANCORP to another
person, having any actual or prospective role with respect to any such
transaction; provided, however, that with respect to any investment banker,
BANCORP shall use its best efforts to ensure that said investment banker
complies with the foregoing.
(iii) BANCORP shall notify PACIFIC of the details of any
indication of interest of any person, corporation, firm, association or group to
acquire by any means a controlling interest in BANCORP or BANK or engage in any
Business Combination with BANCORP or BANK and whether such person, corporation,
firm, association or group opposes the consummation of the transactions
contemplated by this Agreement within two (2) business days of any such
indication of interest.
(iv) In the event the Board of Directors of BANCORP receives a
bona fide offer for a Business Combination with another entity, and reasonably
determines, upon advice of counsel, that as a result of such offer, any duty to
act or to refrain from doing any act pursuant to this Agreement is inconsistent
with the continuing fiduciary duties of said Board of Directors to the
shareholders of BANCORP, such failure to act or refrain from doing any act shall
not constitute the failure of any condition, breach of any covenant or otherwise
constitute any breach of this Agreement, provided, however, that any such
failure to act or refrain from doing any act shall entitle PACIFIC to terminate
this Agreement pursuant to Section 11(b) and provided further, that the
obligations and liabilities of BANCORP set forth in Section 11(e) hereof shall
continue in full force and effect but neither BANCORP nor its officers,
directors or agents shall have any further liability with regard thereto for any
failure to act or omission of any act pursuant to this subsection (k).
(l) 401(k) Plan. BANCORP agrees that BANCORP's 401(k) Plan may be
terminated, frozen, modified or merged into the PACIFIC 401(k) Plan immediately
before, on or after the Effective Date, as determined by PACIFIC in its sole
discretion, subject to compliance with applicable law.
(m) Changes in Capital Stock. At or after the date hereof and at or
prior to the Effective Time, except with the prior written consent of PACIFIC,
BANCORP and BANK shall not amend their respective Articles of Incorporation or
Bylaws; make any change in their authorized, issued or outstanding capital stock
or any other equity security; issue, sell, pledge, assign or
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<PAGE> 20
otherwise encumber or dispose of, or purchase, redeem or otherwise acquire, any
of their shares of capital stock or other equity securities or enter into any
agreement, call or commitment of any character so to do; grant or issue any
stock option relating to, right to acquire, or security convertible into, shares
of their capital stock or other equity security; purchase, redeem, retire or
otherwise acquire (other than in a fiduciary capacity) any shares of, or any
security convertible into, their capital stock or other equity securities, or
agree to do any of the foregoing, except that nothing herein shall prohibit
issuance of shares pursuant to the Option Plan with respect to options
outstanding at the date of this Agreement (except as limited in Section 2).
(n) Dividends. Neither BANCORP nor BANK shall declare, set aside or
pay any dividend or other distribution in respect of its common stock
(including, without limitation, any stock dividend or distribution), except that
BANK shall be permitted to pay dividends to BANCORP in accordance with
applicable laws, rules, regulations and the MOU and with the prior written
consent of PACIFIC which consent shall not be unreasonably withheld.
(o) Accounting Methods. Neither BANCORP nor BANK shall change its
methods of accounting in effect at December 31, 1996, except as required by
changes in generally accepted accounting principles with the concurrence of its
independent accountants.
(p) Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest PACIFIC with full title to all properties, assets,
rights, approvals, immunities and franchises of BANCORP and BANK, the proper
officers and directors of each party to this Agreement shall take all such
necessary or appropriate action.
(q) Access to Properties, Books and Records; Confidentiality. Prior
to the Effective Time, BANCORP and BANK shall give PACIFIC and its counsel and
accountants full access, during normal business hours and upon reasonable
request, to all of their properties, books, contracts, commitments and records
including, but not limited to, the corporate, financial and operational records,
papers, reports, instructions, procedures, tax returns and filings, tax
settlement letters, material contracts or commitments, regulatory examination
reports and correspondence and shall allow PACIFIC to make copies of such
materials (to the extent not legally prohibited) and shall furnish PACIFIC with
all such information concerning their affairs as PACIFIC may reasonably request.
BANCORP and BANK shall also use its best efforts to cause KPMG to make available
to PACIFIC, its accountants, counsel and other agents, to the extent reasonably
requested in connection with such review, KPMG work papers and documentation
(including letters to management or the Board of Directors of BANCORP or BANK)
relating to its work papers and its audits of the books and records of BANCORP
and BANK. PACIFIC shall protect and shall use its best efforts to ensure that
its employees and agents protect the confidentiality of any such
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<PAGE> 21
information that is not public.
(r) Employee Welfare Benefit Plans. BANCORP and BANK agree that
BANCORP's and BANK's employee welfare benefit plans, as defined in Section 3(1)
of Employee Retirement Income Security Act of 1974, as amended ("ERISA"), may be
terminated, modified or merged into PACIFIC's welfare benefit plans before, on
or after the Effective Date, as determined by PACIFIC in its sole discretion,
subject to compliance with applicable law.
(s) Nonsolicitation Agreements. BANCORP and BANK shall use their
best efforts to have each person listed on Exhibit D hereto execute a
nonsolicitation agreement substantially in the form attached hereto as Exhibit
C.
(t) Litigation Developments. BANCORP and BANK agree to promptly
advise PACIFIC with respect to any and all material legal actions or other
proceedings or investigations (including but not limited to any claims involving
the BSC Mortgages) and to promptly advise PACIFIC with respect to any
significant developments arising in connection with said actions, proceedings or
investigations.
(u) Resolution of Assets. Prior to the Effective Date if requested
by PACIFIC, BANCORP and BANK agree to use their best efforts in good faith to
maintain or improve the assets of the BANK by complying with the applicable
laws, rules and regulations and the MOUs, including, but not limited to,
obtaining current financial statements from borrowers of the BANK.
(v) Customers of BANK. Subject to compliance with applicable law,
within ninety (90) days of the Effective Date but in no event prior to receiving
shareholder approval of the Merger, BANCORP and BANK shall use their best
efforts to permit representatives of PACIFIC to meet and speak with the
significant customers of BANK with representatives of BANK present and with
prior notice to BANK and the cooperation of BANK to minimize any adverse effect
on customer relations.
(w) Stock Options. BANCORP shall cause all vested options granted
pursuant to the Option Plan to be exercised as described in Section 2.6 or
terminated prior to the Effective Date.
(x) Loans in Excess of BANK Credit Authority. BANCORP and BANK shall
use their best efforts to offer to PACIFIC a participation interest in loans in
an amount in excess of BANK's credit authority.
(y) Certain Tax Matters. BANCORP and BANK shall timely file, prior
to the Effective Date, for the fiscal year ended December 31, 1997 all federal,
state, county, local and foreign tax returns required to be filed by it,
including, without limitation, estimated tax, use tax, excise tax,
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<PAGE> 22
real property and personal property tax reports and returns, employer's
withholding tax returns, other withholding tax returns and Federal Unemployment
Tax Returns. At December 31, 1997 and on the Closing (as defined in Section
9(a)), the consolidated financial statement of BANCORP shall include a valuation
allowance equal to one hundred percent (100%) of the net deferred tax asset
existing at such date.
(z) BSC Mortgages. In connection with the annual audit of BANCORP
for the year ended December 31, 1997, BANCORP's and BANK's independent
accountants shall perform certain procedures in the course of their annual audit
(which shall be reasonably acceptable to BANCORP and PACIFIC) with respect to
the BSC Mortgages and shall confirm in writing that they have performed such
procedures and the results thereof. BANCORP and BANK shall provide a copy of
such written confirmation to PACIFIC at least thirty (30) days prior to the
Effective Date.
(aa) Director and Officer Liability. Prior to the Effective Date,
BANCORP and BANK shall purchase tail insurance coverage for the two (2) year
period beginning on the Effective Date under its current policies of directors'
and officers' liability insurance. The total premium payment for any such
insurance coverage shall be recorded as an expense of BANCORP or BANK.
(bb) Loan Committee Participation. As of the date of this Agreement,
BANK and BANCORP shall appoint a designated representative of PACIFIC as a
non-voting advisor of BANK's and BANCORP's loan committee which representative
shall be provided with all necessary information for participation in any loan
committee meeting forty-eight (48) hours prior to such meeting and have the
authority to consent to any loan or lease as provided in Sections 3.1(i)(2)(A)
and 3.1(i)(2)(B).
(cc) Employment Issues. Prior to the Effective Date of this
Agreement, BANK and BANCORP shall use their best efforts to resolve any
employment issues arising from or in connection with any current or past
employees of BANK and BANCORP.
(dd) Compliance with the MOUs. From the date of this Agreement until
the Effective Date, BANK and BANCORP shall use their best efforts to comply with
the terms of the MOUs.
(ee) Leases. Prior to the Effective Date of this Agreement, BANK
shall use its best efforts to obtain the written consent of the landlords and
sublessors for the assumption of the following leases by PACIFIC pursuant to the
terms thereof:
(i) 16661 Ventura Boulevard, Encino, California;
(ii) 550 N. Brand Boulevard, Glendale, California; and
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<PAGE> 23
(iii) 433 N. Camden Drive, Beverly Hills, California.
(ff) Quarterly Progress Reports. BANCORP has delivered to PACIFIC
copies of all quarterly progress reports dated prior to the date hereof prepared
by BANCORP pursuant to the terms of the MOU prior to the Effective Date. From
the date of this Agreement until the Effective Date, BANK and BANCORP shall
deliver to PACIFIC, copies of all quarterly progress reports prepared by BANK
and BANCORP pursuant to the terms of the MOU immediately after filing such
quarterly progress reports with the FDIC, DFI and FRB.
3.2 Covenants of PACIFIC.
(a) Government Approvals. Prior to the Effective Date, PACIFIC, with
the cooperation of BANCORP and BANK, shall use its best efforts in good faith to
take or cause to be taken as promptly as practicable all such steps as shall be
necessary to obtain all consents and approvals of government agencies as are
required by law or otherwise, and shall do any and all acts deemed by PACIFIC to
be necessary or appropriate in order to cause the Merger to be consummated on
the terms provided in this Agreement as promptly as practicable. All approvals
referred to in this Section 3.2(a) are hereinafter referred to as the
"Government Approvals." PACIFIC shall keep BANCORP and BANK advised of all
developments in obtaining Government Approvals. In the event this Agreement is
terminated by either party pursuant to Section 11(b) because a government agency
whose consent or approval is required by law in order to consummate the Merger
disapproves or otherwise informs PACIFIC that it will not approve the Merger or
imposes unreasonable conditions that cause PACIFIC not to proceed with the
Merger, neither PACIFIC nor any agent thereof shall have any further liability
to BANCORP or BANK and neither BANCORP or BANK nor any agent thereof shall have
any further liability to PACIFIC.
(b) Notification of Breach of Representations, Warranties and
Covenants. PACIFIC shall promptly give written notice to BANCORP upon becoming
aware of the occurrence or impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants of PACIFIC contained or referred to in the Merger Agreements or this
Agreement and shall use its best efforts to prevent the same or remedy the same
promptly, and shall give written notice to BANCORP of any adverse regulatory
action affecting PACIFIC's ability to consummate the Merger.
(c) Press Releases. PACIFIC shall not issue any press release or
written statement for general circulation to the public relating to the Merger,
this Agreement or the Merger Agreements unless previously provided to BANCORP
for review and approval (which approval will not be unreasonably withheld or
delayed) and shall cooperate with BANCORP in the development and distribution of
all news releases and other public information disclosures with respect to this
Agreement or the Merger; provided that
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PACIFIC may, without the consent of BANCORP, make any disclosure with regard to
this Agreement or the Merger that it determines is required under any applicable
law or regulation and shall provide a copy thereof to BANCORP.
(d) Transferred Employees. PACIFIC covenants and agrees that as of
the Closing (as defined in Section 9(a)), persons employed by BANK or BANCORP
immediately prior to the Effective Time who become employees of PACIFIC as of
the Effective Time ("Transferred Employees") shall be entitled to participate in
all employee benefit plans and arrangements maintained by PACIFIC for the
benefit of its employees in accordance with the terms thereof, provided,
however, that PACIFIC shall have the exclusive right to determine which
employees shall be Transferred Employees. For the purposes of determining each
such Transferred Employee's eligibility and vesting under such employee benefit
plans and arrangements, PACIFIC shall recognize such Transferred Employee's
service with BANK and/or BANCORP beginning on the date such Transferred Employee
commenced employment with BANK and/or BANCORP. PACIFIC also covenants and agrees
that any pre-existing condition, limitation or exclusion in its health plans
shall not apply to Transferred Employee or their covered dependents who are
covered under similar BANK or BANCORP health plans as of the Effective Time and
who change coverage to PACIFIC's health plans at the time such Transferred
Employees are first given the option to enroll in PACIFIC's health plans.
(e) Indemnification. PACIFIC agrees that all rights to
indemnification now existing in favor of the directors, officers, employees and
agents of BANCORP and BANK as provided in their respective Articles of
Incorporation, Bylaws, or indemnification agreements or as provided by
applicable law as of the date hereof and immediately prior to the Effective
Time, with respect to matters occurring prior to the Effective Time, shall
survive the Effective Time and shall continue in full force and effect in
accordance with and subject to applicable law.
3.3 Covenants of the Parties. Each party shall use its best efforts to
cause its officers, directors, employees, auditors, agents, and attorneys to
cooperate regarding reasonable requests for information made by the other
parties hereto, including but not limited to, information reasonably necessary
for their respective proxy statements. Each party shall treat as confidential
all such information in the same manner as each party treats similar
confidential information of its own, and if this Agreement is terminated, each
party shall continue to treat all such information as confidential and to cause
its employees to keep all such information confidential and shall return such
documents theretofore delivered by the other party as the other party shall
request, and shall use such information, or cause it to be used, solely for the
purposes of evaluating and completing the transactions contemplated hereby;
provided that each party may disclose any such information to the extent
required by federal or state securities laws or otherwise required by any
governmental agency or authority, or by generally accepted accounting
principles. The foregoing confidentiality obligations shall not apply with
respect to any information publicly available or to any information previously
known to the party in
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question, the use of which is not otherwise restricted.
4. REPRESENTATIONS AND WARRANTIES OF BANK.
BANK represents and warrants to PACIFIC, except to the extent disclosed
to PACIFIC in writing prior to the date hereof (the "BANK Disclosure
Statement"), that:
(a) Corporate Status and Power to Enter Into Agreements. BANK is a
state-chartered bank duly incorporated, validly existing and in good standing
under the laws of California, subject to the approval of this Agreement and the
transactions contemplated hereby by the shareholders of BANCORP and the
appropriate regulatory authorities, it has all necessary corporate power to
enter into this Agreement and to carry out all of the terms and provisions
hereof and thereof to be carried out by it, holds a currently valid license
issued by the DFI to engage in the commercial banking business in California at
its banking offices, and is not subject, directly or indirectly, to any
directive, order (formal or informal) or agreement of the FDIC, the DFI or any
other regulatory authority having jurisdiction over its business or any of its
assets or properties. Neither the scope of the business of BANK nor the location
of its properties requires it to be licensed to do business in any jurisdiction
other than the State of California.
(b) Articles, Bylaws, Books and Records. The copies of the Articles
of Incorporation and Bylaws of BANK, to be delivered to PACIFIC prior to the
date hereof, are complete and accurate copies thereof as in effect on the date
hereof. The minute books of BANK made available to PACIFIC contain a complete
and accurate record of all meetings of the Board of Directors (and committees
thereof if applicable) and shareholders. The corporate books and records
(including financial statements) of BANK fairly reflect the material
transactions to which BANK is a party or by which its properties are subject or
bound, and such books and records have been properly kept and maintained. The
Articles of Incorporation and Bylaws of BANK and all amendments thereto have
been duly approved by all requisite corporate action and by the appropriate
regulatory authority to the extent required by law.
(c) Compliance With Laws, Regulations and Decrees. BANK has the
corporate power to own or lease its properties and to conduct its business as
currently conducted; has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to Bank Secrecy Act), rules
and regulations relating to the offer, sale or issuance of securities, and the
operation of a commercial bank, other than where such noncompliance or default
is not likely to result in a material limitation on the conduct of its business
or is not likely to otherwise have a material adverse effect on BANK taken as a
whole; has not failed to file with the proper federal, state, local or other
authorities any material report or other document required to be so filed; has
all material approvals, authorizations, consents, licenses, clearances and
orders of, and has currently effective registrations with all governmental and
regulatory authorities
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<PAGE> 26
which are necessary to the business and operations of BANK as now being
conducted, and has received no notification, formally or informally, from any
agency or department of any federal, state or local government or any regulatory
agency or the staff thereof asserting that BANK is not in material compliance
with any of the statutes, regulations or ordinances which such government or
regulatory authority enforces, or threatening to revoke any licenses, franchise,
permit or governmental authorization of BANK.
(d) Capitalization. The authorized capital stock of BANK consists of
2,000,000 shares of BANK common stock, no par value, of which 897,884 are duly
authorized, validly issued, fully paid and nonassessable, except to the extent
such shares are assessable pursuant to the California Financial Code, and
currently outstanding and no shares of BANK preferred stock authorized. All of
such common stock outstanding is owned by BANCORP. Said stock has been issued in
compliance with all applicable registration or qualification provisions of state
and federal securities laws. No other equity securities of BANK have been issued
or are outstanding.
(e) Equity Interests. Except as listed below or as collateral for
outstanding loans held in its loan portfolio, BANK does not own, directly or
indirectly, any equity interest in any bank, corporation, or other entity.
BSC Mortgage Corporation
Sterling Quest Corporation
(f) Financial Statements; Regulatory Reports. No financial statement
or other document provided or to be provided to PACIFIC as required by Section
3.1(g)(i), (ii), (iii) and (iv) hereof, as of the date of such document,
contained, or as to documents to be delivered after the date hereof, will
contain, any untrue statement of a material fact, or, at the date thereof,
omitted or will omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were or will be made, not misleading; provided, however, that
information as of a later date shall be deemed to modify information as of any
earlier date. BANK has filed all material documents and reports relating to BANK
required to be filed by it with the DFI, the FDIC, or any other governmental
authority having jurisdiction over its business or any of its assets or
properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to BANK required by governmental authorities and
regulatory agencies having jurisdiction over BANK have been taken. BANK has not
received notification, formally or informally, from any agency or department of
any federal, state or local government or any regulatory agency or the staff
thereof (A) asserting that BANK is not in compliance with any of the statutes,
regulations or ordinances which such government or regulatory authority
enforces, or (B) threatening to revoke any license, franchise, permit or
governmental authorization of BANK. BANK is not subject to any order, agreement
or written directive with any regulatory authority with respect to its assets or
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<PAGE> 27
business except for matters of general application. BANK has paid all
assessments made or imposed by any governmental agency. BANK shall deliver to
PACIFIC copies of all annual management letters and opinions, and shall make
available to PACIFIC for inspection all reviews, correspondence and other
documents in the files of BANK prepared by KPMG or any other certified public
accountant engaged by BANK and delivered to BANK since January 1, 1992. The
consolidated financial records of BANK have been, and are being and shall be,
maintained in all material respects in accordance with all applicable legal and
accounting requirements sufficient to insure that all transactions reflected
therein are, in all material respects, executed in accordance with management's
general or specific authorization and recorded in conformity with generally
accepted accounting principles at the time in effect. The data processing
equipment, data transmission equipment, related peripheral equipment and
software used by BANK in the operation of its business to generate and retrieve
its financial records are adequate for the current needs of BANK.
(g) Tax Returns.
(i) BANK has timely filed all federal, state, county, local and
foreign tax returns required to be filed by it, including, without limitation,
estimated tax, use tax, excise tax, real property and personal property tax
reports and returns, employer's withholding tax returns, other withholding tax
returns and Federal Unemployment Tax Returns, and all other reports or other
information required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and accurate in
all material respects. BANK has paid all taxes, fees and other governmental
charges, including any interest and penalties thereon, when they have become due
and payable, except those that are being contested in good faith, which
contested matters have been disclosed to PACIFIC in the BANK Disclosure
Statement. BANK has not requested to give or has given any currently effective
waivers extending the statutory period of limitation applicable to any tax
return required to be filed by either of them for any period. There are no
claims pending against BANK for any alleged deficiency in the payment of any
taxes, and no pending or threatened audits, investigations or claims for unpaid
taxes or relating to any liability in respect of any taxes. There have been no
events, including a change in ownership, that would result in a reappraisal and
establishment of a new base-year full value for purposes of Articles XIII.A of
the California Constitution, of any real property owned in whole or in part by
BANK or to the best of BANK's knowledge, of any real property leased by BANK.
(ii) BANK shall deliver to PACIFIC as soon as such documents are
available, copies of all its and its subsidiary's tax returns with respect to
taxes payable to the United States and the State of California for the fiscal
years ended December 31, 1997, 1996, 1995, 1994, 1993 and 1992.
(iii) No consent has been filed relating to BANK pursuant to
Section 341(f) of the IRC.
(h) Material Adverse Change.
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<PAGE> 28
Except as reflected on BANK's financial statements issued prior to the date
hereof and delivered to PACIFIC or as otherwise disclosed to PACIFIC in the BANK
Disclosure Statement, since September 30, 1997, there has been (i) no material
adverse change in the business, assets, licenses, permits, franchises, results
of operations or financial condition of BANK taken as a whole (whether or not in
the Ordinary Course of Business), (ii) no change in any of the assets, licenses,
permits or franchises of BANK or that has had or, to BANK's knowledge, can
reasonably be expected to have a material adverse effect on any of the items
listed in clause (h)(i) above, (iii) no damage, destruction, or other casualty
loss (whether or not covered by insurance) that has had or can reasonably be
expected to have a material adverse effect on any of the items listed in clause
(h)(i) above, (iv) no amendment, modification, or termination of any existing,
or entering into of any new, contract, agreement, plan, lease, license, permit
or franchise that is material to the business, financial condition, assets,
liabilities or operations of BANK taken as a whole, except in the Ordinary
Course of Business; or (v) no disposition by BANK of one or more assets that,
individually or in the aggregate, are material to BANK taken as a whole, except
sales of assets in the Ordinary Course of Business.
(i) No Undisclosed Liabilities. Except for items for which
reserves have been established in the unaudited consolidated balance sheets of
BANK as of June 30, 1997, since such date BANK has not incurred or discharged,
and is not legally obligated with respect to, any indebtedness, liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar arrangement) or obligation (accrued or
contingent, whether due or to become due, and whether or not subordinated to the
claims of its general creditors), other than as a result of operations in the
Ordinary Course of Business. No agreement pursuant to which any loans or other
assets have been or will be sold by BANK entitle the buyer of such loans or
other assets, unless there is material breach of a representation or covenant by
BANK, to cause BANK to repurchase such loan or other asset or to pursue any
other form of recourse against BANK. BANK has not knowingly made nor shall make
any representations or covenants in any such agreement that contained or shall
contain any untrue statement of a material fact or omitted or shall omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such representations and/or
covenants were made or shall be made, not misleading. No cash, stock or other
dividend or any other distribution with respect to the stock of BANK has been
declared, set aside or paid, nor have any shares of the stock of BANK been
purchased, redeemed or otherwise acquired, directly or indirectly, by BANK since
June 30, 1997. Except as disclosed to PACIFIC in the BANK Disclosure Statement,
there are no special arrangements, understandings or agreements, written or
oral, with any of the BANK's depositors.
(j) Properties and Leases.
(i) BANK has good and marketable title, free and clear of all
liens and encumbrances and the right of possession, subject to existing
leaseholds, to all real properties, including any branches owned by BANCORP or
BANK, and good title to all
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other property and assets, tangible and intangible, reflected in BANK
consolidated balance sheet as of June 30, 1997 (except property held as lessee
under leases entered into since June 30, 1997 and disclosed to PACIFIC in the
BANK Disclosure Statement and except personal property sold or otherwise
disposed of since June 30, 1997 in the Ordinary Course of Business), except (a)
liens for taxes or assessments not delinquent, (b) such other liens and
encumbrances and imperfections of title as do not materially affect the value of
such property as reflected in BANK consolidated balance sheet as of June 30,
1997, or as currently shown on the books and records of BANK and which do not
interfere with or impair the present and continued use, or (c) immaterial
exceptions disclosed in title reports and preliminary title reports, copies of
which shall be provided to PACIFIC. All tangible properties of BANK conform in
all material respects with all applicable ordinances, regulations and zoning
laws. All material tangible properties of BANK are in a good state of
maintenance and repair and are to the best knowledge of BANK adequate for the
current business of BANK. No properties of BANK and, to the best of BANK's
knowledge, no properties in which it holds a collateral or contingent interest
or purchase option, are the subject of any pending or to the best of BANK's
knowledge, threatened investigation, claim or proceeding relating to the use,
storage or disposal on such property of or contamination of such property by any
toxic or hazardous waste material or substance. To BANK's knowledge, BANK does
not own, possess or have a collateral or contingent interest or purchase option
in any properties or other assets which contain or have located within or
thereon any hazardous or toxic waste material or substance unless the location
of such hazardous or toxic waste material or other substance or its use thereon
conforms in all material respects with all federal, state and local laws, rules,
regulations or other provisions regulating the discharge of materials into the
environment. As to any asset not owned or leased by BANK, to the best of BANK's
knowledge, BANK has not controlled, directed or participated in the operation or
management of any such asset or any facilities or enterprise conducted thereon,
such that it has become an owner or operator of such asset under applicable
environmental laws.
(ii) All properties held by BANK under leases are held under
valid, binding and enforceable leases, with such exceptions as are not material
and do not interfere with the conduct of the business of BANK, and BANK enjoys
quiet and peaceful possession of such leased property. BANK is not in default in
any material respect under any material lease, agreement or obligation regarding
its properties to which it is a party or by which it is bound.
(iii) Except as disclosed to PACIFIC in the BANK Disclosure
Statement, all of BANK's rights and obligations under the leases referred to in
Section 4(j)(ii) above do not require the consent of any other party to the
transaction contemplated by this Agreement. Where required, BANK shall use its
best efforts to obtain, prior to the Effective Date, the consent of all parties
to any such transactions.
(iv) With respect to the property referred to in Sections
4(j)(i) and (ii), BANK is in material compliance with applicable statutes, laws,
codes, ordinances, regulations or requirements relating to leasing, occupancy,
zoning, subdivision, planning, building, fire, safety, health or environmental
matters and with covenants,
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conditions and restrictions (whether or not of record) and other local,
municipal, regional, state or federal requirements.
(k) Material Contracts. Except as disclosed to PACIFIC in the BANK
Disclosure Statement and excluding loans, lines of credit, loan commitments or
letters of credit to which BANK is a party, BANK is not a party to or bound by
any contract or other agreement made in the Ordinary Course of Business which
involves aggregate future payments by or to it of more than Fifteen Thousand
Dollars ($15,000) and which is made for a fixed period expiring more than one
year from the date hereof, and BANK is not a party to or bound by any agreement
not made in the Ordinary Course of Business which is to be performed at or after
the date hereof. To the best of BANK's knowledge, each of the contracts and
agreements disclosed to PACIFIC pursuant to this Section 4(k) is a legal and
binding obligation (subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general applicability), and to the best knowledge of
BANK, no material breach or default (and no condition which, with notice or
passage of time, or both, could become a breach or default) exists with respect
thereto. No power of attorney or similar authorization given directly or
indirectly by BANK is currently outstanding.
(l) Classified Loans. Except as disclosed to PACIFIC in the BANK
Disclosure Statement, there are no loans presently owned by BANK as of October
31, 1997 that have been classified by any bank examiner, outside loan reviewer,
accountant or the management of BANK as "Other Loans Especially Mentioned,"
"Substandard," "Doubtful," or "Loss" or classified using categories with similar
import and all loans or portions thereof classified "Loss" have been charged
off. Notwithstanding the above, BANK shall be under no obligation to disclose to
PACIFIC any such classification by any bank examiner where such disclosure would
violate any obligation of confidentiality of BANK imposed by the DFI, the FDIC,
or any other bank regulator. BANK regularly reviews and appropriately classifies
loans in accordance with all applicable legal and regulatory requirements and
generally accepted banking practices. All loans and investments of BANK are
legal, valid and binding obligations enforceable in accordance with their
respective terms and are not subject to any setoffs, counterclaims or disputes
(subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general applicability), except as disclosed to PACIFIC in the BANK
Disclosure Statement or reserved for in the unaudited consolidated balance sheet
of BANK as of June 30, 1997, and were duly authorized under and made in material
compliance with applicable federal and state laws and regulations. BANK does not
have any extensions of credit, investments, guarantees, indemnification
agreements or commitments for the same (including without limitation commitments
to issue letters of credit, to create acceptances, or to repurchase securities,
federal funds or other assets) other than those documented on the books and
records of BANK.
(m) Restrictions on Investments. Except for pledges to secure public
and trust deposits and repurchase
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agreements in the Ordinary Course of Business, none of the investments reflected
in BANK consolidated balance sheet as of June 30, 1997 and none of the
investments made by BANK since June 30, 1997, is subject to any restriction,
whether contractual or statutory, which materially impairs the ability of BANK
to freely dispose of such investment at any time.
(n) Employment Contracts and Benefits.
(i) BANK has delivered to PACIFIC an accurate list setting forth
all bonus, incentive compensation, profit-sharing, pension, retirement, stock
purchase, stock option, deferred compensation, severance, hospitalization,
medical, dental, vision, group insurance, death benefits, disability and other
fringe benefit plans, trust agreements, arrangements and commitments of BANK
(including but not limited to such plans, agreements, arrangements and
commitments applicable to former employees or retired employees, or for which
such persons are eligible), if any, together with copies of all such plans,
investment policies regarding assets in such plans, agreements, arrangements and
commitments that are documented, any and all contracts of employment and has
made available to PACIFIC any Board of Directors' minutes (or committee minutes)
from meetings held within the five (5) year period ending as of the Effective
Date authorizing, approving or guaranteeing such plans and contracts.
(ii) With respect to each employee benefit plan (as defined in
Section 3(3) of ERISA) which is listed in subsection (n) and which is subject to
the reporting, disclosure and record retention requirements set forth in the IRC
and Part 1 of Subtitle B of Title I of ERISA and the regulations thereunder,
each of such requirements has been fully met on a timely basis in all material
respects.
(iii) With respect to each employee benefit plan (as defined in
Section 3(3) of ERISA) which is listed in subsection (n) and which is subject to
Part 4 of Subtitle B of Title I of ERISA, none of the following now exists or
has existed within the six (6) year period ending on the date hereof:
A. Any act or omission constituting a material violation
of Section 402 of ERISA;
B. Any act or omission constituting a material violation
of Section 403 of ERISA;
C. Any act or omission by BANK or any of its subsidiaries,
or by any director, officer or employee thereof, constituting a material
violation of Sections 404 and 405 of ERISA;
D. To the best of BANK's knowledge, any act or omission by
any other person constituting a material violation of Sections 404 or 405 of
ERISA;
E. Any act or omission which constitutes a material
violation of Sections 406 or 407 of ERISA and is not exempted by Section 408 of
ERISA or which
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constitutes a material violation of Section 4975(c) of the IRC and is not
exempted by Section 4975(d) of the IRC; or
F. Any act or omission constituting a material violation
of Sections 503, 510 or 511 of ERISA.
(iv) All contributions, premiums or other payments due from BANK
and its subsidiaries to (or under) any plan listed in subsection (n) have been
fully paid or adequately provided for on the audited financials for the year
ended December 31, 1996 and period ended September 30, 1997. All accruals
thereon (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis.
(v) Each plan listed in subsection (n) complies in all material
respects with all applicable requirements of the Age Discrimination in
Employment Act of 1967, as amended, and the regulations thereunder and Title VII
of the Civil Rights Act of 1964, as amended, and the regulations thereunder.
(vi) Each plan listed in subsection (n) complies in all material
respects with all applicable requirements of the health care continuation
coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, and the regulations thereunder.
(vii) Except for the employment agreement with Joseph C. Carona,
BANK has no employment contracts with any other person. In the BANK Disclosure
Statement, BANK shall disclose to PACIFIC the names of each director, officer
and employee of BANK and such persons' annual compensation.
(o) Collective Bargaining and Employment Agreements. Except as
provided in this Agreement or as disclosed to PACIFIC in the BANK Disclosure
Statement, BANK does not have any union or collective bargaining or written
employment agreements, contracts or other agreements with any labor organization
or with any member of management, or any management or consultation agreement
not terminable at will by BANK without liability and no such contract or
agreement has been requested by, or is under discussion by management with, any
group of employees, any member of management or any other person. There are no
material controversies pending between BANK and any current or former employees,
and to the best of its knowledge, there are no efforts presently being made by
any labor union seeking to organize any of such employees.
(p) Compensation of Officers and Employees. Except as disclosed to
PACIFIC in the BANK Disclosure Statement and except as otherwise provided in
this Agreement, no officer or employee of BANK is receiving aggregate direct
remuneration at a rate exceeding Fifty Thousand Dollars ($50,000) per annum, and
the consummation of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events)
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result in any payment (whether of severance pay or otherwise) becoming due from
BANK or PACIFIC to any employee of BANK.
(q) Legal Actions and Proceedings. Except as disclosed to PACIFIC in
the BANK Disclosure Statement, BANK is not a party to, nor to the best knowledge
of BANK, threatened with, any legal action or other proceeding or investigation
before any court, any arbitrator of any kind or any government agency, and to
the best of BANK's knowledge, BANK is not subject to any potential adverse claim
(or claims in the aggregate), the outcome of which could involve the payment or
receipt by BANK of any amount in excess of Ten Thousand Dollars ($10,000) unless
an insurer of BANK has agreed to defend against and pay the amount of any
resulting liability without reservation, or, if any such legal action,
proceeding, investigation or claim will not involve the payment by BANK of a
monetary amount, which could materially adversely affect BANK or its business or
property or the transactions contemplated hereby. BANK has no knowledge of any
pending or threatened claims or charges under the Bank Secrecy Act, Community
Reinvestment Act, before the Equal Employment Opportunity Commission, the
California Department of Fair Housing & Economic Development, the California
Unemployment Appeals Board, or any human relations commission. There is no labor
dispute, strike, slow-down or stoppage pending or, to the best knowledge of
BANK, threatened against BANK.
(r) Execution and Delivery of the Agreement.
(i) The execution and delivery of this Agreement have been duly
authorized by the Board of Directors of BANK and, when this Agreement and the
Merger have been duly approved by the affirmative vote of the holders of a
majority of the outstanding shares of BANCORP Common Stock at a meeting of
shareholders duly called and held and this Agreement and the Merger have been
duly approved by BANCORP as the sole shareholder of BANK, this Agreement and the
Merger will be duly and validly authorized by all necessary corporate action on
the part of BANK.
(ii) This Agreement has been duly executed and delivered by BANK
and (assuming due execution and delivery by and enforceability against PACIFIC)
constitutes the legal and binding obligations of BANK.
(iii) The execution and delivery by BANK of this Agreement and
the consummation of the transactions herein do not violate any provision of the
Articles of Incorporation or Bylaws of BANK, any provision of federal or state
law or any governmental rule or regulation (assuming receipt of the Government
Approvals and the accuracy of the representations and warranties of PACIFIC set
forth herein) and do not require any consent of any person under, conflict with
or result in a breach of, or accelerate the performance required by any of the
terms of, any material debt instrument, lease, license, covenant, agreement or
understanding to which BANK is a party or by which it is bound or any order,
ruling, decree, judgment, arbitration award or stipulation to which BANK is
subject, or constitute a material default thereunder or result in the creation
of any lien, claim, security interest, encumbrance, charge,
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restriction or similar right of any third party upon any of the properties or
assets of BANK.
(s) Insurance. BANK is and continuously since its inception has
been, insured with reputable insurers against all risks normally insured against
by banks, all insurance policies and bonds maintained by BANK are in full force
and effect, BANK is not in default thereunder and all material claims thereunder
have been filed in due and timely fashion. In the best judgment of the
management of BANK, such insurance coverage is adequate for BANK. Since December
31, 1991, there has not been any damage to, destruction of, or loss of any
assets of BANK not covered by insurance that could materially and adversely
affect the business, financial condition, properties, assets or results of
operations of BANK.
(t) Loan Loss Reserves. The reserve for loan losses in BANK
consolidated balance sheets dated December 31, 1996, March 31, 1997, June 30,
1997 and each subsequent period end prior to the Effective Date and as of the
Effective Date are or will be adequate in all material respects under the
requirements of all applicable state and federal laws and regulations to provide
for possible loan losses on outstanding loans but in no event will be less than
sufficient to reserve for Nonperforming Loans outstanding consistent with BANK's
past practices. For purposes of this Agreement, "Nonperforming Loans" means the
sum of all accruing loans over 90 days past due in the payment of principal or
interest plus any loans no longer accruing interest. Nonperforming Loans does
not include OREO. BANK has disclosed to PACIFIC in the BANK Disclosure
Statement, and will promptly inform PACIFIC of the amounts of all loans, leases,
other extensions of credit or commitments, or other interest-bearing assets of
BANK, that have been classified as of the date hereof or hereafter by any
internal bank examiner or any bank regulatory agency as "Other Loans Especially
Mentioned", "Substandard", "Doubtful", "Loss", or words of similar import in the
case of loans (or that would have been so classified, in the case of other
assets, had they been loans). Notwithstanding the above, BANK shall be under no
obligation to disclose to PACIFIC any such classification by any bank regulatory
agency where such disclosure would violate any obligation of confidentiality of
BANK imposed by such bank regulatory agency. BANK has furnished and will
continue to furnish to PACIFIC true and accurate information concerning the loan
portfolio of BANK, and no material information with respect to the loan
portfolio has been or will be withheld from PACIFIC.
(u) Transactions With Affiliates. Except as may arise in the
Ordinary Course of Business, BANK has not extended credit, committed to extend
credit, or transferred any asset to or assumed or guaranteed any liability of
the employees or directors of BANK, or any spouse or child of any of them, or
any of their affiliates. BANK has not entered into any other transactions with
the employees or directors of BANK or any spouse or child of any of them, or any
of their affiliates or associates, except as disclosed to PACIFIC in the BANK
Disclosure Statement. Any such transactions have been on terms no less favorable
than those which would prevail in an arm's length transaction with an
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independent third party.
(v) SBA Lender. BANK is a Certified Lender with respect to the SBA
and maintains a program for lending with the SBA.
(w) BSC Mortgages. There is as of the date hereof, one (1) loan of
BSC Mortgage Corporation for which repurchase demands or make whole claims have
been made and adequate reserves for such demands or claims have been made by
BANK.
(x) Accuracy of Representations and Warranties. No representation or
warranty by BANK and no statement by BANK in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreements, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary to make such representation, warranty or statement not
misleading to PACIFIC; provided, however, that information as of a later date,
which has been furnished to PACIFIC in writing, shall be deemed to modify
information as of an earlier date.
5. REPRESENTATIONS AND WARRANTIES OF BANCORP.
BANCORP represents and warrants to PACIFIC, except to the extent
disclosed to PACIFIC in writing prior to the date hereof (the "BANCORP
Disclosure Statement"), that:
(a) Corporate Status and Power to Enter Into Agreement. BANCORP (i)
is a corporation duly incorporated, validly existing and in good standing under
California law and is a registered bank holding company under the BHC Act, (ii)
subject to the approval of this Agreement and the transactions contemplated
hereby by the FRB, has all necessary corporate power to enter into this
Agreement and to carry out all of the terms and provisions hereof and thereof to
be carried out by it, (iii) BANK holds a currently valid license issued by the
DFI to engage in the commercial banking business in California at the offices in
which such business is conducted, and (iv) neither BANCORP nor any of its
subsidiaries is subject, directly or indirectly, to any directive or order
(formal or informal) of the FRB or the Federal Reserve Bank of San Francisco,
the DFI or any other regulatory authority having jurisdiction over its or their
business or any of its or their assets or properties.
(b) Corporate Status and Power of BANCORP. Prior to and as of the
Effective Time, BANCORP will be a corporation duly incorporated, validly
existing and in good standing under California law and will have the corporate
power to enter into the Merger Agreements and to carry out all of the terms and
provisions thereof to be carried out by it.
(c) Articles, Bylaws, Books and Records.
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<PAGE> 36
The copies of the Articles of Incorporation and Bylaws of BANCORP to be
delivered to PACIFIC promptly after the date hereof are complete and accurate
copies thereof as in effect on the date hereof. The minute books of BANCORP made
available to PACIFIC contain a complete and accurate record of all meetings of
BANCORP's Board of Directors (and committees thereof) and shareholders. The
corporate books and records (including financial statements) of BANCORP fairly
reflect the material transactions to which BANCORP or any of its subsidiaries is
a party or by which any of their properties are subject or bound, and such books
and records have been properly kept and maintained. The Articles of
Incorporation and Bylaws of BANCORP and all amendments thereto have been duly
approved by all requisite corporate action and said Articles of Incorporation
and all amendments thereto have been duly filed with the California Secretary of
State.
(d) Compliance With Laws, Regulations and Decrees. BANCORP and each
of its subsidiaries each (i) has the corporate power to own or lease its
properties and to conduct its business as currently conducted, (ii) has complied
with, and is not in default of any laws, regulations, ordinances, orders or
decrees applicable to the conduct of its business and the ownership of its
properties, including but not limited to all federal and state laws (including
but not limited to the Bank Secrecy Act), rules and regulations relating to the
offer, sale or issuance of securities, and the operation of BANK, other than
where such noncompliance or default is not likely to result in a material
limitation on the conduct of the business of BANCORP or its subsidiaries taken
as a whole or is not likely to otherwise have a material adverse effect on
BANCORP and its subsidiaries taken as a whole, (iii) has not failed to file with
the proper federal, state, local or other authorities any material report or
other document required to be so filed, (iv) has all material approvals,
authorizations, consents, licenses, clearances and orders of, and has currently
effective all registrations with, all governmental and regulatory authorities
which are necessary in all material respects to the respective businesses and
operations of BANCORP and its subsidiaries (taken as a whole) as they are now
being conducted, and (v) has received no notification, formally or informally,
from any agency or department of any federal, state or local government or any
regulatory agency or the staff thereof (A) asserting that BANCORP and its
subsidiaries (taken as a whole) are not in material compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, or (B) threatening to revoke any material licenses,
franchise, permit or governmental authorization of BANCORP and its subsidiaries
(taken as a whole).
(e) Financial Statements, Regulatory Reports. No financial statement
or other document provided or to be provided to PACIFIC as required by Section
3.1(g)(i), (ii), (iii) and (iv) hereof, as of the date of such document,
contained, or as to documents delivered after the date hereof, will contain, any
untrue statement of a material fact, or, at the date thereof, omitted or will
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such statements
were or will be made, not misleading; provided, however, that information as of
a later date shall be deemed to modify information as of any earlier date.
BANCORP has filed all material documents and reports relating to BANCORP or its
subsidiaries required to be filed by it with the
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<PAGE> 37
FRB or any other governmental authority having jurisdiction over its business or
any of its assets or properties. All such reports conform in all material
respects with the requirements promulgated by such regulatory agencies. All
compliance or corrective action relating to BANCORP or its subsidiaries required
by governmental authorities and regulatory agencies having jurisdiction over
BANCORP or its subsidiaries has been taken. Except as disclosed to PACIFIC in
the BANCORP Disclosure Statement, BANCORP and its subsidiaries have received no
notification, formally or informally, from any agency or department of any
federal, state or local government or any regulatory agency or the staff thereof
(A) asserting that BANCORP or its subsidiaries are not in compliance with any of
the statutes, regulations or ordinances which such government or regulatory
authority enforces, or (B) threatening to revoke any license, franchise, permit
or governmental authorization of BANCORP or its subsidiaries. Except as
disclosed to PACIFIC in the BANCORP Disclosure Statement, neither BANCORP nor
any of its subsidiaries is subject to any order, agreement, or written directive
with any regulatory authority with respect to its assets or business except for
matters of general application. BANCORP and its subsidiaries have paid all
assessments made or imposed by any governmental agency. BANCORP shall deliver to
PACIFIC copies of all annual management letters and opinions, and shall make
available to PACIFIC for inspection all reviews, correspondence and other
documents in the files of BANCORP prepared by KPMG or any other certified public
accountant engaged by BANCORP, and delivered to BANCORP since January 1, 1992.
The financial records of BANCORP have been, and are being and shall be,
maintained in all material respects in accordance with all applicable legal and
accounting requirements sufficient to insure that all transactions reflected
therein are, in all material respects, executed in accordance with management's
general or specific authorization and recorded in conformity with generally
accepted accounting principles at the time in effect.
(f) Material Adverse Change. There has been no material adverse
change in the financial condition, results of operation or assets of BANCORP
from the financial condition, results of operation or assets indicated in the
financial statements of BANCORP at June 30, 1997, which financial statements
have been heretofore provided to PACIFIC.
(g) Execution and Delivery of the Agreement.
(i) The execution and delivery of this Agreement have been duly
and validly authorized by the Board of Directors of BANCORP and, when this
Agreement and the Merger have been duly approved by the affirmative vote of the
holders of a majority of the outstanding shares of BANCORP Common Stock at a
meeting of shareholders duly called and held, this Agreement will be duly and
validly authorized by all necessary corporate action on the part of BANCORP.
(ii) This Agreement has been duly executed and delivered by
BANCORP and (assuming due execution and delivery by and enforceability against
PACIFIC) constitutes a legal and binding obligation of BANCORP.
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(iii) The execution and delivery by BANCORP of this Agreement
and the consummation of the transactions herein contemplated do not and will not
violate any provision of the Articles of Incorporation or Bylaws of BANCORP, any
provision of federal or state law or any governmental rule or regulation
(assuming receipt of the Government Approvals and the accuracy of the
representations and warranties of PACIFIC set forth herein) and do not require
any consent of any person under, conflict with or result in a breach of, or
accelerate the performance required by any of the terms of, any material debt
instrument, lease, license, covenant, agreement or understanding to which
BANCORP is a party or by which it is bound or any order, ruling, decree,
judgment, arbitration award or stipulation to which BANCORP is subject, or
constitute a material default thereunder or result in the creation of any lien,
claim, security interest, encumbrance, charge, restriction or right of any third
party of any kind whatsoever upon any of the properties or assets of BANCORP.
(h) Accuracy of Representations and Warranties. No representation or
warranty by BANCORP and no statement by BANCORP in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreements, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary to make such representation, warranty or statement not
misleading to PACIFIC; provided, however, that information as of a later date,
which has been furnished to PACIFIC in writing, shall be deemed to modify
information as of an earlier date.
(i) Capitalization. As of November 30, 1997, the authorized capital
stock of BANCORP consisted of 5,000,000 shares of common stock, without par
value, of which 1,712,419 shares were duly authorized, fully paid, validly
issued, nonassessable and are currently outstanding. There are currently
outstanding options to purchase 16,826 shares of BANCORP Common Stock, at a
weighted average exercise price of $4.64 per share, issued pursuant to the
Option Plan. Said options were issued and, upon issuance in accordance with the
terms of the outstanding options said shares shall be issued, in compliance with
all applicable securities laws. There are no outstanding options, agreements,
calls or commitments of any character which would obligate BANCORP to issue,
sell, pledge, assign or otherwise encumber or dispose of, or to purchase, redeem
or otherwise acquire, any BANCORP common stock or any other equity security of
BANCORP, or warrants or options relating to, rights to acquire, or debt or
equity securities convertible into, shares of BANCORP Common Stock or any other
equity security of BANCORP. Attached to BANCORP's Disclosure Statement is a list
of all option holders and the number of vested and unvested options as of
October 29, 1997. The common stock of BANCORP has been duly and validly
registered with the Securities and Exchange Commission pursuant to the 1934 Act,
to the extent required thereunder.
(j) Tax Returns. BANCORP has timely filed all material federal and
state returns required to be filed by it or its subsidiaries, including, without
limitation, estimated tax, use tax, excise tax, real
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property and personal property tax reports and returns, employer's withholding
tax returns, withholding tax returns and Federal Unemployment Tax Act returns,
and all other reports or other information required or requested to be filed by
each of them, and each such return, report or other information was, when filed,
complete and accurate in all material respects. BANCORP and each of its
subsidiaries has paid all taxes, fees and other governmental charges, including
any interest and penalties thereon, when they have become due and payable,
except those that are being contested in good faith, which contested matters
shall be disclosed to PACIFIC. Except as disclosed to PACIFIC in the BANCORP
Disclosure Statement, neither BANCORP nor any of its subsidiaries has been
requested to give or has given any currently effective waivers extending the
statutory period of limitation applicable to any tax return required to be filed
by any of them for any period. Except as disclosed to PACIFIC in the BANCORP
Disclosure Statement, there are no material claims pending against BANCORP or
any of its subsidiaries for any alleged deficiency in the payment of any taxes,
and neither BANCORP nor any of its subsidiaries knows of any pending or
threatened audits, investigations or claims for unpaid taxes or relating to any
liability in respect of any taxes. BANCORP shall deliver to PACIFIC as soon as
such documents are available, copies of all of its and its subsidiaries' tax
returns with respect to taxes payable to the United States of America and the
State of California for the fiscal years ended December 31, 1992, 1993, 1994,
1995, 1996 and 1997.
(k) Retention of Broker or Consultant. No broker, agent, finder,
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by BANCORP or is entitled to be paid
based upon any agreements, arrangements or understandings made by BANCORP in
connection with any of the transactions contemplated by this Agreement, except
that BANCORP has engaged the firm of Hoefer & Arnett to act as its financial
advisors and to render opinions regarding the fairness of the Merger. Subject to
any applicable confidentiality provisions, BANCORP shall provide PACIFIC with
true and accurate copies of its agreements with Hoefer & Arnett.
(l) No Undisclosed Liabilities. Except for items for which reserves
have been established in the unaudited consolidated balance sheets of BANCORP as
of June 30, 1997, since such date BANCORP has not incurred or discharged, and is
not legally obligated with respect to, any indebtedness, liability (including,
without limitation, a liability arising out of an indemnification, guarantee,
hold harmless or similar arrangement) or obligation (accrued or contingent,
whether due or to become due, and whether or not subordinated to the claims of
its general creditors), other than as a result of operations in the Ordinary
Course of Business. No cash, stock or other dividend or any other distribution
with respect to the stock of BANCORP has been declared, set aside or paid, nor
have any shares of the stock of BANCORP been purchased, redeemed or otherwise
acquired, directly or indirectly, by BANCORP since June 30, 1997.
(m) Properties and Leases. Except as disclosed to PACIFIC in the
BANCORP Disclosure Statement, BANCORP
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does not own or lease any personal or real property.
(n) Material Contracts. Except as disclosed to PACIFIC in the
BANCORP Disclosure Statement, BANCORP has no contracts with any person except
the employment contracts specified in subsection (o) below.
(o) Employment Contracts and Benefits. Except for the employment
agreement with Allan E. Dalshaug, BANCORP has no employment contracts with any
other person. In the BANCORP Disclosure Statement, BANCORP shall disclose to
PACIFIC the names of each director, officer and employee of BANCORP.
(p) Compensation of Officers and Employees. Except as otherwise
provided in this Agreement, no officer or employee of BANCORP is receiving
aggregate direct remuneration at a rate exceeding Fifty Thousand Dollars
($50,000) per annum, and the consummation of the transactions contemplated by
this Agreement will not (either alone or upon the occurrence of any additional
or further acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from BANCORP, or PACIFIC to any employee of BANCORP.
(q) Legal Actions and Proceedings. Except as disclosed to PACIFIC in
the BANCORP Disclosure Statement, BANCORP is not a party to, nor to the best
knowledge of BANCORP threatened with, any legal action or other proceeding or
investigation before any court, any arbitrator of any kind or any government
agency, and to the best of BANCORP's knowledge, BANCORP is not subject to any
potential adverse claim, the outcome of which could involve the payment or
receipt by BANCORP of any amount in excess of Ten Thousand Dollars ($10,000),
unless an insurer of BANCORP has agreed to defend against and pay the amount of
any resulting liability without reservation, or, if any such legal action,
proceeding, investigation or claim will not involve the payment by BANCORP of a
monetary amount, which could materially adversely affect BANCORP or its business
or property or the transactions contemplated hereby. BANCORP has no knowledge of
any pending or threatened claims or charges under the Community Reinvestment
Act, before the Equal Employment Opportunity Commission, the California
Department of Fair Housing & Economic Development, the California Unemployment
Appeals Board, or any human relations commission. There is no labor dispute,
strike, slow-down or stoppage pending or, to the best of the knowledge of
BANCORP, threatened against BANCORP.
(r) Classified Loans. Except as disclosed to PACIFIC in the BANCORP
Disclosure Statement, there are no loans presently owned by BANCORP that have
been classified by any BANCORP examiner, outside loan reviewer, accountant or
the management of BANCORP as "Other Loans Especially Mentioned," "Substandard,"
"Doubtful," or "Loss" or classified using categories with similar import and all
loans or portions thereof classified "Loss" have been charged off.
Notwithstanding the above, BANCORP shall be under no obligation to disclose to
PACIFIC any such classification by any
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BANCORP examiner where such disclosure would violate any obligation of
confidentiality of BANCORP imposed by any BANCORP regulator. BANCORP regularly
reviews and appropriately classifies loans in accordance with all applicable
legal and regulatory requirements and generally accepted banking practices. All
loans and investments of BANCORP are legal, valid and binding obligations
enforceable in accordance with their respective terms and are not subject to any
setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general applicability), except as
disclosed to PACIFIC in the BANCORP Disclosure Statement or reserved for in the
unaudited consolidated balance sheet of BANCORP as of June 30, 1997, and were
duly authorized under and made in material compliance with applicable federal
and state laws and regulations. BANCORP does not have any extensions of credit,
investments, guarantees, indemnification agreements or commitments for the same
(including without limitation commitments to issue letters of credit, to create
acceptances, or to repurchase securities, federal funds or other assets) other
than those documented on the books and records of BANCORP.
(s) Loan Loss Reserve. The reserve for loan losses in BANCORP
consolidated balance sheets dated December 31, 1996, March 31, 1997, June 30,
1997 and each subsequent annual and quarterly period end prior to the Effective
Date and as of the Effective Date are or will be adequate in all material
respects under the requirements of all applicable state and federal laws and
regulations to provide for possible loan losses on outstanding loans but in no
event will be less than sufficient to reserve for Nonperforming Loans (as
defined in Section 4(u)) outstanding consistent with BANCORP's past practices.
Nonperforming Loans does not include OREO. BANCORP has disclosed to PACIFIC in
the BANCORP Disclosure Statement, and will promptly inform PACIFIC of the
amounts of all loans, leases, other extensions of credit or commitments, or
other interest-bearing assets of BANCORP, that have been classified as of the
date hereof or hereafter by any internal bank examiner or any bank regulatory
agency as "Other Loans Especially Mentioned", "Substandard", "Doubtful", "Loss",
or words of similar import in the case of loans (or that would have been so
classified, in the case of other assets, had they been loans). Notwithstanding
the above, BANCORP shall be under no obligation to disclose to PACIFIC any such
classification by any bank regulatory agency where such disclosure would violate
any obligation of confidentiality of BANCORP imposed by such bank regulatory
agency. BANCORP has furnished and will continue to furnish to PACIFIC true and
accurate information concerning the loan portfolio of BANCORP, and no material
information with respect to the loan portfolio has been or will be withheld from
PACIFIC.
(t) Compliance With ERISA. BANCORP has not, since its inception,
either maintained or contributed to an employee pension benefit plan, as defined
in Section 3(2) of ERISA, including multi-employer plans, other than the
Sterling West Bancorp Employee Stock Ownership Plan and Trust, Number 001 (the
"Plan") and a true and accurate copy of which has been provided to PACIFIC. With
respect to the Plan and its related trust (the "Trust"), as of the Effective
Time, the Plan will in all material respects be (and currently is) in
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compliance with all the applicable requirements of Section 401(a) of the IRC,
and the Trust will be exempt from income tax under Section 501(a) of the IRC;
the Plan represents the adoption of an individual design plan that received a
favorable opinion letter ("Opinion Letter") from the IRS as to its form dated
November 13, 1995; BANCORP relies on such Opinion Letter as authorized under IRS
Revenue Procedure 89-9 as support for the fact that the Plan is qualified under
Section 401(a) of the IRC; no contributions have exceeded the limitations set
forth in Section 415 of the IRC; all required and necessary filings with the
IRS, Department of Labor and any other governmental agencies with respect to the
Plan and the Trust for all periods ending at or prior to the Effective Time will
have been made on a timely basis by BANCORP and the plan administrator; there
shall have been no material violation of Parts 1 and 4 of Subtitle B of Title I
of ERISA or of Section 4975 of the IRC; and there shall have been no action,
claim or demand of any kind known to BANCORP brought or threatened by any
potential claimant or representative of such claimant under the Plan or Trust
where BANCORP may be either liable directly on such action, claim or demand, or
obligated to indemnify any person, group of persons or entity with respect to
such action, claim or demand, unless such action, claim or demand is covered by
adequate reserves reflected in BANCORP's June 30, 1997 financial statements or
an insurer of BANCORP has agreed to defend against and pay the amount of any
resulting liability without reservation.
(u) Equity Interests. Except as listed below, BANCORP does not own
directly or indirectly, any equity interest in any bank, corporation, or other
entity.
Sterling Bank
Sterling Business Credit, Inc.
6. REPRESENTATIONS AND WARRANTIES OF PACIFIC.
PACIFIC represents and warrants to BANCORP and BANK that:
(a) Corporate Status and Power to Enter Into Agreement. PACIFIC is a
national association duly organized, validly existing and in good standing under
the National Bank Act (the "NBA"), and subject to the approval of this Agreement
and the transactions contemplated hereby by the regulatory agencies having
jurisdiction thereof, has all necessary corporate power to enter into this
Agreement and to carry out all of the terms and provisions hereof and thereof to
be carried out by it. PACIFIC is not subject to any directive or order (formal
or informal) of the OCC, the FRB or any other regulatory authority having
jurisdiction over its or their business or any of its or their assets or
properties.
(b) Corporate Status and Power of PACIFIC. Prior to and as of the
Effective Time, PACIFIC will be a national association duly organized, validly
existing and in good standing under the NBA and will have the corporate power to
enter into the Merger Agreements and to carry out all of the terms
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and provisions thereof to be carried out by it.
(c) Execution and Delivery of the Agreement.
(i) The execution and delivery of this Agreement has been duly
and validly authorized by the Board of Directors of PACIFIC and this Agreement
will be duly and validly authorized by all necessary corporate action on the
part of PACIFIC.
(ii) This Agreement has been duly executed and delivered by
PACIFIC and (assuming due execution and delivery by and enforceability against
BANCORP) constitutes a legal and binding obligation of PACIFIC.
(iii) The execution and delivery by PACIFIC of this Agreement
and the consummation of the transactions herein contemplated do not and will not
violate any provision of the Articles of Association or Bylaws of PACIFIC, any
provision of federal or state law or any governmental rule or regulation
(assuming (1) receipt of the Government Approvals, and (2) accuracy of the
representations of BANCORP and BANK set forth herein), and do not require any
consent of any person under, conflict with or result in a breach of, or
accelerate the performance required by any of the terms of, any material debt
instrument, lease, license, covenant, agreement or understanding to which
PACIFIC is a party or by which it is bound or any order, ruling, decree,
judgment, arbitration award or stipulation to which PACIFIC is subject, or
constitute a material default thereunder or result in the creation of any lien,
claim, security interest, encumbrance, charge, restriction or right of any third
party of any kind whatsoever upon any of the properties or assets of PACIFIC.
(d) Government Approvals. To the best of its knowledge, PACIFIC has
no reason to believe that it will not obtain the Government Approvals
contemplated by this Agreement.
(e) Accuracy of Representations and Warranties. No representation or
warranty by PACIFIC and no statement by PACIFIC in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreements, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary to make such representation, warranty or statement not
misleading to BANCORP; provided, however, that information as of a later date
shall be deemed to modify information as of an earlier date.
7. CONDITIONS TO THE OBLIGATIONS OF PACIFIC.
The obligations of PACIFIC under this Agreement are, at its option,
subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived in writing by the Board of Directors of PACIFIC at any time at or
prior to the Effective Time:
(a) Representations and Warranties. The representations and
warranties in Sections 4 and 5 hereof shall be true and correct
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in all material respects on the date hereof and as of the Effective Date, with
the same effect as though such representations and warranties had been made on
and as of such date except as to any representation or warranty which
specifically relates to a specified date and not contain any material
inaccuracies or omissions the circumstances as to which either individually or
in the aggregate have, or reasonably could be expected to have, a material
adverse effect on BANCORP and BANK taken as a whole.
(b) Compliance and Performance Under Agreement. BANCORP and BANK
shall have performed and complied in all material respects with all terms of
this Agreement required to be performed or complied with by it at or prior to
the Effective Date. Each of the directors of BANCORP and BANK also shall have
performed and complied in all material respects with all of the terms and
conditions of the undertaking referred to in Section 3.1(a) above. BANCORP and
BANK acknowledge that their failure to obtain PACIFIC's prior written approval
for any material transaction pursuant to this Agreement and not in the Ordinary
Course of Business shall be within the scope of this paragraph.
(c) Material Adverse Change. Except as disclosed to PACIFIC in the
BANK Disclosure Statement or the BANCORP Disclosure Statement, no material
adverse change shall have occurred since December 31, 1996, in the business,
financial condition or results of operations of BANCORP or BANK and BANCORP or
BANK shall not be a party to or, so far as BANCORP or BANK is aware, threatened
with, and to BANCORP's or BANK's knowledge there is no reasonable basis for, any
legal action or other proceeding before any court, any arbitrator of any kind or
any government agency if, in the reasonable judgment of PACIFIC, such legal
action or proceeding could materially adversely affect BANCORP or BANK taken as
a whole, or their business, financial condition, results of operations or
prospects taken as a whole. For purposes of this Section 7 the loss of any BANK
clients which the persons identified in Section 7(c) of the BANK Disclosure
Statement have signing authority for, or financial control of, or otherwise have
a fiduciary relationship with (the "Clients") shall not be considered for
purposes of determining a material adverse change. BANCORP, BANK and PACIFIC
agree and understand that PACIFIC shall have no obligation whatsoever to take
any action or refrain from taking any action which is not in the ordinary course
of business of PACIFIC to maintain or retain any of the Clients.
(d) Approval of Agreement. This Agreement and the Merger shall have
been duly approved by the affirmative vote of the holders of a majority of the
outstanding shares of BANCORP Common Stock at the meeting of shareholders duly
called and held after distributing the Proxy Statement to all shareholders
entitled to vote at such meeting and shall have been ratified and confirmed by
the affirmative vote of the shareholders owning at least two-thirds (2/3) of
PACIFIC Common Stock outstanding at the meeting of shareholders duly called and
held.
(e) Officer's Certificate.
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PACIFIC shall have received a certificate, dated the Effective Date, signed on
behalf of BANCORP by its Chairman, President and Chief Executive Officer and by
its Chief Financial Officer and on behalf of BANK by its Chairman and Chief
Executive Officer and by its President and by its Chief Financial Officer, to
the effect that the conditions in Sections 7(a)-(d), (h)-(w) have been
satisfied.
(f) Opinion of Counsel. BANCORP shall have delivered to PACIFIC such
documents as may reasonably be requested by PACIFIC to evidence compliance by
BANCORP and BANK with the provisions of this Agreement including an opinion or
opinions of counsel which opinion or opinions shall in the aggregate cover all
of the opinions contained in and be substantially in the form attached hereto as
Exhibit E.
(g) Absence of Legal Impediment. No violation of law or regulation
shall have arisen and no litigation, proceeding or investigation shall be
pending or threatened before any court or government agency relating to BANCORP,
BANK or to the transactions contemplated by this Agreement which affords a
material basis for a determination that it would be inadvisable or inexpedient
to continue to carry out the terms of, or to attempt to consummate, the
transactions contemplated by this Agreement.
(h) Government Approvals. All Government Approvals shall be in
effect, and all conditions or requirements prescribed by law or by any such
Government Approval shall have been satisfied; provided, however, that no
Government Approval shall be deemed to have been received if it shall require
the divestiture or cessation of any of the present businesses or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which divestiture, cessation, condition or requirement PACIFIC in
its reasonable judgment shall deem to be materially burdensome (in which case
PACIFIC shall promptly notify BANCORP). For purposes of this Agreement no
condition shall be deemed to be "materially burdensome" if such condition does
not materially differ from conditions regularly imposed by the appropriate
regulatory agencies in orders approving transactions of the type contemplated by
this Agreement and compliance with such condition would not require the taking
of any action materially inconsistent with the manner in which PACIFIC or
BANCORP and BANK have conducted their respective businesses previously, have a
material adverse effect upon the respective businesses, financial conditions or
results of operations of PACIFIC or BANCORP and BANK, or preclude satisfaction
of any of the material conditions to consummation of the transactions
contemplated by this Agreement.
(i) Accountant's Letter. PACIFIC shall have received letters
addressed from KPMG prepared pursuant to the provisions of Sections 3.1(g)(v),
3.1(q) and 3.1(z).
(j) Dissenting Shares. The aggregate number of shares of BANCORP
Common Stock held by persons who have taken all of the steps required at or
prior to the shareholders' meeting referenced
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in Section 3.1(a) to perfect their right (if any) to be paid the value of such
shares under the GCL shall not exceed ten percent (10%) of the outstanding
shares of BANCORP Common Stock.
(k) Unaudited Financials. Not later than five (5) business days
prior to the Effective Date, BANCORP shall have furnished PACIFIC with a copy of
its most recently prepared unaudited year-to-date consolidated financial
statements, including a balance sheet and year-to-date statement of income and
statement of cash flows of BANCORP, each prepared in accordance with generally
accepted accounting principles and which shall include any and all accrued and
unpaid liabilities of BANCORP and BANK, including but not limited to, accrued
vacation pay and data processing invoices. At least five business days prior to
the Effective Time, all attorneys, accountants, other advisors (except
investment bankers whose fee and expenses shall be paid in accordance with
Section 2.2 of this Agreement), and agents for BANCORP and BANK shall have
submitted to BANCORP (with a copy to PACIFIC) estimates of their fees and
expenses for all services rendered in any respect in connection with the
transactions contemplated hereby to the extent not already paid, and based on
such estimates, BANCORP shall have prepared and submitted to PACIFIC a summary
of such fees and expenses for the transaction which shall be reflected in the
foregoing financial statement. On the Effective Date, such advisors shall have
submitted their final bills for such fees and expenses to BANCORP and BANK for
services rendered, with a copy to be delivered to PACIFIC, and based on such
summary, BANCORP shall have prepared and submitted to PACIFIC a final
calculation of such fees and expenses, BANCORP and BANK shall have accrued and
paid the amount of such fees and expenses as calculated above after PACIFIC has
been given an opportunity to review all such bills and calculation of such fees
and expenses, and such advisors shall have released PACIFIC from liability for
any fees and expenses.
(l) Closing Documents. PACIFIC shall have received such certificates
and other closing documents consistent with the provisions of this Agreement, as
counsel for PACIFIC shall reasonably request.
(m) Consents. BANCORP and BANK shall have received, or PACIFIC shall
have satisfied itself that BANCORP and BANK will receive, all consents of other
parties to and required by material mortgages, notes, leases, franchises,
agreements, licenses and permits applicable to BANCORP and BANK, in each case in
form and substance reasonably satisfactory to PACIFIC, and no such consent or
license or permit shall have been withdrawn or suspended.
(n) Fairness Opinion. The Board of Directors of BANCORP shall have
received an opinion of Hoefer & Arnett dated within five (5) business days of
the delivery of the proxy statement to the shareholders of BANCORP to the effect
that the terms of the Merger are fair, from a financial point of view, to
BANCORP, its shareholders and BANK.
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(o) Losses in Investment and Loan Portfolios. At and as of the
Effective Date, losses actually realized by BANCORP from the sale of securities
held in BANCORP's investment portfolios after June 30, 1997 and prior to the
Effective Date shall be reflected in the financial statements of BANCORP as of
the last day of the calendar month preceding the calendar month in which the
Effective Date occurs. Additionally, the aggregate amount of loans on the books
of BANCORP and BANK which are classified by any bank examiner, BANK, BANCORP or
any loan review consultant engaged by BANK for the purpose of examining loans
(using standard banking practice) as "Loss" shall have been charged off.
(p) Satisfaction of Spending or Other Commitments. There shall have
been no failure by BANCORP and BANK to perform the obligations or satisfy the
conditions set forth in Sections 2.6, 3.1(e) and 3.1(i)(2) of this Agreement and
the undertakings required from each director of BANCORP pursuant to Section
3.1(a) shall have been delivered within fifteen (15) business days after the
execution and delivery of this Agreement.
(q) Compliance Examinations. Prior to the Effective Date, BANCORP
and BANK shall have taken all corrective action recommended by or resulting from
its most recent compliance examinations and any significant regulatory
compliance violations shall have been corrected by BANCORP and BANK prior to the
Effective Date to the extent such are required to be corrected prior to the
Effective Date.
(r) Regulatory Deficiencies. Prior to the Effective Date, BANCORP
and BANK shall have taken corrective action to cure any existing regulatory
deficiencies provided, however, that BANCORP and BANK shall not be required to
take corrective action prior to the date by which such corrective action is
required by the applicable law or regulation or regulatory order or agreement.
(s) Regulatory Examination. Prior to the Effective Date, BANCORP and
BANK shall be in compliance with all requirements arising from its most recent
safety and soundness regulatory examination to the extent such are required to
be corrected prior to the Effective Date.
(t) Nonsolicitation Agreements. Within fifteen (15) business days of
the execution of this Agreement, PACIFIC shall have received executed
nonsolicitation agreements substantially in the form attached hereto as Exhibit
C from each person listed on Exhibit D hereto.
(u) Resignation of Directors and Certain Employees. At least three
(3) days prior to Closing (as defined in Section 9(a)), PACIFIC shall have
received a letter from each director of BANCORP and BANK and each employee
designated by PACIFIC tendering his or her resignation effective at the
Effective Time.
(v) SBA Program. BANK shall have used its best efforts to maintain
its status as a Certified Lender with
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respect to the SBA and its program for lending with the SBA.
(w) Certain Tax Matters. At December 31, 1997 and on the Closing (as
defined in Section 9(a)), the consolidated financial statement of BANCORP shall
include a valuation allowance equal to one hundred percent (100%) of the net
deferred tax asset existing at such date.
(x) Employment Issues. BANK and BANCORP shall have used their best
efforts to resolve any employment issues arising from or in connection with any
current or past employees of BANK and BANCORP.
(y) The MOUs. As of the Effective Date, the FDIC, DFI and FRB shall
have terminated or set aside the respective MOUs and the FDIC, DFI, FRB and OCC
shall have acknowledged that PACIFIC shall not have any successor liability
under such MOUs resulting from or concerning the regulatory problems or
violations of BANK or BANCORP set forth therein.
(z) Leases. As of the Effective Date, BANK shall have obtained the
written consent of the landlords for the assumption of the following leases by
PACIFIC pursuant to the terms thereof:
(i) 16661 Ventura Boulevard, Encino, California;
(ii) 550 N. Brand Boulevard, Glendale, California; and
(iii) 433 N. Camden Drive, Beverly Hills, California.
8. CONDITIONS TO THE OBLIGATIONS OF BANCORP AND BANK.
The obligations of BANCORP and BANK under this Agreement are, at its
option, subject to the fulfillment at or prior to the Effective Time of each of
the following conditions provided, however, that any one or more of such
conditions may be waived by the Board of Directors of BANCORP at any time at or
prior to the Effective Time:
(a) Representations and Warranties. The representations and
warranties of PACIFIC in Section 6 hereof shall be true and correct in all
material respects on the date hereof and as of the Effective Date, with the same
effect as though such representations and warranties had been made on and as of
such date except as to any representation or warranty which specifically relates
to a specified date and does not contain any inaccuracies or omissions the
circumstances as to which either individually or in the aggregate have, or
reasonably could be expected to have, a material adverse effect on PACIFIC.
(b) Compliance and Performance Under Agreement. PACIFIC shall have
performed and complied in all material respects with all of the terms of this
Agreement required to be performed or complied with by them at or prior
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to the Effective Time.
(c) Officer's Certificate. BANCORP shall have received a
certificate, dated the Effective Date, signed on behalf of PACIFIC by its
President and Chief Executive Officer and Chief Financial Officer, certifying to
the fulfillment of the conditions stated in Sections 8(a)-(b) hereof.
(d) Opinion of Counsel. PACIFIC shall have delivered to BANCORP such
documents as may reasonably be requested by BANCORP to evidence compliance by
PACIFIC with the provisions of this Agreement including an opinion of its
counsel in substantially the form attached hereto as Exhibit F.
(e) Government Approvals. The Government Approvals shall have been
received and shall be in effect, and all conditions or requirements prescribed
by law or by any such approval shall have been satisfied, and, in the reasonable
judgment of BANCORP and BANK, no materially burdensome conditions are imposed on
BANCORP and BANK.
(f) Closing Documents. BANCORP shall have received such certificates
and other closing documents as counsel for BANCORP shall reasonably request.
(g) Absence of Legal Impediment. No significant legal impediment to
the Merger shall have arisen and no litigation, proceeding or investigation
shall be pending or threatened before any court or government agency relating to
the transactions contemplated by this Agreement which affords a material basis
for a determination that it would be inadvisable or inexpedient to continue to
carry out the terms of, or to attempt to consummate the transactions
contemplated by this Agreement.
(h) Fairness Opinion. The Board of Directors of BANCORP shall have
received an opinion of Hoefer & Arnett dated within five (5) business days of
the delivery of the proxy statement to the shareholders of BANCORP to the effect
that the terms of the Merger are fair, from a financial point of view, to
BANCORP, its shareholders and BANK.
(i) Approval of Agreement. This Agreement and the Merger shall have
been duly approved by the affirmative vote of the holders of a majority of the
outstanding shares of BANCORP Common Stock at the meeting of shareholders duly
called and held after distributing the Proxy Statement to all shareholders
entitled to vote at such meeting and shall have been ratified and confirmed by
the affirmative vote of the shareholders owning at least two-thirds (2/3) of
PACIFIC Common Stock outstanding at the meeting of shareholders duly called and
held.
9. CLOSING.
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(a) Closing Date. The closing (the "Closing") shall, unless another
date, time or place is agreed to in writing by PACIFIC and BANCORP, be held at
the offices of Graham & James LLP, One Maritime Plaza, San Francisco, California
on the Effective Date.
(b) Delivery of Documents. At the Closing, the opinions,
certificates and other documents required to be delivered by this Agreement
shall be delivered.
(c) Filings. At the Closing, PACIFIC and BANCORP shall instruct
their respective representatives to make or confirm such filings as shall be
required in the opinion of counsel to PACIFIC and BANCORP to give effect to the
Merger.
10. EXPENSES.
PACIFIC, BANCORP and BANK hereto agree to pay, without right of
reimbursement from the other party and whether or not the transactions
contemplated by this Agreement or the Merger Agreements shall be consummated,
the costs incurred by each such party incident to the performance of its
obligations under this Agreement and the Merger Agreements, including without
limitation, costs incident to the preparation of this Agreement and the Proxy
Statement (including the audited financial statements of the parties contained
therein) and incident to the consummation of the Merger and of the other
transactions contemplated herein and in the Merger Agreements, including the
fees and disbursements of counsel, accountants, consultants and financial
advisers employed by such party in connection therewith. BANCORP shall bear its
own costs of printing and distributing (including postage) the Proxy Statement
to its shareholders and other information relating to these transactions.
BANCORP and PACIFIC shall share the payment of the fees and expenses of the
independent third party engaged pursuant to Section 2.3 of this Agreement.
11. AMENDMENT; TERMINATION.
(a) Amendment. Subject to compliance with applicable law, this
Agreement and the Merger Agreements may be amended in writing by PACIFIC and
BANCORP at any time prior to the Effective Time without the approval of the
shareholders of PACIFIC or shareholders of BANCORP with respect to any of their
terms except the terms relating to the form or amount of consideration to be
delivered to BANCORP shareholders in the Merger.
(b) Termination. This Agreement and the Merger Agreements may be
terminated as follows:
(i) By the mutual consent of the Boards of Directors of both
PACIFIC and BANCORP at any time prior to the consummation of the Merger.
(ii) By the Board of Directors of PACIFIC on or after May 31,
1998, if
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any of the conditions in Section 7 to which the obligations of PACIFIC are
subject have not been fulfilled, or such conditions have been fulfilled or
waived by PACIFIC and BANCORP shall have failed to complete the Merger;
provided, however, that if BANCORP or BANK is engaged at the time in litigation
(including an administrative appeal procedure) relating to an attempt to obtain
one or more of the Governmental Approvals or if BANCORP or BANK shall be
contesting in good faith any litigation which seeks to prevent consummation of
the transactions contemplated hereby, such nonfulfillment shall not give PACIFIC
the right to terminate this Agreement until the earlier of (A) twelve (12)
months after the date of this Agreement and (B) sixty (60) days after the
completion of such litigation and of any further regulatory or judicial action
pursuant thereto, including any further action by a governmental agency as a
result of any judicial remand, order or directive or otherwise or any waiting
period with respect thereto.
(iii) By the Board of Directors of PACIFIC if (A) after the date
of BANCORP Disclosure Statement and BANK Disclosure Statement, PACIFIC has
become aware of any facts or circumstances of which it was not previously aware
and which materially adversely affect BANCORP or BANK or their respective
properties, operations, financial condition or prospects, (B) a materially
adverse change shall have occurred since December 31, 1996, in the business,
financial condition, results of operations or properties of BANCORP or BANK, (C)
there has been failure (including any anticipatory breach) on the part of
BANCORP or BANK to materially comply with its obligations under this Agreement,
or any failure (including any anticipatory breach) to comply with any of the
conditions set forth in Section 7 hereof, or (D) the provisions of Section
3.1(k)(iv) become operable; provided that as to subparagraphs (A)-(C) above
BANCORP or BANK shall have ten (10) calendar days to remedy any such effect,
change or failure to the reasonable satisfaction of PACIFIC and PACIFIC shall
have acted to terminate this Agreement within seven (7) calendar days after such
ten (10) day period. For the purposes of this Section 11(b)(iii) the loss of any
of the Clients shall not be considered to be a materially adverse change.
(iv) By the Board of Directors of PACIFIC if, after the date
hereof, any person (other than PACIFIC or an affiliate of PACIFIC) shall become
the beneficial owner of twenty-five percent (25%) or more of the then
outstanding shares of BANCORP Common Stock and indicates to BANCORP or BANK that
it is opposed to the consummation of the transactions contemplated by this
Agreement or any person (other than PACIFIC) shall have commenced a tender offer
or exchange offer to acquire at least twenty-five percent (25%) of the then
outstanding shares of BANCORP.
(v) By the Board of Directors of PACIFIC if it determines that
it would be inadvisable or inexpedient to continue to carry out the terms of, or
to attempt to consummate the transactions contemplated by this Agreement by
reason of any significant legal impediment to the Merger having arisen, or any
material pending or threatened litigation, investigation or proceeding,
including, but not limited to any of the preceding that relate to the
transactions contemplated by this Agreement which affords a material basis for
such determination.
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(vi) By the Board of Directors of BANCORP on or after the date
which is eight (8) months after the date hereof, if any of the conditions
contained in Section 8 to which the obligations of BANCORP and BANK are subject
have not been fulfilled, or such conditions have been fulfilled or waived but
PACIFIC shall have failed to complete the Merger.
(vii) By the Board of Directors of BANCORP if there has been
failure (including any anticipatory breach) on the part of PACIFIC to comply
with its obligations under this Agreement or any failure to comply with any
condition set forth in Section 8.
(c) Notice. The power of termination hereunder may be exercised by
PACIFIC or BANCORP, as the case may be, only by giving written notice, signed on
behalf of such party by its Chairman of the Board or President, to the other
party.
(d) Breach of Obligations. If there has been a material breach by
either party in the performance of any of the obligations herein which shall not
have been cured within ten (10) business days after written notice thereof has
been given to the defaulting party, the nondefaulting party shall have the right
to terminate this Agreement upon written notice to the other party. In any
event, the nondefaulting party shall have no obligation to consummate any
transaction or take any further steps toward such consummation contemplated
hereunder until such breach is cured.
(e) Termination and Expenses. Termination of this Agreement shall
not terminate or affect the obligations of the parties to pay expenses as
provided in Section 10 (except that PACIFIC's obligation to pay Hoefer & Arnett
as provided in Section 2.2 hereof shall terminate if this Agreement is
terminated), to maintain the confidentiality of the other party's information
pursuant to Section 3.3, or the provisions of this Section 11(e) or of Sections
12(a), (d) or (e) or the second sentence of Section 12(b) below and shall not
affect any agreement after such termination. If this Agreement shall be
terminated by PACIFIC pursuant to Section 11(b)(iii)(D) or Section 11(b)(iv), or
if any of the events specified in Section 11(b)(iv) occurs within twelve (12)
months following termination of this Agreement pursuant to Section 11(b)(iii)(D)
as a result of the interference of a third party or group who thereafter
attempts to acquire BANCORP, BANCORP shall pay to PACIFIC, on demand, the sum of
Five Hundred Thousand Dollars ($500,000), which
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payment shall be PACIFIC's exclusive remedy and which payment the parties agree
is reasonable in amount in light of the uncertainty of damages resulting from
such termination. If this Agreement shall be terminated in the event the Board
of Directors of PACIFIC receives a bona fide offer for a Business Combination
with another entity, and reasonably determines, upon advice of counsel, that as
a result of such offer, any duty to act or to refrain from doing any act
pursuant to this Agreement is inconsistent with the fiduciary duties of said
Board of Directors to the shareholders of PACIFIC, such termination of this
Agreement shall not constitute the failure of any condition, breach of any
covenant or otherwise constitute any breach of this Agreement, and PACIFIC shall
pay to BANCORP, on demand, the sum of Five Hundred Thousand Dollars ($500,000),
which payment shall be BANCORP's and BANK'S exclusive remedy and which payment
the parties agree is reasonable in amount in light of the uncertainty of damages
resulting from such termination. Any payments required pursuant to the preceding
sentences shall be paid no more than two (2) business days after demand by wire
transfer of immediately available federal funds. Except as provided in Section
3.2(a), Section 3.1(k)(iv) or upon payment of the sum of Five Hundred Thousand
Dollars ($500,000) by PACIFIC to BANCORP, BANCORP and PACIFIC agree that any
termination of this Agreement shall not in any manner release or be construed as
so releasing either party or parties from any liability or damage to the other
party or parties arising out of, in connection with or otherwise relating to,
directly or indirectly, such parties' failure in performance of any of its
covenants or agreements hereunder.
12. MISCELLANEOUS.
(a) Notices. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight express or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
To PACIFIC: To BANCORP:
Michael Tun Zan Allan E. Dalshaug
Chairman, President and Chief Chairman and Chief Executive Officer
Executive Officer Sterling West Bancorp.
The Pacific Bank 3287 Wilshire Boulevard
351 California Street Los Angeles, CA 90010
San Francisco, CA 94104
With a copy to: With a copy to:
James E. Topinka, Esq. Thomas D. Phelps, Esq.
Graham & James LLP Manatt, Phelps & Phillips LLP
One Maritime Plaza 11355 West Olympic Boulevard
San Francisco, CA 94111 Los Angeles, CA 90064
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
(b) Binding Agreement. This Agreement is binding upon and is for the
benefit of PACIFIC, BANCORP and BANK and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any person,
firm, corporation or association not a party hereto, and no other person, firm,
corporation or association shall acquire or have any right under or by virtue of
this Agreement. No party may assign this Agreement or any of its rights,
privileges, duties or obligations hereunder without the prior written consent of
the
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other party to this Agreement.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of California.
(d) Attorneys' Fees. In any action at law or suit in equity in
relation to this Agreement, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
(e) Entire Agreement; Severability. This Agreement and the
documents, certificates, agreements, letters, schedules and exhibits attached or
required to be delivered pursuant hereto set forth the entire agreement and
understanding of the parties in respect of the transactions contemplated hereby,
and supersede all prior agreements, arrangements and understandings relating to
the subject matter hereof. Each provision of this Agreement shall be interpreted
in a manner to be effective and valid under applicable law, but if any provision
hereof shall be prohibited or ruled invalid under applicable law, the validity,
legality and enforceability of the remaining provisions shall not, except as
otherwise required by law, be affected or impaired as a result of such
prohibition or ruling.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Waivers. Prior to or at the Effective Time, each of PACIFIC,
BANCORP and BANK shall have the right to waive any default in the performance of
any term of this Agreement by the other, to waive or extend the time for the
compliance or fulfillment by the other of any and all of the other's obligations
under this Agreement and to waive any or all of the conditions precedent to its
obligations under this Agreement, except any condition which, if not satisfied,
would result in the violation of any law or applicable governmental regulation.
No failure to exercise and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy or power provided
herein or by law or in equity. The waiver by any party of the time for
performance of any act or condition hereunder does not constitute a waiver of
the act or condition itself. Any requests for waivers or waivers granted
pursuant to this Section 12(g) shall be in accordance with the provisions of
Section 12(a) hereof.
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IN WITNESS WHEREOF, PACIFIC, BANCORP and BANK have each caused this
Agreement and Plan of Reorganization to be signed by its authorized
representative as of the day and year first above written.
THE PACIFIC BANK
By _______________________________________
Michael Tun Zan,
Chairman, President
and Chief Executive Officer
STERLING WEST BANCORP.
By _______________________________________
Allan E. Dalshaug,
Chairman, President
and Chief Executive Officer
STERLING BANK
By _______________________________________
Allan E. Dalshaug,
Chairman and Chief Executive Officer
50
