<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report October 6, 1998
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PNB FINANCIAL GROUP
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(Exact name of registrant as specified in its charter)
California 2-78580 95-3847640
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(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
4665 MacArthur Court
Newport Beach, Ca. 92660
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(Address of principal executive offices)
Registrant's telephone number, including area code (949) 851-1033
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________________________________________________________________________________
(Former name or former address, if changed since last report)
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Item 5. Other Events
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On October 7, the Registrant issued a press release announcing that the
Registrant had entered into a merger agreement with Western Bancorp ("Western").
A copy of the press release and the merger agreement are incorporated herein by
reference.
Item 7. Financial Statements and Exhibits
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Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of October 6, 1998
between Western Bancorp and PNB Financial Group, Inc.
99.1 Press Release issued October 7, 1998
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereon as duly authorized.
DATED: October 8, 1998 PNB FINANCIAL GROUP,
a California corporation
By: /s/ DOUG L. HELLER
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Doug L. Heller
Chief Financial Officer
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AGREEMENT AND PLAN OF MERGER
_______________________________________________________
_______________________________________________________
dated as of October 6, 1998
between
Western Bancorp
and
PNB Financial Group, Inc.
_______________________________________________________
_______________________________________________________
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AGREEMENT AND PLAN OF MERGER, dated as of October 6, 1998 (this
"Agreement"), between Western Bancorp ("Western") and PNB Financial Group, Inc.
("PNB").
RECITALS
A. PNB is a California corporation, having its principal place of business
in Newport Beach, California. PNB is a bank holding company duly registered
with the Board of Governors of the Federal Reserve System ("Federal Reserve")
under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). PNB has
one subsidiary bank, PNB Bank Subsidiary, a national banking association (the
"PNB Bank Subsidiary").
B. Western is a California corporation, having its principal place of
business in Newport Beach, California. Western is a multi-bank holding company
duly registered with the Federal Reserve under the BHC Act.
C. Concurrently herewith, PNB and Western are entering into a stock option
agreement (the "Stock Option Agreement"), to be dated the date hereof, whereby
PNB will grant to Western the option to purchase up to 19.9% of the outstanding
shares of the PNB Common Stock (as defined herein) upon the occurrence of
certain events.
D. It is the intention of the parties to this Agreement that the business
combination contemplated hereby be accounted for under the "pooling-of-
interests" accounting method and be treated as a "reorganization" under Section
368 of the Internal Revenue Code of 1986 as amended (the "Code").
E. The respective Boards of Directors of each of Western and PNB have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the strategic business combination transaction
provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. Certain Definitions. The following terms are used in this Agreement
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with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving PNB or any of its
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets or deposits of, PNB
or any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
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"Agreement" means this Agreement, as amended or modified from time to time in
accordance with Section 9.2.
"Alta" has the meaning set forth in Section 5.3(b).
"Benefit Plans" has the meaning set forth in Section 5.3(n).
"BHC Act" has the meaning set forth in the Recitals to this Agreement.
"Business Combination" has the meaning set forth in Section 3.5.
"CGCL" means the California General Corporation Law.
"California Secretary" means the California Secretary of State.
"Code" has the meaning set forth in the Recitals to this Agreement.
"Computer System" has the meaning set forth in Section 5.3(p).
"Conversion Number" has the meaning set forth in Section 3.1(a).
"Costs" has the meaning set forth in Section 6.13(a).
"Disclosure Schedule" has the meaning set forth in Section 5.1.
"Dissenters' Shares" means shares of PNB Common Stock with respect to which the
holder or holders thereof perfect their rights to dissent under Chapter 13 of
the CGCL.
"Dissenting Shareholders" means holders of shares of PNB Common Stock who
perfect their rights to dissent under Chapter 13 of the CGCL.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided for in
Section 2.2.
"Employees" has the meaning set forth in Section 5.3(n).
"Entrust" has the meaning set forth in Section 5.3(x).
"Entrust Agreement" has the meaning set forth in Section 5.3(x).
"Environmental Law" has the meaning set forth in Section 5.3(q).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
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"ERISA Affiliate" has the meaning set forth in Section 5.3(n).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.4(a).
"Exchange Fund" has the meaning set forth in Section 3.4(a).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve" has the meaning set forth in the Recitals to this Agreement.
"GAAP" has the meaning set forth in Section 5.3(h).
"Governmental Authority" means any court, administrative agency or commission or
other federal, state or local governmental authority or instrumentality.
"Hazardous Substance" has the meaning set forth in Section 5.3(q).
"Indemnified Parties" has the meaning set forth in Section 6.13(a).
"Insurance Policies" has the meaning set forth in Section 5.3(u).
"Liens" means any charge, mortgage, pledge, security interest, restriction,
claim, lien or encumbrance.
"Loan Property" has the meaning set forth in Section 5.3(q).
"Material Adverse Effect" means, with respect to Western or PNB, any effect that
(i) is material and adverse to the financial position, results of operations or
business of Western and its Subsidiaries taken as a whole or PNB and its
Subsidiaries taken as a whole, respectively, or (ii) would materially impair the
ability of either Western or PNB, respectively, to perform its obligations under
this Agreement or otherwise materially threaten or materially impede the
consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be deemed
to include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental authorities,
(b) changes in generally accepted accounting principles or regulatory accounting
requirements applicable to banks and their holding companies generally, (c)
changes caused by fluctuations in market interest rates or changes in economic
conditions affecting the banking industry generally in the markets in which the
respective party operates and (d) any modifications or changes to valuation
policies and practices in connection with the Merger or restructuring charges
taken in connection with the Merger, in each case in accordance with generally
accepted accounting principles.
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"Maximum Amount" has the meaning set forth in Section 6.13(c).
"Merger" has the meaning set forth in Section 2.1.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Multiemployer Plans" has the meaning set forth in Section 5.3(n).
"Nasdaq" means The Nasdaq Stock Market, Inc.'s National Market.
"Nasdaq Bank Index" has the meaning set forth in Section 8.1(f).
"Nasdaq 80% Index Percentage" has the meaning set forth in Section 8.1(f).
"Nasdaq 90% Index Percentage" has the meaning set forth in Section 8.1(f).
"New Certificates" has the meaning set forth in Section 3.4(a)
"OCC" means the Office of the Comptroller of the Currency.
"PNB" has the meaning set forth in the preamble to this Agreement.
"PNB Affiliate" has the meaning set forth in Section 6.7(a).
"PNB Articles" means the Articles of Incorporation of PNB, as amended.
"PNB Bank Subsidiary" has the meaning set forth in the Recitals to this
Agreement.
"PNB Board" means the Board of Directors of PNB.
"PNB Bylaws" means the Bylaws of PNB, as amended.
"PNB Common Stock" means the common stock of PNB.
"PNB Meeting" has the meaning set forth in Section 6.2.
"Old Certificates" has the meaning set forth in Section 3.4(a).
"Pension Plan" has the meaning set forth in Section 5.3(n).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
"Plans" has the meaning set forth in Section 5.3(n).
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"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.3.
"Registration Statement" has the meaning set forth in Section 6.3.
"Regulatory Agencies" has the meaning set forth in Section 5.3(g).
"Regulatory Approval Date" means the date of approval by the Federal Reserve
pursuant to Section 3 of the BHC Act.
"Regulatory Documents" has the meaning set forth in Section 5.4(f).
"Representatives" means, with respect to any Person, such Person's directors,
officers, employees, legal or financial advisors or any representatives of such
legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and rules and
regulations thereunder.
"Shareholder Agreements" has the meaning set forth in Section 6.17.
"Stock Option Agreement" shall have the meaning set forth in the Recitals to
this Agreement.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to them in
Rule 1-02 of Regulation S-X of the SEC, provided, however, Alta shall not be a
Subsidiary of PNB for purposes of this Agreement.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax" and "Taxes" means all federal, state, local or foreign taxes, charges,
fees, levies or other assessments, however denominated, including, without
limitation, all net income, gross income, gains, gross receipts, sales, use, ad
valorem, goods and services, capital, production, transfer, franchise, windfall
profits, license, withholding, payroll, employment, disability, employer health,
excise, estimated, severance, stamp, occupation, property, environmental,
unemployment or other taxes, custom duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority whether arising before, on
or after the Effective Date.
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"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Twenty Day Average Nasdaq Bank Index" has the meaning set forth in section
8.1(f).
"Twenty Day Average Price" has the meaning set forth in Section 8.1(f).
"Twenty Day Period" has the meaning set forth in Section 8.1(f).
"Treasury Stock" shall mean shares of PNB Common Stock held by PNB or any of its
Subsidiaries or by Western or any of its Subsidiaries, in each case other than
in a fiduciary (including custodial or agency) capacity or as a result of debts
previously contracted in good faith.
"Western" has the meaning set forth in the preamble to this Agreement.
"Western Board" means the Board of Directors of Western.
"Western Common Stock" means the common stock, no par value per share, of
Western.
"Western Common Stock Price Percentage" has the meaning set forth in Section
8.1(f).
"Western Preferred Stock" means the preferred stock, no par value per share, of
Western.
"Year 2000 Compliant" has the meaning set forth in Section 5.3(p).
ARTICLE II
THE MERGER
2.1. The Merger.
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(a) General. At the Effective Time, PNB shall merge with and into Western
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(the "Merger"), the separate corporate existence of PNB shall cease and Western
shall survive and continue to exist as a California corporation (Western
sometimes being referred to herein as the "Surviving Corporation"). Western may
at any time prior to the Effective Time change the method of effecting the
combination with PNB (including, without limitation, the provisions of this
Article II) if and to the extent it deems such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of PNB
Common Stock as provided for in this Agreement (the "Merger Consideration"),
(ii) adversely affect the tax treatment of PNB's shareholders as a result of
receiving the Merger Consideration, (iii) prevent the Merger from qualifying for
a pooling-of-interests accounting treatment, or (iv) materially impede or delay
consummation of the transactions
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contemplated by this Agreement. Subject to the satisfaction or waiver of the
conditions set forth in Article VII, the Merger shall become effective upon the
occurrence of the filing in the office of the California Secretary of an
agreement of merger in accordance with the CGCL or such later date and time as
may be set forth in such agreement. The Merger shall have the effects
prescribed in the CGCL.
(b) Articles of Incorporation and Bylaws. The articles of incorporation
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and bylaws of the Surviving Corporation immediately after the Effective Time
shall be those of Western as in effect immediately prior to the Effective Time.
(c) Directors and Officers of the Surviving Corporation.
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(i) At the Effective Time, the directors of Western immediately prior
to such Effective Time shall be the directors of the Surviving Corporation, in
each case, until such time as their successors shall be duly elected or
appointed and qualified.
(ii) The officers of Western immediately prior to the Effective Time
shall be the officers of the Surviving Corporation as of the Effective Time
until such time as their successors shall be duly elected and qualified.
2.2. Effective Date and Effective Time. As soon as practicable
---------------------------------
following, but not later than ten days after the last to occur of, (i) the
expiration of all applicable waiting periods in connection with approvals of
Regulatory Agencies and the receipt of all approvals of Regulatory Agencies and
(ii) satisfaction or waiver of all conditions to the consummation of the Merger
(or, at the election of Western, provided such election would not cause the
Effective Date to occur later than February 28, 1999, on the last business day
of the month in which such tenth day occurs, or, if such tenth day occurs on one
of the last ten business days of such month, on the last business day of the
succeeding month), or on such earlier or later date as may be agreed in writing
by the parties, an agreement of merger shall be executed in accordance with all
appropriate legal requirements and shall be filed in the office of the
California Secretary as required by law, and the Merger provided for herein
shall become effective upon such filing or on such date as may be specified in
such agreement of merger. The date of such filing or such later effective date
is herein called the "Effective Date". The "Effective Time" of the Merger shall
be the time of such filing or as set forth in such agreement of merger.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.1. Merger Consideration. Subject to the provisions of this Agreement,
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at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person:
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(a) Outstanding PNB Common Stock. Each share of PNB Common Stock
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(excluding Treasury Stock and Dissenters' Shares), issued and outstanding
immediately prior to the Effective Time shall become and be converted into one
(1) (the "Conversion Number") share of Western Common Stock.
(b) Outstanding PNB Options. At the Effective Time, each option granted by
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PNB to directors, officers and employees of PNB and the PNB Bank Subsidiary to
purchase shares of PNB Common Stock which, at the Effective Time, is outstanding
and has not been exercised (an "PNB Option"), shall be converted into an option
to purchase shares of Western Common Stock in accordance with the terms of the
applicable PNB stock option plan and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each PNB Option may be
exercised solely for shares of Western Common Stock, (ii) the number of shares
of Western Common Stock subject to such PNB Option shall be equal to the product
(rounded down to the nearest whole share) of multiplying the number of shares of
PNB Common Stock subject to such PNB Option immediately prior to the Effective
Time by the Conversion Number and (iii) the per share exercise price under each
such PNB Option shall be equal to the quotient (rounded down to the nearest
cent) of dividing the per share exercise price under each such PNB Option by the
Conversion Number.
(c) Outstanding Western Common Stock. Each share of Western Common Stock
--------------------------------
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and unaffected by the Merger.
(d) Treasury Shares. Each share of PNB Common Stock held as Treasury Stock
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immediately prior to the Effective Time shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
(e) Dissenting Shareholders. Any Dissenting Shareholder who shall be
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entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in Chapter 13 of the CGCL, shall not be entitled to the Merger
Consideration as set forth in Section 3.1(a) in respect thereof unless and until
such Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such Dissenting Shareholder's right to dissent
from the Merger under the CGCL, and shall be entitled to receive only the
payment provided for by Chapter 13 of the CGCL with respect to such Dissenters'
Shares. Upon the payment by the Surviving Corporation of the "fair value" of
any Dissenters' Shares in accordance with Chapter 13 of the CGCL, such
Dissenters' Shares shall be canceled and retired and shall cease to exist, and
no exchange or further payment shall be made with respect thereto. If any
Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn
or lost such right to dissent, the Dissenters' Shares held by such Dissenting
Shareholder shall thereupon be treated as though such Dissenters' Shares had
been converted into the right to receive the Merger Consideration as set forth
in Section 3.1(a) pursuant to such Section 3.1(a).
3.2. Rights as Shareholders; Stock Transfers. At the Effective Time,
---------------------------------------
holders of PNB Common Stock shall cease to be, and shall have no rights as,
shareholders of PNB, other than to receive any dividend or other distribution
with respect to such PNB Common Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III.
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After the Effective Time, there shall be no transfers on the stock transfer
books of PNB or the Surviving Corporation of shares of PNB Common Stock.
3.3. Fractional Shares. Notwithstanding any other provision hereof, no
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fractional shares of Western Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Western shall pay to each holder of PNB Common Stock who would otherwise be
entitled to a fractional share of Western Common Stock (after taking into
account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
closing prices of Western Common Stock, as reported on Nasdaq (as reported in
the Western Edition of The Wall Street Journal or, if not reported therein, in
another authoritative source), for the five Nasdaq trading days immediately
preceding the Effective Date.
3.4. Exchange Procedures.
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(a) At or prior to the Effective Time, Western shall deposit, or shall
cause to be deposited, with such bank or trust company as Western shall elect
(which may include a subsidiary of Western) (in such capacity, the "Exchange
Agent"), for the benefit of the holders of certificates formerly representing
shares of PNB Common Stock ("Old Certificates"), for exchange in accordance with
this Article III, certificates representing the shares of Western Common Stock
("New Certificates") and an estimated amount of cash (such cash and New
Certificates, together with any dividends or distributions with a record date
occurring after the Effective Date with respect thereto, without any interest on
any such cash, dividends or distributions, being hereinafter referred to as the
"Exchange Fund") to be paid pursuant to this Article III in exchange for
outstanding shares of PNB Common Stock.
(b) As soon as practicable after the Effective Date, Western shall send or
cause to be sent to each former holder of record of shares of PNB Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III, which transmittal materials PNB shall have had the
opportunity to review prior to the Effective Date. Western shall cause the New
Certificates into which shares of PNB Common Stock are converted on the
Effective Date and any check in respect of any fractional share interests or
dividends or distributions which the holder of such shares shall be entitled to
receive upon delivery to the Exchange Agent of Old Certificates representing
such shares (or an affidavit of lost certificate and, if required by the
Exchange Agent, indemnity reasonably satisfactory to Western and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
shareholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery. In the event of a transfer of ownership of any shares of PNB Common
Stock not registered in the transfer records of PNB, the exchange described in
this Section 3.4(b) may nonetheless be effected and a check for the cash to be
paid in lieu of fractional shares may be issued to the transferee if the Old
Certificate representing such PNB Common Stock is presented to the Exchange
Agent, accompanied by documents sufficient, in the discretion of Western and the
Exchange Agent, (i) to evidence and effect such
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transfer but for the provisions of Section 3.2 hereof and (ii) to evidence that
all applicable stock transfer taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration therefor
is not claimed prior to the date on which such consideration would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed consideration shall, to the extent permitted by abandoned property and
any other applicable law, become the property of the Surviving Corporation (and
to the extent not in its possession shall be paid over to the Surviving
Corporation), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of PNB Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) At the election of Western, no dividends or other distributions with
respect to Western Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of PNB Common Stock converted in the Merger into the right
to receive shares of such Western Common Stock until the holder thereof shall be
entitled to receive New Certificates in exchange therefor in accordance with the
procedures set forth in this Section 3.4, and no such shares of PNB Common Stock
shall be eligible to vote until the holder of Old Certificates is entitled to
receive New Certificates in accordance with the procedures set forth in this
Section 3.4. After becoming so entitled in accordance with this Section 3.4,
the record holder thereof also shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of Western Common Stock such holder had
the right to receive upon surrender of the Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of PNB for six months after the Effective Time shall be returned by
the Exchange Agent to Western. Any shareholders of PNB who have not theretofore
complied with this Article III shall thereafter look only to Western for payment
of the shares of Western Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on Western Common Stock deliverable
hereunder, in each case, without any interest thereon.
3.5. Anti-Dilution Provisions. In the event Western changes (or
------------------------
establishes a record date for changing) the number of shares of Western Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Western Common Stock and the record date therefor shall be prior
to the Effective Date, the number of shares of Western Common Stock the holders
of PNB Common Stock or options exercisable for same shall be entitled to receive
under this Agreement shall be proportionately adjusted. If, between the date
hereof and the Effective Time, Western shall merge, be acquired or consolidate
with, by or into any other corporation (a "Business Combination") and the terms
thereof shall provide that Western Common Stock shall be converted into or
exchanged for the shares of any other corporation or entity, then provision
shall be made as part of the terms of such Business Combination so that
shareholders and optionholders of PNB who would be entitled
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to receive shares of Western Common Stock pursuant to this Agreement shall be
entitled to receive, in lieu of each share of Western Common Stock issuable to
such persons as provided herein, the same kind and amount of securities or
assets as shall be distributable upon such Business Combination with respect to
one share of Western Common Stock (provided that nothing herein shall be
construed so as to release the acquiring entity in any such Business Combination
from its obligations under this Agreement as the successor to Western).
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.1. Forbearances of PNB. From the date hereof until the Effective Time,
-------------------
except as expressly contemplated by this Agreement, without the prior written
consent of Western, PNB will not, and will cause each of its Subsidiaries not
to:
(a) Ordinary Course. Conduct the business of PNB and its Subsidiaries
---------------
other than in the ordinary and usual course or fail to use reasonable best
efforts to preserve intact their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates, take any action that would adversely affect
or delay the ability of PNB or any of its Subsidiaries to perform any of their
obligations on a timely basis under this Agreement, or take any action that is
reasonably likely to have a Material Adverse Effect on PNB or its Subsidiaries,
taken as a whole.
(b) Capital Stock. Except for Previously Disclosed contractual
-------------
obligations, issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional shares of PNB Common Stock or any Rights or
enter into any agreement with respect to the foregoing.
(c) Dividends, Etc. Make, declare, pay or set aside for payment any
---------------
dividend on or in respect of, or declare or make any distribution on any shares
of PNB Common Stock, directly or indirectly, adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
----------------------------------------
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of PNB or its Subsidiaries,
or grant any salary or wage increase or increase any employee benefit (including
incentive or bonus payments), except (i) for normal individual increases in
compensation to employees in the ordinary course of business consistent with
past practice, (ii) for other changes that are required by applicable law, (iii)
to satisfy Previously Disclosed contractual obligations existing as of the date
hereof or (iv) for grants of awards to newly hired employees consistent with
past practice.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i) as
-------------
may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the
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date hereof) any pension, retirement, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement (or similar arrangement) related thereto, in respect of any director,
officer or employee of PNB or its Subsidiaries, or take any action to accelerate
the vesting or exercisability of any compensation or benefits payable
thereunder.
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
------------
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties, except in the ordinary course of business and
in a transaction that is not material to it and its Subsidiaries taken as a
whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other than by
------------
way of foreclosures or acquisitions of control in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice) all or
any portion of, the assets, business, deposits or properties of any other entity
except in the ordinary course of business consistent with past practice and in a
transaction that is not material to PNB and its Subsidiaries, taken as a whole.
(h) Capital Expenditures. Except as Previously Disclosed, make any capital
--------------------
expenditures other than capital expenditures in the ordinary course of business
consistent with past practice in amounts not exceeding $50,000 individually or
$100,000 in the aggregate.
(i) Governing Documents. Amend the PNB Articles, PNB By-Laws or the
-------------------
articles of incorporation or by-laws (or similar governing documents) of any of
PNB's Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its accounting
------------------
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(k) Contracts. Except in the ordinary course of business consistent with
---------
past practice, enter into or terminate any material contract (as defined in
Section 5.3(k)) or amend or modify in any material respect any of its existing
material contracts.
(l) Claims. Except in the ordinary course of business consistent with past
------
practice, settle any claim, action or proceeding, except for any claim, action
or proceeding involving solely money damages in an amount, individually or in
the aggregate for all such settlements, that is not material to PNB and its
Subsidiaries, taken as a whole.
(m) Adverse Actions. (i) Take any action while knowing that such action
---------------
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(A) for "pooling-of-interests" accounting treatment, or (B) as a reorganization
within the meaning of Section 368 of the Code; or (ii) knowingly take any action
that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(B) any of the conditions to the Merger set forth in Article VII not being
satisfied including, but not limited to, any action which would reasonably
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<PAGE>
be expected to adversely affect or delay the ability of Western or PNB to obtain
any necessary approvals, consents or waivers of any Regulatory Agencies required
for the transactions contemplated by this Agreement or (C) a material violation
of any provision of this Agreement, except, in each case, as may be required by
applicable law or regulation.
(n) Risk Management. Except as required by applicable law or regulation,
---------------
(i) implement or adopt any material change in its interest rate and other risk
management policies, procedures or practices; (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest rate and
other risk in any material respect; or (iii) fail to use commercially reasonable
means to avoid any material increase in its aggregate exposure to interest rate
risk.
(o) Indebtedness. Incur any indebtedness for borrowed money other than in
------------
the ordinary course of business consistent with past practice.
(p) Loans. Make any loan, loan commitment or renewal or extension thereof
-----
to any person in an amount greater than $100,000 which would, when aggregated
with all outstanding loans, commitments for loans or renewals or extensions
thereof made by PNB and PNB Bank Subsidiary to such person and any affiliate or
immediate family member of such person, exceed $500,000 without submitting loan
package information to the chief credit officer of Western for review with a
right of comment at least one full business day prior to taking such action.
(q) Commitments. Agree or commit to do any of the foregoing.
-----------
4.2. Forbearances of Western. From the date hereof until the Effective
-----------------------
Time, except as expressly contemplated by this Agreement, without the prior
written consent of PNB, Western will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Take any action that would adversely affect or delay
---------------
the ability of PNB or Western to perform any of their obligations on a timely
basis under this Agreement, take any action that is reasonably likely to have a
Material Adverse Effect on Western or its Subsidiaries, taken as a whole, or
take any action while knowing that such action is, or is reasonably likely to
be, other than in the best interests of Western and its shareholders.
(b) Adverse Actions. (i) Take any action while knowing that such action
---------------
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(A) for "pooling-of-interests" accounting treatment, or (B) as a reorganization
within the meaning of Section 368 of the Code; or (ii) knowingly take any action
that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(B) any of the conditions to the Merger set forth in Article VII not being
satisfied including, but not limited to, any action which would reasonably be
expected to adversely affect or delay the ability of Western or PNB to obtain
any necessary approvals, consents or waivers of any Regulatory Agencies required
for the transactions contemplated by this Agreement, or (C) a material violation
of any provision of this Agreement, except, in each case, as may be required by
applicable law or regulation.
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<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Disclosure Schedule. On or prior to the date hereof, PNB has
-------------------
delivered to Western and Western has delivered to PNB a schedule (respectively,
its "Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 5.3 or 5.4; provided,
that (a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 5.2, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect. Each party
hereto agrees that with respect to the representations and warranties of such
party, such party shall have the right to supplement and amend their Disclosure
Schedule with respect to any events occurring after the date of this Agreement
and prior to the Effective Time. In the event any such supplement or amendment
discloses new events that are reasonably likely to have a Material Adverse
Effect on the party making such supplement or amendment or on the Surviving
Corporation, the other party shall have the right to terminate the Agreement
pursuant to Section 8.1(h).
5.2. Standard. No representation or warranty of PNB or Western contained
--------
in Section 5.3 or 5.4 shall be deemed untrue or incorrect, and no party hereto
shall be deemed to have breached a representation or warranty, as a consequence
of the existence of any fact, event or circumstance unless such fact,
circumstance or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty
contained in Section 5.3 or 5.4 has had or is reasonably likely to have a
Material Adverse Effect on the party making such representation or warranty.
5.3. Representations and Warranties of PNB. Subject to Sections 5.1 and
-------------------------------------
5.2 and except as Previously Disclosed in a paragraph of its Disclosure Schedule
corresponding to the relevant paragraph below, PNB hereby represents and
warrants to Western:
(a) Organization, Standing and Authority. PNB is a corporation duly
------------------------------------
organized, validly existing and in good standing under the laws of the State of
California. PNB is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to be
so qualified.
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<PAGE>
(b) Subsidiaries.
------------
(i) (A) PNB has Previously Disclosed a list of all of its Subsidiaries
together with the jurisdiction of organization of each such Subsidiary, (B) PNB
owns, directly or indirectly, all the issued and outstanding equity securities
of each of its Subsidiaries, (C) no equity securities of any of its Subsidiaries
are or may become required to be issued (other than to it or its wholly owned
Subsidiaries) by reason of any Right or otherwise, (D) there are no contracts,
commitments, understandings or arrangements by which any of such Subsidiaries is
or may be bound to sell or otherwise transfer any equity securities of any such
Subsidiaries (other than to it or its wholly-owned Subsidiaries), (E) there are
no contracts, commitments, understandings, or arrangements relating to its
rights to vote or to dispose of such securities, and (F) all the equity
securities of each Subsidiary held by PNB or its Subsidiaries are fully paid and
nonassessable and are owned by PNB or its Subsidiaries free and clear of any
Liens.
(ii) PNB does not own beneficially, directly or indirectly, any equity
securities or similar interests of any Person or any interest in a partnership
or joint venture of any kind, other than its Subsidiaries, except for a 4.9%
interest in Alta Residential Mortgage, Inc. ("Alta").
(iii) Each of PNB's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified.
(c) Alta.
----
(i) PNB and its Subsidiaries, in the aggregate, beneficially own,
directly or indirectly, not more than 4.9% of any class of outstanding voting
equity securities of Alta and do not have non-voting equity interests in, loans
to or other arrangements with Alta which would cause the ownership in Alta to be
ineligible for the exemption set forth in Section 4(c)(6) of the BHC Act.
(ii) There are no contracts, commitments, understandings or
arrangements by which PNB or any Subsidiary is or may be bound to purchase, sell
or otherwise transfer any equity securities of Alta.
(d) Capital Stock. As of the date hereof, the authorized capital stock of
-------------
PNB consists solely of 20,000,000 shares of PNB Common Stock, of which no more
than 2,779,733 shares were outstanding as of the date hereof. As of the date
hereof, no shares of PNB Common Stock were held in treasury by PNB or otherwise
beneficially owned by PNB or its Subsidiaries. The outstanding shares of PNB
Common Stock have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable, subject to no preemptive rights and were not
issued in violation of any preemptive rights. As of the date hereof, there are
266,210 shares of PNB Common Stock authorized and reserved for issuance pursuant
to outstanding options to purchase shares of PNB Common Stock, PNB does not have
any other Rights issued or outstanding with respect to its capital stock, and
PNB does not have any commitment to authorize, issue or sell any other shares of
its
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<PAGE>
capital stock or any other Rights except pursuant to this Agreement and the
Stock Option Agreement. All outstanding shares of capital stock of PNB Bank
Subsidiary have been duly authorized and validly issued, are fully paid and
(subject to 12 U.S.C. (S)55) non-assessable and are not subject to preemptive
rights.
(e) Corporate Power. PNB and each of its Subsidiaries has the corporate
---------------
power and authority to carry on its business as it is now being conducted and to
own all its properties and assets; and PNB has the corporate power and authority
to execute, deliver and perform its obligations under this Agreement and the
Stock Option Agreement and to consummate the transactions contemplated hereby
and thereby.
(f) Corporate Authority. Subject in the case of this Agreement to receipt
-------------------
of the requisite approval of the agreement of merger set forth in this Agreement
by the holders of a majority of the outstanding shares of PNB Common Stock
entitled to vote thereon (which is the only shareholder vote required thereon),
this Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby have been authorized by all necessary corporate action of PNB
and the PNB Board on or prior to the date hereof. This Agreement is a valid and
legally binding obligation of PNB, enforceable in accordance with its terms
(except as enforceability may be limited by 12 U.S.C. (S)1818(b)(6)(D) or
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles). The PNB Board has received
the written opinion of Lehman Brothers Inc. to the effect that as of the date
hereof the consideration to be received by the holders of PNB Common Stock in
the Merger is fair to the holders of PNB Common Stock from a financial point of
view.
(g) Consents and Approvals; No Defaults.
-----------------------------------
(i) No consents or approvals of, or filings or registrations with, any
Governmental Authority or with any third party are required to be made or
obtained by PNB or any of its Subsidiaries or Alta in connection with the
execution, delivery or performance by PNB of this Agreement, the Stock Option
Agreement, or to consummate the Merger except for (A) filings of applications,
registrations, statements, reports or notices with the Federal Reserve, the SEC
and state securities authorities (collectively the "Regulatory Agencies"), (B)
the approval of this Agreement by the shareholders of PNB and (C) the filing of
an agreement of merger with the California Secretary pursuant to the CGCL. As
of the date hereof, PNB is not aware of any reason why the approvals set forth
in Section 7.1(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.1(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, and required
filings under federal and state securities laws, the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby do not and will
not (A) constitute a breach or violation of, or a default under, or give rise to
any Lien, any acceleration of remedies or any right of termination under, any
law, rule or regulation or any
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<PAGE>
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of PNB or of any of its Subsidiaries or to which PNB or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the PNB Articles or the PNB Bylaws, or (C)
require any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument.
(h) Financial Reports and Regulatory Documents.
------------------------------------------
(i) PNB's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and all other reports, registration statements, or definitive
proxy statements filed or to be filed by it or any of its Significant
Subsidiaries subsequent to December 31, 1997 under the Securities Act, or under
Sections 13(a), 13(d), 14 or 15(d) of the Exchange Act, in the form filed or to
be filed (collectively, the "Regulatory Documents"), as of the date filed, (A)
complied and will comply in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Regulatory Document (including the
related notes and schedules thereto) fairly presents, or will fairly present,
the financial position of PNB and its Subsidiaries as of its date, and each of
the statements of income and changes in shareholders' equity and cash flows or
equivalent statements in such Regulatory Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the results of
operations, changes in shareholders' equity and changes in cash flows, as the
case may be, of PNB and its Subsidiaries for the periods to which they relate,
in each case in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except in each case
as may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of Section 5.4 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to PNB and
Subsidiaries.
(iii) PNB and Subsidiaries have timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file since December 31, 1996
with the Regulatory Agencies, and all other material reports and statements
required to be filed by them since December 31, 1996, including, without
limitation, any report or statement required to be filed pursuant to the laws of
the United States or the State of California, and have paid all fees and
assessments due and payable in connection therewith. As of their respective
dates, such reports, registrations and statements complied in all material
respects with all the laws, rules and regulations of the applicable Regulatory
Agency with which they were filed.
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<PAGE>
(i) Litigation. No litigation, claim or other proceeding before any court
----------
or governmental agency is pending against PNB or any of its Subsidiaries and, to
PNB's knowledge, no such litigation, claim or other proceeding has been
threatened.
(j) Regulatory Matters.
------------------
(i) Neither PNB nor any of its Subsidiaries or any of their properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, or extraordinary supervisory letter from any Regulatory Agency.
(ii) Neither PNB nor any of its Subsidiaries has been advised by any
Regulatory Agency that such Regulatory Agency is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(k) Compliance with Laws. PNB and each of its Subsidiaries:
--------------------
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act
and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to PNB's knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that PNB or any of
its Subsidiaries is not in compliance with any of the statutes, regulations or
ordinances which such Governmental Authority enforces or (B) threatening to
revoke any license, franchise, permit or governmental authorization (nor, to
PNB's knowledge, do any grounds for any of the foregoing exist).
(l) Material Contracts; Defaults. Neither PNB nor any of its Subsidiaries
----------------------------
is a party to, bound by or subject to any agreement, contract, arrangement,
commitment or understanding (whether written or oral) (i) that is a "material
contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K, or
(ii) that materially restricts the conduct of business by it or any of its
Subsidiaries that has not been filed with or incorporated by reference in
reports files under the Securities and Exchange Act of 1934, as amended.
Neither PNB nor any of its Subsidiaries is in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its respective assets, business, or operations
may be bound
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<PAGE>
or affected, or under which it or its respective assets, business, or operations
receives benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
(m) No Brokers. No action has been taken by PNB or any Subsidiary that
----------
would give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be paid
to Lehman Brothers Inc.
(n) Employee Benefit Plans.
----------------------
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of PNB and its
Subsidiaries (the "Employees") and current or former directors of PNB,
including, but not limited to, "employee benefit plans" within the meaning of
Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase,
stock appreciation rights, stock based, incentive and bonus plans (the "Benefit
Plans"), are Previously Disclosed. True and complete copies of all Benefit
Plans, including, but not limited to, any trust instruments and insurance
contracts forming a part of any Benefit Plans, and all amendments thereto have
been provided or made available to Western.
(ii) All employee benefit plans, other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA, covering Employees (the "Plans"),
to the extent subject to ERISA, are in substantial compliance with ERISA. PNB
is not a party to any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code. There is no material pending or threatened
litigation relating to the Plans. Neither PNB nor any of its Subsidiaries has
engaged in a transaction with respect to any Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject PNB or
any Subsidiary to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by PNB or any of its Subsidiaries with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
PNB under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither PNB, any of its Subsidiaries nor an ERISA Affiliate has
contributed to a "multiemployer plan", within the meaning of Section 3(37) of
ERISA. No notice of a "reportable event", within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Agreement.
(iv) All contributions required to be made under the terms of any
Plan have been timely made or have been reflected on the consolidated financial
statements of PNB included in the
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<PAGE>
Regulatory Documents. Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA
and no ERISA Affiliate has an outstanding funding waiver. Neither PNB nor any
of its Subsidiaries has provided, or is required to provide, security to any
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent actuarial valuation),
did not exceed the then current value of the assets of such Plan, and there has
been no material change in the financial condition of such Plan since the last
day of the most recent plan year.
(vi) Neither PNB nor any of its Subsidiaries has any obligations for
retiree health and life benefits under any Benefit Plan. PNB or its
Subsidiaries may amend or terminate any such Benefit Plan at any time without
incurring any liability thereunder.
(vii) The consummation of the transactions contemplated by this
Agreement will not (x) entitle any employees of PNB or any of its Subsidiaries
to severance pay, (y) accelerate the time of payment or vesting or trigger any
payment of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Benefit Plans or
(z) result in any breach or violation of, or a default under, any of the Benefit
Plans. Without limiting the foregoing, as a result of the consummation of the
transactions contemplated by this Agreement, neither PNB nor any of its
Subsidiaries will be obligated to make a payment to an individual that would be
a "parachute payment" to a "disqualified individual" as those terms are defined
in Section 280G of the Code, without regard to whether such payment is
reasonable compensation for personal services performed or to be performed in
the future.
(o) Labor Matters. Neither PNB nor any of its Subsidiaries is a party to
-------------
or is bound by any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is PNB or any of
its Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel PNB or any such Subsidiary to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to PNB's knowledge, threatened, nor is PNB aware of any
activity involving its or any of its Subsidiaries' employees seeking to certify
a collective bargaining unit or engaging in other organizational activity.
(p) Year 2000 Compliance. Except as Previously Disclosed, (i) the computer
--------------------
software and related hardware of the PNB Bank Subsidiary (the "Computer System")
used for the storage and processing of data are, or will be prior to the year
2000, Year 2000 Compliant; (ii) to the best of PNB's knowledge after due
inquiry, all of the suppliers, customers and third party providers of the PNB
Bank Subsidiary are, or will be prior to year 2000, Year 2000 Compliant; and
(iii) to the best
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of PNB's knowledge after due inquiry, the PNB Bank Subsidiary is taking or has
taken, all commercially reasonable and appropriate action to address and remedy
any deficiencies in its Computer System which would keep it from becoming Year
2000 Compliant. As used herein, "Year 2000 Compliant" shall mean the ability of
a Computer System to provide the following functions, without human
intervention, individually and in combination with other products or systems:
(i) consistently handle, record, store, process and present dates and date-
related information before, during and after January 1, 2000, including but not
limited to accepting date input, performing calculations on dates or portion of
dates, and providing date output; (ii) function accurately in accordance with
the published specifications and without undue interruption, before, during, and
after January 1, 2000 (including leap year computations) without any adverse
change in operation associated with the advent of the year 2000; (iii) respond
to two-digit or four-digit dates and date-related input in a way that resolves
any ambiguity as to the year 2000 in a disclosed, defined and predetermined
manner, and store and provide output of dates and date-related information in
ways that are unambiguous as to the year 2000; and (iv) suitably interact with
other software and related hardware in a way which does not compromise its year
2000 compliance capability.
(q) Environmental Matters.
---------------------
(i) PNB and each of its Subsidiaries has complied at all times with
applicable Environmental Laws; (ii) no real property (including buildings or
other structures) currently or formerly owned or operated by PNB or any of its
Subsidiaries, or any property in which PNB or any of its Subsidiaries has held a
security interest, lien or a fiduciary or management role ("Loan Property"), has
been contaminated with, or has had any release of, any Hazardous Substance;
(iii) neither PNB nor any of its Subsidiaries could be deemed the owner or
operator of any Loan Property under any Environmental Law which such Loan
Property has been contaminated with, or has had any release of, any Hazardous
Substance; (iv) neither PNB nor any of its Subsidiaries is subject to liability
for any Hazardous Substance disposal or contamination on any third party
property; (v) neither PNB nor any of its Subsidiaries has received any notice,
demand letter, claim or request for information alleging any violation of, or
liability under, any Environmental Law; (vi) neither PNB nor any of its
Subsidiaries is subject to any order, decree, injunction or other agreement with
any Governmental Authority or any third party relating to any Environmental Law;
(vii) to the best of PNB's knowledge, there are no circumstances or conditions
(including the presence of asbestos, underground storage tanks, lead products,
polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or
automotive services) involving PNB or any of its Subsidiaries, any currently or
formerly owned or operated property, or any Loan Property, that could reasonably
be expected to result in any claims, liability or investigations against PNB or
any of its Subsidiaries or result in any restrictions on the ownership, use, or
transfer of any property pursuant to any Environmental Law; and (viii) PNB has
delivered to Western copies of all environmental reports, studies, sampling
data, correspondence, filings and other environmental information in its
possession or reasonably available to it relating to PNB, any Subsidiary of PNB,
any currently or formerly owned or operated property or any Loan Property.
As used herein, the term "Environmental Law" means any federal, state or
local law, regulation, order, decree, permit, authorization, opinion, common law
or agency requirement relating
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to: (A) the protection or restoration of the environment, health, safety, or
natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
indoor air, pollution, contamination or any injury or threat of injury to
persons or property in connection with any Hazardous Substance and the term
"Hazardous Substance" means any substance in any concentration that is: (A)
listed, classified or regulated pursuant to any Environmental Law; (B) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or
(C) any other substance which is or may be the subject of regulatory action by
any Governmental Authority in connection with any Environmental Law.
(r) Tax Matters.
-----------
(i) (A) All Tax Returns that are required to be filed (taking into
account any extensions of time within which to file) by or with respect to PNB
and its Subsidiaries have been duly filed, (B) all Taxes due have been paid in
full, (C) all deficiencies asserted or assessments made as a result of such
examinations have been paid in full, (D) no issues that have been raised by the
relevant taxing authority in connection with the examination of any of the Tax
Returns referred to in clause (A) are currently pending, and (E) no waivers of
statutes of limitation have been given by or requested with respect to any Taxes
of PNB or its Subsidiaries. PNB has made available to Western true and correct
copies of the United States federal income Tax Returns filed by PNB and its
Subsidiaries for each of the three most recent fiscal years ended on or before
December 31, 1997. Neither PNB nor any of its Subsidiaries has any liability
with respect to income, franchise or similar Taxes that accrued on or before the
end of the most recent period covered by PNB's Regulatory Documents filed prior
to the date hereof in excess of the amounts accrued with respect thereto that
are reflected in the financial statements included in PNB's Regulatory Documents
filed on or prior to the date hereof. Neither PNB nor any of its Subsidiaries
is a party to any Tax allocation or sharing agreement, is or has been a member
of an affiliated group filing consolidated or combined Tax returns (other than a
group the common parent of which is or was PNB) or otherwise has any liability
for the Taxes of any person (other than PNB and its Subsidiaries). As of the
date hereof, neither PNB nor any of its Subsidiaries has any reason to believe
that any conditions exist that might prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
(s) Risk Management Instruments. All interest rate swaps, caps, floors,
---------------------------
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for PNB's own account, or for the
account of one or more of PNB's Subsidiaries or their customers (all of which
are listed on PNB's Disclosure Schedule), if any, were entered into (i) in
accordance with prudent business practices and all applicable laws, rules,
regulations and regulatory policies, and (ii) with counterparties believed to be
financially responsible at the time; and each of them constitutes the valid and
legally binding obligation of PNB or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
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<PAGE>
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and are in full force and effect. Neither PNB
nor its Subsidiaries, nor to PNB's knowledge, any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
(t) Books and Records. The books and records of PNB and its
-----------------
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the financial position
of PNB and its Subsidiaries.
(u) Insurance. PNB has Previously Disclosed all of the insurance
---------
policies, binders, or bonds maintained by PNB or its Subsidiaries ("Insurance
Policies"). PNB and its Subsidiaries are insured with reputable insurers against
such risks and in such amounts as the management of PNB reasonably has
determined to be prudent for its business, operations, properties and assets.
All the Insurance Policies are in full force and effect; PNB and its
Subsidiaries are not in material default thereunder; and all claims thereunder
have been filed in due and timely fashion.
(v) Accounting Treatment. As of the date hereof, PNB is not aware of
--------------------
any reason why the Merger will fail to qualify for "pooling-of-interests"
accounting treatment.
(w) Allowance for Possible Loan Losses. To the best of PNB's knowledge,
----------------------------------
PNB's allowance for loan and lease losses and level of indemnification reserves
on its mortgage portfolio is, and will be as of the Effective Date, adequate and
in accordance with GAAP in all material respects and in accordance with all
applicable regulatory requirements.
(x) Trust Business. Neither PNB nor PNB Bank Subsidiary serves as a
--------------
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor for any fiduciary accounts. Except as set forth in PNB's
Disclosure Schedule or such violations which individually or in the aggregate
would not give rise to a Material Adverse Effect, (i) each of the relationships
between PNB, Entrust Administration, Inc. ("Entrust") and another Person which
constitute part of the business conducted by PNB or Entrust pursuant to the
Contract for Services, dated as of April 1, 1997, as amended (the "Entrust
Agreement"), between PNB Bank Subsidiary and Entrust (whether PNB or Entrust
acts or has acted as trustee, agent, custodian, personal representative,
guardian, conservator, investment advisor or in another similar capacity) (the
"Trust Relationships") is governed by a written agreement, contract, indenture,
instrument of trust or other similar document (the "Trust Instruments") and, to
the knowledge of PNB, all of the Trust Instruments that are presently in effect
are in the possession of Entrust and have been made, or are, available to
Western and no Trust Instrument has been amended except by an instrument in
writing; and (ii) each Trust Relationship has been conducted, operated and
managed by PNB and, to the knowledge of PNB, Entrust in accordance with the
terms of the governing Trust Instrument and applicable law.
5.4. Representations and Warranties of Western. Subject to Sections 5.1
-----------------------------------------
and 5.2 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Western hereby
represents and warrants to PNB as follows:
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(a) Organization, Standing and Authority; Subsidiaries. Western is a
--------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Western is duly qualified to do business and is in
good standing in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Western has in effect all federal, state,
local, and foreign governmental authorizations necessary for it to own or lease
its properties and assets and to carry on its business as it is now conducted.
Each of Western's Significant Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and is in good standing in
the jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified.
(b) Western Capital Stock. As of the date hereof, the authorized capital
---------------------
stock of Western consists solely of 100,000,000 shares of Western Common Stock,
of which no more than 15.8 million shares were outstanding as of the date hereof
and 5,000,000 shares of Western Preferred Stock, of which no shares were
outstanding as of the date hereof. As of the date hereof, Western does not have
any Rights issued or outstanding with respect to its capital stock and Western
does not have any commitment to authorize, issue or sell any shares of its
capital stock or any Rights. Western has a sufficient number of duly authorized,
unissued and reserved shares of its Common Stock necessary to permit Western to
satisfy its obligations under this Agreement without the need to seek approval
of Western's shareholders.
(c) Corporate Power. Western and each of its Significant Subsidiaries has
---------------
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Western has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(d) Corporate Authority. This Agreement and the transactions contemplated
-------------------
hereby have been authorized by all necessary corporate action of Western and its
Board of Directors. This Agreement is a valid and legally binding agreement of
Western enforceable in accordance with its terms (except as enforceability may
be limited by 12 U.S.C. (S)1818(b)(6)(D) or applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
(e) Consents and Approvals; No Defaults.
-----------------------------------
(i) No consents or approvals of, or filings or registrations with, any
Regulatory Agencies or with any third party are required to be made or obtained
by Western or any of its Subsidiaries in connection with the execution, delivery
or performance by Western of this Agreement or to consummate the Merger except
for (A) the filing of applications, registrations, statements, reports or
notices, as applicable, with the Regulatory Agencies; (B) approval of the
listing on the Nasdaq of Western Common Stock to be issued in the Merger; (C)
the filing and declaration of effectiveness of the Registration Statement; (D)
the filing of an agreement of merger with the California Secretary pursuant to
the CGCL; and (E) such filings as are required to be made or approvals as are
required to be obtained under the securities or "Blue Sky" laws of various
states
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<PAGE>
in connection with the issuance of Western Common Stock in the Merger. As of
the date hereof, Western is not aware of any reason why the approvals set forth
in Section 7.1(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.1(b).
(ii) Subject to receipt of the consents and approvals referred to in
the preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any acceleration of
remedies or any right of termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Western or of any of its Subsidiaries or to which Western or
any of its Subsidiaries or properties is subject or bound, (B) constitute a
breach or violation of, or a default under, the articles of incorporation or by-
laws (or similar governing documents) of Western or any of its Subsidiaries, or
(C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement, indenture or
instrument.
(f) Financial Reports and Regulatory Documents; Material Adverse Effect.
-------------------------------------------------------------------
(i) Western's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and all other reports, registration statements, or definitive
proxy statements filed or to be filed by it or any of its Significant
Subsidiaries subsequent to December 31, 1997 under the Securities Act, or under
Sections 13(a), 13(d), 14 or 15(d) of the Exchange Act, in the form filed or to
be filed (collectively, the "Regulatory Documents"), as of the date filed, (A)
complied and will comply in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Regulatory Document (including the
related notes and schedules thereto) fairly presents, or will fairly present,
the financial position of Western and its Subsidiaries as of its date, and each
of the statements of income and changes in shareholders' equity and cash flows
or equivalent statements in such Regulatory Documents (including any related
notes and schedules thereto) fairly presents, or will fairly present, the
results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of Western and its Subsidiaries for the periods to
which they relate, in each case in accordance with GAAP consistently applied
during the periods involved, except in each case as may be noted therein,
subject to normal year-end audit adjustments in the case of unaudited
statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of Section 5.4 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to it.
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(iii) Western has timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1996 with the
Regulatory Agencies, and all other material reports and statements required to
be filed by it since December 31, 1996, including, without limitation, any
report or statement required to be filed pursuant to the laws of the United
States or the State of California, and has paid all fees and assessments due and
payable in connection therewith. As of their respective dates, such reports,
registrations and statements complied in all material respects with all the
laws, rules and regulations of the applicable Regulatory Agency with which they
were filed.
(g) Compliance with Laws. Western and each of its Significant
--------------------
Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act
and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to Western's knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Western or any
of its Subsidiaries is not in compliance with any of the statutes, regulations
or ordinances which such Governmental Authority enforces or (B) threatening to
revoke any license, franchise, permit or governmental authorization (nor, to
Western's knowledge, do any grounds for any of the foregoing exist).
(h) No Brokers. No action has been taken by Western that would give rise
----------
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement, excluding Previously Disclosed fees payable to Belle Plaine Partners,
Inc.
(i) Year 2000 Compliance. Except as Previously Disclosed, (i) Western's
--------------------
Computer System used for the storage and processing of data are, or will be
prior to the year 2000, Year 2000 Compliant; (ii) to the best of Western's
knowledge after due inquiry, all of the suppliers, customers and third party
providers of Western are, or will be prior to year 2000, Year 2000 Compliant;
and (iii) to the best of Western's knowledge after due inquiry, Western is
taking or has taken, all commercially reasonable and appropriate action to
address and remedy any deficiencies in its Computer System which would keep it
from becoming Year 2000 Compliant.
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<PAGE>
(j) Books and Records. The books and records of Western and its
-----------------
Significant Subsidiaries have been fully, properly and accurately maintained in
all material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of Western and its Significant Subsidiaries.
(k) Accounting Treatment; Tax Matters. As of the date hereof, Western is
---------------------------------
aware of no reason why the Merger will fail to qualify for "pooling-of-
interests" accounting treatment. As of the date hereof, neither Western nor any
of its Subsidiaries has any reason to believe that any conditions exist that
might prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code.
ARTICLE VI
COVENANTS
6.1. Reasonable Best Efforts. Subject to the terms and conditions of
-----------------------
this Agreement, each of PNB and Western agrees to cooperate with the other
parties hereto and to use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other party hereto to that end.
6.2. Shareholder Approval. PNB agrees to take, in accordance with
--------------------
applicable law and the PNB Articles and the PNB Bylaws, all action necessary to
convene an appropriate meeting of its shareholders to consider and vote upon the
approval of the principal terms of the Merger and adoption of this Agreement and
any other matters required to be approved by PNB's shareholders for consummation
of the Merger (including any adjournment or postponement, the "PNB Meeting"), in
each case as promptly as practicable after the Registration Statement is
declared effective. Except to the extent legally required for the discharge by
the PNB Board of its fiduciary duties as advised by counsel to the PNB Board,
the PNB Board shall recommend such approval, and PNB shall take all reasonable,
lawful action to solicit such approval by its shareholders.
6.3. Registration Statement.
----------------------
(a) Western agrees to prepare a registration statement on Form S-4 or
other applicable form (the "Registration Statement") to be filed by Western with
the SEC in connection with the issuance of Western Common Stock in the Merger,
including the prospectus and other proxy solicitation materials of PNB
constituting a part thereof (the "Proxy Statement") and all related documents.
PNB shall have the right to review such Registration Statement and PNB agrees to
cooperate, and to cause its Subsidiaries to cooperate, with Western, its counsel
and its accountants, in preparation of the Registration Statement and the Proxy
Statement. PNB agrees to file the Proxy Statement in preliminary form with such
of the Regulatory Authorities as may be required as soon as reasonably
practicable, and Western agrees to file the Registration Statement with the SEC
as
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<PAGE>
soon as reasonably practicable. Each of PNB and Western agrees to use all
reasonable efforts to cause the Registration Statement and any required
amendments or supplements thereto to be declared effective under the Securities
Act and distributed to PNB shareholders as promptly as reasonably practicable
after filing thereof. Western also agrees to use all reasonable efforts to
obtain all necessary state securities laws or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement. PNB
agrees to furnish to Western all information concerning PNB, its Subsidiaries,
officers, directors and shareholders as may be reasonably requested in
connection with the foregoing.
(b) Each of PNB and Western agrees, as to itself and its Subsidiaries,
that the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to shareholders and at the time of the PNB Meeting, not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which such statement is made, necessary to
correct any statement in any earlier statement in the Proxy Statement or any
amendment or supplement thereto. Each of PNB and Western further agrees, that if
it shall become aware prior to the Effective Date of any information furnished
by it that would cause any of the statements in the Registration Statement or
the Proxy Statement to be false or misleading with respect to any material fact,
or to omit to state any material fact necessary to make the statements therein
not false or misleading, promptly to inform the other party thereof and to take
the necessary steps to correct the Registration Statement or the Proxy
Statement.
(c) Western agrees to advise PNB, promptly after Western receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of Western Common Stock for offering or sale in
any jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.4. Press Releases. Each of PNB and Western agrees that it will not,
--------------
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or Nasdaq rules (provided that the issuing party shall nevertheless
provide the other party with notice of, and the opportunity to review, any such
press release or written statement).
6.5. Access; Information.
-------------------
(a) Each of PNB and Western agrees that upon reasonable notice, and
subject to applicable laws relating to the exchange of information, each party
shall afford the other party and the other party's officers, employees, counsel,
accountants and other authorized representatives, such
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<PAGE>
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as the requesting party may reasonably request and, during such
period, the providing party shall furnish promptly to the requesting party (i) a
copy of each material report, schedule and other document filed by it pursuant
to the requirements of federal or state securities or banking laws, and (ii) all
other information concerning the business, properties and personnel of it as the
requesting party may reasonably request.
(b) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this Section
6.5 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party will keep confidential, and will cause
its representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.5 (as well as any other information obtained prior to
the date hereof in connection with the entering into of this Agreement) unless
such information (i) was already known to such party, (ii) becomes available to
such party from other sources not known by such party to be bound by a
confidentiality obligation, (iii) is disclosed with the prior written approval
of the providing party, or (iv) is or becomes readily ascertainable from
published information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to the other party to be
returned to the other party. No investigation by either party of the business
and affairs of the other party shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
6.6. Acquisition Proposals. PNB agrees that it shall not, and shall
---------------------
cause its Subsidiaries and its Subsidiaries' officers, directors, agents,
advisors and affiliates not to, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person relating
to, any Acquisition Proposal, except to the extent legally required for the
discharge by the PNB Board of its fiduciary duties as advised by counsel to the
PNB Board. PNB shall immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Western with respect to any of the
foregoing and shall use its reasonable best efforts to enforce any
confidentiality or similar agreement relating to an Acquisition Proposal. PNB
shall promptly (within 24 hours) advise Western following the receipt by PNB of
any Acquisition Proposal and the substance thereof (including the identity of
the person making such Acquisition Proposal), and advise Western of any
developments with respect to such Acquisition Proposal immediately upon the
occurrence thereof.
6.7. Affiliate Agreements.
--------------------
(a) Not later than the 15th day prior to the mailing of the Proxy
Statement, PNB shall deliver to Western a schedule of each person that, to the
best of its knowledge, is or is reasonably
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<PAGE>
likely to be, as of the date of the PNB Meeting, deemed to be an "affiliate" of
PNB (each, a "PNB Affiliate") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135.
(b) PNB shall use its reasonable best efforts to cause each person who
may be deemed to be a PNB Affiliate to execute and deliver to Western on or
before the date of mailing of the Proxy Statement an agreement in the form
attached hereto as Exhibit A.
6.8. Board Attendance and Appointment. Allen C. Barbieri, or in his
--------------------------------
absence another representative of PNB selected by him, shall be invited by
Western and the Western bank Subsidiaries to attend all regular and special
meetings of the Western Board and the Boards of the Western bank Subsidiaries
and the Executive Committees of the Western Board and the Boards of the Western
bank Subsidiaries from the date hereof until the Effective Date. Western shall,
to the extent reasonably practicable, inform PNB of each such meeting at least
two business days in advance of each such meeting; provided, however, that the
attendance of Allen C. Barbieri shall not be permitted at any meeting, or
portion thereof, for the purpose of discussing transactions contemplated by this
Agreement or the obligations of Western under this Agreement. Matthew P. Wagner
or in his absence another representative of Western selected by him, shall be
invited by PNB to attend all regular and special meetings of the PNB Board, the
Executive Committee of the PNB Board and the PNB Bank Subsidiary Board from the
date hereof until the Effective Date. PNB shall, to the extent reasonably
practicable, inform Western of each such meeting at least two business days in
advance of each such meeting; provided, however, that the attendance of Matthew
P. Wagner shall not be permitted at any meeting, or portion thereof, for the
purpose of discussing transactions contemplated by this Agreement or the
obligations of PNB under this Agreement.
6.9. Certain Policies. On or after the Regulatory Approval Date, PNB
----------------
shall, consistent with GAAP and on a basis mutually satisfactory to it and
Western, modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications, levels of credit
reserves, and levels of indemnification reserves) so as to be applied on a basis
that is consistent with that of Western.
6.10. Indemnification Reserves On Mortgage Portfolio. On or before
----------------------------------------------
December 31, 1998, the level of indemnification reserves on PNB's mortgage
portfolio shall not be less than $1.25 million.
6.11. Nasdaq Listing. Western agrees to use its reasonable best efforts
--------------
to list, prior to the Effective Date, on the Nasdaq, subject to official notice
of issuance, the shares of Western Common Stock to be issued to the holders of
PNB Common Stock in the Merger.
6.12. Regulatory Applications.
-----------------------
(a) Western and PNB and their respective Subsidiaries shall cooperate
and use their respective reasonable best efforts to prepare all documentation,
to effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities
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<PAGE>
necessary to consummate the transactions contemplated by this Agreement.
Western and PNB shall use their reasonable best efforts to make all required
bank regulatory filings, including the appropriate filing with the Regulatory
Authorities. Each of Western and PNB shall have the right to review in advance,
and to the extent practicable each will consult with the other, in each case
subject to applicable laws relating to the exchange of information, with respect
to all material written information submitted to any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.13. Indemnification; Director and Officers' Insurance.
-------------------------------------------------
(a) From and after the Effective Time through the sixth anniversary of
the Effective Date, Western agrees to indemnify and hold harmless each present
and former director and officer of PNB or any Subsidiary of PNB determined as of
the Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) (but excluding any Costs arising out of
any violation or alleged violation of the Exchange Act or the rules and
regulations thereunder with respect to insider trading), whether asserted,
claimed or arising prior to, at or after the Effective Time, to the extent to
which such Indemnified Parties were entitled under California law and the PNB
Articles or the PNB Bylaws in effect on the date hereof, and Western shall also
advance expenses as incurred to the extent permitted under California law and
the PNB Articles and the PNB Bylaws.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.13(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Western thereof, but the
failure to so notify shall not relieve Western of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Western.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Western shall have the
right to assume the defense thereof and Western shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses
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<PAGE>
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Western elects not to assume such defense or counsel for
the Indemnified Parties advises in writing that there are issues which raise
conflicts of interest between Western and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Western shall
pay the reasonable fees and expenses of one such counsel for the Indemnified
Parties in any jurisdiction promptly as statements thereof are received, (ii)
the Indemnified Parties will cooperate in the defense of any such matter, and
(iii) Western shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and
provided, further, that Western shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is not permitted or is prohibited by applicable law.
(c) For a period of six years after the Effective Time, Western shall use
its reasonable best efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by PNB
(provided that Western may substitute therefor policies of comparable coverage
with respect to claims arising from facts or events which occurred before the
Effective Time); provided, however, that in no event shall Western be obligated
to expend, in order to maintain or provide insurance coverage pursuant to this
Section 6.13(c), any amount per annum in excess of 125% of the amount of the
annual premiums paid as of the date hereof by PNB for such insurance (the
"Maximum Amount"). If the amount of the annual premiums necessary to maintain
or procure such insurance coverage exceeds the Maximum Amount, Western shall use
all reasonable efforts to maintain the most advantageous policies of directors'
and officers' insurance obtainable for an annual premium equal to the Maximum
Amount. Notwithstanding the foregoing, prior to the Effective Time, Western may
request PNB to, and PNB shall, purchase insurance coverage, on such terms and
conditions as shall be acceptable to Western, extending for a period of six
years PNB's directors' and officers' liability insurance coverage in effect as
of the date hereof (covering past or future claims with respect to periods
before the Effective Time) and such coverage shall satisfy Western's obligations
under this Subsection (c).
(d) If Western or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of Western shall
assume the obligations set forth in this Section 6.13.
(e) The provisions of this Section 6.13 are intended to be for the
benefit of, and shall be enforceable by each Indemnified Party and his or her
heirs and representatives.
6.14. Benefit Plan. Western shall, from and after the Effective Time,
------------
(i) provide former employees of PNB who remain as employees of Western or any of
its Significant Subsidiaries with employee benefit plans no less favorable in
the aggregate than those provided to similarly situated employees of Western or
its Significant Subsidiaries, including, but not limited to, allowing such
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<PAGE>
employees to participate in Western's stock option plan in accordance with the
policies of Western with respect to such stock option plan, and (ii) with
respect to former employees of PNB who remain as employees of Western or any of
its Significant Subsidiaries, cause each employee benefit plan of Western or its
Significant Subsidiaries in which such employees are eligible to participate to
take into account for purposes of eligibility and vesting thereunder the service
of such employees with PNB as if such service were with Western or its
Significant Subsidiaries, to the same extent such service was credited under a
comparable plan of PNB. Western agrees that all accrued bonuses for 1998 will
be paid to employees of PNB in accordance with PNB's past practices.
Notwithstanding the foregoing, PNB consents and covenants that from and after
the Effective Date, PNB's Benefit Plans will be governed, managed and/or
terminated by Western, all within Western's sole discretion.
6.15. Accountants' Letters. Each of PNB and Western shall use its
--------------------
reasonable best efforts to cause to be delivered to the other party, and to
Western's directors and officers who sign the Registration Statement, a letter
of their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, and such directors and
officers, in form and substance customary for "comfort" letters delivered by
independent accountants in accordance with Statement of Accounting Standards No.
72.
6.16. Notification of Certain Matters. Each of PNB and Western shall
-------------------------------
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a material breach of
any of its representations, warranties, covenants or agreements contained
herein.
6.17. Shareholder Agreements. Certain directors and certain officers who
----------------------
are shareholders of PNB, in their capacities as shareholders, in exchange for
good and valuable consideration, have executed and delivered to Western
shareholder agreements substantially in the form of Exhibit B hereto (the
"Shareholder Agreements"), committing such persons, among other things, (i) to
vote their shares of PNB Common Stock in favor of the Agreement at the PNB
Meeting and (ii) to certain representations concerning the ownership of PNB
Common Stock.
6.18. Reservation of Shares. Western shall at all times from and after
---------------------
the date of this Agreement maintain a sufficient number of duly authorized,
unissued and reserved shares of Western Common Stock necessary to permit Western
to satisfy its obligations under this Agreement without the need to seek
approval of Western's shareholders.
6.18. Employment Agreements. Western acknowledges and agrees that after
---------------------
the consummation of the Merger, the Surviving Corporation will continue to be
obligated to perform its obligations under the employment agreements set forth
in PNB's Disclosure Schedule, in accordance with the respective terms thereof.
6.19. Merger of PNB Bank Subsidiary. PNB shall take promptly, or cause to
-----------------------------
be taken promptly, all actions reasonably requested by Western to cause PNB Bank
Subsidiary to merge with
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<PAGE>
a subsidiary of Western, including, without limitation, joining in the filing of
all necessary regulatory applications.
6.20. Entrust. As promptly as practicable after the date hereof, PNB
-------
shall communicate with Entrust for the purpose of terminating the Entrust
Agreement, and shall make commercially reasonable efforts to effect the
termination of the Entrust Agreement and the substitution of another custodian.
PNB agrees to cause an audit to be performed on Entrust on or prior to the date
of termination in form acceptable to Western, such acceptance not to be
unreasonably withheld, consistent with the terms of the Entrust Agreement.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each of Western and PNB to consummate the Merger is
subject to the fulfillment or written waiver by Western and PNB prior to the
Effective Time of each of the following conditions:
(a) Shareholder Approval. This Agreement and the principal terms of the
--------------------
Merger shall have been duly adopted and approved by the requisite vote of the
shareholders of PNB.
(b) Regulatory Approvals. All regulatory approvals or waivers required
--------------------
to consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals or waivers shall
contain any conditions, restrictions or requirements which the Western Board
reasonably determines would (i) following the Effective Time, have a Material
Adverse Effect on the Surviving Corporation and its Subsidiaries taken as a
whole or (ii) reduce the benefits of the transactions contemplated hereby to
such a degree that Western would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
(c) No Injunction. No Governmental Authority of competent jurisdiction
-------------
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have
----------------------
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) Blue Sky Approvals. All permits and other authorizations under
------------------
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Western Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
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<PAGE>
(f) Listing. The shares of Western Common Stock to be issued in the
-------
Merger shall have been approved for listing on the Nasdaq, subject to official
notice of issuance.
7.2. Conditions to Obligation of PNB. The obligation of PNB to
-------------------------------
consummate the Merger is also subject to the fulfillment or written waiver by
PNB prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Western set forth in this Agreement (subject to the standard set forth in
Section 5.2) shall be true and correct as of the date of this Agreement and as
of the Effective Date as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak only as of the
date of this Agreement or some other date shall be true and correct as of such
date), and PNB shall have received a certificate, dated the Effective Date,
signed on behalf of Western by the Chief Executive Officer and the Chief
Financial Officer of Western to such effect.
(b) Performance of Obligations of Western. Western shall have performed
-------------------------------------
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and PNB shall have received a
certificate, dated the Effective Date, signed on behalf of Western by the Chief
Executive Officer and the Chief Financial Officer of Western to such effect.
(c) Tax Opinion. PNB shall have received an opinion of McDermott, Will &
-----------
Emery, dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by shareholders of PNB who receive
shares of Western Common Stock in exchange for shares of PNB Common Stock,
except with respect to cash received in lieu of fractional share interests. In
rendering its opinion, McDermott, Will & Emery may require and rely upon
representations contained in letters from PNB, Western and shareholders of PNB.
(d) Accountants' Letters. PNB shall have received the letters referred
--------------------
to in Section 6.14 from Western's independent auditors.
(e) Director. Western shall have adopted resolutions sufficient to
--------
appoint Allen C. Barbieri as a director of Western as of the Effective Time, or,
if such person is unable to serve, such other current director of PNB as shall
be mutually satisfactory to Western.
(f) Fairness Opinion. PNB shall have received the written opinion of
----------------
Lehman Brothers Inc. to the effect that, as of a date within five days of the
mailing of the Proxy Statement to the shareholders of PNB in connection with the
PNB Meeting, the consideration to be received by the holders of the PNB Common
Stock in the Merger is fair to such holders from a financial point of view.
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<PAGE>
7.3. Conditions to Obligation of Western. The obligation of Western to
-----------------------------------
consummate the Merger is also subject to the fulfillment or written waiver by
Western prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
------------------------------
of PNB set forth in this Agreement (subject to the standard set forth in Section
5.2) shall be true and correct as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak only as of the date of
this Agreement or some other date shall be true and correct as of such date) and
Western shall have received a certificate, dated the Effective Date, signed on
behalf of PNB by the Chief Executive Officer and the Chief Financial Officer of
PNB to such effect.
(b) Performance of Obligations of PNB. PNB shall have performed in all
---------------------------------
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Western shall have received a
certificate, dated the Effective Date, signed on behalf of PNB by the Chief
Executive Officer and the Chief Financial Officer of PNB to such effect.
(c) Opinion of Western's Counsel. Western shall have received an opinion
----------------------------
of Sullivan & Cromwell, special counsel to Western, dated the Effective Date, to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Merger constitutes a reorganization under Section 368
of the Code. In rendering its opinion, Sullivan & Cromwell may require and rely
upon representations contained in letters from PNB, Western and shareholders of
PNB.
(d) Accountants' Letters. Western shall have received the letters
--------------------
referred to in Section 6.14 from PNB's independent auditors.
(e) PNB and Subsidiaries Financial Tests. As of the month end preceding
------------------------------------
the Effective Time, but without giving effect to any costs related to the Merger
or any changes effected as a result of Section 6.9 hereof, PNB's shareholder's
equity and allowance for credit losses shall not be less than the respective
amounts set forth on PNB's quarterly report on Form 10-Q for the quarter ended
June 30, 1998, and Western shall have received a certificate, dated the
Effective Date, signed on behalf of PNB by its Chief Financial Officer to such
effect.
(f) Director Resignations. Western shall have received the written
---------------------
resignation of each director (in such director's capacity as director) of PNB
and PNB Bank Subsidiary effective as of the Effective Time.
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<PAGE>
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated, and the Merger may be
-----------
abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
--------------
mutual consent of Western and PNB, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by Western or
------
PNB, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by the other
party of any representation or warranty contained herein (subject to the
standard set forth in Section 5.2), which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party of such
breach; or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, provided that such breach (whether under (i) or (ii)) would be
reasonably likely, individually or in the aggregate with other breaches, to
result in a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by PNB, if its
-----
Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event that the Merger is not consummated by May 30, 1999,
except to the extent that the failure of the Merger then to be consummated
arises out of or results from the knowing action or inaction of PNB pursuant to
this Section 8.1(c).
(d) No Approval. By PNB or Western, if its Board of Directors so
-----------
determines by a vote of a majority of the members of its entire Board, in the
event (i) the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such Governmental Authority or
(ii) the shareholder approval required by Section 7.1(a) herein is not obtained
at the PNB Meeting.
(e) Failure to Recommend, Etc. At any time prior to the PNB Meeting,
--------------------------
by Western if the PNB Board shall have failed to make its recommendation
referred to in Section 6.2, withdrawn such recommendation or modified or changed
such recommendation in a manner adverse in any respect to the interests of
Western.
(f) Western Stock. By PNB in the event that, with respect to the
-------------
Twenty Day Period (as defined below) both (i) either (A)(1) the Twenty Day
Average Price (as defined below) shall be less than 90% of $29.625 per share
(the "Execution Date Price") and (2) the Western Common Stock Price Percentage
(as defined below) shall be less than the Nasdaq 90% Index Percentage (as
defined below) or (B)(1) the Twenty Day Average Price shall be greater than 90%
of the Execution Date Price and (2) the Western Common Stock Price Percentage
shall be less than the Nasdaq 80% Index Percentage (as defined below) and (ii)
in any such case PNB has delivered written notice to Western
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<PAGE>
of its intention to terminate this Agreement within forty-eight (48) hours
following the date of such event (it being understood that, if an event set
forth in clause (i) shall have occurred and PNB fails to timely deliver the
notice referred to in this clause (ii), PNB shall have the right to terminate if
any such event subsequently occurs and PNB timely delivers such notice);
provided, however, that, if Western effects a stock dividend, reclassification,
recapitalization, stock split, combination, exchange of shares or similar
transaction after the date hereof and prior to the Effective Time, the
provisions of this Section 8.1(f) shall be appropriately adjusted.
As used in this Section 8.1(f), (u) "Western Common Stock Price
Percentage" means the percentage determined by dividing the Twenty Day Average
Price by the Execution Date Price; (v) "Nasdaq 80% Index Percentage" means the
percentage determined by dividing (i) the product of (A) the Twenty Day Average
Nasdaq Bank Index times (B) 0.80 by (ii) the Nasdaq Bank Index as of the date of
this Agreement, (w) "Nasdaq 90% Index Percentage" means the percentage
determined by dividing (i) the product of (A) the Twenty Day Average Nasdaq Bank
Index times (B) 0.90 by (ii) the Nasdaq Bank Index as of the date of this
Agreement; (x) "Twenty Day Average Price" means the volume weighted average
sales price per share of Western Common Stock for the Twenty Day Period; for
purposes of determining the "volume weighted average," the aggregate of the
daily sales of Western Common Stock for each of the twenty (20) consecutive days
Western Common Stock is traded shall be divided by the aggregate number of
shares of Western Common Stock traded on Nasdaq during such Twenty Day Period;
(y) "Twenty Day Average Nasdaq Bank Index" means the average of the Nasdaq Bank
Index (the "Nasdaq Bank Index") for the Twenty Day Period; and (z) "Twenty Day
Period" means any twenty (20) consecutive days on which shares of Western Common
Stock are actually traded during the period commencing twenty (20) trading days
prior to the receipt of the last regulatory approval required to be obtained
pursuant to Section 7.1(b) and ending on the trading day that is forty-eight
(48) hours prior to the Effective Time.
(g) Acquisition Proposal. This Agreement may be terminated by PNB by
--------------------
written notice to Western if PNB (i) receives an Acquisition Proposal, (ii)
receives the advice of its outside counsel that to proceed with the Merger will
violate the fiduciary duties of the PNB Board to PNB's shareholders in light of
such Acquisition Proposal, and (iii) after receiving such advice, determines to
accept such proposal; provided, however, that PNB shall not be entitled to
terminate this Agreement pursuant to this Section 8.1(g) unless it shall have
provided Western with written notice of such a possible determination (which
written notice will inform Western of the material terms and conditions of the
proposal, including the identity of the proponent) not less than two business
days prior to such determination.
(h) Disclosure Schedule Amendment or Supplement. At any time prior to
-------------------------------------------
the Effective Time by Western or PNB if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event the other
party amends their Disclosure Schedule pursuant to Section 5.1 and discloses
events that would be reasonably likely to result in a Material Adverse Effect on
the other party or the Surviving Corporation.
8.2. Effect of Termination and Abandonment. In the event of
-------------------------------------
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this
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<PAGE>
Agreement shall have any liability or further obligation to any other party
hereunder except (i) as set forth in Section 9.1, and (ii) that termination will
not relieve a breaching party from liability for any willful breach of this
Agreement giving rise to such termination.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. No representations, warranties, agreements and
--------
covenants contained in this Agreement shall survive the Effective Time (other
than Sections 6.13 and 6.14 and this Article IX which shall survive the
Effective Time) or the termination of this Agreement if this Agreement is
terminated prior to the Effective Time (other than Sections 6.3(b), 6.5(b), 8.2
and this Article IX which shall survive such termination).
9.2. Waiver; Amendment. Prior to the Effective Time, any provision
-----------------
of this Agreement may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the PNB Meeting, this Agreement may not be amended if it would violate the CGCL
or reduce the consideration to be received by PNB shareholders in the Merger.
9.3. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to constitute an original.
9.4. Governing Law; Waiver of Jury Trial. This Agreement shall be
-----------------------------------
governed by, and interpreted in accordance with, the laws of the State of
California applicable to contracts made and to be performed entirely within such
State (except to the extent that mandatory provisions of Federal law are
applicable). Each of the parties hereto hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or related to this
Agreement or the transactions contemplated hereby.
9.5. Expenses. Each party hereto will bear all expenses incurred by
--------
it in connection with this Agreement and the transactions contemplated hereby.
9.6. Notices. All notices, requests and other communications
-------
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to PNB, to: PNB Financial Group, Inc.
4665 MacArthur Court
Newport Beach, California 92660
Attention: Allen C. Barbieri
Facsimile: (949) 833-9207
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<PAGE>
With a copy to: McDermott, Will & Emery
1301 Dove Street, Suite 1500
Newport Beach, California 92660
Attention: Gregory W. Preston
Facsimile: (949) 851-9348
If to Western, to: Western Bancorp
4100 Newport Place
Suite 900
Newport Beach, CA 92660
Attention: Julius G. Christensen
Facsimile: (949) 757-5845
With a copy to: Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067-1725
Attention: Stanley F. Farrar
Facsimile: (310) 712-8800
9.7. Entire Understanding; No Third Party Beneficiaries. This
--------------------------------------------------
Agreement and the Stock Option Agreement represent the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
thereby, and this Agreement supersedes any and all other oral or written
agreements heretofore made (other than any such Stock Option Agreement). Except
for Section 6.13, nothing in this Agreement expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.8. Interpretation; Effect. When a reference is made in this
----------------------
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of, or Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." No provision
of this Agreement shall be construed to require PNB, Western or any of their
respective Subsidiaries, affiliates or directors to take any action which would
violate applicable law (whether statutory or common law), rule or regulation.
* *
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
PNB FINANCIAL GROUP, INC.
By:
---------------------------------------------
Name: Allen C. Barbieri
Title: President and Chief Executive Officer
WESTERN BANCORP
By:
---------------------------------------------
Name: Arnold C. Hahn
Title: Executive Vice President and Chief
Financial Officer
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<PAGE>
PNB FINANCIAL GROUP FOR ADDITIONAL INFORMATION CALL:
4665 MacArthur Court Doug Heller, Executive Vice President and
Newport Beach, CA 92660 Chief Financial Officer
(949-851-1033)
P R E S S R E L E A S E
Western Bancorp Announces Merger With PNB Financial Group
October 7, 1998, Newport Beach California...Western Bancorp ("Western") today
announced that on October 6, 1998, it signed a definitive agreement to merge
with PNB Financial Group, Inc. ("PNB"). Shareholders of PNB will receive one
share of Western stock for each outstanding share of PNB stock in a tax free
exchange. The acquisition is expected to qualify for pooling-of-interest
accounting and close in the first quarter of 1999. Both companies have
completed their due diligence. Completion of the transaction is conditional
upon the receipt of shareholder and applicable regulatory approvals.
PNB operates through its subsidiary Pacific National Bank ("Pacific"). As of
June 30, 1998, PNB had $267 million in assets and three banking branches in
Newport Beach, Orange and Beverly Hills. Pacific is primarily focused in the
areas of commercial banking, including lending to small businesses, construction
lending and issuing loans insured by the Small Business Administration. In
addition, PNB has a residential mortgage origination business with offices in
Irvine, Santa Ana, Dublin and San Diego, California and an office in Phoenix,
Arizona. Through the first nine months of 1998, PNB has originated approximately
$1.1 billion in mortgage loans. PNB sells substantially all of its mortgage
loans in the secondary market with servicing released. It is the intention of
Western to merge Pacific into Southern California Bank, a wholly owned
subsidiary of Western.
Matthew P. Wagner, President and Chief Executive Officer of Western stated
"Pacific helps to enhance our banking franchise both in Orange County and west
Los Angeles. In addition, Pacific's mortgage business further expands Western's
product line. This acquisition adds to shareholder value and should be
accretive to earnings during 1999."
PNB's Chief Executive Officer, Allen C. Barbieri, stated "This transaction
greatly benefits PNB shareholders as they will now own a more liquid stock in a
stronger and faster growing banking franchise which is better positioned to take
advantage of the vibrant Southern California economy. Pacific customers will
continue to receive the personal attention expected from a community banking
franchise while enjoying numerous new benefits and services not currently
offered by Pacific."
Pro forma with the pending acquisitions of PNB, Peninsula Bank of San Diego and
Bank of Los Angeles, Western will have approximately $3.0 billion in assets and
three banking subsidiaries: Peninsula Bank, Southern California Bank and Santa
Monica Bank. Peninsula Bank serves San Diego with ten branches. Southern
California Bank serves southern Los Angeles, Orange and San Diego Counties with
sixteen branches and with its specialized escrow services and asset based
lending. Pro forma with the Bank of Los Angeles, Santa Monica Bank will serve
its clients in Santa, Monica, Westwood, Malibu, Marina del Rey, Beverly Hills,
Century City, Encino, Culver City,
<PAGE>
West Hollywood, and Glendale with sixteen branches and its specialized trust and
investment management services.
Lehman Brothers acted as financial advisor to PNB in this transaction.
Forward-looking Statements.
This press release includes forward-looking statements that involve inherent
risks and uncertainties. Western and PNB caution readers that a number of
important factors could cause actual results to differ materially from those in
the forward-looking statements. These factors include economic conditions and
competition in the geographic and business areas in which Western and its
subsidiaries and PNB operate, inflation, fluctuations in interest rates,
legislation and governmental regulation and the progress of integrating Pacific
National Bank, Peninsula Bank of San Diego, Bank of Los Angeles and Santa Monica
Bank.
MAJOR TERMS OF THE TRANSACTION
Price per share $29.625 in stock
PNB shares outstanding
(As of October 6, 1998) 2,760,618
Aggregate value $81.1 million
Price to PNB book (June 30) 2.79 X
Western book value to PNB book value
(June 30) 1.70X
Western tangible book value to PNB
tangible book value (June 30) 0.85X
Price to last 12 months diluted EPS 14.1X
Exchange ratio: Fixed at one for one
Target closing First quarter 1999
Note: All PNB share data has been adjusted for a 15% stock dividend paid in
April 1998.
