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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ........................ to
........................
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COMMISSION FILE NO. 0-13551
MONARCH BANCORP
(Name of small business issuer in its charter)
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CALIFORNIA 95-3863296
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
30000 TOWN CENTER DRIVE LAGUNA NIGUEL 92677
(Address of principal executive offices) (Zip Code)
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Issuer's telephone number (714) 495-3300
SECURITIES REGISTERED UNDER SECTION 12(B) OF EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF EXCHANGE ACT:
Common Stock, no par value
(Title of Class)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days: Yes __X__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's net revenues for its most recent fiscal year was $13,872,000
The aggregate market value of the voting stock held by non-affiliates of the
issuer as of March 14, 1996 was $85,379,840
Number of registrant's shares of Common Stock outstanding as of March 14,
1997 was 34,373,021
Documents incorporated by reference: The proxy statement for the Annual
Meeting of Shareholders of the registrant to be held on May [22], 1997. Certain
information therein is incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Monarch Bancorp (the "Company") was organized on May 20, 1983 as a
California Corporation for the purpose of becoming a bank holding company and to
acquire all the outstanding capital stock of Monarch Bank ("Monarch"), a
California state-chartered bank. The Company commenced operations on June 18,
1984. It is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended ("BHC Act"), and is subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("the
Board"). On September 30, 1996, the Company acquired Western Bank ("Western").
Because Monarch and Western (collectively "the Banks") comprise substantially
all of the business of the Company, references to the "Company" mean the Company
and the Banks together, unless the context otherwise requires.
The Company's principal business is to serve as a holding company for the
Banks and other possible banking or banking-related subsidiaries the Company may
acquire in the future. Since inception, the Company has not been active except
through its subsidiaries, and the Company has no industry segments other than
banking.
On March 31, 1995, the Company completed a private placement offering for
approximately $6,139,000 and issued 4,547,111 new shares of common stock.
Proceeds from the Offering were used to pay approximately $470,000 in Offering
expenses; $3,550,000 to increase the Company's investment in Monarch; and
$53,500 to retire Company debt; and approximately $2,065,000 in cash was being
held by the Company for future operating needs or investment. The increase in
Monarch's capital met or exceeded Monarch's regulatory commitments to the
Federal Deposit Insurance Corporation ("the FDIC") and Superintendent (as
defined herein) to increase the Bank's ratio for Tier 1 capital to total assets
to equal or exceed 7.0%.
In addition to the completion of the private placement offering in the first
quarter of 1995, the Company completed in the third quarter of 1995 a rights and
public offering for the sale of up to 3,177,296 shares of its common stock
pursuant to the terms of a prospectus dated July 14, 1995. In connection with
such offering, a total of approximately 2,887,000 shares of common stock of the
Company were sold. The Company increased its capital by an additional $3,464,000
in net proceeds in the rights and public offering, and the Company increased its
leverage capital ratio as of September 30, 1995 to approximately 15.4%.
As part of the September 30, 1996 Western acquisition, the Company sold
approximately 26,147,000 shares of common stock in a private placement (the
"1996 Private Placement") for net proceeds of approximately $42,213,000.
Pursuant to this equity transaction, the Company issued to parties related to
Belle Plaine Financial, LLC, 784,391 warrants to acquire common stock at $1.98
per share. The warrants expire on September 30, 2006.
As of December 31, 1996, the Company had total consolidated assets of
approximately $512 million, total consolidated net loans of approximately $255
million, total goodwill of approximately $29 million, total consolidated
deposits of approximately $443 million, and total consolidated shareholders'
equity of approximately $54 million.
ACQUISITION OF WESTERN BANK
On September 30, 1996 the Company acquired all of the issued and outstanding
shares of Western, a state chartered bank located in west Los Angeles. Western
has five offices, including its head office in Westwood.
Western is operated as a wholly-owned subsidiary of the Company. The Company
paid $17.25 per share, or approximately $61.1 million in cash, for the 3,543,156
issued and outstanding shares of Western,
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and an additional $5.5 million representing the difference between $17.25 and
the exercise price of the 425,724 outstanding stock options of Western. The
aggregate net consideration for the acquisition of Western was approximately
$66.6 million. The acquisition was accounted for under the purchase method of
accounting.
The Company funded the purchase price with the issuance of approximately
$42.2 million of common stock, net of approximately $1 million in issuance
costs, in the 1996 Private Placement, and from the proceeds of a three year loan
of $26.5 million from The Northern Trust Company (the "Lender"). A $15.5 million
dividend was declared by Western concurrently with the completion of the
acquisition and paid to the Company, which was used to reduce the $26.5 million
note to $11 million. For further information on the Western acquisition, see
note 2 of notes to consolidated financial statements.
PROPOSED ACQUISITION OF CALIFORNIA COMMERCIAL BANKSHARES
On December 19, 1996, the Company executed an Agreement and Plan of Merger
(the "Merger") with California Commercial Bankshares ("CCB") in which CCB will
merge with and into the Company, and National Bank of Southern California
("NBSC"), the wholly-owned subsidiary of CCB, will become a wholly-owned
subsidiary of the Company. This Agreement provides for the shareholders of CCB
to receive shares of the Company having a year-end adjusted book value equal to
1.6 times the year-end adjusted book value of CCB. The adjustments to book value
included certain expenses related to the merger. Based on this formula, it has
been determined that holders of CCB common stock will receive 8.5 shares (1
share assuming the Reverse Stock Split (as defined herein) is effected) of
Company common stock for each share of CCB common stock. The Agreement is
subject to several conditions, including approval of the shareholders of the
Company and CCB, which is intended to be sought at the annual shareholders
meetings for both the Company and CCB in May 1997, and regulatory approvals.
PROPOSED AMENDMENTS TO THE AMENDED ARTICLES OF INCORPORATION
At the Annual Meeting of the Company to be held in May 1997, the Company
intends to seek approval of its shareholders to amend the Company's Amended
Articles of Incorporation in order to: (i) change the Company's name to Western
Bancorp and (ii) effect a one for 8.5 reverse stock split (the "Reverse Stock
Split") immediately prior to the consummation of the Merger.
MANAGEMENT CHANGES
In conjunction with the acquisition of Western, the Company has restructured
its management team. Hugh S. Smith, Jr., former Chairman and CEO of Western, has
become Chairman and CEO of the Company. Matthew P. Wagner, formerly an Executive
Vice President of First Bank System in Minneapolis, Minnesota, was recruited to
become President and CEO of Western and became President of the Company in
February, 1997. Arnold C. Hahn, formerly a Senior Vice President of First Bank
System in Minneapolis, Minnesota, was recruited to become an Executive Vice
President and CFO of the Company and its subsidiary banks.
REGULATORY ORDERS
Following the conclusion of a FDIC examination of Monarch in 1994, for the
purpose of cooperating with the FDIC and without admitting or denying any
allegations, Monarch entered into a Section 8(b) Order (the "8(b) Order") with
the FDIC. The 8(b) Order became effective on December 23, 1994, and it required
Monarch to perform several actions within certain time frames. In addition, as a
result of a 1994 examination by the California State Banking Department, Monarch
agreed to a final order under California Financial Code Section 1913 (the "1913
Order," and collectively with the 8(b) Order, the "Orders") with the Department
that became effective December 14, 1994. The 1913 Order provided that
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Monarch take certain actions. Monarch also was notified in late 1994 that the
FDIC had determined that the Bank fell within the undercapitalized capital
category under Section 38 of the FDIC Act.
Management and the Board of Directors made every possible effort in 1995 to
insure full compliance with two such Orders including specific activities to
increase capital, rewriting or drafting new policies and procedures, a major
emphasis on improving credit administration, and prompt reporting of its
progress in taking the corrective actions outlined in the Orders. The State
Banking Department, following a November 1995 examination of Monarch, confirmed
that Monarch was in substantial compliance with its Section 1913 Order and
removed that Order in December 1995. The FDIC also completed an inspection and
off-site review of Monarch in November 1995. Based on its review process, the
FDIC terminated its Section 8(b) Order in March 1996 while requesting Monarch to
agree to an informal Memorandum of Understanding which the Board of Directors
signed in March 1996. In signing the Memorandum, Monarch undertook to further
the corrective actions outlined in the Section 8(b) Order.
On April 24, 1996 Monarch became a member of the Federal Reserve Bank of San
Francisco. As a member bank, Monarch's primary federal regulator is now the
Federal Reserve Bank rather than the FDIC, although Monarch's deposits continue
to be insured by the FDIC. On July 3, 1996, as a result of both Federal Reserve
Bank membership and significant improvement in the financial condition and
operations of Monarch, the Memorandum of Understanding was terminated by the
FDIC. There are no remaining regulatory restrictions on the Company or Monarch
nor are there any regulatory restrictions on Western at December 31, 1996.
BACKGROUND
The Company's primary market areas are the western part of Los Angeles,
served by Western, and south Orange County, California, served by Monarch. The
principal business of the Banks is to accept time and demand deposits, originate
commercial loans, consumer loans and real estate loans, and make other
investments. The Banks offer a broad range of banking products and services,
including many types of business and personal savings and checking accounts and
other consumer banking services. The Banks originate several types of loans,
including secured and unsecured commercial and consumer loans, commercial and
residential real estate mortgage loans, and commercial and residential
construction loans. The Banks' loans are primarily short-term and adjustable
rate. Special services or requests beyond the lending limits of the Banks are
arranged through correspondent banks. The Banks currently offer access to ATM
networks through other major banks. Monarch issues MasterCard and VISA credit
cards through a correspondent bank and is also a merchant depository for
cardholder drafts under Visa and Master Card credit cards. Similar to other
state-chartered banks of their size, the Banks can provide investment and
international banking services through its major correspondent banks.
Monarch was incorporated as a California corporation in October 1979, and
commenced operation as a California state-chartered bank on April 21, 1980.
Monarch is insured under the Federal Deposit Insurance Act up to applicable
limits thereof, and effective in April 1996, Monarch became a member of the
Federal Reserve System. Monarch's head office is located at 30000 Town Center
Drive, Laguna Niguel, California 92677. Monarch opened a new branch in Laguna
Beach in June of 1996. On September 30, 1996, the Company acquired Western, a
state chartered bank with five branches in the western part of Los Angeles.
Western's head office is at 1251 Westwood Boulevard, Los Angeles, California
90024. Western is not a member of the Federal Reserve System, but its deposits
are insured under the Federal Deposit Insurance Act up to applicable limits
thereof.
Since 1987, the Company's Strategic Plan has emphasized serving the banking
needs of individuals, professionals, and small to medium-sized businesses in the
local market areas served by the Banks and in the contiguous communities. The
Banks maintain courier services which operate throughout mid- and
southern-Orange County and the western part of Los Angeles, serving
professionals and small businesses, and this has greatly expanded the service
areas of the Banks without the need for additional physical
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facilities. The Banks' major lending emphasis has been directed at short term
owner-occupied luxury home construction projects, commercial lending to
professionals and personal loans to individuals, with the objective of building
a balanced community loan and investment portfolio mix. The Banks rely on a
foundation of locally generated deposits and management believes the Banks have
a relatively low cost of funds due to a high percentage of low cost and
non-interest bearing deposits.
The primary goal for the Company is to continue to increase profitability
by, among other things, expanding prudently on the foundation provided by the
additional equity capital received in March 1995, September 1995 and September
1996, the acquisition of Western in September 1996, the earnings improvement
program that is ongoing and the improvements made in credit administration and
loan quality that began in 1995.
As part of its efforts to achieve long-term stable profitability and to
respond to a changing economic environment in Southern California, western Los
Angeles and south Orange County, the Company and the Banks are investigating all
possible options to augment its traditional focus by broadening its customer
services. The Company and the Banks believe that its strong capital base will
permit an acceleration of efforts at a greater diversification of both the
Banks' loan portfolios and deposit bases and new sources of fee income. Areas of
possible future diversification include additional days and expanded hours of
operation, new types of lending, brokerage, annuity and mutual funds products,
as well as the acquisition of additional financial institutions or branches of
other financial institutions in cities and areas adjoining the Company's current
market areas. The pending acquisition of California Commercial Bankshares is a
natural result of this strategy.
The Company believes that small institutions are available at attractive
prices and that branches of other financial institutions may be available at
substantially below their investment cost. Although the Company continues to
have preliminary discussions with a number of financial institutions regarding
possible acquisitions, other than the previously discussed acquisition of CCB,
no agreements or understandings have been reached at this time. The Company has
been contacted by other financial institutions with regard to their interest in
selling various branches of their companies. Acquisitions of this nature can
take from 60 to 90 days or longer for the approval and purchase of assets and
branches, and 6 to 12 months or longer for the negotiation, approval and
purchase of an entire financial institution.
SUPERVISION AND REGULATION
MONARCH BANCORP
Upon the reorganization of Monarch as a wholly-owned subsidiary, the Company
became a bank holding company within the meaning of the BHC Act and is subject
to the supervision and regulation of the Federal Reserve Bank of San Francisco.
The Company functions primarily as the sole stockholder of Monarch, Western and
its non-bank subsidiary, and establishes general policies and activities of the
operating subsidiaries.
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, which include, but are not limited
to, the filing of annual, quarterly and other reports with the Securities and
Exchange Commission.
The Company, as a bank holding company, is subject to regulation under the
BHC Act, and is registered with and subject to the supervision of the Board of
Governors of the Federal Reserve System (the "Board"). The Company is required
to obtain the prior approval of the Board before it may acquire all or
substantially all of the assets of any bank, or ownership or control of voting
shares of any bank if, after giving effect to such acquisition, the Company
would own or control, directly or indirectly, more than 5% of such bank. The BHC
Act prohibits the Company from acquiring any voting shares of, interest in, or
all or substantially all of the assets of a bank located outside the State of
California unless the laws of such state specifically authorize such
acquisition.
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Under the BHC Act, the Company may not engage in any business other than
managing or controlling banks or furnishing services to its subsidiaries. The
Company is also prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company unless the company is engaged in such activities. The Board's approval
must be obtained before the shares of any such company can be acquired and, in
certain cases, before any approved company can open new offices. In making such
determinations, the Board considers whether the performance of such activities
by the Company would offer advantages to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices.
Further, the Board is empowered to differentiate between activities commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern.
Although the entire scope of permitted activities is uncertain and cannot be
predicted, the major non-banking activities that have been permitted to bank
holding companies with certain limitations are: making, acquiring or servicing
loans that would be made by a mortgage, finance, credit card or factoring
company; operating an industrial loan company; leasing real and personal
property; acting as an insurance agent, broker, or principal with respect to
insurance that is directly related to the extension of credit by the bank
holding company or any of its subsidiaries and limited to repayment of the
credit in the event of death, disability or involuntary unemployment; issuing
and selling money orders, savings bonds and travelers checks; performing certain
trust company services; performing appraisals of real estate and personal
property; providing investment and financial advice; providing data processing
services; providing courier services; providing management consulting advice to
non-affiliated depository institutions; arranging commercial real estate equity
financing; providing certain securities brokerage services; underwriting and
dealing in government obligations and money market instruments; providing
foreign exchange advisory and transactional services; acting as a futures
commission merchant; providing investment advice on financial futures and
options on futures; providing consumer financial counseling; providing tax
planning and preparation services; providing check guaranty services; engaging
in collection agency activities; and operating a credit bureau.
The Company's primary sources of income are the receipt of dividends and
management fees from its subsidiaries, and interest income on its investments.
Monarch's and Western's ability to make such payments to the Company are subject
to certain statutory and regulatory restrictions.
The Company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
Monarch or Western may not condition an extension of credit on a customer's
obtaining other services provided by it, the Company or any other subsidiary or
on a promise by the customer not to obtain other services from a competitor.
As a bank holding company, the Company is required to file reports with the
Board and to provide such additional information as the Board may require. The
Board also has the authority to examine the Company and each of its subsidiaries
with the cost thereof to be borne by the Company.
In addition, banking subsidiaries of bank holding companies are subject to
certain restrictions imposed by federal law in dealings with their holding
companies and other affiliates. Subject to certain exceptions set forth in the
Federal Reserve Act, a bank can make a loan or extend credit to an affiliate,
purchase or invest in the securities of an affiliate, purchase assets from an
affiliate, accept securities of an affiliate as collateral security for a loan
or extension of credit to any person or company or issue a guarantee, acceptance
or letter of credit on behalf of an affiliate only if the aggregate amount of
the above transactions of such subsidiary does not exceed 10% of such
subsidiary's capital stock and surplus on a per affiliate basis or 20% of such
subsidiary's capital stock and surplus on an aggregate affiliate basis. Such
transactions must be on terms and conditions that are consistent with safe and
sound banking practices. A bank and its subsidiaries generally may not purchase
a low-quality asset, as that term is defined in the
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Federal Reserve Act, from an affiliate. Such restrictions also prevent a holding
company and its other affiliates from borrowing from a banking subsidiary of the
holding company unless the loans are secured by collateral.
The BHC Act also prohibits a bank holding company or any of its subsidiaries
from acquiring voting shares or substantially all the assets of any bank located
in a state other than the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted unless such acquisition
is expressly authorized by statutes of the state in which the bank to be
acquired is located. Legislation recently adopted in California permits
out-of-state bank holding companies to acquire California banks. See "Effect of
Governmental Policies and Recent Legislation" later in this section.
The BHC Act and regulations of the Board also impose certain constraints on
the redemption or purchase by a bank holding company of its own shares of stock.
The Board has cease and desist powers to cover parent bank holding companies
and non-banking subsidiaries where action of a parent bank holding company or
its non-financial institutions represent an unsafe or unsound practice or
violation of law. The Board has the authority to regulate debt obligations
(other than commercial paper) issued by bank holding companies by imposing
interest ceilings and reserve requirements on such debt obligations.
The ability of the Company to pay dividends to its shareholders is subject
to the restrictions set forth in the California General Corporation Law (the
"Corporation Law"). The Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. The Corporation Law further
provides that, in the event that sufficient retained earnings are not available
for the proposed distribution, a corporation may nevertheless make a
distribution to its shareholders if it meets two conditions, which generally are
as follows: (i) the corporation's assets equal at least 1 1/4 times its
liabilities; and (ii) the corporation's current assets equal at least its
current liabilities or, if the average of the corporation's earnings before
taxes on income and before interest expense for the two preceding fiscal years
was less than the average of the corporation's interest expense for such fiscal
years, then the corporation's current assets equal at least 1 1/4 times its
current liabilities.
MONARCH BANK AND WESTERN BANK
Banks are extensively regulated under both federal and state law. Monarch
and Western as California state-chartered banks are subject to primary
supervision, periodic examination and regulation by the Federal Reserve Bank
("FRB") and the FDIC.
Monarch and Western are insured by the FDIC, which currently insures
deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, Monarch and Western, as is the case with all insured banks, pay a
semi-annual statutory assessment and are subject to the rules and regulations of
the FDIC. Monarch is a member of the Federal Reserve System and is subject to
certain regulations of the Board. Western is not a member of the Federal Reserve
System, but is nevertheless subject to certain regulations of the Board.
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of Monarch and Western.
State and federal statutes and regulations relate to many aspects of Monarch's
and Western's operations, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends and locations of branch offices. Further, Monarch and Western are
required to maintain certain levels of capital.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to the Company by Monarch and Western. California law
restricts the amount available for cash dividends by state-chartered banks to
the lesser of retained earnings or the bank's net income for its last three
fiscal years (less any distributions to shareholders made during such period).
In the event a bank has no retained
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earnings or net income for its last three fiscal years, cash dividends may be
paid in an amount not exceeding the net income for such bank's last preceding
fiscal year only after obtaining the prior approval of the Superintendent.
The FDIC in the case of Western, and the Board and the FDIC in the case of
Monarch, also have authority to prohibit Western or Monarch, as appropriate,
from engaging in what, in the Board's and/or the FDIC's opinion, constitutes an
unsafe or unsound practice in conducting its business. It is possible, depending
upon the financial condition of the bank in question and other factors, that the
Board and/or the FDIC could assert that the payment of dividends or other
payments might, under some circumstances, be such an unsafe or unsound practice.
Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, its affiliates, the purchase of or investments in stock or other
securities thereof, the taking of such securities as collateral for loans and
the purchase of assets of such affiliates. Such restrictions prevent affiliates
from borrowing from Monarch and/or Western unless the loans are secured by
marketable obligations of designated amounts. Further, such secured loans and
investments by Monarch and/or Western in any other affiliate is limited to 10
percent of such subsidiary bank's capital and surplus (as defined by federal
regulations) and such secured loans and investments are limited, in the
aggregate, to 20% of such subsidiary bank's capital and surplus (as defined by
federal regulations). California law also imposes certain restrictions with
respect to transactions involving other controlling persons of Monarch and
Western. Additional restrictions on transactions with affiliates may be imposed
on Monarch and/or Western under the prompt corrective action provisions of the
FDIC Improvement Act ("FDICIA").
POTENTIAL ACTIONS
Commercial banking organizations, such as Monarch and Western, may be
subject to potential enforcement actions by the Board, the FDIC and the
Superintendent for unsafe or unsound practices in conducting their businesses or
for violations of any law, rule, regulation or any condition imposed in writing
by the agency or any written agreement with the agency. Enforcement actions may
include the imposition of a conservator or receiver, the issuance of a
cease-and-desist order that can be judicially enforced, the termination of
insurance of deposits, the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the imposition of restrictions and sanctions under the prompt
corrective action provisions of FDICIA.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by a bank on its deposits and its
other borrowings and the interest rate received by a bank on loans extended to
its customers and securities held in a bank's portfolio comprise the major
portion of a bank's earnings. These rates are highly sensitive to many factors
that are beyond the control of a bank. Accordingly, the earnings and growth of a
bank are subject to the influence of local, domestic and foreign economic
conditions, including recession, unemployment and inflation.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Board. The Board implements national monetary policies (with objectives such as
curbing inflation and combating recession) by its open-market operations in
United States Government securities, by adjusting the required level of reserves
for financial intermediaries subject to its reserve requirements and by varying
the discount rates applicable to borrowings by depository institutions. The
actions of the Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
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From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
intermediaries. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Company are impossible to predict. Certain of the potentially significant
changes which have been enacted and proposals which have been made recently are
discussed below.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
On December 19, 1991, FDICIA was enacted into law. Set forth below is a
brief discussion of certain portions of this law and implementing regulations
that have been adopted or proposed by the Board, the Comptroller of the Currency
("Comptroller"), the Office of Thrift Supervision ("OTS") and the FDIC
(collectively, the "federal banking agencies").
STANDARDS FOR SAFETY AND SOUNDNESS
FDICIA requires the federal banking agencies to prescribe, by regulation,
standards for all insured depository institutions and depository institution
holding companies relating to internal controls, loan documentation, credit
underwriting, interest rate exposure and asset growth. Standards must also be
prescribed for classified loans, earnings and the ratio of market value to book
value for publicly traded shares. The FDICIA also requires the federal banking
agencies to issue uniform regulations prescribing standards for real estate
lending that are to consider such factors as the risk to the deposit insurance
fund, the need for safe and sound operation of insured depository institutions
and the availability of credit. Further, FDICIA requires the federal banking
agencies to establish standards prohibiting compensation, fees and benefit
arrangements that are excessive or could lead to financial loss.
PROMPT CORRECTIVE REGULATORY ACTION
FDICIA requires each federal banking agency to take prompt corrective action
to resolve the problems of insured depository institutions that fall below one
or more prescribed minimum capital ratios. The purpose of this law is to resolve
the problems of insured depository institutions at the least possible long-term
cost to the appropriate deposit insurance fund.
The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized (significantly exceeding the required minimum capital requirements),
adequately capitalized (meeting the required capital requirements),
undercapitalized (failing to meet any one of the capital requirements),
significantly undercapitalized (significantly below any one capital requirement)
and critically undercapitalized (failing to meet all capital requirements).
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA.
Under the regulations, an insured depository institution will be deemed to be:
- "well capitalized" if it (i) has total risk-based capital of 10 percent or
greater, Tier 1 risk-based capital of 6 percent or greater and a leverage
capital ratio of 5 percent or greater and (ii) is not subject to an order,
written agreement, capital directive or prompt corrective action directive
to meet and maintain a specific capital level for any capital measure;
- "adequately capitalized" if it has total risk-based capital of 8 percent
or greater, Tier 1 risk-based capital of 4 percent or greater and a
leverage capital ratio of 4 percent or greater (or a leverage capital
ratio of 3 percent or greater if the institution is rated composite 1
under the applicable regulatory rating system in its most recent report of
examination);
8
<PAGE>
- "undercapitalized" if it has total risk-based capital that is less than 8
percent, Tier 1 risk-based capital that is less than 4 percent or a
leverage capital ratio that is less than 4 percent (or a leverage capital
ratio that is less than 3 percent if the institution is rated composite 1
under the applicable regulatory rating system in its most recent report of
examination);
- "significantly undercapitalized" if it has total risk-based capital that
is less than 6 percent, Tier 1 risk-based capital that is less than 3
percent or a leverage capital ratio that is less than 3 percent; and
- "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2 percent.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized, may be reclassified to
the next lower capital category if the appropriate federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and federal banking agencies are given less flexibility in
deciding how to address the problems associated with such category.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions, and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers, subject to certain grandfather provisions for those elected prior to
enactment of FDICIA; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal banking
agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required
9
<PAGE>
to force a sale of voting shares or merger, impose restrictions on affiliate
transactions and impose restrictions on rates paid on deposits unless it
determines that such actions would not further the purpose of the prompt
corrective action provisions. In addition, without the prior written approval of
the appropriate federal banking agency, a significantly undercapitalized
institution may not pay any bonus to its senior executive officers or provide
compensation to any of them at a rate that exceeds such officer's average rate
of base compensation during the 12 calendar months preceding the month in which
the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
The FDIC has adopted risk-based minimum capital guidelines intended to
provide a measure of capital that reflects the degree of risk associated with a
banking organization's operations for both transactions reported on the balance
sheet as assets and transactions, such as letters of credit and recourse
arrangements, which are recorded as off-balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off-balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0 percent for assets with low credit risk, such as
certain U.S. Treasury securities, to 100 percent for assets with relatively high
credit risk, such as business loans.
In addition to the risk-based guidelines, the FDIC requires banks to
maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage ratio. For a bank rated in the highest of the five categories used by
the FDIC to rate banks, the minimum leverage ratio of Tier 1 capital to total
assets is 3 percent. For all banks not rated in the highest category, the
minimum leverage ratio must be at least 100 to 200 basis points above the 3
percent minimum, or 4 percent to 5 percent. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the FDIC has the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates on
the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed would
be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency.
In January 1995, the federal banking agencies issued a final rule relating
to capital standards and the risks arising from the concentration of credit and
nontraditional activities. Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional banking activities and
who fail to adequately manage these risks, will be required to set aside capital
in excess of the regulatory minimums. The federal banking agencies have not
imposed any quantitative assessment for determining
10
<PAGE>
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss allowances to classified
assets. The benchmark set forth by such policy statement is the sum of (a)
assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15
percent of assets classified substandard; and (d) estimated credit losses on
other assets over the upcoming 12 months.
OTHER ITEMS
FDICIA also, among other things, (i) limits the percentage of interest paid
on brokered deposits and limits the unrestricted use of such deposits to only
those institutions that are well capitalized; (ii) requires the FDIC to charge
insurance premiums based on the risk profile of each institution; (iii)
eliminates "pass through" deposit insurance for certain employee benefit
accounts unless the depository institution is well capitalized or, under certain
circumstances, adequately capitalized; (iv) prohibits insured state chartered
banks from engaging as principal in any type of activity that is not permissible
for a national bank unless the FDIC permits such activity and the bank meets all
of its regulatory capital requirements; (v) directs the appropriate federal
banking agency to determine the amount of readily marketable purchased mortgage
servicing rights that may be included in calculating such institution's
tangible, core and risk-based capital; and (vi) provides that, subject to
certain limitations, any federal savings association may acquire or be acquired
by any insured depository institution.
In addition, the FDIC has issued final and proposed regulations implementing
provisions of FDICIA relating to powers of insured state banks. Final
regulations issued in October 1992 prohibit insured state banks from making
equity investments of a type, or in an amount, that are not permissible for
national banks. In general, equity investments include equity securities,
partnership interests and equity interests in real estate. Under the final
regulations, non-permissible investments were to be divested by no later than
December 19, 1996. The Banks have no such non-permissible investments.
Regulations issued in December 1993 prohibit insured state banks from
engaging as principal in any activity not permissible for a national bank,
without FDIC approval. The proposal also provides that subsidiaries of insured
state banks may not engage as principal in any activity that is not permissible
for a subsidiary of a national bank, without FDIC approval.
CAPITAL ADEQUACY GUIDELINES
The FDIC has issued guidelines to implement the risk-based capital
requirements. The guidelines are intended to establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, takes off-balance
sheet items into account in assessing capital adequacy and minimizes
disincentives to holding liquid, low-risk assets. Under these guidelines, assets
and credit equivalent amounts of off-balance sheet items, such as letters of
credit and outstanding loan commitments, are assigned to one of several risk
categories, which range from 0 percent for risk-free assets, such as cash and
certain U.S. Government securities, to 100 percent for relatively high-risk
assets, such as loans and investments in fixed assets, premises and other real
estate owned. The aggregated dollar amount of each category is then multiplied
by the risk-weight associated with that category. The resulting weighted values
from each of the risk categories are then added together to determine the total
risk-weighted assets.
A banking organization's qualifying total capital consists of two
components: Tier 1 capital (core capital) and Tier 2 capital (supplementary
capital). Tier 1 capital consists primarily of common stock, related surplus and
retained earnings, qualifying non-cumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1 capital;
however, purchased mortgage servicing rights and purchase credit card
11
<PAGE>
relationships may be included, subject to certain limitations. At least 50
percent of the banking organization's total regulatory capital must consist of
Tier 1 capital.
Tier 2 capital may consist of (i) the allowance for possible loan and lease
losses in an amount up to 1.25 percent of risk-weighted assets; (ii) perpetual
preferred stock, cumulative perpetual preferred stock and long-term preferred
stock and related surplus; (iii) hybrid capital instruments (instruments with
characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or
more, including related surplus, in an amount up to 50 percent of Tier 1
capital. The inclusion of the foregoing elements of Tier 2 capital are subject
to certain requirements and limitations of the federal banking agencies.
The FDIC has also adopted a minimum leverage capital ratio of Tier 1 capital
to average total assets of 3 percent for the highest rated banks. This leverage
capital ratio is only a minimum. Institutions experiencing or anticipating
significant growth or those with other than minimum risk profiles are expected
to maintain capital well above the minimum level. Furthermore, higher leverage
capital ratios are required to be considered well capitalized or adequately
capitalized under the prompt corrective action provisions of FDICIA.
The Regulatory Capital Guidelines as well as the actual capitalization for
Monarch, Western and the Company as of December 31, 1996 follow:
<TABLE>
<CAPTION>
ADEQUATELY WELL COMPANY
CAPITALIZED CAPITALIZED MONARCH WESTERN CONSOLIDATED
----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Detailed computations of
Tier 1 leverage capital ratio..................... 34.00% 35.00% 8.07% 6.05% 5.07%
Tier 1 risk-based capital ratio................... 34.00% 36.00% 13.64% 10.93% 9.05%
Total risk-based capital.......................... 38.00% 310.00% 14.89% 12.19% 10.30%
</TABLE>
SAFETY AND SOUNDNESS STANDARDS
In February 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA. The
guidelines set forth operational and managerial standards relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. Guidelines for asset quality and earnings standards will be
adopted in the future. The guidelines establish the safety and soundness
standards that the agencies will use to identify and address problems at insured
depository institutions before capital becomes impaired. If an institution fails
to comply with a safety and soundness standard, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan or to implement an accepted plan may result in
enforcement action.
In December 1992, the federal banking agency issued final regulations
prescribing uniform guidelines for real estate lending. The regulations require
insured depository institutions to adopt written policies establishing
standards, consistent with such guidelines, for extensions of credit secured by
real estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory limits
prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state-certified or state-licensed appraisers for
transactions in excess of certain amounts. State-certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A
state-licensed appraiser is required for all other appraisals. However,
appraisals performed in connection with "federally related transactions" must
now comply with the federal banking agencies'
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<PAGE>
appraisal standards. Federally related transactions include the sale, lease,
purchase, investment in, or exchange of, real property or interests in real
property, the financing of real property, and the use of real property or
interests in real property as security for a loan or investment, including
mortgage backed securities.
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90 percent of the fair market value of assets of institutions
acquired by the FDIC as receiver from the Federal Financing Bank; and from
depository institutions that are members of the BIF. Any borrowings not repaid
by asset sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.
The FDIC implemented a final risk-based assessment system, as required by
FDICIA, effective January 1, 1994, under which an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," or 1.25
percent, the total amount raised from BIF members by the risk-based assessment
system may not be less than the amount that would be raised if the assessment
rate for all BIF members were .023 percent of deposits. The FDIC, effective
September 15, 1995, lowered assessments from their rates of $.23 to $.31 per
$100 of insured deposits to rates of $.04 to $.31, depending on the condition of
the bank, as a result of the recapitalization of the BIF. On November 15, 1995,
the FDIC voted to drop its premiums for well capitalized banks to zero effective
January 1, 1996. Other banks will be charged risk-based premiums of up to $.27
per $100 of deposits.
Governor Pete Wilson recently signed Assembly Bill 3351 (the "Banking
Consolidation Bill"), authored by Assemblyman Ted Weggeland and sponsored by the
California State Banking Department (the "Department"), effective July 1, 1997,
which creates the California Department of Financial Institutions ("DFI") to be
headed by a Commissioner of Financial Institutions out of the existing
Department which regulates state chartered commercial banks and trust companies
in California.
The Banking Consolidation Bill, among other provisions, also (i) transfers
regulatory jurisdiction over state chartered savings and loan associations from
the Department of Savings and Loans ("DSL") to the newly created DFI and
abolishes the DSL; (ii) transfers regulatory jurisdiction over state chartered
industrial loan companies and credit unions from the Department of Corporations
to the newly-created DFI; and (iii) establishes within the DFI separate
divisions for credit unions, commercial banks, industrial loan companies and
savings and loans. As the Banking Consolidation Bill has only recently been
enacted, it is impossible to predict with any degree of certainty what impact it
will have on the banking industry in general and the Banks in particular.
Congress has recently passed, and President Clinton has signed into law,
provisions to strengthen the Savings Association Insurance Fund (the "SAIF") and
to repay outstanding bonds that were issued to recapitalize the SAIF's successor
as a result of payments made due to the insolvency of savings and loan
associations and other federally insured savings institutions in the late 1980's
and early 1990's. The new law required savings and loan associations to bear the
cost of recapitalizing the SAIF and, after January 1, 1997, banks must
contribute towards paying off the financing bonds, including interest. In 2000,
the banking industry will assume the bulk of the payments. The new law also aims
to merge the Bank Insurance Fund and SAIF by 1999 but not until the bank and
savings and loan charters are combined. The Treasury Department has until March
31, 1997 to deliver to Congress comments and recommendations on combining the
charters. Additionally, the new law provides "regulatory relief" for the banking
industry by
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<PAGE>
eliminating approximately 30 laws and regulations. The costs and benefits of the
new law to the Banks can not currently be accurately predicted.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
Under the Interstate Act, beginning one year after the date of enactment, a bank
holding company that is adequately capitalized and managed may obtain regulatory
approval to acquire an existing bank located in another state without regard to
state law. A bank holding company would not be permitted to make such an
acquisition if, upon consummation, it would control (a) more than 10% of the
total amount of deposits of insured depository institutions in the United States
or (b) 30% or more of the deposits in the state in which the bank is located. A
state may limit the percentage of total deposits that may be held in that state
by any one bank or bank holding company if application of such limitation does
not discriminate against out-of-state banks. An out-of-state bank holding
company may not acquire a state bank in existence for less than a minimum length
of time that may be prescribed by state law except that a state may not impose
more than a five year existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirement and conditions as for a merger
transaction. Effective October 2, 1995, California adopted legislation which
"opts California into" the Interstate Act. However, the California Legislation
restricts out-of-state banks from purchasing branches or starting a de novo
branch to enter the California banking market. Such banks may proceed only by
way of purchases of whole banks.
The Interstate Act is likely to increase competition in the Banks' market
areas especially from larger financial institutions and their holding companies.
It is difficult to assess the impact such increased competition will likely have
on the Banks' operations.
On September 28, 1995, Governor Wilson signed Assembly Bill 1482, the
Caldera, Weggeland, and Killea California Interstate Banking and Branching Act
of 1995 (the "1995 Act"). The 1995 Act, which was filed with the Secretary of
State as Chapter 480 of the California Statutes of 1995, became operative on
October 2, 1995.
The 1995 Acts opts in early for interstate branching, allowing out-of-state
banks to enter California by merging or purchasing a California bank or
industrial loan company which is at least five years old. Also, the 1995 Act
repeals the California Interstate (National) Banking Act of 1986, which
regulated the acquisition of California banks by out-of-state bank holding
companies. In addition, the 1995 Act permits California state banks, with the
approval of the Superintendent of Banks, to establish agency relationships with
FDIC-insured banks and savings associations. Finally, the 1995 Act provides for
regulatory relief, including (i) authorization for the Superintendent to exempt
banks from the requirement of obtaining approval before establishing or
relocating a branch office or place of business, (ii) repeal of the requirement
of directors' oaths (California Financial Code Section 682), and (iii) repeal of
the aggregate limit on real estate loans (California Financial Code Section
1230).
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<PAGE>
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting the
credit needs of their local community, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institutions' actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements. In March 1994, the Federal Interagency Tax Force on
Fair Lending issued a policy statement on discrimination in lending. The policy
statement describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.
HAZARDOUS WASTE CLEAN-UP COSTS
Management is aware of recent legislation and cases relating to hazardous
waste clean-up costs and potential liability. Based on a general survey of the
loan portfolios of both Monarch and Western, conversations with local
authorities and appraisers, and the type of lending currently and historically
done by Monarch and Western (Monarch and Western have generally not made the
types of loans generally associated with hazardous waste contamination
problems), Management is not aware of any potential liability for hazardous
waste contamination.
OTHER REGULATIONS AND POLICIES
Various requirements and restrictions under the laws of the United States
and the State of California affect the operations of the Banks. Federal
regulations include requirements to maintain non-interest bearing reserves
against deposits, limitations on the nature and amount of loans which may be
made, and restrictions on payment of dividends. The Superintendent approves the
number and locations of the branch offices of a bank. California law exempts
banks from the usury laws.
MARKET AREA
Western's market area is the western side of Los Angeles with one office in
the San Fernando Valley. These communities are generally very affluent with an
excellent base of small to medium sized businesses and law firms which provide
services to the entertainment industry. This market area includes new
construction lending, retail banking opportunities and commercial banking for
small businesses, professionals and some light industry.
Monarch's main market area, Laguna Niguel, is located in southern Orange
County. It is a typical Southern California "bedroom" community with over 50,000
residents. Monarch also provides services to similar neighboring communities
including Mission Viejo, Dana Point, San Juan Capistrano, Laguna Beach, San
Clemente, Laguna Hills, and Aliso Viejo. There is no one dominant business
segment and a majority of the residents work outside of the immediate service
areas. This market area includes both retail banking opportunities and
commercial banking for small businesses, professionals and some light industry.
The Company's market areas in the past five years have felt the full impact
of the recession that continued in some areas of California through 1996. The
impact of the recession has been felt through the progressive loss of jobs as
defense contractors cut back and restructure; in declines in construction
activity;
15
<PAGE>
cutbacks in the aerospace industry and in the closing of more than the normal
number of small businesses. Real estate values have substantially declined with
some properties dropping by 20% to 30% depending on location and price range and
in correlation to increases in unemployment statistics. Most recent economic
reports in 1996, however, point to decreases in unemployment and some increases
in both sales volume and prices of real estate.
BUSINESS CONCENTRATIONS
As of December 31, 1996, Monarch had approximately $80 million in assets and
$73 million in deposits, and Western had approximately $431 million in assets
and $375 million in deposits. No individual or single group of related accounts
is considered material in relation to Monarch's, Western's or the Company's
totals, or in relation to its overall business.
COMPETITION
The banking business in California generally, and in Monarch's and Western's
primary service areas specifically, is highly competitive with respect to both
loans and deposits, and is dominated by a relatively small number of major banks
with many offices and operations over a wide geographic area. Among the
advantages such major banks have over Monarch and Western are their ability to
finance and engage in wide-ranging advertising campaigns and to allocate their
investment assets to regions of higher yield and demand. Such banks offer
certain services such as trust services and international banking which are not
offered directly by Monarch or Western (but which can be offered indirectly by
Monarch and Western through correspondent institutions). In addition, by virtue
of their greater total capitalization, such banks have substantially higher
lending limits than Monarch and Western. (Legal lending limits to an individual
customer are based upon a percentage of a bank's total capital accounts.) Other
entities, both governmental and in private industry, seeking to raise capital
through the issuance and sale of debt or equity securities also provide
competition for Monarch and Western in the acquisition of deposits. Banks also
compete with money market funds and other money market instruments which are not
subject to interest rate ceilings.
In order to compete with other competitors in their primary service areas,
Monarch and Western attempt to use to the fullest extent possible the
flexibility which the Company's independent status permits. This includes an
emphasis on specialized services, local promotional activity, and personal
contacts by their respective officers, directors and employees. In particular,
each of the Banks offers highly personalized banking services.
EMPLOYEES
As of January 31, 1997, Monarch had 48 full time equivalent employees,
Western had 109 full time equivalent employees and the Company had 3 full time
equivalent employees.
M. B. MORTGAGE COMPANY, INC.
M.B. Mortgage Company, Inc. was incorporated under California law on
November 8, 1983, and is wholly-owned by Monarch Bank. The company is inactive.
STATISTICAL DISCLOSURE
The following tables and data set forth statistical information relating to
the Company and its subsidiaries. This statistical data should be read in
conjunction with MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (ITEM 6) and the CONSOLIDATED FINANCIAL STATEMENTS (ITEM
7) included elsewhere herein. Data provided includes the accounts and results of
Western as of dates, and for periods, subsequent to the September 30, 1996
acquisition only.
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<PAGE>
The following summary should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1996(1) 1995 1994 1993 1992
------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONDENSED STATEMENT OF OPERATIONS DATA:
Interest income................................... $ 12,497 $ 4,491 $ 3,938 $ 4,348 $ 5,028
Interest expense.................................. 3,952 1,148 947 1,148 1,632
------------ ---------- ---------- ---------- ---------
Net interest income............................... 8,545 3,343 2,991 3,200 3,396
Provision for loan losses......................... 228 425 995 1,280 67
Non-interest income (other than gains or losses on
securities transactions)........................ 1,108 933 696 920 999
Gains (losses) on securities transactions......... 267 -- (47) 40 --
Non-interest expense other than OREO expense...... 8,753 3,602 4,251 4,134 4,037
OREO expense (income)............................. (151) 62 243 86 82
------------ ---------- ---------- ---------- ---------
Income (loss) before taxes...................... 1,090 187 (1,849) (1,340) 209
Income tax expense (benefit)...................... 352 (496) 2 2 34
------------ ---------- ---------- ---------- ---------
Net income (loss)............................... $ 738 $ 683 $ (1,851) $ (1,342) $ 175
------------ ---------- ---------- ---------- ---------
------------ ---------- ---------- ---------- ---------
PER SHARE DATA:
Net income (loss) per share....................... $ 0.05 $ 0.13 $ (2.33) $ (1.71) $ 0.25
Cash dividends declared........................... -- -- -- -- --
Book value per share.............................. $ 1.57 $ 1.34 $ 0.88 $ 3.68 $ 5.27
Shares used to compute net income (loss) per
share........................................... 14,974,918 5,071,000 794,300 786,000 712,000
------------ ---------- ---------- ---------- ---------
------------ ---------- ---------- ---------- ---------
BALANCE SHEET DATA:
Assets............................................ $ 512,361 $ 70,101 $ 59,974 $ 67,119 $ 68,499
Loans............................................. 261,055 32,650 31,040 35,369 46,233
Securities........................................ 164,724 28,665 16,138 18,198 7,284
Interest-earning assets........................... 429,996 64,451 54,452 62,303 56,102
Goodwill.......................................... 29,342 -- -- -- --
Deposits.......................................... 442,984 58,742 58,643 63,715 63,963
Notes payable and other borrowings................ 11,000 132 173 211 250
Shareholders' equity.............................. 54,128 10,997 702 2,923 3,888
------------ ---------- ---------- ---------- ---------
------------ ---------- ---------- ---------- ---------
ASSET QUALITY:
Nonaccrual loans.................................. $ 9,315 $ 345 $ 431 $ 2,847 $ 737
OREO.............................................. 3,889 150 617 1,293 699
------------ ---------- ---------- ---------- ---------
Total nonaccrual loans and OREO................. $ 13,204 $ 495 $ 1,048 $ 4,140 $ 1,436
------------ ---------- ---------- ---------- ---------
------------ ---------- ---------- ---------- ---------
PERFORMANCE RATIOS:
Return on average assets.......................... 0.40% 1.08% (2.92%) (1.96%) 0.28%
Return on average shareholders' equity............ 3.37% 9.91% (74.55%) (33.22%) 4.41%
Net interest spread............................... 4.43% 4.98% 5.02% 4.83% 5.05%
Net interest margin............................... 5.43% 5.84% 5.34% 5.20% 5.87%
Average shareholders' equity to average assets.... 11.85% 10.92% 3.92% 5.90% 6.24%
ASSET QUALITY RATIOS:
Nonaccrual loans to gross loans................... 3.57% 1.06% 1.39% 8.05% 1.59%
Nonaccrual loans and OREO to total assets......... 2.58% 0.71% 1.75% 6.17% 2.10%
Allowance for loan losses to total loans.......... 2.07% 2.62% 3.66% 2.99% 1.24%
Allowance for loan losses to nonaccrual loans..... 58% 248% 264% 37% 78%
Net charge-offs to average loans.................. 0.99% 2.46% 2.82% 1.96% 0.47%
</TABLE>
- ------------------------
(1) Includes the accounts and operating results of Western since the September
30, 1996 acquisition date.
17
<PAGE>
INTEREST RATES AND INTEREST RATE DIFFERENTIALS
The Company's consolidated earnings depend primarily upon the difference
between the income the Banks receive from their loan portfolios and investment
securities, and their cost of funds, including principally interest paid on
savings and time deposits. Interest rates charged on the Banks' loans are
influenced principally by the demand for such loans, the supply of money for
lending purposes, and competitive factors. These factors are, in turn, affected
by general economic conditions and other factors beyond the Banks' control, such
as federal economic and tax policies, the general supply of money in the
economy, governmental budgetary actions, and the actions of the Board.
The following table provides information on net interest income for the past
three fiscal years, setting forth average balances of interest-earnings assets
and interest-bearing liabilities, the income earned and expense recorded thereon
and the resulting average yield-cost ratios (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATES AND INTEREST RATE DIFFERENTIALS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996
------------------------------------ 1995
AVERAGE --------------------------------------
BALANCE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
(1) EXPENSE YIELD/ COST BALANCE (1) EXPENSE YIELD/ COST
--------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks..... $ 53 $ 3 5.66% $ 1,016 $ 43 4.23%
Securities held to maturity.............. 8,011 516 6.44% 6,538 429 6.56%
Securities available for sale............ 51,588 3,167 6.14% 14,227 589 4.14%
Federal funds sold....................... 11,659 604 5.18% 6,676 376 5.63%
Loans (net)(2)........................... 86,190 8,207 9.52% 28,808 3,054 10.60%
--------- ----------- ----------- -----------
INTEREST EARNING ASSETS................ 157,501 12,497 7.93% 57,265 4,491 7.84%
----------- --- ----------- -----
NON INTEREST-EARNING ASSETS:
Cash and due from banks.................. 11,616 3,725
Premises and equipment (net)............. 1,894 630
Other real estate owned.................. 1,366 490
Goodwill................................. 7,419 --
Other assets............................. 4,910 970
--------- -----------
TOTAL ASSETS........................... $ 184,706 $ 63,080
--------- -----------
--------- -----------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits......... $ 71,920 $ 2,068 2.88% $ 25,106 $ 533 2.12%
Savings deposits......................... 8,469 194 2.29% 5,312 110 2.07%
Time deposits............................ 29,863 1,499 5.02% 9,655 504 5.22%
Federal funds purchased.................. 5 -- -- -- -- --
Other borrowings......................... 2,750 191 6.95% 9 1 11.11%
--------- ----------- ----------- -----------
INTEREST BEARING LIABILITIES........... $ 113,007 3,952 3.50% 40,082 1,148 2.86%
----------- --- ----------- -----
NON INTEREST-BEARING LIABILITIES AND
EQUITY:
Non-interest bearing demand.............. 47,724 15,545
Non-interest bearing liabilities......... 2,089 564
Shareholders' equity..................... 21,886 6,889
--------- -----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY............................... $ 184,706 $ 63,080
--------- -----------
--------- -----------
Net interest income...................... $ 8,545 $ 3,343
----------- -----------
----------- -----------
Net interest margin on interest-bearing
assets(3).............................. 5.43% 5.84%
--- -----
--- -----
Net interest spread...................... 4.43% 4.98%
--- -----
--- -----
<CAPTION>
1994
--------------------------------------
AVERAGE INCOME/ AVERAGE
BALANCE (1) EXPENSE YIELD/ COST
----------- ----------- ------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks..... $ 2,712 $ 111 4.09%
Securities held to maturity.............. 5,508 258 4.68%
Securities available for sale............ 11,537 536 4.65%
Federal funds sold....................... 3,817 155 4.06%
Loans (net)(2)........................... 32,397 2,878 8.88%
----------- -----------
INTEREST EARNING ASSETS................ 55,971 3,938 7.04%
----------- ---
NON INTEREST-EARNING ASSETS:
Cash and due from banks.................. 3,993
Premises and equipment (net)............. 730
Other real estate owned.................. 1,313
Goodwill................................. --
Other assets............................. 1,302
-----------
TOTAL ASSETS........................... $ 63,309
-----------
-----------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits......... $ 32,590 $ 568 1.74%
Savings deposits......................... 7,369 153 2.08%
Time deposits............................ 6,872 224 3.26%
Federal funds purchased.................. -- -- --
Other borrowings......................... 54 2 3.70%
----------- -----------
INTEREST BEARING LIABILITIES........... 46,885 947 2.02%
----------- ---
NON INTEREST-BEARING LIABILITIES AND
EQUITY:
Non-interest bearing demand.............. 13,558
Non-interest bearing liabilities......... 383
Shareholders' equity..................... 2,483
-----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY............................... $ 63,309
-----------
-----------
Net interest income...................... $ 2,991
-----------
-----------
Net interest margin on interest-bearing
assets(3).............................. 5.34%
---
---
Net interest spread...................... 5.02%
---
---
</TABLE>
- ------------------------------
(1) Average balances are primarily computed on daily balances during the period.
When such balances are not available, averages are computed on a monthly
basis. Average balances include the effect of discounts and premiums on
loans, investment securities, deposits and borrowings acquired in
acquisitions, as well as deferred loan fees.
(2) Non accrual loans are included in the average balances for the periods;
however, interest on such loans has been excluded in computing the average
yields for the periods.
(3) The net interest margin on interest-bearing assets for a period is net
interest income divided by average interest-earning assets.
18
<PAGE>
The following table sets forth changes in interest income and interest
expense, and the amount of change attributable to variances in volume, rates and
the combination of volume and rates. The Company has no tax-exempt assets.
<TABLE>
<CAPTION>
INTEREST RATES AND INTEREST RATE DIFFERENTIALS
(IN THOUSANDS)
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 COMPARED TO 1995 1995 COMPARED TO 1994
---------------------------------------------- --------------------------
CHANGE DUE
CHANGE DUE TO TO
TOTAL --------------------------------- TOTAL -----------
INCREASE VOLUME & INCREASE
(DECREASE) VOLUME RATE RATE (DECREASE) VOLUME
----------- --------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans....................... $ 5,153 $ 6,083 $ (311) $ (619) $ 176 $ (319)
Interest bearing deposits with banks............. (40) (41) 15 (14) (68) (69)
Securities held to maturity...................... 87 97 (8) (2) 171 48
Securities available for sale.................... 2,578 1,547 284 747 53 125
Federal funds sold............................... 228 281 (30) (23) 221 116
----------- --------- --------- ----------- ------ -----------
Total interest income...................... 8,006 7,967 (47) 86 553 (99)
INTEREST EXPENSE:
Interest bearing demand deposits................. 1,535 994 189 352 (35) (131)
Savings deposits................................. 84 65 12 7 (43) (43)
Time deposits.................................... 995 1,055 (19) (41) 280 91
Federal funds purchased.......................... -- -- -- -- -- --
Other borrowings................................. 190 305 0 (115) (1) (2)
----------- --------- --------- ----------- ------ -----------
Total interest expense....................... 2,804 2,419 182 203 201 (85)
----------- --------- --------- ----------- ------ -----------
Net interest income........................ $ 5,202 $ 5,548 $ (229) $ (117) $ 352 $ (15)
----------- --------- --------- ----------- ------ -----------
----------- --------- --------- ----------- ------ -----------
<CAPTION>
VOLUME &
RATE RATE
--------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans....................... $ 556 $ (61)
Interest bearing deposits with banks............. 4 (3)
Securities held to maturity...................... 103 20
Securities available for sale.................... (58) (14)
Federal funds sold............................... 60 45
--------- -----
Total interest income...................... 665 (13)
INTEREST EXPENSE:
Interest bearing demand deposits................. 125 (29)
Savings deposits................................. 0 --
Time deposits.................................... 135 54
Federal funds purchased.......................... -- --
Other borrowings................................. 4 (3)
--------- -----
Total interest expense....................... 264 22
--------- -----
Net interest income........................ $ 401 $ (35)
--------- -----
--------- -----
</TABLE>
SECURITIES
The fair value of securities available for sale at the dates indicated are
summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
US Government Securities..................................................... $ 132,192 $ 4,871 $ --
US Agency Securities......................................................... 7,709 5,578 997
Mortgage-backed Securities................................................... 5,554 2,131 5,593
US Government Mutual Fund.................................................... 4,468 9,240 5,191
Other securities............................................................. 7,531 184 --
---------- ---------- ----------
$ 157,454 $ 22,004 $ 11,781
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The US Government Mutual Fund represents shares held in the Monarch Fund, a
mutual fund wholly comprised of US Government obligations. The Monarch Fund is
not a related entity to Monarch Bancorp or any of its subsidiaries.
The acquisition of Western added $141 million to securities available for
sale at December 31, 1996. The increase of $10 million from December 31, 1994 to
December 31, 1995 primarily resulted from the proceeds of the two common stock
offerings in 1995.
19
<PAGE>
The following table shows the maturities of debt securities available for
sale at December 31, 1996 (Dollars in thousands):
<TABLE>
<CAPTION>
1 YEAR 5 YEARS
TOTAL 1 YEAR OR LESS THRU 5 YEARS THRU 10 YEARS
--------------------- ----------------------- ----------------------- -----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Government Securities.......... $ 132,190 5.80% $ 44,051 5.60% $ 87,615 5.90% $ -- --
US Agency Securities.............. 7,709 6.52% 1,000 6.78% 5,466 6.39% 573 7.03%
Mortgage-backed Securities........ 5,554 6.61% -- -- -- -- 984 6.42%
Other securities.................. 6,028 5.74% 6,028 5.74% -- -- -- --
--------- ----------- ----------- -----------
Total......................... $ 151,481 5.86% $ 51,079 5.64% $ 93,081 5.93% $ 1,557 6.64%
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Amortized Cost................ $ 151,453 $ 50,977 $ 93,184 $ 1,570
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
<CAPTION>
OVER 10 YEARS
-----------------------
AMOUNT YIELD
----------- ----------
<S> <C> <C>
US Government Securities.......... $ 524 5.40%
US Agency Securities.............. 670 6.80%
Mortgage-backed Securities........ 4,570 6.65%
Other securities.................. -- --
-----------
Total......................... $ 5,764 6.55%
-----------
-----------
Amortized Cost................ $ 5,722
-----------
-----------
</TABLE>
The carrying amounts of the debt securities held to maturity at the dates
indicated are summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
US Government Securities............................................................. $ 1,147 $ 485 $ 2,849
US Agency Securities................................................................. 4,202 4,500 1,508
Mortgage-backed Securities........................................................... 1,921 1,676 --
--------- --------- ---------
$ 7,270 $ 6,661 $ 4,357
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table shows the maturities of debt securities held to maturity
at December 31, 1996 (Dollars in thousands):
<TABLE>
<CAPTION>
5 YEARS
1 YEAR THRU 10
TOTAL 1 YEAR OR LESS THRU 5 YEARS YEARS
----------------------- ----------------------- ----------------------- -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
US Government Securities.......... $ 1,147 5.78% $ 250 6.98% $ 607 5.54% $ 290
US Agency Securities.............. 3,989 6.31% -- -- 3,989 6.31% --
Mortgage-backed Securities........ 1,921 7.02% -- -- 931 6.30% --
----------- ----- ----------- -----
Total......................... $ 7,057 6.42% $ 250 6.98% $ 5,527 6.23% $ 290
----------- ----- ----------- -----
----------- ----- ----------- -----
Fair Value.................... $ 7,034 $ 250 $ 5,519 $ 298
----------- ----- ----------- -----
----------- ----- ----------- -----
<CAPTION>
OVER 10 YEARS
-----------------------
YIELD AMOUNT YIELD
---------- ----------- ----------
<S> <C> <C> <C>
US Government Securities.......... 5.26% $ -- --
US Agency Securities.............. -- -- --
Mortgage-backed Securities........ -- 990 7.69%
-----
Total......................... 5.26% $ 990 7.69%
-----
-----
Fair Value.................... $ 967
-----
-----
</TABLE>
At December 31, 1996, the Company did not have investments in securities
issued by any one non-federal issuer which exceeded 10% of shareholders' equity.
As part of its investment portfolios, the Banks may hold derivative
securities. Three Collateralized Mortgage Obligations (CMO's) were held in the
held to maturity portfolio at Monarch as of December 31, 1996. These FNMA and
FHLMC securities have a carrying value of $1.921 million and a current market
value of $1.883 million as of December 31, 1996. The weighted average yield of
these investments was 7.02% and the weighted average life was 1.69 years as of
December 31, 1996. All three CMO's have been tested no less than annually using
the FFIEC "High Risk Security Test," and each of the securities have passed the
tests. This stress test is used by bank regulators to assess relative CMO's
investment risks. A security that passes is not considered to be "high-risk;" a
security that fails the test may be subject to additional regulatory scrutiny
and under the most severe case, the bank could be asked to sell the security.
Western holds $3 million in FNMA Multi Step securities with a weighted
average yield of 6.38% as of December 31, 1996. The securities do not have a
call date or repricing date in the remainder of 1997 and all will mature in
October 1998.
20
<PAGE>
LOAN PORTFOLIO
The following table sets forth the amount of loans outstanding at the end of
the following periods, according to type of loan. The Company's lending
activities are predominantly in Southern California. The Company has no
agricultural or foreign loans.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Real estate construction.................................. $ 24,666 $ 2,033 $ 4,032 $ 5,061 $ 12,097
Real estate mortgage...................................... 128,026 11,675 12,226 12,138 13,765
Commercial................................................ 101,177 16,758 12,089 14,036 15,033
Installment............................................... 7,186 2,184 2,693 4,134 5,338
---------- --------- --------- --------- ---------
GROSS LOANS........................................... 261,055 32,650 31,040 35,369 46,233
Less:
Deferred loan fees...................................... (939) (130) (52) (118) (195)
Allowance for loan losses............................... (5,393) (854) (1,137) (1,056) (575)
---------- --------- --------- --------- ---------
NET LOANS........................................... $ 254,723 $ 31,666 $ 29,851 $ 34,195 $ 45,463
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
The acquisition of Western added $216 million to gross loans, $785 thousand
to deferred loan fees and $4.3 million to the allowance for loan losses at
December 31, 1996.
With certain exceptions, a bank is permitted under California law to make
loans to a single borrower in aggregate amounts up to 25 percent of the sum of
shareholders' equity (excluding goodwill and effect of adjustments for FAS 115),
allowance for loan losses, capital reserves, if any, and debentures, if any, for
secured loans (as defined for regulatory purposes), and up to 15 percent of such
sum for the aggregate of unsecured loans (as defined). As of December 31, 1996
these lending limits for the Company were approximately $7.5 million for secured
loans, and approximately $4.5 million for unsecured loans. The Company sells
participations in loans where necessary to stay within lending limits or to
otherwise limit the Company's exposure in particular credits. Where deemed
appropriate to better utilize available funds, the Company may purchase
participations in loans.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The loan maturities shown in the table below are based on contractual
maturities. As is customary in the banking industry, loans that meet sound
underwriting criteria can be renewed by mutual agreement between the Company and
the borrower. Because the Company is unable to estimate the extent to which its
borrowers will renew their loans, the table below is based on contractual
maturities at December 31, 1996:
<TABLE>
<CAPTION>
ONE YEAR
ONE YEAR THROUGH 5 OVER
OR LESS YEARS 5 YEARS TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Real estate construction........................................... $ 22,832 $ 559 $ 1,275 $ 24,666
Real estate mortgage............................................... 37,702 56,373 33,951 128,026
Commercial......................................................... 45,507 31,426 24,244 101,177
Installment........................................................ 3,790 2,898 498 7,186
---------- --------- --------- ----------
$ 109,831 $ 91,256 $ 59,968 $ 261,055
---------- --------- --------- ----------
---------- --------- --------- ----------
Loans maturing after one year with:
Fixed interest rates............................................. $ 26,253 $ 21,319
Variable interest rates.......................................... 65,003 38,649
--------- ---------
$ 91,256 $ 59,968
--------- ---------
--------- ---------
</TABLE>
21
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table shows the Company's nonaccrual, past due and
restructured loans.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993 1992 (1)
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Nonaccrual loans:
Real Estate Construction....................................... $ 164 $ 172 $ -- $ 1,650
Real Estate Mortgage........................................... 8,323 160 162 991
Commercial..................................................... 755 12 223 206
Installment.................................................... 73 1 46 --
--------- --------- --------- --------- -----------
Total...................................................... $ 9,315 $ 345 $ 431 $ 2,847 $ 737
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Total nonaccrual loans as a percentage of total loans............ 3.57% 1.06% 1.39% 8.05% 1.59%
Allowance for loan losses to nonaccrual loans.................... 58% 248% 264% 37% 78%
Loans past due 90 days or more on accrual status:
Real Estate Mortgage........................................... $ -- $ -- $ 199 $ 124
Commercial..................................................... -- -- 163 375
Installment.................................................... -- -- -- 6
--------- --------- --------- --------- -----------
Total...................................................... $ -- $ -- $ 362 $ 505 $ 132
RESTRUCTURED LOANS:
On accrual status.............................................. $ -- $ -- $ -- $ -- $ --
On nonaccrual status........................................... 3,870 168 -- -- --
--------- --------- --------- --------- -----------
Total...................................................... $ 3,870 $ 168 $ -- $ -- $ --
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
- ------------------------
(1) Detailed information is not available
The large increase in nonaccrual loans occurred at Western due to three
large real estate mortgage loans totaling $7.6 million that were added to the
nonaccrual list in the fourth quarter of 1996. These three loans were all
internally classified by Management prior to being put on nonaccrual. All three
of the loans are secured by first trust deeds on real estate properties.
Although Western's percentage of the allowance for loan losses to nonaccrual
loans decreased from 135 percent at December 31, 1995 to 47 percent at December
31, 1996, Western's percentage of the allowance for loan losses to internally
classified loans at December 31, 1996 was comparable to December 31, 1995.
Monarch's nonaccrual loans decreased by $178 thousand from December 31, 1995 to
December 31, 1996. The table below summarizes the changes in nonaccrual loans
for the years ended December 31, 1996 and 1995.
22
<PAGE>
CHANGES IN NONACCRUAL LOANS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
NONACCRUAL LOANS
Balance, beginning of the year.................................................................. $ 345 $ 431
Acquisition of Western.......................................................................... 2,487
Loans placed on nonaccrual...................................................................... 8,476 919
Charge-offs..................................................................................... (456) (625)
Loans returned to accrual status................................................................ (363) (25)
Repayments (including interest applied to principal)............................................ (349) (83)
Transfers to OREO............................................................................... (825) (272)
--------- ---------
Balance, end of year............................................................................ $ 9,315 $ 345
--------- ---------
--------- ---------
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
INTEREST ON NONACCRUAL LOANS
Interest that would have been collected on nonaccrual loans..................................... $ 279 $ 17
--------- ---------
--------- ---------
Interest collected on nonaccrual loans.......................................................... $ 1 $ 24
--------- ---------
--------- ---------
</TABLE>
There are no commitments to lend additional funds to borrowers listed as
nonaccrual or past due 90 days or more.
The Company's policy concerning non-performing loans is to cease accruing
interest, and to charge off all accrued and unpaid interest on loans which are
past due as to principal and/or interest for at least 90 days, or at such
earlier time as management determines timely collection of the interest to be in
doubt; except that in certain circumstances accrued interest is not charged off
on adequately secured loans which are deemed by management to be fully
collectible. Additionally, loans which are 90 days or more past due may continue
accruing interest if they are both well secured and in the process of being
collected.
The Company has not been active in areas that involve hazardous waste, and
based on portfolio reviews by the Company and during credit reviews during
regulatory examinations, no loans have been identified that would appear to be
of concern because of hazardous material.
POTENTIAL PROBLEM LOANS
Except as noted above, as of March 15, 1997 management is not aware of any
borrowers who are experiencing severe financial difficulties, or in the normal
course of business, represent any identified loss potential. The Banks monitor
all loans and complete a monthly internal watch list, which is inclusive of both
loans past due and/or borrowers that have been identified as having special
difficulties.
LOAN CONCENTRATIONS
The Banks' loan portfolios are diverse, and there are no specific
concentrations to any one borrower or group of borrowers that are engaged in
similar activities which would cause them to be similarly impacted by economic
or other considerations.
23
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes loan balances, loans charged off, the
provision for loan losses charged to expense, the allowance, and loan
recoveries.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Allowance for loan losses:
Balance at the beginning of the year...................... $ 854 $ 1,137 $ 1,056 $ 575 $ 715
---------- --------- --------- --------- ---------
Loans charged off:
Real estate mortgage.................................. 427 278 796 60 90
Real estate construction.............................. -- -- -- 75 70
Commercial............................................ 396 401 167 599 46
Installment........................................... 45 38 29 81 33
---------- --------- --------- --------- ---------
Total loans charged-off........................... 868 717 992 815 239
---------- --------- --------- --------- ---------
Recoveries on loans charged-off:
Real estate mortgage.................................... -- 5 40 8 --
Commercial.............................................. 18 3 33 5 14
Installment............................................. -- 1 5 3 18
---------- --------- --------- --------- ---------
Total recoveries on loans charged-off................. 18 9 78 16 32
---------- --------- --------- --------- ---------
Net loans charged off................................. 850 708 914 799 207
Provision charged to operating expense.................... 228 425 995 1,280 67
Addition to allowance due to:
Acquisition of Western................................ 5,041 -- -- -- --
Loan portfolio purchases.............................. 120 -- -- -- --
---------- --------- --------- --------- ---------
Balance at the end of the year............................ $ 5,393 $ 854 $ 1,137 $ 1,056 $ 575
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Loans:
Average loans outstanding during year................... $ 86,190 $ 28,808 $ 32,397 $ 40,774 $ 44,452
Total loans at end of year.............................. $ 261,055 $ 32,650 $ 31,040 $ 35,370 $ 46,233
Ratios:
Net loans charged off to average loans.................. 0.99% 2.46% 2.82% 1.96% 0.47%
Allowance as a percent of end of year loans............. 2.07% 2.62% 3.66% 2.99% 1.24%
</TABLE>
The Banks' local markets were very severely affected by the recession in
1993 and 1994 and, in several instances borrowers who had never reported
financial difficulties or were past due declared bankruptcy.
Although the allowance as a percent of end of year loans has declined since
1994, loans charged off to average loans has also decreased significantly. Loans
charged off in 1996 primarily were Western charge-offs in the fourth quarter of
1996. These charge-offs represent Western loans that had specific valuation
allowance allocated at September 30, 1996 but were charged off by management of
the Company subsequent to the acquisition of Western.
From 1994 to 1995 for Monarch and from 1996 for Western, the level of
classified loans as a result of Regulatory examinations dropped significantly.
There was no Regulatory examination at Monarch in 1996.
24
<PAGE>
The following table reflects management's allocation of the allowance for
loan losses by loan category and the ratio of loans in each category to total
loans at December 31 for each of the last five years:
<TABLE>
<CAPTION>
ALLOWANCE AS OF DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real estate construction.......................................... $ 371 $ 25 $ 50 $ 63 $ 151
Real estate mortgage.............................................. 2,708 145 257 678 102
Commercial........................................................ 1,694 587 635 175 225
Installment....................................................... 82 27 34 52 66
Not Allocated..................................................... 538 70 161 88 31
--------- --------- --------- --------- ---------
Total allowance for loan losses............................. $ 5,393 $ 854 $ 1,137 $ 1,056 $ 575
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
PERCENT OF LOANS TO TOTAL LOANS
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate construction.......................................... 9% 6% 13% 14% 25%
Real estate mortgage.............................................. 49% 36% 39% 34% 30%
Commercial........................................................ 39% 51% 39% 40% 33%
Installment....................................................... 3% 7% 9% 12% 12%
--------- --------- --------- --------- ---------
Total Loans................................................. 100% 100% 100% 100% 100%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The allowance allocated to the loan categories shown above is based on
previous loan loss experience, the level of nonaccrual loans, management's
review of classified loans and evaluation of the current loan portfolio, and
anticipated economic conditions. While the allowance is allocated to specific
loans and to portfolio segments, the allowance is general in nature and is
available for the portfolio in its entirety.
At December 31, 1996 the Company had identified impaired loans with a
recorded investment of $9,574 thousand. An allowance of $541 thousand,
representing the difference between the value of collateral supporting the loans
and their outstanding balance is included in the allowance for loan losses. The
Company's policy is to record cash receipts received on nonaccrual loans first
as reductions to principal and then to interest income. For further information
see note 5 of notes to consolidated financial statements.
Monarch has established a monitoring system for its loans in order to
identify impaired loans and potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the allowance for loan losses in a
timely manner. The monitoring system and allowance methodology have evolved over
a period of years and, while management has disagreed on occasion with certain
regulatory examination classifications, such classifications have been
incorporated into the determination of the allowance for loan losses. Although
the same basic monitoring system and allowance methodology have been in place
since the beginning of 1994, it was reviewed and enhanced in late 1994 and early
1995 to be responsive to the regulatory orders issued in December 1994 and other
regulatory suggestions from time to time. This monitoring system and allowance
methodology include a loan-by-loan analysis for all classified loans as well as
loss factors for the balance of the portfolio that are based on migration
analysis relative to the unclassified portfolio. This analysis includes such
factors as historical loss experience, current portfolio delinquency and trends,
recent regulatory information, and other inherent risk factors such as economic
conditions, and risk levels of classified loans and particular loan categories.
Western also has established a monitoring system for its loans in order to
identify impaired loans, and potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the allowance for loan losses. The
system, established in early 1996, includes a loan-by-loan analysis for all
classified loans as well as loss factors for the balance of the unclassified
portfolio. Western also takes into consideration all of the factors described
for Monarch.
25
<PAGE>
Based on the foregoing discussion and all of the factors analyzed by
management in determining the adequacy of the allowance for loan losses,
management believes that the allowance is adequate at December 31, 1996.
Beginning in 1997, both Monarch and Western will engage an independent
credit review function by an outside party.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") represent properties acquired by
foreclosure or by a deed in lieu of foreclosure, and is recorded at the lower of
the unpaid balance of the loan or the fair value of the property at the date of
acquisition. Any valuation reductions required at the date of acquisition are
charged to the allowance for loan losses. Subsequent to acquisition, other real
estate owned is carried at the lower of recorded cost or net realizable value.
Subsequent operating expenses or income, reduction in estimated values, and
gains or losses on disposition of such properties are recognized in current
operations.
The Company's OREO totaled $3.9 million at December 31, 1996 ($3.7 million
from the acquisition of Western), compared with $0.2 million at December 31,
1995 and $0.6 million at December 31 ,1994. The 1995 and 1994 amounts are those
of Monarch which was prior to the acquisition of Western.
BORROWED FUNDS
On September 30, 1996, the Company borrowed $26.5 million from the Northern
Trust Company of Chicago under a three year revolving loan agreement.
Concurrently, the Company reduced the loan by $15.5 million as a result of a
dividend in the same amount from Western. The balance at December 31, 1996 was
$11 million. The highest amount outstanding during 1996 was $26.5 million; the
average balance outstanding during the year was $2.75 million and the average
rate paid was 6.95 percent for the year. The interest rate at year end was 6.75
percent. The revolving loan agreement expires on September 30, 1999 and there
were no amounts borrowed against this loan agreement in 1995 or 1994.
During 1996 and 1995 there were amounts outstanding from a loan that the
Company obtained in 1992 to fund the Company's ESOP. The balance outstanding at
December 31, 1996 and December, 31 1995 was $99,000 and $132,000 respectively.
The maximum balance outstanding was $132,000 and $173,000 in 1996 and 1995,
respectively. The average balance outstanding was $111,000 and $152,000 in each
year. The average annual rate was 8 percent for each year. The loan was
reclassified as other liabilities at the end of 1996 and was repaid in January,
1997.
LIQUIDITY AND INTEREST RATE RISK
On a stand-alone basis, the Company's sources of liquidity include dividends
from the Banks and outside borrowings. The amount of dividends that the Banks
can pay to the Company is restricted by regulatory guidelines. For further
information on dividend restrictions, see "Business--Supervision and
Regulation."
Major sources of liquidity for the Company and the Banks include deposits,
maturities and sales of securities, and loan repayments. Deposits are a volatile
source of funds because of changing conditions in the interest rate markets and
competition. The ability to sell securities without significant loss is subject
to changing market conditions. Loan repayments are dependent on the financial
wherewithal of the Company's borrowers. For further information on deposits,
securities, and loans, see "Statistical Disclosure-- Securities," "--Loan
Portfolio," "--Maturities and Sensitivities of Loans to Changes in Interest
Rates," "--Deposits and Liability Management," and notes to consolidated
financial statements.
During 1996, the Company consistently maintained high cash liquidity
consisting of cash and cash equivalents, securities available for sale, and
Federal Funds Sold divided by total deposits ("Cash Liquidity"). At December 31,
1996, Cash Liquidity was 44.9 percent versus 50.5 percent at December 31, 1995.
This high liquidity was a product of low demand for loans and very high
underwriting standards established during the latter part of a major recession.
The Company was also hesitant to commit liquid funds to mid- to long-term
investments during a period when the yield curve was reasonably flat, and in
26
<PAGE>
anticipation of increased funding needs as the loan portfolio grows. Management
believes that current levels and sources of liquidity are sufficient to meet the
Company's and the Banks' commitments. For further information on commitments,
see notes 11 and 14 of notes to consolidated financial statements.
On August 2, 1995, the banking agencies published a proposed policy
statement concerning a supervisory framework for measuring and assessing banks'
interest rate risk exposure. The proposal required nonexempt banks to report
data in several new schedules that were to be added to the FDIC Call Report
effective March 31, 1996. However, the agencies decided that any new FDIC Call
Report interest rate risk schedules would not be implemented as of the March 31,
1996 report date. The plans for the implementation of guidelines for interest
rate risk are expected to include requirements to increase capital levels if a
bank appears to be exposed to higher than average interest rate risk. The
Company believes that its current position will qualify for "exempt" status and
has consistently limited the levels of longer-term interest rate risk through
the use of floating rates and/or shorter-term loans and investments.
The following table for the Company breaks down rate sensitive earning
assets ("RSA") and rate sensitive liabilities ("RSL") at December 31, 1996 based
on the earliest possible repricing dates for variable rate instruments, or for
fixed rate assets and liabilities, on scheduled maturities. The table uses data
from FDIC Call Reports and is similar to the reporting assumptions used during
bank examinations. In the past few years, various models and rate sensitive
studies have focused on the interest rate risk characteristics of
interest-bearing transactional accounts. Based on historical reviews and
documentation, it appears that these accounts do not have the same degree of
short-term interest rate sensitivity associated with loans that are tied to any
immediate change in prime rate or to short-term investments such as Federal
Funds Sold. The following table makes certain assumptions as to the interest
rate sensitivity of savings accounts that have had limited rate fluctuation
during the past three years, as to money market accounts which are based on a
tiered rate structure depending on the account deposit level, and as to NOW
accounts that have had very little price fluctuation in the past three years:
<TABLE>
<CAPTION>
1 DAY 2-90 DAYS 91-365 DAYS 1-5 YEARS 5+ YEARS TOTAL
--------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Federal Funds Sold.......................... $ 4,217 $ -- $ -- $ -- $ -- $ 4,217
Securities:
Fixed rate................................ 1,000 17,272 40,296 93,103 2,046 153,717
Floating rate............................. 8,212 1,896 637 -- 262 11,007
Loans:
Fixed rate................................ 1,487 8,572 9,030 26,051 22,447 67,587
Floating rate............................. 21,855 28,081 46,498 60,233 27,609 184,276
Nonaccrual................................ 4,463 3,644 658 177 373 9,315
--------- ----------- ----------- ---------- ---------- ----------
Total RSA............................. 41,234 59,465 97,119 179,564 52,737 430,119
Demand deposits............................. -- 16,595 73,818 60,281 -- 150,694
Savings..................................... -- -- 9,728 9,729 -- 19,457
Interest-bearing demand deposits............ -- -- 76,590 76,588 -- 153,178
NOW accounts................................ -- -- 24,578 24,579 -- 49,157
Time Certificates of Deposit over
$100,000................................... 1,518 23,704 11,557 2,443 112 39,334
Time Certificates of Deposit less than
$100,000................................... 408 16,124 10,326 4,240 66 31,164
Notes payable............................... 11,000 -- -- -- -- 11,000
--------- ----------- ----------- ---------- ---------- ----------
Total RSL............................. 12,926 56,423 206,597 177,860 178 453,984
--------- ----------- ----------- ---------- ---------- ----------
Net RSA-RSL................................. $ 28,308 $ 3,042 $(109,478) $ 1,704 $ 52,559 $ (23,865)
--------- ----------- ----------- ---------- ---------- ----------
--------- ----------- ----------- ---------- ---------- ----------
Cumulative RSA-RSL.......................... $ 31,350 $ (78,128) $ (76,424) $ (23,865)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Cumulative as a % of Total Assets........... 5.5% 6.1% (15.2%) (14.9%) (4.7%) (4.7%)
--------- ----------- ----------- ---------- ---------- ----------
--------- ----------- ----------- ---------- ---------- ----------
</TABLE>
27
<PAGE>
In a rising interest rate environment, when rate sensitive assets exceed
rate sensitive liabilities, assets reprice to higher interest rates faster than
liabilities reprice, resulting in a net interest margin that tends to rise. When
rate sensitive liabilities exceed rate sensitive assets, net interest margin
will tend to fall. The opposite occurs in a decreasing interest rate
environment. As a rule, the Company works to keep the cumulative difference
between RSA and RSL as balanced as possible over a one year cycle. In 1995,
banks as a group needed to progressively increase deposit rates which had been
held low in 1994 due to the lack of competition for deposits at a time when
banks were still operating with low or lower than normal loan demand. Starting
in mid-1995 and continuing into 1996, banks as a group have become much more
aggressive in pricing time deposits, but have yet to make a major jump in
interest-bearing transactional accounts. These pricing decisions appear to be
consistent with recent patterns whereby transactional and savings accounts do
not mirror the repricing patterns on the asset side.
DEPOSITS AND LIABILITY MANAGEMENT
The Company provides a range of deposit types to meet the needs of the local
communities. Time deposits, which are normally sensitive to competitive rate
changes, are generally used to expand or contract the overall liability position
needed to meet the various management ratios established for liquidity, capital,
loans to deposits, and other funding measurements. As a policy, the Company does
not accept or solicit brokered deposits.
The following table shows the average amount of interest bearing and
non-interest bearing deposits and rates as of December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 AVERAGE 1995 AVERAGE 1994 AVERAGE
----------------------- ---------------------- ----------------------
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits...................... $ 47,724 0.00% $ 15,545 0.00% $ 13,558 0.00%
Interest bearing demand deposits................... 71,920 2.88% 25,106 2.12% 32,590 1.74%
Savings deposits................................... 8,469 2.29% 5,312 2.07% 7,369 2.08%
Time deposits...................................... 29,863 5.02% 9,655 5.22% 6,872 3.26%
---------- --------- ---------
Total(1)......................................... $ 157,976 2.38% $ 55,618 2.06% $ 60,389 1.56%
---------- --- --------- --- --------- ---
---------- --- --------- --- --------- ---
</TABLE>
- ------------------------
(1) Includes non-interest bearing deposits for both amount and rates. Rates
represent weighted averages.
The following table shows the maturity schedule of time certificates of
deposit of $100,000 or more as of December 31, 1996. All dollar amounts are in
thousands:
<TABLE>
<S> <C>
3 months or less................................................... $ 25,222
Over 3 months through 6 months..................................... 7,931
Over 6 months through 12 months.................................... 3,626
Over 1 year........................................................ 2,555
---------
Total............................................................ $ 39,334
---------
---------
</TABLE>
28
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table presents the key ratios for the Company based on average
assets, average equity, and net income for the years 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Return on average assets................................................. 0.40% 1.08%
Return on average equity................................................. 3.37% 9.91%
Equity to assets......................................................... 11.85% 10.92%
<CAPTION>
Tangible ratios:(1) 1996
-----------
<S> <C> <C>
Return on average tangible assets........................................ 0.70%
Return on average equity................................................. 5.65%
Tangible equity to tangible assets....................................... 5.13%
</TABLE>
- ------------------------
(1) Goodwill amortization is added back to net income.
ITEM 2. PROPERTIES
Monarch's main office is located in a shopping/business center at 30000 Town
Center Drive, Laguna Niguel, California. The leased building is free standing,
and has approximately 8,500 square feet of space. The land and building were
leased on August 1, 1981 for a twenty (20) year term with three 10-year options.
After the first five (5) years of the lease, the lease was subject to annual
cost of living increases; the annual rent, as of December 1996, was
approximately $10,300 per month triple net. The facility is equipped with a
vault and safe-deposit boxes, eight (8) teller stations, two (2) automatic
teller machines, four (4) drive-up teller stations, a night depository, and
includes parking adjacent to the Bank.
The Laguna Beach facility is 4,960 square feet and it is located at 401
Glenneyre Street, Laguna Beach, California. The facility includes both a branch
and the administrative and operations functions for Monarch. It has a five year
lease which expires on March of 2001. There are two five year renewal options.
Western has five locations:
- The main office of Western is located at 1251 Westwood Boulevard in Los
Angeles. The land was originally leased in September, 1973 for a thirty
year term. The lease will expire in August of 2003. Total square footage
of the land is 11,975 square feet.
- Western's Century City Branch leases two suites at 1888 Century Park East
in Los Angeles. This ten year lease is for a total of 5,044 square feet
and terminates in April, 2005.
- The Beverly Hills Branch is located at 9444 Wilshire Boulevard. The
original lease term was for ten years and expires in December 2002. Total
square feet leased is 7,735. Notice has been given to terminate this lease
by the end of 1997. There is no penalty to this termination.
- The Encino branch is located at 15910 Ventura Boulevard. The lease was
originally for ten years and expires in October 2003. The total square
feet leased is 7,547.
- The Santa Monica branch of Western is owned and is located at 1401
Wilshire Boulevard in Santa Monica. The land is 21,250 square feet and the
building is 13,727 square feet. Book value of the land and building is
$2.294 million at December 31, 1996.
- Management believes that existing properties and facilities are adequate
for the conduct of the Company's and the Banks' business.
29
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is subject to claims,
counter actions, and other litigation. No single action or similar group of
claims exceeds 10 percent of liquid assets (Cash and Federal Funds Sold).
Based on facts known to the Company, the Board of Directors and management
do not believe that to the best of their knowledge the Company has any material
known legal liability or potential liability. However, no assurance can be given
that future litigation involving the Company will not result or that liability
may not be incurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Trading in the Company's Common Stock, occurring solely "over the counter,"
heretofore has not been extensive. The Company is aware of one securities dealer
who has consistently handled transactions in its common stock, Brookstreet
Securities Corporation, 2361 Campus Drive, Irvine, California which continues to
be the only active broker who has made a market in the Company's stock. Various
other firms have handled single transactions but have not actively been
available to assist in trade activities.
The number of holders as of March 14, 1997 is approximately 750.
The following table summarizes those trades of Company Common Stock of which
management is aware, setting forth the approximate high and low sales prices for
each quarterly period since December 1994:
<TABLE>
<CAPTION>
APPROXIMATE SALES
PRICES
QUARTER ENDED --------------------
(LAST TRADING DAY) HIGH LOW
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
March 31, 1995.................................................................. 1.50 1.20
June 30, 1995................................................................... * *
September 30, 1995.............................................................. 1.35 1.20
December 31, 1995............................................................... 1.35 1.20
March 31, 1996.................................................................. 1.30 1.05
June 30, 1996................................................................... 2.00 1.00
September 30, 1996.............................................................. 1.75 1.00
December 31, 1996............................................................... 3.50 1.63
</TABLE>
- ------------------------
* None reported
Prices represent quotations by dealers making a market in the Common Stock
and reflect inter-dealer prices, without adjustments for mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Trading is
limited and may not be a reliable indicator of market value. The Company
completed a private placement of common stock on March 30, 1995 and a
shareholders' rights offering in September 1995 and during 1995 issued a total
of 7,434,000 new shares at $1.35 per share. The private placement completed in
September, 1996 was at $1.65 per share.
30
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Monarch Bancorp (the "Company") is the holding company for Monarch Bank
("Monarch") formed in 1983 and Western Bank ("Western") which was acquired by
the Company on September 30, 1996. The acquisition of Western was treated as a
purchase for accounting purposes and thus all financial information presented
only includes Western for the three months ended December 31, 1996 or as of
December 31, 1996. Western and Monarch are collectively referred to as the
"Banks." The following paragraphs discuss various material events or activities
that occurred in 1996 and 1995:
CAPITAL ACTIVITIES
On March 31, 1995, the Company completed a private placement offering for
approximately $6,139,000 and issued 4,547,111 new shares of common stock.
Proceeds from the Offering were used to pay approximately $470,000 in Offering
expenses; $3,550,000 to increase the Company's investment in Monarch; and
$53,500 to retire Company debt; and approximately $2,065,000 in cash was
retained by the Company for future operating needs or investments. The capital
increase for Monarch was sufficient to comply fully with the terms of its
regulatory Orders to increase its leverage capital ratio to 7.0% or more. The
Company made a further $250,000 capital contribution to Monarch in June 1995,
and Monarch has consistently met and exceeded all capital requirements since
March 30, 1995, including the target ratios established in the Orders which are
higher than the normal statutory ratios required to be classified as "well
capitalized".
In addition to the completion of the private placement offering in the first
quarter of 1995, the Company also completed in the third quarter of 1995 a
rights and public offering for the sale of up to 3,177,296 shares of Company
Common Stock pursuant to the terms of a Prospectus dated July 14, 1995. In
connection with such offering, a total of 2,886,898 shares of Company Common
Stock were sold. The Company increased its capital by an additional $3,464,000
in net proceeds from the rights and public offering.
The increased capital allowed the Company and Monarch to meet regulatory
commitments to increase capital, provided an additional source of funds that
could be used to fund earning assets, and to allow for possible future growth
opportunities.
The Company funded the purchase price with the issuance of approximately
$42.2 million of common stock, net of approximately $1 million in issuance
costs, in the 1996 Private Placement, and from the proceeds of a three year loan
of $26.5 million from The Northern Trust Company (the "Lender"). A $15.5 million
dividend was declared by Western concurrently with the completion of the
acquisition and paid to the Company, which was used to reduce the $26.5 million
note to $11 million. For further information on the Western acquisition, see
note 2 of notes to consolidated financial statements.
LIQUIDITY
During 1996, the Banks consistently maintained very high cash liquidity
(Cash and cash equivalents and securities available for sale divided by total
deposits) of approximately 45% or greater. This high liquidity was a product of
low demand for loans and very high underwriting standards established during the
latter part of a major recession. The Bank was also hesitant to commit liquid
funds to mid- to long-term investments during a period when the yield curve was
reasonably flat, and in anticipation of increased funding needs as the loan
portfolio grows.
EARNINGS IMPROVEMENT PROGRAM
In addition to income generated from the capital funds, in 1995 the Company,
as a natural extension of its activities to raise capital and improve earnings,
engaged the services of a consultant to provide
31
<PAGE>
assistance in reviewing all aspects of Monarch's operations. The goal of this
review was to identify strengths and weaknesses of Monarch's operations and to
implement an earnings improvement program to increase profitability. As part of
the acquisition of Western, additional work was begun to also improve the
earnings at Western. A majority of the recommendations from this review were
implemented during the third quarter of 1995 at Monarch and during the fourth
quarter of 1996 at Western. Measurable results were seen in October 1995 for
Monarch and beginning in October 1996 for Western.
It is Management's belief and expectation that a majority of the earnings
improvement program has been implemented at Monarch and that a majority of the
planned expense savings or increases in income at Western will be realized by
the middle of 1997. Major areas of expense reduction came from reductions in
staff and employee benefit costs, improved utilization of account analysis
earnings credits, decreases in insurance costs (based on new capital and
improved earnings and not reduced coverage), and reductions in other operating
expense areas. Increases in fee income are expected to come from account
analysis on business accounts and a general increase in the Banks' schedule of
charges.
When the acquisition of California Commercial Bancshares closes in the
second quarter of 1997, there will be additional opportunities for
centralization and cost reductions. Plans are already in place to begin
realizing these benefits soon after the transaction closes.
INVESTMENT PORTFOLIO
Debt and equity securities have been classified in accordance with
management's intent. The carrying amounts of securities and their approximate
fair values at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Securities Held to Maturity...................................... $ 7,270 $ 15 $ (40) $ 7,245
---------- ----- ----- ----------
---------- ----- ----- ----------
Securities Available for Sale.................................... $ 157,265 $ 293 $ (104) $ 157,454
---------- ----- ----- ----------
---------- ----- ----- ----------
DECEMBER 31, 1995
Securities Held to Maturity...................................... $ 6,661 $ 46 $ (14) $ 6,693
---------- ----- ----- ----------
---------- ----- ----- ----------
Securities Available for Sale.................................... $ 21,864 $ 150 $ (10) $ 22,004
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
The increase from 1995 to 1996 of approximately $135 million in securities
available for sale is due to the acquisition of Western which had $141 million
of such securities at December 31, 1996. This increase was offset by a $6
million reduction in such securities at Monarch from December 31, 1995 to
December 31, 1996. The reduction was primarily caused by an increase in loan
demand as the loan to deposit ratio increased from 54% at December 31, 1995 to
60% at December 31, 1996.
As part of its investment portfolios, the Banks may hold derivative
securities. Three Collateralized Mortgage Obligations (CMO's) were in the held
to maturity portfolio at Monarch as of December 31, 1996. These FNMA and FHLMC
securities are carried at book value of $1.921 million and had a current market
value of $1.883 million as of December 31, 1996. The weighted average yield of
these investments was 7.02% and the weighted average life was 1.69 years as of
December 31, 1996. All three CMO's have been tested no less than annually using
the FFIEC "High Risk Security Test," and each of the securities have passed the
tests. This stress test is used by bank regulators to assess relative CMO's
investment risks. A security that passes is not considered to be "high-risk"; a
security that fails the test may be subject to additional regulatory scrutiny
and under the most severe case, the bank could be asked to sell the security.
Western holds $3 million in FNMA Multi Step securities with a weighted
average yield of 6.38% as of December 31, 1996. The securities do not have a
call date or repricing date in the remainder of 1997 and all will mature in
October 1998.
32
<PAGE>
The Banks do not have securities Trading Accounts and do not intend to trade
securities.
The Banks' Investment Committees make every effort to keep informed about
both the perceived and real risks of derivative securities, and has set general
limits on the types of derivatives the Banks can purchase at the most basic
levels which include step-up notes and CMO's.
Neither the Company nor the Banks are involved in any off balance sheet
hedging type activities.
LOANS
The following table sets forth the amount of loans outstanding at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Real estate construction......................................................... $ 24,666 $ 2,033
Real estate mortgage............................................................. 128,026 11,675
Commercial....................................................................... 101,177 16,758
Installment...................................................................... 7,186 2,184
---------- ---------
GROSS LOANS.................................................................. 261,055 32,650
Less:
Deferred loan fees............................................................. (939) (130)
Allowance for loan losses...................................................... (5,393) (854)
---------- ---------
NET LOANS.................................................................... $ 254,723 $ 31,666
---------- ---------
---------- ---------
</TABLE>
Of the $228 million increase in gross loans from December 31, 1995 to
December 31, 1996, approximately $204 million resulted from the acquisition of
Western on September 30, 1996. The approximate $13 million increase in gross
loans at Monarch primarily resulted from a $7 million increase in real estate
mortgage loans. The $7 million increase resulted from a $5 million purchase of a
pool of commercial real estate loans and a general increase in demand for this
type of loan in 1996. All other loan categories also increased in 1996 due to a
general increase in loan demand at Monarch.
Deferred loan fees and the allowance for loans losses increased primarily as
a result of the acquisition of Western. Monarch's allowance for loan losses
increased primarily due to the provision for loan losses being increased to
cover increased loan outstandings and the allowance allocated to the purchases
of the pool of commercial real estate mortgages.
Monarch's local market was very severely affected by the recession in 1993
and 1994 and its continuation into 1995. During 1996 the economy started a slow
recovery which was evidenced by the large decrease in net charge-offs for 1996.
33
<PAGE>
CREDIT RISK
NET CHARGE-OFFS: The following table illustrates the net results of loan
charge-offs for the year ended December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996
---------------------------------
COMBINED WESTERN MONARCH 1995
----------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage................................................. $ 427 $ 427 $ -- $ 273
Real estate construction............................................. -- -- -- --
Commercial........................................................... 378 386 (8) 398
Installment.......................................................... 45 -- 45 37
----------- --------- --------- ---------
Total............................................................ $ 850 $ 813 $ 37 $ 708
----------- --------- --------- ---------
----------- --------- --------- ---------
Average loans........................................................ $ 86,190 $ 50,450 $ 35,740 $ 28,808
----------- --------- --------- ---------
----------- --------- --------- ---------
Net charge-offs to average loans..................................... 0.99% 1.61% 0.10% 2.46%
</TABLE>
The Western net charge-offs during the fourth quarter of 1996 resulted
primarily from Western loans that were identified as problem loans and reserved
for at September 30, 1996 but were not charged-off by management of the Company
until the fourth quarter of 1996. The Western allowance for loan losses at
December 31, 1996 was equal to 1.98% of loans outstanding. Although annualized
net charge-offs to average loans outstanding would be approximately 1.61% based
on fourth quarter numbers, the actual Western percentage of net charge-offs to
average loans outstanding during 1996 was 0.36%.
DEPOSITS
The following table summarizes deposits at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
COMBINED WESTERN MONARCH DECEMBER 31, 1995
---------- ---------- --------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-interest bearing....................................... $ 150,694 $ 129,132 $ 21,562 $ 19,931
Interest bearing demand.................................... 202,335 176,314 26,021 22,527
Savings.................................................... 19,457 14,596 4,861 4,633
Time certificates of deposit over $100,000................. 39,334 33,366 5,968 3,502
Time certificates of deposit under $100,000................ 31,164 21,309 9,855 8,149
---------- ---------- --------- -------
Total deposits............................................. $ 442,984 $ 374,717 $ 68,267 $ 58,742
---------- ---------- --------- -------
---------- ---------- --------- -------
</TABLE>
The increase in deposits from December 31, 1995 to December 31, 1996 of
approximately $384 million is primarily a result of the acquisition of Western
by the Company on September 30, 1996. Monarch's deposits increased from $59
million to $68 million which was largely attributable to the opening of the
Laguna Beach branch in the fourth quarter of 1996.
CASH FLOW--PARENT COMPANY ONLY
The Company as of December 31, 1996 had approximately $4.7 million in cash
liquidity.
ECONOMY AND INFLATION
The majority of the published economic forecasts for 1997 suggest that the
opposing forces affecting interest rates and the economy will moderately favor
lower interest rates with the greatest drop coming in
34
<PAGE>
the short end of the yield curve. Inflation currently appears to be well within
the target ranges used by the Federal Reserve Board. Unless conditions
significantly change as a result of the November 1996 election, it appears that
the economy will continue to show modest growth for 1997.
RESULTS OF OPERATIONS
INTEREST INCOME increased for the year 1996 versus 1995 by $8.0 million with
average earning assets increasing by approximately $89 million due to the
acquisition of Western. Without the acquisition of Western, interest income
increased approximately $925 thousand, due almost completely to an increase in
average earning assets of $11.3 million as the yield on interest earning assets
increased by 6 basis points.
Average loans at Monarch increased from $28.8 million to $35.7 million,
while the yield on loans decreased from 10.60% to 9.62%. The entire increase in
loans was in the real estate mortgage category, thus reducing the overall yield
on loans.
The investment portfolio at Monarch benefited from progressive repricing on
floating rate investments and from generally higher yields as new securities
were purchased to replace repayments and maturities. The average yield on the
investment portfolio in 1995 was 4.90% versus 6.30% in 1996.
Since Western is only included in the Company's results for the last quarter
of 1996, the acquisition of Western increased average earning assets by only $89
million in 1996 (Western's average earning assets for the fourth quarter were
approximately $356 million). Yields on Western's earning assets are comparable
to the yields at Monarch with only a 2 basis point difference. The yield on
loans at Western was 9.45%, or 17 basis points below the loan yield of 9.62% at
Monarch. Western's yield on investment securities was 5.88%, versus 6.30% for
Monarch. Western has approximately 4.6% more of its earning assets in loans than
Monarch.
INTEREST EXPENSE increased by $2.8 million while the average total for all
interest-bearing deposits increased by approximately $70 million. Without the
acquisition of Western, interest-bearing deposits increased from $40.1 million
to $49.4 million, or 23% while the weighted average rate paid on these deposits
increased from 2.86% to 3.33%. The increase in the rate paid on deposits was
mostly in the category of NOW and money market accounts as Monarch competes for
deposits in the Laguna Niguel and Laguna Beach areas.
Since Western is only included in the Company's results for the last quarter
of 1996, the acquisition of Western only increased average interest-bearing
deposits by approximately $66 million, although Western's average for the fourth
quarter was approximately $264 million. The average rate paid on
interest-bearing deposits was 3.43% at Western versus 3.33% for Monarch. Western
pays higher rates on interest-bearing demand deposits of 3.06% versus 2.59% for
Monarch, a higher rate on savings deposits: 2.57% versus 2.08% for Monarch, but
a lower rate on certificates of deposit of 4.86% versus 5.17% for Monarch. Both
Banks have a comparable ratio of non-interest bearing deposits to
interest-bearing deposits of approximately 43%.
As part of the acquisition of Western, the Company borrowed a net $11
million on a revolving line of credit. This debt added an average of $2.7
million of other borrowings and $191 thousand of interest expense for the year.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations reflects management's
judgment of the adequacy of the allowance for loan losses and is determined
through periodic analysis of the loan portfolio. This analysis includes a
detailed review of the classification and categorization of problem and
potential problem loans and loans to be charged off; an assessment of the
overall quality and collectibility of the portfolio; and consideration of the
loan loss experience, trends in problem loans and concentrations of
35
<PAGE>
credit risk, as well as current and expected future economic conditions
(particularly in Southern California).
MONARCH'S provision for loan losses for the year ended December 31, 1996 was
$195,000 compared to $425,000 for the year ended December 31, 1995. This
decrease was due to improved economic conditions in Monarch's area of business
and a significant decrease in the percentage of net charge-offs to average loans
outstanding. This percentage decreased to .10% in 1996 compared to 2.5% in 1995.
The 1996 provision did take into consideration the increase in loans outstanding
at the end of the year compared to 1995. The percentage of the allowance for
loan losses to outstanding loans at December 31, 1996 was 2.5% compared to 2.6%
at December 31, 1995.
WESTERN recorded a provision for loan losses of $33,000 in the fourth
quarter of 1996 and recorded a provision for the year ended December 31, 1996 of
$836,000 compared to a provision of $710,000 for the year ended December 31,
1995. This increase in the provision was consistent with a similar increase in
charge-offs for 1996 as compared to 1995 and Management's overall assessment of
the adequacy of the allowance for loan losses. The percentage of the allowance
for loan losses to outstanding loans at December 31, 1996 and 1995 was 1.98% and
1.93%, respectively.
Based on the foregoing discussion and all of the factors analyzed by
Management in determining the adequacy of the allowance, Management believes
that the Bank's allowance for loan losses is adequate at December 31, 1996.
For additional information on the loan portfolio, the allowance for loan
losses and nonaccrual, past due and restructured loans, see "Loan Portfolio"
under "Item 1--Business."
NON-INTEREST INCOME increased in 1996 compared to 1995 by $442 thousand or
47%. However, without the acquisition of Western in the fourth quarter of 1996,
non-interest income declined $163 thousand, or 17%.
MONARCH BEFORE WESTERN ACQUISITION: In 1995, non-interest income included
income received related to the settlement of a $171 thousand claim against
Monarch's blanket bond carrier for a loss sustained in 1994 and approximately
$50 thousand from legal and other recoveries from losses sustained in 1994.
Without this non-recurring income in 1995, non-interest income at Monarch would
have increased by $58 thousand or 8%. Service charges on deposits increased by
$55 thousand or 26%. This growth is comparable to the 24% growth in average
deposits at Monarch. Since Monarch's lease, and therefore sublease, on a
property terminated in June, rental income declined by 50% from $66 thousand to
$34 thousand. Data processing income increased $30 thousand, or 43%, from $70
thousand to $100 thousand as Monarch began performing additional back office
functions for another bank and the ACH origination and payment processing for
local homeowners associations and other organizations continues to grow.
THE ACQUISITION OF WESTERN added $605 thousand of non-interest income in
1996 (all in the fourth quarter). Of the $605 thousand in non-interest income
added by Western, $267 thousand, or 44%, is a gain on the sale of various
securities which did not meet the asset/liability management strategy of the
Company. All non-interest income amounts at Western are consistent with prior
results and are at expected levels.
36
<PAGE>
The table below details the various non-interest income categories:
<TABLE>
<CAPTION>
1996
-----------------------------------
TOTAL WESTERN MONARCH 1995
--------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges on deposits................................................. $ 358 $ 90 $ 268 $ 213
Deposit overdraft charges................................................... 365 99 266 293
Rental income............................................................... 34 -- 34 66
Data processing income...................................................... 100 -- 100 70
Loan servicing and late fees................................................ 89 68 21 19
Service charges commissions and other fees.................................. 91 58 33 20
Gains (losses) on securities................................................ 267 267 -- --
Legal settlement and their income........................................... 71 23 48 252
--------- ----- ----- ---------
TOTAL NON INTEREST INCOME............................................... $ 1,375 $ 605 $ 770 $ 933
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>
NON-INTEREST EXPENSE increased by $4.9 million, or 135% from 1995 to 1996.
Of this increase, however, $3.8 million relates to the acquisition of Western
Bank. Without this acquisition, expenses increased $1.1 million, or 33%.
MONARCH BEFORE THE WESTERN ACQUISITION: Monarch expenses (including
expenses of the Company) increased by $1.13 million, or 31% from 1995 to 1996.
$1.06 million of this expense increase relates to acquisition activities and
restructuring charges in the fourth quarter: $550 thousand of the increase in
salary and benefits are due directly to the buy out of the former CEO's
employment contract and the termination of the employee ESOP. Salary and
benefits expense was also reduced by $143 thousand from the capitalization of
expenses related to the Western acquisition. $300 thousand of the increase in
professional services are directly related to due diligence and other
acquisition related activities. In addition, $210 thousand was spent on
professional services for consolidation of operations and staff functions
related to both the acquisition of Western and ongoing profit improvement
programs.
Salary and benefits increased from $1.7 million in 1995 to $2.3 million in
1996, or 39%. Adjusting for the $550 thousand and $143 thousand amounts
mentioned above, salary and benefits increased $234 thousand, or 14%. This
increase relates to a general increase in business (39% growth in loans and 24%
growth in average deposits), the opening of a new branch in Laguna Beach in June
of 1996, beginning back office processing for another bank, and reductions due
to profit improvement work. Average full-time employee's ("FTE's") were 39 in
1995 and were up to 49 at the end of 1996. Of the 49 FTE's at the end of the
year, five are no longer with Monarch at this time.
Furniture, fixtures and equipment expense increased by $56 thousand or 20%,
and telephone, stationery and supplies increased by $51 thousand or 27% from
1995 to 1996. This expense growth relates to the increase in business at
Monarch, the new Laguna Beach branch and the increase in back office services
provided to other banks.
Of the $560 thousand increase in professional services at Monarch from 1995
to 1996, $510 thousand relates to acquisition activity and the profit
improvement work discussed above. Without these expenses, professional services
at Monarch increased $50 thousand, or 13% from 1995 to 1996. This expense
increase is due to a general increase in activity at the holding company.
Net OREO expense declined from $62 thousand for 1995 to $7 thousand for 1996
which was a result of decreased OREO activity. Miscellaneous employee expense
decreased from $170 thousand for 1995 to $98 thousand for 1996, or a 42%
decrease. This reduction was mostly due to the reduction of various award
programs at Monarch.
37
<PAGE>
Other expense increased 21% from $273 thousand to $329 thousand from 1995 to
1996. Most of this increase is a result of recruiting expense as the management
team at the Company was strengthened.
WESTERN BANK added approximately $3.8 million of expenses to the Company for
the year during the fourth quarter. Of this $3.8 million, $499 thousand is the
amortization of goodwill associated with the acquisition of Western by Monarch
Bancorp. Without this amortization, Western added approximately $3.3 million of
expenses to the Company. This amount of additional expense was at the expected
level and is lower than the expense levels Western had prior to the acquisition.
The table below details the various non-interest expense categories:
<TABLE>
<CAPTION>
1995
---------
1996
-----------------------------------
COMPANY
TOTAL WESTERN & MONARCH
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salary and benefits..................................................... $ 4,323 $ 2,025 $ 2,298 $ 1,657
Occupancy............................................................... 542 217 325 345
Furniture, fixtures and equipment....................................... 489 156 333 277
Advertising & business development...................................... 152 27 125 116
Data processing......................................................... 186 186 -- --
Professional services................................................... 1,469 511 958 398
OREO.................................................................... (151) (158) 7 62
FDIC & state assessments................................................ 86 1 85 180
Miscellaneous employee expense.......................................... 137 39 98 170
Telephone, stationery & supplies........................................ 380 143 237 186
Goodwill amortization................................................... 499 499 -- --
Other expense........................................................... 490 161 329 273
--------- ----------- ----------- ---------
TOTAL NON-INTEREST EXPENSE.......................................... $ 8,602 $ 3,807 $ 4,795 $ 3,664
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
One time items:
Employment contract buyout.............................................. $ 360 $ -- $ 360 $ --
Due diligence/merger related expenses................................... 300 -- 300 --
Profit improvement consulting........................................... 210 -- 210 --
KSOP termination........................................................ 190 -- 190 --
--------- ----------- ----------- ---------
TOTAL ONE TIME ITEMS................................................ $ 1,060 $ -- $ 1,060 $ --
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
PROVISION FOR INCOME TAXES
The provision for income taxes represents an effective tax rate of 32% of
income before taxes in 1996, compared to an effective tax benefit rate of 264%
in 1995. The difference from the expected rate of 34% in 1995 is the result of
the adjustment to the deferred tax asset valuation allowance. The difference
from the expected rate of 34% in 1996 relates to state taxes and the
non-deductibility of goodwill for tax purposes which is primarily offset by a
deferred tax asset valuation allowance adjustment. At December 31, 1996, the
Company had a deferred tax asset of approximately $4.0 million. Management has
determined that the deferred tax asset is more likely than not to be realized
based on current and expected taxable income. For further information on income
taxes, see note 10 to consolidated financial statements.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of
Monarch Bancorp:
We have audited the accompanying consolidated balance sheets of Monarch
Bancorp and Subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Monarch Bancorp and
Subsidiaries as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
February 24, 1997
Los Angeles, California
39
<PAGE>
MONARCH BANCORP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 37,385 $ 4,747
Federal funds sold................................................................. 4,217 2,938
------------ -------------
Total cash and cash equivalents.................................................. 41,602 7,685
Interest bearing deposits with other banks......................................... -- 198
Securities held to maturity (fair value of $7,245 and $6,693)...................... 7,270 6,661
Securities available for sale (amortized cost of $157,265 and $21,864)............. 157,454 22,004
Loans:
Real estate mortgage............................................................. 128,026 11,675
Real estate construction......................................................... 24,666 2,033
Commercial....................................................................... 101,177 16,758
Installment and other............................................................ 7,186 2,184
------------ -------------
Gross loans.................................................................... 261,055 32,650
Less: Deferred loan fees........................................................ (939) (130)
Allowance for loan losses.................................................. (5,393) (854)
------------ -------------
Net loans...................................................................... 254,723 31,666
Premises and equipment............................................................. 5,780 610
Other real estate owned............................................................ 3,889 150
Deferred tax assets, net........................................................... 3,983 440
Taxes receivable................................................................... 3,553 --
Goodwill........................................................................... 29,342 --
Other assets....................................................................... 4,765 687
------------ -------------
Total assets................................................................... $ 512,361 $ 70,101
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing.............................................................. $ 150,694 $ 19,931
Interest bearing demand.......................................................... 202,335 22,527
Savings.......................................................................... 19,457 4,633
Time certificates of deposit of $100,000 or more................................. 39,334 3,502
Time certificates of deposit less than $100,000.................................. 31,164 8,149
------------ -------------
Total deposits................................................................. 442,984 58,742
Notes payable...................................................................... 11,000 132
Accrued interest payable and other liabilities..................................... 4,249 230
------------ -------------
Total liabilities................................................................ 458,233 59,104
------------ -------------
Shareholders' equity:
Preferred stock, no par value, 5 million shares authorized, none issued
Common stock, no par value, 100 million shares authorized 34,373,021 and
8,228,436 issued and outstanding in 1996 and 1995.............................. 58,709 16,500
Accumulated deficit.............................................................. (4,716) (5,454)
Unrealized gain on investment securities available for sale, net of taxes........ 135 83
Deferred charge related to KSOP.................................................. -- (132)
------------ -------------
Total shareholders' equity..................................................... 54,128 10,997
------------ -------------
Total liabilities and shareholders' equity..................................... $ 512,361 $ 70,101
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements
40
<PAGE>
MONARCH BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans......................................................... $ 8,207 $ 3,054
Interest on interest bearing deposits in other banks............................... 3 43
Securities available for sale...................................................... 3,167 589
Securities held to maturity........................................................ 516 429
Federal funds sold................................................................. 604 376
------------- ------------
Total interest income............................................................ 12,497 4,491
Interest expense:
Deposits........................................................................... 3,761 1,147
Notes payable...................................................................... 191 1
------------- ------------
Total interest expense........................................................... 3,952 1,148
------------- ------------
Net interest income.................................................................. 8,545 3,343
Provision for loan losses............................................................ 228 425
------------- ------------
Net interest income after provision for loan losses.................................. 8,317 2,918
Non-interest income
Service charges and fees on loans and deposits..................................... 903 545
Rental income...................................................................... 34 66
Data processing income............................................................. 100 70
Gains on sales of securities available for sale.................................... 267 --
Legal settlement and other......................................................... 71 252
------------- ------------
Total non-interest income........................................................ 1,375 933
Non-interest expense.................................................................
Salaries and benefits.............................................................. 4,323 1,657
Occupancy.......................................................................... 1,031 622
Advertising and business development............................................... 152 116
Other real estate owned............................................................ (151) 62
Professional services.............................................................. 1,469 398
Telephone, stationery and supplies................................................. 380 186
Goodwill amortization.............................................................. 499 --
Data processing.................................................................... 186 --
Other.............................................................................. 713 623
------------- ------------
Total non-interest expense....................................................... 8,602 3,664
------------- ------------
Income before income taxes........................................................... 1,090 187
Income taxes......................................................................... 352 (496)
------------- ------------
Net income....................................................................... $ 738 $ 683
------------- ------------
------------- ------------
Per share information................................................................
Weighted-average number of common and common equivalent shares outstanding......... 14,974,918 5,071,000
Net income per share............................................................... $ .05 $ .13
</TABLE>
See accompanying notes to consolidated financial statements
41
<PAGE>
MONARCH BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION) DEFERRED
COMMON STOCK ON SECURITIES CHARGE
---------------- ACCUMULATED AVAILABLE FOR RELATED TO SHAREHOLDERS'
SHARES AMOUNT DEFICIT SALE KSOP EQUITY
------- ------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994................. 794 $ 7,368 $(6,137) $(356) $(173) $ 702
Repayment on KSOP debt.................. -- -- -- -- 41 41
Net change in unrealized appreciation on
investment securities available for
sale.................................. -- -- -- 439 -- 439
Issuance of common stock................ 7,434 9,132 -- -- -- 9,132
Net income.............................. -- -- 683 -- -- 683
------- ------- ----------- ------ ---------- ------------
Balance December 31, 1995................. 8,228 16,500 (5,454) 83 (132) 10,997
Repayment on KSOP debt.................. -- -- -- -- 132 132
Net change in unrealized appreciation on
investment securities available for
sale.................................. -- -- -- 52 -- 52
Issuance of common stock................ 26,147 42,213 -- -- -- 42,213
Repurchase of shares.................... (2) (4) -- -- -- (4)
Net income.............................. -- -- 738 -- -- 738
------- ------- ----------- ------ ---------- ------------
Balance December 31, 1996................. 34,373 $58,709 $(4,716) $ 135 $-- $54,128
------- ------- ----------- ------ ---------- ------------
------- ------- ----------- ------ ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
42
<PAGE>
MONARCH BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flow from operating activities
Net income............................................................................. $ 738 $ 683
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan losses............................................................ 228 425
Deferred income taxes................................................................ 56 (495)
Provision for losses on other real estate owned...................................... 243 30
Depreciation......................................................................... 294 165
Amortization of bond discounts, net.................................................. (97) (53)
Deferred loan fees................................................................... (79) (80)
Termination of KSOP.................................................................. 132 --
Goodwill amortization................................................................ 499 --
Net increase (decrease) in accrued interest payable and other liabilities............ 87 (172)
Net (increase) decrease in accrued interest receivable and other assets.............. (973) 482
----------- ----------
Net cash provided (used) by operating activities................................... 1,128 985
Cash flow from investing activities:
Net decrease in interest-bearing deposits at other banks............................... 198 1,184
Securities held to maturity:
Proceeds from maturities............................................................. 5,267 3,394
Purchases............................................................................ (4,880) (5,704)
Securities available for sale:
Proceeds from maturities............................................................. 10,242 1,351
Gains on sales....................................................................... 267 --
Sales................................................................................ 24,766 --
Purchases............................................................................ (36,126) (12,000)
Net (increase) decrease in loans....................................................... (25,473)
Additions to other real estate owned................................................... (284) --
Sales of other real estate owned....................................................... 2,058 617
Additions to premises and equipment.................................................... (365) (125)
Increase in assets and liabilities due to the acquisition of Western Bank:
Securities available for sale........................................................ (134,394) --
Securities held to maturity.......................................................... (988) --
Loans................................................................................ (198,418) --
Deferred taxes....................................................................... (3,663) --
Other assets......................................................................... (11,729) --
Premises and equipment............................................................... (5,099) --
Deposits............................................................................. 353,111 --
Other liabilities.................................................................... 3,932 --
Goodwill............................................................................. (29,841) --
----------- ----------
Net cash used by investing activities.............................................. (51,419) (13,131)
</TABLE>
See accompanying notes to consolidated financial statements
43
<PAGE>
MONARCH BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flow from financing activities:
Net increase in deposits.................................................................. $ 31,131 $ 99
Issuance of debt.......................................................................... 11,000 --
Repayment of debt......................................................................... (132) (53)
Purchase of treasury shares............................................................... (4) --
Net proceeds from issuance of common stock, net of issuance costs......................... 42,213 9,132
--------- ---------
Net cash provided by financing activities............................................... 84,208 9,178
Net increase in cash and cash equivalents................................................... 33,917 (2,968)
Cash and cash equivalents at the beginning of the year...................................... 7,685 10,653
--------- ---------
Cash and cash equivalents at the end of year............................................ $ 41,602 $ 7,685
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Property acquired through foreclosure..................................................... $ 685 $ 150
--------- ---------
--------- ---------
Loans to facilitate sales of other real estate owned...................................... $ 343 $ 800
--------- ---------
--------- ---------
Cash paid for
Interest................................................................................ $ 4,061 $ 1,217
--------- ---------
--------- ---------
Taxes................................................................................... $ 282 $ --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
44
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Monarch Bancorp (the "Company") and
its wholly-owned subsidiaries, Monarch Bank ("Monarch") and Western Bank
("Western"), (collectively "the Banks"), are in accordance with generally
accepted accounting principles and conform to general practices within the
banking industry. Western was acquired by the Company on September 30, 1996. The
acquisition was accounted for as a purchase. Accordingly, results of operations
include Western only from the date of acquisition.
The consolidated financial statements include the Company, Monarch, Western
and M. B. Mortgage Company, an inactive subsidiary of Monarch. All significant
inter-company balances and transactions have been eliminated.
NATURE OF OPERATION
The Company conducts business only through its bank subsidiaries. Monarch, a
full service bank with two banking offices, and Western, a full service bank
with five banking offices, are state-chartered banks subject to the laws of the
State of California and the regulations of the Federal Deposit Insurance
Corporation. The Company is a regulated bank holding company under the Bank
Holding Company Act of 1956, and is also subject to regulation and supervision
by the Federal Reserve Board. The areas served by the Banks are the southern
area of Orange County and the western area of Los Angeles.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates subject to change include the allowance for loan losses, the carrying
value of other real estate owned, and the deferred tax asset.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include the
balance sheet captions "Cash and due from banks" and "Federal funds sold".
SECURITIES
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and carried at amortized cost.
Investments that are purchased and held principally for the purpose of selling
them in the near term are classified as "trading" and carried at fair value,
with unrealized gains and losses included in earnings. Investments not
classified as either "held to maturity" or "trading" are classified as
"available for sale" and carried at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity. When a debt security is transferred into the "held to maturity" category
from the "available for sale" category, the unrealized gain or loss at the
transfer date continues to be reported as a separate component of shareholders'
equity and is amortized over the remaining life of the related security as a
yield adjustment. If a decline in fair value below amortized cost basis of an
investment is judged by management to be other
45
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
than temporary, the cost basis of the investment is written down to fair value
and the amount of the writedown is included in earnings.
Premiums and discounts on investment and mortgage-backed securities are
recognized in the statements of income using a method that approximates the
level-yield method over the lives of the securities. Gains and losses on
securities are recognized when realized with the cost basis of investments sold
determined on a specific identification basis.
LOANS
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest income is ordinarily discontinued
when a loan becomes 90 days past due as to principal or interest; however,
management may elect to continue the accrual when the estimated net realizable
value of collateral is sufficient to cover the principal balance and the accrued
interest. When the loan is determined to be uncollectible, interest accrued in
prior years and the principal are charged to the allowance for loan losses.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees and certain direct loan origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed by
management to be adequate to meet reasonably foreseeable loan losses on the
basis of many factors including the risk characteristics of the portfolio,
underlying collateral, current and anticipated economic conditions that may
affect the borrower's ability to pay, specific problem loans and trends in loan
delinquencies and charge-offs. Losses on loans are provided for under the
allowance method of accounting. The allowance is increased by provisions charged
to income and reduced by loan charge-offs, net of recoveries. Loans, including
impaired loans, are charged off in whole or in part when, in management's
opinion, collectibility is not probable.
While management uses available information to establish the allowance for
loan losses, future additions to the allowance may be necessary if economic
developments differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowances for loan
losses. Such agencies may require the Banks to recognize additions to the
allowance based on judgments different from those of management.
Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which it is probable that the
Company will not be able to collect all amounts due according to contractual
terms of the loan agreement. The definition of "impaired loans" is not the same
as the definition of "nonaccrual loans," although the two categories overlap.
Nonaccrual loans include impaired loans and are those on which the accrual of
interest is discontinued when collectibility of principal or interest is
uncertain or payments of principal or interest have become contractually past
due 90 days. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the loan
impaired, if (i) it is probable that the Company will collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is not a
46
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are not individually significant are measured
for impairment collectively. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") is comprised of real estate acquired
through foreclosure. These assets are recorded at the lower of the carrying
value of the receivable or the fair value less selling costs of the related real
estate. The excess carrying value, if any, over the fair value of the asset
received is charged to the allowance for loan losses at the time of acquisition.
Any subsequent decline in the fair value of OREO is recognized as a charge to
operations and in a corresponding increase to the valuation allowance. Gains and
losses from sales and net operating expense of OREO are also charged to
operations and are included in OREO expense in the accompanying consolidated
statements of operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization which are charged to expense on a straight-line basis over the
estimated useful lives of the assets or the terms of the leases if shorter.
GOODWILL
Goodwill is amortized to expense using the straight-line method over fifteen
years. On an ongoing basis, management reviews the valuation and amortization of
goodwill. During this review, management estimates the value of the Company's
goodwill, taking into consideration any events and circumstances that might have
diminished its value.
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return.
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax
47
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NET INCOME PER SHARE
Net income per share of common stock is based on the weighted-average number
of shares of common and common equivalent shares outstanding during the year.
EFFECT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR STOCK-BASED COMPENSATION
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, which
establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement encourages all entities to adopt a
new method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the date it
is granted. Companies are, however, allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net income and
earnings per share, as if this statement had been adopted. The Company elected
to continue accounting for stock options under the intrinsic value method and
has provided the pro forma disclosure.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In June 1996, the FASB issued the Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management of the Company does not expect
that adoption of SFAS 125 will have a material impact on the Company's financial
condition and results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform to the 1996 presentation. Such reclassifications had no
effect on net income or shareholders' equity as previously reported.
NOTE 2--ACQUISITIONS
WESTERN BANK
On September 30, 1996 the Company completed the acquisition of Western in
which Western became a wholly owned subsidiary of the Company.
48
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
The Company paid $17.25 per share, or approximately $61.1 million, for the
3,543,156 outstanding shares of Western, and an additional $5.5 million related
to the outstanding stock options of Western. The net consideration for the
acquisition of Western was thus approximately $66.6 million. The acquisition was
accounted for under the purchase method of accounting which resulted in
approximately $30 million of goodwill being recorded.
The Company funded the purchase price with the issuance of approximately
$42.2 million of common stock, net of approximately $1 million in issuance
costs, in the 1996 Private Placement, and from the proceeds of a three year loan
of $26.5 million from The Northern Trust Company (the "Lender"). A $15.5 million
dividend was declared by Western concurrently with the completion of the
acquisition and paid to the Company, which was used to reduce the $26.5 million
note to $11 million.
The following table presents unaudited pro forma results of operations of
the Company for the years ended December 31, 1996 and 1995 as if the acquisition
of Western had been effective at the beginning of each year presented. The
unaudited pro forma combined summary of operations is intended for informational
purposes only and is not necessarily indicative of the future operating results
of the Company or of the operating results of the Company that would have
occurred had the Western acquisition been in effect for the years presented.
UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income....................................................................... $ 33,847 $ 31,349
Interest expense...................................................................... 11,041 8,433
------------ ------------
NET INTEREST INCOME............................................................... 22,806 22,916
Provision for loan losses............................................................. 1,031 1,135
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............................... 21,775 21,781
Non interest income................................................................... 2,499 4,438
Non interest expense.................................................................. 21,217 21,039
------------ ------------
INCOME BEFORE TAXES............................................................... 3,057 5,180
Income tax expense.................................................................... 1,791 2,446
------------ ------------
NET INCOME (LOSS)................................................................. $ 1,266 $ 2,734
------------ ------------
------------ ------------
NET INCOME PER SHARE.............................................................. $ 0.04 $ 0.08
------------ ------------
------------ ------------
Weighted average shares outstanding................................................... 34,374,800 34,374,800
</TABLE>
The unaudited pro forma combined net income per share were calculated based
on the pro forma combined net income and the average common shares that would
have been outstanding during the years presented (including shares issued under
the September 30, 1996 private placement).
49
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
CALIFORNIA COMMERCIAL BANKSHARES
On December 19, 1996, the Company entered into an agreement to acquire
California Commercial Bankshares ("CCB"), the holding company for National Bank
of Southern California, in a business combination intended to be accounted for
as a pooling-of-interests. The terms of the merger provide that each common
share of CCB be exchanged for 8.5 shares of the Company (1 share if a proposed 1
for 8.5 reverse stock split is effected). The merger is subject to both
shareholder and regulatory approval. At December 31, 1996, CCB had total assets,
deposits, debt, stockholders' equity, and number of common shares outstanding of
$351 million, $319 million, $2.4 million, $25 million, and 2,984 thousand,
respectively; these amounts are unaudited. For the year ended December 31, 1996,
CCB reported net income and net income per share of approximately $3.8 million
and $1.26, respectively; these amounts are unaudited.
NOTE 3--RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The total average amount
of those reserve balances for the year ended December 31, 1996 was approximately
$9.0 million.
50
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES
SECURITIES
Investment securities at December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Securities Held to Maturity:
US Government Securities....................................... $ 1,147 $ 13 $ -- $ 1,160
US Agency Securities........................................... 4,202 2 (1) 4,203
Mortgage-backed Securities..................................... 1,921 -- (39) 1,882
---------- ----- ----- ----------
$ 7,270 $ 15 $ (40) $ 7,245
---------- ----- ----- ----------
---------- ----- ----- ----------
Securities Available for Sale:
US Government Securities....................................... $ 132,287 $ 9 $ (104) $ 132,192
US Agency Securities........................................... 7,709 -- -- 7,709
Mortgage-backed Securities..................................... 5,534 20 -- 5,554
US Government Mutual Fund...................................... 4,468 -- -- 4,468
Other securities............................................... 7,267 264 -- 7,531
---------- ----- ----- ----------
$ 157,265 $ 293 $ (104) $ 157,454
---------- ----- ----- ----------
---------- ----- ----- ----------
1995
Securities Held to Maturity:
US Government Securities....................................... $ 485 $ 16 $ -- $ 501
US Agency Securities........................................... 4,500 5 (4) 4,501
Mortgage-backed Securities..................................... 1,676 25 (10) 1,691
---------- ----- ----- ----------
$ 6,661 $ 46 $ (14) $ 6,693
---------- ----- ----- ----------
---------- ----- ----- ----------
Securities Available for Sale:
US Government Securities....................................... $ 4,868 $ 5 $ (2) $ 4,871
US Agency Securities........................................... 5,536 45 (3) 5,578
Mortgage-backed Securities..................................... 2,116 20 (5) 2,131
US Government Mutual Fund...................................... 9,240 -- -- 9,240
Other securities............................................... 104 80 -- 184
---------- ----- ----- ----------
$ 21,864 $ 150 $ (10) $ 22,004
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1996, by contractual maturity, are shown below. Mortgage-backed securities
included in the held to maturity and available for sale portfolios which are not
due at a single maturity date are allocated over several maturity groupings
based on anticipated maturities of the underlying assets. Expected maturities
may differ from contractual
51
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES (CONTINUED)
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
HELD TO MATURITY
Due in one year or less............................................... $ 462 $ 462
Due after one year through five years................................. 5,528 5,519
Due after five years through ten years................................ 290 298
Due after ten years................................................... 990 966
---------- ----------
$ 7,270 $ 7,245
---------- ----------
---------- ----------
AVAILABLE FOR SALE
Due in one year or less............................................... $ 56,790 $ 57,052
Due after one year through five years................................. 93,183 93,081
Due after five years through ten years................................ 1,570 1,557
Due after ten years................................................... 5,722 5,764
---------- ----------
$ 157,265 $ 157,454
---------- ----------
---------- ----------
</TABLE>
Gross gains and losses on sale of available for sale securities were $267
thousand and $0, respectively, for 1996. There were no sales of securities in
1995.
At December 31, 1996 investment securities available for sale with a
carrying amount of approximately $26 million were pledged as collateral to
secure public deposits.
Securities held to maturity at December 31, 1996 include approximately
$1,243 thousand in Federal Home Loan Bank stock, $212 thousand in Federal
Reserve Bank stock and $1 thousand in Federal National Mortgage Association
stock. The stock is recorded at cost based on the purchase price.
The Banks may hold derivative securities as part of their investment
portfolios. Three Collateralized Mortgage Obligations (CMO's) were in the held
to maturity portfolio at Monarch as of December 31, 1996. These FNMA and FHLMC
securities are carried at book value of approximately $1.92 million and had a
current market value of approximately $1.88 million as of December 31, 1996. The
weighted average yield of these investments was 7.02% and the weighted average
life was 1.69 years as of December 31, 1996. All three CMO's have been tested no
less than annually using the FFIEC "High Risk Security Test," and each of the
securities have passed the tests. This stress test is used by bank regulators to
assess the relative risks of investments in CMOs. A security that passes this
test is not considered to be "high-risk"; a security that fails the test may be
subject to additional regulatory scrutiny and under the most severe case, the
bank could be asked to sell the security.
Western holds $3 million in FNMA Multi Step securities with a weighted
average yield of 6.38% as of December 31, 1996. The securities do not have a
call date or repricing date in the remainder of 1997 and all will mature in
October 1998.
52
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LOANS
LOANS
Most of the loans made by the Banks are to customers located in Orange
County and the western part of Los Angeles, California. Mortgage and
construction loans are collateralized by real estate trust deeds. The Banks
generally require security in the form of assets, including real estate, on
commercial and installment loans. The ability of the Banks' customers to honor
their loan agreements is dependent upon the general economy of the Banks' market
areas. The distribution of the Company's loan portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Real estate construction............................................... $ 24,666 $ 2,033
Real estate mortgage................................................... 128,026 11,675
Commercial............................................................. 101,177 16,758
Installment............................................................ 7,186 2,184
---------- ---------
GROSS LOANS........................................................ 261,055 32,650
Less:
Deferred loan fees................................................... (939) (130)
Allowance for loan losses............................................ (5,393) (854)
---------- ---------
NET LOANS.......................................................... $ 254,723 $ 31,666
---------- ---------
---------- ---------
</TABLE>
The amount of fixed-rate and variable rate loans and the maturities for each
classification of loans as of December 31, 1996, is as follows:
<TABLE>
<CAPTION>
ONE YEAR
ONE YEAR THROUGH 5 OVER 5
OR LESS YEARS YEARS TOTAL
---------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate construction....................... $ 22,832 $ 559 $ 1,275 $ 24,666
Real estate mortgage........................... 37,702 56,373 33,951 128,026
Commercial..................................... 45,507 31,426 24,244 101,177
Installment.................................... 3,790 2,898 498 7,186
---------- --------- --------- ----------
$ 109,831 $ 91,256 $ 59,968 $ 261,055
---------- --------- --------- ----------
---------- --------- --------- ----------
Loans maturing after one year with:
Fixed interest rates......................... $ 26,253 $ 21,319
Variable interest rates...................... 65,003 38,649
--------- ---------
$ 91,256 $ 59,968
--------- ---------
--------- ---------
</TABLE>
53
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LOANS (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the two years ended December
31, 1996 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Allowance for loan losses:
Balance at the beginning of the period..................................... $ 854 $ 1,137
--------- ---------
Loans charged off:
Real estate mortgage................................................... 427 278
Commercial............................................................. 396 401
Installment............................................................ 45 38
--------- ---------
Total loans charged off.............................................. 868 717
--------- ---------
Recoveries on loans charged off
Real estate mortgage................................................... -- 5
Commercial............................................................. 18 3
Installment............................................................ -- 1
--------- ---------
Total recoveries on loans charged off................................ 18 9
--------- ---------
Net loans charged off................................................ 850 708
Provision charged to operating expense..................................... 228 425
Other additions due to:
Acquisition of Western................................................... 5,041 --
Loan portfolio purchases................................................. 120 --
--------- ---------
Balance at the end of the period........................................... $ 5,393 $ 854
--------- ---------
--------- ---------
</TABLE>
A summary of loans on which the accrual of interest has been discontinued as
of December 31 for the years indicated follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans:
Real Estate Construction................................................... $ 164 $ 172
Real Estate Mortgage....................................................... 8,323 160
Commercial................................................................. 755 12
Installment................................................................ 73 1
--------- ---------
Total.................................................................... $ 9,315 $ 345
--------- ---------
--------- ---------
</TABLE>
If interest on nonaccrual loans had been recognized at the original interest
rates, interest income would have increased approximately $279 thousand and $17
thousand for the years ended December 31, 1996 and 1995, respectively.
54
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LOANS (CONTINUED)
If the measurement of an impaired loan is less than the recorded amount of
the loan, impairment is recognized through a valuation allowance with a
corresponding charge to the provision for loan losses. At December 31, 1996 and
1995, impaired loans identified in accordance with SFAS No. 114 and the related
specific loan loss allowances were as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------
RECORDED ALLOWANCE FOR NET
INVESTMENT LOAN LOSSES INVESTMENT
----------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
With specific allowances.............................. $ 2,799 $ 541 $ 2,258
Without specific allowances........................... 6,775 -- 6,775
----------- ----- -----------
Total impaired loans................................ $ 9,574 $ 541 $ 9,033
----------- ----- -----------
----------- ----- -----------
<CAPTION>
1995
-----------------------------------------
RECORDED ALLOWANCE FOR NET
INVESTMENT LOAN LOSSES INVESTMENT
----------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
With specific allowances.............................. $ 1,041 $ 134 $ 907
Without specific allowances........................... 11 -- 11
----------- ----- -----------
Total impaired loans................................ $ 1,052 $ 134 $ 918
----------- ----- -----------
----------- ----- -----------
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1996 and 1995 was approximately $2,511 thousand and $1,298
thousand, respectively. Interest income on impaired loans of approximately $33
thousand and $97 thousand was recognized for cash payments in 1996 and 1995,
respectively.
NOTE 6 -- PROPERTY AND EQUIPMENT
The components of premises and equipment at December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and building.......................................................... $ 3,892 $ --
Furniture, fixtures and equipment.......................................... 2,230 1,111
Leasehold improvements..................................................... 415 17
--------- ---------
6,537 1,128
Less accumulated depreciation and amortization............................. 757 518
--------- ---------
$ 5,780 $ 610
--------- ---------
--------- ---------
</TABLE>
55
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- DEPOSITS
At December 31, 1996, the scheduled contractual maturities of certificates
of deposits are as follows (In thousands):
<TABLE>
<S> <C>
1997............................................................... $ 63,637
1998............................................................... 2,506
1999............................................................... 2,119
2000............................................................... 1,864
2001 and thereafter................................................ 372
---------
$ 70,498
---------
---------
</TABLE>
NOTE 8 -- NOTES PAYABLE
On September 30, 1996, the Company borrowed $26.5 million from the Northern
Trust Company of Chicago under a three year revolving loan agreement.
Concurrently with the acquisition of Western, the Company reduced the loan by
$15.5 million as a result of a dividend in the same amount from Western. The
balance at December 31, 1996 was $11 million, and the interest rate was 6.75%.
The highest amount outstanding during 1996 was $26.5 million; the average
balance outstanding during the year was $2.75 million; and the average rate paid
was 6.95% for the year. The revolving loan agreement expires on September 25,
1999. The loan agreement contains covenants which impose certain restrictions on
activities of the Company and its financial position. Such covenants include
minimum net worth ratios, maximum debt ratios, a minimum return on average
assets, and minimum and maximum credit quality ratios. As of December 31, 1996,
the Company, and where applicable, its subsidiaries, were in compliance with
each of such covenants.
NOTE 9 -- SHAREHOLDERS' EQUITY
EQUITY TRANSACTIONS
During 1995, the Company completed two capital raising transactions. Under a
private placement which closed in March, 1995, the Company issued approximately
4,547 thousand shares of common stock for net proceeds of approximately
$5,668,000. In September, 1995, pursuant to a shareholders' rights and public
offering, the Company issued approximately 2,887,000 shares of common stock for
net proceeds of approximately $3,464,000. Pursuant to the September, 1995 equity
transaction, the Company issued to parties related to Belle Plaine Financial,
LLC, 411,421 warrants to acquire common stock at $1.62 per share. The warrants
expire on September 30, 2005.
As part of the September 30, 1996 Western acquisition, the Company sold
approximately 26,147,000 shares of common stock in a private placement for net
proceeds of approximately $42,213,000. Pursuant to this equity transaction, the
Company issued to parties related to Belle Plaine Financial, LLC, 784,391
warrants to acquire common stock at $1.98 per share. The warrants expire on
September 30, 2006.
RESTRICTIONS ON PAYMENTS OF DIVIDENDS
As of December 31, 1996, the Company was not eligible to pay dividends
because of the accumulated deficit.
56
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SHAREHOLDERS' EQUITY (CONTINUED)
The Banks are subject to certain restrictions under regulations governing
state banks which limit their ability to transfer funds to the Company through
inter-company loans, advances, or cash dividends. As of December 31, 1996,
Monarch may not pay dividends without the prior approval of the FDIC and State
Superintendent of Banks.
NOTE 10 -- INCOME TAXES
The components of the consolidated income tax expense (benefit) for the
years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current expense:
Federal..................................................................... $ 232 $ --
State....................................................................... 182 1
--------- ---------
414 1
Deferred expense (benefit):
Federal..................................................................... (64) (90)
State....................................................................... 2 (407)
--------- ---------
(62) (497)
--------- ---------
Total income taxes............................................................ $ 352 $ (496)
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes differs from that which would result from
applying the U.S. statutory rate of 34% as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Federal income tax expense at statutory rate................................. $ 371 $ 64
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefits................................ 121 11
Amortization of goodwill................................................... 170 --
Valuation allowance........................................................ (374) (591)
Other, net................................................................. 64 20
--------- ---------
Total income taxes........................................................... $ 352 $ (496)
--------- ---------
--------- ---------
</TABLE>
57
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1996 and 1995
are presented below. December 31,1995 information does not reflect deferred tax
assets of Western which was acquired on September 30,1996.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for losses............................ $ 1,431 $ 202
Other real estate owned................................................... 605 13
Interest on nonaccrual loans.............................................. 128 --
Net operating loss carryovers............................................. 392 615
Purchase accounting adjustments........................................... 1,022 --
Loss on mortgage division................................................. 163 --
Depreciation.............................................................. 293 --
Other..................................................................... 307 83
--------- ---------
Deferred tax assets......................................................... 4,341 913
Valuation allowance....................................................... -- (374)
--------- ---------
Deferred tax assets......................................................... 4,341 539
Deferred tax liabilities:
Securities................................................................ (23) --
FHLB stock dividends...................................................... (131) --
Other..................................................................... (153) (99)
--------- ---------
Deferred tax liabilities.................................................... (307) (99)
--------- ---------
Net deferred tax asset...................................................... 4,034 440
Tax on unrealized gains on investment securities............................ (51) --
--------- ---------
Net deferred tax assets..................................................... $ 3,983 $ 440
--------- ---------
--------- ---------
</TABLE>
Realization of the net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income and
the utilization of tax planning strategies. At December 31, 1995, the Company
established a valuation allowance on deferred tax assets which management
believed was more likely than not would not be realized. With the acquisition of
Western, and the current period earnings of Monarch, management now believes the
future income of the Company is sufficient to conclude that it is more likely
than not that all deferred tax assets will be realized. As a result, no
valuation allowance is recorded at December 31, 1996 and the valuation allowance
existing at December 31, 1995 was recognized in 1996 earnings.
On December 31, 1996 the Company had $2,694,348 and $1,079,823 of federal
and California net operating loss carryovers, respectively, and $333,480 in tax
credit carryforwards. During 1995, the Company entered into a recapitalization
plan which resulted in a change in ownership for purposes of Internal Revenue
Code ("IRC") Section 382. IRC section 382 imposes restrictions on the
utilizations of certain tax loss and credit carryforwards which resulted in
$1,741,155 and $126,628 of the federal and California net operating loss
carryovers and $333,486 of tax credit carryovers no longer being available for
utilization.
Management believes that the remaining $953,193 and $953,195 of the federal
and California net operating losses will be realized. The net operating loss
carryovers have various expiration dates through
58
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
the year 2010. In 1996, the 1995 deferred tax assets, which are unrealizable
pursuant to IRC Section 382, have been reclassified to eliminate those deferred
tax assets and their corresponding valuation allowance.
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company and the Banks conduct operations from leased facilities under
operating leases which expire on various dates through 2001 and which contain
certain renewal options.
Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
Year ended December 31:
1997........................................................................ $ 711
1998........................................................................ 711
1999........................................................................ 711
2000........................................................................ 601
2001........................................................................ 544
Thereafter.................................................................. 932
------
$ 4,210
------
------
</TABLE>
Rental expense was $400,000 in 1996, and $267,000 in 1995. Rental expense
for 1996 includes that for Western since the date of its acquisition.
Sublease rental income for the years ended December 31, 1996 and 1995
totaled approximately $54,000 and $66,000, respectively. The lease and sublease
related to $34,000 of the sublease income expired without renewal in June 1996.
Of the remaining amount, $5,000 relates to a sublease on a month to month basis
and $15,000 relates to a sublease that expires in October, 1999.
The Company and the Banks are parties to litigation and claims arising in
the normal course of business. Management, after consultation with legal
counsel, believes that the liability, if any, arising from such litigation and
claims will not be material to the consolidated financial statements.
NOTE 12--RELATED PARTY TRANSACTIONS
The Banks had loans outstanding to principal officers and directors and
their affiliated companies which were made substantially on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers and do not involve more than the
normal risks of collectibility.
59
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--RELATED PARTY TRANSACTIONS (CONTINUED)
An analysis of the activity with respect to such loans to related parties is
as follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance, January 1......................................................... $ 248 $ 141
Additions due to acquisitions.............................................. 184 --
New loans.................................................................. 791 176
Repayments................................................................. (413) (69)
--------- ---------
Balance, December 31....................................................... $ 810 $ 248
--------- ---------
--------- ---------
</TABLE>
The 1996 balance does not include $136,000 in overdraft arrangements on
deposit account, consumer credit cards and lines of credit. New loans in 1996
include an existing loan for $470,000 which became a related party loan when the
person joined the Company as an officer in 1996.
Monarch's health and life insurance programs have been contracted based on
competitive bids through Rice Brown Financial. The principal of Rice Brown
Financial is an insurance broker and a director of the Company and Monarch.
On January 1, 1996 the Company engaged one of its directors as a financial
advisor. The engagement agreement provides for a monthly fee of $3,000 plus
expenses beginning January 1, 1996. The agreement may be terminated by either
the Company or the director upon 30 days written notice.
Belle Plaine Partners, Inc. and Belle Plaine Financial, L.L.C. are entities
related to a director of the Company. Belle Plaine Partners, Inc. serves as
financial advisor to the Company under an engagement letter dated May, 1995. In
that capacity, Belle Plaine Partners, Inc. was paid fees of approximately $1.4
million for evaluating and identifying potential acquisitions including the
acquisition of Western which closed September 30, 1996. It is also anticipated
that Belle Plaine Partners, Inc. will be paid fees of approximately $1.35
million in connection with the acquisition of California Commercial Bankshares
("CCB") by the Company. Belle Plaine Financial, LLC was engaged by the Company
to raise capital to consummate the acquisition of Western. Belle Plaine
Financial, LLC was paid $863 thousand for its services and was reimbursed for
expenses incurred in the course of that engagement. The agreement may be
terminated by either party upon 30 days written notice.
NOTE 13--BENEFITS PLANS
On May 16, 1995, the Board of Directors approved the 1995 Directors Deferred
Compensation Plan which was approved by shareholders on July 17, 1995. The plan
is effective for fees earned on and after July 1, 1995. No compensation has been
awarded under the plan.
During 1992 the Company adopted an employee stock ownership and salary
deferral plan ("KSOP"). In 1992, the KSOP obtained a $250,000 loan from another
financial institution, which was guaranteed by the Company, and between 1992 and
1993 acquired approximately 50,000 shares of the Company's common stock.
Repayments on the loan are made by employee salary deductions and from possible
matching contributions by the Company. The loan had a term of five years and an
interest rate of 8%. The Company's contributions to the KSOP totaled
approximately $46,000 in 1995. No contributions were made in 1996. In September
of 1996 the Company terminated the KSOP plan and recorded a related expense of
60
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--BENEFITS PLANS (CONTINUED)
approximately $189,000 for repayment of the loan and other termination expenses.
The loan was classified in other liabilities as of December 31, 1996 and was
paid off in January of 1997.
Western has a 401(k) plan which is intended to qualify under section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees from the first day of the month following the date
of hire. Employees may elect to make both pre-tax and after-tax contributions.
The 401(k) Plan also provides for discretionary Company matching contributions.
The Company contributions to the 401 (k) Plan, plus any earnings they generate,
are fully and immediately vested. The 401(k) Plan will be made available to
Monarch employees. No contributions were made by the Company in 1996.
NOTE 14--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company and its banking subsidiaries are parties to financial
instruments with off-balance-sheet risk in its normal course of business in
meeting the financial needs of their customers. These financial instruments
consist primarily of commitments to extend credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The same
credit policies are used in making commitments and conditional obligations as
those used for on-balance-sheet instruments.
At December 31, the Company had the following commitments to extend credit:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Loan commitments...................................................... $ 52,925 $ 6,557
Standby letters of credit............................................. 7,336 10
--------- ---------
$ 60,261 $ 6,567
--------- ---------
--------- ---------
</TABLE>
In addition to the amounts above, approximately $1,768 thousand in consumer
credit card and overdraft commitments were outstanding as of December 31, 1996
and 1995. Loan commitment arrangements represent commercial lines of credit with
variable interest rates determined at the time funds are drawn by adding an
interest spread to an agreed upon index. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract; they generally have fixed expiration
dates or other termination clauses and may require a fee. The total commitment
amount generally represents future cash requirements. However, many commitments
expire without being used. Standby letters of credit are conditional commitments
issued by the Banks to guarantee performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
61
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
The following methods and assumptions were used to estimate the fair value
of significant financial instruments:
FINANCIAL ASSETS
The carrying amounts of cash and due from banks, federal funds sold, and
interest bearing deposits are considered to approximate fair value. The fair
value of investment securities is generally based on quoted market prices. The
fair value of loans is estimated using a combination of techniques, including
discounting estimated future cash flows and quoted market prices of similar
instruments, where available, taking into consideration the varying degrees of
credit risk.
FINANCIAL LIABILITIES
The carrying amounts of deposit liabilities payable on demand is considered
to approximate fair value. For fixed maturity deposits, fair value is estimated
by discounting estimated future cash flows using currently offered rates for
deposits of similar remaining maturities. The fair value of notes payable is
based on rates currently available to the Company for debt with similar terms
and remaining maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of commitments to extend credit and standby letters of credit
is estimated using the fees currently charged to enter into similar agreements.
The fair value of these financial instruments is not material.
62
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of financial instruments at December 31, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
Financial Assets:
Cash and due from banks........................................... $ 37,385 $ 37,385
Federal Funds Sold................................................ 4,217 4,217
Investment Securities............................................. 164,724 164,699
Loans............................................................. 254,723 254,184
Financial Liabilities:
Deposits.......................................................... $ 442,984 $ 443,190
Notes payable..................................................... 11,000 11,000
DECEMBER 31, 1995
Financial Assets:
Cash and due from banks........................................... $ 4,747 $ 4,747
Federal Funds Sold................................................ 2,938 2,938
Investment Securities............................................. 28,863 28,895
Loans............................................................. 31,666 31,531
Financial Liabilities:
Deposits.......................................................... 58,742 58,740
</TABLE>
NOTE 16--REGULATORY MATTERS
EXAMINATIONS OF MONARCH
Following the conclusion of a joint, second quarter 1994 FDIC and California
State Banking Department (Superintendent) examination of Monarch, Monarch
stipulated to the issuance of a Section 8(b) Order and a California Financial
Code Section 1913 Order (the "Orders") which became effective on December 23,
1994 and December 14, 1994, respectively. The Orders were similar in content and
required Monarch to perform several actions within certain time frames.
The California State Banking Department completed an examination of Monarch
in 1995 and informed Monarch that it had been rated satisfactory and the State
removed its 1913 Order on December 29, 1995.
The FDIC removed their Order on March 6, 1996 when Monarch signed a
Memorandum of Understanding ("MOU"). On July 3, 1996, the MOU was terminated by
the FDIC.
RISK-BASED CAPITAL STANDARDS
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the
63
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--REGULATORY MATTERS (CONTINUED)
regulatory framework for prompt corrective action, specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items, as calculated under regulatory accounting practices,
must be met. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. The banking regulators have advised the Company and the Banks
that they are considered well capitalized at December 31, 1996.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum ratios based on average
and risk weighted assets as set forth below. Actual capital ratios for the
Company and the Banks as of December 31, 1996 are also shown in the table:
<TABLE>
<CAPTION>
ADEQUATELY WELL COMPANY
CAPITALIZED CAPITALIZED MONARCH WESTERN CONSOLIDATED
----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Detailed computations of
Tier 1 leverage capital
ratio....................... 34.00% 35.00% 8.07% 6.05% 5.07%
Tier 1 risk-based capital
ratio....................... 34.00% 36.00% 13.64% 10.93% 9.05%
Total risk-based capital...... 38.00% 310.00% 14.89% 12.19% 10.30%
</TABLE>
NOTE 17--CONDENSED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Assets:
Cash and due from banks............................................ $ 4,696 $ 194
Investments in bank subsidiaries................................... 60,344 5,749
Securities available for sale...................................... 262 5,186
Other assets....................................................... 673 --
---------- ---------
Total Assets..................................................... $ 65,975 $ 11,129
---------- ---------
---------- ---------
Liabilities:
Notes payable...................................................... $ 11,000 $ 132
Other liabilities.................................................. 847 --
---------- ---------
11,847 132
Shareholders' equity................................................. 54,128 10,997
---------- ---------
Total Liabilities and shareholders' equity....................... $ 65,975 $ 11,129
---------- ---------
---------- ---------
</TABLE>
64
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--CONDENSED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1995
---------- ---------
CONDENSED STATEMENT OF OPERATIONS
<S> <C> <C>
Interest income...................................................... $ 223 $ 107
Management fees...................................................... 58 --
---------- ---------
Total income....................................................... 281 107
Interest expense..................................................... 191 1
Other expense........................................................ 1,167 69
---------- ---------
Total expense...................................................... 1,358 70
---------- ---------
Income (loss) before taxes and equity in undistributed subsidiary
earnings....................................................... (1,077) 37
Income tax expense (benefit)......................................... (431) --
---------- ---------
Income (loss) before equity in undistributed earnings of bank
subsidiaries....................................................... (646) 37
Equity in undistributed income (loss) of bank subsidiaries........... 1,384 646
---------- ---------
Net income......................................................... $ 738 $ 683
---------- ---------
---------- ---------
CONDENSED STATEMENTS OF CASH FLOWS
Net income (loss).................................................... $ 738 $ 683
Change in other assets............................................... (673) --
Change in other liabilities.......................................... 847 --
Equity in undistributed subsidiary (earnings) losses................. (1,384) (646)
---------- ---------
Cash flows from operating activities............................... (472) 37
Acquisition of Western Bank, including acquisition costs............. (53,154) --
Net change in securities available for sale.......................... 4,924 --
Other investing activities........................................... 127 (8,944)
---------- ---------
Cash flows from investing activities............................... (48,103) (8,944)
Net proceeds from issuance of common stock net of issuance costs..... 42,213 9,668
Issuance of debt..................................................... 11,000 --
Other financing activities........................................... (136) (589)
---------- ---------
Cash flows from financing activities............................... 53,077 9,079
Net increase (decrease) in cash...................................... 4,502 172
Cash beginning of year............................................... 194 22
---------- ---------
Cash end of year..................................................... $ 4,696 $ 194
---------- ---------
---------- ---------
</TABLE>
NOTE 18--STOCK OPTION PLAN AND WARRANTS
In 1993, the Company adopted a stock option plan (the "Plan") pursuant to
which the Company's Board of Directors may grant stock options to officers,
directors and key employees. The Plan authorizes grants of options to purchase
up to 3,437,482 shares of authorized but unissued common stock. Stock options
are granted with an exercise price greater than or equal to the stock's fair
market value at the date of grant. Qualified stock options have 5-year terms and
vest over a three year period from the date of grant. Non-qualified stock
options have 10-year terms and vest over a three year period from the date of
grant
65
<PAGE>
MONARCH BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--STOCK OPTION PLAN AND WARRANTS (CONTINUED)
At December 31, 1996, there were 2,189,899 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1996 was $0.64 using the Black Scholes option-pricing model with
the following weighted-average assumptions: (i) no dividends are expected to be
paid; (ii) risk-free interest rate of 5.20% to 6.27%; (iii) an expected life of
2 1/2 to 5 years; and (iv) an estimated volatility of 40%. There were no options
granted in 1995.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS 123, the
Company's net income and earnings per share, net of tax effect, would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
---------
<S> <C> <C>
Net income As reported.................................................. $ 738
Pro forma.................................................... 656
Earnings per share As reported.................................................. $ 0.05
Pro forma.................................................... 0.04
</TABLE>
The pro forma earnings per share for December 31, 1996 was based on 14,879
thousand of weighted average common shares. The pro forma amounts shown above
may not be representative of the effects on reported net income for future
periods.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Balance at December 31, 1994................................... 109,016 $ 4.25
Granted...................................................... --
Exercised.................................................... --
Canceled..................................................... (109,016) 4.25
Expired...................................................... --
----------
Balance at December 31, 1995................................... --
Granted...................................................... 1,262,022 1.65
Exercised.................................................... --
Forfeited.................................................... (14,439) 1.62
Expired...................................................... --
----------
Balance at December 31, 1996................................... 1,247,583 $ 1.65
----------
----------
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was between $1.62 and $1.65
and 8 1/2 years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 127,583
and 0, respectively, and the weighted average exercise price of those options
exercisable at December 31, 1996 was $1.62.
At December 31, 1996 and 1995, there were also exercisable warrants
outstanding of 1,195,812 and 411,421, respectively, and the weighted average
exercise price of those warrants exercisable was $1.86 and $1.62, respectively.
Of the warrants outstanding on December 31, 1996, 411,421 expire on September
30, 2000 and 784,391 expire on September 30, 2001.
66
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Board of Directors of Monarch Bancorp appointed KPMG Peat Marwick LLP as
its auditors on September 18, 1996 and replaced Dayton & Associates, which is
now Vavrinek, Trine, Day & Co.
Dayton & Associates' report dated February 7, 1996, except for Note 16 as to
which the date is March 31, 1996 and Note 17 as to which the date is April 25,
1996, on the Company's financial statements for the year ended December 31, 1995
did not include an adverse opinion or disclaimer opinion nor was it qualified as
to audit scope or accounting principles.
During the Company's fiscal years ended December 31, 1994 and December 31,
1995, and subsequent interim period, there were no disagreements with Dayton &
Associates on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
Dayton & Associates' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their Report.
During the Company's fiscal years ended December 31, 1994 and December 31,
1995, and subsequent interim period:
(a) Dayton & Associates has not advised the Company that there do not
exist the internal controls necessary for the Company to develop reliable
financial statements;
(b) Dayton & Associates has not advised the Company that information had
come to their attention that has led them to no longer be able to rely on
management's representations, or that has made Dayton & Associates unwilling
to be associated with the financial statements prepared by management;
(c) Dayton & Associates has not advised the Company that they needed to
expand significantly the scope of their audit, or that information has come
to their attention during such time period that if further investigated may
(i) materially impact the fairness or reliability of either the previously
issued audit report or the underlying financial statements, or the financial
statements to be issued covering the fiscal period subsequent to the date of
the most recent financial statements covered by an audit report or (ii)
cause Dayton & Associates to be unwilling to rely on management's
representations or be associated with the Company's financial statements;
and
(d) Dayton & Associates has not advised the Company that information has
come to their attention of the type described in subparagraph (c) above, the
issue not being resolved to their satisfaction prior to its dismissal.
The Company has not, during its fiscal years ending December 31, 1994 and
December 31, 1995, and the subsequent interim periods, consulted with KPMG Peat
Marwick LLP regarding the application of accounting principles to a specifc
transaction or the type of audit opinion that might be rendered on the Company's
financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Directors and
Nominees," "--Committees of the Board of Directors," "--Executive Officers" and
"--Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Joint Proxy Statement--Prospectus of the Company and California Commercial
Bankshares to be delivered to the Company's shareholders in connection with its
1997 Annual Meeting of Shareholders (the "Proxy Statement").
67
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Executive
Compensation" in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Security
Ownership of Certain Beneficial Owners and Monarch Management" in the Proxy
Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Certain
Relationships and Related Transactions" in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBITS NUMBER
- ---------------
<C> <S>
2.1 Plan of Reorganization and Merger Agreement. (Exhibit A of Registration Statement No. 2-84426
incorporated by reference)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of December 19, 1996, by and between
Monarch Bancorp and California Commercial Bankshares
2.3 Agreement and Plan of Merger, dated as of March 15, 1997, by and between Monarch Bank and National
Bank of Southern California
3.1 Articles of Incorporation of the Holding Company (Exhibit 3.11 of Registration Statement No. 2-84426
incorporated by reference)
3.2 Bylaws of the Holding Company (Exhibit 3.2 of Registration Statement No. 2-84426 incorporated by
reference)
3.3 Amended Articles of Incorporation approved in the July 1988 Shareholders Meeting (Exhibit 3.3 of
12/31/89 Annual Report on Form 10-K incorporated by reference)
3.4 Amended Bylaws approved on October 19, 1988 (Exhibit 3.4 of 12/31/89 Annual Report on Form 10-K
incorporated by reference)
3.5 Amended Bylaws approved on February 29, 1996 (Exhibit 3.5 of 12/31/95 Annual Report of Form 10KSB
incorporated by reference)
4.0 Form of Indenture (Exhibit 4.1 of Registration Statement No. 2-85442 incorporated by reference)
4.1 Warrant Agreement for warrants issued in June 1988 at the close of the California Offering. (Exhibit
4.1 of 12/31/89 Annual Report on Form 10-K incorporated by reference)
4.2 Convertible subordinated note issued in September 1988. (Exhibit 4.2 of 12/31/89 Annual Report on
Form 10-K incorporated by reference)
4.6 Stock Option Agreement, dated December 19, 1996, between CCB and Monarch
4.7 Warrant Certificate No. 1, dated November 5, 1996, in favor of John M. Eggemeyer
4.8 Warrant Certificate No. 2, dated November 5, 1996, in favor of William J. Ruh
4.9 Warrant Certificate No. 3, dated November 5, 1996, in favor of John W. Rose
4.10 Warrant Certificate No. 4, dated November 5, 1996, in favor of Mark G. Merlo
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS NUMBER
- ---------------
<C> <S>
4.11 Warrant Certificate No. 1, dated November 5, 1996, in favor of Castle Creek Capital Partners Fund-I
4.12 Warrant Certificate No. 2, dated November 5, 1996, in favor of John M. Eggemeyer, III
4.13 Warrant Certificate No. 3, dated November 5, 1996, in favor of William Ruh
4.14 Warrant Certificate No. 4, dated November 5, 1996, in favor of Dan Davis
4.15 Warrant Certificate No. 5, dated November 5, 1996, in favor of Mark Merlo
4.16 Warrant Certificate No. 6, dated November 5, 1996, in favor of William Moody
4.17 Warrant Certificate No. 7, dated November 5, 1996, in favor of HCM Castle Creek, Inc.
4.18 Warrant Certificate No. 8, dated November 5, 1996, in favor of Castle Creek Financial Investors,
Inc.
4.19 Warrant Certificate No. 9, dated November 5, 1996, in favor of Whitecap Capital, L.L.C.
4.20 Warrant Certificate No. 10, dated November 5, 1996, in favor of Cook-Castle Creek, Inc.
4.21 Warrant Certificate No. 11, dated November 5, 1996, in favor of Castle Creek Investors, L.L.C.
9.1 Shareholder Agreement, dated as of December 19, 1996, by and between Farrell G. Hinkle and Monarch
Bancorp
9.2 Shareholder Agreement, dated as of December 19, 1996, by and between Phillip L. Bush and Monarch
Bancorp
9.3 Shareholder Agreement, dated as of December 19, 1996, by and between Michael Gertner and Monarch
Bancorp
9.4 Shareholder Agreement, dated as of December 19, 1996, by and between James W. Hamilton and Monarch
Bancorp
9.5 Shareholder Agreement, dated as of December 19, 1996, by and between William H. Jacoby and Monarch
Bancorp
9.6 Shareholder Agreement, dated as of December 19, 1996, by and between Robert L. McKay and Monarch
Bancorp
9.7 Shareholder Agreement, dated as of December 19, 1996, by and between Mark H. Stuenkel and Monarch
Bancorp
10.0 Monarch Bancorp 1983 Stock Option Plan; Form Incentive Stock Option Agreement and Form Nonstatutory
Stock Option Agreement (Exhibit 10.2 of Registration Statement No. 2-85442 incorporated by
reference)
10.1 Headquarters Office Lease (Exhibit 10.3 of Registration Statement No. 2-85442 incorporated by
reference)
10.2 27751 La Paz Lease (Exhibit 3.5 of 12/31/84 Annual Report on Form 10-K incorporated by reference)
10.3 30100 Town Center Drive Lease (Exhibit 3.6 of 12/31/84 (Annual Report on Form 10-K incorporated by
reference)
10.4 Lease agreement for Bank assets sold and leased back from Parker North American in 1988. (Exhibit
10.4 of 12/31/89 Annual Report on Form 10-K incorporated by reference)
10.5 Amended Stock Option Plan as approved in the July 1988 Shareholders' Meeting. (Exhibit 10.5 of
12/31/89 Annual Report on Form 10-K incorporated by reference)
10.6 Stock Option Plan as approved in June 1993 Shareholders' Meeting (Exhibit 10.6 of original filing of
12.31/93 Annual Report on Form 10-KSB incorporated by reference)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS NUMBER
- ---------------
<C> <S>
10.8 General Release of Claims and Agreement, dated February 1, 1997, among E. Lynn Caswell, Monarch and
Monarch Bank
10.9 1993 Stock Option Plan as Amended May 15, 1996
10.10 Form of Stock Option Agreement
11.0 Computation of Per Earnings Common Stock and Common Share Equivalents (See Consolidated Statements
of Income contained in ITEM 7 of this Annual Report on Form 10-KSB incorporated by reference)
16.0 Letter of Dayton & Associates on change in Certifying Accountant
21.0 Subsidiaries of Monarch Bancorp
27.0 Financial Data Schedule
28.1 February 15, 1988 California Offering Circular (Exhibit 28.1 of 12/31/87 Form 10-K incorporated by
reference)
28.2 Written Consent Statement for Proposed Amendment to the Articles of Incorporation to Increase the
Number of Authorized Shares (Original filing 1/12/96)
28.3 Prospectus for rights and public offering of up to 3,177,296 shares of common stock (Original filing
7/19/95)
</TABLE>
(b) REPORTS ON FORM 8-K
On October 4, 1996, the Company filed a Form 8-K discussing a change in
control of the company, the acquisition of Western Bank, a change in the
Company's certifying accounts and the resignation of directors.
On December 2, 1996, the Company filed a Form 8-K containing the pro forma
combined financial statements with Western Bank.
On December 20, 1996, the Company filed a Form 8-K announcing the merger
agreement reached with California Commercial Bankshares.
On February 28, 1997, the Company filed a Form 8-K announcing its
Fourth-Quarter Earnings and the number of shares of common stock to be exchanged
in connection with the merger with California Commercial Bankshares.
70
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MONARCH BANCORP
By: /s/ HUGH S. SMITH, JR.
-----------------------------------------
Hugh S. Smith, Jr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: March 19, 1997
In accordance with the Securities Exchange Act, this report has been signed
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ARNOLD C. HAHN Executive Vice President
- ------------------------------ and Chief Financial March 19, 1997
Arnold C. Hahn Officer
/s/ RICE E. BROWN
- ------------------------------ Director March 19, 1997
Rice E. Brown
/s/ JOSEPH J. DIGANGE
- ------------------------------ Director March 19, 1997
Joseph J. Digange
/s/ JOHN W. ROSE
- ------------------------------ Director March 19, 1997
John W. Rose
/s/ MATTHEW P. WAGNER
- ------------------------------ Director March 19, 1997
Matthew P. Wagner
/s/ DALE E. WALTER
- ------------------------------ Director March 19, 1997
Dale E. Walter
/s/ JOHN M. EGGEMEYER
- ------------------------------ Director March 19, 1997
John M. Eggemeyer
71
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APPENDIX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 19TH DAY OF DECEMBER, 1996
BY AND BETWEEN
MONARCH BANCORP
AND
CALIFORNIA COMMERCIAL BANKSHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
RECITALS
ARTICLE I. THE MERGER
SECTION 1.1. Structure of the Merger.................................................................. C-7
SECTION 1.2. Effect on Outstanding Shares............................................................. C-7
SECTION 1.3. Exchange Procedures...................................................................... C-8
SECTION 1.4. Dissenters' Rights....................................................................... C-9
SECTION 1.5. Options.................................................................................. C-9
SECTION 1.6. Determinations of December 31, 1996 Shareholders' Equity................................. C-10
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1. Conduct of Business Prior to the Effective Time.......................................... C-10
SECTION 2.2. Forbearance.............................................................................. C-11
SECTION 2.3. Cooperation.............................................................................. C-12
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company............................................ C-12
SECTION 3.2. Representations and Warranties of Monarch................................................ C-22
ARTICLE IV. COVENANTS
SECTION 4.1. Acquisition Proposals.................................................................... C-30
SECTION 4.2. Certain Policies of the Company.......................................................... C-30
SECTION 4.3. Employee Benefits........................................................................ C-30
SECTION 4.4. Access and Information................................................................... C-31
SECTION 4.5. Certain Filings, Consents and Arrangements............................................... C-31
SECTION 4.6. Indemnification; Directors' and Officers' Insurance...................................... C-32
SECTION 4.7. Additional Agreements.................................................................... C-33
SECTION 4.8. Publicity................................................................................ C-33
SECTION 4.9. Registration Statement................................................................... C-33
SECTION 4.10. Shareholders' Meetings.................................................................. C-33
SECTION 4.11. Notification of Certain Matters......................................................... C-33
SECTION 4.12. No Acquisitions of Company Common Stock................................................. C-34
SECTION 4.13. Securities Act.......................................................................... C-34
SECTION 4.14. Quotation on NASDAQ..................................................................... C-34
SECTION 4.15. Tax-Free Reorganization Treatment; Pooling.............................................. C-34
SECTION 4.16. Shareholder Agreements.................................................................. C-34
SECTION 4.17. Director and Officer Resignations....................................................... C-34
SECTION 4.18. Consummation of Company Bank and Monarch Bank Merger.................................... C-34
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. Conditions to All Parties' Obligations................................................... C-35
SECTION 5.2. Conditions to the Obligations of Monarch................................................. C-36
SECTION 5.3. Conditions to the Obligation of the Company.............................................. C-37
ARTICLE VI. TERMINATION
SECTION 6.1. Termination.............................................................................. C-37
SECTION 6.2. Effect of Termination.................................................................... C-38
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. Effective Date and Effective Time........................................................ C-39
</TABLE>
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ARTICLE VIII. OTHER MATTERS
SECTION 8.1. Certain Definitions; Interpretation...................................................... C-39
SECTION 8.2. Survival................................................................................. C-40
SECTION 8.3. Waiver................................................................................... C-40
SECTION 8.4. Counterparts............................................................................. C-40
SECTION 8.5. Governing Law............................................................................ C-41
SECTION 8.6. WAIVER OF JURY TRIAL..................................................................... C-41
SECTION 8.7. Expenses................................................................................. C-41
SECTION 8.8. Notices.................................................................................. C-41
SECTION 8.9. Entire Agreement; Etc.................................................................... C-42
SECTION 8.10. Assignment.............................................................................. C-42
Schedule 2.2(b)*
Schedule 4.16*
LIST OF ANNEXES*
Annex 1 - Monarch Rights (Recital C)
Annex 2 - Company Rights (Recital E)
Annex 3 - Form of Shareholder Agreement (Section 4.16)
Annex 3A - Form of Shareholder Agreement to be signed (Section 4.16)
Annex 4 - Form of Opinion of Company Counsel (Section 5.2(c))
Annex 5 - Form of Opinion of Monarch Counsel (Section 5.3(b))
Annex 6 - Calculation of Company Per Share Book Value (Section 8.1)
Annex 7 - Certificate of Merger and Related Document
</TABLE>
- ------------------------
*Omitted from this Joint Proxy Statement--Prospectus
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INDEX OF DEFINED TERMS
<TABLE>
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PAGE
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<S> <C>
Acquisition Proposal....................................................................................... 43
Affiliates................................................................................................. 50
BHC Act.................................................................................................... 1
BIF........................................................................................................ 13
Certificate................................................................................................ 4
Code....................................................................................................... 2
Company.................................................................................................... 1
Company Bank............................................................................................... 2
Company Book Value......................................................................................... 59
Company Common Stock....................................................................................... 2
Company Counsel............................................................................................ 54
Company Disclosure Letter.................................................................................. 13
Company Employee Plans..................................................................................... 20
Company ERISA Affiliate.................................................................................... 20
Company ERISA Affiliate Plan............................................................................... 20
Company Option............................................................................................. 7
Company Pension Employee................................................................................... 20
Company Per Share Book Value............................................................................... 59
Company Pooling Condition.................................................................................. 55
Company Properties......................................................................................... 24
Company Reports............................................................................................ 15
Company Rights............................................................................................. 2
Confidentiality Agreement.................................................................................. 45
Continued Employee......................................................................................... 44
Conversion Number.......................................................................................... 3
Costs...................................................................................................... 46
Covered Person............................................................................................. 27
Deal Expenses.............................................................................................. 59
Dissenters' Shares......................................................................................... 3
Dissenters' Rights Condition............................................................................... 54
Effective Date............................................................................................. 59
Effective Time............................................................................................. 59
Environmental Law.......................................................................................... 25
ERISA...................................................................................................... 20
ERISA Affiliate............................................................................................ 20
Exchange Agent............................................................................................. 4
FDIC....................................................................................................... 13
Federal Reserve Board...................................................................................... 1
GAAP....................................................................................................... 60
Government Regulators...................................................................................... 18
Hazardous Substance........................................................................................ 25
Indemnified Parties........................................................................................ 46
IRS........................................................................................................ 22
Material................................................................................................... 60
Material Adverse Effect.................................................................................... 60
Maximum Amount............................................................................................. 47
Meeting.................................................................................................... 49
Merger..................................................................................................... 3
</TABLE>
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Merger Consideration....................................................................................... 3
Monarch.................................................................................................... 1
Monarch Book Value......................................................................................... 60
Monarch Common Stock....................................................................................... 1
Monarch Disclosure Letter.................................................................................. 28
Monarch Employee Plans..................................................................................... 35
Monarch ERISA Affiliate.................................................................................... 35
Monarch ERISA Affiliate Plan............................................................................... 35
Monarch Pension Plan....................................................................................... 35
Monarch Per Share Book Value............................................................................... 60
Monarch Pooling Condition.................................................................................. 53
Monarch Properties......................................................................................... 39
Monarch Reports............................................................................................ 30
Monarch Rights............................................................................................. 1
Monarch's Benefit Plans.................................................................................... 44
NASDAQ..................................................................................................... 4
OCC........................................................................................................ 16
OREO....................................................................................................... 25
PBGC....................................................................................................... 20
Person..................................................................................................... 61
Plan....................................................................................................... 1
Registration Statement..................................................................................... 48
Regulatory Agencies........................................................................................ 16
Retention Bonuses.......................................................................................... 61
SEC........................................................................................................ 15
Securities Act............................................................................................. 27
Securities Exchange Act.................................................................................... 15
Shareholder Agreements..................................................................................... 51
Significant Subsidiaries................................................................................... 16
SRO........................................................................................................ 16
State Corporation Law...................................................................................... 3
State Regulator............................................................................................ 16
Subsidiary................................................................................................. 61
Surviving Corporation...................................................................................... 3
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of the 19th day
of December, 1996 (this "Plan"), by and between Monarch Bancorp, a California
corporation ("Monarch"), and California Commercial Bankshares, a California
corporation (the "Company").
RECITALS:
A. AMENDMENT AND RESTATEMENT. Monarch and the Company desire to amend and
restate the provisions of that certain Agreement and Plan of Merger, dated as of
December 19, 1996, by and between Monarch and the Company in order to clarify
the understandings of the parties with respect to certain of the terms set forth
therein, and, subject to Section 8.9 hereof, Monarch and the Company intend that
this Plan, as so amended and restated hereby, shall hereafter constitute the
entire agreement of the parties with respect to the matters set forth herein.
B. MONARCH. Monarch is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, with its
principal executive offices located in Laguna Niguel, California. As of the date
hereof, Monarch has (i) 100 million authorized shares of common stock, no par
value ("Monarch Common Stock"), of which no more than 36,818,216 shares were
outstanding as of the date hereof (including 2,443,395 shares to be issued upon
the completion of the exercise of certain options and warrants), (ii) 5 million
authorized shares of preferred stock, none of which were outstanding, and (iii)
no other class of capital stock authorized. Monarch is a bank holding company
duly registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended
(the "BHC Act").
C. MONARCH RIGHTS, ETC. Monarch does not have any shares of its capital
stock reserved for issuance, any outstanding option, call or commitment relating
to shares of its capital stock or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any person any right
(including, without limitation, preemptive rights) to subscribe for or acquire
from it, any shares of its capital stock (collectively, "Monarch Rights"),
except pursuant to the options, warrants, awards and other rights described on
Annex 1 (which includes details on the terms and conditions of any such Monarch
Rights, including the grantee, vesting periods and exercise prices of any
options and the exercise price of any warrants).
D. THE COMPANY. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California, with
its principal executive offices located in Newport Beach, California. As of the
date hereof, the Company has (i) 10,000,000 authorized shares of common stock,
no par value ("Company Common Stock"), of which no more than 3,193,822 shares
were outstanding as of the date hereof (including 236,750 shares to be issued
upon the completion of the exercise of certain options, warrants and awards),
(ii) 1,000,000 authorized shares of preferred stock, none of which were
outstanding, and (iii) no other class of capital stock authorized. The Company
is a bank holding company duly registered with the Federal Reserve Board under
the BHC Act.
E. COMPANY RIGHTS, ETC. The Company does not have any shares of its
capital stock reserved for issuance, any outstanding option, call or commitment
relating to shares of its capital stock or any outstanding securities,
obligations or agreements convertible into or exchangeable for, or giving any
person any right (including, without limitation, preemptive rights) to subscribe
for or acquire from it, any shares of its capital stock (collectively, "Company
Rights"), except pursuant to the options, warrants, awards, and other rights
described on Annex 2 (which includes details on the terms and conditions of any
Company Rights, including the grantee, vesting periods and exercise prices of
any options).
F. BOARD APPROVALS. The respective Boards of Directors of Monarch and the
Company have duly approved this Plan and have duly authorized its execution and
delivery.
G. INTENTION OF THE PARTIES. It is the intention of the parties to this
Plan that (a) the Merger (as hereinafter defined) for federal income tax
purposes shall qualify as a "reorganization" within the meaning
C-6
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of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"),
(b) the Merger for accounting purposes shall qualify as a "pooling of
interests," unless the Monarch Pooling Condition (as defined herein) and the
Company Pooling Condition (as defined herein) are waived by the parties hereto
and (c) immediately following the Merger, Monarch Bank, a wholly-owned
Subsidiary of Monarch, shall be merged into National Bank of Southern California
(the "Company Bank"), a wholly-owned Subsidiary of the Company, with the Company
Bank as the survivor (the "Bank Merger").
H. STOCK OPTION AGREEMENT. Concurrently herewith, the Company and Monarch
are entering into a Stock Option Agreement, to be dated the date hereof, whereby
the Company will grant to Monarch the option to purchase up to 19.9% of the
outstanding shares of the Company Common Stock upon the occurrence of certain
events.
In consideration of their mutual promises and obligations hereunder, the
parties hereto adopt and make this Plan and prescribe the terms and conditions
hereof and the manner and basis of carrying it into effect, which shall be as
follows:
ARTICLE I. THE MERGER
SECTION 1.1. STRUCTURE OF THE MERGER. On the Effective Date (as defined in
Section 7.1 hereof), the Company will merge (the "Merger") with and into
Monarch, with Monarch being the surviving corporation (the "Surviving
Corporation"), pursuant to the provisions of, and with the effect provided in,
the California General Corporation Law (the "State Corporation Law"). The
separate corporate existence of the Company shall thereupon cease. The Surviving
Corporation shall continue to be governed by the State Corporation Law and its
separate corporate existence with all of its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. At the Effective
Time (as defined in Section 7.1 hereof), the articles of incorporation and
by-laws of the Surviving Corporation shall be the articles of incorporation and
by-laws of Monarch immediately prior to the Effective Time.
SECTION 1.2. EFFECT ON OUTSTANDING SHARES. (a) By virtue of the Merger,
each share of Company Common Stock issued and outstanding at the Effective Time
(other than (i) shares which have not been voted in favor of the approval of the
principal terms of this Plan and with respect to which dissenters' rights shall
have been perfected in accordance with State Corporation Law (the "Dissenters'
Shares") and (ii) shares held directly or indirectly by Monarch, other than
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall become and be converted, automatically and without any action
on the part of the holder thereof, into that number of shares of Monarch Common
Stock (the "Conversion Number") equal to the quotient obtained by dividing (i)
1.6 times the Company's Per Share Book Value (as defined in Section 8.1 hereof)
by (ii) Monarch's Per Share Book Value (as defined in Section 8.1 hereof) (the
aggregate of all such shares of Monarch Common Stock is hereinafter called the
"Merger Consideration"). To the extent permitted by applicable law,
preemptive rights with respect to the purchase of CCB Common Stock, if any
shall exist, shall terminate and cease to exist at the Effective Time.
(b) At the Effective Time, the issued and outstanding shares of Monarch
Common Stock, including shares issued pursuant to Section 1.2(a) hereof, shall
constitute all of the issued and outstanding shares of capital stock of the
Surviving Corporation.
(c) If Monarch effects a stock dividend, reclassification, recapitalization,
split-up, combination, exchange of shares or similar transaction after the date
hereof and before the Effective Time, the Conversion Number shall, if necessary,
be adjusted. As of the Effective Time, each share of Company Common Stock held
directly or indirectly by Monarch, other than shares held in a fiduciary
capacity or in satisfaction of a debt previously contracted, shall be cancelled,
retired and cease to exist, and no exchange or payment shall be made in respect
thereof.
(d) No fractional shares of Monarch Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Monarch Common Stock
pursuant to Section 1.2(a) hereof, cash adjustments will be paid to holders in
respect of any fractional share of Monarch Common Stock that
C-7
<PAGE>
would otherwise be issuable; the amount of such cash adjustment shall be equal
to such fractional proportion of the average closing price of a share of Monarch
Common Stock as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the five trading days immediately
prior to and including the trading day next preceding the Effective Time or, if
the Monarch Common Stock is not then quoted on NASDAQ, such fractional
proportion of an amount equal to the Monarch Per Share Book Value multiplied by
1.6.
(e) Dissenters' Shares shall be purchased and paid for in accordance with
Section 1300 et. seq. of the State Corporation Law.
SECTION 1.3. EXCHANGE PROCEDURES. (a) At and after the Effective Time,
each certificate theretofore representing shares of Company Common Stock (each,
a "Certificate") shall represent only the right to receive the applicable
portion of the Merger Consideration without interest.
(b) As of the Effective Time, Monarch shall deposit, or shall cause to be
deposited, with such bank or trust company as Monarch shall elect (which may be
a Subsidiary of Monarch) (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this Section
1.3, certificates representing the shares of Monarch Common Stock and cash in
lieu of fractional shares to be exchanged pursuant to Section 1.2 hereof for
outstanding shares of Company Common Stock.
(c) As soon as practicable after the Effective Time, Monarch shall cause the
Exchange Agent to mail to each holder of record of a Certificate or Certificates
the following: (i) a letter of transmittal specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates and, in the case of holders of more than 5% of the
Company Common Stock at the Effective Time, the letter referred to in Section
4.13(b) hereof, to the Exchange Agent, which transmittal letter shall be in a
form and contain any other customary provisions as Monarch may determine; and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the applicable portion of the Merger Consideration. Upon the proper
surrender of a Certificate to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor (1) a certificate
representing the number of whole shares of Monarch Common Stock and (2) a check
representing the amount of cash in lieu of any fractional shares and unpaid
dividends and distributions, if any, which such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions hereof, and
the Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the Merger Consideration. In the event of a transfer of
ownership of any shares of Company Common Stock not registered in the transfer
records of the Company, the exchange described in this Section 1.3(c) may
nonetheless be effected if the Certificate representing such Company Common
Stock is presented to the Exchange Agent, accompanied by documents sufficient,
in the discretion of Monarch and the Exchange Agent, (i) to evidence and effect
such transfer but for the provisions of Section 1.3(e) hereof and (ii) to
evidence that all applicable stock transfer taxes have been paid.
(d) Whenever a dividend or other distribution is declared by Monarch on
Monarch Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares issuable pursuant to this Plan; PROVIDED, HOWEVER, that no dividend or
other distribution declared or made on Monarch Common Stock shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Monarch
Common Stock represented thereby until the holder of such Certificate shall duly
surrender such Certificate in accordance with this Section 1.3. Following such
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Monarch Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions having a record date after the
Effective Time theretofore payable with respect to such whole shares of Monarch
Common Stock and not yet paid and (ii) at the appropriate payment date, the
amount of dividends or other distributions having
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(x) a record date after the Effective Time but prior to surrender and (y) a
payment date subsequent to surrender with respect to such whole shares of
Monarch Common Stock.
(e) From and after the Effective Time, there shall be no transfers on the
stock transfer records of the Company of any shares of Company Common Stock that
were outstanding immediately prior to the Effective Time. If Certificates are
presented to the Surviving Corporation after the Effective Time, they shall be
cancelled and exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Plan in accordance with the procedures set forth in
this Section 1.3.
(f) Any portion of the aggregate Merger Consideration that remains unclaimed
by the shareholders of the Company for six months after the Effective Time shall
be returned by the Exchange Agent to the Surviving Corporation. Any shareholder
of the Company who has not theretofore complied with this Section 1.3 shall
thereafter be entitled to look only to the Surviving Corporation for payment of
the Merger Consideration deliverable in respect of each share of Company Common
Stock held by such shareholder without any interest thereon. If 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 Monarch (and to the extent not in its possession shall be paid over
to Monarch), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, none of Monarch, the
Surviving Corporation, the Exchange Agent or any other person shall be liable to
any former holder of Company Common Stock for any amount delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Exchange
Agent, the posting by such person of a bond in such amount as the Exchange Agent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will effect the exchange of such
lost, stolen or destroyed Certificate for the portion of the Merger
Consideration deliverable in exchange therefor.
SECTION 1.4. DISSENTERS' RIGHTS. Any Dissenting Shareholder who shall be
entitled to be paid the "fair market value" of his or her Dissenters' Shares, as
provided in Section 1300 of the State Corporation Law, shall not be entitled to
the Merger Consideration 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
State Corporation Law, and shall be entitled to receive only the payment
provided for by Section 1300 of the State Corporation Law with respect to such
Dissenters' Shares. 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 pursuant to Section 1.2 hereof.
SECTION 1.5. OPTIONS. At the Effective Time, each option granted by the
Company to directors, officers and employees of the Company and the Company Bank
to purchase shares of Company Common Stock which, at the Effective Time, is
outstanding and has not been exercised (a "Company Option"), shall be converted
into an option to purchase shares of Monarch Common Stock in accordance with the
terms of the applicable Company stock option plan and the stock option agreement
by which it is evidenced. From and after the Effective Time, (i) each Company
Option may be exercised solely for shares of Monarch Common Stock, (ii) the
number of shares of Monarch Common Stock subject to such Company Option shall be
equal to the product (rounded down to the nearest whole share) of multiplying
the number of shares of Company Common Stock subject to such Company Option
immediately prior to the Effective Time by the Conversion Number and (iii) the
per share exercise price under each such Company Option
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shall be equal to the quotient (rounded down to the nearest cent) of dividing
the per share exercise price under each such Company Option by the Conversion
Number.
SECTION 1.6. DETERMINATIONS OF DECEMBER 31, 1996 SHAREHOLDERS' EQUITY. (a)
As promptly as practicable, but no less than seven business days prior to the
release of its 1996 earnings, each party hereto shall deliver to the other its
proposed consolidated statement of income and consolidated balance sheet, and
shall cause its independent accountants to make available to the other party
their work papers.
(b) If either party disagrees with the other's calculation of shareholders'
equity, it shall not later than the day prior to the seventh business day
following such delivery, deliver a notice specifying those items or amounts on
the financial statements as to which it disagrees, including the reasons for its
disagreement and its calculation of the relevant shareholders' equity.
(c) If a notice of disagreement shall be delivered pursuant to subsection
1.6(b) hereof, the parties shall, during the 10 days following such delivery,
use their best efforts to reach agreement on the disputed items or amounts, as
may be required, in order to determine the amount of the relevant shareholders'
equity, which amount shall not be more than the amount thereof shown in the
calculation delivered pursuant to subsection 1.6(a) hereof nor less than the
amount thereof shown in the calculation delivered pursuant to subsection 1.6(b)
hereof. If during such period the parties are unable to reach such agreement,
they shall promptly thereafter cause Price Waterhouse LLP or other firm of
independent accountants of nationally recognized standing reasonably
satisfactory to the parties (who shall not have any material relationship with
either of the parties, other than personal banking relationships that may be
maintained by partners of such firms in their individual capacity), promptly to
review the disputed items or amounts for the purpose of calculating the relevant
shareholders' equity. In making such calculation, such independent accountants
shall consider only those items or amounts as to which a party has disagreed.
Such independent accountants shall deliver to the parties, as promptly as
practicable, a report setting forth such calculation. Such report shall be final
and binding upon the parties. The cost of such review and report shall be borne
(i) by Monarch, if its consolidated shareholders' equity as determined pursuant
hereto shall be less than 97.5% of that delivered pursuant to subsection 1.6(a)
hereof, (ii) by the Company if its consolidated shareholders' equity as
determined pursuant hereto shall be less than 97.5% of that delivered pursuant
to subsection 1.6(a) hereof, (iii) by the challenging party if the consolidated
shareholder's equity of the other party as determined pursuant hereto shall be
not less than 99.5% of that delivered pursuant to subsection (a) hereof and (iv)
otherwise, 50% by each of the parties.
(d) The parties agree that they will, and agree to cause their respective
independent accountants to, cooperate and assist in the preparation of the
financial statements and in the conduct of the audits and reviews referred to in
this Section 1.6, including without limitation the making available to the
extent necessary of books, records, work papers and personnel.
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as
expressly provided in this Plan, during the period from the date of this Plan to
the Effective Time, each of Monarch and the Company shall, and shall cause each
of its respective Subsidiaries to, (i) conduct its business in the usual,
regular and ordinary course of business consistent with past practice, (ii) use
its reasonable best efforts to maintain and preserve intact its business
organization, properties, leases, employees and advantageous business
relationships and retain the services of its officers and key employees, (iii)
take no action which would adversely affect or delay the ability of the Company
or Monarch to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under this Plan and (iv)
take no action that is reasonably likely to have a Material Adverse Effect (as
defined in Section 8.1 hereof) on either Monarch or the Company.
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SECTION 2.2. FORBEARANCE. During the period from the date of this Plan to
the Effective Time, neither Monarch nor the Company shall, nor shall either
permit any of its respective Subsidiaries to, without in any such case the prior
consent of the other (it being understood that, except as otherwise specified
herein, for purposes of this Section 2.2, a consent shall be deemed given if,
within 3 business days after a request for any such consent is made by one
party, the other party does not object to the action for which the consent is
requested):
(a) incur any indebtedness for borrowed money (other than Federal Funds
borrowings) or assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other person;
(b) except as contemplated in Recital H and Schedule 2.2(b) hereto,
adjust, split, combine or reclassify any capital stock; make, declare or pay
any dividend or make any other distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of its capital stock or
any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or grant any stock appreciation rights or
grant, sell or issue to any individual, corporation or other person any
right or option to acquire, or securities evidencing a right to convert into
or acquire, any shares of its capital stock, or issue any additional shares
of capital stock except pursuant to the exercise of stock options, warrants,
awards and other rights outstanding as of the date hereof as set forth on
Annexes 1 and 2 and on the terms in effect on the date hereof;
(c) other than in the ordinary course of business consistent with past
practice and pursuant to policies currently in effect, sell, transfer,
mortgage, encumber or otherwise dispose of any of its properties, leases or
assets to any person, or cancel, release or assign any indebtedness of any
such person, except (i) pursuant to contracts or agreements in force as of
the date of this Plan or (ii) any such action or series of related actions
which result in a pre-tax loss of not more than $100,000;
(d) make any capital expenditures, other than capital expenditures made
in the ordinary course of business consistent with past practice in amounts
not exceeding $25,000 individually or $100,000 in the aggregate;
(e) increase in any manner the compensation or fringe benefits of any of
its employees or directors, or create or institute, or make any payments
pursuant to, any severance plan or package, or pay any pension or retirement
allowance not required by any existing plan or agreement to any such
employees or directors, or become a party to, amend or commit itself to or
fund or otherwise establish any trust or account related to any Employee
Plan (as defined in Section 3.1(p) hereof), with or for the benefit of any
employee, other than (i) general increases in compensation for employees in
the ordinary course of business consistent with past practices, (ii) bonuses
which have been accrued on the 1996 financial statements of the relevant
party in the ordinary course of business consistent with past practices or
(iii) any amendment required by applicable law (provided that any such
amendment shall provide the least increase to cost permitted under such
applicable law), or voluntarily accelerate the vesting of any stock options
or other compensation or benefit;
(f) (i) other than in the ordinary course of business consistent with
past practice in individual amounts not to exceed $100,000 or in securities
transactions as provided in (f)(ii) below, make any investment either by
contributions to capital, property transfers, or purchase of any property or
assets of any person, PROVIDED that neither party shall make any acquisition
of business operations without the other party's prior consent, or
(ii) other than purchases of direct obligations of the United States
of America or obligations of U.S. government agencies which are entitled
to the full faith and credit of the United States of America, in any case
with a remaining maturity at the time of purchase of three years or less,
purchase or acquire securities of any type; PROVIDED, HOWEVER, that, in
the case of investment securities, either party hereto may purchase (or
permit a Subsidiary to purchase) investment
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securities if, within one business day after such party requests in
writing (which notice shall describe in detail the investment securities
to be purchased and the price thereof) that the other consent to the
making of any such purchase, the other has approved such request in
writing or has not responded in writing to such request;
(g) enter into or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than with respect to those
involving aggregate payments of less than, or the provision of goods or
services with a market value of less than, $25,000;
(h) settle any claim, action or proceeding involving any liability of it
or any of its Subsidiaries for money damages in excess of $25,000 or
material restrictions upon the operations of the party or any of its
Subsidiaries;
(i) except in the ordinary course of business and in amounts less than
$100,000, waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim; PROVIDED,
HOWEVER, that either party hereto may take (or permit a Subsidiary to take)
any such action if, within two business days after such party requests in
writing (which request shall include information and analyses sufficient for
the other party to assess the proposed action) that the other party consent
to the taking of such action, the other party has approved such request in
writing or has not responded in writing to such request;
(j) make, renegotiate, renew, increase, extend or purchase any loan,
lease (credit equivalent), advance, credit enhancement or other extension of
credit, or make any commitment in respect of any of the foregoing, except
(i) in the ordinary course of business consistent with past practice and in
conformity with all applicable policies and procedures (ii) any loans or
advances as to which such party (or a Subsidiary thereof) has a legally
binding obligation to make such loan or advance as of the date hereof and a
description of which has been provided by such party in writing to the other
party prior to the execution of this Plan;
(k) except as contemplated by Section 4.2 hereof, change its method of
accounting as in effect at December 31, 1995, except as required by changes
in generally accepted accounting principles as concurred in by the party's
independent auditors;
(l) engage in any merger, consolidation or other similar transaction
with, or acquire a significant portion of the capital stock or assets of,
any other corporate or other entity except in the ordinary course of
business or in connection with foreclosures and collection on secured
interests;
(m) amend its articles of incorporation or its by-laws; or
(n) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.2.
SECTION 2.3. COOPERATION. (a) Each of Monarch and the Company shall
cooperate with each other in completing the transactions contemplated hereby and
shall not take, cause to be taken or agree or make any commitment to take any
action: (i) that would cause any of the representations or warranties of it that
are set forth in Article III hereof not to be true and correct, or (ii) that is
inconsistent with or prohibited by Sections 2.1 or 2.2.
(b) Without limiting the generality of the foregoing, each of Monarch and
the Company shall have the right to have one of its representatives present at
all loan committee meetings or meetings of similar purpose of the other party or
the other party's Subsidiaries, and each party shall give notice to the other
party of any such meeting one business day prior to such meeting.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Monarch that, except as to the matters disclosed in a
letter of the Company delivered to
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Monarch on or prior to the date hereof, which disclosures shall be deemed to be
made with respect to any applicable representation notwithstanding the specific
section references therein (the "Company Disclosure Letter"):
(a) RECITALS TRUE. The facts set forth in the Recitals of this Plan
with respect to the Company are true and correct.
(b) CAPITAL STOCK. All outstanding shares of capital stock of the
Company and the Company Bank have been duly authorized and validly issued,
are fully paid and (subject to 12 U.S.C. 55 with respect to the Company
Bank) non-assessable and are not subject to any preemptive rights.
(c) DUE ORGANIZATION AND QUALIFICATION. The Company Bank is a national
banking association duly organized, validly existing and in good standing
under the laws of the United States of America. The Company Bank is a member
of the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation (the "FDIC") and all of its deposits are subject to assessment
by the BIF.
(d) CORPORATE AUTHORITY. Each of the Company and Company Bank has the
corporate power and authority, and is duly qualified in all jurisdictions
(except for such qualifications the absence of which, in the aggregate,
would not have a Material Adverse Effect on the Company) where such
qualification is required, to carry on its business as it is now being
conducted and to own all its properties and assets, and it has 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
being conducted.
(e) SUBSIDIARIES; SIGNIFICANT INVESTMENTS. The only Subsidiaries of
the Company are the Company Bank and Venture Partners, Inc., a California
corporation ("Venture"). All of the shares of capital stock of each such
Subsidiary are owned directly and of record by the Company, free and clear
of all liens, claims, encumbrances and restrictions on transfer, and there
is no outstanding option, call or commitment with respect to any such
capital stock, nor any obligations or agreements convertible into or
exchangeable for, or giving any person any right (including, without
limitation, preemptive rights) to subscribe for or acquire from either
Subsidiary, any shares of its capital stock. Neither the Company nor either
of its Subsidiaries owns any equity securities, any security convertible or
exchangeable into an equity security or any rights to acquire any equity
security, except for shares of the Company Bank and Venture held by the
Company.
(f) SHAREHOLDER APPROVALS.
(i) Subject to the receipt of required shareholder approval of the
principal terms of this Plan, this Plan and the transactions contemplated
herein have been duly authorized by all necessary corporate action of the
Company. In addition, the Company has received the written opinion of The
Findley Group to the effect that the Merger Consideration to be received
by the shareholders of the Company is fair to such shareholders from a
financial point of view and has provided true and complete copies of such
opinions to Monarch. Subject to receipt of such shareholder approval,
this Plan is a valid and binding agreement of the Company enforceable
against it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(ii) The affirmative vote approving the principal terms of this Plan
by a majority of the outstanding shares of Company Common Stock entitled
to vote on this Plan is the only shareholder vote required by the Company
for approval of the Plan and consummation of the Merger and the other
transactions contemplated hereby.
(g) NO VIOLATIONS. The execution, delivery and performance of this
Plan by the Company do not, and the consummation of the transactions
contemplated hereby by the Company will not,
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constitute (i) a breach or violation of, or a default under, any law, rule
or regulation or any judgment, decree, order, governmental permit or license
to which the Company or either of its Subsidiaries (or any of their
respective properties) is subject, or enable any person to enjoin the Merger
or the other transactions contemplated hereby, (ii) a breach or violation
of, or a default under, the articles of incorporation or by-laws or similar
organizational documents of the Company or either of its Subsidiaries or
(iii) a breach or violation of, or a default under (or an event which with
due notice or lapse of time or both would constitute a default under), or
result in the termination of, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of the Company or
either of its Subsidiaries under, any of the terms, conditions or provisions
of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which the Company or either of its
Subsidiaries is a party, or to which any of their respective properties or
assets may be bound or affected; PROVIDED, HOWEVER, that this clause (iii)
shall not apply to any breach, violation or default of any such agreement,
instrument or obligation which involves payments to or by the Company or
either of its Subsidiaries of an amount not exceeding $25,000 per year; and
the consummation of the transactions contemplated hereby will not require
any approval, consent or waiver under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the approval,
consent or waiver of any other party to any such agreement, indenture or
instrument, other than (i) the required approvals, consents and waivers of
governmental authorities referred to in Section 5.1(b) hereof, (ii) any such
approval, consent or waiver that already has been obtained, and (iii) any
other approvals, consents or waivers the absence of which, individually or
in the aggregate, would not result in a Material Adverse Effect on the
Company or enable any person to enjoin the Merger or the Bank Merger.
(h) COMPANY REPORTS.
(i) As of their respective dates, neither the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, nor any
other document filed by the Company subsequent to December 31, 1995 under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Securities Exchange Act"), each in the form (including
exhibits) filed with the Securities and Exchange Commission (the "SEC")
(collectively, the "Company Reports"), contained or will contain any
untrue statement of a Material fact or omitted or will omit to state a
Material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets
contained or incorporated by reference in the Company Reports (including
in each case any related notes and schedules) fairly presented in all
Material respects the financial position of the entity or entities to
which it relates as of its date and each of the consolidated statements
of income, consolidated statements of shareholders' equity and
consolidated statement of cash flows contained or incorporated by
reference in the Company Reports (including in each case any related
notes and schedules) fairly presented in all Material respects the
results of operations, shareholders' equity and cash flows, as the case
may be, of the entity or entities to which it relates for the periods set
forth therein (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments that are not Material in amount or
effect), in each case in accordance with GAAP during the periods
involved, except as may be noted therein.
(ii) The Company and the Company Bank have each timely filed all
reports, registrations and statements, together with any amendments
required to be made with respect thereto, if any, that they were required
to file since December 31, 1993 with (i) the SEC, (ii) the Federal
Reserve Board, (iii) the FDIC, (iv) the BIF, (v) the Office of the
Comptroller of the Currency (the "OCC"), (vi) any state banking
commission or other regulatory authority (each, a "State Regulator")
(such entities collectively, the "Regulatory Agencies"), and (vii) the
National Association of Securities Dealers, Inc. and any other
self-regulatory organization (an "SRO"),
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and all other Material reports and statements required to be filed by
them since December 31, 1993, including, without limitation, any report
or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the Federal Reserve Board, the FDIC,
the BIF, the OCC, any State Regulator or any SRO, and have paid all fees
and assessments due and payable in connection therewith.
(i) ABSENCE OF UNDISCLOSED LIABILITIES AND CERTAIN CHANGES OR
EVENTS. Except as disclosed in the Company Reports, since December 31,
1995, neither the Company nor the Company Bank (as defined herein) has
incurred any Material liability, except in the ordinary course of their
business consistent with past practice. Since September 30, 1996, there has
not been any change in the business, assets, financial condition,
properties, results of operations or prospects of the Company or the Company
Bank which, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on the Company (other than changes
in (i) banking laws or regulations, or interpretations thereof, that affect
the banking industry generally, (ii) the general level of interest rates or
(iii) GAAP).
(j) GUARANTEES; SURETYSHIPS; CONTINGENT LIABILITIES. The Company
Disclosure Letter lists and briefly describes all guarantees, matters of
suretyship and similar contingent liabilities, other than loan commitments
and letters of credit issued in the ordinary course of business, of the
Company and its Subsidiaries.
(k) TAXES. All federal, state, local and foreign tax returns
(including information returns) required to be filed by or on behalf of the
Company or its Subsidiaries have been timely filed or requests for
extensions have been timely filed and any such extension shall have been
granted and not have expired, and all such filed returns are complete and
accurate in all Material respects. All taxes shown on such returns have been
paid in full and adequate provision has been made for any such taxes (in
accordance with GAAP) on the Company's balance sheets set forth in the
Company Reports. There is no pending audit examination, assessment or
proposed assessment of a deficiency, or refund litigation with respect to
any taxes of the Company or its Subsidiaries. All taxes, interest,
additions, and penalties due with respect to completed and settled
examinations or concluded litigation relating to it have been paid in full
or adequate provision has been made for any such taxes (in accordance with
generally accepted accounting principles) on the Company's balance sheet as
set forth in the Company Reports. Neither the Company nor either of its
Subsidiaries has executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due that is currently
in effect.
No liens or other security interests have been imposed on any assets of
the Company or its Subsidiaries in connection with any failure (or alleged
failure) to pay any tax. The Company and its Subsidiaries have timely
withheld, and paid over to the relevant governmental authority or other
appropriate payee, all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other person. Neither the Company nor
either 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 the Company) or otherwise has any liability for the taxes
of any person (other than the Company or its Subsidiaries). For purposes of
this paragraph (k), "taxes" includes all federal, state, local or foreign
income, gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, withholding or similar
taxes imposed on the income, properties or operations of the Company or its
Subsidiaries, together with any interest additions or penalties with respect
thereto and any interest in respect of such additions or penalties.
(l) ABSENCE OF CLAIMS. As of the date hereof, there is no pending
litigation, controversy, claim, action or proceeding against the Company or
its Subsidiaries before any court or governmental agency, and, to the best
of the Company's knowledge after reasonable inquiry, no such litigation,
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proceeding, controversy, claim or action has been threatened or is
contemplated. As of the Effective Time and except as disclosed in the
Company Disclosure Letter, there is no pending litigation, controversy,
claim, action or proceeding against the Company or its Subsidiaries before
any court or governmental agency, which is reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on the Company or to
hinder or delay consummation of the transactions contemplated hereby and, to
the best of the Company's knowledge after reasonable inquiry, no such
litigation, proceeding, controversy, claim or action has been threatened or
is contemplated.
(m) ABSENCE OF REGULATORY ACTIONS. Neither the Company nor either of
its Subsidiaries is a party to any cease and desist order, written agreement
or memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of depository
institutions or depositary institution holding companies or engaged in the
insurance of bank and/or savings and loan deposits ("Government Regulators")
nor has it been advised by any Government Regulator that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
(n) AGREEMENTS.
(i) Except for this Plan and arrangements made in the ordinary
course of business, the Company and its Subsidiaries are not bound by any
material contract (as defined in Item 601(b)(10) of Regulation S-K) to be
performed after the date hereof that has not been filed with or
incorporated by reference in the Company Reports. Except as disclosed in
the Company Reports filed prior to the date of this Plan, neither the
Company nor either of its Subsidiaries is a party to an oral or written
(A) consulting agreement (other than data processing, software
programming and licensing contracts entered into in the ordinary course
of business) not terminable on 30 days' or less notice involving the
payment of more than $25,000 per annum, in the case of any such agreement
with an individual, or $50,000 per annum, in the case of any other such
agreement, (B) agreement with any executive officer or other key employee
of the Company or either of its Subsidiaries the benefits of which are
contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or the Company Bank of
the nature contemplated by this Plan and which provides for the payment
of in excess of $50,000, (C) agreement with respect to any executive
officer of the Company or either of its Subsidiaries providing any term
of employment or compensation guarantee extending for a period longer
than six months and for the payment of in excess of $50,000 per annum,
(D) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Plan or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Plan or (E) agreement containing
covenants that limit the ability of the Company or the Company Bank to
compete in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which, the
Company (including any successor thereof) or the Company Bank (including
any successor thereof) may carry on its business (other than as may be
required by law or any regulatory agency).
(ii) Neither the Company nor either of its Subsidiaries is in
default under or in violation of any provision of any note, bond,
indenture, mortgage, deed of trust, loan agreement or other agreement to
which it is a party or by which it is bound or to which any of its
respective properties or assets is subject.
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(o) LABOR MATTERS. Neither the Company nor either 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 the Company or either of its Subsidiaries the subject of any proceeding
asserting that it has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike, other labor dispute or organizational effort involving
the Company or either of its Subsidiaries pending or threatened.
(p) EMPLOYEE BENEFIT PLANS. The Company Disclosure Letter contains a
complete list of all pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, severance and other benefit
plans, contracts, agreements, policies and arrangements, including, but not
limited to, "employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and all trust
agreements related thereto in respect to any present or former directors,
officers, or other employees of the Company or its Subsidiaries (hereinafter
referred to collectively as the "Company Employee Plans"). (i) All of the
Company Employee Plans comply in all material respects with all applicable
requirements of ERISA, the Code and other applicable laws; neither the Company
nor the Company Bank has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Company
Employee Plan which could subject the Company or the Company Bank to a material
tax or penalty under Section 4975 of the Code or Section 502(i) of ERISA; and
all contributions required to be made under the terms of any Company Employee
Plan have been timely made or have been reflected on the Company's balance
sheet; (ii) no liability to the Pension Benefit Guaranty Corporation (the
"PBGC") has been or is expected by the Company or the Company Bank to be
incurred with respect to any Company Employee Plan which is subject to Title IV
of ERISA (a "Company Pension Plan"), or with respect to any "single-employer
plan" (as defined in Section 4001(a)(15) of ERISA) currently or formerly
maintained by the Company or any entity (a "Company ERISA Affiliate") which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (a "Company ERISA Affiliate Plan"); and no proceedings have been
instituted to terminate any Company Pension Plan or Company ERISA Affiliate Plan
and no condition exists that presents a material risk of the institution of such
proceedings; (iii) no Company Pension Plan or Company ERISA Affiliate Plan had
an "accumulated funding deficiency" (as defined in Section 302 of ERISA (whether
or not waived)) as of the last day of the end of the most recent plan year
ending prior to the date hereof; the fair market value of the assets of each
Company Pension Plan and Company ERISA Affiliate Plan exceeds the present value
of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under
such Company Pension Plan or Company ERISA Affiliate Plan as of the end of the
most recent plan year with respect to the respective Company Pension Plan or
Company ERISA Affiliate Plan ending prior to the date hereof, calculated on the
basis of the actuarial assumptions used in the most recent actuarial valuation
for such Company Pension Plan or Company ERISA Affiliate Plan prior to the date
hereof, and there has been no material change in the financial condition of any
such Company Pension Plan or Company ERISA Affiliate Plan since the last day of
the most recent plan year; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement has not been
waived has been required to be filed for any Company Pension Plan or Company
ERISA Affiliate Plan within the 12-month period ending on the date hereof; (iv)
neither the Company nor either of its Subsidiaries has provided or is required
to provide, security to any Company Pension Plan or to any Company ERISA
Affiliate Plan pursuant to Section 401(a)(29) of the Code; (v) neither the
Company, either of its Subsidiaries, nor any Company ERISA Affiliate has
contributed to any "multiemployer plan", as defined in Section 3(37) of ERISA,
on or after September 26, 1980; (vi) each Company Employee Plan of the Company
or either of its Subsidiaries which is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) has received a favorable determination letter
from the Internal Revenue Service deeming such plan to be qualified (a
"Qualified Plan"), under Section 401(a) of the Code, or has requested such a
determination letter within the applicable remedial amendment period under
Section 401(b) of the Code; and neither the Company nor the Company Bank is
aware of any circumstances
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likely to result in revocation of any such favorable determination letter; (vii)
each Qualified Plan which is an "employee stock ownership plan" (as defined in
Section 4975(e)(7) of the Code) has satisfied all of the applicable requirements
of Sections 409 and 4975(e)(7) of the Code and the regulations thereunder; all
Company Employee Plans covering foreign participants comply in all material
respects with applicable local law, and there are no material unfunded
liabilities with respect to any Company Employee Plan which covers foreign
employees; (viii) there is no pending or, to the Company's knowledge, threatened
litigation, administrative action or proceeding relating to any Company Employee
Plan; (ix) there has been no announcement or commitment by the Company or the
Company Bank to create an additional Company Employee Plan, or to amend an
Company Employee Plan except for amendments required by applicable law which do
not increase the cost of such Company Employee Plan; and the Company and its
Subsidiaries do not have any obligations for retiree health and life benefits
under any Company Employee Plan except as set forth in the Company Disclosure
Letter, and there are no such Company Employee Plans that cannot be amended or
terminated without incurring any liability thereunder; (x) with respect to the
Company or its Subsidiaries, except as specifically identified in the Company
Disclosure Letter, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
payment or series of payments by the Company or its Subsidiaries to any person
which is an "excess parachute payment" (as defined in Section 280G of the Code)
under any Company Employee Plan, increase or secure (by way of a trust or other
vehicle) any benefits payable under any Company Employee Plan, or accelerate the
time of payment or vesting of any such benefit, and (xi) with respect to each
Company Employee Plan, the Company has supplied to Monarch a true and correct
copy, if applicable, of (A) the two most recent annual reports on the applicable
form of the Form 5500 series filed with the Internal Revenue Service (the
"IRS"), (B) such Company Employee Plan, including amendments thereto, (C) each
trust agreement and insurance contract relating to such Company Employee Plan,
including amendments thereto, (D) the most recent summary plan description for
such Company Employee Plan, including amendments thereto, if the Company
Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial
report or valuation if such Company Employee Plan is a Company Pension Plan, (F)
the most recent determination letter issued by the IRS if such Company Employee
Plan is a Qualified Plan and (G) the most recent financial statements and
auditor's report.
(q) REAL PROPERTY. (i) The Company Disclosure Letter contains a complete
and correct list of (A) all real property or premises owned on the date hereof,
in whole or in part by the Company or its Subsidiaries and all indebtedness
secured by any encumbrance thereon, and (B) all real property or premises leased
in whole or in part by the Company or its Subsidiaries and together with a list
of all applicable leases and the name of the lessor. None of such premises or
properties have been condemned or otherwise taken by any public authority and no
condemnation or taking is threatened or contemplated and none thereof is subject
to any claim, contract or law which might affect its use or value for the
purposes now made of it. None of the premises or properties of the Company or
its Subsidiaries is subject to any current or potential interests of third
parties or other restrictions or limitations that would impair or be
inconsistent with the current use of such property by the Company or its
Subsidiaries.
(ii) Each of the leases referred to in the Company Disclosure Letter is
valid and existing and in full force and effect, and no party thereto is in
default and no notice of a claim of default by any party has been delivered
to the Company or its Subsidiaries or is now pending, and there does not
exist any event that with notice or the passing of time, or both, would
constitute a default or excuse performance by any party thereto, provided
that with respect to matters relating to any party other than the Company
the foregoing representation is based on the knowledge of the Company.
(r) TITLE. The Company and the Company Bank have good title to its
properties and assets (other than (i) property as to which it is lessee and (ii)
real estate owned as a result of foreclosure, transfer in lieu of foreclosure or
other transfer in satisfaction of a debtor's obligation previously contracted).
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(s) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, the Company knows
of no reason why the approvals, consents and waivers of governmental authorities
referred to in Section 5.1(b) should not be obtained without the imposition of
any condition of the type referred to in the provisos thereto.
(t) COMPLIANCE WITH LAWS. Since December 31, 1993, the Company and its
Subsidiaries have complied in all Material respects with all applicable laws
except for any noncompliance with any such laws which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company or enable any
Person to enjoin the Merger or the Bank Merger. Except as would not have a
Material Adverse Effect on the Company, the Company and the Company Bank have
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently conducted. All such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
(u) FEES. Other than in respect of financial advisory services performed
for the Company by The Findley Group, in amounts and pursuant to an agreement
previously disclosed to Monarch, none of the Company, its Subsidiaries or any of
their respective officers, directors, employees or agents, has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker or finder has acted
directly or indirectly for the Company or its Subsidiaries, in connection with
the Plan or the transactions contemplated hereby.
(v) ENVIRONMENTAL MATTERS. (i) the Company and its Subsidiaries have
complied at all times with all applicable Environmental Laws; (ii) none of the
properties (including buildings or any other structures) currently owned or
operated by the Company or its Subsidiaries ("Company Properties") have been
contaminated with, or have had any release of, any Hazardous Substance (as
defined below); (iii) to the Company's knowledge, none of the properties
formerly owned or operated by the Company or either of its Subsidiaries have
been contaminated with Hazardous Substances during such period of ownership or
operation; (iv) to the Company's knowledge, neither the Company nor either of
its Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Company nor either of
its Subsidiaries has received any notice, demand letter, claim or request for
information alleging that the Company or either of its Subsidiaries may be in
violation of or subject to liability under any Environmental Law (as defined
below); (vi) neither the Company nor either of its Subsidiaries is subject to
any orders, decrees, injunctions or other agreements with any governmental
authority or any third party relating to Hazardous Substances or any
Environmental Law; (vii) there are no circumstances or conditions involving the
Company or either of its Subsidiaries that could reasonably be expected to
result in any claims, liability, investigations, suits or costs or result in
restrictions on the ownership, use, or transfer of any Property pursuant to any
Environmental Law; (viii) none of the Properties contain any underground storage
tanks, asbestos-containing material, lead products, or polychlorinated
biphenyls; (ix) to the knowledge of the Company none of the Properties have ever
been operated in the past as a gas station, automotive repair or supply
business, metalworking operation, industrial facility or as a drycleaner; (x)
neither the Company nor either of its Subsidiaries has engaged in any activity
involving the generation, use, handling or disposal of any Hazardous Substances
other than ordinary and routine office operations and maintenance; (xi) neither
the Company nor either of its Subsidiaries has participated in the management of
any borrower or other third party, including entities in which it may hold a
security, fiduciary or other interest, that, to the Company's knowledge, engage
in activities involving Hazardous Substances to an extent that it could be
deemed an "owner" or "operator" of such entity under any Environmental Law; and
(xii) to the Company's knowledge, the Company has delivered to Monarch copies of
all environmental reports, studies, sampling data, permits, government filings
and other environmental information in its possession relating to Company or its
Subsidiaries or any of their current or former properties or operations.
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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 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, pollution, contamination or any injury or threat of
injury to persons or property.
As used herein, 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 government authority pursuant to any
Environmental Law.
(w) ALLOWANCE. The allowance for possible loan and lease losses shown on
the Company's unaudited balance sheet as of September 30, 1996 was, and the
allowance for possible loan losses shown on the balance sheets in Company
Reports for periods ending after the date of this Plan will be, adequate, as of
the date thereof, under generally accepted accounting principles applicable to
banks and bank holding companies. The Company has disclosed to Monarch in
writing prior to the date hereof the amounts of all loans, leases, advances,
credit enhancements, other extensions of credit, commitments and
interest-bearing assets of the Company and the Company Bank that have been
classified as "Other Assets Specially Mentioned," "Substandard," "Doubtful,"
"Loss," "Classified," "Criticized," "Credit Risk Assets" or words of similar
import. The Other Real Estate Owned ("OREO") included in any non-performing
assets of the Company or the Company Bank is carried net of reserves at the
lower of cost or market value, less applicable selling costs, based on
independent appraisals consistent with applicable regulatory requirements.
(x) MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, no officer or director of the Company, or any "associate" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act) of any such officer or
director, has any Material interest in any Material contract or property (real
or personal), tangible or intangible, used in or pertaining to the business of
the Company or the Company Bank.
(y) INSURANCE. The Company and its Subsidiaries are currently insured, and
since December 31, 1993, have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by the Company and its Subsidiaries are in full force and effect, the
Company and its Subsidiaries are not in default thereunder and all Material
claims thereunder have been filed in due and timely fashion. Since December 31,
1993, no claim by the Company or its Subsidiaries on or in respect of an
insurance policy or bond has been declined or refused by the relevant insurer or
insurers. In the best judgment of the Company's management, such insurance
coverage is adequate and will be available in the future under terms and
conditions substantially similar to those in effect on the date hereof. Between
the date hereof and the Effective Time, the Company and its Subsidiaries will
maintain the levels of insurance coverage in effect on the date hereof and will
submit all potential claims existing prior to the Effective Time to its
insurance carrier on or before the Effective Time. The Company Disclosure Letter
lists all insurance policies maintained by or for the benefit of the Company,
the Company Bank or their directors, officers, employees or agents, specifying
the (i) type of policy, (ii) policy limits and (iii) self insurance amounts.
(z) INVESTMENT SECURITIES. Except for pledges to secure public and trust
deposits and reverse repurchase agreements entered into in arm's-length
transactions pursuant to normal commercial terms and conditions and other
pledges required by law, none of the investments reflected in the consolidated
balance sheet of the Company included in the Company's Report on Form 10-Q for
the quarter ended
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<PAGE>
September 30, 1996, and none of the Material investments made by it or its
Subsidiaries since December 31, 1995, is subject to any restriction
(contractual, statutory or otherwise) that would materially impair the ability
of the entity holding such investment freely to dispose of such investment at
any time.
(aa) DERIVATIVES. Neither the Company nor either of its Subsidiaries is
currently a party to any interest rate swap, cap, floor, option agreement, other
interest rate risk management arrangement or agreement or derivative-type
security or derivative arrangement or agreement.
(bb) REGISTRATION OBLIGATIONS. Neither the Company nor either of its
Subsidiaries is under any obligation, contingent or otherwise, to register any
of its securities under the Securities Act of 1933, as amended (the "Securities
Act").
(cc) BOOKS AND RECORDS. The books and records of the Company and its
Subsidiaries have been, and are being, maintained in accordance with applicable
legal and accounting requirements and reflect in all Material respects the
substance of events and transactions that should be included therein.
(dd) CORPORATE DOCUMENTS. The Company has delivered to Monarch true and
complete copies of (i) its amended articles of incorporation and amended by-laws
and (ii) the articles of association and by-laws of the Company Bank.
(ee) COMPANY ACTION. The Board of Directors of the Company has adopted
resolutions recommending that the principal terms of this Plan be approved by
the shareholders of the Company and directing that this Plan be submitted for
consideration by the Company's shareholders at the Company's Meeting (as defined
below).
(ff) INDEMNIFICATION. Neither the Company nor either of its Subsidiaries
is a party to any indemnification agreement with any of its present or future
directors, officers, employees, individual agents or other individuals who serve
or served in any other capacity with any other enterprise at the request of the
Company or either of its Subsidiaries (a "Covered Person"), and to the knowledge
of the Company, there are no claims for which any Covered Person would be
entitled to indemnification under Section 4.6 hereof if such provisions were
deemed to be in effect.
(gg) LOANS. Each loan reflected as an asset on the Company's consolidated
balance sheet as of September 30, 1996 and each balance sheet date subsequent
thereto (i) is evidenced by notes, agreements or other evidences of indebtedness
which are true, genuine and what they purport to be, (ii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles, and (iii) to the knowledge of the Company,
will not be subject to any defenses which may be asserted against Company Bank.
All loans and extensions of credit that have been made by Company Bank and that
are subject to Sections 22(h), 23A and 23B of the Federal Reserve Act comply
therewith.
(hh) FAIR LENDING; COMMUNITY REINVESTMENT ACT. As of the date hereof, with
the exception of routine investigation of consumer complaints, neither the
Company nor the Company Bank has been advised that it is or may be in violation
of the Equal Credit Opportunity Act or the Fair Housing Act or any similar
federal or state statute. The Company Bank received a CRA rating of
"outstanding" in its most recent CRA examination.
(ii) NO OMISSION OF MATERIAL FACT. No representation or warranty by the
Company in this Plan, including the Annexes hereto, the disclosure letters and
schedules to be delivered herewith or the Proxy Statement filed in connection
with the Meeting, contains any untrue statement of Material fact, or omits to
state a Material fact necessary to make the statements or facts contained herein
or therein not misleading. None of the information regarding the Company or the
Company Bank or the transactions contemplated hereby supplied or to be supplied
by the Company or the Company Bank for inclusion in any documents or filings to
be filed with any regulatory authority in connection with the transactions
contemplated hereby
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will contain any untrue statement of Material fact, or omit to state a Material
fact necessary to make the statements or facts contained therein not misleading.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF MONARCH. Monarch represents
and warrants to the Company that, except as to the matters disclosed in a letter
of Monarch delivered to the Company on or prior to the date hereof, which
disclosures shall be deemed to be made with respect to any applicable
representation notwithstanding the specific section references therein (the
"Monarch Disclosure Letter"):
(a) RECITALS TRUE. The facts set forth in the Recitals of this Plan with
respect to Monarch are true and correct.
(b) CAPITAL STOCK. All outstanding shares of capital stock of Monarch and
its Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X) have
been duly authorized and validly issued, are fully paid and (subject to 12
U.S.C. Section 55 in the case of a national bank Subsidiary and any similar
state statute in the case of a Subsidiary that is a state-chartered bank)
non-assessable and are not subject to any preemptive rights.
(c) DUE ORGANIZATION AND QUALIFICATION. Each of Monarch Bank and Western
Bank is a banking corporation duly organized, validly existing and in good
standing under the laws of the State of California.
(d) CORPORATE AUTHORITY. Each of Monarch and its Significant Subsidiaries
has the corporate power and authority, and is duly qualified in all
jurisdictions (except for such qualifications the absence of which, in the
aggregate, would not have a Material Adverse Effect on Monarch) where such
qualification is required, to carry on its business as it is now being conducted
and to own all its properties and assets, and it has 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 being conducted.
(e) SHAREHOLDER APPROVALS.
(i) Subject to the receipt of required shareholder approval of the
principal terms of this Plan, this Plan and the transactions contemplated
herein have been duly authorized by all necessary corporate action of
Monarch. Subject to receipt of such shareholder approval, this Plan is and
will be, a valid and binding agreement of Monarch enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(ii) The affirmative vote approving the principal terms of this Plan by
a majority of the outstanding shares of Monarch Common Stock entitled to
vote on this Plan is the only shareholder vote required by Monarch for
approval of this Plan and consummation of the Merger and the other
transactions contemplated hereby.
(f) NO VIOLATIONS. The execution, delivery and performance of this Plan by
Monarch do not, and the consummation of the transactions contemplated hereby by
Monarch will not, constitute (i) a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license to which Monarch or any of its Subsidiaries (or any of their
respective properties) is subject, which breach, violation or default would have
a Material Adverse Effect on Monarch, or enable any person to enjoin the Merger
or the other transactions contemplated hereby, (ii) a breach or violation of, or
a default under, the articles of incorporation or by-laws or similar
organizational documents of Monarch or any of its Subsidiaries or (iii) a breach
or violation of, or a default under (or an event which with due notice or lapse
of time or both would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of Monarch or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which Monarch or
any of its Subsidiaries is a party, or to which any of their respective
properties or assets may be bound or affected, except for any of
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the foregoing that, individually or in the aggregate, would not have a Material
Adverse Effect on Monarch; and the consummation of the transactions contemplated
hereby will not require any approval, consent or waiver under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or the
approval, consent or waiver of any other party to any such agreement, indenture
or instrument, other than (i) the required approvals, consents and waivers of
governmental authorities referred to in Section 5.1(b) hereof, (ii) any such
approval, consent or waiver that already has been obtained, and (iii) any other
approvals, consents or waivers the absence of which, individually or in the
aggregate, would not result in a Material Adverse Effect on Monarch or enable
any person to enjoin the Merger or the Bank Merger.
(g) MONARCH REPORTS.
(i) As of their respective dates, neither Monarch's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995, nor any other
document filed by Monarch subsequent to December 31, 1995 under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act, each in the form
(including exhibits) filed with the SEC (collectively, the "Monarch
Reports"), contained or will contain any untrue statement of a Material fact
or omitted or will omit to state a Material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets or statements of condition contained or
incorporated by reference in Monarch Reports (including in each case any
related notes and schedules) fairly presented in all Material respects the
financial position of the entity or entities to which it relates as of its
date and each of the consolidated statements of income, consolidated
statements of changes in shareholders' equity and consolidated statements of
cash flows contained or incorporated by reference in Monarch Reports
(including in each case any related notes and schedules) fairly presented in
all Material respects the results of operations, shareholders' equity and
cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments that are not
Material in amount or effect), in each case in accordance with GAAP during
the periods involved, except as may be noted therein.
(ii) Monarch and each of its Subsidiaries have each timely filed all
reports, registrations and statements, together with any amendments required
to be made with respect thereto, if any, that they were required to file
since December 31, 1993 with the Regulatory Agencies, the National
Association of Securities Dealers, Inc. and any other SRO, and all other
Material reports and statements required to be filed by them since December
31, 1993, including, without limitation, any report or statement required to
be filed pursuant to the laws, rules or regulations of the United States,
the Federal Reserve Board, the FDIC, the BIF, the OCC, any State Regulator
or any SRO, and have paid all fees and assessments due and payable in
connection therewith.
(h) ABSENCE OF CERTAIN UNDISCLOSED LIABILITIES AND CERTAIN CHANGES OR
EVENTS. Except as disclosed in the Monarch Reports, since December 31, 1995,
neither Monarch nor any of its Significant Subsidiaries has incurred any
Material liability, except in the ordinary course of their business consistent
with past practice. Since September 30, 1996, there has not been any change in
the business, assets, financial condition, properties, results of operations or
prospects of Monarch or any of its Significant Subsidiaries which, individually
or in the aggregate, has had, or is reasonably like to have, a Material Adverse
Effect on Monarch (other than changes in (i) banking laws or regulations, or
interpretations thereof, that affect the banking industry generally, (ii) the
general level of interest rates or (iii) GAAP).
(i) GUARANTEES; SURETYSHIPS; CONTINGENT LIABILITIES. The Monarch
Disclosure Letter lists and briefly describes all guarantees, matters of
suretyship and similar contingent liabilities, other than loan commitments and
letters of credit issued in the ordinary course of business, of Monarch and its
Subsidiaries.
(j) TAXES. All federal, state, local, and foreign tax returns (including
information returns) required to be filed by or on behalf of Monarch or any of
its Subsidiaries have been timely filed or requests for
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extensions have been timely filed and any such extension shall have been granted
and not have expired, and all such filed returns are complete and accurate in
all Material respects. All taxes shown on such returns have been paid in full
and adequate provision has been made for any such taxes (in accordance with
GAAP) on Monarch's balance sheets set forth in Monarch Reports. There is no
pending audit examination, assessment or proposed assessment of a deficiency, or
refund litigation with respect to any taxes of Monarch or any of its
Subsidiaries. All taxes, interest, additions, and penalties due with respect to
completed and settled examinations or concluded litigation relating to it have
been paid in full or adequate provision has been made for any such taxes (in
accordance with generally accepted accounting principles) on Monarch's balance
sheet as set forth in the Monarch Reports. Neither Monarch nor any of its
Subsidiaries has executed an extension or waiver of any statute of limitations
on the assessment or collection of any tax due that is currently in effect.
No liens or other security interests have been imposed on any assets of
Monarch or any of its Subsidiaries in connection with any failure (or alleged
failure) to pay any tax. Monarch and each of its Subsidiaries have timely
withheld, and paid over to the relevant governmental authority or other
appropriate payee, all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other person. Neither Monarch nor any Subsidiary 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 Monarch) or otherwise has any liability for
the taxes of any person (other than Monarch or any of its Subsidiaries). For
purposes of this paragraph (j), "taxes" includes all federal, state, local or
foreign income, gross receipts, windfall profits, severance, property,
production, sales, use, license, excise, franchise, employment, withholding or
similar taxes imposed on the income, properties or operations of Monarch or any
of its Subsidiaries, together with any interest additions or penalties with
respect thereto and any interest in respect of such additions or penalties.
(k) ABSENCE OF CLAIMS. As of the date hereof, there is no pending
litigation, controversy, claim, action or proceeding against Monarch or any of
its Subsidiaries before any court or governmental agency, and, to the best of
Monarch's knowledge after reasonable inquiry, no such litigation, proceeding,
controversy, claim or action has been threatened or is contemplated. As of the
Effective Time and except as disclosed in the Monarch Disclosure Letter, there
is no pending litigation, controversy, claim, action or proceeding against
Monarch or any of its Subsidiaries before any court or governmental agency,
which is reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Monarch or to hinder or delay consummation of the transactions
contemplated hereby and, to the best of Monarch's knowledge after reasonable
inquiry, no such litigation, proceeding, controversy, claim or action has been
threatened or is contemplated.
(l) ABSENCE OF REGULATORY ACTIONS. Neither Monarch nor any of its
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of, Government Regulators nor has it been advised by any
Government Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
(m) AGREEMENTS.
(i) Except for this Plan and arrangements made in the ordinary course of
business, Monarch and its Subsidiaries are not bound by any Material
contract (as defined in Item 601(b)(10) of Regulation S-K) to be performed
after the date hereof that has not been filed with or incorporated by
reference in the Reports. Except as disclosed in the Monarch Reports filed
prior to the date of this Plan, neither Monarch nor any of its Subsidiaries
is a party to an oral or written (A) consulting
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agreement (other than data processing, software programming and licensing
contracts entered into in the ordinary course of business) not terminable on
30 days' or less notice involving the payment of more than $25,000 per
annum, in the case of any such agreement with an individual, or $50,000 per
annum, in the case of any other such agreement, (B) agreement with any
executive officer or other key employee of Monarch or any of its
Subsidiaries the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Monarch
or any of its Subsidiaries of the nature contemplated by this Plan and which
provides for the payment of in excess of $50,000, (C) agreement with respect
to any executive officer of Monarch or any of its Subsidiaries providing any
term of employment or compensation guarantee extending for a period longer
than six months and for the payment of in excess of $50,000 per annum, (D)
agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Plan or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Plan or (E) agreement containing covenants that limit the ability of Monarch
or any of its Subsidiaries to compete in any line of business or with any
person, or that involve any restriction on the geographic area in which, or
method by which, Monarch (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by law
or any regulatory agency).
(ii) Neither Monarch nor any of its Subsidiaries is in default under or
in violation of any provision of any note, bond, indenture, mortgage, deed
of trust, loan agreement or other agreement to which it is a party or by
which it is bound or to which any of its respective properties or assets is
subject.
(n) LABOR MATTERS. Neither Monarch 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
Monarch or any of its Subsidiaries the subject of any proceeding asserting that
it has committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or organizational
effort involving Monarch or any of its Subsidiaries pending or threatened.
(o) EMPLOYEE BENEFIT PLANS. The Monarch Disclosure Letter contains a
complete list of all pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, severance and other benefit
plans, contracts, agreements, policies and arrangements, including, but not
limited to, "employee benefit plans", as defined in Section 3(3) of ERISA and
all trust agreements related thereto in respect to any present or former
directors, officers, or other employees of Monarch or any of its Subsidiaries
(hereinafter referred to collectively as the "Monarch Employee Plans"). (i) All
of the Monarch Employee Plans comply in all material respects with all
applicable requirements of ERISA, the Code and other applicable laws; neither
Monarch nor any of its Subsidiaries has engaged in a "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to
any Monarch Employee Plan which could subject Monarch or any Subsidiary to a
material tax or penalty under Section 4975 of the Code or Section 502(i) of
ERISA; and all contributions required to be made under the terms of any Monarch
Employee Plan have been timely made or have been reflected on Monarch's balance
sheet; (ii) no liability to the PBGC has been or is expected by Monarch or any
of its Subsidiaries to be incurred with respect to any Monarch Employee Plan
which is subject to Title IV of ERISA (a "Monarch Pension Plan"), or with
respect to any "single-employer plan" (as defined in Section 4001(a)(15) of
ERISA) currently or formerly maintained by Monarch or any entity (a "Monarch
ERISA Affiliate") which is considered one employer with Monarch under Section
4001 of ERISA or Section 414 of the Code (an "Monarch ERISA Affiliate Plan");
and no proceedings have been instituted to terminate any Monarch Pension Plan or
Monarch ERISA Affiliate Plan and no condition exists that presents a material
risk of the institution of such proceedings; (iii) no Monarch Pension Plan or
Monarch ERISA Affiliate Plan had an "accumulated funding deficiency" (as
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defined in Section 302 of ERISA (whether or not waived)) as of the last day of
the end of the most recent plan year ending prior to the date hereof; the fair
market value of the assets of each Monarch Pension Plan and Monarch ERISA
Affiliate Plan exceeds the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such Monarch Pension Plan or
Monarch ERISA Affiliate Plan as of the end of the most recent plan year with
respect to the respective Monarch Pension Plan or Monarch ERISA Affiliate Plan
ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the most recent actuarial valuation for such Monarch Pension
Plan or Monarch ERISA Affiliate Plan prior to the date hereof, and there has
been no material change in the financial condition of any such Monarch Pension
Plan or Monarch ERISA Affiliate Plan since the last day of the most recent plan
year; and no notice of a "reportable event" (as defined in Section 4043 of
ERISA) for which the 30-day reporting requirement has not been waived has been
required to be filed for any Monarch Pension Plan or Monarch ERISA Affiliate
Plan within the 12-month period ending on the date hereof; (iv) neither Monarch
nor any Subsidiary of Monarch has provided or is required to provide, security
to any Monarch Pension Plan or to any Monarch ERISA Affiliate Plan pursuant to
Section 401(a)(29) of the Code; (v) neither Monarch, its Subsidiaries, nor any
Monarch ERISA Affiliate has contributed to any "multiemployer plan", as defined
in Section 3(37) of ERISA, on or after September 26, 1980; (vi) each Employee
Plan of Monarch or any of its Subsidiaries which is an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) or has received a favorable
determination letter from the Internal Revenue Service deeming such plan to be a
Qualified Plan or has requested such a determination letter within the
applicable remedial amendment period under Section 401(b) of the Code; and
neither Monarch nor its Subsidiaries are aware of any circumstances likely to
result in revocation of any such favorable determination letter; (vii) each
Qualified Plan which is an "employee stock ownership plan" (as defined in
Section 4975(e)(7) of the Code) has satisfied all of the applicable requirements
of Sections 409 and 4975(e)(7) of the Code and the regulations thereunder; all
Monarch Employee Plans covering foreign participants comply in all material
respects with applicable local law, and there are no material unfunded
liabilities with respect to any Monarch Employee Plan which covers foreign
employees; (viii) there is no pending or, to Monarch's knowledge, threatened
litigation, administrative action or proceeding relating to any Monarch Employee
Plan; (ix) there has been no announcement or commitment by Monarch or any
Subsidiary of Monarch to create an additional Monarch Employee Plan, or to amend
a Monarch Employee Plan except for amendments required by applicable law which
do not increase the cost of such Monarch Employee Plan; and Monarch and its
Subsidiaries do not have any obligations for retiree health and life benefits
under any Monarch Employee Plan except as set forth in the Monarch Disclosure
Letter, and there are no such Monarch Employee Plans that cannot be amended or
terminated without incurring any liability thereunder; (x) with respect to
Monarch or any of its Subsidiaries, except as specifically identified in the
Monarch Disclosure Letter, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
payment or series of payments by Monarch or any Subsidiary of Monarch to any
person which is an "excess parachute payment" (as defined in Section 280G of the
Code) under any Monarch Employee Plan, increase or secure (by way of a trust or
other vehicle) any benefits payable under any Monarch Employee Plan, or
accelerate the time of payment or vesting of any such benefit, and (xi) with
respect to each Monarch Employee Plan, Monarch has supplied to the Company a
true and correct copy, if applicable, of (A) the two most recent annual reports
on the applicable form of the Form 5500 series filed with the Internal Revenue
Service (the "IRS"), (B) such Monarch Employee Plan, including amendments
thereto, (C) each trust agreement and insurance contract relating to such
Monarch Employee Plan, including amendments thereto, (D) the most recent summary
plan description for such Monarch Employee Plan, including amendments thereto,
if the Monarch Employee Plan is subject to Title I of ERISA, (E) the most recent
actuarial report or valuation if such Monarch Employee Plan is a Monarch Pension
Plan, (F) the most recent determination letter issued by the IRS if such Monarch
Employee Plan is a Qualified Plan and (G) the most recent financial statements
and auditor's report.
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(p) REAL PROPERTY.
(i) The Monarch Disclosure Letter contains a complete and correct list
of (A) all real property or premises owned on the date hereof, in whole or
in part by Monarch or any of its Subsidiaries and all indebtedness secured
by any encumbrance thereon, and (B) all real property or premises leased in
whole or in part by Monarch or any of its Subsidiaries, together with a list
of all applicable leases and the name of the lessor. None of such premises
or properties have been condemned or otherwise taken by any public authority
and no condemnation or taking is threatened or contemplated and none thereof
is subject to any claim, contract or law which might affect its use or value
for the purposes now made of it. None of the premises or properties of
Monarch or any of its Subsidiaries is subject to any current or potential
interests of third parties or other restrictions or limitations that would
impair or be inconsistent with the current use of such property by Monarch
or any of its Subsidiaries.
(ii) Each of the leases referred to in the Monarch Disclosure Letter is
valid and existing and in full force and effect, and no party thereto is in
default and no notice of a claim of default by any party has been delivered
to Monarch or any of its Subsidiaries or is now pending, and there does not
exist any event that with notice or the passing of time, or both, would
constitute a default or excuse performance by any party thereto, provided
that with respect to matters relating to any party other than Monarch the
foregoing representation is based on the knowledge of Monarch.
(q) TITLE. Monarch and each of its Subsidiaries has good title to its
properties and assets (other than (i) property as to which it is lessee and (ii)
real estate owned as a result of foreclosure, transfer in lieu of foreclosure or
other transfer in satisfaction of a debtor's obligation previously contracted).
(r) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, Monarch knows of no
reason why the approvals, consents and waivers of governmental authorities
referred to in Section 5.1(b) should not be obtained without the imposition of
any condition of the type referred to in the provisos thereto.
(s) COMPLIANCE WITH LAWS. Since December 31, 1993, Monarch and each of its
Subsidiaries have complied in all Material respects with all applicable laws,
except for any noncompliance with any such laws which, individually or in the
aggregate, would not have a Material Adverse Effect on Monarch or enable any
Person to enjoin the Merger or the Bank Merger. Except as would not have a
Material Adverse Effect on Monarch, Monarch and each of its Subsidiaries has all
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted. All such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect, and, to the knowledge of Monarch, no suspension or cancellation of any
of them is threatened.
(t) FEES. Other than in respect of financial advisory services performed
for Monarch by Belle Plaine Financial Partners, Inc. and/or other qualified
financial advisors, in amounts and pursuant to arrangements previously disclosed
to the Company, neither Monarch nor any of its Subsidiaries, nor any of their
respective officers, directors, employees or agents, has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions, or finder's fees, and no broker or finder has acted directly
or indirectly for Monarch or any Subsidiary of Monarch, in connection with the
Plan or the transactions contemplated hereby.
(u) ENVIRONMENTAL MATTERS. (i) Monarch and each Subsidiary has complied at
all times with all applicable Environmental Laws; (ii) none of the properties
(including buildings or any other structures) currently owned or operated by
Monarch or any Subsidiary ("Monarch Properties") has been contaminated with, or
has had any release of, any Hazardous Substance; (iii) to Monarch's knowledge,
none of the properties formerly owned or operated by it or any Subsidiary has
been contaminated with Hazardous Substances during such period of ownership or
operation; (iv) to Monarch's knowledge, neither it nor any Subsidiary is subject
to liability for any Hazardous Substance disposal or contamination on any third
party
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property; (v) neither Monarch nor any Subsidiary has received any notice, demand
latter, claim or request for information alleging that Monarch or any Subsidiary
may be in violation of or subject to liability under any Environmental Law; (vi)
neither Monarch nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other agreements with any governmental authority or any third
party relating to Hazardous Substances or any Environmental Law; (vii) there are
no circumstances or conditions involving Monarch or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
suits or costs or result in restrictions on the ownership, use, or transfer of
any Property pursuant to any Environmental Law, (viii) none of the Properties
contain any underground storage tanks, asbestos-containing material, lead
products, or polychlorinated biphenyls; (ix) to the knowledge of Monarch none of
the Properties have ever been operated in the past as a gas station, automotive
repair or supply business, metalworking operation, industrial facility or as a
drycleaner; (x) neither Monarch nor any Subsidiary has engaged in any activity
involving the generation, use, handling or disposal of any Hazardous Substances
other than ordinary and routine office operations and maintenance, (xi) neither
Monarch nor any Subsidiary has participated in the management of any borrower or
other third party, including entities in which it may hold a security, fiduciary
or other interest, that, to Monarch's knowledge, engage in activities involving
Hazardous Substances to an extent that it could be deemed an "owner" or
"operator" of such entity under any Environmental Law, and (xii) to Monarch's
knowledge, it has delivered to the Company copies of all environmental reports,
studies, sampling data, permits, government filings and other environmental
information in its possession relating to Monarch or its Subsidiaries or any of
their current or former properties or operations.
(v) ALLOWANCE. The allowance for possible loan and lease losses shown on
Monarch's unaudited balance sheet as of September 30, 1996 was, and the
allowance for possible loan losses shown on the balance sheets in Monarch
Reports for periods ending after the date of this Plan will be, adequate, as of
the date thereof, under generally accepted accounting principles applicable to
banks and bank holding companies. Monarch has disclosed to the Company in
writing prior to the date hereof the amounts of all loans, leases, advances,
credit enhancements, other extensions of credit, commitments and
interest-bearing assets of Monarch and its Subsidiaries that have been
classified as "Other Assets Specially Mentioned," "Substandard," "Doubtful,"
"Loss," "Classified," "Criticized," "Credit Risk Assets" or words of similar
import. The OREO included in any non-performing assets of Monarch or any of its
Subsidiaries is carried net of reserves at the lower of cost or market value;
less applicable selling costs, based on independent appraisals consistent with
applicable regulatory requirements.
(w) MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in
Monarch's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1996, no officer or director of Monarch, or any "associate" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act) of any such officer or
director, has any Material interest in any Material contract or property (real
or personal), tangible or intangible, used in or pertaining to the business of
Monarch or any of its Subsidiaries.
(x) INSURANCE. Monarch and its Subsidiaries are currently insured, and
since December 31, 1993, have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by Monarch and its Subsidiaries are in full force and effect, Monarch
and its Subsidiaries are not in default thereunder and all Material claims
thereunder have been filed in due and timely fashion. Since December 31, 1993,
no claim by Monarch or any of its Subsidiaries on or in respect of an insurance
policy or bond has been declined or refused by the relevant insurer or insurers.
In the best judgment of Monarch's management, such insurance coverage is
adequate and will be available in the future under terms and conditions
substantially similar to those in effect on the date hereof. Between the date
hereof and the Effective Time, Monarch and its Subsidiaries will maintain the
levels of insurance coverage in effect on the date hereof and will submit all
potential claims existing prior to the Effective Time to its insurance carrier
on or before the Effective Time. The Monarch Disclosure Letter lists all
insurance policies maintained by or for the benefit
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of Monarch, its Subsidiaries or its directors, officers, employees or agents,
specifying the (i) type of policy, (ii) policy limits and (iii) self insurance
amounts.
(y) INVESTMENT SECURITIES. Except for pledges to secure public and trust
deposits and reverse repurchase agreements entered into in arm's-length
transactions pursuant to normal commercial terms and conditions and other
pledges required by law, none of the investments reflected in the consolidated
balance sheet of Monarch included in Monarch's Report on Form 10-Q for the
quarter ended September 30, 1996, and none of the Material investments made by
it or any of its Subsidiaries since December 31, 1995, is subject to any
restriction (contractual, statutory or otherwise) that would materially impair
the ability of the entity holding such investment freely to dispose of such
investment at any time.
(z) DERIVATIVES. Neither Monarch nor any of its Subsidiaries is currently
a party to any interest rate swap, cap, floor, option agreement, other interest
rate risk management arrangement or agreement or derivative-type security or
derivative arrangement or agreement.
(aa) REGISTRATION OBLIGATIONS. Neither Monarch nor any of its Subsidiaries
is under any obligation, contingent or otherwise, to register any of its
securities under the Securities Act except as contemplated by this Plan.
(bb) BOOKS AND RECORDS. The books and records of Monarch and its
Subsidiaries have been, and are being, maintained in accordance with applicable
legal and accounting requirements and reflect in all Material respects the
substance of events and transactions that should be included therein.
(cc) CORPORATE DOCUMENTS. Monarch has delivered to the Company true and
complete copies of (i) its amended articles of incorporation and amended by-laws
and (ii) the articles of incorporation and by-laws of Monarch Bank.
(dd) COMPANY ACTION. The Board of Directors of Monarch has adopted
resolutions recommending that the principal terms of this Plan be approved by
the shareholders of Monarch and directing that this Plan be submitted for
consideration by Monarch's shareholders at Monarch's Meeting.
(ee) LOANS. Each loan reflected as an asset on Monarch's consolidated
balance sheet as of September 30, 1996 and each balance sheet date subsequent
thereto (i) is evidenced by notes, agreements or other evidences of indebtedness
which are true, genuine and what they purport to be, (ii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles, and (iii) to the knowledge of Monarch, will
not be subject to any defenses which may be asserted against Monarch Bank or
Western Bank. All loans and extensions of credit that have been made by Monarch
Bank or Western Bank and that are subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act comply therewith.
(ff) FAIR LENDING; COMMUNITY REINVESTMENT ACT. As of the date hereof, with
the exception of routine investigation of consumer complaints, neither Monarch
nor any of its Subsidiaries has been advised that it is or may be in violation
of the Equal Credit Opportunity Act or the Fair Housing Act or any similar
federal or state statute. Monarch Bank received a CRA rating of "outstanding" in
its most recent CRA examination. Western Bank received a CRA rating of
"satisfactory" in its most recent CRA examination.
(gg) NO OMISSION OF MATERIAL FACT. No representation or warranty by
Monarch in this Plan, including the Annexes hereto, the disclosure letters and
the schedules to be delivered herewith or the Proxy Statement filed in
connection with the Meeting, contains any untrue statement of Material fact, or
omits to state a Material fact necessary to make the statements or facts
contained herein or therein not misleading. None of the information regarding
Monarch or any of its Subsidiaries or the transactions contemplated hereby
supplied or to be supplied by Monarch or any of its Subsidiaries for inclusion
in any documents or filings to be filed with any regulatory authority in
connection with the transactions
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contemplated hereby will contain any untrue statement of Material fact, or omit
to state a Material fact necessary to make the statements or facts contained
therein not misleading.
(hh) MONARCH COMMON STOCK. The shares of Monarch Common Stock to be issued
pursuant to this Plan, when issued in accordance with the terms of this Plan,
will be duly authorized, validly issued, fully paid and non-assessable.
ARTICLE IV. COVENANTS
SECTION 4.1. ACQUISITION PROPOSALS. The Company agrees that none of it,
the Company Bank or any of their respective officers and directors shall, and
the Company shall direct and use its reasonable best efforts to cause its
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or the Company Bank)
not to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer (including, without limitation, any proposal
or offer to shareholders of the Company) with respect to a merger, consolidation
or similar transaction, other than pursuant to this Plan, involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or the Company Bank (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or, except to the extent
legally required for the discharge by the board of directors of its fiduciary
duties as advised in writing by such board's counsel, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and shall make all reasonable efforts to
enforce any confidentiality agreements to which it or the Company Bank is a
party. The Company will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 4.1. The Company will notify Monarch
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company.
SECTION 4.2. CERTAIN POLICIES OF THE COMPANY. At or before the Effective
Time, the Company shall make such accounting entries or adjustments as Monarch
shall request in order to implement its plans for the Company Bank following the
Merger or to reflect merger-related expenses and costs; PROVIDED, HOWEVER, that
(a) the Company shall not be required to take such action more than two days
prior to the Effective Time, (b) no such adjustment shall require, based upon
consultation with counsel and accountants for the Company, any filing with any
governmental agency, or violate any law, rule or regulation applicable to the
Company, (c) no such adjustment shall require any changes in net income or
shareholders' equity that will be required to be contained in any financial
statement required to be filed by the Company under the rules of the SEC if the
Company reasonably believes that all of the conditions to closing set forth in
Article V will not be either satisfied or waived; and FURTHER PROVIDED, that in
any event no accrual or reserve made by the Company or the Company Bank pursuant
to this Section 4.2 shall constitute or be deemed to be a breach or violation of
or failure to satisfy any representation, warranty, covenant, condition or other
provision of this Plan or otherwise be considered in determining whether any
such breach, violation or failure to satisfy shall have occurred. The recording
of such adjustments shall not be deemed to imply any misstatement of previously
furnished financial statements or information and shall not be construed as
concurrence of the Company's management with any such adjustments.
SECTION 4.3. EMPLOYEE BENEFITS. (a) Monarch and the Company agree that,
unless otherwise mutually determined or as set forth in subsection (c) below,
the Employee Plans of the Company and the Company Bank in effect at the date of
this Plan (except stock plans (other than the stock bonus plan, which will
remain in effect for a period to be agreed upon by the parties), including
without limitation the Company's stock option plans and the stock award plan)
will remain in effect for a period of at least six
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months after the Effective Time with respect to employees of the Company and the
Company Bank covered by such plans at the Effective Time. Monarch will take such
steps as are required so that each person employed by the Company or the Company
Bank prior to the Effective Time who remains an employee of the Surviving
Corporation or its Subsidiaries following the Effective Time (each a "Continued
Employee") shall be entitled to participate in the employee benefit plans that
are in effect generally for employees of Monarch's Subsidiaries from time to
time (all such plans collectively, "Monarch's Benefit Plans"), if such Continued
Employee shall be eligible (or, with respect to discretionary Monarch's Benefit
Plans, selected) for participation therein and otherwise shall not be
participating in a similar plan which continues to be maintained by the
Surviving Corporation and its Subsidiaries. Continued Employees will be eligible
to participate on the same basis as similarly situated employees of Monarch or
Monarch's Subsidiaries. All such participation shall be subject to the terms of
Monarch's Benefit Plans as may be in effect from time to time. Monarch or
Monarch's Subsidiaries shall, solely for purposes of vesting and eligibility to
participate in Monarch's Benefit Plans, recognize credit for each Continued
Employee's term of service with the Company and the Company's Subsidiaries.
(b) Monarch will honor, to the extent set forth in the Company Disclosure
Letter, all employment and severance agreements of the Company and the Company
Bank, in accordance with their terms.
SECTION 4.4. ACCESS AND INFORMATION. Upon reasonable notice, each party
hereto shall (and shall cause its Subsidiaries to) afford to the other party and
its representatives (including, without limitation, directors, officers and
employees of such party and its affiliates, and counsel, accountants and other
advisors retained by such party and its affiliates) such access (including,
without limitation, for the purpose of conducting supplemental due diligence
reviews) during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, loan and
credit files, tax returns and work papers of independent auditors), properties,
personnel and to such other information as the requesting party may reasonably
request; PROVIDED, HOWEVER, that no investigation pursuant to this Section 4.4
shall affect or be deemed to modify any representation or warranty made herein.
Each party agrees that it will not, and will cause its representatives not to,
use any information obtained pursuant to this Section 4.4 for any purpose
unrelated to the consummation of the transactions contemplated by this Plan.
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 4.4 unless such information (i) was already
known to such party or an affiliate of such party prior to the date of the
confidentiality agreement (the "Confidentiality Agreement") between the Company
and Monarch in effect prior to the date hereof, (ii) becomes available to such
party or an affiliate of such party from other sources not known by such party
to be bound by a confidentiality agreement, (iii) is disclosed with the prior
written approval of the relevant party or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Plan is terminated or the transactions contemplated by this Plan shall
otherwise fail to be consummated, each party shall promptly cause all copies of
documents or extracts thereof containing information and data as to another
party hereto (or an affiliate of any party hereto) to be returned to the party
which furnished the same. Except as otherwise specifically provided herein, the
terms of the Confidentiality Agreement shall remain in full force effect.
SECTION 4.5. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Monarch and the
Company shall (a) as soon as practicable make any filings and applications
required to be filed in order to obtain all approvals, consents and waivers of
governmental authorities necessary or appropriate for the consummation of the
transactions contemplated hereby and use their reasonable best efforts to cause
the applications for the approvals described in Section 5.1(b) hereof to be
initially filed on or before February 15, 1997; (b) cooperate with one another
(i) in promptly determining what filings are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal,
state or foreign law or regulation and (ii) in promptly making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such approvals, consents or waivers; and (c) deliver to the other
copies of the publicly available portions of all such filings and applications
promptly after they are filed.
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SECTION 4.6. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From
and after the Effective Time, Monarch agrees to indemnify and hold harmless each
director and officer of the Company or the Company Bank, 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 Plan or any of
the transactions contemplated hereby), 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 Company's
articles of incorporation or by-laws in effect on the date hereof, and Monarch
shall also advance expenses as incurred to the extent permitted under California
law and the Company's articles of incorporation and by-laws.
(b) Any Indemnified Party wishing to claim indemnification under Section
4.6(a) hereof, upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Monarch thereof, but the
failure to so notify shall not relieve Monarch of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Monarch. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Monarch shall have the right to
assume the defense thereof and Monarch shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Monarch elects not to assume such defense or counsel for
the Indemnified Parties advises that there are issues which raise conflicts of
interest between Monarch and the Indemnified Parties, the Indemnified Parties
may retain counsel satisfactory to them, and Monarch shall pay the reasonable
fees and expenses of one such counsel for the Indemnified Parties in any
jurisdiction promptly as statements thereof are received unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, (ii) the Indemnified Parties will cooperate in the defense of any
such matter and (iii) Monarch shall not be liable for any settlement effected
without its prior written consent. Notwithstanding the foregoing, Monarch 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, Monarch shall use
its reasonable best efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Monarch 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 Monarch be
obligated to expend, in order to maintain or provide insurance coverage pursuant
to this Subsection 4.6(c), any amount per annum in excess of 200% of the amount
of the annual premiums paid as of the date hereof by the Company 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,
Monarch 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, Monarch may request the Company to, and the Company shall,
purchase insurance coverage, on such terms and conditions as shall be acceptable
to Monarch, extending for a period of six years the Company'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 Monarch's obligations under this Subsection (c).
(d) If Monarch 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,
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corporation or other entity, then and in each such case, proper provision shall
be made so that the successors and assigns of Monarch shall assume the
obligations set forth in this Section 4.6.
(e) The provisions of this Section 4.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
SECTION 4.7. ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take promptly, or cause to be taken promptly, all actions and to do
promptly, or cause to be done promptly, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Plan as soon as practicable, including
using efforts to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable governmental entities,
effecting all necessary registrations, applications and filings (including,
without limitation, filings under any applicable state securities laws) and
obtaining any required contractual consents and regulatory approvals.
SECTION 4.8. PUBLICITY. The initial press release announcing this Plan
shall be a joint press release and thereafter the Company and Monarch shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the other or the transactions contemplated hereby and
in making any filings with any governmental entity or with any national
securities exchange with respect thereto.
SECTION 4.9. REGISTRATION STATEMENT. As soon as reasonably practicable
after the date hereof, Monarch and the Company shall jointly prepare a
registration statement, including a joint proxy statement in respect of the
Meetings (as defined herein) (the "Registration Statement"), for the purpose of
registering the Monarch Common Stock to be issued pursuant hereto, file the
Registration Statement with the SEC, respond to comments of the staff of the SEC
and promptly thereafter mail the Registration Statement to all holders of record
(as of the applicable record date) of shares of Company Common Stock and Monarch
Common Stock. The Company covenants that (a) all information supplied by it in
writing to Monarch expressly for use in the Registration Statement will be
accurate and complete in all Material respects and (b) none of the information
to be supplied by the Company will, in the case of the proxy statement to be
used by Monarch to solicit the approval of its shareholders as contemplated by
this Plan, when it is first mailed to the Monarch's shareholders, contain any
untrue statement of a Material fact or omit to state any Material fact necessary
in order to make the statement made therein, in light of the circumstances under
which such statements are made, not misleading. Monarch covenants that (a) all
information supplied by it in writing to the Company expressly for use in the
Registration Statement will be accurate and complete in all Material respects
and (b) none of the information to be supplied by Monarch will, in the case of
the proxy statement to be used by the Company to solicit the approval of its
shareholders as contemplated by this Plan, when it is first mailed to the
Company's shareholders, contain any untrue statement of a Material fact or omit
to state any Material fact necessary in order to make the statement made
therein, in light of the circumstances under which such statements are made, not
misleading.
SECTION 4.10. SHAREHOLDERS' MEETINGS. Each party hereto shall take all
action necessary, in accordance with applicable law and its articles of
incorporation and by-laws, to convene a meeting of the holders of its common
stock (each, a "Meeting") as promptly as practicable for the purpose of
approving the principal terms of this Plan. Except to the extent legally
required for the discharge by such party's board of directors of its fiduciary
duties as advised in writing by such board's counsel, such party's board of
directors shall recommend at its Meeting that the principal terms of this Plan
be approved by its shareholders.
SECTION 4.11. NOTIFICATION OF CERTAIN MATTERS. Each party shall give
prompt notice to the other of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its Subsidiaries subsequent to
the date of this Plan and prior to the Effective Time, under any contract
Material to the financial condition, properties,
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businesses or results of operations of such party taken as a whole to which such
party or any Subsidiary is a party or is subject; and (b) any Material adverse
change in the condition (financial or other), properties, assets, business,
results of operations or prospects of it and its Subsidiaries taken as a whole
or the occurrence of any event which, so far as reasonably can be foreseen at
the time of its occurrence, is reasonably likely to result in any such change.
Each of the Company and Monarch shall give prompt notice to the other party of
any notice or other communication from any third party alleging that the consent
of such third party is or may be required in connection with the transactions
contemplated by this Plan.
SECTION 4.12. NO ACQUISITIONS OF COMPANY COMMON STOCK. Prior to the
earlier of (i) immediately prior to the Effective Time and (ii) the termination
of this Plan in accordance with Article VI hereof, Monarch shall not and shall
cause its affiliates not to, directly or indirectly, acquire any shares of
Company Common Stock, other than (i) up to 5% of such shares acquired during the
period commencing on the third business day after the release of the press
release announcing this Plan and (ii) shares acquired in a fiduciary or agency
capacity or in satisfaction of a debt or debts previously contracted.
SECTION 4.13. SECURITIES ACT. (a) As soon as practicable after the date of
the Company's Meeting, the Company shall identify to Monarch all persons who the
Company believes to be affiliates of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act ("Affiliates").
(b) The Company shall use its best efforts to obtain a written agreement
from each person identified as an Affiliate pursuant to clause 4.13(a) above who
is an officer or director of the Company providing that each such person will
agree not to sell, pledge, transfer or otherwise dispose of the shares of
Monarch Common Stock to be received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and until such
time as financial results covering at least 30 days of combined operations of
Monarch and the Company shall have been published. The Company shall cause forms
of such written agreement to be delivered to each other person who the Company
believes may be or become an Affiliate of Monarch for purposes of enabling such
persons to comply with the exchange procedures set forth in Section 1.3(c).
SECTION 4.14. QUOTATION ON NASDAQ. Monarch shall use its best efforts to
list on the NASDAQ National Market System, upon official notice of issuance, the
Monarch Common Stock to be issued in the Merger.
SECTION 4.15. TAX-FREE REORGANIZATION TREATMENT; POOLING. Neither Monarch
nor the Company shall take or cause to be taken any action, whether before or
after the Effective Time, which would disqualify (a) either the Merger or the
Bank Merger as a "reorganization" within the meaning of Section 368 of the Code
or (b) the Merger as a "pooling of interests" for accounting purposes, unless
the Monarch Pooling Condition and the Company Pooling Condition are waived by
the parties hereto.
SECTION 4.16. SHAREHOLDER AGREEMENTS. Certain directors of the Company, in
their capacities as shareholders, in exchange for good and valuable
consideration, have executed and delivered to Monarch shareholder agreements
substantially in the form of Annex 3 hereto (the "Shareholder Agreements"),
committing such persons, among other things, (i) to vote their shares of Company
Common Stock in favor of the Plan at the Company's Meeting, (ii) not to compete
with Monarch for a period of time, and (iii) to certain representations
concerning the ownership of Company Common Stock and Monarch Common Stock to be
received in the Merger. The Company agrees to cause its remaining directors
(except as otherwise set forth in Schedule 4.16) to execute agreements
substantially in the form of Annex 3A and deliver such agreements to the Company
on or prior to January 10, 1997.
SECTION 4.17. DIRECTOR AND OFFICER RESIGNATIONS. The Company shall cause
to be delivered to Monarch at the Effective Time the resignations of the members
of the board of directors of the Company and of such officers as are specified
by Monarch to the Company in advance of the Effective Time.
SECTION 4.18. CONSUMMATION OF COMPANY BANK AND MONARCH BANK
MERGER. Monarch and the Company shall take promptly, or cause to be taken
promptly, all actions necessary to consummate and
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make effective the Bank Merger immediately following the Effective Time on the
Effective Date. The merger agreement with respect to the Bank Merger will
provide, among other things, that the existing directors of the Company Bank
shall continue as directors following the Bank Merger.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. CONDITIONS TO ALL PARTIES' OBLIGATIONS. The respective
obligations of Monarch and the Company to effect the Merger shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
conditions:
(a) The principal terms of this Plan shall have been approved by the
requisite vote of the respective shareholders of the Company, Company Bank,
Monarch and Monarch Bank.
(b) Monarch and the Company shall have procured the approvals, consents
or waivers with respect to the Plan, the Merger, the Bank Merger and the
other transactions contemplated hereby by the Federal Reserve Board, and all
applicable statutory waiting periods shall have expired; and the parties
shall have procured all other regulatory approvals, consents or waivers of
governmental authorities or other persons that, in the opinion of counsel
for Monarch and the Company, are necessary or appropriate for the
consummation of the Merger, the Bank Merger and the other transactions
contemplated hereby; PROVIDED, HOWEVER, that no approval, consent or waiver
referred to in this Section 5.1(b) shall be deemed to have been received if
it shall include any condition or requirement (other than conditions or
requirements that have been imposed on Monarch in connection with previous
acquisitions announced since 1995) that, individually or in the aggregate,
(i) would result in a Material Adverse Effect on Monarch or the Company or
(ii) would reduce the economic and business benefits of the transactions
contemplated by the Plan to Monarch or the Company in so significant and
adverse a manner that the party or parties so affected, in its or their
judgment, would not have entered into this Plan had such condition or
requirement been known at the date hereof.
(c) All other requirements prescribed by law which are necessary to the
consummation of the Merger and the Bank Merger and any transactions
necessary to consummate the Merger and the Bank Merger shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger or the Bank Merger or any transaction
necessary to consummate the Merger or the Bank Merger, and no litigation or
proceeding shall be pending against Monarch or the Company or any of their
Subsidiaries brought by any governmental agency seeking to prevent
consummation of the Merger or the Bank Merger or any transaction necessary
to consummate the Merger or the Bank Merger.
(e) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated, interpreted, applied or enforced by any
governmental authority which prohibits, restricts or makes illegal
consummation of the Merger, the Bank Merger or any other transaction
contemplated by this Plan.
(f) The Registration Statement shall have become effective 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.
(g) Monarch shall have received an opinion of Sullivan & Cromwell and
the Company shall have received an opinion of Company Counsel, no later than
thirty (30) days from the date hereof, and confirmed immediately prior to
the Effective Time, substantially to the effect that the Merger will be a
reorganization within the meaning of Section 368(a) of the Code, and that
Monarch and the Company will each be a party to that reorganization. Each
such opinion may be based on, in addition to the review of such matters of
law and fact as counsel rendering the opinion considers appropriate,
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(i) representations made at counsel's request by Monarch, the Company,
shareholders of Monarch or the Company, or any combination of such persons,
(ii) Certificates provided at counsel's request by officers of Monarch or of
the Company and other appropriate persons and (iii) assumptions set forth in
the opinion with the consent of Monarch (in the case of the opinion to be
delivered by Sullivan & Cromwell) or with the consent of the Company (in the
case of the opinion to be delivered by Company Counsel).
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF MONARCH. The obligations of
Monarch to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) Monarch shall have received (i) from the Company's independent
certified public accountants a "cold comfort" letter or "specified
procedures" letter, dated (A) the date of the mailing of the Registration
Statement, and (B) shortly prior to the Effective Date, with respect to
certain financial information regarding Monarch and the Company,
respectively, and (ii) from KPMG Peat Marwick LLP a letter confirming that
the Merger is entitled to "pooling of interests" treatment for accounting
purposes, each of such letters to be in the form customarily issued by "Big
Six" independent auditors in transactions of this type (the condition set
forth in this clause (ii) being referred to herein as the "Monarch Pooling
Condition"); PROVIDED, HOWEVER, that Monarch may, in its sole discretion, at
any time, either before or after shareholder approval of the principal terms
of this Plan, waive the Monarch Pooling Condition.
(b) Each of the representations and warranties of the Company contained
in this Plan shall have been true and correct on the date hereof and shall
be true and correct at the Effective Time (or on the date when made in the
case of any representation or warranty which specifically relates to an
earlier date or period); provided, however, that for purposes of this
Section 5.2(b) a representation or warranty shall only fail to be true and
correct at the Effective Time if the failure of any such brepresentation or
warranty to be true and correct has or constitutes, or is likely to have or
constitute or relates to, either individually or in the aggregate with other
such representations or warranties, a Material Adverse Effect on the Company
or the Company Bank; the Company shall have performed, or shall have caused
to be performed, in all Material respects, each of its covenants and
agreements contained in this Plan required to be performed at or prior to
the Effective Time; and Monarch shall have received a certificate signed by
the Chief Executive Officer and the Chief Financial Officer of the Company,
dated the Effective Date, as to the foregoing.
(c) Monarch shall have received an opinion, dated the Effective Date,
from O'Melveny & Myers, LLP, counsel to the Company ("Company Counsel"),
covering the matters set forth in Annex 4, in form and substance
satisfactory to Monarch.
(d) Monarch shall have received the written resignation of each director
(in his/her capacity as director) of the Company, effective as of the
Effective Time and such resignations of officers as may be specified by
Monarch pursuant to Section 4.17 hereof.
(e) The Company or Monarch shareholders voting against the principal
terms of this Plan or giving notice in writing to the Company or Monarch, as
the case may be, at or before the applicable Meeting that such shareholder
dissents from the principal terms of this Plan, in the aggregate, shall not
hold more than five percent of the Company Common Stock or Monarch Common
Stock, as the case may be (the condition set forth in this paragraph (e)
being referred to herein as the "Dissenters' Rights Condition"); PROVIDED,
HOWEVER, that Monarch may, in its sole discretion, at anytime, either before
or after shareholder approval of the principal terms of this Plan, waive the
Dissenters' Rights Condition, either in whole or in part.
(f) Prior to solicitation of shareholder approval, Monarch shall have
received an opinion confirming the fairness of the terms of the Merger to
its shareholders from a financial point of view.
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(g) Monarch shall have received a conformed copy of a certificate of
satisfaction of the Franchise Tax Board of the State of California that all
taxes imposed by law on the Company have been paid or secured, as filed with
the Secretary of State for the State of California pursuant to Section 1103
of the California Corporations Code.
SECTION 5.3. CONDITIONS TO THE OBLIGATION OF THE COMPANY. The obligation
of the Company to effect the Merger shall be subject to the satisfaction or
waiver prior to the Effective Time of the following additional conditions:
(a) The Company shall have received (i) from Monarch's independent
certified public accountants a "cold comfort" letter or letters or
"specified procedures" letter or letters, dated (A) the date of the mailing
of the Registration Statement, and (B) shortly prior to the Effective Date,
with respect to certain financial information regarding Monarch and the
Company, respectively and (ii) from Deloitte & Touche LLP a letter
confirming that the Merger is entitled to "pooling of interests" treatment
for accounting purposes, each of such letters to be in the form customarily
issued by "Big Six" independent auditors in transactions of this type (the
condition set forth in this clause (ii) being referred to as the "Company
Pooling Condition"); PROVIDED, HOWEVER, that the Company may, in its sole
discretion, at any time, either before or after shareholder approval of the
principal terms of this Plan, waive the Company Pooling Condition.
(b) Each of the representations, warranties and covenants of Monarch
contained in this Plan shall have been true on the date hereof and shall be
true in all Material respects on the Effective Date as if made on such date
(or on the date when made in the case of any representation or warranty
which specifically relates to an earlier date or period), PROVIDED, HOWEVER,
that for purposes of this Section 5.3(a) a representation or warranty shall
only fail to be true and correct at the Effective Time if the failure of any
such representation or warranty to be true and correct has or constitutes or
relates to, or is likely to have or constitute or relate to, either
individually or in the aggregate with other such representations or
warranties, a Material Adverse Effect on Monarch; Monarch shall have
performed, or shall have caused to be performed, in all Material respects,
each of its covenants and agreements contained in this Plan required to be
performed at or prior to the Effective Time; and the Company shall have
received certificates signed by the Chief Executive Officer and the Chief
Financial Officer of Monarch, dated the Effective Date, as to the foregoing.
(c) The Company shall have received an opinion, dated the Effective
Date, from Sullivan & Cromwell, covering the matters set forth in Annex 5,
in form and substance satisfactory to the Company.
(d) Each of William H. Jacoby, Robert L. McKay and Mark H. Stuenkel
shall have been elected to the board of directors of Monarch.
(e) Prior to the solicitation of shareholder approval, the Company shall
have received an opinion confirming the fairness of the terms of the Merger
to its shareholders from a financial point of view.
(f) As of the Effective Date or upon consummation of the Merger, the
Monarch Common Stock shall be included for quotation on the NASDAQ National
Market.
ARTICLE VI. TERMINATION
SECTION 6.1. TERMINATION. This Plan may be terminated, and the Merger
abandoned, prior to the Effective Date, either before or after its approval by
the shareholders of the Company and Monarch:
(a) by the mutual consent of Monarch and the Company, if the board of
directors of each so determines by vote of a majority of the members of its
entire board;
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(b) by Monarch or the Company, by written notice to the other party, if
its board of directors so determines by vote of a majority of the members of
its entire board, in the event of (i) the failure of the shareholders of the
Company to approve the principal terms of this Plan at its Meeting, (ii) the
failure of the shareholders of Monarch to approve the principal terms of
this Plan at its Meeting (iii) a Material breach by the other party hereto
of any representation, warranty, covenant or agreement contained herein
which is not cured or not curable within 30 days after written notice of
such breach is given to the party committing such breach by the other party;
(c) by Monarch or the Company, by written notice to the other party, if
either (i) any approval, consent or waiver of a governmental authority
required to permit consummation of the Merger or any transaction necessary
to consummate the Merger shall have been denied or (ii) any governmental
authority of competent jurisdiction shall have issued a final, unappealable
order enjoining or otherwise prohibiting consummation of the Merger or any
transaction necessary to consummate the Merger;
(d) by Monarch or the Company, by written notice to the other party, 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
September 30, 1997, unless the failure so to consummate by such time is due
to the breach of any representation, warranty or covenant contained in this
Plan by the party seeking to terminate;
(e) by Monarch, by written notice to the Company, if the Company takes,
causes to be taken or allows to be taken any action that, without giving
effect to the exception contained in Section 4.1 hereof regarding the
exercise by the Company's board of directors of its fiduciary duties, would
otherwise be prohibited under Section 4.1 hereof; or
(f) by the Company, by written notice to Monarch prior to the approval
by the shareholders of the Company of the principal terms of this Plan, if
the Company receives an Acquisition Proposal on terms and conditions which
the board of directors determines, after receiving the written advice of its
outside counsel, (i) that to proceed with the Merger will violate the
fiduciary duties of the board of directors to the Company's shareholders and
(ii) to accept such proposal; PROVIDED, HOWEVER, that the Company shall not
be entitled to terminate this Plan pursuant to this clause (f) unless it
shall have provided Monarch with written notice of such a possible
determination (which written notice will inform Monarch of the Material
terms and conditions of the proposal, including the identity of the
proponent) two business days prior to such determination.
SECTION 6.2. EFFECT OF TERMINATION. (a) In the event of the termination of
this Plan by either Monarch or the Company, as provided above, this Plan shall
thereafter become void and, subject to the provisions of Section 6.2(b) and (c)
and Section 8.2 hereof, there shall be no liability on the part of any party
hereto or their respective officers or directors, except that any such
termination shall be without prejudice to the rights of any party hereto arising
out of the willful breach by any other party of any covenant or willful
misrepresentation contained in this Plan.
(b) The parties agree and acknowledge that it is impractical to
ascertain the precise amount of damage to the Company as a result of a
failure to consummate the Merger and the other transactions contemplated
hereby due to a termination of this Plan by the Company pursuant to clause
(iii) of Section 6.1(b) hereof. Accordingly, in the event of such
termination, Monarch shall pay to the Company $1.25 million plus all costs
and expenses incurred by the Company in connection with this Plan, up to
$500,000, the parties agreeing that such amount will represent a reasonable
estimate of the minimum damage to the Company and not a penalty. The fee
payable pursuant to the foregoing sentence shall be payable by Monarch to
the Company by wire transfer to an account designated by the Company in
writing, on or before the seventh day after it becomes due. Payment of such
amount shall be in full satisfaction of damages to the Company arising from
any breach by Monarch of any of its representations, warranties, covenants
or agreements contained herein.
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(c) The parties agree and acknowledge that it is impractical to
ascertain the precise amount of damage to the Monarch as a result of a
failure to consummate the Merger and the other transactions contemplated
hereby due to a termination of this Plan by Monarch pursuant to clause (iii)
of Section 6.1(b) or Section 6.1(e) hereof or by the Company pursuant to
Section 6.1(f) hereof. Accordingly, in the event of such termination, the
Company shall pay to Monarch $1.25 million plus all costs and expenses
incurred by Monarch in connection with this Plan, up to $500,000, the
parties agreeing that such amount will represent a reasonable estimate of
the minimum damage to Monarch and not a penalty. The fee payable pursuant to
the foregoing sentence shall be payable by the Company to Monarch by wire
transfer to an account designated by Monarch in writing, on or before the
seventh day after it becomes due. Payment of such amount shall be in full
satisfaction of damages to Monarch arising from any breach by the Company of
any of its representations, warranties, covenants or agreements contained
herein.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. On such date as Monarch
selects, which shall be within 30 days after the last to occur of the expiration
of all applicable waiting periods in connection with approvals of governmental
authorities, the receipt of all approvals of governmental authorities and the
satisfaction or waiver of all other conditions to the consummation of the
Merger, or on such earlier or later date as may be agreed in writing by the
parties, an agreement of merger, a certificate of merger and related documents,
substantially in the forms attached hereto as Annex 7, shall be executed in
accordance with all appropriate legal requirements and shall be filed as
required by law, and the Merger provided for herein shall become effective upon
such filing or on such date and such time as may be specified in such articles
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 articles of merger.
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. CERTAIN DEFINITIONS; INTERPRETATION. As used in this Plan,
the following terms shall have the meanings indicated:
"Company Book Value" means the consolidated shareholders' equity of the
Company and the Company Bank, determined in accordance with GAAP, as
reflected on the audited balance sheet as of December 31, 1996, as adjusted
(if at all) in accordance with Section 1.6 hereof, LESS (i) the Company's
Deal Expenses, and (ii) 50% of the Retention Bonuses; PROVIDED, HOWEVER,
that, except as otherwise agreed by the parties, if the allowance for loan
and lease losses is less than $5,360,000 as shown on such balance sheet,
then the Company Book Value shall be reduced by an amount equal to the
after-tax effect of the difference between $5,360,000 and such lesser sum.
"Company's Per Share Book Value" means the QUOTIENT obtained by dividing
the Company Book Value by the aggregate number of fully-diluted shares of
Company Common Stock outstanding immediately prior to the Effective Time,
calculated in the manner set forth in the example provided in Annex 6
hereto.
"Deal Expenses" means the sum of the after tax-effect of (i) all fees
and expenses paid or accrued to a party's financial advisors and consultants
arising out of or relating to this Plan, (ii) the fees and expenses of such
party's independent accountants and attorneys paid or accrued in connection
with the preparation and negotiation of this Plan and (iii) all costs paid
pursuant to the last sentence of Section 1.6(c) hereof; PROVIDED, HOWEVER,
that "Deal Expenses" shall not include any such expenses booked as an
expense or otherwise deducted from consolidated shareholders' equity in the
preparation of financial statements contemplated by Section 1.6.
"GAAP" means generally accepted accounting principles applicable to bank
holding companies, consistently applied.
C-39
<PAGE>
"Material" means material to Monarch or the Company (as the case may be)
and its respective Subsidiaries, taken as a whole.
"Material Adverse Effect", with respect to a person, means any
condition, event, change or occurrence that is reasonably likely to have a
Material adverse effect upon (A) the condition (financial or other),
properties, assets, business, results of operations or prospects of such
person and its Subsidiaries, taken as a whole, or (B) the ability of such
person to perform its obligations under, and to consummate the transactions
contemplated by, this Plan; PROVIDED, HOWEVER, that in determining whether
there has been a Material Adverse Effect with respect to the Company, the
after-tax effect of any outcome of the litigation referred to by name in the
Company's Report on Form 10-Q for the quarter ended September 30, 1996 shall
be excluded.
"Monarch Book Value" means the consolidated shareholders' equity of
Monarch and its Subsidiaries, determined in accordance with GAAP, as
reflected on the audited balance sheet as of December 31, 1996, as adjusted
(if at all) in accordance with Section 1.6 hereof, LESS (i) Monarch's Deal
Expenses, and (ii) 50% of the Retention Bonuses; PROVIDED, HOWEVER, that if
the allowance for loan and lease losses is less than $5,393,000 as shown on
such balance sheet, then the Monarch Book Value shall be reduced by an
amount equal to the after-tax effect of the difference between $5,393,000
and such lesser sum.
"Monarch's Per Share Book Value" means the QUOTIENT obtained by dividing
the Monarch Book Value by the aggregate number of fully-diluted shares of
Monarch Common Stock outstanding immediately prior to the Effective Time,
calculated in the manner set forth in the example provided in Annex 6
hereto.
"Person" includes an individual, corporation, partnership, association,
trust or unincorporated organization.
"Retention Bonuses" means payments to key employees of the Company and
the Company Bank for the purpose of assuring the services of such employees
through the Effective Time, which payments shall be approved by Monarch and
shall not in the aggregate exceed $200,000.
"Subsidiary", with respect to a person, means any other person
controlled by such person.
When a reference is made in this Plan to Sections or Annexes, such reference
shall be to a Section of, or Annex to, this Plan unless otherwise indicated. For
all calculations of the "after-tax effect" pursuant to this Plan, a combined
Federal and California rate of 41.5% shall be used. The table of contents, tie
sheet and headings contained in this Plan are for ease of reference only and
shall not affect the meaning or interpretation of this Plan. Whenever the words
"include", "includes", or "including" are used in this Plan, they shall be
deemed followed by the words "without limitation". Any singular term in this
Plan shall be deemed to include the plural, and any plural term the singular.
SECTION 8.2. SURVIVAL. Only those agreements and covenants of the parties
that are by their terms applicable in whole or in part after the Effective Time
shall survive the Effective Time. All other representations, warranties,
agreements and covenants shall be deemed to be conditions of the Plan and shall
not survive the Effective Time. If the Plan shall be terminated, the agreements
of the parties in Section 6.2, this Section 8.2, Section 8.6, Section 8.7 and
the last four sentences of Section 4.4 hereof shall survive such termination.
SECTION 8.3. WAIVER. Prior to the Effective Time, any provision of this
Plan may be: (i) waived by the party benefitted by the provision; or (ii)
amended or modified at any time (including the structure of the transaction) by
an agreement in writing between the parties hereto approved by their respective
boards of directors.
SECTION 8.4. COUNTERPARTS. This Plan may be executed in counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same instrument.
C-40
<PAGE>
SECTION 8.5. GOVERNING LAW. This Plan shall be governed by, and
interpreted in accordance with, the laws of the State of California.
SECTION 8.6. WAIVER 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 PLAN OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.7. EXPENSES. Each party hereto will bear all expenses incurred
by it in connection with this Plan and the transactions contemplated hereby.
SECTION 8.8. NOTICES. All notices, requests, acknowledgments and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
If to the Company, to:
California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
Attention: Mark H. Stuenkel
With copies to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
And
The Findley Group
1470 North Hundley Street
Anaheim, CA 92806-1322
Telecopier: (714) 630-7910
Attention: Gary Steven Findley
If to Monarch, to:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 477-8611
Attention: Matt Wagner
With copies to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (212) 683-0458
Attention: Stanley F. Farrar
C-41
<PAGE>
SECTION 8.9. ENTIRE AGREEMENT; ETC. This Plan, together with the
Confidentiality Agreement, the Shareholders Agreements and the Option Agreement
of even date herewith being executed simultaneously herewith by the Company and
Monarch, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. All terms and provisions of
the Plan shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as to Section 4.6
hereof, nothing in this Plan is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this Plan.
SECTION 8.10. ASSIGNMENT. This Plan may not be assigned by any party
hereto without the written consent of the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.
MONARCH BANCORP
By: /s/ Hugh S. Smith
---------------------------------------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
CALIFORNIA COMMERCIAL BANKSHARES
By: /s/ Mark H. Stuenkel
---------------------------------------------------------------------
Name: Mark H. Stuenkel
Title: Executive Vice President
C-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 15TH DAY OF MARCH 1997
BY AND BETWEEN
MONARCH BANK
AND
NATIONAL BANK OF SOUTHERN CALIFORNIA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS
ARTICLE I. THE MERGER
SECTION 1.1. Structure of the Merger.................................... 2
SECTION 1.2. Effect on Outstanding Shares............................... 3
SECTION 1.3. Assumption of Liabilities.................................. 3
SECTION 1.4. Capital Structure of Surviving
Association................................................ 3
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1. Conduct Pending the Merger................................. 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties
of NBSC ................................................... 4
SECTION 3.2. Representations and Warranties
of Monarch ................................................ 4
ARTICLE IV. COVENANTS
SECTION 4.1. Certain Filings, Consents and
Arrangements............................................... 4
SECTION 4.2. Additional Agreements...................................... 4
SECTION 4.3. Tax-Free Reorganization Treatment.......................... 5
SECTION 4.4. Directors; Resignations.................................... 5
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. Conditions to All Parties'
Obligations ............................................... 5
ARTICLE VI. TERMINATION
SECTION 6.1. Termination................................................ 5
SECTION 6.2. Effect of Termination...................................... 6
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. Effective Date and Effective Time.......................... 6
-i-
<PAGE>
PAGE
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. Survival................................................... 6
SECTION 8.2. Waiver..................................................... 6
SECTION 8.3. Counterparts............................................... 7
SECTION 8.4. Governing Law.............................................. 7
SECTION 8.5. WAIVER OF JURY TRIAL....................................... 7
SECTION 8.6. Expenses................................................... 7
SECTION 8.7. Notices.................................................... 7
SECTION 8.8. Entire Agreement; Etc...................................... 8
SECTION 8.9. Assignment................................................. 8
-ii-
<PAGE>
INDEX OF DEFINED TERMS
PAGE
CCB....................................................................... 1
Code...................................................................... 2
Effective Date............................................................ 6
Effective Time............................................................ 6
MB........................................................................ 1
Merger.................................................................... 2
Monarch................................................................... 1
Monarch Common Stock...................................................... 1
Monarch Rights............................................................ 1
NBSC...................................................................... 1
NBSC Common Stock......................................................... 1
Parent Merger............................................................. 2
Parent Plan............................................................... 2
Person.................................................................... 1
Plan...................................................................... 1
Surviving Association..................................................... 2
U.S. Banking Law.......................................................... 2
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of the 15th day of March, 1997
(this "Plan"), by and between Monarch Bank, a California banking corporation
("Monarch"), and National Bank of Southern California, a national banking
association ("NBSC").
RECITALS:
A. MONARCH. Monarch is a banking corporation duly incorporated,
validly existing and in good standing under the laws of the State of
California, with its principal executive offices located in Laguna Niguel,
California. As of the date hereof, Monarch has (i) 1,000,000 authorized
shares of common stock, no par value ("Monarch Common Stock"), of which no
more than 391,743 shares were outstanding as of the date hereof and (ii) no
other class of capital stock authorized. All of the outstanding shares of
capital stock of Monarch are owned by Monarch Bancorp, a California
corporation ("MBC").
B. MONARCH RIGHTS, ETC. Monarch does not have any shares of its
capital stock reserved for issuance, any outstanding option, call or commitment
relating to shares of its capital stock or any outstanding securities,
obligations or agreements convertible into or exchangeable for, or giving any
individual, corporation, partnership, association, trust or unincorporated
organization (hereinafter "Person") any right (including, without limitation,
preemptive rights) to subscribe for or acquire from it, any shares of its
capital stock.
C. NBSC. NBSC is a national banking association duly incorporated,
validly existing and in good standing under the laws of the United States of
America, with its principal executive offices located in Newport Beach,
California. As of the date hereof, NBSC has (i) 562,500 authorized shares of
common stock, $5.00 par value ("NBSC Common Stock"), of which no more than
450,000 shares were outstanding as of the date hereof and (ii) no other class of
capital stock authorized. All of the outstanding shares of capital stock of
NBSC are owned by California Commercial Bankshares, a California corporation
("CCB").
D. NBSC RIGHTS, ETC. NBSC does not have any shares of its capital
stock reserved for issuance, any outstanding option, call or commitment relating
to shares of its capital stock or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any Person any right
(including, without limitation,
<PAGE>
preemptive rights) to subscribe for or acquire from it, any shares of its
capital stock.
E. APPROVALS. The respective Boards of Directors have, or will have
prior to the Effective Time, duly approved this Plan and have, or will have
prior to the Effective Time, duly authorized its execution and delivery, and
the sole shareholder of Monarch and the sole shareholder of NBSC have, or
will have prior to the Effective Time, approved the terms of this Plan.
Accordingly, no dissenters' rights will be exercised by the sole shareholder
of either Monarch or NBSC.
F. INTENTION OF THE PARTIES. It is the intention of the parties to
this Plan that (a) the consummation of the Merger (as hereinafter defined) is
conditioned upon and will occur concurrently with or immediately after the
merger of CCB with and into MBC pursuant to the Agreement and Plan of Merger,
dated as of December 19, 1996 (the "Parent Plan"), between MBC and CCB (the
"Parent Merger") and (b) the Merger for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
G. CAPITAL AND SURPLUS. Monarch has capital surplus of $4,255,000 and
undivided profits, including capital reserves, of $(590,000) as of December 31,
1996. NBSC has capital surplus of $12,551,000 and undivided profits, including
capital reserves, of $10,002,000 as of December 31, 1996.
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Plan and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
ARTICLE I. THE MERGER
SECTION 1.1. STRUCTURE OF THE MERGER. On the Effective Date (as
defined in Section 7.1 hereof), Monarch will merge (the "Merger") with and into
NBSC, with NBSC being the surviving association (the "Surviving Association"),
pursuant to the provisions of, and with the effect provided in, the California
Financial Code and General Corporation Law and the National Bank Act (the "U.S.
Banking Law"). The corporate existence of Monarch and NBSC shall be merged into
and continued in the Surviving Association and the Surviving Association shall
be deemed to be the same corporation as Monarch and NBSC. All rights,
franchises, and interests of Monarch and NBSC in and to every type of property
(real, personal or mixed) and choses in action shall be transferred to and
vested in the Surviving
-2-
<PAGE>
Association by virtue of the Merger and without any deed or other transfer. The
Surviving Association, upon the Merger, and without any order or other action on
the part of any court or otherwise, shall hold and enjoy all rights of property,
franchises and interests in any fiduciary capacity, in the same manner and to
the same extent as such rights, franchises and interests were held or enjoyed by
Monarch or NBSC at the time of the Merger. At the Effective Time (as defined in
Section 7.1 hereof), the articles of association, organization certificate,
bylaws, charter and certificate of authority to commence banking of the
Surviving Association shall be the articles of association, organization
certificate, bylaws, charter and certificate of authority to commence banking of
NBSC immediately prior to the Effective Time.
SECTION 1.2. EFFECT ON OUTSTANDING SHARES. (a) By virtue of the
Merger, automatically and without any action on the part of the holder
thereof, every nine shares of Monarch Common Stock issued and outstanding at
the Effective Time shall become and be converted, automatically and without
any action on the part of the holder thereof, into one share of NBSC Common
Stock with no consideration being issued in lieu of fractional shares.
(b) At the Effective Time, the issued and outstanding shares of NBSC
Common Stock, including shares issued pursuant to Section 1.2(a) hereof, shall
constitute all of the issued and outstanding shares of capital stock of the
Surviving Association.
SECTION 1.3. ASSUMPTION OF LIABILITIES. The Surviving Association
shall be responsible for all of the liabilities of every kind and description,
including liabilities arising from the operation of a trust department, of both
Monarch and NBSC existing as of the Effective Time.
SECTION 1.4. CAPITAL STRUCTURE OF SURVIVING ASSOCIATION. The
amount of capital of the Surviving Association shall be $5,051,000 divided
into 493,527 shares of common stock, each of $5.00 par value, and at the
Effective Time, the Surviving Association shall have a surplus of $16,806,000
and undivided profits of $9,412,000, including capital reserves, which will
be equal to the combined capital structures of Monarch and NBSC set forth in
the Recitals, adjusted, however, for normal earnings and expenses between
December 31, 1996 and the Effective Time.
-3-
<PAGE>
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1. CONDUCT PENDING THE MERGER. Except as expressly
provided in this Plan or in the Parent Plan, during the period from the date of
this Plan to the Effective Time, each of Monarch and NBSC shall comply with the
provisions of Article II of the Parent Plan, which Article is incorporated
herein by this reference, to the extent applicable.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF NBSC. NBSC represents
and warrants to Monarch that the Recitals of this Plan with respect to NBSC are
true and correct.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF MONARCH. Monarch
represents and warrants to NBSC that the Recitals of this Plan with respect to
Monarch are true and correct.
ARTICLE IV. COVENANTS
SECTION 4.1. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Monarch and
NBSC shall (a) as soon as practicable make any filings and applications required
to be filed in order to obtain all approvals, consents and waivers of
governmental authorities necessary or appropriate for the consummation of the
transactions contemplated hereby and use their reasonable best efforts to cause
the applications for the approvals described in Section 5.1(b) of the Parent
Plan to be initially filed on or before February 15, 1997; (b) cooperate with
one another (i) in promptly determining what filings are required to be made or
approvals, consents or waivers are required to be obtained under any relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such approvals, consents or waivers; and (c) deliver to the
other copies of the publicly available portions of all such filings and
applications promptly after they are filed.
SECTION 4.2. ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable best efforts to take promptly, or cause to be taken promptly, all
actions
-4-
<PAGE>
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Plan as soon as practicable,
including using efforts to obtain all necessary actions or non-actions,
extensions, waivers, consents and approvals from all applicable governmental
entities, effecting all necessary registrations, applications and filings
(including, without limitation, filings under any applicable state securities
laws) and obtaining any required contractual consents and regulatory approvals.
SECTION 4.3. TAX-FREE REORGANIZATION TREATMENT. Neither Monarch nor
NBSC shall take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368 of the Code.
SECTION 4.4. DIRECTORS; RESIGNATIONS. The parties agree that the
directors of NBSC immediately prior to the Effective Time shall continue to be
the directors of the Surviving Association at and after the Effective Time.
Monarch shall cause to be delivered to NBSC at the Effective Time the
resignations of the members of its Board of Directors.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. CONDITIONS TO ALL PARTIES' OBLIGATIONS. The respective
obligations of Monarch and NBSC to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the condition that all
conditions contained in Article V of the Parent Plan have been satisfied or
waived, which Article V is incorporated herein by this reference, and that the
Parent Merger shall have been consummated.
ARTICLE VI. TERMINATION
SECTION 6.1. TERMINATION. This Plan shall terminate, and the Merger
shall be abandoned, prior to the Effective Date, upon the termination of the
Parent Plan pursuant to Article VI thereof. This Plan may be terminated, and
the Merger abandoned, prior to the Effective Date, by Monarch or NBSC, upon
written notice to the other party, if either (i) any approval, consent or waiver
of a governmental authority required to permit consummation of the Merger or any
transaction necessary to consummate the
-5-
<PAGE>
Merger shall have been denied or (ii) any governmental authority of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the Merger or any transaction necessary to
consummate the Merger.
SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination
of this Plan as provided above, this Plan shall thereafter become void and,
subject to the provisions of Section 8.1 hereof, there shall be no liability on
the part of any party hereto or their respective officers or directors, except
that any such termination shall be without prejudice to the rights of any party
hereto arising out of the willful breach by any other party of any covenant or
willful misrepresentation contained in this Plan or the Parent Plan.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. Upon the
satisfaction or waiver of all conditions to the consummation of the Merger, all
documents required to effect the Merger shall be executed in accordance with all
appropriate legal requirements and shall be filed as required by law, and the
Merger provided for herein shall become effective upon such filing. The date of
such filing is herein called the "Effective Date." The "Effective Time" of the
Merger shall be the time of such filing.
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. SURVIVAL. Only those agreements and covenants of the
parties that are by their terms applicable in whole or in part after the
Effective Time shall survive the Effective Time. All other representations,
warranties, agreements and covenants shall be deemed to be conditions of the
Plan and shall not survive the Effective Time. If the Plan shall be terminated,
the agreements of the parties in Section 6.2, this Section 8.1, Section 8.5 and
Section 8.6 hereof shall survive such termination.
SECTION 8.2. WAIVER. Prior to the Effective Time, any provision of
this Plan may be: (i) waived by the party benefitted by the provision; or
(ii)amended or modified at any time (including the structure of the transaction)
by an agreement in writing between the parties hereto approved by their
respective Boards of Directors.
-6-
<PAGE>
SECTION 8.3. COUNTERPARTS. This Plan may be executed in
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
SECTION 8.4. GOVERNING LAW. This Plan shall be governed by, and
interpreted in accordance with, the laws of the State of California, and to the
extent applicable, federal law.
SECTION 8.5. WAIVER OF JURY TRIAL. 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 PLAN OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.6. EXPENSES. Each party hereto will bear all expenses
incurred by it in connection with this Plan and the transactions contemplated
hereby.
SECTION 8.7. NOTICES. All notices, requests, acknowledgments and
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
If to NBSC, to:
National Bank of Southern California
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
Attention: Mark H. Stuenkel
With copies to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
And
The Findley Group
1470 North Hundley Street
Anaheim, CA 92806-1322
Telecopier: (714) 630-7910
Attention: Gary Steven Findley
-7-
<PAGE>
If to Monarch, to:
Monarch Bank
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 477-8611
Attention: Arnold C. Hahn
With copies to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (212) 683-0458
Attention: Stanley F. Farrar
SECTION 8.8. ENTIRE AGREEMENT; ETC. This Plan represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. All terms and provisions of this Plan shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Nothing in this Plan is intended to confer upon any
other Person any rights or remedies of any nature whatsoever under or by reason
of this Plan.
SECTION 8.9. ASSIGNMENT. This Plan may not be assigned by any party
hereto without the written consent of the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the day and year first above
written.
MONARCH BANK
By:
-----------------------------
Name:
Title:
NATIONAL BANK OF SOUTHERN CALIFORNIA
By:
------------------------------
Name:
Title:
-8-
<PAGE>
The Directors of Monarch Bank, by signing below, acknowledge that they
have approved the foregoing Merger Agreement and the transactions contemplated
thereby.
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
-9-
<PAGE>
The Directors of National Bank of Southern California, by signing
below, acknowledge that they have approved the foregoing Merger Agreement and
the transactions contemplated thereby.
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
By:
------------------------------
Name:
Title: Director
-10-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT
DATED AS OF THE 19TH DAY OF DECEMBER, 1996
BY AND BETWEEN
MONARCH BANCORP
AND
CALIFORNIA COMMERCIAL BANKSHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . iv
SECTION 1. GRANT OF OPTION. . . . . . . . . . . . . . . . . . . 1
SECTION 2. EXERCISE OF OPTION.. . . . . . . . . . . . . . . . . 1
(a) Timing of Exercise, Termination.. . . . . . . . . . . . 1
(b) Preliminary Purchase Event. . . . . . . . . . . . . . . 2
(c) Purchase Event. . . . . . . . . . . . . . . . . . . . . 4
(d) Notice by Issuer. . . . . . . . . . . . . . . . . . . . 4
(e) Notice of Exercise. . . . . . . . . . . . . . . . . . . 4
(f) Payments. . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Delivery of Common Stock. . . . . . . . . . . . . . . . 5
(h) Common Stock Certificates.. . . . . . . . . . . . . . . 5
(i) Holder of Record. . . . . . . . . . . . . . . . . . . . 6
SECTION 3. ISSUER'S COVENANTS.. . . . . . . . . . . . . . . . . 6
(a) Available Shares. . . . . . . . . . . . . . . . . . . . 6
(b) Compliance. . . . . . . . . . . . . . . . . . . . . . . 6
(c) Certain Actions, Applications and Arrangements. . . . . 6
(d) Dilution. . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4. EXCHANGE OF OPTION.. . . . . . . . . . . . . . . . . 7
SECTION 5. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . 7
SECTION 6. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . 8
SECTION 7. OPTION AND OPTION SHARE REPURCHASE.. . . . . . . . . 9
(a) Right to Repurchase, Price. . . . . . . . . . . . . . . 9
(b) Repurchase Procedure. . . . . . . . . . . . . . . . . . 10
(c) Regulatory Approvals, Partial Repurchase. . . . . . . . 11
SECTION 8. SUBSTITUTE OPTION. . . . . . . . . . . . . . . . . . 12
(a) Grant of Substitute Option. . . . . . . . . . . . . . . 12
(b) Exercise of Substitute Option.. . . . . . . . . . . . . 12
(c) Terms of Substitute Option. . . . . . . . . . . . . . . 13
(d) Substitute Option Definitions.. . . . . . . . . . . . . 13
(e) Cap on Substitute Option . . . . . . . . . . . . . . . .14
SECTION 9. EXTENSION OF EXERCISE RIGHT. . . . . . . . . . . . . 14
SECTION 10. ISSUER REPRESENTATIONS AND WARRANTIES . . . . . . . 15
(a) Corporate Authority . . . . . . . . . . . . . . . . . . 15
(b) Availability of Shares. . . . . . . . . . . . . . . . . 15
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SECTION 11. Assignment. . . . . . . . . . . . . . . . . . . . . 15
(a) Assignment. . . . . . . . . . . . . . . . . . . . . . . 15
(b) Restrictive Legend. . . . . . . . . . . . . . . . . . . 16
SECTION 12. Filings and Consents. . . . . . . . . . . . . . . . 16
SECTION 13. Remedies. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 14. Severability. . . . . . . . . . . . . . . . . . . . 17
SECTION 15. Notices . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 16. Counterparts. . . . . . . . . . . . . . . . . . . . 17
SECTION 17. Expenses. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 18. Entire Agreement. . . . . . . . . . . . . . . . . . 18
SECTION 19. Definitions . . . . . . . . . . . . . . . . . . . . 18
SECTION 20. Effect on Plan. . . . . . . . . . . . . . . . . . . 18
SECTION 21. Selections. . . . . . . . . . . . . . . . . . . . . 18
SECTION 22. Further Assurances. . . . . . . . . . . . . . . . . 18
SECTION 23. Voting. . . . . . . . . . . . . . . . . . . . . . . 18
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INDEX OF DEFINED TERMS
PAGE
Acquiring Corporation. . . . . . . . . . . . . . . . . . . . . . 13
Acquisition Transaction. . . . . . . . . . . . . . . . . . . . . 3
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Average Price. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . 2
BHC Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exercise Termination Event . . . . . . . . . . . . . . . . . . . 2
Federal Reserve Board. . . . . . . . . . . . . . . . . . . . . . 3
Governmental Authority . . . . . . . . . . . . . . . . . . . . . 3
Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Grantee Subsidiary . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Price. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Issuer Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 2
Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Notice Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notice/Application . . . . . . . . . . . . . . . . . . . . . . . 4
Notification . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Option Notice. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Option Repurchase Price. . . . . . . . . . . . . . . . . . . . . 9
Option Repurchase Request Date . . . . . . . . . . . . . . . . . 9
Option Share Repurchase Price. . . . . . . . . . . . . . . . . . 10
Option Share Repurchase Request Date . . . . . . . . . . . . . . 10
Option Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preliminary Purchase Event . . . . . . . . . . . . . . . . . . . 2
Purchase Event . . . . . . . . . . . . . . . . . . . . . . . . . 4
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . 3
Securities Exchange Act. . . . . . . . . . . . . . . . . . . . . 2
Substitute Common Stock. . . . . . . . . . . . . . . . . . . . . 13
Substitute Option. . . . . . . . . . . . . . . . . . . . . . . . 12
Substitute Option Issuer . . . . . . . . . . . . . . . . . . . . 12
Substitute Purchase Price. . . . . . . . . . . . . . . . . . . . 12
Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 19th day of December,
1996 (this "Agreement"), between Monarch Bancorp, a California corporation
("Grantee"), and California Commercial Bankshares, a California corporation
("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are entering into an Agreement and
Plan of Merger dated as of the date hereof (the "Plan"), which is being
executed by the parties hereto simultaneously with the execution of this
Agreement; and
WHEREAS, as a condition and inducement to Grantee's entering into
the Plan and in consideration therefor, Issuer has agreed to grant Grantee
the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties
hereto agree as follows:
SECTION 1. GRANT OF OPTION. Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to
the terms hereof, up to 635,570 (or such lesser amount as shall constitute
19.9% of the outstanding shares of the Common Stock on the date of
exercise) fully paid and nonassessable shares of Common Stock, no par value
("Common Stock"), of Issuer at a price per share equal to $9.50 per share
(the "Initial Price"); PROVIDED, HOWEVER, that in the event Issuer issues
or agrees to issue (other than pursuant to options and warrants to issue
Common Stock in effect as of the date hereof) any shares of Common Stock at
a price less than the Initial Price (as adjusted pursuant to Section 5(b)),
such price shall be equal to such lesser price (such price, as adjusted as
hereinafter provided, the "Option Price"). The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
SECTION 2. EXERCISE OF OPTION.
(a) TIMING OF EXERCISE, TERMINATION. Grantee may exercise the
Option, in whole or part, at any time and from time to time following the
occurrence of a Purchase Event (as defined below); PROVIDED that the Option
shall terminate and be of no further force and effect upon the earliest to
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occur of (i) the time immediately prior to the Effective Time, (ii) 12
months after the first occurrence of a Purchase Event (as defined below),
(iii) 18 months after the termination of the Plan following the occurrence
of a Preliminary Purchase Event (as defined below), (iv) termination of the
Plan in accordance with the terms thereof prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event (other than a termination of
the Plan by Grantee pursuant to Section 6.1(b)(iii), (e) or (f) thereof),
or (v) 18 months after the termination of the Plan by Grantee pursuant to
Section 6.1(b)(iii), (e) or (f) thereof. The events described in clauses
(i) - (v) in the preceding sentence are hereinafter collectively referred
to as an "Exercise Termination Event."
(b) PRELIMINARY PURCHASE EVENT. The term "Preliminary Purchase
Event" shall mean any of the following events or transactions occurring
after the date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer
Subsidiary") without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as defined below) with any Person (the term "Person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934
(the "Securities Exchange Act"), and the rules and regulations
thereunder) other than Grantee or any of its subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction with any person other than Grantee or any
Grantee Subsidiary. For purposes of this Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any of Issuer's subsidiaries, (y) a
purchase, lease or other acquisition of all or substantially all of
the assets of Issuer or any subsidiary or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 10% or more of the voting
power of Issuer or any subsidiary, other than by exercise of options,
warrants or other rights (or in settlement or satisfaction of such
rights) set forth in Annex 2 to the Plan, provided that the term
"Acquisition Transaction" does not include any internal merger or
consolidation involving only Issuer and/or Issuer Subsidiaries;
(ii) Any Person (other than Grantee or any Grantee Subsidiary)
shall have acquired Beneficial
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Ownership or the right to acquire Beneficial Ownership, other than by
exercise of options, warrants or other rights (or in settlement or
satisfaction of such rights) set forth in Annex 2 to the Plan, of
shares of Common Stock (the term "Beneficial Ownership" for purposes
of this Agreement having the meaning assigned thereto in Section 13(d)
of the Securities Exchange Act, and the rules and regulations
thereunder) such that, upon the consummation of such acquisition, such
Person would have Beneficial Ownership, in the aggregate, of 10% or
more of the then outstanding shares of Common Stock if such person is
a director or officer of the Issuer, and 25% or more of the then
outstanding shares of Common Stock if such person is not a director or
officer of the Issuer;
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have made a BONA FIDE proposal to Issuer or its shareholders, by
public announcement or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition Transaction
(including, without limitation, any situation in which any person
other than Grantee or any subsidiary of Grantee shall have commenced
(as such term is defined in Rule 14d-2 under the Securities Exchange
Act) or shall have filed a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to, a
tender offer or exchange offer to purchase any shares of Common Stock
such that, upon consummation of such offer, such person would own or
control 10% or more of the then outstanding shares of Common Stock
(such an offer being referred to herein as a "Tender Offer" or an
"Exchange Offer", respectively));
(iv) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall
have breached any covenant or obligation contained in the Plan and
such breach would entitle Grantee to terminate the Plan or the holders
of Common Stock shall not have approved the Plan at the meeting of
such stockholders held for the purpose of voting on the Plan, such
meeting shall not have been held or shall have been canceled prior to
termination of the Plan or Issuer's Board of Directors shall have
withdrawn or modified in a manner adverse to Grantee the
recommendation of Issuer's Board of Directors with respect to the
Plan;
(v) Any Person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction
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<PAGE>
to which Grantee has given its prior written consent or in connection
with the exercise of options, warrants or other rights (or in
settlement or satisfaction of such rights) set forth in Annex 2 to the
Plan, shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
or other governmental authority or regulatory or administrative agency
or commission (each, a "Governmental Authority") for approval to
engage in an Acquisition Transaction; or
(vi) The Board of Directors of Issuer does not recommend that
the stockholders of Issuer approve the Plan.
(c) PURCHASE EVENT. The term "Purchase Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person other than Grantee or any
Grantee Subsidiary of Beneficial Ownership of shares of Common Stock,
other than by exercise of options, warrants or other rights (or in
settlement or satisfaction of such rights) set forth in Annex 2 to the
Plan or as a result of the execution and delivery of Shareholders
Agreements referred to in Section 4.16 of the Plan, such that, upon
the consummation of such acquisition, such Person would have
Beneficial Ownership, in the aggregate, of 20% or more of the then
outstanding shares of Common Stock if such person is a director or
officer of the Issuer, and 25% or more of the then outstanding shares
of Common Stock if such person is not a director or officer of the
Issuer; or
(ii) The occurrence of a Preliminary Purchase Event described in
Section 2(b)(i) hereof except that the percentage referred to in
clause (z) shall be 20%.
(d) NOTICE BY ISSUER. Issuer shall notify Grantee promptly in
writing of the occurrence of any Preliminary Purchase Event or Purchase
Event; PROVIDED, HOWEVER, that the giving of such notice by Issuer shall
not be a condition to the right of Grantee to exercise the Option.
(e) NOTICE OF EXERCISE. In the event that Grantee is entitled
to and wishes to exercise the Option, it shall send to Issuer a written
notice (the "Option Notice" and the date of which being hereinafter
referred to as the "Notice Date") specifying (i) the total number of shares
of
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Common Stock it will purchase pursuant to such exercise, (ii) the aggregate
purchase price as provided herein and (iii) a period of time (that shall
not be less than three business days nor more than thirty business days)
running from the Notice Date (the "Closing Date") and a place at which the
closing of such purchase shall take place; PROVIDED, THAT, if prior
notification to or approval of the Federal Reserve Board or any other
Governmental Authority is required in connection with such purchase (each,
a "Notification" or an "Approval," as the case may be), (a) Grantee shall
promptly file, or cause to be filed, the required notice or application for
approval ("Notice/Application"), (b) Grantee shall expeditiously process,
or cause to be expeditiously processed, the Notice/Application and (c) for
the purpose of determining the Closing Date pursuant to clause (iii) of
this sentence, the period of time that otherwise would run from the Notice
Date shall instead run from the later of (x) in connection with any
Notification, the date on which any required notification periods have
expired or been terminated and (y) in connection with any Approval, the
date on which such approval has been obtained and any requisite waiting
period or periods shall have expired. For purposes of Section 2(a) hereof,
any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto. On or prior to the Closing Date, Grantee shall have the
right to revoke its exercise of the Option in the event that the
transaction constituting a Purchase Event that gives rise to such right to
exercise shall not have been consummated.
(f) PAYMENTS. At the closing referred to in Section 2(e)
hereof, Grantee shall pay to Issuer the aggregate Option Price for the
shares of Common Stock specified in the Option Notice in immediately
available funds by wire transfer to a bank account designated by Issuer;
PROVIDED, HOWEVER, that failure or refusal of Issuer to designate such a
bank account shall not preclude Grantee from exercising the Option.
(g) DELIVERY OF COMMON STOCK. At such closing, simultaneously
with the delivery of immediately available funds as provided in Section
2(f) hereof, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock specified in the Option
Notice and, if the Option should be exercised in part only, a new Option
evidencing the rights of Grantee thereof to purchase the balance of the
shares of Common Stock purchasable hereunder.
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<PAGE>
(h) COMMON STOCK CERTIFICATES. Certificates for Common Stock
delivered at a closing hereunder shall be endorsed with a restrictive
legend substantially as follows:
The transfer of the shares represented by this certificate is
subject to resale restrictions arising under the Securities Act
of 1933, as amended, and to certain provisions of an agreement
between Monarch Bancorp and California Commercial Bankshares
("Issuer") dated as of the 19th day of December, 1996. A copy of
such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Grantee
shall have delivered to Issuer a copy of a letter from the staff of the
Securities and Exchange Commission (the "SEC"), or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such
legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if
the shares have been sold or transferred in compliance with the provisions
of this Agreement and under circumstances that do not require the retention
of such reference; and (iii) the legend shall be removed in its entirety if
the conditions in the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be
required by law. The Grantee agrees that, except as otherwise contemplated
hereby, the Shares to be acquired pursuant hereto will be acquired for
investment only and not with a view to any public distribution thereof, and
Grantee will not offer to sell or otherwise dispose of the Shares in
violation of any of the requirements of the Securities Act.
(i) HOLDER OF RECORD. Upon the giving by Grantee to Issuer of
an Option Notice and the tender of the applicable purchase price in
immediately available funds on the Closing Date, Grantee shall be deemed to
be the holder of record of the number of shares of Common Stock specified
in the Option Notice, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares
of Common Stock shall not then actually be delivered to Grantee. Issuer
shall pay all
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expenses and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of
Grantee.
SECTION 3. ISSUER'S COVENANTS.
(a) AVAILABLE SHARES. The Issuer agrees that it shall at all
times until the termination of this Agreement have reserved for issuance
upon the exercise of the Option that number of authorized and reserved
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, all of which
shares will, upon issuance pursuant hereto, be duly authorized, validly
issued, fully paid, nonassessable, and delivered free and clear of all
claims, liens, encumbrances and security interests.
(b) COMPLIANCE. The Issuer agrees that it will not, by
amendment of its articles of incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer.
(c) CERTAIN ACTIONS, APPLICATIONS AND ARRANGEMENTS. Issuer
shall promptly take all action as may from time to time be required
(including (i) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (ii) in the event, under the Bank
Holding Company Act of 1956, as amended ("BHC Act"), or the Change in Bank
Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the Federal Reserve Board or to any other Governmental
Authority is necessary before the Option may be exercised, cooperating with
Grantee in preparing such applications or notices and providing such
information to each such Governmental Authority as it may require) in order
to permit Grantee to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto.
SECTION 4. EXCHANGE OF OPTION. This Agreement and the Option
granted hereby are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office
of Issuer, for other agreements providing for Options of different
denominations entitling the holder thereof to purchase, on the same terms
and subject to the same conditions as are set forth herein, in the
aggregate the
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same number of shares of Common Stock purchasable hereunder. The terms
"Agreement" and "Option" as used in this Section 4 include any agreements
and related options for which this Agreement and the Option granted hereby
may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated shall
at any time be enforceable by anyone.
SECTION 5. ADJUSTMENTS. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment
from time to time as follows:
(a) In the event of any change in the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted and proper provision shall be made so that, in the
event that any additional shares of Common Stock are to be issued or
otherwise to become outstanding as a result of any such change (other than
pursuant to an exercise of the Option or any other options, warrants or
other rights (or in settlement or satisfaction of such rights) set forth in
Annex 2 to the Plan), the number of shares of Common Stock that remain
subject to the Option shall be increased so that, after such issuance and
together with shares of Common Stock previously issued pursuant to the
exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it represents the same proportion of the
number of shares of Common Stock then issued and outstanding as such
proportion before the applicable event described in this Section 5(a).
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
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SECTION 6. REGISTRATION RIGHTS. (a) Upon the occurrence of a
Purchase Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee (whether on its own behalf or on behalf of
any subsequent holder of the Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare and file a
registration statement under the Securities Act covering any shares issued
and issuable pursuant to the Option and shall use its best efforts to cause
such registration statement to become effective, and to remain current and
effective for a reasonable period after such registration statement first
becomes effective, in order to permit the sale or other disposition of any
shares of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee; PROVIDED, HOWEVER, that Issuer may postpone filing a registration
statement relating to a registration request by Grantee under this Section
6 for a period of time (not in excess of 30 days) if in its judgment such
filing would require the disclosure of material information that Issuer has
a BONA FIDE business purpose for preserving as confidential. Grantee shall
have the right to demand one such registration at the Issuer's expense and
additional registrations at its own expense. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration
of Option Shares as provided above, Issuer is in the process of
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter
or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering, the offering or inclusion of the Option
Shares would interfere materially with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby
may be reduced; PROVIDED, HOWEVER, that after any such required reduction,
the number of Option Shares to be included in such offering for the account
of Grantee shall constitute at least 33 1/3% of the total number of shares
of Common Stock held by Grantee and Issuer covered in such registration
statement; PROVIDED FURTHER, HOWEVER, that if such reduction occurs, then
Issuer shall file a registration statement for the balance as promptly as
practicable thereafter as to which no reduction pursuant to this Section
6(a) shall be permitted or occur, and the Grantee shall thereafter be
entitled to one additional registration statement at the Grantee's expense.
In addition, if the Company proposes to register its Common Stock or any
other securities on a form that would permit the registration of the Shares
for public sale under the Securities Act (whether proposed to be offered
for sale by
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the Issuer or any other Person) it will give prompt written notice to
Grantee of its intention to do so, specifying the relevant terms of such
proposal, including the proposed maximum offering price thereof. Upon the
written request of the Grantee delivered to the Issuer within 10 business
days after the giving of any such notice, which request shall specify the
number of Shares desired to be disposed by Grantee, the Company will use
its best efforts to effect, in connection with its proposed registration,
the registration under the Securities Act of the Shares set forth in such
request. The Grantee shall be entitled to two such registrations at the
Issuer's expense and additional registrations at its own expense. Grantee
shall provide all information reasonably requested by Issuer for inclusion
in any registration statement to be filed hereunder. In connection with
any such registration, Issuer and Grantee shall provide each other with
representations, warranties, indemnities and other agreements customarily
given in connection with such registrations. If requested by Grantee in
connection with such registration, Issuer and Grantee shall become a party
to any underwriting agreement relating to the sale of such shares, but only
to the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. Notwithstanding the foregoing, if Grantee revokes
any Option Notice or fails to exercise any Option with respect to any
Option Notice pursuant to Section 2(e) hereof, Issuer shall not be
obligated to continue any registration process with respect to the sale of
Option Shares issuable upon the exercise of such Option and Grantee shall
not be deemed to have demanded registration of Option Shares.
(b) In the event that Grantee requests Issuer to file a
registration statement following the failure to obtain any approval
required to exercise the Option as described in Section 8 hereof, the
closing of the sale or other disposition of the Common Stock or other
securities pursuant to such registration statement shall occur
substantially simultaneously with the exercise of the Option.
SECTION 7. SUBSTITUTE OPTION.
(a) GRANT OF SUBSTITUTE OPTION. In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate or merge with any person, other than Grantee or a Grantee
Subsidiary, and shall not be the continuing or surviving corporation of
such consolidation or merger, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer
-10-
<PAGE>
and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any
other person or cash or any other property or the then outstanding shares
of Common Stock shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or (iii) to
sell or otherwise transfer all or substantially all of its or any Material
Subsidiary's assets to any person, other than Grantee or a Grantee
Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the
Acquiring Corporation (as defined below) or (y) any person that controls
the Acquiring Corporation (the Acquiring Corporation and any such
controlling person being hereinafter referred to as the "Substitute Option
Issuer").
(b) EXERCISE OF SUBSTITUTE OPTION. The Substitute Option shall
be exercisable for such number of shares of the Substitute Common Stock (as
is hereinafter defined) as is equal to the product of (i) the Market Price
(as defined below) MULTIPLIED by the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable, DIVIDED by (ii) the
Average Price (as is hereinafter defined). The exercise price of the
Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the product of the Option Price
MULTIPLIED by a fraction in which the numerator is the number of shares of
Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares for which the Substitute Option is
exercisable. For purposes of this Agreement, the term "Market Price" shall
mean the highest of (i) the price per share of Common Stock paid or to be
paid by any third party pursuant to an agreement with Issuer (whether by
way of a merger, consolidation or otherwise) and (ii) in the event of a
sale of all or substantially all of Issuer's assets, the sum of the price
paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
independent investment banking firm selected by Grantee divided by the
number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the Market Price, the value of consideration other
than cash shall be the value determined by a nationally recognized
independent investment banking firm investing banking firm selected by
Grantee
-11-
<PAGE>
whose determination shall be conclusive and binding on all parties.
(c) TERMS OF SUBSTITUTE OPTION. The Substitute Option shall
otherwise have the same terms as the Option, PROVIDED, HOWEVER, that if the
terms of the Substitute Option cannot, for legal reasons, be the same as
the Option, such terms shall be as similar as possible and in no event less
advantageous to Grantee.
(d) SUBSTITUTE OPTION DEFINITIONS. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or any
substantial part of the Issuer's assets (or the assets of any Issuer
subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the Substitute
Option; and
(iii) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
PROVIDED, HOWEVER, that if such closing price is not ascertainable due
to an absence of a public market for the Substitute Common Stock,
"Average Price" shall mean the higher of (i) the price per share of
Substitute Common Stock paid or to be paid by any third party pursuant
to an agreement with the issuer of the Substitute Common Stock and
(ii) the book value per share, calculated in accordance with generally
accepted accounting principles, of the Substitute Common Stock
immediately prior to exercise of the Substitute Option; PROVIDED,
FURTHER, that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common
stock issued by Issuer, the person merging into Issuer or by any
company which controls or is controlled by such merging person, as
Grantee may elect.
(e) CAP ON SUBSTITUTE OPTION. In no event, pursuant to any of
the foregoing paragraphs, shall the Substitute Option be exercisable for
more than that
-12-
<PAGE>
proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of the Company which the Grantee
had the right to acquire immediately prior to the issuance of the
Substitute Option. In the event that the Substitute Option would be
exercisable for more than the proportion of the outstanding Substitute
Common Stock referred to in the immediately preceding paragraph but for
this clause (e), the Substitute Option Issuer shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option
without giving effect to the limitation in this clause (e) over (ii) the
value of the Substitute Option after giving effect to the limitation in
this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Grantee and the
Substitute Option Issuer.
SECTION 8. EXTENSION OF EXERCISE RIGHT. Notwithstanding
Sections 2 and 6 hereof, if Grantee has given the notice referred to in one
or more of such Sections, the exercise of the rights specified in any such
Section shall be extended (a) if the exercise of such rights requires
obtaining regulatory approvals (including any required waiting periods) to
the extent necessary to obtain all regulatory approvals for the exercise of
such rights, and (b) to the extent necessary to avoid liability under
Section 16(b) of the Securities Exchange Act by reason of such exercise;
PROVIDED, HOWEVER, that in no event shall any closing date occur more than
6 months after the related Notice Date, and, if the closing date shall not
have occurred within such period due to the failure to obtain any required
approval by the Federal Reserve Board or any other Governmental Authority
despite the best efforts of Issuer or the Substitute Option Issuer, as the
case may be, to obtain such approvals, the exercise of the Option shall be
deemed to have been rescinded as of the related Notice Date. In the event
(a) Grantee receives official notice that an approval of the Federal
Reserve Board or any other Governmental Authority required for the purchase
and sale of the Option Shares will not be issued or granted or (b) a
closing date has not occurred within 6 months after the related Notice Date
due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the resale of the Option
Shares pursuant to a registration statement as provided in Section 6.
SECTION 9. ISSUER'S REPRESENTATIONS AND WARRANTIES. Issuer
hereby represents and warrants to Grantee as follows:
-13-
<PAGE>
(a) CORPORATE AUTHORITY. Issuer has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly executed and delivered by, and constitutes a valid
and binding obligation of, Issuer, enforceable against Issuer in accordance
with its terms, except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought; and
(b) AVAILABILITY OF SHARES. Issuer has taken all necessary
corporate action to authorize and reserve and to permit it to issue, and at
all times from the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the exercise
of the Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time issuable
hereunder, and all such shares, upon issuance pursuant hereto, will be duly
authorized, validly issued, fully paid, non-assessable, and will be
delivered free and clear of all claims, liens, encumbrances and security
interests.
SECTION 10. ASSIGNMENT.
(a) ASSIGNMENT. Neither of the parties hereto may assign any of
its rights or delegate any of its obligations under this Agreement or the
Option created hereunder to any other person without the express written
consent of the other party, except that Grantee may assign this Agreement
to a wholly owned subsidiary of Grantee and Grantee may assign its rights
hereunder in whole or in part after the occurrence of a Preliminary
Purchase Event; PROVIDED, HOWEVER, that until the date at which the Federal
Reserve Board has approved an application by Grantee under the BHC Act to
acquire the shares of Common Stock subject to the Option, other than to a
wholly owned subsidiary of Grantee, Grantee may not assign its rights under
the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Issuer,
-14-
<PAGE>
(iii) an assignment to a single party (E.G., a broker or investment banker)
for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board. The term "Grantee" as used in this Agreement shall also be deemed
to refer to Grantee's permitted assigns. Any attempted assignment
prohibited by this Section 10 is void and without effect.
(b) RESTRICTIVE LEGEND. Any assignment of rights of Grantee to
any permitted assignee of Grantee hereunder shall bear the restrictive
legend at the beginning thereof substantially as follows:
The transfer of the option represented by this assignment and the
related option agreement is subject to resale restrictions
arising under the Securities Act of 1933, as amended, and to
certain provisions of an agreement between Monarch Bancorp and
California Commercial Bankshares ("Issuer"), dated as of the 19th
day of December, 1996. A copy of such agreement is on file at
the principal office of Issuer and will be provided to any
permitted assignee of the Option without change upon receipt by
Issuer of a written request therefor.
It is understood and agreed that (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute assignments without such reference if Grantee shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or
an opinion of counsel, in form and substance satisfactory to Issuer, to the
effect that such legend is not required for purposes of the Securities Act;
(ii) the reference to the provisions of this Agreement in the above legend
shall be removed by delivery of substitute assignments without such
reference if the Option has been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require
the retention of such reference; and (iii) the legend shall be removed in
its entirety if the conditions in the preceding clauses (i) and (ii) are
both satisfied. In addition, such assignments shall bear any other legend
as may be required by law.
SECTION 11. FILINGS AND CONSENTS. Each of Grantee and Issuer
will use its reasonable efforts to make all filings with, and to obtain
consents of, all third parties and Governmental Authorities necessary to
the consummation of the transactions contemplated by this Agreement,
including, without limitation, making application
-15-
<PAGE>
if necessary, for listing of the shares of Common Stock issuable hereunder
on any exchange or quotation system and applying to the Federal Reserve
Board under the BHC Act and to state banking authorities for approval to
acquire the shares issuable hereunder.
SECTION 12. REMEDIES. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by
either party hereto and that the obligations of the parties shall hereto be
enforceable by either party hereto through injunctive or other equitable
relief. Both parties further agree to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any
such equitable relief and that this provision is without prejudice to any
other rights that the parties hereto may have for any failure to perform
this Agreement.
SECTION 13. SEVERABILITY. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated.
SECTION 14. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested) at
the respective addresses of the parties set forth in the Plan.
SECTION 15. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement and shall be
effective at the time of execution.
SECTION 16. EXPENSES. Except as otherwise expressly provided
herein, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
SECTION 17. ENTIRE AGREEMENT. Except as otherwise expressly
provided herein or in the Plan, this Agreement contains the entire
agreement between the parties
-16-
<PAGE>
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors except as assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
SECTION 18. DEFINITIONS. Capitalized terms used in this
Agreement and not defined herein but defined in the Plan shall have the
meanings assigned thereto in the Plan.
SECTION 19. EFFECT ON PLAN. Nothing contained in this Agreement
shall be deemed to authorize Issuer or Grantee to breach any provision of
the Plan.
SECTION 20. SELECTIONS. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection
shall be made by a majority in interest of such Grantees.
SECTION 21. FURTHER ASSURANCES. In the event of any exercise of
the option by Grantee, Issuer and such Grantee shall execute and deliver
all other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for
by such exercise.
SECTION 22. VOTING. Except to the extent Grantee exercises the
Option, Grantee shall have no rights to vote or receive dividends or have
any other rights as a shareholder with respect to shares of Common Stock
covered hereby.
SECTION 23. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
-17-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock
Option Agreement to be executed on its behalf by their officers thereunto
duly authorized, all as of the date first above written.
MONARCH BANCORP
By:/s/ Hugh S. Smith, Jr.
-----------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
CALIFORNIA COMMERCIAL BANKSHARES
By:/s/ Mark H. Stuenkel
----------------------------------------
Name: Mark H. Stuenkel
Title: Executive Vice President
-18-
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2000
No. 1 252,167 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, John M. Eggemeyer
("Eggemeyer") or his registered assigns, is the registered holder of the number
of Warrants (the "Warrants") set forth above. Each Warrant entitles the holder
thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1995 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2000 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.62
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
----------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and Eggemeyer, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
---- ----
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and
directs that the Warrant Shares deliverable upon the exercise of such
Warrants be registered in the name and at the address specified below and
delivered thereto.
Name:
-------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------
City, State and Zip Code:
-----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
-------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------
City, State and Zip Code:
-----------------------------------------------
Taxpayer Identification or Social Security Number:
----------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2000
No. 2 63,041 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, William J. Ruh ("Ruh") or his
registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Monarch Bancorp, a California corporation (the "Bancorp"), subject
to the terms and conditions set forth hereinafter and in the Warrant Agreement
hereinafter referred to, one fully paid share of Common Stock, no par value, of
the Bancorp (the "Common Stock"). The Warrants may be exercised on or after
September 30, 1995 at any time or from time to time and will expire at 5:00
P.M., Los Angeles time, on September 30, 2000 (the "Expiration Date"). Upon the
Expiration Date, all rights evidenced by the Warrants shall cease and the
Warrants shall become void. Subject to the provisions of the Warrant Agreement,
the holder of each Warrant shall have the right to purchase from the Bancorp
until the Expiration Date (and the Bancorp shall issue and sell to such holder
of a Warrant) one fully paid share of Common Stock (a "Warrant Share") at an
exercise price (the "Exercise Price") of $1.62 per share upon surrender of this
Warrant Certificate to the Bancorp at the Bancorp's offices in Laguna Niguel
with the form of election to purchase appearing on this Warrant Certificate duly
completed and signed, together with payment of the Exercise Price by wire
transfer or other immediately available funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and Ruh, to all of which terms and conditions
the registered holder of the Warrant consents by acceptance hereof. The
Warrant Agreement is incorporated herein by reference and made a part hereof and
reference is made to the Warrant Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Bancorp and the
registered holders of Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the offices of the Bancorp or may be obtained upon
written request addressed to the Bancorp at its offices in Laguna Niguel,
California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- ------
(Cust) (Minor) (State)
2 of 4
<PAGE>
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
-------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and
directs that the Warrant Shares deliverable upon the exercise of such
Warrants be registered in the name and at the address specified below and
delivered thereto.
Name:
--------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------
City, State and Zip Code:
------------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
---------------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------------
Taxpayer Identification or Social Security Number:
-------------------------
Signature:
------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2000
No. 3 91,459 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, John W. Rose ("Rose") or his
registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Monarch Bancorp, a California corporation (the "Bancorp"), subject
to the terms and conditions set forth hereinafter and in the Warrant Agreement
hereinafter referred to, one fully paid share of Common Stock, no par value, of
the Bancorp (the "Common Stock"). The Warrants may be exercised on or after
September 30, 1995 at any time or from time to time and will expire at 5:00
P.M., Los Angeles time, on September 30, 2000 (the "Expiration Date"). Upon the
Expiration Date, all rights evidenced by the Warrants shall cease and the
Warrants shall become void. Subject to the provisions of the Warrant Agreement,
the holder of each Warrant shall have the right to purchase from the Bancorp
until the Expiration Date (and the Bancorp shall issue and sell to such holder
of a Warrant) one fully paid share of Common Stock (a "Warrant Share") at an
exercise price (the "Exercise Price") of $1.62 per share upon surrender of this
Warrant Certificate to the Bancorp at the Bancorp's offices in Laguna Niguel
with the form of election to purchase appearing on this Warrant Certificate duly
completed and signed, together with payment of the Exercise Price by wire
transfer or other immediately available funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and Rose, to all of which terms and conditions
the registered holder of the Warrant consents by acceptance hereof. The
Warrant Agreement is incorporated herein by reference and made a part hereof and
reference is made to the Warrant Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Bancorp and the
registered holders of Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the offices of the Bancorp or may be obtained upon
written request addressed to the Bancorp at its offices in Laguna Niguel,
California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
(Cust) (Minor) (State)
2 of 4
<PAGE>
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2000
No. 4 4,754 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Mark G. Merlo ("Merlo") or
his registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Monarch Bancorp, a California corporation (the "Bancorp"), subject
to the terms and conditions set forth hereinafter and in the Warrant Agreement
hereinafter referred to, one fully paid share of Common Stock, no par value, of
the Bancorp (the "Common Stock"). The Warrants may be exercised on or after
September 30, 1995 at any time or from time to time and will expire at 5:00
P.M., Los Angeles time, on September 30, 2000 (the "Expiration Date"). Upon the
Expiration Date, all rights evidenced by the Warrants shall cease and the
Warrants shall become void. Subject to the provisions of the Warrant Agreement,
the holder of each Warrant shall have the right to purchase from the Bancorp
until the Expiration Date (and the Bancorp shall issue and sell to such holder
of a Warrant) one fully paid share of Common Stock (a "Warrant Share") at an
exercise price (the "Exercise Price") of $1.62 per share upon surrender of this
Warrant Certificate to the Bancorp at the Bancorp's offices in Laguna Niguel
with the form of election to purchase appearing on this Warrant Certificate duly
completed and signed, together with payment of the Exercise Price by wire
transfer or other immediately available funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and Merlo, to all of which terms and conditions
the registered holder of the Warrant consents by acceptance hereof. The
Warrant Agreement is incorporated herein by reference and made a part hereof and
reference is made to the Warrant Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Bancorp and the
registered holders of Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the offices of the Bancorp or may be obtained upon
written request addressed to the Bancorp at its offices in Laguna Niguel,
California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 1 285,235 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Castle Creek Capital Partners
Fund-I (the "Warrantholder") or its registered assigns, is the registered holder
of the number of Warrants (the "Warrants") set forth above. Each Warrant
entitles the holder thereof to purchase from Monarch Bancorp, a California
corporation (the "Bancorp"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter referred to, one fully paid
share of Common Stock, no par value, of the Bancorp (the "Common Stock"). The
Warrants may be exercised on or after September 30, 1996 at any time or from
time to time and will expire at 5:00 P.M., Los Angeles time, on September 30,
2001 (the "Expiration Date"). Upon the Expiration Date, all rights evidenced by
the Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
---------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- ------
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
---------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
Taxpayer Identification or Social Security Number:
-------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 2 238,761 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, John M. Eggemeyer, III (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-----------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- ------
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
-------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
Taxpayer Identification or Social Security Number:
-------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 3 59,690 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, William Ruh (the
"Warrantholder") or his registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and
conditions of the Warrant Agreement, dated as of November 5, 1996 (the
"Warrant Agreement"), between the Bancorp and BP Financial, to all of which
terms and conditions the registered holder of the Warrant consents by
acceptance hereof. The Warrant Agreement is incorporated herein by reference
and made a part hereof and reference is made to the Warrant Agreement for a
full description of the rights, limitations of rights, obligations, duties
and immunities of the Bancorp and the registered holders of Warrant
Certificates. Copies of the Warrant Agreement are available for inspection
at the offices of the Bancorp or may be obtained upon written request
addressed to the Bancorp at its offices in Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 4 15,000 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Dan Davis (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-----------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry books of
the Bancorp only upon the terms and conditions set forth in the
Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Bancorp) for all purposes
whatever and the Bancorp shall not be affected by any notice to
the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- -----
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
-----------------------------------------------------------------
(Please Print)
Address:
--------------------------------------------------------------
City, State and Zip Code:
---------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
-----------------------------------------------------------------
(Please Print)
Address:
--------------------------------------------------------------
City, State and Zip Code:
---------------------------------------------
Taxpayer Identification or Social Security Number:
--------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 5 15,000 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Mark Merlo (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
--------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- -----
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: 19
------------ ---
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
City, State and Zip Code:
--------------------------------------------
Taxpayer Identification or Social Security Number:
-------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 6 10,000 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, William Moody (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-----------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Bancorp only upon the terms and conditions set
forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Bancorp) for
all purposes whatever and the Bancorp shall not be affected
by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
Custodian under Uniform Gifts to Minors Act
----- -----
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------ ---
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
-----------------------------------------------------------------
(Please Print)
Address:
--------------------------------------------------------------
City, State and Zip Code:
---------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 7 45,456 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, HCM Castle Creek, Inc. (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
--------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------
City, State and Zip Code:
------------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 8 46,834 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Castle Creek Financial
Investors, Inc. (the "Warrantholder") or its registered assigns, is the
registered holder of the number of Warrants (the "Warrants") set forth above.
Each Warrant entitles the holder thereof to purchase from Monarch Bancorp, a
California corporation (the "Bancorp"), subject to the terms and conditions set
forth hereinafter and in the Warrant Agreement hereinafter referred to, one
fully paid share of Common Stock, no par value, of the Bancorp (the "Common
Stock"). The Warrants may be exercised on or after September 30, 1996 at any
time or from time to time and will expire at 5:00 P.M., Los Angeles time, on
September 30, 2001 (the "Expiration Date"). Upon the Expiration Date, all
rights evidenced by the Warrants shall cease and the Warrants shall become void.
Subject to the provisions of the Warrant Agreement, the holder of each Warrant
shall have the right to purchase from the Bancorp until the Expiration Date (and
the Bancorp shall issue and sell to such holder of a Warrant) one fully paid
share of Common Stock (a "Warrant Share") at an exercise price (the "Exercise
Price") of $1.98 per share upon surrender of this Warrant Certificate to the
Bancorp at the Bancorp's offices in Laguna Niguel with the form of election to
purchase appearing on this Warrant Certificate duly completed and signed,
together with payment of the Exercise Price by wire transfer or other
immediately available funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 9 32,141 Warrrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Whitecap Capital, L.L.C. (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 10 13,775 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Cook-Castle Creek, Inc. (the
"Warrantholder") or its registered assigns, is the registered holder of the
number of Warrants (the "Warrants") set forth above. Each Warrant entitles the
holder thereof to purchase from Monarch Bancorp, a California corporation (the
"Bancorp"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid share of Common Stock,
no par value, of the Bancorp (the "Common Stock"). The Warrants may be
exercised on or after September 30, 1996 at any time or from time to time and
will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the
"Expiration Date"). Upon the Expiration Date, all rights evidenced by the
Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
No. 11 22,499 Warrants
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Castle Creek Investors,
L.L.C. (the "Warrantholder") or its registered assigns, is the registered holder
of the number of Warrants (the "Warrants") set forth above. Each Warrant
entitles the holder thereof to purchase from Monarch Bancorp, a California
corporation (the "Bancorp"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter referred to, one fully paid
share of Common Stock, no par value, of the Bancorp (the "Common Stock"). The
Warrants may be exercised on or after September 30, 1996 at any time or from
time to time and will expire at 5:00 P.M., Los Angeles time, on September 30,
2001 (the "Expiration Date"). Upon the Expiration Date, all rights evidenced by
the Warrants shall cease and the Warrants shall become void. Subject to the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Bancorp until the Expiration Date (and the Bancorp
shall issue and sell to such holder of a Warrant) one fully paid share of Common
Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98
per share upon surrender of this Warrant Certificate to the Bancorp at the
Bancorp's offices in Laguna Niguel with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by wire transfer or other immediately available
funds.
The Exercise Price and the number of Warrant Shares for which the
Warrants are exercisable are subject to change or adjustment upon the occurrence
of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET
FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to
be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
-------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
- --------------------------------
Arnold Hahn, Corporate Secretary
1 of 4
<PAGE>
This Warrant Certificate is subject to all of the terms and conditions
of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant
Agreement"), between the Bancorp and BP Financial, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part
hereof and reference is made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Bancorp and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the offices of the Bancorp or
may be obtained upon written request addressed to the Bancorp at its offices in
Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractional shares, but shall make
adjustment therefor in cash on the basis of the current market value of any
fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in the Bancorp, either at law or
in equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Bancorp's Common Stock are
closed for any purpose, the Bancorp shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Bancorp and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the
registry books of the Bancorp only upon the terms and
conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone other than the
Bancorp) for all purposes whatever and the Bancorp
shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -
____ Custodian ____ under Uniform Gifts to Minors Act
2 of 4
<PAGE>
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above
list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
3 of 4
<PAGE>
ELECTION TO PURCHASE
Dated: , 19
------------------- --
The undersigned hereby irrevocably exercises this Warrant to purchase
_____________ shares of Common Stock and herewith makes payment of
$_____________ in payment of the Exercise Price thereof on the terms and
conditions specified in this Warrant Certificate, surrenders this Warrant
Certificate and all right, title and interest herein to the Bancorp and directs
that the Warrant Shares deliverable upon the exercise of such Warrants be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
If such number of Warrant Shares is less than the aggregate number if
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
------------------------------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------
City, State and Zip Code:
----------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------
Signature:
-----------------------------------------
NOTE: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4 of 4
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) Farrell G. Hinkle, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares, except for the sale of up to 10,000 shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances, subject to
the pledge of such Shares to Orange National as heretofore disclosed to
Monarch (the Shareholder representing to Monarch that, with respect to such
pledged Shares, he retains the ability to vote such shares for the Merger).
5. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly,
-2-
<PAGE>
Shareholder agrees that injunctive relief or other equitable remedy, in addition
to remedies at law or in damages, is the appropriate remedy for any such failure
and will not oppose the granting of such relief on the basis that Monarch has an
adequate remedy at law. Shareholder agrees that it will not seek, and agrees to
waive any requirement for, the securing or posting of a bond in connection with
Monarch's seeking or obtaining such equitable relief. In addition to all other
rights or remedies which Monarch may have against Shareholder in the event of a
default in Shareholder's performance of Shareholder's obligations under this
Agreement, Shareholder shall be liable to Monarch for all litigation costs and
attorneys' fees incurred by Monarch in connection with the enforcement of any of
its rights or remedies against Shareholder. In addition, after discussing the
matter with Shareholder, Monarch shall have the right to inform any third party
that Monarch reasonably believes to be, or to be contemplating, participating
with Shareholder or receiving from Shareholder assistance in violation of this
Agreement, of the terms of this Agreement and of the rights of Monarch
hereunder, and that participation by any such persons with Shareholder in
activities in violation of Shareholder's agreement with Monarch set forth in
this Agreement may give rise to claims by Monarch against such third party.
6. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
7. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
8. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
-3-
<PAGE>
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
c/o California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
9. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of
-4-
<PAGE>
such provision to persons or circumstances, other than the party as to
which it is held invalid, and the remainder of this Agreement, shall not be
affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
---------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
Farrell G. Hinkle
---------------------------
(Print or type name)
/s/ Farrell G. Hinkle
---------------------------
(Signature)
-5-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) Phillip L. Bush, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares, except for the sale of up to 6,000 shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances, subject to
the pledge of such Shares to Bank of America and to Marine N.B. as
heretofore disclosed to Monarch (the Shareholder representing to Monarch
that, with respect to such pledged Shares, he retains the ability to vote
such shares for the Merger).
5. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly,
-2-
<PAGE>
Shareholder agrees that injunctive relief or other equitable remedy, in addition
to remedies at law or in damages, is the appropriate remedy for any such failure
and will not oppose the granting of such relief on the basis that Monarch has an
adequate remedy at law. Shareholder agrees that it will not seek, and agrees to
waive any requirement for, the securing or posting of a bond in connection with
Monarch's seeking or obtaining such equitable relief. In addition to all other
rights or remedies which Monarch may have against Shareholder in the event of a
default in Shareholder's performance of Shareholder's obligations under this
Agreement, Shareholder shall be liable to Monarch for all litigation costs and
attorneys' fees incurred by Monarch in connection with the enforcement of any of
its rights or remedies against Shareholder. In addition, after discussing the
matter with Shareholder, Monarch shall have the right to inform any third party
that Monarch reasonably believes to be, or to be contemplating, participating
with Shareholder or receiving from Shareholder assistance in violation of this
Agreement, of the terms of this Agreement and of the rights of Monarch
hereunder, and that participation by any such persons with Shareholder in
activities in violation of Shareholder's agreement with Monarch set forth in
this Agreement may give rise to claims by Monarch against such third party.
6. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
7. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
8. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
-3-
<PAGE>
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
Phillip L. Bush
c/o California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
9. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of
-4-
<PAGE>
such provision to persons or circumstances, other than the party as to
which it is held invalid, and the remainder of this Agreement, shall not be
affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
---------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
Phillip L. Bush
---------------------------
(Print or type name)
/s/ Phillip L. Bush
---------------------------
(Signature)
-5-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) Michael Gertner, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares, except for the sale of up to _________________ shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances, subject to
the pledge of such Shares to ________________________________________ as
heretofore disclosed to Monarch (the Shareholder representing to Monarch
that, with respect to such pledged Shares, he retains the ability to vote
such shares for the Merger).
5. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly,
-2-
<PAGE>
Shareholder agrees that injunctive relief or other equitable remedy, in addition
to remedies at law or in damages, is the appropriate remedy for any such failure
and will not oppose the granting of such relief on the basis that Monarch has an
adequate remedy at law. Shareholder agrees that it will not seek, and agrees to
waive any requirement for, the securing or posting of a bond in connection with
Monarch's seeking or obtaining such equitable relief. In addition to all other
rights or remedies which Monarch may have against Shareholder in the event of a
default in Shareholder's performance of Shareholder's obligations under this
Agreement, Shareholder shall be liable to Monarch for all litigation costs and
attorneys' fees incurred by Monarch in connection with the enforcement of any of
its rights or remedies against Shareholder. In addition, after discussing the
matter with Shareholder, Monarch shall have the right to inform any third party
that Monarch reasonably believes to be, or to be contemplating, participating
with Shareholder or receiving from Shareholder assistance in violation of this
Agreement, of the terms of this Agreement and of the rights of Monarch
hereunder, and that participation by any such persons with Shareholder in
activities in violation of Shareholder's agreement with Monarch set forth in
this Agreement may give rise to claims by Monarch against such third party.
6. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
7. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
8. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
-3-
<PAGE>
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
Michael Gertner
c/o California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
9. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of
-4-
<PAGE>
such provision to persons or circumstances, other than the party as to
which it is held invalid, and the remainder of this Agreement, shall not be
affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
---------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
Michael Gertner
---------------------------
(Print or type name)
/s/ Michael Gertner
---------------------------
(Signature)
-5-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) James W. Hamilton, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances, subject to
the pledge of such Shares heretofore disclosed to Monarch (the Shareholder
representing to Monarch that, with respect to such pledged Shares, he
retains the ability to vote such shares for the Merger).
5. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly, Shareholder agrees that injunctive relief or other
equitable remedy, in addition to remedies
-2-
<PAGE>
at law or in damages, is the appropriate remedy for any such failure and will
not oppose the granting of such relief on the basis that Monarch has an adequate
remedy at law. Shareholder agrees that it will not seek, and agrees to waive
any requirement for, the securing or posting of a bond in connection with
Monarch's seeking or obtaining such equitable relief. In addition to all other
rights or remedies which Monarch may have against Shareholder in the event of a
default in Shareholder's performance of Shareholder's obligations under this
Agreement, Shareholder shall be liable to Monarch for all litigation costs and
attorneys' fees incurred by Monarch in connection with the enforcement of any of
its rights or remedies against Shareholder. In addition, after discussing the
matter with Shareholder, Monarch shall have the right to inform any third party
that Monarch reasonably believes to be, or to be contemplating, participating
with Shareholder or receiving from Shareholder assistance in violation of this
Agreement, of the terms of this Agreement and of the rights of Monarch
hereunder, and that participation by any such persons with Shareholder in
activities in violation of Shareholder's agreement with Monarch set forth in
this Agreement may give rise to claims by Monarch against such third party.
6. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
7. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
8. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
-3-
<PAGE>
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
James W. Hamilton
c/o California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
9. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of
-4-
<PAGE>
such provision to persons or circumstances, other than the party as to
which it is held invalid, and the remainder of this Agreement, shall not be
affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
-----------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
James W. Hamilton
-----------------------------
(Print or type name)
/s/ James W. Hamilton
-----------------------------
(Signature)
-5-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) William Jacoby, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances.
5. COMPETITION. Neither Shareholder nor any corporation, partnership,
trust or other entity controlled by Shareholder shall:
(a) at any time within a three-year period immediately following the
Effective Time, engage in, be employed by, acquire an equity interest in or
start, or otherwise provide any assistance to, directly or indirectly, any
business which provides banking services, including, but not limited to,
deposit and operational services, loans, trust services, escrow services
and electronic banking services
-2-
<PAGE>
("Banking Businesses"), in the counties of Los Angeles, Orange and San
Diego in the State of California so long as Monarch or its assigns remain
engaged in any Banking Businesses;
(b) at any time following the Effective Time, disclose confidential
information regarding the Company or the Company Bank to any third parties,
except as required by law, regulation, a court order, in the defense of
litigation for which the Company or the Company Bank may be liable, or in
any actions relating to this Agreement or the Merger Agreement and the
transactions contemplated hereby or thereby; and
(c) solicit, directly or indirectly, on its own behalf or on behalf
of any other person or entity, management personnel employed by Monarch
immediately after the Effective Time for employment with any other
business;
PROVIDED, HOWEVER, that with respect to any of the matters covered in this
Section 5, to the extent that any restriction set forth in this Section 5 is
adjudicated to be invalid or unenforceable in any jurisdiction, the court making
such determination shall have the power to limit, construe or reduce the
duration, scope, activity or area of such provision to the extent necessary to
render such provision enforceable to the maximum extent permitted by applicable
law, such limited form to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made.
6. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly, Shareholder agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that Monarch has an adequate remedy at law. Shareholder
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with Monarch's seeking or obtaining
such equitable relief. In addition to all other rights or remedies which
Monarch may have against Shareholder in the event of a default in Shareholder's
performance of Shareholder's obligations under this Agreement, Shareholder shall
be liable to Monarch for all litigation costs and attorneys' fees incurred by
Monarch in connection with the enforcement of any of its rights or remedies
against Shareholder. In addition, after discussing the matter with Shareholder,
Monarch shall have the right to inform any third party that Monarch reasonably
believes to be, or to be contemplating, participating with Shareholder or
receiving from Shareholder assistance in violation of this Agreement, of the
terms of this Agreement and of the rights of Monarch hereunder, and that
participation by any such persons with Shareholder in activities in violation of
Shareholder's agreement with
-3-
<PAGE>
Monarch set forth in this Agreement may give rise to claims by Monarch against
such third party.
7. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
8. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
9. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
-4-
<PAGE>
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
William Jacoby
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
10. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of such provision to persons
or circumstances, other than the party as to which it is held invalid, and
the remainder of this Agreement, shall not be affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
-5-
<PAGE>
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
-------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
William H. Jacoby by Mark Stuenkel
pursuant to 12/5/96 Power of Attorney
-------------------------------------
(Print or type name)
/s/ Mark Stuenkel
-------------------------------------
(Signature)
-6-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) Robert L. McKay, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances.
5. COMPETITION. Neither Shareholder nor any corporation,
partnership, trust or other entity controlled by Shareholder shall:
(a) at any time within a three-year period immediately following the
Effective Time, engage in, be employed by, acquire an equity interest in or
start, or otherwise provide any assistance to, directly or indirectly, any
business which provides banking services, including, but not limited to,
deposit and operational services, loans, trust services, escrow services
and electronic banking services
-2-
<PAGE>
("Banking Businesses"), in the counties of Los Angeles, Orange and San
Diego in the State of California so long as Monarch or its assigns remain
engaged in any Banking Businesses;
(b) at any time following the Effective Time, disclose confidential
information regarding the Company or the Company Bank to any third parties,
except as required by law, regulation, a court order, in the defense of
litigation for which the Company or the Company Bank may be liable, or in
any actions relating to this Agreement or the Merger Agreement and the
transactions contemplated hereby or thereby; and
(c) solicit, directly or indirectly, on its own behalf or on behalf
of any other person or entity, management personnel employed by Monarch
immediately after the Effective Time for employment with any other
business;
PROVIDED, HOWEVER, that with respect to any of the matters covered in this
Section 5, to the extent that any restriction set forth in this Section 5 is
adjudicated to be invalid or unenforceable in any jurisdiction, the court making
such determination shall have the power to limit, construe or reduce the
duration, scope, activity or area of such provision to the extent necessary to
render such provision enforceable to the maximum extent permitted by applicable
law, such limited form to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made.
6. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly, Shareholder agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that Monarch has an adequate remedy at law. Shareholder
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with Monarch's seeking or obtaining
such equitable relief. In addition to all other rights or remedies which
Monarch may have against Shareholder in the event of a default in Shareholder's
performance of Shareholder's obligations under this Agreement, Shareholder shall
be liable to Monarch for all litigation costs and attorneys' fees incurred by
Monarch in connection with the enforcement of any of its rights or remedies
against Shareholder. In addition, after discussing the matter with Shareholder,
Monarch shall have the right to inform any third party that Monarch reasonably
believes to be, or to be contemplating, participating with Shareholder or
receiving from Shareholder assistance in violation of this Agreement, of the
terms of this Agreement and of the rights of Monarch hereunder, and that
participation by any such persons with Shareholder in activities in violation of
Shareholder's agreement with
-3-
<PAGE>
Monarch set forth in this Agreement may give rise to claims by Monarch against
such third party.
7. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
8. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
9. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
-4-
<PAGE>
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
Robert L. McKay
c/o California Commercial Bankshares
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
10. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of such provision to persons
or circumstances, other than the party as to which it is held invalid, and
the remainder of this Agreement, shall not be affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
-5-
<PAGE>
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
-----------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
Robert L. Mckay
-----------------------------------------
(Print or type name)
/s/ Robert L. Mckay
-----------------------------------------
(Signature)
-6-
<PAGE>
Execution Copy
SHAREHOLDER AGREEMENT
Shareholder Agreement (the "Agreement"), dated as of December 19,
1996, by and between (i) Mark H. Stuenkel, a director and shareholder (the
"Shareholder") of California Commercial Bankshares, a California corporation
(the "Company"), and (ii) Monarch Bancorp, a California corporation ("Monarch").
All terms used herein and not defined herein shall have the meaning assigned
thereto in the Merger Agreement (defined below).
Whereas, the Company and Monarch have entered into an Agreement and
Plan of Merger, dated the date hereof (the "Merger Agreement"), providing for
the business combination transaction contemplated therein in which the Company
will merge with and into Monarch pursuant to the terms and conditions of the
Merger Agreement (the "Merger") and Monarch will pay consideration to the
Company's shareholders in the form of Monarch Common Stock;
Whereas, the Shareholder owns the shares of Company Common Stock
identified on ANNEX I hereto (such shares, together with all shares of Company
Common Stock subsequently acquired by the Shareholder during the term of this
Agreement, being referred to as the "Shares"); and
Whereas, in order to induce Monarch to enter into the Merger Agreement
and in consideration of the substantial expenses incurred and to be incurred by
Monarch in connection therewith, the Shareholder has agreed to enter into and
perform this Agreement.
Now, therefore, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO VOTE SHARES. Shareholder shall vote or cause to be
voted, or execute a written consent with respect to, the Shares (a) in favor of
adoption and approval of the Merger Agreement and the Merger and all
transactions relating thereto at every meeting of the shareholders of the
Company at which such matters are considered and at every adjournment thereof
and in connection with every proposal to take action by written consent with
respect thereto, and (b) against any other Acquisition Proposal at every meeting
of the shareholders of the Company at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
<PAGE>
2. NO VOTING TRUSTS. Shareholder agrees that Shareholder will not,
nor will Shareholder permit any entity under Shareholder's control to, deposit
any Shares in a voting trust or subject the Shares to any agreement, arrangement
or understanding with respect to the voting of the Shares inconsistent with this
Agreement.
3. LIMITATION ON SALES. During the term of this Agreement,
Shareholder agrees not to sell, assign, transfer or dispose of any of the
Shares.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to and agrees with Monarch as follows:
a. CAPACITY. Shareholder has all requisite capacity and authority
to enter into and perform his or her obligations under this Agreement.
b. BINDING AGREEMENT. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his or her
obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of the Shareholder.
d. OWNERSHIP OF SHARES. Shareholder has good title to all of the
Shares as of the date hereof, and the Shares are so owned free and clear of
any liens, security interests, charges or other encumbrances.
5. COMPETITION. Neither Shareholder nor any corporation, partnership,
trust or other entity controlled by Shareholder shall:
(a) at any time within a three-year period immediately following the
Effective Time, engage in, be employed by, acquire an equity interest in or
start, or otherwise provide any assistance to, directly or indirectly, any
business which provides banking services, including, but not limited to,
deposit and operational services, loans, trust services, escrow services
and electronic banking services
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("Banking Businesses"), in the counties of Los Angeles, Orange and San
Diego in the State of California so long as Monarch or its assigns remain
engaged in any Banking Businesses;
(b) at any time following the Effective Time, disclose confidential
information regarding the Company or the Company Bank to any third parties,
except as required by law, regulation, a court order, in the defense of
litigation for which the Company or the Company Bank may be liable, or in
any actions relating to this Agreement or the Merger Agreement and the
transactions contemplated hereby or thereby; and
(c) solicit, directly or indirectly, on its own behalf or on behalf
of any other person or entity, management personnel employed by Monarch
immediately after the Effective Time for employment with any other
business;
PROVIDED, HOWEVER, that with respect to any of the matters covered in this
Section 5, to the extent that any restriction set forth in this Section 5 is
adjudicated to be invalid or unenforceable in any jurisdiction, the court making
such determination shall have the power to limit, construe or reduce the
duration, scope, activity or area of such provision to the extent necessary to
render such provision enforceable to the maximum extent permitted by applicable
law, such limited form to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made.
6. SPECIFIC PERFORMANCE AND REMEDIES. Shareholder acknowledges that
it will be impossible to measure in money the damage to Monarch if Shareholder
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, Monarch will not have an adequate remedy at law or in
damages. Accordingly, Shareholder agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that Monarch has an adequate remedy at law. Shareholder
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with Monarch's seeking or obtaining
such equitable relief. In addition to all other rights or remedies which
Monarch may have against Shareholder in the event of a default in Shareholder's
performance of Shareholder's obligations under this Agreement, Shareholder shall
be liable to Monarch for all litigation costs and attorneys' fees incurred by
Monarch in connection with the enforcement of any of its rights or remedies
against Shareholder. In addition, after discussing the matter with Shareholder,
Monarch shall have the right to inform any third party that Monarch reasonably
believes to be, or to be contemplating, participating with Shareholder or
receiving from Shareholder assistance in violation of this Agreement, of the
terms of this Agreement and of the rights of Monarch hereunder, and that
participation by any such persons with Shareholder in activities in violation of
Shareholder's agreement with
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Monarch set forth in this Agreement may give rise to claims by Monarch against
such third party.
7. TERM OF AGREEMENT; TERMINATION. The term of this Agreement shall
commence on the date hereof and such term and this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the date on which
the Merger Agreement is terminated in accordance with its terms. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, such termination shall not relieve any party from
liability for any breach of this Agreement prior to such termination.
8. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto. No waiver of any provisions
hereof by either party shall be deemed a waiver of any other provisions hereof
by any such party, nor shall any such waiver be deemed a continuing waiver of
any provision hereof by such party.
9. NOTICES. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent by
telecopy or like transmission and on the next business day when sent by a
reputable overnight courier service to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Monarch:
Monarch Bancorp
1251 Westwood Blvd.
Los Angeles, CA 90024
Telecopier: (310) 479-0844
Attention: Matt Wagner
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<PAGE>
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopier: (213) 683-0458
Attention: Stanley F. Farrar, Esq.
If to the Shareholder:
Mark H. Stuenkel
4100 Newport Place
Newport Beach, CA 92660
Telecopier: (714) 863-2336
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Telecopier: (213) 669-6407
Attention: Frances E. Lossing
10. MISCELLANEOUS.
a. SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of such provision to persons
or circumstances, other than the party as to which it is held invalid, and
the remainder of this Agreement, shall not be affected.
b. CAPACITY. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company,
and no covenant contained herein shall apply to Shareholder in his or her
capacity as a director of the Company.
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<PAGE>
c. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
d. HEADINGS. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
MONARCH BANCORP
By: /s/ Hugh S. Smith, Jr.
------------------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman
Mark H. Stuenkel
------------------------------------------
(Print or type name)
/s/ Mark H. Stuenkel
------------------------------------------
(Signature)
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<PAGE>
GENERAL RELEASE OF CLAIMS AND AGREEMENT
1. This General Release of Claims and Agreement (hereinafter, the
"Agreement") is entered into by and among the following parties (the "Parties"):
a. E. Lynn Caswell ("Employee"); and
b. Monarch Bancorp and Monarch Bank (collectively, "Employer").
RECITALS
2. Employee has been employed by Monarch Bank as its President and
Chief Executive Officer. In addition, Employee is the Vice Chairman of Monarch
Bancorp, and is a Director on the Boards of Directors of Monarch Bancorp and
Monarch Bank. Differences have arisen between Employer and Employee such that
they agree that it is in their mutual best interest to sever their relationship
amicably on the terms set forth herein.
NOW, THEREFORE, in consideration of the following terms, covenants,
conditions, and promises, and in order to compromise and settle forever all
existing and potential disputes between and among the Parties hereto, the
Parties agree to enter into this Agreement as set forth herein effective as of
February 1, 1997 (the "effective date").
<PAGE>
AGREEMENT
PAYMENT TO EMPLOYEE
3. Upon execution and delivery of a fully executed original of this
Agreement, including all exhibits hereto, and the letters of resignation
attached hereto, to counsel for Employer, and upon the date that Employee's
releases herein become final and irrevocable, Employer agrees to pay Employee
the sum set forth in Exhibit A to this Agreement (the "Payment Sum"). Except as
otherwise expressly set forth in Exhibit A, the Payment Sum shall be paid when
this Agreement and the releases contained herein (including the Age
Discrimination release) are final and irrevocable with respect to the seven day
waiting period.
4. The Payment Sum shall constitute taxable income, and Employer
shall withhold the usual and customary amounts at the levels required by law.
Employer shall account to Employee for any such withholding, and shall be
responsible to ensure that any amounts withheld are sent to the appropriate
government agencies (such as the Internal Revenue Service).
5. The Payment Sum shall be in consideration for all of the claims
released herein, and shall serve as a substitute for all of the consideration
that otherwise would be owed to Employee under his employment contract with
Employer. The Payment sum set forth in this Agreement shall be and constitutes
full, complete, unconditional, and immediate substitution for any
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<PAGE>
and all rights, claims, demands, and causes of action whatsoever that
heretofore existed or may be claimed to exist by Employee against the
Employer Releasees (as defined below), as to all Claims (as defined below)
that Employee might have against the Employer Releasees.
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<PAGE>
RELEASE OF CLAIMS
1. Excepting only the obligations imposed by this Agreement,
Employee hereby releases and forever discharges Employer, and further releases
and forever discharges Employer's past, present, and future successors, assigns,
parent and subsidiary corporations, divisions, affiliates, partners, joint
venturers, shareholders, predecessors, successors, officers, directors,
employees, agents, representatives, attorneys, insurers, and the predecessors,
successors, and assigns of each of them (all of whom are collectively referred
to as the "Employer Releasees"), from any and all rights actions, claims,
demands, costs, contracts, allegations, liabilities, obligations, damages, and
causes of action, of every kind and nature, whether known, suspected, or
unknown, whether in law or in equity, which Employee had or now has or may claim
to have had or now have or may have the right to assert on his own behalf or on
behalf of another, by reason of any matter or thing whatsoever from the
beginning of time up to and including the date of this Agreement (hereinafter
referred to collectively as the "Claims").
2. The Claims set forth above specifically include, but are not
limited to, any and all existing and/or potential claims, demands,
obligations, and/or causes of action for compensatory and/or exemplary
damages and/or other relief. The Claims also include, but are not limited to,
any action related
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<PAGE>
in any way to Employee's employment and/or separation, such as (by way of
example only) assertions of wrongful termination, breach of contract
INCLUDING EMPLOYEE'S WRITTEN EMPLOYMENT CONTRACT WITH EMPLOYER, breach of the
implied covenant of good faith and fair dealing, unpaid or improper bonuses,
violation of public policy, fraud, misrepresentation, accounting, intentional
and negligent infliction of emotional distress, lost pensions, conspiracy to
terminate wrongfully, unpaid commissions, unpaid or improper severance or
vacation pay, Workers' Compensation, any violation of any statute including
those in the California Labor Code, invasion of privacy, defamation, and
discrimination based on race color, national origin, sex, religion, age,
and/or handicap, all under federal, state, and local law. The Claims also
include, but are not limited to, any claim of entitlement to any stock
options not already issued to Employee as of the date this Agreement is
executed. The Claims also include, but are not limited to, any claims,
demands, contracts, or causes of action related in any way to Employee's
status as a Director on Employer's Boards of Directors, or as Vice Chairman
of Monarch Bancorp.
3. Employee expressly waives any right or claim of right to assert
hereafter that any claim, demand, obligation, and/or cause of action has been,
for any reason whatever, omitted from the terms of this Agreement, and further
expressly waives any right or claim of right that he may have under the law of
any jurisdiction that releases such as those herein given to not apply to
unknown or unstated claims. It is the express intent of the Parties to this
Agreement that Employee waives
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<PAGE>
any and all claims that he has or may have against any of the Employer
Releasees, including any which are presently unknown, unsuspected,
unanticipated, or undisclosed. EMPLOYEE EXPRESSLY WAIVES ANY AND ALL RIGHTS
UNDER SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, WHICH
PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Employee further expressly waives the provisions of any statute or court
decision of any jurisdiction which is comparable to Section 1542 of the Civil
Code of California and which Employee may claim applies to any of the Claims
released herein. Thus, notwithstanding the provisions of Section 1542, and for
the purposes of implementing a full and complete release and discharge of all
claims, Employee expressly acknowledges that this Agreement is intended to, and
does, include in its effect, without limitation, all of the Claims, including
those which he does not know or suspect to exist in his favor at the time of
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<PAGE>
execution hereof, and that this Agreement contemplates and effects
extinguishment of all of the Claim.
1. There is a risk that subsequent to the execution of this
Agreement, Employee will incur or discover damage or loss that he deems in some
way attributable to one or more Employer Releasee but which is unknown and
unanticipated by him or his counsel at the time this Agreement is signed.
Employee acknowledges and assumes such risks, including that damages presently
known may become progressive, greater or more serious than is now known,
suspected, or anticipated.
2. THE RELEASE SET FORTH IN THIS SECTION OF THE AGREEMENT BY
EMPLOYEE IS INTENDED TO BE CONSTRUED AS BROADLY AS POSSIBLE SO AS TO RELEASE
EVERYTHING THAT IT IS POSSIBLE TO RELEASE. IT IS THE PARTIES' INTENT THAT
THE DEFINITION OF CLAIMS BE DEFINED AS BROADLY AND WIDELY AS IT IS POSSIBLE
TO DEFINE SO AS TO OBTAIN THE MAXIMUM RELEASE THAT CAN BE OBTAINED OVER
EVERYTHING POSSIBLE TO RELEASE.
3. Notwithstanding the release language set forth above, Employee
does not release any claim he might have for Workers' Compensation arising
from any physical injury he sustains as a result of any work done by him in
his capacity as Vice Chairman of Monarch Bancorp after the effective date of
this Agreement to the extent that such physical injury would be otherwise
compensable under the Workers' Compensation statutes.
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<PAGE>
4. In the event that Employee files any action in any court or
tribunal seeking recovery of a Claim that has been released as against any
Employer Releasee, then Employee shall promptly tender back to Employer the
Payment Sum set forth herein, with interest at the legal rate, with an offer
to rescind this Agreement. Employer shall have ten business days to accept
or reject the offer of rescission. If the offer is accepted, Employer shall
keep the money tendered, and this Agreement shall be deemed rescinded. If
the offer is rejected, then the tendered sum shall be placed in an escrow
account pending the resolution of the action, and may be drawn upon at the
conclusion of the action to pay any judgment in favor of any Employer
Releasee (including a judgment based on recovery of costs and attorneys
fees). If Employee fails to make such a tender, Employee agrees that that
failure will itself bar his action.
5. Employee shall acknowledge and sign the letter attached hereto as
Exhibit B, and the separate Release attached hereto as Exhibit C, which further
release any rights he might have under the Age Discrimination in Employment Act
of 1967, as amended.
6. Employee will sign and deliver to Employer the letters of
resignation attached hereto as Exhibit D. Those letters shall become
effective immediately upon delivery, and Employee will be deemed to have
resigned his employment and
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<PAGE>
directorships at that time, with the exception of his position as Vice Chairman
of Monarch Bancorp, which resignation shall be delivered and effective on demand
at any time on or after August 1, 1997 on one day's notice served upon Employee
or his counsel Ronald Van Wert by personal delivery, facsimile, or mail (which
notice may be sent at any time on or after July 31, 1997). In the event that
the requested resignation is not forthcoming within one day of the notice,
Employer may immediately terminate Employee's position as Vice Chairman. Thus,
Employee shall have no right to, or expectation of, a continued position as Vice
Chairman of Monarch Bancorp at any time on or after August 1, 1997. Further,
nothing herein shall limit Employer's right to remove Employee from his position
as Vice Chairman of Monarch Bancorp prior to August 1, 1997 for cause.
7. Employer hereby releases Employee from any and all known rights,
actions, claims, demands, costs, contracts, allegations, liabilities,
obligations, damages, and causes of action, of every kind and nature, whether in
law or in equity, which Employer had or now has or may claim to have had or now
have or may have the right to assert on its own behalf or on behalf of another,
from the beginning of time up to and including the effective date of this
Agreement. For purposes of this Paragraph, a claim is "known" to the Employer
if the facts underlying that claim are actually known by any director of
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Monarch Bancorp, Monarch Bank, or Western Bank as of the effective date of this
Agreement. Employer further releases Employee from any rights, actions, claims,
demands, costs, contracts, allegations, liabilities, obligations, damages, and
causes of action, of every kind and nature, whether in law or in equity, which
Employer had or now has or may claim to have had or now have or may have the
right to assert on its own behalf or on behalf of another, from the beginning of
time up to and including the effective date of this Agreement relating to loans
approved by Employee in the regular course of business in which no
misrepresentations or omissions were made by Employee relating to such loan.
8. Employer agrees to indemnify Employee and hold him harmless
from all claims against him by a third party arising out of or relating to
his actions as an officer or director of Employer to the extent required by
the Corporations Code and state banking laws. This indemnity shall include
attorneys fees and costs reasonably incurred by Employee in defense of any
such action. This indemnity obligation, including the obligation to
reimburse Employee for any reasonable attorneys fees incurred, shall be
conditioned upon Employee's tender to Employer of any such claim within two
weeks of the time Employee learns of the claim, and Employee's reasonable
cooperation with Employer in the defense of the claim. Moreover, Employer's
obligation to
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indemnify Employee for attorneys fees incurred shall be conditioned upon
Employer's approval of Employee's counsel, such approval not to be
unreasonably withheld.
WARRANTIES AND REPRESENTATIONS
1. Employee has made such investigation of any and all facts
relevant to this Agreement as he deems necessary or advisable. In executing
this Agreement, Employee is not relying upon any statement, representation, or
promise made to him by Employer or Employer's counsel, agent, employee, or
representative other than as set forth in this Agreement. Employee expressly
waives any right he might have to conduct any additional discovery or inquiry
with regard to any of the existing or potential Claims released by him herein.
2. The Parties to this Agreement each warrant and represent to the
other that none of them has heretofore assigned or transferred, or purported
to assign or transfer, to any person not a party hereto any released Claim or
any part apportioned thereof, and each agrees to indemnify and hold harmless
the others from and against any claim based upon, in connection with, or
arising out of, any such assignment or transfer or purported or claimed
assignment or transfer.
3. Employee represents that he has not, directly or indirectly, on
his own behalf or on behalf of any other entity,
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filed any charges or complaints or initiated any action against Employer or
any other Employer Releasee.
4. Each Party covenants and agrees to indemnify, defend, and hold
harmless the other Party (and Employee so covenants and agrees with respect to
the Employer Releasees), from and against any and all loss, cost, damage, or
expense, including, without limitation, attorneys' fees, arising out of any
breach of this Agreement by any Party or the fact that any representation made
herein by any Party was not true when made.
CONFIDENTIALITY
1. Employee shall maintain as confidential, and not disclose to any
person except as required by law, any confidential information (including, but
not limited to, any trade secrets) learned by Employee during the course of his
employment, in accordance with Employee's employment contract. Employee agrees
not to disclose any confidential information to any third party under any
circumstances except as required by law. All of the provisions of Employee's
employment contract with Employer concerning confidential information and its
use, as well as any restrictions therein that would apply to Employee in the
event of a termination without cause pursuant to the terms of the employment
contract shall remain in force and shall be binding on Employee. Employee shall
return to Employer with the
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executed copy of this Agreement the original and all copies in his possession
of any documents created by Employer or any of Employer's employees or agents
for any business purpose, whether the document is confidential or not. This
provision shall not apply to Employee's own personal employment records (such
as payroll stubs, the employment agreement, and the like).
2. If asked about his separation from Employer at any time after
Employee has resigned as Vice Chairman of Monarch Bancorp, Employee shall
state only that he has retired or resigned, or that he has accepted
employment elsewhere. Prior to Employee's resignation as Vice Chairman of
Monarch Bancorp, Employee and Employer shall state that Employee has moved to
a full time position with the holding company. Employer shall use its best
efforts to advise its personnel department and its senior management of the
requirements of this Paragraph. Notwithstanding anything in this Agreement to
the contrary, neither Employer nor Employee shall be precluded from making
any necessary disclosures to any government agency, or complying with legal
process.
INTEGRATION CLAUSE
1. This Agreement represents and contains the entire agreement and
understanding among the Parties hereto with respect to the subject matter of
this Agreement, and supersedes any and
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all prior oral and written agreements and understandings, and no
representation, warranty, condition, understanding, or agreement of any kind
with respect to the subject matter hereof shall be relied upon by the Parties
unless incorporated herein, PROVIDED THAT the provisions of the employment
contract referred to in Paragraph 21 above shall remain in force. This
Agreement may not be amended or modified except by an agreement in writing
signed by the Party against whom the enforcement of any modification or
amendment is sought.
FEES AND EXPENSES
1. In the event any Party should bring any action to enforce any
provision of this Agreement, or in the event any Party brings any action arising
out of or relating to this Agreement, the prevailing Party shall, in addition to
any other relief, be entitled to reasonable attorneys' fees, expenses, and
costs. Should the Employer be the prevailing Party, and should there have been
a tender as set forth above, the Employer may recover said fees, expenses, and
costs from the tendered amount, but the Employer's recovery shall not be limited
to the tendered amount.
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OTHER PROVISIONS
1. In entering into this Agreement, the Parties represent that they
have relied on the legal advice of their attorneys, who are the attorneys of
their own choice. The Parties further represent that the terms of this
Agreement have been completely read and explained to them by their attorneys,
and that those terms are fully understood and voluntarily accepted by them.
2. This Agreement shall be binding upon the Parties, and upon their
heirs, administrators, representatives, executors, successors, and assigns, and
shall inure to the benefit of the Parties and Employer Releasees and to their
heirs, administrators, representatives, executors, successors, and assigns.
3. Employee understands and agrees that he waives any right to future
employment, or to seek future employment, with Employer or any entity known by
Employee to be affiliated by ownership with Employer, and agrees not to seek
such employment in the future. Notwithstanding the foregoing, nothing in this
Paragraph shall preclude Employee from accepting employment with Employer or any
entity affiliated by ownership with Employer where the employing organization
initiated the employment negotiations and has offered Employee employment.
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4. This Agreement shall be governed by and interpreted and
construed in accordance with the laws of the State of California, and any
suit brought arising from or relating to this Agreement shall be brought only
in Orange County.
5. The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning and not strictly for or
against any of the Parties. Each Party and counsel for each Party have reviewed
this Agreement and accordingly, the Parties agree that the rule of construction
that any ambiguities are to be resolved against the drafting Party shall not be
employed in the interpretation of this Agreement. In the event that one or more
of the provisions or portions of this Agreement are determined to be illegal or
unenforceable (except for the release by Employee and the payment provisions),
the remainder of this Agreement shall not be affected thereby, and each
remaining provision or portion thereof shall continue to be valid and effective
and shall be enforceable to the fullest extent permitted by law.
6. This Agreement may be pleaded as a full and complete defense
to, and may be used as the basis for an injunction against, any action, suit,
or other proceeding instituted, prosecuted, or attempted in breach of this
Agreement, except for an action based upon a breach of this Agreement.
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7. The warranties and representations contained in this Agreement
are deemed to and shall survive the execution hereof by the Parties.
8. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which together
shall be deemed one and the same instrument.
Dated:___________________ ____________________________
E. Lynn Caswell
Dated:___________________ ____________________________
on behalf of Monarch Bancorp
Dated:__________________ ____________________________
on behalf of Monarch Bank
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EXHIBIT A
1. The Payment Sum is $347,600. $167,400 represents compensation for
salaries, benefits, bonuses, insurance, and auto allowances foregone. $180,000
is to compensate Employee for option rights foregone. However, the undivided
total of $347,600 also represents compensation and consideration for the release
provisions set forth in the Agreement.
2. Employer agrees to provide Employee at its expense office space,
furniture, files, telephone service, and secretarial assistance during the six
month period from the effective date of this Agreement through and including
July 31, 1997. in addition, Employer will provide reasonable access to all
necessary stationary and supplies, copying and facsimile facilities and other
reasonable office needs of Employee during this period. Employer is to provide
Employee and his dependents medical and dental insurance for the six month
period from the effective date of this Agreement through and including July 31,
1997 at the same levels generally provided by Employer to its executive
officers.
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EXHIBIT D
February 1, 1997
The Board of Directors
Monarch Bank
30000 Town Center Drive
Laguna Niguel, Calif. 92677
Dear Members of the Board:
I hereby tender my resignation as Chairman of the Board and Director, President,
and Chief Executive Officer of Monarch Bank effective immediately.
I wish to take this opportunity to thank all those particular members of the
Board with whom I have served for these past many years for their assistance,
support and contributions during our association. I wish them, the Bank and the
Company continued success in the future.
Sincerely,
E. Lynn Caswell
Chairman, President and
Chief Executive Officer
<PAGE>
February 1, 1997
The Board of Directors
Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, Calif. 92677
Dear Members of the Board:
I hereby tender my resignation as a Director of Monarch Bancorp effective
immediately.
I wish the Company continued success in the future.
Sincerely,
E. Lynn Caswell
<PAGE>
The Board of Directors
Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, Calif. 92677
Dear Members of the Board:
I hereby tender my resignation as Vice Chairman of Monarch Bancorp effective
immediately.
I wish the Company continued success in the future.
Sincerely,
E. Lynn Caswell
<PAGE>
MONARCH BANCORP
1993 STOCK OPTION PLAN
Adopted March 16, 1993
Amended May 23, 1995
Amended May 15, 1996
1. PURPOSE
The purpose of the Monarch Bancorp 1993 Stock Option Plan (the "Plan") is
to strengthen Monarch Bancorp (the "Corporation") and those corporations which
are or hereafter become subsidiary corporations by providing additional means of
attracting and retaining competent managerial personnel and by providing to
participating directors, officers, and key employees added incentives for high
levels of performance and for unusual efforts to increase the earnings of the
Corporation and any Subsidiary corporations; and to allow consultants, business
associates and others with business relationships with the opportunity to
participate in the ownership of the Corporation and thereby have an interest in
the success and increased value of the Corporation. The Plan seeks to
accomplish these purposes and achieve these results by providing a means whereby
such directors, officers, key employees, consultants, business associates and
others may purchase shares of Common Stock of the Corporation pursuant to Stock
Options granted in accordance with this Plan.
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Stock Options granted pursuant to this Plan are intended to be Incentive
Stock Options or Non-Qualified Stock Options, as shall be determined and
designated by the Stock Option Committee upon the grant of each Stock Option
hereunder.
2. DEFINITIONS
For the purposes of this Plan, the following terms shall have the following
meanings:
(a) "COMMON STOCK." This term shall mean shares of the Corporation's
no par value common stock, subject to adjustment pursuant to Paragraph 14
(Adjustment Upon Changes in Capitalization) hereunder.
(b) "CORPORATION." This term shall mean Monarch Bancorp, a California
corporation.
(c) "ELIGIBLE PARTICIPANT." This term shall mean: (i) all directors
of the Corporation or any Subsidiary; (ii) all full-time officers (whether or
not they are also directors) of the Corporation or any Subsidiary; (iii) all
full-time key employees (as such persons may be determined by the Stock Option
Committee from time to time) of the Corporation or any Subsidiary, and (iv)
consultants, business associates or others with important business relationships
with the Corporation.
(d) "FAIR MARKET VALUE." This term shall mean the fair market value
of the Corporation's Common Stock as determined in accordance with the
Commissioner of Corporations Regulation Section 260.140.50, which generally
provides that in determining whether the price is fair, predominant weight will
be given to the following: (a) if securities of the same class are publicly
traded on an active market
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of substantial depth, the recent market price of such securities; (b) if the
securities of the same class have not been so publicly traded, the price at
which securities of reasonable comparable corporations (if any) in the same
industry are being traded, subject to appropriate adjustments for the
dissimilarities between the corporations being compared; or (c) in the absence
of any reliable indicator under subsection (a) or (b), the earnings history,
book value and prospects of the issuer in light of market conditions generally.
(e) "INCENTIVE STOCK OPTION." This term shall mean a Stock Option
which is an "Incentive Stock Option" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
(f) "NON-QUALIFIED STOCK OPTION." This term shall mean a Stock Option
which is not an Incentive Stock Option.
(g) "OPTION SHARES." This term shall mean shares of Common Stock
which are covered by and subject to any outstanding unexercised Stock Option
granted pursuant to this Plan.
(h) "OPTIONEE." This term shall mean any Eligible Participant to whom
a stock option has been granted pursuant to this Plan, provided that at least
part of the Stock Option is outstanding and unexercised.
(i) "PLAN." This term shall mean the Monarch Bancorp 1993 Stock
Option Plan as embodied herein and as may be amended from time to time in
accordance with the terms hereof and applicable law.
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(j) "STOCK OPTION." This term shall mean the right to purchase from
the Corporation a specified number of shares of Common Stock under the Plan at a
price and upon terms and conditions determined by the Stock Option Committee.
(k) "STOCK OPTION COMMITTEE." The Board of Directors of the
Corporation may select and designate a stock option committee consisting of at
least three and not more than five persons, at least two of whom are directors,
having full authority to act in the matters. Regardless of whether a Stock
Option Committee is selected, the Board of Directors may act as the Stock Option
Committee and any action taken by the Board of Directors as such shall be deemed
to be action taken by the Stock Option Committee. All references in the Plan to
the "Stock Option Committee" shall be deemed references to the Board of
Directors acting as a stock option committee and to a duly appointed Stock
Option Committee, if there be one. In the event of any conflict between any
action taken by the Board of Directors acting as a Stock Option Committee and
any action taken by a duly appointed Stock Option Committee, the action taken by
the Board of Directors shall be controlling and the action taken by the duly
appointed Stock Option Committee shall be disregarded.
(l) "SUBSIDIARY." This term shall mean any subsidiary corporation of
the Corporation as such term is defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended.
3. ADMINISTRATION
(a) STOCK OPTION COMMITTEE. This Plan shall be administered by the
Stock Option Committee. The Board of Directors of the Corporation shall have
the right, in
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its sole and absolute discretion, to remove or replace any person from or on the
Stock Option Committee at any time for any reason whatsoever.
(b) ADMINISTRATION OF THE PLAN. Any action of the Stock Option
Committee with respect to the administration of the Plan shall be taken pursuant
to a majority vote, or pursuant to the unanimous written consent, of its
members. Any such action taken by the Stock Option Committee in the
administration of this Plan shall be valid and binding, so long as the same is
in conformity with the terms and conditions of this Plan. Subject to compliance
with each of the terms, conditions and restrictions set forth in this Plan,
including, but not limited to, those set forth in Section 6(a)(ii) hereof, the
Stock Option Committee shall have the exclusive right, in its sole and absolute
discretion, to establish the terms and conditions of any Stock Options granted
under the Plan, including, without limitation, the power to: (i) establish the
number of Stock Options, if any, to be granted hereunder, in the aggregate and
with regard to any individual Eligible Participant; (ii) determine the time or
times when such Stock Options, or any parts thereof, may be exercised; (iii)
determine and designate which Stock Options granted under the Plan shall be
Incentive Stock Options and which shall be Non-Qualified Stock Options; (iv)
determine the Eligible Participants, if any, to whom Stock Options are granted;
(v) determine the duration and purposes, if any, of leaves of absence which may
be permitted to holders of unexercised, unexpired Stock Options without such
constituting a termination of employment under the Plan; (vi) prescribe and
amend the terms, provisions and form of any instrument or agreement setting
forth the terms and conditions of every Stock Option granted hereunder; and
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(vii) make loans to or guarantee any obligations of any Optionees, except
directors, in connection with the exercise of Stock Options as specified in
Section 8(d) hereof, whenever the Stock Option Committee determines that such
loan or guarantee may reasonably be expected to benefit the corporation, subject
to the provisions of Section 315(b) of the California General Corporations Law
of 1977, as amended and subject to Regulations G, U and T promulgated by the
Board of Governors of the Federal Reserve System pursuant to Section 7 of the
Securities Exchange Act of 1934, if the Option Shares are listed on a stock
exchange or are contained in the list of over-the-counter margin securities
published by the Federal Reserve Board.
(c) DECISIONS AND DETERMINATIONS. Subject to the express provisions
of the Plan, the Stock Option Committee shall have the authority to construe and
interpret the Plan, to define the terms used therein, to prescribe, amend, and
rescind rules and regulations relating to the administration of the Plan, and to
make all other determinations necessary or advisable for administration of the
Plan. Determinations of the Stock Option Committee on matters referred to in
this Section 3 shall be final and conclusive so long as the same are in
conformity with the terms of this Plan.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustments as provided in Section 14 hereof, the maximum number
of shares of Common Stock which may be issued upon exercise of Stock Options
granted under this Plan is limited to 10% of the issued and outstanding shares
of the Corporation up to a maximum of 3,437,482 shares in the aggregate,
following the acquisition of Western Bank. If any Stock Option shall be
canceled, surrendered, or
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expire for any reason without having been exercised in full, the unpurchased
Option Shares represented thereby shall again be available for grants of Stock
Options under this Plan.
5. ELIGIBILITY
Only Eligible Participants shall be eligible to receive grants of Stock
Options under this Plan.
6. GRANTS OF STOCK OPTIONS
(a) GRANT. Subject to the express provisions and limitations of the
Plan, the Stock Option Committee, in its sole and absolute discretion, may grant
Stock Options to Eligible Participants of the Corporation, for a number of
Option Shares, at the price(s) and time(s), on the terms and conditions and to
such Eligible Participants as it deems advisable and specifies in the respective
grants.
Subject to the limitations and restrictions set forth in the Plan, an
Eligible Participant who has been granted a Stock Option may, if otherwise
eligible, be granted additional Stock Options if the Stock Option Committee
shall so determine. The Stock Option Committee shall designate in each grant of
a Stock Option whether the Stock Option is an Incentive Stock Option or a
Non-Qualified Stock Option.
(b) DATE OF GRANT AND RIGHTS OF OPTIONEE. The determination of the
Stock Option Committee to grant a Stock Option shall not in any way constitute
or be deemed to constitute an obligation of the Corporation, or a right of the
Eligible Participant who is the proposed subject of the grant, and shall not
constitute or be deemed to constitute the grant of a Stock Option hereunder
unless and until both the
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Corporation and the Eligible Participant have executed and delivered the form of
stock option agreement then required by the Stock Option Committee as evidencing
the grant of the Stock Option, together with such other instruments as may be
required by the Stock Option Committee pursuant to this Plan; provided, however,
that the Stock Option Committee may fix the date of grant as any date on or
after the date of its final determination to grant the Stock Option (or if no
such date is fixed, then the date of grant shall be the date on which the
determination was finally made by the Stock Option Committee to grant the Stock
Option), and such date shall be set forth in the stock option agreement. The
date of grant as so determined shall be deemed the date of grant of the Stock
Option for purposes of this Plan.
(c) SHAREHOLDER-EMPLOYEES. Notwithstanding anything to the contrary
contained elsewhere herein, a Stock Option shall not be granted hereunder to an
Eligible Participant who owns, directly or indirectly, at the date of the grant
of the Stock Option, more than ten percent (10%) of the total combined voting
power of all classes of capital stock of the Corporation or a Subsidiary
corporation, unless the purchase price of the Option Shares subject to said
Stock Option is at least 110% of the Fair Market Value of the Option Shares,
determined as of the date said Stock Option is granted.
(d) MAXIMUM VALUE OF STOCK OPTIONS. Except as provided in paragraph
(e) of this Section 6, the maximum aggregate Fair Market Value of Option Shares
(determined as of the respective Stock Option grant dates) for which an Eligible
Participant may be granted Incentive Stock Options in any calendar year shall
not
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exceed $100,000, plus any "unused carryover amount." The unused carryover
amount, determined on a yearly basis, shall be equal to one-half (1/2) of the
difference between $100,000 and the aggregate Fair Market Value (determined as
of the respective Stock Option grant dates) of all of the Option Shares subject
to Incentive Stock Options granted to the Optionee during the calendar year
under the Plan. The provisions of Section 422A(c)(4) of the Internal Revenue
Code of 1986, as amended, are incorporated herein by this reference for the
purpose of the determination and application of the unused carryover amount.
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by such individual under the terms of the Plan
during any calendar year is limited to $100,000, but the value of stock for
which options may be granted to an employee in a given year may exceed $100,000.
(e) NON-QUALIFIED STOCK OPTIONS. All Stock Options granted by the
Stock Option Committee which: (i) are designated at the time of grant as
Incentive Stock Options but do not so qualify under the provisions of Section
422A of the Code or any regulations or rulings issued by the Internal Revenue
Service for any reason; (ii) are in excess of the fair market value limitations
set forth in Section 6(d); or (iii) are designated at the time of grant as
Non-Qualified Stock Options, shall be deemed Non-Qualified Stock Options under
this Plan. Non-Qualified Stock Options granted or substituted hereunder shall
be so designated in the stock option agreement entered into between the
Corporation and the Optionee.
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7. STOCK OPTION EXERCISE PRICE
(a) MINIMUM PRICE. The exercise price of any Option Shares shall be
determined by the Stock Option Committee, in its sole and absolute discretion,
upon the grant of a Stock Option. Except as provided elsewhere herein, said
exercise price shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock represented by the Option Share on the date of
grant of the related Stock Option.
(b) EXCHANGED STOCK OPTIONS. Where the outstanding shares of stock of
another corporation are changed into or exchanged for shares of Common Stock of
the Corporation without monetary consideration to that other corporation, then,
subject to the approval of the Board or Directors of the Corporation, Stock
Options may be granted in exchange for unexercised, unexpired stock options of
the other corporation, and the exercise price of the Option Shares subject to
each Stock Option so granted may be fixed at a price less than one hundred
percent (100%) of the Fair Market Value of the Common Stock at the time such
Stock Option is granted if said exercise price has been computed to be not less
than the exercise price set forth in the stock option of the other corporation,
with appropriate adjustment to reflect the exchange ratio of the shares of stock
of the other corporation into the shares of Common Stock of the Corporation.
8. EXERCISE OF STOCK OPTIONS.
(a) EXERCISE. Except as otherwise provided elsewhere herein, each
Stock Option shall be exercisable in such increments, which need not be equal,
and upon
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such contingencies as the Stock Option Committee shall determine at the time of
grant of the Stock Option; provided, however, (i) that if an Optionee shall not
in any given period exercise any part of a Stock Option which has become
exercisable during that period, the Optionee's right to exercise such part of
the Stock Option shall continue until expiration of the Stock Option or any part
thereof as may be provided in the related stock option agreement, and (ii) a
minimum of 20% of the Stock Option shall be exercisable in each year over a five
year period from the date the option is granted. No Stock Option or part
thereof shall be exercisable except with respect to whole shares of Common
Stock, and fractional share interests shall be disregarded except that they may
be accumulated.
(b) PRIOR OUTSTANDING INCENTIVE STOCK OPTIONS. Incentive Stock
Options granted to an Optionee may be exercisable while such Optionee has
outstanding and unexercised any Incentive Stock Option previously granted (or
substituted) to him or her pursuant to this Plan. The Stock Option Committee
shall determine if such options shall be exercisable if there are any Incentive
Stock Options previously granted (or substituted) to him or her pursuant to this
Plan, and such determination shall be evidenced in the Agreement executed by the
Optionee and Company. An Incentive Stock Option shall be treated as outstanding
until it is exercised in full or expires by reason of lapse of time.
(c) NOTICE AND PAYMENT. Stock Options granted hereunder shall be
exercised by written notice delivered to the Corporation specifying the number
of Option Shares with respect to which the Stock Option is being exercised,
together
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with concurrent payment in full of the exercise price as hereinafter provided in
Section 8(d) hereof. If the Stock Option is being exercised by any person or
persons other than the Optionee, said notice shall be accompanied by proof,
satisfactory to counsel for the Corporation, of the right to such person or
persons to exercise the Stock Option. The Corporation's receipt of a notice of
exercise without concurrent receipt of the full amount of the exercise price
shall not be deemed an exercise of a Stock Option by an Optionee, and the
Corporation shall have no obligation to an Optionee for any Option Shares unless
and until full payment of the exercise price is received by the Corporation in
accordance with Section 8(d) hereof, and all of the terms and provisions of the
Plan and the related stock option agreement have been complied with.
(d) PAYMENT OF EXERCISE PRICE. The exercise price of any Option
Shares purchased upon the proper exercise of a Stock Option shall be paid in
full at the time of each exercise of a Stock Option in cash and/or, with the
prior written approval of the Stock Option Committee, in Common Stock of the
Corporation which, when added to the cash payment, if any, has an aggregate Fair
Market Value equal to the full amount of the exercise price of the Stock Option,
or part thereof, then being exercised and/or, with the prior written approval of
the Stock Option Committee, on a deferred basis evidenced by a promissory note,
containing such terms and subject to such security as the Stock Option Committee
shall determine to be fair and reasonable from time to time, for the total
option price for the number of shares so purchased. In addition, the Optionee
shall have the right upon the exercise of this Stock Option in the manner set
forth above to surrender for cancellation a portion of this Stock Option
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to the Company for the number of shares (the "Surrendered Shares") specified in
the holder's notice of exercise, by delivery to the Company with such notice
written instructions from such holder to apply the Appreciated Value (as defined
below) of the Surrendered Shares to payment of the exercise price for shares
subject to this Stock Option that are being acquired upon such exercise. The
term "Appreciated Value" for each share subject to this Stock Option shall mean
the excess of the Fair Market Value thereof over the exercise price then in
effect. No director, consultant or business associate may purchase any Stock
Option on a deferred basis evidenced by a promissory note. Unless payment is on
a deferred basis, payment by an Optionee as provided herein shall be made in
full concurrently with the Optionee's notification to the Corporation of his
intention to exercise all or part of a Stock Option. If all or part of payment
is made in shares of Common Stock as heretofore provided, such payment shall be
deemed to have been made only upon receipt by the Corporation of all required
share certificates, and all stock powers and other required transfer documents
necessary to transfer the shares of Common Stock to the Corporation.
(e) REORGANIZATION. Notwithstanding any provision in any stock option
agreement pertaining to the time of exercise of a Stock Option, or part thereof,
upon adoption by the requisite holders of the Corporation's outstanding shares
of Common Stock of any plan of dissolution, liquidation, reorganization, merger,
consolidation or sale of all or substantially all of the assets of the
Corporation to another corporation, or the acquisition of stock representing
more than 50% of the voting power of the Corporation then outstanding, by
another corporation or person, which would, upon
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consummation, result in termination of a Stock Option in accordance with Section
15 hereof, the Stock Option shall become immediately exercisable as to all
vested Option Shares for such period of time as may be determined by the Stock
Option Committee, but in any event not less than 30 days prior to the adoption
of the plan of dissolution, liquidation, reorganization, merger, consolidation,
sale, or acquisition on the condition that the terminating event described in
Section 15 hereof is consummated. Any Option Shares not exercised will be
terminated. If such Terminating Event is not consummated, Stock Options granted
pursuant to the Plan shall be exercisable in accordance with their respective
terms.
(f) MINIMUM EXERCISE. Not less than ten (10) Option Shares may be
purchased at any one time upon exercise of a Stock Option unless the number of
shares purchased is the total number which remains to be purchased under the
Stock Option.
(g) COMPLIANCE WITH LAW. No shares of Common Stock shall be issued by
the Corporation upon exercise of any Stock Option, and an Optionee shall have no
rights or claim to such shares, unless and until: (a) payment in full as
provided in Section 8(d) hereof has been received by the Corporation; (b) in the
opinion of the counsel for the Corporation, all applicable registration
requirements of the Securities Act of 1933, all applicable listing requirements
of securities exchanges or associations on which the Corporation's Common Stock
is then listed or traded, and all other requirements of law and of regulatory
bodies having jurisdiction over such issuance and delivery, have been fully
complied with; and (c) if required by federal or state law
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or regulation, the Optionee shall have paid to the Corporation the amount, if
any, required to be withheld on the amount deemed to be compensation to the
Optionee as a result of the exercise of his or her Stock Option, or made other
arrangements satisfactory to the Corporation, in its sole discretion, to satisfy
applicable income tax withholding requirements.
9. NONTRANSFERABILITY OF STOCK OPTIONS.
Each Stock Option shall, by its terms, be nontransferable by the Optionee
other than by will or the laws of descent and distribution, and shall be
exercisable during the Optionee's lifetime only by the Optionee or his or her
guardian or legal representative.
10. CONTINUATION OF EMPLOYMENT
Each Optionee other than directors, consultants and business associates,
agree, as part of the acceptance of the option that he/she will remain, within
the employ of the Corporation, or any subsidiary corporation, for at least one
(l) year from the date the option is granted subject to prior termination, leave
of absence or vacation issued by the Board of Directors, subject to any
employment agreements to the contrary which shall govern. Nothing contained in
the Plan (or in any stock option agreement) shall obligate the Corporation or
any Subsidiary corporation to employ or continue to employ or continue the
service as a director of any Optionee or any Eligible Participant for any period
of time or interfere in any way with the right of the Corporation or a
Subsidiary corporation to reduce or increase the Optionee's or Eligible
Participant's compensation.
11. CESSATION OF EMPLOYMENT
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Except as provided in Sections 8(e), 12, 13, 14 or 15 hereof, except if
Optionee is granted an option as a consultant, business associate or other
person or entity with important business relationships with the Corporation, if,
for any reason, an Optionee's status as an Eligible Participant is terminated,
the Stock Options granted to such Optionee shall expire on the expiration dates
specified for said Stock Options at the time of their initial grant, or three
(3) months after the Optionee's status as an Eligible Participant is terminated,
whichever is earlier. During such period after Options shall be exercisable
only as to those increments, if any, which had become exercisable as of the date
on which such Optionee's status as an Eligible Participant terminated, and any
Stock Options or increments which had not become exercisable as of such date
shall expire and terminate automatically on such date. If Optionee is granted
an option as a consultant, business associate or other person or entity with
important business relationships with the Corporation, this Stock Option shall
not expire as a result of consultant, business associate or other person or
entity with important business relationships with the Corporation no longer
doing business or otherwise terminating his or its business relationship with
the Corporation.
12. DEATH OF OPTIONEE
Except if Optionee is granted an option as a consultant, business associate
or other person or entity with important business relationships with the
Corporation, if an Optionee loses his status as an Eligible Participant by
reason of death, or if an Optionee dies during the three-month period referred
to in Section 11 hereof, the Stock Options granted to such Optionee shall expire
on the expiration dates specified for said
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Stock Options at the time of their initial grant, or one (l) year after the date
of such death, whichever is earlier. If Optionee is granted an option as a
consultant, business associate or other person or entity with important business
relationships with the Corporation, this Stock Option shall not expire as a
result of such Optionee's death. After such death but before such expiration,
subject to the terms and provisions of the Plan and the related stock option
agreements, the person or persons to whom such Optionee's rights under the Stock
Options shall have passed by will or by the applicable laws of descent and
distribution, or the executor or administrator of the Optionee's estate, shall
have the right to exercise such Stock Options to the extent that increments, if
any, had become exercisable as of the date on which the Optionee's status as an
Eligible Participant had been lost.
13. DISABILITY OF OPTIONEE
Except if Optionee is granted an option as a consultant, business associate
or other person or entity with important business relationships with the
Corporation, if an Optionee is disabled while employed by or while serving as a
director of the Corporation or a Subsidiary or during the three-month period
referred to in Section 11 hereof, the Stock Options granted to such Optionee
shall expire on the expiration dates specified for said Stock Options at the
time of their initial grant, or one (l) year after the date of such disability,
whichever is earlier. If Optionee is granted an option as a consultant,
business associate or other person or entity with important business
relationships with the Corporation, this Stock Option shall not expire as a
result of such Optionee's disability. After such disability but before such
expiration, the
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Optionee or a guardian or conservator of the Optionee's estate, as duly
appointed by a court of competent jurisdiction, shall have the right to exercise
such Stock Options to the extent that increments, if any, had become exercisable
as of the date on which the Optionee became disabled or ceased to be employed by
the Corporation or a Subsidiary as a result of the disability. For the purpose
of this Section 13, an Optionee shall be deemed to have become "disabled" if it
shall appear to the Stock Option Committee, upon written certification delivered
to the Corporation by a qualified licensed physician, that the Optionee has
become permanently and totally unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted or can be expected
to last for a continuous period of not less than 12 months.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If the outstanding shares of Common Stock of the Corporation are increased,
decreased, or changed into or exchanged for a different number or kind of shares
or securities of the Corporation, through a reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation, or otherwise, without consideration to the Corporation, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding adjustment
changing the number or kind of Option Shares and the exercise prices per share
allocated to unexercised Stock Options, or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment, however, in an outstanding Stock Option shall be made without
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change in the total price applicable to the unexercised portion of the Stock
Option, but with a corresponding adjustment in the price for each Option Share
subject to the Stock Option. Any adjustment under this Section shall be made by
the Stock Option Committee, whose determination as to what adjustments shall be
made, and the extent thereof, shall be final and conclusive. No fractional
shares of stock shall be issued or made available under the Plan on account of
any such adjustment, and fractional share interests shall be disregarded and the
fractional share interest shall be rounded down to the nearest whole number.
15. TERMINATING EVENTS
Not less than thirty (30) days prior to consummation of a plan of
dissolution or liquidation of the Corporation, or consummation of a plan of
reorganization, merger or consolidation of the Corporation with one or more
corporations, as a result of which the Corporation is not the surviving
corporation and the outstanding securities of the class then subject to options
hereunder are changed or exchanged for cash or property or securities not of the
Corporation's issue, or upon the sale of all or substantially all the assets of
the Corporation to another corporation, or the acquisition of stock representing
more than fifty percent (50%) of the voting power of the Corporation then
outstanding by another corporation or person (the "Terminating Event"), the
Stock Option Committee or the Board of Directors shall notify each Optionee of
the pendency of the Terminating Event. Upon the effective date of the
Terminating Event, the Plan shall automatically terminate and all Stock Options
theretofore granted shall terminate, unless provision is made in connection with
such transaction for the
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continuance of the Plan and/or assumption of Stock Options theretofore granted,
or substitution for such Stock Options with new stock options covering stock of
a successor employer corporation, or a parent or subsidiary corporation thereof,
solely at the discretion of such successor corporation, or parent or subsidiary
corporation, with appropriate adjustments as to number and kind of shares and
prices, in which event the Plan and options theretofore granted shall continue
in the manner and under the terms so provided. If the Plan and unexercised
options shall terminate pursuant to the foregoing sentence, all persons shall
have the right to exercise the vested portions of options then outstanding and
not exercised, shall have the right, at such time prior to the consummation of
the transaction causing such termination as the Corporation shall designate and
for a period of not less than 30 days, to exercise the vested portions of their
options.
16. AMENDMENT AND TERMINATION
The Board of Directors of the Corporation may at any time and from
time-to-time suspend, amend, or terminate the Plan and may, with the consent of
Optionee, make such modifications of the terms and conditions of a Stock Option
as it shall deem advisable; provided that, except as permitted under the
provisions of Section 15 hereof, no amendment or modification may be adopted
without the Corporation having first obtained all necessary regulatory approvals
and approval of the holders of a majority of the Corporation's shares of Common
Stock present, or represented, and entitled to vote at a duly held meeting of
shareholders of the Corporation if the amendment or modification would:
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(a) materially increase the benefits accruing to participants under
the Plan;
(b) materially increase the number of securities which may be issued
under the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) increase or decrease the exercise price of any Stock Options
granted under the Plan;
(e) increase the maximum term of Stock Options provided for herein;
(f) permit Stock Options to be granted to any person who is not an
Eligible Participant; or
(g) change any provision of the Plan which would affect the
qualification as an Incentive Stock Option under the Plan.
No Stock Option may be granted during any suspension of the Plan or after
termination of the Plan. Amendment, suspension, or termination of the Plan
shall not (except as otherwise provided in Section 16 hereof), without the
consent of the Optionee, alter or impair any rights or obligations under any
Stock Option theretofore granted.
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17. RIGHTS OF ELIGIBLE PARTICIPANTS AND OPTIONEES
Neither any Eligible Participant, any Optionee or any other person shall
have any claim or right to be granted any Stock Option under this Plan, and
neither this Plan nor any action taken hereunder shall be deemed or construed as
giving any Eligible Participant, Optionee or any other person any right to be
retained in the employ of the Corporation or any subsidiary of the Corporation.
Without limiting the generality of the foregoing, there is no vesting of any
right in the classification of any person as an Eligible Participant or
Optionee, such classification being used solely to define and limit those
persons who are eligible for consideration of the grant of Stock Options under
the Plan.
18. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF SALE
No Optionee shall be entitled to the privileges of stock ownership as to
any Option Shares not actually issued and delivered. No Option Shares may be
purchased upon the exercise of a Stock Option unless and until all then
applicable requirements of all regulatory agencies having jurisdiction and all
applicable requirements of securities exchanges upon which the stock of the
Corporation is listed (if any) shall have been fully complied with. The
Corporation will diligently endeavor to comply with all applicable securities
laws before any options are granted under the Plan and before any stock is
issued pursuant to options. The Optionee shall, not more than five (5) days
after each sale or other disposition of shares of Common Stock acquired pursuant
to the exercise of Stock Options, give the Corporation notice in writing of such
sale or other disposition.
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The Corporation will provide to each Optionee its Annual Report as required
by Section 260.140.46 of the regulations of the California Commissioner of
Corporations.
19. EFFECTIVE DATE OF THE PLAN
The Plan shall be deemed adopted as of March 16, 1993, as amended and shall
be effective immediately, subject to approval of the Plan by the holders of at
least a majority of the corporation's outstanding shares of Common Stock and
approval of the Plan by the California Commissioner of Corporations.
20. TERMINATION
Unless previously terminated as aforesaid, the Plan shall terminate ten
(10) years from the earliest date of (i) adoption of the Plan by the Board of
Directors, (ii) approval of the Plan by holders of at least a majority of the
Corporation's outstanding shares of Common Stock, or (iii) approval of the Plan
by the California Commissioner of Corporations. No Stock Options shall be
granted under the Plan thereafter, but such termination shall not affect any
Stock Option theretofore granted.
21. OPTION AGREEMENT
Each Stock Option granted under the Plan shall be evidenced by a written
stock option agreement executed by the Corporation and the Optionee, and shall
contain each of the provisions and agreements herein specifically required to be
contained therein, and such other terms and conditions as are deemed desirable
by the Stock Option Committee and are not inconsistent with the Plan.
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<PAGE>
22. STOCK OPTION PERIOD
Each Stock Option and all rights and obligations thereunder shall expire on
such date as the Stock Option Committee may determine, but not later than ten
(10) years from the date such Stock Option is granted, and shall be subject to
earlier termination as provided elsewhere in the Plan.
23. EXCULPATION AND INDEMNIFICATION OF STOCK OPTION COMMITTEE
In addition to such other rights of indemnification which they may have as
directors of the Corporation or as members of the Stock Option Committee, the
present and former members of the Stock Option Committee, and each of them,
shall be indemnified by the Corporation for and against all costs, judgments,
penalties and reasonable expenses, including reasonable attorney's fees,
actually and necessarily incurred by them in connection with any action, suit or
proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any act or omission of any member of the Stock
Option Committee under or in connection with the Plan or any Stock Option
granted thereunder; provided, however, that a member of the Stock Option
Committee shall not be entitled to any indemnification whatsoever pursuant to
this Section for or as a result of any act or omission of such member which was
not taken in good faith and which constituted willful misconduct or gross
negligence by such member; provided further, that any amounts paid by any member
of the Stock Option Committee in settlement of any action, suit or proceeding
for which indemnification may be sought pursuant to this Section shall be first
approved in writing by independent legal counsel selected by the
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Corporation; and, provided further, that within thirty (30) days after
institution of any action, suit or proceeding against any member with respect to
which such member is entitled to indemnification hereunder, such member shall,
in writing, offer the Corporation the opportunity, at its own expense, to handle
(including settle) and conduct the defense thereof. The provisions of this
Section shall apply to the estate, executor and administrator of each member of
the Stock Option Committee.
24. AGREEMENT AND REPRESENTATIONS OF OPTIONEE
Unless the shares of Common Stock covered by this Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of the
Securities Act of 1933, each Optionee shall by and upon accepting a Stock
Option, represent and agree in writing, for himself or herself and his or her
transferees by will or the laws of descent and distribution, that he or she is a
bona fide California resident, that all such Option Shares will be acquired for
investment purposes and not for resale or distribution and that the optioned
stock will not be transferred to a person who is not a California resident.
Upon the exercise of a Stock Option, or a part thereof, the person entitled to
exercise the same shall, unless waived by the Corporation, furnish evidence
satisfactory to the Corporation, including written and signed representations,
to the effect that he or she is a California resident, that the Option Shares
are being acquired for investment purposes and not for resale or distribution,
and that the Option Shares being acquired shall not be sold or otherwise
transferred to any individual or entity not a resident of the State of
California. Furthermore, the Corporation, at its sole discretion, to assure
itself that any sale or distribution by the Optionee complies
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<PAGE>
with this Plan and any applicable federal or state securities laws, may take all
reasonable steps, including placing stop transfer instructions with the
corporation's transfer agent prohibiting transfers in violation of the Plan and
affixing the following legend (and/or such other legend or legends as the Stock
Option Committee shall require) on certificates evidencing the shares:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
and
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER
THE ACT OR A DETERMINATION BY MONARCH BANCORP THAT
REGISTRATION IS NOT REQUIRED."
At any time that an Optionee contemplated the disposition of any of the Option
Shares (whether by sale, exchange, gift or other form of transfer) he or she
shall first notify the Corporation of such proposed disposition and shall
thereafter cooperate with the Corporation in complying with all applicable
requirements of law which, in the opinion of counsel for the Corporation, must
be satisfied prior to the making of such disposition. Before consummating such
disposition, Monarch Bancorp shall determine that such disposition will not
result in a violation of any state or federal securities law
-26-
<PAGE>
or regulations. The Corporation shall remove any legend affixed to certificates
for Option Shares pursuant to this Section if and when all of the restrictions
on the transfer of the Option Shares, whether imposed by this Plan or federal or
state law, have terminated. An Optionee who thereafter sells or disposes of his
shares of Common Stock will be required to notify the Corporation of such sale
or disposition within five (5) days after the sale or disposition.
25. NOTICES
All notices and demands of any kind which the Stock Option Committee, any
Optionee, Eligible Participant, or any other person may be required or desires
to serve under the terms of this Plan shall be in writing and shall be served by
personal service upon the respective person or by leaving a copy of such notice
or demand at the address of such person as may be reflected in the records of
the Corporation, or in the case of the Stock Option Committee, with the
Secretary of the Corporation, or by mailing a copy thereof by certified or
registered mail, postage prepaid, with return receipt requested. In the case of
service by mail, it shall be deemed complete at the expiration of the third day
after the day of mailing, except for notice of the exercise of any Stock Option
and payment of the Stock Option exercise price, both of which must be actually
received by the Corporation.
26. LIMITATION OF OBLIGATIONS OF THE CORPORATION
Any obligation of the Corporation arising under or as a result of this Plan
or any Stock Option granted hereunder shall constitute the general unsecured
obligation of the Corporation, and not of the Board of Directors of the
Corporation, or any members
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<PAGE>
thereof, the Stock Option Committee, or any member thereof, any officer of the
Corporation, or any other person or any Subsidiary, and none of the foregoing,
except the Corporation, shall be liable for any debt, obligation, cost or
expense hereunder.
27. LIMITATION OF RIGHTS
The Stock Option Committee, in its sole and absolute discretion, is
entitled to determine who, if anyone, is an Eligible Participant under this
Plan, and which, if any, Eligible Participant shall receive any grant of a Stock
Option. No oral or written agreement by any person on behalf of the Corporation
relating to this Plan or any Stock Option granted hereunder is authorized, and
such agreement may not bind the Corporation or the Stock Option Committee to
grant any Stock Option to any person.
28. SEVERABILITY
If any provision of this Plan as applied to any person or to any
circumstances shall be adjudged by a court of competent jurisdiction to be void,
invalid, or unenforceable, the same shall in no way effect any other provision
hereof, the application of any such provision in any other circumstances, or the
validity of enforceability hereof.
29. CONSTRUCTION
Where the context or construction requires, all words applied in the plural
shall be deemed to have been used in the singular and vice versa, and the
masculine gender shall include the feminine and the neuter.
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<PAGE>
30. HEADINGS
The headings of the several paragraphs of this Plan are inserted solely for
convenience of reference and are not intended to form a part of and are not
intended to govern, limit or aid in the construction of any term or provision
hereof.
31. SUCCESSORS
This Plan shall be binding upon the respective successors, assigns, heirs,
executors, administrators, guardians and personal representatives of the
Corporation and any Optionee.
32. GOVERNING LAW
This Plan shall be governed by and construed in accordance with the laws of
the State of California.
33. CONFLICT
In the event of any conflict between the terms and provisions of this Plan,
and any other document, agreement or instrument, including, without limitation,
any stock option agreement, the terms and provisions of this Plan shall control.
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<PAGE>
SECRETARY'S CERTIFICATE OF ADOPTION
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Monarch
Bancorp; and
2. That the foregoing Monarch Bancorp 1993 Stock Option Plan, as
amended, was duly amended by the Board of Directors of Monarch Bancorp as the
Stock Option Plan for the Corporation at meetings duly called as required by law
and convened on the 16th day of March, 1993, the 23rd day of May, 1995, and the
15th of May, 1996
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Corporation this ____ day of __________, 1996.
---------------------------------------
Secretary
[SEAL]
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<PAGE>
OPTIONEES TO WHOM INCENTIVE STOCK OPTIONS ARE GRANTED MUST MEET CERTAIN HOLDING
PERIOD AND EMPLOYMENT REQUIREMENTS FOR FAVORABLE TAX TREATMENT.
UNLESS OTHERWISE STATED, ALL DEFINED TERMS IN THE PLAN SHALL HAVE THE SAME
MEANING HEREIN AS SET FORTH IN THE PLAN.
MONARCH BANCORP
STOCK OPTION AGREEMENT
/ / Incentive Stock Option
/ / Non-Qualified Stock Option
THIS AGREEMENT, dated the ____ day of ____________, 19__, by and
between Monarch Bancorp, a California corporation (the "Corporation"), and
_____________________ (the "Optionee");
WHEREAS, pursuant to the Corporation's 1993 Stock Option Plan (the
"Plan"), the Stock Option Committee has authorized the grant to Optionee of a
Stock Option to purchase all or any part of
_____________________ (______) authorized but unissued shares of the
Corporation's Common Stock at the price of _________________
Dollars ($_____) per share, such Stock Option to be for the term and upon the
terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF STOCK OPTION. Pursuant to said action of the Stock
Option Committee and pursuant to authorizations granted by all appropriate
regulatory and governmental agencies, the Corporation hereby grants to Optionee
a Stock Option to
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<PAGE>
purchase, upon and subject to the terms and conditions of the Plan, which is
incorporated in full herein by this Reference, all or any part of
________________ (_______) Option Shares of the Corporation's Common Stock, at
the price of ____________________ Dollars ($_____) per share. For purposes of
this Agreement and the Plan, the date of grant shall be _________________, 19__.
At the date of grant, Optionee [DOES] [DOES NOT OWN] stock possessing more than
10% of the total combined voting power of all classes of capital stock of the
Corporation or any Subsidiary.
The Stock Option granted hereunder [IS] [IS NOT] intended to qualify
as an Incentive Stock Option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. EXERCISABILITY. This Stock Option shall be exercisable as to
_________________ Option Shares on ________________, 19__, as to
__________________ Option Shares on ________________, 19__, as to
__________________ Option Shares on ________________, 19__, as to
__________________ Option Shares on ________________, 19__, and as to
_________________ Option Shares on ________________, 19__. This Stock Option
shall remain exercisable as to all of such Option Shares until _______________,
19__ (but not later than ten (10) years from the date hereof), at which time it
shall expire in its entirety, unless this Stock Option has expired or terminated
earlier in accordance with the provisions hereof. Option shares as to which
this Stock Option becomes exercisable may be purchased at any time prior to
expiration of this Stock Option.
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<PAGE>
3. EXERCISE OF STOCK OPTION. Subject to the provision of Paragraph 4
hereof, this Stock Option may be exercised by written notice delivered to the
Corporation stating the number of Option Shares with respect to which this Stock
Option is being exercised, together with cash and/or, if permitted at the time
of exercise by the Stock Option Committee, shares of Common Stock of the
Corporation which, when added to the cash payment, if any, have an aggregate
Fair Market Value equal to the full amount of the purchase price of such Option
Shares, and/or, if permitted at the time of exercise by the Stock Option
Committee, and if Optionee is not also a director, consultant or business
advisor of the Corporation or any of its subsidiaries, on a deferred basis
evidenced by a promissory note. In addition, the Optionee shall have the right
upon the exercise of this Stock Option in the manner set forth above to
surrender for cancellation a portion of this Stock Option to the Company for the
number of shares (the "Surrendered Shares") specified in the holder's notice of
exercise, by delivery to the Company with such notice written instructions from
such holder to apply the Appreciated Value (as defined below) of the Surrendered
Shares to payment of the exercise price for shares subject to this Stock Option
that are being acquired upon such exercise. The term "Appreciated Value" for
each share subject to this Stock Option shall mean the excess of the Fair Market
Value thereof over the exercise price then in effect. Not less than ten (10)
Option shares may be purchased at any one time unless the number purchased is
the total number which remains to be purchased under this Stock Option and in no
event may the Stock Option be exercised with respect to fractional shares. Upon
exercise, Optionee shall make appropriate
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<PAGE>
arrangements and shall be responsible for the withholding of any federal and
state income taxes then due.
4. PRIOR OUTSTANDING STOCK OPTIONS. Incentive Stock Options granted
to an Optionee may be exercisable while such Optionee has outstanding and
unexercised any Incentive Stock Option previously granted to him or her pursuant
to this Plan. The Stock Option Committee shall determine if such options shall
be exercisable if there are any Incentive Stock Options previously granted (or
substituted) to him or her pursuant to this Plan, and such determination shall
be evidenced in the Agreement executed by the Optionee and the Corporation. An
Incentive Stock Option shall be treated as outstanding until it is exercised in
full or expires by reason of lapse of time.
5. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 6, 8 or
10 hereof, except if Optionee is granted an option as a consultant, business
associate or other person or entity with important business relationships with
the Corporation, if Optionee's status as an Eligible Participant under the Plan
is terminated, this Stock Option shall expire three (3) months thereafter or on
the date specified in Paragraph 2 hereof, whichever is earlier. During such
period after termination of status as an Eligible Participant, except if
Optionee is granted an option as a consultant, business associate or other
person or entity with important business relationships with the Corporation,
this Stock Option shall be exercisable only as to those increments, if any,
which had become exercisable as of the date on which the Optionee's status as an
Eligible Participant was terminated, and any Stock Options or increments which
had not become exercisable as of such date shall expire and terminate
automatically on
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<PAGE>
such date. If Optionee is granted an option as a consultant, business associate
or other person or entity with important business relationships with the
Corporation, this Stock Option shall not expire as a result of consultant,
business associate or other person or entity with important business
relationships with the Corporation no longer doing business or otherwise
terminating his or its business relationship with the Corporation.
6. DISABILITY OR DEATH OF OPTIONEE. Except if Optionee is granted an
option as a consultant, business associate or other person or entity with
important business relationships with the Corporation, if Optionee loses his or
its status as an Eligible Participant under the Plan by reason of death or if
Optionee is disabled while employed by the Corporation or a Subsidiary, or if
Optionee dies or becomes so disabled during the three-month period referred to
in Paragraph 5 hereof, this Stock Option shall automatically expire and
terminate one (l) year after the date of Optionee's disability or death or on
the day specified in Paragraph 2 hereof, whichever is earlier. If Optionee is
granted an option as a consultant, business associate or other person or entity
with important business relationships with the Corporation, this Stock Option
shall not expire as a result of such Optionee's death or disability. After
Optionee's disability or death but before such expiration, the person or persons
to whom Optionee's rights under this Stock Option shall have passed by order of
a court of competent jurisdiction or by will or the applicable laws of descent
and distribution, or the executor, administrator or conservator of Optionee's
estate, shall have the right to exercise this Stock Option to the extent that
increments, if any, had become
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<PAGE>
exercisable as of the date on which Optionee's status as an Eligible Participant
under the Plan had been terminated. For purposes hereof, "disability" shall
have the same meaning as set forth in Section 13 of the Plan.
7. NONTRANSFERABILITY. This Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during Optionee's lifetime only by Optionee or his or her guardian
or legal representative.
8. EMPLOYMENT. Optionee, other than directors, consultants or
business advisors, agrees to remain in the employ of the Corporation, or any
subsidiary for at least one (l) year from the date the option is granted subject
to prior termination at the discretion of the Board of Directors. This
Agreement shall not obligate the Corporation or a Subsidiary to employ Optionee
for any period, nor shall it interfere in any way with the right of the
Corporation or a Subsidiary to increase or reduce Optionee's compensation.
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a
stockholder with respect to the Option Shares unless and until said Option
Shares are issued to Optionee as provided in the Plan. Except as provided in
Section 15 of the Plan, no adjustment will be made for dividends or other rights
in respect of which the record date is prior to the date such stock certificates
are issued.
10. MODIFICATION AND TERMINATION BY BOARD OF DIRECTORS. The rights
of Optionee are subject to modification and termination upon the occurrence of
certain events as provided in Sections 12, 13, 14 and 15 of the Plan. Upon
adoption by the requisite holders of the Corporation's outstanding shares of
Common Stock of any plan
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<PAGE>
of dissolution, liquidation, reorganization, merger, consolidation or sale of
all or substantially all of the assets of the Corporation to, or the acquisition
of stock representing more than fifty percent (50%) of the voting power of the
Corporation then outstanding by another corporation or person which would, upon
consummation, result in termination of this Stock Option in accordance with
Section 15 of the Plan, this Stock Option shall become immediately exercisable
as to all vested but unexercised Option Shares for a period then specified by
the Stock Option Committee, but in any event not less than 30 days, in
accordance with Section 8(e) of the Plan, on the condition that the terminating
event described in Section 15 of the Plan is consummated. If such terminating
event is not consummated, this Stock Option shall be exercisable in accordance
with the terms of the Agreement, excepting this Paragraph 10.
11. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any
person acquiring Option Shares upon exercise of this Stock Option, will notify
the Corporation in writing not more than five (5) days after any sale or other
disposition of such Shares.
12. REPRESENTATIONS OF OPTIONEE. No Option Shares issuable upon the
exercise of this Stock Option shall be issued and delivered unless and until all
requirements of applicable state and federal law and of the Securities and
Exchange Commission pertaining to the issuance and sale of such Option Shares,
and all applicable listing requirements of the securities exchanges, if any, on
which shares of Common Stock of the Corporation of the same class are then
listed, shall have been
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<PAGE>
complied with. Without limiting the foregoing, the undersigned Optionee hereby
agrees, represents and warrants that unless and until the shares of Common Stock
covered by the Plan and issued to Optionee have been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, Optionee will acquire all Option Shares upon exercise of this Stock
Option for investment purposes only and not for resale or for distribution, and
Optionee hereby agrees to execute and deliver to the Corporation a
representation letter in the form and substance of Exhibit "A" attached hereto,
and to be bound by the representations, warranties, covenants and promises
contained therein. Optionee further agrees, represents and warrants that upon
exercise of all or part of this Stock Option, Optionee will not transfer any
such Option Shares except in compliance with said registration provisions or an
applicable exemption therefrom. Upon each exercise of any portion of this Stock
Option, the person entitled to exercise same shall, unless waived by the
Corporation, furnish evidence satisfactory to counsel for the Corporation
(including written and signed representations in the form attached hereto as
Exhibit "B") that the Option Shares are being acquired in good faith for
investment purposes only and not for resale or distribution except in compliance
with the state and federal requirements described above or applicable exemptions
therefrom. Furthermore, the Corporation, may, if it deems appropriate, issue
stop transfer instructions against any Option Shares and affix to any
certificate representing such Shares the legends of the type described in
Section 24 of the Plan.
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<PAGE>
13. NOTICES. All notices to the Corporation provided for in this
Agreement shall be addressed to it in care of its President or Chief Financial
Officer at its principal office and all notices to Optionee shall be addressed
to Optionee's address on file with the Corporation or a subsidiary corporation,
or to such other address as either may designate to the other in writing, all in
compliance with the notice provisions set forth in Section 25 of the Plan.
14. INCORPORATION OF PLAN. All of the provisions of the Plan are
incorporated herein by reference as if set forth in full hereat. In the event
of any conflict between the terms of the Plan and any provision contained
herein, the terms of the Plan shall be controlling and the conflicting
provisions herein shall be disregarded.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
Monarch Bancorp
By:
------------------------------------
By:
------------------------------------
OPTIONEE
---------------------------------------
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<PAGE>
EXHIBIT "A"
_____________, 19__
Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
Gentlemen:
On this ___ day of ________ 19__, the undersigned has been granted
pursuant to the Monarch Bancorp 1993 Stock Option Plan (the "Plan") and the
Stock Option Agreement (the "Agreement") by and between Monarch Bancorp and the
undersigned, dated ________ _, 19__, an option to purchase _____________ (_____)
shares of the no par value Common Stock of Monarch Bancorp (the "Stock").
In consideration of the grant of such option by Monarch Bancorp:
1. I hereby represent, warrant and certify to you that I am a bona
fide resident and domiciliary of the State of California and that I maintain my
principal residence in the State of California.
2. I hereby represent and warrant to you that the stock to be
acquired pursuant to the option will be acquired by me in good faith and for my
own personal account, and not with a view to distributing the stock to others or
otherwise resell the stock in violation of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
3. I hereby acknowledge and agree that (l) the stock to be acquired
by me pursuant to the Plan has not been registered and that there is no
obligation on the part of Monarch Bancorp to register such stock under the
Securities Act of 1933, as amended, and the rules and regulations thereunder;
and (2) that the Stock to be acquired by me will not be freely tradeable unless
the Stock is either registered under the Securities Act of 1933, as amended, or
Monarch Bancorp determines that the transfer will not violate the Federal
securities laws.
4. I understand that the corporation is relying upon the truth and
accuracy of the representations and agreements contained herein in determining
to grant such options to me and upon subsequently issuing any stock pursuant to
the Plan without first registering the same under the Securities Act of 1933, as
amended.
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<PAGE>
5. I understand that the certificate evidencing the stock to be
issued pursuant to the Plan will contain a legend upon the face thereof to the
effect that the stock is not registered under the Securities Act of 1933 and
that stop transfer orders will be placed against the shares with Monarch
Bancorp's transfer agent.
6. I am registered to vote in California: Yes / /
No / /
7. I have been a resident of California for ____ years.
8. My permanent residence address is as follows:
-------------------------------
-------------------------------
-------------------------------
9. I hereby agree to inform the Corporation if, during the term of
the option, I move my principal residence outside of California.
The agreements contained herein shall inure to benefit of and be
binding upon the respective legal representatives, successors and assigns of the
undersigned and Monarch Bancorp.
Very truly yours,
--------------------------------------
(Signature)
--------------------------------------
(Type or Print Name)
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<PAGE>
EXHIBIT "B"
_____________, 19__
Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
Gentlemen:
On this ____ day of _______________, 19__, the undersigned has
acquired, pursuant to the Monarch Bancorp 1993 Stock Option Plan (the "Plan")
and the Stock Option Agreement (the "Agreement") by and between Monarch Bancorp
and the undersigned, dated __________, 19__, ___________ (_____) shares of the
no par value Common Stock of Monarch Bancorp (the "Stock"). In consideration of
the issuance of Monarch Bancorp to the undersigned said shares of its Common
Stock:
1. I hereby represent and warrant to you that the Stock will be
acquired by me in good faith for my own personal account, and not with a view to
distributing the Stock to others or otherwise reselling the Stock in violation
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
2. I hereby represent, warrant and certify to you that I am a bona
fide resident and domiciliary of the State of California and that I maintain my
principal residence in the State of California.
3. I hereby acknowledge and agree that (a) the Stock being acquired
by me pursuant to the Plan has not been registered and that there is no
obligation on the part of Monarch Bancorp to register such stock under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder; and (b) the Stock acquired by me is not freely tradeable and must be
held by me unless traded as provided in Paragraph 4 herein or unless the Stock
is either registered under the Securities Act of 1933 or transferred pursuant to
an exemption from such registration, as accorded by the Securities Act of 1933
or under the rules and regulations promulgated thereunder. I further represent
and acknowledge that I have been informed by legal counsel in connection with
said Plan of the restrictions on my ability to transfer the Stock to be received
by me pursuant to said Plan and Agreement and that I understand the scope and
effect of those restrictions.
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<PAGE>
4. I hereby represent, warrant, and certify to the Corporation that I
will not sell or otherwise dispose of all or any part of the shares of the stock
being acquired by me pursuant to the Plan or any interest therein to an
non-resident individual, corporation, partnership, or other form of business
organization of the State of California.
5. I hereby represent, warrant and certify to the Corporation that
the information supplied to the Corporation pursuant to Exhibit "l" attached
hereto is true and correct and may be relied upon by the Corporation in
connection with the issuance of the Corporation's Stock to me.
6. I understand that the effects of the above representations are the
following: (i) that the undersigned does not presently intend to sell or
otherwise dispose of all or any part of the shares of the Stock to any person or
entity not a bona fide resident of the State of California; and (ii) that the
Corporation is relying upon the truth and accuracy of the representations and
agreements contained herein in issuing said shares of the Stock to me without
first registering the same under the Securities Act of 1933, as amended.
7. I hereby agree that the certificate evidencing the Stock may
contain the following legend stamped upon the face thereof to the effect that
the Stock is not registered under the Securities Act of 1933, as amended, and
that the Stock has been acquired pursuant to the representation in this letter
and the Plan and the Agreement:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
and
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR BY
MONARCH BANCORP, THAT REGISTRATION IS NOT REQUIRED."
8. I hereby agree and understand that the Corporation will place a
stop transfer notice with its stock transfer agent to ensure that the
restrictions on transfer described herein will be observed.
-2-
<PAGE>
The agreements contained herein shall inure to benefit of and be
binding upon the respective legal representatives, successors and assigns of the
undersigned and Monarch Bancorp.
Very truly yours,
---------------------------------------
(Signature)
---------------------------------------
(Type or Print Name)
-3-
<PAGE>
March 24, 1997
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We, as successor accountants of Dayton & Associates (said firm being merged
with and into Vavrinek, Trine, Day & Co. on September 1, 1996), have read and
agree with the comments in the first, second, third and fourth paragraphs of
Item 8 of the 1996 Form 10KSB of Monarch Bancorp.
Sincerely,
David L. Dayton
for Vavrinek, Trine, Day & Co.
<PAGE>
SUBSIDIARIES OF MONARCH BANCORP
1. Monarch Bank, a California corporation.
2. Western Bank, a California corporation.
3. M.B. Mortgage Company, Inc., a California corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 37,385
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,217
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<LIABILITIES-OTHER> 4,249
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0
0
<COMMON> 58,713
<OTHER-SE> (4,585)
<TOTAL-LIABILITIES-AND-EQUITY> 512,361
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