<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 23, 1998
----------------
Date of Report (Date of Earliest Event Reported)
WESTERN BANCORP
---------------
(Exact Name of Registrant As Specified In Its Charter)
CALIFORNIA
----------
(State or Other Jurisdiction of Incorporation)
0-13551 95-3863296
------- ----------
(Commission File Number) (IRS Employer Identification No.)
4100 Newport Place, Suite 900
Newport Beach, California 92660
-------------------------------
(Address of Principal Executive Offices)(Zip Code)
(949) 863-2444
--------------
(Registrant's Telephone Number, including Area Code)
1
<PAGE>
ITEM 2. ACQUISITION OF BANK OF LOS ANGELES.
Western Bancorp (the "Company") serves as the holding company for
Southern California Bank ("SCB") and Santa Monica Bank ("SMB", and together
with SCB, the "Banks") and Venture Partners, Inc. On October 23,1998, the
Company acquired Bank of Los Angeles ("BKLA") pursuant to an Agreement and
Plan of Merger, dated as of April 16, 1998, and amended and restated as of
June 24, 1998 and July 16, 1998 (the "Merger Agreement"), by and among the
Company, SMB and BKLA (the "BKLA Acquisition"). Pursuant to the Merger
Agreement, BKLA merged with and into SMB, with SMB being the surviving
corporation.
Pursuant to the Merger Agreement, each issued and outstanding share of
common stock of BLKA ("BKLA Common Stock") prior to the BKLA Acquisition
(other than as provided in the Merger Agreement) was converted into the
right to receive 0.4224 shares (the "Conversion Number") of common stock of
the Company ("Company Common Stock"). In addition, each option to acquire
shares of BKLA Common Stock outstanding immediately prior to the Effective
Time (as defined in the Merger Agreement) was converted into the right to
receive that number of shares of Company Common Stock equal to the quotient
obtained by dividing the Spread (as defined in the Merger Agreement) by
$42.61. Each warrant to acquire BKLA Common Stock outstanding at the
Effective Time (each, a "BKLA Warrant") was converted into a warrant (each,
a "Replacement Warrant") to acquire, on the same terms and conditions as
were applicable under such BKLA warrant agreement, that number of shares of
Company Common Stock equal to the number of shares of BKLA Common Stock
subject to the BKLA Warrant multiplied by the Conversion Number (such
product rounded down to the nearest whole number), at an exercise price per
share (rounded up to the nearest whole cent) equal to (a) the aggregate
exercise price for the shares of BKLA Common Stock which were purchasable
pursuant to such BKLA Warrant divided by (b) the number of full shares of
Company Common Stock subject to such Replacement Warrant. This resulted in
the issuance of approximately 156,100 Warrants at an exercise price of
$8.88.
Upon consummation of the BKLA Acquisition, the Company issued
approximately 2,214,500 shares of Company Common Stock (prior to adjustment
for fractional shares) to former holders of BKLA Common Stock, and as a
result, the former shareholders of BKLA Common Stock own shares of Company
Common Stock representing approximately 12.4 percent of the outstanding
Company Common Stock.
The description of the Merger Agreement contained herein is qualified
in its entirety by reference to the Merger Agreement, which is incorporated
herein as Exhibit 2.1. After giving effect to the BKLA Acquisition, the
total assets of the Company and its subsidiaries increased to approximately
$2.3 billion, total deposits increased to approximately $1.9 billion and
total shareholders equity increased to approximately $323 million as of
June 30, 1998, on a restated basis, before giving effect to merger costs
and restructuring costs.
As part of the BKLA Acquisition, Adriana Boeka, former Chairman of
BKLA, was appointed to the Board of Directors of the Company.
A press release announcing consummation of the BKLA Acquisition was
issued on October 26, 1998, a copy of which is attached hereto as Exhibit
99.1 and is incorporated herein in its entirety by this reference.
2
<PAGE>
ITEM 5. OTHER EVENTS.
On October 30, 1998, the Company announced the termination of the
Agreement and Plan of Merger, dated as of July 24, 1998, by and among the
Company, Portola Merger Sub and Peninsula Bank of San Diego. A copy of the
press release making such announcement is attached hereto as Exhibit 99.2
and is incorporated herein in its entirety by this reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Financial statements for Bank of Los Angeles required by this item are
incorporated herein in their entirety by this reference to Exhibit 99.3 and
Exhibit 99.4 hereto.
(b) PRO FORMA FINANCIAL INFORMATION.
3
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data
combines the historical consolidated condensed financial statements of
Western and BKLA after giving effect to the BKLA Acquisition which was
consummated on October 23, 1998 as if it had been effective on June 30, 1998
and December 31, 1997, with respect to the Pro Forma Combined Condensed
Balance Sheets, and as of the beginning of the periods indicated, with
respect to the Pro Forma Combined Condensed Statements of Income. This
information is presented under pooling-of-interests accounting. The unaudited
pro forma combined condensed financial data also combines the historical
condensed statements of income of SMB acquired by Western on January 27,
1998, in a merger accounted for under the purchase method of accounting, for
the year ended December 31, 1997 and the six months ended June 30, 1998 and
1997, as if the acquisition of SMB occurred at the beginning of such periods.
The information for the six months ended June 30, 1998 and 1997 is derived
from the unaudited financial statements of Western, BKLA and SMB which
includes, in the opinion of the respective managements of Western, BKLA and
SMB, all adjustments (consisting only of normal accruals) necessary to
present fairly the data for such periods. This information should be read in
conjunction with the historical consolidated financial statements of Western,
BKLA and SMB including their respective notes thereto, which are included and
incorporated by reference into this report on Form 8K. The effect of
estimated merger and reorganization costs expected to be incurred in
connection with the BKLA Acquisition have been reflected in the Unaudited Pro
Forma Combined Condensed Balance Sheets; however, since the estimated costs
are nonrecurring, they have not been reflected in the Unaudited Pro Forma
Combined Condensed Statements of Income. See Note 2 to the Unaudited Pro
Forma Combined Condensed Financial Information. The unaudited pro forma
combined condensed financial data does not give effect to any anticipated
operating efficiencies which may occur in conjunction with the BKLA
Acquisition. The Unaudited Pro Forma Combined Condensed Balance Sheets are
not necessarily indicative of the actual financial position that would have
existed had the BKLA Acquisition June 30, 1998 or December 31, 1997, or that
may exist in the future. The Unaudited Pro Forma Combined Condensed
Statements of Income are not necessarily indicative of the results that would
have occurred had the BKLA Acquisition been consummated on the dates
indicated or that may be achieved in the future. The actual financial
position and results of operations will differ, perhaps significantly, from
the pro forma amounts reflected herein because of a variety of factors,
including changes in value and changes in operating results between the dates
of the unaudited pro forma financial data and the dates on which the BKLA
Acquisition took place.
4
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF CONDITION
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Western
Western BKLA Pro Forma and BKLA
(Historical) (Historical)(1) Adjustments (2) Pro Forma
------------ --------------- --------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks $ 155,940 $ 20,682 $ -- $ 176,622
Federal funds sold 177,329 14,000 -- 191,329
---------- ---------- ---------- ----------
TOTAL CASH AND CASH EQUIVALENTS 333,269 34,682 -- 367,951
Federal Reserve Bank and Federal Home Loan
Bank stock, at cost 5,759 1,491 -- 7,250
Securities held to maturity -- 87,188 -- 87,188
Securities available for sale 218,376 -- -- 218,376
---------- ---------- ---------- ----------
TOTAL SECURITIES 224,135 88,679 -- 312,814
Net loans 1,249,930 150,962 -- 1,400,892
Property, plant and equipment 32,034 2,519 -- 34,553
Other real estate owned 4,946 1,545 -- 6,491
Goodwill 145,525 5,504 -- 151,029
Other assets 26,910 5,877 3,076 35,863
TOTAL ASSETS $2,016,749 $ 289,768 $ 3,076 $2,309,593
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits $ 637,837 $ 86,876 $ -- $ 724,713
Interest bearing deposits 1,059,515 155,676 -- 1,215,191
---------- ---------- ---------- ----------
Total deposits 1,697,352 242,552 -- 1,939,904
Borrowed funds 15,756 12,873 -- 28,629
Accrued interest payable and other liabilities 14,495 792 10,355 25,642
---------- ---------- ---------- ----------
TOTAL LIABILITIES 1,727,603 256,217 10,355 1,994,175
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock and additional paid in capital 263,257 31,042 -- 294,299
Retained earnings 25,819 2,509 (7,279) 21,049
Comprehensive income (loss) 70 -- -- 70
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 289,146 33,551 (7,279) 315,418
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,016,749 $ 289,768 $ 3,076 $2,309,593
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Number of common shares outstanding (1) 15,703.8 4,856.2 17,843.4
Common shareholders' equity per share (1) $ 18.41 $ 6.91 $ 17.68
Tangible common shareholders' equity per share (1) $ 9.15 $ 5.78 $ 9.21
</TABLE>
5
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Western
Western BKLA Pro Forma and BKLA
(Historical) (Historical)(1) Adjustments(2) Pro Forma
------------ --------------- -------------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks $ 97,456 $ 22,646 $ -- $ 120,102
Federal funds sold 138,702 29,555 -- 168,257
----------- ----------- ----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 236,158 52,201 -- 288,359
Federal Reserve Bank and Federal
Home Loan Bank stock, at cost 5,610 801 -- 6,411
Securities held to maturity -- 48,138 -- 48,138
Securities available for sale 201,904 11,494 -- 213,398
----------- ----------- ----------- -----------
TOTAL SECURITIES 207,514 60,433 -- 267,947
Mortgage loans held for sale -- -- -- --
Net loans 864,840 139,814 -- 1,004,654
Property, plant and equipment 13,685 2,650 -- 16,335
Other real estate owned 6,261 1,475 -- 7,736
Goodwill 30,430 5,939 -- 36,369
Other assets 24,622 9,521 3,076 37,219
----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,383,510 $ 272,033 $ 3,076 $ 1,658,619
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits $ 457,503 $ 85,222 $ -- $ 542,725
Interest bearing deposits 769,290 152,790 -- 922,080
----------- ----------- ----------- -----------
Total deposits 1,226,793 238,012 -- 1,464,805
Borrowed funds 12,751 1,849 -- 14,600
Accrued interest payable and other liabilities 14,311 1,118 10,355 25,784
----------- ----------- ----------- -----------
TOTAL LIABILITIES 1,253,855 240,979 10,355 1,505,189
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 112,947 30,630 -- 143,577
Retained earnings 16,802 472 (7,279) 9,995
Comprehensive income (loss) (94) (48) -- (142)
----------- ----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 129,655 31,054 (7,279) 153,430
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,383,510 $ 272,033 $ 3,076 $ 1,658,619
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of common shares outstanding (1) 10,648.3 4,751.7 12,744.4
Common shareholders' equity per share (1) $ 12.18 $ 6.54 $ 12.04
Tangible common shareholders' equity per share (1) $ 9.32 $ 5.29 $ 9.19
</TABLE>
6
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Santa
Monica Western
BKLA Western January Pro Forma BKLA and
Western (Historical) and BKLA (Historical) Adjustments Santa
(Historical) (1) Pro Forma (3) (3) Monica
------------ ------------ --------- ------------ ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 56,671 $ 7,667 $ 64,338 $ 3,185 $ -- $ 67,523
Interest on interest bearing deposits
in other banks -- 38 38 -- -- 38
Interest on investment securities 6,966 2,071 9,037 616 -- 9,653
Interest on federal funds sold 5,285 729 6,014 365 (235) 6,144
-------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME 68,922 10,505 79,427 4,166 (235) 83,358
INTEREST EXPENSE:
Interest expense on deposits 17,762 2,718 20,480 1,180 -- 21,660
Interest expense on borrowings 556 290 846 16 -- 862
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE 18,318 3,008 21,326 1,196 -- 22,522
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME: 50,604 7,497 58,101 2,970 (235) 60,836
Less: provision for loan and lease losses 300 -- 300 80 380
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES 50,304 7,497 57,801 2,890 (235) 60,456
NON-INTEREST INCOME:
Service charges, commissions and fees 7,250 955 8,205 595 -- 8,800
Securities gains 155 49 204 -- -- 204
Other income 453 26 479 19 -- 498
-------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 7,858 1,030 8,888 614 -- 9,502
NON-INTEREST EXPENSE:
Salaries and benefits 17,725 2,770 20,495 1,123 (11) 21,607
Occupancy, furniture and equipment 5,328 1,033 6,361 347 23 6,731
Advertising and business development 566 98 664 58 -- 722
Other real estate owned (205) 12 (193) 9 -- (184)
Professional services 1,657 362 2,019 73 -- 2,092
Telephone, stationery and supplies 1,437 256 1,693 55 -- 1,748
Goodwill amortization 4,561 237 4,798 -- 665 5,463
Data processing 1,126 -- 1,126 9 -- 1,135
Customer services cost 842 -- 842 8 -- 850
Merger costs -- -- -- 429 -- 429
Other 2,476 506 2,982 239 -- 3,221
-------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 35,513 5,274 40,787 2,350 677 43,814
-------- -------- -------- -------- -------- --------
Income before income taxes 22,649 3,253 25,902 1,154 (912) 26,144
Income taxes 11,142 1,216 12,358 463 (102) 12,719
-------- -------- -------- -------- -------- --------
NET INCOME $ 11,507 $ 2,037 $ 13,544 $ 691 $ (810) $ 13,425
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic 14,821.5 4,776.6 16,839.1 7,084.2 17,692.1
Diluted 15,040.0 5,368.8 17,307.8 7,084.2 18,160.8
Income per share
Basic $ 0.78 $ 0.43 $ 0.80 $ 0.10 $ 0.76
Diluted $ 0.77 $ 0.38 $ 0.78 $ 0.10 $ 0.74
</TABLE>
7
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Santa Western
BKLA Western Monica Pro Forma BKLA and
Western (Historical) and BKLA (Historical) Adjustments Santa
(Historical) (1) Pro Forma (3) (3) Monica
------------ ------------ --------- ------------ ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 38,605 $ 5,021 $ 43,626 $ 18,106 $ -- $ 61,732
Interest on interest bearing deposits
in other banks -- 1 1 -- -- 1
Interest on investment securities 8,500 1,139 9,639 4,030 -- 13,669
Interest on federal funds sold 1,653 490 2,143 1,680 (1,408) 2,415
-------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME 48,758 6,651 55,409 23,816 (1,408) 77,817
INTEREST EXPENSE:
Interest expense on deposits 13,736 1,617 15,353 6,898 -- 22,251
Interest expense on borrowings 594 129 723 98 -- 821
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE 14,330 1,746 16,076 6,996 -- 23,072
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME: 34,428 4,905 39,333 16,820 (1,408) 54,745
Less: provision for loan and lease losses 1,400 410 1,810 -- 1,810
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN 33,028 4,495 37,523 16,820 (1,408) 52,935
AND LEASE LOSSES
NON-INTEREST INCOME:
Service charges and fees 3,838 602 4,440 3,416 -- 7,856
Gain on sale of loans 78 -- 78 -- -- 78
Securities gains 342 -- 342 -- -- 342
Other income 770 27 797 118 -- 915
-------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 5,028 629 5,657 3,534 -- 9,191
NON-INTEREST EXPENSE:
Salaries and benefits 12,715 2,269 14,984 7,064 (66) 21,982
Occupancy, furniture and equipment 3,889 810 4,699 2,068 137 6,904
Advertising and business development 596 87 683 426 -- 1,109
Other real estate owned 69 12 81 (517) -- (436)
Professional services 1,753 221 1,974 953 -- 2,927
Telephone, stationery and supplies 1,420 166 1,586 327 -- 1,913
Goodwill amortization 1,270 102 1,372 -- 3,989 5,361
Data processing 791 -- 791 61 -- 852
Customer services cost 559 -- 559 72 -- 631
Merger costs 3,470 -- 3,470 -- -- 3,470
Other 3,268 422 3,690 1,232 -- 4,922
-------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 29,800 4,089 33,889 11,686 4,060 49,635
-------- -------- -------- -------- -------- --------
Income before income taxes 8,256 1,035 9,291 8,668 (5,468) 12,491
Income taxes 4,811 -- 4,811 3,004 (614) 7,201
-------- -------- -------- -------- -------- --------
NET INCOME $ 3,445 $ 1,035 $ 4,480 $ 5,664 $ (4,854) $ 5,290
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic 10,492.5 2,878.8 11,708.5 7,084.2 16,689.1
Diluted 10,778.3 3,277.1 12,162.5 7,084.2 17,143.1
Income per share
Basic $ 0.33 $ 0.36 $ 0.38 $ 0.80 $ 0.32
Diluted $ 0.32 $ 0.32 $ 0.37 $ 0.80 $ 0.31
</TABLE>
8
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Santa Western
BKLA Western Monica Pro Forma BKLA and
Western (Historical) and BKLA (Historical) Adjustments Santa
(Historical) (1) Pro Forma (3) (3) Monica
------------ ------------ --------- ------------ ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 80,639 $ 11,229 $ 91,868 $ 36,794 $ -- $ 128,662
Interest on interest bearing deposits
in other banks -- 1 1 -- -- 1
Interest on investment securities 15,714 2,731 18,445 8,922 -- 27,367
Interest on federal funds sold 4,681 893 5,574 3,652 (2,816) 6,410
--------- --------- --------- --------- --------- ---------
TOTAL INTEREST INCOME 101,034 14,854 115,888 49,368 (2,816) 162,440
INTEREST EXPENSE:
Interest expense on deposits 28,276 3,673 31,949 14,575 -- 46,524
Interest expense on borrowings 1,082 258 1,340 196 -- 1,536
--------- --------- --------- --------- --------- ---------
TOTAL INTEREST EXPENSE 29,358 3,931 33,289 14,771 -- 48,060
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME: 71,676 10,923 82,599 34,597 (2,816) 114,380
Less: provision for loan and lease losses 2,800 410 3,210 -- -- 3,210
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES 68,876 10,513 79,389 34,597 (2,816) 111,170
NON-INTEREST INCOME:
Service charges, commissions and fees 7,533 1,273 8,806 7,032 -- 15,838
Gain on sale of loans 78 -- 78 -- -- 78
Securities gains 342 -- 342 13 -- 355
Other income 1,733 115 1,848 229 -- 2,077
--------- --------- --------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 9,686 1,388 11,074 7,274 -- 18,348
NON-INTEREST EXPENSE:
Salaries and benefits 25,023 4,802 29,825 14,661 (131) 44,355
Occupancy, furniture and equipment 7,843 1,778 9,621 4,151 274 14,046
Advertising and business development 1,225 155 1,380 844 -- 2,224
Other real estate owned 242 29 271 (547) -- (276)
Professional services 3,706 382 4,088 1,444 -- 5,532
Telephone, stationery and supplies 2,735 347 3,082 632 -- 3,714
Goodwill amortization 2,538 246 2,784 -- 7,977 10,761
Data processing 1,667 -- 1,667 116 -- 1,783
Customer services cost 1,263 -- 1,263 265 -- 1,528
Merger related costs 14,201 -- 14,201 1,052 -- 15,253
Other 5,314 803 6,117 2,441 -- 8,558
--------- --------- --------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE 65,757 8,542 74,299 25,059 8,120 107,478
--------- --------- --------- --------- --------- ---------
Income before income taxes 12,805 3,359 16,164 16,812 (10,936) 22,040
Income taxes (benefits) 9,643 (372) 9,271 5,905 (1,228) 13,948
--------- --------- --------- --------- --------- ---------
NET INCOME $ 3,162 $ 3,731 $ 6,893 $ 10,907 $ (9,708) $ 8,092
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 10,523.9 3,226.0 11,886.6 7,084.2 16,867.2
Diluted 10,731.6 3,749.7 12,315.5 7,084.2 17,296.1
Income per share
Basic $ 0.30 $ 1.16 $ 0.58 $ 1.54 $ 0.48
Diluted $ 0.29 $ 1.00 $ 0.56 $ 1.54 $ 0.47
</TABLE>
9
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Western
Western BKLA and BKLA
(Historical) (Historical)(1) Pro Forma
------------ --------------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 58,374 $ 7,702 $ 66,076
Interest on interest bearing deposits in other banks 3 12 15
Interest on investment securities 12,862 2,008 14,870
Interest on federal funds sold 2,998 839 3,837
-------- -------- --------
TOTAL INTEREST INCOME 74,237 10,561 84,798
INTEREST EXPENSE:
Interest expense on deposits 21,382 2,830 24,212
Interest expense on borrowings 929 257 1,186
-------- -------- --------
TOTAL INTEREST EXPENSE 22,311 3,087 25,398
-------- -------- --------
NET INTEREST INCOME: 51,926 7,474 59,400
Less: provision for loan and lease losses 1,018 750 1,768
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES 50,908 6,724 57,632
NON-INTEREST INCOME:
Service charges, commissions and fees 7,485 966 8,451
Gain on sale of loans and other assets 665 -- 665
Securities gains (losses) 281 (5) 276
Other income 1,444 76 1,520
-------- -------- --------
TOTAL NON-INTEREST INCOME 9,875 1,037 10,912
NON-INTEREST EXPENSE:
Salaries and benefits 23,016 3,408 26,424
Occupancy, furniture and equipment 7,649 1,306 8,955
Advertising and business development 1,342 137 1,479
Other real estate owned (134) 68 (66)
Professional services 6,054 472 6,526
Telephone, stationery and supplies 2,201 346 2,547
Goodwill amortization 1,004 119 1,123
Data processing 1,064 -- 1,064
Customer services cost 510 -- 510
Other 5,432 904 6,336
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 48,138 6,760 54,898
-------- -------- --------
Income before income taxes 12,645 1,001 13,646
Income taxes 3,656 -- 3,656
-------- -------- --------
NET INCOME $ 8,989 $ 1,001 $ 9,990
-------- -------- --------
-------- -------- --------
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 8,095.7 2,195.1 9,022.9
Diluted 8,248.4 2,475.9 9,294.2
Income per share
Basic $ 1.11 $ 0.46 $ 1.11
Diluted $ 1.09 $ 0.40 $ 1.07
</TABLE>
10
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Western
Western BKLA and BKLA
(Historical) (Historical)(1) Pro Forma
------------ --------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases $ 49,014 $ 4,808 $ 53,822
Interest on interest bearing deposits in other banks 43 2 45
Interest on investment securities 10,726 1,575 12,301
Interest on federal funds sold 2,846 434 3,280
-------- -------- --------
TOTAL INTEREST INCOME 62,629 6,819 69,448
INTEREST EXPENSE:
Interest expense on deposits 19,167 1,542 20,709
Interest expense on borrowings 637 310 947
-------- -------- --------
TOTAL INTEREST EXPENSE 19,804 1,852 21,656
-------- -------- --------
NET INTEREST INCOME: 42,825 4,967 47,792
Less: provision for (recovery of) loan and
lease losses 8,564 (311) 8,253
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES 34,261 5,278 39,539
NON-INTEREST INCOME:
Service charges, commissions and fees 6,551 757 7,308
Gain on sale of loans and other assets 145 118 263
Securities (losses) (692) (46) (738)
Other income 1,822 49 1,871
-------- -------- --------
TOTAL NON-INTEREST INCOME 7,826 878 8,704
NON-INTEREST EXPENSE:
Salaries and benefits 19,575 2,798 22,373
Occupancy, furniture and equipment 7,878 941 8,819
Advertising and business development 1,199 128 1,327
Other real estate owned 3,080 24 3,104
Professional services 3,176 547 3,723
Telephone, stationery and supplies 2,337 254 2,591
Goodwill amortization 821 20 841
Lower of cost or market adjustment on loans
available for sale 756 -- 756
Data processing 822 -- 822
Customer services cost 184 -- 184
Other 5,781 798 6,579
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 45,609 5,510 51,119
-------- -------- --------
Income (loss) before income taxes (3,522) 646 (2,876)
Income taxes (benefits) (1,733) -- (1,733)
-------- -------- --------
NET INCOME (LOSS) $ (1,789) $ 646 $ (1,143)
-------- -------- --------
-------- -------- --------
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic 6,486.9 1,017.5 6,916.7
Diluted 6,598.5 1,268.8 7,134.4
Income (loss) per share
Basic $ (0.28) $ 0.63 $ (0.17)
Diluted $ (0.28) $ 0.51 $ (0.17)
</TABLE>
11
<PAGE>
WESTERN BANCORP AND BANK OF LOS ANGELES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION.
Certain historical data of BKLA have been reclassified on a pro forma
basis to conform to Western's classifications. Transactions between Western
and BKLA are not material in relation to the unaudited pro forma combined
financial statements, and have not been eliminated from the pro forma
combined amounts. The unaudited pro forma number of common shares
outstanding, common shareholders' equity per share, number of shares (basic
and diluted) and income (loss) per share (basic and diluted) are based on the
share amounts for Western plus the historical share amounts for BKLA
multiplied by the Conversion Number of 0.4224. In addition, at the Effective
Time (as defined in the Merger Agreement) of the BKLA Acquisition, all
outstanding options to purchase shares of BKLA Common Stock under BKLA's
stock option plan (each, a "BKLA Stock Option"), unless otherwise exercised
pursuant to Section 10 of BKLA's stock option plan, shall be converted into
the right to receive for each share of BKLA Common Stock otherwise issuable
upon exercise thereof a number of shares of Western Common Stock equal to the
quotient obtained by dividing the Spread by $42.61 ("Replacement Shares"). As
used herein, "Spread" means the difference, if positive, obtained by
subtracting the exercise price of such BKLA Stock Option from $18.00. After
accumulating all such Replacement Shares issuable to any holder of BKLA Stock
Options, any fractional Replacement Shares issuable to any holder of BKLA
Stock Options of 0.2 or above shall be rounded upwards. Further, at the
Effective Time, each outstanding warrant to purchase shares of BKLA Common
Stock under BKLA's warrant agreement (each, a "BKLA Warrant"), shall be
converted into a warrant to acquire, on the same terms and conditions as were
applicable under such BKLA warrant agreement, the number of shares of Western
Common Stock equal to (a) the number of shares of BKLA Common Stock subject
to the BKLA Warrant, multiplied by (b) the Conversion Number (such product
rounded down to the nearest whole number) (a "Replacement Warrant"), at an
exercise price per share (rounded up to the nearest whole cent) equal to (y)
the aggregate exercise price for the shares of BKLA Common Stock which were
purchasable pursuant to such BKLA Warrant divided by (z) the number of full
shares of Western Common Stock subject to such Replacement Warrant in
accordance with the foregoing.
NOTE 2: MERGER COSTS
The unaudited pro forma combined condensed financial data reflects Western
Management's current estimate, for purposes of pro forma presentation, of the
aggregate estimated merger costs of $10,355,000 ($7,279,000 net of taxes,
computed using the combined federal and state tax rate of 42.0%) expected to be
incurred in connection with the BKLA Merger. While a portion of these costs may
be required to be recognized over time, the current estimate of these costs has
been recorded in the pro forma combined balance sheets in order to disclose the
aggregate effect of these activities on Western's pro forma combined financial
position. The estimated aggregate costs include the following:
<TABLE>
<CAPTION>
(Dollars in
thousands)
<S> <C>
Employee costs $1,500
Conversion costs 500
Other costs 5,325
----------------
7,325
Tax effects (3,076)
----------------
4,249
Investment banking and other professional fees 3,030
----------------
TOTAL ESTIMATED AGGREGATE COSTS $7,279
----------------
----------------
</TABLE>
12
<PAGE>
Western management's cost estimates are forward-looking. While the costs
represent Western management's current estimate of merger costs that will be
incurred, the ultimate level and timing of recognition of such costs will be
based on the final merger and integration plan developed by various of Western's
and BKLA's, task forces and integration committees. Readers are cautioned that
the completion of the merger and integration plan and the resulting management
plans detailing actions to be undertaken to effect the Merger and resultant
integration of operations will impact these estimates; the type and amount of
actual costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management in
determining the current estimate of these costs.
NOTE 3: PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF SMB
The acquisition of SMB was accounted for as a purchase effective on
January 27, 1998. Accordingly, Western's balance sheet as of June 30, 1998,
reflects such acquisition. Under this method of accounting, assets and
liabilities of SMB were adjusted to their estimated fair values and combined
with the recorded book values of the assets and liabilities of Western.
Applicable income tax effects of such adjustments are included as a component
of Western's net deferred tax asset with a corresponding offset to goodwill.
The unaudited pro forma combined condensed statements of income for the
six-month periods ending June 30, 1998, June 30, 1997 and for the year ended
December 31, 1997 are presented as if the acquisition was consummated at the
beginning of each period. The pro forma combined statements of income for
these periods combine the individual pro forma results of operations of
Western, BKLA and SMB for each period after giving effect to the amortization
of purchase accounting adjustments, the additional equity which was raised by
Western and the reduced interest income resulting from the cash payments made
as part of the SMB Acquisition. The pro forma purchase accounting adjustments
for each period represent the amortization that would have taken place from
the beginning of the period.
For the purposes of the unaudited pro forma combined condensed statement
of income, it is estimated that Western would have earned 5.50% on the $51.2
million cash portion of the acquisition of SMB purchase price during each
period, resulting in approximately $235,000 less interest income for the
six-month period ended June 30, 1998, $1,408,000 less interest income for the
six-month period ended June 30, 1997 and $2.8 million less interest income
for 1997.
Salaries and benefits expense is estimated to be reduced by approximately
$11,000, $66,000 and $131,000 for the six-month period ended June 30, 1998, the
six-month period ended June 30, 1997 and for the year ended December 31, 1997,
respectively, as a result of the write-off of the unrecognized transition
obligation related to post-retirement health care benefits.
For the year ended December 31, 1997, occupancy, furniture and equipment
expense increased by an estimated $194,000 of depreciation expense related to
the fair market value adjustment of SMB's property, plant and equipment and
by approximately $80,000 related to the amortization of favorable lease
assets, resulting in an approximately $274,000 additional expense. For the
six-month periods ended June 30, 1998 and June 30, 1997, this additional
expense is $23,000 and $137,000, respectively.
Goodwill of approximately $119.7 million is amortized on a straight line
basis over 15 years.
Income taxes are estimated to be at a rate of 41.5% of pretax income before
goodwill amortization.
13
<PAGE>
(c) Exhibits.
The following exhibits are filed with this Current Report on Form 8-K:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 16, 1998, and amended
and restated as of June 24, 1998 and July 16, 1998, by and among
Western Bancorp, Santa Monica Bank and Bank of Los Angeles
2.2 Agreement and Plan of Merger, dated as of October 6, 1998, between
Western Bancorp and PNB Financial Group, Inc. (Exhibit 2.2 to Western
Bancorp's Current Report on Form 8-K dated October 21, 1998
incorporated herein by reference)
23.1 Consent of Vavrenik, Trine, Day & Co LLP (Bank of Los Angeles)
99.1 Press Release of Western Bancorp dated October 26, 1998
99.2 Press Release of Western Bancorp dated October 30, 1998
99.3 Unaudited Balance Sheets of Bank of Los Angeles as of June 30, 1998
and the related Statements of Income, Changes in Shareholders Equity
and Cash Flows for the six months ended June 30, 1998 and 1997.
99.4 Audited Balance Sheets of Bank of Los Angeles as of December 31, 1997
and 1996 and the related Statements of Income, Changes in Shareholders
Equity and Cash Flows for each of the three years in the period ended
December 31, 1997.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
Dated: November 6, 1998
WESTERN BANCORP
By: /s/ Arnold C. Hahn
------------------------------------------
Name: Arnold C. Hahn
Title: Executive Vice President and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.3 Agreement and Plan of Merger, dated as of April 16, 1998, and amended
and restated as of June 24, 1998 and July 16, 1998, by and among
Western Bancorp, Santa Monica Bank and Bank of Los Angeles
2.4 Agreement and Plan of Merger, dated as of October 6, 1998, between
Western Bancorp and PNB Financial Group, Inc. (Exhibit 2.2 to Western
Bancorp's Current Report on Form 8-K dated October 21, 1998
incorporated herein by reference)
23.1 Consent of Vavrenik, Trine, Day & Co LLP (Bank of Los Angeles)
99.1 Press Release of Western Bancorp dated October 26, 1998
99.2 Press Release of Western Bancorp dated October 30, 1998
99.3 Unaudited Balance Sheets of Bank of Los Angeles as of June 30, 1998
and the related Statements of Income, Changes in Shareholders Equity
and Cash Flows for the six months ended June 30, 1998 and 1997.
99.4 Audited Balance Sheets of Bank of Los Angeles as of December 31, 1997
and 1996 and the related Statements of Income, Changes in Shareholders
Equity and Cash Flows for each of the three years in the period ended
December 31, 1997.
</TABLE>
15
<PAGE>
Exhibit 2.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 16, 1998
BY AND AMONG
WESTERN BANCORP
SANTA MONICA BANK
AND
BANK OF LOS ANGELES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
RECITALS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
Certain Definitions
1.01 CERTAIN DEFINITIONS................................................................................ 1
ARTICLE II
The Merger
2.01 THE MERGER......................................................................................... 4
2.02 EFFECTIVE DATE AND EFFECTIVE TIME.................................................................. 5
ARTICLE III
Consideration; Exchange Procedures
3.01 MERGER CONSIDERATION............................................................................... 5
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS............................................................ 5
3.03 FRACTIONAL SHARES.................................................................................. 6
3.04 EXCHANGE PROCEDURES................................................................................ 6
3.05 ANTI-DILUTION PROVISIONS........................................................................... 7
3.06 OPTIONS............................................................................................ 7
3.07 WARRANTS........................................................................................... 8
ARTICLE IV
Actions Pending Acquisition
4.01 FOREBEARANCES OF BKLA.............................................................................. 8
4.02 FOREBEARANCES OF WESTERN........................................................................... 10
ARTICLE V
Representations and Warranties
5.01 DISCLOSURE SCHEDULES............................................................................... 10
5.02 STANDARD........................................................................................... 10
5.03 REPRESENTATIONS AND WARRANTIES OF BKLA............................................................. 11
5.04 REPRESENTATIONS AND WARRANTIES OF WESTERN.......................................................... 17
ARTICLE VI
Covenants
6.01 REASONABLE BEST EFFORTS............................................................................ 20
6.02 SHAREHOLDER APPROVAL............................................................................... 20
6.03 REGISTRATION STATEMENT............................................................................. 20
6.04 PRESS RELEASES..................................................................................... 21
6.05 ACCESS; INFORMATION................................................................................ 21
6.06 ACQUISITION PROPOSALS.............................................................................. 22
6.07 AFFILIATE AGREEMENTS............................................................................... 22
6.08 TAKEOVER LAWS...................................................................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
6.09 CERTAIN POLICIES................................................................................... 22
6.10 NASDAQ LISTING..................................................................................... 22
6.11 REGULATORY APPLICATIONS............................................................................ 22
6.12 INDEMNIFICATION; DIRECTOR AND OFFICERS' INSURANCE.................................................. 23
6.13 BENEFIT PLANS...................................................................................... 24
6.14 ACCOUNTANTS' LETTERS............................................................................... 24
6.15 NOTIFICATION OF CERTAIN MATTERS.................................................................... 24
6.16 SHAREHOLDER AGREEMENTS............................................................................. 24
ARTICLE VII
Conditions to Consummation of the Merger
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER......................................... 24
7.02 CONDITIONS TO OBLIGATION OF BKLA................................................................... 25
7.03 CONDITIONS TO OBLIGATION OF WESTERN................................................................ 25
ARTICLE VIII
Termination
8.01 TERMINATION........................................................................................ 26
8.02 EFFECT OF TERMINATION AND ABANDONMENT.............................................................. 27
8.03 TERMINATION FEE.................................................................................... 27
ARTICLE IX
Miscellaneous
9.01 SURVIVAL........................................................................................... 28
9.02 WAIVER; AMENDMENT.................................................................................. 28
9.03 COUNTERPARTS....................................................................................... 28
9.04 GOVERNING LAW; WAIVER OF JURY TRIAL................................................................ 28
9.05 EXPENSES........................................................................................... 28
9.06 NOTICES............................................................................................ 29
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES................................................. 29
9.08 INTERPRETATION; EFFECT............................................................................. 29
EXHIBIT A Form of Affiliate Agreement
EXHIBIT B Form of Shareholder's Agreement
</TABLE>
ii
<PAGE>
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of July
16, 1998 (this "Agreement"), by and among Bank of Los Angeles ("BKLA"), Western
Bancorp ("Western") and Santa Monica Bank.
RECITALS
A. BKLA. BKLA is a California corporation, having its principal place of
business in West Hollywood, California.
B. WESTERN. Western is a California corporation, having its principal
place of business in Newport Beach, California.
C. SANTA MONICA BANK. Santa Monica Bank is a California corporation having
its principal place of business in Santa Monica, California.
D. STOCK OPTION AGREEMENT. Concurrently herewith, BKLA and Western are
entering into a stock option agreement (the "STOCK OPTION AGREEMENT"), to be
dated the date hereof, whereby BKLA will grant to Western the option to purchase
up to 19.9% of the outstanding shares of the BKLA Common Stock upon the
occurrence of certain events.
E. INTENTIONS OF THE PARTIES. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 as
amended (the "CODE").
F. BOARD ACTION. The respective Boards of Directors of each of Western and
BKLA have determined that it is in the best interests of their respective
companies and their stockholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"ACQUISITION PROPOSAL" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving BKLA or any
of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, BKLA or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
"AFFILIATE AGREEMENTS" has the meaning set forth in Section 6.07(b).
"AGREEMENT" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"BENEFIT PLANS" has the meaning set forth in Section 5.03(m).
"BKLA" has the meaning set forth in the preamble to this Agreement.
"BKLA AFFILIATE" has the meaning set forth in Section 6.07(a).
"BKLA ARTICLES" means the Articles of Incorporation of BKLA.
"BKLA BOARD" means the Board of Directors of BKLA.
"BKLA BY-LAWS" means the By-laws of BKLA.
1
<PAGE>
"BKLA COMMON STOCK" means the common stock, no par value per share, of
BKLA.
"BKLA MEETING" has the meaning set forth in Section 6.02.
"BKLA STOCK OPTION" has the meaning set forth in Section 3.06.
"BKLA STOCK PLAN" means BKLA's 1988 Stock Option Plan (as amended).
"BKLA WARRANT" has the meaning set forth in Section 3.07.
"BKLA WARRANT AGREEMENT" has the meaning set forth in Section 3.07.
"BUSINESS COMBINATION" has the meaning set forth in Section 3.05.
"CGCL" means the California General Corporation law.
"CALIFORNIA SECRETARY" means the California Secretary of State.
"CODE" has the meaning set forth in the recitals.
"COMMISSIONER" means the California Commissioner of Financial
Institutions.
"COSTS" has the meaning set forth in Section 6.12(a).
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 5.01.
"EFFECTIVE DATE" means the date on which the Effective Time occurs, as
provided for in Section 2.02.
"EFFECTIVE TIME" means the effective time of the Merger, as provided for
in Section 2.02.
"EMPLOYEES" has the meaning set forth in Section 5.03(m).
"ENVIRONMENTAL LAW" has the meaning set forth in Section 5.03(o).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" has the meaning set forth in Section 5.03(m).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 3.04.
"EXCHANGE FUND" has the meaning set forth in Section 3.04.
"EXCHANGE RATIO" has the meaning set forth in Section 3.01(a).
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE" means the Board of Governors of the Federal Reserve
System.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality, or any Regulatory Authority.
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 5.03(o).
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.12(a).
"INSURANCE POLICY" has the meaning set forth in Section 5.03(s).
"LIENS" means any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance.
"LOAN PROPERTY" has the meaning set forth in Subsection 5.03(o).
2
<PAGE>
"MATERIAL ADVERSE EFFECT" means, with respect to Western or BKLA, any
effect that (i) is material and adverse to the financial position, results
of operations or business of Western and its Subsidiaries taken as a whole
or BKLA and its Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Western or BKLA to perform its
obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that Material Adverse
Effect shall not be deemed to include the impact of (a) changes in banking
and similar laws of general applicability or interpretations thereof by
courts or governmental authorities, (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to
banks and their holding companies generally and (c) any modifications or
changes to valuation policies and practices in connection with the Merger or
restructuring charges taken in connection with the Merger, in each case in
accordance with generally accepted accounting principles.
"MAXIMUM AMOUNT" has the meaning set forth in Section 6.12(c).
"MERGER" has the meaning set forth in Section 2.01.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.01.
"MULTIEMPLOYER PLANS" has the meaning set forth in Section 5.03(m).
"NASDAQ" means The Nasdaq Stock Market, Inc.'s National Market.
"NEW CERTIFICATE" has the meaning set forth in Section 3.04.
"OLD CERTIFICATE" has the meaning set forth in Section 3.04.
"PERSON" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"PENSION PLAN" has the meaning set forth in Section 5.03(m).
"PLANS" has the meaning set forth in Section 5.03(m).
"PREVIOUSLY DISCLOSED" by a party shall mean information set forth in
its Disclosure Schedule.
"PROXY STATEMENT" has the meaning set forth in Section 6.03.
"REGISTRATION STATEMENT" has the meaning set forth in Section 6.03.
"REGULATORY AUTHORITY" has the meaning set forth in Section 5.03(i).
"REGULATORY DOCUMENTS" means documents filed with the SEC or the FDIC,
as applicable, of the types referred to in Section 5.03(g) and Section
5.04(f).
"REPLACEMENT WARRANT" has the meaning set forth in Section 3.07.
"REPRESENTATIVES" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"RIGHTS" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and rules
and regulations thereunder.
3
<PAGE>
"SHAREHOLDER AGREEMENTS" has the meaning set forth in Section 6.16.
"STOCK OPTION AGREEMENT" has the meaning set forth in the Recitals.
"SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01.
"TAKEOVER LAWS" means any "moratorium", "control share", "fair price",
"affiliate transaction", "business combination" or other antitakeover laws
and regulations of the state of California.
"TAX" and "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, custom
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
"TAX RETURNS" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"TREASURY STOCK" shall mean shares of BKLA Common Stock held by any of
BKLA's Subsidiaries or by Western or any of its Subsidiaries, in each case
other than in a fiduciary (including custodial or agency) capacity or as a
result of debts previously contracted in good faith.
"WESTERN" has the meaning set forth in the preamble to this Agreement.
"WESTERN BOARD" means the Board of Directors of Western.
"WESTERN COMMON STOCK" means the common stock, no par value per share,
of Western.
"WESTERN PREFERRED STOCK" means the preferred, no par or stated value
per share, of Western.
ARTICLE II
THE MERGER
2.01 THE MERGER. (a) At the Effective Time, BKLA shall merge with and into
Santa Monica Bank (the "Merger"), the separate corporate existence of BKLA shall
cease and Santa Monica Bank shall survive and continue to exist as a California
corporation (Santa Monica Bank, as the surviving corporation in the Merger,
sometimes being referred to herein as the "SURVIVING CORPORATION"). Western may
at any time prior to the Effective Time change the method of effecting the
combination with BKLA (including, without limitation, the provisions of this
Article II) if and to the extent it deems such change to be necessary,
appropriate or desirable; PROVIDED, HOWEVER, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of BKLA
Common Stock as provided for in this Agreement (the "MERGER CONSIDERATION"),
(ii) cause the transaction to be treated as anything other than a tax-free
reorganization to the shareholders of BKLA or (iii) materially impede or delay
consummation of the transactions contemplated by this Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the filing
in the office of the Commissioner in accordance with the California Financial
Code after the filing with the California Secretary of an agreement of merger in
accordance with the CGCL or such later date and time as may be set forth in such
agreement. The Merger shall have the effects prescribed in the CGCL.
4
<PAGE>
(c) ARTICLES OF INCORPORATION AND BY-LAWS. The articles of incorporation and
by-laws of Santa Monica Bank immediately after the Merger shall be those of
Santa Monica Bank as in effect immediately prior to the Effective Time.
(d) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors and
officers of Santa Monica Bank immediately after the Merger shall be the
directors and officers of Santa Monica Bank immediately prior to the Effective
Time, until such time as their successors shall be duly elected and qualified.
(e) DIRECTORS AND OFFICERS OF WESTERN. The directors and officers of Western
immediately after the Merger shall be the directors and officers of Western
immediately prior to the Effective Time, until such time as their successors
shall be duly elected and qualified. Notwithstanding the foregoing, at the
Effective Time a director of BKLA's election to be mutually agreed upon prior to
the date of the initial filing of any application with a Regulatory Authority
shall be appointed to the board of directors of Western.
2.02 EFFECTIVE DATE AND EFFECTIVE TIME. On such date as Western selects
(and promptly provides notice thereof to BKLA), which shall be within ten days
after the last to occur of the expiration of all applicable waiting periods in
connection with approvals of governmental authorities and the receipt of all
approvals of governmental authorities and all conditions to the consummation of
the Merger are satisfied or waived (or, at the election of Western, on the last
business day of the month in which such tenth day occurs or, if such tenth day
occurs on one of the last five business days of such month, on the last business
day of the succeeding month), or on such earlier or later date as may be agreed
in writing by the parties, an agreement of merger shall be executed in
accordance with all appropriate legal requirements and shall be filed as
required by law, and the Merger provided for herein shall become effective upon
such filing or on such date as may be specified in such agreement of merger. The
date of such filing or such later effective date is herein called the "EFFECTIVE
DATE." The "EFFECTIVE TIME" of the Merger shall be the time of such filing or as
set forth in such agreement of merger.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) OUTSTANDING BKLA COMMON STOCK. Each share, excluding Treasury Stock,
of BKLA Common Stock issued and outstanding immediately prior to the
Effective Time shall become and be converted into 0.4224 of a share of
Western Common Stock (the "EXCHANGE RATIO"). The Exchange Ratio shall be
subject to adjustment as set forth in Section 3.05.
(b) OUTSTANDING WESTERN COMMON STOCK. Each share of Western Common Stock
and each share of Santa Monica Bank Common Stock, in each case as issued and
outstanding immediately prior to the Effective Time, shall remain issued and
outstanding and unaffected by the Merger.
(c) TREASURY SHARES. Each share of BKLA Common Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
(d) DISSENTING SHAREHOLDERS. Any shares of BKLA Common Stock held by
persons who have satisfied the requirements of Chapter 13 of the California
General Corporation Law ("Chapter 13"), and have not effectively withdrawn
or lost their dissenters' rights under Section 1309 of the California
General Corporation Law, shall not be converted pursuant to Section 3.01(a),
but the holders thereof shall be entitled only to such consideration
determined pursuant to Chapter 13.
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of BKLA Common Stock shall cease to be, and shall have no rights as,
shareholders of BKLA (except as provided for in Section 3.01(d)), other than to
receive any dividend or other distribution with respect to such BKLA
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Common Stock with a record date occurring prior to the Effective Time and the
consideration provided under this Article III. After the Effective Time, there
shall be no transfers on the stock transfer books of BKLA or the Surviving
Corporation of shares of BKLA Common Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Western Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Western shall pay to each holder of BKLA Common Stock who would otherwise be
entitled to a fractional share of Western Common Stock (after taking into
account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
closing prices of Western Common Stock, as reported on NASDAQ (as reported in
THE WALL STREET JOURNAL or, if not reported therein, in another authoritative
source), for the five NASDAQ trading days immediately preceding the Effective
Date.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, Western
shall deposit, or shall cause to be deposited, with U.S. Stock Transfer or with
such other unaffiliated exchange agent as Western shall reasonably elect (in
such capacity, the "EXCHANGE AGENT"), for the benefit of the holders of
certificates formerly representing shares of BKLA Common Stock ("OLD
CERTIFICATES"), for exchange in accordance with this Article III, certificates
representing the shares of Western Common Stock ("NEW CERTIFICATES") and an
estimated amount of cash (such cash and New Certificates, together with any
dividends or distributions with a record date occurring after the Effective Date
with respect to the New Certificates (without any interest on any such cash,
dividends or distributions), being hereinafter referred to as the "EXCHANGE
FUND") to be paid pursuant to this Article III in exchange for outstanding
shares of BKLA Common Stock.
(b) As soon as practicable, but no later than five (5) business days after
the Effective Date, Western shall send or cause to be sent to each former holder
of record of shares of BKLA Common Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's Old Certificates
for the consideration set forth in this Article III. Western shall cause the New
Certificates into which shares of a shareholder's BKLA Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be delivered to such shareholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of BKLA Common Stock
(or an affidavit of lost certificate and, if required by the Exchange Agent,
indemnity reasonably satisfactory to Western and the Exchange Agent, if any of
such certificates are lost, stolen or destroyed) owned by such shareholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery. In
the event of a transfer of ownership of any shares of BKLA Common Stock not
registered in the transfer records of BKLA, the exchange described in this
Section 3.04(b) may nonetheless be effected and a check for the cash to be paid
in lieu of fractional shares may be issued to the transferee if the Old
Certificate representing such BKLA Common Stock is presented to the Exchange
Agent, accompanied by documents sufficient, in the discretion of Western and the
Exchange Agent, (i) to evidence and effect such transfer but for the provisions
of Section 3.02 hereof and (ii) to evidence that all applicable stock transfer
taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration therefor is
not claimed prior to the date on which such consideration would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed consideration shall, to the extent permitted by abandoned property and
any other applicable law, become the property of the Surviving Corporation (and
to the extent not in its possession shall be paid over to the Surviving
Corporation), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of BKLA Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
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(d) At the election of Western, no dividends or other distributions with
respect to Western Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of BKLA Common Stock converted in the Merger into the right
to receive shares of such Western Common Stock until the holder thereof shall be
entitled to receive New Certificates in exchange therefor in accordance with the
procedures set forth in this Section 3.04, and no such shares of BKLA Common
Stock shall be eligible to vote until the holder of Old Certificates is entitled
to receive New Certificates in accordance with the procedures set forth in this
Section 3.04. After becoming so entitled in accordance with this Section 3.04,
the record holder thereof also shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of Western Common Stock such holder had
the right to receive upon surrender of the Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of BKLA for six months after the Effective Time shall be returned
by the Exchange Agent to Western at the election of Western. Any shareholders of
BKLA who have not theretofore complied with this Article III shall thereafter
look only to Western for payment of the shares of Western Common Stock, cash in
lieu of any fractional shares and unpaid dividends and distributions on Western
Common Stock deliverable in respect of each share of BKLA Common Stock such
shareholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
3.05 ANTI-DILUTION PROVISIONS. In the event Western changes (or
establishes a record date for changing) the number of shares of Western Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Western Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted. If,
between the date hereof and the Effective Time, Western shall consolidate with
or into any other corporation (a "BUSINESS COMBINATION") and the terms thereof
shall provide that Western Common Stock shall be converted into or exchanged for
the shares of any other corporation or entity, then provision shall be made as
part of the terms of such Business Combination so that (i) shareholders of BKLA
who would be entitled to receive shares of Western Common Stock pursuant to this
Agreement shall be entitled to receive, in lieu of each share of Western Common
Stock issuable to such shareholders as provided herein, the same kind and amount
of securities or assets as shall be distributable upon such Business Combination
with respect to one share of Western Common Stock.
3.06 OPTIONS. At the Effective Time, all outstanding options to purchase
shares of BKLA Common Stock under the BKLA Stock Plan (each, a "BKLA STOCK
OPTION"), unless otherwise exercised pursuant to Section 10 of the BKLA Stock
Plan, shall be converted into the right to receive for each share of BKLA Common
Stock otherwise issuable upon exercise thereof a number of shares of Western
Common Stock equal to the quotient obtained by dividing the Spread by $42.61
("Replacement Shares"). As used herein, "Spread" means the difference, if
positive, obtained by subtracting the exercise price of such BKLA Stock Option
from $18.00. After accumulating all such Replacement Shares issuable to any
holder of BKLA Stock Options, any fractional Replacement Shares issuable to any
holder of BKLA Stock Options of .2 or above shall be rounded upwards. Each
person who is a BKLA Affiliate as described in Section 6.07 hereby consents that
the Replacement Shares and/or Western Common Stock to be received by such person
on exercise of such persons BKLA Stock Option (collectively, the "Escrow
Shares"), as applicable, shall be placed, at Western's sole discretion, in an
escrow account until such time as the sale of such shares shall be permitted
pursuant to the Affiliate Agreement and applicable securities laws, at which
time the appropriate number of shares of Western Common Stock necessary to
satisfy any withholding tax obligation shall be sold, unless provided for
otherwise by such BKLA Affiliate, and applied to payment of such obligation,
with the balance of the shares of Western Common Stock of such BKLA Affiliate
transferred promptly to such BKLA Affiliate. Notwithstanding the foregoing, each
BKLA Affiliate shall have any and all rights to any dividends and voting rights
applicable to such BKLA Affiliate's Escrow Shares.
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3.07 WARRANTS. At the Effective Time, each outstanding warrant to purchase
shares of BKLA Common Stock under the BKLA Warrant Agreement (each, a "BKLA
WARRANT"), shall be converted into a warrant to acquire, on the same terms and
conditions as were applicable under such BKLA Warrant Agreement, the number of
shares of Western Common Stock equal to (a) the number of shares of BKLA Common
Stock subject to the BKLA Warrant, multiplied by (b) the Exchange Ratio (such
product rounded down to the nearest whole number) (a "REPLACEMENT WARRANT"), at
an exercise price per share (rounded up to the nearest whole cent) equal to (y)
the aggregate exercise price for the shares of BKLA Common Stock which were
purchasable pursuant to such BKLA Warrant divided by (z) the number of full
shares of Western Common Stock subject to such Replacement Warrant in accordance
with the foregoing. At or prior to the Effective Time, BKLA shall take all
action, if any, necessary with respect to the BKLA Warrant Agreement to permit
the replacement of the outstanding BKLA Warrants by Western pursuant to this
Section 3.07. At the Effective Time, Western shall assume the BKLA Warrant
Agreement; PROVIDED, that such assumption shall be only in respect of the
Replacement Warrants and that Western shall have no obligation with respect to
any awards under the BKLA Warrant Agreement other than the Replacement Warrants
and shall have no obligation to make any additional grants or awards under such
assumed BKLA Warrant Agreement.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FOREBEARANCES OF BKLA. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of Western, BKLA will not, and will cause each of its Subsidiaries not
to:
(a) ORDINARY COURSE. Conduct the business of BKLA and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable best
efforts to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, take any action that would
adversely affect or delay the ability of BKLA, Western or any of their
Subsidiaries to perform any of their obligations on a timely basis under
this Agreement, or take any action that is reasonably likely to have a
Material Adverse Effect on BKLA or its Subsidiaries, taken as a whole.
(b) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
BKLA Common Stock or any Rights or issue any shares of preferred stock, (ii)
enter into any agreement with respect to the foregoing or (iii) permit any
additional shares of BKLA Common Stock to become subject to new grants of
employee or director stock options, other Rights or similar stock-based
employee rights.
(c) DIVIDENDS, ETC. (a) Make, declare, pay or set aside for payment
any dividend on or in respect of, or declare or make any distribution on any
shares of BKLA Common Stock or (b) directly or indirectly adjust, split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of
its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of BKLA or its
Subsidiaries, or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are
required by applicable law, (iii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof or (iv) for grants of
awards to newly hired employees consistent with past practice.
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(e) BENEFIT PLANS. Enter into, establish, adopt or amend (except (i)
as may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any director,
officer or employee of BKLA or its Subsidiaries, or take any action to
accelerate the vesting or exercisability of stock options, restricted stock
or other compensation or benefits payable thereunder.
(f) DISPOSITIONS. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business
and in a transaction that is not material to it and its Subsidiaries taken
as a whole.
(g) ACQUISITIONS. Except as Previously Disclosed, acquire (other than
by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or
properties of any other entity except in the ordinary course of business
consistent with past practice and in a transaction that is not material to
the BKLA and its Subsidiaries, taken as a whole.
(h) CAPITAL EXPENDITURES. Except as Previously Disclosed, make any
capital expenditures other than capital expenditures in the ordinary course
of business consistent with past practice in amounts not exceeding $10,000
individually or $50,000 in the aggregate.
(i) GOVERNING DOCUMENTS. Amend the BKLA Articles, BKLA By-Laws or the
articles of incorporation or by-laws (or similar governing documents) of any
of BKLA's Subsidiaries.
(j) ACCOUNTING METHODS. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(k) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract (as
defined in Section 5.03(k)) or amend or modify in any material respect any
of its existing material contracts.
(l) CLAIMS. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding involving solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not
material to BKLA and its Subsidiaries, taken as a whole.
(m) ADVERSE ACTIONS. (a) Take any action which BKLA either knows or
reasonably should know that such action would, or would be reasonably likely
to, prevent or impede the Merger from qualifying (i) for "pooling of
interests" accounting treatment or (ii) as a reorganization within the
meaning of Section 368 of the Code; or (b) knowingly take any action that is
intended or is reasonably likely to result in (i) any of its representations
and warranties set forth in this Agreement being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (ii) any of
the conditions to the Merger set forth in Article VII not being satisfied or
(iii) a violation of any provision of this Agreement except, in each case,
as may be required by applicable law or regulation.
(n) RISK MANAGEMENT. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate
and other risk management policies, procedures or practices; (ii) fail to
follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure to
interest rate risk.
(o) INDEBTEDNESS. Incur any indebtedness for borrowed money other than
in the ordinary course of business consistent with past practice.
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(p) LOANS. Make any loan, loan commitment or renewal or extension
thereof to any person which would, when aggregated with all outstanding
loans, commitments for loans or renewals or extensions thereof made by BKLA
to such person and any affiliate or immediate family member of such person,
exceed $500,000 without submitting loan package information to the chief
credit officer of Western for review with a right of comment at least one
full business day prior to taking such action.
(q) COMMITMENTS. Agree or commit to do any of the foregoing.
4.02 FOREBEARANCES OF WESTERN. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of BKLA, Western will not, and will cause each of its
Subsidiaries not to:
(a) ORDINARY COURSE. Take any action that would adversely affect or
delay the ability of BKLA or Western to perform any of their obligations on
a timely basis under this Agreement, or take any action that is reasonably
likely to have a Material Adverse Effect on Western or its Subsidiaries,
taken as a whole.
(b) ADVERSE ACTIONS. (i) Take any action which Western either knows or
reasonably should know that such action would, or would be reasonably likely
to, prevent or impede the Merger from qualifying (A) for "pooling of
interests" accounting treatment or (B) as a reorganization within the
meaning of Section 368 of the Code; or (ii) knowingly take any action that
is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective
Time, (B) any of the conditions to the Merger set forth in Article VII not
being satisfied or (C) a violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, each of BKLA
and Western has delivered to the other a schedule (a "DISCLOSURE SCHEDULE")
setting forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof, or items which are an exception to one or more
representations or warranties contained in Section 5.03 or Section 5.04;
PROVIDED, that (a) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by Section 5.02,
and (b) the mere inclusion of an item in a Disclosure Schedule as an exception
to a representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or fact, event or circumstance or that
such item is reasonably likely to result in a Material Adverse Effect.
5.02 STANDARD. No representation or warranty of BKLA, Western or Santa
Monica Bank contained in Section 5.03 or 5.04 shall be deemed untrue or
incorrect, and no party hereto shall be deemed to have breached a representation
or warranty, as a consequence of the existence of any fact, event or
circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Section 5.03 or 5.04 has had or is
reasonably likely to have a Material Adverse Effect on the party making such
representation or warranty.
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5.03 REPRESENTATIONS AND WARRANTIES OF BKLA. Subject to Sections 5.01 and
5.02 and except as Previously Disclosed in its Disclosure Schedule corresponding
to the relevant paragraph below, BKLA hereby represents and warrants to Western:
(a) ORGANIZATION, STANDING AND AUTHORITY. BKLA is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. BKLA is duly qualified to do business and is in good standing
in the State of California and any foreign jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it
to be so qualified. BKLA is duly licensed by the Commissioner as a
commercial bank and its deposits are insured by the FDIC through the Bank
Insurance Fund in the manner and to the fullest extent provided by law.
(b) BKLA CAPITAL STOCK. As of the date hereof, the authorized capital
stock of BKLA consists solely of (i) 75,000,000 shares of BKLA Common Stock,
of which no more than 4,762,100 shares were outstanding as of the date
hereof and (ii) 25,000,000 shares of preferred stock, of which no shares
were outstanding as of the date hereof. As of the date hereof, no shares of
BKLA Common Stock were held in treasury by BKLA or otherwise owned by BKLA
or its Subsidiaries. The outstanding shares of BKLA Common Stock have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof, there are no
shares of BKLA Common Stock authorized and reserved for issuance, BKLA does
not have any Rights issued or outstanding with respect to BKLA Common Stock,
and BKLA does not have any commitment to authorize, issue or sell any BKLA
Common Stock or Rights, except pursuant to this Agreement, any BKLA Stock
Option, the BKLA Stock Plan, any BKLA Warrant and the BKLA Warrant
Agreement. The number of shares of BKLA Common Stock which are issuable and
reserved for issuance upon exercise of BKLA Stock Options as of the date
hereof are Previously Disclosed in BKLA's Disclosure Schedule. The number of
shares of BKLA Common Stock which are issuable and reserved for issuance
upon exercise of BKLA Warrants as of the date hereof are Previously
Disclosed in BKLA's Disclosure Schedule.
(c) SUBSIDIARIES. (i)(A) BKLA has Previously Disclosed a list of all
of its Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) BKLA owns, directly or indirectly, all the issued and
outstanding equity securities of each of its Subsidiaries, (C) no equity
securities of any of its Subsidiaries are or may become required to be
issued (other than to it or its wholly-owned Subsidiaries) by reason of any
Right or otherwise, (D) there are no contracts, commitments, understandings
or arrangements by which any of such Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such Subsidiaries (other
than to it or its wholly-owned Subsidiaries), (E) there are no contracts,
commitments, understandings, or arrangements relating to its rights to vote
or to dispose of such securities and (F) all the equity securities of each
Subsidiary held by BKLA or its Subsidiaries are fully paid and nonassessable
and are owned by BKLA or its Subsidiaries free and clear of any Liens.
(ii) BKLA does not own beneficially, directly or indirectly, any equity
securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of BKLA's Subsidiaries has been duly organized and is validly
existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified.
(d) CORPORATE POWER. BKLA and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and BKLA has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby.
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(e) CORPORATE AUTHORITY. Subject in the case of this Agreement to
receipt of the requisite approval of the principal terms of the agreement of
merger set forth in this Agreement by the holders of a majority of the
outstanding shares of BKLA Common Stock entitled to vote thereon (which is
the only shareholder vote required thereon), this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby have
been authorized by all necessary corporate action of BKLA and the BKLA Board
on or prior to the date hereof. This Agreement is a valid and legally
binding obligation of BKLA, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles). The BKLA Board has received the written opinion of
Wedbush Morgan Securities to the effect that as of the date hereof the
consideration to be received by the holders of BKLA Common Stock in the
Merger is fair to the holders of BKLA Common Stock from a financial point of
view.
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by BKLA or any of its
Subsidiaries in connection with the execution, delivery or performance by
BKLA of this Agreement, the Stock Option Agreement, the BKLA Warrant
Agreement, or to consummate the Merger except for (A) filings of
applications or notices with the Commissioner, the FDIC and the Federal
Reserve, as required, (B) filings with the SEC and state securities
authorities and the approval of this Agreement by the shareholders of BKLA,
(C) the filing of an agreement of merger with the California Secretary
pursuant to the CGCL and with the Commissioner pursuant to the California
Financial Code. As of the date hereof, BKLA is not aware of any reason why
the approvals set forth in Section 7.01(b) will not be received without the
imposition of a condition, restriction or requirement of the type described
in Section 7.01(b).
(ii) Subject to receipt of the approvals referred to in the preceding
paragraph, and the expiration of related waiting periods, and required
filings under federal and state securities laws, the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby do not and
will not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument
of BKLA or of any of its Subsidiaries or to which BKLA or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the BKLA Articles or the BKLA By-Laws, or
(C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
(g) FINANCIAL REPORTS AND REGULATORY DOCUMENTS. (i) BKLA's (or its
predecessors') Annual Reports on Form 10-K for the fiscal years ended
December 31, 1995, 1996 and 1997, and all other reports, registration
statements, definitive proxy statements or information statements filed or
to be filed by it or any of its Subsidiaries subsequent to December 31, 1995
under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act or under the securities regulations of the FDIC, in the form
filed or to be filed (collectively, BKLA's "REGULATORY DOCUMENTS") with the
FDIC as of the date filed, (A) complied or will comply in all material
respects as to form with the applicable requirements under the Securities
Act, the Exchange Act or the securities regulations of the FDIC, as the case
may be, and (B) did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such
Regulatory Document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of BKLA and
its Subsidiaries as of its date, and each of the statements of income and
changes in shareholders' equity and cash flows or equivalent statements in
such Regulatory Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the results of
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operations, changes in shareholders' equity and cash flows, as the case may
be, of BKLA and its Subsidiaries for the periods to which they relate, in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may
be noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements.
(ii) Since December 31, 1997, BKLA and its Subsidiaries have not
incurred any liability other than in the ordinary course of business
consistent with past practice.
(iii) Since December 31, 1997, (A) BKLA and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related
to this Agreement and the transactions contemplated hereby) and (B) no event
has occurred or circumstance arisen that, individually or taken together
with all other facts, circumstances and events (described in any paragraph
of this Section 5.03 or otherwise), is reasonably likely to have a Material
Adverse Effect with respect to BKLA.
(h) LITIGATION. No litigation, claim or other proceeding before any
court or governmental agency is pending against BKLA or any of its
Subsidiaries and, to BKLA's knowledge, no such litigation, claim or other
proceeding has been threatened and there are no facts which could reasonably
give rise to such litigation, claim or other proceeding.
(i) REGULATORY MATTERS. (i) Neither BKLA nor any of its Subsidiaries
or any of their properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory
letter from, any federal or state governmental agency or authority charged
with the supervision or regulation of financial institutions or issuers of
securities or engaged in the insurance of deposits (including, without
limitation, the Commissioner and the FDIC) or the supervision or regulation
of it or any of its Subsidiaries (collectively, the "REGULATORY
AUTHORITIES").
(ii) Neither BKLA nor any of its Subsidiaries has been advised by, nor
has any knowledge of facts which could give rise to an advisory notice by,
any Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(j) COMPLIANCE WITH LAWS. BKLA and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to BKLA's knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that BKLA or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit or governmental
authorization (nor, to BKLA's knowledge, do any grounds for any of the
foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Except for those agreements and
other documents filed as exhibits to its Regulatory Documents, neither it
nor any of its Subsidiaries is a party to, bound by or
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subject to any agreement, contract, arrangement, commitment or understanding
(whether written or oral) (i) that is a "material contract" within the
meaning of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that
materially restricts the conduct of business by it or any of its
Subsidiaries. Neither BKLA nor any of its Subsidiaries is in default under
any contract, agreement, commitment, arrangement, lease, insurance policy or
other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or its
respective assets, business, or operations receives benefits, and there has
not occurred any event that, with the lapse of time or the giving of notice
or both, would constitute such a default.
(l) NO BROKERS. No action has been taken by BKLA that would give rise
to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding Previously Disclosed fees to be
paid to Wedbush Morgan Securities and GBS Financial.
(m) EMPLOYEE BENEFIT PLANS.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of BKLA and its
subsidiaries (the "EMPLOYEES") and current or former directors of BKLA,
including, but not limited to, "employee benefit plans" within the meaning
of Section 3(3) of ERISA, and deferred compensation, stock option, stock
purchase, stock appreciation rights, stock based, incentive and bonus plans
(the "BENEFIT PLANS"), are Previously Disclosed in the Disclosure Schedule.
True and complete copies of all Benefit Plans, including, but not limited
to, any trust instruments and insurance contracts forming a part of any
Benefit Plans, and all amendments thereto have been provided or made
available to BKLA.
(ii) All employee benefit plans, other than "multiemployer plans" within
the meaning of Section 3(37) of ERISA, covering Employees (the "PLANS"), to
the extent subject to ERISA, are in substantial compliance with ERISA. BKLA
is not a party to any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("PENSION PLAN") and which is intended to be qualified
under Section 401(a) of the Code. There is no material pending or threatened
litigation relating to the Plans. Neither BKLA nor any of its Subsidiaries
has engaged in a transaction with respect to any Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
subject BKLA or any Subsidiary to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been or
is expected to be incurred by BKLA or any of its Subsidiaries with respect
to any ongoing, frozen or terminated "single-employer plan", within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any of them, or the single-employer plan of any entity which is considered
one employer with BKLA under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA AFFILIATE"). Neither BKLA, any of its Subsidiaries nor an
ERISA Affiliate has contributed to a "multiemployer plan", within the
meaning of Section 3(37) of ERISA, at any time on or after September 26,
1980. No notice of a "reportable event," within the meaning of Section 4043
of ERISA for which the 30-day reporting requirement has not been waived, has
been required to be filed for any Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof or will be required to
be filed in connection with the transactions contemplated by this Plan.
(iv) All contributions required to be made under the terms of any Plan
have been timely made or have been reflected on the consolidated financial
statements of BKLA included in the Regulatory Documents. Neither any Pension
Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section
412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an
outstanding funding waiver. Neither BKLA nor any of its Subsidiaries has
provided, or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
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(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities," within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such
Plan, and there has been no material change in the financial condition of
such Plan since the last day of the most recent plan year.
(vi) Neither BKLA nor any of its Subsidiaries has any obligations for
retiree health and life benefits under any Benefit Plan. BKLA or its
Subsidiaries may amend or terminate any such Benefit Plan at any time
without incurring any liability thereunder.
(vii) The consummation of the transactions contemplated by this Agreement
will not (A) entitle any employees of BKLA or any of its Subsidiaries to
severance pay, (B) accelerate the time of payment or vesting or trigger any
payment of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Benefit Plans
or (C) result in any breach or violation of, or a default under, any of the
Benefit Plans. Without limiting the foregoing, as a result of the
consummation of the transactions contemplated by this Agreement, none of
Western, BKLA, or any of its Subsidiaries will be obligated to make a
payment to an individual that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(n) LABOR MATTERS. Neither BKLA 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
BKLA or any of its Subsidiaries the subject of a proceeding asserting that
it or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel BKLA or
any such Subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its Subsidiaries pending or, to BKLA's knowledge,
threatened, nor is BKLA aware of any activity involving its or any of its
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(o) ENVIRONMENTAL MATTERS.
(i) BKLA and each of its Subsidiaries has complied at all times with
applicable Environmental Laws; (ii) no real property (including buildings or
other structures) currently or formerly owned or operated by BKLA or any of
its Subsidiaries, or any property in which BKLA or any of its Subsidiaries
has held a security interest, lien or a fiduciary or management role ("LOAN
PROPERTY"), has been contaminated with, or has had any release of, any
Hazardous Substance; (iii) neither BKLA nor any of its Subsidiaries could be
deemed the owner or operator of any Loan Property under any Environmental
Law which such Loan Property has been contaminated with, or has had any
release of, any Hazardous Substance; (iv) neither BKLA nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither BKLA nor any of its
Subsidiaries has received any notice, demand letter, claim or request for
information alleging any violation of, or liability under, any Environmental
Law; (vi) neither BKLA nor any of its Subsidiaries is subject to any order,
decree, injunction or other agreement with any Governmental Authority or any
third party relating to any Environmental Law; (vii) to the best of BKLA's
knowledge, there are no circumstances or conditions (including the presence
of asbestos, underground storage tanks, lead products, polychlorinated
biphenyls, prior manufacturing operations, dry-cleaning, or automotive
services) involving BKLA or any of its Subsidiaries, any currently or
formerly owned or operated property, or any Loan Property, that could
reasonably be expected to result in any claims, liability or investigations
against BKLA or any of its Subsidiaries, result in any restrictions on the
ownership, use, or transfer of any property pursuant to any Environmental
Law, or adversely affect the value of any Loan Property, and (viii) BKLA has
delivered to Western copies of all environmental
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reports, studies, sampling data, correspondence, filings and other
environmental information in its possession or reasonably available to it
relating to BKLA, any Subsidiary of BKLA, any currently or formerly owned or
operated property or any Loan Property.
As used herein, the term "ENVIRONMENTAL LAW" means any federal, state or
local law, regulation, order, decree, permit, authorization, opinion, common
law or agency requirement relating to: (A) the protection or restoration of
the environment, health, safety, or natural resources, (B) the handling,
use, presence, disposal, release or threatened release of any Hazardous
Substance or (C) noise, odor, wetlands, indoor air, pollution, contamination
or any injury or threat of injury to persons or property in connection with
any Hazardous Substance and the term "HAZARDOUS SUBSTANCE" means any
substance in any concentration that is: (A) listed, classified or regulated
pursuant to any Environmental Law; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance which is or may be the subject of regulatory action by any
Governmental Authority in connection with any Environmental Law.
(p) TAX MATTERS. (i) (A) All Tax Returns that are required to be filed
(taking into account any extensions of time within which to file) by or with
respect to BKLA and its Subsidiaries have been duly filed, (B) all Taxes
shown to be due on the Tax Returns referred to in clause (A) have been paid
in full, (C) the Tax Returns referred to in clause (A) have been examined by
the Internal Revenue Service or the appropriate Tax authority or the period
for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (D) all deficiencies asserted or
assessments made as a result of such examinations have been paid in full,
(E) no issues that have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns referred to in
clause (A) are currently pending, and (F) no waivers of statutes of
limitation have been given by or requested with respect to any Taxes of BKLA
or its Subsidiaries. BKLA has made available to Western true and correct
copies of the United States federal income Tax Returns filed by BKLA and its
Subsidiaries for each of the three most recent fiscal years ended on or
before December 31, 1996. Neither BKLA nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes that accrued on
or before the end of the most recent period covered by BKLA's Regulatory
Documents filed prior to the date hereof in excess of the amounts accrued
with respect thereto that are reflected in the financial statements included
in BKLA's Regulatory Documents filed on or prior to the date hereof. Neither
BKLA nor any of its Subsidiaries is a party to any Tax allocation or sharing
agreement, is or has been a member of an affiliated group filing
consolidated or combined Tax returns (other than a group the common parent
of which is or was BKLA) or otherwise has any liability for the Taxes of any
person (other than BKLA and its Subsidiaries). As of the date hereof,
neither BKLA nor any of its Subsidiaries has any reason to believe that any
conditions exist that might prevent or impede the Merger from qualifying as
a reorganization within the meaning of Section 368 of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this Agreement.
(q) RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for BKLA's own account,
or for the account of one or more of BKLA's Subsidiaries or their customers
(all of which are listed on BKLA's Disclosure Schedule), if any, were
entered into (i) in accordance with prudent business practices and all
applicable laws, rules, regulations and regulatory policies and (ii) with
counter parties believed to be financially responsible; and each of them
constitutes the valid and legally binding obligation of BKLA or one of its
Subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and are in full force and effect. Neither BKLA nor its
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Subsidiaries, nor to BKLA's knowledge, any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement.
(r) BOOKS AND RECORDS. The books and records of BKLA and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of BKLA and its Subsidiaries.
(s) INSURANCE. BKLA has Previously Disclosed all of the insurance
policies, binders, or bonds maintained by BKLA or its Subsidiaries
("INSURANCE POLICIES"). BKLA and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of BKLA
reasonably has determined to be prudent in accordance with industry
practices. All the Insurance Policies are in full force and effect; BKLA and
its Subsidiaries are not in material default thereunder; and all claims
thereunder have been filed in due and timely fashion.
(t) ACCOUNTING TREATMENT. As of the date hereof, BKLA is not aware of
any reason with respect to it why the Merger will fail to qualify for
"pooling of interests" accounting treatment.
5.04 REPRESENTATIONS AND WARRANTIES OF WESTERN. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in its Disclosure Schedule
corresponding to the relevant paragraph below, Western hereby represents and
warrants to BKLA:
(a) ORGANIZATION, STANDING AND AUTHORITY. Each of Western and Santa
Monica Bank is duly organized, validly existing and in good standing under
the laws of the State of California. Each of Western and Santa Monica Bank
is duly qualified to do business and is in good standing in the states of
the United States and foreign jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be so
qualified. Western and Santa Monica Bank have in effect all federal, state,
local, and foreign governmental authorizations necessary for them to own or
lease their respective properties and assets and to carry on their
respective business as it is now conducted.
(b) WESTERN CAPITAL STOCK. As of the date hereof, the authorized
capital stock of Western consists solely of 100,000,000 shares of Western
Common Stock, of which no more than 15,704,000 shares were outstanding as of
the date hereof and 5,000,000 shares of Western Preferred Stock, of which no
shares were outstanding as of the date hereof.
(c) SANTA MONICA BANK CAPITAL STOCK. As of the date hereof, the
authorized capital stock of Santa Monica Bank consists solely of 50,000,000
shares of Santa Monica Bank common stock, of which one share was outstanding
as of the date hereof.
(d) CORPORATE POWER. Western and each of its Significant Subsidiaries
has the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and each of
Western and Santa Monica Bank has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
(e) CORPORATE AUTHORITY. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action
of each of Western and Santa Monica Bank and their respective board of
directors. This Agreement is a valid and legally binding agreement of each
of Western and Santa Monica Bank, as the case may be, enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals
of, or filings or registrations with, any court, administrative agency or
commission or other governmental authority or instrumentality or with any
third party are required to be made or obtained by Western or any of its
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Subsidiaries in connection with the execution, delivery or performance by
either Western or Santa Monica Bank of this Agreement or to consummate the
Merger except for (A) the filing of applications and notices, as applicable,
with federal and state banking Governmental Authorities; (B) approval of the
listing on the NASDAQ of Western Common Stock to be issued in the Merger;
(C) the filing and declaration of effectiveness of the Registration
Statement; (D) the filing of an agreement of merger with the California
Secretary pursuant to the CGCL; (E) filing of an agreement of merger with
the Commissioner pursuant to the California Financial Code; (F) such filings
as are required to be made or approvals as are required to be obtained under
the securities or "Blue Sky" laws of various states in connection with the
issuance of Western Common Stock in the Merger; and (G) receipt of the
approvals set forth in Section 7.01(b). As of the date hereof, Western is
not aware of any reason why the approvals set forth in Section 7.01(b) will
not be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach
or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license,
or agreement, indenture or instrument of Western or of any of its
Subsidiaries or to which Western or any of its Subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default
under, the articles of incorporation or by-laws (or similar governing
documents) of Western or any of its Significant Subsidiaries, or (C) require
any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument.
(g) FINANCIAL REPORTS AND REGULATORY DOCUMENTS; MATERIAL ADVERSE
EFFECT. (i) Western's Regulatory Documents, as of the date filed, (A)
complied or will comply in all material respects as to form with the
applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (B) did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such
Regulatory Document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of Western
and its Subsidiaries as of its date, and each of the statements of income
and changes in shareholders' equity and cash flows or equivalent statements
in such Regulatory Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the results of operations,
changes in shareholders' equity and cash flows, as the case may be, of
Western and its Subsidiaries for the periods to which they relate, in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may
be noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of this Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
(h) NO BROKERS. No action has been taken by Western that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee payable
to Belle Plaine Partners, Inc.
(i) ACCOUNTING TREATMENT; TAX MATTERS. As of the date hereof, Western
is aware of no reason with respect to it why the Merger will fail to qualify
for "pooling of interests" accounting treatment. As of the date hereof,
neither Western nor any of its Subsidiaries has any reason to believe that
any
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conditions exist that might prevent or impede the Merger from qualifying as
a reorganization within the meaning of Section 368 of the Code.
(j) REGULATORY MATTERS. (i) Neither Western nor any of its Significant
Subsidiaries or any of its properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any Regulatory Authorities.
(ii) Neither Western nor any of its Significant Subsidiaries has been
advised by, nor has any knowledge of facts which could give rise to an
advisory notice by, any Regulatory Authority that such Regulatory Authority
is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter, supervisory letter or
similar submission.
(k) COMPLIANCE WITH LAWS. Each of Western and its Significant
Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to Western's knowledge,
no suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Western
or any of its Significant Subsidiaries is not in compliance with any of
the statutes, regulations or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to Western's knowledge, do any grounds
for any of the foregoing exist).
(l) BOOKS AND RECORDS. The books and records of each of Western and
its Significant Subsidiaries have been fully, properly and accurately
maintained in all material respects, and there are no material inaccuracies
or discrepancies of any kind contained or reflected therein, and they fairly
present the financial position of Western and its Significant Subsidiaries.
(m) ENVIRONMENTAL MATTERS.
(i) Each of Western and its Significant Subsidiaries has complied at all
times with applicable Environmental Laws; (ii) no real property (including
buildings or other structures) currently or formerly owned or operated by
Western or its Significant Subsidiaries, or any Loan Property, has been
contaminated with, or has had any release of, any Hazardous Substance; (iii)
neither Western nor any of its Significant Subsidiaries could be deemed the
owner or operator of any Loan Property under any Environmental Law which
such Loan Property has been contaminated with, or has had any release of,
any Hazardous Substance; (iv) neither Western nor any of its Significant
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither Western nor any of
its Significant Subsidiaries has received any notice, demand letter, claim
or request for information alleging any violation of, or liability under,
any Environmental Law; (vi) neither Western nor any of its Significant
Subsidiaries is subject to any order, decree, injunction or other agreement
with any Governmental Authority or any third party relating to any
Environmental Law; (vii) to the best of Western's knowledge, there are no
circumstances or conditions (including the presence of asbestos, underground
storage tanks, lead products, polychlorinated biphenyls, prior
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manufacturing operations, dry-cleaning, or automotive services) involving
Western or its Significant Subsidiaries, any currently or formerly owned or
operated property, or any Loan Property, that could reasonably be expected
to result in any claims, liability or investigations against Western or its
Significant Subsidiaries, result in any restrictions on the ownership, use,
or transfer of any property pursuant to any Environmental Law, or adversely
affect the value of any Loan Property, and (viii) each of Western and its
Significant Subsidiaries has made available to BKLA copies of all
environmental reports, studies, sampling data, correspondence, filings and
other environmental information in its possession or reasonably available to
it, if any, relating to each of Western and its Significant Subsidiaries,
any currently or formerly owned or operated property or any Loan Property.
ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of BKLA, Western and Santa Monica Bank agrees to use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other
party hereto to that end.
6.02 SHAREHOLDER APPROVAL. BKLA agrees to take, in accordance with
applicable law and the BKLA Articles and the BKLA By-Laws, all action necessary
to convene an appropriate meeting of its shareholders to consider and vote upon
the approval and adoption of this Agreement and any other matters required to be
approved by BKLA's shareholders for consummation of the Merger (including any
adjournment or postponement, the "BKLA MEETING"), in each case as promptly as
practicable after the Registration Statement is declared effective. Except to
the extent legally required for the discharge by the BKLA Board of its fiduciary
duties as advised by counsel to the BKLA Board, the BKLA Board shall recommend
such approval, and BKLA shall take all reasonable, lawful action to solicit such
approval by its shareholders.
6.03 REGISTRATION STATEMENT. (a) Western agrees to prepare a registration
statement on Form S-4 or other applicable form (the "REGISTRATION STATEMENT") to
be filed by Western with the SEC in connection with the issuance of Western
Common Stock in the Merger (including the proxy statement and prospectus and
other proxy solicitation materials of BKLA constituting a part thereof (the
"PROXY STATEMENT") and all related documents). BKLA agrees to cooperate, and to
cause its Subsidiaries to cooperate, with Western, its counsel and its
accountants, in preparation of the Registration Statement and the Proxy
Statement. BKLA agrees to file the Proxy Statement in preliminary form with the
FDIC as soon as reasonably practicable on a confidential basis, and Western
agrees to file the Registration Statement with the SEC as soon as reasonably
practicable on a confidential basis, after any SEC comments with respect to the
preliminary Proxy Statement are resolved. Each of BKLA and Western agrees to use
all reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. Western also agrees to use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. BKLA agrees to
furnish to Western all information concerning BKLA, its Subsidiaries, officers,
directors and shareholders as may be reasonably requested in connection with the
foregoing.
(b) Each of BKLA and Western agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to shareholders and at the time of the BKLA Meeting, contain any untrue
statement of a material fact or
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omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or any statement which, in the light
of the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or which will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier statement in the
Proxy Statement or any amendment or supplement thereto. Each of BKLA and Western
further agrees that if it shall become aware prior to the Effective Date of any
information furnished by it that would cause any of the statements in the Proxy
Statement to be false or misleading with respect to any material fact, or to
omit to state any material fact necessary to make the statements therein not
false or misleading, promptly to inform the other party thereof and to take the
necessary steps to correct the Proxy Statement.
(c) Western agrees to advise BKLA, promptly after Western receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of Western Common Stock for offering or sale in
any jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.04 PRESS RELEASES. Each of BKLA and Western agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or NASDAQ rules (provided that the issuing party shall nevertheless
provide the other party with notice of, and the opportunity to review, any such
press release or written statement).
6.05 ACCESS; INFORMATION. (a) Each of BKLA and Western agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, each party shall afford the other party and the other party's
officers, employees, counsel, accountants and other authorized representatives,
such access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, tax returns
and work papers of independent auditors), properties, personnel and to such
other information as the requesting party may reasonably request and, during
such period, the providing party shall furnish promptly to the requesting party
(i) a copy of each material report, schedule and other document filed by it
pursuant to the requirements of federal or state securities or banking laws, and
(ii) all other information concerning the business, properties and personnel of
it as the requesting party may reasonably request.
(b) Each party agrees that it will not, and will cause its representatives
not to, use any information obtained pursuant to this Section 6.05 (as well as
any other information obtained prior to the date hereof in connection with the
entering into of this Agreement) for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement or the Stock Option
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 6.05 (as well as any
other information obtained prior to the date hereof in connection with the
entering into of this Agreement) unless such information (i) was already known
to such party, (ii) becomes available to such party from other sources not known
by such party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the providing party or (iv) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information and
data as to the other party to be returned to the other party. No investigation
by either party of the business and affairs of the other party shall affect or
be deemed to modify or waive any representation, warranty, covenant or agreement
in this Agreement, or the conditions to either party's obligation to consummate
the transactions contemplated by this Agreement.
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6.06 ACQUISITION PROPOSALS. BKLA agrees that it shall not, and shall cause
its Subsidiaries and its and its Subsidiaries' officers, directors, agents,
advisors and affiliates not to, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person relating
to, any Acquisition Proposal, except to the extent legally required for the
discharge by the BKLA Board of its fiduciary duties as advised by counsel to the
BKLA Board. BKLA shall immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Western with respect to any of the
foregoing and shall use its reasonable best efforts to enforce any
confidentiality or similar agreement relating to an Acquisition Proposal. BKLA
shall promptly (within 24 hours) advise Western following the receipt by BKLA of
any Acquisition Proposal and the substance thereof (including the identity of
the person making such Acquisition Proposal), and advise Western of any
developments with respect to such Acquisition Proposal immediately upon the
occurrence thereof.
6.07 AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, BKLA shall deliver to Western a schedule of each
person that, to the best of its knowledge, is or is reasonably likely to be, as
of the date of the BKLA Meeting, deemed to be an "affiliate" of BKLA (each, a
"BKLA AFFILIATE") as that term is used in Rule 145 under the Securities Act or
SEC Accounting Series Releases 130 and 135.
(b) BKLA shall use its reasonable best efforts to cause each person who may
be deemed to be a BKLA Affiliate to execute and deliver to Western on or before
the date of mailing of the Proxy Statement an agreement in the form attached
hereto as EXHIBIT A (the "Affiliate Agreements").
6.08 TAKEOVER LAWS. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement or the Stock Option Agreement to
be subject to requirements imposed by any Takeover Law and each of them shall
take all necessary steps within its control to exempt (or ensure the continued
exemption of) the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect.
6.09 CERTAIN POLICIES. Prior to the Effective Date, BKLA shall, consistent
with generally accepted accounting principles and on a basis mutually
satisfactory to it and Western, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with that
of Western.
6.10 NASDAQ LISTING. Western agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NASDAQ, subject to official notice of
issuance, the shares of Western Common Stock to be issued to the holders of BKLA
Common Stock in the Merger.
6.11 REGULATORY APPLICATIONS. (a) Western and BKLA and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement. Western and BKLA shall use their reasonable best efforts to make all
required bank regulatory filings, including the appropriate filings with the
Commissioner, the FDIC and the Federal Reserve. Each of Western and BKLA shall
have the right to review in advance, and to the extent practicable each will
consult with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to all material written information
submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party appraised of the status of
material matters relating to completion of the transactions contemplated hereby.
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(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.12 INDEMNIFICATION; DIRECTOR AND OFFICERS' INSURANCE. (a) From and after
the Effective Time through the sixth anniversary of the Effective Date, Western
agrees to indemnify and hold harmless each present and former director and
officer of BKLA or any Subsidiary of BKLA determined as of the Effective Time
(the "INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "COSTS") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time (including with respect to this Agreement or any of the
transactions contemplated hereby) (but excluding any Costs arising out of any
violation or alleged violation of the Exchange Act or the rules and regulations
thereunder with respect to insider trading), whether asserted, claimed or
arising prior to, at or after the Effective Time, to the extent to which such
Indemnified Parties were entitled under California law and the BKLA Articles or
the BKLA By-Laws in effect on the date hereof, and Western shall also advance
expenses as incurred to the extent permitted under California law, the Western
Articles and the Western By-Laws and, with respect to any Indemnified Party, any
indemnification agreement to which such person is a party.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Western thereof, but the
failure to so notify shall not relieve Western of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Western. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Western shall have the right to
assume the defense thereof and Western shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Western elects not to assume such defense or counsel for
the Indemnified Parties advises in writing that there are issues which raise
conflicts of interest between Western and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Western shall
pay the reasonable fees and expenses of one such counsel for the Indemnified
Parties in any jurisdiction promptly as statements thereof are received, (ii)
the Indemnified Parties will cooperate in the defense of any such matter and
(iii) Western shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and
PROVIDED, FURTHER, that Western shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is not permitted or is prohibited by applicable law.
(c) For a period of six years after the Effective Time, Western shall use
its reasonable best efforts to cause to be maintained in effect at a minimum the
current policies of directors' and officers' liability insurance maintained by
BKLA (provided that Western may substitute therefor policies of comparable
coverage with respect to claims arising from facts or events which occurred
before the Effective Time); PROVIDED, HOWEVER, that in no event shall Western be
obligated to expend, in order to maintain or provide insurance coverage pursuant
to this Section 6.12(c), any amount per annum in excess of 125% of the amount of
the annual premiums paid as of the date hereof by BKLA for such insurance (the
"MAXIMUM AMOUNT"). If the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Western shall use
all reasonable efforts to maintain the most advantageous policies of directors'
and officers' insurance obtainable for an annual premium equal to the Maximum
Amount. Notwithstanding the foregoing, prior to the Effective Time, Western may
request BKLA to, and BKLA shall, purchase insurance coverage, on such terms and
conditions as shall be acceptable to Western, extending for a period of six
years BKLA's directors' and officers' liability insurance
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coverage in effect as of the date hereof (covering past or future claims with
respect to periods before the Effective Time) and such coverage shall satisfy
Western's obligations under this Section 6.12(c).
(d) If Western or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of Western shall
assume the obligations set forth in this Section 6.12.
6.13 BENEFIT PLANS. BKLA consents and covenants that from and after the
Effective Date BKLA's Benefits Plans will be governed, managed and/or terminated
by Western, all within Western's sole discretion.
6.14 ACCOUNTANTS' LETTERS. Each of BKLA and Western shall use its
reasonable best efforts to cause to be delivered to the other party, and to
Western's directors and officers who sign the Registration Statement, a letter
of their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such directors and officers, in form and
substance customary for "comfort" letters delivered by independent accountants
in accordance with Statement of Accounting Standards No. 72.
6.15 NOTIFICATION OF CERTAIN MATTERS. Each of BKLA and Western shall give
prompt notice to the other of any fact, event or circumstance known to it that
(i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (ii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
6.16 SHAREHOLDER AGREEMENTS. The directors and certain officers and
shareholders of BKLA, in their capacities as shareholders, in exchange for good
and valuable consideration, have executed and delivered to Western shareholder
agreements substantially in the form of EXHIBIT B hereto (the "SHAREHOLDER
AGREEMENTS"), committing such persons, among other things, (i) to vote their
shares of BKLA Common Stock in favor of the Agreement at the BKLA Meeting and
(ii) to certain representations concerning the ownership of BKLA Common Stock
and Western Common Stock to be received in the Merger.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Western and BKLA to consummate the Merger is
subject to the fulfillment or written waiver by Western and BKLA prior to the
Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement and the Merger shall have
been duly adopted by the requisite vote of the shareholders of BKLA.
(b) REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain any
conditions, restrictions or requirements which the Western Board reasonably
determines would (i) following the Effective Time, have a Material Adverse
Effect on the Surviving Corporation and its Subsidiaries taken as a whole or
(ii) reduce the benefits of the transactions contemplated hereby to such a
degree that Western would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or
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other order (whether temporary, preliminary or permanent) which is in effect
and prohibits consummation of the transactions contemplated by this
Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Western Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
(f) LISTING. The shares of Western Common Stock to be issued in the
Merger shall have been approved for listing on the NASDAQ, subject to
official notice of issuance.
7.02 CONDITIONS TO OBLIGATION OF BKLA. The obligation of BKLA to
consummate the Merger is also subject to the fulfillment or written waiver by
BKLA prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Western set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the date of this Agreement and
as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and
correct as of such date), and BKLA shall have received a certificate, dated
the Effective Date, signed on behalf of Western by the Chief Executive
Officer and the Chief Financial Officer of Western to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF WESTERN. Western shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and BKLA shall
have received a certificate, dated the Effective Date, signed on behalf of
Western by the Chief Executive Officer and the Chief Financial Officer of
Western to such effect.
(c) ACCOUNTANTS' LETTERS. BKLA shall have received the letters
referred to in Section 6.14 from Western's independent auditors.
(d) OPINION OF BKLA'S INDEPENDENT AUDITORS; ACCOUNTING TREATMENT. BKLA
shall have received from Vavrinek, Trine, Day & Co., LLP, its independent
auditors, (i) an opinion dated the Effective Date, to the effect that, on
the basis of facts, representations and assumptions set forth in such
opinion, (A) the Merger constitutes a "reorganization" within the meaning of
Section 368 of the Code and (B) no gain or loss will be recognized by
shareholders of BKLA who receive shares of Western Common Stock in exchange
for shares of BKLA Common Stock, except with respect to cash received in
lieu of fractional share interests, and (ii) letters, dated the date of or
shortly prior to each of the mailing date of the Proxy Statement and the
Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment. In rendering its opinion,
Vavrinek, Trine, Day & Co., LLP may require and rely upon representations
contained in letters from BKLA, Western and shareholders of BKLA.
(e) DIRECTOR. Western shall have elected as a director, the individual
agreed in accordance with Section 2.01 hereof, effective immediately after
the Effective Time.
7.03 CONDITIONS TO OBLIGATION OF WESTERN. The obligation of Western to
consummate the Merger is also subject to the fulfillment or written waiver by
Western prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of BKLA set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the date of this Agreement and
as of the Effective Date as though made on and as of the Effective Date
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(except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and
correct as of such date) and Western shall have received a certificate,
dated the Effective Date, signed on behalf of BKLA by the Chief Executive
Officer and the Chief Financial Officer of BKLA to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BKLA. BKLA shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Western shall have
received a certificate, dated the Effective Date, signed on behalf of BKLA
by the Chief Executive Officer and the Chief Financial Officer of BKLA to
such effect.
(c) OPINION OF WESTERN'S COUNSEL. Western shall have received an
opinion of Sullivan & Cromwell, special counsel to Western, dated the
Effective Date, to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, the Merger constitutes a
reorganization under Section 368 of the Code. In rendering its opinion,
Sullivan & Cromwell may require and rely upon representations contained in
letters from BKLA, Western and shareholders of BKLA.
(d) ACCOUNTANTS' LETTERS. Western shall have received the letters
referred to in Section 6.14 from BKLA's independent auditors.
(e) ACCOUNTING TREATMENT. Western shall have received from KPMG Peat
Marwick LLP, Western's independent auditors, letters, dated the date of or
shortly prior to each of the mailing date of the Proxy Statement and the
Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the Acquisition
may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of Western and BKLA, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Western or
BKLA, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by the
other party of any representation or warranty contained herein (subject to
the standard set forth in Section 5.02), which breach cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party of any
of the covenants or agreements contained herein, which breach cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, provided that such breach (whether under (i)
or (ii)) would be reasonably likely, individually or in the aggregate with
other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by Western or
BKLA, 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 December 31, 1998.
(d) NO APPROVAL. By BKLA or Western in the event (i) the approval of
any Governmental Authority required for consummation of the Merger and the
other transactions contemplated by this Agreement shall have been denied by
final nonappealable action of such Governmental Authority or (ii) the
shareholder approval required by Section 7.01(a) herein is not obtained at
the BKLA Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the BKLA Meeting,
by Western if the BKLA Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn
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such recommendation or modified or changed such recommendation in a manner
adverse in any respect to the interests of Western.
(f) TERMINATION BY WESTERN. This Agreement may be terminated and the
Merger may be abandoned by Western by the giving of notice to BKLA at any
time prior to 5 p.m. on April 29, 1998, if Western determines in its sole
discretion, upon completion of its due diligence review of BKLA, to so
terminate.
(g) WESTERN COMMON STOCK. This Agreement may be terminated by BKLA in
the event that, with respect to any Ten Day Period (as defined below), both
(i)(A) the Ten Day Average Price (as defined below) shall be less that
$35.37 per share and (B) the Western Common Stock Price Percentage (as
defined below) shall be less than the BKX Index Percentage (as defined
below) and (ii) BKLA has delivered written notice to Western of its
intention to terminate this Agreement within forty-eight (48) hours
following the date of such event (it being understood that, if the
circumstances set forth in clause (i) shall have occurred and BKLA fails to
timely deliver the notice referred to in this clause (ii), BKLA shall have
the right to terminate if any such event subsequently occurs and BKLA timely
delivers such notice); PROVIDED, HOWEVER, that, if Western effects a stock
dividend, reclassification, recapitalization, stock split, combination,
exchange of shares or similar transaction after the date hereof and prior to
the Effective Time, the provisions of this Section 8.01(g) shall be
appropriately adjusted;
As used in this Section 8.01(g), (w) "Western Common Stock Price
Percentage" means the percentage determined by dividing the Ten Day Average
Price by $42.61 (as such amount may be adjusted pursuant to the paragraph
above); (x) "BKX Index Percentage " means the percentage determined by
dividing (i) the product of (A) the Keefe Bank Index as of the date of
determination times (B) .66 by (ii) the Keefe Bank Index as of the date
hereof; (y) "Ten Day Average Price" means the average sales price per share
of Western Common Stock for a Ten Day Period determined by averaging the
last reported sales price on each trading day, and (z) "Ten Day Period"
means any period of ten (10) consecutive trading days.
(h) ACQUISITION PROPOSAL. This Agreement may be terminated by BKLA by
written notice to Western if BKLA receives an Acquisition Proposal on terms
and conditions which the BKLA Board determines, after receiving the advice
of its outside counsel that to proceed with the Merger will violate the
fiduciary duties of the BKLA Board to BKLA's shareholders in light of such
Acquisition Proposal, to accept such proposal; provided, however, that BKLA
shall not be entitled to terminate this Agreement pursuant to this Section
8.01(h) unless it shall have provided Western with written notice of such a
possible determination (which written notice will inform Western of the
material terms and conditions of the proposal, including the identity of the
proponent) not less than two business days prior to such determination.
8.02 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to Section 8.01, no
party to this Agreement shall have any liability or further obligation to any
other party hereunder except as set forth in Section 8.03 and Section 9.01.
8.03 TERMINATION FEE.
(a) MATERIAL BREACH BY WESTERN. Should BKLA terminate this Agreement
pursuant to Section 8.01(b) (unless such breach under Section 8.01(b) shall
result from no act or omission of Western), Western shall promptly, if so
requested by BKLA, but in no event later than five business days after the date
of such request, pay BKLA a fee equal to BKLA's out-of-pocket expenses in
connection with this Agreement and the transactions contemplated hereby, up to a
maximum of $500,000, which amount shall be payable in same day funds, provided
however that no fee shall be paid pursuant to this Section 8.03(a) if BKLA shall
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be in material breach of its obligations hereunder and Western shall owe no
further duty or liability on account of this Agreement to BKLA.
(b) MATERIAL BREACH BY BKLA; ENTERING ACQUISITION PROPOSAL. Should Western
terminate this Agreement pursuant to either Section 8.01(e) or 8.01(b) (unless
such breach under Section 8.01(b) shall result from no act or omission of BKLA),
BKLA shall promptly, if so requested by Western, but in no event later than five
business days after the date of such request, pay Western a fee equal to
Western's out-of-pocket expenses in connection with this Agreement and the
transactions contemplated hereby, up to a maximum of $500,000, which amount
shall be payable in same day funds, provided however that no fee shall be paid
pursuant to this Section 8.03 if Western shall be in material breach of its
obligations hereunder and BKLA and the shareholders who are parties to the
Shareholder Agreements shall owe no further duty or liability on account of this
Agreement or the Shareholders Agreement to either Western or Santa Monica Bank.
In the event that there is a termination as a result of BKLA entering into an
Acquisition Proposal pursuant to Section 8.01(h), BKLA shall pay Western up to
$500,000 to cover out-of-pocket expenses in addition to Western's rights under
the Stock Option Agreement and BKLA and the shareholders who are parties to the
Shareholder Agreements shall owe no further duty or liability on account of this
Agreement to either Western or Santa Monica Bank except under the Stock Option
Agreement.
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 3.01, 3.03, 3.04, 3.07, 6.12 and this Article IX which shall survive
the Effective Time) or the termination of this Agreement if this Agreement is
terminated prior to the Effective Time (other than Sections 6.03(b), 6.05(b),
8.02, 8.03 and this Article IX which shall survive such termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that after the BKLA
Meeting, this Agreement may not be amended if it would violate the CGCL or
reduce the consideration to be received by BKLA shareholders in the Merger.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be governed
by, and interpreted in accordance with, the laws of the State of California
applicable to contracts made and to be performed entirely within such State.
Each of the parties hereto hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or related to this Agreement or
the transactions contemplated hereby.
9.05 EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
as provided in Section 8.02.
28
<PAGE>
9.06 NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with machine-generated confirmation) or mailed by registered or
certified mail (return receipt requested) to such party at its address set forth
below or such other address as such party may specify by notice to the parties
hereto.
If to, to:
Bank of Los Angeles
8901 Santa Monica Blvd.
West Hollywood, CA 90069-4901
Attention: Adriana M. Boeka
Facsimile: (310) 843-1498
With a copy to:
Horgan, Rosen, Beckham & Coren
21700 Oxnard Street
Suite 1400
Woodland Hills, CA 91367
Attention: Arthur Coren
Facsimile: (818) 340-6190
If to Western or Santa Monica Bank, to:
Western Bancorp
1251 Westwood Boulevard
Los Angeles, CA 90024
Attention: Matthew P. Wagner
Facsimile: (310) 477-8611
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Attention: Stanley F. Farrar
Facsimile: (213) 683-0457
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement,
the Stock Option Agreement, the Affiliate Agreements and the Shareholder
Agreements represent the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and this Agreement
supersedes any and all other oral or written agreements heretofore made (other
than any such Stock Option Agreement, Affiliate Agreements or Shareholder
Agreements). Nothing in this Agreement expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require BKLA, Western or any of their respective Subsidiaries,
affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
* * *
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C> <C>
BANK OF LOS ANGELES
By: /s/ A. BOEKA
-----------------------------------------
Name:
Title:
WESTERN BANCORP
By: /s/ ARNOLD C. HAHN
-----------------------------------------
Name:
Title:
SANTA MONICA BANK
By: /s/ ARNOLD C. HAHN
-----------------------------------------
Name:
Title:
</TABLE>
30
<PAGE>
EXHIBIT 23.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our Independent Auditor's Report dated
January 23, 1998 regarding the balance sheets of Bank of Los Angeles as of
December 31, 1997 and 1996 and the related statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ending December 31, 1997, in the Form 8-K filed by Western Bancorp with the
Securities and Exchange Commission and Form S-8 dated June 6, 1997, Form S-8
dated January 21, 1998, and Form S-3 dated May 27, 1998.
/s/ Vavrinek, Trine, Day & Co., LLP
VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, CA
November 4, 1998
<PAGE>
EXHIBIT 99-1
[LOGO]
WESTERN BANCORP
- -------------------------------------------------------------------------------
PRESS RELEASE
- -------------------------------------------------------------------------------
Western Bancorp (NASDAQ: WEBC)
4100 Newport Place, Suite 900
Newport Beach, California 92660
Contacts: Matthew P. Wagner Arnold C. Hahn
President & Chief Financial Officer
Chief Executive Officer
Phone: 310/477-2402 ext. 134 949/863-2351
Fax: 310/231-0321 949/757-5844
FOR IMMEDIATE RELEASE
WESTERN BANCORP ANNOUNCES CLOSING OF
ACQUISITION OF BANK OF LOS ANGELES
October 26, 1998
Newport Beach, California... On October 23, 1998, Western Bancorp ("Western")
consummated the acquisition of Bank of Los Angeles ("BKLA") through the merger
of BKLA with and into Santa Monica Bank, a wholly-owned subsidiary of Western.
The acquisition will be accounted for as a pooling-of-interests. As a result of
this acquisition, approximately 2,214,500 shares of common stock of Western are
being issued to holders of common stock of BKLA. After giving effect to the
acquisition of BKLA, Western had approximately $2.3 billion in assets as of
September 30, 1998.
Prior to consummation of the acquisition of BKLA, the litigation pending against
BKLA by Smart Clothes, Inc. was settled at an amount acceptable to BKLA and
Western. Matthew Wagner, President and Chief Executive Officer of Western,
stated "we are pleased that this matter was resolved in a manner that allowed us
to close the transaction. We are confident that this
<PAGE>
acquisition will add to the shareholder value of Western. The systems
integration is planned for mid-November, and the transaction should be accretive
to earnings in the first quarter of 1999. We are pleased to welcome the
customers and shareholders of BKLA to the Western Family."
<PAGE>
Forward-Looking Statements
This press release includes forward-looking statements that involve inherent
risks and uncertainties. Western cautions readers that a number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. These factors include economic conditions and
competition in the geographic and business areas in which Western and its
subsidiaries operate, inflation, fluctuations in interest rates, legislation and
governmental regulation, the ability to consummate the acquisition of Peninsula
Bank of San Diego and of PNB Financial Group, Inc., and the progress of
integrating PNB Financial Group, Inc., Peninsula Bank of San Diego, Bank of Los
Angeles, Santa Monica Bank, Western Bank and Southern California Bank.
<PAGE>
EXHIBIT 99-2
[LOGO]
WESTERN BANCORP
- -------------------------------------------------------------------------------
PRESS RELEASE
- -------------------------------------------------------------------------------
Western Bancorp (NASDAQ: WEBC)
4100 Newport Place, Suite 900
Newport Beach, California 92660
Contacts: Matthew P. Wagner Arnold C. Hahn
President & Chief Financial Officer
Chief Executive Officer
Phone: 310/477-2402 ext. 134 949/863-2351
Fax: 310/231-0321 949/757-5844
FOR IMMEDIATE RELEASE
October 30, 1998
Newport Beach, California... Western Bancorp ("Western") announced today that
the Board of Directors of Peninsula Bank of San Diego ("Peninsula") has elected
to terminate the Agreement and Plan of Merger, dated as of July 24, 1998 (the
"Merger Agreement"), among Western, Portola Merger Sub, and Peninsula. The
Merger Agreement was terminated as a result of the relative performance of
Western's common stock compared to the Keefe Bank Index.
<PAGE>
EXHIBIT 99.3
Bank of Los Angeles
Balance Sheets
<TABLE>
<CAPTION>
At June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (unaudited)
ASSETS
Cash and due from banks $ 19,203 $ 20,521
Federal funds sold 14,000 29,555
--------- ---------
Total cash and cash equivalents 33,203 50,076
Interest bearing deposits with banks 1,479 2,125
Securities available for sale 1,491 12,295
Securities held to maturity (market
value of $87,243 at June 30, 1998 and
$48,247 at December 31, 1997) 87,188 48,138
Loans receivable 153,645 142,633
Less allowance for credit losses (2,683) (2,819)
--------- ---------
Loans, net 150,962 139,814
Accrued interest receivable 1,668 1,556
Premises and equipment, net 2,519 2,650
Real estate owned 1,545 1,475
Intangible assets 6,989 7,454
Other assets 2,724 6,450
--------- ---------
Total assets $ 289,768 $ 272,033
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand, non-interest bearing $ 86,876 $ 85,222
Interest bearing
Time certificates of deposit of $100,000 or more 31,699 30,167
Other 123,977 122,623
--------- ---------
Total deposits 242,552 238,012
Capital lease obligation 1,853 1,849
Borrowing from Federal Home Loan Bank 11,020 ---
Accrued interest payable and other liabilities 792 1,118
--------- ---------
Total liabilities 256,217 240,979
--------- ---------
--------- ---------
Shareholders' equity
Preferred stock; 25,000,000 shares; no shares issued
and outstanding --- ---
Common stock, no par value; authorized, 75,000,000
shares: issued and outstanding; 4,856,200 common
shares at June 30, 1998, 4,751,685 common shares
at December 31, 1997. 31,042 30,630
Retained earnings 2,509 472
Net unrealized holding loss on securities available
for sale --- (48)
--------- ---------
Total shareholders' equity 33,551 31,054
--------- ---------
Total liabilities and shareholders' equity $ 289,768 $ 272,033
--------- ---------
--------- ---------
</TABLE>
1
<PAGE>
Bank of Los Angeles
Statements of Income
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------
1998 1997
------- -------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (unaudited)
<S> <C> <C>
Interest income
Loans receivable $ 7,667 $ 5,021
Securities 2,071 1,139
Federal funds sold 729 490
Deposits with financial institutions 38 1
---------- ----------
Total interest income 10,505 6,651
Interest expense
Deposit accounts 2,718 1,617
Capital lease obligation 127 129
Federal Home Loan Bank advances 163 ---
---------- ----------
Total interest expense 3,008 1,746
---------- ----------
Net interest income before provision for credit losses 7,497 4,905
Provision for credit losses --- 410
---------- ----------
Net interest income after provision for credit losses 7,497 4,495
---------- ----------
Service charges and fees 981 629
Gain on sale of securities 49 ---
---------- ----------
Total non-interest income 1,030 629
Non-interest expense
Employee compensation and benefits 2,770 2,269
Occupancy 1,033 810
Professional services 362 221
Goodwill and core deposit premium amortization 237 102
Other 872 687
---------- ----------
Total non-interest expense 5,274 4,089
---------- ----------
Income before income tax expense 3,253 1,035
Income tax expense 1,216 ---
---------- ----------
Net income $ 2,037 $ 1,035
---------- ----------
---------- ----------
Earnings per common share $ 0.43 $ 0.36
---------- ----------
---------- ----------
Earnings per common share -- assuming dilution $ 0.38 $ 0.32
---------- ----------
---------- ----------
Weighted average common shares 4,776,564 2,878,822
---------- ----------
---------- ----------
Weighted average common shares -- diluted 5,368,751 3,277,093
---------- ----------
---------- ----------
</TABLE>
2
<PAGE>
Bank of Los Angeles
Statements of Income
<TABLE>
<CAPTION>
For the Quarter
Ended June 30,
----------------------
1998 1997
------- ------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (unaudited)
<S> <C> <C>
Interest income
Loans receivable $ 3,904 $ 3,126
Securities 1,186 738
Federal funds sold 285 251
Deposits with financial institutions 14 1
---------- ----------
Total interest income 5,389 4,116
Interest expense
Deposit accounts 1,367 941
Capital lease obligation 63 64
Federal Home Loan Bank advances 127 ---
---------- ----------
Total interest expense 1,557 1,005
---------- ----------
Net interest income before provision for
credit losses 3,832 3,111
Provision for credit losses --- 325
---------- ----------
Net interest income after provision for
credit losses 3,832 2,786
---------- ----------
Service charges and fees 508 368
Gain on sale of securities 35 ---
---------- ----------
Total non-interest income 543 368
Non-interest expense
Employee compensation and benefits 1,337 1,419
Occupancy 509 487
Professional services 215 104
Goodwill amortization 115 72
Other 416 430
---------- ----------
Total non-interest expense 2,592 2,512
---------- ----------
Income before income tax expense 1,783 642
Income tax expense 685 ---
---------- ----------
Net income $ 1,098 $ 642
---------- ----------
---------- ----------
Earnings per common share $ 0.23 $ 0.18
---------- ----------
---------- ----------
Earnings per common share -- assuming dilution $ 0.20 $ 0.16
---------- ----------
---------- ----------
Weighted average common shares 4,794,340 3,548,893
---------- ----------
---------- ----------
Weighted average common shares -- diluted 5,419,505 3,953,002
---------- ----------
---------- ----------
</TABLE>
3
<PAGE>
Bank of Los Angeles
Statements of Comprehensive Income
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (unaudited)
<S> <C> <C>
Net income $ 2,037 $ 1,035
Unrealized losses on securities
Unrealized gains (losses) arising during period;
$48,000 gain for the three months ended June 30, 1998,
adjusted for taxes, $5,000 loss for the six months ended
June 30, 1997, unadjusted for taxes. 28 (5)
Less reclassification adjustment for gains included in
net income; gain of $49,000 for the six months ended
June 30, 1998, adjusted for taxes. (29) ---
----------- -----------
Comprehensive income $ 2,036 $ 1,030
----------- -----------
----------- -----------
Comprehensive income per common share $ 0.43 $ 0.36
----------- -----------
----------- -----------
Comprehensive income per common share -- assuming dilution $ 0.38 $ 0.31
----------- -----------
----------- -----------
Weighted average common shares 4,776,564 2,878,822
----------- -----------
----------- -----------
Weighted average common shares -- diluted 5,368,751 3,277,093
----------- -----------
<CAPTION>
For the Quarter
Ended June 30,
----------------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (unaudited)
<S> <C> <C>
Net income $ 1,098 $ 642
Unrealized losses on securities
Unrealized gains (losses) arising during period;
none the quarter ended June 30, 1998,
$175,000 gain for the quarter ended
June 30, 1997, unadjusted for taxes. --- 175
Less reclassification adjustment for gains
included in net income; gain of $35,000 for
the quarter ended June 30, 1998, adjusted
for taxes. (20) ---
---------- ----------
Comprehensive income $ 1,078 $ 817
---------- ----------
---------- ----------
Comprehensive income per common share $ 0.22 $ 0.23
---------- ----------
---------- ----------
Comprehensive income per common share --
assuming dilution $ 0.20 $ 0.21
---------- ----------
---------- ----------
Weighted average common shares 4,794,340 3,548,893
---------- ----------
---------- ----------
Weighted average common shares -- diluted 5,419,505 3,953,002
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
Bank of Los Angeles
Statement of Changes in Shareholders' Equity
For the Six Months Ended June 30, 1998 and For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Retained Other Total
-------------------------- Earnings/ Comprehensive Shareholders'
(DOLLARS IN THOUSANDS) Shares Amount (Deficit) Income Equity
------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 2,195,075 $ 16,111 $ (3,259) $ (220) $ 12,632
Issuance of common stock
April 1, 1997, net cost of $213 1,367,493 5,926 --- --- 5,926
Issuance of common stock
December 31, 1997, net cost of $247 1,155,326 8,466 --- --- 8,466
Stock options exercised 1,300 5 --- --- 5
Warrants exercised 32,491 122 --- --- 122
Net change in unrealized loss on securities
available for sale --- --- --- 172 172
Net income --- --- 3,731 --- 2,041
--------- -------- --------- ------- ---------
Balance, December 31, 1997 4,751,685 30,630 472 (48) 31,054
Stock options exercised (unaudited) 8,625 52 --- --- 52
Warrants exercised (unaudited) 95,890 360 --- --- 360
Net income (unaudited) --- --- 2,037 --- 2,037
Net change in unrealized loss on securities
available for sale (unaudited) --- --- --- 48 48
--------- -------- --------- ------- ---------
Balance, June 30, 1998 (unaudited) 4,856,200 $ 31,042 $ 2,509 $ --- $ 33,551
--------- -------- ------- ------- ---------
--------- -------- ------- ------- ---------
</TABLE>
5
<PAGE>
Bank of Los Angeles
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1998 1997
-------- -------
(DOLLARS IN THOUSANDS) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 10,480 $ 6,000
Fees and commissions received 981 629
Interest paid (2,881) (1,726)
Cash paid to suppliers and employees (5,672) (3,917)
Taxes paid (114) ---
--------- ---------
Net cash provided by operating activities 2,794 986
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and pay downs of
securities available for sale 1,216 8,068
Proceeds from maturities and pay downs of
securities held to maturity 42,238 1,500
Proceeds from sales of securities available for sale 10,267 ---
Net decrease in interest bearing deposits with banks 646 ---
Purchases of securities available for sale (631) (10,014)
Purchases of securities held to maturity (81,288) (26,918)
Net decrease (increase) decrease in loans receivable (10,683) (38,777)
Income tax refund received 884 ---
Proceeds from the sale of fixed assets --- ---
Acquisition of premises and equipment (194) (412)
--------- ---------
Net cash provided (used) by investing activities (37,545) (66,553)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock 412 5,929
Net increase in deposits, net of rejected debits 6,442 55,195
Increase in borrowing from Federal Home Loan Bank 11,020 ---
Principle payments under capital lease obligation 4 4
--------- ---------
Net cash provided (used) in financing activities 17,878 61,128
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,873) (4,439)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 50,076 30,139
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,203 $ 25,700
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
Bank of Los Angeles
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1998 1997
(DOLLARS IN THOUSANDS) (unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,037 $ 1,035
Adjustments for non-cash items:
Depreciation, amortization and accretion 445 396
Provisions (credit) for credit losses --- 410
Gain on sale of securities available for sale (49) ---
Deferred salary for loan originations (348) ---
(Decrease) increase in deferred loan income (137) 85
Decrease (increase) in accrued interest receivable 112 (737)
Increase in accrued income taxes 1,102 ---
Decrease (increase) in other assets (42) (99)
(Decrease) increase in interest payable and other
liabilities (326) (104)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,794 $ 986
--------- --------
--------- --------
Supplemental disclosure of non-cash transactions:
Change in unrealized gain (loss) on securities
available for sale $ 48 $ (5)
--------- --------
--------- --------
Transfer of real estate owned from loans receivable 70 ---
--------- --------
--------- --------
Transfer of bargain lease from fixed assets to other assets --- 1,559
--------- --------
--------- --------
</TABLE>
7
<PAGE>
Bank of Los Angeles
Notes to Financial Statements
Pending Merger with Western Bancorp
On April 17, 1998, BKLA entered into a definitive agreement to be
purchased by Western Bancorp ("Western") in which each share of BKLA stock
will be exchanged for 0.4224 shares of Western stock. The acquisition is
anticipated to be accounted for by pooling of interests and is expected to
close October 1, 1998. BKLA will be merged into Western's subsidiary, Santa
Monica Bank, which operates branches in Santa Monica, Malibu, Marina Del
Rey, Beverly Hills, Century City, Westwood and Encino. A financial data
summary for Western Bancorp is presented below at or for the six months ended
June 30, 1998. Data presented is in thousands except share data.
<TABLE>
<CAPTION>
<S> <C>
RECAP OF EARNINGS
Interest income $ 68,922
Interest expense 18,318
-----------
Net interest income 50,604
Provision for credit losses 300
Non-interest income 7,858
Non-interest expense 35,513
-----------
Net income before taxes 22,649
Income tax provision (credit) 11,507
-----------
Net income $ 11,142
-----------
-----------
PER COMMON SHARE DATA
Earnings $ 0.78
Earnings -- diluted $ 0.77
Book value $ 18.41
Tangible book value $ 9.15
SHARES OUTSTANDING
Common shares outstanding 15,703,800
Common shares issue date weighted 14,821,500
Effect of dilutive securities 218,500
Common shares -- diluted 15,040,000
BALANCE SHEET DATA, END OF PERIOD
Total assets $ 2,016,749
Total deposits 1,697,352
Total loans 1,249,930
Non-accrual loans and real estate owned 18,655
Allowance for credit losses 24,681
Total shareholders' equity $ 289,146
</TABLE>
Acquisitions of American West Bank and Culver National Bank
On April 1, 1997, BKLA acquired American West Bank ("AWB"), which had
$67,291,000 in total assets and two branch offices. On December 31, 1997,
BKLA acquired Culver National Bank ("CNB"), which had $60,277,000 in total
assets and one branch office. The acquisitions of both AWB and CNB were
accounted for as purchases.
8
<PAGE>
Adoption of Recently Issued Accounting Pronouncement
In June, 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement divides comprehensive income into net
income and other comprehensive income. BKLA has adopted the two statement
approach and reports the statement of income and the statement of
comprehensive income separately.
9
<PAGE>
EXHIBIT 99.4
[Vavrinek, Trine, Day & Co., LLP Letterhead]
Independent Auditors' Report
Board of Directors and Shareholders
Bank of Los Angeles
West Hollywood, California
We have audited the accompanying balance sheets of Bank of Los Angeles as of
December 31, 1997 and 1996 and the related statements of operations, changes in
shareholders' equity and statements of cash flows for each of the three years in
the period ended December 31, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bank of Los Angeles as of
December 31, 1997 and 1996 and the results of its operations, changes in its
shareholders' equity and its statements of cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Vavrinek, Trine, Day & Co.
Vavrinek, Trine, Day & Co.
Rancho Cucamonga, California
January 23, 1998
1
<PAGE>
Bank of Los Angeles
Balance Sheets
<TABLE>
<CAPTION>
At December 31,
-----------------------
(dollars in thousands except share data) 1997 1996
--------- ---------
<S> <C> <C>
Assets
Cash and due from banks $ 20,521 $ 8,139
Federal funds sold 29,555 22,000
--------- ---------
Total cash and cash equivalents 50,076 30,139
Interest bearing deposits with banks 2,125 --
Securities available for sale 12,295 22,126
Securities held to maturity (market value of $48,247 at December 31, 1997) 48,138 --
Loans receivable 142,633 72,266
Less allowance for credit losses (2,819) (1,682)
--------- ---------
Loans, net 139,814 70,584
Accrued interest receivable 1,556 654
Premises and equipment, net 2,650 2,798
Real estate owned 1,475 539
Other assets 13,904 3,865
--------- ---------
Total assets $ 272,033 $ 130,705
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand, non-interest bearing $ 85,222 $ 40,128
Interest bearing
Time certificates of deposit of $100,000 or more 30,167 13,354
Other 122,623 62,114
--------- ---------
Total deposits 238,012 115,596
Capital lease obligation 1,849 1,842
Accrued interest payable and other liabilities 1,118 635
--------- ---------
Total liabilities 240,979 118,073
--------- ---------
Shareholder's equity
Preferred stock: authorized 25,000,000 shares; no shares issued and outstanding -- --
Common stock; no par value; authorized 75,000,000 shares; issued and
outstanding 4,751,685 shares at December 31, 1997 and 2,195,075
common shares at December 31, 1996 30,630 16,111
Retained earnings (accumulated deficit) 472 (3,259)
Net unrealized holding loss on securities available for sale (48) (220)
--------- ---------
Total shareholders' equity 31,054 12,632
--------- ---------
Total liabilities and shareholders' equity $ 272,033 $ 130,705
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Bank of Los Angeles
Statements of Income
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------
(dollars in thousands except share data) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans receivable $ 11,229 $ 7,702 $ 4,808
Securities 2,731 2,008 1,575
Federal funds sold 893 839 434
Deposits with financial institutions 1 12 2
----------- ----------- -----------
Total interest income 14,854 10,561 6,819
Interest expense
Deposit accounts 3,673 2,830 1,542
Capital lease obligation 258 257 259
Short-term borrowed funds -- -- 51
----------- ----------- -----------
Total interest expense 3,931 3,087 1,852
----------- ----------- -----------
Net interest income before provision for credit losses 10,923 7,474 4,967
Provision for credit losses 410 750 (311)
----------- ----------- -----------
Net interest income after provision for credit losses 10,513 6,724 5,278
Service charges and fees 1,388 1,042 806
Loss on sale of securities, net -- (5) (46)
Gain on sale of loans -- -- 118
----------- ----------- -----------
Total non-interest income 1,388 1,037 878
Non-interest expense
Employee compensation and benefits 4,802 3,408 2,798
Occupancy 1,778 1,306 941
Professional services 382 472 547
Goodwill and core deposit amortization 246 250 73
Other 1,334 1,324 1,151
----------- ----------- -----------
Total non-interest expense 8,542 6,760 5,510
----------- ----------- -----------
Income before income tax expense (credit) 3,359 1,001 646
Income tax expense (credit) (372) -- --
----------- ----------- -----------
Net income $ 3,731 $ 1,001 $ 646
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share $ 1.16 $ 0.46 $ 0.63
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share - assuming dilution $ 1.00 $ 0.40 $ 0.51
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares 3,226,024 2,195,075 1,017,490
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares - diluted 3,749,694 2,475,867 1,268,780
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Bank of Los Angeles
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Holding Loss (Gain)
On Securities Total
(dollars in thousands Common Stock Accumulated Available Shareholders'
except share data) Shares Amount Deficit For Sale Equity
-------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 250,313 $ 11,078 $ (6,788) $ (473) $ 3,817
Merger of BKLA Bancorp -- (1,882) 1,882 -- --
Stock options exercised 760 4 -- -- 4
Issuance of common stock
(net of cost of $467) 1,944,002 6,911 -- -- 6,911
Net change in unrealized loss on
securities available for sale -- -- -- 613 613
Net income -- -- 646 -- 646
Balance, December 31, 1995 2,195,075 16,111 (4,260) 140 11,991
Net change in unrealized loss on
securities available for sale -- -- -- (360) (360)
Net income -- -- 1,001 -- 1,001
--------- --------- --------- --------- ---------
Balance, December 31, 1996 2,195,075 16,111 (3,259) (220) 12,632
Issuance of common stock
April 1, 1997
(net cost of $213) 1,367,493 5,926 -- -- 5,926
Issuance of common stock
December 31, 1997
(net cost of $247) 1,155,326 8,466 -- -- 8,466
Stock options exercised 1,300 5 -- -- 5
Warrants exercised 32,491 122 -- -- 122
Net change in unrealized loss
on securities available for sale -- -- -- 172 172
Net income -- -- 3,731 -- 3,731
--------- --------- --------- --------- ---------
Balance, December 31, 1997 4,751,685 $ 30,630 $ 472 $ (48) $ 31,054
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Bank of Los Angeles
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31,
(dollars in thousands)
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 13,994 $ 10,400 $ 6,676
Fees and commissions received 1,388 1,042 806
Interest paid (3,899) (3,291) (1,817)
Cash paid to suppliers and employees (7,405) (6,600) (4,878)
--------- --------- ---------
Net cash provided by operating activities 4,078 1551 787
Cash flows from investing activities:
Proceeds from maturities of investment securities -- -- 5,000
Proceeds from maturities and pay downs of securities available for sale 16,838 14,773 7,976
Proceeds from sale of securities available for sale 1,303 6,487 6,398
Proceeds from maturities of securities held to maturity 8,500 (9,929) --
Purchase of securities available for sale (16,136) -- (21,530)
Purchase of securities held to maturity (48,604) -- --
Net increase in loans receivable (72,348) (7,671) (28,827)
Acquisition of premises and equipment (504) (286) (767)
Purchase of life insurance (1,471) -- --
Purchase of bank franchise (4,065) -- --
Purchase of investments in certificates of deposits (2,125) -- --
Proceeds from sale of fixed assets -- -- 2
Improvements to real estate owned -- 21 --
--------- --------- ---------
Net cash provided by (used in) investing activities (118,612) 3,395 (31,748)
Cash flows from financing activities:
Issuance of capital stock 14,519 -- 6,915
Net increase in deposits 119,945 746 40,316
Principle payments under capital lease obligation 7 -- --
--------- --------- ---------
Net cash provided by financing activities 134,471 746 47,231
Net increase in cash and cash equivalents 19,937 5,692 16,270
Cash and cash equivalents, beginning of period 30,139 24,447 8,177
Cash and cash equivalents, end of period $ 50,076 $ 30,139 $ 24,447
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Bank of Los Angeles
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31,
(dollars in thousands) -----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by operating activities
Net income $ 3,731 $ 1,001 $ 646
Adjustments for non-cash items:
Depreciation, amortization and accretion 666 492 541
Provisions (credit) for credit losses 410 750 (311)
Credit to tax expense (372) -- --
Net realized losses on securities -- 5 46
Gain on sale of loans -- -- (118)
Loss on sale of fixed assets -- -- 69
(Decrease) increase in deferred loan income 42 (473) 54
Decrease (increase) in accrued interest receivable (902) 312 (281)
(Decrease) increase in other assets 20 (103) 33
(Decrease) increase in interest payable and other liabilities 483 (433) 108
------- ------- -------
------- ------- -------
Net cash provided by operating activities $ 4,078 $ 1,551 $ 787
------- ------- -------
------- ------- -------
Supplemental disclosure of non-cash transactions:
Change in unrealized gain (loss) on securities available for sale $ 172 $ (360) $ 613
------- ------- -------
------- ------- -------
Transfer of real estate owned from loans receivable $ 902 $ -- $ 518
Transfer of securities from available for sale to held to maturity $ 8,000 $ -- $ --
Transfer of securities from held to maturity to available for sale $ -- $ -- $ 9,885
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
BANK OF LOS ANGELES
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1997, 1996, and 1995
Note A - Summary of Significant Accounting Policies
1. Basis of Presentation
On October 23, 1995, the Bank of Los Angeles ("BKLA") merged with its
parent corporation, BKLA Bancorp ("Bancorp"), eliminating the bank holding
company. The merger resulted in one share of BKLA common stock being issued for
every five shares of Bancorp stock. All share amounts have been adjusted to
reflect this one-for-five reverse stock split.
2. Use of 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. Estimates
that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowance may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review BKLA's
allowance for losses on loans and foreclosed real estate. Such agencies may
require BKLA to recognize additions to the allowance based on their judgements
about information available to them at the time of their examination. Because of
these factors, it is reasonably possible that the allowance for losses on loans
and foreclosed real estate may change.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks, investments
with terms to maturity at acquisition of three months or less, and federal funds
sold. For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
captions "Cash and due from banks" and "Federal funds sold".
4. Investment Securities
BKLA classifies its investment securities in two categories: securities
available for sale and securities held to maturity. Securities available for
sale are stated at fair value, with net unrealized gains and losses reported as
a separate component of shareholders' equity. Securities held to maturity are
stated
8
<PAGE>
at cost, adjusted for amortization of premiums and accretion of discounts which
are recognized in interest income using a method which approximates the interest
method over the period to maturity. The amortized cost or carrying value of the
specific security sold is used to compute the gain or loss on the sale.
BKLA implemented Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994 which addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and all investments
in debt securities. Under this statement, investments will be classified into
three categories, as follows:
- Securities held to maturity - Debt securities that BKLA has the
positive intent and ability to hold to maturity. These securities are
to be reported at amortized cost.
- Trading Securities - Debt and equity securities that are bought and
held for the purpose of selling them in the near term. These
securities are to be reported at fair values, with unrealized gains
and losses included in earnings.
- Securities Available for Sale - Debt and equity securities not
classified as either held-to-maturity or trading securities. These
securities are to be reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity (net of tax effects).
5. Loans Receivable
Loans generally are stated at their outstanding unpaid principal balances
net of any deferred fees or costs on originated loans, or unamortized premiums
or discounts on purchased loans. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income using the
interest method. Loan origination fees net of certain direct origination costs
are deferred and recognized as an adjustment of the yield (interest income) of
the related loans.
Non-accrual loans. Generally, a loan (including a loan impaired under SFAS
No. 114) is classified as non-accrual and the accrual of interest on such loan
is discontinued when the contractual payment of principal or interest has become
90 days past due or management has serious doubts about further collectibility
of principal or interest, even though the loan currently is performing. A loan
may remain on accrual status if it is in the process of collection and is either
guaranteed or well secured. When a loan is placed on non-accrual status, unpaid
interest is reversed. Interest received on non-accrual loans is generally either
applied against principal or reported as interest income, according to
management's judgement as to the collectibility of principal. Generally, loans
are restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
6. Allowance for Credit Losses
9
<PAGE>
The allowance for credit losses is established through provisions for
credit losses charged against income. Loans deemed to be uncollectible are
charged against the allowance for credit losses, and subsequent recoveries, if
any, are credited to the allowance.
BKLA adopted SFAS No. 114, (as amended by SFAS No. 118), "Accounting by
Creditors for Impairment of a Loan" on January 1, 1995. The statement generally
requires those loans identified as "impaired" to be measured at the present
value of expected future cash flows discounted at the loans' effective interest
rate, except that as a practical expedient, a creditor may measure impairment
based on a loan's observable market price, or the fair value of the collateral
if the loan is collateral dependent. A loan is impaired when it is probable the
creditor will not be able to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
The allowance for credit losses is maintained at a level believed adequate
by management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on BKLA's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires estimates, including the
amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
7. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation on furniture, fixtures and equipment is computed
using the straight-line method over the estimated useful lives of the related
assets, which range from three to ten years. Capitalized leases are amortized
over the term of the lease on the straight-line method. Leasehold improvements
are amortized over the term of the lease or the estimated useful lives of the
improvements, whichever is shorter, and computed on the straight-line method.
8. Other Real Estate Owned
BKLA records other real estate owned at the fair value of the real estate
less management's estimates of selling costs as of the date of foreclosure. Loan
balances in excess of fair value of real estate acquired at the date of
foreclosure are charged to the allowance for credit losses. An allowance is
recorded against the foreclosed assets for any subsequent declines in fair
value. Any subsequent operating expenses or income, reduction in fair value, and
gains or losses on disposition of such properties are charged to current
operations.
9. Income Taxes
Provisions for income taxes are based on amounts reported in the statements
of income (after exclusion of non-taxable income such as interest on state and
municipal securities) and include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial statement purposes.
Deferred taxes are computed on the liability method as prescribed in SFAS No.
109 "Accounting for Income Taxes".
10
<PAGE>
10. Earnings Per Share and Diluted Earnings Per Share
BKLA determines Earnings Per Share (EPS) as proscribed in SFAS No. 128
"Earnings Per Share". EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Shares issued during the period and shares reacquired during the
period are weighted for the portion of the period they are outstanding. In the
computation of diluted EPS, the computation is the same as EPS except the
denominator is increased to include the number of additional shares that would
have been outstanding if the dilutive potential common shares had been issued.
For BKLA, potential dilutive additional shares are its warrants and stock
options outstanding. The dilutive effect of outstanding warrants and stock
options is reflected in diluted EPS by the application of the treasury stock
method. Exercise of warrants and stock options is assumed at the beginning of
the period. The proceeds from the assumed exercise of warrants and options is
assumed to be used to purchase common stock at the average price during the
period. The incremental shares assumed from the difference between the number of
shares assumed issued and the number of shares assumed purchased is included in
the denominator of the diluted EPS computation.
11. New Accounting Pronouncements
In June, 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
This statement divides comprehensive income into net income and other
comprehensive income. For BKLA, the primary component to be included in other
comprehensive income will be unrealized gains and losses on certain investments
in debt and equity securities. BKLA will adopt the two statement approach and
present the statement of income and statement of comprehensive income
separately. Management believes that the adoption of this statement will not
have a material impact on BKLA's financial statements.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement changes current practice
under SFAS No. 14 by establishing a new framework on which to base segment
reporting (referred to as the management approach) and also requires certain
related disclosures about products and services. geographic areas and major
customers. The disclosures are required for the year ending December 31, 1998.
12. Reclassifications
Certain reclassifications have been made to prior years financial
statements to conform to the current year's presentation.
13. Stock Options
BKLA has elected to continue to apply Accounting Principals Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees", to all its
stock-based employee compensation arrangements. APB No. 25 uses the intrinsic
value based method. Under this method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. Most fixed stock
options plans have no intrinsic
11
<PAGE>
value at grant date, and under APB No. 25, no compensation cost is recognized
for them. BKLA complies with the disclosure requirements of SFAS No. 123
"Accounting for Stock-Based Compensation".
12
<PAGE>
Note B - Regulatory Matters
1. Enforcement Actions
The Federal Deposit Insurance Corporation ("FDIC") on June 15, 1995 issued
an order terminating its "Order to Cease and Desist" which was issued on March
10, 1994 and which placed certain restrictions on BKLA. The Federal Reserve Bank
of San Francisco, on June 22, 1995, notified BKLA that it was terminating,
effective June 23, 1995, its "Memorandum of Understanding", entered into on
April 11, 1994, which placed certain restrictions on BKLA. On December 22, 1994,
the Superintendent of Banks, State of California delivered to BKLA an impairment
order pursuant to California Financial Code Section 662 to correct its capital
impairment. BKLA was impaired because its accumulated deficit was greater than
40% of "Net Contributed Capital". As of June 30, 1995, the impairment was cured
due to the infusion of capital (see Note P), and as a result the accumulated
deficit was less than this 40% threshold.
2. Capital Requirements
BKLA is subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possible additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on BKLA's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, BKLA must meet specific capital
guidelines that involve quantitative measures of BKLA's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. BKLA's capital amounts and reclassifications are also subject to
qualitative judgements by the regulators regarding components, risk weightings
and other factors.
Quantitative measures established by regulators to ensure capital adequacy
require BKLA to maintain minimum amounts and ratios to total and Tier 1 capital
to risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1997, that BKLA meets all capital adequacy
requirements to which it is subject.
BKLA's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
Capital Needed
-----------------------------------------------
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Provisions
----------------- --------------------- -----------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital to risk-weighted assets $ 25,885 14.6% $14,216 8.0% $17,770 10.0%
Tier 1 capital to risk-weighted assets 23,654 13.3% 7,108 4.0% 10,662 6.0%
Tier 1 capital to average assets 23,654 8.9% 10,583 4.0% 13,229 5.0%
As of December 31, 1996:
Total capital to risk-weighted assets $ 10,938 13.4% $ 6,539 8.0% $ 8,173 10.0%
Tier 1 capital to risk-weighted assets 9,908 12.1% 3,269 4.0% 4,904 6.0%
Tier 1 capital to average assets 9,908 7.8% 5,088 4.0% 6,360 5.0%
</TABLE>
13
<PAGE>
3. Dividend Restrictions
The California Financial Code provides that a bank may not make a cash
distribution to its shareholders in excess of the lessor of the bank's undivided
profits or the bank's net income for its last three fiscal years less the amount
of any distribution made by the bank to shareholders during the same period.
Retained earnings available for dividends were $472,000 at December 31, 1997.
The FDIC and the Federal Reserve Board have established guidelines with
respect to the maintenance of appropriate levels of capital by banks under their
jurisdiction. Compliance with the standards set forth in such guidelines limits
the amount of dividends which BKLA may pay.
4. Reserve Requirements
BKLA is required to maintain average reserve balances with the Federal
Reserve Bank. On December 31, 1997 and 1996, the reserve requirement was
approximately $2,044,000, and zero, respectively.
5. FDIC Insurance
The FDIC is a U. S. Government corporation that insures the deposits of
Federal Reserve System member banks and non-member banks. The FDIC provides
insurance on deposits up to $100,000. In return for this protection, BKLA pays
an assessment based on total deposits. The FDIC is responsible for supervision
of state chartered, FDIC insured banks that are not members of the Federal
Reserve System. As a state chartered, non-member bank, BKLA is subject to the
supervision of the FDIC.
14
<PAGE>
Note C - Investment Securities
The amortized cost and estimated fair values of investment securities as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Estimated Fair ----------------------
(dollars in thousands) Cost Value Losses Gains
--------- -------------- -------- -----------
<S> <C> <C> <C> <C>
Securities available for sale
Mortgage backed debt .................................. $11,480 $11,432 $ 48 $ --
Common stock .......................................... 863 863 -- --
------- ------- ------- -------
12,343 12,295 48 --
Securities held to maturity
Debt of U. S. Treasury, U.S. Agencies and corporations 42,928 43,043 -- 115
Mortgage backed debt .................................. 5,210 5,204 6 --
------- ------- ------- -------
48,138 48,247 6 115
$60,481 $60,542 $ 54 $ 115
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The amortized cost and estimated fair values of investment securities
as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Estimated Fair ----------------------
(dollars in thousands) Cost Value Losses Gains
--------- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available for sale
Securities of U.S. Government agencies and corporations$ 10,994 $11,010 $ 1 $ 17
Mortgage backed securities .............................. 10,852 10,616 236 --
SBA securities .......................................... 500 500 -- --
------- ------- ------- -------
$22,346 $22,126 $ 237 $ 17
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The maturity distribution of investment securities at December 31, 1997
is as follows:
<TABLE>
<CAPTION>
Amortized Estimated Weighted
(dollars in thousands) Cost Fair Value Average Rate
---------- ------------ -------------
<S> <C> <C> <C>
Securities available for sale
Mortgage backed debt ................................... $11,479 $11,432 5.6%
Securities held to maturity
Debt of U. S. Treasury, U. S. Agencies and corporations
Less than three months ............................ 12,000 12,006 5.8%
Three months through one year ..................... 14,476 14,511 5.9%
One year through two years ........................ 16,452 16,526 6.1%
Greater than two years ............................ -- -- --
Mortgage backed debt ................................. 5,210 5,204 6.3%
----- ----- ---
48,138 48,247
$59,617 $59,679 5.9%
======= =======
</TABLE>
15
<PAGE>
The basis on which cost were determined in computing realized losses on
sale of securities available for sale for the years 1997, 1996 and 1995 were the
specific identification method. Information relating to sales of securities is
as follows for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------
(dollars in thousands) 1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Proceeds from sale of securities $ 1,303 $ 6,487 $ 6,398
Gross realized losses $ --- $ 17 $ 46
Gross realized gains $ --- $ 12 $ ---
</TABLE>
Certain securities were pledged as collateral for public funds and for
other purposes as required or permitted by law. These securities had carrying
values of $3,497,000 and $3,980,000 at December 31, 1997 and 1996, respectively,
and estimated fair values of $3,487,000 and $3,946,000 at December 31, 1997 and
1996, respectively.
Note D - Loan Portfolio
The following table presents loans by collateral and the percentage of each
category of collateral to total loans.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
---------------------------------------------------------------------------------------------
(dollars in Amount Percentage Amount Percentage Amount Percentage
thousands)
----------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans ............... $ 45,199 31.6% $ 17,967 24.7% $ 20,679 31.2%
Real estate loans
Single family ...... 8,979 6.3% 8,328 11.5% 8,123 12.3%
Multi-family ....... 9,694 6.8% 3,672 5.1% 3,612 5.5%
Construction ....... 9,336 6.5% 5,002 6.9% 2,851 4.3%
Commercial ......... 53,847 37.7% 29,414 40.4% 25,257 38.1%
--------- --------- ---------
Total real estate
loans 81,856 57.3% 46,416 63.9% 39,843 60.2%
--------- --------- ---------
Consumer loans ................. 15,302 10.7% 8,323 11.4% 5,690 8.6%
Other .......................... 552 0.4% -- --
Total loans ..... 142,909 100.0% 72,706 100.0% 66,212 100.0%
Less deferred loan income ...... (276) (440) (191)
Less allowance for
loan losses ................ (2,819) (1,682) (2,358)
--------- --------- ---------
Net loans $ 139,814 $ 70,584 $ 63,663
--------- --------- ---------
--------- --------- ---------
</TABLE>
16
<PAGE>
1. Loan Portfolio Risk Elements
The following table presents loans past due 30 to 89 days, loans on
non-accrual and loans that have been restructured to more favorable terms than
originally contracted for due to the creditworthiness of the borrower.
<TABLE>
<CAPTION>
At December 31,
------------------------------
(dollars in thousands) 1997 1996
------------- -------------
<S> <C> <C>
Past due 30 to 89 days $ 3,404 $ 679
Past due 90 days 172 ---
Non-accrual 4,265 2,794
Restructured --- 224
------------- -------------
Total $ 7,841 $ 3,697
------------- -------------
------------- -------------
</TABLE>
Note E - Allowance for Credit Losses
Activity in the allowance for credit is presented below:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Balance, January 1, 1995 $ 1,633
Recoveries of charge-offs 311
Credit for credit losses to operations (311)
Charge-offs (407)
Addition due to acquisition 1,132
---------------
Balance, December 31, 1995 2,358
Recoveries of charge-offs 203
Provision charged to operations 750
Charge-offs (1,629)
---------------
Balance, December 31, 1996 1,682
Recoveries of charge-offs 554
Provision charged to operations 410
Charge-offs (1,709)
Additions due to acquisitions 1,882
---------------
Balance, December 31, 1997 $ 2,819
---------------
---------------
</TABLE>
At December 31, 1997, the recorded investment in loans considered to be
impaired under SFAS No. 114 was $4,490,000 of which $4,265,000 were classified
as non-accrual. At December 31, 1997, $689,000 of the allowance for credit
losses was allocated to impaired loans. The average recorded investment in
impaired loans during the year ended December 31, 1997 was approximately
$2,216,000. For the year ended December 31, 1997, interest income from impaired
loans outstanding at December 31,
17
<PAGE>
1997 would have been $510,000 is those loans had been performing in accordance
with their original terms and had been outstanding throughout the period.
At December 31, 1996, the recorded investment in loans considered to be
impaired under SFAS No. 114 was $2,794,000. All loans considered impaired at
December 31, 1996, were classified as non-accrual. At December 31, 1996,
$661,000 of the allowance for credit losses was allocated to impaired loans. The
average recorded investment in impaired loans during the year ended December 31,
1996, was approximately $2,926,000. Interest income from impaired loans
outstanding would have been $292,000 and $172,000 for the years ended December
31, 1996 and 1995, respectively, if those loans had been performing in
accordance with their original terms and had been outstanding throughout the
period.
Note F - Transactions Involving Officers and Directors
In the ordinary course of business, BKLA has granted and extended loans to
certain directors, executive officers and the companies with which they are
associated. All such loans and commitments to lend were made under terms which
are consistent with the Bank=s normal lending policies.
The following is an analysis of all such loans as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(dollars in thousands) 1997 1996
--------------- --------------
<S> <C> <C>
Outstanding balance, beginning of period $ 622 $ 1,992
Credit granted, including renewals 1,343 206
Repayments (364) (275)
Reclassifications due to resignations --- (1,301)
--------------- --------------
Outstanding balance, end of period $ 1,601 $ 622
--------------- --------------
--------------- --------------
</TABLE>
Interest earned on these loan transactions approximated $70,000, $127,000
and $172,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The lease for the Encino branch is with American West Associates, a general
partnership consisting of, among others, directors Shaw and Sterman and former
director Rubinstein. The Board of Directors has determined that the lease is no
less favorable to BKLA than a similar lease with a third party.
18
<PAGE>
Note G - Premises and Equipment
Premises and equipment consist of the following as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(dollars in thousands) 1997 1996
------------------- ----------------
<S> <C> <C>
Premises under capital lease $ 1,749 $ 1,749
Leasehold improvements 2,531 2,359
Furniture, fixtures and equipment 866 626
5,146 4,734
Less accumulated depreciation and amortization 2,496 1,936
------------------- ----------------
$ 2,650 $ 2,798
------------------- ----------------
------------------- ----------------
</TABLE>
For the year ended December 31, 1995, fixed assets of $3,443,000 that were
no longer in use or existence were removed from the books. These assets were
fully depreciated except for salvage value. The loss realized was $66,000.
Note H - Other Assets
Included in other assets at December 31, 1997, is goodwill from the World
Trade Bank acquisition of $1,476,000 and from the Culver National Bank
acquisition of $4,264,000. The goodwill associated with the American West Bank
acquisition was reduced to zero by the application of the benefit of federal tax
operating loss carryforwards. Refer to Note Q for purchases of assets and
liabilities. Other assets at December 31, 1997, also included the amortized
balance of $1,515,000 associated with the purchase of the leasehold interest at
the Beverly Hills Branch. Goodwill and the purchased leasehold interest are
deductions from capital in computation of regulatory capital ratios.
Note I - Deposit Accounts
Interest expense for certificates of deposit of $100,000 or more was
$901,000, $643,000 and $423,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Deposits have historically been the major source of the Bank's funds for
lending and investments. Non-interest bearing demand deposits are payable
immediately upon demand or are issued with an original maturity or required
notice period of less than seven days. On interest bearing demand accounts the
Bank has reserved the right to require at least seven days written notice prior
to withdrawal of any funds in that account. Money market accounts are interest
bearing and are limited to six transfers to third parties. Savings deposits are
interest bearing and do not allow third party transfers. Time deposits have a
minimum maturity of seven days and are subject to early withdrawal penalties.
The following table presents the maturity distribution of time certificates
of deposit at December 31, 1997, in thousands.
19
<PAGE>
<TABLE>
<S> <C>
Three months or less $23,975
Three to twelve months 21,775
One year to three years 7,916
Three years 342
-------
$54,008
-------
-------
</TABLE>
Note J - Commitments and Contingencies and Related Party Transactions
1. Leases
BKLA's six branches are leased, five under operating leases and one under a
capital lease. Rental expense related to operating leases amounted to
approximately $971,000, $458,000 and $306,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
BKLA's Corporate office and West Hollywood branch is located at 8901 Santa
Monica Boulevard, West Hollywood, California on the corner of San Vicente
Boulevard. The lease expires June 30, 2002. The Beverly Hills West branch office
is adjacent to Century City at 9944 Santa Monica Boulevard, Beverly Hills,
California. This location is used both for branch and back office operations.
This lease expires January 31, 1999. The Encino branch office is located at
16861 Ventura Boulevard, Encino, California. The lease expires February 21,
2001. The Glendale branch office is located at 701 North Brand Boulevard,
Glendale, California. The lease expires June 30, 2002. The Culver City branch
office is located at 5399 Sepulveda Boulevard, Culver City. The lease expires
October 31, 1999.
The Beverly Hills branch office is located at 9601 Wilshire Boulevard,
Beverly Hills, California. The branch has 20,886 square feet of space, of which
12,628 is subleased to a major brokerage firm until January 31, 2003. The term
of the lease is to June 30, 2007 with two ten year options. The contractual
lease payments have been capitalized and are presented as a capital lease funded
by an obligation under capital lease on the balance sheets. The cash paid to
assume this lease is presented as an intangible asset on the balance sheet and
is a deduction from regulatory capital. Future minimum rental commitments under
non-cancelable leases are:
<TABLE>
<CAPTION>
Capitalized Operating
(dollars in thousands) Lease Leases
-------------- -------------
<S> <C> <C>
For the years ended December 31,
1998 $ 253 $ 1,138
1999 253 683
2000 253 547
2001 253 558
2002 253 139
Thereafter 7,351 ---
8,616 3,065
-------------- -------------
Less amount representing interest imputed at 14% 6,767 ---
-------------- -------------
$ 1,849 $ 3,065
-------------- -------------
-------------- -------------
</TABLE>
20
<PAGE>
The capitalized lease is two floors of a multi-story office building. The branch
is on the ground floor and the upper floor is subleased. The minimum rental
commitments for the capitalized lease in the above schedule have not been
reduced for subleasing income. Future minimum rents receivable under the
non-cancelable sublease are:
<TABLE>
<CAPTION>
(dollars in thousands) Capitalized
For the years ended December 31, Lease
-------------
<S> <C>
1998 $ 305
1999 310
2000 310
2001 310
2002 310
Thereafter 26
-------------
1,571
-------------
-------------
</TABLE>
2. Litigation
In the ordinary course of business, BKLA becomes involved in litigation. In the
opinion of management, based upon consultation with BKLA=s legal counsel, the
disposition of such litigation will not have a material effect on the BKLA=s
financial position.
3. Off-Balance-Sheet Items
BKLA is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
manage the Bank=s interest rate risk. These financial instruments include
commitments to extend credit. When viewed in terms of the maximum exposure,
those instruments may involve, to varying degrees, credit and interest-rate risk
in excess of the amount recognized in the balance sheet. At December 31, 1997,
and 1996, undisbursed loan commitments approximated $33,433,000 and $12,222,000,
respectively, of which $141,000 and $274,000, respectively represented standby
letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the 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 Bank uses the
same credit policies in making commitments and conditional obligations as it
does for extending loan
21
<PAGE>
facilities to customers. The Bank evaluates each customer=s creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management=s credit evaluation of
the counterpart. Collateral held varies but may include accounts receivable:
inventory: property, plant and equipment; and income-producing commercial
properties.
Note K - Shareholders Equity
1. Stock Option Plan
BKLA has a stock option plan that originally provided for the issuance of up to
372,610 shares of the Bank=s authorized but unissued common stock to all
employees, employees directors and non-employee directors. Employees and
employee directors are eligible to receive incentive and non-qualified stock
options. Non-employee directors are only eligible to receive non-qualified stock
options. The Bank may issue incentive stock options provided that the aggregate
fair market value (determined at the time the incentive stock option is granted)
of the stock with respect to which incentive stock options are exercisable for
the first time by the optionee during any calendar year shall not exceed
$100,000. Should it be determined that any incentive stock option granted
pursuant to the 1988 option plan exceeds such maximum, such incentive stock
option shall be considered to be a non-qualified stock option and not to qualify
for treatment as an incentive stock option under Section 422A of the Code to the
extent, but only to the extent, of such excess. Option prices may not be less
than 100% of the fair market value at the date of the grant. Options granted
under the stock option plan expire not more than ten years after the date of
grant and must be fully paid when exercised. BKLA assumed BKLA Bancorp=s stock
option plan. The shares under option reflect the one-for-five reverse split. The
Bank has not reduced the number of shares available in the plan. The plan will
expire March 23, 1998.
SFAS No. 123, "Accounting for Stock-Based Compensation", specifies a fair value
based method of accounting for stock-based compensation plans and encourages
entities to adopt that method in place of the provisions of APB No. 25,
"Accounting for Stock Issued to Employees." Under the fair value based method of
SFAS No. 123, compensation cost is measured at the grant date based on the value
of the award and is recognized over the period in which the related employee
services are rendered. APB No. 25 uses the intrinsic value based method. Under
the intrinsic value based method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. SFAS No. 123 permits
an entity in determining its net income to continue to apply the accounting
provisions of APB No. 25, but to comply with the disclosure requirements of SFAS
No. 123.
BKLA has elected to continue to apply APB No. 25 to all its stock-based employee
compensation arrangements. Accordingly, no compensation cost has been recognized
BKLA's fixed stock option plan. For the year ended December 31, 1997, if
compensation cost for stock options granted had been determined, based on the
fair value at the grant dates consistent with the method of SFAS No. 123, BKLA's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
22
<PAGE>
<TABLE>
<S> <C> <C>
Net income, in thousands As reported $ 3,731
Pro forma 3,604
Basic earnings per share As reported $ 1.16
Pro forma 1.12
Diluted earnings per share As reported $ 1.00
Pro forma 0.96
</TABLE>
Had the compensation cost for BKLA's fixed stock option plan been determined on
the fair value at the grant date for the options under the plan consistent with
the method of SFAS No. 123, BKLA's net income and earnings per share would have
been reduced to pro forma amounts and presented for the year ended December 31,
1996. For the year ended December 31, 1996, no options were vested and pro forma
net income and net income per share are the same as reported in the statement of
operations.
The fair value of options granted in 1997 (unaudited) was estimated on the date
of grant using the Black- Scholes option pricing model with the following
assumption used:
- - Dividend yield of zero percent
- - Expected volatility of 23.4%
- - Expected life for option - ten years for ten year options
- - Risk free interest rate of 6.4% for options expiring in ten years
The fair value of options granted in 1996 (unaudited) was estimated on the date
of grant using the Black- Scholes option-pricing model with the following
assumptions used:
- - Dividend yield of zero percent
- - Expected volatility of 23.9%
- - Expected life for option - ten years for ten year options
- - Risk free interest rate of 6.4% for options expiring in ten years
The value of each individual option granted was $3.68 and $2.11 for options
granted in the year ended December 31, 1997 and 1996, respectively. The value of
all options granted was $243,000 and $619,000 for the years ended December 31,
1997 and 1996, respectively.
A summary of the status of BKLA's fixed stock option plan and changes during the
years ended December 31, 1997, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
For the Year Ending December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 136,041 $ 6.03 9,353 $30.89 21,056 $21.07
Granted 168,300 $ 6.90 132,800 $ 4.00 -- $ --
Exercised (1,300) $ 4.00 -- $ -- (760) $ 5.00
Forfeited (4,300) $ 4.00 (6,112) $ -- (10,943) $13.86
------- -------- -------
Outstanding at end of year 298,741 $ 5.88 136,041 $ 6.03 9,353 $30.89
------- -------- -------
------- -------- -------
</TABLE>
23
<PAGE>
The following table summarizes information about stock options at December 31,
1997 (unaudited).
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------------
Weighted Weighted
Number Average Weighted Number Average
Range of Outstanding at Remaining Average Exercisable at Exercise Price
Exercise Price December 31, 1997 Contractual Life Exercise Price December 31, 1997
- ----------------- ------------------ ----------------- --------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 3.75 380 6.3 $ 3.75 380 $ 3.75
$ 4.00 127,200 8.1 $ 4.00 31,800 $ 4.00
$ 6.25 380 5.3 $ 6.25 380 $ 6.25
$ 6.90 168,300 9.3 $ 6.90 --- $ 6.90
$ 17.80 380 4.3 $ 17.80 380 $ 17.80
$ 31.80 1,441 0.2 $ 31.80 1,441 $ 31.80
$ 44.30 660 1.8 $ 44.30 660 $ 44.30
------------------ ---------------------
$3.75 to $44.30 298,741 8.7 $ 5.88 35,041 $ 6.07
------------------ ---------------------
------------------ ---------------------
</TABLE>
2. Warrants
At December 31, 1997, 1996 and 1995, BKLA had 657,845, 690,336 and 690,336,
respectively, outstanding warrants that allow the holder to purchase one share
of the BKLA=s common stock for $3.75. These warrants will expire on December 1,
1998. Warrants are a component in determining weighted average number of shares
in computing earnings per share.
Note L - Income Taxes
An income tax benefit of $372,000 was recognized for the year ended December 31,
1997, resulting from BKLA net operating loss carryforwards; no income tax
expense has been realized for the years ended December 31, 1996 and 1995. As of
December 31, 1997, BKLA had federal net operating loss carryforwards in the
amount of approximately $2,900,000, of which approximately $955,000 will not
begin to expire until the year 2005. BKLA estimates that federal net operating
loss carryforwards are available to be applied against taxable income with
annual limitations over fifteen years. As of December 31, 1997, BKLA had
California net operating loss carryforwards that may be applied to reduce
taxable income of approximately $1,500,000 with annual limitations.
BKLA estimates that approximately $700,000 and $800,000 will expire in the tax
years ending December 31, 1998 and 1999, respectively.
Components in the provision for income tax expense are presented in the
table below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
(dollars in thousands) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tax provision applicable to income before income taxes $(372) $-- $--
----- ----- -----
----- ----- -----
Federal income tax - deferred (463) -- --
State Franchise Tax
Current 91 1 1
Deferred -- (1) (1)
Total State Franchise Tax 91 -- --
----- ----- -----
Total income taxes $(372) $-- $--
----- ----- -----
----- ----- -----
</TABLE>
24
<PAGE>
Deferred tax expense/(credits) result from timing differences in the
recognition of revenues and expenses for tax and financial statement purposes.
The source of these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ------------------------- ------------------------
(dollars in thousands) Federal State Federal State Federal State
----------- ------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax effect of revenue and expenses reported
on a different basis for tax purposes $ --- $ --- $ --- $ (1) $ --- $ (1)
Net losses (463) --- --- --- --- ---
----------- ------------ ----------- ---------- --------- -----------
Total $ (463) $ --- $ --- $ (1) $ --- $ (1)
=========== ============ =========== ========== ========= ===========
</TABLE>
Additional deferred tax benefits were recognized in the amount of
$1,350,000 as a result of net operating loss carrybacks and carryforwards from
the acquisition of WTB and AWB. The recognition of the tax benefits reduced
goodwill applicable to the purchases and did not affect revenues and expenses.
As a result of the following items, the total income tax expense for 1997,
1996 and 1995, were different than the amount computed by applying the statutory
U. S. Federal income tax rate to income before taxes.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ---------------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
(dollars in thousands) Amount Income Amount Income Amount Income
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal rate $ 1,143 34.0 $ 340 34.0 $ 220 34.0
Changes due to income tax ,
net of Federal tax benefit 242 7.2 75 7.5 48 7.5
Loss (recognition)/non-recognition) (1,757) (52.3) (415) (41.5) (268) (41.5)
----------- ----------- ----------- ----------- ----------- -----------
Total $ (372) 11.1 $ --- --- $ --- ---
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The deferred tax assets and liabilities of BKLA are composed of the
following tax-affected cumulative timing differences.
25
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets
Net losses $ 2,510 $ 815
Other 10 24
------------- -------------
2,520 839
Less valuation allowance1 (146) (289)
------------- -------------
2,374 550
------------- -------------
Deferred tax liabilities
Reserve for credit losses --- (185)
Fixed assets (539) (365)
Other (22)
------------- -------------
(561) (550)
------------- -------------
Net deferred tax assets $ 1,813 $ ---
------------- -------------
------------- -------------
</TABLE>
Note M - Profit Sharing Plan
BKLA has a defined contribution plan (the APlan@) which qualifies for
salary deferral under Internal Revenue Code Section 401(k). The Plan provides
that employees may contribute up to the lesser of the amount allowed by law or
20% of their annual gross salary. In addition, BKLA may make discretionary
matching contributions under the 401(k) provisions of the Plan as well as
discretionary profit-sharing contributions. BKLA contributed $50,000, $38,000,
and $14,000 for the years ended December 31, 1997, 1996 and 1995, respectively,
under the provisions for matching employee contributions. BKLA did not make any
discretionary profit-sharing contributions for the years ended December 31,
1997, 1996, or 1995.
Note N - Selected Quarterly Data (unaudited)
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
( dollars in thousands ) First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 2,535 $ 4,116 $ 3,972 $ 4,231 $ 14,854
Interest expense 741 1,005 1,081 1,104 3,931
Net interest income before provision
for credit losses 1,794 3,111 2,891 3,127 10,923
Provision for credit losses 85 325 --- --- 410
Non-interest income 261 368 392 367 1,388
Non-interest expense 1,577 2,512 2,277 2,176 8,542
Net income before taxes 393 642 1,006 1,318 3,359
Income tax credit $ --- $ --- $ --- $ (372) $ (372)
Net income $ 393 $ 642 $ 1,006 $ 1,690 $ 3,731
Diluted earnings per share $ 0.15 $ 0.16 $ 0.24 $ 0.40 $ 1.00
</TABLE>
- --------
1 The valuation allowance is management's estimate of amounts more
likely than not of being realized due to uncertainty regarding future
income based on prior results. The allowance is largely attributable
to unused losses previously incurred and overall limitations on other
deferred tax assets. The allowance changed during the 1996 year by
$1,000 which was due to realization of the current portion for state
taxes.
26
<PAGE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
( dollars in thousands ) First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 2,655 $ 2,612 $ 2,631 $ 2,663 $ 10,561
Interest expense 788 795 758 746 3,087
Net interest income before provision
(credit) for credit losses 1,867 1,817 1,873 1,917 7,474
Provision (credit) for credit losses 30 90 520 110 750
Non-interest income 251 269 246 271 1,037
Non-interest expense 1,766 1,730 1,596 1,668 6,760
Net income before taxes 322 266 3 410 1,001
Net income $ 322 $ 266 $ 3 $ 410 $ 1,001
Diluted earnings per share $ 0.13 $ 0.11 $ 0.00 $ 0.16 $ 0.40
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------
First Second Third Fourth
( dollars in thousands ) Quarter Quarter Quarter Quarter Total
------------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 1,520 $ 1,524 $ 1,605 $ 2,170 $ 6,819
Interest expense 424 369 431 628 1,852
Net interest income before provision
(credit) for credit losses 1,096 1,155 1,174 1,542 4,967
Provision (credit) for credit losses --- (182) (78) (51) (311)
Non-interest income 174 179 184 269 806
Gain/(loss) on security sales, net --- (1) (32) (13) (46)
Gain on sale of loans --- --- 118 --- 118
Non-interest expense 1,332 1,449 1,238 1,491 5,510
Net income (loss) before taxes (62) 66 284 358 646
Net income $ (62) $ 66 $ 284 $ 358 $ 646
Diluted earnings (loss) per share $ (0.25) $ 0.05 $ 0.20 $ 0.22 $ 0.51
</TABLE>
Note O - Merger of BKLA Bancorp into Bank of Los Angeles
On October 23, 1995, Bank of Los Angeles (ABKLA@) was combined with its
parent corporation BKLA Bancorp (ABancorp@), eliminating the bank holding
company. The primary reason for this merger was to reduce the institution's
reporting requirements. Bancorp has never had any operations and its sole
function was to own the stock of the BKLA. As the result of the combining of
Bancorp into BKLA, five shares of Bancorp stock were exchanged for one share of
BKLA stock. All per share amounts have been adjusted to reflect this exchange.
27
<PAGE>
Note P - Infusion of Capital
On March 31, 1995, BKLA completed the issuance of 2,365,880 units of
securities (AUnits@) to Investors Banking Corporation (AIBC@), a bank holding
company located in Salem, Oregon, and received proceeds of approximately
$3,440,000, net of costs of approximately $110,000. Each Unit was comprised of
two shares of BKLA=s no par value common stock and one warrant, exercisable for
three years after issuance, to purchase common stock at $0.75 per share. As a
result of this transaction, IBC purchased 4,731,760 shares of BKLA=s common
stock, representing 79% of total shares issued and outstanding as of March 31,
1995, and indirectly acquired 79% of BKLA=s issued and outstanding common stock.
Adjusted for the five-for-one reverse stock split, total shares purchased by IBC
were 946,352 shares of common stock and 473,176 warrants with an exercise price
of $3.75 per share expiring December 1, 1998.
On November 15, 1995, the acquisition of World Trade Bank, a single unit
national bank, located in Beverly Hills, California, was completed. BKLA issued
346,325 shares valued at $4.00 per share totaling $1,385,000 for World Trade
Bank stock. These shares represented 16% of the shares issued and outstanding at
December 31, 1995
On November 30, 1995, a Rights Offering to all BKLA shareholders of record
at October 24, 1995 was concluded. Each shareholder of six shares of BKLA common
stock received one right to acquire 15 shares of BKLA common stock and five
three year warrants. IBC shareholders were standby purchasers of up to 34,700
Units (520,500 shares of common stock and 173,500 warrants) not purchased by
either BKLA shareholders or BKLA employees. As a result, 651,325 shares of BKLA
Common Stock and 217,160 three-year warrants, expiring December 1, 1998 were
issued. BKLA received proceeds of $2,086,000, net of costs of approximately
$357,000. IBC shareholders were issued 467,355 shares of common stock and as a
group owned 64% of common shares issued and outstanding. On December 29, 1995,
IBC converted its shares of BKLA common stock into the names of its shareholders
so that IBC shareholders became direct owners of BKLA common stock.
Note Q - Purchase of Assets and Liabilities - Unaudited
BKLA entered into an Agreement Respecting Merger and Plan of Reorganization
dated August 29, 1997 with Culver National Bank, a one branch, nationally
chartered bank with headquarters in Culver City, California. The acquisition was
completed December 31, 1997 and accounted for as a purchase. The results of
operations of Culver National Bank are not included in the accompanying
statements. The significant components of the transaction are summarized as
follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Cash and cash equivalents $ 21,681
Fair value of other assets 34,139
Goodwill 4,264
Core deposit intangible 193
Fair value of liabilities 51,811
----------------
Stock issued for 1,155,326 shares $ 8,466
----------------
----------------
</TABLE>
28
<PAGE>
The following summarized pro forma information assumes the acquisition
had occurred January 1, 1996:
<TABLE>
<CAPTION>
For the years ended
December 31,
(dollars in thousands) -----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net interest income after
provision for credit losses $ 12,839 $ 9,051
Net income $ 4,103 $ 731
Earnings per share $ 1.16 $ 0.29
</TABLE>
BKLA entered into an Agreement and Plan of Reorganization dated October 22,
1996 with American West Bank, a two branch state chartered bank with
headquarters in Encino, California. The acquisition was completed on March 31,
1997 and accounted for as a purchase. The results of operations since the date
of acquisition are included in the accompanying statements of earnings. The
significant components of the transaction are summarized as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Cash and cash equivalents $ 10,597
Fair value of other assets 56,126
Goodwill 51
Core deposit intangible 517
Fair value of liabilities 61,365
----------------
Stock issued for 1,367,493 shares $ 5,926
----------------
----------------
</TABLE>
The following summarized pro forma information assumes the acquisition had
occurred January 1, 1995:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------
(dollars in thousands) 1996 1995
----------------- -----------------
<S> <C> <C>
Net interest income after provision for credit losses $ 10,479 $ 8,941
Net income $ 4,103 $ 1,182
Earnings per share $ 0.53 $ 0.36
</TABLE>
BKLA entered into an Agreement and Plan of Reorganization dated June 30,
1995 with World Trade Bank, a one branch, nationally chartered bank with
headquarters in Beverly Hills, California. The acquisition was completed
November 15, 1995 and accounted for as a purchase. The results of operations of
World Trade Bank are included in the accompanying statements of earnings. The
significant components of the transaction are summarized as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Cash and cash equivalents $ 2,849
Fair value of other assets 37,837
Goodwill 1,801
Fair value of liabilities 41,102
----------------
Stock issued for 346,325 shares $ 1,385
----------------
----------------
</TABLE>
29
<PAGE>
The following summarized pro forma information assumes the acquisition had
occurred on January 1, 1995
<TABLE>
<CAPTION>
( dollars in thousands )
<S> <C>
Net interest income after provision
(credit) for credit losses $ 6,820
Net loss $ (761)
Net loss per share $ (0.60)
</TABLE>
Note R - Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107 A Disclosures about Fair
Value of Financial Instruments@ (SFAS No. 107) requires disclosures of fair
value information about all financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate such value. Fair
value estimates are made at a point in time, based on relevant market
information available about the financial instrument. In cases where quoted
market prices are not available, fair values are based on estimates using
present values. The present value estimates are based on judgments regarding
future cash flow expectations, prepayment risk, perceived credit risk, economic
conditions and other subjective factors. In this regard, certain fair value
estimates cannot be realized in immediate settlement of the instrument. SFAS No
107 excludes all nonfinancial instruments from its disclosure requirements. A
value is not assigned to fee-based business. Additionally, any intangible value
derived form retaining a stable, low cost deposits base is not disclosed as part
of SFAS No. 107. The value of other non-financial instruments, such as premises
and equipment, and deferred tax assets, is also not considered. The disclosures
also do not reflect any additional premium or discount that could result from
the sale of the Bank=s entire holding of a particular financial instrument.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimated
fair value disclosures.
- - Cash and cash equivalents - Cash and cash equivalents fair values are
reported at the carrying amounts reported in the balance sheet due to the
short-term nature of the assets.
- - Securities and money market investments - Fair values are based on quoted
market prices, where available.
- - Loans - For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. Fair values of residential mortgage loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions. The fair values for other loans are estimated using
discounted cash flow analysis using discount rates approximating the
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The fair values of non-performing
loans are estimated using interest rates
30
<PAGE>
taking into account the expected return on principal over the period of
time the Bank anticipates receipt of payments. The discount rate is a rate
reflective of the higher risk surrounding these loans as compared to a
performing loan.
- - Accrued interest receivable and payable - Fair values are reported at the
carrying amount reported in the balance sheet due to the limited time these
assets and liabilities will be outstanding.
- - Deposits - The fair values for interest and non-interest-bearing demand
deposits, savings deposits, and money market saving are equal to their
carrying value. Fair value for fixed-rate certificates of deposit are
estimated using discount cash flow calculations that apply interest rates
currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
- - Off balance sheet instruments - Fair values of loan commitments and
financial guarantees are based upon fees currently charged to enter similar
agreements, taking into account the remaining terms of the agreement and
the counter parties credit standing. The Bank does not anticipate interest
rate or credit factors that would affect the fair value of commitments or
letters of credit outstanding at December 31, 1997.
The following table presents the estimates of fair values of financial
instruments at December 31, 1997.
<TABLE>
<CAPTION>
( dollars in thousands ) Carrying Amount Fair Value
-------------------- -----------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 52,201 $ 52,201
Investment securities 60,433 60,542
Loans receivable 142,633 141,882
Accrued interest receivable 1,556 1,556
Liabilities:
Non-interest bearing deposits 85,222 85,222
Interest bearing deposits 152,790 152,730
Accrued interest payable 298 298
</TABLE>
<TABLE>
<CAPTION>
Cost to Cede or
Notional Amount Assume
-------------------- -----------------
<S> <C> <C>
Commitments to extend credit and
standby letters of credit $ 33,433 $ 334
</TABLE>
The following table presents the estimates of fair values of financial
instruments at December 31, 1996.
31
<PAGE>
<TABLE>
<CAPTION>
( dollars in thousands ) Carrying Amount Fair Value
-------------------- -----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 30,139 $ 30,139
Investment securities 22,126 22,126
Loans receivable 72,266 71,782
Accrued interest receivable 654 654
Liabilities:
Non-interest bearing deposits 40,128 40,128
Interest bearing deposits 75,468 75,436
Accrued interest payable 67 67
</TABLE>
<TABLE>
<CAPTION>
Cost to Cede or
Notional Amount Assume
-------------------- -----------------
<S> <C> <C>
Commitments to extend credit and
standby letters of credit $ 12,222 $ 122
</TABLE>
32
