<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
WESTERN BANCORP
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 6712 95-3863296
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
4100 NEWPORT PLACE, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660
(949) 863-2444
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
--------------------------
JULIUS G. CHRISTENSEN, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WESTERN BANCORP
4100 NEWPORT PLACE, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660
(949) 863-2459
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
WITH COPIES TO:
STANLEY F. FARRAR, ESQ. GREGORY W. PRESTON, ESQ.
SULLIVAN & CROMWELL ROBERT NEWTON, ESQ.
1888 CENTURY PARK EAST, SUITE 2100 MCDERMOTT, WILL & EMERY
LOS ANGELES, CA 90067 1301 DOVE STREET, 5TH FLOOR
(310) 712-6600 NEWPORT BEACH, CA 92660
(949) 851-0633
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement
and the satisfaction or waiver of all other conditions to the merger described
in the enclosed Proxy Statement/Prospectus.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Common Stock, no par value.................. 3,045,943 shares $29.625 $90,236,061 $25,086
</TABLE>
(1) Represents the estimated maximum number of shares of Western Bancorp
("Western") common stock that may be issued upon consummation of the merger
(the "Merger") of PNB Financial Group ("PNB") with and into Western.
(2) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended, the
registration fee is based on the average of the high and low sale prices on
November 11, 1998 of the PNB common stock on the Nasdaq National
Market-Registered Trademark- and computed based on the estimated maximum
number of shares of PNB common stock that may be converted into shares of
Western common stock to be registered.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PNB FINANCIAL GROUP
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of PNB Financial Group ("PNB") has agreed to merge
PNB into Western Bancorp ("Western"). We are convinced that this merger is in
your best interests as a shareholder of PNB.
Each share of PNB common stock that you hold will be converted automatically
into one (1) share of common stock of Western.
The merger cannot be completed until the shareholders of PNB approve it. We
will hold a meeting of our shareholders to vote on this merger proposal. YOUR
VOTE IS VERY IMPORTANT. Whether or not you plan to attend the shareholder
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote in favor of the
merger. Not returning your card or not instructing your broker how to vote any
shares held for you in street name will have the same effect as a vote against
the merger.
The date, time and place of the meeting is as follows:
December 30, 1998, 9:00 a.m., local time,
4665 MacArthur Court,
Newport Beach, California 92660
This document provides you with detailed information about this meeting and
the proposed merger. You can also get information about PNB and about Western
from publicly available documents that have been filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
We strongly support this combination of our company with Western and
recommend that you vote in favor of the merger.
On Behalf of the Board of Directors
<TABLE>
<S> <C> <C>
By: -----------------------------------------
Allen C. Barbieri
CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF PNB FINANCIAL GROUP
TO BE HELD AT NEWPORT BEACH, CALIFORNIA, ON DECEMBER 30, 1998
------------------------
TO THE SHAREHOLDERS OF PNB:
Notice is hereby given that a special meeting of shareholders of PNB
Financial Group, Inc. ("PNB") will be held at 4665 MacArthur Court, Newport
Beach, California, on December 30, 1998, at 9:00 a.m., local time, for the
following purposes:
1. To consider and vote on a proposal to approve the principal terms of the
proposed merger of PNB with and into Western Bancorp ("Western") pursuant
to the Agreement and Plan of Merger, dated as of October 6, 1998 (the
"Merger Agreement"), between Western and PNB; and
2. To transact such other business as may properly come before the Special
Meeting or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on November 27, 1998
as the record date for determination of the shareholders entitled to notice of
and to vote at the Special Meeting or at any adjournment thereof. Approval of
the matters to be voted upon in connection with the Merger requires the
affirmative vote of a majority of the outstanding shares of common stock of PNB.
THE BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTERESTS OF PNB AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE PRINCIPAL TERMS OF THE MERGER.
Shareholders may exercise dissenters' rights as provided in the California
General Corporation Law (the "CGCL"). If all requirements of the CGCL are met,
shareholders may receive cash in the amount equal to the fair market value (as
determined by PNB or, if required, by a court of law) of their shares of PNB
common stock as of October 6, 1998, excluding any appreciation as a result of
the Merger, in lieu of receiving the consideration provided in the Merger
Agreement by complying with certain procedures specified by the CGCL. See "The
Merger-Dissenters' Rights" in the accompanying Proxy Statement/ Prospectus.
The accompanying Proxy Statement/Prospectus and the appendices thereto
(including the Merger Agreement attached as Appendix A thereto) form a part of
this notice.
By Order of the Board of Directors
Allen C. Barbieri
CHIEF EXECUTIVE OFFICER
Dated: , 1998
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU SHOULD DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. IF
YOU ATTEND THE SPECIAL MEETING, YOU WILL BE ENTITLED TO VOTE IN PERSON, IF YOU
WISH.
YOU SHOULD NOT FORWARD SHARE CERTIFICATES AT THIS TIME.
<PAGE>
Dated November , 1998
PNB FINANCIAL GROUP WESTERN BANCORP
Proxy Statement Prospectus
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION.
NEITHER WESTERN NOR PNB GUARANTEE THE INVESTMENT VALUE OF THE TRANSACTION
DESCRIBED IN THIS PROXY STATEMENT/ PROSPECTUS. AN INVESTMENT IN WESTERN COMMON
STOCK MAY LOSE VALUE BEFORE OR AFTER THE EFFECTIVE DATE OF THE MERGER.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
- --------------------------------------------------------------------------------
WESTERN COMMON STOCK TRADING SYMBOL:
THE NASDAQ NATIONAL MARKET-REGISTERED TRADEMARK---"WEBC"
PNB COMMON STOCK TRADING SYMBOL:
THE NASDAQ NATIONAL MARKET-REGISTERED TRADEMARK---"PNBF"
WE ARE--
- - WESTERN BANCORP, a bank holding company with operating subsidiaries in
Southern California.
- - PNB FINANCIAL GROUP, a bank holding company headquartered in Orange County,
California.
THE MERGER--
- - The Boards of Directors of Western and PNB have agreed to merge PNB into
Western.
- - PNB shareholders will receive one share of Western common stock for each
share of PNB common stock they own immediately prior to the completion of the
merger.
- - We estimate that up to 3,045,943 shares of Western common stock will be
issued to PNB shareholders upon completion of the merger, assuming the
exercise of all outstanding options to purchase PNB common stock.
AFTER THE MERGER--
- - Western shareholders immediately prior to the merger will own approximately
86.6% of Western common stock after giving effect to the merger. See
"Summary--Ownership of Western Following the Merger" beginning on page 11 and
"The Special Meeting of PNB Shareholders" beginning on page 49.
- - PNB shareholders immediately prior to the merger will own approximately 13.4%
of Western common stock after the merger. See "Summary--Ownership of Western
Following the Merger" beginning on page 11 and "The Special Meeting of PNB
Shareholders" beginning on page 49.
- - The combined company would have approximately $2.6 billion in assets and 31
primary branches in Los Angeles, Orange and San Diego Counties, California
after planned consolidations.
We cannot complete the merger unless we obtain the necessary government
approvals and unless we receive the approval of PNB's shareholders. We do not
need the approval of Western's shareholders to complete the merger. Therefore,
we are not asking Western shareholders to vote on the merger.
PNB will hold a special meeting of its shareholders to consider and vote
upon this merger proposal. This document describes that special meeting and the
merger. YOUR VOTE IS VERY IMPORTANT. The PNB Board of Directors unanimously
determined that the merger is fair to PNB's shareholders and is in PNB
shareholders' best interests. The PNB Board of Directors, therefore, unanimously
recommends that PNB shareholders vote to approve the principal terms of the
merger.
In order for any PNB shareholder to exercise dissenters' rights, such
shareholder must not vote in favor of the merger and must fully comply with the
applicable provisions of California law. See "The Merger-- Dissenters' Rights"
beginning on page 66.
The PNB special meeting of shareholders will be held at the following place
and time:
December 30, 1998, 9:00 a.m., local time,
4665 MacArthur Court, Newport Beach, California 92660
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER, OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION. NEITHER DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES BEING
OFFERED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
AVAILABLE INFORMATION
Western is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Therefore, Western files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). These reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Commission's regional offices at 7 World Trade Center, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, at
prescribed rates. Information regarding the Commission can be obtained by
calling 1-800-SEC-0330. Such reports, proxy statements and other information may
also be accessed electronically at the Commission's home page on the Internet at
http://www.sec.gov. Shares of Western common stock are designated for quotation
on the Nasdaq National Market-Registered Trademark-. Material filed by Western
can be inspected at the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
Western has filed with the Commission a registration statement on Form S-4
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
covering the shares of Western common stock issuable in the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in that
registration statement. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Proxy Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.
This Proxy Statement/Prospectus constitutes the proxy statement of PNB
relating to the solicitation of proxies for its use at the PNB special meeting
of shareholders as well as the Prospectus filed as part of the registration
statement. This Proxy Statement/Prospectus and the related proxy and other
materials are first being provided to PNB shareholders on or about , 1998.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT WESTERN AND PNB FROM DOCUMENTS THAT ARE NOT INCLUDED
IN OR DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE TO YOU WITHOUT
CHARGE UPON YOUR WRITTEN OR ORAL REQUEST. YOU CAN OBTAIN DOCUMENTS INCORPORATED
BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS (OTHER THAN CERTAIN EXHIBITS TO
THOSE DOCUMENTS) BY REQUESTING THEM IN WRITING OR BY TELEPHONE FROM THE
APPROPRIATE COMPANY AT THE FOLLOWING ADDRESSES:
<TABLE>
<CAPTION>
<S> <C>
WESTERN BANCORP PNB FINANCIAL GROUP
4100 NEWPORT PLACE, SUITE 900 4665 MACARTHUR COURT
NEWPORT BEACH, CALIFORNIA 92660 NEWPORT BEACH, CALIFORNIA 92660
(949) 863-2459 (949) 851-1033
ATTENTION: JULIUS G. CHRISTENSEN, ATTENTION: CHRISTINE CASTELLANO,
EXECUTIVE VICE PRESIDENT, SECRETARY
GENERAL COUNSEL AND SECRETARY
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Proxy
Statement/Prospectus under the captions "Summary," "Risk Factors," "Information
Regarding PNB," "The Merger" and elsewhere in this Proxy Statement/Prospectus
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, without limitation, statements about the
competitiveness of the banking industry, the operations of Western following
completion of the Merger and other statements contained herein that are not
historical facts. When used in this Proxy Statement/Prospectus, the words
"anticipate," "believe," "estimate" and similar expressions are generally
intended to identify forward-looking statements. Because such forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements, including but not limited to changes in
general economic and business conditions (including in the banking industry) and
other factors discussed under "Risk Factors."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein by
reference:
(a) Western's annual report on Form 10-K for the year ended December 31,
1997;
(b) Western's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(c) Western's current reports on Form 8-K dated February 11, 1998, April
30, 1998, June 18, 1998, June 26, 1998, August 6, 1998, August 7, 1998,
September 11, 1998, October 6, 1998, November 6, 1998, and November 12,
1998, and on Form 8-K/A dated April 9, 1998;
(d) The description of Western's common stock contained in Western's
current report on Form 8-K filed June 19, 1997;
(e) PNB's annual report on Form 10-KSB for the year ended December 31,
1997;
(f) PNB's quarterly reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998; and
(g) PNB's current reports on Form 8-K dated January 21, 1998, March 17,
1998, July 27, 1998, October 6, 1998 and October 13, 1998.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents and reports filed by Western pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
PNB special meeting of shareholders shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing, and any
statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed to constitute a part hereof,
except as so modified or superseded.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 2
FORWARD-LOOKING STATEMENTS................................................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 3
COMMON QUESTIONS AND ANSWERS ABOUT THE MERGER.............................................................. 7
SUMMARY.................................................................................................... 9
The Companies............................................................................................ 9
Risk Factors............................................................................................. 10
The Merger............................................................................................... 10
Ownership of Western Following the Merger................................................................ 11
The PNB Special Meeting of Shareholders.................................................................. 11
Recommendation of the PNB Board of Directors............................................................. 12
Opinion of Lehman Brothers............................................................................... 12
The Merger Agreement..................................................................................... 12
Termination of the Merger Agreement...................................................................... 13
The Stock Option Agreement............................................................................... 14
The Shareholder Agreements............................................................................... 15
Regulatory Approvals..................................................................................... 15
Interests of Certain Persons in the Merger............................................................... 15
Certain Federal Income Tax Consequences.................................................................. 15
Accounting Treatment..................................................................................... 16
Dissenters' Rights....................................................................................... 16
Markets and Market Prices................................................................................ 16
Summary Historical Financial Data........................................................................ 19
Summary Unaudited Pro Forma Combined Financial Data...................................................... 23
Selected Historical and Pro Forma per Share Data......................................................... 26
RISK FACTORS............................................................................................... 28
Forward-Looking Statements May Not Prove Accurate........................................................ 28
Competition.............................................................................................. 28
Ability to Integrate the Operations of Western and PNB; Rapid Growth..................................... 28
General Business Risk.................................................................................... 29
Concentration of Operations; Recessionary Environments; Decline in Real Estate Values.................... 30
Interest Rate Risk....................................................................................... 30
Real Estate Loan Concentration........................................................................... 30
Risks Associated with Mortgage Banking and Mortgage Loans Held for Sale.................................. 31
Shares Eligible for Future Sale; Dilution................................................................ 31
Regulation............................................................................................... 32
Limited Market for Western Common Stock.................................................................. 32
Fixed Exchange Ratio..................................................................................... 33
Year 2000 Risks and Preparedness......................................................................... 33
INFORMATION REGARDING WESTERN.............................................................................. 35
Business of Western...................................................................................... 35
Incorporation of Certain Information By Reference........................................................ 35
INFORMATION REGARDING PNB.................................................................................. 36
Business of PNB.......................................................................................... 36
Incorporation of Certain Information By Reference........................................................ 37
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
WESTERN--PNB UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA......................................... 38
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1998.................................... 39
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET DECEMBER 31, 1997..................................... 40
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998....... 41
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997....... 42
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997............... 43
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996............... 44
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995............... 45
NOTES TO WESTERN--PNB UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA................................ 46
THE SPECIAL MEETING OF PNB SHAREHOLDERS.................................................................... 49
General.................................................................................................. 49
Matters To Be Considered at the PNB Special Meeting...................................................... 49
The Record Date.......................................................................................... 49
Votes Required and Voting of Proxies..................................................................... 50
Solicitation of Proxies.................................................................................. 50
Revocability of Proxies.................................................................................. 51
Security Ownership of Certain Beneficial Owners and Management of PNB.................................... 51
Dissenters' Rights....................................................................................... 52
THE MERGER................................................................................................. 53
Background and Reasons for the Merger.................................................................... 53
Recommendation of the PNB Board of Directors............................................................. 54
Opinion of PNB's Financial Advisor....................................................................... 55
Certain Federal Income Tax Consequences.................................................................. 61
Regulatory Approvals..................................................................................... 62
Resale of Western Common Stock........................................................................... 63
Certain Effects of the Merger............................................................................ 64
Interests of Certain Persons in the Merger............................................................... 65
Submission of Shareholders' Proposals for PNB's 1999 Annual Meeting...................................... 66
Dissenters' Rights....................................................................................... 66
Accounting Treatment..................................................................................... 68
THE MERGER AGREEMENT....................................................................................... 69
The Merger............................................................................................... 69
Effective Time and Effective Date........................................................................ 69
Exchange of Stock Certificates; Dividends................................................................ 69
Conduct of the Business of PNB and Western Prior to the Merger........................................... 70
Representations and Warranties........................................................................... 71
Certain Covenants........................................................................................ 71
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conditions............................................................................................... 73
Termination.............................................................................................. 74
Waiver and Amendment..................................................................................... 75
THE STOCK OPTION AGREEMENT................................................................................. 76
General.................................................................................................. 76
The Stock Option......................................................................................... 76
Termination.............................................................................................. 77
THE SHAREHOLDER AGREEMENTS................................................................................. 78
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 79
Comparison of Corporate Structure........................................................................ 79
Dividends and Dividend Policy............................................................................ 79
Number of Directors...................................................................................... 79
Indemnification of Directors and Officers................................................................ 80
VALIDITY OF WESTERN COMMON STOCK........................................................................... 81
EXPERTS.................................................................................................... 81
</TABLE>
LIST OF APPENDICES
<TABLE>
<CAPTION>
<S> <C> <C>
Appendix A -- Agreement and Plan of Merger, dated as of October 6, 1998, between Western and PNB
Appendix B -- Fairness Opinion of Lehman Brothers
Appendix C -- Chapter 13 of the California General Corporation Law
</TABLE>
6
<PAGE>
COMMON QUESTIONS AND ANSWERS ABOUT THE MERGER
THIS QUESTION AND ANSWER SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
DOCUMENT AND MAY NOT CONTAIN ALL OR ANY INFORMATION THAT IS IMPORTANT TO PNB
SHAREHOLDERS. FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER AND FOR A MORE
COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, PNB SHAREHOLDERS SHOULD
READ THIS ENTIRE DOCUMENT CAREFULLY, AS WELL AS ANY ADDITIONAL DOCUMENTS TO
WHICH WE REFER IN THIS DOCUMENT.
Q: WHO ARE THE PARTIES TO THE MERGER?
A: PNB Financial Group ("PNB") will merge with and into Western Bancorp
("Western"), with Western remaining as the surviving corporation (the
"Merger"). The combined corporation's name will be "Western Bancorp."
Q: WHAT ARE PNB SHAREHOLDERS BEING ASKED TO VOTE ON?
A: PNB shareholders are being asked to vote on a proposal to merge PNB into
Western, which will result in PNB ceasing to exist and Western remaining as
the surviving corporation. If the Merger is completed, each share of PNB
common stock will be converted into one share of Western common stock.
Therefore, each PNB shareholder immediately prior to the Merger will become
a Western shareholder after completion of the Merger.
Q: WHAT IS THE RECOMMENDATION OF PNB'S BOARD OF DIRECTORS?
A: The Board of Directors of PNB recommends that PNB shareholders vote for the
Merger because the Board members believe that the Merger:
- offers the combined company the opportunity to compete more effectively
and to take advantage of banking opportunities in the rapid evolving
markets;
- provides PNB shareholders with potential benefits of ownership interests
in a larger organization with greater resources, increased operating
efficiencies, increased lending limits and a stronger market position
throughout California; and
- offers potential for increased long-term value and liquidity to current
PNB shareholders by converting their shares into shares of Western common
stock.
More information regarding the PNB Board of Directors' recommendations is
available beginning on page 54.
Q: HOW WILL PNB SHAREHOLDERS BE AFFECTED IN THE MERGER?
A: Each PNB shareholder will have each of his or her shares of PNB common stock
converted into one share of Western common stock. Current PNB shareholders,
consequently, will receive shares representing ownership of approximately
13.4% of Western, and the shares held by Western's current shareholders will
represent ownership of approximately 86.6% of Western after the Merger is
completed. See "Summary--Ownership of Western Following the Merger"
beginning on page 11 and "The Special Meeting of PNB Shareholders" beginning
on page 49. Each share of Western common stock owned by existing PNB
shareholders will represent an ownership interest in a much larger company.
Q: WHAT ARE THE TAX CONSEQUENCES TO PNB SHAREHOLDERS OF THE MERGER?
A: We expect that the exchange of shares will be a tax-free transaction for
federal income tax purposes for PNB shareholders. However, PNB shareholders
will have to pay taxes on any cash received for dissenters' shares and any
cash received in lieu of fractional shares. To review the tax consequences
to PNB shareholders in greater detail, please read the discussion beginning
on page 61. The tax consequences of the Merger to each individual PNB
shareholder will depend on his or her own situation. Therefore, PNB
shareholders should consult their tax advisors for a full understanding of
the tax consequences of the Merger.
7
<PAGE>
Q: WHAT REGULATORY APPROVALS ARE REQUIRED?
A: The Merger must be approved by the Board of Governors of the Federal Reserve
System. Further information on the required regulatory approvals can be
found on page 62.
Q: WHAT RISKS SHOULD PNB SHAREHOLDERS CONSIDER WHEN VOTING FOR THE MERGER?
A: PNB shareholders should review and carefully consider the "Risk Factors"
section on pages 28 through 34.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We expect the Merger to be completed either late in the fourth quarter of
1998 or in the first quarter of 1999.
Q: WHAT DO PNB SHAREHOLDERS NEED TO DO NOW?
A: PNB shareholders should read this document carefully and then mail their
signed proxy card approving or disapproving the principal terms of the
Merger in the enclosed return envelope as soon as possible so that their PNB
shares may be represented at the special meeting of PNB shareholders. A
failure to vote or turn in a proxy card has the same effect as voting
against the Merger. The special meeting is scheduled to take place on
December 30, 1998.
Q: CAN A PNB SHAREHOLDER CHANGE HIS OR HER VOTE AFTER HAVING MAILED IN A SIGNED
PROXY CARD?
A: Yes. After a PNB shareholder has marked a signed proxy card, he or she can
change his or her vote at any time before we vote the proxy at the special
meeting. A PNB shareholder can do so in one of three ways prior to the
special meeting. First, a PNB shareholder can send a written notice stating
that he or she would like to revoke his or her proxy to the Secretary of PNB
at the address given below. Second, a PNB shareholder can complete a new
proxy card and send it to the Secretary of PNB at the address given below.
Third, a PNB shareholder can attend the special meeting and vote in person.
PNB shareholders should send any written notice or new proxy card to the
Secretary of PNB at 4665 MacArthur Court, Newport Beach, California 92660.
PNB shareholders may request a new proxy card by calling Christine
Castellano, the Secretary of PNB, at (949) 851-1033.
Q: WHAT IF A PNB SHAREHOLDER DOES NOT APPROVE OF THE MERGER AND DOES NOT WANT
HIS OR HER SHARES CONVERTED IF THE MERGER IS APPROVED?
A: Dissenting shareholders' rights may be available under certain circumstances.
If available, a PNB shareholder may obtain dissenting shareholders' rights
by complying with the requirements of Chapter 13 of the California General
Corporation Law. If all of the requirements of Chapter 13 are met and the
Merger is approved, such PNB shareholder will receive cash for the fair
market value (as determined by PNB or, if required, by a court of law) of
his or her shares in lieu of Western common stock. However, any cash
received in exercising dissenters' rights will be subject to individual
income taxation. Further, if too many shareholders dissent, special
pooling-of-interests accounting requirements will not be met, which could
cause the Merger to be accounted for as a purchase. See "The
Merger--Accounting Treatment" beginning on page 67 for details.
Q: SHOULD PNB SHAREHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. If the Merger is completed, we will send PNB shareholders written
instructions for exchanging their PNB stock certificates for Western stock
certificates.
Q: WHERE CAN PNB SHAREHOLDERS FIND MORE INFORMATION?
A: PNB shareholders may obtain more information in this document and in other
sources which are listed under "Available Information" on page 2.
8
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. IT MAY NOT CONTAIN ALL OR ANY OF THE
INFORMATION IMPORTANT TO PNB SHAREHOLDERS. WE URGE PNB SHAREHOLDERS TO READ
CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS TO WHICH
THIS DOCUMENT REFERS TO UNDERSTAND FULLY THE MERGER. SEE "AVAILABLE INFORMATION"
BEGINNING ON PAGE 2. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE
DIRECTING THE READER TO A MORE COMPLETE DESCRIPTION OF THE INFORMATION IN THAT
ITEM.
THE COMPANIES
WESTERN BANCORP (Page 35)
4100 Newport Place, Suite 900
Newport Beach, California 92660
(949) 863-2444
Western Bancorp is a bank holding company registered under federal law and
incorporated in California which, as of September 30, 1998, had consolidated
total assets, total deposits and shareholders' equity of $2.0 billion, $1.7
billion and $294 million, respectively. On a pro forma basis reflecting the
recent acquisition by Western of Bank of Los Angeles, as of September 30, 1998,
Western would have had consolidated total assets, total deposits and
shareholders' equity of $2.3 billion, $1.9 billion and $329 million,
respectively. Western's principal business is serving as a holding company for
its banking subsidiaries. Western, through its subsidiaries, primarily serves
Los Angeles County, Orange County, northern San Diego County and surrounding
markets in Southern California, offering a broad range of banking products and
services.
WESTERN'S SUBSIDIARIES (as of October 31, 1998)
<TABLE>
<S> <C> <C> <C>
SOUTHERN CALIFORNIA BANK SANTA MONICA BANK
- - 15 Branches - 16 Branches (after consolidation of 3 former
Bank of Los Angeles branches)
- - Operating in Los Angeles, Orange and San Diego - Operating in Western Los Angeles County,
Counties, including: including:
- Avalon - Lake Forest - Beverly Hills - Marina Del Rey
- Bellflower - Newport Beach - Century City - Pacific Palisades
- Brea - Orange - Culver City - Santa Monica
- Downey - Santa Fe Springs - Encino - West Hollywood
- Huntington Beach - Santa Ana - Glendale - Westwood
- La Jolla - Tustin
- Laguna Nigel - Whittier
- - Created through the mergers of: - Created through the mergers of:
- Monarch Bank - Western Bank
- National Bank of Southern California (acquired in September 1996)
(acquired in June 1997) - Santa Monica Bank
- Southern California Bank (acquired in January 1998)
(acquired in October 1997) - Bank of Los Angeles
(acquired in October 1998)
</TABLE>
On October 23, 1998, Bank of Los Angeles merged with and into Santa Monica
Bank in a transaction accounted for as a pooling-of-interests. Because the Bank
of Los Angeles acquisition was accounted for as a pooling-of-interests,
Western's financials have been restated to give effect to that acquisition.
9
<PAGE>
PNB FINANCIAL GROUP (Page 36)
4665 MacArthur Court
Newport Beach, California 92660
(949) 851-1033
PNB Financial Group is a bank holding company registered under federal law
and incorporated in California, and its principal business is to serve as a
holding company for its banking subsidiary, Pacific National Bank. At September
30, 1998, PNB had consolidated total assets, total deposits and shareholders'
equity of $275 million, $215.5 million and $31.5 million, respectively. PNB's
primary market is in Southern California, with secondary markets in northern
California and in Arizona. PNB's business consists primarily of attracting
deposits from the public and using such deposits, together with capital and
other borrowed funds, to make loans to individuals and small and medium-size
businesses. These loans can be separated into three distinct types: (1)
commercial, real estate and consumer loans which Pacific National Bank holds for
investment, (2) residential mortgage loans which are sold to institutional
investors and (3) commercial loans insured by the Small Business Administration
which PNB currently holds for investment.
RISK FACTORS (Page 28)
In deciding whether to vote in favor of the principal terms of the Merger,
PNB shareholders should review and carefully evaluate the information provided
in the section entitled "Risk Factors" in addition to the other information
described in this Proxy Statement/Prospectus.
THE MERGER (Page 53)
GENERAL
We propose a merger between Western and PNB, with Western remaining as the
surviving corporation. Western will continue as a California corporation and
will retain its articles of incorporation and bylaws as well as its officers and
directors. After the Merger, PNB will cease to exist.
WHAT PNB SHAREHOLDERS WILL RECEIVE
As a result of the Merger, PNB shareholders will receive one share of
Western common stock for each share of PNB common stock owned immediately prior
to completion of the Merger.
Because the merger consideration is based on a fixed exchange ratio, the
number of shares of Western common stock a PNB shareholder will receive for each
share of PNB common stock owned will not change even if the market prices of
Western common stock or PNB common stock change before the Merger is completed.
Accordingly, the market value of Western common stock a PNB shareholder receives
may be less or more than the current market value of the comparable number of
shares of Western common stock See "--Markets and Market Prices" beginning on
page 16.
PNB SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
INSTRUCTED TO DO SO AFTER THE MERGER IS COMPLETED.
EFFECT ON WESTERN SHAREHOLDERS
Shares of Western common stock held by Western shareholders immediately
prior to completion of the Merger will remain issued and outstanding as a share
of Western common stock after the Merger is completed. However, Western
shareholders will own shares of a larger and more diversified company, as more
fully described in this Proxy Statement/Prospectus.
10
<PAGE>
OWNERSHIP OF WESTERN FOLLOWING THE MERGER (Page 49)
Based upon the 2,779,733 shares of PNB common stock outstanding on the
Record Date, Western expects that 2,779,733 shares of Western common stock would
be issued in the Merger (or, if all of the 266,210 shares of PNB common stock
reserved for issuance upon exercise of employee and director stock options
outstanding on the Record Date were issued and outstanding at the completion of
the Merger, 3,045,943 shares of Western common stock would be issued in the
Merger), assuming (i) no dissenters' rights are perfected by PNB shareholders
and (ii) no cash is paid in lieu of fractional shares.
Based upon the 17,923,437 shares of Western common stock outstanding on the
Record Date, the 388,889 shares of Western common stock reserved for issuance
upon the exercise of employee and director stock options to acquire Western
common stock on the Record Date, the 296,792 shares of Western common stock
reserved for issuance upon the exercise of warrants to acquire Western common
stock outstanding on the Record Date (including 156,117 shares of Western common
stock reserved for issuance upon the exercise of warrants to acquire Western
common stock outstanding on the Record Date by former shareholders of the Bank
of Los Angeles) and assuming no dissenters' rights are perfected by shareholders
and no cash is paid in lieu of fractional shares: (i) in the event that no
options, warrants or other rights outstanding of PNB and Western common stock
are exercised prior to the completion of the Merger, shares held by PNB
shareholders after consummation of the Merger would represent approximately
13.4% of Western common stock and (ii) in the event that all options, warrants
and rights outstanding of PNB and Western common stock are exercised prior to
the completion of the Merger, shares held by PNB shareholders after completion
of the Merger would represent approximately 14.1% of Western common stock.
THE PNB SPECIAL MEETING OF SHAREHOLDERS (Page 49)
The PNB special meeting of shareholders will be held on December 30, 1998 at
9:00 a.m., local time, at 4665 MacArthur Court, Newport Beach, California. At
the special meeting, the PNB shareholders will be asked:
- To approve the principal terms of the merger of PNB into Western; and
- To act on any other items that may be properly submitted to a vote at the
special meeting.
VOTES REQUIRED
A PNB shareholder can vote at the special meeting of PNB shareholders if he
or she owned PNB common stock at the close of business on November 27, 1998. A
PNB shareholder will be able to cast one vote for each share of PNB common stock
he or she owned at that time. In order to approve the Merger, the holders of a
majority of the outstanding shares of PNB common stock must vote in favor of the
principal terms of the Merger. A PNB shareholder can vote his or her shares by
attending the PNB special meeting and voting in person, or by marking the
enclosed proxy card with his or her vote, signing it and mailing it in the
enclosed return envelope. A PNB shareholder can revoke his or her proxy as late
as the date of the special meeting either by sending in a new proxy received
prior to the special meeting or by attending the special meeting and voting in
person. See "The Special Meeting of PNB Shareholders-- Votes Required and Voting
of Proxies" beginning on page 50.
Certain PNB shareholders, including all of the executive officers and
directors of PNB, have entered into shareholder agreements in which they have
agreed, as shareholders of PNB, to vote "FOR" the adoption and approval of the
principal terms of the Merger. See "The Shareholder Agreements" beginning on
page 78.
11
<PAGE>
RECOMMENDATION OF THE PNB BOARD OF DIRECTORS (Page 54)
The PNB Board of Directors believes that the Merger is fair to PNB
shareholders from a financial point of view and is in PNB shareholders' best
interests and unanimously recommends that PNB shareholders vote FOR the
principal terms of the Merger.
OPINION OF LEHMAN BROTHERS (Page 55)
Lehman Brothers Inc. ("Lehman Brothers") has acted as a financial advisor to
the PNB Board of Directors in connection with the Merger and has delivered to
the PNB Board of Directors its written opinion that, as of the date of this
document, based upon and subject to various qualifications and assumptions
described in such opinion, the exchange ratio of one share of Western common
stock for each share of PNB common stock is fair to the PNB shareholders from a
financial point of view. We have attached the full text of the opinion to this
document as Appendix B. PNB shareholders should read it completely to understand
the assumptions made, matters considered and the limitations of the review made
by Lehman Brothers in providing its opinion.
THE MERGER AGREEMENT (Page 69)
The merger agreement ("Merger Agreement") relating to the Merger is attached
to this document as Appendix A. Please read the Merger Agreement in its entirety
because it is the legal document that governs the Merger.
EFFECTIVE TIME
Assuming all conditions to completion of the Merger are satisfied, the
Merger will become effective when an agreement of merger and related documents
are filed with the California Secretary of State. We expect to complete the
Merger either late in the fourth quarter of 1998 or in the first quarter of
1999.
CONDITIONS TO COMPLETION OF THE MERGER
The completion of the Merger requires the satisfaction of several
conditions, including, among others, the following:
- approval of the principal terms of the Merger by PNB's shareholders;
- approval of the Merger by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board");
- the absence of any legal restraint blocking the Merger, or of any
proceeding by a government authority trying to block the Merger;
- no stop order suspending the effectiveness of the Registration Statement
and no proceedings for that purpose initiated or threatened by the
Commission;
- receipt and continued effectiveness of all permits and authorizations
under state securities laws necessary to complete the Merger;
- approval by the Nasdaq National Market-Registered Trademark- for the
listing of the shares of Western common stock to be issued in the Merger;
- receipt of opinions of counsel in respect of certain federal income tax
consequences of the Merger; and
- Western's Board of Directors shall have adopted resolutions sufficient to
appoint Allen C. Barbieri, the Chief Executive Officer of PNB, as a
director of Western as of the time the Merger is completed.
12
<PAGE>
If the law permits, either Western or PNB could choose to waive a condition
to its obligation to complete the Merger even though that condition has not been
satisfied. We cannot be certain when (or if) the conditions to the Merger will
be satisfied or waived, or that the Merger will be completed.
TERMINATION OF THE MERGER AGREEMENT (Page 74)
We may mutually agree to terminate the Merger Agreement at any time without
completing the Merger, even after the shareholders of PNB have approved it, so
long as a majority of each of the Boards of Directors of Western and PNB vote in
favor of such termination. In addition, either of us may decide, without the
consent of the other, to terminate the Merger Agreement if:
- the Merger is not completed by May 30, 1999;
- PNB shareholders fail to approve the Merger;
- either PNB or Western breaches its representations, warranties or
covenants contained in the Merger Agreement provided that such breach
would be reasonably likely, individually or in the aggregate with other
breaches, to result in a material adverse effect on PNB on Western, as
applicable; or
- a required government approval is not obtained.
Western may terminate the Merger Agreement if:
- the PNB Board of Directors fails to recommend approval of the principal
terms of the Merger to PNB's shareholders or withdraws, modifies or
changes such recommendation in a manner adverse to Western's interests.
In addition, PNB may terminate the Merger Agreement if:
- the PNB Board of Directors receives an acquisition proposal and
determines, based on the advice of counsel, that to proceed with the
Merger would violate the fiduciary obligations of the PNB Board of
Directors to PNB's shareholders; or
- Western common stock underperforms the Nasdaq Bank Index as measured by
either of two tests:
(1) 90 PERCENT TEST: In the event that the Twenty Day Average Price (as
defined below) is LESS than $26.6625 AND the Western Common Stock
Price Percentage (as defined below) is less than the Nasdaq 90% Index
Percentage (as defined below), PNB will have the right to terminate
the Merger Agreement; or
(2) 80 PERCENT TEST: In the event that the Twenty Day Average Price is
GREATER than $26.6625 AND the Western Common Stock Price Percentage
is less than the Nasdaq 80% Index Percentage (as defined below), PNB
will have the right to terminate the Merger Agreement.
For example, in the event that the Western Twenty Day Average Price were
$25.00, the 90% Test would apply and PNB would have the right to terminate the
Merger Agreement if the Twenty Day Average Nasdaq Bank Index were greater than
1506. In the event that the Western Twenty Day Average Price were $32.00, the
80% Test would apply and PNB would have the right to terminate the Merger
Agreement if the Twenty Day Average Nasdaq Bank Index were greater than 2168.
13
<PAGE>
DEFINITIONS:
"NASDAQ 80% INDEX PERCENTAGE" means the percentage determined by
dividing (i) the product of (A) the Twenty Day Average Nasdaq Bank
Index times (B) 0.80 by (ii) 1,606 (the Nasdaq Bank Index as of
October 6, 1998):
= 80% X (Twenty Day Average Nasdaq Bank Index / 1,606)
"NASDAQ 90% INDEX PERCENTAGE" means the percentage determined by
dividing (i) the product of (A) the Twenty Day Average Nasdaq Bank
Index times (B) 0.90 by (ii) 1,606 (the Nasdaq Bank Index as of
October 6, 1998):
= 90% X (Twenty Day Average Nasdaq Bank Index / 1,606)
"TWENTY DAY AVERAGE NASDAQ BANK INDEX" means the average of the
Nasdaq Bank Index (the "Nasdaq Bank Index") for the Twenty Day
Period.
"TWENTY DAY AVERAGE PRICE" means the volume weighted average sales
price per share of Western common stock for the Twenty Day Period
(as defined below); for purposes of determining the
"volume-weighted average," the aggregate of the daily sales of
Western common stock for each of the 20 consecutive days Western
common stock is traded shall be divided by the aggregate number of
shares of Western common stock traded on Nasdaq during such Twenty
Day Period.
"TWENTY DAY PERIOD" means any 20 consecutive days on which shares
of Western common stock are actually traded during the period
commencing 20 trading days prior to the receipt of the last
regulatory approval required to be obtained pursuant to the Merger
Agreement and ending on the trading day that is 48 hours prior to
the completion of the Merger.
"WESTERN COMMON STOCK PRICE PERCENTAGE" means the percentage
determined by dividing the Twenty Day Average Price by $29.625:
= Twenty Day Average Price / $29.625
The "NASDAQ BANK INDEX" is reported by the Nasdaq National
Market-Registered Trademark- and measures the common stocks of
more than 350 banks of all types, including trust companies not
engaged in deposit banking and firms performing functions related
to banking, such as check cashing agencies, currency exchanges,
safe deposit companies and banking corporations overseas. This
index is calculated throughout the day by the Nasdaq National
Market-Registered Trademark- and is market-value weighted, meaning
that each company's security affects the index in proportion to
that company's market value. The closing value of the Nasdaq Bank
Index on November 12, 1998 was 1794.24, as reported by the Nasdaq
National Market-Registered Trademark-.
THE STOCK OPTION AGREEMENT (Page 76)
On October 6, 1998, PNB entered into a stock option agreement with Western
to increase the likelihood that the Merger will be completed and discourage
offers by third parties to acquire PNB prior to the Merger. Pursuant to the
stock option agreement, PNB granted to Western an option, exercisable under
certain limited and specifically defined circumstances, to purchase up to
553,166 authorized but unissued shares of PNB common stock for a purchase price
per share of $29.625. The number of shares and the purchase price are adjustable
under certain circumstances, but Western may not acquire more than 19.9% of the
shares of PNB common stock pursuant to this agreement.
14
<PAGE>
THE SHAREHOLDER AGREEMENTS (Page 78)
Western has entered into agreements with certain PNB shareholders, including
all of the executive officers and directors of PNB. These individuals represent
approximately 53.7% of the total voting power of PNB common stock and have
agreed, as shareholders of PNB, to vote their shares in favor of the principal
terms of the Merger.
REGULATORY APPROVALS (Page 62)
Completion of the Merger requires the approval of the Federal Reserve Board.
Western has submitted the required notices seeking approval of the Merger and
related matters to the Federal Reserve Board and expects that such approval will
be received prior to the PNB special shareholders meeting. However, we cannot
predict whether we will obtain the required approval in the time frame
contemplated by the Merger. See "The Merger--Regulatory Approvals" beginning on
page 62 and "The Merger Agreement--Conditions" beginning on page 73.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (Page 65)
Several PNB directors and officers have interests in the Merger that are
different from, or in addition to, their interests as shareholders in PNB. These
interests exist because of agreements with PNB, including change-of-control
employment agreements and rights that the officers have under retention,
incentive, or benefit and compensation plans maintained by PNB. Western will
succeed to PNB's rights and duties under these agreements and plans. Some of
these agreements and plans will provide the officers with severance benefits if
their employment with Western is terminated after the Merger. In addition, under
the terms of various PNB stock option plans, unvested options for 160,195 shares
(108,050 of which are held by the executive officers of PNB) have become
immediately exercisable as a result of the announcement of the Merger.
Also, following the Merger, Western will purchase directors' and officers'
insurance for the officers and directors of PNB and will indemnify officers and
directors of PNB for events occurring before the Merger, including events that
are related to the Merger Agreement. This indemnity and insurance will be in
addition to the indemnification and insurance to which the officers and
directors of Western will be entitled while acting in that capacity at and after
the Merger. The members of our Boards of Directors knew about these additional
interests, and considered them, when they approved the Merger. See "The
Merger--Interests of Certain Persons in the Merger" beginning on page 65 and
"The Merger Agreement--Certain Covenants--Indemnification; Directors' and
Officers' Insurance" beginning on page 71.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (Page 61)
We intend that the Merger will be treated as a reorganization for federal
income taxation purposes. If this treatment is obtained, PNB shareholders will
not recognize any gain or loss for tax purposes upon receipt of Western common
stock in exchange for their shares of PNB common stock in the Merger. However,
PNB shareholders will have to pay taxes on any cash received for dissenters'
shares and any cash received in lieu of fractional shares. Completion of the
Merger as a reorganization is conditioned upon receipt by Western of the opinion
of Sullivan & Cromwell and receipt by PNB of the opinion of McDermott, Will &
Emery stating that for federal income tax purposes: (1) the Merger will be
treated as a reorganization and (2) Western and PNB will be parties to that
reorganization.
Because of the complexity of the tax laws and the individual nature of
certain tax consequences of the Merger to each PNB shareholder, each PNB
shareholder should consult his or her own tax advisor concerning all federal,
state, local and foreign tax consequences of the Merger that may be applicable.
15
<PAGE>
ACCOUNTING TREATMENT (Page 67)
For accounting and financial reporting purposes, the Merger is expected to
be accounted for as a pooling-of-interests in accordance with generally accepted
accounting principles.
DISSENTERS' RIGHTS (Page 66)
In connection with the Merger, the PNB shareholders may be entitled to
dissenters' rights under Chapter 13 of the California General Corporation Law,
the text of which is attached hereto as Appendix C. IN ORDER FOR ANY PNB
SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS, A NOTICE OF SUCH SHAREHOLDER'S
INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AS PROVIDED IN THE
CALIFORNIA GENERAL CORPORATION LAW MUST BE SENT BY SUCH SHAREHOLDER AND RECEIVED
BY PNB, ON OR BEFORE THE DATE OF THE SPECIAL MEETING OF PNB SHAREHOLDERS, AND
ANY SUCH SHAREHOLDER MUST VOTE AGAINST THE APPROVAL OF THE PRINCIPAL TERMS OF
THE MERGER. FAILURE TO SEND SUCH NOTICE TO PNB FINANCIAL GROUP, 4665 MACARTHUR
COURT, NEWPORT BEACH, CALIFORNIA 92660, ATTENTION: CHRISTINE CASTELLANO,
SECRETARY, AND TO VOTE AGAINST THE PRINCIPAL TERMS OF THE MERGER WILL RESULT IN
A WAIVER OF SUCH SHAREHOLDER'S DISSENTERS' RIGHTS.
MARKETS AND MARKET PRICES
As of November 10, 1998, there were approximately 3,700 holders of record of
Western common stock. No shares of Western preferred stock have been issued or
are outstanding. Western common stock is designated for quotation on the Nasdaq
National Market-Registered Trademark- under the symbol "WEBC."
As of November 10, 1998, there were approximately 485 holders of record of
PNB common stock. No shares of PNB preferred stock have been issued or are
outstanding. PNB common stock is designated for quotation on the Nasdaq National
Market-Registered Trademark- under the symbol "PNBF."
The following table summarizes the approximate high and low sales prices on
a per share basis for Western common stock and PNB common stock for the periods
indicated.
<TABLE>
<CAPTION>
WESTERN COMMON PNB COMMON STOCK(2)
STOCK(1)
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
First Quarter.................................................. $ 11.05 $ 8.93 $ 5.22 $ 4.35
Second Quarter................................................. 17.00 8.50 6.09 5.22
Third Quarter.................................................. 14.88 8.50 6.52 5.65
Fourth Quarter................................................. 29.75 13.86 10.00 9.57
1997
First Quarter.................................................. 34.00 19.13 10.00 10.00
Second Quarter................................................. 37.19 28.63 12.61 10.00
Third Quarter.................................................. 33.25 28.63 14.35 12.61
Fourth Quarter................................................. 33.88 29.88 17.17 14.35
1998
First Quarter.................................................. 43.50 30.75 24.13 17.39
Second Quarter................................................. 47.88 39.50 32.50 23.63
Third Quarter.................................................. 43.13 28.88 37.75 26.00
Fourth Quarter (through November 10, 1998)..................... 33.13 25.50 31.00 23.00
</TABLE>
- ------------------------
(1) Prior to June 3, 1997, Western common stock was traded solely "over the
counter." Consequently, the prices listed before that date represent
quotations by dealers making a market in Western common stock and reflect
inter-dealer prices, without adjustments for mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Prior to
June 3, 1997, trading in Western common stock was limited in volume and may
not be a reliable indicator of its market value. On June 3, 1997, Western
common stock was designated for quotation on the Nasdaq National
Market-Registered Trademark-
16
<PAGE>
and on that date Western effected a 1.0 for 8.5 reverse stock split. The
prices of Western common stock prior to June 3, 1997 in the preceding table
have been adjusted for the reverse stock split. The prices listed above for
periods subsequent to June 3, 1997 are as reported by the Nasdaq National
Market-Registered Trademark-.
(2) Prior to June 24, 1998, PNB common stock was traded solely "over the
counter." Consequently, the prices listed before that date represent
quotations by dealers making a market in PNB common stock and reflect
inter-dealer prices, without adjustment for mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Trading
in PNB common stock was limited in volume and may not be a reliable
indication of its value. The prices of PNB common stock in the preceding
table have been adjusted for a 15% stock dividend paid in April 1998. The
prices listed above for periods subsequent to June 24, 1998 are as reported
by the Nasdaq National Market-Registered Trademark-.
17
<PAGE>
The following table sets forth the closing prices per share of Western
common stock and PNB common stock as reported by the Nasdaq National
Market-Registered Trademark- and the "Equivalent Per Share Price" (as explained
below) of PNB common stock as of October 6, 1998, the last trading day before
the date on which Western and PNB announced the execution of the Merger
Agreement, and as of November , 1998, the last practicable date prior to the
date of this Proxy Statement/Prospectus. The "Equivalent Per Share Price" of PNB
common stock on any date equals the closing price of the Western common stock on
such date, as reported by the Nasdaq National Market-Registered Trademark-,
multiplied by the one share of Western common stock for one share of PNB common
stock exchange rate.
<TABLE>
<CAPTION>
WESTERN PNB EQUIVALENT PER
MARKET PRICE PER SHARE AS OF COMMON STOCK COMMON STOCK SHARE PRICE
- -------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
October 6, 1998......................................... $ 29.63 $ 27.50 $ 29.63
November , 1998.......................................
</TABLE>
BECAUSE THE ONE-FOR-ONE EXCHANGE RATE OF WESTERN COMMON STOCK FOR PNB COMMON
STOCK IS FIXED PURSUANT TO THE MERGER AGREEMENT, A CHANGE IN TRADING PRICE OF
WESTERN COMMON STOCK BEFORE COMPLETION OF THE MERGER WILL AFFECT THE IMPLIED
MARKET VALUE OF THE WESTERN COMMON STOCK TO BE RECEIVED IN THE MERGER BY PNB
SHAREHOLDERS. SEE "RISK FACTORS--FIXED EXCHANGE RATIO" BEGINNING ON PAGE 33.
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF WESTERN COMMON STOCK AT ANY
TIME BEFORE, AT OR AFTER THE COMPLETION OF THE MERGER. PNB SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR WESTERN COMMON STOCK AND PNB
COMMON STOCK.
Upon completion of the Merger, there will be up to approximately 4,185
holders of record of Western common stock.
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
WESTERN
The following summary historical consolidated financial data for the nine
months ended September 30, 1998 and 1997 are derived from unaudited consolidated
financial statements of Western which have been restated to reflect the effect
of the Bank of Los Angeles acquisition on a pooling-of-interests basis and
include, in the opinion of Western's management, all adjustments (consisting
only of normal accruals) necessary to present fairly the data for such periods.
The results for the nine months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year. The following
summary historical financial data for the five years ended December 31, 1997 are
derived from the audited consolidated financial statements of Western which have
been restated to reflect the effect of the Bank of Los Angeles acquisition on a
pooling-of-interests basis. This information should be read in conjunction with
the restated historical consolidated financial statements of Western, including
the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus or
incorporated by reference.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED SEPTEMBER
30, (1, 4, 5) AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------------
1998 1997 1997(5) 1996(2) 1995(3, 6, 7) 1994 1993
----------- ----------- ----------- ----------- --------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income...................... $ 120,900 $ 85,462 $ 115,888 $ 84,798 $ 69,448 $ 58,873 $ 64,814
Interest expense..................... 32,352 24,597 33,289 25,398 21,656 15,146 20,939
----------- ----------- ----------- ----------- --------------- --------- ---------
NET INTEREST INCOME................ 88,548 60,865 82,599 59,400 47,792 43,727 43,875
Provision for loan and lease
losses............................. 450 2,535 3,210 1,768 8,253 3,510 19,872
----------- ----------- ----------- ----------- --------------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES........ 88,098 58,330 79,389 57,632 39,539 40,217 24,003
Non-interest income.................. 14,010 8,451 11,074 10,912 8,704 9,370 17,596
Non-interest expense................. 61,252 49,190 74,299 54,898 51,119 47,406 52,740
----------- ----------- ----------- ----------- --------------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES............................ 40,856 17,591 16,164 13,646 (2,876) 2,181 (11,141)
Income tax expense (benefit)......... 19,723 8,022 9,271 3,656 (1,733) 1,680 (1,979)
----------- ----------- ----------- ----------- --------------- --------- ---------
Income (loss) before cumulative
effect of accounting change...... $ 21,133 $ 9,569 $ 6,893 $ 9,990 $ (1,143) $ 501 $ (9,162)
Cumulative effect of accounting
change........................... -- -- -- -- -- -- (41)
----------- ----------- ----------- ----------- --------------- --------- ---------
----------- ----------- ----------- ----------- --------------- --------- ---------
NET INCOME (LOSS).................. $ 21,133 $ 9,569 $ 6,893 $ 9,990 $ (1,143) $ 501 $ (9,203)
----------- ----------- ----------- ----------- --------------- --------- ---------
----------- ----------- ----------- ----------- --------------- --------- ---------
COMPREHENSIVE INCOME (LOSS)............ $ 21,750 $ 10,292 $ 7,833 $ 9,307 $ 4,135 $ (1,685) $ (2,354)
----------- ----------- ----------- ----------- --------------- --------- ---------
ENDING BALANCE SHEET DATA:
Assets............................... $ 2,273,027 $ 1,573,682 $ 1,655,543 $ 1,469,618 $ 996,130 $ 839,701 $ 898,550
Securities........................... 310,811 302,792 267,947 354,944 218,300 250,697 277,299
Loans and leases, net of deferred
fees and costs..................... 1,467,132 987,053 1,023,367 889,624 609,063 477,355 511,735
Allowance for loan and lease
losses............................. 23,563 17,204 18,713 17,439 15,488 13,748 21,555
Goodwill............................. 148,307 33,122 36,369 34,630 5,864 2,464 2,616
Deposits............................. 1,896,866 1,379,759 1,464,805 1,292,610 888,907 750,442 823,217
Borrowed funds....................... 32,892 26,834 14,600 22,132 9,202 16,991 11,995
Common shareholders' equity.......... 328,611 155,223 160,709 141,679 89,619 66,091 57,074
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED SEPTEMBER
30, (1, 4, 5) AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------------
1998 1997 1997(5) 1996(2) 1995(3, 6, 7) 1994 1993
----------- ----------- ----------- ----------- --------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED
RATIOS:
Earnings (loss) per share
Basic.............................. $ 1.23 $ 0.81 $ 0.58 $ 1.11 $ (0.17) $ 0.10 $ (2.19)
Diluted............................ 1.20 0.78 0.56 1.07 (0.17) 0.10 (2.19)
Cash dividends declared per
share(8)........................... 0.30 -- 0.30 -- -- -- --
Book value per share................. 18.48 12.79 12.70 12.47 10.90 10.97 13.58
Tangible book value per share........ 10.14 10.06 9.83 9.42 10.19 10.56 12.96
Shareholders' equity to assets at
period end......................... 14.46% 9.86% 9.71% 9.64% 9.00% 7.87% 6.35%
Tangible shareholders' equity to
assets at period end............... 8.49 7.93 7.68 7.46 8.46 7.60 6.08
Return on average assets............. 1.26 0.84 0.45 0.89 (0.12) 0.06 (0.93)
Return on average equity............. 9.33 8.51 4.57 9.59 (1.49) 0.72 (14.82)
Average equity/average assets........ 13.53 9.92 9.81 9.30 8.36 7.90 6.28
Net interest margin.................. 6.23 6.06 6.08 5.96 5.87 5.67 4.92
</TABLE>
- ------------------------
(1) On January 27, 1998, Western acquired Santa Monica Bank in a transaction
accounted for as a purchase. At January 31, 1998, Santa Monica Bank had
approximately $671 million in assets, $388 million in net loans and $584
million in deposits. At the time of the acquisition of Santa Monica Bank,
Western issued approximately 2,653,000 shares of Western common stock to
certain former shareholders of Santa Monica Bank and also paid approximately
$114 million to the other former shareholders of Santa Monica Bank. Western
also raised approximately $65 million in additional equity in a private
placement by issuing 2,327,550 shares of Western common stock. Santa Monica
Bank's results of operations are included only since January 27, 1998. Due
to the relatively large size of this transaction, any comparison of data as
of and for the nine months ended September 30, 1998 to data as of or for
prior dates or periods may not be meaningful.
(2) On September 30, 1996, Western acquired Western Bank in a transaction
accounted for as a purchase. At September 30, 1996, Western Bank had
approximately $410 million in assets, $198 million in net loans and $353
million in deposits. At the time of such acquisition, Western also raised
approximately $42 million in additional equity in a private placement by
issuing 3,076,045 shares of Western common stock. Western Bank's results of
operations are included only since the fourth quarter of fiscal 1996. Due to
the relatively large size of this transaction, any comparison of data as of
and to the year ended December 31, 1996 to data as of or for prior dates or
periods and for the year ended December 31, 1997 may not be meaningful.
(3) In 1995, Western, through a private placement and a separate shareholders'
rights and public offering, raised approximately $9 million in additional
equity, net of approximately $470,000 in offering costs, in connection with
the issuance of 874,589 shares of Western common stock. Also in 1995
Western, through a private placement of 474,000 shares, raised approximately
$3 million in additional equity in connection with the issuance of shares of
Western common stock.
(4) On December 31, 1997, Bank of Los Angeles acquired Culver National Bank in a
transaction accounted for as a purchase. At December 31, 1997, Culver
National Bank had approximately $60 million in assets, $26 million in net
loans and $51 million in deposits. At the time of such acquisition, Bank of
Los Angeles issued 488,010 shares of Bank of Los Angeles common stock to
former shareholders of Culver National Bank . Culver National Bank's results
of operations are included only since January 1998. Due to the relatively
large size of this transaction, any comparison of data as of and for the
nine months ended September 30, 1998 to data as of or for prior dates or
periods may not be meaningful.
20
<PAGE>
(5) On April 1, 1997, Bank of Los Angeles acquired American West Bank in a
transaction accounted for as a purchase. At April 1, 1997, American West
Bank had approximately $67 million in assets, $37 million in net loans and
$61 million in deposits. At the time of such acquisition, Bank of Los
Angeles issued 577,629 shares of Bank of Los Angeles common stock to former
shareholders of American West Bank. American West Bank's results of
operations are included only since April 1997. Due to the relatively large
size of this transaction, any comparison of data as of and for the nine
months ended September 30, 1998 and the year ended December 31, 1997 to data
as of or for prior dates or periods may not be meaningful.
(6) On November 15, 1995, Bank of Los Angeles acquired World Trade Bank in a
transaction accounted for as a purchase. At November 15, 1995, World Trade
Bank had approximately $42 million in assets, $21 million in net loans and
$40 million in deposits. At the time of such acquisition, Bank of Los
Angeles issued 146,288 shares of Bank of Los Angeles common stock to former
shareholders of World Trade Bank. World Trade Bank's results of operations
are included only since November 1995.
(7) On March 31, 1995, Bank of Los Angeles received a capital infusion of
approximately $3.4 million for 399,739 shares of Bank of Los Angeles common
stock and 199,870 warrants. On November 30, 1995, as a result of a rights
offering to all shareholders of record at October 24, 1995, 275,120 shares
of Bank of Los Angeles common stock and 91,728 warrants were issued for net
proceeds of approximately $2.1 million. Each warrant issued in both the
capital infusion and the rights offering entitled the holder to purchase one
share of Bank of Los Angeles common stock for $8.88 and will expire on
December 1, 1998.
(8) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
21
<PAGE>
PNB
The following summary historical financial data for the nine months ended
September 30, 1998 and 1997 are derived from unaudited financial statements of
PNB and include, in the opinion of PNB's management, all adjustments (consisting
only of normal accruals) necessary to present fairly the data for such periods.
The results for the nine month period ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
The following summary historical financial data for the five years ended
December 31, 1997 are derived from the audited financial statements of PNB. The
data should be read in conjunction with the financial statements, related notes,
and other financial information included in this Proxy Statement/Prospectus. See
"Western and PNB Unaudited Pro Forma Combined Condensed Financial Data"
beginning on page 38.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest Income....................... $ 15,014 $ 11,824 $ 16,421 $ 13,978 $ 12,906 $ 11,396 $ 11,734
Interest Expense...................... 4,111 2,915 4,044 3,888 3,404 2,652 3,014
--------- --------- --------- --------- --------- --------- ---------
NET INTEREST INCOME................. 10,903 8,909 12,377 10,090 9,502 8,744 8,720
Provision for loan and lease losses... 575 765 870 903 1,503 912 3,400
--------- --------- --------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES......... 10,328 8,144 11,507 9,187 7,999 7,832 5,320
Non-interest income................... 17,837 11,815 16,818 12,827 6,539 4,080 8,071
Non-interest expense.................. 18,622 14,289 19,744 17,513 12,595 13,213 16,108
--------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES... 9,543 5,670 8,581 4,501 1,943 (1,301) (2,717)
Income tax expense (benefit).......... 4,007 2,341 3,561 945 (98) -- (474)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ 5,536 $ 3,329 $ 5,020 $ 3,556 $ 2,041 $ (1,301) $ (2,243)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Comprehensive income (loss)........... $ 5,564 $ 3,384 $ 5,092 $ 3,577 $ 2,966 $ (2,234) $ (2,319)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
ENDING BALANCE SHEET DATA:
Assets................................ $ 275,017 $ 229,520 $ 242,874 $ 198,198 $ 174,792 $ 155,585 $ 181,741
Securities............................ 6,093 7,000 6,910 7,381 10,626 19,129 12,623
Mortgage loans held for sale.......... 95,137 86,697 96,852 62,620 41,968 12,448 31,756
Loans and leases, net of deferred fees
and costs........................... 137,142 113,561 118,184 104,226 103,737 104,926 109,263
Allowance for loan and lease losses... 2,061 2,405 1,558 1,812 2,659 2,727 3,473
Goodwill.............................. -- -- -- -- -- -- --
Deposits.............................. 215,456 197,882 211,090 170,039 157,303 142,459 166,028
Borrowed funds........................ 22,855 6,000 5,000 7,000 -- -- --
Common shareholders' equity........... 31,506 22,543 23,997 18,683 15,228 12,257 14,577
PER SHARE DATA AND OTHER SELECTED
RATIOS(1):
Earnings (loss) per share
Basic............................... $ 2.04 $ 1.32 $ 1.97 $ 1.43 $ 0.81 $ (0.52) $ (0.80)
Diluted............................. 1.93 1.23 1.84 1.36 0.80 (0.52) (0.80)
Cash dividends declared per share..... -- -- -- -- -- -- --
Book value per share.................. 11.33 8.65 9.21 7.48 6.05 4.87 5.79
Tangible book value per share......... 11.33 8.65 9.21 7.48 6.05 4.87 5.79
Shareholders' equity to assets at
period end.......................... 11.46% 9.82% 9.88% 9.43% 8.71% 7.88% 8.02%
Tangible shareholders' equity to
assets at period end................ 11.46% 9.82% 9.88% 9.43% 8.71% 7.88% 8.02%
Return on average assets.............. 3.00% 2.26% 2.46% 1.98% 1.28% (0.77)% (1.23)%
Return on average equity.............. 26.11% 21.48% 23.36% 20.94% 14.71% (9.92)% (14.02)%
Average equity/average assets......... 11.48% 10.53% 10.53% 9.43% 8.70% 7.73% 8.81%
Net interest margin................... 6.38% 6.66% 6.65% 6.15% 6.48% 5.80% 5.42%
</TABLE>
- ------------------------
(1) All historical per share numbers have been adjusted for a 15% stock dividend
paid on April 15, 1998.
22
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain summary unaudited pro forma combined
financial data for Western after giving effect to the acquisition of PNB, as if
it had occurred as of the beginning of each of the years presented and carried
through the interim periods, using the exchange rate of 1.0 for the Merger and
the pooling-of-interests method of accounting. See "The Merger--Accounting
Treatment" beginning on page 67. This information should be read in conjunction
with the historical consolidated financial statements of Western (restated to
reflect the effect of the Bank of Los Angeles acquisition on a pooling-
of-interest basis) and PNB including the notes thereto appearing elsewhere in
this Proxy Statement/ Prospectus or incorporated herein by reference. See
"Unaudited Pro Forma Combined Condensed Financial Data" beginning on page 38.
The unaudited pro forma combined condensed balance sheets are not
necessarily indicative of the actual financial position that would have existed
had the Merger been completed on the dates indicated, or that may exist in the
future. The unaudited pro forma combined condensed results of operations are not
necessarily indicative of the results that would have occurred had the Merger
been completed on the dates indicated or that may be achieved in the future.
Assuming the completion of the Merger, 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 date on which the Merger is completed.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED SEPTEMBER AT OR FOR THE YEARS ENDED DECEMBER 31,
30, (1, 4, 5)
------------------------ -----------------------------------------
1998 1997 1997(5) 1996(2) 1995(3, 6, 7)
----------- ----------- ----------- ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income.................................... $ 139,845 $ 131,730 $ 178,861 $ 98,776 $ 82,354
Interest expense................................... 37,659 38,507 52,104 29,286 25,060
----------- ----------- ----------- ----------- ---------------
NET INTEREST INCOME.............................. 102,186 93,223 126,757 69,490 57,294
Provision for loan and lease losses................ 1,105 3,300 4,080 2,671 9,756
----------- ----------- ----------- ----------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES................................... 101,081 89,923 122,677 66,819 47,538
Non-interest income................................ 32,461 25,596 35,166 23,739 15,243
Non-interest expense............................... 82,901 88,101 127,222 72,411 63,714
----------- ----------- ----------- ----------- ---------------
INCOME (LOSS) BEFORE INCOME TAX.................. 50,641 27,418 30,621 18,147 (933)
Income tax expense (benefit)....................... 24,091 13,780 17,509 4,601 (1,831)
----------- ----------- ----------- ----------- ---------------
NET INCOME....................................... $ 26,550 $ 13,638 $ 13,112 $ 13,546 $ 898
----------- ----------- ----------- ----------- ---------------
----------- ----------- ----------- ----------- ---------------
COMPREHENSIVE INCOME............................. $ 27,314 $ 13,676 $ 12,925 $ 12,884 $ 7,101
----------- ----------- ----------- ----------- ---------------
----------- ----------- ----------- ----------- ---------------
ENDING BALANCE SHEET DATA:
Assets............................................. $ 2,553,010 $ 1,803,202 $ 1,903,383 $ 1,667,816 $ 1,170,922
Securities......................................... 316,904 309,792 274,857 362,325 228,926
Mortgage loans held for sale....................... 95,137 86,697 96,852 62,620 41,968
Loans and leases, net of deferred fees and unearned
income........................................... 1,604,274 1,100,614 1,141,551 993,850 712,800
Allowance for loan and lease losses................ 25,624 19,609 20,271 19,251 18,147
Goodwill........................................... 148,307 33,122 36,369 34,630 5,864
Deposits........................................... 2,112,322 1,577,641 1,675,895 1,462,649 1,046,210
Borrowed funds..................................... 55,747 32,834 19,600 29,132 9,202
Common shareholders' equity........................ 347,493 177,766 172,082 160,362 104,847
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED SEPTEMBER AT OR FOR THE YEARS ENDED DECEMBER 31,
30, (1, 4, 5)
------------------------ -----------------------------------------
1998 1997 1997(5) 1996(2) 1995(3, 6, 7)
----------- ----------- ----------- ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per share
Basic............................................ $ 1.30 $ 0.71 $ 0.68 $ 1.18 $ 0.10
Diluted.......................................... 1.26 0.68 0.66 1.14 0.09
Dividends declared per share(8).................... 0.30 -- 0.30 -- --
Book value per share............................... 16.90 8.68 11.28 10.58 7.53
Tangible book value per share...................... 9.69 7.06 8.89 8.30 7.11
Shareholders' equity to assets at period end....... 13.61% 9.86% 9.04% 9.62% 8.95%
Tangible shareholders' equity to assets at period
end.............................................. 8.28 8.17 7.27 7.70 8.50
Return on average assets........................... 1.38 0.75 0.53 1.04 0.08
Return on average equity........................... 10.23 5.81 4.16 11.18 0.99
Average equity/average assets...................... 13.51 12.88 12.74 9.32 8.41
Net interest margin................................ 6.23 6.08 6.09 5.98 5.95
</TABLE>
- ------------------------
(1) On January 27, 1998, Western acquired Santa Monica Bank in a transaction
accounted for as a purchase. At January 31, 1998, Santa Monica Bank had
approximately $671 million in assets, $388 million in net loans and $584
million in deposits. At the time of the acquisition of Santa Monica Bank,
Western issued approximately 2,653,000 shares of Western common stock to
certain former shareholders of Santa Monica Bank and also paid approximately
$114 million to the other former shareholders of Santa Monica Bank. Western
also raised approximately $65 million in additional equity in a private
placement by issuing 2,327,550 shares of Western common stock. Santa Monica
Bank's results of operations are included only since January 27, 1998. Due
to the relatively large size of this transaction, any comparison of data as
of and for the nine months ended September 30, 1998 to data as of or for
prior dates or periods may not be meaningful.
(2) On September 30, 1996, Western acquired Western Bank in a transaction
accounted for as a purchase. At September 30, 1996, Western Bank had
approximately $410 million in assets, $198 million in net loans and $353
million in deposits. At the time of such acquisition, Western also raised
approximately $42 million in additional equity in a private placement by
issuing 3,076,045 shares of Western common stock. Western Bank's results of
operations are included only since the fourth quarter of fiscal 1996. Due to
the relatively large size of this transaction, any comparison of data as of
and to the year ended December 31, 1996 to data as of or for prior dates or
periods and for the year ended December 31, 1997 may not be meaningful.
(3) In 1995, Western, through a private placement and a separate shareholders'
rights and public offering, raised approximately $9 million in additional
equity, net of approximately $470,000 in offering costs, in connection with
the issuance of 874,589 shares of Western common stock. Also in 1995
Western, through a private placement of 474,000 shares, raised approximately
$3 million in additional equity in connection with the issuance of shares of
Western common stock.
(4) On December 31, 1997, Bank of Los Angeles acquired Culver National Bank in a
transaction accounted for as a purchase. At December 31, 1997, Culver
National Bank had approximately $60 million in assets, $26 million in net
loans and $51 million in deposits. At the time of such acquisition, Bank of
Los Angeles issued 488,010 shares of Bank of Los Angeles common stock to
former shareholders of Culver National Bank. Culver National Bank's results
of operations are included only since January of fiscal 1998. Due to the
relatively large size of this transaction, any comparison of data as of and
for the nine months ended September 30, 1998 to data as of or for prior
dates or periods may not be meaningful.
24
<PAGE>
(5) On April 1, 1997, Bank of Los Angeles acquired American West Bank in a
transaction accounted for as a purchase. At April 1, 1997, American West
Bank had approximately $67 million in assets, $37 million in net loans and
$61 million in deposits. At the time of such acquisition, Bank of Los
Angeles issued 577,629 shares of Bank of Los Angeles common stock to former
shareholders of American West Bank. American West Bank's results of
operations are included only since April 1997. Due to the relatively large
size of this transaction, any comparison of data as of and for the nine
months ended September 30, 1998 and the year ended December 31, 1997 to data
as of or for prior dates or periods may not be meaningful.
(6) On November 15, 1995, Bank of Los Angeles acquired World Trade Bank in a
transaction accounted for as a purchase. At November 15, 1995, World Trade
Bank had approximately $42 million in assets, $21 million in net loans and
$40 million in deposits. At the time of such acquisition, Bank of Los
Angeles issued 146,288 shares of Bank of Los Angeles common stock to former
shareholders of World Trade Bank. World Trade Bank's results of operations
are included only since November 1995.
(7) On March 31, 1995, Bank of Los Angeles received a capital infusion of
approximately $3.4 million for 399,739 shares of Bank of Los Angeles common
stock and 199,870 warrants. On November 30, 1995, as a result of a rights
offering to all shareholders of record at October 24, 1995, 279,120 shares
of Bank of Los Angeles common stock and 91,728 warrants were issued for net
proceeds of approximately $2.1 million. Each warrant issued in both the
capital infusion and the rights offering entitled the holder to purchase one
share of Bank of Los Angeles common stock for $8.88 and will expire on
December 1, 1998.
(8) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth for Western common stock certain selected
historical and unaudited pro forma equivalent per share data at September 30,
1998 and December 31, 1997 and for the nine months ended September 30, 1998 and
1997, and at the end of and for each of the three years ended December 31, 1997,
giving effect to the acquisition of PNB using the pooling-of-interests method of
accounting. The information is derived from the historical consolidated
financial statements of Western which have been restated to reflect the effect
of the Bank of Los Angeles acquisition on a pooling-of-interest basis and the
historical financial statements of PNB including the related notes thereto. The
information below should be read in conjunction with the historical, restated
and pro forma combined financial information of Western and PNB, including the
notes thereto, appearing elsewhere in this Proxy Statement/Prospectus or
incorporated herein by reference. See "Unaudited Pro Forma Combined Condensed
Financial Data" beginning on page 38 and "Incorporation of Certain Information
by Reference" beginning on page 3.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER
ENDED SEPTEMBER 30, 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE(1):
Western...................................................... $ 1.23 $ 0.81 $ 0.58 $ 1.11 $ (0.17)
PNB.......................................................... 2.04 1.32 1.97 1.43 0.81
Western and PNB combined pro forma........................... 1.30 0.71 0.68 1.18 0.10
PNB equivalent pro forma..................................... 1.30 0.71 0.68 1.18 0.10
DILUTED EARNINGS (LOSS) PER SHARE(1):
Western...................................................... 1.20 0.78 0.56 1.07 (0.17)
PNB.......................................................... 1.93 1.23 1.84 1.36 0.80
Western and PNB combined pro forma........................... 1.26 0.68 0.66 1.14 0.09
PNB equivalent pro forma..................................... 1.26 0.68 0.66 1.14 0.09
CASH DIVIDENDS PER SHARE(2):
Western dividends declared per share......................... 0.30 -- 0.30 -- --
PNB dividends declared per share............................. -- -- -- -- --
PNB equivalent pro forma(3).................................. 0.30 -- 0.30 -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPT. AT DEC. 31,
30, 1998 1997
----------- -----------
<S> <C> <C>
BOOK VALUE PER SHARE(4):
Western...................................................... $ 18.48 $ 12.70
PNB.......................................................... 11.33 9.21
Western and PNB combined pro forma........................... 16.90 11.28
PNB equivalent pro forma..................................... 16.90 11.28
TANGIBLE BOOK VALUE PER SHARE(4):
Western...................................................... $ 10.14 $ 9.83
PNB.......................................................... 11.33 9.21
Western and PNB combined pro forma........................... 9.69 8.89
PNB equivalent pro forma..................................... 9.69 8.89
</TABLE>
- ------------------------
(1) The Western combined pro forma earnings per share amounts were calculated by
using aggregate historical income information divided by the average pro
forma shares outstanding of the combined entity. The average pro forma
shares outstanding of the combined entity were calculated by combining the
Western historical shares outstanding with the historical shares outstanding
of PNB as adjusted by
26
<PAGE>
the exchange rate of 1.0. The PNB equivalent pro forma earnings per share
amounts were computed by multiplying the Western combined pro forma amounts
by the exchange rate of 1.0.
(2) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
(3) The PNB equivalent pro forma dividends declared per share amounts were
computed by multiplying the Western dividends declared per share by the
exchange rate of 1.0.
(4) The Western combined pro forma book value per share and tangible book value
per share amounts are based on the aggregate common shareholders' equity of
PNB and Western divided by the total pro forma common shares outstanding of
the combined entity based on the exchange rate of 1.0 for the Merger. The
PNB equivalent pro forma book value per share and tangible book value per
share amounts at period end represent the Western combined pro forma amounts
multiplied by the exchange rate of 1.0.
27
<PAGE>
RISK FACTORS
IN ADDITION TO THE INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE, PNB SHAREHOLDERS
CONSIDERING THE MERGER SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AMONG
OTHERS, BEFORE MAKING ANY FINAL DECISION.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used or incorporated by reference in this Proxy Statement/Prospectus,
the words "anticipate," "estimate," "expect," "project," "believe" and similar
words or expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions including
those set forth below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected or projected.
Several key factors that have a direct bearing on Western's ability to attain
its goals are discussed below. See "Forward-Looking Statements" beginning on
page 3.
COMPETITION
The banking business in California generally, and in Western's and PNB's
service areas in particular, is highly competitive with respect to both loans
and deposits and is dominated by a relatively small number of major financial
institutions that have many offices operating throughout wide geographic areas.
Western and PNB compete with other commercial banks, thrift institutions,
insurance companies, credit unions, thrift and loan associations, money market
mutual funds and brokerage firms in attracting and retaining deposits.
Competition for deposits from large commercial banks is particularly strong.
Many thrift institutions and many large commercial banks have a significant
number of branch offices in the areas in which Western and PNB operate.
In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic and other factors such as interest rates,
interest rate caps, rate adjustment provisions, loan maturities, loan-to-value
ratios, loan fees and the amount of time it takes to process a loan from receipt
of the loan application to date of funding. Western's future performance after
the Merger is dependent on its ability to originate a sufficient volume of loans
in its local market areas. There can be no assurance that Western will be able
to effect such actions on satisfactory terms. Furthermore, certain of Western's
competitors may be better able to respond to changing capital and other
regulatory requirements and better able to maintain or improve market share.
ABILITY TO INTEGRATE THE OPERATIONS OF WESTERN AND PNB; RAPID GROWTH
Because the markets in which Western and PNB operate are highly competitive,
and because of the inherent uncertainties associated with the integration of an
acquired company, there can be no assurance that Western will be able to realize
fully the operating efficiencies Western currently expects to realize as a
result of the Merger and the integration of the administrative operations of PNB
into Western's operational structure or that such operating efficiencies will be
realized in the time frame currently anticipated. See "The Merger--Background
and Reasons for the Merger" beginning on page 53.
Western has grown rapidly primarily due to several recent acquisitions. In
the first of such acquisitions, Western acquired Western Bank on September 30,
1996, thereby increasing its total assets as of September 30, 1996, from
approximately $80 million to approximately $490 million, an increase of 513%. In
June 1997, Western merged with California Commercial Bankshares, thereby
acquiring National Bank
28
<PAGE>
of Southern California and increasing Western's total assets from approximately
$512 million at December 31, 1996 to approximately $860 million at June 30,
1997, an increase of 68%. As a result of the merger with SC Bancorp, which was
consummated on October 10, 1997, Western's total assets increased from
approximately $867 million at September 30, 1997 to $1.38 billion at December
31, 1997, an increase of 60%. Following the acquisition of Santa Monica Bank, as
of March 31, 1998, Western's total assets increased to $2.08 billion, an
increase of approximately $700 million or 51% from $1.38 billion at December 31,
1997. Following the acquisition of Bank of Los Angeles in October 1998,
Western's total assets increased by approximately $295 million, or 15%, to $2.3
billion at October 31, 1998. The completion of the Merger will cause Western's
total assets to increase to $2.6 billion, an increase of approximately $277
million or 12% as of September 30, 1998, on a pro forma basis giving effect to
the Merger. The ability of Western to operate effectively following this rapid
growth will depend largely on its ability to integrate the operations of the
recently acquired entities and its ability to attract and retain key personnel.
If the integration of the entities identified above, including PNB, does not
proceed as anticipated, Western's results of operations could be adversely
affected. Also, there can be no assurance that Western will be able to realize
the operating efficiencies that Western management expects to achieve through
the acquisition of the entities identified above, including PNB. In addition,
due to the substantial size of these acquisitions, any comparison of financial
data as of and for the time periods prior to such acquisitions may not be
meaningful.
GENERAL BUSINESS RISK
The businesses of Western and PNB are subject to various business risks.
Western's future success will depend in large part on the continued
contributions of its senior management personnel. The loss of the services of
one or more of these employees, particularly if lost to competitors, could have
a material adverse effect on Western. The volume of loan originations is
dependent upon demand for loans of the type originated and serviced by Western
and PNB and the competition in the marketplace for such loans. The level of
consumer confidence, fluctuations in real estate values, fluctuations in
prevailing interest rates and fluctuations in investment returns expected by the
financial community could combine to make loans of the type originated by
Western and PNB less attractive. In particular, a rise in long-term interest
rates could have a material adverse effect on the volume of mortgage loans that
are funded and sold by PNB which, in turn, could have a material adverse effect
on PNB's earnings. In addition, Western and PNB may be adversely affected by
other factors that could (a) increase the cost to the borrower of loans
originated by Western and PNB, (b) create alternative lending sources for such
borrowers or (c) increase the cost of funds of Western and PNB at rates faster
than any increase in interest income, thereby narrowing their net interest rate
margins. Although both Western and PNB also have seen continued improvement in
loan demand consistent with overall market growth during the continued recovery
of the Southern California economy, the increase in demand to date has not been
sufficient to permit either Western or PNB to fully utilize new deposits to fund
portfolio loans. Accordingly, Western has maintained a significant portion of
its funds in securities and federal funds sold, and PNB has maintained a
significant portion of its funds in mortgage loans held for sale. In addition to
its customers' deposits, PNB uses brokered deposits along with other borrowings
to help fund its mortgage loans held for sale. In addition, the lending
environment is highly competitive, and some lenders have shown a willingness to
lend on terms that the managements of Western and PNB are unwilling to match due
to their credit philosophies. Management of each of Western and PNB believe that
loan demand will remain robust, but there can be no assurance that there will be
sufficient loan demand in the future to keep pace with the level of deposits
such that the asset mix desired by Western and PNB after the Merger can be
achieved and maintained. Governmental interventions through elimination of tax
benefits for home equity loans, regulation of an increased scope of loans or
introduction of additional regulations aimed at mortgage loans could also
adversely affect the business in which Western and PNB are engaged.
In the ordinary course of business, Western and PNB are subject to claims
made against them by borrowers, depositors and investors arising from, among
other things, losses that are claimed to have been
29
<PAGE>
incurred as a result of (a) alleged breaches of fiduciary obligation, (b)
alleged misrepresentations, errors or omissions by employees and officers
(including appraisers), (c) alleged incomplete documentation or (d) alleged
failure by Western or PNB to comply with applicable laws and regulations.
Western believes that any liability with respect to any currently asserted
claims or legal actions against Western or PNB is not likely to be material to
the consolidated financial position or results of operations of Western;
however, any claims asserted in the future may result in legal expense or
liabilities that could have a material adverse effect on the financial positions
and results of operations of Western.
CONCENTRATION OF OPERATIONS; RECESSIONARY ENVIRONMENTS; DECLINE IN REAL ESTATE
VALUES
The business activities of Western and PNB currently are focused in Southern
California, with the majority of their business concentrated in Los Angeles and
Orange Counties. The business of Western after the Merger is expected to
continue to be concentrated in Southern California for the foreseeable future.
Although Western intends to expand within Southern California, there can be no
assurance as to when or if such expansion will take place. Consequently, the
results of operations and financial condition of Western after the Merger are
dependent upon general trends in the Los Angeles, Orange and San Diego Counties
and Southern California economies and residential and commercial real estate
markets. The risks to which the business of Western and PNB are subject, and to
which the business of Western after the Merger will be subject, become more
acute during an economic slow-down or recession such as that experienced during
the recent California recession. During such periods, delinquencies and
foreclosures generally increase and can result in increased numbers of, and
larger, claims and legal actions and in a decline in demand for the services
provided by Western and PNB. In addition, a significant decline in market values
of properties of the type that secure loans originated by Western and PNB would
reduce homeowners' equity in their homes and businesses' equity in their
properties, thereby reducing their borrowing power and also weakening collateral
coverage on loans made previously by Western and PNB. Such a decline could also
diminish the market for loans originated by Western and PNB. Any of the
foregoing could have a material adverse effect on the financial position and
results of operations of Western, and could have a greater adverse impact on
Western than on certain competitors that may have greater resources and capital.
In addition, the concentration of Western's operations in Los Angeles, Orange
and San Diego Counties exposes it to greater risk than other banking companies
with a wider geographic base in the event of catastrophes, such as earthquakes,
fires and floods, in this region.
INTEREST RATE RISK
Western expects to continue to realize income primarily from the
differential or "spread" between the interest earned on loans, securities and
other interest-earning assets, and interest paid on deposits, borrowings and
other interest-bearing liabilities. Net interest spreads are affected by the
difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities. In addition, loan
volume and yields are affected by market interest rates on loans, and rising
interest rates generally are associated with a lower volume of loan
originations. There can be no assurance that Western's interest rate risk will
be minimized or eliminated. In addition, an increase in the general level of
interest rates may adversely affect the ability of certain borrowers to pay the
interest on and principal of their obligations. Accordingly, changes in levels
of market interest rates could materially adversely affect Western's net
interest spread, asset quality, loan origination volume and overall results of
operation.
REAL ESTATE LOAN CONCENTRATION
As of September 30, 1998, approximately 53 percent of the loan portfolio of
Southern California Bank and Santa Monica Bank consisted of loans secured by
various types of real estate. The ability and willingness of the borrowers of
Santa Monica Bank and Southern California Bank to repay such loans, and the
value of the collateral that secures such loans, depends on the economic
conditions present in the various markets in which Southern California Bank and
Santa Monica Bank have extended loans or hold
30
<PAGE>
properties. These conditions include general economic conditions, the
availability of loans, changes in governmental rules or policies and acts of
nature. Western conducts its business primarily in Southern California. Declines
in real estate values in Southern California, or a worsening of economic
conditions in Western's principal market areas, could result in higher
charge-offs and increased nonperforming assets and require Western to increase
materially its provision for loan and lease losses and could have a material
adverse effect on Western.
RISKS ASSOCIATED WITH MORTGAGE BANKING AND MORTGAGE LOANS HELD FOR SALE
Although all risks associated with mortgage banking cannot be easily
summarized, the following are some of the risks involved. Under certain
circumstances, PNB may become liable for the unpaid principal and interest of a
residential mortgage loan sold if there has been a breach of representations or
warranties made to the purchasers or insurers of residential mortgage loans. One
of the representations PNB makes with respect to the mortgage loans sold is that
the mortgage loan does not contain any fraudulent information. Fraudulent
information, if it exists, generally relates to false or materially inaccurate
information on the borrower or on the underlying collateral which was provided
to PNB by the borrower or broker presenting the loan to PNB. During the life of
the loan, if the investor finds there was fraud in the loan package, PNB may be
required to either repurchase the loan or indemnify the investor against any
losses incurred from the loan. The management of PNB is continually assessing
the risks associated with both representations and warranties on mortgage loans
sold and has created a reserve of approximately $911,000 at September 30, 1998
for the estimated future losses. Although management believes that the reserve
is adequate to cover loan losses on sold loans, if the reserve is inadequate or
if PNB incurs substantial losses due to these representations and warranties,
such losses could have a material adverse effect on the financial position and
results of operations of Western after the Merger.
PNB is also subject to interest rate risk associated with the funded and
unfunded rate-locked mortgage loans that have not been allocated to an existing
purchase commitment. PNB management estimates the amount of unfunded rate-locked
loans that it will actually fund and purchases mandatory
forward commitments based upon this estimate and based upon the general interest
rate environment. PNB management does not speculate on interest rate movement
and uses mandatory forward commitments purely as a hedge against interest rate
swings which could affect the value of its unfunded pipeline of rate-locked
mortgage loans and unallocated loans held for sale. The estimates which
management uses can differ from actual loan fundings; therefore, interest rate
risk does exist. Wide fluctuations in the mortgage loan interest rate market
will make it more difficult to estimate the amount of unfunded rate-locked loans
that will actually fund. A volatile interest rate environment may have a
negative impact on PNB's income from mortgage loans sold.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of Western common stock eligible for future sale could have a
dilutive effect on the market for Western common stock and could adversely
affect market prices.
As of the Record Date, the Restated Articles of Incorporation of Western
authorized 100,000,000 shares of Western common stock, of which 17,923,437
shares were outstanding. Approximately 2,779,733 additional shares of Western
common stock will be issued in the Merger to PNB shareholders, assuming (1) no
additional shares of PNB common stock reserved for issuance on the Record Date
are issued on or prior to the effective date of the Merger; and (2) no
dissenters' rights are perfected by PNB shareholders. Pursuant to its stock
option plans, Western had outstanding options to purchase an additional 388,889
shares of Western common stock on the Record Date with exercise prices of
between $5.25 and $43.00. Western also had outstanding warrants to purchase an
additional 296,792 shares of Western common stock with exercise prices of
between $8.88 and $16.83. With the completion of the Bank of Los Angeles
acquisition on October 23, 1998, Western assumed outstanding warrants of Bank of
Los Angeles which permit the holders of such warrants to purchase an additional
156,117 shares of Western common stock
31
<PAGE>
with an exercise price of $8.88, which are included in the above total. As of
the Record Date, PNB had no outstanding securities or obligations convertible
into or exercisable or exchangeable for PNB common stock, other than outstanding
options to purchase 266,210 shares of PNB common stock under various PNB
employee and director stock option plans. If all of the 266,210 shares of PNB
common stock reserved for issuance upon exercise of employee and director stock
options outstanding on the Record Date were issued and outstanding immediately
prior to completion of the Merger, an additional 266,210 shares of Western
common stock would be issued in connection with the conversion of such options.
Sales of substantial amounts of Western common stock in the public market
following the Merger could adversely affect the market price of Western common
stock. There are no restrictions in the Merger Agreement preventing Western from
issuing additional shares. See "The Merger Agreement--The Merger" beginning on
page 69.
Western intends to pursue acquisitions of other financial institutions from
time to time where such acquisitions are believed by Western to enhance
shareholder value or satisfy other strategic objectives. Such acquisitions, if
any, could be accomplished by the issuance of additional shares of Western
common stock or other securities convertible into or exercisable for Western
common stock. See "Unaudited Pro Forma Combined Condensed Financial Data"
beginning on page 38.
In addition, in an action pending in the United States District Court for
the Central District of California, Financial Institution Partners, L.P. and
Hovde Capital, Inc., as a purported assignee of Financial Institution Partners,
L.P. (collectively "FIP"), have asserted an alleged contractual right to
purchase 266,659 additional shares of common stock of California Commercial
Bankshares at a price of $6.75 per share and to an ongoing right of first
refusal to maintain FIP's beneficial ownership interest in California Commercial
Bankshares and/or Western. In an order dated June 30, 1998, the court dismissed
FIP's claims to an ongoing right of first refusal in California Commercial
Bankshares and/or Western stock. Western's management considers FIP's remaining
claims for damages based upon the 266,659 additional shares of California
Commercial Bankshares common stock that FIP did not purchase to be without
merit.
REGULATION
The operations of Western and PNB are subject to extensive regulation by
federal, state and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of their respective operations. Western and PNB each
believes that it is in substantial compliance in all material respects with
applicable federal, state and local laws, rules and regulations. Because the
business of each of Western and PNB is highly regulated, the laws, rules and
regulations applicable to Western and PNB are subject to regular modification
and change. There are currently various laws, rules and regulations proposed
that, if adopted, would impact Western after the Merger. There can be no
assurance that these proposed laws, rules and regulations, or other such laws,
rules or regulations, will not be adopted in the future, which could make
compliance much more difficult or expensive, restrict Western's and PNB's
ability to originate, broker or sell loans, further limit or restrict the amount
of commissions, interest or other charges earned on loans originated or sold by
Western or PNB or otherwise adversely affect the business or prospects of
Western or PNB.
LIMITED MARKET FOR WESTERN COMMON STOCK
There is currently only a limited trading market for Western common stock.
Western common stock was designated for quotation on the Nasdaq National
Market-Registered Trademark- on June 3, 1997. The limited market for Western's
common stock may have been a factor in the stock's recent underperformance
compared to the Keefe Bank Index. As a result of such underperformance, on
October 30, 1998, Peninsula Bank of San Diego exercised its right to terminate a
definitive merger agreement with Western. There can be no assurance that an
active trading market for Western common stock will develop, or if developed,
will continue, or that shareholders of Western after the Merger will be able to
resell their securities or
32
<PAGE>
otherwise liquidate their investment, if at all, without considerable delay or
considerable impact on the sale price. See "Summary--Markets and Market Prices"
beginning on page 16.
There can be no assurance as to the market value of Western common stock,
which market value may be significantly affected by various factors, including,
but not limited to, announcements of expanded services by Western or its
competitors, acquisitions of related companies and variations in quarterly
operating results, as well as by the dilutive effects of the matters described
above in "--Shares Eligible for Future Sale; Dilution" beginning on page 31. The
limited trading market for Western common stock may cause fluctuations in the
market value of Western common stock to be exaggerated, leading to price
volatility in excess of that which would occur in a more active trading market.
FIXED EXCHANGE RATIO
Under the terms of the Merger Agreement, at the time the Merger is
completed, each share of PNB common stock issued and outstanding immediately
prior to such time will be converted into one share of Western common stock. The
Merger Agreement does not contain any provisions for adjustment of the exchange
ratio based on fluctuations in the market prices of PNB common stock or Western
common stock prior to the Merger. The market prices of PNB common stock and
Western common stock at the time the Merger is completed may be different than
their respective market prices as of the date of execution of the Merger
Agreement, the date hereof or the date of the special meeting of PNB
shareholders. For example, during the second and third calendar quarters of
1998, the sale price of PNB common stock ranged from a low of $23.63 to a high
of $37.75, and the sale price of Western common stock ranged from a low of
$28.88 to a high of $47.88. See "Summary--Markets and Market Prices" beginning
on page 16. Such variations could be the result of changes in the business,
operations or prospects of PNB, Western or the combined company, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, regulatory considerations, general market and economic conditions and
other factors both within and beyond the control of Western or PNB. At the time
of the special meeting of PNB shareholders, PNB shareholders will not know the
price at which shares of Western common stock that will be issued upon
consummation of the Merger will trade at the time of such issuance.
YEAR 2000 RISKS AND PREPAREDNESS
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 or
possibly earlier. The Year 2000 issue affects Western in that the financial
services business is highly dependent on computer applications in a variety of
ways, including the following: (i) Western relies on computer systems in almost
all aspects of its business, including the processing of deposits, loans and
other services and products offered to customers as well as for certain
environmental issues such as heating, ventilation and air conditioning in the
buildings in which Western conducts its business, the failure of which in
connection with the Year 2000 could cause systemic disruptions and failures in
the products and services offered by Western; (ii) other banks, clearing houses
and vendors whose products and services Western uses are at risk of systemic
disruptions and potential failures in the event that such entities have not
adequately addressed their Year 2000 issues prior to the Year 2000; (iii) the
creditworthiness of borrowers and the stability of deposits of Western might be
diminished by significant disruptions of their business as a result of their own
or others' failure to address adequately the Year 2000 issue prior to the Year
2000; and (iv) federal banking agencies have issued interagency guidance on the
business-wide risk posed to financial institutions by the Year 2000 problem
pursuant to which the federal banking agencies may take supervisory action
against financial institutions that fail to address appropriately Year 2000
issues prior to the Year 2000, including formal and informal enforcement
actions, denial of applications to the federal banking agencies, civil money
penalties and a reduction in the management component rating of the
institution's composite rating.
33
<PAGE>
In order to address the Year 2000 issues facing Western, Western's
management initiated a program to prepare Western's computer systems and
applications for the Year 2000. As to the primary focus of its Year 2000 Plan,
Western has converted its subsidiary banks to target systems identified and
believed to be Year 2000 compliant. Western has divided its Year 2000 Plan into
five phases, and Western charts its progress in each of those phases. The
following is Western's progress as of the date of this Proxy
Statement/Prospectus in each of the phases, expressed as an approximate
percentage of completion of that phase:
<TABLE>
<CAPTION>
APPROXIMATE
PHASE PERCENTAGE COMPLETED
- ------------------------------------------------------------------------ ---------------------
<S> <C>
Awareness............................................................... 100%
Assessment.............................................................. 100%
Renovation.............................................................. 80%
Validation.............................................................. 15%
Implementation.......................................................... 50%
</TABLE>
Pursuant to the Year 2000 Plan, Western expects to substantially complete
validation of its mission-critical systems and the computer-related interactive
vendor systems by December 31, 1998 and to complete all validation by June 1999.
In addition, Western expects to complete all phases of its Year 2000 Plan by
June 30, 1999.
Western expects to incur internal staff costs as well as consulting and
other expenses related to infrastructure and facilities enhancements necessary
to prepare for the Year 2000. Validation and conversion of primary system
applications and hardware is expected to cost approximately $1,100,000, of which
approximately $148,000 has been expensed as of September 30, 1998. The remainder
will be expensed in the fourth quarter of 1998 and in fiscal year 1999. This
cost estimate does not include costs associated with infrastructure and
facilities enhancements required in connection with operational consolidations
due to Western's prior acquisitions as well as the proposed Merger. A
significant portion of the cost to Western in connection with becoming Year 2000
compliant is expected to be derived from the redeployment of existing technology
and operations resources rather than incremental costs to Western.
As a part of the Year 2000 Plan, Western is not only undertaking the
infrastructure and facilities enhancement and testing necessary to ensure that
Western is adequately prepared for the Year 2000, but Western is also
communicating with its vendors upon whose services Western relies to ensure that
such vendors are taking appropriate steps to address their Year 2000 issues. In
addition, as part of the credit review process, Western is communicating with
its major borrowers in an effort to ensure that such borrowers have taken
appropriate steps to address their Year 2000 issues and will not be materially
affected by any Year 2000 problems. Western is communicating with its major
deposit customers as well in an effort to ensure deposit stability. Western is
also preparing contingency plans to try to minimize the harm to Western in the
event that Western or any or all of the third parties with which it interacts is
unable to attain Year 2000 compliance in certain applications according to the
Year 2000 Plan. The contingency plans being prepared are system and application
specific and are intended to ensure that in the event that one or more of such
systems and/or applications fails by or at the Year 2000, Western will be able
to engage in its core business functions in spite of such failure.
Although Western believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Western's
other Year 2000 remedial and contingency plans will fully protect Western from
the risks associated with the Year 2000 problem. The analysis of, and
preparation for, the Year 2000 and related problems necessarily rely on a
variety of assumptions about future events, and there can be no assurance that
Western's management has accurately predicted such future events or that the
remedial and contingency plans of Western will adequately address such future
events. In the event that the businesses of Western, vendors of Western or
customers of Western are disrupted as a result of the Year 2000 problem, such
disruption could have a material adverse effect on Western.
34
<PAGE>
INFORMATION REGARDING WESTERN
BUSINESS OF WESTERN
Western is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended, and its principal business is to serve as a holding
company for its banking subsidiaries, Southern California Bank and Santa Monica
Bank. Western was organized on May 20, 1983 as a California corporation and
commenced operations as a bank holding company on June 18, 1984. In September
1996, Western acquired Western Bank. In June 1997, Western completed the
acquisition of California Commercial Bankshares. Also in June 1997, Monarch
Bank, a wholly-owned subsidiary of Western prior to the California Commercial
Bankshares acquisition, merged with and into National Bank of Southern
California, a wholly-owned subsidiary of California Commercial Bankshares. In
October 1997, Western consummated the merger with SC Bancorp pursuant to which
SC Bancorp merged with and into Western. In December 1997, Western merged
National Bank of Southern California, with and into Southern California Bank,
with Southern California Bank being the surviving bank. In January 1998, Western
completed the merger of Santa Monica Bank with and into Western Bank, with
Western Bank being the surviving bank. As part of the merger with Santa Monica
Bank, the name of Western Bank was changed to "Santa Monica Bank." Western
completed the acquisition of Bank of Los Angeles on October 23, 1998 through the
merger of Bank of Los Angeles with and into Santa Monica Bank, with Santa Monica
Bank being the surviving bank.
Western, through its subsidiaries, Santa Monica Bank and Southern California
Bank, primarily serves Los Angeles, Orange and San Diego Counties and the
surrounding market in Southern California. Santa Monica Bank's primary market
area is the western part of Los Angeles County. As of October 31, 1998, Santa
Monica Bank had sixteen branch offices, including branch offices in Santa
Monica, Westwood, Malibu, Pacific Palisades, Marina Del Rey, Beverly Hills,
Century City, Encino, West Hollywood, Culver City and Glendale. Southern
California Bank's primary market area includes southern Los Angeles County,
Orange County and northern San Diego County. As of October 31, 1998, Southern
California Bank had six branch offices in southern Los Angeles County, nine
branch offices throughout Orange County and one in northern San Diego County.
Santa Monica Bank and Southern California Bank each offer a broad range of
banking products and services, including many types of business and personal
savings and checking accounts and other consumer banking services such as escrow
services, international banking services, asset based lending services, cash
management services and trust services.
At September 30, 1998, Western had consolidated total assets, total deposits
and shareholders' equity of $2.0 billion, $1.7 billion and $294 million,
respectively. On a pro forma basis reflecting the recent acquisition by Western
of Bank of Los Angeles, as of September 30, 1998, Western would have had
consolidated total assets, total deposits and shareholders' equity of $2.3
billion, $1.9 billion and $329 million, respectively. Western's principal
executive offices are located at 4100 Newport Place, Suite 900, Newport Beach,
California 92660, and its telephone number is (949) 863-2444.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information relating to Western, including information relating
to the business, management, properties, financial condition and results of
operations of Western, is included in documents incorporated by reference into
this Proxy Statement/Prospectus. See "Available Information" beginning on page 2
and "Incorporation of Certain Information by Reference" beginning on page 3.
35
<PAGE>
INFORMATION REGARDING PNB
BUSINESS OF PNB
PNB is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended, and its principal business is to serve as a holding company
for its banking subsidiary, Pacific National Bank. PNB was organized on June 3,
1982 as a California corporation and commenced operation on April 29, 1983.
Pacific National Bank was organized as a national banking association in
1980. Pacific National Bank's business consists primarily of attracting deposits
from the public and using such deposits, together with capital, broker deposits
and other borrowings, to make loans to individuals and small and medium-size
businesses. These loans can be separated into three distinct types: (1)
commercial, real estate and consumer loans which Pacific National Bank holds for
investment, (2) residential mortgage loans which are sold to institutional
investors and (3) commercial loans insured by the Small Business Administration
which PNB currently holds for investment.
Pacific National Bank operates three commercial loan and depository regional
offices, four full service residential mortgage loan offices and three
residential mortgage loan production offices. With the exception of the three
residential mortgage production offices, all of the offices are in the Southern
and Northern California marketplaces with deposit taking offices in Newport
Beach, Beverly Hills and Orange, and residential mortgage loan division offices
in Irvine, Santa Ana, San Diego and Dublin, California. The three residential
mortgage loan production offices are located in Phoenix, Tucson and Prescott,
Arizona.
Pacific National Bank's portfolio lending activities are conducted primarily
in the Southern California marketplace. At September 30, 1998, Pacific National
Bank's portfolio loans totaled approximately $137.1 million of which
approximately 39% consisted of commercial loans, 52% in real estate loans and
the remainder in consumer loans. In addition, approximately 35% of Pacific
National Banks assets are invested in its inventory of mortgage loans held for
sale. The balance of Pacific National Bank's investable funds are placed in a
combination of short and medium-term securities of the United States government
and its agencies, mortgage backed securities, and in other short-term money
market instruments, including the sale of federal funds to other banks. The
bank's revenues are derived principally from interest and fees earned on its
loan portfolio and other investments and income derived from the origination and
sale of residential mortgage loans.
Pacific National Bank opened its residential mortgage loan division in 1986.
The bank's residential mortgage loan activity is primarily conducted throughout
Southern California and Arizona. A small portion of its loan volume is from
Northern California and other areas throughout the United States. The bank's
mortgage loan division operates both wholesale and retail departments. The
wholesale department accounts for the majority of the loan volume. The wholesale
business is brought to the bank through a professional commissioned sales staff
which services an extensive network of over 500 wholesale mortgage loan brokers.
Virtually all of the mortgage loans the bank originates are sold to
institutional investors. These loans are funded by the bank and generally
purchased within 30 days after funding. The bank does not maintain the servicing
on the loans which it sells. Historically, most of the loans generated by the
bank's residential mortgage division were FHA insured or VA guaranteed loans.
During 1996, the bank expanded its product line to more aggressively market
nongovernment guaranteed loans. In 1997 and 1996, 53% and 56% of the mortgage
loans originated were FHA insured or VA guaranteed loans. Over 95% of the
mortgage loans which the bank originates are considered by the market to be A
rated loans. The bank also originates and sells a small number of subprime A
minus, B and C rated loans.
Deposit services offered by Pacific National Bank include those
traditionally offered by commercial banks, such as checking, savings and time
deposits. At September 30, 1998, approximately 42% of Pacific National Bank's
deposits were noninterest bearing demand deposits and 28% of the total deposits
were interest bearing demand deposits. A portion of the noninterest bearing
demand deposits consist of demand
36
<PAGE>
accounts maintained by title insurance, escrow and property management
companies. At September 30, 1998, the bank maintained approximately $43 million
(or 47% of the noninterest bearing accounts) of noninterest bearing accounts for
its title insurance, escrow and property management customers.
At September 30, 1998, PNB had consolidated total assets, total portfolio
loans, total deposits and shareholders' equity of $275 million, $137.1 million,
$215.5 million and $31.5 million, respectively. PNB's principal executive
offices are located at 4665 MacArthur Court, Newport Beach, California 92660,
and its telephone number is (949) 851-1033.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information relating to PNB, including information relating to
the business, management, properties, financial condition and results of
operations of PNB, is included in documents incorporated by reference into this
Proxy Statement/Prospectus. See "Available Information" beginning on page 2 and
"Incorporation of Certain Information by Reference" beginning on page 3.
37
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data combines
the restated consolidated condensed financial statements of Western and the
consolidated financial statements of PNB, giving effect to the Merger as if it
had been effective on September 30, 1998 and December 31, 1997, with respect to
the Pro Forma Combined Condensed Balance Sheets, and as of the beginning of the
years indicated and carried through the interim periods, 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 Santa Monica Bank 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 nine months ended September 30, 1998 and 1997, as if
the Santa Monica Bank acquisition occurred at the beginning of such periods. The
information for the nine months ended September 30, 1998 and 1997 is derived
from the unaudited restated financial statements of Western, unaudited financial
statements of Santa Monica Bank and PNB which include, in the opinion of the
respective managements of Western, Santa Monica Bank and PNB, 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 restated
and historical consolidated financial statements of Western, Santa Monica Bank
and PNB including their respective notes thereto, which are included and
incorporated by reference into this Proxy Statement/Prospectus, and in
conjunction with the combined condensed historical selected financial data and
other pro forma combined financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. See "Incorporation of
Certain Information by Reference" beginning on page 3. The effect of estimated
merger and reorganization costs expected to be incurred in connection with the
acquisitions of PNB and Bank of Los Angeles 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 beginning on page 46. The unaudited pro
forma combined condensed financial data does not give effect to any anticipated
operating efficiencies which may occur in conjunction with the PNB acquisition.
The Unaudited Pro Forma Combined Condensed Balance Sheets are not necessarily
indicative of the actual financial position that would have existed had the PNB
acquisition been completed on September 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 PNB acquisition been consummated on the dates indicated or that may be
achieved in the future. Assuming the consummation of the Merger, 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 date on which the Merger takes
place.
38
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
WESTERN AND
PRO FORMA PNB PRO
WESTERN PNB(1) ADJUSTMENTS(2) FORMA
------------ ---------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.................................. $ 140,135 $ 29,191 $ -- $ 169,326
Federal funds sold....................................... 153,664 2,500 -- 156,164
------------ ---------- -------------- ------------
TOTAL CASH AND CASH EQUIVALENTS...................... 293,799 31,691 -- 325,490
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost................................................... 8,016 1,629 -- 9,645
Securities held to maturity.............................. 93,088 -- -- 93,088
Securities available for sale............................ 209,707 4,464 -- 214,171
------------ ---------- -------------- ------------
TOTAL SECURITIES..................................... 310,811 6,093 -- 316,904
Mortgage loans held for sale............................. -- 95,137 -- 95,137
Net loans................................................ 1,443,569 135,081 -- 1,578,650
Property, plant and equipment............................ 35,129 1,074 -- 36,203
Other real estate owned.................................. 5,251 759 -- 6,010
Goodwill................................................. 148,307 -- -- 148,307
Other assets............................................. 36,161 5,182 4,966 46,309
------------ ---------- -------------- ------------
TOTAL ASSETS......................................... $ 2,273,027 $ 275,017 $ 4,966 $ 2,553,010
------------ ---------- -------------- ------------
------------ ---------- -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits............................ $ 696,532 $ 91,323 $ -- $ 787,855
Interest bearing deposits................................ 1,200,334 124,133 -- 1,324,467
------------ ---------- -------------- ------------
Total deposits......................................... 1,896,866 215,456 -- 2,112,322
Borrowed funds........................................... 32,892 22,855 -- 55,747
Accrued interest payable and other liabilities........... 14,658 5,200 17,590 37,448
------------ ---------- -------------- ------------
TOTAL LIABILITIES.................................... 1,944,416 243,511 17,590 2,205,517
SHAREHOLDERS' EQUITY:
Common stock............................................. 294,575 25,593 -- 320,168
Retained earnings........................................ 33,561 5,876 (12,624) 26,813
Accumulated other comprehensive income................... 475 37 -- 512
------------ ---------- -------------- ------------
TOTAL SHAREHOLDERS' EQUITY........................... 328,611 31,506 (12,624) 347,493
------------ ---------- -------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $ 2,273,027 $ 275,017 $ 4,966 $ 2,553,010
------------ ---------- -------------- ------------
------------ ---------- -------------- ------------
Number of common shares outstanding(1)................... 17,874.6 2,779.7 20,564.3
Common shareholders' equity per share(1)................. $ 18.48 $ 11.33 $ 16.90
Tangible common shareholders' equity per share(1)........ $ 10.14 $ 11.33 $ 9.69
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
39
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN AND
PRO FORMA PNB PRO
WESTERN PNB(1) ADJUSTMENTS(2) FORMA
------------ ---------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.................................. $ 120,102 $ 15,185 $ -- $ 135,287
Federal funds sold....................................... 168,257 -- -- 168,257
------------ ---------- -------------- ------------
TOTAL CASH AND CASH EQUIVALENTS...................... 288,359 15,185 -- 303,544
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost................................................... 6,411 1,285 -- 7,696
Securities held to maturity.............................. 48,138 -- -- 48,138
Securities available for sale............................ 213,398 5,625 -- 219,023
------------ ---------- -------------- ------------
TOTAL SECURITIES..................................... 267,947 6,910 -- 274,857
Mortgage loans held for sale............................. -- 96,852 -- 96,852
Net loans................................................ 1,004,654 116,626 -- 1,121,280
Property, plant and equipment............................ 16,335 1,094 -- 17,429
Other real estate owned.................................. 7,736 476 -- 8,212
Goodwill................................................. 36,369 -- -- 36,369
Other assets............................................. 34,143 5,731 4,966 44,840
------------ ---------- -------------- ------------
TOTAL ASSETS......................................... $ 1,655,543 $ 242,874 $ 4,966 $ 1,903,383
------------ ---------- -------------- ------------
------------ ---------- -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits............................ $ 542,725 $ 101,343 $ -- $ 644,068
Interest bearing deposits................................ 922,080 109,747 -- 1,031,827
------------ ---------- -------------- ------------
Total deposits......................................... 1,464,805 211,090 -- 1,675,895
Borrowed funds........................................... 14,600 5,000 -- 19,600
Accrued interest payable and other liabilities........... 15,429 2,787 17,590 35,806
------------ ---------- -------------- ------------
TOTAL LIABILITIES.................................... 1,494,834 218,877 17,590 1,731,301
SHAREHOLDERS' EQUITY:
Common stock............................................. 143,577 16,234 -- 159,811
Retained earnings........................................ 17,274 7,754 (12,624) 12,404
Accumulated other comprehensive income (loss)............ (142) 9 -- (133)
------------ ---------- -------------- ------------
TOTAL SHAREHOLDERS' EQUITY........................... 160,709 23,997 (12,624) 172,082
------------ ---------- -------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $ 1,655,543 $ 242,874 $ 4,966 $ 1,903,383
------------ ---------- -------------- ------------
------------ ---------- -------------- ------------
Number of common shares outstanding(1)................... 12,655.4 2,605.1 15,260.5
Common shareholders' equity per share(1)................. $ 12.70 $ 9.21 $ 11.28
Tangible common shareholders' equity per share(1)........ $ 9.83 $ 9.21 $ 8.89
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
40
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SANTA WESTERN
MONICA PRO FORMA WESTERN PRO AND PNB
WESTERN JANUARY(3) ADJUSTMENTS(3) FORMA PNB(1) PRO FORMA
--------- ----------- ----------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and
leases............................... $ 98,484 $ 3,185 $ 101,669 $ 14,361 $ 116,030
Interest on interest bearing deposits
in other banks....................... 54 -- 54 -- 54
Interest on investment securities...... 13,591 616 14,207 360 14,567
Interest on federal funds sold......... 8,771 365 (235) 8,901 293 9,194
--------- ----------- ----- ----------- ----------- -----------
TOTAL INTEREST INCOME................ 120,900 4,166 (235) 124,831 15,014 139,845
INTEREST EXPENSE:
Interest expense on deposits........... 30,978 1,180 32,158 3,853 36,011
Interest expense on borrowings......... 1,374 16 1,390 258 1,648
--------- ----------- ----- ----------- ----------- -----------
TOTAL INTEREST EXPENSE............... 32,352 1,196 -- 33,548 4,111 37,659
--------- ----------- ----- ----------- ----------- -----------
NET INTEREST INCOME:..................... 88,548 2,970 (235) 91,283 10,903 102,186
Less: provision for loan and lease
losses............................... 450 80 530 575 1,105
--------- ----------- ----- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES.................. 88,098 2,890 (235) 90,753 10,328 101,081
NON-INTEREST INCOME:
Service charges, commissions and
fees................................. 12,652 595 13,247 5,331 18,578
Gain on sale of loans.................. -- -- -- 12,267 12,267
Securities gains....................... 481 -- 481 (5) 476
Other income........................... 877 19 896 244 1,140
--------- ----------- ----- ----------- ----------- -----------
TOTAL NON-INTEREST INCOME............ 14,010 614 -- 14,624 17,837 32,461
NON-INTEREST EXPENSE:
Salaries and benefits.................. 29,917 1,123 (11) 31,029 11,123 42,152
Occupancy, furniture and equipment..... 9,588 347 23 9,958 1,594 11,552
Advertising and business development... 798 58 856 349 1,205
Other real estate owned................ (335) 9 (326) 149 (177)
Professional services.................. 3,052 73 3,125 1,112 4,237
Telephone, stationery and supplies..... 2,604 55 2,659 608 3,267
Goodwill amortization.................. 7,520 -- 665 8,185 -- 8,185
Data processing........................ 1,736 9 1,745 -- 1,745
Customer services cost................. 1,248 8 1,256 1,284 2,540
Provision for losses on loans sold..... -- -- -- -- 1,200 1,200
Merger costs........................... 139 429 568 -- 568
Other.................................. 4,985 239 5,224 1,203 6,427
--------- ----------- ----- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE........... 61,252 2,350 677 64,279 18,622 82,901
--------- ----------- ----- ----------- ----------- -----------
Income before income taxes............... 40,856 1,154 (912) 41,098 9,543 50,641
Income taxes............................. 19,723 463 (102) 20,084 4,007 24,091
--------- ----------- ----- ----------- ----------- -----------
NET INCOME........................... $ 21,133 $ 691 $ (810) $ 21,014 $ 5,536 $ 26,550
--------- ----------- ----- ----------- ----------- -----------
--------- ----------- ----- ----------- ----------- -----------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic................................ 17,155.3 7,084.2 17,720.9 2,708.2 20,429.1
Diluted.............................. 17,594.4 7,084.2 18,160.0 2,875.5 21,035.5
Income per share
Basic................................ $ 1.23 $ 0.10 $ 1.19 $ 2.04 $ 1.30
Diluted.............................. $ 1.20 $ 0.10 $ 1.16 $ 1.93 $ 1.26
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
41
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
WESTERN
SANTA PRO FORMA WESTERN AND PNB
WESTERN MONICA(3) ADJUSTMENTS(3) PRO FORMA PNB(1) PRO FORMA
--------- ----------- --------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases... $ 67,716 $ 27,433 $ 95,149 $ 11,304 $ 106,453
Interest on interest bearing deposits in
other banks........................... 1 -- 1 -- 4
Interest on investment securities....... 14,282 6,415 20,697 316 21,013
Interest on federal funds sold.......... 3,463 2,708 (2,112) 4,059 204 4,263
--------- ----------- ------- ----------- ----------- -----------
TOTAL INTEREST INCOME................. 85,462 36,556 (2,112) 119,906 11,824 131,730
INTEREST EXPENSE:
Interest expense on deposits............ 23,549 10,848 34,397 2,809 37,206
Interest expense on borrowings.......... 1,048 147 1,195 106 1,301
--------- ----------- ------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE................ 24,597 10,995 -- 35,592 2,915 38,507
--------- ----------- ------- ----------- ----------- -----------
NET INTEREST INCOME....................... 60,865 25,561 (2,112) 84,314 8,909 93,223
Less: provision for loan and lease
losses................................ 2,535 -- 2,535 765 3,300
--------- ----------- ------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES................... 58,330 25,561 (2,112) 81,779 8,144 89,923
NON-INTEREST INCOME:
Service charges and fees................ 6,768 5,158 11,926 3,860 15,786
Gain on sale of loans................... 78 -- 78 7,485 7,563
Securities gains (losses)............... 342 -- 342 (11) 331
Other income............................ 1,263 172 1,435 481 1,916
--------- ----------- ------- ----------- ----------- -----------
TOTAL NON-INTEREST INCOME............. 8,451 5,330 -- 13,781 11,815 25,596
NON-INTEREST EXPENSE:
Salaries and benefits................... 22,720 10,707 (98) 33,329 8,694 42,023
Occupancy, furniture and equipment...... 7,048 2,980 206 10,234 1,510 11,744
Advertising and business development.... 1,070 675 1,745 260 2,005
Other real estate owned................. 363 (556) (193) 474 281
Professional services................... 3,101 1,189 4,290 780 5,070
Telephone, stationery and supplies...... 2,326 474 2,800 525 3,325
Goodwill amortization................... 2,081 -- 5,983 8,064 -- 8,064
Data processing......................... 1,202 88 1,290 -- 1,290
Customer services cost.................. 867 105 972 993 1,965
Provision for losses on loans sold...... -- -- -- 176 176
Merger costs............................ 3,470 841 4,311 -- 4,311
Other................................... 4,942 2,028 6,970 877 7,847
--------- ----------- ------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE............ 49,190 18,531 6,091 73,812 14,289 88,101
--------- ----------- ------- ----------- ----------- -----------
Income before income taxes................ 17,591 12,360 (8,203) 21,748 5,670 27,418
Income taxes.............................. 8,022 4,338 (921) 11,439 2,341 13,780
--------- ----------- ------- ----------- ----------- -----------
NET INCOME............................ $ 9,569 $ 8,022 $ (7,282) $ 10,309 $ 3,329 $ 13,638
--------- ----------- ------- ----------- ----------- -----------
--------- ----------- ------- ----------- ----------- -----------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic................................. 11,805.3 7,084.2 16,785.9 2,522.1 19,308.0
Diluted............................... 12,294.9 7,084.2 17,275.5 2,699.6 19,975.1
Income per share
Basic................................. $ 0.81 $ 1.13 $ 0.61 $ 1.32 $ 0.71
Diluted............................... $ 0.78 $ 1.13 $ 0.60 $ 1.23 $ 0.68
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
42
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN
SANTA PRO FORMA WESTERN AND PNB
WESTERN MONICA(3) ADJUSTMENTS(3) PRO FORMA PNB(1) PRO FORMA
--------- ----------- --------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases... $ 91,868 $ 36,794 $ 128,662 $ 15,771 $ 144,433
Interest on interest bearing deposits in
other banks........................... 1 -- 1 -- 1
Interest on investment securities....... 18,445 8,922 27,367 422 27,789
Interest on federal funds sold.......... 5,574 3,652 (2,816) 6,410 228 6,638
--------- ----------- ------- ----------- ----------- -----------
TOTAL INTEREST INCOME................. 115,888 49,368 (2,816) 162,440 16,421 178,861
INTEREST EXPENSE:
Interest expense on deposits............ 31,949 14,575 46,524 3,852 50,376
Interest expense on borrowings.......... 1,340 196 1,536 192 1,728
--------- ----------- ------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE................ 33,289 14,771 -- 48,060 4,044 52,104
--------- ----------- ------- ----------- ----------- -----------
NET INTEREST INCOME:...................... 82,599 34,597 (2,816) 114,380 12,377 126,757
Less: provision for loan and lease
losses................................ 3,210 -- 3,210 870 4,080
--------- ----------- ------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES................... 79,389 34,597 (2,816) 111,170 11,507 122,677
NON-INTEREST INCOME:
Service charges, commissions and fees... 8,806 7,032 15,838 5,482 21,320
Gain on sale of loans................... 78 -- 78 10,814 10,892
Securities gains (losses)............... 342 13 355 (11) 344
Other income............................ 1,848 229 2,077 533 2,610
--------- ----------- ------- ----------- ----------- -----------
TOTAL NON-INTEREST INCOME............. 11,074 7,274 -- 18,348 16,818 35,166
NON-INTEREST EXPENSE:
Salaries and benefits................... 29,825 14,661 (131) 44,355 11,967 56,322
Occupancy, furniture and equipment...... 9,621 4,151 274 14,046 2,048 16,094
Advertising and business development.... 1,380 844 2,224 380 2,604
Other real estate owned................. 271 (547) (276) 524 248
Professional services................... 4,088 1,444 5,532 1,107 6,639
Telephone, stationery and supplies...... 3,082 632 3,714 715 4,429
Goodwill amortization................... 2,784 -- 7,977 10,761 -- 10,761
Data processing......................... 1,667 116 1,783 -- 1,783
Customer services cost.................. 1,263 265 1,528 1,424 2,952
Provision for losses on loans sold...... -- -- -- 276 276
Merger related costs.................... 14,201 1,052 15,253 -- 15,253
Other................................... 6,117 2,441 8,558 1,303 9,861
--------- ----------- ------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE............ 74,299 25,059 8,120 107,478 19,744 127,222
--------- ----------- ------- ----------- ----------- -----------
Income before income taxes................ 16,164 16,812 (10,936) 22,040 8,581 30,621
Income taxes.............................. 9,271 5,905 (1,228) 13,948 3,561 17,509
--------- ----------- ------- ----------- ----------- -----------
NET INCOME............................ $ 6,893 $ 10,907 $ (9,708) $ 8,092 $ 5,020 $ 13,112
--------- ----------- ------- ----------- ----------- -----------
--------- ----------- ------- ----------- ----------- -----------
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic................................. 11,886.6 7,084.2 16,860.1 2,544.4 19,404.5
Diluted............................... 12,315.5 7,084.2 17,289.0 2,721.2 20,010.2
Income per share
Basic................................. $ 0.58 $ 1.54 $ 0.48 $ 1.97 $ 0.68
Diluted............................... $ 0.56 $ 1.54 $ 0.47 $ 1.84 $ 0.66
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
43
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WESTERN
AND PNB
WESTERN PNB(1) PRO FORMA
----------- ----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases........................................... $ 66,076 $ 13,015 $ 79,091
Interest on interest bearing deposits in other banks............................ 15 32 47
Interest on investment securities............................................... 14,870 438 15,308
Interest on federal funds sold.................................................. 3,837 493 4,330
----------- ----------- -----------
TOTAL INTEREST INCOME......................................................... 84,798 13,978 98,776
INTEREST EXPENSE:
Interest expense on deposits.................................................... 24,212 3,855 28,067
Interest expense on borrowings.................................................. 1,186 33 1,219
----------- ----------- -----------
TOTAL INTEREST EXPENSE........................................................ 25,398 3,888 29,286
----------- ----------- -----------
NET INTEREST INCOME:.............................................................. 59,400 10,090 69,490
Less: provision for loan and lease losses....................................... 1,768 903 2,671
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES..................... 57,632 9,187 66,819
NON-INTEREST INCOME:
Service charges, commissions and fees........................................... 8,451 4,504 12,955
Gain on sale of loans and other assets.......................................... 665 8,011 8,676
Securities gains (losses)....................................................... 276 -- 276
Other income.................................................................... 1,520 312 1,832
----------- ----------- -----------
TOTAL NON-INTEREST INCOME..................................................... 10,912 12,827 23,739
NON-INTEREST EXPENSE:
Salaries and benefits........................................................... 26,424 9,467 35,891
Occupancy, furniture and equipment.............................................. 8,955 1,914 10,869
Advertising and business development............................................ 1,479 198 1,677
Other real estate owned......................................................... (66) 474 408
Professional services........................................................... 6,526 883 7,409
Telephone, stationery and supplies.............................................. 2,547 754 3,301
Goodwill amortization........................................................... 1,123 -- 1,123
Data processing................................................................. 1,064 -- 1,064
Customer services cost.......................................................... 510 1,039 1,549
Provision for losses on loans sold.............................................. -- 1,080 1,080
Other........................................................................... 6,336 1,704 8,040
----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE.................................................... 54,898 17,513 72,411
----------- ----------- -----------
Income before income taxes........................................................ 13,646 4,501 18,147
Income taxes...................................................................... 3,656 945 4,601
----------- ----------- -----------
NET INCOME.................................................................... $ 9,990 $ 3,556 $ 13,546
----------- ----------- -----------
----------- ----------- -----------
Number of shares (weighted average)
Basic......................................................................... 9,022.9 2,494.7 11,517.6
Diluted....................................................................... 9,294.2 2,605.3 11,899.5
Income per share
Basic......................................................................... $ 1.11 $ 1.43 $ 1.18
Diluted....................................................................... $ 1.07 $ 1.36 $ 1.14
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
44
<PAGE>
WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WESTERN
AND PNB
WESTERN PNB(1) PRO FORMA
----------- ----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases........................................... $ 53,822 $ 12,016 $ 65,838
Interest on interest bearing deposits in other banks............................ 45 -- 45
Interest on investment securities............................................... 12,301 762 13,063
Interest on federal funds sold.................................................. 3,280 128 3,408
----------- ----------- -----------
TOTAL INTEREST INCOME......................................................... 69,448 12,906 82,354
INTEREST EXPENSE:
Interest expense on deposits.................................................... 20,709 3,355 24,064
Interest expense on borrowings.................................................. 947 49 996
----------- ----------- -----------
TOTAL INTEREST EXPENSE........................................................ 21,656 3,404 25,060
----------- ----------- -----------
NET INTEREST INCOME:.............................................................. 47,792 9,502 57,294
Less: provision for (recovery of) loan and lease losses......................... 8,253 1,503 9,756
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES..................... 39,539 7,999 47,538
NON-INTEREST INCOME:
Service charges, commissions and fees........................................... 7,308 2,203 9,511
Gain on sale of loans and other assets.......................................... 263 4,310 4,573
Securities (losses)............................................................. (738) (50) (788)
Other income.................................................................... 1,871 76 1,947
----------- ----------- -----------
TOTAL NON-INTEREST INCOME..................................................... 8,704 6,539 15,243
NON-INTEREST EXPENSE:
Salaries and benefits........................................................... 22,373 6,377 28,750
Occupancy, furniture and equipment.............................................. 8,819 1,856 10,675
Advertising and business development............................................ 1,327 201 1,528
Other real estate owned......................................................... 3,104 262 3,366
Professional services........................................................... 3,723 659 4,382
Telephone, stationery and supplies.............................................. 2,591 501 3,092
Goodwill amortization........................................................... 841 -- 841
Lower of cost or market adjustment on loans available for sale.................. 756 -- 756
Data processing................................................................. 822 -- 822
Provision for losses on loans sold.............................................. -- 385 385
Customer services cost.......................................................... 184 944 1,128
Other........................................................................... 6,579 1,410 7,989
----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE.................................................... 51,119 12,595 63,714
----------- ----------- -----------
Income (loss) before income taxes................................................. (2,876) 1,943 (933)
Income taxes (benefits)........................................................... (1,733) (98) (1,831)
----------- ----------- -----------
NET INCOME (LOSS)............................................................. $ (1,143) $ 2,041 $ 898
----------- ----------- -----------
----------- ----------- -----------
PER SHARE INFORMATION:
Number of shares (weighted average)
Basic......................................................................... 6,916.7 2,508.8 9,425.5
Diluted....................................................................... 7,134.4 2,540.4 9,674.8
Income (loss) per share
Basic......................................................................... $ (0.17) $ 0.81 $ 0.10
Diluted....................................................................... $ (0.17) $ 0.80 $ 0.09
</TABLE>
See "NOTES TO WESTERN--PNB UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA."
45
<PAGE>
NOTES TO WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
NOTE 1: BASIS OF PRESENTATION
PNB ACQUISITION
Certain historical data of PNB have been reclassified on a pro forma basis
to conform to Western's classifications. Transactions between Western and PNB
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
multiplied by the PNB exchange rate of 1.0. The number of PNB shares and
earnings per share for the periods presented have been given retroactive effect
to the 15% stock dividend paid by PNB on April 15, 1998.
BANK OF LOS ANGELES ACQUISITION
On October 23, 1998, Western acquired Bank of Los Angeles 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. Pursuant to that merger
agreement, Bank of Los Angeles merged with and into Santa Monica Bank, with
Santa Monica Bank being the surviving corporation.
Pursuant to the merger agreement, each issued and outstanding share of
common stock of Bank of Los Angeles prior to the acquisition (other than as
provided in the merger agreement) was converted into the right to receive 0.4224
shares of Western common stock. In addition, each option to acquire shares of
common stock outstanding immediately prior to the completion of the Bank of Los
Angeles acquisition was converted into the right to receive that number of
shares of Western common stock equal to the quotient obtained by dividing the
Spread (as defined in the merger agreement) by $42.61. Each warrant to acquire
Bank of Los Angeles common stock outstanding prior to completion of the Bank of
Los Angeles acquisition was converted into an equivalent warrant to acquire
shares of Western common stock. As a result, there are outstanding warrants,
expiring December 1, 1998, to acquire approximately 156,117 shares of Western
common stock at an exercise price of $8.88 per share.
Upon completion of the Bank of Los Angeles acquisition, Western issued
approximately 2,214,300 shares of Western common stock (prior to adjustment for
fractional shares) to former holders of Bank of Los Angeles common stock, and as
a result, the former shareholders of Bank of Los Angeles common stock own shares
of Western common stock representing approximately 12.4 percent of the presently
outstanding Western common stock.
NOTE 2: MERGER COSTS
BANK OF LOS ANGELES ACQUISITION
The unaudited pro forma combined condensed financial data reflect 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 Bank of Los Angeles acquisition. In accordance
with pooling-of-interests accounting, these costs will be recognized upon
closing of the transaction. 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
46
<PAGE>
NOTES TO WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
NOTE 2: MERGER COSTS (CONTINUED)
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>
PNB ACQUISITION
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 $7,235,000 ($5,345,000 net of taxes,
computed using the combined federal and state tax rate of 42.0%) expected to be
incurred in connection with the Merger. In accordance with pooling-of-interests
accounting, these costs will be recognized upon closing of the transaction.
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.................................................................... $ 2,000
Conversion costs.................................................................. 500
Other costs....................................................................... 2,000
-----------
4,500
Tax effects....................................................................... (1,890)
-----------
2,610
Investment banking and other professional fees.................................... 2,735
-----------
TOTAL ESTIMATED AGGREGATE COSTS................................................. $ 5,345
-----------
-----------
</TABLE>
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 to be completed prior to
consummation of the acquisition of PNB, which will be developed by various of
Western's and PNB'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
47
<PAGE>
NOTES TO WESTERN--PNB
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
NOTE 2: MERGER COSTS (CONTINUED)
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 SANTA MONICA BANK ACQUISITION
The Santa Monica Bank acquisition was accounted for as a purchase effective
on January 27, 1998. Accordingly, Western's balance sheet as of September 30,
1998, reflects such acquisition. Under this method of accounting, assets and
liabilities of Santa Monica Bank 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
nine-month periods ending September 30, 1998, September 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,
Bank of Los Angeles and Santa Monica Bank 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 Santa Monica Bank 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 Santa Monica Bank acquisition purchase price during
each period, resulting in approximately $235,000 less interest income for the
nine-month period ended September 30, 1998, $2,112,000 less interest income for
the nine-month period ended September 30, 1997 and $2.8 million less interest
income for 1997.
Salaries and benefits expense is estimated to be reduced by approximately
$11,000, $98,000 and $131,000 for the nine-month period ended September 30,
1998, the nine-month period ended September 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 Santa Monica Bank'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
nine-month periods ended September 30, 1998 and September 30, 1997, this
additional expense is $23,000 and $206,000, 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.
48
<PAGE>
THE SPECIAL MEETING OF PNB SHAREHOLDERS
GENERAL
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the PNB Board of Directors of proxies representing PNB common
stock to be voted at the special meeting of PNB shareholders to be held on
December 30, 1998, and at any postponement or adjournment thereof.
MATTERS TO BE CONSIDERED AT THE PNB SPECIAL MEETING
The purpose of the special meeting is to (a) consider and vote upon the
principal terms of the Merger, and (b) transact such other business as may
properly come before the special meeting or any adjournments or postponements
thereof.
Based upon (a) the 2,779,733 shares of PNB common stock outstanding on the
Record Date and (b) the 266,210 shares of PNB common stock reserved for issuance
upon exercise of employee and director stock options to acquire PNB common stock
outstanding on the Record Date and assuming no dissenters' rights are perfected
by PNB shareholders and no cash is paid in lieu of fractional shares, (i) in the
event that no options or other rights outstanding are exercised prior to
completion of the Merger, 2,779,733 shares of Western common stock would be
issued in the Merger and (ii) in the event that all options and rights
outstanding are exercised prior to completion of the Merger, 3,045,943 shares of
Western common stock would be issued in the Merger. Based upon the 17,923,437
shares of Western common stock outstanding on the Record Date, the 388,889
shares of Western common stock reserved for issuance upon the exercise of
employee and director stock options to acquire Western common stock on the
Record Date, the 296,792 shares of Western common stock reserved for issuance
upon the exercise of warrants to acquire Western common stock outstanding on the
Record Date (including the 156,117 shares of Western common stock reserved for
issuance upon the exercise of warrants to acquire Western common stock
outstanding on the Record Date by former shareholders of the Bank of Los
Angeles), and assuming no dissenters' rights are perfected by shareholders and
no cash is paid in lieu of fractional shares: (i) in the event that no options,
warrants or other rights outstanding of PNB and Western common stock are
exercised prior to the completion of the Merger, shares held by PNB shareholders
after consummation of the Merger would represent approximately 13.4% of Western
common stock and (ii) in the event that all options, warrants and rights
outstanding of PNB and Western common stock are exercised prior to the
completion of the Merger, shares held by PNB shareholders after completion of
the Merger would represent approximately 14.1% of Western common stock.
Completion of the Merger is subject to satisfaction of a number of conditions,
including the receipt of regulatory approvals for the Merger and the approval of
the principal terms of the Merger by PNB shareholders. See "Merger
Agreement--Conditions" beginning on page 73.
The Merger Agreement provides, among other things, that Mr. Barbieri will be
appointed to the Western Board of Directors at the time the Merger is completed.
Accordingly, prior to the completion of the Merger, the Western Board of
Directors will adopt resolutions increasing the number of Western directors by
one and will appoint Mr. Barbieri to fill the vacancy created thereby. The
directors of PNB as specified by Western will be required to resign, effective
upon completion of the Merger. See "The Merger--Certain Effects of the Merger"
beginning on page 64.
THE RECORD DATE
The PNB Board of Directors has fixed the close of business on November 27,
1998 as the record date (the "Record Date") for the determination of the PNB
shareholders entitled to receive notice of, and to vote at, the special meeting
of PNB shareholders. Only holders of record of shares of PNB common stock at the
close of business on the Record Date will be entitled to notice of, and to vote
at, the special meeting and any postponements or adjournments thereof. On the
Record Date, 2,779,733 shares of PNB common stock were issued and outstanding.
49
<PAGE>
VOTES REQUIRED AND VOTING OF PROXIES
At the special meeting of PNB shareholders, a majority of all shares of PNB
common stock entitled to vote, represented in person or by proxy, constitutes a
quorum. Abstentions will each be included in the determination of the number of
shares present; however, they will not be counted as votes in favor of the
principal terms of the Merger. Each share of PNB common stock held of record
will be entitled to one vote upon each matter properly submitted to the PNB
shareholders at the special meeting and any postponement or adjournment thereto.
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of PNB common stock entitled to vote at the special
meeting is required to approve the principal terms of the Merger. Consequently,
the failure to vote, an abstention or a broker non-vote would each have the same
effect as a vote against the principal terms of the Merger.
Each share of PNB common stock represented by a proxy properly executed and
received by PNB in time to be voted at the special meeting and not revoked will
be voted in accordance with the instructions indicated on such proxy and, if no
instructions are indicated, will be voted FOR the proposal to approve the
principal terms of the Merger. All proxies voted FOR such matters, including
proxies on which no instructions are indicated, may, at the discretion of the
proxy-holder, be voted FOR a motion to adjourn or postpone the special meeting
to another time and/or place for the purpose of soliciting additional proxies or
otherwise. Any proxy that is voted against approval of the principal terms of
the Merger or on which the relevant PNB shareholder specifically abstains from
voting with respect to such approval will not be voted in favor of any such
adjournment or postponement.
The PNB Board of Directors is not currently aware of any business to be
acted upon at the special meeting other than as described herein. If, however,
other matters are properly brought before the special meeting, persons appointed
as proxies will have discretion to vote or act thereon in their best judgment.
Certain PNB shareholders, including all the executive officers and directors
of PNB, with the ability to direct the voting of approximately 53.7% of PNB
common stock outstanding on the Record Date have agreed, among other things, to
vote FOR the adoption and approval of the Merger Agreement and the Merger.
However, the shareholders/directors or officers are bound by the Shareholder
Agreements to vote FOR the adoption and approval of the Merger Agreement only in
their capacity as shareholders. As directors, they are bound by their fiduciary
duties to act in the best interest of PNB. See "The Shareholder Agreements"
beginning on page 78.
If a quorum is not obtained, or fewer shares of PNB common stock are voted
in favor of the principal terms of the Merger than the number required for
approval of the principal terms of the Merger, in accordance with Section 602 of
the California General Corporation Law, the special meeting will be postponed or
adjourned for the purpose of allowing additional time to obtain additional
proxies or votes, and at any subsequent reconvening of the special meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the special meeting (except for any proxies that
have theretofore effectively been revoked or withdrawn).
SOLICITATION OF PROXIES
The cost of soliciting proxies relating to the special meeting of PNB
shareholders will be paid by PNB. In addition to solicitation of proxies by the
use of mail, directors, officers and employees of PNB and its subsidiaries may
solicit proxies from PNB shareholders personally or by telephone or telegram
without additional remuneration therefor. PNB also will provide persons, firms,
banks and corporations holding shares in their names or in the names of
nominees, which in any case are beneficially owned by others, with proxy
materials for transmittal to such beneficial owners and will reimburse such
record owners for their expenses of doing so.
50
<PAGE>
REVOCABILITY OF PROXIES
The presence of a PNB shareholder at the special meeting (or at any
postponement or adjournment thereof) will not automatically revoke such PNB
shareholder's proxy. However, a PNB shareholder may revoke a proxy at any time
prior to its exercise by (a) delivery to the Secretary of PNB of a written
notice of revocation prior to the vote with respect thereto; (b) delivery to the
Secretary of PNB prior to the vote with respect thereto of a duly executed proxy
bearing a later date; or (c) attending the special meeting (or, if the special
meeting is adjourned or postponed, by attending the adjourned or postponed
meeting) and voting in person thereat. Any written revocation of proxy or other
related communications should be addressed to Christine Castellano, Secretary of
PNB, 4665 MacArthur Court, Newport Beach, California 92660.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PNB
The following table sets forth, as of November 12, 1998, information with
respect to the securities holdings of all persons which PNB has reason to
believe may be deemed the beneficial owners of more than 5% of outstanding PNB
common stock. The following table indicates the beneficial ownership of such
individuals numerically calculated based upon the total number of shares of PNB
common stock outstanding together with the shares issuable in connection with
presently exercisable stock options. Also set forth in the table is the
beneficial ownership of all shares of the Registrants outstanding PNB common
stock, as of such date, of all directors and named executive officers,
individually, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NAME AND POSITION PNB COMMON STOCK OWNERSHIP
- ---------------------------------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Allen C. Barbieri .......................................................... 304,406(1) 10.28%
Director and Chief Executive Officer
Martin T. Hart ............................................................. 432,675 14.61%
Director
Doug L. Heller ............................................................. 71,063(2) 2.40%
Chief Financial Officer
G. Mitchell Morris ......................................................... 204,312 6.90%
4277 Park Terrace Drive
Salt Lake City, UT 84124
Jon A. Salquist ............................................................ 201,000 6.79%
2725 N.W. Circle A Drive
Portland, OR 97229
Bernard E. Schneider ....................................................... 33,000(3) 1.11%
Director and Chairman
James Schuler .............................................................. 339,571 11.46%
828 Fort Street Mall
Honolulu, HI 96813
Barney B. Whitesell......................................................... 90,318 3.16%
------- -----
Director
Directors and Executive Officers as a group (5 persons)..................... 931,462 31.44%
------- -----
------- -----
</TABLE>
- ------------------------
(1) Includes options to purchase 143,750 shares of the common stock, which are
presently exercisable.
(2) Includes options to purchase 28,750 shares of the common stock, which are
presently exercisable.
(3) Includes options to purchase 10,000 shares of the common stock, which are
presently exercisable.
51
<PAGE>
DISSENTERS' RIGHTS
If the principal terms of the Merger are approved by the PNB shareholders,
holders of PNB common stock who do not vote in favor of approval of the
principal terms of the Merger may be entitled to have their shares purchased in
accordance with Chapter 13 of the California General Corporation Law. IN ORDER
FOR A PNB SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS, SUCH SHAREHOLDER MUST NOT
VOTE IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER, MUST SEND A NOTICE OF SUCH
SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AS PROVIDED IN
THE CALIFORNIA GENERAL CORPORATION LAW AND BE RECEIVED BY PNB ON OR BEFORE THE
DATE OF THE SPECIAL MEETING OF THE PNB SHAREHOLDERS, AND MUST COMPLY WITH SUCH
OTHER PROCEDURES AS ARE REQUIRED BY THE CALIFORNIA GENERAL CORPORATION LAW.
VOTING IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER OR FAILING TO TIMELY SEND
SUCH NOTICE OR TO FOLLOW SUCH OTHER PROCEDURES WILL RESULT IN A WAIVER OF SUCH
SHAREHOLDER'S DISSENTERS' RIGHTS. See "The Merger--Dissenters' Rights" beginning
on page 66 for a discussion of dissenters' rights and a description of the
procedures that must be followed to perfect such rights.
52
<PAGE>
THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER, AND SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO, AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS SET FORTH AS
APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS AND THE TEXT THEREOF IS
INCORPORATED HEREIN BY REFERENCE, AND REFERENCE IS MADE THERETO FOR A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER. SHAREHOLDERS ARE URGED TO READ CAREFULLY
THE MERGER AGREEMENT AND EACH OF THE OTHER APPENDICES HERETO IN THEIR ENTIRETY.
BACKGROUND AND REASONS FOR THE MERGER
Western and PNB each conduct banking operations in Southern California. In
serving individuals, small businesses and mid-market corporations, each
historically has focused on a community based approach to banking. Management of
each of Western and PNB has been cognizant of the rapidly changing structure of
the banking market, in part as a result of the severe problems associated with
the savings and loan industry and the problems experienced by other independent
banks within the region which began during the late 1980s. As is the case
throughout the United States, the managements of Western and PNB believe that a
process of consolidation will continue to occur in the financial services
industry resulting in, among other things, a reduction in the number of
community and independent banks.
In order to compete effectively with the larger financial institutions that
Western management believed would result from the various consolidations and
mergers in the industry locally, Western management saw a need to expand
prudently and recognized the opportunity to build a larger, regional,
independent financial institution. Accordingly, as a part of its effort to
achieve long-term stable profitability, Western has explored acquisition
opportunities to achieve greater market share.
PNB management perceived the same challenges and opportunities. The rapid
pace of financial institution consolidation appeared to be accelerating and
larger institutions were attempting to increase their share of the markets
served by PNB. At the same time, community banks were combining and providing
greater competition. PNB management examined prospects for internal growth,
growth by acquisition of one or more financial institutions and the possibility
of a combination with a strong partner that shared a common vision and was
focused on markets demographically similar to those served by PNB.
From time to time since 1995, PNB requested Lehman Brothers to deliver to
the PNB Board of Directors presentations that compared PNB's financial
performance to its peers; assessed the current economic environment and the bank
merger environment; and summarized strategic alternatives generally available to
a bank. With the authority of the PNB Board of Directors, PNB management
periodically met with Lehman Brothers to discuss valuation trends, potential
acquisition candidates and strategic alternatives.
In early July 1998, Western contacted PNB for the purpose of pursuing
preliminary discussions with respect to a potential merger transaction.
Following those preliminary discussions, on August 5, 1998, PNB retained Lehman
Brothers as its investment bank to provide advice on a potential transaction
with Western and on other strategic alternatives. In this role, Lehman Brothers
provided PNB with financial analyses and public information regarding Western.
In addition, pro forma analyses were provided to PNB regarding Western and other
potential merger partners and acquirors.
Between August 28, 1998 and October 6, 1998, the date of the Merger
Agreement, the management of Western and PNB, together with their respective
advisors and outside counsel, conducted due diligence reviews and negotiated the
terms of the Merger Agreement, the Stock Option Agreement and the Shareholder
Agreements. On October 6, 1998, at a meeting of the PNB Board of Directors,
Lehman Brothers delivered its oral opinion that the consideration to be received
by PNB shareholders was fair to such shareholders, as of the date of such
opinion. Lehman Brothers' oral opinion was subsequently
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confirmed in writing as of such date. At that meeting, the PNB Board of
Directors approved and adopted the Merger Agreement and the transactions
contemplated by the Merger Agreement after unanimously concluding that the
Merger is in the best interests of PNB and its shareholders. The PNB Board of
Directors also authorized PNB management to finalize the terms of the Merger
Agreement and the Stock Option Agreement.
The Western Board of Directors held a meeting on October 6, 1998, at which
Western's directors discussed the proposed Merger in detail with Western
management, including the consideration to be paid by Western and the related
transactions. At such meeting, the Western Board of Directors approved the
Merger Agreement and the various matters and related agreements contemplated
thereby and authorized and directed Western management to take all action
reasonably necessary to effect the Merger.
On October 6, 1998, representatives of the managements of PNB and Western,
together with their respective advisors and outside counsel, finalized the terms
of the Merger Agreement and the Stock Option Agreement, and such agreements were
executed and delivered as of that date. After close of the market on October 6,
1998, Western and PNB issued a joint press release publicly announcing the
Merger.
The managements of Western and PNB believe that the two institutions
complement each other in their approaches to banking and in terms of their
markets, both geographic and demographic. Consequently, both managements
perceive opportunities for increased operating efficiencies through combination
and believe that, by combining forces, they will be able to more effectively
compete and successfully take advantage of banking opportunities in the rapidly
evolving markets. Further, they believe that the addition of PNB's mortgage loan
business, coupled with the added resources of Western, will greatly enhance its
future prospects. See "Risk Factors--Ability to Integrate the Operations of
Western and PNB; Rapid Growth" beginning on page 28.
RECOMMENDATION OF THE PNB BOARD OF DIRECTORS
The PNB Board of Directors has unanimously approved the Merger and the
Merger Agreement and unanimously recommends that PNB shareholders vote FOR the
approval of the principal terms of the Merger. In reaching its determination to
approve the Merger, the PNB Board of Directors analyzed PNB's alternatives for
enhancement of PNB shareholder value, including PNB's prospects under several
assumptions, so as to be able to compare the value of a share of PNB common
stock with the consideration to be paid by Western as well as with comparable
transactions. At the same time, the PNB Board of Directors also reviewed the
history of Western and the prospects of Western if the Merger were consummated.
The factors that were examined as part of this analysis, include, but were not
limited to, the following:
(a) A review of PNB's business, operations, financial condition and
earnings on an historical and a prospective basis;
(b) The increasing competition in PNB's markets from both existing and
potential competitors, some of whom have far greater assets and resources,
in part as a result of the consolidation taking place in the banking
industry;
(c) The efficacy of PNB's strategic plan under current competitive
conditions and actions which would increase financial performance and
shareholder value over the period of its projection;
(d) The consolidation of the banking industry nationally and in PNB's
markets;
(e) A review of potential benefits for shareholders of a larger
organization with greater resources, increased operating efficiencies, an
increased lending limit and a stronger market position;
(f) The belief of the PNB Board of Directors and management that a
business combination with Western would offer increased long-term value and
liquidity to current PNB shareholders;
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(g) A comparison of the Western offer with reported transactions,
nationally and in PNB's markets by financial institutions with similar
characteristics; and
(h) The opinion of Lehman Brothers, dated as of October 6, 1998, that
based upon and subject to the matters stated in that opinion, the
consideration to be received by PNB shareholders in the Merger was fair to
such shareholders from a financial point of view.
The foregoing discussion of material factors considered by the PNB Board of
Directors is not intended to be exhaustive but does set forth the principal
factors considered by the PNB Board of Directors. The PNB Board of Directors
collectively reached the unanimous conclusion to approve the Merger in light of
the factors described above and such other factors as each Board member felt was
appropriate. The PNB Board of Directors did not assign relative or specific
weights to any of the factors described above and individual directors may have
weighed such factors differently.
FOR THE REASONS SET FORTH ABOVE, THE PNB BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AS IN THE BEST INTERESTS OF PNB AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT PNB SHAREHOLDERS APPROVE THE PRINCIPAL TERMS OF THE
MERGER.
OPINION OF PNB'S FINANCIAL ADVISOR
In connection with serving as the financial advisor to PNB, Lehman Brothers
delivered an oral opinion to the PNB Board of Directors on October 6, 1998, to
the effect that as of such date, and based upon assumptions made, matters
considered, and limitations as set forth therein, from a financial point of
view, the one share for one share exchange ratio to be offered to the
shareholders of PNB in the Merger is fair to such shareholders. Lehman Brothers
subsequently confirmed its oral opinion by delivery of its written opinion dated
October 6, 1998. Such written opinion was reconfirmed in writing as of a date
within 5 days prior to the mailing of this Proxy Statement/Prospectus.
THE FULL TEXT OF THE LEHMAN BROTHERS OPINION IS ATTACHED AS APPENDIX B TO
THIS PROXY STATEMENT/ PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
SHAREHOLDERS MAY READ THE LEHMAN BROTHERS OPINION FOR A DISCUSSION OF
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
LEHMAN BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF THE LEHMAN BROTHERS
OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
No limitations were imposed by PNB on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that PNB did not authorize Lehman Brothers to solicit, and
Lehman Brothers did not solicit, any indications of interest from any third
party with respect to the purchase of all or a part of PNB's business. Lehman
Brothers did not make any recommendation to the PNB Board of Directors as to
form and amount of the consideration to be received by PNB's shareholders in the
Merger, which was determined through arms-length negotiations between the
parties. In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to the company, but rather made its determination as to the
fairness, from a financial point of view, of the exchange ratio to be offered to
PNB's shareholders in the Merger on the basis of the financial and comparative
analyses described below. The Lehman Brothers opinion is for the use and benefit
of the PNB Board of Directors and was rendered to the PNB Board of Directors in
connection with its consideration of the Merger. The Lehman Brothers opinion is
not intended to be and does not constitute a recommendation to any PNB
shareholder as to how such shareholder should vote with respect to the Merger.
Lehman Brothers was not requested to opine as to, and its opinion does not
address, PNB's underlying business decision to proceed with or effect the
Merger.
In connection with its opinion, Lehman Brothers reviewed and analyzed: (1)
the Merger Agreement and the specific terms of the Merger, (2) such publicly
available information concerning PNB and Western that it believed to be relevant
to its analysis, including, without limitation, the Form 10-KSB and Form 10-K
filed by PNB and Western, respectively, for the year ended December 31, 1997,
quarterly
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reports on Form 10-Q filed by PNB and Western for the periods ended March 31 and
June 30, 1998 and recent press releases for PNB and Western, as well as
Western's Proxy Statement/Prospectus on Form S-4/A regarding its acquisition of
the Bank of Los Angeles dated August 13, 1998, (3) financial and operating
information with respect to the respective businesses, operations and prospects
of PNB and Western furnished to it by PNB and Western, (4) a trading history of
the common stock of PNB from January 1, 1997 to the present and a comparison of
that trading history with those of other companies that it deemed relevant, (5)
a trading history of Western common stock from January 1, 1997 to the present
and a comparison of that trading history with those of other companies that it
deemed relevant, (6) a comparison of the historical and projected dividend yield
on the PNB common stock to the historical and projected dividend yield on the
Western common stock, (7) a comparison of the historical financial results and
present financial condition of PNB with those of other companies that it deemed
relevant, (8) a comparison of the historical financial results and present
financial condition of Western with those of other companies that it deemed
relevant, (9) a comparison of the financial terms of the Merger with the
financial terms of certain other recent transactions that it deemed relevant,
(10) the potential pro forma impact of the Merger on Western, (11) the relative
contributions of PNB and Western to the combined company following consummation
of the Merger, (12) published estimates of third party research analysts with
respect to the future financial performance of Western, and (13) the results of
prior efforts to solicit indications of interest from third parties with respect
to a purchase of all or part of PNB's business. In addition, Lehman Brothers had
discussions with the management of PNB and Western concerning their respective
businesses, operations, assets, liabilities, financial conditions and prospects,
and the potential cost savings, operating synergies and strategic benefits
expected by the managements of PNB and Western, and undertook such other
studies, analyses and investigations it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and have further relied upon the assurances of management of
PNB and Western that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to the financial
projections of PNB, upon advice of PNB, Lehman Brothers assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of PNB as to the
future financial performance of PNB and that PNB will perform substantially in
accordance with such projections. Lehman Brothers was not provided with, and did
not have access to, any financial projections of Western. Accordingly, with
respect to the future financial performance of Western, based upon advice of
Western, Lehman Brothers assumed that the publicly available estimates of
research analysts are a reasonable basis upon which to evaluate and analyze the
future financial performance of Western and that Western will perform
substantially in accordance with such estimates. With respect to the cost
savings, operating synergies, and strategic benefits projected by the
managements of PNB and Western to result from a combination of the businesses of
PNB and Western, upon advice of PNB and Western, Lehman Brothers assumed that
such cost savings, operating synergies and strategic benefits will be achieved
substantially in accordance with such projections. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of PNB or Western and did not make or obtain any evaluations or
appraisals of the assets or liabilities of PNB or Western. In addition, the PNB
Board of Directors did not authorize Lehman Brothers to solicit, and Lehman
Brothers did not solicit, any indications of interest from third parties on a
current basis with respect to a purchase of all or part of PNB's business. Upon
advice of PNB, Lehman Brothers assumed that the Merger will qualify (1) for
pooling-of-interests accounting treatment, and (2) as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and therefore as a tax-free transaction to the shareholders of PNB. The Lehman
Brothers opinion necessarily is based upon market, economic and other conditions
as they exist on, and could be evaluated as of, the date of such opinion.
In connection with the preparation and delivery of its opinion to the PNB
Board of Directors, Lehman Brothers performed a variety of financial and
comparative analyses, as described below. The
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preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its opinion, Lehman Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portion of such analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Lehman Brothers
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of PNB and Western. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
PURCHASE PRICE RATIO ANALYSIS
Based upon the exchange ratio, the closing price of the Western common stock
on October 2, 1998 of $32.50 represented a value to be received by holders of
PNB common stock of $32.50 per share. Based on this implied transaction value
per share, Lehman Brothers calculated the price-to-market, price-to-book, and
price-to-earnings multiples in the Merger. The implied transaction value per
share yielded a premium of 8.3% over the closing price of PNB common stock of
$30.00 as of the close of business on October 2, 1998. This analysis also
yielded a price-to-book value multiple of 3.1x, a price to actual latest twelve
months ("LTM") earnings of 14.2x, a price to estimated 1998 earnings of 12.7x,
and a price to estimated 1999 earnings of 11.8x based on Institutional Broker
Estimate System ("IBES") median estimates as of October 2, 1998 of PNB's 1998
and 1999 earnings. IBES is a data service that monitors and publishes a
compilation of earnings estimates produced by selected research analysts
regarding companies of interest to institutional investors.
SELECTED COMPARABLE COMPANIES ANALYSIS
Using publicly available information, Lehman Brothers compared the financial
performance and stock market valuation of PNB with the following selected
financial institutions, comparable companies deemed relevant by Lehman Brothers:
Bank of Commerce, Bank of Hemet, Bank of Los Angeles, Borel Bank & Trust Co.,
Bank of Santa Clara, BYL Bancorp, BWC Financial Corp., Central Coast Bancorp,
Capital Corp of the West, California Independent, Civic Bancorp, Coast Bancorp,
Desert Community Bank, Foothill Independent, Professional Bancorp, Mid-State
Bancshares, North County Bancorp, North Valley Bancorp, Orange National Bancorp,
Pacific Cap. Bancorp, Pacific Bank NA, Pacific Crest Capital, Redwood Empire,
Regency Bancorp, Six Rivers National, SJNB Financial Corp., SierraWest Bancorp,
TriCo Bancshares and VIB Corp. Indications of such financial performance and
stock market valuation included the ratio of stock price to LTM reported
earnings (14.2x for PNB and a mean and median of 16.4x and 14.3x, respectively,
for the comparable companies); the ratio of stock price to estimated 1998
earnings based on IBES estimates (12.7x for PNB and a mean and median of 12.4x
and 11.9x, respectively, for the comparable companies); the ratio of stock price
to estimated 1999 earnings based on IBES estimates (11.8x for PNB and a mean and
median of 10.1x and 10.1x, respectively, for the comparable companies); and the
ratio of stock price to book value (3.1x for PNB and a mean and median of 1.7x
and 1.8x, respectively, for the comparable companies).
Lehman Brothers also compared the financial performance of PNB's banking
division, excluding the financial performance of PNB's mortgage division, with
the comparable companies based on PNB's assumption that the mortgage division
contributed approximately 46.4% of PNB's LTM reported earnings. Indications of
such financial performance and stock market valuation included the ratio of
stock price to
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the banking division's LTM reported earnings (26.8x for PNB's banking division
and a mean and median of 16.4x and 14.3x, respectively, for the comparable
companies); the ratio of stock price to the banking division's estimated 1998
earnings based on IBES estimates (24.0x for PNB's banking division and a mean
and median of 12.4x and 11.9x, respectively, for the comparable companies); and
the ratio of stock price to the banking division's estimated 1999 earnings based
on IBES estimates (22.3x for PNB's banking division and a mean and median of
10.1x and 10.1x, respectively, for the comparable companies).
These ratios for the comparable companies are based on public financial
statements as of June 30, 1998, and closing stock prices on October 2, 1998.
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of PNB and the companies included in the
comparable companies, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the comparable
companies analysis, and accordingly also made qualitative judgments concerning
differences between the characteristics of the comparable companies and PNB that
would affect the trading values of PNB and such companies.
SELECTED COMPARABLE TRANSACTIONS ANALYSIS
Using publicly available information and IBES earnings estimates, Lehman
Brothers reviewed certain terms and financial characteristics, including
historical price-to-earnings and price-to-book ratio of 16 comparable
acquisition transactions which Lehman Brothers deemed comparable to the Merger.
The comparable transactions considered by Lehman Brothers in its analysis
consisted of the following transactions (identified by acquiror/acquiree):
Pacific Community Banking Group/Valley Bank, Pacific Community Banking
Group/Bank of Hemet, California Financial Bancorp/Bank of Orange County, Western
Bancorp/Peninsula Bank of San Diego, Santa Barbara Bancorp/Pacific Capital
Bancorp, California Financial Group/Downey Bancorp, Western Sierra Bancorp/Lake
Community Bank, Scripps Bank/Pacific Commerce Bank, Community West
Bancshares/Palomar Savings & Loan Association, UCBH Holdings Inc./ USB Holdings,
Western Bancorp/Bank of Los Angeles, United Security Bank/Kerman State Bank,
Greater Bay Bancorp/Pacific Rim Bancorp, Bank of Commerce/Rancho Vista National
Bank, Mid-State Bank/ BSM Bancorp and BYL Bancorp/DNB Financial. The values for
these transactions for the price to LTM earning ratio, price to current year
earnings, price to next year earnings and price to book value, on a mean basis
were 24.7x, 23.1x, 20.7x and 2.8x, respectively, on a median basis were 21.2x,
23.1x, 20.7x and 2.5x, respectively, and the range of values for these
parameters were from 12.9x to 43.6x, 23.1x to 23.1x, 20.7x to 20.7x, and 1.5x to
5.0x, respectively, compared to 14.2x, 12.7x, 11.8x and 3.1x, respectively, for
PNB as a whole, based upon the exchange ratio and the closing price of the
Western common stock on October 2, 1998, and compared to 26.8x, 24.0x, 22.3x and
N/A for PNB's banking division on a stand-alone basis, based upon the exchange
ratio and the closing price of the Western common stock on October 2, 1998.
Using publicly available information, Lehman Brothers also reviewed the
premium of the price paid in the comparable transactions to the share price of
the companies included in the comparable transactions 30 days prior to the
announcement of the comparable transactions. The mean premium for the time
period was 17.9%, the median premium for the time period was 16.3% and the range
of premiums for the period was from -2.8% to 41.9%, compared to 8.3% for PNB, as
a whole, in the Merger.
However, because the reasons for and the circumstances surrounding each of
the transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of PNB and
the businesses, operations and prospects of the acquired companies included in
the comparable transactions, Lehman Brothers believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
comparable transactions analysis, and accordingly also made qualitative
judgments concerning differences between the characteristics of these
transactions and the Merger that would affect the acquisition values of PNB and
such acquired companies. In particular, Lehman Brothers considered the form of
consideration, whether the transactions involved
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the purchase of assets or stock, the cross-selling opportunities that the
transactions offered to the acquirors and the potential cost savings, as well as
the fact that the comparable transactions generally involved, primarily or
exclusively, purchases of banking businesses without a significant mortgage
business component.
DISCOUNTED CASH FLOW ANALYSIS
Lehman Brothers discounted estimated cash flows of PNB through the end of
2002 and an estimated terminal value of PNB common stock, assuming net income
based on management estimates, assuming a dividend rate sufficient to maintain a
book value less goodwill to managed assets less goodwill of 6.50%, and using a
range of discount rates of 16% to 19%. Lehman Brothers derived an estimate of a
range of terminal values by applying multiples ranging from 9x to 15x to
estimated year-end 2002 net income (which multiples are more often associated
with commercial banking businesses and are higher than the multiples generally
associated with mortgage businesses). This analysis, and its underlying
assumptions, yielded a range of values for PNB common stock of approximately
$35.89 to $54.66.
Lehman Brothers also discounted estimated cash flows of only the banking
division of PNB, and excluded the estimated cash flows of the mortgage division,
through the end of 2002 and an estimated terminal value of PNB common stock,
assuming net income based on management estimates, assuming a dividend rate
sufficient to maintain a book value less goodwill to managed assets less
goodwill of 6.50%, and using a range of discount rates of 16% to 19%. Lehman
Brothers derived an estimate of a range of terminal values by applying multiples
ranging from 9x to 15x to estimated year-end 2002 net income. This analysis, and
its underlying assumptions, yielded a range of values for PNB common stock of
approximately $21.60 to $40.20.
PRO FORMA MERGER ANALYSIS
Lehman Brothers analyzed the impact of the Merger on PNB's estimated
earnings per share based on IBES estimates for the 1998 and 1999 earnings of PNB
and based on estimates for the 1998 and 1999 earnings of Western published by
IBES, and assumed growth rates of 15% from 1999 to 2002 for PNB and assumed
growth rates of 20% from 1999 to 2002 for Western. In connection with this
analysis, management projections for cost savings and operating synergies from
the Merger were incorporated in Lehman Brothers' analysis. Based on such
estimates, assumed growth rates, and projections of cost savings and operating
synergies, Lehman Brothers concluded that the Merger would result in dilution of
20.1% and 3.4% to PNB's earnings per share and cash earnings per share,
respectively, in 1999, dilution of 15.6% and 1.1% to PNB's earnings per share
and cash earnings per share, respectively, in 2000, accretion of 7.2% and 3.1%
to Western's earnings per share and cash earnings per share, respectively, in
1999, and accretion of 8.5% and 4.8% to Western's earnings per share and cash
earnings per share, respectively, in 2000.
CONTRIBUTION ANALYSIS
Lehman Brothers analyzed the respective contributions of PNB and Western to
the combined company's pro forma balance sheet as of June 30, 1998, pro forma
historic income for the six months ended June 30, 1998 ("YTD Net Income") and
pro forma historic cash income for the six months ended June 30, 1998 ("YTD Cash
Net Income"). This analysis showed that PNB would have contributed 8.9% of total
assets, 9.4% of total assets less unidentifiable intangibles, 8.0% of total
equity, 13.5% of total equity less unidentifiable intangibles, 18.3% of YTD Net
Income and 14.3% of YTD Cash Net Income. This analysis also showed that, based
upon IBES earnings estimates for 1998 and 1999, without giving effect to any
cost savings or operational synergies resulting from the Merger, PNB's
contribution to the combined company's net income and cash net income would be
18.4% and 14.7%, respectively, in 1998, and 16.5% and 13.6%, respectively, in
1999. Based upon the Exchange Ratio, PNB shareholders would own an estimated
13.0% of the combined company's fully diluted shares upon completion of the
Merger.
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Lehman Brothers analyzed the respective contributions of PNB's banking
division only to the combined company's pro forma historic income for the six
months ended June 30, 1998 ("YTD Net Income"). This analysis showed that PNB's
banking division would have contributed 10.7% of YTD Net Income and 8.2% of YTD
Cash Net Income. This analysis also showed that, based upon IBES earnings
estimates for 1998 and 1999, without giving effect to any cost savings or
operational synergies resulting from the Merger, PNB's banking division
contribution to the combined company's net income and cash net income would be
10.8% and 8.4%, respectively, in 1998, and 10.1% and 8.2%, respectively, in
1999.
WESTERN'S STOCK PRICE PERFORMANCE
Lehman Brothers analyzed Western common stock trading and compared Western's
historical stock price performance to indices of comparable bank stocks over
various time periods from January 1, 1997 to the present. In general, Western
common stock performed consistently with the indices over time.
SELECTED COMPARABLE COMPANIES ANALYSIS FOR WESTERN
Using publicly available information, Lehman Brothers also compared the
financial performance and stock market valuation of Western with the following
selected, comparable financial institutions deemed relevant by Lehman Brothers:
Cathay Bancorp Inc., CVB Financial Corp., City National Corp., First Republic
Bank, Greater Bay Bancorp, GBC Bancorp, Imperial Bancorp, Santa Barbara Bancorp,
Silicon Valley Bancshares, Sumitomo Bank of California and Westamerica Bancorp.
Indications of such financial performance and stock market valuation included
the ratio of stock price to LTM reported earnings (33.1x for Western and a mean
and median of 15.6x and 16.4x, respectively, for the Western comparable
financial institutions); the ratio of stock price to estimated 1998 earnings
based on IBES estimates (19.6x for Western and a mean and median of 13.9x and
13.6x, respectively, for the comparable financial institutions); the ratio of
stock price to estimated 1999 earnings based on IBES estimates (15.9x for
Western and a mean and median of 12.1x and 12.5x, respectively, for the
comparable financial institutions); the ratio of stock price to LTM reported
cash earnings (21.6x for Western and a mean and median of 15.4x and 16.0x,
respectively, for the comparable financial institutions); the ratio of stock
price to estimated 1998 cash earnings based on IBES estimates (14.9x for Western
and a mean and median of 13.7x and 13.6x, respectively, for the comparable
financial institutions); the ratio of stock price to estimated 1999 cash
earnings based on IBES estimates (12.6x for Western and a mean and median of
12.0x and 12.5x, respectively, for the comparable financial institutions); and
the ratio of stock price to tangible book value (2.0x for Western and a mean and
median of 2.4x and 2.2x, respectively, for the comparable financial
institutions).
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of Western and the companies included in the
comparable financial institutions, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the comparable companies analysis for Western and, accordingly, also made
qualitative judgments concerning differences between the characteristics of the
comparable financial institutions and Western that would affect the trading
values of Western and such companies.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The PNB Board of Directors selected
Lehman Brothers because of its expertise, reputation and familiarity with PNB in
particular and the banking and mortgage finance industry in general and because
its investment banking professionals have substantial experience in transactions
similar to the Merger.
As compensation for its services as financial advisor in connection with the
Merger, PNB has agreed to pay Lehman Brothers a fee of $200,000 in connection
with the delivery of its opinion. Additionally, PNB
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has agreed to pay Lehman Brothers a fee (including the opinion fee), upon
consummation of the Merger, equal to 0.9% of the total consideration up to $36
per share received by PNB shareholders on consummation of the Merger and an
additional 2.0% of the total consideration over $36 per share received by PNB
shareholders on consummation. In addition, PNB has agreed to reimburse Lehman
Brothers for reasonable out-of-pocket expenses incurred in connection with the
Merger and to indemnify Lehman Brothers for certain liabilities that may arise
out of its engagement by PNB and the rendering of its opinion.
Lehman Brothers is acting as financial advisor to PNB in connection with the
Merger. Lehman Brothers has also performed various investment banking services
for PNB in the past and has received customary fees for such services. In the
ordinary course of its business, Lehman Brothers may actively trade in the
securities of PNB and Western for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, PNB and an affiliate of Lehman Brothers are
significant shareholders of Alta Residential Mortgage, Inc. and are parties to a
shareholders agreement with respect thereto.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW MAY NOT BE APPLICABLE TO
CERTAIN CLASSES OF TAXPAYERS, INCLUDING SECURITIES DEALERS AND OTHERS THAT USE A
"MARKET-TO-MARKET" METHOD OF ACCOUNTING FOR FEDERAL INCOME TAX PURPOSES, TAX
EXEMPT ORGANIZATIONS OR TRUSTS, FOREIGN PERSONS, PERSONS WHO HOLD SHARES OF PNB
COMMON STOCK AS PART OF A STRADDLE OR CONVERSION TRANSACTION AND PERSONS WHO
ACQUIRED SHARES OF PNB COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR RIGHTS OR OTHERWISE AS COMPENSATION. PNB SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS.
TAX OPINIONS
Western and PNB intend that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. Consummation of the Merger as a reorganization is conditioned upon
receipt by Western of the opinion of Sullivan & Cromwell, and receipt by PNB of
the opinion of McDermott, Will & Emery, which opinions will be dated as of the
date of the Merger. The opinion of Sullivan & Cromwell will state substantially
to the effect that, for federal income tax purposes: (i) the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and (ii) both Western and PNB will be parties
to that reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended. The opinion of McDermott, Will & Emery, will
state substantially to the effect that, for federal income tax purposes, (i) the
Merger constitutes a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, and (ii) no gain or loss will be
recognized by shareholders of PNB who receive shares of Western common stock in
exchange for shares of PNB common stock, except with respect to cash received in
lieu of fractional share interests.
The tax opinions will not be binding on the Internal Revenue Service, and
there can be no assurance that the IRS will not contest the conclusions
expressed therein. The tax opinions will be based in part upon certain factual
assumptions and upon certain representations made, and certificates delivered by
Western and PNB, which representations and certificates Sullivan & Cromwell and
McDermott, Will & Emery will assume to be true, correct and complete. If such
representations or certificates are inaccurate, the tax opinions could be
adversely affected. Bernard E. Schneider, the Chairman, a director and a 1.11%
shareholder of PNB, is a partner in McDermott, Will & Emery.
TAX CONSEQUENCES OF THE MERGER
GENERAL. The following summary sets forth certain anticipated material
federal income tax consequences of the Merger to PNB shareholders. The tax
treatment of each PNB shareholder will depend in
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part upon such shareholder's particular situation. This summary is based on the
provisions of the Internal Revenue Code of 1986, as amended, the U.S. Treasury
Department regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect as of the date hereof. Such laws,
regulations or interpretations may differ at the time the Merger is completed,
and relevant facts also may differ.
No gain or loss will be recognized by a PNB shareholder who receives solely
Western common stock for such PNB shareholder's shares of PNB common stock
(except to the extent such shareholder receives cash in lieu of a fractional
share interest in Western common stock).
Such a PNB shareholder's aggregate tax basis in the Western common stock
received pursuant to the Merger will equal such shareholder's aggregate tax
basis in the shares of PNB common stock exchanged therefor. The holding period
of Western common stock received pursuant to the Merger will include the holding
period of the shares of PNB common stock exchanged therefor, provided that such
shares were held as a capital asset as of the date the Merger was completed.
FRACTIONAL SHARES OF WESTERN COMMON STOCK. No fractional shares of Western
common stock will be issued in the Merger. A PNB shareholder who receives cash
in lieu of a fractional share will be treated as having received such fractional
share pursuant to the Merger and then as having exchanged such fractional share
for cash in a redemption by Western subject to Section 302 of the Internal
Revenue Code of 1986, as amended. Such a deemed redemption will be treated as a
sale of the fractional share, provided that it is not "essentially equivalent to
a dividend." If the Western common stock represents a capital asset in the hands
of the shareholder, the shareholder will generally recognize capital gain or
loss on such a deemed redemption of the fractional share in an amount determined
by the difference between the amount of cash received therefor and the
shareholder's tax basis in the fractional share. The holding period of any such
capital gain or loss will be long-term if the PNB common stock exchanged was
held for more than one year. Effective as of January 1, 1998, long-term capital
gain of a non-corporate shareholder is generally subject to a maximum capital
gains rate of 20% for capital assets held for more than one year.
BACKUP WITHHOLDING
Unless an exemption applies under applicable law and regulations, the
exchange agent, will be required to withhold 31% of any cash payments to which a
non-corporate shareholder or the payee is entitled pursuant to the Merger unless
the shareholder or other payee provides its taxpayer identification number
(social security number, employer identification number or individual taxpayer
identification number) and certifies that such number is correct. Each
shareholder and, if applicable, each payee must provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is established in a manner satisfactory to Western and the
exchange agent.
REGULATORY APPROVALS
GENERAL
The Merger cannot proceed in the absence of the regulatory approvals
described below. Western and PNB are not aware of any material governmental
approvals or actions that are required for consummation of the Merger, except as
described below. Western and PNB have agreed in the Merger Agreement to use
reasonable best efforts to take promptly all actions necessary, proper or
advisable to consummate the transactions contemplated by the Merger Agreement,
including using efforts to obtain all necessary approvals from all applicable
governmental entities, making all necessary registrations, applications and
filings and obtaining any contractual consents and regulatory approvals.
However, there can be no assurance that such regulatory approvals will be
obtained, nor can there be assurance as to the date of any such approval. There
can also be no assurance that any such approval will not contain a condition or
requirement that causes such approvals to fail to satisfy the conditions set
forth in the Merger Agreement and described below under "The Merger
Agreement--Conditions" beginning on page 73.
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FEDERAL RESERVE BOARD APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board under
Section 3 of the Bank Holding Company Act of 1956, as amended, in accordance
with regulations adopted by the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended. The Federal Reserve Board will take into
consideration, among other things, competition, the financial and managerial
resources and future prospects of the holding companies and banks concerned and
the convenience and needs of the communities to be served. The Bank Holding
Company Act of 1956, as amended, prohibits the Federal Reserve Board from
approving the Merger if (a) it would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States or (b) its
effect in any section of the country may be substantially to lessen competition
or tend to create a monopoly, or it would in any other manner be in restraint of
trade, unless the Federal Reserve Board finds that the anti-competitive effects
of the Merger are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served.
The Federal Reserve Board has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
structure, taking into account, among other factors, the nature of the business
and operations and plans for expansion. Furthermore, the Federal Reserve Board
must also assess the records of the depository institution subsidiaries of
Western and PNB under the Community Reinvestment Act of 1977, as amended. The
Community Reinvestment Act requires that the Federal Reserve Board assess, when
evaluating an application, each depository institution's record of meeting the
credit needs of its local communities, including low- and moderate-income
neighborhoods, consistent with safe and sound operation and take such record
into account when evaluating certain regulatory applications. Each of Santa
Monica Bank, Southern California Bank and PNB has a Community Reinvestment Act
rating of "satisfactory."
Under the Bank Holding Company Act of 1956, as amended, the Merger may not
be consummated until the thirtieth day following the Federal Reserve Board
approval. If the Federal Reserve Board does not receive any adverse comments
from the Department of Justice relating to competitive factors, the waiting
period may be reduced to no less than 15 days. If the United States Department
of Justice commences an action challenging the Merger on antitrust grounds
during such waiting period, commencement of such action would stay the
effectiveness of the Federal Reserve Board approval, unless a court specifically
orders otherwise.
Western submitted a notice seeking approval of the Merger and related
matters to the Federal Reserve Board on November 4, 1998. We expect that an
approval will be received prior to the PNB special meeting of shareholders, but
there can be no assurance that such an approval will be obtained.
RESALE OF WESTERN COMMON STOCK
All shares of Western common stock received by PNB shareholders in the
Merger will be freely transferrable, except that shares of Western common stock
received by PNB shareholders who are deemed to be "affiliates" (as defined for
purposes of Rule 145 under the Securities Act or SEC Accounting Series Releases
130 and 135) of PNB as of the date of the PNB special meeting of shareholders
may be resold by PNB affiliates only pursuant to an effective registration
statement under the Securities Act covering resales of such shares or in
transactions permitted by the resale provisions of Rule 145 of the Securities
Act or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of PNB or Western generally include individuals or
entities that control, are controlled by, or are under common control with, such
entities and may include certain officers and directors of such entities as well
as principal shareholders of such entities.
PNB has agreed in the Merger Agreement to use its best efforts to obtain a
written agreement from each officer or director of PNB who is identified as a
possible PNB affiliate providing that each such
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person will not sell, pledge, transfer or otherwise dispose of any shares of
Western common stock to be received by such person in the Merger, except in
compliance with the applicable provisions of the Securities Act. See "The Merger
Agreement--Exchange of Stock Certificates; Dividends" beginning on page 69.
Western and PNB intend that the Merger be accounted for as a
pooling-of-interests for accounting and financial reporting purposes. Certain
guidelines promulgated by the Securities and Exchange Commission indicate that
the pooling-of-interests method generally will not be challenged on the basis of
selling of shares by affiliates of the acquiring or the acquired company if such
affiliates do not dispose of any shares of the stock they received in connection
with the Merger (other than a "DE MINIMIS" number of shares) during the period
beginning 30 days before the Merger and ending when financial results covering
at least 30 days of post-merger operations of the combined enterprise have been
published. See "The Merger-- Accounting Treatment" beginning on page 67.
CERTAIN EFFECTS OF THE MERGER
Western will be the surviving corporation following the Merger. Once the
Merger is consummated, the trading of PNB common stock will cease. PNB has
agreed, subject to certain conditions, after the last of the regulatory
approvals to be obtained and before the effective time of the Merger, to make
such accounting adjustments as Western requests in order to implement its plans
regarding PNB or to reflect merger-related expenses and costs incurred by PNB.
See "The Merger Agreement--Certain Covenants-- Certain Policies of PNB"
beginning on page 71.
Certain historical regulatory capital ratios for Western (restated to
reflect the effect of the acquisition of the Bank of Los Angeles accounted for
as a pooling-of-interests) and PNB as of September 30, 1998 are listed below.
The pro forma column reflects certain effects that Western expects the Merger
will have on Western's financial statements.
<TABLE>
<CAPTION>
HISTORICAL
MINIMUM WELL- ---------------------- WESTERN AND PNB PRO
REQUIREMENT CAPITALIZED WESTERN PNB FORMA
----------------- ------------- ----------- --------- -------------------
(GREATER THAN OR EQUAL TO
STATED PERCENTAGE)
<S> <C> <C> <C> <C> <C>
Tier I Leverage................................ 4.00% 5.00% 8.21% 12.34% 8.10%
Tier I Risk-based.............................. 4.00 8.00 10.30 16.74 10.24
Total Risk-based............................... 8.00 10.00 11.55 17.84 11.49
</TABLE>
The Federal Reserve Board expects bank holding companies to maintain
appropriate capital levels and has issued guidelines to that effect. For Western
and PNB, Tier I capital consists of common stock shareholders' equity before
gain or loss on securities available for sale, less goodwill and other
intangible assets. Tier II capital consists of loan loss reserves limited to
1.25% of risk-weighted assets. Total capital is Tier I capital plus Tier II
capital.
The Tier I leverage ratio is Tier I capital divided by average total assets
less intangibles. Federal Reserve Board guidelines require bank holding
companies with the highest examination rating and those that have implemented
certain market risk capital measures to maintain a minimum leverage ratio of at
least 3.0%, while all other bank holding companies must maintain a minimum
leverage ratio of at least 4.0%. The guidelines also state that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain "strong capital positions" substantially above the minimum
supervisory levels without significant reliance on intangible assets.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendation of the PNB Board of Directors, PNB
shareholders should be aware that certain employees and members of PNB
management and of the PNB Board of Directors have certain interests in the
transactions contemplated by the Merger Agreement that are in addition to the
interests of shareholders generally and that may create potential conflicts of
interest. These interests include, among others, provisions in the Merger
Agreement relating to the indemnification of PNB officers and directors,
directors' and officers' liability insurance, the appointment of Mr. Barbieri to
the Western Board of Directors as of the time the Merger is completed, certain
employment agreements and the acceleration of the exercisability and resale of
certain stock options discussed below.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Merger Agreement provides that for a period of six years after
completion of the Merger, Western will indemnify each director and officer
determined as of the completion of the Merger, against certain liabilities
arising out of matters existing or occurring at or prior to the completion of
the Merger to the extent to which such indemnified parties were entitled under
California law and PNB's articles of incorporation or bylaws in effect on
October 6, 1998. Western also will advance expenses as incurred to the extent
permitted under California law and PNB's articles of incorporation and bylaws.
In addition, for a period of six years after the completion of the Merger,
Western will use its reasonable best efforts to cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by PNB, provided that Western may substitute therefor policies of comparable
coverage with respect to claims arising from facts or events that occurred
before the completion of the Merger.
APPOINTMENT OF DIRECTOR
Pursuant to the Merger Agreement, Western will take such actions necessary
to appoint Mr. Barbieri, Chief Executive Officer and a Director of PNB, to the
Western Board of Directors as of the effective time of the Merger.
EMPLOYEE AGREEMENTS
Each of Allen C. Barbieri and Doug L. Heller, have agreed with Western and
PNB that the terms of their respective employment agreements and other benefit
plans with PNB, will be fully assumed by Western as of the date of the
completion of the Merger, including the severance benefits provided for
thereunder.
ACCELERATION OF STOCK OPTIONS
As a result of the announcement of the Merger, currently non-vested stock
options for an aggregate of 160,195 shares of PNB common stock which were
granted under various PNB option plans, have become immediately exercisable.
Messrs. Barbieri, Heller and Schneider hold options for 86,250, 13,800 and 8,000
of these shares of common stock, respectively. These options otherwise would
have vested periodically until April 2002 at exercise prices ranging from $10 to
$25 per share.
RELATED TRANSACTIONS
Other than the Merger Agreement, the Shareholder Agreements, the Stock
Option Agreement, the assumption by Western of the employment agreements and
stock options plans and the transactions contemplated by and described in this
Proxy Statement/Prospectus, Western and PNB do not know of any past, present or
proposed material contracts, arrangements or understandings between Western or
its affiliates, on the one hand, and PNB and its affiliates, on the other hand.
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SUBMISSION OF SHAREHOLDERS' PROPOSALS FOR PNB'S 1999 ANNUAL MEETING
Assuming the Merger is not consummated as contemplated in the Merger
Agreement, PNB shareholders may submit proposals for shareholder action at the
1999 Annual Meeting of PNB shareholders by submitting such proposals to
Christine Castellano, the Secretary of PNB, no later than April 27, 1999, in
order to be considered for inclusion in PNB's 1999 proxy materials.
DISSENTERS' RIGHTS
In connection with the Merger, PNB shareholders may be entitled to
dissenters' rights under Chapter 13 of the California General Corporation Law.
Chapter 13 of the California General Corporation Law is attached hereto as
Appendix C. The description of dissenters' rights contained in this Proxy
Statement/Prospectus is qualified in its entirety by reference to Chapter 13 of
the California General Corporation Law. IN ORDER FOR A PNB SHAREHOLDER TO
EXERCISE DISSENTERS' RIGHTS, SUCH PNB SHAREHOLDER MUST NOT VOTE IN FAVOR OF THE
PRINCIPAL TERMS OF THE MERGER, MUST SEND A NOTICE OF SUCH PNB SHAREHOLDER'S
INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AS PROVIDED IN THE
CALIFORNIA GENERAL CORPORATION LAW TO BE RECEIVED BY PNB ON OR BEFORE THE DATE
OF THE SPECIAL MEETING OF PNB SHAREHOLDERS AND MUST COMPLY WITH SUCH OTHER
PROCEDURES AS REQUIRED BY THE CALIFORNIA GENERAL CORPORATION LAW, AS MORE FULLY
DESCRIBED BELOW. VOTING IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER OR FAILING
TO TIMELY SEND SUCH NOTICE OR TO FOLLOW SUCH OTHER PROCEDURES WILL RESULT IN A
WAIVER OF SUCH PNB SHAREHOLDER'S DISSENTER'S RIGHTS.
Any demands, notices, certificates or other documents delivered to PNB
before the special meeting of PNB shareholders may be sent to 4665 MacArthur
Court, Newport Beach, California 92660, Attn: Secretary.
If no instructions are indicated on proxies received by PNB, such proxies
will be voted for the proposal to approve the principal terms of the Merger at
the special meeting of PNB shareholders. Those PNB shareholders who return their
proxies without instructions, resulting in a vote for the approval of the
principal terms of the Merger, will not be entitled to dissenters' rights.
In addition, because PNB common stock is traded on the Nasdaq National
Market-Registered Trademark-, PNB shareholders will not have dissenters' rights
unless demands for purchase in cash of such shares at their fair market value as
of October 6, 1998, without giving effect to any increase due to the Merger,
pursuant to Section 1301 of the California General Corporation Law (each, a
"Demand"), are made with respect to 5% or more of the outstanding shares of PNB
common stock (before giving effect to the Merger). Such Demands must be received
by PNB or its transfer agent not later than the date of the special meeting. In
the event that Demands are made with respect to 5% or more of the outstanding
shares of PNB common stock on or before the date of the special meeting, the PNB
shareholders who made Demands will be entitled to dissenters' rights, provided
that such dissenters' rights are perfected pursuant to Chapter 13 of the
California General Corporation Law.
In the event that (i) the Merger is approved by the PNB shareholders and
(ii) Demands are made by holders of 5% or more of the PNB common stock, a holder
of PNB common stock who objects to the Merger (a "Dissenting Shareholder") will
be entitled to payment in cash of the fair market value as of October 6, 1998
(the day before the public announcement of the Merger), without giving effect to
any increase due to the Merger of his or her shares of PNB common stock
("Dissenting Shares"); provided that (a) such shares were outstanding
immediately prior to the date for the determination of shareholders entitled to
vote on the Merger; (b) the Dissenting Shareholder voted his or her shares
against the approval of the principal terms of the Merger; (c) the Dissenting
Shareholder made a Demand; and (d) the Dissenting Shareholder has submitted for
endorsement certificates representing his or her Dissenting Shares, in
accordance with Section 1302 of the California General Corporation Law.
The Demand must (a) be a written demand to purchase the Dissenting Shares
and make payment to the Dissenting Shareholder in cash of their fair market
value as of October 6, 1998; (b) be received by PNB
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on or before the date of the special meeting; (c) state the number and class of
the shares held of record by the Dissenting Shareholder that the Dissenting
Shareholder demands that PNB purchase; and (d) contain a statement of what the
Dissenting Shareholder claims to be the fair market value of his or her
Dissenting Shares as of October 6, 1998. Such statement of the fair market value
constitutes an offer by the Dissenting Shareholder to sell his or her Dissenting
Shares at such price. A Dissenting Shareholder who has made such a demand for
payment may not withdraw such Demand unless PNB consents thereto. A proxy or
vote against the approval of the principal terms of the Merger Agreement does
not in itself constitute a Demand.
The Dissenting Shareholder must submit the certificates representing the
Dissenting Shares for endorsement as Dissenting Shares to PNB at its principal
office or at the office of its transfer agent within 30 days after the date on
which notice of approval of the Merger by PNB shareholders was mailed to such
Dissenting Shareholder.
If any PNB shareholder has dissenters' rights, PNB will mail to each such
shareholder a notice of the approval of the Merger by the PNB shareholders
within ten days after the date of such approval accompanied by (a) a copy of
Sections 1300, 1301, 1302, 1303 and 1304 of Chapter 13 of the California General
Corporation Law; (b) a statement of the price determined by PNB to represent the
fair market value as of October 6, 1998 of the Dissenting Shares (excluding any
appreciation or depreciation because of the Merger) and (c) a brief description
of the procedure to be followed if the shareholder desires to exercise his or
her dissenters' rights under such sections. The statement of price constitutes
an offer by PNB to purchase such Dissenting Shares.
If PNB denies that shares submitted to it qualify as Dissenting Shares, or
if PNB and a Dissenting Shareholder fail to agree on the fair market value of
the Dissenting Shares, either such Dissenting Shareholder or PNB may file a
complaint in the superior court of the proper county in California requesting
that the court determine such issue. Such complaint must be filed within six
months after the date on which notice of the approval of the Merger is mailed to
Dissenting Shareholders. It is the opinion of PNB that the fair market value of
its shares of common stock with regard to valuation for Dissenting Share
purposes is $27.50, the closing price of PNB common stock as reported on the
Nasdaq National Market-Registered Trademark- for October 6, 1998, the day prior
to announcement of the Merger.
On trial of the action, the court will first determine if the shares are
Dissenting Shares, and if so determined, the court will either determine the
fair market value or appoint one or more impartial appraisers to do so. If both
PNB and the Dissenting Shareholder fail to file a complaint within six months
after the date on which notice of the approval of the Merger was mailed to the
Dissenting Shareholders, such Dissenting Shareholder will lose his or her
dissenters' rights. In addition, if the Dissenting Shareholder transfers such
Dissenting Shares prior to their submission for the required endorsement, such
shares will lose their status as Dissenting Shares.
FAILURE TO TAKE ANY NECESSARY STEP WILL RESULT IN A TERMINATION OR WAIVER OF
THE RIGHTS OF THE SHAREHOLDER UNDER CHAPTER 13 OF THE CALIFORNIA GENERAL
CORPORATION LAW. A PERSON HAVING A BENEFICIAL INTEREST IN PNB COMMON STOCK THAT
IS HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE,
MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW IN A TIMELY MANNER IF SUCH
PERSON ELECTS TO DEMAND PAYMENT OF THE FAIR MARKET VALUE OF SUCH SHARES.
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ACCOUNTING TREATMENT
For accounting and financial reporting purposes, we currently expect that
the Merger will be accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles. Under this method of accounting, the
previously recorded assets and liabilities of Western and PNB would be carried
forward to Western at their recorded amounts; income and expenses of Western
would include income and expenses of Western and PNB for the entire fiscal year
in which the Merger occurs; and the reported results of the separate
corporations for prior periods would be combined and restated as the results of
Western. The results of the pooling treatment for accounting purposes would be
reflected in historical consolidated financial statements of Western.
Confirmation that the transaction qualifies for pooling-of-interests
accounting treatment is to be delivered shortly prior to each of the mailing
date of this Proxy Statement/Prospectus and the date of completion of the
Merger. In the event the Merger does not qualify for pooling-of-interests
treatment, the Merger will be accounted for using the purchase method of
accounting, provided that all other conditions to consummation of the Merger are
fulfilled or waived in writing.
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THE MERGER AGREEMENT
A DESCRIPTION OF CERTAIN OF THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT
AND RELATED MATTERS ARE SET FORTH BELOW. THIS SUMMARY OF THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT DOES NOT PURPORT TO BE EXHAUSTIVE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT
AS SET FORTH IN APPENDIX A OF THIS PROXY STATEMENT/PROSPECTUS. THE TEXT OF THE
MERGER AGREEMENT IS INCORPORATED HEREIN IN ITS ENTIRETY BY THIS REFERENCE.
THE MERGER
The Merger Agreement was entered into between Western and PNB on October 6,
1998. Pursuant to the Merger Agreement, PNB will merge with and into Western,
with Western being the surviving corporation. The separate corporate existence
of PNB will then cease. Upon the Merger becoming effective, each share of PNB
common stock issued and outstanding (other than (a) shares with respect to which
dissenters' rights shall have been perfected in accordance with the California
General Corporation Law and (b) shares held directly or indirectly 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), will be converted automatically into, one share of Western common
stock. Each share of Western common stock outstanding immediately prior to the
completion of the Merger will remain outstanding after the Merger as one share
of Western common stock.
EFFECTIVE TIME AND EFFECTIVE DATE
On a date to be selected by Western, which will be within 10 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
being satisfied or waived (or, at the election of Western, provided such
election would not cause the completion of the Merger to occur later than
February 28, 1999, on the last business day of the month in which such tenth day
occurs or, if such tenth day occurs on one of the last ten business days of such
month, on the last business day of the succeeding month), or on such earlier or
later date as may be agreed in writing by Western and PNB, an agreement of
merger will be filed as required by law, and the Merger will become effective
upon such filing or on such date as may be specified in the agreement of merger.
EXCHANGE OF STOCK CERTIFICATES; DIVIDENDS
At or prior to the completion of the Merger, Western will deposit, or will
cause to be deposited, with an exchange agent Western shall elect (which may
include a subsidiary of Western) for the benefit of the holders of certificates
formerly representing shares of PNB common stock, for exchange, certificates
representing the shares of Western common stock and an estimated amount of cash
to be paid in exchange for outstanding shares of PNB common stock.
As soon as practicable after the completion of the Merger, Western will send
or cause to be sent to each former holder of record of shares of PNB common
stock immediately prior to the completion of the Merger transmittal materials
for use in exchanging such shareholder's PNB common stock certificates for
Western stock certificates. Western will cause the Western common stock
certificates into which shares of a shareholder's PNB common stock are converted
to be delivered to such shareholder upon delivery to the exchange agent of PNB
stock certificates representing such shares of PNB common stock owned by such
shareholder.
At the election of Western, no dividends or other distributions with respect
to Western common stock with a record date occurring after the completion of the
Merger will be paid to the holder of any unsurrendered PNB common stock
certificates until the holder thereof receives Western common stock certificates
in exchange therefor in accordance with the procedures set forth in the Merger
Agreement,
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and no such shares of PNB common stock will be eligible to vote until the holder
of PNB common stock certificates receives such Western common stock
certificates.
PNB SHAREHOLDERS SHOULD NOT FORWARD PNB COMMON STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. PNB SHAREHOLDERS
SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY.
CONDUCT OF THE BUSINESS OF PNB AND WESTERN PRIOR TO THE MERGER
Pursuant to the Merger Agreement, each of Western and PNB has agreed that,
during the period from the date of the Merger Agreement until completion of the
Merger, except as permitted by the Merger Agreement, each will not, and will
cause its subsidiaries not to, (a) take any action that would adversely affect
or delay the ability of PNB or Western to perform any of their obligations on a
timely basis under the Merger Agreement, or take any action that is reasonably
likely to have a material adverse effect on PNB or Western and its subsidiaries,
taken as a whole; or (b) (1) take any action while it knows that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(A) for pooling-of-interests accounting treatment or (B) as a reorganization; or
(2) knowingly take any action that is intended or is reasonably likely to result
in (A) any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect at any time at or
prior to the completion of the Merger, (B) any of the conditions to the Merger
not being satisfied or (C) a material violation of any provision of the Merger
Agreement.
In addition, PNB has agreed that, during the same period, it will not,
subject to certain exceptions, without the prior consent of Western, (a) conduct
the business of PNB other than in the ordinary and usual course; (b) issue, sell
or otherwise permit to become outstanding, or authorize the creation of, any
additional shares of PNB common stock, any rights or enter into any agreement
with respect to the foregoing; (c)(1) make, declare, pay or set aside for
payment any dividend or declare or make any distribution on any shares of PNB
common stock or (2) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock; (d)
enter into, amend or renew any employment or similar agreement or arrangement or
increase salaries, wages or employee benefits, other than (1) normal increases
in compensation to employees, (2) for grants of awards to newly hired employees
consistent with past practice, (3) other changes required by applicable law or
(4) to satisfy contractual obligations existing as of October 6, 1998; (e) enter
into, establish, adopt or amend any pension, retirement, or similar plan or
arrangement, or take any action to accelerate the vesting or exercisability of
any compensation or benefits payable thereunder, except as may be required by
applicable laws to satisfy contractual obligations disclosed prior to October 6,
1998; (f) 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 PNB and
its subsidiaries, taken as a whole; (g) acquire all or any portion of, the
assets, business, deposits or properties of any other entity except in the
ordinary course of business in a transaction that is not material to PNB and its
subsidiaries, taken as a whole; (h) make any capital expenditures other than
those in the ordinary course of business in amounts exceeding $50,000
individually or $100,000 in the aggregate; (i) amend the articles or by-laws of
PNB and its subsidiaries; (j) implement or adopt any change in its accounting
principles or practices or methods; (k) except in the ordinary course of
business, enter into or terminate any material contract or amend or modify in
any material respect any existing material contracts; (l) except in the ordinary
course of business, settle any claim, action or proceeding, except for those
involving solely money damages in an amount, individually or in the aggregate,
not material to PNB and its subsidiaries, taken as a whole; (m) (1) implement or
adopt any material change in its interest rate and other risk management
policies, procedures or practices; (2) fail to follow its existing policies or
practices with respect to managing its exposure to interest rate and other risk;
or (3) fail to use commercially reasonable means to avoid any material increase
in its aggregate exposure to interest rate risk; (n) incur any indebtedness for
borrowed money other than in the ordinary course of business; or (o) agree or
commit to do any of the foregoing.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) organization and similar
corporate matters; (b) the capital structure of PNB and Western; (c)
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (d) conflicts under articles or bylaws, required
consents or approvals, and violations of any agreements or law; (e) financial
statements or documents filed with the Commission or other regulatory agencies
and the accuracy of information contained therein; (f) absence of certain
material adverse events, changes, effects or undisclosed liabilities; (g)
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (h) litigation; (i)
compliance with law, including environmental compliance; (j) tax returns and
audits; (k) absence of regulatory actions; (l) labor matters; (m) risk
management instruments; (n) books and records; (o) trust business; and (p) Year
2000 matters.
CERTAIN COVENANTS
ACQUISITION PROPOSALS
Pursuant to the Merger Agreement, PNB has agreed that it will not, and will
cause 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 tender or exchange offer,
proposal for a merger, consolidation or other business combination involving PNB
or any proposal or offer to acquire in any manner a substantial equity interest
in, or a substantial portion of the assets or deposits of, PNB, other than the
transactions contemplated by the Merger Agreement, except to the extent legally
required for the discharge by the PNB Board of Directors of its fiduciary duties
as advised by counsel to the PNB Board of Directors.
PNB has also agreed, as of the date of the Merger Agreement, to immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of the Merger Agreement with any parties other than
Western with respect to any of the foregoing and to use its reasonable best
efforts to enforce any confidentiality or similar agreement relating to an
acquisition proposal. PNB will promptly (within 24 hours) advise Western
following the receipt by PNB of any acquisition proposal and the substance
thereof (including the identity of the person making such acquisition proposal),
and advise Western of any developments with respect to such acquisition proposal
immediately upon the occurrence thereof.
CERTAIN POLICIES OF PNB
On or prior to completion of the Merger, PNB will, 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.
EMPLOYEE BENEFITS
From and after the date the Merger is completed, Western will (1) provide
former employees of PNB who remain as employees of Western or any of Western's
significant subsidiaries with employee benefit plans no less favorable in the
aggregate than those provided to similarly situated employees of Western or its
significant subsidiaries, including, but not limited to, allowing such employees
to participate in Western's stock option plan, and (2) with respect to former
employees of PNB who remain as employees of Western or any of its significant
subsidiaries, cause each employee benefit plan of Western or its significant
subsidiaries in which such employees are eligible to participate to take into
account for purposes of eligibility and vesting thereunder the service of such
employees with PNB as if such service were with
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Western or its significant subsidiaries. In addition, Western agrees that all
accrued bonuses for 1998 will be paid to former employees of PNB in accordance
with PNB's past practices. Notwithstanding the foregoing, PNB consents and
covenants that from and after the completion of the Merger, PNB's benefit plans
will be governed, managed and/or terminated by Western, all within Western's
sole discretion.
BOARD ATTENDANCE
Each of Western and PNB has agreed, subject to certain exceptions, to allow
a representative of PNB and Western, respectively, to attend all regular and
special meetings of the Boards of Directors of PNB and Western and the executive
committee of such board, respectively, until the completion of the Merger.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
From and for a period of six years after the completion of the Merger,
subject to certain exceptions, Western has agreed to indemnify and hold harmless
each present and former director and officer of PNB or any of its subsidiaries,
determined as of the date of completion of the Merger, against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities 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
completion of the Merger (including with respect to the Merger Agreement or any
of the transactions contemplated thereby), whether asserted, claimed or arising
prior to, at or after the completion of the Merger, to the extent to which such
indemnified parties were entitled under California law and PNB's articles of
incorporation or bylaws in effect on October 6, 1998, and Western also will
advance expenses as incurred to the extent permitted under California law and
PNB's articles of incorporation and bylaws.
Any indemnified party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, must as promptly as possible notify Western thereof, but the
failure so to notify will 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 completion of the Merger), (a) Western will have the
right to assume the defense thereof and Western will 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 that there are issues that raise
conflicts of interest between Western and the indemnified parties, the
indemnified parties may retain counsel satisfactory to them, and Western will
pay the reasonable fees and expenses of one such counsel for the indemnified
parties in any jurisdiction promptly as statements thereof are received; (b) the
indemnified parties will cooperate in the defense of any such matter; and (c)
Western will not be liable for any settlement effected without its prior written
consent. Notwithstanding the foregoing, Western will not have any obligation
under the Merger Agreement to any indemnified party when and if a court of
competent jurisdiction ultimately determines, and such determination becomes
final and nonappealable, that the indemnification of such indemnified party in
the manner contemplated hereby is not permitted or is prohibited by applicable
law.
Western also has agreed that for a period of six years after the completion
of the Merger, it will use its reasonable best efforts to cause to be maintained
in effect the current policies of directors' and officers' liability insurance
maintained by PNB as of October 6, 1998 (provided that Western may substitute
therefor policies of comparable coverage with respect to claims arising from
facts or events that occurred before the completion of the Merger); PROVIDED,
HOWEVER, that in no event will Western be obligated to expend, in order to
maintain or provide insurance coverage pursuant to the Merger Agreement, any
amount per annum in excess of 125% of the amount of the annual premiums paid as
of the date of the Merger Agreement by PNB for such insurance (the "Maximum
Amount"). If the amount of the annual premiums necessary to maintain or procure
such insurance coverage exceeds the Maximum Amount, Western will use all
reasonable efforts to maintain the most advantageous policies of directors' and
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officers' insurance obtainable for an annual premium equal to the Maximum
Amount. Notwithstanding the foregoing, prior to the completion of the Merger,
Western may request PNB to, and PNB thereupon will, purchase insurance coverage,
on such terms and conditions as shall be acceptable to Western, extending for a
period of six years PNB's directors' and officers' liability insurance coverage
in effect as of the date of the Merger Agreement (covering past or future claims
with respect to periods before the completion of the Merger) and such coverage
will satisfy Western's obligations under this paragraph of the Merger Agreement.
If Western or any of its successors or assigns (a) 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 (b) 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 will be made to ensure that the successors and assigns of Western
assume the obligations described above.
NOTIFICATION OF CERTAIN MATTERS
Western and PNB each has agreed to 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 in the Merger Agreement.
PNB AFFILIATES
PNB has agreed to use its reasonable best efforts to cause each person who
may be deemed to be an affiliate of PNB as of the date of the PNB special
meeting to execute and deliver to Western on or before the date of mailing of
this Proxy Statement/Prospectus to PNB shareholders an agreement which provides
that each such person will agree not to sell, pledge, transfer or otherwise
dispose of the shares of Western common stock to be received by such person in
the Merger except in compliance with the applicable provisions of the Securities
Act.
CONDITIONS
The respective obligations of Western and PNB to consummate the Merger are
subject to certain conditions, including (a) the approval by the PNB
shareholders of the principal terms of the Merger; (b) receipt of approvals
required by law in connection with the Merger and the other transactions
contemplated by the Merger Agreement (the parties having agreed that no such
approval will be deemed to have been received if it includes any condition,
restriction or requirement that the Western Board of Directors reasonably
determines would result in a material adverse effect on the surviving
corporation and its subsidiaries, taken as a whole, or would reduce the benefits
of the Merger to such a degree that Western would not have entered into the
Merger Agreement had such condition, restriction or requirement been known to
it); (c) the absence of any statute, rule, regulation, order, injunction or
decree being in effect and prohibiting the consummation of the Merger or any
other transaction contemplated by the Merger Agreement; (d) the Registration
Statement having become effective and there being issued no stop order
suspending the effectiveness of the Registration Statement and no proceedings
for that purpose initiated or threatened by the Commission; (e) the receipt and
continued effectiveness of all permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated by the
Merger Agreement and to issue the shares of Western common stock to be issued in
the Merger; and (f) the approval for listing on the Nasdaq National
Market-Registered Trademark-, subject to official notice of issuance, of the
shares of Western common stock to be issued in the Merger.
The obligations of Western to consummate the Merger also are subject to the
fulfillment or waiver by Western prior to the completion of the Merger of
certain conditions, including the following: (a) the
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representations and warranties of PNB being true and correct unless the failure
so to be true and correct is not likely to have a material adverse effect on
PNB; (b) the performance by PNB in all material respects of all obligations
contained in the Merger Agreement required to be performed by PNB before the
completion of the Merger; (c) the receipt by Western of an opinion of Sullivan &
Cromwell that the Merger will be treated as a Reorganization; (d) the receipt by
Western of a customary "cold comfort" letter from McGladrey & Pullen, LLP with
respect to certain financial statements and data of PNB; (e) the receipt by
Western of a certificate from PNB stating that, as of the month end preceding
the completion of the Merger, PNB's shareholders' equity and allowance for
credit losses will not be less than the respective amounts set forth on PNB's
Form 10-Q for the period ended June 30, 1998; and (f) the receipt by Western of
the written resignation of each director of PNB.
In addition, the obligation of PNB to consummate the Merger also is subject
to the fulfillment or waiver by PNB prior to the completion of the Merger of
certain conditions, including the following: (a) the representations and
warranties of Western being true and correct unless the failure so to be true
and correct is not likely to have a material adverse effect on Western; (b) the
performance by Western in all material respects of all obligations contained in
the Merger Agreement required to be performed before the completion of the
Merger; (c) the receipt by PNB of an opinion of McDermott, Will & Emery stating
that (1) the Merger constitutes a Reorganization and (2) no gain or loss will be
recognized by PNB shareholders who receive shares of Western common stock in
exchange for shares of PNB common stock, except with respect to cash received in
lieu of fractional share interests; (d) the receipt by PNB of a customary "cold
comfort" letter from KPMG with respect to certain financial statements and data
of Western; (e) the adoption by Western of resolutions sufficient to appoint and
cause Mr. Barbieri to become a director of Western as of the completion of the
Merger; and (f) the receipt by PNB from Lehman Brothers of an opinion stating
that as of a date within five days prior to the mailing of the Proxy
Statement/Prospectus to the shareholders of PNB, the Consideration to be
received by the holders of PNB common stock is fair from a financial point of
view.
TERMINATION
The Merger Agreement may be terminated, and the Merger abandoned, prior to
the date the Merger is completed, either before or after its approval by the PNB
shareholders: (a) by the mutual consent of Western and PNB, if so determined by
their respective Boards; (b) by either of Western or PNB, if so determined by
its Board, by written notice to the other, in the event of (1) the failure of
the PNB shareholders to approve the principal terms of the Merger at the special
meeting, (2) a material breach by the other party of any representation,
warranty, covenant or agreement contained in the Merger Agreement that is not
cured or not curable within 30 days after written notice of such breach is given
to the party committing such breach, (3) the Merger not having been consummated
by May 30, 1999, (4) the unappealable denial of any approval of a governmental
authority required to permit consummation of the Merger or any transaction
necessary to consummate the Merger or (5) disclosure of additional facts by
Western or PNB prior to the completion of the Merger that would be reasonably
likely to result in a material adverse effect on the other party; (c) by PNB, if
with respect to any Twenty Day Period (as defined below), both (A) either (1)
the Twenty Day Average Price (as defined below) shall be less than 90% of
$29.625 per share (the "Execution Date Price") and the Western Common Stock
Price Percentage (as defined below) shall be less than the Nasdaq 90% Index
Percentage (as defined below) or (2) the Twenty Day Average Price shall be less
than the Nasdaq 80% Index Percentage (as defined below) and (B) PNB has
delivered written notice to Western of its intention to terminate the Merger
Agreement within 48 hours following the date of such event; (d) by Western, if
the PNB Board of Directors shall fail to recommend the Merger for approval by
the PNB shareholders; or (e) by PNB, if the PNB Board of Directors receives an
Acquisition Proposal and determines, based upon the advice of counsel, that to
proceed with the Merger would violate the fiduciary duties of the PNB Board of
Directors to the PNB shareholders, to accept such proposal.
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"Western Common Stock Price Percentage" is defined in the Merger Agreement
to mean the percentage determined by dividing the Twenty Day Average Price by
the $29.625.
The "Twenty Day Average Price" means the volume weighted average sales price
per share of Western common stock for the Twenty Day Period; for purposes of
determining the "volume weighted average," the aggregate of the daily sales of
Western common stock for each of the 20 consecutive days Western common stock is
traded shall be divided by the aggregate number of shares of Western common
stock traded on the Nasdaq National Market-Registered Trademark- during such
Twenty Day Period.
The "Twenty Day Period" means any 20 consecutive days on which shares of
Western common stock are actually traded during the period commencing 20 trading
days prior to the receipt of the last regulatory approval required to be
obtained pursuant to Section 7.1(b) and ending on the trading day that is 48
hours prior to the completion of the Merger.
The "Nasdaq 80% Index Percentage" means the percentage determined by
dividing (A) the product of the Twenty Day Average Nasdaq Bank Index times 0.80
by (B) the Nasdaq Bank Index as of October 8, 1998.
The "Nasdaq 90% Index Percentage" means the percentage determined by
dividing (A) the product of the Twenty Day Average Nasdaq Bank Index times 0.90
by (B) the Nasdaq Bank Index as of the date of this Agreement.
The "Twenty Day Average Nasdaq Bank Index" means the average of the Nasdaq
Bank Index (the "Nasdaq Bank Index") for the Twenty Day Period.
The Nasdaq Bank Index is reported by the Nasdaq National
Market-Registered Trademark- and measures the common stocks of more than 350
banks of all types, including trust companies not engaged in deposit banking and
firms performing functions related to banking, such as check cashing agencies,
currency exchanges, safe deposit companies and banking corporations overseas.
This index is calculated throughout the day by the Nasdaq National
Market-Registered Trademark- and is market-value weighted, meaning that each
company's security affects the index in proportion to that Company's market
value. The market value, the last sale price multiplied by total shares
outstanding, is calculated throughout the day and is related to the total value
of the index. The closing value of the Nasdaq Bank Index on November 12, 1998
was 1794.24, as reported by the Nasdaq National Market-Registered Trademark-.
WAIVER AND AMENDMENT
Prior to the completion of the Merger, any provision of the Merger Agreement
may be (1) waived by the party benefitted by the provision or (2) amended or
modified at any time, by an agreement in writing between Western and PNB
executed in the same manner as the Merger Agreement. However, after the special
meeting, the Merger Agreement may be amended so long as the Consideration to be
received by PNB shareholders is not reduced and the amendments do not violate
the California General Corporation Law, after approval by the PNB shareholders
pursuant to the Merger.
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THE STOCK OPTION AGREEMENT
GENERAL
As an inducement and condition to Western's entering into the Merger
Agreement, PNB entered into the Stock Option Agreement with Western, dated
October 6, 1998. Pursuant to the Stock Option Agreement, PNB granted to Western
an unconditional, irrevocable option, exercisable only under certain limited and
specifically defined circumstances, none of which, to the best of PNB's and
Western's knowledge, has occurred as of the date hereof, to purchase up to
553,166 authorized but theretofore unissued shares of PNB common stock (but in
no event more than 19.9% of the shares of PNB common stock outstanding at the
time of exercise), for a purchase price per share of $29.625, subject to
adjustment in certain circumstances. The purchase of PNB common stock pursuant
to the Stock Option Agreement is subject to compliance with applicable law,
including receipt of any necessary approvals under the Bank Holding Company Act
of 1956, as amended.
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Merger will be consummated according to the terms set forth
in the Merger Agreement, and may be expected to discourage offers by third
parties to acquire PNB prior to the Merger.
THE STOCK OPTION
Western may exercise the option, in whole or in part, at any time and from
time to time following the occurrence of certain events (each a "Purchase
Event"), including (a) the acquisition by any person other than Western or any
subsidiary of Western of beneficial ownership of shares of PNB common stock,
such that, upon the consummation of such acquisition, such person would have
beneficial ownership, in the aggregate, of 25% or more of the then outstanding
shares of PNB common stock; or (b) the occurrence of a Preliminary Purchase
Event described in sub-paragraph (1) or sub-paragraph (2) of the next paragraph,
except the percentage referred to therein will be 25%.
As defined in the Stock Option Agreement, a "Preliminary Purchase Event"
means the occurrence of any one of the following events:
(1) PNB or any of its subsidiaries having entered into an agreement to
engage in an acquisition transaction with any person other than Western or
any of its subsidiaries or the PNB Board of Directors having recommended
that the PNB shareholders approve or accept any acquisition transaction with
any person other than Western or any Western Subsidiary; "acquisition
transaction" is defined in the Stock Option Agreement to mean (a) a merger
or consolidation, or any similar transaction, involving PNB or any PNB
subsidiary, (b) a purchase, lease or other acquisition of all or
substantially all of the assets of PNB or any PNB Subsidiary or (c) a
purchase or other acquisition of securities representing 10% or more of the
voting power of PNB or of any PNB Subsidiary, provided that the term
"acquisition transaction" does not include any internal merger or
consolidation involving only PNB or any PNB subsidiary;
(2) Any person, other than Western or any Western subsidiary, having
acquired beneficial ownership or the right to acquire beneficial ownership,
of shares of PNB common stock such that, upon the consummation of such
acquisition, such person would have beneficial ownership, in the aggregate,
of 10% or more of the then outstanding shares of PNB common stock;
(3) Any person, other than Western or any Western subsidiary, having
made a bona fide proposal to PNB or its shareholders, by public announcement
or written communication that is or becomes the subject of public
disclosure, to engage in an acquisition transaction;
(4) After a proposal is made by a third party to PNB or PNB shareholders
to engage in an acquisition transaction, or such third party states its
intention to make such a proposal if the Merger Agreement terminates and/or
the option expires PNB having breached any covenant or obligation
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contained in the Merger Agreement which breach would entitle Western to
terminate the Merger Agreement;
(5) The holders of PNB common stock not approving the Merger Agreement
at the PNB special meeting of shareholders, or such meeting not having been
held or having been canceled prior to termination of the Merger Agreement,
in each case after it has been publicly announced that any person (other
than Western or a Western subsidiary) has made a BONA FIDE proposal to
engage in an acquisition transaction, has commenced a tender offer or
exchange offer with respect to at least 10% or more of the outstanding PNB
common stock or has filed an application with the appropriate banking
regulatory authority for approval to engage in an acquisition transaction;
(6) Any person, other than Western or any Western subsidiary, without
Western's prior written consent having filed an application or notice with
the Federal Reserve Board or other governmental authority for approval to
engage in an acquisition transaction; or
(7) The PNB Board of Directors having withdrawn or modified in a manner
adverse to Western the recommendation of the PNB Board of Directors with
respect to the Merger Agreement in anticipation of engaging in an
acquisition transaction, or PNB or any PNB subsidiary having authorized or
recommended an agreement to engage in an acquisition transaction with any
person other than Western or a Western subsidiary.
The Stock Option Agreement also provides for certain adjustments intended to
protect Western against dilution of its rights to acquire PNB common stock. The
Stock Option Agreement also grants certain registration rights to Western with
respect to the shares issuable upon exercise of the option.
TERMINATION
The option will terminate upon the earliest to occur of (a) the time
immediately prior to the completion of the Merger; (b) 12 months after the first
occurrence of a Purchase Event; (c) 18 months after the termination of the
Merger Agreement following the occurrence of a Preliminary Purchase Event; (d)
termination of the Merger Agreement in accordance with the terms thereof prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event (other
than a termination of the Merger Agreement upon the happening of certain events,
including termination by Western as a result of a material breach of the Merger
Agreement by PNB and a termination by PNB as a result of the PNB Board of
Directors' exercising its fiduciary duties to accept an acquisition proposal);
or (e) 18 months after the termination of the Merger Agreement upon the
happening of certain events, including termination by Western as a result of a
material breach of the Merger Agreement by PNB and a termination by PNB as a
result of the PNB Board of Directors' exercising its fiduciary duties to accept
an acquisition proposal.
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THE SHAREHOLDER AGREEMENTS
Western has entered into Shareholder Agreements with each of Messrs.
Barbieri, Hart, Heller, Morris, Salquist, Schuler, Schneider and Whitesell, each
a PNB shareholder, current director and/or executive officer of PNB. These
shareholders, holding in the aggregate shares representing approximately 53.7%
of the total voting power of PNB common stock as of the Record Date, each have
agreed, in consideration of the substantial expenses incurred by Western and PNB
in connection with the Merger Agreement and as a condition to Western and PNB
entering into the Merger Agreement, to vote or to cause to be voted, or to
execute a written consent with respect to, all of such shareholder's shares of
PNB common stock then held of record or beneficially owned, directly or
indirectly, in favor of adoption and approval of the Merger Agreement and the
Merger at every meeting of PNB shareholders at which such matters are considered
and at every adjournment thereof and in connection with every proposal to take
action by written consent with respect thereto.
Each Shareholder Agreement also provides that the shareholder will not, and
will not permit any entity under its control to, deposit any of such
shareholder's shares of PNB common stock in a voting trust or subject any such
shares to any agreement, arrangement or understanding with respect to the voting
of such shares inconsistent with the Shareholder Agreement entered into by that
shareholder.
The Shareholder Agreements will terminate upon the earlier to occur of the
completion of the Merger (except for certain provisions which will survive the
completion of the Merger) and the date on which the Merger Agreement is
terminated in accordance with its terms.
The Shareholder Agreements bind the actions of the signatories thereto only
in their capacity as PNB shareholders. Those directors of PNB who signed
Shareholder Agreements are not and could not be contractually bound to abrogate
their fiduciary duties as directors of PNB. Accordingly, while such
shareholders/directors are, under the Shareholder Agreements executed by them,
contractually bound to vote as a PNB shareholder in favor of the Merger and
against other acquisition proposals (should any be presented), their fiduciary
duties as PNB directors nevertheless require them to act in their capacity as
directors in the best interest of PNB when they decided to approve the Merger.
In addition, such shareholders/directors will continue to be bound by their
fiduciary duties as PNB directors with respect to any decisions they may take in
connection with the Merger or otherwise.
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COMPARISON OF SHAREHOLDER RIGHTS
COMPARISON OF CORPORATE STRUCTURE
Both Western and PNB are California corporations and as such are governed by
the California General Corporation Law. Listed below is a summary of the
material differences in the rights of the shareholders of Western common stock
and PNB common stock. Except as otherwise noted below, there are no material
differences with regard to electing members of the board of directors, amending
the articles of incorporation or bylaws, calling special meetings of
shareholders, acting by written consent of shareholders without a meeting,
indemnifying directors and other voting rights.
DIVIDENDS AND DIVIDEND POLICY
PNB
Holders of PNB common stock are entitled to receive dividends declared by
the PNB Board of Directors out of funds legally available therefor under the
laws of the State of California. No cash dividends have been paid to PNB
shareholders since the inception of PNB, and no cash dividends will be paid
prior to completion of the Merger.
WESTERN
Holders of Western common stock are entitled to receive dividends declared
by the Western Board of Directors out of funds legally available therefor under
the laws of the State of California, subject to the rights of holders of any
preferred stock of Western that may be issued after the date hereof. On August
20, 1997, the Western Board of Directors approved the institution of a quarterly
dividend and thereafter declared a dividend of $0.15 per common share which was
paid in the fourth quarter of 1997. Western also declared a dividend of $0.15
per common share paid in the fourth quarter of 1997 which was paid in the first
quarter of 1998. On May 20, 1998, the Western Board of Directors declared a
dividend of $0.15 per common share which was paid on June 26, 1998 to
shareholders of record on June 5, 1998, and on August 20, 1998, the Western
Board of Directors declared a dividend of $0.15 which was paid on September 25,
1998 to shareholders of record on August 28, 1998. The $0.15 cash dividend paid
by Western in September 1998 was approximately 36% of Western's diluted earnings
per share of $0.42 and approximately 26% of Western's diluted earnings per share
before goodwill amortization of $0.58.
Western management believes that it will be able to continue paying
quarterly dividends. However, because Western must comply with the California
General Corporation Law and banking regulations when paying dividends, there can
be no assurance that Western will continue to pay dividends at this level, if at
all. In addition, Western's ability to pay dividends is limited by a Third
Amendment to Revolving Credit Agreement, dated as of January 26, 1998, between
Western and The Northern Trust Company which provides that Western may not
declare or pay any dividend other than dividends payable in Western common stock
or in the ordinary course of business not to exceed 50% of net income per fiscal
quarter of Western before goodwill amortization and any restructuring charges
incurred in connection with any merger, consolidation or other restructuring
contemplated by transactions similar to the Merger. See "Risk
Factors--Regulation" beginning on page 32 and "Information Regarding Western"
beginning on page 35.
NUMBER OF DIRECTORS
The PNB bylaws provide that the authorized number of directors of PNB shall
be not less than 4 and not more than 11. Currently, the actual number of
directors of PNB is four.
The Western Restated Bylaws provide that the authorized number of directors
of Western shall not be less than 9 nor more than 15 and that any amendment to
the Western Restated Bylaws affecting the authorized number of directors must be
approved by a majority of the Western shareholders, provided that an amendment
to the bylaws reducing the number of directors to a number less than five cannot
be
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adopted if the votes cast against its adoption are equal to more than 16 2/3
percent of the outstanding shares entitled to vote on such amendment. Currently,
the actual number of directors of Western is ten. Upon consummation of the
Merger, the addition of Allen C. Barbieri to the Western Board of Directors will
increase the actual number of directors to 11.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors,
officers and employees in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Articles
Five and Six, respectively, of Western's and PNB's articles of incorporation
provide for elimination of liability for monetary damages of its directors, and
Article Six of Western's articles of incorporation and Article VI of Western's
and PNB's respective bylaws provide for indemnification of their directors,
officers, employees and other agents to the fullest extent permitted by the
California General Corporation Law. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of Western and PNB pursuant to the foregoing provisions, or
otherwise, Western and PNB have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
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VALIDITY OF WESTERN COMMON STOCK
The validity of the shares of Western common stock to be issued in the
Merger has been passed upon by Julius G. Christensen, Executive Vice President,
General Counsel and Secretary of Western.
EXPERTS
The consolidated financial statements of Western and subsidiaries as of
December 31, 1997 and 1996, and for the years then ended, have been incorporated
by reference herein and in the Registration Statement in reliance on the report
of KPMG Peat Marwick LLP, independent auditors, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. Such report indicates that: (i) KPMG Peat Marwick LLP did not audit
either the 1996 consolidated financial statements of California Commercial
Bankshares or the 1996 consolidated financial statements of SC Bancorp, both of
which were acquired during 1997 in mergers accounted for as poolings of
interests. Such financial statements were audited by other auditors whose
reports were furnished to KPMG Peat Marwick LLP, and KPMG Peat Marwick LLP's
opinion, insofar as it related to California Commercial Bankshares and SC
Bancorp, is based solely on the reports of the other auditors; (ii) the 1995
consolidated statements of operations, changes in shareholders' equity, and cash
flows of Western, prior to their restatement for the 1997 poolings-of-interest,
were audited by other auditors; (iii) the separate 1995 consolidated financial
statements of California Commercial Bankshares and SC Bancorp included in the
1995 consolidated financial statements of Western were audited by other
auditors; and (iv) the combination of the consolidated statements of operations,
changes in shareholders' equity and cash flows for the year ended December 31,
1995, after restatement for the 1997 poolings of interest, has been audited by
KPMG Peat Marwick LLP.
The supplemental consolidated financial statements of Western and
subsidiaries as of December 31, 1997 and 1996 and for the years then ended, have
been incorporated by reference herein and in the Registration Statement in
reliance on the report of KPMG Peat Marwick LLP, independent auditors,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. Such report is dated October 23, 1998, and indicates
that: (i) KPMG Peat Marwick LLP did not audit either the 1996 consolidated
financial statements of California Commercial Bankshares or the 1996
consolidated financial statements of SC Bancorp, both of which were acquired
during 1997 in mergers accounted for as poolings of interests. Such financial
statements were audited by other auditors whose reports were furnished to KPMG
Peat Marwick LLP, and KPMG Peat Marwick LLP's opinion, insofar as it related to
California Commercial Bankshares and SC Bancorp, is based solely on the reports
of the other auditors; (ii) KPMG Peat Marwick LLP did not audit either the 1996
or 1997 financial statements of Bank of Los Angeles, which was acquired by
Western on October 23, 1998, in a merger accounted for as a pooling of
interests. Those financial statements were audited by other auditors whose
report has been furnished to KPMG Peat Marwick LLP, and KPMG Peat Marwick LLP's
opinion, insofar as it related to Bank of Los Angeles, is based solely on the
report of the other auditor; (iii) the 1995 consolidated statements of
operations, changes in shareholders' equity, and cash flows of Western, prior to
their restatement for the 1997 and 1998 poolings of interests, were audited by
other auditors; (iv) the separate financial statements of California Commercial
Bankshares, SC Bancorp and Bank of Los Angeles included in the 1995 supplemental
consolidated financial statements of Western were audited by other auditors; (v)
the supplemental consolidated financial statements give retroactive effect to
the acquisition of Bank of Los Angeles on October 23, 1998, which has been
accounted for as a pooling of interests. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not extend through the date of consummation. However, such financial statements
will become the historical consolidated financial statements of Western after
financial statements covering the date of consummation of the business
combination with Bank of Los Angeles are issued; and (vi) the combination of the
consolidated statements
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of operations, changes in shareholders' equity and cash flows for the year ended
December 31, 1995, after restatement for the 1997 and 1998 poolings of
interests, has been audited by KPMG Peat Marwick LLP.
The consolidated financial statements of Western for the year ended December
31, 1995, prior to their restatement for the 1997 poolings-of-interests, have
been incorporated by reference herein in reliance upon the report given thereto
upon the authority of Vavrinek, Trine, Day & Co., LLP (the successor to Dayton &
Associates) as experts in accounting and auditing.
The consolidated balance sheet of California Commercial Bankshares and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996, incorporated herein by reference
from the annual report on Form 10-K for the year ended December 31, 1997 of
Western, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheet of SC Bancorp and subsidiary as of December
31, 1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1996, incorporated herein by reference from the annual report
on Form 10-K for the year ended December 31, 1997 of Western, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of Santa Monica Bank as of and for the years ended
December 31, 1997 and 1996, incorporated herein by reference from the current
report on Form 8-K/A dated April 9, 1998 of Western, have been audited by Arthur
Andersen LLP, as indicated in their report thereto, and are incorporated herein
by reference in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The statements of operations, changes in shareholders' equity and cash flows
of Santa Monica Bank for the year ended December 31, 1995, incorporated herein
by reference from the current report on Form 8-K/A dated April 9, 1998 of
Western, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The 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
cash flows for each of the three years in the period ended December 31, 1997,
incorporated herein by reference from the current report on Form 8-K filed by
Western on November 6, 1998, have been audited by Vavrinek, Trine, Day & Co.,
LLP, independent auditors, as indicated in their report with respect thereto,
and are incorporated herein by reference in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The balance sheets of PNB as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended incorporated by reference from the Form 10-KSB of PNB for the
year ended December 31, 1998 in this Proxy Statement/Prospectus have been
audited by McGladrey & Pullen, LLP, independent auditors, as stated in their
report appearing herein, and has been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
-------------------------------------------
-------------------------------------------
dated as of October 6, 1998
between
Western Bancorp
and
PNB Financial Group, Inc.
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of October 6, 1998 (this
"Agreement"), between Western Bancorp ("Western") and PNB Financial Group, Inc.
("PNB").
RECITALS
A. PNB is a California corporation, having its principal place of business
in Newport Beach, California. PNB is a bank holding company duly registered with
the Board of Governors of the Federal Reserve System ("Federal Reserve") under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"). PNB has one
subsidiary bank, PNB Bank Subsidiary, a national banking association (the "PNB
Bank Subsidiary").
B. Western is a California corporation, having its principal place of
business in Newport Beach, California. Western is a multi-bank holding company
duly registered with the Federal Reserve under the BHC Act.
C. Concurrently herewith, PNB and Western are entering into a stock option
agreement (the "Stock Option Agreement"), to be dated the date hereof, whereby
PNB will grant to Western the option to purchase up to 19.9% of the outstanding
shares of the PNB Common Stock (as defined herein) upon the occurrence of
certain events.
D. It is the intention of the parties to this Agreement that the business
combination contemplated hereby be accounted for under the
"pooling-of-interests" accounting method and be treated as a "reorganization"
under Section 368 of the Internal Revenue Code of 1986 as amended (the "Code").
E. The respective Boards of Directors of each of Western and PNB have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the strategic business combination transaction
provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving PNB or any of its
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets or deposits of, PNB
or any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
"Agreement" means this Agreement, as amended or modified from time to time in
accordance with Section 9.2.
"Alta" has the meaning set forth in Section 5.3(b).
"Benefit Plans" has the meaning set forth in Section 5.3(n).
"BHC Act" has the meaning set forth in the Recitals to this Agreement.
"Business Combination" has the meaning set forth in Section 3.5.
"CGCL" means the California General Corporation Law.
"California Secretary" means the California Secretary of State.
"Code" has the meaning set forth in the Recitals to this Agreement.
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"Computer System" has the meaning set forth in Section 5.3(p).
"Conversion Number" has the meaning set forth in Section 3.1(a).
"Costs" has the meaning set forth in Section 6.13(a).
"Disclosure Schedule" has the meaning set forth in Section 5.1.
"Dissenters' Shares" means shares of PNB Common Stock with respect to which the
holder or holders thereof perfect their rights to dissent under Chapter 13 of
the CGCL.
"Dissenting Shareholders" means holders of shares of PNB Common Stock who
perfect their rights to dissent under Chapter 13 of the CGCL.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided for in
Section 2.2.
"Employees" has the meaning set forth in Section 5.3(n).
"Entrust" has the meaning set forth in Section 5.3(x).
"Entrust Agreement" has the meaning set forth in Section 5.3(x).
"Environmental Law" has the meaning set forth in Section 5.3(q).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" has the meaning set forth in Section 5.3(n).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.4(a).
"Exchange Fund" has the meaning set forth in Section 3.4(a).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve" has the meaning set forth in the Recitals to this Agreement.
"GAAP" has the meaning set forth in Section 5.3(h).
"Governmental Authority" means any court, administrative agency or commission or
other federal, state or local governmental authority or instrumentality.
"Hazardous Substance" has the meaning set forth in Section 5.3(q).
"Indemnified Parties" has the meaning set forth in Section 6.13(a).
"Insurance Policies" has the meaning set forth in Section 5.3(u).
"Liens" means any charge, mortgage, pledge, security interest, restriction,
claim, lien or encumbrance.
"Loan Property" has the meaning set forth in Section 5.3(q).
"Material Adverse Effect" means, with respect to Western or PNB, any effect that
(i) is material and adverse to the financial position, results of operations or
business of Western and its Subsidiaries taken as a whole or PNB and its
Subsidiaries taken as a whole, respectively, or (ii) would materially impair the
ability of either Western or PNB, respectively, to perform its obligations under
this Agreement or otherwise materially threaten or materially impede the
consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be deemed
to include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental authorities,
(b) changes in generally accepted accounting
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principles or regulatory accounting requirements applicable to banks and their
holding companies generally, (c) changes caused by fluctuations in market
interest rates or changes in economic conditions affecting the banking industry
generally in the markets in which the respective party operates and (d) any
modifications or changes to valuation policies and practices in connection with
the Merger or restructuring charges taken in connection with the Merger, in each
case in accordance with generally accepted accounting principles.
"Maximum Amount" has the meaning set forth in Section 6.13(c).
"Merger" has the meaning set forth in Section 2.1.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Multiemployer Plans" has the meaning set forth in Section 5.3(n).
"Nasdaq" means The Nasdaq Stock Market, Inc.'s National Market.
"Nasdaq Bank Index" has the meaning set forth in Section 8.1(f).
"Nasdaq 80% Index Percentage" has the meaning set forth in Section 8.1(f).
"Nasdaq 90% Index Percentage" has the meaning set forth in Section 8.1(f).
"New Certificates" has the meaning set forth in Section 3.4(a).
"OCC" means the Office of the Comptroller of the Currency.
"PNB" has the meaning set forth in the preamble to this Agreement.
"PNB Affiliate" has the meaning set forth in Section 6.7(a).
"PNB Articles" means the Articles of Incorporation of PNB, as amended.
"PNB Bank Subsidiary" has the meaning set forth in the Recitals to this
Agreement.
"PNB Board" means the Board of Directors of PNB.
"PNB Bylaws" means the Bylaws of PNB, as amended.
"PNB Common Stock" means the common stock of PNB.
"PNB Meeting" has the meaning set forth in Section 6.2.
"Old Certificates" has the meaning set forth in Section 3.4(a).
"Pension Plan" has the meaning set forth in Section 5.3(n).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
"Plans" has the meaning set forth in Section 5.3(n).
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.3.
"Registration Statement" has the meaning set forth in Section 6.3.
"Regulatory Agencies" has the meaning set forth in Section 5.3(g).
"Regulatory Approval Date" means the date of approval by the Federal Reserve
pursuant to Section 3 of the BHC Act.
"Regulatory Documents" has the meaning set forth in Section 5.4(h).
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"Representatives" means, with respect to any Person, such Person's directors,
officers, employees, legal or financial advisors or any representatives of such
legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and rules and
regulations thereunder.
"Shareholder Agreements" has the meaning set forth in Section 6.17.
"Stock Option Agreement" shall have the meaning set forth in the Recitals to
this Agreement.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to them in
Rule 1-02 of Regulation S-X of the SEC, provided, however, Alta shall not be a
Subsidiary of PNB for purposes of this Agreement.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax" and "Taxes" means all federal, state, local or foreign taxes, charges,
fees, levies or other assessments, however denominated, including, without
limitation, all net income, gross income, gains, gross receipts, sales, use, ad
valorem, goods and services, capital, production, transfer, franchise, windfall
profits, license, withholding, payroll, employment, disability, employer health,
excise, estimated, severance, stamp, occupation, property, environmental,
unemployment or other taxes, custom duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority whether arising before, on
or after the Effective Date.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Twenty Day Average Nasdaq Bank Index" has the meaning set forth in Section
8.1(f).
"Twenty Day Average Price" has the meaning set forth in Section 8.1(f).
"Twenty Day Period" has the meaning set forth in Section 8.1(f).
"Treasury Stock" shall mean shares of PNB Common Stock held by PNB or any of its
Subsidiaries or by Western or any of its Subsidiaries, in each case other than
in a fiduciary (including custodial or agency) capacity or as a result of debts
previously contracted in good faith.
"Western" has the meaning set forth in the preamble to this Agreement.
"Western Board" means the Board of Directors of Western.
"Western Common Stock" means the common stock, no par value per share, of
Western.
"Western Common Stock Price Percentage" has the meaning set forth in Section
8.1(f).
"Western Preferred Stock" means the preferred stock, no par value per share, of
Western.
"Year 2000 Compliant" has the meaning set forth in Section 5.3(p).
ARTICLE II
THE MERGER
2.1. THE MERGER.
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(a) GENERAL. At the Effective Time, PNB shall merge with and into Western
(the "Merger"), the separate corporate existence of PNB shall cease and Western
shall survive and continue to exist as a California corporation (Western
sometimes being referred to herein as the "Surviving Corporation"). Western may
at any time prior to the Effective Time change the method of effecting the
combination with PNB (including, without limitation, the provisions of this
Article II) if and to the extent it deems such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of PNB
Common Stock as provided for in this Agreement (the "Merger Consideration"),
(ii) adversely affect the tax treatment of PNB's shareholders as a result of
receiving the Merger Consideration, (iii) prevent the Merger from qualifying for
a pooling-of-interests accounting treatment, or (iv) materially impede or delay
consummation of the transactions contemplated by this Agreement. Subject to the
satisfaction or waiver of the conditions set forth in Article VII, the Merger
shall become effective upon the occurrence of the filing in the office of the
California Secretary of an agreement of merger in accordance with the CGCL or
such later date and time as may be set forth in such agreement. The Merger shall
have the effects prescribed in the CGCL.
(b) ARTICLES OF INCORPORATION AND BYLAWS. The articles of incorporation
and bylaws of the Surviving Corporation immediately after the Effective Time
shall be those of Western as in effect immediately prior to the Effective Time.
(c) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
(i) At the Effective Time, the directors of Western immediately prior to
such Effective Time shall be the directors of the Surviving Corporation, in
each case, until such time as their successors shall be duly elected or
appointed and qualified.
(ii) The officers of Western immediately prior to the Effective Time
shall be the officers of the Surviving Corporation as of the Effective Time
until such time as their successors shall be duly elected and qualified.
2.2. EFFECTIVE DATE AND EFFECTIVE TIME. As soon as practicable following,
but not later than ten days after the last to occur of, (i) the expiration of
all applicable waiting periods in connection with approvals of Regulatory
Agencies and the receipt of all approvals of Regulatory Agencies and (ii)
satisfaction or waiver of all conditions to the consummation of the Merger (or,
at the election of Western, provided such election would not cause the Effective
Date to occur later than February 28, 1999, on the last business day of the
month in which such tenth day occurs, or, if such tenth day occurs on one of the
last ten business days of such month, on the last business day of the succeeding
month), or on such earlier or later date as may be agreed in writing by the
parties, an agreement of merger shall be executed in accordance with all
appropriate legal requirements and shall be filed in the office of the
California Secretary as required by law, and the Merger provided for herein
shall become effective upon such filing or on such date as may be specified in
such agreement of merger. The date of such filing or such later effective date
is herein called the "Effective Date". The "Effective Time" of the Merger shall
be the time of such filing or as set forth in such agreement of merger.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.1. MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) OUTSTANDING PNB COMMON STOCK. Each share of PNB Common Stock
(excluding Treasury Stock and Dissenters' Shares), issued and outstanding
immediately prior to the Effective Time shall become and be converted into one
(1) (the "Conversion Number") share of Western Common Stock.
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(b) OUTSTANDING PNB OPTIONS. At the Effective Time, each option granted by
PNB to directors, officers and employees of PNB and the PNB Bank Subsidiary to
purchase shares of PNB Common Stock which, at the Effective Time, is outstanding
and has not been exercised (an "PNB Option"), shall be converted into an option
to purchase shares of Western Common Stock in accordance with the terms of the
applicable PNB stock option plan and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each PNB Option may be
exercised solely for shares of Western Common Stock, (ii) the number of shares
of Western Common Stock subject to such PNB Option shall be equal to the product
(rounded down to the nearest whole share) of multiplying the number of shares of
PNB Common Stock subject to such PNB Option immediately prior to the Effective
Time by the Conversion Number and (iii) the per share exercise price under each
such PNB Option shall be equal to the quotient (rounded down to the nearest
cent) of dividing the per share exercise price under each such PNB Option by the
Conversion Number.
(c) OUTSTANDING WESTERN COMMON STOCK. Each share of Western Common Stock
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and unaffected by the Merger.
(d) TREASURY SHARES. Each share of PNB Common Stock held as Treasury Stock
immediately prior to the Effective Time shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
(e) DISSENTING SHAREHOLDERS. Any Dissenting Shareholder who shall be
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in Chapter 13 of the CGCL, shall not be entitled to the Merger
Consideration as set forth in Section 3.1(a) in respect thereof unless and until
such Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such Dissenting Shareholder's right to dissent
from the Merger under the CGCL, and shall be entitled to receive only the
payment provided for by Chapter 13 of the CGCL with respect to such Dissenters'
Shares. Upon the payment by the Surviving Corporation of the "fair value" of any
Dissenters' Shares in accordance with Chapter 13 of the CGCL, such Dissenters'
Shares shall be canceled and retired and shall cease to exist, and no exchange
or further payment shall be made with respect thereto. If any Dissenting
Shareholder shall fail to perfect or shall have effectively withdrawn or lost
such right to dissent, the Dissenters' Shares held by such Dissenting
Shareholder shall thereupon be treated as though such Dissenters' Shares had
been converted into the right to receive the Merger Consideration as set forth
in Section 3.1(a) pursuant to such Section 3.1(a).
3.2. RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of PNB Common Stock shall cease to be, and shall have no rights as,
shareholders of PNB, other than to receive any dividend or other distribution
with respect to such PNB Common Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III.
After the Effective Time, there shall be no transfers on the stock transfer
books of PNB or the Surviving Corporation of shares of PNB Common Stock.
3.3. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Western Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Western shall pay to each holder of PNB Common Stock who would otherwise be
entitled to a fractional share of Western Common Stock (after taking into
account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
closing prices of Western Common Stock, as reported on Nasdaq (as reported in
the Western Edition of The Wall Street Journal or, if not reported therein, in
another authoritative source), for the five Nasdaq trading days immediately
preceding the Effective Date.
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3.4. EXCHANGE PROCEDURES.
(a) At or prior to the Effective Time, Western shall deposit, or shall cause
to be deposited, with such bank or trust company as Western shall elect (which
may include a subsidiary of Western) (in such capacity, the "Exchange Agent"),
for the benefit of the holders of certificates formerly representing shares of
PNB Common Stock ("Old Certificates"), for exchange in accordance with this
Article III, certificates representing the shares of Western Common Stock ("New
Certificates") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with a record date occurring after
the Effective Date with respect thereto, without any interest on any such cash,
dividends or distributions, being hereinafter referred to as the "Exchange
Fund") to be paid pursuant to this Article III in exchange for outstanding
shares of PNB Common Stock.
(b) As soon as practicable after the Effective Date, Western shall send or
cause to be sent to each former holder of record of shares of PNB Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III, which transmittal materials PNB shall have had the
opportunity to review prior to the Effective Date. Western shall cause the New
Certificates into which shares of PNB Common Stock are converted on the
Effective Date and any check in respect of any fractional share interests or
dividends or distributions which the holder of such shares shall be entitled to
receive upon delivery to the Exchange Agent of Old Certificates representing
such shares (or an affidavit of lost certificate and, if required by the
Exchange Agent, indemnity reasonably satisfactory to Western and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
shareholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery. In the event of a transfer of ownership of any shares of PNB Common
Stock not registered in the transfer records of PNB, the exchange described in
this Section 3.4(b) may nonetheless be effected and a check for the cash to be
paid in lieu of fractional shares may be issued to the transferee if the Old
Certificate representing such PNB Common Stock is presented to the Exchange
Agent, accompanied by documents sufficient, in the discretion of Western and the
Exchange Agent, (i) to evidence and effect such transfer but for the provisions
of Section 3.2 hereof and (ii) to evidence that all applicable stock transfer
taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration therefor is
not claimed prior to the date on which such consideration would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed consideration shall, to the extent permitted by abandoned property and
any other applicable law, become the property of the Surviving Corporation (and
to the extent not in its possession shall be paid over to the Surviving
Corporation), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of PNB Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) At the election of Western, no dividends or other distributions with
respect to Western Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of PNB Common Stock converted in the Merger into the right
to receive shares of such Western Common Stock until the holder thereof shall be
entitled to receive New Certificates in exchange therefor in accordance with the
procedures set forth in this Section 3.4, and no such shares of PNB Common Stock
shall be eligible to vote until the holder of Old Certificates is entitled to
receive New Certificates in accordance with the procedures set forth in this
Section 3.4. After becoming so entitled in accordance with this Section 3.4, the
record holder thereof also shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Western Common Stock such holder had the right
to receive upon surrender of the Old Certificate.
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(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of PNB for six months after the Effective Time shall be returned by
the Exchange Agent to Western. Any shareholders of PNB who have not theretofore
complied with this Article III shall thereafter look only to Western for payment
of the shares of Western Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on Western Common Stock deliverable
hereunder, in each case, without any interest thereon.
3.5. ANTI-DILUTION PROVISIONS. In the event Western changes (or
establishes a record date for changing) the number of shares of Western Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Western Common Stock and the record date therefor shall be prior
to the Effective Date, the number of shares of Western Common Stock the holders
of PNB Common Stock or options exercisable for same shall be entitled to receive
under this Agreement shall be proportionately adjusted. If, between the date
hereof and the Effective Time, Western shall merge, be acquired or consolidate
with, by or into any other corporation (a "Business Combination") and the terms
thereof shall provide that Western Common Stock shall be converted into or
exchanged for the shares of any other corporation or entity, then provision
shall be made as part of the terms of such Business Combination so that
shareholders and optionholders of PNB who would be entitled to receive shares of
Western Common Stock pursuant to this Agreement shall be entitled to receive, in
lieu of each share of Western Common Stock issuable to such persons as provided
herein, the same kind and amount of securities or assets as shall be
distributable upon such Business Combination with respect to one share of
Western Common Stock (provided that nothing herein shall be construed so as to
release the acquiring entity in any such Business Combination from its
obligations under this Agreement as the successor to Western).
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.1. FORBEARANCES OF PNB. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of Western, PNB will not, and will cause each of its Subsidiaries not
to:
(a) ORDINARY COURSE. Conduct the business of PNB and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable best
efforts to preserve intact their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates, take any action that would adversely affect
or delay the ability of PNB or any of its Subsidiaries to perform any of their
obligations on a timely basis under this Agreement, or take any action that is
reasonably likely to have a Material Adverse Effect on PNB or its Subsidiaries,
taken as a whole.
(b) CAPITAL STOCK. Except for Previously Disclosed contractual
obligations, issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional shares of PNB Common Stock or any Rights or
enter into any agreement with respect to the foregoing.
(c) DIVIDENDS, ETC. Make, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any distribution on any shares
of PNB Common Stock, directly or indirectly, adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into or amend or renew
any employment, consulting, severance or similar agreements or arrangements with
any director, officer or employee of PNB or its Subsidiaries, or grant any
salary or wage increase or increase any employee benefit (including incentive or
bonus payments), except (i) for normal individual increases in compensation to
employees in the ordinary course of business consistent with past practice, (ii)
for other changes that are required by applicable law, (iii) to satisfy
Previously Disclosed contractual obligations existing as of the date hereof or
(iv) for grants of awards to newly hired employees consistent with past
practice.
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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 purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any director, officer or employee of PNB or its
Subsidiaries, or take any action to accelerate the vesting or exercisability of
any compensation or benefits payable thereunder.
(f) DISPOSITIONS. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties, except in the ordinary course of business and
in a transaction that is not material to it and its Subsidiaries taken as a
whole.
(g) ACQUISITIONS. Except as Previously Disclosed, acquire (other than by
way of foreclosures or acquisitions of control in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice) all or
any portion of, the assets, business, deposits or properties of any other entity
except in the ordinary course of business consistent with past practice and in a
transaction that is not material to PNB and its Subsidiaries, taken as a whole.
(h) CAPITAL EXPENDITURES. Except as Previously Disclosed, make any capital
expenditures other than capital expenditures in the ordinary course of business
consistent with past practice in amounts not exceeding $50,000 individually or
$100,000 in the aggregate.
(i) GOVERNING DOCUMENTS. Amend the PNB Articles, PNB By-Laws or the
articles of incorporation or by-laws (or similar governing documents) of any of
PNB's Subsidiaries.
(j) ACCOUNTING METHODS. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(k) CONTRACTS. Except in the ordinary course of business consistent with
past practice, enter into or terminate any material contract (as defined in
Section 5.3(k)) or amend or modify in any material respect any of its existing
material contracts.
(l) CLAIMS. Except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for any claim, action
or proceeding involving solely money damages in an amount, individually or in
the aggregate for all such settlements, that is not material to PNB and its
Subsidiaries, taken as a whole.
(m) ADVERSE ACTIONS. (i) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(A) for "pooling-of-interests" accounting treatment, or (B) as a reorganization
within the meaning of Section 368 of the Code; or (ii) knowingly take any action
that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(B) any of the conditions to the Merger set forth in Article VII not being
satisfied including, but not limited to, any action which would reasonably be
expected to adversely affect or delay the ability of Western or PNB to obtain
any necessary approvals, consents or waivers of any Regulatory Agencies required
for the transactions contemplated by this Agreement or (C) a material violation
of any provision of this Agreement, except, in each case, as may be required by
applicable law or regulation.
(n) RISK MANAGEMENT. Except as required by applicable law or regulation,
(i) implement or adopt any material change in its interest rate and other risk
management policies, procedures or practices; (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest rate and
other risk in any material respect; or (iii) fail to use commercially reasonable
means to avoid any material increase in its aggregate exposure to interest rate
risk.
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(o) INDEBTEDNESS. Incur any indebtedness for borrowed money other than in
the ordinary course of business consistent with past practice.
(p) LOANS. Make any loan, loan commitment or renewal or extension thereof
to any person in an amount greater than $100,000 which would, when aggregated
with all outstanding loans, commitments for loans or renewals or extensions
thereof made by PNB and PNB Bank Subsidiary to such person and any affiliate or
immediate family member of such person, exceed $500,000 without submitting loan
package information to the chief credit officer of Western for review with a
right of comment at least one full business day prior to taking such action.
(q) COMMITMENTS. Agree or commit to do any of the foregoing.
4.2. FORBEARANCES OF WESTERN. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of PNB, Western will not, and will cause each of its
Subsidiaries not to:
(a) ORDINARY COURSE. Take any action that would adversely affect or delay
the ability of PNB or Western to perform any of their obligations on a timely
basis under this Agreement, take any action that is reasonably likely to have a
Material Adverse Effect on Western or its Subsidiaries, taken as a whole, or
take any action while knowing that such action is, or is reasonably likely to
be, other than in the best interests of Western and its shareholders.
(b) ADVERSE ACTIONS. (i) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(A) for "pooling-of-interests" accounting treatment, or (B) as a reorganization
within the meaning of Section 368 of the Code; or (ii) knowingly take any action
that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(B) any of the conditions to the Merger set forth in Article VII not being
satisfied including, but not limited to, any action which would reasonably be
expected to adversely affect or delay the ability of Western or PNB to obtain
any necessary approvals, consents or waivers of any Regulatory Agencies required
for the transactions contemplated by this Agreement, or (C) a material violation
of any provision of this Agreement, except, in each case, as may be required by
applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. DISCLOSURE SCHEDULE. On or prior to the date hereof, PNB has
delivered to Western and Western has delivered to PNB a schedule (respectively,
its "Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 5.3 or 5.4; provided,
that (a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 5.2, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect. Each party
hereto agrees that with respect to the representations and warranties of such
party, such party shall have the right to supplement and amend their Disclosure
Schedule with respect to any events occurring after the date of this Agreement
and prior to the Effective Time. In the event any such supplement or amendment
discloses new events that are reasonably likely to have a Material Adverse
Effect on the party making such supplement or amendment or on the Surviving
Corporation, the other party shall have the right to terminate the Agreement
pursuant to Section 8.1(h).
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5.2. STANDARD. No representation or warranty of PNB or Western contained
in Section 5.3 or 5.4 shall be deemed untrue or incorrect, and no party hereto
shall be deemed to have breached a representation or warranty, as a consequence
of the existence of any fact, event or circumstance unless such fact,
circumstance or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty
contained in Section 5.3 or 5.4 has had or is reasonably likely to have a
Material Adverse Effect on the party making such representation or warranty.
5.3. REPRESENTATIONS AND WARRANTIES OF PNB. Subject to Sections 5.1 and
5.2 and except as Previously Disclosed in a paragraph of its Disclosure Schedule
corresponding to the relevant paragraph below, PNB hereby represents and
warrants to Western:
(a) ORGANIZATION, STANDING AND AUTHORITY. PNB is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. PNB is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to be
so qualified.
(b) SUBSIDIARIES.
(i) (A) PNB has Previously Disclosed a list of all of its Subsidiaries
together with the jurisdiction of organization of each such Subsidiary, (B)
PNB owns, directly or indirectly, all the issued and outstanding equity
securities of each of its Subsidiaries, (C) no equity securities of any of
its Subsidiaries are or may become required to be issued (other than to it
or its wholly owned Subsidiaries) by reason of any Right or otherwise, (D)
there are no contracts, commitments, understandings or arrangements by which
any of such Subsidiaries is or may be bound to sell or otherwise transfer
any equity securities of any such Subsidiaries (other than to it or its
wholly-owned Subsidiaries), (E) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to dispose
of such securities, and (F) all the equity securities of each Subsidiary
held by PNB or its Subsidiaries are fully paid and nonassessable and are
owned by PNB or its Subsidiaries free and clear of any Liens.
(ii) PNB does not own beneficially, directly or indirectly, any equity
securities or similar interests of any Person or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries,
except for a 4.9% interest in Alta Residential Mortgage, Inc. ("Alta").
(iii) Each of PNB's Subsidiaries has been duly organized and is validly
existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified.
(c) ALTA.
(i) PNB and its Subsidiaries, in the aggregate, beneficially own,
directly or indirectly, not more than 4.9% of any class of outstanding
voting equity securities of Alta and do not have non-voting equity interests
in, loans to or other arrangements with Alta which would cause the ownership
in Alta to be ineligible for the exemption set forth in Section 4(c)(6) of
the BHC Act.
(ii) There are no contracts, commitments, understandings or arrangements
by which PNB or any Subsidiary is or may be bound to purchase, sell or
otherwise transfer any equity securities of Alta.
(d) CAPITAL STOCK. As of the date hereof, the authorized capital stock of
PNB consists solely of 20,000,000 shares of PNB Common Stock, of which no more
than 2,779,733 shares were outstanding as of the date hereof. As of the date
hereof, no shares of PNB Common Stock were held in treasury by PNB or otherwise
beneficially owned by PNB or its Subsidiaries. The outstanding shares of PNB
Common Stock have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable, subject to no preemptive rights and were not
issued in violation of any preemptive rights. As of the date hereof, there
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are 266,210 shares of PNB Common Stock authorized and reserved for issuance
pursuant to outstanding options to purchase shares of PNB Common Stock, PNB does
not have any other Rights issued or outstanding with respect to its capital
stock, and PNB does not have any commitment to authorize, issue or sell any
other shares of its capital stock or any other Rights except pursuant to this
Agreement and the Stock Option Agreement. All outstanding shares of capital
stock of PNB Bank Subsidiary have been duly authorized and validly issued, are
fully paid and (subject to 12 U.S.C. Section 55) non-assessable and are not
subject to preemptive rights.
(e) CORPORATE POWER. PNB and each of its Subsidiaries has the corporate
power and authority to carry on its business as it is now being conducted and to
own all its properties and assets; and PNB has the corporate power and authority
to execute, deliver and perform its obligations under this Agreement and the
Stock Option Agreement and to consummate the transactions contemplated hereby
and thereby.
(f) CORPORATE AUTHORITY. Subject in the case of this Agreement to receipt
of the requisite approval of the agreement of merger set forth in this Agreement
by the holders of a majority of the outstanding shares of PNB Common Stock
entitled to vote thereon (which is the only shareholder vote required thereon),
this Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby have been authorized by all necessary corporate action of PNB
and the PNB Board on or prior to the date hereof. This Agreement is a valid and
legally binding obligation of PNB, enforceable in accordance with its terms
(except as enforceability may be limited by 12 U.S.C. Section 1818(b)(6)(D) or
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles). The PNB Board has received
the written opinion of Lehman Brothers Inc. to the effect that as of the date
hereof the consideration to be received by the holders of PNB Common Stock in
the Merger is fair to the holders of PNB Common Stock from a financial point of
view.
(g) CONSENTS AND APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or filings or registrations with, any
Governmental Authority or with any third party are required to be made or
obtained by PNB or any of its Subsidiaries or Alta in connection with the
execution, delivery or performance by PNB of this Agreement, the Stock
Option Agreement, or to consummate the Merger except for (A) filings of
applications, registrations, statements, reports or notices with the Federal
Reserve, the SEC and state securities authorities (collectively the
"Regulatory Agencies"), (B) the approval of this Agreement by the
shareholders of PNB and (C) the filing of an agreement of merger with the
California Secretary pursuant to the CGCL. As of the date hereof, PNB is not
aware of any reason why the approvals set forth in Section 7.1(b) will not
be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.1(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and thereby do
not and will not (A) constitute a breach or violation of, or a default
under, or give rise to any Lien, any acceleration of remedies or any right
of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument
of PNB or of any of its Subsidiaries or to which PNB or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the PNB Articles or the PNB Bylaws, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
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(h) FINANCIAL REPORTS AND REGULATORY DOCUMENTS.
(i) PNB's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and all other reports, registration statements, or definitive proxy
statements filed or to be filed by it or any of its Significant Subsidiaries
subsequent to December 31, 1997 under the Securities Act, or under Sections
13(a), 13(d), 14 or 15(d) of the Exchange Act, in the form filed or to be
filed (collectively, the "Regulatory Documents"), as of the date filed, (A)
complied and will comply in all material respects as to form with the
applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (B) did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such
Regulatory Document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of PNB and
its Subsidiaries as of its date, and each of the statements of income and
changes in shareholders' equity and cash flows or equivalent statements in
such Regulatory Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the results of operations,
changes in shareholders' equity and changes in cash flows, as the case may
be, of PNB and its Subsidiaries for the periods to which they relate, in
each case in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except in each
case as may be noted therein, subject to normal year-end audit adjustments
in the case of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.4 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to PNB and Subsidiaries.
(iii) PNB and Subsidiaries have timely filed all reports, registrations
and statements, together with any amendments required to be made with
respect thereto, that they were required to file since December 31, 1996
with the Regulatory Agencies, and all other material reports and statements
required to be filed by them since December 31, 1996, including, without
limitation, any report or statement required to be filed pursuant to the
laws of the United States or the State of California, and have paid all fees
and assessments due and payable in connection therewith. As of their
respective dates, such reports, registrations and statements complied in all
material respects with all the laws, rules and regulations of the applicable
Regulatory Agency with which they were filed.
(i) LITIGATION. No litigation, claim or other proceeding before any court
or governmental agency is pending against PNB or any of its Subsidiaries and, to
PNB's knowledge, no such litigation, claim or other proceeding has been
threatened.
(j) REGULATORY MATTERS.
(i) Neither PNB nor any of its Subsidiaries or any of their properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, or extraordinary supervisory letter from any Regulatory
Agency.
(ii) Neither PNB nor any of its Subsidiaries has been advised by any
Regulatory Agency that such Regulatory Agency is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, commitment
letter, supervisory letter or similar submission.
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(k) COMPLIANCE WITH LAWS. PNB and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to PNB's knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that PNB or any
of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization (nor, to PNB's knowledge, do any grounds for any of the
foregoing exist).
(l) MATERIAL CONTRACTS; DEFAULTS. Neither PNB nor any of its Subsidiaries
is a party to, bound by or subject to any agreement, contract, arrangement,
commitment or understanding (whether written or oral) (i) that is a "material
contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K, or
(ii) that materially restricts the conduct of business by it or any of its
Subsidiaries that has not been filed with or incorporated by reference in
reports files under the Securities and Exchange Act of 1934, as amended. Neither
PNB nor any of its Subsidiaries is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party, by which its respective assets, business, or operations may be bound
or affected, or under which it or its respective assets, business, or operations
receives benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
(m) NO BROKERS. No action has been taken by PNB or any Subsidiary that
would give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be paid
to Lehman Brothers Inc.
(n) EMPLOYEE BENEFIT PLANS.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of PNB and its
Subsidiaries (the "Employees") and current or former directors of PNB,
including, but not limited to, "employee benefit plans" within the meaning
of Section 3(3) of ERISA, and deferred compensation, stock option, stock
purchase, stock appreciation rights, stock based, incentive and bonus plans
(the "Benefit Plans"), are Previously Disclosed. True and complete copies of
all Benefit Plans, including, but not limited to, any trust instruments and
insurance contracts forming a part of any Benefit Plans, and all amendments
thereto have been provided or made available to Western.
(ii) All employee benefit plans, other than "multiemployer plans" within
the meaning of Section 3(37) of ERISA, covering Employees (the "Plans"), to
the extent subject to ERISA, are in substantial compliance with ERISA. PNB
is not a party to any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code. There is no material pending or threatened
litigation relating to the Plans. Neither PNB nor any of its Subsidiaries
has engaged in a transaction with respect to any Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
subject PNB or any Subsidiary to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
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(iii) No liability under Subtitle C or D of Title IV of ERISA has been or
is expected to be incurred by PNB or any of its Subsidiaries with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of any entity which is considered one
employer with PNB under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"). Neither PNB, any of its Subsidiaries nor an ERISA
Affiliate has contributed to a "multiemployer plan", within the meaning of
Section 3(37) of ERISA. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any Pension Plan or
by any ERISA Affiliate within the 12-month period ending on the date hereof
or will be required to be filed in connection with the transactions
contemplated by this Agreement.
(iv) All contributions required to be made under the terms of any Plan
have been timely made or have been reflected on the consolidated financial
statements of PNB included in the Regulatory Documents. Neither any Pension
Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section
412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an
outstanding funding waiver. Neither PNB nor any of its Subsidiaries has
provided, or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such
Plan, and there has been no material change in the financial condition of
such Plan since the last day of the most recent plan year.
(vi) Neither PNB nor any of its Subsidiaries has any obligations for
retiree health and life benefits under any Benefit Plan. PNB or its
Subsidiaries may amend or terminate any such Benefit Plan at any time
without incurring any liability thereunder.
(vii) The consummation of the transactions contemplated by this Agreement
will not (x) entitle any employees of PNB or any of its Subsidiaries to
severance pay, (y) accelerate the time of payment or vesting or trigger any
payment of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Benefit Plans
or (z) result in any breach or violation of, or a default under, any of the
Benefit Plans. Without limiting the foregoing, as a result of the
consummation of the transactions contemplated by this Agreement, neither PNB
nor any of its Subsidiaries will be obligated to make a payment to an
individual that would be a "parachute payment" to a "disqualified
individual" as those terms are defined in Section 280G of the Code, without
regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.
(o) LABOR MATTERS. Neither PNB nor any of its Subsidiaries is a party to
or is bound by any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is PNB or any of
its Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel PNB or any such Subsidiary to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to PNB's knowledge, threatened, nor is PNB aware of any
activity involving its or any of its Subsidiaries' employees seeking to certify
a collective bargaining unit or engaging in other organizational activity.
(p) YEAR 2000 COMPLIANCE. Except as Previously Disclosed, (i) the computer
software and related hardware of the PNB Bank Subsidiary (the "Computer System")
used for the storage and processing of
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data are, or will be prior to the year 2000, Year 2000 Compliant; (ii) to the
best of PNB's knowledge after due inquiry, all of the suppliers, customers and
third party providers of the PNB Bank Subsidiary are, or will be prior to year
2000, Year 2000 Compliant; and (iii) to the best of PNB's knowledge after due
inquiry, the PNB Bank Subsidiary is taking or has taken, all commercially
reasonable and appropriate action to address and remedy any deficiencies in its
Computer System which would keep it from becoming Year 2000 Compliant. As used
herein, "Year 2000 Compliant" shall mean the ability of a Computer System to
provide the following functions, without human intervention, individually and in
combination with other products or systems: (i) consistently handle, record,
store, process and present dates and date-related information before, during and
after January 1, 2000, including but not limited to accepting date input,
performing calculations on dates or portion of dates, and providing date output;
(ii) function accurately in accordance with the published specifications and
without undue interruption, before, during, and after January 1, 2000 (including
leap year computations) without any adverse change in operation associated with
the advent of the year 2000; (iii) respond to two-digit or four-digit dates and
date-related input in a way that resolves any ambiguity as to the year 2000 in a
disclosed, defined and predetermined manner, and store and provide output of
dates and date-related information in ways that are unambiguous as to the year
2000; and (iv) suitably interact with other software and related hardware in a
way which does not compromise its year 2000 compliance capability.
(q) ENVIRONMENTAL MATTERS.
(i) PNB and each of its Subsidiaries has complied at all times with
applicable Environmental Laws; (ii) no real property (including buildings or
other structures) currently or formerly owned or operated by PNB or any of
its Subsidiaries, or any property in which PNB or any of its Subsidiaries
has held a security interest, lien or a fiduciary or management role ("Loan
Property"), has been contaminated with, or has had any release of, any
Hazardous Substance; (iii) neither PNB nor any of its Subsidiaries could be
deemed the owner or operator of any Loan Property under any Environmental
Law which such Loan Property has been contaminated with, or has had any
release of, any Hazardous Substance; (iv) neither PNB nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither PNB nor any of its
Subsidiaries has received any notice, demand letter, claim or request for
information alleging any violation of, or liability under, any Environmental
Law; (vi) neither PNB nor any of its Subsidiaries is subject to any order,
decree, injunction or other agreement with any Governmental Authority or any
third party relating to any Environmental Law; (vii) to the best of PNB's
knowledge, there are no circumstances or conditions (including the presence
of asbestos, underground storage tanks, lead products, polychlorinated
biphenyls, prior manufacturing operations, dry-cleaning, or automotive
services) involving PNB or any of its Subsidiaries, any currently or
formerly owned or operated property, or any Loan Property, that could
reasonably be expected to result in any claims, liability or investigations
against PNB or any of its Subsidiaries or result in any restrictions on the
ownership, use, or transfer of any property pursuant to any Environmental
Law; and (viii) PNB has delivered to Western copies of all environmental
reports, studies, sampling data, correspondence, filings and other
environmental information in its possession or reasonably available to it
relating to PNB, any Subsidiary of PNB, any currently or formerly owned or
operated property or any Loan Property.
As used herein, the term "Environmental Law" means any federal, state or
local law, regulation, order, decree, permit, authorization, opinion, common law
or agency requirement relating 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
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the subject of regulatory action by any Governmental Authority in connection
with any Environmental Law.
(r) TAX MATTERS.
(i) (A) All Tax Returns that are required to be filed (taking into
account any extensions of time within which to file) by or with respect to
PNB and its Subsidiaries have been duly filed, (B) all Taxes due have been
paid in full, (C) all deficiencies asserted or assessments made as a result
of such examinations have been paid in full, (D) no issues that have been
raised by the relevant taxing authority in connection with the examination
of any of the Tax Returns referred to in clause (A) are currently pending,
and (E) no waivers of statutes of limitation have been given by or requested
with respect to any Taxes of PNB or its Subsidiaries. PNB has made available
to Western true and correct copies of the United States federal income Tax
Returns filed by PNB and its Subsidiaries for each of the three most recent
fiscal years ended on or before December 31, 1997. Neither PNB nor any of
its Subsidiaries has any liability with respect to income, franchise or
similar Taxes that accrued on or before the end of the most recent period
covered by PNB's Regulatory Documents filed prior to the date hereof in
excess of the amounts accrued with respect thereto that are reflected in the
financial statements included in PNB's Regulatory Documents filed on or
prior to the date hereof. Neither PNB nor any of its Subsidiaries is a party
to any Tax allocation or sharing agreement, is or has been a member of an
affiliated group filing consolidated or combined Tax returns (other than a
group the common parent of which is or was PNB) or otherwise has any
liability for the Taxes of any person (other than PNB and its Subsidiaries).
As of the date hereof, neither PNB nor any of its Subsidiaries has any
reason to believe that any conditions exist that might prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section 368
of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this Agreement.
(s) RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for PNB's own account, or for the
account of one or more of PNB's Subsidiaries or their customers (all of which
are listed on PNB's Disclosure Schedule), if any, were entered into (i) in
accordance with prudent business practices and all applicable laws, rules,
regulations and regulatory policies, and (ii) with counterparties believed to be
financially responsible at the time; and each of them constitutes the valid and
legally binding obligation of PNB or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and are in full force and effect. Neither PNB
nor its Subsidiaries, nor to PNB's knowledge, any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
(t) BOOKS AND RECORDS. The books and records of PNB and its Subsidiaries
have been fully, properly and accurately maintained in all material respects,
and there are no material inaccuracies or discrepancies of any kind contained or
reflected therein, and they fairly present the financial position of PNB and its
Subsidiaries.
(u) INSURANCE. PNB has Previously Disclosed all of the insurance policies,
binders, or bonds maintained by PNB or its Subsidiaries ("Insurance Policies").
PNB and its Subsidiaries are insured with reputable insurers against such risks
and in such amounts as the management of PNB reasonably has determined to be
prudent for its business, operations, properties and assets. All the Insurance
Policies are in full force and effect; PNB and its Subsidiaries are not in
material default thereunder; and all claims thereunder have been filed in due
and timely fashion.
(v) ACCOUNTING TREATMENT. As of the date hereof, PNB is not aware of any
reason why the Merger will fail to qualify for "pooling-of-interests" accounting
treatment.
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(w) ALLOWANCE FOR POSSIBLE LOAN LOSSES. To the best of PNB's knowledge,
PNB's allowance for loan and lease losses and level of indemnification reserves
on its mortgage portfolio is, and will be as of the Effective Date, adequate and
in accordance with GAAP in all material respects and in accordance with all
applicable regulatory requirements.
(x) TRUST BUSINESS. Neither PNB nor PNB Bank Subsidiary serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor for any fiduciary accounts. Except as set forth in PNB's
Disclosure Schedule or such violations which individually or in the aggregate
would not give rise to a Material Adverse Effect, (i) each of the relationships
between PNB, Entrust Administration, Inc. ("Entrust") and another Person which
constitute part of the business conducted by PNB or Entrust pursuant to the
Contract for Services, dated as of April 1, 1997, as amended (the "Entrust
Agreement"), between PNB Bank Subsidiary and Entrust (whether PNB or Entrust
acts or has acted as trustee, agent, custodian, personal representative,
guardian, conservator, investment advisor or in another similar capacity) (the
"Trust Relationships") is governed by a written agreement, contract, indenture,
instrument of trust or other similar document (the "Trust Instruments") and, to
the knowledge of PNB, all of the Trust Instruments that are presently in effect
are in the possession of Entrust and have been made, or are, available to
Western and no Trust Instrument has been amended except by an instrument in
writing; and (ii) each Trust Relationship has been conducted, operated and
managed by PNB and, to the knowledge of PNB, Entrust in accordance with the
terms of the governing Trust Instrument and applicable law.
5.4. REPRESENTATIONS AND WARRANTIES OF WESTERN. Subject to Sections 5.1
and 5.2 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Western hereby
represents and warrants to PNB as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY; SUBSIDIARIES. Western is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Western is duly qualified to do business and is in
good standing in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Western has in effect all federal, state, local,
and foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted. Each
of Western's Significant Subsidiaries has been duly organized and is validly
existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and is in good standing in
the jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified.
(b) WESTERN CAPITAL STOCK. As of the date hereof, the authorized capital
stock of Western consists solely of 100,000,000 shares of Western Common Stock,
of which no more than 15.8 million shares were outstanding as of the date hereof
and 5,000,000 shares of Western Preferred Stock, of which no shares were
outstanding as of the date hereof. As of the date hereof, Western does not have
any Rights issued or outstanding with respect to its capital stock and Western
does not have any commitment to authorize, issue or sell any shares of its
capital stock or any Rights. Western has a sufficient number of duly authorized,
unissued and reserved shares of its Common Stock necessary to permit Western to
satisfy its obligations under this Agreement without the need to seek approval
of Western's shareholders.
(c) CORPORATE POWER. Western and each of its Significant Subsidiaries has
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Western has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(d) CORPORATE AUTHORITY. This Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of Western and its
Board of Directors. This Agreement is a valid and legally binding agreement of
Western enforceable in accordance with its terms (except as enforceability may
be limited by 12 U.S.C. Section 1818(b)(6)(D) or applicable bankruptcy,
insolvency,
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reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
(e) CONSENTS AND APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or filings or registrations with, any
Regulatory Agencies or with any third party are required to be made or
obtained by Western or any of its Subsidiaries in connection with the
execution, delivery or performance by Western of this Agreement or to
consummate the Merger except for (A) the filing of applications,
registrations, statements, reports or notices, as applicable, with the
Regulatory Agencies; (B) approval of the listing on the Nasdaq of Western
Common Stock to be issued in the Merger; (C) the filing and declaration of
effectiveness of the Registration Statement; (D) the filing of an agreement
of merger with the California Secretary pursuant to the CGCL; and (E) such
filings as are required to be made or approvals as are required to be
obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of Western Common Stock in the Merger. As of
the date hereof, Western is not aware of any reason why the approvals set
forth in Section 7.1(b) will not be received without the imposition of a
condition, restriction or requirement of the type described in Section
7.1(b).
(ii) Subject to receipt of the consents and approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach
or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license,
or agreement, indenture or instrument of Western or of any of its
Subsidiaries or to which Western or any of its Subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default
under, the articles of incorporation or by-laws (or similar governing
documents) of Western or any of its Subsidiaries, or (C) require any consent
or approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(f) FINANCIAL REPORTS AND REGULATORY DOCUMENTS; MATERIAL ADVERSE EFFECT.
(i) Western's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and all other reports, registration statements, or
definitive proxy statements filed or to be filed by it or any of its
Significant Subsidiaries subsequent to December 31, 1997 under the
Securities Act, or under Sections 13(a), 13(d), 14 or 15(d) of the Exchange
Act, in the form filed or to be filed (collectively, the "Regulatory
Documents"), as of the date filed, (A) complied and will comply in all
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Regulatory Document (including the
related notes and schedules thereto) fairly presents, or will fairly
present, the financial position of Western and its Subsidiaries as of its
date, and each of the statements of income and changes in shareholders'
equity and cash flows or equivalent statements in such Regulatory Documents
(including any related notes and schedules thereto) fairly presents, or will
fairly present, the results of operations, changes in shareholders' equity
and changes in cash flows, as the case may be, of Western and its
Subsidiaries for the periods to which they relate, in each case in
accordance with GAAP consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.4 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
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(iii) Western has timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that
they were required to file since December 31, 1996 with the Regulatory
Agencies, and all other material reports and statements required to be filed
by it since December 31, 1996, including, without limitation, any report or
statement required to be filed pursuant to the laws of the United States or
the State of California, and has paid all fees and assessments due and
payable in connection therewith. As of their respective dates, such reports,
registrations and statements complied in all material respects with all the
laws, rules and regulations of the applicable Regulatory Agency with which
they were filed.
(g) COMPLIANCE WITH LAWS. Western and each of its Significant
Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to Western's knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Western or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization (nor, to Western's knowledge, do any grounds for any of the
foregoing exist).
(h) NO BROKERS. No action has been taken by Western that would give rise
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement, excluding Previously Disclosed fees payable to Belle Plaine Partners,
Inc.
(i) YEAR 2000 COMPLIANCE. Except as Previously Disclosed, (i) Western's
Computer System used for the storage and processing of data are, or will be
prior to the year 2000, Year 2000 Compliant; (ii) to the best of Western's
knowledge after due inquiry, all of the suppliers, customers and third party
providers of Western are, or will be prior to year 2000, Year 2000 Compliant;
and (iii) to the best of Western's knowledge after due inquiry, Western is
taking or has taken, all commercially reasonable and appropriate action to
address and remedy any deficiencies in its Computer System which would keep it
from becoming Year 2000 Compliant.
(j) BOOKS AND RECORDS. The books and records of Western and its
Significant Subsidiaries have been fully, properly and accurately maintained in
all material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of Western and its Significant Subsidiaries.
(k) ACCOUNTING TREATMENT; TAX MATTERS. As of the date hereof, Western is
aware of no reason why the Merger will fail to qualify for
"pooling-of-interests" accounting treatment. As of the date hereof, neither
Western nor any of its Subsidiaries has any reason to believe that any
conditions exist that might prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code.
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ARTICLE VI
COVENANTS
6.1. REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of PNB and Western agrees to cooperate with the other parties
hereto and to use its reasonable best efforts in good faith to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or desirable, or advisable under applicable laws, so as to permit
consummation of the Merger as promptly as practicable and otherwise to enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other party hereto to that end.
6.2. SHAREHOLDER APPROVAL. PNB agrees to take, in accordance with
applicable law and the PNB Articles and the PNB Bylaws, all action necessary to
convene an appropriate meeting of its shareholders to consider and vote upon the
approval of the principal terms of the Merger and adoption of this Agreement and
any other matters required to be approved by PNB's shareholders for consummation
of the Merger (including any adjournment or postponement, the "PNB Meeting"), in
each case as promptly as practicable after the Registration Statement is
declared effective. Except to the extent legally required for the discharge by
the PNB Board of its fiduciary duties as advised by counsel to the PNB Board,
the PNB Board shall recommend such approval, and PNB shall take all reasonable,
lawful action to solicit such approval by its shareholders.
6.3. REGISTRATION STATEMENT.
(a) Western agrees to prepare a registration statement on Form S-4 or other
applicable form (the "Registration Statement") to be filed by Western with the
SEC in connection with the issuance of Western Common Stock in the Merger,
including the prospectus and other proxy solicitation materials of PNB
constituting a part thereof (the "Proxy Statement") and all related documents.
PNB shall have the right to review such Registration Statement and PNB agrees to
cooperate, and to cause its Subsidiaries to cooperate, with Western, its counsel
and its accountants, in preparation of the Registration Statement and the Proxy
Statement. PNB agrees to file the Proxy Statement in preliminary form with such
of the Regulatory Authorities as may be required as soon as reasonably
practicable, and Western agrees to file the Registration Statement with the SEC
as soon as reasonably practicable. Each of PNB and Western agrees to use all
reasonable efforts to cause the Registration Statement and any required
amendments or supplements thereto to be declared effective under the Securities
Act and distributed to PNB shareholders as promptly as reasonably practicable
after filing thereof. Western also agrees to use all reasonable efforts to
obtain all necessary state securities laws or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement. PNB
agrees to furnish to Western all information concerning PNB, its Subsidiaries,
officers, directors and shareholders as may be reasonably requested in
connection with the foregoing.
(b) Each of PNB and Western agrees, as to itself and its Subsidiaries, that
the information supplied or to be supplied by it for inclusion or incorporation
by reference in (i) the Registration Statement will, at the time the
Registration Statement and each amendment or supplement thereto, if any, becomes
effective under the Securities Act, not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to shareholders and at the time of the PNB Meeting, not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which such statement is made, necessary to
correct any statement in any earlier statement in the Proxy Statement or any
amendment or supplement thereto. Each of PNB and Western further agrees, that if
it shall become aware prior to the Effective Date of any information furnished
by it that would cause any of the statements in the Registration Statement or
the Proxy Statement to be false or misleading with respect to any material fact,
or to omit to state any material fact
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necessary to make the statements therein not false or misleading, promptly to
inform the other party thereof and to take the necessary steps to correct the
Registration Statement or the Proxy Statement.
(c) Western agrees to advise PNB, promptly after Western receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of Western Common Stock for offering or sale in
any jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.4. PRESS RELEASES. Each of PNB and Western agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or Nasdaq rules (provided that the issuing party shall nevertheless
provide the other party with notice of, and the opportunity to review, any such
press release or written statement).
6.5. ACCESS; INFORMATION.
(a) Each of PNB and Western agrees that upon reasonable notice, and subject
to applicable laws relating to the exchange of information, each party shall
afford the other party and the other party's officers, employees, counsel,
accountants and other authorized representatives, such access during normal
business hours throughout the period prior to the Effective Time to the books,
records (including, without limitation, tax returns and work papers of
independent auditors), properties, personnel and to such other information as
the requesting party may reasonably request and, during such period, the
providing party shall furnish promptly to the requesting party (i) a copy of
each material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (ii) all other
information concerning the business, properties and personnel of it as the
requesting party may reasonably request.
(b) Each party agrees that it will not, and will cause its representatives
not to, use any information obtained pursuant to this Section 6.5 (as well as
any other information obtained prior to the date hereof in connection with the
entering into of this Agreement) for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement. Subject to the requirements
of law, each party will keep confidential, and will cause its representatives to
keep confidential, all information and documents obtained pursuant to this
Section 6.5 (as well as any other information obtained prior to the date hereof
in connection with the entering into of this Agreement) unless such information
(i) was already known to such party, (ii) becomes available to such party from
other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the providing
party, or (iv) is or becomes readily ascertainable from published information or
trade sources. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or extracts
thereof containing information and data as to the other party to be returned to
the other party. No investigation by either party of the business and affairs of
the other party shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to either
party's obligation to consummate the transactions contemplated by this
Agreement.
6.6. ACQUISITION PROPOSALS. PNB agrees that it shall not, and shall cause
its Subsidiaries and its Subsidiaries' officers, directors, agents, advisors and
affiliates not to, solicit or encourage inquiries or proposals with respect to,
or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, any
Acquisition Proposal, except to the extent legally required for the discharge by
the PNB Board of its fiduciary duties as advised by counsel to the PNB Board.
PNB shall immediately cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than Western with respect to any of the foregoing and shall
use its reasonable best efforts to enforce any confidentiality or similar
agreement relating to an Acquisition Proposal. PNB shall promptly (within 24
hours) advise
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Western following the receipt by PNB of any Acquisition Proposal and the
substance thereof (including the identity of the person making such Acquisition
Proposal), and advise Western of any developments with respect to such
Acquisition Proposal immediately upon the occurrence thereof.
6.7. AFFILIATE AGREEMENTS.
(a) Not later than the 15th day prior to the mailing of the Proxy Statement,
PNB shall deliver to Western a schedule of each person that, to the best of its
knowledge, is or is reasonably likely to be, as of the date of the PNB Meeting,
deemed to be an "affiliate" of PNB (each, a "PNB Affiliate") as that term is
used in Rule 145 under the Securities Act or SEC Accounting Series Releases 130
and 135.
(b) PNB shall use its reasonable best efforts to cause each person who may
be deemed to be a PNB Affiliate to execute and deliver to Western on or before
the date of mailing of the Proxy Statement an agreement in the form attached
hereto as Exhibit A.
6.8. BOARD ATTENDANCE AND APPOINTMENT. Allen C. Barbieri, or in his
absence another representative of PNB selected by him, shall be invited by
Western and the Western bank Subsidiaries to attend all regular and special
meetings of the Western Board and the Boards of the Western bank Subsidiaries
and the Executive Committees of the Western Board and the Boards of the Western
bank Subsidiaries from the date hereof until the Effective Date. Western shall,
to the extent reasonably practicable, inform PNB of each such meeting at least
two business days in advance of each such meeting; provided, however, that the
attendance of Allen C. Barbieri shall not be permitted at any meeting, or
portion thereof, for the purpose of discussing transactions contemplated by this
Agreement or the obligations of Western under this Agreement. Matthew P. Wagner
or in his absence another representative of Western selected by him, shall be
invited by PNB to attend all regular and special meetings of the PNB Board, the
Executive Committee of the PNB Board and the PNB Bank Subsidiary Board from the
date hereof until the Effective Date. PNB shall, to the extent reasonably
practicable, inform Western of each such meeting at least two business days in
advance of each such meeting; provided, however, that the attendance of Matthew
P. Wagner shall not be permitted at any meeting, or portion thereof, for the
purpose of discussing transactions contemplated by this Agreement or the
obligations of PNB under this Agreement.
6.9. CERTAIN POLICIES. On or after the Regulatory Approval Date, PNB
shall, consistent with GAAP and on a basis mutually satisfactory to it and
Western, modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications, levels of credit
reserves, and levels of indemnification reserves) so as to be applied on a basis
that is consistent with that of Western.
6.10. INDEMNIFICATION RESERVES ON MORTGAGE PORTFOLIO. On or before
December 31, 1998, the level of indemnification reserves on PNB's mortgage
portfolio shall not be less than $1.25 million.
6.11. NASDAQ LISTING. Western agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the Nasdaq, subject to official notice of
issuance, the shares of Western Common Stock to be issued to the holders of PNB
Common Stock in the Merger.
6.12. REGULATORY APPLICATIONS.
(a) Western and PNB and their respective Subsidiaries shall cooperate and
use their respective reasonable best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary to
consummate the transactions contemplated by this Agreement. Western and PNB
shall use their reasonable best efforts to make all required bank regulatory
filings, including the appropriate filing with the Regulatory Authorities. Each
of Western and PNB shall have the right to review in advance, and to the extent
practicable each will consult with the other, in each case subject to applicable
laws relating to the exchange of information, with respect to all material
written information submitted to any third party or any Governmental Authority
in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party hereto
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agrees that it will consult with the other party hereto with respect to the
obtaining of all material permits, consents, approvals and authorizations of all
third parties and Governmental Authorities necessary or advisable to consummate
the transactions contemplated by this Agreement and each party will keep the
other party appraised of the status of material matters relating to completion
of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.13. INDEMNIFICATION; DIRECTOR AND OFFICERS' INSURANCE.
(a) From and after the Effective Time through the sixth anniversary of the
Effective Date, Western agrees to indemnify and hold harmless each present and
former director and officer of PNB or any Subsidiary of PNB determined as of the
Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) (but excluding any Costs arising out of
any violation or alleged violation of the Exchange Act or the rules and
regulations thereunder with respect to insider trading), whether asserted,
claimed or arising prior to, at or after the Effective Time, to the extent to
which such Indemnified Parties were entitled under California law and the PNB
Articles or the PNB Bylaws in effect on the date hereof, and Western shall also
advance expenses as incurred to the extent permitted under California law and
the PNB Articles and the PNB Bylaws.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.13(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Western thereof, but the
failure to so notify shall not relieve Western of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Western. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Western shall have the right to
assume the defense thereof and Western shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Western elects not to assume such defense or counsel for
the Indemnified Parties advises in writing that there are issues which raise
conflicts of interest between Western and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Western shall
pay the reasonable fees and expenses of one such counsel for the Indemnified
Parties in any jurisdiction promptly as statements thereof are received, (ii)
the Indemnified Parties will cooperate in the defense of any such matter, and
(iii) Western shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and
provided, further, that Western shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is not permitted or is prohibited by applicable law.
(c) For a period of six years after the Effective Time, Western shall use
its reasonable best efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by PNB
(provided that Western may substitute therefor policies of comparable coverage
with respect to claims arising from facts or events which occurred before the
Effective Time); provided, however, that in no event shall Western be obligated
to expend, in order to maintain or provide insurance coverage pursuant to this
Section 6.13(c), any amount per annum in excess of 125% of the amount of the
annual premiums paid as of the date hereof by PNB for such insurance (the
"Maximum Amount"). If the
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amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Western shall use all reasonable efforts to
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount. Notwithstanding
the foregoing, prior to the Effective Time, Western may request PNB to, and PNB
shall, purchase insurance coverage, on such terms and conditions as shall be
acceptable to Western, extending for a period of six years PNB's directors' and
officers' liability insurance coverage in effect as of the date hereof (covering
past or future claims with respect to periods before the Effective Time) and
such coverage shall satisfy Western's obligations under this Subsection (c).
(d) If Western or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of Western shall
assume the obligations set forth in this Section 6.13.
(e) The provisions of this Section 6.13 are intended to be for the benefit
of, and shall be enforceable by each Indemnified Party and his or her heirs and
representatives.
6.14. BENEFIT PLAN. Western shall, from and after the Effective Time, (i)
provide former employees of PNB who remain as employees of Western or any of its
Significant Subsidiaries with employee benefit plans no less favorable in the
aggregate than those provided to similarly situated employees of Western or its
Significant Subsidiaries, including, but not limited to, allowing such employees
to participate in Western's stock option plan in accordance with the policies of
Western with respect to such stock option plan, and (ii) with respect to former
employees of PNB who remain as employees of Western or any of its Significant
Subsidiaries, cause each employee benefit plan of Western or its Significant
Subsidiaries in which such employees are eligible to participate to take into
account for purposes of eligibility and vesting thereunder the service of such
employees with PNB as if such service were with Western or its Significant
Subsidiaries, to the same extent such service was credited under a comparable
plan of PNB. Western agrees that all accrued bonuses for 1998 will be paid to
employees of PNB in accordance with PNB's past practices. Notwithstanding the
foregoing, PNB consents and covenants that from and after the Effective Date,
PNB's Benefit Plans will be governed, managed and/or terminated by Western, all
within Western's sole discretion.
6.15. ACCOUNTANTS' LETTERS. Each of PNB and Western shall use its
reasonable best efforts to cause to be delivered to the other party, and to
Western's directors and officers who sign the Registration Statement, a letter
of their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, and such directors and
officers, in form and substance customary for "comfort" letters delivered by
independent accountants in accordance with Statement of Accounting Standards No.
72.
6.16. NOTIFICATION OF CERTAIN MATTERS. Each of PNB and Western shall give
prompt notice to the other of any fact, event or circumstance known to it that
(i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (ii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
6.17. SHAREHOLDER AGREEMENTS. Certain directors and certain officers who
are shareholders of PNB, in their capacities as shareholders, in exchange for
good and valuable consideration, have executed and delivered to Western
shareholder agreements substantially in the form of Exhibit B hereto (the
"Shareholder Agreements"), committing such persons, among other things, (i) to
vote their shares of PNB Common Stock in favor of the Agreement at the PNB
Meeting and (ii) to certain representations concerning the ownership of PNB
Common Stock.
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6.18. RESERVATION OF SHARES. Western shall at all times from and after the
date of this Agreement maintain a sufficient number of duly authorized, unissued
and reserved shares of Western Common Stock necessary to permit Western to
satisfy its obligations under this Agreement without the need to seek approval
of Western's shareholders.
6.18. EMPLOYMENT AGREEMENTS. Western acknowledges and agrees that after
the consummation of the Merger, the Surviving Corporation will continue to be
obligated to perform its obligations under the employment agreements set forth
in PNB's Disclosure Schedule, in accordance with the respective terms thereof.
6.19. MERGER OF PNB BANK SUBSIDIARY. PNB shall take promptly, or cause to
be taken promptly, all actions reasonably requested by Western to cause PNB Bank
Subsidiary to merge with a subsidiary of Western, including, without limitation,
joining in the filing of all necessary regulatory applications.
6.20. ENTRUST. As promptly as practicable after the date hereof, PNB shall
communicate with Entrust for the purpose of terminating the Entrust Agreement,
and shall make commercially reasonable efforts to effect the termination of the
Entrust Agreement and the substitution of another custodian. PNB agrees to cause
an audit to be performed on Entrust on or prior to the date of termination in
form acceptable to Western, such acceptance not to be unreasonably withheld,
consistent with the terms of the Entrust Agreement.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Western and PNB to consummate the Merger is
subject to the fulfillment or written waiver by Western and PNB prior to the
Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the principal terms of the
Merger shall have been duly adopted and approved by the requisite vote of the
shareholders of PNB.
(b) REGULATORY APPROVALS. All regulatory approvals or waivers required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals or waivers shall
contain any conditions, restrictions or requirements which the Western Board
reasonably determines would (i) following the Effective Time, have a Material
Adverse Effect on the Surviving Corporation and its Subsidiaries taken as a
whole or (ii) reduce the benefits of the transactions contemplated hereby to
such a degree that Western would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated hereby and
to issue the shares of Western Common Stock to be issued in the Merger shall
have been received and be in full force and effect.
(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.
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7.2. CONDITIONS TO OBLIGATION OF PNB. The obligation of PNB to consummate
the Merger is also subject to the fulfillment or written waiver by PNB prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Western set forth in this Agreement (subject to the standard set forth in
Section 5.2) shall be true and correct as of the date of this Agreement and as
of the Effective Date as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak only as of the
date of this Agreement or some other date shall be true and correct as of such
date), and PNB shall have received a certificate, dated the Effective Date,
signed on behalf of Western by the Chief Executive Officer and the Chief
Financial Officer of Western to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF WESTERN. Western shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and PNB shall have received a
certificate, dated the Effective Date, signed on behalf of Western by the Chief
Executive Officer and the Chief Financial Officer of Western to such effect.
(c) TAX OPINION. PNB shall have received an opinion of McDermott, Will &
Emery, dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by shareholders of PNB who receive
shares of Western Common Stock in exchange for shares of PNB Common Stock,
except with respect to cash received in lieu of fractional share interests. In
rendering its opinion, McDermott, Will & Emery may require and rely upon
representations contained in letters from PNB, Western and shareholders of PNB.
(d) ACCOUNTANTS' LETTERS. PNB shall have received the letters referred to
in Section 6.14 from Western's independent auditors.
(e) DIRECTOR. Western shall have adopted resolutions sufficient to appoint
Allen C. Barbieri as a director of Western as of the Effective Time, or, if such
person is unable to serve, such other current director of PNB as shall be
mutually satisfactory to Western.
(f) FAIRNESS OPINION. PNB shall have received the written opinion of
Lehman Brothers Inc. to the effect that, as of a date within five days of the
mailing of the Proxy Statement to the shareholders of PNB in connection with the
PNB Meeting, the consideration to be received by the holders of the PNB Common
Stock in the Merger is fair to such holders from a financial point of view.
7.3. CONDITIONS TO OBLIGATION OF WESTERN. The obligation of Western to
consummate the Merger is also subject to the fulfillment or written waiver by
Western prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
PNB set forth in this Agreement (subject to the standard set forth in Section
5.2) shall be true and correct as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak only as of the date of
this Agreement or some other date shall be true and correct as of such date) and
Western shall have received a certificate, dated the Effective Date, signed on
behalf of PNB by the Chief Executive Officer and the Chief Financial Officer of
PNB to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PNB. PNB shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Western shall have received a
certificate, dated the Effective Date, signed on behalf of PNB by the Chief
Executive Officer and the Chief Financial Officer of PNB to such effect.
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(c) OPINION OF WESTERN'S COUNSEL. Western shall have received an opinion
of Sullivan & Cromwell, special counsel to Western, dated the Effective Date, to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Merger constitutes a reorganization under Section 368
of the Code. In rendering its opinion, Sullivan & Cromwell may require and rely
upon representations contained in letters from PNB, Western and shareholders of
PNB.
(d) ACCOUNTANTS' LETTERS. Western shall have received the letters referred
to in Section 6.14 from PNB's independent auditors.
(e) PNB AND SUBSIDIARIES FINANCIAL TESTS. As of the month end preceding
the Effective Time, but without giving effect to any costs related to the Merger
or any changes effected as a result of Section 6.9 hereof, PNB's shareholder's
equity and allowance for credit losses shall not be less than the respective
amounts set forth on PNB's quarterly report on Form 10-Q for the quarter ended
June 30, 1998, and Western shall have received a certificate, dated the
Effective Date, signed on behalf of PNB by its Chief Financial Officer to such
effect.
(f) DIRECTOR RESIGNATIONS. Western shall have received the written
resignation of each director (in such director's capacity as director) of PNB
and PNB Bank Subsidiary effective as of the Effective Time.
ARTICLE VIII
TERMINATION
8.1. TERMINATION. This Agreement may be terminated, and the Merger may be
abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the mutual
consent of Western and PNB, if the Board of Directors of each so determines by
vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Western or PNB, if
its Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standard set forth
in Section 5.2), which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach; or
(ii) a breach by the other party of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach, provided that
such breach (whether under (i) or (ii)) would be reasonably likely, individually
or in the aggregate with other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by PNB, if its Board
of Directors so determines by vote of a majority of the members of its entire
Board, in the event that the Merger is not consummated by May 30, 1999, except
to the extent that the failure of the Merger then to be consummated arises out
of or results from the knowing action or inaction of PNB pursuant to this
Section 8.1(c).
(d) NO APPROVAL. By PNB or Western, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such Governmental Authority or
(ii) the shareholder approval required by Section 7.1(a) herein is not obtained
at the PNB Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the PNB Meeting, by
Western if the PNB Board shall have failed to make its recommendation referred
to in Section 6.2, withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of Western.
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(f) WESTERN STOCK. By PNB in the event that, with respect to the Twenty
Day Period (as defined below) both (i) either (A)(1) the Twenty Day Average
Price (as defined below) shall be less than 90% of $29.625 per share (the
"Execution Date Price") and (2) the Western Common Stock Price Percentage (as
defined below) shall be less than the Nasdaq 90% Index Percentage (as defined
below) or (B)(1) the Twenty Day Average Price shall be greater than 90% of the
Execution Date Price and (2) the Western Common Stock Price Percentage shall be
less than the Nasdaq 80% Index Percentage (as defined below) and (ii) in any
such case PNB has delivered written notice to Western of its intention to
terminate this Agreement within forty-eight (48) hours following the date of
such event (it being understood that, if an event set forth in clause (i) shall
have occurred and PNB fails to timely deliver the notice referred to in this
clause (ii), PNB shall have the right to terminate if any such event
subsequently occurs and PNB timely delivers such notice); PROVIDED, HOWEVER,
that, if Western effects a stock dividend, reclassification, recapitalization,
stock split, combination, exchange of shares or similar transaction after the
date hereof and prior to the Effective Time, the provisions of this Section
8.1(f) shall be appropriately adjusted.
As used in this Section 8.1(f), (u) "WESTERN COMMON STOCK PRICE PERCENTAGE"
means the percentage determined by dividing the Twenty Day Average Price by the
Execution Date Price; (v) "NASDAQ 80% INDEX PERCENTAGE" means the percentage
determined by dividing (i) the product of (A) the Twenty Day Average Nasdaq Bank
Index times (B) 0.80 by (ii) the Nasdaq Bank Index as of the date of this
Agreement, (w) "NASDAQ 90% INDEX PERCENTAGE" means the percentage determined by
dividing (i) the product of (A) the Twenty Day Average Nasdaq Bank Index times
(B) 0.90 by (ii) the Nasdaq Bank Index as of the date of this Agreement; (x)
"TWENTY DAY AVERAGE PRICE" means the volume weighted average sales price per
share of Western Common Stock for the Twenty Day Period; for purposes of
determining the "volume weighted average," the aggregate of the daily sales of
Western Common Stock for each of the twenty (20) consecutive days Western Common
Stock is traded shall be divided by the aggregate number of shares of Western
Common Stock traded on Nasdaq during such Twenty Day Period; (y) "TWENTY DAY
AVERAGE NASDAQ BANK INDEX" means the average of the Nasdaq Bank Index (the
"Nasdaq Bank Index") for the Twenty Day Period; and (z) "TWENTY DAY PERIOD"
means any twenty (20) consecutive days on which shares of Western Common Stock
are actually traded during the period commencing twenty (20) trading days prior
to the receipt of the last regulatory approval required to be obtained pursuant
to Section 7.1(b) and ending on the trading day that is forty-eight (48) hours
prior to the Effective Time.
(g) ACQUISITION PROPOSAL. This Agreement may be terminated by PNB by
written notice to Western if PNB (i) receives an Acquisition Proposal, (ii)
receives the advice of its outside counsel that to proceed with the Merger will
violate the fiduciary duties of the PNB Board to PNB's shareholders in light of
such Acquisition Proposal, and (iii) after receiving such advice, determines to
accept such proposal; provided, however, that PNB shall not be entitled to
terminate this Agreement pursuant to this Section 8.1(g) unless it shall have
provided Western with written notice of such a possible determination (which
written notice will inform Western of the material terms and conditions of the
proposal, including the identity of the proponent) not less than two business
days prior to such determination.
(h) DISCLOSURE SCHEDULE AMENDMENT OR SUPPLEMENT. At any time prior to the
Effective Time by Western or PNB if its Board of Directors so determines by vote
of a majority of the members of its entire Board, in the event the other party
amends their Disclosure Schedule pursuant to Section 5.1 and discloses events
that would be reasonably likely to result in a Material Adverse Effect on the
other party or the Surviving Corporation.
8.2. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 9.1, and (ii) that
termination will not relieve a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
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ARTICLE IX
MISCELLANEOUS
9.1. SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.13 and 6.14 and this Article IX which shall survive the Effective
Time) or the termination of this Agreement if this Agreement is terminated prior
to the Effective Time (other than Sections 6.3(b), 6.5(b), 8.2 and this Article
IX which shall survive such termination).
9.2. WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that after the PNB
Meeting, this Agreement may not be amended if it would violate the CGCL or
reduce the consideration to be received by PNB shareholders in the Merger.
9.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.4. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be governed
by, and interpreted in accordance with, the laws of the State of California
applicable to contracts made and to be performed entirely within such State
(except to the extent that mandatory provisions of Federal law are applicable).
Each of the parties hereto hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or related to this Agreement or
the transactions contemplated hereby.
9.5. EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
9.6. NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
<TABLE>
<S> <C>
If to PNB, to: PNB Financial Group, Inc.
4665 MacArthur Court
Newport Beach, California 92660
Attention: Allen C. Barbieri
Facsimile: (949) 833-9207
With a copy to: McDermott, Will & Emery
1301 Dove Street, Suite 1500
Newport Beach, California 92660
Attention: Gregory W. Preston
Facsimile: (949) 851-9348
</TABLE>
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<TABLE>
<S> <C>
If to Western, Western Bancorp
to: 4100 Newport Place
Suite 900
Newport Beach, CA 92660
Attention: Julius G. Christensen
Facsimile: (949) 757-5845
With a copy to: Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067-1725
Attention: Stanley F. Farrar
Facsimile: (310) 712-8800
</TABLE>
9.7. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
and the Stock Option Agreement represent the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby, and
this Agreement supersedes any and all other oral or written agreements
heretofore made (other than any such Stock Option Agreement). Except for Section
6.13, nothing in this Agreement expressed or implied, is intended to confer upon
any person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.8. INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require PNB, Western or any of their respective Subsidiaries,
affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
* *
SIGNATURES BEGIN ON FOLLOWING PAGE
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C> <C>
PNB FINANCIAL GROUP, INC.
By: /s/ ALLEN C. BARBIERI
-----------------------------------------
Name: Allen C. Barbieri
Title: President and Chief Executive Officer
WESTERN BANCORP
By: /s/ ARNOLD C. HAHN
-----------------------------------------
Name: Arnold C. Hahn
Title: Executive Vice President and Chief
Financial Officer
</TABLE>
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<PAGE>
APPENDIX B
October 6 , 1998
Board of Directors
PNB Financial Group
4665 MacArthur Court
Newport Beach, CA 92660
Members of the Board:
We understand that PNB Financial Group (the "Company") and Western Bancorp
("Western") are proposing to enter into a definitive merger agreement pursuant
to which the Company will be merged with and into Western (the "Merger") and,
upon effectiveness of the Merger, each share of common stock of the Company will
be converted into the right to receive 1.00 share (the "Exchange Ratio") of
common stock of Western. We further understand that the Company will have the
right to terminate the Merger in the event that Western's common stock
underperforms an index of bank stocks by certain specified amounts and that PNB
will grant to Western the option to purchase up to 19.9% of the outstanding
shares of common stock of the Company upon the occurrence of certain events. The
terms and conditions of the Merger are set forth in more detail in Agreement and
Plan of Merger dated as of October 6, 1998 by and between the Company and
Western (the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
stockholders of the Company of the Exchange Ratio to be offered by Western to
such stockholders in the Merger. We have not been requested to opine as to, and
our opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Merger, (2) such publicly available information
concerning the Company and Western that we believe to be relevant to our
analysis, including, without limitation, the Forms 10-K filed by the Company and
Western for the year ended December 31, 1997, quarterly reports on Form 10-Q
filed by the Company and Western for the periods ended March 31 and June 30,
1998 and recent press releases for the Company and Western, as well as Western's
proxy statement-prospectus on Form S-4/A regarding its acquisition of Bank of
Los Angeles dated August 13, 1998, (3) financial and operating information with
respect to the respective businesses, operations and prospects of the Company
and Western furnished to us by the Company and Western, (4) a trading history of
the common stock of the Company from January 1, 1997 to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (5) a trading history of the common stock of Western from January 1,
1997 to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (6) a comparison of the historical and
projected dividend yield on the Company's common stock to the historical and
projected dividend yield on Western's common stock, (7) a comparison of the
historical financial results and present financial condition of the Company with
those of other companies that we deemed relevant, (8) a comparison of the
historical financial results and present financial condition of Western with
those of other companies that we deemed relevant, (9) a comparison of the
financial terms of the Merger with the financial terms of certain other recent
transactions that we deemed relevant, (10) the potential pro forma impact of the
Merger on Western, (11) the relative contributions of the Company and Western to
the combined company following consummation of the Merger, (12) published
estimates of third party research analysts with respect to the future financial
performance of Western and (13) the results of prior efforts to solicit
indications of interest from third parties with respect to a purchase of all or
part of the Company's business. In addition, we have had discussions with the
managements of the Company and Western concerning their respective businesses,
operations, assets, financial condition and prospects, and the potential cost
savings, operating synergies and strategic benefits expected to result from a
combination of the businesses of the Company and Western, and have undertaken
such other studies, analyses and investigations as we deemed appropriate.
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In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company and Western that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, upon advice of the Company we have assumed that such projections
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. We were not provided with,
and did not have access to, any financial projections of Western. Accordingly,
with respect to the future financial performance of Western, based upon advice
of Western, we have assumed that the publicly available estimates of research
analysts are a reasonable basis upon which to evaluate and analyze the future
financial performance of Western and that Western will perform substantially in
accordance with such estimates. With respect to the cost savings, operating
synergies, and strategic benefits projected by management of the Company and
Western to result from a combination of the businesses of the Company and
Western, upon advice of the Company and Western, we have assumed that such cost
savings, operating synergies and strategic benefits will be achieved
substantially in accordance with such projections. In arriving at our opinion,
we have not conducted a physical inspection of the properties and facilities of
the Company or Western and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company or Western. In addition,
you have not authorized us to solicit, and we have not solicited, any
indications of interest from third parties on a current basis with respect to a
purchase of all or part of the Company's business. Upon advice of the Company,
we have assumed that the merger will qualify (i) for pooling-of-interests
accounting treatment and (ii) as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, and therefore as a
tax-free transaction to the stockholders of the Company. In addition, upon the
advice of Western and its legal advisors, we have assumed that the outstanding
$30 million lender liability claim against Bank of Los Angeles will either be
settled prior to the acquisition of Bank of Los Angeles by an affiliate of
Western for an amount not materially in excess of the insurance coverage
available to Bank of Los Angeles in respect of such claim or Western will
exercise its right to terminate such acquisition. Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered by Western to the stockholders of the Company in the Merger is fair to
such stockholders.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services which is contingent upon the
consummation of the Merger. In addition, the Company has agreed to indemnify us
for certain liabilities that may arise out of the rendering of this opinion. We
also have performed various investment banking services for the Company in the
past and have received customary fees for such services. In the ordinary course
of our business, we may actively trade in the securities of the Company and
Western for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, an affiliate of Lehman Brothers and the Company are significant
shareholders of Alta Residential Mortgage Trust , Inc. and are parties to a
shareholders agreement with respect thereto.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
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<PAGE>
APPENDIX C
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value; definitions.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5% or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. Notice to holders of dissenting shares in reorganizations;
demand for purchase; time; contents
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(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Submission of share certificates for endorsement;
uncertificated securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
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certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. Action to determine whether shares are dissenting shares or
fair market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125%
of the price offered by the corporation under subdivision (a) of Section 1301).
Section 1306. Prevention of immediate payment; status as creditors;
interest
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together
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with interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
Section 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. Rights of dissenting shareholders pending valuation;
withdrawal of demand for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. Right of dissenting shareholder to attack, set aside or
rescind merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the
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reorganization or short-form merger, or to have the reorganization or short-form
merger set aside or rescinded, except in an action to test whether the number of
shares required to authorize or approve the reorganization have been legally
voted in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant indemnity to directors,
officers and employees in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
Six of Western's Restated Articles of Incorporation and Article VI of Western's
Restated Bylaws provide for indemnification of its directors, officers,
employees and other agents to the fullest extent permitted by the California
General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION AND METHOD OF FILING
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 6, 1998, between Western and PNB (incorporated by
reference to Appendix A to this Registration Statement on Form S-4)
4.1 Form of Certificate representing shares of Western common stock (incorporated by reference to Exhibit
3.1 to the Registrant's Current Report on Form 8-K, dated June 18, 1997)
5.1 Opinion of Julius G. Christensen
8.1 Tax Opinion of Sullivan & Cromwell*
8.2 Tax Opinion of McDermott, Will & Emery*
23.1 Consent of KPMG Peat Marwick LLP (Western 10-K)
23.2 Consent of KPMG Peat Marwick LLP (Western 8-K)
23.3 Consent of McGladrey & Pullen, LLP (PNB)
23.4 Consent of Deloitte & Touche LLP (Santa Monica Bank)
23.5 Consent of Deloitte & Touche LLP (SC Bancorp)
23.6 Consent of Deloitte & Touche LLP (California Commercial Bankshares)
23.7 Consent of Vavrinek, Trine, Day & Co., LLP (Bank of Los Angeles)
23.8 Consent of Vavrinek, Trine, Day & Co., LLP (Monarch Bancorp)
23.9 Consent of Arthur Andersen LLP (Santa Monica Bank)
23.10 Consent of Julius G. Christensen (included in opinion filed as Exhibit 5.1 hereto)
23.11 Consent of Sullivan & Cromwell (included in opinion filed as Exhibit 8.1 hereto)
23.12 Consent of McDermott, Will & Emery (included in opinion filed as Exhibit 8.2 hereto)
23.13 Consent of Lehman Brothers
23.14 Consent of Allen C. Barbieri, proposed Western director
24.1 Power of Attorney (set forth on Page II-4)
</TABLE>
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* To be filed by amendment.
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ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Newport Beach, state of
California, on November 13, 1998.
<TABLE>
<S> <C> <C>
WESTERN BANCORP
By: /s/ ARNOLD C. HAHN
-----------------------------------------
Name: Arnold C. Hahn
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
We, the undersigned officers and directors of Western Bancorp, do hereby
constitute and appoint Arnold C. Hahn and Julius G. Christensen, and each of
them, our true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for each of us and in each of our names, places
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as each of us might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or his/her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ HUGH S. SMITH, JR.
- ------------------------------ Chairman and Director November 13, 1998
Hugh S. Smith, Jr.
/s/ MATTHEW P. WAGNER
- ------------------------------ Chief Executive Officer, November 13, 1998
Matthew P. Wagner President and Director
/s/ ARNOLD C. HAHN Executive Vice President,
- ------------------------------ Chief Financial Officer November 13, 1998
Arnold C. Hahn and Director
/s/ ADRIANA M. BOEKA
- ------------------------------ Director November 13, 1998
Adriana M. Boeka
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ RICE E. BROWN
- ------------------------------ Director November 13, 1998
Rice E. Brown
/s/ JOHN M. EGGEMEYER
- ------------------------------ Director November 13, 1998
John M. Eggemeyer
/s/ WILLIAM C. GREENBECK
- ------------------------------ Director November 13, 1998
William C. Greenbeck
/s/ MARK H. STUENKEL
- ------------------------------ Director November 13, 1998
Mark H. Stuenkel
/s/ DALE E. WALTER
- ------------------------------ Director November 13, 1998
Dale E. Walter
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION AND METHOD OF FILING
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of October 6, 1998, between Western and PNB (incorporated
by reference to Appendix A to this Registration Statement on Form S-4)
4.1 Form of Certificate representing shares of Western common stock (incorporated by reference to
Exhibit 3.1 to the Registrant's Current Report on Form 8-K, dated June 18, 1997)
5.1 Opinion of Julius G. Christensen
8.1 Tax Opinion of Sullivan & Cromwell*
8.2 Tax Opinion of McDermott, Will & Emery*
23.1 Consent of KPMG Peat Marwick LLP (Western 10-K)
23.2 Consent of KPMG Peat Marwick LLP (Western 8-K)
23.3 Consent of McGladrey & Pullen, LLP (PNB)
23.4 Consent of Deloitte & Touche LLP (Santa Monica Bank)
23.5 Consent of Deloitte & Touche LLP (SC Bancorp)
23.6 Consent of Deloitte & Touche LLP (California Commercial Bankshares)
23.7 Consent of Vavrinek, Trine, Day & Co., LLP (Bank of Los Angeles)
23.8 Consent of Vavrinek, Trine, Day & Co., LLP (Monarch Bancorp)
23.9 Consent of Arthur Andersen LLP (Santa Monica Bank)
23.10 Consent of Julius G. Christensen (included in opinion filed as Exhibit 5.1 hereto)
23.11 Consent of Sullivan & Cromwell (included in opinion filed as Exhibit 8.1 hereto)
23.12 Consent of McDermott, Will & Emery (included in opinion filed as Exhibit 8.2 hereto)
23.13 Consent of Lehman Brothers
23.14 Consent of Allen C. Barbieri, proposed Western director
24.1 Power of Attorney (set forth on Page II-4)
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 5.1
November 13, 1998
Western Bancorp,
4100 Newport Place, Suite 900,
Newport Beach, California 92660
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of 3,045,943 shares (the "Securities") of common stock,
without par value, of Western Bancorp, a California corporation (the
"Company"), I, as General Counsel of the Company, have examined such
corporate records, certificates and other documents, and such questions of
law, as I have considered necessary or appropriate for the purpose of this
opinion. Upon the basis of such examination, I advise you that, in my
opinion, when the registration statement on Form S-4 relating to the
Securities (the "Registration Statement") has become effective under the Act
and the Securities have been duly issued and sold as contemplated by the
Registration Statement, and upon consummation of the merger of PNB Financial
Group with and into the Company, the Securities will be validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the State of California, and I am expressing no
opinion as to the effect of the laws of any other jurisdiction.
I have relied as to certain matters on information obtained from public
officials and other sources believed by me to be responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Validity
of Western Common Stock" in the Proxy Statement/Prospectus contained in the
Registration Statement. In giving such consent, I do not thereby admit that
I am in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/ Julius G. Christensen
-------------------------------
Julius G. Christensen
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Western Bancorp:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Western Bancorp of our report dated January 30, 1998, relating to
the consolidated balance sheets of Western Bancorp as of December 31, 1997 and
1996 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1997 which report appears in the December 31, 1997, annual
report on Form 10-K of Western Bancorp. Our report, dated January 30, 1998,
contains explanatory paragraphs indicating that: (i) We did not audit the 1996
consolidated financial statements of California Commercial Bankshares. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for California
Commercial Bankshares in the 1996 consolidated financial statements of Western
Bancorp, is based on the report of the other auditors; (ii) We did not audit the
1996 consolidated financial statements of SC Bancorp. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for SC Bancorp in the
1996 consolidated financial statements of Western Bancorp, is based on the
report of the other auditors; (iii) The consolidated statements of operations,
changes in shareholders' equity and cash flows of Western Bancorp (formerly
Monarch Bancorp) for the year ended December 31, 1995, prior to their
restatement for the 1997 pooling-of-interests transactions described in Notes 1
and 2 of notes to the consolidated financial statements, were audited by other
auditors; (iv) Separate consolidated financial statements of California
Commercial Bankshares also included in the 1995 consolidated financial
statements were audited by other auditors; (v) Separate consolidated financial
statements of SC Bancorp also included in the 1995 consolidated financial
statements were audited by other auditors; and (vi) We also audited the
combination of the consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1995, after
restatement for the 1997 pooling-of-interests transactions.
KPMG PEAT MARWICK LLP
Los Angeles, California
November 12, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Western Bancorp:
We consent to the use of our report dated October 23, 1998, incorporated by
reference herein, with respect to the supplemental consolidated financial
statements of Western Bancorp as of December 31, 1997 and 1996, and the related
supplemental consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1997, which report appears in the current report on Form 8-K of
Western Bancorp dated November 12, 1998. Our report, dated October 23, 1998,
contains explanatory paragraphs indicating that: (i) We did not audit the 1996
consolidated financial statements of California Commercial Bankshares. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for California
Commercial Bankshares in the 1996 supplemental consolidated financial statements
of Western Bancorp, is based on the report of the other auditors; (ii) We did
not audit the 1996 consolidated financial statements of SC Bancorp. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for SC Bancorp in
the 1996 supplemental consolidated financial statements of Western Bancorp, is
based on the report of the other auditors; (iii) We did not audit either the
1996 or 1997 financial statements of Bank of Los Angeles. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Bank of Los Angeles
in the 1996 and 1997 supplemental consolidated financial statements of Western
Bancorp, is based on the report of the other auditors; (iv) The consolidated
statements of operations, changes in shareholders' equity and cash flows of
Western Bancorp (formerly Monarch Bancorp) for the year ended December 31, 1995
were audited by other auditors; (v) Separate consolidated financial statements
of California Commercial Bankshares also included in the 1995 supplemental
consolidated financial statements were audited by other auditors; (vi) Separate
consolidated financial statements of SC Bancorp also included in the 1995
supplemental consolidated financial statements were audited by other auditors;
(vii) Separate consolidated financial statements of Bank of Los Angeles also
included in the 1995 supplemental consolidated financial statements were audited
by other auditors; and (viii) We also audited the combination of the
supplemental consolidated statements of operations, changes in shareholders'
equity and cash flows for the year ended December 31, 1995, after restatement
for the 1997 and 1998 poolings-of-interests.
KPMG Peat Marwick LLP
Los Angeles, California
November 12, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 filed
on or about November 13, 1998 of our report, dated January 29, 1998, relating
to the consolidated financial statements of PNB Financial Group and
subsidiary. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ McGLADREY & PULLEN, LLP
Anaheim, California
November 13, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 19, 1996, on the
statements of operations, changes in stockholders' equity and cash flows of
Santa Monica Bank for the year ended December 31, 1995, incorporated by
reference in the Current Report on Form 8-K/A dated April 9, 1998, of Western
Bancorp, incorporated by reference in the Proxy Statement-Prospectus, which
is part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
November 12, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 24, 1997, on the
consolidated balance sheet of SC Bancorp and its subsidiary as of December
31, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1996 incorporated by reference in the Annual Report on
Form 10-K of Western Bancorp for the year ended December 31, 1997,
incorporated by reference in the Proxy Statement-Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
November 12, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 24, 1997 (March
17, 1997 as to Notes 7 and 13), on the consolidated balance sheet of
California Commercial Bankshares and subsidiaries as of December 31, 1996 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the two years in the period ended December
31, 1996, incorporated by reference in the Annual Report on Form 10-K of
Western Bancorp for the year ended December 31, 1997, incorporated by
reference in the Proxy Statement-Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading
"Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
November 12, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.7
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 10-K filed by Western Bancorp
with the Securities and Exchange Commission, and incorporated by reference in
their Form S-4, and the reference to our firm as experts.
/s/ Vavrinek, Trine, Day & Co., LLP
VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, CA
November 13, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent, as successor accountants of Dayton & Associates (said firm
being merged with and into Vavrinek, Trine, Day & Co., LLP on September 1,
1996) to the incorporation by reference of their Independent Auditor's Report
dated February 29, 1996 regarding the consolidated balance sheets of Monarch
Bancorp and Subsidiaries as of December 31, 1995 and December 31, 1994, and
the related statements of operations, changes in capital, and cash flows for
each of the two years in the period ended December 31, 1995, in the Form 10-K
of Western Bancorp filed with the Securities and Exchange Commission, which
is to be incorporated by reference in the Form S-4 and the reference to our
firm as experts.
/s/ Vavrinek, Trine, Day & Co., LLP
VAVRINEK, TRINE, DAY & CO., LLP
Laguna Hills, CA
November 13, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our Report of Independent
Public Accountants dated January 21, 1998 on the financial statements of
Santa Monica Bank as of and for the years ended December 31, 1997 and 1996
included in the Form 8K/A of Western Bancorp dated April 9, 1998 and to all
references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
November 13, 1998
<PAGE>
EXHIBIT 23.13
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our opinion letter dated October 6, 1998
to the Board of Directors of PNB Financial Group (the "Company") attached as
Appendix B to the Company's Proxy Statement/Prospectus on Form S-4 (the
"Prospectus") and to the references to our firm in the Prospectus under the
headings "SUMMARY - OPINION OF LEHMAN BROTHERS," "THE MERGER - BACKGROUND AND
REASONS FOR THE MERGER" and "THE MERGER - OPINION OF PNB'S FINANCIAL
ADVISOR." In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder and we do not thereby admit
that we are experts with respect to any part of the Registration Statement
under the meaning of the term "expert" as used in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/ David J. Kim
---------------------------
David J. Kim
Senior Vice President
Los Angeles, California
November 13, 1998
<PAGE>
EXHIBIT 23.14
November 13, 1998
Board of Directors
Western Bancorp
4100 Newport Place, Suite 900
Newport Beach, California 92660
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named as a person who will become a
director of Western Bancorp, a California corporation (the "Company"), in the
Company's Registration Statement on Form S-4 (the "Registration Statement")
filed with the United States Securities and Exchange Commission, and to the
filing of this consent as an exhibit to such Registration Statement.
Sincerely,
/s/ Allen C. Barbieri
-----------------------------
Allen C. Barbieri
