EXHIBIT 10.6
Warrant Purchase Agreement
between
PCBG and TBOH
dated
July 30, 1998
EXHIBIT C WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT (the "Agreement"), dated as of July 30,
1998, between Pacific Community Banking Group, a California corporation
("PCBG"), and Bank of Hemet, a California corporation ("BOH") is made with
reference to the following:
RECITALS
A. PCBG and BOH have entered into an Agreement and Plan of
Reorganization dated July 30, 1998 (the "Merger Agreement") whereby BOH would
be merged with PCBG Merger Corporation, a proposed subsidiary of PCBG, and
BOH would become a wholly-owned subsidiary of PCBG (collectively, the
"Merger").
B. As partial consideration to PCBG for entering into the Merger
Agreement, BOH has agreed to issue to PCBG a warrant entitling the holder
thereof to purchase up to 19.9% (or 210,800 shares) of the outstanding common
stock of BOH ("Common Stock"), assuming the exercise of this Warrant, subject
to such restrictions and conditions as may be imposed by bank regulatory
authorities having jurisdiction over PCBG and BOH, respectively.
C. Terms used herein and not otherwise defined shall have the meanings
ascribed to them in Article VI hereof.
In consideration of these premises and of the representations, covenants
and agreements hereinafter set forth, BOH and PCBG hereby agree as follows:
ARTICLE I
ISSUANCE AND SALE OF WARRANT
Section 1.1 ISSUANCE AND SALE OF THE WARRANT. Subject to the terms
and conditions of this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, and in consideration for the execution
and delivery of the Merger Agreement, BOH hereby issues to PCBG one or more
warrants (such warrants, together with any warrants issued pursuant to
Section 1.4, the "Warrants") entitling the holder thereof to purchase in the
aggregate 210,800 duly authorized and newly issued shares of Common Stock,
subject to adjustment as provided below. The Warrants being issued at the
time of the execution of this Agreement will be evidenced by a single
certificate in the form of Exhibit A hereto. All Warrants issued pursuant to
Section 1.4 will be evidenced by one or, at PCBG's request, more certificates
in the form of Exhibit A hereto, dated the date of their issuance,
exercisable at the adjusted exercise price at the time in effect for the
Warrants issued pursuant to this Section 1.1.
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Section 1.2 WARRANT PRICE. The initial exercise price at which shares
of Common Stock may be acquired pursuant to exercise of the Warrants shall be
$46.50 per share (the "Warrant Price"), subject to adjustment as provided in
Section 1.4.
Section 1.3 EXERCISE OF WARRANTS.
(a) The Warrants may be exercised in whole or in part only after the
occurrence of an Acquisition Event.
(b) As used herein, an "Acquisition Event" means any of the following
events:
(i) any person (other than PCBG or an Affiliate of PCBG) shall
have commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to, a tender offer or exchange offer to
purchase any shares of Common Stock such that, upon consummation of such
offer, such person would own or control 25% or more of the then outstanding
Common Stock, and such person shall have consummated such tender offer or
exchange offer;
(ii) BOH, without having received PCBG's prior written consent or
except as permitted by the Merger Agreement, shall have authorized,
recommended, proposed or publicly announced an intention to authorize,
recommend or propose, or entered into, an agreement with any person (other
than PCBG or any Affiliate of PCBG to (A) effect a merger, consolidation or
similar transaction involving BOH, (B) sell, lease or otherwise dispose of
assets of BOH representing 10% or more of the consolidated assets of BOH, or
(C) issue, sell or otherwise dispose of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of BOH (any of the foregoing an
"Acquisition Transaction").
(iii) any person (other than BOH or PCBG in a fiduciary capacity)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act) or the right to acquire beneficial ownership
of, or any "group" (as such term is defined in the Exchange Act) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 25% or more of the then outstanding Common Stock; or
(iv) the holders of Common Stock shall not have approved the
Merger Agreement at the meeting of such stockholders held for the purpose of
voting on the Merger Agreement, such meeting shall not have been held or
shall have been canceled prior to termination of the Merger Agreement and
BOH's Board of Directors shall have withdrawn or modified in a manner adverse
to PCBG the recommendation of BOH's Board of Directors with respect to the
Merger Agreement, in each case after any person (other than PCBG) shall have
(A) publicly announced a proposal, or publicly disclosed an intention to make
a proposal, to engage in an Acquisition Transaction or (B) filed an
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application (or given a notice), whether in draft or final form, under the
BHC Act or the Change in Bank Control Act for approval to engage in an
Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event PCBG is entitled to and wishes to exercise the
Warrants, it shall send to BOH a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three Business Days nor later than 60 Business Days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided
that if prior notification to or approval of the Federal Reserve Board or any
other regulatory agency is required in connection with such purchase, PCBG
shall promptly file the required notice or application for approval, shall
promptly notify BOH of such filing, and shall expeditiously process the same
and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods
have expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed.
(d) At the closing referred to in subsection (c), PCBG shall pay to BOH
the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Warrants in immediately available funds by
wire transfer to a bank account designated by BOH, provided that failure or
refusal of BOH to designate such a bank account shall not preclude PCBG from
exercising the Warrants.
(e) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (d), BOH shall deliver to PCBG a
certificate or certificates representing the number of shares of Common Stock
purchased by PCBG.
(f) Upon the giving by PCBG to BOH of the written notice of exercise
of the Warrants provided for under subsection (c) and the tender of the
applicable purchase price in immediately available funds, PCBG shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of BOH shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to PCBG. BOH shall pay all expenses, and
any and all federal, state and local taxes or other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates hereunder in the name of PCBG.
Section 1.4 ADDITIONAL WARRANTS; ADJUSTMENTS TO WARRANT PRICE AND
NUMBER OF SHARES. The number of shares to which the Warrants may be exercised
and the Warrant Price shall be subject to adjustment as provided below:
(a) ADDITIONAL WARRANTS. If BOH shall, on one or more occasions after
the date hereof, issue additional shares of Common Stock, and if, as a result
of any such
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issuance the shares of Common Stock issued or issuable upon the exercise of
Warrants issued pursuant to Section 1.1 hereof shall represent less than
19.9% of the outstanding Common Stock, assuming the exercise of all Warrants
and all other options, warrants or other securities convertible into Common
Stock, BOH shall issue to PCBG, promptly upon PCBG's demand, without further
consideration, Warrants to purchase a number of authorized but unissued
shares of Common Stock which, when added to the shares issued or issuable
upon the exercise of such previously issued Warrants, would represent 19.9%
as the case may be of the outstanding Common Stock.
(b) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If BOH at any time
or from time to time after the date of this Agreement effects a subdivision
of the Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if BOH at any
time or from time to time after the date of this Agreement combines the
outstanding shares of Common Stock, the Warrant Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection (b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
BOH at any time or from time to time after the date of this Agreement makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Warrant Price then in
effect shall be decreased as of the time of such issuance or, in the event
such a record date is fixed, as of the close of business on such record date,
by multiplying the Warrant Price then in effect by a fraction (i) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Warrant Price shall be recomputed
accordingly as of the close of business on such record date and thereafter
the Warrant Price shall be adjusted pursuant to this subsection (c) as of the
time of actual payment of such dividends or distributions.
(d) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
BOH at any time or from time to time after the date of this Agreement makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
BOH other than shares of Common Stock, then in each such event provision
shall be made so that the holders of Warrants shall receive upon exercise
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of BOH which they would have received had
their Warrants been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the date of
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exercise of the Warrants, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for
during such period under this Section 1.4.
(e) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the
Common Stock issuable upon the exercise of the Warrants is changed into the
same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 1.4), then and in any such event each holder of Warrants shall have
the right thereafter to receive upon exercise of the Warrants the kind and
amount of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Warrants might have been exercised
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided in this Section 1.4.
(f) REORGANIZATION, MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. If at
any time or from time to time there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
1.4), or a merger or consolidation of BOH with or into another corporation,
or the sale of all or substantially all of BOH's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holders of the Warrants shall
thereafter be entitled to receive upon exercise of the Warrants the number of
shares of stock or other securities or property of BOH, or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon exercise of the Warrants would have
been entitled in such capital reorganization, merger, consolidation or sale.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 1.4 and the other terms and conditions with
respect to the rights of the holders of the Warrants after the
reorganization, merger, consolidation or sale to the end that the provisions
of this Agreement, including this Section 1.4 (including adjustment of the
Warrant Price then in effect and number of shares purchasable upon exercise
of the Warrants) shall be applicable after that event and be as nearly
equivalent to the provisions hereof as may be practicable.
(g) SALE OF SHARES BELOW WARRANT PRICE.
(i) If at any time or from time to time after the date of this
Agreement, BOH issues or sells, or is deemed by the express provisions of
this subsection (g) to have issued or sold, Additional Shares of Common Stock
(as hereinafter defined), other than as a dividend or other distribution on
any class of stock as provided in subsection (c) above and other than upon a
subdivision or combination of shares of Common Stock as provided in
subsection (b) above, for an Effective Price (as hereinafter defined) less
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than the Warrant Price (or, if an adjusted Warrant Price shall be in effect
by reason of a previous adjustment, then less than such adjusted Warrant
Price) then and in each such case the then existing Warrant Price shall be
reduced, as of the opening of business on the date of such issuance or sale,
to a price determined by multiplying that Warrant Price by a fraction (i) the
numerator of which shall be (A) the number of shares of Common Stock Deemed
Outstanding at the close of business on the day next preceding the date of
such issue or sale plus (B) the number of shares of Common Stock which the
aggregate consideration received (or by express provision hereof deemed to
have been received) by BOH for the total number of Additional Shares of
Common Stock so issued would purchase at such Warrant Price, and (ii) the
denominator of which shall be the number of shares of Common Stock Deemed
Outstanding at the close of business on the date of such issuance after
giving effect to such issuance of Additional Shares of Common Stock. For
purposes of this paragraph (i), "Common Stock Deemed Outstanding" at any
given time shall mean the sum of (1) the number of shares of Common Stock
actually outstanding at that time, (2) the number of Additional Shares of
Common Stock then deemed to have been issued under paragraphs (iii) or (iv)
of this subsection (g) and (3) the number of shares of Common Stock then
issuable upon exercise of stock options to the extent not already deemed to
have been issued under paragraphs (iii) or (iv) of this subsection (g).
(ii) For the purpose of making any adjustment required under this
subsection (g), the consideration received by BOH for any issuance or sale of
securities shall (i) to the extent it consists of cash be computed at the net
amount of cash received by BOH after deduction of any expenses payable by BOH
and any underwriting or similar commissions, compensation or concessions paid
or allowed by BOH in connection with such issue or sale, (ii) to the extent
it consists of property other than cash, be computed at the fair value of
that property as determined in good faith by the Board and (iii) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock
or securities or other assets of BOH for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this
subsection (g), if at any time or from time to time after the date of this
Agreement BOH issues or sells any rights or options for the purchase of, or
stock or other securities convertible into, Additional Shares of Common Stock
(such convertible stock or securities being hereinafter referred to as
"Convertible Securities"), then in each case BOH shall be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable
upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by BOH for the issuance of such rights or
options or Convertible
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Securities plus, in the case of such options or rights, the amounts of
consideration, if any, payable to BOH upon the exercise of such options or
rights and, in the case of Convertible Securities, the amounts of
consideration, if any, payable to BOH upon conversion (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities). No further adjustment of the Warrant Price, adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire or be
canceled without having been exercised, the Warrant Price adjusted upon the
issuance of such options, rights or Convertible Securities shall be
readjusted to the Warrant Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or optionsor rights of
conversion of such Convertible Securities, and such Additional Shares of
Common Stock, if any, were issued or sold for the consideration actually
received by BOH upon such exercise, plus the consideration, if any, actually
received by BOH for the granting of all such rights or options, whether or
not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted plus the consideration, if any,
actually received by BOH (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities.
(iv) For the purpose of the adjustment required under this
subsection (g), if at any time or from time to time after the date of this
Agreement BOH issues or sells any rights or options for the purchase of
Convertible Securities, then in each such case BOH shall be deemed to have
issued at the time of the issuance of such rights or options the maximum
number of Additional Shares of Common Stock issuable upon conversion of the
total amount of Convertible Securities covered by such rights or options and
to have received as consideration for the issuance of such Additional Shares
of Common Stock an amount equal to the amount of consideration, if any,
received by BOH for the issuance of such rights or options, plus the minimum
amounts of consideration, if any, payable to BOH upon the exercise of such
rights or options and plus the minimum amount of consideration, if any,
payable to BOH (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion of such
Convertible Securities. No further adjustment of the Warrant Price, adjusted
upon the issuance of such rights or options, shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise of such
rights or options or upon the actual issuance of Additional Shares of Common
Stock upon the conversion of such Convertible Securities. The provisions of
paragraph (iii) above for the readjustment of the Warrant Price upon the
expiration of rights or options or the rights of conversion of Convertible
Securities shall apply in like manner to the rights, options and Convertible
Securities referred to in this paragraph (iv).
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(v) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by BOH after the date of this Agreement whether or not
subsequently reacquired or retired by BOH, other than (i) shares of Common
Stock issued upon exercise of the Warrants and (ii) shares issued by way of
dividend or other distribution on shares of Common Stock excluded from the
definition of Additional Shares of Common Stock by the foregoing clause or
shares of Common Stock resulting from any subdivision or combination of
shares of Common Stock so excluded, or shares issued by way of dividend or
other distribution on, or resulting from any subdivision or combination of,
shares of Common stock excluded from the definition of "Additional Shares of
Common Stock" by the foregoing provision. The "Effective Price" of Additional
Shares of Common Stock shall mean the quotient determined by dividing the
total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by BOH under this subsection (g), into the
aggregate consideration received or deemed to have been received by BOH for
such issue under this subsection (i).
ARTICLE II
REPURCHASE OF WARRANTS AND LIMITATIONS ON SALE
Section 2.1 REPURCHASE OF WARRANTS.
(a) Prior to the occurrence of an Acquisition Event, BOH shall have no
right to repurchase the Warrants and PCBG shall have no right to require BOH
to repurchase the Warrants.
(b) At any time after the occurrence of an Acquisition Event, BOH
shall have the right to purchase (or to cause a person designated by BOH to
purchase), and PCBG shall have the right to require that BOH repurchase (or,
if BOH shall so elect, cause a person designated by BOH to purchase), (i) all
(but not fewer than all) the Warrants at the time beneficially owned by PCBG
and its Affiliates at the Warrant Call Price in effect for such Warrants on
the date of closing (as provided below) and (ii) all (but not fewer than all)
of the shares of Common Stock purchased by PCBG and its Affiliates pursuant
to this Agreement with respect to which PCBG has beneficial ownership at a
price equal to the aggregate Market Value for such shares as of the date of
closing (as provided below). Any purchase pursuant hereto shall take place on
a Business Day specified in a notice given by BOH to PCBG or by PCBG to BOH,
as the case may be (but in no event prior to the 30th day following the date
of any such notice to PCBG or later than the 30th day following the date of
any such notice to BOH).
(c) The closing of any repurchase of Warrants pursuant to this Section
2.1 shall take place at 10:00 a.m. Laguna Hills Time, on the date set forth
in the applicable notice given by BOH or PCBG, as the case may be, at the
office of PCBG at the address set forth in Section 8.1. The amount payable to
PCBG and its Affiliates upon any repurchase of Warrants shall be paid in
lawful money of the United States by a federal funds check or a wire transfer
of immediately available funds to an account designated
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by PCBG. Upon receipt of such payment, PCBG shall deliver or cause to be
delivered to BOH the certificates representing all the Warrants being
repurchased free and clear of any liens, security interests, charges or
encumbrances.
Section 2.2 CERTAIN DETERMINATIONS OF MARKET VALUE. The calculation
of the Market Value, as required herein, shall be calculated in accordance
with this Section 2.2. In the event that Market Value is to be determined
pursuant to the terms hereof and there is not an established trading market
for shares of Common Stock, or more than 50% of the outstanding shares of
Common Stock are held beneficially or of record by persons, each of whom owns
(individually or together with members of any group of which such persons are
members) 5% or more of the outstanding shares of Common Stock, then PCBG may
elect to have an investment banking firm mutually agreeable to BOH and PCBG
determine (i) whether, in the opinion of such investment banking firm, as a
result of the absence of an established trading market or the concentration
of stock holdings, Market Value (determined in accordance with the provisions
of the definition of Market Value in Article VI) does not accurately reflect
the fair market value of a block of 1,000 shares of Common Stock on the date
as of which Market Value is to be determined, and (ii) if such investment
banking firm determines that Market Value (as so determined) does not
accurately reflect such fair market value, such investment banking firm shall
make determination of the fair market value of a share of Common Stock on the
date as of which Market Value is to be determined, based on whatever factors
it deems relevant, as soon as possible and shall promptly give written notice
to PCBG and BOH of its determination. The fees of such investment banking
firm in connection with such determination shall be paid by PCBG. Such
determination shall be final and binding on the parties hereto and the fair
market value so determined shall, if higher than the Market Value that would
otherwise apply, be the Market Value of a share of Common Stock. In the event
such determination is not transmitted to PCBG and BOH prior to the scheduled
closing date with respect to any repurchase of Warrants or Common Stock, the
scheduled closing of such transaction shall not be postponed, and BOH shall
make such payments on the closing date as are required based on the Market
Value of a share of Common Stock determined as if PCBG had not made an
election under this Section 2.4. Within three Business Days after such
investment banking firm's determination is made and conveyed to PCBG and BOH
in writing, BOH shall make a payment to PCBG, or PCBG shall make a payment to
BOH, as the case may be, equal to the difference between the amount paid on
the closing date and the amount that would have been so payable had such
amount been determined on the basis of such investment banking firm's
determination of the Market Value of a share of Common Stock.
ARTICLE III
RESTRICTIONS ON TRANSFERABILITY OF STOCK;
COMPLIANCE WITH SECURITIES ACT OF 1933
Section 3.1 RESTRICTIONS ON TRANSFERABILITY. The Warrants acquired by
PCBG or any Affiliate of PCBG pursuant to this Agreement and the Common Stock
issuable upon
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exercise of such Warrants and any shares of capital stock received or issued
in respect thereof, including, without limitation, securities issued upon any
stock split, stock dividend, recapitalization, merger, consolidation or
similar event (such Warrants and all such shares of Common Stock and
securities being collectively called the "Restricted Stock") shall not be
hypothecated, nor shall any claim or liability exist, nor shall any
agreement, written or oral, be entered into by PCBG or any Affiliate of PCBG
which would cause any claim or liability to exist with respect to the
Restricted Stock, and the Restricted Stock shall not be transferred except
upon the conditions, to the extent applicable, specified in this Article III.
PCBG will cause any proposed transferee of Restricted Stock held by PCBG or
any other Affiliate of PCBG to agree to take ownership of such Restricted
Stock subject to the provisions, to the extent applicable, of this Article
III; provided, however, that the provisions of this Article shall cease to
apply to any Restricted Stock which shall have been sold in a registered
public offering in accordance with the provisions of this Article III. PCBG
represents that it is purchasing the Restricted Stock for its own account and
not with a view to or for sale in connection with any distribution of such
Restricted Stock.
Section 3.2 RESTRICTIVE LEGEND; NOTICE OF PROPOSED TRANSFERS.
(a) Each certificate representing Restricted Stock shall (unless
otherwise permitted by the provisions of paragraph (b) of this Section) be
stamped or otherwise imprinted with a legend in substantially the following
form:
THESE SHARES/WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THESE SHARES/WARRANTS MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SAID ACT OR (ii)
AN OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT IS AVAILABLE. THE TRANSFERABILITY OF THESE SHARES/
WARRANTS IS FURTHER SUBJECT TO THE PROVISIONS OF A WARRANT PURCHASE
AGREEMENT DATED AS OF JULY 30, 1998, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF THE BANK OF HEMET.
(b) Each holder of a certificate representing Restricted Stock by
acceptance thereof agrees to comply in all respects with the provisions of
this Section 3.2(b). Prior to any proposed transfer of any Restricted Stock
other than pursuant to a registration under the Securities Act, the holder
thereof shall give written notice to BOH of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances
of the proposed transfer of the Restricted Stock to be transferred and shall
be accompanied by an unqualified written opinion of counsel reasonably
satisfactory to BOH to the effect that such proposed transfer may be effected
without registration under the Securities Act. Subject to Section 3.11
hereof, upon delivery to BOH of such notice and such opinion of counsel, the
holder of such Restricted Stock
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shall be entitled to transfer such Restricted Stock in accordance with the
terms of such notice delivered by the holder to BOH. Each certificate
evidencing Restricted Stock transferred as above provided shall bear the
appropriate restrictive legend set forth in paragraph (a) above, except that
such certificate shall not bear such restrictive legend if the opinion of
counsel referred to above shall be to the further effect that such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
Section 3.3 NO TRANSFERS PRIOR TO ACQUISITION EVENT. Notwithstanding
anything to the contrary set forth in this Agreement or the Restricted Stock,
neither PCBG nor any Affiliate of PCBG shall sell, transfer or otherwise
dispose of all or any portion of the Warrants owned by it, other than to an
Affiliate of PCBG, except after the occurrence of an Acquisition Event;
provided, however, that following an Acquisition Event, if BOH or PCBG shall
give notice of its election to exercise its rights under Section 2.1, then
such right of PCBG and its Affiliates to sell, transfer or otherwise dispose
of the Restricted Stock shall no longer be exercised unless BOH shall have
defaulted in its obligation to repurchase such Restricted Stock on the date
specified in any notice.
Section 3.4 LIMITATIONS ON TRANSFEREES AND MANNER OF TRANSFER.
(a) In the event that PCBG and its Affiliates become entitled pursuant
to the provisions of Section 3.3 to sell, transfer or otherwise dispose of
Restricted Stock, such Restricted Stock may be sold or transferred (subject
to Section 3.11 hereof) only (i) to a third party (or a third party and its
Affiliates) in a transaction which complies with the provisions of paragraph
(b) of this Section or (ii) to one or more underwriters or dealers in
connection with a broad public distribution complying with the provisions of
paragraph (c) of this Section of the shares of Common Stock issuable pursuant
to the exercise of the transferred Warrants (such shares being hereinafter
referred to as the "Underlying Shares"). The provisions of this Section shall
only apply to sales, transfers or dispositions by PCBG and its Affiliates,
and shall not apply to sales, transfers or dispositions by transferees of
PCBG or its Affiliates (except that any sale or disposition by dealers or
underwriters shall be conducted in accordance with the applicable provisions
of this Section and further except that all resales shall be made in
accordance with the Securities Act).
(b) PCBG and its Affiliates shall be entitled, subject to the other
applicable provisions of this Article III (including Section 3.11) and
Section 2.1, to sell or transfer Restricted Stock in one or more transactions
exempt from the registration requirements of Section 5 of the Securities Act.
For purposes of the immediately preceding sentence, it shall be assumed that
all Warrants, if any, that already have been sold or transferred by PCBG and
its Affiliates are still outstanding and have not been exercised in whole or
in part to purchase shares of Common Stock.
(c) Warrants owned by PCBG and its Affiliates, unless sold to BOH or an
Affiliate of BOH or in compliance with paragraph (b) of this Section, may
only be sold or transferred to one or more underwriters or dealers in
accordance with the provisions
11
of this paragraph. PCBG and its Affiliates may, subject to the terms and
conditions set forth in this paragraph (c), sell or transfer Warrants in
whole or in part to one or more underwriters or dealers who agree in writing
with PCBG, prior to the effective time of any such sale or transfer, to
exercise such Warrants and offer and sell the Underlying Shares either (i) to
the public in a public offering registered under the Securities Act (or any
successor federal securities laws) pursuant to a distribution, or (ii) in
other transactions complying with the requirements of paragraph (b) above.
Notwithstanding any other provision of this Agreement to the contrary, the
exercise of any Warrants transferred to underwriters or dealers in accordance
with this Section and the acquisition by such underwriters or dealers of
shares of Common Stock pursuant to such exercise may be made simultaneously
on the date of the closing of the sale or transfer by PCBG or its Affiliates
of the relevant Warrants to such underwriters or dealers, provided BOH is
given written notice of the date of such closing at least five Business Days
prior thereto. At any such closing, against payment of the exercise price for
shares of Common Stock to be acquired pursuant to the exercise of Warrants,
BOH will deliver or cause to be delivered certificates representing the
Underlying Shares to such underwriters or dealers, in such names and
denominations as it or they shall designate not fewer than two Business Days
prior to such closing.
Section 3.5 "DEMAND" REGISTRATION. From and after such date as PCBG
and its Affiliates become entitled pursuant to Section 3.4 to sell or
transfer any Restricted Stock, BOH shall, if requested by PCBG, as
expeditiously as possible, use its best efforts to effect the registration of
the Restricted Stock (which BOH has been requested to register on a form in
general use under the Securities Act (or any successor federal securities
law) selected by BOH, in order to permit the sale or other disposition of
such Restricted Stock in accordance with the intended method of sale or other
disposition set forth in the request (subject to the provisions of Section
3.4(c)). The right to require registration of the Restricted Stock under this
Section 3.5 may only be exercised once unless PCBG is advised in writing by
its investment banking firm (a copy of which advice shall be supplied to BOH)
that, in the opinion of such firm, an additional or two additional
registrations are appropriate to maximize the benefits to PCBG of the
proposed distribution of Restricted Stock, in which event PCBG may exercise
once or twice more, as applicable, its rights under this Section 3.5. Upon
the issuance of a stop order or injunction, BOH may withdraw any such
registration statement and abandon the proposed offering which PCBG shall
have demanded, in which case PCBG's right shall be reinstated.
Section 3.6 "PIGGYBACK" REGISTRATION. From and after such date as
PCBG and its Affiliates become entitled pursuant to Section 3.4 to sell or
transfer any Restricted Stock, if at any time BOH proposes to register any of
its securities under the Securities Act (or any successor federal securities
law), whether or not for sale for its own account (except with respect to
registration statements filed with respect to the issuance of securities
under employee benefit plans), it will give written notice to PCBG of its
intention to do so. Upon the written request of PCBG, given within 15
calendar days after receipt of BOH's notice, BOH will use its best efforts to
cause to be included in the
12
shares to be covered by the registration statement proposed to be filed by
BOH, in accordance with the request of PCBG, the Restricted Stock to be sold
by dealers or underwriters in accordance with the provisions of Section 3.4;
provided, however, that BOH need not include such Restricted Stock in such
registration statement if BOH is advised in writing by its investment banking
firm (a copy of which advise shall be supplied to PCBG) that the inclusion of
such securities shall, in the opinion of such firm, materially interfere with
the orderly sale and distribution of the BOH securities being sold by it. BOH
may, in its sole discretion and without the consent of PCBG, withdraw any
such registration statement and abandon the proposed offering in which PCBG
shall have requested to participate pursuant to this Section.
Section 3.7 REGISTRATION PROCEDURES AND EXPENSES.
(a) If and whenever BOH is required by the provisions of this Article
III to use its best efforts to effect the registration of any of the
Restricted Stock under the Securities Act (or any successor federal
securities law), PCBG and its Affiliates (including the underwriters in the
case of a registration of Underlying Shares) (individually referred to as a
"selling holder" or "holder" and collectively referred to as "selling
holders" or "holders") will furnish in writing such information as is
reasonably requested by BOH for inclusion in the registration statement
relating to such offering and such other information and documentation as BOH
shall reasonably request, and BOH will, as expeditiously as possible:
(i) prepare and file with the SEC or any other federal agency at
the time administering the Securities Act (or a successor federal securities
law) a registration statement with respect to such securities and use its
best efforts to cause such registration statement to become and remain
effective for such period as may be necessary to permit the successful
marketing of such securities, but not exceeding 90 days;
(ii) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Securities Act;
(iii) furnish to each selling holder of Restricted Stock being
registered such number of copies of a prospectus and preliminary prospectus
in conformity with the requirements of the Securities Act (or any successor
federal securities law), and such other documents as such seller may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock being registered owned by such seller;
(iv) furnish, at the request of any holder or holders of
securities being registered pursuant to this Article III, on the date that
such securities are delivered to the underwriters for sale pursuant to such
registration or if such securities are not being
13
sold through underwriters, on the date the registration statement with
respect to such securities becomes effective (A) an opinion dated such date
of independent counsel representing BOH for the purposes of such
registration, addressed to the underwriters, if any, and to the holder or
holders making such request, stating that such registration statement has
become effective under the Securities Act (or such successor law) and that
(a) to the best of the knowledge of such counsel, no stop order suspending
the effectiveness thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Securities Act
(or such successor federal securities law); (b) the registration statement,
the related prospectus and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities Act (or
such successor law) and the applicable rules and regulations of the SEC
thereunder, except that such counsel need express no opinion as to financial
information or information provided by selling holders contained therein; (c)
such counsel (subject to such customary limitation on the scope of their
investigation as shall be set forth in such opinion) has no reason to believe
that either the registration statement or the prospectus, or any amendment or
supplement thereto, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading except that such counsel need express
no opinion as to financial information or information provided by selling
holders contained therein; (d) the descriptions in the registration statement
and in the prospectus, or any amendment or supplement thereto, of all legal
and governmental matters and all contracts and other legal documents or
instruments are accurate and fairly present the information required to be
shown; and (e) such counsel does not know of any legal or governmental
proceedings, pending or contemplated, required to be described in the
registration statement or prospectus, or any amendment or supplement thereto,
or to be filed as exhibits to the registration statement which are not
described and filed as required; and (B) a letter dated such date, from the
independent certified public accountants of BOH, addressed to the
underwriters, if any, and to the holder or holders by or on behalf of whom a
request is made, stating that they are independent certified public
accountants within the meaning of the Securities Act (or such successor law)
and that in the opinion of such accountants the financial statements and
other financial data of BOH included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act (or such successor law). Such letter from the independent
certified public accountants shall additionally cover such other financial
matters (including information as to the period ending not more than five
business days prior to the date of such letter) with respect to the
registration in respect of which such letter is being given as the holder of
Restricted Stock being registered may reasonably request;
(v) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each such selling holder of such
Restricted Stock shall reasonably request and do any and all other acts and
things which may be necessary or reasonably desirable to enable such seller
to consummate the public sale or other disposition in such
14
jurisdictions as may be requested by such seller; provided, however, that BOH
shall have no obligation to qualify to do business in any jurisdiction or to
file a general consent to service of process in any jurisdiction;
(vi) notify each selling holder of Restricted Stock covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act (or any successor
Federal securities law), of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits 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 then
existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period
of at least twelve months, but not more than eighteen months, beginning with
the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(viii) provide a transfer agent and registrar for all Restricted
Stock covered by such registration statement not later than the effective
date of such registration statement;
(ix) use its best efforts to list all Common Stock covered by such
registration statement on each securities exchange, if any, on which any of
the Common Stock is then listed (unless such Common Stock is already so
listed) if such listing is then permitted under the rules of such exchange or
with the NASDAQ, National Market System; and
(x) undertake to take such further actions as may be reasonably
requested by the underwriters.
(b) If any registration statement pursuant to Section 3.5 or 3.6 shall
have been declared effective and, in the judgment of BOH, (A) any event shall
occur or state of facts exist (other than as described in clause (B)) which
requires a notice to the selling holders of Restricted Stock pursuant to
clause (vi) of paragraph (a) of this Section 3.7 or (B) the offering at the
time of Restricted Stock pursuant to such registration statement would
adversely affect, or would be improper in view of, a public offering,
financing, reorganization, recapitalization, merger, consolidation,
acquisition, or other similar transaction, or negotiations, discussions or
pending proposals with respect thereto, immediately upon receipt of notice to
such effect from BOH, PCBG shall cease to offer or sell any Restricted Stock
registered thereunder and cease to deliver or use the prospectus in use
thereunder. In the case of any matter described in clause (A), BOH shall, as
promptly as practicable, furnish to each selling holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary
15
so that, as thereafter delivered to the purchaser of such securities, such
prospectus shall not include an 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 not misleading in the light of the circumstances then
existing. In the case of any matter described in clause (B), BOH shall
promptly notify PCBG at such times as, in BOH's judgment, such offering may
be recommended (which shall be no later than 90 days following such
suspension); provided that PCBG may, in its sole discretion, discontinue such
offering with respect to the Restricted Stock covered thereby, in which event
PCBG shall be entitled to "demand" registration rights hereunder to the full
extent as if such offering had not been requested.
All expenses incurred by BOH in complying with Sections 3.5 and 3.6
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for BOH, the expense of
any special audits incident to or required by such registration, and blue sky
fees and expenses are herein called "Registration Expenses," except for all
underwriting discounts and selling commissions applicable to the sales, all
fees and disbursements of counsel for any selling holder or holders
(including counsel designated by any seller for a "due diligence"
investigation of BOH), all of which are herein called "Selling Expenses." BOH
shall pay all Registration Expenses and the selling holder or holders of
Restricted Stock being registered shall pay all Selling Expenses.
Section 3.8 INDEMNIFICATION. In the event of a registration of any of
the Restricted Stock under the Securities Act (or any successor Federal
securities law) pursuant to this Article III, BOH will indemnify and hold
harmless each underwriter of such Restricted Stock, PCBG and its Affiliates
as the transferors of the Restricted Stock or any portion thereof to
underwriters, and each other person, if any, who controls such seller,
assignor or underwriter within the meaning of Section 15 of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter, assignor or controlling person may become
subject under the Securities Act (or such successor law) or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock shall have been registered under the Securities
Act (or such successor law), any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse such seller, transferor and
underwriter and each such controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that BOH will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, said preliminary prospectus or said
prospectus or said amendment or supplement in
16
reliance upon and in conformity with written information furnished to BOH
through an instrument execute by such seller, transferor or underwriter
specifically for use in the preparation thereof; and provided further that if
any losses, claims, damages or liabilities arise out of or are based upon an
untrue statement, alleged untrue statement, omission or alleged omission
contained in any preliminary prospectus which did not appear in the final
prospectus, BOH shall not have any such liability with respect thereto to
such seller, transferor or underwriter or any person who controls such
seller, transferor or underwriter within the meaning of Section 15 of the
Securities Act if such seller, transferor or underwriter or any person on
their behalf delivered a copy of the preliminary prospectus to the person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus, as amended or supplemented if it has been
amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person.
In the event of any registration of any Restricted Stock under the
Securities Act (or a successor Federal securities law) pursuant to this
Article III, each seller of such Restricted Stock (other than any underwriter
or dealer purchasing Underlying Shares), and PCBG and its Affiliates, as
transferors of Restricted Stock, severally and not jointly, will indemnify
and hold harmless BOH, each person, if any who controls BOH within the
meaning of Section 15 of the Securities Act, each officer of BOH who signs
the registration statement and each director of BOH against any and all such
losses, claims, damages, or liabilities arising out of or based upon any
untrue statement or alleged untrue statement in or omission or alleged
omission from any such registration statement, prospectus, amendment or
supplement, if the untrue statement or omission or alleged untrue statement
or omission in respect of which such loss, claim, damage or liability is
asserted was made in reliance upon and in conformity with information
furnished in writing to BOH by or on behalf of such seller or transferor
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, prospectus, amendment or supplement;
provided, however, that, if any losses, claims, damages or liabilities arise
out of or are based upon an untrue statement, alleged untrue statement,
omission or alleged omission contained in any preliminary prospectus which
did not appear in the final prospectus, such seller or transferor shall not
have any such liability with respect thereto to BOH, any person who controls
BOH within the meaning of Section 15 of the Securities Act, any officer of
BOH who signed the registration statement or any director of BOH if BOH or
any person on their behalf delivered a copy of the preliminary prospectus to
the person alleging such losses, claims, damages or liabilities and failed to
deliver a copy of the final prospectus, as amended or supplemented if it has
been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person; and provided further that the
liability of any such seller or transferor so to indemnify shall be limited
to an amount equal to the net profit received by such seller upon the sale of
such Restricted Stock, or if the Warrant is sold, the profit on the sale of
the Warrant, pursuant to such registration statement, or by such transferor
from the seller, as the case may be.
17
Payments in respect of indemnifications required by this Section 3.8
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. Any party which
proposes to assert the right to be indemnified under this Section 3.8 will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim is to be made
against an indemnifying party under this Section 3.8, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability which it may have to any indemnified party otherwise
than under this Section 3.8. In case any such action, suit or proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party, and
after notice from such indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its own counsel in any such action, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party, when and as incurred, unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
party, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest beteen the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying party
shall not in fact have employed counsel to assume the defense of such action.
An indemnifying party shall not be liable for employed counsel to assume the
defense of such action. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent. In no event
shall an indemnifying party be required to pay for more than one counsel for
an indemnified party, exclusive of local counsel.
Section 3.9 OBLIGATIONS OF BOH WITH RESPECT TO UNDERWRITTEN OFFERING.
In the event that Restricted Stock shall be sold pursuant to a registration
statement in an underwritten offering pursuant to Section 3.5, BOH agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including, without limiting the generality of the
foregoing, customary provisions with respect to indemnification by BOH of the
underwriters of such offering. BOH shall have the right to approve the
managing underwriters for such offering (which in no event shall include an
affiliate of PCBG); provided, however, that such approval shall not be
unreasonably withheld.
18
Section 3.10 RULE 144 REQUIREMENTS. BOH shall undertake to make
publicly available and available to the holders of Restricted Stock, pursuant
to Rule 144 of the SEC under the Securities Act, such information as shall be
necessary, and to take such further action as any such holder may reasonably
request, to enable the holders of Restricted Stock to make sales of
Restricted Stock pursuant to the Rule. BOH shall furnish to any holder of
Restricted Stock upon request (after the preceding sentences shall have
become applicable), a written statement executed by BOH as to the steps it
has taken to comply with the current public information requirements of Rule
144.
Section 3.11 RIGHTS OF FIRST REFUSAL.
a) In the event PCBG or its Affiliates intend, at any time after the
occurrence of an Acquisition Event to sell, transfer or dispose of any
Restricted Stock (other than to an Affiliate of PCBG in a transaction not
intended to circumvent the transfer restrictions contained in this Agreement)
other than (i) pursuant to a sale or transfer of Warrants to one or more
underwriters or dealers in accordance with Section 3.4(c) (in which case
Section 3.11(b) shall govern) or (ii) at any time after BOH has failed for
any reason to repurchase such Restricted Stock pursuant to Article II hereof
on the closing date scheduled for such repurchase, then:
(i) PCBG shall notify BOH in writing of its or its Affiliate's
intention to sell, transfer or dispose of such Restricted Stock specifying
the number of shares or amount of Warrants, as the case may be, proposed to
be disposed of, the identity or identities of the prospective purchaser or
purchasers thereof, the proposed purchase price therefor and the material
terms of any agreement relating thereto (the "Sale Notice"); and
(ii) BOH shall have the right, by written notice of its exercise
of its right of first refusal given to PCBG within 15 calendar days after
BOH's receipt of such notice of intention from PCBG, to purchase (or to cause
a Person designated by BOH to purchase) all, but not less than all of, the
Restricted Stock specified in such notice of intention for cash at the gross
price set forth therein (including broker's commissions and other transaction
costs of PCBG or its Affiliate to be paid or absorbed by the prospective
purchaser) if the terms set forth in such notice of intention provide for a
cash sale. If the purchase price specified in such notice of intention
include any property other than cash, the purchase price at which BOH shall
be entitled to purchase shall be (x) the amount of cash included in the
purchase price specified in such notice of intention plus (y) property, to
the extent feasible, substantially similar to the property described in such
notice of intention and in any case of equivalent value to such property (as
agreed to by BOH and PCBG, or as determined by a nationally recognized
investment banking firm selected by PCBG and BOH).
If BOH shall have exercised its right of first refusal under this
paragraph (a) (including the designation of another purchaser as referred to
in the next subparagraph), the closing of the purchase of the Restricted
Stock as to which such right BOH shall
19
have been exercised shall take place as promptly as practicable, but in no
event more than 10 Business Days after BOH gives notice of such exercise, and
if such closing does not occur within such 10 days, such right of first
refusal provided for herein (including any assignment thereof) shall be null
and void and of no further force and effect with respect to such Restricted
Stock and this Section 3.11 shall no longer apply to any sale or disposition
or proposed sale or disposition of such Restricted Stock; provided that if
prior notification to or approval of the Federal Reserve Board or any other
regulatory authority is required in connection with such purchase, BOH shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which, as
the case may be, (i) any required notification period has expired or been
terminated, or (ii) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
If BOH elects not to exercise, or fails to exercise or cause to be
exercised, its right of first refusal provided in this paragraph (a) within
the time specified for such exercise or if the Federal Reserve Board or any
other regulatory authority disapproves of BOH's proposed purchase, PCBG and
its Affiliates shall be free thereafter for a period of 90 days to consummate
the sale, transfer or other disposition with any purchaser or purchasers of
the Restricted Stock who shall have been specified in the sale notice at the
price (or at any price in excess of such price) and on substantially the
terms specified therein.
The right of first refusal provided for in this paragraph (a) may only
be exercised with respect to the initial sale, transfer or other disposition
of the Restricted Stock by PCBG or an Affiliate (whether in blocks or as a
whole) to a person that is not an Affiliate of PCBG and not to subsequent
sales, transfers or other dispositions by purchasers of Restricted Stock.
(b) If PCBG or its Affiliates at any time propose to transfer any
Warrants to any underwriters or dealers pursuant to the provisions of Section
3.4, other than at any time after BOH has failed for any reason to repurchase
such Warrants pursuant to Article II hereof on the closing date scheduled for
such repurchase, then PCBG shall first notify BOH in writing of such
intention, specifying the Warrants which it proposes to sell or transfer and
the name or names of the proposed dealers or of the proposed managing
underwriters in the underwriting syndicate to which the sale or transfer is
proposed to be made. BOH shall have the right, exercisable by written notice
given to PCBG 15 calendar days after BOH's receipt of notice from PCBG
pursuant to the immediately preceding sentence, to repurchase, or to cause a
third party designated by BOH to purchase, all, but not fewer than all, the
Warrants proposed to be sold or transferred on the terms and conditions
hereinafter set forth. Any notice given by BOH of exercise of its repurchase
rights under this paragraph (b) shall specify a place in Orange or Riverside
Counties and a Business Day not earlier than 10 days and not later than 15
days after the date of such notice for the closing of the repurchase of the
Warrants being repurchased. The purchase price payable to BOH or its designee
for the repurchase of
20
Warrants pursuant to this paragraph (b) shall be a cash price equal to the
product of (x) the number of Underlying Shares covered by the relevant
Warrants (calculated as of the date of the closing of the repurchase) and (y)
the Share Price on such date. At the closing of a sale of Warrants pursuant
to the foregoing provisions, BOH or its designee will make payment to PCBG of
the aggregate price for the Warrants to be repurchased in one of the manners
set forth in Section 2.1(c). At such closing, PCBG shall deliver to BOH or
its designee the certificates representing the Warrants to be repurchased and
BOH shall deliver to PCBG replacement certificates representing the Warrans
(if any) which are not to be repurchased but were covered by the certificate
or certificates surrendered by PCBG. Any election by BOH pursuant to this
paragraph to exercise its repurchase rights in respect of Warrants shall be
irrevocable. In the event BOH fails timely to exercise its repurchase rights
in respect of Warrants within the period specified above during which it must
do so or notifies PCBG in writing prior to the expiration of such period that
it does not intend to exercise such rights or its designee fails to
repurchase Warrants on the date set for the closing of such a purchase, PCBG
and its Affiliates shall be free thereafter to consummate the sale and
transfer of the Warrants specified in this notice to BOH under this paragraph
to any underwriters or dealers who agree to exercise the Warrants and sell
the Underlying Shares in accordance with the provisions of Section 3.4(c),
and this Section 3.11 shall no longer apply to such sale or transfer of such
Warrants.
(c) PCBG shall have the right to withdraw any notice given by it
pursuant to this Section 3.11 at any time before BOH shall have given notice
of its intention to exercise its right of first refusal hereunder (including
by designation of another purchaser).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BOH
BOH represents and warrants to PCBG that:
Section 4.1 AUTHORIZATION OF AGREEMENT; NO CONFLICTS.
(a) The execution and delivery of this Agreement by BOH and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of BOH. This
Agreement has been duly executed and delivered by BOH and constitutes a valid
and binding obligation of BOH, enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with, or result in
any violation of or default or loss of a material benefit under any provision
of the articles of incorporation, articles or association or bylaws of BOH
or, except for the necessity of obtaining Requisite Regulatory Approvals, any
material mortgage, indenture, lease agreement or other material instrument or
any permit, concession, grant, franchise, license, judgment,
21
order, decree, statute, law, ordinance, rule or regulation applicable to BOH
or their respective properties, other than any such conflict, violation,
default or loss which will not have a material adverse effect on BOH. No
material consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required in
connection with the execution and delivery of this Agreement by BOH or the
consummation by BOH of the transactions contemplated hereby except for any
approvals required to be obtained pursuant to the BHC Act or the Policy
Statement of the Board of Governors of the Federal Reserve System on
Nonvoting Equity Investments by Bank Holding Companies, 12 C.F.R. Section
225.143 (the "FRB Guidelines"), or any other applicable laws, for the
execution and delivery of this Agreement and the issuance of the Warrants by
BOH.
Section 4.2 AUTHORIZED STOCK. BOH has taken all necessary corporate
and other action to authorize and reserve and, subject to obtaining the
governmental and other approvals and consents referred to herein, to permit
it to issue, and, at all times from the date hereof until the obligation to
deliver Common Stock upon the exercise of the Warrants terminates, will have
reserved for issuance, upon exercise of the Warrants, shares of Common Stock
necessary for PCBG to exercise the Warrants, and BOH will take all necessary
corporate action to authorize and reserve for issuance all additional shares
of Common Stock or other securities which may be issued pursuant to this
Agreement. The shares of Common Stock to be issued upon due exercise of the
Warrants, including all additional shares of Common Stock or other securities
which may be issuable pursuant to this Agreement, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever, including any preemptive
rights of any stockholder of BOH.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PCBG
PCBG represents and warrants to BOH that:
Section 5.1 DUE EXECUTION OF AGREEMENT; NO CONFLICTS.
(a) This Agreement has been duly executed and delivered by PCBG and
constitutes a valid and binding obligation of PCBG, enforceable in accordance
with its terms.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with, or result in
any violation of or default or loss of a material benefit under, any
provision of the certificate of incorporation or By-laws of PCBG or, except
for the necessity of obtaining Requisite Regulatory Approvals, any material
mortgage, indenture, lease, agreement or other material instrument, or any
permit, concession, grant, franchise, license, judgment, order
22
decree, statute, law, ordinance, rule or regulation applicable to PCBG or its
respective properties, other than any such conflict, violation, default or
loss which (i) will not have a material adverse effect on PCBG and its
Subsidiaries taken as a whole. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required in connection with the execution and delivery
of this Agreement by PCBG or the consummation by PCBG of the transactions
contemplated hereby, except for (a) filings required in order to obtain
Requisite Regulatory Approvals, and (b) any approvals required to be obtained
pursuant to the BHC Act, or the FRB Guidelines or any other applicable law
for the execution and delivery of this Agreement by BOH, PCBG and the
issuance of the Warrants.
ARTICLE VI
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below (in their singular and plural forms as applicable) shall have the
meanings set forth below.
"Affiliate" or "affiliate" shall mean, with respect to any corporation,
any person that, directly or indirectly, controls or is controlled by or is
under common control with such corporation.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday in the State of California, on which banks are open for
substantially all their banking business in Laguna Hills, California..
"Change in Bank Control Act" means the Change in Bank Control Act of
1978, as amended.
"Covered Shares" shall mean on any date, with respect to any Warrants,
the maximum number of shares of Common Stock that would be purchasable upon
the exercise on such date of such Warrants, assuming that such Warrants may
be exercised on such date to purchase the maximum number of shares of Common
Stock purchasable pursuant to the terms thereof (including the limitations
contained in the second paragraph of the certificate evidencing each such
Warrant) without regard to any provision therein (other than such
limitations) or in this Agreement or in any law limiting the right of any
holder of such Warrants to acquire shares otherwise purchasable thereunder.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Governmental Entity" shall mean any court, administrative agency or
commission or other governmental authority or instrumentality.
23
"Market Value" shall mean, on any date, the average of the closing sale
prices of a share of Common Stock on the principal securities exchange on
which the Common Stock is traded, or, if the Common Stock is not at the time
listed on any national securities exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), on
the 20 trading days immediately preceding the three trading days immediately
preceding such date, (or such fewer number of trading days immediately
preceding such date for which shares of Common Stock have been listed for
trading on such exchange or quoted on NASDAQ); provided, however, that if
PCBG seeks a determination of the fair market value of a share of Common
Stock pursuant to the provisions of Section 2.2, Market Value shall, if
required pursuant to the terms of such Section, mean the fair market value of
a share of Common Stock on such date determined pursuant to such Section.
"Person" or "person" shall mean an individual, corporation, partnership,
joint venture, trust or unincorporated organization, or a government or any
agency or political subdivision thereof.
"Regulatory Authority" shall mean any United States federal or state
government or governmental authority the approval of which is legally
required for consummation of the Merger.
"Requisite Regulatory Approvals" shall mean all material permits,
approvals and consents required to be obtained, and all waiting periods
required to expire, prior to the consummation of the issuance of the Covered
Shares under applicable federal laws of the United States or applicable laws
of any state having jurisdiction over PCBG or BOH.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Price" shall mean, with respect to any Warrants, the amount by
which, on the date of the Acquisition Event triggering the exercisability of
the Warrants(i) the Warrant Price on such date is less than (ii) the greatest
of:
(i) the Market Value of a share of Common Stock on such date; and
(ii) the highest price paid on or prior to such date for a share
of Common Stock (including in any merger or consolidation) by a purchaser or
group of purchasers acting in concert of 50% or more of the outstanding
shares of Common Stock, or, in the case of a purchaser of 50% or more of the
consolidated assets of BOH (as shown on the books of BOH), the Market Value
of a share of Common Stock on the date of consummation of such asset
acquisition.
24
"Subsidiary" shall mean, with respect to any corporation (the "parent"),
any other corporation, association or other business entity of which more
than 50% of the shares of the Voting Stock are owned or controlled, directly
or indirectly, by the parent or by one or more Subsidiaries of the parent, or
by the parent and one or more of its Subsidiaries.
"Voting Stock" shall mean the stock entitling the holders thereof to
vote in the election of the directors or trustees of the corporation,
association, or other business entity in question, except that it shall not
include any stock so entitling the holders thereof to vote only upon the
happening of a contingency, whether or not such contingency has occurred.
"Warrant Call Price" shall mean, when used with respect to any Warrant,
the product of (i) the number of Covered Shares on such date and (ii) the
Share Price on such date; provided that the Warrant Call Price with respect
to any Warrant shall in no event exceed (x) the quotient obtained by dividing
$5,000,000 by the number of Covered Shares subject to all the outstanding
Warrants multiplied by (y) the number of Covered Shares subject to such
Warrant.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. Subject to Section 7.2, this Agreement may
be terminated in the following circumstances:
(a) at the Effective Time of the Merger, as set forth in the Merger
Agreement;
(b) at the termination of the Merger Agreement prior to the occurrence
of an Acquisition Event; or
(c) two years after the occurrence of an Acquisition Event.
Section 7.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement pursuant to Section 7.1(c), the rights of the parties hereto
shall forthwith become void; provided that, if this Agreement shall terminate
pursuant to Section 7.1(c) and any party has filed an application to purchase
securities with any regulatory authority, this Agreement shall not terminate
as provided in Section 7.1(c), but shall remain in full force and effect
until the day which is 30 Business Days (plus any applicable waiting periods)
after the receipt or denial of regulatory approval or consent, at which time
the Agreement shall then terminate.
Section 7.3 INDEMNIFICATION FOR BREACH. Each party to this Agreement
agrees to indemnify and hold harmless the other party against any loss,
claim, damage or liability arising out of or based upon a Default of this
Agreement by such defaulting party
25
in accordance with the procedures set forth in the last paragraph of Section
3.8 of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or any such other address for a party as
shall be specified by like notice):
(a) If to BOH:
Mr. James B. Jaqua
President and Chief Executive Officer
The Bank of Hemet
3715 Sunnyside Drive
Riverside, California 92506
Telecopier No.: (909) 784-5791
With copies to:
Gary S. Findley, Esq.
Gary Steven Findley & Associates
1470 Hundley
Anaheim, California 92806
Telecopier No.: (714) 630-7910
(b) If to PCBG:
Mr. E. Lynn Caswell
Chairman and CEO
Pacific Community Banking Group
23332 Mill Creek Drive, Suite 230
Laguna Hills, California 92653
Telecopier No.: (949) 458-2086
With copies to:
Loren P. Hansen, Esquire
Knecht & Hansen
1301 Dove Street, Suite 900
Newport Beach, California 92660
Telecopier No.: (949) 851-1732
26
Section 8.2 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
Section 8.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors or the duly
authorized committees thereof. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
parties hereto agree to make such amendments as may be necessary to respond
to the request of any Regulatory Authority with respect to this Agreement.
Section 8.4 WAIVER. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof.
Section 8.5 MISCELLANEOUS. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) except as
contemplated in this Agreement, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder; and (c)
except as contemplated in this Agreement, shall not be assigned by operation
of law or otherwise. BOH and PCBG agree that, except as required by law, it
shall not issue any press release with respect to the transactions
contemplated by this Agreement without consulting with each other party
hereto.
Section 8.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
27
IN WITNESS WHEREOF, BOH and PCBG have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date
first above written.
PACIFIC COMMUNITY BANKING GROUP
By: /s/ E. Lynn Caswell
---------------------------
E. Lynn Caswell
Chairman and CEO
THE BANK OF HEMET
By: /s/ James B. Jaqua
---------------------------
James B. Jaqua
President
By: /s/ Harold R. Williams, Jr.
---------------------------
Secretary
28
EXHIBIT A
WARRANT
No. 1
July 30, 1998 210,800 Shares
THE BANK OF HEMET
This is to certify that, for value received and subject to the terms and
conditions provided for in a Warrant Purchase Agreement dated as of July 30,
1998 (the "Agreement") by and between The Bank of Hemet, a California
corporation ("BOH"), and Pacific Community Banking Group, a California
corporation ("PCBG"), pursuant to which PCBG and its assigns are entitled to
purchase from BOH, on the terms and conditions set forth therein, 210,800
fully paid and nonassessable shares of common stock of BOH ("Common Stock"),
subject to adjustment as provided in the Agreement. Terms not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
This Warrant may be exercised by the holder (except any holder which
shall not be permitted by the Bank Holding Company Act of 1956, as amended
("BHC Act"), or other applicable law to own, or shall not have obtained all
regulatory approvals required by such Act or other applicable law as a
precondition to its ownership of, the shares of Common Stock covered hereby)
as to the whole or any part of the shares of Common Stock covered hereby at
any time when such exercise shall be permitted under the terms of this
Warrant, by surrender of this Warrant at the principal office of BOH or at
the office of any transfer agent for the Warrant and upon payment to BOH of
the Warrant Price for shares so purchased by wire transfer to a bank account
designated by BOH. Thereupon, this Warrant shall be deemed to have been
exercised and the person exercising the same to have become a holder of
record of shares of Common Stock (or of the other securities or property to
which it is entitled upon such exercise) purchased hereunder for all
purposes, and certificates for shares so purchased shall be delivered to the
purchaser. If this Warrant shall be exercised in respect of a part of the
shares of Common Stock covered hereby, the holder shall be entitled to
receive a new Warrant covering the number of shares in respect of which this
Warrant shall not have been exercised, but otherwise identical hereto.
1
This Warrant is exchangeable, upon the surrender hereof by the holder
hereof at such office or agency of BOH, for new Warrants of this tenor
representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase not
less than 1,000 shares of Common Stock (except to the extent necessary to
round out the balance of the number of shares purchasable hereunder).
BOH covenants and agrees that all shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue). BOH further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, BOH will at all times have authorized, and
reserved, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant, and will at its expense
expeditiously upon each such reservation of shares use its best efforts to
procure the listing thereof (subject to issuance or notice of issuance) on
all stock exchanges on which the shares of Common Stock are then listed, or
if BOH Shares are not then listed on a stock exchange on NASDAQ National
Market System.
The rights of the holder of this Warrant shall be subject to the
following further terms and conditions:
Section 1.1 BOH shall at all times reserve and keep available, free
from preemptive rights, out of its authorized and unissued Common Stock or
shares of Common Stock held in treasury, for the purpose of effecting the
exercise of this Warrant, the full number of shares of Common Stock then
issuable upon the exercise of this and all other outstanding Warrants,
computed on the assumption that the adjustments required by the Agreement
have become effective, in the event such is not then the case.
Section 1.2 BOH will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock upon exercise of
this Warrant. BOH shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that of the holder of the Warrant
or Warrants to be exercised, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to BOH the amount
of any such tax, or has established, to the satisfaction of BOH, that such
tax has been paid.
2
Section 1.3 This Warrant shall not entitle the holder of any rights
of a shareholder of BOH, either at law or in equity, or to any notice of
meetings of shareholders or of any other proceedings of BOH.
Section 1.4 Subject to Section 1.5 and the terms and conditions set
forth in the Agreement, this Warrant and all rights hereunder are
transferable (in whole or in part), on the books of BOH by the registered
holder thereof in person or by duly authorized attorney, upon surrender of
this Warrant, properly endorsed, to BOH (or if BOH shall have notified the
registered holder hereof of the appointment of an independent transfer agent
for Warrants, then to such transfer agent). As used herein the term "this
Warrant" shall mean and include any Warrant or Warrants hereafter issued in
consequence of transfers of this Warrant in whole or in part.
Section 1.5 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS WARRANT MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT
WITH RESPECT TO THIS WARRANT WHICH IS EFFECTIVE UNDER THE SECURITIES
ACT, OR (ii) AN OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT IS AVAILABLE. THE TRANSFERABILITY OF THIS
WARRANT IS FURTHER SUBJECT TO THE PROVISIONS OF A WARRANT PURCHASE
AGREEMENT DATED AS OF JULY 30, 1998, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICE OF THE SECRETARY OF THE BANK OF HEMET.
Section 1.6 The holder of this Warrant, by the acceptance hereof,
agrees that prior to the exercise of any Warrants, at a time when said
Warrants have not been registered under the Securities Act or any similar
Federal statute, it will, if it has not requested or is then not entitled to
such registration pursuant to the provisions of Article III of the Agreement,
deliver to BOH a written representation that it is acquiring the shares of
Common Stock issuable upon the exercise of such Warrants for its own account
for investment, and not with a view to, or for sale in connection with, any
distribution thereof, and not with any present intention of distributing or
selling the same.
Section 1.7 (a) This Warrant shall terminate and be of no further
force or effect as provided in Article VII of the Agreement.
(b) Notwithstanding any other provision contained herein, this Warrant
and the rights conferred hereby shall terminate, and the full consideration
paid by PCBG for this Warrant shall be immediately due and payable to PCBG,
if BOH or PCBG receives written notice from the Federal Reserve Board to the
effect that the
3
execution and delivery of the Agreement or the issuance of the Warrants is
not consistent with Section 3 of the BHC Act.
Section 1.8 This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
Section 1.9 This Warrant incorporates by reference all of the terms
and conditions of the Agreement. This Warrant is subject to termination upon
the occurrence of any of the events specified in Section 7.1 of the Agreement.
THE BANK OF HEMET
By: /s/ James B. Jaqua
--------------------
James B. Jaqua
President
By: /s/ Harold R. Williams
-----------------------
Secretary
4