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STOCK OPTION AGREEMENT
DATED AS OF THE 6TH DAY OF OCTOBER, 1998
BY AND BETWEEN
WESTERN BANCORP
AND
PNB FINANCIAL GROUP, INC.
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 6th day of October, 1998 (this
"Agreement"), between , a California corporation ("Grantee"), and PNB Financial
Group, Inc., a California corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are entering into an Agreement and Plan of
Merger dated as of the date hereof (the "Plan"), which is being executed by the
parties hereto simultaneously with the execution of this Agreement;
WHEREAS, as a condition and inducement to Grantee's entering into the
Plan and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as defined below); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Plan prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties hereto
agree as follows:
SECTION 1. GRANT OF OPTION. (a) Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 553,166 fully paid and nonassessable shares of Common Stock
("Common Stock") of Issuer at a fixed price per share of $29.625 (the "Initial
Price"); provided, however, that in no event shall the number of shares of
Common Stock for which the Option is exercisable exceed 19.9% of the number of
shares of Common Stock then issued and outstanding without giving effect to any
shares subject or issued pursuant to the Option. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that after such issuance such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section l(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to issue shares in breach of any provision of the Plan.
SECTION 2. EXERCISE OF OPTION.
(a) Timing of Exercise, Termination. Provided that (i) Grantee shall
not be in material breach of the agreements or covenants contained in this
Agreement or the Plan and (ii) no preliminary or permanent injunction or other
order against delivery of shares covered by the Option issued by any court of
competent jurisdiction in the United States shall be in effect, Grantee may
exercise the Option, in whole or part, at any time and from time to time
following the occurrence of a Purchase Event (as defined below); provided that
the Option shall terminate and be of no further force and effect upon the
earliest to occur of (i) the time immediately prior to the Effective Time, (ii)
12 months after the first occurrence of a Purchase Event, (iii) 18 months after
the termination of the Plan following the occurrence of a Preliminary Purchase
Event (as defined below), (iv) termination of the Plan in accordance with the
terms thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event (other than a termination of the Plan by Grantee pursuant to
Section 8.1(b)(i) or (ii), by Grantee and Issuer pursuant to Section 8.1(a)
thereof if Grantee shall at that time have been entitled to terminate the Plan
pursuant to Section 8.1(b)(i) or (ii) thereof or by Issuer pursuant to 8.1(g)),
or (v) 18 months after the termination of the Plan by Grantee pursuant to
Section 8.1(b)(i) or (ii), by Grantee and Issuer pursuant to Section 8.1(a)
thereof if Grantee shall at that time have been entitled to terminate the Plan
pursuant to Section 8.1(b)(i) or (ii) thereof or by Issuer pursuant to 8.1(g)).
The events described in clauses (i) - (v) in the preceding sentence are
hereinafter collectively referred to as an "Exercise Termination Event."
Anything herein to the contrary notwithstanding, any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law. The
rights set forth in Section 7 hereof shall terminate when the right to exercise
the Option terminates (other than as a result of a complete exercise of the
Option) as set forth herein.
(b) Preliminary Purchase Event. The term "Preliminary Purchase Event"
shall mean any of the following events or transactions occurring after the date
hereof:
(i) Issuer or any of its subsidiaries (each, an "Issuer
Subsidiary") shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any Person (the term
"Person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934 (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction with any Person other than Grantee or any Grantee
Subsidiary. For purposes of this Agreement, "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Issuer or any Issuer Subsidiary, (y) a purchase, lease or
other acquisition of all or substantially all of the assets of or
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assumption of all or substantially all the deposits of Issuer or any
Issuer Subsidiary or (z) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or
any Issuer Subsidiary, provided that the term "Acquisition Transaction"
does not include any internal merger or consolidation involving only
Issuer and/or Issuer Subsidiaries;
(ii) Any Person (other than Grantee or any Grantee Subsidiary or
any Issuer Subsidiary acting in a fiduciary capacity in the ordinary
course of business) shall have acquired Beneficial Ownership or the
right to acquire Beneficial Ownership, of shares of Common Stock (the
term "Beneficial Ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder) such that, upon the consummation of
such acquisition, such Person would have Beneficial Ownership, in the
aggregate, of 10% or more of the then outstanding shares of Common
Stock;
(iii) Any Person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders, by
public announcement or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition Transaction
(including, without limitation, any situation in which any Person other
than Grantee or any Grantee Subsidiary shall have commenced (as such
term is defined in Rule 14d-2 under 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 10% or
more of the then outstanding shares of Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively));
(iv) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, or such third
party states its intention to make such a proposal if the Plan
terminates and/or the Option expires, Issuer shall have breached any
covenant or obligation contained in the Plan and such breach would
entitle Grantee to terminate the Plan (without regard to the cure
period provided for therein);
(v) The holders of Common Stock shall not have approved the Plan
by the requisite vote at the meeting of such shareholders held for the
purpose of voting on the Plan, or such meeting shall not have been held
or shall have been canceled prior to termination of the Plan, in each
case after it shall have been publicly announced that any Person (other
than Grantee or any Grantee Subsidiary) shall have (A) made, or
disclosed an intention to make, a bona fide proposal to engage
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in an Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer or (C) filed an application (or given a notice) with,
whether in draft of final form, the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") or any other governmental
authority or regulatory or administrative agency or commission (each, a
"Governmental Authority"), for approval to engage in an Acquisition
Transaction;
(vi) Any Person (other than Grantee or any Grantee Subsidiary),
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Federal Reserve Board or other Governmental Authority for
approval to engage in an Acquisition Transaction; or
(vii) The Issuer's Board of Directors shall have withdrawn or
modified (or publicly announced its intention to withdraw or modify) in
any manner adverse in any respect to Grantee its recommendation that
the shareholders of Issuer approve the transactions contemplated by the
Plan in anticipation of engaging in an Acquisition Proposal, or Issuer
or any Issuer Subsidiary shall have authorized, recommended, proposed
(or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary.
(c) Purchase Event. The term "Purchase Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any Person other than Grantee or any
Grantee Subsidiary of Beneficial Ownership of shares of Common Stock,
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 Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described in
Section 2(b)(i) or (ii) hereof except that the percentage referred to
in either such case shall be 25%.
(d) Notice by Issuer. Issuer shall notify Grantee promptly in writing
of the occurrence of any Preliminary Purchase Event or Purchase Event; provided,
however, that the giving of such notice by Issuer shall not be a condition to
the right of Grantee to exercise the Option.
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(e) Notice of Exercise. In the event that Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
"Option Notice" and the date of which being hereinafter referred to as the
"Notice Date") specifying (i) the total number of shares of Common Stock it will
purchase pursuant to such exercise, (ii) the aggregate purchase price as
provided herein and (iii) a period of time (that shall not be less than three
business days nor more than sixty business days) running from the Notice Date
(the "Closing Date") and a place at which the closing of such purchase shall
take place; provided, that, if prior notification to or approval of the Federal
Reserve Board or any other Governmental Authority is required in connection with
such purchase (each, a "Notification" or an "Approval," as the case may be), (a)
Grantee shall promptly file, or cause to be filed, the required notice or
application for approval ("Notice/Application"), (b) Grantee shall expeditiously
process, or cause to be expeditiously processed, the Notice/Application and (c)
for the purpose of determining the Closing Date pursuant to clause (iii) of this
sentence, the period of time that otherwise would run from the Notice Date shall
instead run from the later of (x) in connection with any Notification, the date
on which any required notification periods have expired or been terminated and
(y) in connection with any Approval, the date on which such approval has been
obtained and any requisite waiting period or periods shall have expired. For
purposes of Section 2(a) hereof, any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto. On or prior to the Closing Date,
Grantee shall have the right to revoke its exercise of the Option in the event
that the transaction constituting a Purchase Event that gives rise to such right
to exercise shall not have been consummated.
(f) Payments. At the closing referred to in Section 2(e) hereof,
Grantee shall present and surrender this Agreement and pay to Issuer the
aggregate Option Price for the shares of Common Stock specified in the Option
Notice in immediately available funds by wire transfer to a bank account
designated by Issuer; provided, however, that failure or refusal of Issuer to
designate such a bank account shall not preclude Grantee from exercising the
Option.
(g) Delivery of Common Stock. At such closing, simultaneously with the
delivery of immediately available funds as provided in Section 2(f) hereof,
Issuer shall deliver to Grantee a certificate or certificates representing the
number of shares of Common Stock specified in the Option Notice and, if the
Option should be exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares of Common Stock
purchasable hereunder.
(h) Holder of Record. Upon the giving by Grantee to Issuer of an Option
Notice and the tender of the applicable purchase price in immediately available
funds on the Closing Date, Grantee shall be deemed to be the holder of record of
the number of shares of Common Stock specified in the Option Notice,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of
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Common Stock shall not then actually be delivered to Grantee. Issuer shall pay
all expenses and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of Grantee.
SECTION 3. ISSUER'S COVENANTS.
(a) Available Shares. The Issuer agrees that it shall at all times
until the termination of this Agreement have reserved for issuance upon the
exercise of the Option that number of authorized and reserved shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, all of which shares will, upon issuance
pursuant hereto, be duly authorized, validly issued, fully paid, nonassessable,
and delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights.
(b) Compliance. The Issuer agrees that it will not, by amendment of its
articles of incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer.
(c) Certain Actions, Applications and Arrangements. Issuer shall
promptly take all action as may from time to time be required (including (i)
complying with all pre-merger notification, reporting and waiting period
requirements specified in 15 U.S.C. ss. 18a and regulations promulgated
thereunder and (ii) in the event, under the Bank Holding Company Act of 1956, as
amended ("BHCA"), or the Change in Bank Control Act of 1978, as amended, or any
California banking law, prior approval of or notice to the Federal Reserve Board
or to any other Governmental Authority is necessary before the Option may be
exercised, cooperating with Grantee in preparing such applications or notices
and providing such information to each such Governmental Authority as it may
require) in order to permit Grantee to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto, and to protect the
rights of Grantee against dilution.
SECTION 4. EXCHANGE OF OPTION. This Agreement and the Option granted
hereby are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any agreements and related options for which this
Agreement and the Option granted hereby may be
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exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
SECTION 5. ADJUSTMENTS. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment from
time to time as follows:
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise to become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it represents the same proportion of the number of
shares of Common Stock then issued and outstanding as such proportion before the
applicable event described in this Section 5(a).
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
SECTION 6. REGISTRATION RIGHTS. (a) Upon the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee (whether on its own behalf or on behalf of any subsequent
holder of the Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto), promptly take such action as may be required under
applicable federal or state laws, including if applicable registering or
qualifying any shares issued and issuable pursuant to the Option for sale or the
sale of any such shares or otherwise securing any necessary governmental permits
or approvals for the sale of such shares (any and all such actions are
hereinafter referred to as a "Registration"), in order to permit the sale or
other
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disposition of any shares of Common Stock issued upon total or partial exercise
of the Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use commercially reasonable efforts to cause
such Registration to remain in effect for such period not in excess of 180 days
from the day such Registration is first effected. Grantee shall have the right
to demand two such Registrations at the Issuer's expense. The foregoing
notwithstanding, if, at the time of any such request by Grantee as provided
above, Issuer is in the process of a Registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering, the offering or inclusion of
the Option Shares would interfere materially with the successful marketing of
the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in such Registration contemplated hereby may be reduced;
provided, however, that after any such required reduction, the number of Option
Shares to be included in such Registration for the account of Grantee shall
constitute at least 33 1/3% of the total number of shares of Common Stock held
by Grantee and Issuer covered in such Registration; provided further, however,
that if such reduction occurs, then Issuer shall effect a Registration for the
balance of such shares as promptly as practicable thereafter as to which no
reduction shall thereafter occur. In addition, if the Issuer proposes to effect
a Registration with respect to its Common Stock or any other securities in such
a manner that would permit the Registration of the Shares or a sale of the
Shares for public sale (whether proposed to be offered for sale by the Issuer or
any other Person) it will give prompt written notice to Grantee of its intention
to do so, specifying the relevant terms of such proposal, including the proposed
maximum offering price thereof. Upon the written notice of Grantee (whether on
its own behalf or on behalf of any subsequent holder of the Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto) delivered
to the Issuer within 20 business days after the giving of any such notice, which
request shall specify the number of Shares desired to be disposed by Grantee,
the Issuer will use commercially reasonable efforts to effect, in connection
with such proposed action, the Registration of the Shares or a sale thereof set
forth in such request. Grantee shall be entitled to two such Registrations at
the Issuer's expense. Grantee shall provide all information reasonably requested
by Issuer for inclusion in connection with any such Registration. In connection
with any such Registration, Issuer and Grantee shall provide each other with
representations, warranties, indemnities and other agreements customarily given
in connection with such Registrations. If requested by Grantee in connection
with such Registration, Issuer and Grantee shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating themselves in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements.
(b) In the event that Grantee requests Issuer to effect a Registration
following the failure to obtain any approval required to exercise the Option as
described
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in Section 9 hereof, the closing of the sale or other disposition of the Common
Stock or other securities pursuant to such Registration shall occur
substantially simultaneously with the exercise of the Option.
(c) Except where applicable state law prohibits such payments, Issuer
will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders of Option Shares the subject of a Registration, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each Registration pursuant to this Section 6 (including the related
offerings and sales by holders of Option Shares) and all other qualifications,
notification or exemptions pursuant to this Section 6.
(d) In connection with any Registration under this Section 6, Issuer
hereby indemnifies the Grantee, and each officer, director and controlling
person of Grantee, and each underwriter thereof, including each person, if any
who controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Grantee, or by such underwriter, as the case may be, for all
such expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement, that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to Issuer by such holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall
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not relieve it of any liability which it may otherwise have to any indemnified
party under this Section 6(d). In case notice of commencement of any such action
shall be given to the indemnifying party as above provided, the indemnifying
party shall be entitled to participate in and, to the extent it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense of such action at its own expense, with counsel chosen by it and
reasonably satisfactory to such indemnified party. The indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel reasonably
satisfactory to the indemnified party, or (iii) the indemnified party has been
advised by counsel that one or more legal defenses may be available to the
indemnifying party that may be contrary to the interests of the indemnified
party. No indemnifying party shall be liable for the fees and expenses of more
than one separate counsel for all indemnified parties or for any settlement
entered into without its consent, which consent may not be unreasonably
withheld.
If the indemnification provided for in this Section 6(d) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the indemnifying
party, in lieu of indemnifying such party otherwise entitled to be indemnified,
shall contribute to the amount paid or payable by such party to be indemnified
as a result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of Issuer, the
Grantee and the underwriters in connection with the statements or omissions
which resulted in such expenses, losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the Grantee be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any Grantee
to indemnify shall be several and not joint with other holders of Option Shares.
SECTION 7. OPTION REPURCHASE. (a) Upon the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, (i) at the request
(the date of such request being the "Request Date") of Grantee, delivered within
30 days of the Purchase Event (or such later period as may be provided pursuant
to Section 9 hereof), Issuer shall repurchase the Option from Grantee at a price
(the "Option Repurchase Price") equal to (x) the amount by which (A) the
market/offer price (as
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defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which the Option may then be exercised and (ii) at the request (the date of
such request being the "Request Date") of the owner of Option Shares from time
to time (the "Owner"), delivered within 30 days of a Purchase Event (or such
later period as may be provided pursuant to Section 9 hereof), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to (x) the
market/offer price multiplied by the number of Option Shares so designated. The
term "market/offer price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made
after the date hereof and on or prior to the Request Date, (ii) the price per
share of Common Stock paid or to be paid by any third party pursuant to an
agreement with Issuer (whether by way of a merger, consolidation or otherwise)
or (iv) in the event of a sale of all or substantially all of Issuer's assets,
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a nationally-recognized
independent investment banking firm mutually selected by Grantee or the Owner,
as the case may be, on the one hand, and Issuer, on the other hand, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally-recognized independent investment
banking firm mutually selected by Grantee or Owner, as the case may be, on the
one hand, and Issuer, on the other hand, whose determination shall be conclusive
and binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and/or any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the Option
and/or the Option Shares in accordance with the provisions of this Section 7. As
immediately as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to Grantee the Option Repurchase Price or to the Owner the
Option Share Repurchase Price or the portion thereof that Issuer is not then
prohibited from so delivering under applicable law and regulation or as a
consequence of administrative policy.
(c) Issuer hereby undertakes to use commercially reasonable efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish any repurchase
contemplated by this Section 7. Nonetheless, to the extent that Issuer is
prohibited under applicable law or regulation from repurchasing the Option
and/or the Option Shares in full, Issuer shall immediately so notify Grantee
and/or the Owner and thereafter deliver or cause to be
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delivered, from time to time, to Grantee and/or the Owner, as appropriate, the
portion of the Option Repurchase Price and the Option Share Repurchase Price,
respectively, that it is no longer prohibited from delivering, within five
business days after the date on which Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to Section 7(b) is prohibited under applicable law or
regulation from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full Grantee or Owner may revoke its notice of repurchase of the Option or the
Option Shares either in whole or in part whereupon, in the case of a revocation
in part, Issuer shall promptly (i) deliver to Grantee and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering after taking into
account any such revocation and (ii) deliver, as appropriate, either (A) to
Grantee, a new Agreement evidencing the right of Grantee to purchase that number
of shares of Common Stock equal to the number of shares of Common Stock
purchasable immediately prior to the delivery of the notice of repurchase less
the number of shares of Common Stock covered by the portion of the Option
repurchased or (B) to the Owner, a certificate for the number of Option Shares
covered by the revocation.
(d) Issuer shall not enter into any agreement with any party (other
than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless the
other party thereto assumes all the obligations of Issuer pursuant to this
Section 7 in the event that a Grantee or Owner elects, in its sole discretion,
to require such other party to perform such obligations.
SECTION 8. SUBSTITUTE OPTION.
(a) Grant of Substitute Option. In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate or
merge with any Person, other than Grantee or a Grantee Subsidiary, and shall not
be the continuing or surviving corporation of such consolidation or merger, (ii)
to permit any Person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other Person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its or any Issuer Subsidiary's assets to any Person,
other than Grantee or a Grantee Subsidiary, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the Acquiring
Corporation (as defined below) or
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(y) any Person that controls the Acquiring Corporation (the Acquiring
Corporation and any such controlling Person being hereinafter referred to as the
"Substitute Option Issuer").
(b) Exercise of Substitute Option. The Substitute Option shall be
exercisable for such number of shares of the Substitute Common Stock (as is
hereinafter defined) as is equal to the market/offer price (as defined in
Section 7 hereof), multiplied by the number of shares of the Common Stock for
which the Option was theretofore exercisable, divided by the Average Price (as
is hereinafter defined). The exercise price of the Substitute Option per share
of the Substitute Common Stock (the "Substitute Purchase Price") shall then be
equal to the product of the Option Price multiplied by a fraction in which the
numerator is the number of shares of Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares for which
the Substitute Option is exercisable.
(c) Terms of Substitute Option. The Substitute Option shall otherwise
have the same terms as the Option, provided, however, that if the terms of the
Substitute Option cannot, for legal reasons, be the same as the Option, such
terms shall be as similar as possible and in no event less advantageous to
Grantee.
(d) Substitute Option Definitions. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving Person, and (iii) the transferee of all or any
substantial part of the Issuer's assets (or the assets of any Issuer
Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the Substitute Option;
and
(iii) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided, however, that if such closing price is not ascertainable due
to an absence of a public market for the Substitute Common Stock,
"Average Price" shall mean the higher of (i) the price per share of
Substitute Common Stock paid or to be paid by any third party pursuant
to an agreement with the issuer of the Substitute Common Stock and (ii)
the book value per share, calculated in accordance with generally
accepted accounting principles,
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of the Substitute Common Stock immediately prior to exercise of the
Substitute Option; provided, further, that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by Issuer, the Person merging into
Issuer or by any company which controls or is controlled by such
merging Person, as Grantee may elect.
(e) Cap on Substitute Option. In no event, pursuant to any of the
foregoing paragraphs, shall the Substitute Option be exercisable for more than
that proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of the Issuer which Grantee had the
right to acquire immediately prior to the issuance of the Substitute Option. In
the event that the Substitute Option would be exercisable for more than the
proportion of the outstanding Substitute Common Stock referred to in the
immediately preceding paragraph but for this clause (e), the Substitute Option
Issuer shall make a cash payment to Grantee equal to the excess of (i) the value
of the Substitute Option without giving effect to the limitation in this clause
(e) over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Grantee and reasonably
acceptable to the Acquiring Corporation.
SECTION 9. EXTENSION OF EXERCISE RIGHT. Notwithstanding Sections 2, 6
and 7 and 11 hereof, if Grantee has given the notice referred to in one or more
of such Sections, the exercise of the rights specified in any such Section shall
be extended (a) if the exercise of such rights requires obtaining regulatory
approvals (including any required waiting periods) to the extent necessary to
obtain all regulatory approvals for the exercise of such rights, and (b) to the
extent necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise; provided, however, that in no event shall any closing
date occur more than 6 months after the related Notice Date, and, if the closing
date shall not have occurred within such period due to the failure to obtain any
required approval by the Federal Reserve Board or any other Governmental
Authority despite the commercially reasonable efforts of Issuer or the
Substitute Option Issuer, as the case may be, to obtain such approvals, the
exercise of the Option shall be deemed to have been rescinded as of the related
Notice Date. In the event (a) Grantee receives official notice that an approval
of the Federal Reserve Board or any other Governmental Authority required for
the purchase and sale of the Option Shares will not be issued or granted or (b)
a closing date has not occurred within six months after the related Notice Date
due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the resale of the Option
Shares pursuant to a registration statement as provided in Section 6.
SECTION 10. ISSUER'S REPRESENTATIONS AND WARRANTIES. Issuer hereby
represents and warrants to Grantee as follows:
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(a) Corporate Authority. Issuer has full corporate power and authority
to execute and deliver this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly authorized, executed and delivered by
the Issuer.
(b) Availability of Shares. Issuer has taken all necessary corporate
action to authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, non-assessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(c) No Violations. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its articles of incorporation or by-laws,
or the comparable governing instruments of any of the Issuer Subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of the Issuer Subsidiaries (with or without the giving of notice, the lapse
of time or both) or under any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which it or any of the Issuer Subsidiaries is subject, that would, in any case
give any other person the ability to prevent or enjoin Issuer's performance
under this Agreement in any material respect.
SECTION 11. Grantee's Representations and Warranties. Grantee hereby
represents and warrants to issuer as follows:
(a) Corporate Authority. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and deliver of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Grantee. This Agreement has been duly authorized, executed and
delivered by Grantee.
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(b) Investment Intent. The Option is not being, and any shares of
Common Stock or other securities acquired by Grantee upon exercise of the Option
will not be, acquired with a view to the public distribution thereof and will
not be transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the Securities Act.
SECTION 12. Assignment. Neither of the parties hereto may assign any of
its rights or delegate any of its obligations under this Agreement or the Option
created hereunder to any other Person without the express written consent of the
other party, except that Grantee may assign this Agreement to a wholly owned
subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in
part after the occurrence of a Preliminary Purchase Event; provided, however,
that until the date at which both the Federal Reserve Board has approved an
application by Grantee under the BHCA and the California Commissioner of
Financial Institutions (the "Commissioner") has approved or exempted an
application by Grantee under Section 700 et. seq. of the California Financial
Code to acquire the shares of Common Stock subject to the Option, other than to
a wholly owned subsidiary of Grantee, Grantee may not assign its rights under
the Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Issuer, (iii) an assignment to a single party (e.g., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf, or (iv) any other manner approved by
the Federal Reserve Board and the Commissioner. The term "Grantee" as used in
this Agreement shall also be deemed to refer to Grantee's permitted assigns. Any
attempted assignment prohibited by this Section 12 is void and without effect.
SECTION 13. Filings and Consents. Each of Grantee and Issuer will use
its reasonable efforts to make all filings with, and to obtain consents of, all
third parties and Governmental Authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation,
making application if necessary, for listing of the shares of Common Stock
issuable hereunder on any exchange or quotation system and applying to the
Federal Reserve Board under the BHCA and to state banking authorities for
approval to acquire the shares issuable hereunder.
SECTION 14. Remedies. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties shall hereto be enforceable by either
party hereto through injunctive or other equitable relief. Both parties further
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
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SECTION 15. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to Section 7, the
full number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or Section 5 hereof), it is the express
intention of Issuer to allow Grantee to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
SECTION 16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in Person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Plan.
SECTION 17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement and shall be effective at the time
of execution.
SECTION 18. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
SECTION 19. Entire Agreement. Except as otherwise expressly provided
herein or in the Plan, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
SECTION 20. Definitions. Capitalized terms used in this Agreement and
not defined herein but defined in the Plan shall have the meanings assigned
thereto in the Plan.
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SECTION 21. Effect on Plan. Nothing contained in this Agreement shall
be deemed to authorize Issuer or Grantee to breach any provision of the Plan.
SECTION 22. Selections. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection shall
be made by a majority in interest of such Grantees.
SECTION 23. Further Assurances. In the event of any exercise of the
option by Grantee, Issuer and such Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
SECTION 24. Voting. Except to the extent Grantee exercises the Option,
Grantee shall have no rights to vote or receive dividends or have any other
rights as a shareholder with respect to shares of Common Stock covered hereby.
SECTION 25. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
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IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
WESTERN BANCORP
By: /s/ Xxxxxx X. Xxxx
--------------------------------------------
Name: Xxxxxx X. Xxxx
Title: Executive Vice President and Chief
Financial Officer
PNB FINANCIAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President and Chief Executive Officer
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