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STOCK OPTION AGREEMENT
DATED AS OF THE 24th DAY OF JULY, 1998
BY AND BETWEEN
WESTERN BANCORP
AND
PENINSULA BANK OF SAN DIEGO
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 24th day of July, 1998
(this "Agreement"), between Western Bancorp, a California corporation
("Grantee"), and Peninsula Bank of San Diego, 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 494,930 fully paid and nonassessable shares of Common
Stock, no par value per share ("Common Stock"), of Issuer at a fixed price
per share of $41.00 (the "Initial Price"); PROVIDED, HOWEVER, that in the
event Issuer issues or agrees to issue any shares of Common Stock at a price
less than the Initial Price (as adjusted pursuant to Section 5(b)), such
price shall be equal to such lesser price (such price, as adjusted as
hereinafter provided, the "Option Price"); and, PROVIDED FURTHER, 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 8.01(b)(i) or (ii), by
Grantee and Issuer pursuant to Section 8.01(a) thereof if Grantee shall at
that time have been entitled to terminate the Plan pursuant to Section
8.01(b)(i) or (ii) thereof or by Issuer pursuant to 8.01(g), or (v) 18 months
after the termination of the Plan by Grantee pursuant to Section 8.01(b)(i)
or (ii), by Grantee and Issuer pursuant to Section 8.01(a) thereof if Grantee
shall at that time have been entitled to terminate the Plan pursuant to
Section 8.01(b)(i) or (ii) thereof or by Issuer pursuant to 8.01(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
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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 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.
(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
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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 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.
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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. Section 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 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
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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 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 its best 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
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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 its best 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 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
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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 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
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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 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
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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 its best 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 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
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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 (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.
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(c) TERMS OF SUBSTITUTE OPTION. The Substitute Option shall
otherwise have the same terms as the Option, PROVIDED, HOWEVER, that if the
terms of the Substitute Option cannot, for legal reasons, be the same as the
Option, such terms shall be as similar as possible and in no event less
advantageous to Grantee.
(d) SUBSTITUTE OPTION DEFINITIONS. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving Person, and (iii) the transferee of all or any
substantial part of the Issuer's assets (or the assets of any Issuer
Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the Substitute Option;
and
(iii) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of the Substitute Common Stock on
the day preceding such consolidation, merger or sale; PROVIDED,
HOWEVER, that if such closing price is not ascertainable due to an
absence of a public market for the Substitute Common Stock, "Average
Price" shall mean the higher of (i) the price per share of Substitute
Common Stock paid or to be paid by any third party pursuant to an
agreement with the issuer of the Substitute Common Stock and (ii) the
book value per share, calculated in accordance with generally accepted
accounting principles, of the Substitute Common Stock immediately prior
to exercise of the Substitute Option; PROVIDED, FURTHER, that if Issuer
is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by Issuer, the
Person merging into Issuer or by any company which controls or is
controlled by such merging Person, as Grantee may elect.
(e) CAP ON SUBSTITUTE OPTION. In no event, pursuant to any of
the foregoing paragraphs, shall the Substitute Option be exercisable for more
than that 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
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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 best efforts of
Issuer or the Substitute Option Issuer, as the case may be, to obtain such
approvals, the exercise of the Option shall be deemed to have been rescinded
as of the related Notice Date. In the event (a) Grantee receives official
notice that an approval of the Federal Reserve Board or any other
Governmental Authority required for the purchase and sale of the Option
Shares will not be issued or granted or (b) a closing date has not occurred
within 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:
(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.
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(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.
(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
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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.
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.
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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.
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:
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President and Chief Executive Officer
PENINSULA BANK OF SAN DIEGO
By:
--------------------------------------------
Name: Xxxx X. Xxxxxx, Xx.
Title: Chairman and Chief Executive Officer
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