Exhibit 10.7 Stock Purchase Agreement
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement dated as of December 1, 2000, is by and
among Centennial First Financial Services, a California corporation
("Centennial"), Community West Bancshares, a California corporation
("Community"), Community's wholly-owned subsidiary, Palomar Community Bank, a
California banking corporation ("Palomar") and Xxxxxxx Xxxxxxx, President and
Chief Executive Officer of Palomar ("Xxxxxxx").
RECITALS:
WHEREAS, Xxxxxxx has entered into a letter of intent dated as of
September 15, 2000, with Community which letter of intent provides for Xxxxxxx'x
acquisition of Palomar from Community;
WHEREAS, the Parties agree that such letter of intent is terminated
with the execution of this Agreement;
WHEREAS, Centennial wishes to acquire all of the outstanding stock of
Palomar from Community under the terms of the letter of intent as amended by
this Agreement;
WHEREAS, the respective Boards of Directors of Palomar, Community and
Centennial have determined that it is in the best interests of Palomar,
Community and Centennial and their respective shareholders for Centennial to
purchase the outstanding shares of Palomar from Community, upon the terms and
subject to the conditions set forth in this Agreement and in accordance with the
California Corporations Code and other applicable laws (the "Stock Purchase");
WHEREAS, each of the Boards of Directors of Community, Centennial and
Palomar have approved this Agreement and the transactions contemplated hereby;
and
WHEREAS, upon the consummation of the Stock Purchase, Palomar shall
become a wholly-owned subsidiary of Centennial.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and other agreements set forth herein,
and intending to be legally bound hereby, Centennial, Community, Palomar and
Xxxxxxx hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms contained in this Agreement and not
defined in the preamble or the recitals above shall have the meanings set forth
in this+ Section 1.1:
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"AUDITED FINANCIAL STATEMENTS" means Palomar's audited balance sheet,
cash flow statement and statement of shareholders' equity, with footnotes,
prepared in accordance with GAAP, as of December 31, 2000 and December 31, 1999
and for the year then ended, as audited by Palomar's independent auditors, and
income statement for the three years ending December 31, 2000, as audited by
Palomar's independent auditors.
"ACCOUNTING LETTER" shall have the meaning set forth in Section 5.2.10.
"AFFILIATE" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person, or a
Principal Shareholder of such Person. As used in this definition, "control"
(including with its correlative meanings, "controlled by" and "under common
control with") means the possession, directly or indirectly, of power to direct
or cause the direction of the management and policies of a Person whether
through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Stock Purchase, including the Disclosure
Schedules and all Exhibits hereto, as the same may be hereafter amended.
"ASSOCIATE" shall have the meaning ascribed thereto in Rule 14a-1 under
the Exchange Act.
"BALANCE SHEET DATE" means September 30, 2000.
"BENEFIT PLAN" means any employee benefit plan (including any "employee
benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed to
by the applicable entity.
"BORROWER GROUP OBLIGATIONS" means, as the context requires, all loans
from Palomar and other obligations to Palomar of, (a) the applicable borrower,
(b) all guarantors of such borrower, and (c) all affiliates and associates of
such borrower and guarantors.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday or
Friday that banks in the State of California are not required by Law to be
closed.
"CAPITAL RAISING DATE" means June 15, 2001, if Centennial receives the
Audited Financial Statements on or before February 28, 2001, or June 15, 2001
plus that number of days which elapse after February 28, 2001 until the date on
which Centennial receives the Audited Financial Statements.
"CENTENNIAL" means Centennial First Financial Services, a California
corporation.
"CENTENNIAL GOVERNMENTAL APPROVALS" means the approvals listed on
DISCLOSURE SCHEDULE SECTION 3.2.4.
"CENTENNIAL MINIMUM NEW CAPITAL" means $5,500,000 of equity capital.
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"CLASSIFIED ASSET" means (a) any loan or lease asset that is classified
on the books and records of the applicable entity as "Substandard," "Doubtful"
or "Loss," and (b) any property classified on the books and records of the
applicable entity as OREO.
"CLOSING" means the closing of the Stock Purchase, to be held on the
Closing Date at a location fixed pursuant to Section 7.1.
"CLOSING DATE" shall mean the date as of which the Closing of the Stock
Purchase occurs, as the same may be fixed pursuant to Section 7.1.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK CONSIDERATION" shall mean $10,500,000.
"COMMUNITY" means Community West Bancshares.
"COMMUNITY GOVERNMENTAL APPROVALS" means the approvals listed on
DISCLOSURE SCHEDULE SECTION 3.1.7.
"CRITICIZED ASSET" means any Classified Asset and any other loan or
lease asset of the applicable Party classified on the books and records of the
applicable Party as Other Loans Especially Mentioned, Special Mention,
Classified, Criticized, Credit Risk Assets, Concerned Loans or by words of
similar import.
"DFI" means the California Department of Financial Institutions.
"DIRECTOR AGREEMENT" shall mean an agreement in substantially the form
of EXHIBIT 3.1.5.
"DISCLOSURE SCHEDULE" means the schedule delivered prior to the
execution of this Agreement by Community to Centennial, as supplemented
hereafter from time to time in accordance with Section 4.5.
"EFFECTIVE TIME" means the time of the Closing of the Stock Purchase.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" means U.S. Stock Transfer or a banking institution,
corporate trust company or entity regularly engaged in a stock transfer business
that Centennial shall appoint to act as exchange agent hereunder with the
approval of Community.
"EXPENSES" means all legal, accounting, consulting, investment banking
and other fees and expenses incurred by the applicable Party in connection with
the Stock Purchase (including expenses incurred in connection with the
preparation of this Agreement and all negotiations, due diligence and other
activities conducted prior hereto, including all broker's, finder's and similar
fees and severance
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expenses), not to exceed $250,000 and excluding any costs or expenses of
enforcing this Agreement otherwise payable under Section 7.14.
"EXPIRATION DATE" means the close of business on the date that is
fifteen (15) days following the Capital Raising Date.
"FDIC" means the Federal Deposit Insurance Corporation.
"FINAL APPROVAL DATE" means the date on which the final Governmental
Approval is received.
"GAAP" means generally accepted accounting principles as in effect in
the United States, consistently applied.
"GOVERNMENTAL APPROVAL" means the approval of, or effectiveness of a
filing or registration with, a Governmental Entity necessary or desirable for
the consummation of the Stock Purchase (including the expiration of any waiting
period imposed thereby), including the Community Governmental Approvals and
Centennial Governmental Approvals.
"GOVERNMENTAL ENTITY" means any administrative agency, commission,
court or other governmental authority or instrumentality, domestic or foreign,
including any government sponsored corporation having regulatory authority under
law.
"HAZARDOUS MATERIAL" means any pollutant, contaminant, waste or
hazardous or toxic substance regulated by Law as such, and petroleum or
petroleum products.
"INTERIM FINANCIAL STATEMENTS" means the Palomar unaudited balance
sheet, income statement and cash flow statement, prepared in accordance with
GAAP, as of September 30, 2000 and for the nine months then ended.
"LAW" means any statute, law, ordinance, rule or regulation of any
Governmental Entity that is applicable to the referenced Person.
"LOANS" shall have the meaning set forth in Section 3.1.11(1).
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the business, properties, assets, liabilities, results of
operations or financial condition of such Person (including such an effect
caused indirectly through any of its subsidiaries), or on the ability of such
Person to consummate the Stock Purchase on the terms hereof; PROVIDED, HOWEVER,
that a Material Adverse Effect does not include a change with respect to, or
effect on, such Person resulting from a change in Law, GAAP, RAP, or a change
with respect to, or effect on, such Person resulting from any other matter
having a comparable effect on financial institutions generally.
"OLEM ASSET" means any loan or lease asset of the applicable entity
classified on the books and records of the applicable entity as "Other Loans
Especially Mentioned," "Special Mention," "Criticized," "Credit Risk Assets,"
"Concerned Loans" or by words of similar import.
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"PALOMAR" means Palomar Community Bank, a California state-chartered
bank and wholly owned subsidiary of Community.
"PALOMAR COMMON STOCK" means the no par value common stock of Palomar.
"PALOMAR EMPLOYEE PLAN" shall have the meaning set forth in Section
3.1.18(1).
"PALOMAR REGULATORS" means any and all Federal or state Governmental
Entities charged with the supervision or regulation of Palomar.
"PALOMAR TANGIBLE MINIMUM SHAREHOLDERS' EQUITY" means $6,300,000.
"PALOMAR TANGIBLE SHAREHOLDERS' EQUITY" means the shareholders' equity
of Palomar as of the month end prior to the Closing Date, determined in
accordance with RAP and this Agreement, excluding all goodwill and intangibles
on the books of Palomar.
"PARTIES" means, collectively, Centennial, Community, Palomar and
Xxxxxxx.
"PERSON" means any natural person, corporation, limited liability
company, general or limited partnership, limited liability partnership, joint
venture, joint stock company, trust, unincorporated organization, association,
sole proprietorship, governmental body, or agency or political subdivision of
any government.
"PRINCIPAL SHAREHOLDER" means a holder of five percent (5%) or more of
the outstanding common stock of a Person.
"QUALILFYING STRATEGIC TRANSACTION PROPOSAL" shall have the meaning
given the term in Section 4.1.2.
"RAP" means Regulatory Accounting Principles, as interpreted by the
applicable entity's principal Federal Bank Regulator.
"RECORDS" means all books, records and original documents in
Community's or Palomar's possession which pertain to and are utilized by
Community, Palomar or any of their respective subsidiaries to administer,
reflect, monitor, evidence or record information respecting the business and
operations of Palomar, including but not limited to all books, records and
documents relating to (a) corporate, regulatory, supervisory and litigation
matters of Palomar, (b) tax planning and payment of taxes of Palomar, (c)
personnel and employment matters of Palomar, and (d) the business or conduct of
the business of Palomar.
"REGULATORY AGREEMENT" means any regulatory agreement, memorandum of
understanding or similar agreement with, any cease and desist or similar order
or directive entered or issued by, commitment letter or similar undertaking to,
any extraordinary supervisory letter from, any Palomar Regulator.
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"REPRESENTATIVES" means each of the applicable Person's directors,
officers, employees, agents, representatives and advisors.
"RETURNS" shall have the meaning set forth in Section 3.1.16(1).
"SBA LOANS" mean loans originated by or through or with the assistance
of or the repayment of which is guaranteed, in whole or in part, by the Small
Business Administration.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK PURCHASE" means the purchase by Centennial of all the
outstanding shares of Palomar Common Stock from Community, as more particularly
described in Section 2.1.
"STRATEGIC TRANSACTION" means (a) any acquisition or purchase after
December 1, 2000 of all or a significant (i.e., more than 10%) portion of the
assets of, or a more than 10% equity interest in, Palomar, (b) the acquisition
or purchase after December 1, 2000 by a shareholder or shareholders acting in
concert and owning as of December 1, 2000, 10% or more of the outstanding
Palomar Common Stock, or (c) any merger or other business combination involving
Palomar or any recapitalization involving Palomar.
"STRATEGIC TRANSACTION PROPOSAL" means any proposal regarding a
Strategic Transaction.
"TAX" means, except where the context otherwise requires, all Federal,
state, local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise, ad valorem, transfer,
license, occupancy, stamp and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts.
"VIOLATION" means a conflict with, violation of, default under,
creation of a right of termination under, cancellation of, acceleration of any
obligation under, loss of a material benefit under, or creation of any lien,
pledge, security interest, charge or other encumbrance on assets under, the
referenced Law, organic document, agreement or other instrument, in each case
with or without notice or lapse of time, or both.
1.2 RULES OF CONSTRUCTION. The following rules of construction shall
apply to the interpretation of this Agreement:
1.2.1 Any reference to any event, change or effect being
"material" with respect to any Person means an event, change or effect which is
material in relation to the condition (financial or otherwise), properties,
assets, liabilities, businesses or operations of such entity and its
subsidiaries taken as a whole.
1.2.2 Disclosure of any matter in the Disclosure Schedule
hereto shall not be deemed to imply that such matter is or is not material, and
shall not constitute an admission or raise any inference that such matter
constitutes a violation of law or an admission of liability or facts supporting
liability.
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1.2.3 Whenever used in this Agreement, the word "including"
shall be nonexclusive and shall mean "including without limitation."
1.2.4 All references to Sections, Articles and sections of the
Disclosure Schedule shall, unless another agreement is expressly referenced,
mean the applicable sections or articles of, or section of the Disclosure
Schedule to, this Agreement.
1.2.5 The section titles and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
1.2.6 The terms "herein," "hereunder," and terms of similar
import refer to this Agreement as a whole and not to the specific Section or
Article in which they are used.
1.2.7 The phrase "to the knowledge" of a Party (and phrases of
similar import) shall mean to the actual knowledge, after reasonable inquiry, of
the executive officers of Centennial and Community, as applicable.
1.2.8 This Agreement is the joint product of Centennial and
Community, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such Parties, and shall not be
construed for or against any Party.
ARTICLE II
THE STOCK PURCHASE
2.1 THE STOCK PURCHASE. Centennial and Community shall be the
constituent corporations to the Stock Purchase. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Stock Purchase shall be
effected by means of the payment by Centennial in cash of the Common Stock
Consideration for all of the outstanding shares of Palomar Common Stock to
Community.
2.2 CORPORATE DOCUMENTS, DIRECTORS AND OFFICERS. From and after the
Effective Time and thereafter until amended as provided by law, the Articles of
Incorporation of Palomar shall be the Articles of Incorporation of Palomar as in
effect immediately prior to the Effective Time and the Bylaws of Palomar shall
be the Bylaws of Palomar as in effect immediately prior to the Effective Time.
At the Effective Time, such individuals as may be selected by Centennial shall
be the directors of Palomar, and the officers of Palomar shall be those officers
appointed to offices of Palomar by the Board of Directors of Centennial. Each
such director or officer shall serve until his or her successor has been duly
elected or appointed and qualified or until his or her earlier death,
resignation or removal in accordance with the terms of Palomar's Articles of
Incorporation and Bylaws.
2.3 DELIVERY OF CASH AND PALOMAR COMMON STOCK TO EXCHANGE AGENT.
Subject to the terms and conditions hereof, immediately prior to the Closing
Centennial shall issue and deliver
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to the Exchange Agent cash in the amount of the Common Stock Consideration and
Community shall deliver the outstanding shares of Palomar Common Stock to the
Exchange Agent.
2.4 EXCHANGE PROCEDURES. At the Effective Time, the Exchange Agent
shall deliver the cash payment for the Common Stock Consideration to Community
and deliver the share certificate for all of the outstanding shares of Palomar
Stock to Centennial.
2.5 CLOSING OF PALOMAR TRANSFER BOOKS. At the Effective Time, the
transfer books for Palomar Common Stock shall be closed, and no transfer of
shares of Palomar Common Stock shall thereafter be made on such books.
2.6 ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary in
this Agreement, Centennial or Community may specify, with the approval of the
other Parties, that Centennial, Community, Palomar or an affiliate or subsidiary
of the Parties shall enter into transactions other than those described in this
Article II in order to effect the Stock Purchase of Palomar by Centennial, and
the Parties shall take or cause to be taken all actions necessary or appropriate
to effect such transactions; PROVIDED, however, that no such transaction may (a)
alter the form or change the amount of the Common Stock Consideration; (b)
diminish the benefits to be received or impose additional obligations upon the
directors, officers or employees of Community; or (c) materially delay the
receipt of any necessary Governmental Approval.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 BY PALOMAR AND COMMUNITY. Palomar and Community represent and
warrant as follows, except as specifically disclosed in the Disclosure Schedule
and Community does not represent and warrant anything for Palomar prior to
December 31, 1997 and concerning Sections 3.1.9, 3.1.11, 3.1.14 and 3.1.15:
3.1.1 ORGANIZATION, STANDING AND POWER. Community is a
California corporation duly organized, validly existing and in good standing
under the laws of the State of California. Community has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which a failure to be so qualified could
reasonably be expected to have a Material Adverse Effect on Community.
Palomar is a California banking corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and is authorized to conduct a general banking business by the DFI. The deposit
accounts of Palomar are insured by the FDIC, and all premiums and assessments
required in connection therewith have been paid by Palomar as the same have
become due. Palomar has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
Material Adverse Effect on Palomar. Copies of the Articles of Incorporation and
Bylaws of Palomar, including all amendments thereto as of the date of this
Agreement, have been
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delivered to Centennial and are complete and correct. The minute books of
Palomar accurately reflect in all material respects all corporate actions held
or taken by Community as Palomar's sole shareholder and Palomar's Board of
Directors, including all committees of such Board of Directors.
3.1.2 CAPITAL STRUCTURE. As of the date hereof, the authorized
capital stock of Palomar consists of 5,000,000 shares of Palomar Common Stock,
of which 648,186 shares are issued and outstanding and 5,000,000 shares of
Serial Preferred Stock, of which no shares are issued and outstanding. No shares
are held in treasury by Palomar, and no shares are reserved for future issuance.
All outstanding shares of Palomar Common Stock and preferred stock have been
duly authorized and validly issued and are fully paid and nonassessable, and are
not subject to preemptive rights. All of the issued and outstanding shares of
Palomar Common Stock and preferred stock have been offered, issued and sold by
Palomar in compliance in all material respects with applicable federal and state
securities laws and regulations and in compliance with any preemptive right held
by any Person. Community is the only shareholder of Palomar. There are no
options, warrants, calls, rights, commitments or agreements of any character,
outstanding or in existence as of the date hereof to which Palomar is a party or
by which Palomar is bound obligating it to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other
securities of Palomar or obligating Palomar to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. There are no
outstanding contractual obligations of Palomar to repurchase, redeem or
otherwise acquire any shares of capital stock of Palomar. There are no bonds,
debentures, notes or other instruments evidencing indebtedness of Palomar issued
or outstanding that entitle the holders thereof to vote on any matters on which
Community, as Palomar's sole shareholder, may vote.
3.1.3 INTERESTS IN OTHER ENTITIES. Except as disclosed in
DISCLOSURE SCHEDULE SECTION 3.1.3, Palomar has no subsidiaries and does not
otherwise hold any outstanding equity securities of any corporation or other
entity, is not a member of any partnership, joint venture or similar entity, and
is not a party to any partnership agreement or joint venture agreement, however
named.
3.1.4 AUTHORITY AND RELATED MATTERS. Subject only to the
approval of the Stock Purchase and this Agreement by the Community and
Centennial Governmental Approvals, Palomar and Community (a) have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby (including the Stock Purchase), and (b) have
duly authorized the execution and delivery of this Agreement, and the
consummation of such transactions (including the Stock Purchase) by all
necessary corporate action on the part of Palomar's and Community's Boards of
Directors. This Agreement has been duly executed and delivered by Palomar and
Community and assuming due authorization, execution and delivery by Centennial,
constitutes the valid and binding obligation of Palomar and Community,
enforceable in accordance with its terms subject only to laws regarding
bankruptcy, insolvency, reorganization, moratorium or otherwise affecting
creditors' rights generally, to the application of general principles of equity
(whether considered in a proceeding in law or at equity), and to the provisions
of 12 U.S.C. Section 1818(b)(6)(D) and the powers of the FDIC thereunder.
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3.1.5 PALOMAR AGREEMENTS. Each executive officer and
director of Palomar has executed and delivered to Centennial an agreement,
covering the matters described therein, in substantially the form of EXHIBIT
3.1.5.
3.1.6 CONFLICTS. Neither the execution and delivery of this
Agreement, nor consummation of the transactions contemplated hereby (including
the Stock Purchase) nor compliance by Palomar and Community with any of the
provisions hereof, (a) conflict with or result in a breach of any provisions of
the Articles of Incorporation or Bylaws of Palomar or Community (b) except as
set forth in DISCLOSURE SCHEDULE SECTION 3.1.6, violate, conflict with or result
in a breach of any term, condition or provision of, or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon any property or asset of Palomar or Community pursuant to, any
note, bond, mortgage, indenture, deed of trust, lease, agreement or other
instrument or obligation to which Palomar or Community is a party, or by which
any of its respective properties or assets may be bound or affected, or (c)
subject to receipt of all required governmental and shareholder approvals,
violate any law, rule or regulation or any judgment, decree, order, governmental
permit or license applicable to Palomar or Community, excluding from the
foregoing clauses (b) and (c) conflicts, breaches, defaults or violations which,
either individually or in the aggregate, would not have a Material Adverse
Effect on Palomar or Community, respectively.
3.1.7 CONSENTS. Except as disclosed on DISCLOSURE SCHEDULE
SECTION 3.1.7 (collectively, the "COMMUNITY GOVERNMENTAL APPROVALS"), no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or other Person is required in connection
with Palomar's and Community's execution and delivery of this Agreement or its
consummation of the Stock Purchase, as to which the failure to obtain the same
could reasonably be expected to have a Material Adverse Effect on Palomar or
Community or materially interfere with Palomar's or Community's ability to
consummate the Stock Purchase.
3.1.8 FINANCIAL STATEMENTS; RECORDS. Palomar has provided to
Centennial the unaudited financial statements for the years ended December 31,
1999 and December 31, 1998 and the Interim Financial Statements, as well as
audited financial statements for Palomar for the year ended December 31, 1997,
audited by Peat Marwick. Community and Palomar will use their best efforts to
deliver to Centennial the Audited Financial Statements on or before February 28,
2001. All such financial statements comply, and the Audited Financial
Statements, as audited and when delivered, will comply in all material respects,
with applicable accounting requirements and have been prepared in accordance
with GAAP, and fairly present the financial position of Palomar as of the dates
thereof and the results of its operations and cash flows for the periods then
ended. The Records of Palomar accurately and fairly reflect, in all material
respects, the business and activities of Palomar.
3.1.9 REGULATORY FILINGS AND AGREEMENTS. Except as set forth
in DISCLOSURE SCHEDULE SECTION 3.1.9, Palomar has timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since December 31, 1995 with
any Palomar Regulator, and has paid all fees and assessments due and payable in
connection therewith. Except as set forth on DISCLOSURE SCHEDULE SECTION 3.1.9,
and
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except for normal examinations conducted by a Palomar Regulator in the regular
course of the business of Community, (a) no Palomar Regulator has initiated any
proceeding or investigation or, to the best knowledge of Community, has
threatened to initiate any proceeding or investigation, into the business or
operations of Palomar or Community since December 31, 1995; (b) Palomar is not
a party to or subject to, and since December 31, 1995 has not been a party to
or subject to, any Regulatory Agreement with or from, and has not adopted any
board resolutions at the request of, any Palomar Regulator that restricts the
conduct of Palomar's business or in any manner relates to its business or
financial condition, including without limitation its capital adequacy, credit
policies, loan origination practices or management; (c) to the best knowledge
of Palomar and Community, no Palomar Regulator is contemplating issuing or
requesting (or considering the appropriateness of issuing or requesting) any
such Regulatory Agreement; (d) there is no material unresolved violation,
criticism, or exception by any Palomar Regulator with respect to any report or
statement relating to any examination of Palomar; (e) the most recent
Regulatory Rating given to Palomar respecting both CRA and other compliance
matters is "satisfactory;" and (f) to the best knowledge of Palomar and
Community, since the date of Palomar's last compliance examination it has not
received any complaints regarding its compliance with CRA, Regulation B of the
Federal Reserve Board or other similar Laws.
3.1.10 UNDISCLOSED LIABILITIES. Except as and to the extent
reflected in the Interim Financial Statements or set forth on DISCLOSURE
SCHEDULE SECTION 3.1.10, Palomar has no liabilities, commitments or obligations
of any nature, whether absolute, accrued, contingent or otherwise, and whether
due or to become due, and which would be required under GAAP to be shown in such
balance sheet or referenced in the notes thereto, other than (a) obligations
(including guarantees and letters of credit) not required by GAAP to be
reflected, reserved against or disclosed in its Interim Financial Statements,
all of which are set forth on DISCLOSURE SCHEDULE SECTION 3.1.10 and none of
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Palomar and (b) those incurred in the ordinary course
of business consistent with past practice since the Balance Sheet Date.
3.1.11 LOANS, CLASSIFIED AND OLEM ASSETS, RESERVES.
(1) All currently outstanding loans of, or
current extensions of credit or credit commitments by, Palomar (the "LOANS")
were solicited, originated and currently exist in material compliance with all
applicable requirements of Federal and state law and regulations promulgated
thereunder and applicable loan policies of Palomar, except (i) for such changes
to the circumstances of the obligor thereunder or the collateral occurring
subsequent to the origination thereof, (ii) as set forth in DISCLOSURE SCHEDULE
SECTION 3. l.11 or (iii) where the failure to so comply would not result in a
Material Adverse Effect on Palomar. Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.11, to Palomar's knowledge the Loans are adequately documented and
each note evidencing a Loan or loan or credit agreement or security instrument
related to the Loans constitutes a valid, legal and binding obligation of the
obligor thereunder, enforceable in accordance with the terms thereof, except
that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and except that enforcement thereof may be subject
to general principles of equity (regardless of whether enforcement is considered
in a proceeding of law or in equity) and the availability of equitable remedies.
Except as set forth in DISCLOSURE SCHEDULE SECTION 3.1.11, no claims of defense
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as to the enforcement of any Loan have been asserted against Palomar for which
there is a reasonable possibility of an adverse determination, and neither
Palomar nor Community is aware of any acts or omissions which would give rise to
any claim or right of rescission, set-off, counterclaim or defense for which
there is a reasonable possibility of an adverse determination to Palomar, where
such adverse determination could be expected to have a Material Adverse Effect
on Palomar.
(2) As of the Balance Sheet Date, the only assets of
Palomar that were (a) Classified Assets or OLEM Assets on Palomar's Records, or
(b) over 90 days delinquent in payment of principal or interest whether or not
the same are Classified Assets or OLEM Assets, are those listed on Part A of
DISCLOSURE SCHEDULE SECTION 3.1.11 hereto (which Disclosure Schedule Section
identifies the asset by loan number or other designation and sets forth the
original principal amount, the current book balance, the amount of any reserve
(or portion of the general reserve) allocated thereto, and the loan
classification). The loan and other asset classification procedures utilized by
Palomar are in accordance with RAP and prudent banking practice, and are
consistently applied. Part B of DISCLOSURE SCHEDULE SECTION 3.1.11 sets forth a
complete list of all existing or pending Loans or other agreements or
understandings between Palomar and directors, Principal Shareholders, officers,
employees or Affiliates of Palomar and Community, or their related interests all
of which comply, in all respects, with all provisions of applicable Law.
(3) Palomar currently maintains, and shall
continue to maintain, an allowance for loan losses allocable to the Loans which
is adequate to provide for all known and estimable losses, net of any recoveries
relating to such extensions of credit previously charged off, on the Loans, such
allowance for loan losses complying in all material respects with all applicable
loan loss reserve requirements established in accordance with GAAP and by any
Governmental Authority having jurisdiction with respect to Palomar.
3.1.12 INVESTMENT SECURITIES. DISCLOSURE SCHEDULE SECTION
3.1.12 describes all of the investment securities owned by Palomar as of the
date hereof, including identification of the type of security, CUSIP numbers,
pool face values (where applicable), book values, market values and coupon
rates. Except as identified on such schedule, Palomar does not hold any forward
contracts, futures, options on futures, swaps or other derivative instruments.
3.1.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in DISCLOSURE SCHEDULE SECTION 3.1.13, since December 31, 1999, (a)
Palomar has conducted it business in the ordinary and usual course and (b) no
event has occurred or circumstance arisen that, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
Palomar.
3.1.14 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in
DISCLOSURE SCHEDULE SECTION 3.1.14, the business of Palomar is, and at all times
since December 31, 1995 has been, conducted in compliance with all Laws
(including those relating to equal credit, fair lending, fair housing and
community reinvestment), except where a failure to so comply individually or in
the aggregate could not reasonably be expected to have a Material Adverse Effect
on Palomar, and (b) Palomar holds all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities that are material to the
operation of the business of Palomar, and is in compliance with the terms of the
same except where the failure so to comply individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect on Palomar.
12
3.1.15 LITIGATION AND OTHER DISPUTES. Except as disclosed on
DISCLOSURE SCHEDULE SECTION 3.1.15, (a) there is no suit, action, or proceeding
(including any cross- or counter-claim) pending or, to the knowledge of Palomar
and Community, threatened, against or affecting Palomar, or any of its assets,
nor is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Palomar the obligations under which
have not heretofore been fully performed; (b) Palomar has not accrued or set
aside any reserves relating to any suit, action, or proceeding (including any
cross- or counter-claim) pending or, to the knowledge of Palomar, threatened,
against or affecting Palomar or any of its respective assets; (c) since December
31, 1995, Palomar has not been a defendant, either directly or as
defendant-in-counterclaim or cross-claim, in any litigation in which any "lender
liability" cause of action was asserted against it; and (d) there are no claims
pending by any director, officer, employee or agent of Palomar for
indemnification under any outstanding indemnification agreement, arrangement or
understanding respecting indemnification or under applicable laws relating to
indemnification.
3.1.16 TAXES.
(1) Palomar has (i) correctly prepared
and timely filed all returns, declarations, estimates, reports, claims for
refund, information returns and statements ("RETURNS") required to be filed with
respect to all Taxes, (ii) timely and properly paid all Taxes that are due and
payable, (iii) established on its Records reserves that are adequate for the
payment of all Taxes accrued but not yet due and payable and (iv) complied with
all Laws relating to the withholding and payment of all Taxes with respect to
employees' wages.
(2) There are no actual or proposed Tax
deficiencies, assessments, or adjustments for Taxes with respect to Palomar or
any of its respective assets, property or operations. Except as set forth in
DISCLOSURE SCHEDULE SECTION 3.1.16, (i) there are no liens for Taxes upon the
assets of Palomar (other than liens for taxes not yet due and payable), (ii)
Community or Palomar has not requested any extension of time within which to
file any Return which has not since been filed, (iii) there are no waivers or
consents given by Community or Palomar regarding the application of the statute
of limitations with respect to any Taxes or Returns of Palomar, and (iv) no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings are pending against Palomar with regard to any Taxes or
Returns.
(3) Palomar has not made any payments and is
not obligated under any contract to make any payments that will be
nondeductible, in whole or in part, under Section 280G or 162(m) of the Code.
3.1.17 CERTAIN AGREEMENTS.
(1) Except as disclosed on DISCLOSURE SCHEDULE
SECTION 3.1.17, Palomar is not a party to, is bound or affected by, or receives
or is obligated to pay, benefits under (i) any agreement, arrangement or
commitment, including without limitation any agreement, indenture or other
instrument, relating to the borrowing of money by Palomar (other than in the
case of deposits, federal funds purchased and securities sold under agreements
to repurchase in the ordinary course of business) or the guarantee by Palomar of
any obligation; (ii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in
13
office of any present or former director, officer or employee of Palomar, other
than any agreement, arrangement or commitment terminable at will and without the
payment of any penalty by Palomar, or the termination of which otherwise would
not have a Material Adverse Effect on Palomar; (iii) any agreement, arrangement
or understanding pursuant to which any payment (whether of severance pay or
otherwise) became or may become due to any director, officer or employee of
Palomar upon execution of this Agreement or upon or following consummation of
the transactions contemplated by this Agreement (either alone or in connection
with the occurrence of any additional acts or events); (iv) any deposit account
held by any director or Affiliate of any director or by any officer or employee
of Palomar or Community; (v) any agreement, arrangement or understanding
pursuant to which Palomar is obligated to indemnify any director, officer,
employee or agent of Palomar; (vi) any agreement, arrangement or understanding
to which Palomar is a party or by which either of the same is bound which limits
the freedom of Palomar to compete in any line of business or with any person or
entity; (vii) any supervisory agreement, memorandum of understanding, consent
order, cease and desist order or condition of any regulatory order or decree
with or by an applicable federal or state regulatory agency; (viii) any lease of
real or personal property requiring payments of annual rental in excess of
$5,000, whether as lessor or lessee; or (ix) any other agreement, arrangement or
understanding which involves an annual payment of more than $5,000. A complete
copy of each such agreement, arrangement or understanding has been delivered to
Centennial or, if oral, is described in DISCLOSURE SCHEDULE SECTION 3.1.17.
(2) Palomar is not in default or in
noncompliance, which default or noncompliance could reasonably be expected to
have a Material Adverse Effect on Palomar, under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party or by which its assets, business or operations may be bound or
affected, whether entered into in the ordinary course of business or otherwise
and whether written or oral, and there has not occurred any event that with the
lapse of time or the giving of notice, or both, would constitute such a default
or noncompliance.
3.1.18 EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
(1) DISCLOSURE SCHEDULE SECTION 3.1.18 sets
forth all Benefit Plans and any agreement, understanding, practice or
commitment, formal or informal, sponsored, maintained or contributed to by
Palomar for the benefit of the current or former directors, officers, employees
or independent contractors of Palomar (collectively, with the Benefits Plans,
(the "PALOMAR EMPLOYEE PLANS"). Palomar and Community has previously furnished
or made available to Centennial accurate and complete copies of the Palomar
Employee Plans together with (i) the most recent actuarial and financial reports
prepared with respect to any such plans that are qualified plans, (ii) the most
recent annual reports filed with any Governmental Entity with respect to each
such plan and (iii) all rulings and determination letters and any open requests
for rulings or letters that pertain to any such plan that is a qualified plan.
(2) Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.18, none of Palomar, any pension plan maintained by it and qualified
under Section 401 of the Code or, to the best of Palomar's knowledge, any
fiduciary of such plan has incurred any liability to the PBGC, the Department of
Labor or the Internal Revenue Service with respect to the coverage of any
employees of Palomar under any Palomar Employee Plan that has not been satisfied
in full and that would have
14
a Material Adverse Effect on Palomar. To the best of Palomar's and Community's
knowledge, no reportable event under Section 4043(b) of ERISA has occurred with
respect to any Palomar Employee Plan that is a pension plan.
(3) Palomar does not participate in nor has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
(4) A favorable determination letter has been
issued by the Internal Revenue Service with respect to each Palomar Employee
Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) (a "PALOMAR PENSION PLAN") which is intended to qualify under Section 401
of the Code to the effect that (i) such plan is qualified under Section 401 of
the Code and (ii) the trust associated with such employee pension plan is tax
exempt under Section 501 of the Code. No such letter has been revoked or, to the
best of Palomar's knowledge, is threatened to be revoked and Palomar does not
know of any grounds on which such revocation may be based. Palomar does not have
any material liability under any such plan that is not reflected on the balance
sheet of Palomar at December 31, 1999 included in the Palomar 1999 Financial
Statements, other than liabilities incurred in the ordinary course of business
in connection therewith subsequent to the date thereof.
(5) Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.18, no prohibited transaction (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA or
Section 4975 of the Code) has occurred with respect to any Palomar Employee Plan
which would result in the imposition, directly or indirectly, of a material
excise tax on Palomar under Section 4975 of the Code or otherwise have a
Material Adverse Effect on Palomar.
(6) Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.18, full payment has been made (or proper accruals have been
established to the extent required by generally accepted accounting principles)
of all contributions which are required for periods prior to the date hereof,
and full payment will be so made (or proper accruals will be so established to
the extent required by generally accepted accounting principles) of all
contributions which are due and payable after the date hereof and prior to the
Effective Time, under the terms of each Palomar Employee Plan or ERISA; no
accumulated funding deficiency (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, exists with respect to any Palomar
Pension Plan, and there is no "unfunded current liability" (as defined in
Section 412 of the Code) with respect to any Palomar Pension Plan.
(7) Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.18, the Palomar Employee Plans have been operated in compliance in
all material respects with the applicable provisions of ERISA, the Code, all
regulations, rulings and announcements promulgated or issued thereunder and all
other applicable governmental laws and regulations.
(8) Except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.18, there are no pending or, to the best knowledge of Palomar,
threatened claims (other than routine claims for
15
benefits) by, on behalf of or against any of the Palomar Employee Plans or any
trust related thereto or any fiduciary thereof.
(9) No work stoppage involving Palomar is
pending or, to the best knowledge of Palomar, threatened. Palomar is not
involved in, or to the best knowledge of Palomar threatened with or affected by,
any labor dispute, arbitration, lawsuit or administrative proceeding involving
the employees of Palomar which could reasonably be expected to have a Material
Adverse Effect on Palomar. Employees of Palomar are not represented by any labor
union nor are any collective bargaining agreements otherwise in effect with
respect to such employees, and to the best of Palomar's knowledge, there have
been no efforts to unionize or organize any employees of Palomar.
3.1.19 PROPERTIES. All real and personal property owned by
Palomar or presently used by it in its business is in condition (ordinary wear
and tear excepted) sufficient to carry on the business of Palomar in the
ordinary course of business consistent with its past practices. Palomar has good
and marketable title free and clear of all liens, encumbrances, charges,
defaults or equities (other than equities of redemption under applicable
foreclosure laws or of lessors respecting any leased property) to all of the
material properties and assets, real and personal, reflected on the Interim
Financial Statements or acquired after such date, other than properties sold by
Palomar in the ordinary course of business, except (i) liens for current taxes
not yet due or payable, (ii) pledges to secure deposits and other liens incurred
in the ordinary course of its banking business and (iii) such imperfections of
title, easements and encumbrances, if any, as are not material in character,
amount or extent. All real and personal property which is material to Palomar's
business and leased or licensed by Palomar is held pursuant to leases or
licenses which are valid and enforceable in accordance with their respective
terms and such leases will not terminate or lapse prior to the Effective Time.
DISCLOSURE SCHEDULE SECTION 3.1.19 sets forth a brief description of each
material real property owned or leased by Palomar and used in the conduct of its
business, and Palomar has provided Centennial with a current title report dated
within 30 days of the date hereof for each such property owned by Palomar.
3.1.20 ENVIRONMENTAL. Except as set forth on DISCLOSURE
SCHEDULE SECTION 3.1.20, Palomar and all real property (including OREO) in the
possession of Palomar or over which Palomar exercises control are, and at all
times while in the possession or control of Palomar each property at any time
since December 31, 1995 owned, possessed or controlled by Palomar has been, in
compliance with all applicable Laws relating to pollution or protection of human
health or the environment (including Laws relating to emissions, discharges,
releases or threatened releases of Hazardous Material or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Material), except for any violations of Law
that, either individually or in the aggregate, have not had and cannot
reasonably be expected to have a Material Adverse Effect on Palomar. Except as
set forth on DISCLOSURE SCHEDULE SECTION 3.1.20 to the best knowledge of Palomar
there has not occurred any release of Hazardous Material on, under or affecting
any real property during the period of Palomar's ownership, possession or
operation of such property (including its participation in the management of any
business located on such property) or during any prior period except for
releases that, individually or in the aggregate, have not had and cannot
reasonably be expected to have a Material Adverse Effect on Palomar. To the
knowledge of Palomar, Palomar has no property now or heretofore in its
possession is or has ever
16
been a defendant in or the subject of any suit, claim, action, proceeding,
investigation or notice before any Governmental Entity or other forum relating
to an alleged violation (including by any predecessor) of any environmental Law
or any Law relating to the release or threatened release into the environment of
any Hazardous Material, whether or not occurring at or on a site owned, leased
or operated by Palomar.
3.1.21 INTELLECTUAL PROPERTY. Except as set forth in
Disclosure Schedule Section 3.1.21, Palomar owns, or possesses valid and binding
licenses and other rights to use without payment (other than payments for
software licenses incurred in the ordinary course of business), all material
trademarks, trade names, service marks, copyrights, trade secrets and patents
used in its businesses, and Palomar has not received any challenge of the same
by any Person or any notice of alleged conflict between the same and the rights
of any other Person. Palomar has, in all material respects, performed all of its
obligations under, is not materially in default under, and has not created any
right of termination under, cancellation of, acceleration of any obligation
under, or loss of a material benefit under, any contract, agreement, arrangement
or commitment relating to any of the foregoing.
3.1.22 INSURANCE. Palomar is insured, and during each of the
past three calendar years has been insured, for reasonable amounts with
financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable laws and regulations, with the exception of directors' and officers'
liability insurance. DISCLOSURE SCHEDULE SECTION 3.1.22 contains a list
identifying all insurance policies maintained by it as of the date hereof, and
describing all claims made since January 1, 1997. All of the policies and bonds
maintained by Palomar are in full force and effect and all claims thereunder
have been filed in a due and timely manner and no such claim has been denied.
3.1.23 BROKERS. Palomar has not employed any broker, finder or
similar Person in connection with the Stock Purchase, and neither has incurred
or will incur any broker's, finder's or similar fees, commissions or expenses in
connection with the Stock Purchase except as set forth in DISCLOSURE SCHEDULE
SECTION 3.1.23.
3.1.24 DISCLOSURE OF ALL MATERIAL MATTERS. None of the
representations and warranties of Palomar and Community or any of the written
information or documents which are furnished by Palomar and Community to
Centennial pursuant to this Agreement or in connection with the transactions
contemplated hereby, when considered as a whole, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact required to be stated or necessary to make any such information or
document, at the time and in light of the circumstances (including without
limitation the nature and scope of the information described in the
representation, warranty, information or document), not misleading. Copies of
all documents previously provided to Centennial or made available to Centennial
pursuant to this Article III are true, correct and complete copies thereof and
include all amendments, supplements and modifications thereto and all waivers
thereunder.
3.1.25 REGULATORY MATTERS. Palomar and Community know of no
reason that any Governmental Entity will not approve the transactions
contemplated by this Agreement. Palomar
17
and Community shall cooperate with Centennial in pursuing and filing all
applications with all Governmental Entities required to approve the
transactions.
3.1.26 COMMUNITY'S AGREEMENT. Community has executed
and delivered to Centennial an agreement, covering the matters described
therein, in substantially the form of EXHIBIT 3.1.26.
3.2 BY CENTENNIAL. Centennial represents and warrants as follows:
3.2.1 ORGANIZATION, STANDING AND POWER. Centennial is a
California corporation duly organized, validly existing and in good standing
under the laws of the State of California. Centennial has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which a failure to be so qualified could
reasonably be expected to have a Material Adverse Effect on the ability of
Centennial to complete the Stock Purchase.
3.2.2 AUTHORITY AND RELATED MATTERS. Subject only to the
Community and Centennial Governmental Approvals, Centennial (a) has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby (including the Stock Purchase),
and (b) has duly authorized the execution and delivery of this Agreement, and
the consummation of such transactions (including the Stock Purchase) by all
necessary corporate action on the part of Centennial's Board of Directors. This
Agreement has been duly executed and delivered by Centennial and, assuming due
authorization, execution and delivery by Community, constitutes the valid and
binding obligation of Centennial, enforceable in accordance with its terms
subject only to laws regarding bankruptcy, insolvency, reorganization,
moratorium or otherwise affecting creditors' rights generally, to the
application of general principles of equity (whether considered in a proceeding
in law or at equity).
3.2.3 CONFLICTS. Neither the execution and delivery of this
Agreement, nor consummation of the transactions contemplated hereby (including
the Stock Purchase) nor compliance by Centennial with any of the provisions
hereof, (a) conflict with or result in a breach of any provisions of the
Articles of Incorporation or Bylaws of Centennial (b) except as set forth in
DISCLOSURE STATEMENT SCHEDULE 3.2.3, violate, conflict with or result in a
breach of any term, condition or provision of, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation of any lien, charge or encumbrance
upon any property or asset of Centennial pursuant to, any note, bond, mortgage,
indenture, deed of trust, lease, agreement or other instrument or obligation to
which Centennial is a party, or by which any of its properties or assets may be
bound or affected, or (c) subject to receipt of all required governmental
approvals, violate any law, rule or regulation or any judgment, decree, order,
governmental permit or license applicable to Centennial, excluding from the
foregoing clauses (b) and (c) conflicts, breaches, defaults or violations which,
either individually or in the aggregate, would not have a Material Adverse
Effect on Centennial.
3.2.4 CONSENTS. Except as disclosed on DISCLOSURE SCHEDULE
SECTION 3.2.4, (collectively, the "CENTENNIAL GOVERNMENTAL APPROVALS"), no
consent, approval, order or
18
authorization of, or registration, declaration or filing with, any Governmental
Entity or other Person is required in connection with Centennial's execution and
delivery of this Agreement or its consummation of the Stock Purchase, as to
which the failure to obtain the same could reasonably be expected to have a
Material Adverse Effect on Centennial or materially interfere with Centennial's
ability to consummate the Stock Purchase.
3.2.5 ACCESS TO FUNDS. All Parties recognize that Centennial
currently does not have the funds to consummate the Stock Purchase and must
raise equity and debt to consummate the Stock Purchase. Centennial will raise on
or before the Capital Raising Date not less than the Centennial Minimum New
Capital and have on the Capital Raising Date, all funds necessary to consummate
the Stock Purchase and pay the Common Stock Consideration due to Community as
the sole shareholder of Palomar Common Stock.
3.2.6 LEGAL PROCEEDINGS. There are no existing or, to the best
knowledge of Centennial, threatened, legal, administrative, arbitration or other
proceedings, claims, actions, controversies or governmental investigations of
any nature against or involving Centennial which could reasonably be expected to
have a Material Adverse Effect on the ability of Centennial to consummate the
transactions contemplated hereby.
3.2.7 DISCLOSURE OF ALL MATERIAL MATTERS. None of the
representations and warranties of Centennial or any of the written information
or documents which are furnished by Centennial to Community pursuant to this
Agreement or in connection with the transactions contemplated hereby, when
considered as a whole, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact required to be
stated or necessary to make any such information or document, at the time and in
light of the circumstances (including without limitation the nature and scope of
the information described in the representation, warranty, information or
document), not misleading.
3.2.8 REGULATORY MATTERS. Centennial knows of no reason that
any Governmental Entity will not approve the transactions contemplated by this
Agreement. Centennial shall diligently pursue the filing of all applications
with all Governmental Entities required to approve the transactions.
3.2.9 STRATEGIC TRANSACTIONS. Centennial is not
presently considering any business combination or acquisition of another
financial entity.
3.2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of
its formation, (a) Centennial has conducted it business in the ordinary and
usual course and (b) no event has occurred or circumstances arisen that,
individually or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect on Centennial.
19
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 DISCUSSIONS WITH THIRD PARTIES.
4.1.1 Palomar and Community (a) shall not, and shall instruct
and cause each of their Representatives not to, solicit or encourage, directly
or indirectly, inquiries or proposals with respect to any Strategic Transaction
Proposal, and, (b) shall not, and shall instruct and cause each of their
Representatives not to, furnish any nonpublic information relating to or
participate in any negotiations, discussions or other activities concerning, any
Strategic Transaction with any Person other than Centennial. Palomar and
Community shall notify Centennial promptly after any Strategic Transaction
Proposal is received by, or any negotiations or discussions regarding a
Strategic Transaction Proposal are sought to be initiated with, directly or
indirectly, Community or any of its Representatives, and shall disclose to
Centennial the identity of the third party making or seeking to make such
Strategic Transaction Proposal, the terms and conditions thereof and such other
information as Centennial reasonably may request.
4.1.2 Not withstanding Section 4.1.1, following receipt of a
Qualifying Strategic Transaction Proposal, neither Palomar, Community nor any of
their Representatives shall be prohibited from (a) engaging in discussions or
negotiations with a third party which has made a proposal that satisfies the
requirements of a Qualifying Strategic Transaction Proposal and thereafter
providing to such third party information previously provided or made available
to Centennial, provided the third party shall have entered into a
confidentiality agreement substantially similar to the confidentiality
provisions of Section 4.2.3 hereof, (b) taking and disclosing to the Community
Shareholders a position contemplated by Rule 14e-2(a) under the Exchange Act or
otherwise making disclosure of the Qualifying Strategic Transaction Proposal to
its shareholders, or (c) subject to the terms of Section 6.4.2 of this
Agreement, terminating this Agreement. A "QUALIFYING STRATEGIC TRANSACTION
PROPOSAL" shall mean a bona fide written Strategic Transaction Proposal with
respect to which the Board of Directors shall have determined, after
consultation with Community's counsel, that the action by Community contemplated
under either clause (a), (b) or (c), as applicable, of the immediately preceding
sentence is required under the fiduciary duties owed by the Board of Directors
to the Community Shareholders, which determination has been made acting in good
faith and on the basis of a written opinion from a financial advisor retained by
Community to the effect that the financial terms of such Strategic Transaction
Proposal are, from such shareholders' perspective, financially superior to the
Common Stock Consideration.
4.1.3 In the event that Palomar or Community receives a
Qualifying Strategic Transaction Proposal, it shall, with 15 Business Days of it
is receipt thereof, give notice to Centennial either (i) reaffirming Palomar's
and Community's intent to proceed under this Agreement and to consummate the
Stock Purchase, or (ii) terminating this Agreement pursuant to Section 6.4.2. If
Palomar or Community does not, within such 15 Business Day period, either
expressly reaffirm its intent to proceed under this Agreement or terminate this
Agreement pursuant to Section 6.4.2, Centennial may at any time within 15
Business Days thereafter terminate this Agreement pursuant to Article VI.
20
4.2 ACCESS.
4.2.1 WITH RESPECT TO PALOMAR. Palomar shall make available to
Centennial all information regarding Palomar that Centennial reasonably may
request other than information prohibited to be disclosed to Centennial by
confidentiality or privacy laws, rules or regulations, and shall authorize, upon
reasonable notice, visits to its premises with such staff, consultants and
experts as Centennial reasonably may request. Centennial agrees to coordinate
closely all such activities with Palomar's President and to conduct any such
inquiries with appropriate discretion and sensitivity to Palomar's relationships
with its employees, customers and suppliers.
4.2.2 WITH RESPECT TO CENTENNIAL. Centennial shall
make available to Palomar and Community all information regarding itself and its
principals that Palomar and Community reasonably may request.
4.2.3 CONFIDENTIALITY. Each Party acknowledges that certain of
the information made available to it pursuant to this Section 4.2 and otherwise
in connection with the Stock Purchase may be confidential, proprietary or
otherwise nonpublic, and each Party agrees, for itself and for each of its
Representatives, that it (a) shall hold in confidence all confidential
information received by it from or with regard to the other Party ("CONFIDENTIAL
INFORMATION") subject to the terms of this Section 4.2, (b) shall disclose such
Confidential Information only to those of its Representatives, in each case
having a need to know the same for purposes of evaluating, negotiating or
implementing the Stock Purchase, and (c) shall inform each Representative to
whom Confidential Information is disclosed that such information is confidential
and direct such Representative not to disclose the same. Each Party shall remain
responsible for any disclosure of Confidential Information by any of its
Representatives. Each Party further agrees that, upon the request of the other
Party given following any termination of this Agreement, the receiving Party and
each of its Representatives either shall return to the requesting Party all
Confidential Information received by the receiving Party and its Representatives
(including all compilations, analyses or other documents prepared by it that
contain Confidential Information) or shall certify that the same has been
destroyed. As used herein, Confidential Information shall not include (w)
information that is or becomes generally available to the public other than as a
result of a breach of this Agreement, (x) information that the receiving Party
demonstrates was known to it on a nonconfidential basis prior to receiving such
information from the other Party, (y) information that the receiving Party
develops independently without relying on Confidential Information, and (z)
information that becomes available to the receiving Party on a non-confidential
basis from another source if the source was not known to or not reasonably
believed by the receiving Party to be subject to any prohibition against
disclosing such information. The foregoing provisions shall also extend to any
Confidential Information previously provided under any written confidentiality
agreement between the Parties.
4.3 PROSECUTION OF REGULATORY FILINGS; COOPERATION. The Parties shall
cooperate with each other and use all commercially reasonable efforts to prepare
and file as promptly as practicable, all necessary documentation, to effect all
applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the Stock Purchase. The Parties agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
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advisable to consummate the Stock Purchase and each Party will keep the other
apprized of the status of matters relating to completion of the Stock Purchase.
Each Party shall, upon request, furnish the other Party with all information
concerning itself as may be reasonably necessary or advisable in connection with
any filing or application made by or on behalf of such Party to any Governmental
Entity in connection with the Stock Purchase. Each Party shall promptly advise
the other Party upon receiving any communication from any Governmental Entity
whose consent or approval is required for consummation of the Stock Purchase
which causes such Party to believe that there is a reasonable likelihood that
any required Governmental Approval will not be obtained or that the receipt of
any such Governmental Approval will be materially delayed. Subject to the terms
and conditions herein provided, each of the Parties hereto agrees to use all
reasonable efforts to, as promptly as practicable, take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such reasonable action.
4.4 ADVICE OF CHANGES. Each Party shall promptly advise the other Party
of any change or event having a Material Adverse Effect on it or which it
believes would or may be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein
or to preclude the satisfaction of one or more of the conditions set forth in
Article V. From time to time prior to the Closing Date, each Party will promptly
supplement or amend the Disclosure Schedules delivered by it in connection with
the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Disclosure Schedules, or which is necessary to
correct any information in such Disclosure Schedules which has been rendered
inaccurate thereby; PROVIDED, however, that no such supplement or amendment to
the Disclosure Schedules shall have any effect for the purpose of determining
the accuracy of any representation or warranty when made, for determining
satisfaction of the conditions set forth in Article V, or for determining the
compliance by any Party with any other provision of this Agreement.
4.5 CURRENT INFORMATION. During the period from the date of this
Agreement to the Closing Date, Community will cause one or more of its
designated representatives to confer on a regular and frequent basis (not less
than monthly) with representatives of Centennial and to report the general
status of Palomar's ongoing operations. Community will promptly notify
Centennial of any material change in the normal course of Palomar's or its
business or in the operation of Palomar's or its properties and of any
governmental complaint, investigation or hearing (or communications indicating
that the same may be contemplated), or the institution or the threat of
significant litigation involving it, and will keep Centennial fully informed of
such events. A representative of Centennial shall be entitled to be present at
all meetings of the Board of Directors of Palomar, excluding any portion thereof
relating to Community's or Centennial's compliance with the terms of this
Agreement.
4.6 DELIVERY OF FINANCIAL STATEMENTS. Palomar and/or Community shall
use their best efforts to deliver to Centennial the Audited Financial Statements
on or before February 28, 2001. As soon as reasonably available, but in no event
more than 30 days after the end of each fiscal
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quarter ending after the date of this Agreement and prior to the Closing Date,
Palomar will deliver to Centennial Palomar's call reports as filed with Palomar
Regulators. Palomar will deliver to Centennial all other information provided to
Palomar's and its Boards of Directors, including monthly financial statements
prepared in accordance with GAAP (excepting only by the absence of footnotes and
other presentation items and subject to normal year-end adjustments) and
otherwise in the form delivered to the members of their respective Boards of
Directors, no later than the time at which such financial statements are
delivered to such directors but in no event later than the twenty-first calendar
day of the month immediately following the month to which such financial
statements relate.
4.7 CONDUCT OF BUSINESS. Palomar shall (a) conduct its business in the
usual, regular and ordinary course of business consistent with the past practice
(except as required by applicable Law or as required by this Agreement), (b) use
all commercially reasonable efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees (including by causing its current
insurance policies not to be canceled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such event replacement policies
providing substantially similar coverage for substantially similar (or lesser)
premiums are in full force and effect), (c) conduct relations with its
employees, including hiring and terminating practices, only in the ordinary
course of business and consistent with past practice, and (d) take no action
which would adversely affect or delay the ability of Community or Centennial to
obtain any necessary approvals of any Governmental Entity required for the Stock
Purchase or for the transactions contemplated in connection therewith, or to
perform its covenants and agreements under this Agreement. Through the Effective
Time, Palomar and Community will maintain their respective Records in the same
manner and with the same care that the Records have been maintained prior to the
execution of this Agreement. Centennial may, at its own expense, make such
copies of and excerpts from the Records as it may deem desirable.
4.8 CERTAIN OPERATING COVENANTS OF PALOMAR. Without Centennial's
prior written consent (which consent shall not be unreasonably withheld or
delayed), Palomar shall not:
4.8.1 declare or make any payment or distribution with respect
to its capital stock or other securities, whether by way of payment of interest
or principal, redemption, dividend or otherwise;
4.8.2 (a) create, authorize, issue, sell or deliver any of its
capital stock, bonds or other of its securities (whether authorized and unissued
or held in treasury) or any instrument convertible into any of them; (b) grant
or otherwise issue any options, warrants or other rights with respect thereto;
(c) amend the terms of any rights with regard to the Palomar securities; or (d)
split up, combine or reclassify any of its outstanding stock;
4.8.3 acquire, by merging or consolidating with, by purchasing
a substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business, including any corporation, partnership,
association or other business organization or division thereof;
4.8.4 excepting those matters identified on DISCLOSURE
SCHEDULE 4.8.4, (a) create, renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of, any
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material contract, agreement or lease for goods, services or office space to
which Palomar is a party or by which Palomar or any of its properties is bound,
excepting only contracts, agreements and leases under which the aggregate annual
payments by either party do not exceed $10,000, (b) make any single capital
expenditure exceeding $10,000 or any capital expenditures exceeding $25,000 in
the aggregate, or (c) relocate or terminate, or file any application to relocate
or terminate the operations of any of its banking offices;
4.8.5 enter into any new line of business;
4.8.6 change its methods of accounting in effect at December
31, 1999, except as required by changes in GAAP or RAP as concurred with by
Palomar's and Community's independent auditors;
4.8.7 commit any act or omission which constitutes a Violation
of any Law, Regulatory Agreement or any material contract or license to which
Palomar is a party or by which it or any of its properties is bound which
Violation, individually or in the aggregate, has or reasonably could be expected
to have a Material Adverse Effect on Palomar;
4.8.8 make any equity investment, including any equity
investment in any real estate or real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent banking practices;
4.8.9 sell, lease, assign, transfer or otherwise dispose of
any property or asset, except for (a) investment portfolio transactions in the
ordinary course of business and substantially consistent with past practice, and
which past practice shall be deemed to include any sale of any investment
carried as available-for-sale by Palomar on market terms; (b) sales of assets
having a gross book value not in excess of $10,000 individually or $25,000 in
the aggregate; and (c) sales of real estate acquired by foreclosure or by a deed
in lieu thereof;
4.8.10 Except for entering into a new employment agreement
with Xxxxxxx which shall become effective at the Effective Time (a) enter into
any agreement with any labor union or association representing any employee, (b)
institute, amend or terminate any Benefit Plan, (c) pay any pension or
retirement allowance to any Person not required by an existing plan or
agreement, (d) increase in any manner the compensation or fringe benefits
(including any insurance benefits) of, or pay any bonus to, any officer,
director or employee, or (e) change in any material respect the existing
responsibilities of any officer of Palomar, or hire or terminate (other than for
cause) any Palomar officer.
4.8.11 (a) make or enter into any commitment to make any new
loan if, as a result of the disbursement of the proceeds of such loan, the total
Borrower Group Obligations (including accrued and unpaid interest) of the
borrower to the applicable Party would exceed $50,000 with respect to unsecured
loans or $500,000 with respect to secured loans, except that if Centennial does
not grant or refuse its consent or reasonably request additional information
regarding such proposed loan within two Business Days of Centennial's receipt of
Community's request for consent, then
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Centennial shall be deemed to have granted its consent; or (b) amend or renew,
or enter into any commitment to amend or renew, any Criticized Asset;
4.8.12 incur any indebtedness for borrowed money, or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, in each case
except in the usual, regular and ordinary course of business consistent with the
past practice, it being understood and agreed that purchase of federal funds,
and the creation of deposit liabilities and entering into repurchase agreements
(in each case with maturities of not more than six months) shall be deemed to be
in the ordinary course of business;
4.8.13 make, amend or compromise any loan or advance (whether
in cash or other property) to any officer, to any director, or to any Principal
Shareholder or Affiliate thereof, except advances made to employees in the
usual, regular and ordinary course of business consistent with the past
practice;
4.8.14 restructure or materially change its investment
securities portfolio through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported, or invest in any securities other
than obligations of the United States Treasury with maturities of not more than
six months, or agency securities or other investments approved by Centennial;
4.8.15 file any applications or make any contract with
respect to branching or site location or relocation;
4.8.16 enter into any futures contract, option contract,
interest rate caps, interest rate floors, interest rate exchange agreement or
other agreement for purposes of hedging the exposure of its interest-earning
assets and interest-bearing liabilities to changes in market rates of interest;
4.8.17 enter or agree to enter into any agreement or
arrangement granting any preferential right to purchase any of its assets or
rights or requiring the consent of any party to the transfer and assignment of
any such assets or rights;
4.8.18 take any action, or enter into any agreement or
commitment to take any action, that will result in any of the representations or
warranties of Community contained in this Agreement not to be true and correct
in any material respect as of the Effective Time or that could reasonably result
in any material delay in consummation of the transactions contemplated hereby;
or
4.8.19 enter into any agreement or commitment to do any of
the foregoing.
4.9 OPERATING COVENANTS OF CENTENNIAL. Without Palomar's and
Community's prior written consent, Centennial shall not take any action, or
enter into any agreement or commitment to take any action, inclusive of
acquiring another company or entering into a business combination involving
Centennial or its subsidiaries, that will result in any of the representations
or warranties of Centennial contained in this Agreement not to be true and
correct in any material respect as of the Effective Time or that could
reasonably result in any material delay in consummation of the transactions
contemplated hereby.
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4.10 COVENANTS REGARDING EMPLOYEES, DIRECTORS AND OFFICERS.
4.10.1 EMPLOYEE BENEFIT PLANS.
(1) PALOMAR AGREEMENTS. All current executive
officer and directors of Palomar concurrent with the execution and delivery of
this Agreement by the Parties shall execute and deliver to Centennial an
agreement in the form of EXHIBIT 3.1.5 hereto.
(2) CONTINUATION OF PLANS. Notwithstanding
anything to the contrary contained herein, Centennial shall have sole discretion
with respect to the determination as to whether to terminate, merge or continue
any employee Benefit Plans and programs of Palomar to the extent permitted by
and in accordance with the terms of such plans and programs and Palomar shall
cause to be taken all actions reasonably required to terminate such plans and
programs as Centennial may specify as of the Closing. Without limiting the
foregoing, the Boards of Directors of Palomar and Community shall promptly adopt
resolutions required to cause any plan or agreement providing shares of Palomar
Common Stock or equity-based rights to any Person to be terminated as of the
Effective Time.
4.11 RESERVES. Palomar and Community agree that Palomar will establish
such reserves and to take such charge-offs respecting loans and other assets and
operations as may be requested by Centennial immediately prior to the Closing;
PROVIDED, that any such action taken solely by reason of such request shall not
be deemed to constitute a Material Adverse Effect respecting Palomar for
purposes of this Agreement and shall not be considered for purposes of the
shareholders' equity determination to be made pursuant to Section 5.2.9.
4.12 TERM POLICY. The Parties agree that Centennial will be entitled to
place a term life insurance policy on Xxxxxxx in an amount not less than
$500,000 paid by Centennial with Centennial as the beneficiary of such policy.
Xxxxxxx agrees to complete any and all applications concerning the issuance of
such policy including submitting to a physical examination.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF BOTH PARTIES. The obligations
of Centennial and Palomar and Community to consummate the Stock Purchase are
subject to the satisfaction of each of the following conditions:
5.1.1 REGULATORY APPROVALS. All necessary approvals of any
Governmental Entity required for the consummation of the Stock Purchase
(including the Community Governmental Approvals and Centennial Governmental
Approvals) shall have been obtained and shall remain in full force and effect;
all statutory or other required waiting periods in respect thereof shall have
expired; and no approval of any Governmental Entity shall have imposed any
condition or requirement which, in the reasonable opinion of Centennial, would
so materially adversely affect the economic or business benefits to Centennial
of the Stock Purchase so as to render inadvisable the consummation thereof.
26
5.1.2 NO PROHIBITION; NO PENDING OR THREATENED CLAIMS. None of
the Parties shall be subject to any law or order of any court or other
Governmental Entity which prohibits, restricts or makes illegal the consummation
of the Stock Purchase; and there shall be no claim, action, suit, investigation
or other proceeding pending or overtly threatened before any Governmental Entity
that presents a substantial risk of restraint or prohibition of the Stock
Purchase, or the obtaining of material damages from Palomar, Community or
Centennial or their respective officers or directors in connection therewith;
and no such restraint or prohibition shall be effective as of the Closing,
whether or not the action in which the same was entered shall remain pending.
5.2 CONDITIONS TO THE OBLIGATIONS OF CENTENNIAL. The obligations of
Centennial to consummate the Stock Purchase are further subject to the
satisfaction of, or Centennial's written waiver of, each of the following
conditions:
5.2.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE
WITH COVENANTS. Palomar's and Community's representations and warranties
contained in this Agreement shall have been true and correct as of the dates
when made, and Palomar and Community shall have performed, satisfied and
complied with, in all material respects, each of their agreements and covenants
contained in Articles II and IV and elsewhere in this Agreement.
5.2.2 BRINGDOWN OF REPRESENTATIONS AND WARRANTIES. Palomar's
and Community's representations and warranties contained in this Agreement
remain true and correct as of the Closing as though made at and as of the
Closing, excepting only representations and warranties which speak expressly as
of an earlier specified date.
5.2.3 NO MATERIAL ADVERSE EFFECT. No change, in facts,
circumstances or events has occurred since the date of this Agreement that has
had or could reasonably be expected to have a Material Adverse Effect on
Palomar.
5.2.4 OFFICERS CERTIFICATE. Palomar and Community shall have
delivered to Centennial a certificate, dated as of the date of Closing and
signed by its respective chief executive officer and chief financial officer, to
the effect that the conditions set forth in Sections 5.2.1., 5.2.2 and 5.2.3
have been satisfied, and containing and certifying to the accuracy of, the same
information required to be included on Part A of SCHEDULE 3.1.11 had such
Schedule been delivered as of the date of such certificate, compiled as of a
date within five Business Days of the Closing.
5.2.5 PALOMAR COMMON STOCK OUTSTANDING. There shall be no
shares of Palomar Common Stock or other Palomar securities issued and
outstanding as of the Effective Time other than the 648,186 shares of Palomar
Common Stock issued and outstanding on the date hereof.
5.2.6 THIRD PARTY CONSENTS. The consent, approval or waiver of
each Person (other than the Governmental Entities referred to in Section 5.1.2)
whose consent, approval or waiver shall be required in order to permit the
consummation of the Stock Purchase or the preservation of the contractual rights
of Palomar with respect to its business shall have been obtained except where
the failure to obtain any such consent, approval or waiver would not,
individually or in the aggregate, have a Material Adverse Effect on Centennial
or Palomar or materially adversely affect the ability of Centennial, Palomar and
Community to consummate the Stock Purchase.
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5.2.7 PALOMAR AGREEMENTS. Each executive officer and
director of Palomar shall have executed and delivered to Centennial an agreement
in substantially the form of EXHIBIT 3.1.5.
5.2.8 LEGAL OPINION. Centennial shall have received an
opinion of Horgan, Rosen, Beckham & Coren, L.L.P., respecting the matters set
forth in EXHIBIT 5.2.8.
5.2.9 PALOMAR MINIMUM TANGIBLE SHAREHOLDERS' EQUITY.
Centennial shall have received a letter (the "ACCOUNTING LETTER") from
Xxxxxxxxxx & Xxxxxxxxx, LLP, certified public accountants for Centennial that,
as of a date no more than five (5) Business Days prior to the Effective Time
(the "DETERMINATION DATE") setting forth Palomar's Tangible Shareholders'
Equity. The Palomar Tangible Shareholders' Equity will be determined in
accordance with RAP, excluding all goodwill and intangibles on the books of
Palomar, and this Agreement as of the end of the month preceding the month in
which the Closing shall occur in accordance with such limitations and standards
of review as may be specified in such letter but without the performance of such
procedures as are necessary in order for such firm to express an opinion with
respect thereto, and reflect an adequate loan loss reserve which in any case
will be not less than $572,706 plus an amount equal to the sum of (a) $10,000
multiplied by (b) the number of months from December 1, 2000 through the month
end prior to the Closing Date, after deducting therefrom all reserves allocated
to specific loans on the books of Palomar. The cost of such account's letter
shall be paid by Centennial. In addition, no Expenses of Palomar or Community
shall be capitalized in making such determination of shareholders' equity.
5.2.10 DOCUMENTS AND INSTRUMENTS IN SATISFACTORY FORM. All
corporate and other proceedings in connection with this Agreement and with the
Stock Purchase and all documents and instruments incidental to the Stock
Purchase shall be reasonably satisfactory in substance and form to Centennial
and its counsel, and Centennial and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
5.2.11 COMMUNITY AGREEMENT. Community shall have
executed and delivered to Centennial an agreement in substantially the form of
EXHIBIT 3.1.26.
5.2.12 EMPLOYMENT AGREEMENT. Subject to the approval of the
Parties, Palomar and Xxxxxxx shall have entered into an employment agreement
providing for Xxxxxxx to serve as the President/Chief Executive Officer of
Palomar to be effective as of the Effective Time in a form acceptable to
Centennial.
5.2.13 SBA LOANS. Community shall have repurchased from
Palomar all of the nonguaranteed portions of the SBA Loans pooled and sold to
Palomar identified by Centennial for repurchase by Community at a price equal to
the actual principle balance of the loans as of the repurchase date as reflected
on Palomar's books less any reserves as of the repurchase date plus all accrued
but unpaid interest.
5.3 CONDITIONS TO THE OBLIGATIONS OF PALOMAR AND COMMUNITY. The
obligations of Palomar and Community to consummate the Stock Purchase are
further subject to the satisfaction of, or Palomar's and Community's written
waiver of, each of the following conditions:
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5.3.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE
WITH COVENANTS. Centennial's representations and warranties contained in this
Agreement shall have been true and correct as of the dates when made, and
Centennial shall have performed, satisfied and complied with, in all material
respects, each of its agreements and covenants contained in Articles II and IV
and elsewhere in this Agreement.
5.3.2 BRINGDOWN OF REPRESENTATIONS AND WARRANTIES.
Centennial's representations and warranties contained in this Agreement remain
true and correct as of the Closing as though made at and as of the Closing,
excepting only representations and warranties which speak expressly as of an
earlier specified date.
5.3.3 OFFICER CERTIFICATE. Centennial shall have delivered to
Palomar and Community a certificate, dated the date of Closing and signed by its
chief executive officer and chief financial officer, to the effect that the
conditions set forth in Sections 5.3.1 and 5.3.2 of the Agreement have been
satisfied.
5.3.4 RAISING CAPITAL AND DELIVERY OF CASH TO EXCHANGE AGENT.
Centennial shall have raised not less than the Centennial Minimum New Capital on
or before the Capital Raising Date, and shall have delivered to the Exchange
Agent the Common Stock Consideration.
5.3.5 LEGAL OPINION. Community shall have received an
opinion of Xxxx Xxxxxx Xxxxxxx & Associates respecting the matters set forth in
EXHIBIT 5.3.5.
5.3.6 DOCUMENTS AND INSTRUMENTS IN SATISFACTORY FORM. All
corporate and other proceedings in connection with this Agreement and with the
Stock Purchase and all documents and instruments incidental to the Stock
Purchase shall be reasonably satisfactory in substance and form to Community and
its counsel, and Community and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
5.3.7 ASSIGNMENT OF RIGHTS. Palomar shall have assigned to
Community all of its rights, title and interests in and to any recovery to the
pending litigation involving Community, Palomar and Deloitte & Touche, LLP
entitled COMMUNITY WEST BANCSHARES v. DELOITTE & TOUCHE LLP, Case No. BC238189,
pending before the Superior Court for the County of Los Angeles, provided that
Community shall agree to indemnify Palomar and/or Centennial for any
cross-complaints associated with that litigation.
ARTICLE VI
TERMINATION: TERMINATION FEE
This Agreement may be terminated, and the Stock Purchase abandoned,
prior to the Closing by the following means and with the following effects:
6.1 BY MUTUAL AGREEMENT. Palomar and Community, on the one
hand, and Centennial, on the other hand, may terminate this Agreement by mutual
written consent at any time.
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6.2 REGULATORY IMPEDIMENT. Either Centennial or Community and Palomar
may unilaterally terminate this Agreement at any time prior to the Closing if
(a) a Governmental Entity shall have made a final determination denying an
application of either Party the granting of which is essential to the
consummation of the Stock Purchase, or (b) the occurrence of the Closing would
violate any final order, decree or judgment of any court having competent
jurisdiction.
6.3 BY CENTENNIAL. Centennial may unilaterally terminate this
Agreement:
6.3.1 if Palomar or Community has breached any representation
or warranty contained in this Agreement, or has failed to perform, satisfy or
comply with in any material respect any of its agreements and covenants
contained in this Agreement (other than as described in Section 6.4.2), and such
breach or failure would or could reasonably be expected to have a Material
Adverse Effect on Palomar or Centennial; such termination to take effect five
(5) Business Days following notice to Palomar and Community identifying such
breach if such breach has not been cured prior to the expiration of such period;
PROVIDED, that in the case of a termination under this Section 6.3.1 or Section
6.2, , where a breach or failure giving rise to such termination shall have been
caused in whole or in part by any action or inaction on the part of Palomar,
Community or any of its respective directors or officers or any Palomar or
Community Affiliates, Centennial shall be entitled to receive from Palomar or
Community the Termination Fee. The Termination Fee, if due under this Section
6.3.1, shall be $500,000 plus Centennial's Expenses up to a maximum of $100,000.
6.3.2 upon notice to Community if Community and Palomar have
not reaffirmed their intent to proceed with the Stock Purchase pursuant to
Section 4.1.3 following its receipt of a Qualifying Strategic Transaction
Proposal. In the case of a termination under this Section 6.3.2, Centennial
shall be entitled to receive from Palomar or Community a Termination Fee of
$500,000 plus Centennial's expenses up to a maximum of $100,000.
6.3.3 upon notice to Palomar and Community if any of the
conditions to the obligations of Centennial contained in Section 5.2 has not
been satisfied as of the earlier of the date required by this Agreement or the
Expiration Date; or
6.3.4 upon notice to Palomar and Community after the
Expiration Date, if the Closing shall not have occurred by such date, unless
such failure results primarily from Centennial breaching any of its
representations, warranties, covenants or agreements contained in this
Agreement.
6.4 BY PALOMAR AND COMMUNITY. Palomar and Community jointly
or Community unilaterally may terminate this Agreement:
6.4.1 if Centennial has breached any representation or
warranty contained in this Agreement, or has failed to perform, satisfy or
comply with in any material respect any of its agreements and covenants
contained in this Agreement, and such breach or failure would or could
reasonably be expected to have a Material Adverse Effect on the ability of
Centennial to complete the Stock Purchase; such termination to take effect five
(5) Business Days following notice to Centennial identifying such breach if such
breach has not been cured prior to the expiration of such period; PROVIDED, that
in the case of a termination under this Section 6.4.1 or Section 6.2, where a
30
breach or failure giving rise to such termination shall have been caused in
whole or in part by any action or inaction on the part of Centennial or any of
its directors or officers or any Centennial Affiliates, Palomar and Community
shall be entitled to receive from Centennial the Termination Fee. The
Termination Fee, if due under this Section 6.4.1, shall be $500,000 plus
Palomar's and Community's Expenses up to a maximum of $100,000, unless the
termination is due to Centennial's failure to raise the funds necessary to
consummate the Stock Purchase as required by this Agreement, in which case the
Termination Fee shall be $200,000 plus Palomar's and Community's Expenses up to
a maximum of $100,000;
6.4.2 Upon notice to Centennial if Palomar or Community
receives a Qualifying Strategic Transaction Proposal; provided however, that a
consideration to the effectiveness of any termination pursuant to this Section
6.4.2 is the payment to Centennial by either Palomar or Community of a
Termination Fee of $500,000 plus Centennial's Expenses up to a maximum of
$100,000;
6.4.3 upon notice to Centennial if any of the conditions to
the obligations of Community contained in Section 5.3 has not been satisfied as
of the earlier of the date required by this Agreement or the Expiration Date; or
6.4.4 upon notice to Centennial after the Expiration Date, if
the Closing shall not have occurred prior to such date and time, unless the
failure results primarily from Community breaching any of its representations,
warranties, covenants or agreements contained in this Agreement.
6.5 TERMINATION FEE. The Termination Fee means either $200,000 or
$500,000, and, in all cases, the Expenses of the Party entitled to the
Termination Fee, subject to the expense limitations identified above, payable in
same day funds, as set forth herein. The Termination Fee is an attempt by the
Parties to calculate the reasonable compensation for the loss to a Party,
including but not limited to the Party's administrative time, in the event of
termination and as a liquidated damage and not as a penalty or as a forfeiture.
6.6 EFFECT OF TERMINATION; REMEDIES. In the event this Agreement is
terminated pursuant to this Article VI, this Agreement shall become void and of
no effect and neither Party shall have any liabilities or other obligations
whatsoever hereunder, except that the provisions of Section 4.2 relating to
Confidential Information, Article VI and Section 7.2 shall survive such
termination. In each case where a Termination Fee is payable, the payment of
such fee shall be the sole and exclusive remedy, at law or in equity, of the
Party receiving the Termination Fee, for any such breach, failure or default of
the other party.
ARTICLE VII
MISCELLANEOUS
7.1 CLOSING. Unless the Parties shall mutually fix another date, the
Closing Date shall be on such Business Day as Centennial shall select that is
not more than five (5) Business Days after the Final Approval Date or such later
date on which the latest to occur of the conditions set forth in
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Section 5.1 is satisfied. Subject to the fulfillment or waiver of those
conditions and the other conditions set forth in Article V, the Closing of the
Stock Purchase shall take place at the offices of Centennial's counsel in
Anaheim, California, at 10:00 a.m. (local time) on the Closing Date. Except as
otherwise provided herein, all proceedings to be taken and all documents to be
executed at the Closing shall be deemed to have been taken, delivered and
executed simultaneously as of the Effective Time, and no proceeding shall be
deemed taken nor documents deemed executed or delivered until all have been
taken, delivered and executed.
7.2 EXPENSES. Each Party shall be responsible for its own
Expenses.
7.3 PUBLICITY. Promptly following the execution and delivery of this
Agreement, Palomar, Community and Centennial shall issue a joint press release
in a form mutually to be agreed upon. Palomar, Community and Centennial shall
not, and shall instruct their Representatives not to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, this Agreement or the Stock
Purchase without the consent of the other Party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, in the event that either
Centennial or Palomar and Community determines, based upon the advice of
counsel, that a press release, disclosure in a public filing, or other public
disclosure of, or reference to, this Agreement, the Stock Purchase or Centennial
is required by law, such Party shall first notify the other of the potential
disclosure, afford the other Party a reasonable opportunity to review and
comment on the proposed disclosure, and obtain the other Party's approval of
such disclosure, which approval shall not be withheld or delayed in any manner
that is unreasonable under the circumstances.
7.4 NOTICES. All notices, approvals, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person or by electronic facsimile transmission
(with confirmation) or on the next business day after dispatch by an overnight
courier of national reputation to the respective Parties as follows:
IF TO CENTENNIAL, TO IT AT:
Centennial First Financial Services
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
WITH A COPY TO:
Xxxx Xxxxxx Xxxxxxx & Associates
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
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IF TO PALOMAR AND COMMUNITY, TO IT AT:
Community West Bancshares
000 Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxxx X. Xxxxx
Fax: (000) 000-0000
Palomar Community Bank
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxx
Fax: (000) 000-0000
WITH A COPY TO:
Horgan, Rosen, Beckham & Coren, LLP
00000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
7.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the Parties and, supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral, among the Parties with
respect to the subject matter hereof.
7.6 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and agreements contained herein or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time except those covenants and agreements that by their express terms apply in
whole or in part to periods after the Effective Time.
7.7 BENEFITS; BINDING EFFECT; ASSIGNMENT AND DESIGNATION. This
Agreement shall be for the benefit of and binding upon the Parties, their
respective successors and, where applicable, assigns. No Party may assign this
Agreement or any of its rights, interests or obligations hereunder without the
prior written consent of the other Party. Notwithstanding any assignment or
delegation of any Party's rights, interests or obligations, each Party shall
nonetheless remain responsible for the performance of all of its obligations
provided hereunder.
7.8 WAIVER. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly so provided.
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7.9 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the Parties and their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
7.10 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, Sections or Articles contained in this Agreement
shall not affect the enforceability of the remaining portions of the Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law. In the event any one or more of the words, phrases, sentences, clauses,
sections or subsections contained in this Agreement shall be declared invalid,
this Agreement shill be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, section or sections, or
subsection or subsections, had not been inserted; provided, however, that if any
provision is declared to be unenforceable because it is determined to be
overbroad, then, to the extent possible, in lieu of deletion such provision
shall be modified to the minimum extent necessary to render such provision
enforceable.
7.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the several Parties in separate counterparts, each of which
shall be deemed to be one and the same instrument.
7.12 APPLICABLE LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by the laws of the State of California and all questions concerning the
validity and construction hereof shall be determined in accordance with the laws
of said State. Each Party hereby irrevocably submits to the exclusive
jurisdiction of the courts sitting in the state of California in any action or
proceeding arising out of or relating to this Agreement and hereby irrevocably
agrees, on behalf of itself and on behalf of such Party's successors and
permitted assigns, that all claims in respect of such action or proceeding may
be heard and determined in any such court and irrevocably waives any objection
such person may now or hereafter have as to the venue of any such suit, action
or proceeding brought in such a court or that such court is an inconvenient
forum.
7.13 WAIVER OF JURY TRIAL. The Parties hereto hereby waive trial by
jury in any judicial proceeding involving, directly or indirectly, any matter
(whether in tort, contract or otherwise) in any way arising out of, related to,
or connected with this Agreement, the related documents or the relationship
established hereunder.
7.14 ATTORNEYS' FEES. In the event that any action or proceeding,
including arbitration, is commenced by any Party hereto for the purpose of
enforcing any provision of this Agreement, the Parties to such action,
proceeding or arbitration shall be entitled to receive as part of any award,
judgment, decision or other resolution of such action, proceeding or arbitration
their costs and reasonable attorneys' fees as determined by the person or body
making such award, judgment, decision or resolution.
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IN WITNESS WHEREOF, the Parties have each executed and delivered this Agreement
as of the day and year first above written.
CENTENNIAL FIRST FINANCIAL SERVICES
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------
Xxxxxxx X. Xxxxxxx, President
By: /s/ Xxxxx Xxxxxxxx
------------------
Xxxxx Xxxxxxxx, Secretary
COMMUNITY WEST BANCSHARES
By: /s/ Xxxxxxxxx X. Xxxxx
----------------------
Xxxxxxxxx X. Xxxxx, President
By: Xxxxxxxxx X. Xxxxxxxx
---------------------
Xxxxxxxxx X. Xxxxxxxx, Secretary
PALOMAR COMMUNITY BANK
By: /s/ Xxxxxxx Xxxxxxx
-------------------
Xxxxxxx Xxxxxxx, President
By: /s/ Xxx Xxxxxxx
---------------
Xxx Xxxxxxx, Secretary
XXXXXXX XXXXXXX
/s/ Xxxxxxx Xxxxxxx
-------------------
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