February 7, 1997
To the Purchaser Listed on Schedule A
Attached Hereto (the "Purchaser")
Ladies and Gentlemen:
This letter confirms the agreement (the "Agreement") with respect to the
intention of National Mercantile Bancorp (the "Company") to raise additional
capital through a rights offering, with oversubscription privileges, of up to
$5.5 million in aggregate Subscription Price (as hereinafter defined) of shares
of the Company's 6.5% Series A Noncumulative Convertible Perpetual Preferred
Stock (the "Preferred Shares") to its shareholders of record as of a date to be
determined ("Rights Offering") with the participation of standby purchasers to
purchase a number of Preferred Shares, subject to applicable limitations herein
expressed, equal to the amount of unsubscribed shares in the Rights Offering.
Additional Preferred Shares of up to $2.5 million in aggregate Subscription
Price of Preferred Shares (the "Additional Shares") are to be offered to
accommodate the minimum purchase requirements of the Purchaser and the
additional standby purchasers listed on Schedule B
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(collectively, the "Tier I Standby Purchasers"). Up to an additional $1.0
million in aggregate Subscription Price of Preferred Shares (the "Over-Allotment
Shares") are to be offered to accommodate oversubscription rights
("Oversubscription Rights") of shareholders entitled to participate in the
Rights Offering and subscriptions from other standby purchasers (the "Tier II
Standby Purchasers") identified by the Company. The Rights Offering and the
offering of Additional Shares and Over-Allotment Shares is herein referred to as
the "Offering."
A registration statement on Form S-2 with respect to the Offering of
Preferred Shares, including a preliminary form of prospectus, will be prepared
by the Company in conformity with the requirements of the Securities Act of
1993, as amended (the "Securities Act"), and the rules and regulations (which
together with the rules and regulations under the Exchange Act referred to below
are collectively referred to herein as the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and will be
filed with the Commission; and one or more amendments to such registration
statement also will be so prepared and will be so filed. When filed with the
Commission, as amended at the time it is declared effective by the Commission,
and, in the event of any amendment thereto after the effective date and prior to
the closing of the Rights Offering, such registration statement, as so amended,
including all exhibits and documents incorporated by reference therein, is
hereinafter called the "Registration Statement." The prospectus included in the
Registration Statement is hereinafter called the "Prospectus."
The Preferred Shares will be issued pursuant to and be entitled to the
benefits of the provisions of an amendment and restatement of the Articles of
Incorporation of the Company
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substantially as described in the Registration Statement (the "Restatement").
The Preferred Shares shall be convertible into shares of the Company's Common
Stock (as hereinafter defined) (such shares of Common Stock into which the
Preferred Shares are convertible and all shares of Common Stock of the Company
issued in exchange or substitution therefor being hereinafter sometimes referred
to as the "Conversion Stock"), initially at the rate of one share of Conversion
Stock for each Preferred Share, all as more fully set forth in the Restatement.
The Preferred Shares shall be subject in all respects to all of the other
provisions of the Restatement.
Pursuant to the Restatement, the Company also intends to effect a 9.09 for
1 reverse stock split (the "Recapitalization") immediately prior to the Rights
Offering Closing (as hereinafter defined) and to adopt certain restrictions on
ownership and transfer of capital stock of the Company relative to the IRC 382
Limitation (as defined below). A proxy statement has been prepared in
conformity with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Rules and Regulations and shall be filed by the Company with the
Commission relating to approval of the Restatement by the shareholders of the
Company at a meeting thereafter to be called (the "Annual Meeting"). Such proxy
statement, when filed with the Commission, as amended at the time all applicable
waiting periods relating to approval have expired with the Commission, at the
time of mailing the proxy statement and at all times subsequent to such mailing
up to and including the time of the Annual Meeting, is hereinafter called the
"Proxy Statement."
All share and per share data set forth herein shall be deemed
proportionately adjusted upon effectiveness of the Recapitalization.
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1. PURCHASE AND SALE OF AVAILABLE SHARES
1.1 PURCHASE BY PURCHASER AND TIER I STANDBY PURCHASERS. Subject to
the terms and conditions and in reliance upon the representations and warranties
herein set forth, the Company agrees to issue and sell to Purchaser and
Purchaser severally agrees to purchase from the Company, ratably with all Tier I
Standby Purchasers in accordance with the percentage allocation set forth on
Schedule A and Schedule B, at the Subscription Price (a) that aggregate number
of Preferred Shares which remain available for issuance in accordance with the
Rights Offering after the issuance of all Preferred Shares validly subscribed
for through the exercise of basic subscription rights in the Rights Offering
(the "Basic Subscription Rights"), and (b) the Additional Shares (such Preferred
Shares being hereinafter referred to collectively as the "Available Shares").
1.2 MINIMUM PURCHASE BY PURCHASER AND TIER I STANDBY PURCHASER.
Subject to the terms, conditions and limitations herein set forth, the Company
agrees to issue and sell to the Purchaser, and the Purchaser severally agrees to
purchase from the Company, ratably with all Tier I Standby Purchasers in
accordance with the percentage allocation set forth on Schedule A and Schedule
B, at the Subscription Price and otherwise in accordance with this Agreement, an
amount not less than the Additional Shares, but in no event shall the
Subscription Price paid by Wildwood Enterprises Inc. Profit Sharing Plan and
Trust exceed $500,000.
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1.3 SUBSCRIPTION PRICE. The Subscription Price shall be $1.10 ($9.999
post-Recapitalization) per Preferred Share, or such lesser price at which the
Preferred Shares shall be offered in the Rights Offering.
1.4 PRIORITY OF TIER I STANDBY PURCHASERS. Subscriptions for
Preferred Shares in connection with the Offering shall be accepted by the
Company in the following order of priority: first, Basic Subscription Rights;
second, Tier I Standby Purchaser subscription rights as set forth in Sections
1.1 and 1.2 hereof; third, Oversubscription Rights; and fourth, subscription
rights of Tier II Standby Purchasers. In no event shall the aggregate
Subscription Price of the Preferred Shares offered and sold in the Offering
exceed $9.0 million. All Preferred Shares subscribed for in the Rights Offering
or pursuant hereto shall be issued on the same date established by the Company
(the "Issuance Date").
1.5 OTHER TERMS OF PURCHASE BY STANDBY PURCHASERS. The Company
contemplates entering into one or more standby purchase agreements with the
other Tier I Standby Purchasers and the Tier II Standby Purchasers
(collectively, the "Standby Purchasers"). In no event shall any such agreement
be on terms less favorable to the Company than the terms hereof except as it may
relate to the number of Preferred Shares to be acquired, or on substantive
economic terms inconsistent with the terms of this Agreement. No binding
agreement with a Tier II Standby Purchaser shall be executed prior to the date
that the Registration Statement shall be declared effective by the Commission.
In connection with the purchase of shares of Preferred Stock by a Tier II
Standby Purchaser, the Company will receive from each Tier II Standby Purchaser
a representation
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that the Tier II Standby Purchaser's investment decision is not made based upon
the investment decision of any other purchaser. The aggregate maximum number of
Preferred Shares offered and sold to Tier II Standby Purchasers shall not exceed
$2.5 million in aggregate Subscription Price of Preferred Shares. The aggregate
minimum number of Preferred Shares that the Company can guarantee will be sold
pursuant to Oversubscription Rights and to Tier II Standby Purchasers (the
"Oversubscription and Tier II Standby Minimum") shall not exceed $1.0 million in
aggregate Subscription Price of Preferred Shares. The Over-Allotment Shares
shall be issued solely for the purpose of satisfying the Oversubscription and
Tier II Standby Minimum. Other than the sale of Preferred Shares to the
Purchaser or the sale of Preferred Shares to existing stockholders pursuant to
Basic Subscription Rights, the Company will not enter into any agreements or
arrangements which would allow any stockholder or groups of stockholders to
become a 5% stockholder as defined in the IRC 382 Limitation. If requested by
Purchaser, the Company shall furnish to the Purchaser a copy of each agreement
with any other Standby Purchaser promptly upon execution by the parties thereto.
Purchaser further acknowledges that its obligations hereunder are not contingent
upon the consummation of the sale of the Over-Allotment Shares.
1.6 LIMITATION ON ISSUANCE OF AVAILABLE SHARES. The Purchaser
acknowledges and agrees that the Available Shares to be allocated to the
Purchaser shall be reduced to the lesser of (a) an amount which, in the judgment
of the Company and the Purchaser after consultation with their respective tax
advisors, would not likely result in an "ownership change" of the Company under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and
related regulations (the "IRC 382 Limitation"); provided, however, that for
purposes of this Agreement, the amount of
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"ownership change" with reference to the IRC 382 Limitation shall not exceed
45%, or (b) $5.0 million in aggregate Subscription Price of Preferred Shares.
2. The Closing
As soon as practicable following its determination of the number of
Available Shares, the Company shall notify the Purchaser of the number of
Available Shares to be purchased by the Purchaser. The delivery of and payment
for the Available Shares shall take place at the office of ▇▇▇▇▇▇, ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, LLP at 11:00 a.m. Pacific time, immediately after the closing of the
sale of the Preferred Shares pursuant to the Rights Offering (the "Rights
Offering Closing"), such time and date to be not more than five (5) business
days after the foregoing notification and to be specified therein (such time and
date being referred to as the "Closing Time," the date of the Closing Time being
referred to as the "Closing Date" and the consummation of the transaction being
referred to as the "Closing").
3. Delivery of Available Shares
At the Closing, the Available Shares to be purchased by the Purchaser
hereunder, registered in the name of the Purchaser or its nominee(s), as the
Purchaser may specify in writing at least three (3) days prior to the Closing
Date, shall be delivered by or on behalf of the Company to the Purchaser, for
the Purchaser's account, against delivery by the Purchaser of the aggregate
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Subscription Price therefor in immediately available funds by wire transfer to
an account designated by the Company.
4. Representation and Warranties of the Company
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, prospects, operations or results of operations of the Company and its
subsidiaries, taken as a whole. In this Agreement, any reference to a "Material
Adverse Effect" with respect to any entity or group of entities means any event,
change or effect that is materially adverse to the financial condition,
properties, assets, liabilities, business, prospects, operations or results or
operations of the Company and its subsidiaries, taken as a whole. For purposes
of this Agreement the term "prospects" shall mean realization of the Company's
1997 Business Plan dated December 20, 1996.
Except as disclosed in a document of even date herewith and delivered
by the Company to the Purchaser, and referring to the representations and
warranties in this Agreement (the "Disclosure Schedule"), or (other than where
so indicated below) in the Registration Statement in the form delivered to
Purchaser prior to execution of this Agreement, the Company represents and
warrants to the Purchaser as follows:
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4.1 ORGANIZATION/QUALIFICATION. Each of the Company and its
subsidiary has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation. Each of the
Company and its subsidiary has full corporate power and authority to own its
properties and conduct its business as currently being carried on, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which the conduct of
its business makes such qualification necessary and in which the failure to so
qualify would have a Material Adverse Effect.
4.2 CAPITAL STOCK. The authorized capital stock of the Company
consists of ten million (10,000,000) common shares, of which 3,078,146 shares
(pre-Recapitalization) are issued and outstanding and one million (1,000,000)
shares of preferred stock, none of which shares are issued and outstanding. All
of the issued and outstanding shares of capital stock of the Company are duly
authorized by all necessary or proper corporate action, validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
the holders thereof are not subject to personal liability by reason of being
such holders; upon approval of the Restatement, as contemplated by the Proxy
Statement, the Preferred Shares which may be sold by the Company will have been
duly authorized by all necessary or proper corporate action and, when issued,
delivered and paid for as contemplated by the Registration Statement and this
Agreement, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal liability
by reason of being such holders; a number of shares of Common Stock equal to the
number of Preferred Shares have been duly authorized by all necessary or proper
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corporate action and reserved in the corporate records of the Company, and upon
conversion of the Preferred Shares, the Conversion Shares, when issued and
delivered, will have, been validly issued and will be fully paid and
nonassessable; there are no preemptive rights or other rights to subscribe for
or to purchase, or any restriction upon the voting or transfer of, the Preferred
Shares or any shares of Common Stock pursuant to the Company's charter, by-laws
or any agreement or other instrument to which the Company is a party or by which
the Company is bound. Except as contemplated in this Agreement, neither the
filing of the Registration Statement nor the offering or sale of the Preferred
Shares as contemplated by this Agreement gives rise to any rights for or
relating to the registration of any shares of Common Stock or other securities
of the Company or rights relating to antidilution which could result in any
change in the number of shares of capital stock to be issued by the Company. All
of the issued and outstanding shares of capital stock of each of the Company's
subsidiaries have been duly and validly authorized and issued and are fully paid
and nonassessable, and, except for any directors' qualifying shares, the Company
owns of record and beneficially, free and clear of any security interests,
claims, liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. There are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or nature
whatever, except as contemplated by this Agreement under which the Company is or
may be obligated to issue capital stock or other securities of any kind
representing an ownership interest or contingent ownership interest in the
Company.
4.3 AUTHORIZATION. Each of this Agreement and the Registration Rights
Agreement (as defined below) has been duly authorized by all necessary or proper
corporate action,
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executed and delivered by the Company, and each such agreement constitutes a
valid, legal and binding obligation of the Company, enforceable in accordance
with its terms, except as rights to indemnity hereunder may be limited by
federal or state securities laws and except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of equity. The
execution, delivery and performance of each of this Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated herein and therein will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any statute, any
agreement or instrument to which the Company is a party or by which it is bound
or to which any of its property is subject, or upon approval of the Restatement
as contemplated by the Proxy Statement, the Company's charter or by-laws, or any
order, rule, regulation or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its properties; no consent,
approval, authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance of this
Agreement or the Registration Rights Agreement or for the consummation of the
transactions contemplated hereby or thereby by the Company, including the
issuance or sale of the Preferred Shares by the Company, except such as may be
required under the Securities Act or state securities or blue sky laws, and with
respect to any such approvals to be applied for, the Company has no reason to
believe such approvals will not be granted or obtained; and the Company has full
power and authority to enter into this Agreement and the Registration Rights
Agreement and, upon approval of the Restatement as contemplated by the Proxy
Statement, to authorize, issue and sell the Preferred Shares as contemplated by
this Agreement. The offer and sale of the Preferred Shares to the Purchaser and
each other Tier I Standby Purchaser is exempt from
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the registration, qualification and prospectus delivery requirements of
applicable federal and state law, provided that the representations and
warranties of the Purchaser hereunder and each other Tier I Standby Purchaser
relating to such laws are true and correct. Upon approval by the Stockholders as
contemplated by the Proxy Statement, the Restatement will have been duly
authorized by all necessary or proper corporate action, and, upon filing with
the Secretary of State of the State of California, no other or additional
corporate or legal action shall be necessary to perfect the rights and
privileges of the holders of Preferred Shares under the Restatement. The holders
of capital stock of the Company are entitled to the rights, preferences and
provisions of the Restatement.
4.4 REGISTRATION STATEMENT AND PROXY STATEMENT. The Registration
Statement, Prospectus and the Proxy Statement conform in all material respects
to the requirements of the Securities Act, the Exchange Act and the Rules and
Regulations; the Registration Statement and the Proxy Statement do not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and the Prospectus does not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they are or were
made, not misleading, except that the foregoing does not apply to statements in
or omissions from any such document in reliance upon, and in conformity with,
written information furnished to the Company by the Purchaser, specifically for
use in the preparation thereof.
4.5 LICENSES. The Company and its subsidiary holds, and is operating
in compliance in all respects with, all franchises, grants, authorizations,
licenses, permits, easements,
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consents, certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and the Company and its
subsidiary has been and is in compliance in all respects with all applicable
federal, state, local and foreign laws, regulations, orders and decrees, except
where the failure to so comply would not have a Material Adverse Effect. The
Company is registered as a corporation under Section 1841 of Title 12, United
States Code, as amended. Mercantile National Bank (the "Bank") is an insured
bank under the provisions of Chapter 16 of Title 12, United States Code. No act
or default on the part of the Company or the Bank exists that could reasonably
be expected to limit or impair any of the Company's or Bank's powers, rights and
privileges or, in the case of the Bank, to affect its status as an insured bank.
4.6 PROPERTY. The Company and its subsidiary have good and marketable
title to all property owned by them, in each case free and clear of all liens,
claims, security interests or other encumbrances, the property held under lease
by the Company and its subsidiary is held by them under valid, subsisting and
enforceable leases with only such exceptions with respect to any particular
lease as do not interfere in any material respect with the conduct of the
business of the Company or its subsidiary; the Company and its subsidiary own,
or possess all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its subsidiary as currently carried on, no name
which the Company or its subsidiary use and no other aspect of the business of
the Company or its subsidiary will involve or give rise to
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any infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others material to the business or prospects of the
Company and neither the Company nor its subsidiary has received any notice
alleging any such infringement or fee.
4.7 SUBSIDIARIES. Other than the one subsidiary of the Company listed
in Exhibit 21 to the Company's 1995 10-K, neither the Company nor its subsidiary
owns any capital stock or other equity or ownership or proprietary interest in
any corporation, partnership, association, trust or other entity.
4.8 SEC DOCUMENTS; FINANCIAL STATEMENTS. In addition to the
Registration Statement, the Prospectus and the Proxy Statement, the Company has
furnished to Purchaser a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement and other filings
filed with the Commission by the Company since January 1, 1994, and, prior to
the Closing Date, the Company will have furnished Purchaser with true and
complete copies (including exhibits) of any additional documents filed with the
Commission by the Company, or by an affiliate on Schedule 13D or 13G, prior to
the Closing Date (collectively, the "SEC Documents"). All documents required to
be filed as exhibits to the SEC Documents have been so filed, and all material
contracts so filed as exhibits are in full force and effect, except those which
have expired or have been terminated in accordance with their terms, and neither
the Company nor any of its subsidiaries is in material default
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thereunder. True and correct copies of all such contracts have been furnished to
Purchaser. As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the
Securities Act, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed SEC Document. To the knowledge of the Company,
other than 9830 Investments No. 1, Ltd., there are no other persons or groups
which beneficially own five percent or more of any class of the Company's
capital stock nor any material inaccuracies in any Schedule 13D or 13G delivered
to the Company and filed with the SEC. The financial statements of the Company,
including the notes thereto, included in the SEC Documents (the "Company
Financial Statements") were complete and correct in all material respects as of
their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto as of their respective dates, and have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other (except as may be indicated in the notes thereto or, in the case
of unaudited statements included in Quarterly Reports on Form 10-Qs, as
permitted by Form 10-Q). The Company Financial Statements fairly present the
consolidated financial condition and operating results of the Company and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in the Company accounting policies except as described
in the notes to the Company Financial Statements.
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The Company has heretofore delivered to Purchaser copies of its
monthly reporting package to the Board of Directors of the Company for December
1995 and March, June and September of 1996 (collectively, the "Board Package
Financial Information"). The Board Package Financial Information has been
prepared in accordance with the books and records of the Company and its
subsidiary, is true and correct in all material respects and has been prepared
on a basis consistent with the Company Financial Statements and on a basis
consistent throughout the periods presented.
4.9 ABSENCE OF CERTAIN CHANGES. Except for the transactions
contemplated by this Agreement, since September 30, 1996, neither the Company
nor its subsidiary has: (a) incurred any debts, obligations or liabilities,
absolute, accrued or contingent and whether due or to become due, except current
liabilities incurred in the ordinary course of business; (b) paid any obligation
or liability other than, or discharged or satisfied any liens or encumbrances
other than those securing current liabilities, in each case in the ordinary
course of business; (c) declared or made any payment or distribution to its
stockholders as such, or purchased or redeemed any of its shares of capital
stock or other securities, or obligated itself to do so; (d) mortgaged, pledged
or subjected to lien, charge, security interest or other encumbrance any of its
assets, tangible or intangible, except in the ordinary course of business; (e)
sold, transferred or leased any of its assets except in the ordinary course of
business; (f) canceled or compromised any debt or claim, or waived or released
any right of material value; (g) suffered any physical damage, destruction or
loss (whether or not covered by insurance) which would have a Material Adverse
Effect; (h) entered into any transaction other than in the ordinary course of
business; (i) encountered any labor difficulties or labor union organizing
activities;
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(j) issued or sold any shares of capital stock or other securities or granted
any options, warrants or other purchase rights with respect thereto other than
as contemplated by this Agreement; (k) made any acquisition or disposition of
any material assets or become involved in any other material transaction, other
than in the ordinary course of business; (l) increased the compensation payable,
or to become payable, to any of its directors or employees, or made any bonus
payment or similar arrangement with any directors or employees or increased the
scope or nature of any fringe benefits provided for its employees or directors
other than regularly scheduled increases or as contemplated by any written
employment agreement; or (m) agreed to do any of the foregoing other than
pursuant hereto. There has not occurred since September 30, 1996, any change,
event or condition (whether or not covered by insurance) that has resulted in or
might reasonably be expected to result in, a Material Adverse Effect.
4.10 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth in or adequately provided for in the
balance sheet (the "Company Balance Sheet") included in the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1996; (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Company Balance Sheet under generally accepted accounting principles; (iii)
those incurred in the ordinary course of business since September 30, 1996,
consistent with past practice and not individually in excess of $100,000; and
(iv) those incurred pursuant to this Agreement.
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4.11 TAXES. The Company and its subsidiary, and any consolidated,
combined or unitary group for Tax purposes of which the Company or its
subsidiary is or has been a member have timely filed all Tax Returns required to
be filed by them and have paid all Taxes shown thereon to be due. The Company
Financial Statements (i) fully accrue under generally accepted accounting
principles all liabilities for Taxes with respect to all periods through
September 30, 1996 and, to the knowledge of the Company, the Company and its
subsidiary have not and will not incur any material Tax liability in excess of
the amount reflected on the Company Financial Statements with respect to such
periods and (ii) properly accrue in accordance with generally accepted
accounting principles all liabilities for Taxes payable after September 30, 1996
with respect to all transactions and events occurring on or prior to such date.
No material Tax liability since September 30, 1996 has been incurred by the
Company or its subsidiary other than in the ordinary course of business and
adequate provision has been made in the Company Financial Statements for all
Taxes since that date in accordance with generally accepted accounting
principles on at least a quarterly basis. The Company and its subsidiary have
withheld and paid or will timely pay to the applicable Tax Authority all amounts
required to be withheld. No notice of deficiency or similar documents of any Tax
Authority has been received by either the Company or its subsidiary, and there
are no liabilities for Taxes with respect to the issues that have been raised
(and are currently pending) by any Tax Authority that could, if determined
adversely to the Company and its subsidiary, materially and adversely affect the
liability of the Company and its subsidiary for Taxes. There is (i) no material
claim for Taxes that is a lien against the property of the Company or its
subsidiary other than liens for Taxes not yet due and payable, (ii) no
notification received by the Company of any audit of any Tax Return of the
Company or its subsidiary being conducted pending or threatened, by a Tax
Authority, (iii) no extension or
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waiver of the statute of limitations on the assessment of any Taxes granted by
the Company or its subsidiary that may result in the payment of any material
amount that would not be deductible by reason of Sections 280G or 404 of the
Code. The Company will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Closing Date. Neither the Company nor its subsidiary is a party to any tax
sharing or tax allocation agreement nor does the Company or its subsidiary owe
any amount under any such agreement. For purposes of this Agreement, the
following terms have the following meanings: "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other government fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Entity (a "Tax
Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period and (iii) any liability for the
payment of any amounts of the type described in parts (i) or (ii) of this
sentence as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns required
to be filed with respect to Taxes. The Company and its subsidiary are
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in full compliance with all terms and conditions of any Tax exemptions or other
Tax sharing agreement or order of a foreign government applicable to them and
the execution and performance of this Agreement shall not have any adverse
effect on the continued validity and effectiveness of any such Tax exemptions or
other Tax sharing agreement. As of September 30, 1996, the Company had net
operating loss carryforwards of no less than the $18.5 million and $10.6 million
for federal and California state tax purposes, respectively (the "Net Operating
Loss Carryforwards") related to tax years through December 31, 1995, and there
has not occurred any event that would restrict or prevent the Company from using
the Net Operating Loss Carryforwards to reduce future tax liabilities. To the
Company's knowledge, the completion of the Rights Offering and the purchase of
Preferred Shares by the Standby Purchasers will not result in an "ownership
change" within the meaning of the IRC 382 Limitation or otherwise restrict the
Company's ability to use the Net Operating Loss Carryforwards to reduce future
tax liabilities.
4.12 INTERNAL ACCOUNTING. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any difference.
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4.13 BROKER'S OR AGENT'S FEE. The Company has not incurred any
liability for any finder's, broker's, agent's or financial advisor's fee or
commission in connection with the execution and delivery of this Agreement, the
Offering or the consummation of the transactions contemplated hereby or thereby.
4.14 LITIGATION AND CLAIMS. Except as set forth in the Disclosure
Schedule, neither the Company nor its subsidiary is subject to any continuing
order of, or written agreement or memorandum of understanding, director,
supervisory letter, or other formal or informal enforcement action or commitment
that restricts or adversely affects its operation or financial condition, with
any federal or state depository institution or insurance authority or other
governmental entity, or any judgment, order, writ, injunction, decree or award
of any governmental entity or arbitrator, including, without limitation, cease-
and-desist or other orders of any depository institution regulatory authority,
and, to the knowledge of the Company, there exists no reasonable basis therefor.
Except as set forth in the Disclosure Schedule, there is no action, suit,
litigation, proceeding or arbitration ("Proceeding") against or affecting the
Company or its subsidiary, or, to the knowledge of the Company, any directors,
officers, employees or agents of the Company or its subsidiary(in their
respective capacities as directors, officers, employees or agents) pending or,
to the knowledge of the Company, threatened or, to the knowledge of the Company,
any reasonable basis therefor and there are no uncured material violations, or
violations with respect to which material refunds or restitutions may be
required, cited in any compliance report to the Company or its subsidiary as a
result of the examination by any depository institution regulatory authority.
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4.15 INSURANCE. The Company is presently insured, and during each of
the past three calendar years has been insured, for reasonable amounts with
insurance companies listed on the Disclosure Schedule. Neither the Company nor
its subsidiary has any liability for material unpaid premiums or premium
adjustments not properly reflected on the Company's Financial Statements and no
notice of cancellation or termination has been received by the Company or its
subsidiary with respect to any material insurance policy currently in effect.
Within the last three years, neither the Company nor its subsidiary has been
refused any insurance with respect to any assets or operations, nor has any
coverage been limited in any material respect as to any assets or operations, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance during the last three years.
4.16 INTERESTS OF AFFILIATES. No officer, director or stockholder of
the Company or any affiliate (as such term is defined in Rule 405 under the
Securities Act) of any such person has any, direct or indirect interest (a) in
any entity which does business with the Company, or (b) in any property, asset
or right which is used by the Company in the conduct of its business, or (c) in
any contractual relationship with the Company other than as an employee. For the
purpose of this Section 4.16, there shall be disregarded any interest which
arises solely from the ownership of less than a 1% equity interest in a
corporation whose stock is regularly traded on any national securities exchange
or in the over-the-counter market.
4.17 LISTING ON NASDAQ. On or before the closing, the Company will
apply to have the Preferred Shares approved for quotation on the Nasdaq Stock
Market -- National Market. The
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Common Stock is approved for quotation on the Nasdaq Stock Market -- National
Market. The Company and such Common Stock are in compliance with the maintenance
criteria of the NASD applicable to continued eligibility for quotation on such
market, and the Company has not received any notification concerning, and has no
reason to believe it is subject to, termination of quotation privileges on such
market.
4.18 EMPLOYEE BENEFIT PLANS.
(a) With respect to the Company, the subsidiary of the Company
and any trade or business (whether or not incorporated) which is treated as a
single employer with the Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, there are no (i) material employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (ii) stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangement, (iii) bonus,
pension, profit sharing, savings, deferred compensation or incentive plans,
programs or arrangements, (iv) fringe or employee benefit plans, programs or
arrangements that apply to senior management of the Company and that do not
generally apply to all employees, and (v) current or former employment or
executive compensation or severance agreements, written or
-23-
otherwise, as to which unsatisfied obligations of the Company of greater than
$60,000 remain for the benefit of, or relating to, any present or former
employee, consultant or director of the Company (together, the "Company Employee
Plans").
(b) Any Company Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination, or has been established under a
standardized prototype plan for which an Internal Revenue Service opinion letter
has been obtained by the plan sponsor and is valid as to the adopting employer.
The Company also has furnished Purchaser with the most recent Internal Revenue
Service determination or opinion letter issued with respect to each such Company
Employee Plan, and nothing has occurred since the issuance of each such letter
which could reasonably be expected to cause the loss of the tax-qualified status
of any Company Employee Plan subject to Code Section 401(a).
-24-
(c) (i) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Company Employee Plan has been administered in accordance
with its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and the Company and its
subsidiary or ERISA Affiliate have performed all material obligations required
to be performed by them under, are not in any material respect in default under
or violation of, and have no knowledge of any material default or violation by
any other party to, any of the Company Employee Plans; (iv) neither the Company
nor its subsidiary or ERISA Affiliate is subject to any liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to
any of the Company Employee Plans; (v) all material contributions required to be
made by the Company or its subsidiary or ERISA Affiliate to any Company Employee
Plan have been made on or before their due dates and a reasonable amount has
been accrued for contributions to each Company Employee Plan for the current
plan years; (vi) with respect to each Company Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event
-25-
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no
Company Employee Plan is covered by, and neither the Company nor its subsidiary
or ERISA Affiliate has incurred or expects to incur any liability under Title IV
of ERISA or Section 412 of the Code. With respect to each Company Employee Plan
subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or any employee welfare benefit plan within the meaning of
Section 3(l) of ERISA, the Company has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Company Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the best knowledge of the
Company is threatened, against or with respect to any such Company Employee
Plan, including any audit or inquiry by the IRS or United States Department of
Labor. Neither the Company nor its subsidiary or other ERISA Affiliate is a
party to, or has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Company Employee Plan, the Company and
its subsidiary have complied with (i) the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the proposed regulations thereunder and (ii) the applicable
-26-
requirements of the Family Leave Act of 1993 and the regulations thereunder,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of the Company, its subsidiary or any other ERISA Affiliate to
severance benefits or any other payment (including, without limitation,
unemployment compensation, golden parachute or bonus), or (ii) accelerate the
time of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written by the Company, its subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Company Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in the Company's financial statements.
4.19 ENVIRONMENTAL MATTERS. To the Company's knowledge, neither the
Company nor its subsidiary nor any of the property owned, leased, possessed or
controlled by them in the operation of their respective businesses (including in
connection with their lending or fiduciary
-27-
operations) ("Property") is in violation of any applicable zoning ordinance or
other law, regulation or requirement relating to the operation of any properties
used, including, without limitation, applicable environmental protection laws,
rules and regulations (collectively, "Environmental Law"), other than violations
that, in the aggregate with any other conditions described in this Section 4.19,
would not result in costs that would have a Material Adverse Effect; and neither
the Company nor its subsidiary has received any notice of any such violation, or
the existence of any condemnation proceeding with respect to any Property. To
the Company's knowledge, no Toxic Substances (as defined below) have been
deposited or disposed of in, on or under any Property during the period in which
the Company or any of its subsidiaries has owned, occupied, managed, controlled
or operated such properties, except to the extent the same, in the aggregate
with any other conditions described in this Section 4.19, would not result in
costs that would have a Material Adverse Effect. To the Company's knowledge (a)
no prior owners, occupants or operators of all or any part of the Property ever
used such properties as a dump or gasoline service station, (b) no prior owners,
occupants or operators of all or part of the Property ever deposited or disposed
of or allowed to be deposited or disposed of in, on or under such properties any
Toxic Substances or (c) no past, present or known future event, condition,
circumstances, plans, efforts or omissions have existed or occurred, are
existing or occurring or are reasonably expected to exist or occur on or with
respect to any Property, or any other property as to which the Company or any
subsidiary has held or currently holds ownership or indicia of ownership, except
as to the matters in clauses (b) and (c) to the extent the same, in the
aggregate with any other conditions described in this Section 4.19, would not
result in costs that would have a Material Adverse Effect. To the Company's
knowledge, there are no conditions or circumstances in connection with the
Property that could reasonably be anticipated to
-28-
(i) cause any Property to be subject to any restrictions on ownership,
occupancy, use or transferability under any applicable Environmental Laws or
(ii) materially reduce the value of any Property. To the Company's knowledge,
neither the Company nor its subsidiary has been identified as a potentially
responsible party by any governmental entity in a matter arising under any
Environmental Laws. For purposes of this Agreement, (1) "Toxic Substances" shall
mean petroleum or petroleum-based substance or waste, solid waste, PCBs,
pesticides, herbicides, lead, radioactive materials, urea formaldehyde foam
insulation, or substances defined as "hazardous substances" or "toxic
substances" in any Environmental Laws; (2) materials will be considered to be
deposited or disposed of in, or under any real property if such materials have
been stored, treated, recycled, used or accidentally or intentionally spilled,
released, dumped, emitted or otherwise placed, deposited or disposed of, or used
in any construction, in, on or under such property; and (3) costs of violations
or conditions shall take into account without limitation, liabilities, damages,
penalties, injunctive relief or removal, remediation or other costs under any
applicable Environmental Law.
4.20 USE OF PROCEEDS. The Company will apply the net proceeds from the
sale of the Preferred Shares to be sold by it hereunder to facilitate and
implement its business strategies and those of its subsidiary as set forth in
the Prospectus.
4.21 LOAN PORTFOLIO. All loans and loan commitments in excess of
$50,000 (the "Loans") extended by the Bank have been made in accordance with
customary lending standards of the Bank in the ordinary course of business. The
Loans are evidenced by appropriate and sufficient documentation consistent with
standards in the industry and constitute, to the Company's knowledge,
-29-
valid and binding obligations of the borrowers enforceable in accordance with
their terms, except as limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditor's rights and
remedies generally from time to time in effect and by applicable law which may
affect the availability of equitable remedies. The Bank's interest in the Notes
receivable associated with all such Loans is, and at the Closing Date will be,
free and clear of any security interest, lien, encumbrance or other charge and
the Bank has complied, and at the Closing Date will have complied, in all
material respects with all laws and regulations relating to such Loans. The
Loans, taken as a whole, are not subject to any material offsets, or to the
knowledge of the Company, claims of material offset or claims of other material
liability on the part of the Company or its subsidiary.
4.22 FIDUCIARY ACCOUNTS. Each of the Company and its subsidiary has
properly administered all accounts for which it acts as a fiduciary, including
but not limited to accounts for which it serves as a trustee, agent, custodian,
personal representative, guardian or investment advisor, in accordance with the
terms of the governing documents and applicable state and federal law and
regulation and common law. Neither the Company, its subsidiary, nor any
director, officer or employee of the Company or its subsidiary has committed any
breach of trust with respect to any such fiduciary account, and the accountings
for each such fiduciary account are true and correct statements and accurately
reflect the assets of such fiduciary account.
4.23 EMPLOYEES. To the Company's knowledge, no employee of the Company
or subsidiary whose annual compensation is in excess of $75,000 has any plans to
terminate his or her
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employment with the Company or its subsidiary. Each of the Company and its
subsidiary, has complied in all material respects with all laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and payment of Social Security and other
taxes, and neither the Company nor its subsidiary has encountered any material
labor difficulties.
4.24 SECURITIES OFFERED. At time of Closing, the Preferred Shares
which are the subject of this Agreement (i) constitute and are intended to
constitute an equity interest in the Company and (ii) shall be registered under
section 12(g) of the Exchange Act. The Company is primarily engaged through its
subsidiary in the offering of services including general retail banking services
including general retail banking services permitted by its charter as a national
bank regulated by the Office of the Comptroller (collectively, the "Company's
Business").
4.25 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company herein (as qualified by the Disclosure Schedule)
or in any exhibit hereto, or any written statement furnished to Purchaser by the
Company pursuant hereto or in connection with the transactions contemplated
hereby, when all such documents are read together in their entirety, contains or
will contain at the Closing Date any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
-31-
5. Representations and Warranties of Purchaser
The Purchaser represents and warrants to the Company as follows:
5.1 ORGANIZATION. The Purchaser (if Purchaser is Wildwood Enterprises
Inc. Profit Sharing Plan and Trust) is a trust created pursuant to an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA. Purchaser has
full power and authority under the terms of all applicable laws, governmental
rules and governmental regulations, including, without limitation, ERISA and the
Code (if Purchaser is Wildwood Enterprises Inc. Profit Sharing Plan and Trust),
to perform its or his (as the case may be) obligations under this Agreement.
5.2 INVESTMENT INTENT. The Purchaser is acquiring the Preferred
Shares pursuant to this Agreement for its or his (as the case may be) own
account for investment only and not with a view to any distribution thereof
within the meaning of the Securities Act.
5.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized by all necessary action required of an entity or person such as the
Purchaser, executed and delivered by the Purchaser, and constitutes a valid,
legal and binding obligation of the Purchaser, enforceable in accordance with
its terms, except as such enforceability may be limited by ERISA or the Code or
by bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution and delivery of this Agreement, the consummation by the Purchaser of
the transactions herein contemplated and the compliance by the
-32-
Purchaser with the terms hereof do not and will not conflict with, or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Purchaser is a party or by which any of the
Purchaser's properties or assets are bound, or any applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Purchaser or any of the Purchaser's properties or assets; and no consent,
approval, authorization, order, registration or qualification of or with any
such government, governmental instrumentality or court, domestic or foreign, is
required for the valid authorization, execution, delivery and performance by the
Purchaser of this Agreement or the consummation by the Purchaser of the
transactions contemplated by this Agreement.
5.4 QUALIFICATION OF PURCHASER. The state in which the Purchaser's
principal office or residence (as the case may be) as located is set forth on
Schedule A. The Purchaser qualifies as an accredited investor within the meaning
of Rule 501 under the Securities Act. The Purchaser has such knowledge and
experience in financial and business matters that the Purchaser is capable of
evaluating the merits and risks of the investment to be made hereunder by the
Purchaser. The Purchaser has received and reviewed this Agreement and all other
documents and materials the Company has provided to it in connection with the
purchase of the Available Shares. The Purchaser has had access to and an
opportunity to review all documents and other materials requested of the Company
and has been given an opportunity to ask such questions of the Company
concerning the terms and conditions of the sale of the Available Shares and the
business, operations, financial condition, prospects, assets and liabilities of
the Company and other relevant matters as it has deemed
-33-
necessary or desirable and has been given all such information as it has
requested, to evaluate the merits and risks of the investment contemplated
herein. The Purchaser understands that the Available Shares being purchased
hereunder have not been registered under the Securities Act or registered or
qualified under any state securities laws on the grounds that such Available
Shares are being issued in a transaction exempt from the registration
requirements of the Securities Act and the registration or qualification
requirements of applicable state securities laws, and that such Available Shares
must be held indefinitely unless such Available Shares are subsequently
registered under the Securities Act and qualified or registered under applicable
state securities laws or an exemption from registration and qualification is
available, and that the Company is under no obligation to register or qualify
the Available Shares except as contemplated by the Registration Rights
Agreement. The Purchaser has not seen or received and is not acquiring the
Available ▇▇▇▇▇▇ purchased hereunder pursuant to any advertisement with respect
to the sale of the Available Shares.
5.5 CERTAIN RELATIONSHIPS. Except for the concurrent purchase with
other Tier I Standby Purchasers contemplated hereby, the Purchaser has not
entered into any contracts, arrangements, understandings or relationships (legal
or otherwise) with any other person or persons with respect to the transactions
contemplated by this Agreement or any securities of the Company, including, but
not limited to, transfer or voting of any of the securities, finder's fees,
joint ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of proxies;
and the Purchaser does not own any securities of the Company which are pledged
or otherwise subject to a contingency the occurrence of which would give another
person voting power or investment power of such securities.
-34-
6. COVENANTS
6.1 CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING DATE. The
Company covenants and agrees that, from the date hereof to the Closing Date,
except for entering into this Agreement and consummating the transactions
expressly contemplated hereby or to the extent that the Purchaser shall
otherwise consent in writing:
(a) The Company will maintain its corporate existence in good
standing and will operate its business substantially as presently planned
or operated and only in the ordinary, usual and customary manner, and,
consistent with such operation, it will use its reasonable efforts to
preserve intact its present business organization and its relationships
with persons having business relationships with it.
(b) No amendment will be made to the Articles of Incorporation
of the Company, except the Restatement.
(c) There will be no changes in the number of shares, par value
or class of authorized or issued capital stock of the Company, other than
shares of Common Stock pursuant to the exercise of currently outstanding
options and warrants except for the Offering. In addition, the Company has
not and shall not grant or issue any option, warrant, convertible security,
or other right to acquire any shares of capital stock of the Company other
than options under existing stock option
-35-
plans, warrants under the Warrant Agreement dated December 31, 1995 by and
between the Company and California State Teachers' Retirement System,
warrants under the Warrant Agreement dated December 31, 1995, between the
Company and U.S. Stock Transfer Corporation and options or rights under the
Employment Agreement dated as of June 20, 1996, as amended between
Mercantile National Bank and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇.
(d) There will not be any declaration or payment of any dividend
or other distribution in respect of the capital stock of the Company.
(e) The Company will not enter into any material transaction
outside of the ordinary course of business.
6.2 REGISTRATION STATEMENT; PROXY STATEMENT. As promptly as
practicable after the execution of this Agreement, the Company will file with
the Commission and other applicable federal and state regulators the
Registration Statement and the Proxy Statement. The Company shall use reasonable
efforts to cause, at the earliest practicable date, the Registration Statement
to become effective under the Securities Act and applicable state securities law
and the Proxy Statement to be approved under the Exchange Act and applicable
state securities laws. Copies of the Registration Statement, Prospectus and
Proxy Statement (including any amendment or supplement thereto), as filed with
any federal or state regulator, will be delivered to Purchaser promptly
following such filing. Purchaser shall have the right to review and comment on
the form of Registration Statement and
-36-
Proxy Statement prior to any such filing for a period of not less than 48 hours
after receipt of such document.
6.3 NO SOLICITATION. Until the earlier of the consummation of the
Rights Offering or the termination of this Agreement, with respect to any
Investment Proposal (as hereinafter defined):
(a) The Company will not (and will use its reasonable best
efforts to assure that its officers, directors, employees, agents and
affiliates do not on its behalf) take any action to solicit, initiate,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group regarding any acquisition of
the Company or any subsidiary thereof, any merger, amalgamation, or
consolidation with or involving the Company or any subsidiary thereof, or
any take-over bid, or (other than the Standby Purchasers in connection with
the Offering and in accordance with the other terms of this Agreement) any
sale of stock or other equity securities (including, without limitation, by
way of a tender offer) or any material portion of the assets of the Company
or any subsidiary thereof (any of the foregoing inquiries or proposals
being referred to herein as an "Investment Proposal").
(b) The Company shall immediately notify the Purchaser after
receipt of any Investment Proposal, or any request for information relating
to the
-37-
Company in connection with an Investment Proposal, or any request for
access to the properties, books or records of the Company by any person or
entity that informs the Company that it is considering making, or has made,
an Investment Proposal. Such notice to the Purchaser shall be made orally
and in writing and shall indicate in reasonable detail the terms and
conditions of any such proposal, inquiry or contact.
6.4 BOOKS AND RECORDS; ACCESS AND INFORMATION. From the date of this
Agreement until the Closing Date, the Company will give to the Purchaser, its
officers and representatives reasonable access to the premises, books and
records of the Company and its subsidiaries, and provide the Purchaser with such
financial and operating data and other information with respect to its business
and properties as it shall from time to time reasonably request, including,
without limitation, all interim financial data within five (5) days of it
becoming available; provided, however, that any such investigation shall be
conducted in such manner as not to interfere unreasonably with the operation of
the business of the Company.
6.5 RIGHTS OFFERING; ANNUAL MEETING. The Company will conduct, and
use its reasonable best efforts to close, the Rights Offering substantially in
the manner described in the Prospectus. The Company shall call an Annual Meeting
of its stockholders, deliver notice of such meeting to Company stockholders in
accordance with applicable law and shall use its reasonable best efforts to hold
the Annual Meeting as soon as practicable. The Company, through its Board of
Directors, will unanimously recommend to its stockholders approval of the
Restatement and issuance of the Available Shares to the Purchaser.
-38-
6.6 NOTIFICATION BY COMPANY OF CERTAIN MATTERS. Subsequent to the
date of this Agreement and on or prior to the Closing Date, the Company shall
promptly notify the Purchaser of:
(a) the receipt of any notice of, or other communication
relating to, a default or event which, with notice or lapse of time or
both, would become a default, under any material agreement to which it is a
party or to which it or any of its respective material properties or assets
may be subject or bound;
(b) the receipt of any notice or other communication from any
third party whose consent or approval is or may be required in connection
with the transactions contemplated by this Agreement or the Registration
Rights Agreement, denying such consent or approval;
(c) the receipt of any notice or other communication from any
governmental regulatory agency or authority in connection with the
transactions contemplated hereby; or
(d) any condition or fact which would not permit it to satisfy a
condition to the Purchaser's obligation to effect the transactions contemplated
in this Agreement or the Registration Rights Agreement or results or would
result in any inaccuracy in a representation or warranty of the Company.
-39-
6.7 NASDAQ. The Company shall use all reasonable efforts to (i) cause
the Preferred Shares and the Conversion Shares issuable pursuant to the terms of
the Preferred Shares to be eligible for quotation on the Nasdaq Stock Market--
National Market, (ii) maintain the continued authorization for trading of the
Common Stock of the Company on the Nasdaq Stock Market--National Market, or
(iii) in the event the Company is unable after undertaking all such reasonable
efforts to maintain such authorization be listed or otherwise authorized for
trading on the Nasdaq Stock Market--Small Cap or a national securities exchange
and to comply with all applicable maintenance criteria of such exchange of
Nasdaq applicable to continued eligibility for trading on such market.
6.8 RIGHT OF FIRST REFUSAL. If the Company should decide to issue and
sell additional shares of any capital stock of the Company or any warrants,
securities convertible into capital stock of the Company or other rights to
subscribe for or to purchase any capital stock of the Company, other than (a)
shares of Common Stock sold to the public pursuant to a registration statement
filed under the Securities Act if such offering is underwritten on a firm
commitment basis, (b) shares of Common Stock awarded or issued upon the exercise
of options granted pursuant to employee and consultant benefit plans adopted by
the Company, and the grant of such options themselves, (c) shares of Common
Stock issued upon conversion of the Preferred Shares, (d) shares of Common Stock
or Preferred Shares issued pursuant to the exercise of warrants of the Company
outstanding at the date of this Agreement; and (e) shares of Common Stock issued
pursuant to the ▇▇▇▇▇▇▇▇▇▇ Employment Agreement (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in (a), (b), (c), (d) and (e) above, being
-40-
hereinafter sometimes collectively referred to as "Additional Securities"), the
Company shall first offer to sell to the Purchaser, upon the same terms and
conditions as the Company is proposing to issue and sell such Additional
Securities to others, such Purchaser's pro rata share (as defined below) of such
Additional Securities. Notwithstanding the foregoing, no Additional Securities
may be sold to the Purchaser to the extent a change of ownership within the
meaning of the IRC 382 Limitation would occur. Such offer shall be made by
written notice given to the Purchaser and specifying therein the amount of the
Additional Securities being offered, the purchase price and other terms of such
offer. The Purchaser shall have a period of thirty (30) days from and after the
date of receipt by it of such notice within which to accept such offer. If the
Purchaser elects to accept such offer in whole or in part, the Purchaser shall
so accept by written notice to the Company given within such 30-day period. If
the Purchaser fails to accept such offer in whole or in part within such 30-day
period, any of such Additional Securities not purchased by the Purchaser
pursuant to such offer may be offered for sale to others by the Company for a
period of 180 days from the last day of such 30-day period, but only on the same
terms and conditions as set forth in the initial offer to the Purchaser, free
and clear of the restrictions imposed by this Section.
For purposes of the previous paragraph, the Purchaser's "pro rata
share" is the number of shares of Additional Securities (rounded to the nearest
whole share) as is equal to the product of (a)(i) the number of shares of Common
Stock issued, or issuable upon the exercise or conversion of rights, options or
Convertible Securities without the payment of any additional cash consideration
or with the payment of a nominal cash consideration, as the case may be
(collectively, "Fully Paid Securities"), to the Purchaser immediately prior to
the issuance of the Additional Securities being
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offered divided by (ii) the total number of Fully Paid Securities issued or
issuable by the Company immediately prior to the issuance of the Additional
Securities, multiplied by (b) the entire offering of Additional Securities.
6.9 COOPERATION. Subject to the terms and conditions herein provided,
each party will use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to cause the conditions set forth in Sections 7, 8 and 9 hereof to be
satisfied and to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
6.10 NET OPERATING LOSS. Prior to the third anniversary of the Closing
Date, the Company will not (i) amend, or propose an amendment to, the
Restatement to amend the restrictions on transfer with respect to the shares of
the Company's capital stock, or waive the operation of such restrictions, or
(ii) approve any acquisition, sale, issuance, assignment or transfer of its
capital stock or options or warrants to purchase shares of its capital stock,
unless, in any such event, the Board of Directors determines, after discussion
and due deliberation with the assistance, as necessary or appropriate, of legal,
financial, tax, accounting and other advisors, at a duly called meeting, that
such event would be in the best interests of the shareholders of the Company.
6.11 DIRECTOR LIABILITY. The Purchaser agrees not to assert any Claim
against a Director of the Company. For purposes of this Section 6.11, "Claim"
shall mean any action, suit, arbitration or proceeding (a "Proceeding") for
money damages, expenses, penalties or similar
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payments from such person individually ("Liabilities") arising out of or
relating to the execution, delivery and performance of this Agreement by the
Company, except to the extent Purchaser reasonably determines (i) a Director
subject to any such Proceeding or Liabilities would not be entitled
indemnification from the Company under applicable law, or (ii) such Proceeding
or Liabilities are insured risks under polices of insurance issued by third
parties.
6.12 SECTION 12(g) REGISTRATION. On or after the Closing, the
Preferred Stock shall be registered under Section 12(g) of the Exchange Act.
6.13 CONTINUED BUSINESS ACTIVITY. On or after the Closing, the Company
will use its reasonable best efforts to continue to engage in the Company's
Business.
6.14 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party hereto shall
issue any press release or make any public announcement relating to the proposed
purchase of Preferred Shares which identifies the Purchaser by name prior to the
Closing without the prior approval of the other party; provided, however, that
any party may make any public disclosures it believes in good faith (based on
advice of outside counsel) is required by applicable law or any listing or
trading agreement concerning its publicly traded securities (in which case the
disclosing party will use its reasonable best efforts to advise the other party
prior to making the disclosure and to seek their counsel concerning the timing
and content of such disclosure). For purposes of this Agreement, in the event
that a party shall provide 24 hours notice to the other of a proposed press
release or public announcement and such party receiving such notice shall not
respond in writing objecting to such release or
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announcement, such proposed press release or public announcement shall be deemed
a permitted release or announcement pursuant hereto provided such release or
announcement was reviewed and approved by outside counsel to the party issuing
the press release or announcement.
6.15 NOTICE. In the event that the Company proposes to materially
change the Company's Business, the Company shall give the Purchaser thirty (30)
days prior written notice thereof.
7. Conditions to Obligations of Each Party
The respective obligations of the Company and the Purchaser as set
forth in this Agreement are subject to the following conditions:
7.1 STOCKHOLDER APPROVAL. The Restatement shall have been duly
approved and adopted by the holders of the Company's Common Stock at the Annual
Meeting.
7.2 NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the investment by the Purchaser shall be in effect; nor
shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the investment by the
Purchaser, which makes the investment by the Purchaser illegal; and no temporary
restraining order, preliminary or permanent injunction or
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other order issued by any court of competent jurisdiction or other legal, or
regulatory restraint provision limiting or restricting the Purchaser's conduct
or operation of the business of the Company and its subsidiaries, following the
investment by the Purchaser shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental entity, domestic
or foreign, seeking the foregoing be pending. In the event an injunction or
other order shall have been issued, each party agrees to use its reasonable
diligent efforts to have such injunction or other order lifted.
7.3 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement will
have been declared effective by the Commission, no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued and no proceedings for such purpose shall be
pending before or threatened by the Commission and any requests for additional
information by the Commission (to be included in the Registration Statement, in
the Prospectus or otherwise) shall have been complied with in all material
respects.
7.4 REGULATORY APPROVALS. The purchase of Available Shares shall have
been approved by applicable federal and state banking authorities without any
condition not reasonably satisfactory to Purchaser, all conditions required to
be satisfied prior to the Closing Date imposed by the terms of such approvals
shall have been satisfied and all waiting periods relating to such approvals
shall have expired. All other governmental consents, approvals and filings
required for the consummation of the Offering and the transactions contemplated
hereby and effectiveness of the Restatement have been obtained or made and are
in full force and effect.
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7.5 TAX OPINION. Deloitte & Touche, independent accountants to the
Company, shall have delivered to the Company its opinion, in form and substance
satisfactory to each, to the effect that following the Offering and the
transactions contemplated by this Agreement and similar agreements with Standby
Purchasers, and considering all other stock transactions during the relevant
testing period and ending on the Issuance Date, there has not been a change in
ownership within the meaning of the IRC 382 Limitation.
7.6 MINIMUM SUBSCRIPTIONS. The Company shall have received and
accepted in the Offering valid subscriptions for Preferred Shares from
stockholders and Standby Purchasers aggregating not less than $5.5 million which
shall not trigger the IRC 382 Limitation.
8. Additional Conditions of Purchaser's Obligations
The obligations of the Purchaser to purchase the Preferred Shares as
set forth in this Agreement are subject to the following additional conditions:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and correct
as of the Closing Date and the Company shall have performed in all material
respects all covenants and agreements herein required to be performed on its
part at or prior to the Closing Date.
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8.2 CERTIFICATE OF THE COMPANY. The Company shall have been provided
with a certificate dated the Closing Date executed on behalf of the Company by
its President and its Chief Financial Officer to the effect that, as of the
Closing Date, the condition provided for in subsection 8.1 above has been
satisfied.
8.3 REGISTRATION RIGHTS AGREEMENT. The Company and the Purchaser will
have entered into a Registration Rights Agreement (the "Registration Rights
Agreement") in form and substance reasonably satisfactory to the Company and the
Purchaser.
8.4 COMFORT LETTER. The Purchaser shall have received a letter of
Deloitte & Touche dated the Closing Date and addressed to Purchaser, in form
reasonably satisfactory to Purchaser and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, regarding the
financial data and information included in the Registration Statement.
8.5 ▇▇▇▇▇▇ COMPANY. On the Closing Date, ▇▇▇▇▇▇ Company shall have
purchased Preferred Shares pursuant to that certain Purchase Agreement dated the
same date hereof between the ▇▇▇▇▇▇ Company and the Company.
8.6 ADDITIONAL DOCUMENTS. The Company shall have furnished to
Purchaser and your counsel such additional documents, certificates and evidence
as Purchaser or they may have reasonably requested. All such certificates,
letters and other documents will be in compliance with
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the provisions hereof only if they are satisfactory in form and substance to
Purchaser and counsel for the Purchaser. The Company will furnish Purchaser with
such conformed copies of such certificates, letters and other documents as
Purchaser shall reasonably request.
9. Additional Conditions of Company's Obligations
The obligations of the Company to sell and issue the Preferred Shares
as set forth in this Agreement are subject to the following additional
conditions:
9.1 REPRESENTATION AND WARRANTIES. The representations and warranties
of the Purchaser contained in this Agreement shall be true and correct in all
material respects as of the Closing Date and the Purchaser shall have performed
in all material respects all covenants and agreements herein required to be
performed on its part at or prior to the Closing Date.
9.2 CERTIFICATES OF PURCHASER. The Company shall have been provided
with a certificate dated the Closing Date executed on behalf of the Purchaser by
its President and its Chief Financial Officer to the effect that, as of the
Closing Date, the condition provided for in subsection 9.1 above has been
satisfied. The Purchaser shall have delivered to Deloitte & Touche a certificate
in the form attached hereto as Exhibit 6.
9.3 LEGEND.
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(a) Each certificate or other document evidencing the Preferred
Shares purchased hereunder by the Purchaser shall be endorsed with the
legends set forth below:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION OR QUALIFICATION THEREOF UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR COMPLIANCE WITH AN AVAILABLE
EXEMPTION FROM REGISTRATION OR QUALIFICATION. THE COMPANY MAY REFUSE
TO AUTHORIZE ANY TRANSFER OF THE SHARES IN RELIANCE ON AN EXEMPTION
FROM REGISTRATION OR QUALIFICATION UNTIL IT HAS RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION OR QUALIFICATIONS IS NOT REQUIRED.
-49-
(b) Any legend endorsed on a certificate or instrument
evidencing a security pursuant to paragraph (a) above shall be removed, and
the Company shall issue a certificate or instrument without such legend to
the holder of such security, (i) in accordance with paragraph (a) above,
(b) if such security is being disposed of pursuant to registration under
the Securities Act and any applicable state acts or pursuant to Rule 144 or
any similar rule then in effect, or (iii) if such holder provides the
Company with an opinion of counsel satisfactory to the Company to the
effect that a safe, transfer, assignment, offer, pledge or distribution for
value of such security may be made without registration and that such
legend is not required to satisfy the applicable exemption from
registration.
9.4 ADDITIONAL DOCUMENTS. The Purchaser shall have furnished to the
Company and its counsel such additional documents, certificates and evidence as
the Company or its counsel may have reasonably requested. All such certificates,
letters and other documents will be in compliance with the provisions hereof
only if they are satisfactory in form and substance to the Company and its
counsel. The Purchaser will furnish the Company with such conformed copies of
such certificates, letters and documents as the Company shall reasonably
request.
10. Termination
10.1 TERMINATION EVENTS. This Agreement may be terminated in writing
at any time prior to the Closing Date by the Company or Purchaser, only in the
following circumstances:
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(a) by mutual consent of the Company and Purchaser;
(b) by either the Company or Purchaser if (i) any governmental
entity of competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement; (ii) the shareholders of the
Company have not approved the Restatement; (iii) the transactions
contemplated hereunder have not been consummated on or before May 31, 1997,
unless the failure of consummation shall be due to the failure of the party
seeking to terminate to perform or observe in all material respects the
covenants and agreements hereunder to be performed or observed by such
party; or (iv) there shall have been an inaccuracy in any of the
representations or warranties on the part of the other party or material
breach of any covenant or agreement set forth in this Agreement on the part
of the other party, which breach shall not have been cured within twenty
(20) business days following receipt by the breaching party of written
notice of such breach from the other party;
(c) by the Purchaser if there shall have occurred relative to
the Company or any subsidiary any event, change, or effect that would have
a Material Adverse Effect.
10.2 EFFECT OF TERMINATION. The Company and the Purchaser hereby agree
that any termination of this Agreement pursuant to this Section 10 (other than
termination by one party
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in the event of an inaccuracy in a representation or warranty or breach of a
covenant or agreement in this Agreement by the other party ) shall be without
liability of the Company or the Purchaser, except as contemplated by Section 12.
The obligations under Section 11 shall also survive any termination of this
Agreement.
11. Indemnification and Contribution
11.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless the Purchaser (which term shall include for purposes of this
Section 11, each director, officer, agent or employee of Purchaser or person who
controls the Purchaser within the meaning of the Act) against any losses,
claims, damages or liabilities, joint or several (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based directly or indirectly, in whole or
in part, upon (i) any material inaccuracy in the representations and warranties
of the Company contained herein and not qualified as to materiality or any
inaccuracy in the representations and warranties of the Company contained herein
and qualified as to materiality, (ii) an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, the Proxy Statement, or any amendment or
supplement thereto or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) any other act
or omission of the Company, its officers or directors, or any alleged act or
omission, and will reimburse the Purchaser for any legal or other expenses
reasonably incurred
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by it in connection with investigating or defending against such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, the Proxy
Statement, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by the Purchaser
specifically for use in the preparation thereof.
11.2 ADVANCEMENT OF EXPENSES. In addition to their other obligations
under this Section 11, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any act, statement or omission, or any alleged act,
statement or omission, described in subsection 11.1 it will reimburse the
Purchaser on a monthly basis for all reasonable legal fees or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Purchaser for such expenses and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Purchaser shall promptly return any
reimbursement payment to the Company, together with interest compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by the
Bank (the "Prime Rate"). Any such interim reimbursement payments which are not
made to the Purchaser within thirty
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(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement shall be in addition to
any liabilities which the Company may otherwise have.
11.3 PROCEDURE FOR INDEMNIFICATION INVOLVING THIRD-PARTY CLAIMS.
Promptly after receipt by the Purchaser of notice of the commencement of any
action by a third party, the Purchaser shall, if a claim in respect thereof is
to be made against the Company under subsection 11.1, notify the Company in
writing of the commencement thereof, but the omission so to notify the Company
shall not relieve the Company from any liability that it may have to the
Purchaser. In case any such action shall be brought against the Purchaser, and
it shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in, and, to the extent that it shall wish, to assume the
defense thereof, with counsel satisfactory to the Purchaser, and after notice
from the Company to the Purchaser of the Company's election so to assume the
defense thereof, the Company shall not be liable to the Purchaser under such
subsection for any legal or other expenses subsequently incurred by the
Purchaser in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the sole judgment of the
Purchaser, it is advisable for the Purchaser to be represented by separate
counsel, the Purchaser shall have the right to employ counsel to represent the
Purchaser for liability arising from any claim in respect of which indemnity may
be sought by the Purchaser, in which event the reasonable fees and expenses of
such separate counsel shall be borne by the Company and reimbursed to the
Purchaser as incurred (in accordance with the provisions of subsections 11.1 and
11.2 above). The Company shall not be
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obligated under any settlement agreement relating to any action under this
Section 11 to which it has not agreed in writing.
11.4 CONTRIBUTION. If for any reason indemnification is unavailable to
Purchaser or insufficient to hold it harmless, then the Company shall contribute
to the amount paid or payable by Purchaser as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and Purchaser on the other
hand, the relative fault of the Company and of Purchaser and any other relevant
equitable considerations; provided that in no event will the aggregate
contribution of Purchaser exceed the then fair market value of the Preferred
Shares acquired by the Purchaser, less the amount of any damages the Purchaser
has otherwise been required to pay.
11.5 INDEMNIFICATION AND CONTRIBUTION NOT EXCLUSIVE. The obligations
of the Company under this Section 11 shall be in addition to any liability which
the Company may otherwise have.
12. PAYMENT OF FEES AND EXPENSES OF PURCHASER
Each party shall be responsible for and pay its own fees and expenses
relating to the transactions contemplated by this Agreement.
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13. Miscellaneous
13.1 RIGHTS OF THIRD PARTIES. Except as contemplated by Section 11,
this Agreement is made solely for the benefit of the Purchaser and the Company,
and their respective successors and assigns, and no other person, partnership,
association or corporation shall acquire or have any right under or by virtue of
this Agreement.
13.2 ASSIGNMENT. All the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
13.3 ENTIRE AGREEMENT; INVALIDITY. This Agreement constitutes the
entire agreement and understanding between the Purchaser and the Company, and
supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the provisions contained in this
Agreement, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect under the laws of any jurisdiction, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
affected or impaired thereby or under the laws of any other jurisdiction.
13.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
and all such counterparts together constitute but one and the same instrument.
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13.5 AMENDMENTS. This Agreement may not be amended, modified or
changed, in whole or in part, except by an instrument in writing signed by the
Company and the Purchaser.
13.6 NOTICES. Except as otherwise provided in this Agreement, and
unless otherwise notified by the respective addressee, all notices and
communications hereunder shall be in writing and mailed first class or overnight
delivery or hand delivered or by facsimile or telephone if subsequently
confirmed in writing, to:
If to the Company: National Mercantile Bancorp
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-2103
Attention: Executive Vice President
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser: To the address set forth in Schedule A or at such
other address as Purchaser may specify by written
notice.
13.7 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to the
conflict of laws rules thereof.
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13.8 REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations and warranties (as qualified by the Disclosure Schedule and the
Registration Statement), and agreements of the Company and the Purchaser
contained herein or in certificates delivered pursuant hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Purchaser or the Company and shall survive delivery of, and
payment for, the Available Shares to and by the Purchaser for a period of two
(2) years after the delivery of and payment for such shares; provided, however,
that the representations and warranties of the Company made in Sections 4.4,
4.11 and 4.19 shall survive for the period of any applicable statute of
limitations; provided further that in the event that the Company discloses in
the certificate, dated the Closing Date and required to be furnished by the
Company to Purchaser pursuant to Section 8.2, inaccuracies as of the Closing
Date in its representations and warranties contained herein, as qualified by the
Disclosure Schedule, and made at the time of the execution of this Agreement,
and Purchaser elects to waive the Company's failure to satisfy the condition set
forth in Section 8.1 and to proceed with the purchase of the Available Shares
under this Agreement, then the representations and warranties that survive the
delivery of, and payment for, the Available Shares to and by the Purchaser shall
be those representations and warranties, as qualified by the Disclosure
Schedule, made at the time of the execution of the Agreement to the extent any
inaccuracies so disclosed in such certificate existed at the time of execution
and delivery of this Agreement or to the extent such certificate discloses no
inaccuracy and, in all other cases, shall be those representations and
warranties, as qualified by the Disclosure Schedule and as further qualified by
such certificate.
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13.9 PROHIBITED TRANSACTION. In the event that Wildwood Enterprises
Inc. Profit Sharing Plan and Trust shall not purchase the Preferred Shares
contemplated hereunder as a result of such purchase being a "Prohibited
Transaction" as defined under ERISA and the Code, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall make such
purchase on the terms and conditions set forth herein.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the
Purchaser and the Company has signed or caused to be signed its name as of the
day and year first above written.
NATIONAL MERCANTILE BANCORP
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title EVP and CEO
--------------------------------
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Agreed and Accepted as of the
7th day of February, 1997:
--- --------
WILDWOOD ENTERPRISES INC.
PROFIT SHARING PLAN AND TRUST
CITY NATIONAL BANK, TRUSTEE
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Trust Officer
Name: ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Asst. V.P. & Trust Officer
Title:
---------------------------
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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