CANCELLATION AGREEMENT
FOR CANCELLATION OF OPTIONS TO PURCHASE COMMON STOCK OF
VALLEY BANK
IN EXCHANGE FOR SHARES OF THE COMMON STOCK AND WARRANTS OF
PACIFIC COMMUNITY BANKING GROUP
AND
CUSTODY AGREEMENT, LETTER OF TRANSMITTAL, POWER OF ATTORNEY
AND OFFER OF SALE
FOR CUSTODY AND SALE OF COMMON STOCK OF
PACIFIC COMMUNITY BANKING GROUP
______________________
THE RIGHT TO PARTICIPATE IN THE PUBLIC OFFERING
WILL EXPIRE AT 5:00 P.M., JULY 23, 1999, CALIFORNIA TIME
THE EXCHANGE AGENT MUST RECEIVE THESE DOCUMENTS
BY THAT TIME
_________________________________
IF VALLEY BANK DOES NOT RECEIVE THE ATTACHED OPTION
CANCELLATION AGREEMENT BY THE CLOSING OF THE ACQUISITION,
YOUR OPTIONS WILL EXPIRE.
JULY 13, 1998
Dear Option Holder:
Enclosed is a set of documents for option holders of Valley Bank. Please
read these documents carefully. Please complete and return these documents to
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and Mr. ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, the attorneys-in-fact for Valley
Bank, at the ▇▇▇▇▇▇ Valley office of Valley Bank. Detailed instructions for
completing the forms begin on page three, preceded by frequently asked questions
and answers. When the acquisition is completed, we will need these documents
to ensure that you promptly receive certificates for your new shares of Pacific
Community Banking Group.
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QUESTIONS AND ANSWERS FOR OPTION HOLDERS OF VALLEY BANK
ABOUT THE
OPTION HOLDER DOCUMENTS
Q: I AM AN OPTION HOLDER OF VALLEY BANK. WHY MUST I COMPLETE THESE DOCUMENTS?
A: Pacific Community Banking Group has agreed to acquire Valley Bank. The
accompanying proxy statement/prospectus describes the acquisition,
including the rights of option holders. Your options will all expire if
you do not return the Option Cancellation Agreement and the shareholders
approve the acquisition. Valley Bank needs the remaining option holder
documents to complete the acquisition and to arrange for you to receive any
cash, stock and warrants you will be entitled to receive.
Q: WHAT IF MY OPTIONS HAVEN'T VESTED?
A: All of your options will be treated as vested for purposes of cancellation
and exchange in the acquisition.
Q: WHAT IS THE OPTION CANCELLATION AGREEMENT?
A: The Option Cancellation Agreement cancels your options in exchange for a
right to receive common stock and warrants of Pacific Community Banking
Group. The common stock may be sold in the public offering subject to the
limitations described below. IF YOU DO NOT COMPLETE AND RETURN THIS
AGREEMENT IN TIME, YOUR OPTIONS WILL SIMPLY EXPIRE WHEN THE ACQUISITION IS
COMPLETE.
Q: HOW MUCH STOCK AND WARRANTS WILL I RECEIVE?
A: You will receive a number of shares of Pacific Community Banking Group
Stock as follows:
($10 minus the exercise price of the option)
--------------------------------------------
15
You will receive one warrant for every two shares of Pacific Community
Banking Group common stock you receive. The terms of the warrants are
described in the proxy statement/prospectus. You will receive more cash for
shares sold if the price of Pacific Community Banking Group common stock in
the initial public offering is more than $15.00. You will receive cash
instead of fractional shares. No fractional warrants shall be issued.
Q: WHAT IS THE CUSTODY AGREEMENT, LETTER OF TRANSMITTAL, POWER OF ATTORNEY AND
OFFER OF SALE?
A: You should read the entire document, which is necessary for you to sell any
of your new shares of Pacific Community Banking Group common stock in the
offering. In summary, the Custody Agreement, Letter of Transmittal, Power
of Attorney and Offer of Sale is a
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binding agreement by you that principally provides the following:
- You provide your name, address and other necessary information to
ensure that you receive the cash, stock and warrants to which you are
entitled in exchange for your options, and you state a preference to
receive a greater amount of cash or of stock after the close of the
acquisition and the public offering. You also promise that you own
your options and have the power to sell them.
- You give a special power of attorney to two individuals, referred to
as the "Attorneys-in-Fact," who will take limited legal actions on
your behalf to establish the final price of your Pacific Community
Banking Group stock and sell some or all of that stock to the
underwriters.
- You offer the shares of Pacific Community Banking Group common stock
you will receive in the acquisition to the underwriters. The
underwriters will be able to purchase some or all of the shares for
resale at a price to the public of at least $15 per share.
- You appoint custodians of your new Pacific Community Banking Group
common stock and warrants.
Q: WHO ARE THE "ATTORNEYS-IN-FACT" AND WHAT POWER WILL THEY HAVE?
A: An individual that has the power to act on your behalf under the Power of
Attorney is called an "Attorney-in-Fact." You will authorize any of two
persons, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, to act in this capacity.
They will negotiate the final price to the public of the shares of Pacific
Community Banking Group common stock you sell, with a minimum price of $15.
They will sell your shares of Pacific Community Banking Group common stock
to the underwriters on those terms. The Attorneys-in-Fact will consider
the preference for cash or stock that you have stated. But they will have
the discretion to designate some or all of your stock to be sold to the
public, in order to meet the terms of the acquisition agreement. They can
sign any documents necessary to complete the sale, on your behalf, without
further consultation with you.
Q: WHO ARE THE CUSTODIANS AND WHAT WILL THE CUSTODIANS DO?
A: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ will also act as custodians. They
will keep custody of your new shares of Pacific Community Common Stock for
the brief period until the public offering closes, then deliver shares you
sell to the underwriter, send Valley Bank the money received from the sale
(which Valley Bank will in turn deliver to you), and instruct the transfer
agent to send you certificates for the shares you don't sell and for your
warrants.
Q: CAN I ELECT TO RECEIVE CASH ONLY OR PACIFIC COMMUNITY BANKING GROUP COMMON
STOCK ONLY?
A: No. You will be able to indicate your preference to have cash or stock or
a combination thereof of Pacific Community Banking Group after the close of
the acquisitions and the
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initial public offering. The Attorneys-in-Fact will consider this when
determining how much of your Pacific Community Banking Group common stock
to sell to the underwriters. But even if you indicate a preference for
stock, it is likely that most of your shares will be sold because the
acquisition agreement requires that the underwriters purchase and resell
60% of the total shares received by shareholders and option holders of
Valley Bank. Similarly, if you indicate a preference to receive all
cash, you may be required to retain some amount of Pacific Community
Banking Group common stock.
Q: WHAT OTHER KINDS OF INFORMATION WILL I NEED TO PROVIDE?
A: In addition to your name and address, you will give instructions where
Valley Bank should send the money received from the sale and where the
transfer agent should send any remaining shares and your warrants. You
will also need to return a completed form W-9 for tax reporting purposes.
Please consult your tax advisor if you have questions about the tax effects
of designating particular shares for sale.
Q: WHAT IF THE ACQUISITION OR THE PUBLIC OFFERING IS NOT COMPLETED?
A: If either the acquisition or the public offering fails to take place, your
options will not be canceled and will remain in effect under their previous
terms.
Q: WILL I BE RESPONSIBLE FOR ANY OF THE COSTS OF THE PUBLIC OFFERING?
A: No. Pacific Community Banking Group will pay the underwriters' commissions
and other costs of reselling your shares in the public offering. You will
receive the gross amount obtained for the shares you sell immediately in
the public offering.
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INSTRUCTIONS
(For completing the
Custody Agreement, Letter of Transmittal, Power of Attorney and Offer of Sale)
A. This booklet contains two agreements: an Option Cancellation
Agreement, and a Custody Agreement, Letter of Transmittal, Power of Attorney
and Offer of Sale (the "Agreement"). You must have your SIGNATURES ON BOTH
DOCUMENTS NOTARIZED.
B. Complete and sign the Option Cancellation Agreement. BE SURE TO
VERIFY THE LIST OF OPTIONS IN SCHEDULE A AND SCHEDULE B OF THE OPTION
CANCELLATION AGREEMENT.
C. Complete and sign the Custody Agreement, Letter of Transmittal, Power
of Attorney and Offer of Sale, and return the Agreement as set forth in
paragraph D below. PLEASE BE SURE TO INDICATE YOUR PREFERENCE FOR CASH OR
STOCK.
D. Promptly send the completed Agreement to:
Messrs. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Valley Bank
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The attorneys-in-fact must receive these documents by July 23, 1999 for you to
participate in the public offering. The attorneys-in-fact must receive the
Option Cancellation Agreement by the closing of the acquisition or all of your
options will cancelled without compensation to you.
E. You may elect to retain shares of Pacific Community Banking Group
common stock rather than offering to sell them to the Underwriters. Also, each
option holder of Valley Bank may be required to retain some shares of Pacific
Community Banking Group common stock to satisfy the terms of the First
Restatement of the Agreement and Plan of Reorganization between Valley Bank and
Pacific Community Banking Group. In either case, the custodians will cause to
be delivered to you in due course, but not earlier than ten days after the
closing for the purchase of firm shares by the Underwriters, a certificate for
the number of shares of Pacific Community Banking Group common stock and
warrants that you have received but that were not sold in the public offering.
OPTION CANCELLATION AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of July ___, 1999, is entered into by and
between Valley Bank, a California state chartered banking institution ("Bank"),
and _________________________________ ("Optionee").
RECITALS
A. Bank and Pacific Community Banking Group, a California corporation ("PCBG")
entered into that First Restatement of Agreement and Plan of Reorganization
dated as of January 5, 1999 as amended (the "Reorganization Agreement")
whereby Bank will be acquired and become a wholly owned subsidiary of PCBG.
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B. Optionee currently has stock options ("Options") issued under one of the
Bank's stock option plans, as set forth in Exhibit A.
C. Under the Reorganization Agreement, (a) the options to acquire shares of
Valley Bank common stock shall be canceled by Optionee and the Optionee
shall receive in exchange (i) shares of common stock of PCBG equal to the
number of shares of Valley Bank common stock subject to options, multiplied
by (A) $10.00 minus (B) the exercise price of the Options, all divided by
$15.00, and (ii) one warrant to acquire one share of common stock of PCBG
for every two shares of common stock of PCBG issued in accordance with the
preceding subsection, (b) there will be no fractional warrants issued and
no cash paid in lieu of fractional warrants, and (c) the Optionee may elect
to sell the shares of PCBG common stock in the public offering subject to
the allocation requirements in the Reorganization Agreement. The amount to
be paid to Optionee in cash and/or in PCBG common stock for the
cancellation of the options pursuant to the Reorganization Agreement shall
be hereinafter referred to as the "Option Consideration."
D. Optionee desires to cancel his or her Options in exchange for the Option
Consideration which is computed and set forth in Exhibit B. Optionee
further desires to (a) establish the withholding amounts for federal and
state tax purposes with respect to the payment of the Option Consideration,
(b) provide payment to the Bank in the event there is insufficient cash
funds from the Option Consideration to pay the necessary withholdings and
(c) provide indemnification to the Bank in the event the Bank is required
to pay withholdings to any governmental agency because such amounts were
not withheld from the Option Consideration paid to Optionee.
E. Unless otherwise provided in this Agreement, capitalized terms shall have
the meanings given to them in the Reorganization Agreement.
NOW THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the Reorganization Agreement, and intending to be legally bound
hereby, Bank and Optionee agree as follows:
1. CANCELLATION OF THE OPTIONS IN EXCHANGE FOR THE OPTION CONSIDERATION.
Optionee and Bank agree to the cancellation of the Options in exchange for the
Option Consideration.
2. WITHHOLDING. Optionee understands that Bank is allowing Optionee to
elect the amount to be withheld from the payment of the Option Consideration for
federal and state income taxes and that such election is not binding on the
Bank. The Bank may be required by federal and state tax law to withhold a
minimum of 28% for federal tax purposes and 6% for California state tax purposes
from the Option Consideration notwithstanding the election by Optionee.
Optionee understands that the Bank is required by federal and state law to
withhold additional amounts for other purposes including Medicare, Social
Security and SDI.
Optionee, to extent allowed, elects to have the following percentages of the
total Option Consideration withheld.
Federal Income Tax Withheld _____%
California Income Tax Withheld_____%
If no election is made, the minimum withholding rates of 28% for Federal income
taxes and 6% for California income taxes will be used.
In the event the cash consideration portion of the Option Consideration is
insufficient to pay the minimum aggregate withholding amount ("Withholding
Amount") for the Option Consideration as determined by the Bank, Optionee
further agrees to pay the difference ("Difference") between the Withholding
Amount
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and the cash portion of the Option Consideration to the Bank. Optionee
understands that payment of the Option Consideration to Optionee is subject to
Optionees' prior payment to the Bank of the Difference.
3. HOLD HARMLESS AND INDEMNIFICATION. Optionee agrees to indemnify and
hold the Bank harmless from any liability, losses, costs including any amounts
that should have been withheld from the Option Consideration,, damages or
attorney's fees for any action taken by the Bank with respect to complying with
the Optionee's election as to the amount of withholding in Section 2 of this
Agreement.
4. GOVERNING LAW. This Agreement is governed by and is to be construed
and enforced in accordance with the laws of the State of California. If under
such law, any portion of this Agreement is at any time deemed to be in conflict
with any applicable statute, rule, regulation or ordinance, such portion shall
be omitted from this Agreement; the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
5. TERMINATION. If the transactions contemplated in the Reorganization
Agreement are not completed, the Options shall not be cancelled and shall remain
in full force and effect, subject to their original terms and conditions.
6. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between Bank and Optionee with respect to the subject matter hereof and
supersedes and cancels all prior written and oral agreements and understandings
with respect to the subject matter of this Agreement. This Agreement may be
amended only by a subsequent written agreement of the parties.
7. EFFECT OF AGREEMENT. In the event that the Reorganization Agreement
is terminated, this Agreement shall automatically terminate.
8. DISPUTE RESOLUTION. Any dispute regarding this Agreement shall only
be heard and resolved in a court of competent jurisdiction located in the County
of Riverside, California.
9. LEGAL COSTS. If either party commences an action against the other
party arising from or in connection with this Agreement, the prevailing party
shall be entitled to have and recover from the other party reasonable attorneys'
fees and costs of suit.
10. SUCCESSORS AND ASSIGNS. All terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective transferees, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Option Cancellation
Agreement as of the year and day first above written.
VALLEY BANK
By
-----------------------------------------
Its
----------------------------------------
OPTIONEE
-------------------------------------------
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EXHIBIT A
Optionee Grant Amount Date of Grant Exercise Price Expiration Date
4
EXHIBIT B
Computation of Option Consideration:
Total Options:__________ Weighted Average Option Exercise Price for all
Options:___________
Total Options x ($10-Average Option Exercise Price)/$15=Total Shares of PCBG
Common Stock Deliverable
Total Shares of PCBG Common Stock Deliverable in Exchange for all
Options:_______
Cash Equivalent of the Total Shares of PCBG if all Shares of PCBG Common
Stock are Converted into Cash (at $15.00 per share): $___________
Total PCBG Warrants Deliverable in Exchange for all Options:_________
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CONSENT OF THE OPTIONEE'S SPOUSE
TO THE AGREEMENT:
I, _____________________________, being the spouse of ________________________,
after being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
Agreement regarding cancellation of his/her Valley Bank stock option entered
into by my spouse on ______________, 1999. I understand that the Agreement and
withholding election may adversely affect my community property interest. I
understand that I have been advised to consult with an attorney of my choice
prior to executing this consent, so that such attorney can explain the effects
of this consent.
Dated: _____________, 1999 _____________________________
Spouse
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CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of ________ )
On ________________, 1999, before me, __________________________________, Notary
Public, State of California, personally appeared _______________________________
[ ] personally know to me - OR
[ ] proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signatures(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
State of California
(Seal)
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_____________________________
(Name of Option Holder)
CUSTODY AGREEMENT, LETTER OF TRANSMITTAL, POWER OF ATTORNEY
AND OFFER OF SALE
FOR CUSTODY AND SALE OF COMMON STOCK OF
PACIFIC COMMUNITY BANKING GROUP
TO BE RECEIVED BY HOLDERS OF OPTIONS TO PURCHASE COMMON STOCK OF
VALLEY BANK
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
As Attorneys-in-Fact
and Custodians
c/o Valley Bank
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Sutro & Co. Incorporated
As Representative of the several Underwriters c/o Sutro & Co. Incorporated
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned (the "Option Holder") holds options to purchase the
common stock of Valley Bank ("Valley Bank"), a California corporation.
Pacific Community Banking Group, a California corporation, and Valley Bank
have signed a First Restatement of Agreement and Plan of Reorganization (as
amended, the "Acquisition Agreement") providing for the acquisition of Valley
Bank by Pacific Community Banking Group. If the acquisition is completed, the
Option Holder's shares of Valley Bank will automatically convert into a right
to receive shares of Pacific Community Banking Group. Pacific Community
Banking Group and the Option Holder proposes to sell some or all of the
shares of Pacific Community Banking Group common stock received by the Option
Holder to underwriters (the "Underwriters") for whom Sutro & Co. Incorporated
will act as representative (the "Representative" ), for distribution under a
Registration Statement on Form S-1 (the "Registration Statement") to the
public at a price and on terms to be hereafter determined. It is understood
that at this time there is no commitment on the part of the Underwriters to
purchase any shares of Pacific Community Banking Group common stock and no
assurance that an offering of Pacific Community Banking Group common stock
will take place. The shares of Pacific Community Banking Group common stock
received by the Option Holder in exchange for shares of Valley Bank common
stock, all of which the Option Holder will hereby offer to sell to the
Underwriters, are referred to herein as the "Shares."
1. APPOINTMENT AND POWERS OF ATTORNEYS-IN-FACT.
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A. The Option Holder irrevocably constitutes and appoints ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Attorneys-in-Fact"), and each of them, its
agent and attorney-in-fact, with full power of substitution, with respect to
all matters arising in connection with the public offering and sale of the
Shares, including, but not limited to, the power and authority on behalf of
the Option Holder to do or cause to be done any of the following things:
(i) to negotiate, determine and agree upon (a) the price at which the
Shares will be initially offered to the public by the Underwriters,
provided that the price shall not be less than $15 per share, and (b)
the price at which the Shares will be sold to the Underwriters;
(ii) to execute on behalf of the Option Holder an underwriting agreement
as follows: (a) making the representations and warranties of the
Option Holder contained in this Agreement to the Underwriters; (b)
undertaking the obligations of the Option Holder contained in this
agreement, for the benefit of the Underwriters; and (c)
indemnifying the Underwriters, on a joint and several basis with
Pacific Community Banking Group and the other selling shareholders
of Pacific Community Banking Group, for losses resulting from a
breach of those representations, warranties and obligations, up to
the amount of consideration received by the Option Holder for
shares of Pacific Community Banking Group sold to the public in
the initial public offering. Such indemnification may include a
provision for interim reimbursement and contribution, provided the
underwriters have a reciprocal obligation to the shareholders of
Pacific Community Banking Group participating in the public
offering.
(iii) to allocate the number of shares of Pacific Community Banking Group
common stock owned by the Option Holder that shall be sold to the
Underwriters and the number of shares of Pacific Community Banking
Group common stock that shall be retained by the Option Holder, in
satisfaction of the terms of the Acquisition Agreement.
NOTWITHSTANDING THE STATEMENT OF PREFERENCE MADE BY THE OPTION
HOLDER HEREIN, THE ATTORNEYS-IN-FACT ARE AUTHORIZED, IN THEIR SOLE
DISCRETION, TO SELL UP TO THE TOTAL NUMBER OF SHARES OF PACIFIC
COMMUNITY BANKING STOCK OWNED BY THE OPTION HOLDER.
(iv) to sell, assign, transfer and deliver the Shares to the Underwriters
and deliver to the Underwriters certificates for the Shares so sold;
(v) take any and all steps deemed necessary or desirable by the
Attorneys-in-Fact in connection with the registration of the
Shares under the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as
amended, and under the securities or "blue sky" laws of various
states and jurisdictions, including, without limitation, the
giving or making of such undertakings, representations and
agreements and the taking of such other steps as the
Attorneys-in-Fact may deem necessary or advisable;
(vi) instruct Pacific Community Banking Group and the Custodians (as
hereinafter defined) on all matters pertaining to the sale of the
Shares and delivery of certificates therefor; and
(viii)otherwise take all actions and do all things necessary or proper,
required, contemplated or deemed advisable or desirable by the
Attorneys-in-Fact in their discretion, including the execution and
delivery of any documents, and generally act for and in the name of
the Option Holder with respect to the sale of the Shares to the
Underwriters and the reoffering of the Shares by the Underwriters as
fully as could the Option Holder if then personally present and
acting.
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B. Each Attorney-in-Fact may act alone in exercising the rights and powers
conferred on the Attorneys-in-Fact by this Custody Agreement, Letter of
Transmittal, Power of Attorney and Offer of Sale (this "Agreement"), and the act
of any Attorney-in-Fact shall be the act of the Attorneys-in-Fact. Each
Attorney-in-Fact is hereby empowered to determine, in his sole and absolute
discretion, the time or times when, the purposes for which, and the manner in
which, any power herein conferred upon the Attorneys-in-Fact shall be exercised.
C. The Custodians, the Representatives, Pacific Community Banking Group
and all other persons dealing with the Attorneys-in-Fact as such may rely and
act upon any writing believed in good faith to be signed by one or more of the
Attorneys-in-Fact.
D. The Attorneys-in-Fact shall not receive any compensation from the
Option Holder for their services rendered hereunder.
2. APPOINTMENT OF CUSTODIANS; DEPOSIT OF SHARES.
A. In connection with and to facilitate the exchange of shares of
Valley Bank common stock and the sale of the Shares to the Underwriters, the
Option Holder hereby appoints ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, or
either of them, as custodian (collectively, the "Custodians") and hereby
instructs Pacific Community Banking Group to deposit with the Custodians
certificates for all shares and warrants of Pacific Community Banking Group
issued on cancellation of the Option Holder's options. The Custodians are
hereby authorized and directed, subject to the instructions of the
Attorneys-in-Fact, to act as follows:
(i) to accept custody of Option ▇▇▇▇▇▇'s shares of Pacific Community
Banking Group common stock and warrants issued pursuant to the Option
Cancellation Agreement;
(ii) to hold in custody the certificate or certificates deposited herewith
and any other certificates or instruments exchanged therefor;
(iii) to deliver or to authorize Pacific Community Banking Group's transfer
agent to deliver the certificates of Pacific Community Banking Group common
stock received in exchange for the certificates deposited herewith (or
replacement certificate(s) for the Shares) to or at the direction of the
Attorneys-in-Fact; and
(iv) to return or cause Valley Bank to return to the Option Holder new
certificate(s) for the shares of Pacific Community Banking Group common stock
and warrants that are received in exchange for any certificate deposited
hereunder but that are not sold to the Underwriters, and cash in place of any
fractional share interest in Pacific Community Banking Group.
B. Until the Shares have been delivered to the Underwriters against
payment therefor, the Option Holder shall retain all rights of ownership with
respect to the Shares, including the right to vote and to receive all dividends
and payment thereon, except the right to retain custody of or dispose of such
Shares, which right is subject to this Agreement.
C. Each of the Custodians may act alone in performing the obligations
created by this Agreement, and the act of either of the Custodians shall be the
act of the Custodians. The Custodians shall not receive any compensation for
their services rendered hereunder.
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3. IRREVOCABLE OFFER TO SELL SHARES OF PACIFIC COMMUNITY BANKING GROUP
COMMON STOCK.
The Option Holder offers for sale to the Underwriters any and all shares of
Pacific Community Banking Group common stock received upon cancellation of
options to purchase stock of Valley Bank. This offer is made without
conditions, except as provided in this Agreement, and may be accepted and
executed without prior notice to the Option Holder. The Option Holder may not
revoke this offer; however, this offer will expire if not accepted in whole or
in part by the Underwriters on or before August 4, 1999, unless extended by one
or both of the Attorneys-in Fact.
4. PREFERENCE TO RECEIVE CASH OR SHARES OF PACIFIC COMMUNITY BANKING GROUP
COMMON STOCK.
The Option Holder hereby instructs the Attorneys-in-Fact that the
shareholder prefers to receive consideration for the cancelled options of Valley
Bank common stock as indicated on the Statement of Preference attached in this
Agreement. The Option Holder acknowledges that this preference is subject to the
power of the Attorneys-in-Fact to allocate the number of Option Holders' shares
sold to the Underwriters to satisfy the terms of the Acquisition Agreement, in
the sole discretion of the Attorneys-in-Fact.
5. SALE OF SHARES; REMITTING NET PROCEEDS.
The Attorneys-in-Fact are hereby authorized and directed to deliver or
cause the Custodians or Pacific Community Banking Group's transfer agent to
deliver certificates for the Shares to the Representatives, against delivery to
the Attorneys-in-Fact, for the account of the Option Holder, of the purchase
price of the Shares. The Attorneys-in-Fact are authorized, on behalf of the
Option Holder, to accept and acknowledge receipt of the payment of the purchase
price for the Shares and shall promptly deposit such proceeds with the
Custodians. The Custodians shall promptly remit to the Option Holder his or her
share of the proceeds, less taxes withheld pursuant to Section 2 of the Option
Cancellation Agreement.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
To induce the Underwriters to enter into an underwriting agreement with
Pacific Community Banking Group and certain of its shareholders, and in
consideration of the performance of this Agreement by the other parties thereto,
the Option Holder represents and warrants to, and agrees with, the Underwriters,
Pacific Community Banking Group, the Attorneys-in-Fact and the Custodians as
follows:
A. The Option Holder has full legal right, power and authority to enter
into and perform this Agreement. This Agreement has been duly executed and
delivered by the Option Holder and (assuming this Agreement is a binding
Agreement of the other parties thereto) constitutes the valid and binding
agreement of the Option Holder, enforceable against the Option Holder in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditors'
rights and the application of equitable principles relating to the availability
of remedies, and except as rights or affecting the enforcement of creditors'
rights and except as rights to indemnity or contribution may be limited by
federal or state securities law and the public policy underlying such laws).
B. None of the execution, delivery or performance of this Agreement and
the consummation of the transactions herein contemplated will conflict with or
result in a breach of, or default under, any indenture, mortgage, deed or trust,
voting trust agreement, shareholders' agreement, note agreement or
4
other agreement or instrument to which the Option Holder is a party or by
which the Option Holder is bound or to which any of his or its property is or
may be subject, or any statute, judgment, decree, order, rule or regulation
applicable to the Option Holder of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Option Holder or any
of his activities or properties.
C. At the date hereof, the Option Holder has full right, power and
authority to sell, assign, transfer and deliver the options to purchase shares
of Valley Bank common stock to be cancelled in exchange for the Shares, and at
the time of delivery of the Shares to be sold by the Option Holder to the
several Underwriters, the Option Holder will have full right, power and
authority to sell, assign, transfer and deliver the Shares to be sold by the
Option Holder hereunder. At the date hereof the Option Holder is the lawful
owner of and has good and marketable title to the options to purchase shares of
Valley Bank common stock to be cancelled in exchange for the Shares, free and
clear of any and all encumbrances, and at the time of delivery of the Shares to
be sold by the Option Holder, the Option Holder will be the lawful owner of and
will have good and marketable title to the Shares free and clear of any and all
encumbrances.
D. To the Option Holder's knowledge, the Option Holder has not taken any
action designed to stabilize or manipulate the price of any security of Pacific
Community Banking Group, or which has constituted or which might in the future
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of Pacific Community Banking Group, to facilitate the
sale or resale of the Shares or otherwise.
E. If the Option Holder is acting as a fiduciary, officer, partner or
agent, the Option Holder is enclosing with this Agreement certified copies of
the appropriate instruments pursuant to which the Option Holder is authorized to
act hereunder. If the Option Holder is an individual and is married, and the
spouse is not named as an owner on the option agreement, the Option Holder is
enclosing with this Agreement a duly completed and executed consent of his or
her spouse, in the form attached to this Agreement as Annex A.
F. The Option Holder agrees to deliver to the Attorneys-in-Fact such
documentation as the Attorneys-in-Fact, Valley Bank, Pacific Community Banking
Group or the Underwriters or any of their respective counsel may reasonably
request in order to effectuate any of the provisions hereof, in form and
substance satisfactory in all respects to the Attorneys-in-Fact.
G. The foregoing representations, warranties and agreements are made for
the benefit of, and may be relied upon by, the Attorneys-in-Fact, Valley Bank,
Pacific Community Banking Group, the Custodians, the Underwriters and their
respective representatives, agents and counsel.
7. IRREVOCABILITY OF INSTRUMENTS; TERMINATION OF THIS AGREEMENT.
A. This Agreement, the deposit of Pacific Community Banking Group
common stock pursuant hereto and all authority hereby conferred, is granted,
made and conferred subject to and in consideration of (a) the interests of
the Attorneys-in-Fact, the Underwriters, Valley Bank and Pacific Community
Banking Group in and for the purpose of completing the transactions
contemplated hereunder and by the Acquisition Agreement and the Underwriting
Agreement between Pacific Community Banking Group, certain other selling
shareholders and the Underwriters, and (b) the completion of the registration
of Pacific Community Banking Group common stock pursuant to the Registration
Statement and the other acts of the above-mentioned parties from the date
hereof to and including the time the Shares are purchased by the
Underwriters, and the Attorneys-in-Fact are hereby further vested with an
estate, right, title and interest in and to the Shares deposited herewith for
the purpose of irrevocably empowering and
5
securing to them authority sufficient to consummate said transactions.
Accordingly, this Agreement and the offer of the Shares made herein shall be
irrevocable prior to August 4, 1999, and shall remain in full force and
effect until that date, which may be extended by either or both of the
Attorneys-in-Fact. The Option Holder further agrees that this Agreement shall
not be terminated by operation of law or upon the occurrence of any event
whatsoever, including the death, disability or incompetence of the Option
Holder or, if the Option Holder is not a natural person, upon any
dissolution, winding up, distribution of assets or other event affecting the
legal existence of the Option Holder. If any event referred to in the
preceding sentence shall occur, whether with or without notice thereof to the
Attorneys-in-Fact, any of the Underwriters or any other person, the
Attorneys-in-Fact shall nevertheless be authorized and empowered to deliver
and deal with the Shares deposited under the Agreement by the Option Holder
in accordance with the terms and provisions of this Agreement as if such
event had not occurred.
B. If the transactions contemplated in the Acquisition Agreement are
not completed by August 4, 1999, this Agreement shall terminate (without
affecting any lawful action of the Attorneys-in-Fact or the Custodians prior
to such termination), unless extended by either or both of the
Attorneys-in-Fact.
8. LIABILITY AND INDEMNIFICATION OF THE ATTORNEYS-IN-FACT AND CUSTODIAN.
The Attorneys-in-Fact and the Custodians assume no responsibility or
liability to the Option Holder or to any other person, other than to deal with
the Pacific Community Banking Group common stock exchanged on cancellation of
the Option Holder's options to purchase common stock of Valley Bank, the
proceeds from the sale of the Shares and any other shares of Pacific Community
Banking Group common stock deposited with the Custodians pursuant to the terms
of this Agreement in accordance with the provisions hereof. The Option Holder
hereby agrees to indemnify and hold harmless the Attorneys-in-Fact and the
Custodians, and their respective officers, agents, successors, assigns and
personal representatives with respect to any act or omission of or by any of
them in good faith in connection with any and all matters contemplated by this
Agreement or the Underwriting Agreement.
9. INTERPRETATION.
A. The representations, warranties and agreements of the Option Holder
contained herein shall survive the sale and delivery of the Shares and the
termination of this Agreement.
B. The validity, enforceability, interpretation and construction of this
Agreement shall be determined in accordance with the laws of the State of
California applicable to contracts made and to be performed within the State of
California, and this Agreement shall inure to the benefit of, and be binding
upon, the Option Holder and the Option Holder's heirs, executors,
administrators, successors and assigns, as the case may be.
C. Wherever possible each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
such provision shall be prohibited by or invalid under applicable law, it shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
D. The use of the masculine gender in this Agreement includes the feminine
and neuter, and the use of the singular includes the plural, wherever
appropriate.
THE NEXT PAGE IS THE SIGNATURE PAGE.
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IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement, Letter
of Transmittal, Power of Attorney and Offer of Sale this ____ day of
____________, 1999.
Signature of Option Holder _____________________________________
_____________________________________
(Please sign exactly as your name
appears on your option agreement.)
STATE OF _______________ )
) ss.
COUNTY OF ______________ )
On _______________________, 1999, before me, the undersigned notary public in
and for said County and State, personally
appeared_______________________________________________________________________
_______________________________________________________________________________,
____ personally known to me [OR]
____ proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) __________________ subscribed to the within
instrument and acknowledged to me that __________________ executed the same in
____________________ authorized capacity(ies) and that, by _______________
signature(s) on the instrument, the person(s) or the entity(ies) upon behalf of
which the person(s) acted executed the instrument.
WITNESS my hand and official seal.
________________________________
MY COMMISSION EXPIRES ON
________________________________
Name and address to which notices,
funds and stock certificates shall be
sent.
___________________________________________
(name)
___________________________________________
(street)
___________________________________________
(city) (state) (zip)
ACCEPTED by the Attorneys-in-Fact and Custodians as of the date above set
forth:
____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
____________________________________
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
SEE THE ATTACHED INSTRUCTIONS
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STATEMENT OF PREFERENCE
INSTRUCTION: See Section 4 of the Custody Agreement, Letter of Transmittal,
Power of Attorney and Offer of Sale.
CHECK THE BOX BELOW THAT APPLIES.
-------------------------------------------------------------------------------
/ / A. I prefer to sell 100% of the shares of Pacific Community
Banking Group common stock that I will receive in the acquisition.
-------------------------------------------------------------------------------
/ / B. I prefer to retain all of the shares of Pacific Community
Banking Group common stock that I will receive in the acquisition.
-------------------------------------------------------------------------------
/ / C. I prefer to sell 60% and retain 40% of the shares of Pacific
Community Banking Group common stock that I will receive in the
acquisition.
-------------------------------------------------------------------------------
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ANNEX A
INSTRUCTION: See Section 6, paragraph E, of the Custody Agreement, Letter of
Transmittal, Power of Attorney and Offer of Sale.
CONSENT OF SPOUSE
I am the spouse of ____________. On behalf of myself, my heirs, legatees, and
assigns, I hereby join in and consent to the terms of the foregoing Custody
Agreement, Letter of Transmittal, Power of Attorney and Offer of Sale (the
"Agreement"), and I agree to the sale of the shares of common stock of Pacific
Community Banking Group, a California corporation, to be received in exchange
for the options to purchase shares of common stock of Valley Bank registered in
the name of my spouse or otherwise registered, which my spouse has offered to
sell in the Agreement.
Dated: ____________, 1999
(Signature of Spouse)
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[INSERT FORM W-9]
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