SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
EAST WEST BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6712 95-4703316
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
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415 Huntington Drive
San Marino, California 91108
626-583-3500
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Dominic Ng
Chairman, President, and Chief Executive Officer
415 Huntington Drive
San Marino, California 91108
626-583-3500
(Name, Address, Including Zip Code, and Telephone Number Including Area Code,
of Agent for Service)
COPIES TO:
Gordon M. Bava, Esq. Douglas P. Krause, Esq. Michael W. Zarlenga, Esq.
Manatt, Phelps & Phillips, LLP Senior Vice President Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard and General Counsel 1501 M Street, N.W.
Los Angeles, California 90064-1614 East-West Bank Suite 700
310-312-4000 415 Huntington Drive Washington, D.C. 20005
San Marino, CA 91108 202-463-4300
626-583-3500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED BE REGISTERED PER UNIT* OFFERING PRICE* REGISTRATION FEE ---------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 23,775,000 par value per share.... shares $6.02 $143,125,500.00 $42,222.02 ---------------------------------------------------------------------------------------------------------------- |
* Estimated solely for the purposes of calculating the registration fee and calculated pursuant to Rule 457(f) (2). There is no market for the common stock of East-West Bank, the securities to be canceled in the exchange. Therefore, the registration fee has been calculated based on the book value per share of East-West Bank as of August 31, 1998, the latest practicable date prior to the date of filing of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
[LETTERHEAD OF EAST-WEST BANK]
WRITTEN CONSENT STATEMENT/PROSPECTUS
_______________ __ , 1998
Dear Shareholder:
The enclosed Written Consent Statement/Prospectus is provided by the Board of Directors of East-West Bank (the "Bank") in connection with the solicitation of consent of our shareholders for approval of the formation of a bank holding company for the Bank. Upon approval of the Plan of Reorganization and Merger Agreement dated September __, 1998 (the "Plan of Reorganization"), the Bank will become a subsidiary of the newly formed holding company, East West Bancorp, Inc. (the "Company"). Written consents for approval of this action are being solicited from all shareholders of the Bank.
The enclosed Written Consent Statement/Prospectus is also provided by the Board of Directors in connection with the solicitation of consent of our shareholders, as prospective shareholders of the holding company, for approval of the Company's 1998 Employee Stock Incentive Plan (the "Company Incentive Plan") and for approval of the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan").
The Company is a newly-formed Delaware corporation, organized at the direction of the Bank's Board of Directors for the purpose of becoming a bank holding company. In accordance with the Plan of Reorganization, as more fully described in the attached Written Consent Statement/Prospectus, the Company will acquire all of the outstanding shares of the Bank by issuing, subject to certain limitations, common stock in the Company to each of the Bank's shareholders, in exchange for all of the outstanding shares of the Bank's common stock. After this exchange you will have the same number of shares in the Company as you currently have in the Bank.
It is important to note that your stock in the Company will have a value equal to the value of your stock in the Bank and therefore the exchange will take place without any recognition of gain or loss for federal income tax purposes. No changes in the Bank's directors, officers, or other personnel are contemplated as a result of the formation of the bank holding company. Additionally, after formation of the bank holding company, the Bank will continue its present business and operations under the name of East-West Bank.
The Company Incentive Plan is intended to replace the Bank's 1998 Employee Stock Incentive Plan ("Bank Incentive Plan"). The Company Incentive Plan would reserve 1,902,000 shares of common stock of the Company. In addition, the Company Incentive Plan would allow for the granting of options and other stock based incentives to directors, officers, employees, as well as consultants, advisors and others having a business relationship with the Company and the Bank by attracting and retaining competent managerial personnel, added incentive for high levels of performance and for unusual efforts to increase the earnings of the Company and the Bank. The terms and conditions of the Company Incentive Plan are described in the Written Consent Statement/Prospectus.
The Company has adopted the Purchase Plan to provide eligible employees of the Company and its subsidiaries the opportunity to participate in the ownership of the Company by acquiring the right to purchase shares of the Company's common stock at a discount. The Purchase Plan covers a total of 1,000,000 shares of common stock of the Company. Stockholders are being asked to approve the Purchase Plan. The terms and conditions of the Purchase Plan are described in the Written Consent Statement/Prospectus.
You are urged to read the attached documents carefully as they contain the terms of the Reorganization, facts concerning the business, results of operations, financial condition, and properties of both the Company and the Bank. It is very important that your shares be represented because the affirmative vote of a majority of the outstanding shares
of the Bank is required to approve the Plan of Reorganization, the Company Incentive Plan and the Purchase Plan. It is therefore essential that all shareholders vote.
You are urged to fill in, date, sign and mail the enclosed Written Consent form in the enclosed self-addressed postage prepaid envelope.
It is expected that the enclosed Written Consent Statement/Prospectus and accompanying Consent form will be mailed or delivered to shareholders of the Bank on or after __________ __, 1998. We hope that the Written Consent Statement/Prospectus will answer any questions you may have concerning the proposed Reorganization, the Company Incentive Plan and the Purchase Plan. If you have any questions, concerning this Written Consent Statement/Prospectus or the accompanying proxy, or if you need any help voting your shares, please telephone Douglas P. Krause, Senior Vice President, General Counsel and Corporate Secretary of East-West Bank at (626) 583-3587.
Your interest and participation are appreciated.
Sincerely,
Dominic Ng Chairman, President, and Chief Executive Officer
PROSPECTUS OF EAST WEST BANCORP, INC.
AND
WRITTEN CONSENT STATEMENT OF EAST-WEST BANK
23,775,000 SHARES
OF
EAST WEST BANCORP, INC. COMMON STOCK
East-West Bank, a California state chartered bank (the "Bank") is reorganizing as a bank holding company (the "Reorganization"). As part of the Reorganization, the Bank will become a wholly-owned subsidiary of East West Bancorp, Inc. (the "Holding Company"), a Delaware corporation which was formed in August, 1998. Upon the completion of the Reorganization, the Holding Company will own all of the shares of Common Stock, $1.00 stated value, of the Bank ("Bank Common Stock"), and the current shareholders of East-West Bank ("Bank Shareholders") will own all of the shares of common stock, $0.001 par value, of the Holding Company ("Company Common Stock") in substantially the same proportions as their ownership of the Bank.
The Reorganization must be approved by a majority of the outstanding shares of the Bank, by the Board of Governors of the Federal Reserve System, by the Federal Deposit Insurance Corporation and by the California Department of Financial Institutions. The Reorganization will not go forward if the Bank does not receive these approvals.
This Written Consent Statement/Prospectus is also being furnished to Bank Shareholders to approve, as prospective shareholders of the Company, the Company's 1998 Employee Stock Incentive Plan (the "Company Incentive Plan") that would reserve 1,902,000 shares of the Company Common Stock and the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") that would reserve 1,000,000 shares of Company Common Stock.
The Company, a Delaware corporation, has filed this Prospectus of the Company and Written Consent Statement of the Bank (collectively the "Written Consent Statement/Prospectus") with the Securities and Exchange Commission (the "SEC") as part of a Registration Statement on Form S-4 (the "Registration Statement"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"), for the purpose of registering up to 23,775,000 shares of the Company Common Stock, in connection with the Reorganization.
The Reorganization will be accomplished through a merger of East West Merger Co., Inc. ("Merger Co."), a wholly-owned subsidiary of the Company, with and into the Bank, with the Bank being the surviving entity. As a result of the merger, the Bank will become a wholly-owned subsidiary of the Company and Bank Shareholders will receive an equal number of shares of Company Common Stock for their shares of Bank Common Stock.
The Company has never issued capital stock to the public and consequently no public market for Company Common Stock exists. See "Market Price of and Dividends on Company Common Stock and Bank Common Stock - Market Information."
In addition to the approvals of the regulatory agencies and the shareholders of the Company, Merger Co. and the Bank, consummation of the Reorganization requires the fulfillment of certain other conditions, as more fully described in this Written Consent Statement/Prospectus. See "The Reorganization - Terms of the Plan of Reorganization - Conditions to the Reorganization," "- Termination of Plan of Reorganization," and " - Regulatory Approvals," herein. Adoption of the Company Incentive Plan and the Purchase Plan each require the approval of the shareholders of the Bank as prospective shareholders of the Company. See "Approval of The East West Bancorp, Inc. 1998 Employee Stock Incentive Plan" and "Approval of The East West Bancorp, Inc. 1998 Employee Stock Purchase Plan."
This Written Consent Statement/Prospectus is being first mailed or delivered to shareholders of the Bank on or about ___________________, 1998.
SEE "RISK FACTORS AND INVESTMENT CONSIDERATIONS" ON PAGE 1 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS OF BANK COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS WRITTEN CONSENT STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF THE BANK OR THE COMPANY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Written Consent Statement/Prospectus is _________________, 1998.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form S-4 we filed with the SEC. You should rely only on the information or representations provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.
The Company is a newly formed corporation that was organized at the direction of the Bank's Board of Directors to acquire control of the Bank and thereby become a bank holding company. For further information regarding the Reorganization, see the Plan of Reorganization which is included as Annex I. Since the Company is newly formed, it has not been required to make filings subject to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and there is currently no public market for its common stock. Upon consummation the Reorganization, the Company expects to become subject to the information, reporting and proxy solicitation requirements of the Exchange Act.
The Bank also is not subject to the information, reporting and proxy solicitation requirements of the Exchange Act.
This Written Consent Statement/Prospectus does not contain all of the information set forth in the Registration Statement. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Website at "http://www.sec.gov."
TABLE OF CONTENTS
Page
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Summary............................................................................................ (i)
Summary Selected Consolidated Financial Data....................................................... (v)
Risk Factors and Investment Considerations......................................................... 1
Solicitation of Written Consents................................................................... 9
The Reorganization................................................................................. 11
Capitalization..................................................................................... 18
Comparison of The Rights of Holders of Company Common Stock and Bank Common Stock.................. 18
Restrictions on Acquisition of The Company......................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations of The Bank.. 25
Business........................................................................................... 44
Supervision and Regulation......................................................................... 66
Market Price of and Dividends on Company Common Stock and Bank Common Stock........................ 72
Management......................................................................................... 73
Certain Relationships and Related Transactions..................................................... 79
Approval of East West Bancorp, Inc. 1998 Employee Stock Incentive Plan............................. 79
Approval of East West Bancorp, Inc. 1998 Employee Stock Purchase Plan.............................. 83
Commission's Position on Indemnification for Securities Act Liabilities............................ 85
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.............. 85
Experts............................................................................................ 85
Legal Matters...................................................................................... 85
Index to Financial Statements...................................................................... 86
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SUMMARY
This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read carefully this entire document, including the consolidated financial statements and the notes to the consolidated financial statements of East-West Bank. References in this document to "we", "us", "our" and the "Bank" refer to East-West Bank. In certain instances where appropriate, "us" or "our" refers collectively to East West Bancorp, Inc. and East-West Bank. References in this document to the "Company" refer to East West Bancorp, Inc. All per share information contained in this document has been adjusted to reflect the 118,875 for 550,000 reverse stock split effective June 11, 1998.
BANK HOLDING COMPANY REORGANIZATION
Parties to the Plan
of Reorganization....... East West Bancorp, Inc.
415 Huntington Drive
San Marino, California 91108
(626) 583-3500
The Company is not an operating company and has not
engaged in any significant business to date. It was
formed in August 1998 as a Delaware corporation to be
the holding company for the Bank.
East-West Bank
415 Huntington Drive
San Marino, California 91108
(626) 583-3500
The Bank is a California state-chartered bank. The
Bank was originally chartered in 1973 as a federal
savings association focused primarily on the Chinese-
American community. The Bank converted to a
California-chartered commercial bank in July 1995.
The Bank specializes in lending for commercial,
construction, and residential real estate projects
and financing international trade. See "Business."
East West Merger Co., Inc.
415 Huntington Drive
San Marino, California 91108
(626) 583-3500
Merger Co. is a California corporation organized as a
wholly-owned subsidiary of the Company in August
1998. Merger Co.'s sole purpose is to merge with the
Bank in order to facilitate the Company's acquisition
of the Bank. See "The Reorganization -
Organizational Transactions."
Rights of Dissenting
Shareholders............ Bank Shareholders do not have dissenters'
rights with respect to the Reorganization.
CONSENT SOLICITATION/
SUMMARY OF VOTING
PROCEDURES
Record Date.............. ___________ __, 1998 (the "Record Date").
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Consent Required......... A majority of the issued and outstanding shares of
Bank Common Stock (the "Required Vote") must consent
to approve the Plan of Reorganization. See
"Solicitation of Written Consents - Written Consent
and Revocability of Written Consents."
A majority of the outstanding shares of Merger Co.
and the Company must also consent to the Plan of
Reorganization. The Bank, as the sole shareholder of
the Company, and the Company, as the sole shareholder
of Merger Co., have approved the Plan of
Reorganization. See "The Reorganization - Terms of
the Plan of Reorganization - Conditions to the
Reorganization."
Receipt of Consents...... We must receive your written consent by 5:00 p.m.,
Pacific Time, on ____________, 1998 (unless extended
by the Bank) to be counted in the vote on the
Reorganization.
Voting................... You are entitled to vote based on the number of
shares of the Bank you owned on the Record Date.
Only shareholders on the Record Date are entitled to
vote.
The Reorganization....... The Reorganization will be accomplished by the merger
of Merger Co. into the Bank. The Bank will survive
the merger and continue to be known as "East-West
Bank" and will continue its current business and
operations as a California state-chartered bank in
essentially the same manner as it was conducted prior
to the Reorganization. Each share of Bank Common
Stock outstanding immediately prior to the
Reorganization will automatically represent one share
of Company Common Stock. After the Reorganization,
all of the Bank Common Stock will be owned by the
Company. See "The Reorganization - General" and "-
Terms of the Reorganization - Conversion."
Reasons for the
Reorganization.......... The Bank's Board of Directors believes that
the bank holding company structure will provide
greater flexibility in terms of operations,
expansion, and diversification. The Company
anticipates that its initial principal business and
activity will be to serve as the bank holding company
for the Bank. See "The Reorganization - Reasons for
Reorganization."
Significant Differences
between the Company and
the Bank................ The Company's charter documents contain certain
provisions that the Bank's charter documents do not
have relating to the Board of Directors and certain
business combinations, all of which may be deemed to
have "anti-takeover" effects, including a
"classified" Board of Directors and a two-thirds
voting requirement to approve certain "Business
Combinations" involving a "Interested Stockholder,"
and to approve or amend certain provisions of the
Certificate of Incorporation. See "Comparison of the
Rights of Holders of Company Common Stock and Bank
Common Stock."
Benefits to Directors and
Officers of the
Reorganization.......... The Reorganization will not directly provide any
substantive benefits to directors and officers of the
Bank, who will continue to be directors and officers
of the Company.
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Officers and directors will participate in the
Company Incentive Plan and the Purchase Plan, which
will permit our executive officers and directors to
acquire shares of Company Common Stock by way of
option or at a discount. See "Approval of Company's
1998 Employee Stock Incentive Plan" and "Approval of
Company's 1998 Employee Stock Purchase Plan."
Conditions to the
Reorganization and
Regulatory Approvals.... The Reorganization is subject to the following
conditions:
. Approval of the Board of Directors and
shareholders of the Bank, Merger Co., and the
Company
. Approval by the Federal Reserve Board, the FDIC,
and the Commissioner of the California Department
of Financial Institutions (the "Commissioner").
The Company filed an application to acquire the Bank
(the "Holding Company Application") with the Federal
Reserve Board on September __, 1998. The Bank filed
an application for approval of the merger (the
"Merger Application") with the FDIC on September __,
1998. The Company filed an application (the "State
Application") to acquire control of the Bank with the
Commissioner on September __, 1998.
Certain Federal Income
Tax Consequences........ The Bank expects that the Reorganization will not
result in the recognition of gain or loss by the
Bank's shareholders if they exchange their Bank
Common Stock solely for Company Common Stock. The
Bank will terminate the Reorganization if it believes
the Reorganization will result in unfavorable federal
income tax results. See "The Reorganization -
Certain Federal Income Tax Consequences."
Recommendations.......... The Board of Directors of the Bank has approved the
Plan of Reorganization and unanimously recommends
that shareholders approve the Plan of Reorganization.
The Bank's directors, executive officers, and their
affiliates, who beneficially owned in the aggregate
less than 1% of the outstanding shares Bank Common
Stock as of the Record Date, intend to vote for the
approval of the Plan of Reorganization. The Bank,
which owns 100% of the outstanding Company Common
Stock, has approved the Plan of Reorganization. See
"Bank Holding Company Reorganization -
Recommendations."
COMPANY INCENTIVE PLAN
Summary of the Plan...... The Company Incentive Plan is designed to replace the
Bank Incentive Plan. The Company Incentive Plan
reserves 1,902,000 shares of Company Common Stock to
be issued pursuant to awards. See "Approval of East
West Bancorp, Inc. 1998 Employee Stock Incentive
Plan."
Consent Required......... A majority of the outstanding shares of the Bank, as
prospective shareholders of the Company, are required
to approve the Company Incentive Plan. See "Approval
of East West Bancorp, Inc. 1998 Employee Stock
Incentive Plan."
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STOCK PURCHASE PLAN
Summary of the Plan...... The Purchase Plan permits full-time and certain part-
time employees of the Company and the Bank to acquire
Company Common Stock at a discount. 1,000,000 shares
of Company Common Stock are reserved for issuance
under the Purchase Plan. See "Approval of East West
Bancorp, Inc. 1998 Employee Stock Purchase Plan."
Consent Required......... A majority of the outstanding shares of the Bank, as
prospective shareholders of the Company, are required
to approve the Purchase Plan. See "Approval of East
West Bancorp, Inc. 1998 Employee Stock Purchase
Plan."
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SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents a summary of selected financial information which should be read in conjunction with the Bank's consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Written Consent Statement/Prospectus. The consolidated financial information at and for the six months ended June 30, 1998 and 1997 is derived from financial statements that have not been audited but, in the opinion of management, contains all adjustments, consisting of normal and recurring accruals, necessary to present fairly the financial position and results of operations of the Bank at and for such periods. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 1998, or for any future periods.
SUMMARY FINANCIAL AND OTHER DATA
AT JUNE 30, AT DECEMBER 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share and other data)
BALANCE SHEET DATA:
Total assets..................... $1,808,713 $1,647,837 $1,734,339 $1,621,547 $1,371,140 $1,319,752 $1,112,913
Cash and cash equivalents (1).... 245,035 351,318 347,601 292,570 183,070 27,145 27,760
Loans receivable, net............ 969,394 867,004 934,850 862,640 776,476 825,971 754,355
Mortgage-backed securities
and investment securities
available for sale.............. 508,353 371,664 374,810 406,468 353,435 34,018 78,911
Mortgage-backed securities
and investment securities
held to maturity................ -- -- -- -- -- 369,628 192,643
Real estate investment (2)....... 14,351 -- 14,388 -- -- -- --
Nonperforming loans(3)........... 4,378 19,815 10,893 11,819 7,496 14,586 17,941
Real estate acquired through
foreclosure..................... 5,386 2,321 3,217 3,491 6,388 8,197 8,653
Total nonperforming assets(3).... 16,043 28,373 21,597 20,795 21,488 35,507 35,043
Deposits......................... 1,239,280 1,158,582 1,235,072 1,182,886 1,157,469 1,066,946 963,191
Short-term borrowings(4)......... 155,953 300,000 139,000 244,000 19,691 107,293 9,164
Federal Home Loan Bank
advances........................ 257,000 46,000 211,000 55,000 61,000 56,000 56,000
Notes payable.................... 1,615 -- 1,615 -- -- -- --
Total liabilities................ 1,665,837 1,517,917 1,598,929 1,495,898 1,249,160 1,242,204 1,035,996
Fair value of net assets
acquired in excess
of purchase price, net.......... 2,651 3,066 2,858 3,274 3,690 4,105 4,520
Stockholders' equity............. 140,225 126,854 132,552 122,375 118,290 73,443 72,397
Shares outstanding............... 23,775 23,775 23,775 23,775 23,775 23,775 23,775
Book value per share............. $5.90 $5.34 $5.58 $5.15 $4.98 $3.09 $3.05
OTHER DATA:
Number of:
Full-service customer
facilities.................... 22 21 22 21 21 20 21
Full-time equivalent
employees..................... 369 360 365 329 276 316 375
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SUMMARY OF OPERATIONS
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share and other data)
OPERATIONS DATA:
Interest and dividend income...... $58,997 $51,785 $107,092 $96,876 $85,355 $76,202 $67,138
Interest expense.................. 33,346 30,139 62,646 57,268 54,376 41,517 33,439
------- ------- -------- ------- ------- ------- -------
Net interest income............... 25,651 21,646 44,446 39,608 30,979 34,685 33,699
Provision for loan losses......... 3,325 2,838 5,588 4,398 6,200 4,155 6,928
------- ------- -------- ------- ------- ------- -------
Net interest income after
provision for loan losses........ 22,326 18,808 38,858 35,210 24,779 30,530 26,771
Noninterest income................ 4,277 4,247 8,493 5,571 3,502 3,286 4,036
SAIF recapitalization expense -- -- -- 7,040 -- -- --
Noninterest expense............... 15,994 14,584 29,010 28,049 26,585 27,382 30,393
------- ------- -------- ------- ------- ------- -------
Earnings before provision for
income taxes..................... 10,609 8,471 18,341 5,692 1,696 6,434 414
Provision for income taxes 3,764 3,457 7,330 2,486 653 2,112 (194)
------- ------- -------- ------- ------- ------- -------
Net earnings (1).................. $ 6,845 $ 5,014 $ 11,011 $ 3,206 $ 1,043 $ 4,322 $ 608
======= ======= ======== ======= ======= ======= =======
PER SHARE DATA:
Basic and diluted earnings per
share(2)......................... $ 0.29 $ 0.21 $ 0.46 $ 0.13 $ 0.04 $ 0.18 $ 0.03
Average number of shares
outstanding...................... 23,775 23,775 23,775 23,775 23,775 23,775 23,775
KEY OPERATING RATIOS
PERFORMANCE RATIOS (3):
Return on assets(4)(8)............ 0.81% 0.65% 0.70% 0.22% 0.08% 0.34% 0.06%
Return on common equity(4)........ 10.08 8.45 8.91 2.71 1.13 5.91 0.94
Interest rate spread(5)........... 2.74 2.48 2.48 2.42 2.19 2.75 3.25
Net interest margin(6)............ 3.18 2.90 2.92 2.82 2.47 2.88 3.33
Noninterest expense to
assets(4)(7)..................... 1.83 1.82 1.77 2.34 1.94 2.08 2.71
Efficiency ratio(4)(8)............ 51.73 54.36 52.87 75.61 74.39 69.61 78.11
ASSET QUALITY RATIOS:
Nonperforming assets to
total assets at end of
period(9)........................ 0.89 1.72 1.25 1.28 1.57 2.69 3.15
Nonperforming loans to
total gross loans at end
of period(9)..................... 0.44 2.25 1.15 1.35 0.95 1.74 2.33
Allowance for loan losses
to total gross loans at
end of period.................... 1.44 1.30 1.29 1.15 1.11 1.73 1.93
Allowance for loan losses
to nonperforming loans at
end of period(9)................. 324.65 57.70 112.67 85.32 116.53 99.51 82.75
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RISK FACTORS AND INVESTMENT CONSIDERATIONS
In addition to the other information in this document, you should consider carefully the following risk factors in evaluating whether to approve the Reorganization.
When used in this Written Consent Statement/Prospectus, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe" or similar expressions are intended to identify "forward-looking statements." Prospective Investors should be aware that all forward-looking statements are necessarily speculative and not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Various risks and uncertainties, including, without limitation, regional and national economic conditions, changes in levels of market interest rates, credit risks of lending activities, and competitive and regulatory factors, could affect the Company's and the Bank's financial performance and could cause the Company's and the Bank's actual results for future periods to differ materially from those anticipated or projected. The risks highlighted herein should not be assumed to be the only factors that could affect future performance of the Bank and the Company.
INCREASED LENDING RISKS ASSOCIATED WITH EXPANSION INTO COMMERCIAL BANKING AND CONSTRUCTION ACTIVITIES
With the change in the Bank's business strategy to focus on commercial banking activities, the Bank's commercial and multi-family real estate loans, construction loans and commercial business loans have and are expected to continue to increase. Loans secured by commercial real estate are generally larger and involve a greater degree of risk than residential mortgage (1 to 4 family) loans. Because payments on loans secured by commercial and multi-family real estate properties are often dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent to the then prevailing conditions in the real estate market or the economy. Moreover, construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, the Bank may be confronted with a project, when completed, having a value which is insufficient to assure full repayment.
Although the Bank seeks to minimize the above risks through its underwriting and credit administration policies, there can be no assurance that such risks would not materialize, in which event the Bank's financial condition, results of operations, cash flows and business prospects could be materially adversely affected.
DEPENDENCE ON REAL ESTATE
At June 30, 1998, approximately 84% of the Bank's loans were secured by real estate. The value of the Bank's real estate collateral has been, and could in the future continue to be, adversely affected by any economic recession and any resulting adverse impact on the real estate market in Southern California, such as that experienced during the early years of this decade. See "- Economic Conditions and Geographic Concentrations."
The Bank's primary lending focus has historically been real estate- mortgage, construction, and to a lesser extent, commercial business lending. Even after the Bank's conversion to a commercial bank in 1995, a majority of the Bank's loans continue to be secured by real estate. At June 30, 1998, real estate mortgage, construction, and commercial business loans comprised approximately 79%, 4%, and 15%,
respectively, of the total loans in the Bank's portfolio. All of the real estate-mortgage and construction loans, and approximately 28% of the commercial business loans, were secured fully or in part by deeds of trust on underlying real estate. This real estate dependence increases the risk of loss in both the Bank's loan portfolio and its holdings of other real estate owned if economic conditions in California deteriorate in the future.
INTEREST RATE RISK
The income of the Bank depends to a great extent on "interest rate differentials" and the resulting net interest margins (i.e., the difference between the interest rates earned on the Bank's interest-earning assets such as loans and investment securities, and the interest rates paid on the Bank's interest-bearing liabilities such as deposits and borrowings). These rates are highly sensitive to many factors which are beyond the Bank's control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments and the generation of deposits and affect the rates received on loans and investment securities and paid on deposits, which could adversely affect the Bank.
The Bank is party to certain derivative contracts, including interest rate swaps and interest rate cap agreements. These contracts are entered into for purposes of reducing the Bank's interest rate risk and not for trading purposes. The unamortized premiums of such hedging contracts are included in other assets.
The interest rate swaps involve no exchange of principal either at inception or upon maturity; rather, they involve the periodic exchange of interest payments arising from an underlying notional principal amount. Interest rate swaps entered into for purposes of modifying the interest rate characteristics of certain loans within the Bank's loan portfolio are recorded at their initial cost, and unrealized gains or losses resulting from changes in their fair value are not recorded in the Bank's financial statements. The unamortized premiums paid for interest rate swaps represent the cost basis of such instruments resulting from a prior mark-to-market adjustment upon the sale of a previously hedged item and subsequent redesignation to the current hedged item. Revenues or expenses associated with these agreements are accounted for on an accrual basis and are recognized as an adjustment to interest income, based on the interest rates currently in effect for such contracts.
The Bank enters into interest rate cap agreements for purposes of hedging against fluctuations in the fair value of the Bank's investment securities classified as available-for-sale. The interest rate cap agreements involved the payment of a one-time premium to a counterparty who, if interest rates rise above a predetermined level, will make payments to the Bank at an agreed-upon rate for the term of the agreement until such time as interest rates fall below the cap level. The premiums paid for the interest rate caps are amortized to interest income on investments over the term of the agreements. The interest rate cap agreements are reported at their estimated fair value, with unrealized gains and losses recognized as a separate component of stockholders' equity (net of tax effect) consistent with the hedged securities. Payments received on the cap agreements are accrued and recognized as interest income on investments.
Upon termination or sale of a hedged item or if a hedge otherwise ceases to be effective, the related hedging contract is accounted for at fair value, with resulting gains or losses being recorded in earnings, together with the gain or loss upon termination or sale of the hedged item, if applicable. If such hedging contracts are subsequently redesignated as a hedge, their fair value upon redesignation becomes their new cost basis which is amortized into earnings over the remaining life of the instruments. Significant interest rate fluctuations can materially and adversely affect the Bank's operations and cash flows.
At June 30, 1998, the Bank's consolidated financial statements reflected $383,000 of unrealized losses (net of tax effects) with respect to interest rate cap agreements as a separate component of stockholders' equity (net of tax effects), and such interest rate cap agreements had an aggregate notional amount of $36 million. The Bank's consolidated financial statements did not reflect unrealized losses on interest rate swaps of approximately $1.0 million as of such date, which interest rate swaps had an aggregate notional amount of $28.5 million.
ECONOMIC CONDITIONS IN ASIA
Most of the Bank's trade finance loans are related to trade with Asia. In addition, many depositors and loan customers have business ties in Asia. Adverse economic and political conditions in Asia, including currency devaluation, crises in leadership succession, or military conflict, may increase the Bank's exposure to economic and transfer risk. Transfer risk may increase because of an entity's incapacity to obtain the foreign exchange needed to meet its obligations or to provide liquidity.
RISKS RELATED TO TRADE FINANCING
At June 30, 1998, 8% of the Bank's loan portfolio consisted of loans made to finance international trade activities. Of these loans, 93% were related to import financing. These financings are generally made through letters-of- credit, whereby the Bank becomes liable to pay the beneficiary (i.e., a manufacturer) the amount drawn against the credit. Changes in monetary policy, including changes in interest rates, governmental regulation of international trade activities, currency valuation, price competition, competition from other financial institutions, and general economic conditions could impact the amount of goods imported to and exported from the United States and the number and extent of importers' need for the Bank's trade finance credit, which could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects.
POTENTIAL VOLATILITY OF DEPOSITS
At June 30, 1998, 30% of the dollar value of the Bank's total deposits was represented by time certificates of deposits in excess of $100,000. As such, these deposits are considered volatile and could be subject to withdrawal. Withdrawal of a material amount of such deposits would adversely impact the Bank's liquidity, profitability, business prospects, results of operations and cash flows.
DIVIDENDS
The Company does not expect to pay a dividend on the Common Stock following
the Reorganization. Because the Company will initially conduct no other
activity than the management of its investment in the Bank, the Company will
initially be dependent on the Bank for income. The ability of the Bank to pay
cash dividends in the future will depend on the Bank's profitability, growth,
and capital needs. In addition, the California Financial Code restricts the
ability of the Bank to pay dividends. There can be no assurance that the
Company or the Bank will pay any dividends in the future, or if paid, such
dividends will not be discontinued. For a discussion of certain restrictions on
the Bank's ability to pay dividends, see "Supervision and Regulation - The Bank
- Dividends and Other Transfers of Funds."
COMPETITION
In California generally, and in the Bank's primary market area specifically, major banks dominate the commercial banking industry. By virtue of their larger capital bases, such institutions have substantially greater lending limits than those of the Bank. In obtaining deposits and in making loans, the Bank competes
with these larger commercial banks and other financial institutions, such as savings and loan associations and credit unions, which offer most services which traditionally were offered only by banks. In addition, the Bank competes with other institutions such as money market funds, brokerage firms, and even retail stores seeking to penetrate the financial services market. During periods of declining interest rates, competitors with lower costs of capital may solicit the Bank's customers to refinance their loans. Furthermore, during periods of economic slowdown or recession, the Bank's borrowers may face financial difficulties and be more receptive to offers from the Bank's competitors to refinance their loans. There can be no assurance the Bank will be able to compete with these lenders.
As of June 30, 1998, a majority of the Bank's loans were outstanding to borrowers of Chinese ethnicity. Many of these individuals and businesses have connections with Taiwan, Hong Kong, and China. During the last few years, agency branches of banks based in Taiwan, have appeared in California and full service banks in the Bank's market area have changed ownership to Asian owners. These banks and agency branches have targeted Asian (primarily ethnic Chinese) individuals and businesses in California. Continued expansion of these strategies and the proliferation of additional Asian financial institutions could increase competition for the Asian customer base of the Bank which could have a material adverse effect on the Bank's financial condition, business prospects, results of operations and cash flows.
GOVERNMENT REGULATION AND LEGISLATION
The Company and the Bank are subject to extensive state and federal regulation, supervision, and legislation which govern almost all aspects of the operations of the Company and the Bank. Such laws are subject to change from time to time and are primarily intended for the protection of consumers, depositors, and the deposit insurance funds and not for the protection of shareholders of the Company. We cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the Company, but it could be material and adverse.
ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATIONS
The Bank's operations are located and concentrated primarily in Southern California, and are likely to remain so for the foreseeable future. At June 30, 1998, approximately 83% of the Bank's loan portfolio was real estate-related loans, of which 80% were related to collateral located in Southern California. The performance of these loans may be affected by changes in California's economic and business conditions. While the Southern California economy has recently exhibited positive economic trends, there can be no assurance such trends will continue. A deterioration in economic conditions could have a material adverse effect on the quality of the Bank's loan portfolio and the demand for its products and services. In addition, during periods of economic slowdown or recession, the Bank may experience a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. California real estate is also subject to certain natural disasters, such as earthquakes, floods and mud slides, which are typically not covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may render borrowers unable to repay loans made by the Bank. The occurrence of adverse economic conditions or natural disasters in California could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects.
NEW MANAGEMENT AND BOARD OF DIRECTORS
In connection with the implementation of its business strategy over the last few years, the Bank hired several new officers at the level of Senior Vice President or above to manage new or enhanced functions. Other than Dominic Ng, President and Chief Executive Officer, and Julia Gouw, Executive Vice President and Chief Financial Officer, who have been with the Bank for approximately 6 years and approximately 9 years, respectively, a majority of the remaining senior management team has been with the Bank for only an average of approximately 3 1/2 years.
With the exception of Mr. Ng and Ms. Gouw, the entire board of directors resigned in connection with the recent sale of the Bank's common stock by its two former shareholders. A majority of the current directors were recently appointed to fill the vacancies created and have only had a limited period of time to become familiar with the business and operations of the Bank. For information with respect to the Directors, see "Management."
RELIANCE ON KEY EMPLOYEES AND OTHERS
The Bank is dependent upon the continued services of its key employees, including Dominic Ng, President and Chief Executive Officer, and Julia Gouw, Executive Vice President and Chief Financial Officer. The loss of the services of any such employee, or the failure of the Bank to attract and retain other qualified personnel, could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects. The Bank has entered into employment agreements with Mr. Ng and Ms. Gouw for periods of three years each, which agreements will provide for certain payments in connection with such executives' termination without cause or following a change in control of the Bank and certain other circumstances. Such payments, if required, could be material, particularly if triggered by a change in control of the Bank. See "Management - Employment and Change in Control Agreements."
The Bank does not maintain any life insurance with respect to any of its officers, except with regard to a non-qualified deferred compensation plan.
ADEQUACY OF ALLOWANCE FOR ESTIMATED LOSSES
The Bank's allowance for estimated losses on loans was $14.2 million or 1.44% of total loans and 324.65% of total nonperforming loans at June 30, 1998. Material future additions to the allowance for estimated losses on loans may be necessary if material adverse changes in economic conditions occur and the performance of the Bank's loan portfolio deteriorates. In addition, future additions to the Bank's allowance for losses on other real estate owned may also be required in order to reflect changes in the markets for real estate in which the Bank's other real estate owned is located and other factors which may result in adjustments which are necessary to ensure that the Bank's foreclosed assets are carried at the lower of cost or fair value, less estimated costs to dispose of the properties. Moreover, the FDIC and the California Department of Financial Institutions ("DFI"), as an integral part of its examination process, periodically review the Bank's allowance for estimated losses on loans and the carrying value of its assets. The Bank was most recently examined by the FDIC and the DFI in this regard during the second quarter of 1998. Increases in the provisions for estimated losses on loans and foreclosed assets would adversely affect the Bank's financial condition and results of operations.
ACCOUNTING TREATMENT
The Bank recently underwent a change in control. Based upon the representations of each investor that such investor was not acting in concert with any other investor, it is the Bank's understanding that
generally accepted accounting principles did not require the Bank to revalue the assets and liabilities of the Bank in the Bank's financial statements to reflect consummation of the change in control. In the event that some or all of the investors were deemed to be acting in concert, then there is a substantial likelihood that generally accepted accounting principles would require a step-up in accounting basis (analogous to the purchase method of accounting for business combinations) with respect to the change in control. If a change in accounting basis were required, the Bank's assets and liabilities would be reflected on the Bank's consolidated financial statements based on their estimated fair values at the consummation date, and goodwill would be recorded to the extent that the consideration paid to the Bank's former shareholders exceeded the aggregate net fair value of the Bank's net assets. Any change in accounting basis could have a material adverse effect on the Bank's regulatory capital ratios, could result in the failure of the Bank to meet its regulatory capital requirements and could have a material adverse effect on the ability of the Bank to pay dividends. In addition, the amortization of any goodwill recorded as a result of such accounting treatment would significantly reduce the earnings of the Bank in future periods and could adversely affect the ability of the Bank to pay dividends.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws include provisions that could delay, defer, or prevent a takeover attempt that may be in the best interests of shareholders. These provisions include, among other things, requirements that (i) shareholders give advance notice with respect to nomination of candidates for election as directors and certain proposals they may wish to present for a shareholder vote; (ii) special meetings of shareholders may only be called by the Company's Board of Directors, Chairman of the Board, President, or at the written request of holders of not less than 10% of the voting power of all outstanding voting shares of the Company; (iii) the members of the board of directors serve for staggered three year terms; and (iv) certain business combinations and other transactions with a "Interested Stockholder" be approved by a supermajority vote. These requirements in certain circumstances may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for Company Common Stock at a premium over the current market price of the Company Common Stock and may adversely affect the market price, and the voting and other rights of the holders, of Company Common Stock. See "Comparison of Rights of Holders of Company Common Stock and Bank Common Stock - Description of Capital Stock - Company Common Stock."
CERTAIN OWNERSHIP RESTRICTIONS UNDER CALIFORNIA AND FEDERAL LAW
Federal law prohibits a person or group of persons "acting in concert" from acquiring "control" of a bank holding company unless the Federal Reserve Board has been given 60 days prior written notice of such proposed acquisition and within that time period the Federal Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period
if the Federal Reserve Board issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of more than 10% of a class of voting stock of a bank with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (such as the Common Stock), would, under the circumstances set forth in the presumption, constitute the acquisition of control. In addition, any "company" would be required to obtain the approval of the Federal Reserve Board under the BHC Act, before acquiring 25% (5% in the case of an acquiror that is, or is deemed to be, a bank holding company) or more of the outstanding Company Common Stock, or such lesser number of shares as constitute control.
Under the California Financial Code, no person shall, directly or indirectly, acquire control of a California licensed bank or a bank holding company unless the Commissioner has approved such acquisition of control. A person would be deemed to have acquired control of the Company under this state law if such person, directly or indirectly, has the power (i) to vote 25% or more of the voting power of the Company or (ii) to direct or cause the direction of the management and policies of the Company. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of the Common Stock would be presumed to control the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Reorganization, the Company will have outstanding 23,775,000 shares of Company Common Stock. The shares of Company Common Stock will be immediately eligible for sale in the public market without restriction upon consummation of the Reorganization. Future sales of substantial amounts of Company Common Stock after the Reorganization, or the perception that such sales could occur, could have a material adverse effect on the market price of the Company Common Stock. In addition, upon consummation of the Reorganization, options to acquire up to 8.0% of the shares of Company Common Stock at an exercise price equal to the market value of the Company Common Stock on the date of grant will be reserved for issuance to directors and certain employees of the Company, the Bank, and the Bank's subsidiaries (1,902,000 shares) under the Company Incentive Plan, 1,000,000 shares of Company Common Stock will be reserved for issuance to employees of the Company, the Bank, and the Bank's subsidiaries under the Purchase Plan, and warrants to acquire up to 2.0% of the Company Common Stock will be held by Friedman, Billings, Ramsey & Co., Inc. (475,500 shares) at an exercise price of $10. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for further sale, will have on the market price of the Company Common Stock. For additional information, see "Anti-takeover Provisions in Company's Certificate of Incorporation and Bylaws - Shares Authorized."
ABSENCE OF PUBLIC MARKET; VOLATILITY IN STOCK PRICE
There currently is no trading market for the Company Common Stock or Bank Common Stock. There can be no assurance that an active public trading market will develop after the Reorganization, or that, if developed, it will be sustained. As a result of the lack of a trading market, the market price of the Company Common Stock may experience fluctuations that are unrelated to the operating performance of the Company and the Bank. In particular, the price of the Company Common Stock may be affected by general market price movements as well as developments specifically related to the financial services sector, including interest rate movements, quarterly variations, or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the financial services industry.
TECHNOLOGY AND COMPUTER SYSTEMS
Advances and changes in technology can significantly impact the business and operations of the Bank. The Bank faces many challenges including the increased demand for providing computer access to bank accounts and the systems to perform banking transactions electronically. The Bank's business and operations are susceptible to negative impacts from computer system failures, communication and energy disruption, and unrestrained disruptions and unethical individuals with the technological ability to cause disruptions or failures to the Bank's data processing systems.
Many computer programs were designed and developed utilizing only two digits in date fields, thereby creating the inability to recognize the year 2000 or years thereafter. This year 2000 issue creates risks for the Bank from unforseen or unanticipated problems in its internal computer systems as well as from computer systems of the Federal Reserve Bank, correspondent banks, customers, and vendors. Failures of these systems or untimely corrections could have a material adverse impact on the Bank's ability to conduct its business and results of operations.
The Bank's computer systems and programs are designed and supported by companies specifically in the business of providing such products and services. The Bank has formed a Year 2000 committee comprised of certain of the Bank's officers to effectively deal with the year 2000 issue. The committee's year 2000 plan includes awareness seminars, evaluations of existing hardware, software, ATMs, vaults, alarm systems, communication systems, and other electrical devices, testing critical application programs and systems, both internally and externally, establishing a contingency plan, and upgrading hardware and software as necessary. The lending staff of the Bank has been compiling a list of borrowers with commitments in excess of $1,000,000. The Chief Credit Officer of the Bank and his staff have reviewed these lists and contacted borrowers in order to "risk-rank" each borrower's exposure to Year 2000 issues.
The Year 2000 Committee believes that the Bank's most critical systems are its deposit, loan, and general ledger data systems and that these systems will be Year 2000 compliant, as such services are performed by an outside vendor which has indicated to the Bank that its system will be Year 2000 compliant by December 31, 1999. Failure to be Year 2000 compliant could have a material adverse effect on the Bank's business prospects and results of operations. A flaw in core deposit, loan or other accounting systems discovered too late to either make necessary corrections or to switch to another data processing company would require the Bank to perform manually such accounting for an indefinite period of time.
The Bank has budgeted $882,000 for future expenses for hardware and software upgrades, a portion of which is related to the Year 2000 issue. This includes approximately $510,000 of hardware purchases and $372,000 in other related expenses, such as software testing and implementation services. As of June 30, 1998, expenses incurred as a result of the Year 2000 issue were deemed to be minimal.
ENVIRONMENTAL RISKS
The Bank, in its ordinary course of business, acquires real property securing loans that are in default, and there is a risk that hazardous substances or waste, contaminants or pollutants could exist on such properties. The Bank may be required to remove or remediate such substances from the affected properties at its expense, and the cost of such removal or remediation may substantially exceed the value of the affected properties or the loans secured by such properties. Furthermore, the Bank may not have adequate remedies against the prior owners or other responsible parties to recover its costs. Finally, the Bank may find it difficult or impossible to sell the affected properties either prior to or following any such removal. In addition, the Bank may be considered liable for environmental liabilities in connection with its borrowers' properties, if, among other things, it participates in the management of its borrowers' operations. The
occurrence of such an event could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects.
SOLICITATION OF WRITTEN CONSENTS
RECEIPT OF CONSENTS
We must receive your written consent by 5:00 p.m., Pacific Time, on ____________, 1998 (unless extended by the Bank) (the "Approval Date") to be counted in the vote on the Plan of Reorganization, the Company Incentive Plan and the Stock Purchase Plan. The votes will be tabulated by U.S. Stock Transfer Co., the Bank's transfer agent and registrar.
Shareholders who wish to vote "YES" for the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan should complete, sign and return the written consent which accompanies this Written Consent Statement/Prospectus. Each Shareholder's attention is directed to the written consent and instructions accompanying this Written Consent Statement/Prospectus. Written consents must be delivered in person or by mail or by other delivery service to U.S. Stock Transfer Co. at the following address on, or prior to, the Approval Date:
U.S. Stock Transfer Co.
1745 Gardena Avenue, Suite 200
Glendale, CA 91204
WHO MAY VOTE
Only Bank shareholders on the Record Date may vote. You are entitled to vote based on the number of shares of Bank Common Stock you have on the Record Date.
There were issued and outstanding 23,775,000 shares of Bank Common Stock on the Record Date. The Bank has no other class of stock outstanding. Consent to the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan may be given by any person who is a record holder of shares of Bank Common Stock, or by his or her duly authorized agent.
If you hold your Bank Common Stock in "street name" and you fail to instruct your broker or nominee as to how to vote your Bank Common Stock, your broker or nominee will not be permitted, pursuant to applicable stock exchange rules, to vote your Bank Common Stock with respect to the Plan of Reorganization, the Company Incentive Plan, or the Stock Purchase Plan.
VOTE REQUIRED
In order for the Plan of Reorganization to be approved, shareholders holding a majority of the outstanding Bank Common Stock must approve the Plan of Reorganization.
In order for the Company Incentive Plan and the Stock Purchase Plan to be approved, shareholders holding a majority of the outstanding Bank Common Stock, voting as shareholders of the Company, must approve the Company Incentive Plan and the Stock Purchase Plan. If the Plan of Reorganization is NOT approved, the votes for the Company Incentive Plan and the Stock Purchase Plan will be counted as votes by the shareholders of the Bank.
You may vote YES or NO or you may ABSTAIN from voting on the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan. If you do not submit a written consent or you send a written consent marked ABSTAIN, you will be counted as having voted AGAINST the Plan of Reorganization, the Company Incentive Plan and the Stock Purchase Plan. Broker (or other custodian) non-votes will also have the effect of a vote AGAINST the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan.
You may vote only using the written consent provided, and only during the solicitation period, which ends __________, 1998 or at a later date the Bank may announce. You must return the completed written consent to the Bank before the solicitation period expires. If we receive your written consent signed but unmarked, it will be counted as a vote FOR the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan.
All questions as to the form of all documents and the validity (including time of receipt) of all approvals will be determined by the Bank and such determinations will be final and binding. The Bank reserves the absolute right to waive any of the defects or irregularities in any approval of the Plan of Reorganization, the Company Incentive Plan, and the Stock Purchase Plan, or preparation of the form of written consent. The Bank's interpretation of the terms and conditions of the Plan of Reorganization will be final and binding. The Bank shall be under no duty to give notification of any defects or irregularities in any approval of the Plan of Reorganization, the Company Incentive Plan and the Stock Purchase Plan, or preparation of the form of written consent and shall not have any liability for failing to give such notification.
REVOCATION OF CONSENT
You may withdraw or change your written consent before the solicitation period expires. You will need to complete and mail a substitute written consent, AND a letter stating that you are revoking your previous vote.
EXPENSES OF THIS SOLICITATION
This solicitation of Written Consents is made on behalf of the Board of Directors of the Bank and the Company, and the Bank will bear all expenses of solicitation, including preparing, assembling, printing and mailing this Written Consent Statement/Prospectus.
To the extent permitted by applicable law, consents may be solicited by the management of the Bank or by third parties. Although there is no formal agreement to do so, the Bank may reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to their principals. The Bank does not intend to utilize the services of other individuals or entities not employed by or affiliated with the Bank in connection with the solicitation of Written Consents. No party will receive any compensation contingent upon solicitation of a favorable vote or success of the Reorganization.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Management knows of no person or entity, including any "group" as that term is used in (S)13(d)(3) of the 1934 Act, who or which is the beneficial owner of more than 5% of the outstanding shares of Bank Common Stock on the Record Date. Management is not aware of any change in control of the Bank or of any arrangement which may, at a subsequent date, result in a change of control of the Bank, other than the Reorganization. For information concerning the ownership of Bank Common Stock by directors and executive officers of the Company and the Bank, see "Management - Directors."
THE REORGANIZATION
GENERAL
The Board of Directors of the Bank has unanimously approved the formation of a holding company for the Bank, to be known as East West Bancorp, Inc., through the Reorganization described in this Written Consent Statement/Prospectus, and unanimously recommends that Bank Shareholders vote to approve the Reorganization.
The following discussion is only a summary of the Reorganization. Shareholders should refer to the complete Plan of Reorganization attached as Annex I.
At the Effective Time of the Reorganization (defined below), Merger Co. will be merged into the Bank, and the Bank will survive the Merger. As a result of the Merger, each outstanding share of Bank Common Stock will be converted into Company Common Stock on a one-for-one basis. As a result of the Reorganization, the current Bank Shareholders will become the sole shareholders of the Company and the Company will become the sole shareholder of the Bank. Upon consummation of the Reorganization, the Bank will continue the Bank's present business and operations under the name "East-West Bank," as a wholly- owned subsidiary of the Company and under the Articles of Incorporation and Bylaws of the Bank. The consolidated capitalization, assets, liabilities, income, and financial statements of the Company immediately following the Reorganization will be substantially the same as those of the Bank immediately prior to the consummation of the Reorganization. See "Capitalization."
REASONS FOR REORGANIZATION
In the opinion of the Bank's Board of Directors, the bank holding company structure will permit greater flexibility in responding to evolving changes in the banking and financial services industries and meeting the competition of other financial institutions. The Bank's Board of Directors believes that a bank holding company is an entity which can provide greater operating and financial flexibility and will permit expansion into a broader range of financial services and other business activities.
Management of the Bank believes that a bank holding company will permit Bank shareholders to participate in the ownership of a more flexible entity for financing and growth within the banking and financial services industries. A bank holding company may provide more alternatives in the raising of funds required by the Bank or by the Company under changing conditions in financial and monetary markets.
Flexibility in financing also will be provided by the Company's authorized capitalization of 50,000,000 shares of Company Common Stock, $0.001 par value per share, and 5,000,000 shares of Holding Company Preferred Stock, $0.001 par value per share. If the Reorganization is approved, up to 23,775,000 shares of Company Common Stock will be issued to the shareholders of the Bank, up to 1,705,350 shares of Company Common Stock may be issued pursuant to outstanding stock option and incentive grants, up to 196,650 shares will be available for future grants issued under the Company Incentive Plan, up to 1,000,000 shares will be available for future issuance under the Purchase Plan, and up to 475,500 shares of Company Common Stock will be reserved for issuance upon the exercise of outstanding warrants to purchase Bank Common Stock, leaving 22,847,500 shares of authorized but unissued Company Common Stock. These shares will be available for issuance from time to time to raise additional capital, for acquisitions or for any other corporate purposes and, to the extent authorized by law, may be issued without further action by the Company's shareholders. The Company currently has no plans, arrangements, or understandings related to the issuance of additional shares.
The Reorganization will also provide certain flexibility for acquiring or establishing other banking operations. For example, in the event an opportunity for the acquisition of another bank were to develop, it might be desirable to maintain the separate existence of the other bank after the acquisition rather than merging it into the Bank. The existence of a bank holding company would allow such an acquisition.
It is also anticipated that the new corporate structure can be used advantageously to engage in other activities that are closely related to banking, either directly, or indirectly through newly formed subsidiaries or by acquiring companies already established in such fields. Such activities are limited by the Bank Holding Company Act of 1956, as amended (the "BHC Act").
The Bank does, and it is anticipated that the Company will, from time to time engage in discussions regarding acquisitions of other financial institutions and corporations engaged in activities that are closely related to banking. Should the Bank or the Company be presented with an acquisition opportunity, the Bank or the Company, as applicable, expects to make a determination whether or not to and the manner in which such opportunity should be pursued, which may require the prior approval or consent of the Federal Reserve Board and/or the Commissioner. See "Supervision and Regulation - The Company." As of the date of this Written Consent Statement/Prospectus, the Company and the Bank do not have any specific agreements or commitments to acquire any other financial institution or corporation.
Management of the Bank believes that the Reorganization will enhance the Bank's ability to satisfy ever changing and expanding needs of present customers for banking and banking-related services and to continue to attract new customers for financial services. The recommended corporate form will better suit expansion into new areas of service than would the existing structure.
The Company anticipates that during the initial months following the consummation of the Reorganization, the principal business and activity of the Company will be to manage its investment in the Bank Common Stock.
ORGANIZATIONAL TRANSACTIONS
At the direction of the Board of Directors of the Bank, the Company was incorporated under the laws of the State of Delaware on August 27, 1998 for the purpose of becoming a bank holding company by acquiring all of the outstanding Bank Common Stock. The Bank currently owns 100% of the outstanding capital stock of the Company.
At the direction of the Board of Directors of the Bank and the Company, Merger Co. was incorporated under the laws of the State of California on August 27, 1998 for the purpose of merging with the Bank in order to facilitate the Company's acquisition of the Bank. In order to capitalize Merger Co., Merger Co. will issue 100 shares of common stock of Merger Co. (the "Merger Co. Common Stock") to the Company for $100. Prior to the Effective Time of the Reorganization, the Company will be the sole shareholder of Merger Co.
Upon consummation of the Reorganization, Merger Co. will be merged with and into the Bank with the Bank being the surviving entity of the merger. The 100 shares of Merger Co. Common Stock held by the Company will be converted into Bank Common Stock. Concurrently with the merger, the capital stock of the Company held by the Bank will be canceled and the Bank Common Stock held by Bank Shareholders will be converted to Company Common Stock.
TERMS OF THE PLAN OF REORGANIZATION
CONVERSION. At the Effective Time of the Reorganization (defined below), the shares of common stock of the Bank, Merger Co., and the Company, parties to the Plan of Reorganization, shall be converted and exchanged as described herein.
Each share of Bank Common Stock issued and outstanding immediately prior to the Effective Time of the Reorganization will, at the Effective Time of the Reorganization, automatically become and be converted into the right to receive one (1) share of Company Common Stock.
Each share of Merger Co. Common Stock issued and outstanding immediately prior to the Effective Time of the Reorganization will, on and after the Effective Time of the Reorganization, be converted into one (1) share of Bank Common Stock and, as a result, at the Effective Time of the Reorganization, all of the common stock of the Bank will be owned by the Company.
Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time of the Reorganization will, at the Effective Time of the Reorganization, be canceled.
At the Effective Time of the Reorganization, the Bank shareholders will be the shareholders of the Company. As shareholders of the Company, they will have essentially the same rights to govern the Company's activities as they have with respect to the Bank; however, as shareholders of the Company, they will not be entitled to vote on matters requiring the approval of Bank shareholders. Shareholders of the Company will be entitled to vote with respect to matters affecting the Company which will own 100% of the voting rights in the Bank. A discussion of those rights is contained in the section entitled "Comparison of Bank Common Stock and Company Common Stock."
EFFECTIVE TIME OF THE MERGER. The Merger will be effective at the time the Plan of Reorganization is filed in the office of the Secretary of State of California (the "Effective Time of the Reorganization"). The Effective Time of the Reorganization will not occur until (i) all requisite board of directors, shareholders, and regulatory approvals and consents for the merger and the Reorganization are obtained; (ii) the expiration of any applicable waiting periods under the BHC Act and the Bank Merger Act; and (iii) the satisfaction of all of the requirements of law and conditions specified in the Plan of Reorganization or the approvals of regulatory agencies. There is no date by which the Effective Time of the Reorganization must occur.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. The Plan of Reorganization provides that the directors of the Bank immediately prior to the Effective Time of the Reorganization will be directors of the Bank immediately after the Reorganization. Additionally, the officers and other employees of the Bank immediately prior to the Effective Time of the Reorganization will all be employed in substantially the same capacities by the Bank immediately after the Reorganization. Directors and executive officers of the Bank are the beneficial owners of 231,000 shares of Bank Common Stock.
EMPLOYEE BENEFITS. Upon consummation of the Reorganization, the Bank Incentive Plan will be terminated. All grants under Bank Incentive Plan will be converted into the right to receive the grant pursuant to the Company Incentive Plan upon identical terms and conditions, and for an identical exercise price, if any. The Company will assume all of the Bank's obligations with respect to such outstanding grants. The Company Incentive Plan proposes to reserve 1,902,000 shares of Company Common Stock for issuance pursuant to the exercise of options. See "Approval of East West Bancorp, Inc. 1998 Employee Stock Incentive Plan."
All other employee benefits and benefit plans of the Bank in effect immediately prior to the Effective Time of the Reorganization will be unchanged by the Reorganization, except that any plan which refers to Bank Common Stock will, following consummation of the Reorganization, be deemed to refer instead to Company Common Stock and will become the employee benefits and benefit plans solely of the Bank.
CONDITIONS TO THE REORGANIZATION. The obligations of each of the parties to the Plan of Reorganization to consummate the Reorganization are subject to the satisfaction, on or before the Effective Time of the Reorganization, of the following conditions (i) approval of the terms of the Reorganization including the Plan of Reorganization, by the shareholders of the Bank owning at least a majority of the capital stock of the Bank; (ii) approval of the Plan of Reorganization by a majority of the outstanding shares of the Company and Merger Co.; (iii) approval by a majority of the Board of Directors of both the Bank and Merger Co. of the merger; (iv) approval of the Plan of Reorganization by the Company; (v) all consents and approvals prescribed by law, including, without limitation, the approval of the Federal Reserve Board, the FDIC, and the Commissioner, for the consummation of the Reorganization; and (vi) all other requirements prescribed by law which are necessary for the consummation of the Reorganization including, but not limited to, the expiration of any applicable waiting periods under the Bank Merger Act and the BHC Act. The Plan of Reorganization does not provide for an outside closing date for the transactions contemplated herein.
The directors of the Bank, Merger Co., and the Company have unanimously approved the Plan of Reorganization. The Bank, as the sole shareholder of the Company, and the Company, as the sole shareholder of Merger Co., have approved the Plan of Reorganization. The Company has filed an application for prior approval to become a bank holding company pursuant to Section 3(a)(1) of the BHC Act with the Federal Reserve Board and an application to acquire control of the Bank under Section 700 of the California Financial Code with the Commissioner. In addition, the Bank and Merger Co. have filed applications for approval of the merger with the FDIC and the Commissioner. See "The Reorganization - Regulatory Approvals."
TERMINATION OF PLAN OF REORGANIZATION. The Plan of Reorganization may be
terminated before the Effective Time of the Reorganization if (i) the number of
shares voting against the Reorganization is such that the Board of Directors of
the Bank determines that it is inadvisable to consummate the Reorganization;
(ii) any action, consent, or approval, governmental or otherwise, necessary to
permit the Bank to conduct all or any part of the business activities of the
Bank prior to the Effective Time of the Reorganization, shall not have been
obtained; or (iii) for any other reason the consummation of the Reorganization
is inadvisable in the opinion of the Board of Directors of the Bank, Merger Co.,
or the Company. If the holders of a majority of the outstanding shares of Bank
Common Stock fail to approve the Reorganization, or the transaction is otherwise
terminated, as provided above, then the business of the Bank would continue to
operate under the ownership of its existing shareholders.
No assurances can be given as to when or if all conditions will be satisfied.
EXCHANGE OF SHARE CERTIFICATES
As soon as practicable after consummation of the Reorganization, the Company will mail to each holder of record of Bank Common Stock immediately prior to the Effective Time of the Reorganization, a letter of transmittal which is to be used by each such Bank Shareholder to return to the Company the stock certificates representing Bank Common Stock owned by him or her, which certificates should be duly endorsed in blank by such Bank Shareholder. As soon as practicable after receiving such certificates from a Bank Shareholder, together with the duly executed letter of transmittal and any other items specified by the letter of transmittal, the Company will deliver to such Bank Shareholder new certificates evidencing the
appropriate number of shares of Company Common Stock. PLEASE DO NOT SEND YOUR
STOCK CERTIFICATES WITH THE WRITTEN CONSENT.
If the new certificates are to be delivered to a person other than the record holder of the certificates of Bank Common Stock surrendered in exchange therefor (i) the certificate so surrendered must be properly endorsed or accompanied by appropriate stock powers and otherwise be in proper form for transfer; (ii) the transfer must otherwise be proper; and (iii) the person requesting the transfer must pay to the Company any transfer or other taxes payable by reason of the transfer or must establish to the satisfaction of the Company that such taxes have been paid or are not required to be paid.
COSTS OF REORGANIZATION
The costs of the Reorganization to the Company and the Bank are estimated at approximately $130,000. If the Reorganization is consummated, costs of the Reorganization will be assumed and paid, to the extent properly allocated, by the Company and the Bank. In the event the Reorganization is not consummated, such costs as have been incurred, including the cost of organizing the Company and Merger Co., will be assumed and paid by the Bank.
REGULATORY APPROVALS
Federal and California law and regulations provide that certain acquisition transactions, such as the Reorganization, may not be consummated unless approved in advance by applicable regulatory authorities. The Plan of Reorganization provides that the Company, the Bank, and Merger Co. shall proceed expeditiously and cooperate fully in the procurement of any consents and approvals and in the taking of any other action and the satisfaction of all requirements, prescribed by law or otherwise, necessary for consummation of the Reorganization, including the preparation and submission of applications required to be filed with the FDIC, the Commissioner and the Federal Reserve Board. Receipt of all requisite regulatory approvals and consents is a condition precedent to the consummation of the Reorganization.
An application for prior approval of the Company to acquire the Bank was a filed with the Federal Reserve Board on September __, 1998. The Merger Application was filed with the FDIC on September __, 1998. The State Application was filed with the Commissioner on September __, 1998. There can be no assurances that the required approvals will be obtained, or as to conditions or timing of such approvals.
Although neither the Company nor the Bank is aware of any reason why the requisite approvals of and consents to the Reorganization would not be granted, there can be no assurance such approvals and consents will be obtained or that, if obtained, such approvals and consents will not include conditions which would be of a type that would relieve the Company, the Bank, or Merger Co. from their obligation to consummate the Reorganization and Reorganization.
DISSENTING SHAREHOLDERS' RIGHTS
Pursuant to the provisions of California law, shareholders of the Bank will not have dissenting rights in the Reorganization.
ACCOUNTING TREATMENT
Because the Reorganization is a reorganization with no change in ownership interests, the consolidated financial statements of the Company and the consolidated financial statements of the Bank will
retain the former bases of accounting of the Bank and will be presented substantially identical to the Bank's consolidated financial statements prior to the Reorganization.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is limited to certain federal income tax consequences of the proposed Reorganization and does not discuss state, local, or foreign tax consequences or all of the tax consequences that might be relevant to shareholders of the Bank.
The Bank believes that the Reorganization will qualify for federal income tax purposes as tax free reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). This belief is conditioned upon the accuracy of certain assumptions made by the Bank. Neither this summary nor the belief of the Bank is binding on the IRS and no ruling from the IRS or opinion of counsel has been sought or will be sought with respect to such tax consequences. The Bank will terminate the Reorganization if it believes that the Reorganization will result in unfavorable federal income tax consequences.
Based upon the condition that the Reorganization will qualify as a tax free reorganization under the Code, the Bank believes that:
(a) No gain or loss will be recognized by the Bank, Merger Co., or the Company as a result of the Reorganization;
(b) No gain or loss will be recognized by the shareholders of the Bank upon receipt of the Company Common Stock in exchange for their shares of Bank Common Stock pursuant to the Reorganization;
(c) The basis of the Company Common Stock received by the shareholders of the Bank pursuant to the Reorganization will be the same as the basis of the shares of Bank Common Stock surrendered in exchange therefor;
(d) The holding period of the Company Common Stock received by shareholders of the Bank pursuant to the Reorganization will include the holding period of the Bank Common Stock surrendered in exchange therefor, provided that such Bank Common Stock is held as a capital asset on the date of consummation of the Reorganization;
(e) A holder of an outstanding option granted under the Bank Incentive Plan will not recognize income, gain, or loss solely as a result of the exchange of the outstanding option for an identical option issued under the Company Incentive Plan.
(f) The assumption by the Company of outstanding incentive stock benefits granted under the Bank Incentive Plan will not be deemed a modification of the stock incentives under Section 424(h) of the Code.
THE BANK'S SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE REORGANIZATION INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER APPLICABLE TAX LAWS.
RESTRICTIONS ON AFFILIATES
The obligation of the Bank and the Company to consummate the Reorganization is subject to the condition that each person who is an "affiliate" of the Bank for purposes of Rule 144 promulgated under the
Securities Act, execute and deliver a letter to the effect that, among other things; (i) such person will not dispose of any shares of Company Common Stock to be received by such affiliate pursuant to the Plan of Reorganization (a) in violation of the Securities Act or the rules and regulations of the SEC promulgated thereunder (and, accordingly, that any public offering or sale of such shares will require either registration under the Securities Act or compliance with the resale provision of Rule 145 or the availability of another exemption from the registration requirements of the Securities Act), or (b) prior to such time as financial results covering at least 30 days of postmerger combined operations have been published; and (ii) such person consents to the placing of a legend on the certificate evidencing such shares referring to the issuance of such shares in a transaction to which Rule 145 is applicable and to the giving of stop-transfer instructions to the Company's transfer agent with respect to such certificates. For purposes of Rules 144 and 145, affiliates include the Bank's directors and executive officers.
RECOMMENDATIONS
The Bank's Board of Directors has reviewed the Plan of Reorganization and believes that, for the reasons set forth in this Written Consent Statement/Prospectus, the proposed Reorganization, is fair to and in the best interests of the Bank and Bank Shareholders. On September __, 1998, the Bank's Board of Directors unanimously approved the Plan of Reorganization and recommended that the Plan of Reorganization be submitted to Bank Shareholders for their consent. THE BANK'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT BANK STOCKHOLDERS CONSENT TO THE PLAN OF REORGANIZATION.
CAPITALIZATION
If the Reorganization had been consummated and the Company had owned all of the issued and outstanding capital stock of the Bank prior to June 30, 1998, the financial condition and results of operations of the Company and the Bank would have been the same in all material respects as that shown in the Bank's financial statements included in Bank's Consolidated Financial Statements and Notes thereto included with this Prospectus.
The following table sets forth the actual capitalization of the Bank at June 30, 1998, the proposed capitalization of Merger Co. and the Company immediately prior to consummation of the Reorganization, and the pro forma capitalization of the Bank and the Company on a consolidated basis to reflect the consummation of the Reorganization.
Historical Pro Forma Capitalization at June 30, 1998
Capitalization ------------------------------------------------
of the Bank at Consolidated
June 30, 1998 Company Merger Co. Company
---------------- -------------- -------------- --------------
SHAREHOLDERS' EQUITY:
Preferred Stock (1)............. -- -- -- --
Common Stock (2)................ $ 23,775,000 $ 0.10 $100 $ 23,775
Additional Paid-in Capital...... 86,225,408 99.90 -- 109,976,633
Retained Earnings, net.......... 30,224,889 -- -- 30,224,889
Total Shareholders' Equity........ 140,225,297 100 100 140,225,297
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COMPARISON OF THE RIGHTS OF HOLDERS OF COMPANY COMMON STOCK
AND BANK COMMON STOCK
GENERAL
The Bank is a banking corporation organized under the laws of the State of California, and the rights of Bank Shareholders are governed by the California Financial Code, the California Corporations Code (the "Corporations Code"), the Articles of Incorporation of the Bank (the "Bank Articles"), and the bylaws of the Bank (the "Bank Bylaws"). Upon consummation of the Reorganization, the Bank Shareholders will become shareholders of the Company ("Company Shareholders"). The Company is a corporation organized under the laws of the State of Delaware, and the rights of Company Shareholders are governed by the Delaware General Corporation Law, other applicable Delaware statutes, the Certificate of Incorporation of the Company (the "Company Certificate"), and the bylaws of the Company (the "Company Bylaws").
DESCRIPTION OF CAPITAL STOCK
BANK COMMON STOCK. The Bank is authorized by its Articles of Incorporation, as amended, to issue 50,000,000 shares of Bank Common Stock, stated value $1.00 per share. At June 30, 1998, 23,775,000 shares of Bank Common Stock were issued and outstanding. Holders of Bank Common Stock are entitled to one vote, in person or by proxy, for each share of Bank Common Stock held of record in the shareholder's name on the books of the Bank as of the record date on any matter submitted to the vote of the shareholders, except that in connection with the election of directors, the shares may be voted cumulatively. Cumulative voting entitles a shareholder the right to vote the number of shares he or she owns, multiplied by the number of directors to be elected. This total number of votes may be cast for one candidate or may be distributed on the same principle among as many candidates as the shareholder desires.
Each share of Bank Common Stock has the same rights, privileges and preferences as every other share and will share equally in the Bank's net assets upon liquidation or dissolution. The Bank Common Stock has no preemptive, conversion, or redemption rights or sinking fund provisions.
California law prohibits a California state-chartered bank from lending on the security of its own stock.
Shareholders are entitled to dividends when, as and if declared by the Bank's Board of Directors out of funds legally available therefor subject to certain restrictions on payment of dividends imposed by the California Financial Code and other applicable regulatory limitations.
COMPANY COMMON STOCK. The Company is authorized by the Company Certificate to issue 50,000,000 shares of Company Common Stock, par value $0.001 per share, and 5,000,000 shares of Company Preferred Stock, par value $0.001 per share. As of the date hereof, 100 shares of Company Common Stock were issued and outstanding and owned of record by the Bank. Holders of Company Common Stock are entitled to one vote, in person or by proxy, for each share of Company Common Stock held of record in the shareholder's name on the books of the Company as of the record date on any matter submitted to the vote of the shareholders. Company Shareholders have no right to cumulate their votes in the election of directors.
The Company Certificate provides that the Board of Directors is divided into three classes, each of which contains approximately one-third of the whole number of the members of the Board. The members of each class are elected for a term of three years, with the terms of office of all members of one class expiring each year so that approximately one-third of the total number of directors is elected each year. The Company Certificate also provides that any vacancy occurring in the Board, including a vacancy created by an increase in the number of directors, shall be filled by a vote of two-thirds of the directors then in office and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires. The classified Board is intended to provide for continuity of the Board of Directors and may have the effect of making it more difficult and time consuming for a stockholder group to fully use its voting power to gain control of the Board of Directors without consent of the incumbent Board of Directors of the Company.
The Company Certificate also requires the approval of the holders of at least two-thirds of the Company's outstanding shares of voting stock to approve certain "Business Combinations" (as defined therein) involving a "Interested Stockholder" (as defined therein) except in cases where the proposed transaction has been approved in advance by two-thirds of those members of the Company's Board of Directors who are unaffiliated with the Interested Stockholder and were directors prior to the time when the person became an Interested Stockholder. The term "Interested Stockholder" is defined to include any
individual, corporation, partnership, or other person or entity which, together with its "Affiliates" and "Associates" (as defined therein), beneficially owns in the aggregate ten percent (10%) or more of the outstanding shares of voting stock of the Company, and any Affiliate or Associate of any such individual, corporation, partnership, or other person or entity. This provision of the Company Certificate applies to any "Business Combination," which is defined to include: (i) any merger or consolidation of the Company or any of its subsidiaries with or into any Interested Stockholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in one transaction or in a series of related transactions) to any Interested Stockholder of assets of the Company or any subsidiary having a fair market value of $1 million or more; (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interest Stockholder or any Associate or Affiliate thereof; and (iv) any reclassification of securities (including any reverse stock split) or recapitalization, or any merger or consolidation of the Company with any of its subsidiaries or any similar transaction, which has the effect of increasing the percentage of the outstanding shares of the Company which are directly or indirectly owned by an Interested Stockholder or any Associate or Affiliate thereof.
Under Delaware law, absent this provision, business combinations, including mergers, consolidations, and sales of substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of a majority of the outstanding shares of common stock of the Company and any other affected class of stock. The increased stockholder vote required to approve a business combination may have the effect of foreclosing mergers and other business combinations which a majority of stockholders deem desirable and place the power to prevent such a merger or combination in the hands of a minority of stockholders.
Each share of Company Common Stock has the same rights, privileges, and preferences as every other share and will share equally with every other share of Company Common Stock in the Company's net assets upon liquidation of dissolution. Company Common Stock will have no preemptive, conversion, or redemption rights or sinking fund provisions and all of the issued and outstanding shares of Company Common Stock, when issued, will be fully paid and nonassessable. The Company Certificate also provides that amendments to the Company Certificate must be approved by a majority vote of its Board of Directors and also by a majority of the outstanding shares of its voting stock, provided, however, that under certain circumstances, an affirmative vote of at least two-thirds of the outstanding voting stock entitled to vote is required to amend or repeal certain provisions of the Company Certificate, including the provisions relating to approval of certain business combinations, the number and classification of directors, director and officer indemnification by the Company, limitation of liability; and amendment of the Company's Bylaws and Certificate of Incorporation.
Shareholders are entitled to dividends when, as and if declared by the Company's Board of Directors out of funds legally available therefor (and after satisfaction of the prior rights of holders of outstanding preferred stock, if any) subject to certain restrictions on payment of dividends imposed by the Delaware General Corporation Law.
WARRANTS. The Bank issued Warrants to Friedman, Billings, Ramsey & Co., Inc. (the "Placement Agent") in connection with the sale of the Bank's outstanding shares by its former shareholders (the "Offering"). The Warrants permit the Placement Agent to purchase 475,500 shares of Bank Common Stock, which is equal to 2.0% of the Bank Common Stock sold in the Offering. The Warrants are exercisable for a five-year period commencing June 12, 1998, at an exercise price of $10.00 per share. The shares of Bank Common Stock underlying the Warrants are subject to the provisions of the Registration Rights Agreement between the Company, the Placement Agent, and the investors in the Offering.
The Warrants contain anti-dilution provisions providing for appropriate adjustments of the exercise price and the number of underlying shares of Bank Common Stock which may be purchased upon exercise in the event of any recapitalization, reclassification, stock dividend, stock split or similar transaction, including the Reorganization. The Warrants do not entitle the Placement Agent to any rights as a stockholder of the Bank unless and until the Warrants are exercised and the underlying shares of Bank Common Stock are purchased thereunder.
If the Reorganization is approved, the Warrants held by the Placement Agent will be exercisable for an equivalent number of shares of Company Common Stock.
CLASSIFICATION OF BOARD OF DIRECTORS
The Bank Articles do not permit the Bank's Board of Directors to be divided into classes with any class having a term of office of longer than one year. Each director of the Bank must be elected annually. However, the Company Certificate and Bylaws provide for its Board of Directors to be divided into classes with each class having a term of three years.
DIVIDEND RESTRICTIONS
Because the Bank is a state-charted bank, its ability to pay dividends or make distributions to its shareholders is subject to restrictions set forth in the California Financial Code. The California Financial Code restricts the amount available for cash dividends by state-chartered banks to the lesser of retained earnings or the bank's net income for its last three fiscal years (less any distributions to stockholders made during such period). In the event a bank has no retained earnings or net income for its last three fiscal years, cash dividends may be paid in an amount not exceeding the net income for such bank's last preceding fiscal year only after obtaining the prior approval of the Commissioner. The Commissioner may order the bank to refrain from making a proposed distribution if the making of the distribution by the bank would be unsafe or unsound.
The Company's ability to pay cash dividends is limited by the provisions of Delaware law, which permits the payment of dividends from surplus or, if no surplus exists, from net profits for the fiscal year in which the dividend is declared and the preceding fiscal year. However, if the Company were determined to be a quasi-California corporation as defined pursuant to Section 2115 of the California General Corporation Law ("CGCL"), different and more restrictive limitations on the payment of dividends would apply.
Pursuant to Section 2115 of the CGCL under certain circumstances, certain provisions of the CGCL may be applied to foreign corporations qualified to do business in California notwithstanding the law of the jurisdiction where the corporation is incorporated. Such a corporation is referred to as a "quasi- California" corporation. The Company has qualified to do business in the State of California. Section 2115 is applicable to foreign corporations which have more than half of their stockholders of record residing in California and more than half of their business deriving from California. Initially, the Company's sole business will be managing its investment in its wholly-owned subsidiary, the Bank, which has substantially all of its property, employees, and operations in California. However, as of the Record Date, more than half of the Company's stockholders of record did not reside in California. Following the consummation of the Reorganization, the Company expects that the Company Common Stock will be held by more stockholders of record located both within and without California. If the Company were determined to be a quasi-California corporation, it would have to comply with California law with respect to, among other things, distributions to stockholders. Under the CGCL, a corporation is prohibited from paying dividends unless (i) the retained earnings of the corporation immediately prior to the distribution
exceeds the amount of the distribution; (ii) the assets of the corporation exceed 1-1/4 times its liabilities; or (iii) the current assets of the corporation exceed its current liabilities, but if the average pre-tax net earnings of the corporation before interest expense for the two years preceding the distribution was less than the average interest expense of the corporation for those years, the current assets of the corporation must exceed 1-1/4 times its current liabilities. There can be no assurance that stockholders of record that reside outside California will continue to make up a majority of the stockholders of the Company or the Company will continue to qualify for an exemption from the application of the CGCL.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
The following discussion is a summary of certain provisions of California and Federal law and regulations and Delaware corporate law, as well as the Certificate of Incorporation and Bylaws of the Company, relating to stock ownership and transfers, the Board of Directors, and business combinations, all of which may be deemed to have "anti-takeover" effects. The description of these provisions is necessarily general and reference should be made to the actual law and regulations and to the Certificate of Incorporation and Bylaws of the Company.
CALIFORNIA AND FEDERAL BANKING LAW
Federal law prohibits a person or group of persons "acting in concert" from acquiring "control" of a bank holding company unless the Federal Reserve Board has been given 60 days prior written notice of such proposed acquisition and within that time period the Federal Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period if the Federal Reserve Board issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of more than 10% of a class of voting stock of a bank with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (such as the Common Stock), would, under the circumstances set forth in the presumption, constitute the acquisition of control. In addition, any "company" would be required to obtain the approval of the Federal Reserve Board under the BHC Act, before acquiring 25% (5% in the case of an acquiror that is, or is deemed to be, a bank holding company) or more of the outstanding Company Common Stock, or such lesser number of shares as constitute control.
Under the California Financial Code, no person shall, directly or indirectly, acquire control of a California licensed bank or a bank holding company unless the Commissioner has approved such acquisition of control. A person would be deemed to have acquired control of the Company under this state law if such person, directly or indirectly, has the power (i) to vote 25% or more of the voting power of the Company or (ii) to direct or cause the direction of the management and policies of the Company. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of the Common Stock would be presumed to control the Company.
ANTI-TAKEOVER PROVISIONS IN COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Although the Boards of Directors of the Bank and the Company are not aware of any effort that might be made to obtain control of the Company after the Reorganization, the Boards of Directors, as discussed below, believe it is appropriate to include certain provisions in the Company's Certificate of Incorporation to protect the interests of the Company and its stockholders from takeovers which the Board of Directors of the Company might conclude are not in the best interests of the Bank, the Company, or the Company's stockholders.
The following discussion is a general summary of certain material provisions of the Company's Certificate of Incorporation and Bylaws and certain other regulatory provisions, which may be deemed to have an "anti-takeover" effect. The following description of certain of these provisions is necessarily general and, with respect to provisions contained in the Company's Certificate of Incorporation and Bylaws, reference should be made in to the document in question, which are part of the Registration Statement filed with the SEC.
ELECTION OF DIRECTORS. Certain provisions of the Company Certificate and Bylaws will impede changes in majority control of the Board of Directors. The Company Certificate provides that the Board of Directors of the Company will be divided into three classes, with directors in each class elected for three-year staggered terms except for the initial directors. Thus, it would take two annual elections to replace a majority of the Company's Board. The Company Certificate provides that the size of the Board of Directors may be increased or decreased only if two-thirds of the directors then in office concur in such action. The Certificate of Incorporation also provides that any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled for the remainder of the unexpired term by a majority vote of the directors then in office. Finally, the Company Certificate and the Bylaws impose certain notice and information requirements in connection with the nomination by stockholders of candidates for election to the Board of Directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders.
The Company Certificate provides that a member of the Board of Directors of the Company may be removed for cause by the affirmative vote of at least a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. In addition, a member of the Board of Directors of the Company may be removed without cause by the affirmative vote of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose.
ABSENCE OF CUMULATIVE VOTING. The Company's Certificate of Incorporation provides that there shall be no cumulative voting rights in the election of directors.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the issuance of 50,000,000 shares of Company Common Stock and 5,000,000 shares of Company Preferred Stock. The shares of Company Common Stock and Company Preferred Stock were authorized in an amount greater than that to be issued in the Reorganization to provide the Company's Board of Directors with as much flexibility as possible to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may also be used by the Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of the Company. The Board of Directors also has sole authority to determine the terms of any one or more series of Company Preferred Stock, including voting rights, conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for a series of Company Preferred Stock, the Board has the power, to the extent consistent with its fiduciary duty, to issue a series of Company Preferred Stock to persons friendly to management in order to attempt to block a post-tender offer merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. The Company's Board currently has no plans for the issuance of additional shares, other than the issuance of additional shares upon exercise of stock options.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The Certificate of Incorporation requires the affirmative vote of at least two-thirds of the voting power of all outstanding shares of the Company
regardless of class and voting together as a single voting class in order for the Company to engage in or enter into certain Business Combinations.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the Company's Certificate of Incorporation must be approved by the Company's Board of Directors. In addition, amendments must be approved by a majority of the outstanding shares of the Company's voting stock, provided, however, that approval by at least two-thirds of the outstanding voting stock is required for certain provisions (i.e., provisions relating to the number, classification, election and removal of directors; amendment of Bylaws; call of special stockholder meetings; director liability; certain business combinations; power of indemnification; and amendments to provisions relating to the foregoing in the Certificate of Incorporation) in certain situations.
The Bylaws may be amended by a majority vote of the Board of Directors or the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Company entitled to vote in the election of Directors cast at a meeting called for that purpose.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE COMPANY CERTIFICATE AND BYLAWS. The Boards of Directors of the Bank and the Company believe that the provisions described above are prudent and will reduce the Company's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by the Board of Directors of the Company. The Boards of Directors believe these provisions are in the best interests of the Bank and of the Company and its stockholders. In the judgment of the Board of Directors, the Company's Board will be in the best position to determine the true value of the Company and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, the Board of Directors believes that it is in the best interests of the Company and its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors of the Company and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of the Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at prices reflective of the true value of the Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies have become increasingly common. Takeover attempts which have not been negotiated with and approved by the Board of Directors present to stockholders the risk of a takeover on terms which may be less favorable than might otherwise be available. A transaction which is negotiated and approved by the Board of Directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value for the Company and its stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of the Company's assets.
EFFECT OF TAKEOVER DEFENSES ON STOCKHOLDER INTERESTS. An unsolicited takeover proposal can seriously disrupt the business and management of a corporation and cause it great expense. Although a tender offer or other takeover attempt may be made at a price substantially above the current market prices, such offers are sometimes made for less than all of the outstanding shares of a target company. As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining stockholders.
POTENTIAL NEGATIVE IMPACT OF TAKEOVER DEFENSES ON STOCKHOLDER INTERESTS. Despite the belief of the Bank and the Company as to the benefits to stockholders of these provisions of the Company Certificate and Bylaws, these provisions may also have the effect of discouraging a future takeover attempt which would not be approved by the Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then-current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also render the removal of the Company's Board of Directors and of management more difficult. The Boards of Directors of the Bank and the Company, however, have concluded that the potential benefits outweigh the possible disadvantages.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE BANK
The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition of the Bank and the results of its operations. This discussion and analysis should be read in conjunction with the Bank's audited and unaudited consolidated financial statements and the notes thereto included elsewhere in this report.
GENERAL
The Company has only recently been formed and, accordingly, has no results of operations at this time. As a result, the following discussion principally reflects the operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income, which is the difference between the interest income earned on its assets, primarily loans and investments, and the interest expense on its liabilities, primarily deposits and borrowings. Net interest income may be affected significantly by general economic and competitive conditions and policies of regulatory agencies, particularly those with respect to market interest rates. The results of operations are also significantly influenced by the level of non-interest expenses, such as employee salaries and benefits, non-interest income, such as fees on deposit-related services, and the Bank's provision for loan losses.
Through its network of 22 retail branches, the Bank provides a wide range of personal and commercial banking services to small and medium-sized businesses, business executives, professionals and other individuals. The Bank offers multilingual services to all of its customers in English, Spanish, Cantonese and Mandarin. The Bank offers a variety of deposit products which includes the traditional range of personal and business checking and savings accounts, time deposits and individual retirement accounts, travelers' checks, safe deposit boxes, and Master Card and Visa merchant deposit services.
OPERATING STRATEGY
The Bank's strategy is to become the premier commercial bank in California serving the unique personal and business banking needs of customers engaged in business or having family ties with or origins from the Asia Pacific region with experienced personnel having language capability and cultural sensitivity appropriate for the region. The Bank intends to implement this strategy through the following principal measures which have been initiated in recent years:
CONVERSION TO COMMERCIAL BANK. The Bank intends to continue the process of converting its business, operations, and culture to that of a commercial bank from that of a traditional savings and loan association. Until its conversion to a commercial bank in 1995, the Bank had focused on the commercial banking needs of its customers within the limits of a federal savings bank charter and traditional savings and loan culture and capacity. In July 1995, the Bank converted its federal savings bank charter to a California commercial bank charter. In addition to this legal conversion, the Bank also identified necessary enhancements to its information and operating systems, policies, and procedures, as well as the appropriate personnel necessary for the Bank to operate as a commercial bank. The Bank also restructured its balance
sheet to reduce interest rate risk and implemented a new marketing strategy emphasizing commercial real estate loans, trade finance, and the generation of lower cost demand deposits.
ENHANCED MANAGEMENT. As part of its strategy to become a full-service commercial bank, the Bank added several experienced commercial bankers to its senior management team with in-depth knowledge of the business practices and cultures of the Asia Pacific region. Since 1995, the Bank has added officers at the level of Senior Vice President or above with division or departmental responsibility in the areas of Commercial Lending, Commercial Services, International Banking, Legal, and Retail Banking. It is likely that additional experienced officers will be added as management deems necessary to fully implement the Bank's strategy.
BALANCE SHEET RESTRUCTURING. Since commencing business in 1973, the Bank has largely engaged in a traditional savings and loan business. This has meant making predominately long-term residential and multi-family real estate loans primarily with adjustable rates tied to the Eleventh District Cost of Funds Index ("COFI"). COFI-based loans, which tend to respond more slowly to changes in interest rates, are funded by short-duration, interest-bearing liabilities. In an effort to reduce its interest-rate risk as well as to enhance the Bank's operating results, the Bank has taken the following steps in recent years:
. Selling COFI-based loans and replacing them with commercial and other loans the interest rates of which respond more quickly to changes in interest rates as compared to COFI-based loans.
. Ceased the origination of COFI-based single-family residential mortgage loans for the Bank's portfolio. Substantially all new COFI- based and fixed-rate single-family residential loans are sold into the secondary market.
. Commenced a policy of emphasizing the origination and purchase of commercial real estate, multi-family real estate, and commercial business loans.
. Provided for the swap of fixed interest rates on commercial real estate loans to floating rates based on the London Interbank Borrowing Rate ("LIBOR").
. Increased the volume of non-interest bearing demand deposits.
This strategy, coupled with the Bank's emphasis on increasing its commercial loan portfolio, has resulted in a balance sheet which is substantially more reflective of a commercial bank.
ASSET/LIABILITY MANAGEMENT
Asset/liability management is concerned with the timing and magnitude of the repricing of assets and liabilities. It is the objective of the Bank to manage risks associated with interest rate movements. In general, management's strategy is to maximize net interest income and net portfolio value ("NPV") while maintaining an acceptable level of risk to changes in interest rates. NPV is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. The Bank's asset/liability management strategy is formulated and monitored by the Asset/Liability Committee which meets regularly to review, among other things, the sensitivity of the Bank's assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses on its available- for-sale portfolio (including those attributable to hedging transactions), purchase and securitization activity, and maturities of investments and borrowings. The Asset/Liability Committee coordinates with the Bank's Board of Directors to monitor its overall asset and liability composition.
The Asset/Liability Committee is authorized to utilize a wide variety of off-balance sheet financial techniques to assist them in the management of interest rate risk. Derivative positions are integral components of the Bank's asset/liability management strategy. Therefore, the Bank does not believe it is meaningful to separately analyze the derivatives components of its risk management activities in isolation from their related positions.
The Bank utilizes derivative instruments, primarily interest rate swap and cap agreements, as part of its management of asset and liability positions in connection with its overall goal of minimizing the impact of interest rate fluctuations on the Bank's net interest margin or its stockholder's equity. Derivatives are used as hedges against market fluctuations in the Bank's available-for-sale securities portfolio and to effectively convert certain fixed rate commercial real estate loans to floating rate assets. These contracts are entered into for purposes of reducing the Bank's interest rate risk and not for trading purposes. As of June 30, 1998, all interest rate swaps were designated for purposes of converting fixed rate loans to floating rate and interest rate cap agreements were designated as hedges against certain securities in the available-for-sale portfolio.
The Asset/Liability Committee regularly reviews the Bank's interest rate risk exposure. Because most of the Bank's assets and liabilities reprice relatively frequently, interest rate risk analyses focus primarily on net interest income and NPV exposure in numerous interest rate environments. The Asset/Liability Committee utilizes the analyses to forecast the impact of alternative interest rate environment scenarios on NPV, and evaluate such impacts against the maximum potential changes in NPV that is authorized by the Board of Directors. Emphasis is placed on interest rate risk exposure assuming a 200 basis point shift, up or down, because this is considered to be within the range of probable alternative interest rate scenarios.
The following table highlights the interest rate sensitivity of the Bank's NPV based on changes in interest rates from zero to plus or minus 400 basis points as of June 30, 1998:
INTEREST RATE SENSITIVITY OF THE BANK'S NET PORTFOLIO VALUE
NET PORTFOLIO VALUE
CHANGE IN RATE AMOUNT $CHANGE %CHANGE
-------------------- ------------- ------------- -------------
(Dollars in thousands)
+400 bp........................................... $155,212 $(32,207) (17)%
+300 bp........................................... 170,005 (17,414) (10)
+200 bp........................................... 183,396 (4,023) (2)
+100 bp........................................... 186,938 (481) 0
0 bp........................................... 187,419 -- --
-100 bp........................................... 180,990 (6,429) (3)
-200 bp........................................... 169,142 (18,277) (10)
-300 bp........................................... 157,293 (30,126) (16)
-400 bp........................................... 146,835 (40,584) (22)
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The preceding table indicates that at June 30, 1998, in the event of a sudden and sustained increase or decrease in prevailing interest rates, the Bank's NPV would be expected to decrease. This is primarily due to the negative convexity of the Bank's mortgage-related loans and investment securities, compounded by the utilization of FHLB advances with quarterly call features. At June 30, 1998, the Bank's estimated changes in NPV were within the ranges established by the Board of Directors.
The calculation is based on the net present value of estimated discounted cash flows utilizing prepayment assumptions and market rates of interest provided by independent broker/dealer quotations, an independent broker/dealer pricing model and other public sources as of June 30, 1998, with adjustments made to reflect the shift in the Treasury and other appropriate yield curves.
Bank management believes that the assumptions (including pre-payment assumptions) utilized to evaluate the vulnerability of the Bank's operations to changes in interest rates approximate actual experience and considers them reasonable. However, the interest rate sensitivity of the Bank's assets and liabilities and the estimated effects of changes in interest rates on the Bank's NPV could vary substantially if different assumptions were used or actual experience differs from the historical experience on which they are based. Even if interest rates change in the designated amounts, there can be no assurance that the Bank's assets and liabilities would perform as set forth above. Further, the computations do not contemplate any actions the Asset/Liability Committee could undertake in response to changes in interest rates.
AVERAGE BALANCE SHEET. The following tables set forth for the periods indicated information regarding the total dollar amounts of interest income from interest-earning assets and the resulting average yields, the total dollar amount of interest expense on interest-bearing liabilities and the resulting average costs, net interest income, and the net yield on interest-earning assets.
Six Months Ended June 30,
----------------------------------------
1998
----------------------------------------
Average Volume Interest Yield (1)
-------------- -------- ---------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Short-term investments................................. $ 247,825 $ 7,248 5.85%
Investment securities (2)(3)........................... 373,930 10,193 5.45
Loans receivable, net (2)(4)........................... 977,753 41,139 8.42
FHLB stock............................................. 14,788 417 5.64
---------- -------
Total interest-earning assets........................ 1,614,296 58,997 7.31
------- ----
Noninterest-earning assets:
Cash and due from banks.............................. 22,941
Allowance for loan losses............................ (12,966)
Other assets......................................... 56,200
==========
Total assets...................................... $1,680,471
==========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
NOW accounts........................................... $ 77,148 566 1.47
Money market accounts.................................. 23,339 446 3.82
Savings deposits....................................... 208,983 2,603 2.49
Time deposits.......................................... 852,428 21,450 5.03
Short-term borrowings.................................. 123,956 3,507 5.66
FHLB advances.......................................... 175,028 4,774 5.46
---------- -------
Total interest-bearing liabilities................... 1,460,882 33,346 4.57
------- ----
Noninterest-bearing liabilities:
Demand deposits........................................ 70,023
Other liabilities...................................... 13,818
Stockholders' equity.................................... 135,748
----------
Total liabilities and stockholders' equity............. $1,680,471
==========
Interest rate spread (5)................................. 2.74%
====
Net interest income and net interest margin (6).......... $25,651 3.18%
======= ====
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Six Months Ended June 30,
----------------------------------------
1997
----------------------------------------
Average Volume Interest Yield (1)
-------------- -------- ---------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Short-term investments................................. $ 222,674 $ 6,354 5.71%
Investment securities (2)(3)........................... 386,975 10,996 5.68
Loans receivable, net (2)(4)........................... 874,508 34,123 7.80
FHLB stock............................................. 10,263 312 6.08
---------- -------
Total interest-earning assets........................ 1,494,420 51,785 6.93
------- ----
Noninterest-earning assets:
Cash and due from banks.............................. 20,257
Allowance for loan losses............................ (10,583)
Other assets......................................... 30,152
----------
Total assets...................................... $1,534,246
==========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
NOW accounts........................................... $ 75,394 533 1.41
Money market accounts.................................. 16,744 285 3.40
Savings deposits....................................... 213,320 2,577 2.42
Time deposits.......................................... 808,160 20,077 4.97
Short-term borrowings.................................. 190,982 5,286 5.54
FHLB advances.......................................... 49,751 1,381 5.55
---------- -------
Total interest-bearing liabilities................... 1,354,351 30,139 4.45
------- ----
Noninterest-bearing liabilities:
Demand deposits........................................ 50,225
Other liabilities...................................... 11,001
Stockholders' equity.................................... 118,669
----------
Total liabilities and stockholders' equity............. $1,534,246
==========
Interest rate spread (5)................................. 2.48%
====
Net interest income and net interest margin (6).......... $21,646 2.90%
======= ====
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(1) Annualized.
(2) Includes amortization of premiums and accretion of discounts on loans
receivable and investment securities. Also includes the amortization of
deferred loan fees.
(3) Average balances exclude unrealized gains or losses on available for sale
securities.
(4) Average balances include nonperforming loans and are net of discounts and
deferred loan fees.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of interest-
bearing liabilities.
(6) Net interest margin represents net interest income as a percent of average
interest-earning assets.
Year Ended December 31,
----------------------------------------------------------------------
1997 1996
------------------------------------ -------------------------------
Average Average
Volume Interest Yield Volume Interest Yield
---------------- -------- ------ ----------- -------- ------
(Dollars in thousands)
ASSETS
Interest-earning assets:
Short-term investments.................. $ 212,536 $ 12,409 5.84% $ 193,439 $10,880 5.62%
Investment securities (1)(2)............ 385,965 21,455 5.56 381,361 22,696 5.95
Loans receivable, net (1)(3)............ 915,202 72,577 7.93 819,868 62,706 7.65
FHLB stock.............................. 10,764 651 6.05 9,811 594 6.05
---------- -------- ---------- -------
Total interest-earning assets......... 1,524,467 107,092 7.03 1,404,479 96,876 6.90
-------- ---- ------- -----
Noninterest-earning assets:
Cash and due from banks............... 18,618 18,467
Allowance for loan losses............. (11,172) (9,021)
Other assets.......................... 38,110 34,908
---------- ----------
Total assets....................... $1,570,023 $1,448,833
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
NOW accounts............................ 78,209 1,173 1.50 76,093 1,070 1.41
Money market accounts................... 17,565 622 3.54 12,834 402 3.13
Savings deposits........................ 211,619 5,192 2.45 213,637 5,078 2.38
Time deposits........................... 818,317 41,407 5.06 839,938 43,166 5.14
Short-term borrowings................... 157,054 8,811 5.61 79,492 4,382 5.51
FHLB advances........................... 95,450 5,441 5.70 56,451 3,170 5.62
---------- -------- ---------- -------
Total interest-bearing liabilities.... 1,378,214 62,646 4.55 1,278,445 57,268 4.48
-------- ---- ------- -----
Noninterest-bearing liabilities:
Demand deposits......................... 56,202 37,951
Other liabilities....................... 11,973 14,204
Stockholders' equity..................... 123,634 118,233
---------- ----------
Total liabilities and stockholders' $1,570,023 $1,448,833
equity................................. ========== ==========
Interest rate spread (4).................. 2.48% 2.42%
==== =====
Net interest income and net interest
margin (5).............................. $ 44,446 2.92% $39,608 2.82%
======== ==== ======= =====
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Year Ended December 31,
------------------------------
1995
------------------------------
Average
Volume Interest Yield
---------- -------- -----
(Dollars in Thousands)
ASSETS
Interest-earning assets:
Short-term investments.................. $ 56,266 $ 3,311 5.88%
Investment securities (1)(2)............ 375,462 21,931 5.84
Loans receivable, net (1)(3)............ 814,970 59,648 7.32
FHLB stock.............................. 9,261 465 5.02
---------- -------
Total interest-earning assets......... 1,255,959 85,355 6.80
------- ----
Noninterest-earning assets:
Cash and due from banks............... 17,590
Allowance for loan losses............. (11,117)
Other assets.......................... 41,227
----------
Total assets....................... $1,303,659
==========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing liabilities:
NOW accounts............................ 76,105 1,110 1.46
Money market accounts................... 6,619 284 4.29
Savings deposits........................ 218,436 4,823 2.21
Time deposits........................... 777,798 42,543 5.47
Short-term borrowings................... 41,716 2,290 5.49
FHLB advances........................... 59,846 3,326 5.56
---------- -------
Total interest-bearing liabilities.... 1,180,520 54,376 4.61
------- ----
Noninterest-bearing liabilities:
Demand deposits......................... 21,245
Other liabilities....................... 9,765
Stockholders' equity..................... 92,129
----------
Total liabilities and stockholders' $1,303,659
equity................................. ==========
Interest rate spread (4).................. 2.19%
====
Net interest income and net interest
margin (5).............................. $30,979 2.47%
======= ====
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RATE/VOLUME ANALYSIS. Changes in net interest income are attributable to three factors: (1) a change in the volume of an interest-earning asset or interest-bearing liability, (2) a change in interest rates, or (3) a change attributable to a combination of changes in volume and rate. The following table sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated. For each category of interest- earning asset and interest-bearing liability, information is provided on changes attributable to (a) changes in volume (changes in volume multiplied by the old interest rate); and (b) changes in rates (changes in interest rates multiplied by the old average volume).
Six Months Ended June 30, Year Ended December 31,
1998 vs. 1997 1997 vs. 1996 1996 vs. 1995
------------------------- ----------------------------- ------------------------------
Changes Due To
Total Volume Rates Total Changes Due to Total Changes Due to
Change (1) (1) Change Volume (1) Rates (1) Change Volume (1) Rates (1)
------ ------- ----- ------ --------- --------- ------ --------- --------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Short-term investments............ $ 894 $ 718 $ 176 $ 1,529 $ 1,074 $ 455 $ 7,569 $8,072 $ (503)
Investment securities............. (803) (371) (432) (1,241) 274 (1,515) 765 345 421
Loans receivable, net............. 7,016 4,029 2,987 9,871 7,291 2,580 3,058 358 2,700
FHLB stock........................ 105 138 (33) 57 58 (1) 129 28 101
------- ------- ------ ------- ------- ------- ------- ------ -------
Total interest income. $ 7,212 $ 4,513 $2,699 $10,216 $ 8,697 $ 1,519 $11,521 $8,803 $ 2,719
======= ======= ====== ======= ======= ======= ======= ====== =======
INTEREST-BEARING LIABILITIES:
NOW accounts...................... $ 33 $ 12 $ 21 $ 103 $ 30 $ 73 $ (40) $ -- $ (40)
Money market accounts............. 161 112 49 220 148 72 118 267 (149)
Savings deposits.................. 26 (52) 78 114 (48) 162 255 (106) 361
Time deposits..................... 1,373 1,100 273 (1,759) (1,111) (648) 623 3,399 (2,776)
Short term borrowings............. (1,779) (1,855) 76 4,429 4,276 153 2,092 2,074 18
FHLB advances..................... 3,393 3,477 (84) 2,271 2,190 81 (156) (189) 33
------- ------- ------ ------- ------- ------- ------- ------ -------
Total interest expense $ 3,207 $ 2,794 $ 413 $ 5,378 $ 5,484 $ (106) $ 2,892 $5,444 $(2,552)
======= ======= ====== ======= ======= ======= ======= ====== =======
NET CHANGE IN INTEREST $ 4,005 $ 1,719 $2,286 $ 4,838 $ 3,213 $ 1,625 $ 8,629 $3,358 $ 5,271
INCOME.......................... ======= ======= ====== ======= ======= ======= ======= ====== =======
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(1) Changes in interest income/expense not arising from volume or rate variances are allocated proportionately to rate and volume.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets at June 30, 1998 were $1.81 billion, an increase of $74.4 million or 4.3% over December 31, 1997. The increase was primarily due to increases in mortgage-backed securities available for sale of $133.5 million and loans receivable of $34.5 million, which were partially offset by a decline in short-term investments of $103.1 million.
Mortgage-backed securities available for sale increased from $374.8 million as of December 31, 1997 to $508.4 million as of June 30, 1998, reflecting an increase of $133.5 million or 35.6%. This increase is primarily due to the securitization of $35.9 million of COFI-based adjustable rate loans through the Federal National Mortgage Association ("FNMA") and the replacement of short-term investments in favor of higher yielding mortgage-backed securities, which accounted for the decrease in short-term investments over the same period.
Loans receivable at June 30, 1998 totaled $969.4 million, an increase of $34.5 million or 3.7% from December 31, 1997. This is primarily attributable to increases in commercial real estate loans of $61.6 million, construction loans of $11.5 million and commercial loans, including trade finance products, of $11.7 million. Increases in these loan categories are offset in part by a decrease in single family residential loans of $54.7 million, resulting primarily from the securitization of approximately $35.9 million of COFI-based loans through FNMA. These activities are consistent with the Bank's strategy of restructuring its balance sheet to reduce its interest-rate risk exposure as well as to enhance its operating results.
Deposits of $1.2 billion at June 30, 1998, represented an increase of $4.2 million or 0.3% over December 31, 1997. The increase in deposits is related to an increase in non-time deposit accounts of $23.2 million partially offset by a decline in certificates of deposit of $19.0 million. This reflects the Bank's concentrated effort in increasing the volume of low-cost transaction accounts which generate higher fee income than time deposits, which tend to be a more costly source of funds.
Total liabilities at June 30, 1998 amounted to $1.67 billion, an increase of $66.9 million or 4.2% from December 31, 1997. This increase was primarily due to an increase in FHLB advances of $46.0 million and other short-term borrowings of $17.0 million. The increase in FHLB advances and short-term borrowings is primarily due to additional liquidity needed to accommodate the growing cash demands from commercial lending and commercial deposit accounts. From time to time, the Bank is able to obtain more favorable borrowing rates through FHLB advances compared to reverse repurchase agreements using the same collateral (i.e., mortgage-backed securities), which determines the source of funds opted for by the Bank.
During the six months ended June 30, 1998, total nonperforming loans decreased by $6.5 million or 59.8%. The decrease was prompted, to a large extent, by a decline in nonperforming commercial real estate loans of $4.1 million primarily due to the foreclosure of two loans, and nonperforming business loans of $1.8 million. See "Business - Non-Performing Assets."
Stockholders' equity increased $7.7 million or 5.8% during the six months ended June 30, 1998 as a result of net earnings compounded by a net decrease in unrealized losses on available-for-sale securities during the period.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets at December 31, 1997 of $1.73 billion represented an increase of $112.8 million or 7.0% from December 31, 1996. This increase was primarily the result of an increase in cash and cash equivalents
of $55.0 million, loans receivable of $72.2 million, and real estate investments of $14.4 million, partially offset by a decrease in investment securities available for sale of $31.7 million.
Cash and cash equivalents increased $55.0 million or 18.8% due to proceeds generated from sales of investment securities and additional FHLB advances, net of repayments on short-term borrowings and purchases of investment securities.
Investment securities available for sale of $374.8 million as of December 31, 1997 represents a decrease of $31.7 million or 7.8% when compared to the December 31, 1996 balance of $406.5 million. During 1997, the Bank sold investment securities available for sale with total amortized cost of $619.2 million as a result of increasing prepayments prompted by falling interest rates. The Bank recorded net gains on sale of $2.7 million from these transactions. Proceeds from the sale of these securities, along with funds obtained from additional FHLB advances, were used to purchase mortgage-backed securities totaling $628.3 million and treasury securities amounting to $10.0 million. The remaining decrease in investment securities can be attributed to repayments, maturities and redemptions.
Loans receivable at December 31, 1997 of $934.9 million represented an increase of $72.2 million, or 8.4%, from $862.6 million at December 31, 1996. Loans receivable increased primarily as a result of increases in commercial real estate loans of $54.4 million, construction loans of $15.4 million, and business loans of $66.7 million. Collectively, these increases in commercial loan products represent a 46% increase over year-end 1996 balances. Partially offsetting these increases is a decline in single family residential loans of $68.8 million from $425.3 million as of December 31, 1996 to $356.5 million as of December 31, 1997. This decrease in single family loans is primarily due to the securitization and sale of $43.5 million of COFI-based loans to FNMA in December 1997. The decrease in single family loans and the corresponding increases in commercial real estate, construction, and business loans is consistent with the Bank's policy of restructuring its balance sheet to be more reflective of a commercial bank.
Real estate investment amounting to $14.4 million as of December 31, 1997 represents the Bank's investment in six limited partnerships that were formed to develop and operate several apartment complexes designed as high-quality affordable housing for lower income tenants throughout the country. Approximately $17.4 million of federal tax credits are expected to be utilized over the next fifteen years as a result of these investments.
Deposits exhibited an increase of $52.2 million or 4.4% during 1997 primarily due to increases in non-interest bearing demand accounts of $16.7 million and time deposits of $34.5 million. The increase in non-interest bearing demand accounts is due to the increase in new commercial deposits reflecting a growth of 63% when comparing year-end 1996 to year-end 1997. The increase in time deposits is attributed to the growth in public deposits of $59.9 million from $2.6 million as of December 31, 1996 to $62.5 million as of December 31, 1997, partially offset by intentional runoffs on higher rate customer certificates of deposits.
Short-term borrowings decreased from $244.0 million as of December 31, 1996 to $139.0 million as of December 31, 1997. This decrease of $105.0 million or 43.0% represents the replacement of reverse repurchase agreements with 5-year fixed rate FHLB advances as a source of funds, which partially accounts for the $156.0 million or 283.6% increase in FHLB advances over the same period. Mortgage-backed securities that were previously pledged against reverse repurchase agreements are now pledged against these advances. Because these advances have a quarterly call feature which enables the FHLB to call the advances due once per quarter, they are more inexpensive than traditional FHLB advances and provide a stable alternative to short-term borrowings. The remaining $51.0 million increase in FHLB advances from year-end 1996 to year-end 1997 was used to purchase mortgage-backed securities.
Stockholders' equity increased $10.2 million or 8.3% over year-end 1996 due to net earnings offset slightly by unrealized losses on available-for-sale investment securities.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
Total assets at December 31, 1996 of $1.62 billion represented an increase of $250.4 million or 18.3% from $1.37 billion at December 31, 1995. This increase is primarily due to increases in short-term investments of $114.2 million, investment securities of $53.0 million, and loans receivable of $86.2 million.
The increase in short-term investments is largely due to the Bank's overall plan of maintaining liquid assets in anticipation of increased commercial banking activities. During 1996, the Bank carried a higher level of short-term investments to accommodate the cash demands from commercial lending and commercial deposit accounts. The additional liquidity was obtained by pledging available treasury and agency securities against reverse repurchase agreements with various investment banking firms. These reverse repurchase agreements, which had maturities of one month or less, increased from $19.7 million at December 31, 1995 to $244.0 million at December 31, 1996. In addition to providing a source of funds, the Bank's operating results were favorably impacted by the interest spread differential between the short-term investments and the reverse repurchase agreements. For more information on the use of reverse repurchase agreements and other borrowings by the Bank, see "Business - Sources of Funds - Borrowings."
Investment securities available for sale increased $53.0 million or 15.0% from $353.4 million as of December 31, 1995 to $406.5 million as of December 31, 1996. Additional purchases of mortgage-backed securities by the Bank during 1996 were intended to supplement interest income derived from the loan portfolio. Funds used to purchase these securities were obtained from liquidity provided by reverse repurchase agreements and, to a lesser degree, from the maturity of $60 million in treasury securities during 1996, net of $50 million of new treasury securities purchases.
Loans receivable at December 31, 1996 of $862.6 million represented an increase of $86.2 million or 11.1% from $776.5 million at December 31, 1995. Loans receivable increased primarily as a result of the Bank's increased commercial banking activities. Commercial real estate, commercial business, and construction loans, collectively, nearly doubled in 1996 when compared to December 31, 1995 levels. Offsetting the increases in commercial real estate, commercial business, and construction loans, single family residential mortgage lending decreased for a number of reasons. As part of the Bank's ongoing effort to improve its exposure to interest rate risk, approximately $25 million of COFI-based adjustable rate mortgage loans were sold to a third party during December 1996. Because COFI-based loans reprice more slowly than most other index-based adjustable rate loans and because most of the Bank's COFI-based loans were limited to annual or semi-annual adjustments, the Bank's interest rate spreads were compressed in a rising interest rate environment. Therefore, the Bank believes that COFI-based loans represent a higher degree of interest rate risk than loans based on other indices.
Deposits exhibited an increase of $25.4 million or 2.2% during 1996 primarily due to significant increases in money market checking and noninterest- bearing demand accounts. Approximately half of the $19.4 million increase in noninterest-bearing demand accounts is due to an influx of new commercial deposits reflecting a growth of 57% in year-end balances from 1995 to 1996. This is consistent with the increase in the Bank's commercial banking activities.
Stockholders' equity increased $4.1 million or 3.5% over year-end 1996 due to net earnings compounded by unrealized gains on available-for-sale investment securities.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL. Net income for the first six months of June 30, 1998 totaled $6.8 million or $0.29 per share as compared to $5.0 million or $0.21 per share for the same period in 1997. The increase in net income can be attributed primarily to an increase in net interest income of $4.0 million partially offset by increases in the provision for loan losses of $487,000 and noninterest expense of $1.4 million.
NET INTEREST INCOME. Net interest income increased $4.0 million or 18.5% from $21.6 million for the six months ended June 30, 1997, due principally to an increase in interest and dividend income of $7.2 million which was partially offset by an increase of $3.2 million in interest expense.
The increase in interest and dividend income was derived primarily from an increase in the average balance of loans of $103.2 million and an increase in loan yields from 7.80% for the six months ended June 30, 1997 to 8.42% for the six months ended June 30, 1998. Yields increased primarily because of a change in the composition of the loan portfolio whereby lower yielding single family residential mortgage loans were replaced by higher yielding commercial real estate, construction, and business loans consistent with the Bank's increase in commercial banking activities.
Interest expense increased $3.2 million or 10.6% during the first six months of 1998, as compared to the same period in 1997, due primarily to an increase in the average balances of FHLB advances of $125.3 million and time deposits of $44.3 million partially offset by a decrease in the average balance of short-term borrowings of $67.0 million.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the six months ended June 30, 1998 increased $487,000 or 17.2%, as compared to the same period in 1997, due primarily to the increase in gross loans receivable of $105.8 million or 12.0% coupled with a higher proportion of commercial and business loans in the Bank's total loan portfolio compared to single family residential mortgage loans. See "Business - Non-Performing Assets - Allowance for Loan Losses" for a discussion of management's procedures in monitoring the adequacy of the allowance for loan losses.
NONINTEREST INCOME. Noninterest income increased $30,000 or 0.7% to $4.3 million for the six month period ended June 30, 1998. The largest component of noninterest income are fees and service charges which increased $1.2 million due primarily to fees relating to trade finance activities, letters of credit, wire transfer operations, and commercial deposit accounts. Offsetting the increase in fees and service charges is a decline in net gains on sale of securities of $1.1 million.
NONINTEREST EXPENSE. Noninterest expense increased $1.4 million or 9.7% during the six month period ended June 30, 1998 as compared to the same period in 1997. Noninterest expense is principally composed of compensation and employee benefits, occupancy and other operating expenses. Compensation and employee benefits increased $667,000 or 8.4% due to the hiring of additional personnel, as well as the impact of normal salary and cost increases related to existing employees.
Deposit insurance premiums and regulatory assessments increased $343,000 or 428.8% for the six months ended June 30, 1998 compared to the same period in 1997. During 1997, the Bank received a partial refund, amounting to $495,000, of the $7.0 million one-time assessment paid by the Bank in 1996 to recapitalize SAIF. No such adjustments were recorded during the six months ended June 30, 1998.
Occupancy expenses increased $198,000 or 8.8% due to the opening of a new branch office in Cupertino, California which is leased by the Bank, as well as the impact of normal rent adjustments in existing leases.
Expenses related to other real estate owned ("OREO") operations decreased by $360,000 or 218.2% for the six months ended June 30, 1998 compared to the same period in 1997 primarily due to higher rental income collected on OREO properties compounded by a decrease in recorded provisions for OREO losses.
Other operating expenses increased $514,000 or 17.5% for the six months ended June 30, 1998 as compared to the same period in 1997, due primarily to amortization recorded in conjunction with real estate investments purchased by the Bank during the latter half of 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $307,000 or 8.9% during the first six months of 1998 when compared to the same period in 1997, due primarily to the increase in pre-tax earnings which was partially offset by the utilization of tax credits from real estate investments amounting to $837,000. The Bank's effective tax rate was 35.5% and 40.8% for the six months ended June 30, 1998 and 1997, respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL. Net income for the year of December 31, 1997 totaled $11.0 million or $0.46 per share as compared to $3.2 million or $0.13 per share for the year ended December 31, 1996. The increase in net income can be attributed to several factors including increases in net interest and noninterest income during 1997 as well as the payment of a one-time special assessment totaling $7.0 million to recapitalize the SAIF during 1996.
NET INTEREST INCOME. Net interest income increased $4.8 million or 12.2% from $39.6 million for the year ended December 31, 1996, due principally to an increase in interest and dividend income of $10.2 million which was partially offset by an increase of $5.4 million in interest expense.
The increase in interest and dividend income was derived primarily from an increase in the average balance of loans from $819.9 million in fiscal 1996 to $915.2 million in fiscal 1997. The yield on loans also increased from 7.65% to 7.93% for this same period. The increase in loan yield is due in part to the efforts of the Bank to increase the proportion of higher-yielding business and commercial loans in its portfolio compared to single family residential mortgage loans.
Interest expense increased $5.4 million or 9.4% during the year ended December 31, 1997, as compared to the year ended December 31, 1996, due primarily to increases in the average balance of reverse repurchase agreements and FHLB advances of $77.6 million and $39.0 million, respectively. These increases were partially offset by a decrease in the average volume of time deposits of $21.6 million as well as a decrease in the cost these deposits from 5.14% for the year ended December 31, 1996 to 5.06% for the year ended December 31, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended December 31, 1997 increased $1.2 million or 27.1%, as compared to the year ended December 31, 1996. This increase is due primarily to an increase in gross loan balances from $874.9 million at December 31, 1996 to $949.5 million at December 31, 1997, primarily commercial real estate and business loans which are deemed to carry a higher level of credit risk compared to single family residential loans. See "Business - Non-Performing Assets - Allowance for Loan Losses" for a discussion of management's procedures in monitoring the adequacy of the allowance for loan losses.
NONINTEREST INCOME. Noninterest income increased $2.9 million or 52.5% to $8.5 million for the year ended December 31, 1997 from $5.6 million for the year ended December 31, 1996 primarily due to an increase in net gains on sales of securities of $2.7 million compounded by an increase in fees and service
charges of $1.0 million relating to standby letters of credit, wire transfer operations and analysis charges on commercial deposit accounts. Partially offsetting these increases is a decline in other operating income of $314,000 due primarily to gains recorded from the sale of approximately $25 million of COFI-based loans during 1996.
NONINTEREST EXPENSE. Noninterest expense decreased $6.1 million or 17.3% during the year ended December 31, 1997 as compared to the year ended December 31, 1996 primarily due to the payment of the $7.0 million one-time SAIF recapitalization assessment during 1996. Directly correlated to the payment of this assessment, the Bank's annual deposit insurance premium decreased, which to a large extent, accounts for the $2.6 million or 94.6% decrease in deposit insurance premiums and regulatory assessments during the year ended December 1997 when compared to the same period in 1996. As mentioned earlier, the Bank also received a $495,000 partial refund of this special assessment during 1997 which further contributed to the decrease in deposit insurance premiums.
Compensation and employee benefits increased $2.8 million or 22.1% from $12.9 million during the year ended December 31, 1996, primarily due to the hiring of additional personnel as evidenced by the increase in the number of full-time equivalent employees from 329 to 365 as of December 31, 1996 and 1997, respectively. This is compounded by the impact of normal salary and cost increases related to existing employees.
Occupancy expenses increased $536,000 or 13.0% due to the opening of a new branch office in Cupertino, California in September 1997, purchases of various software packages, as well as increases in depreciation and amortization expenses related to premises and equipment.
Expenses from OREO operations decreased $761,000 or 71.7% primarily due to a decrease in recorded provisions for OREO losses of $290,000 compounded by an increase in net gains on sales or OREO properties of $252,000.
Other operating expenses increased $741,000 or 14.9% for the year ended December 31, 1997 as compared to the year ended December 31, 1996, due to several factors including increases in promotional, legal, telephone, bank and item processing charges and other items related to the overall growth of the Bank.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $4.8 million or 194.9% during the year ended December 31, 1997 when compared to the year ended December 31, 1996, primarily due to the increase in pre-tax earnings partially offset by the utilization of tax credits from real estate investments purchased by the Bank during the latter half of 1997. The Bank's effective tax rate was 40.0% and 43.7% for the years ended December 31, 1997 and 1996, respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL. Net income for the year of December 31, 1996 totaled $3.2 million or $0.13 per share as compared to $1.0 million or $0.04 per share for the year ended December 31, 1995. The increase in net income can be attributed to increases in net interest and noninterest income, a decrease in the provision for loan losses, partially offset by increases in noninterest expense and the provision for income taxes.
NET INTEREST INCOME. Net interest income increased $8.6 million or 27.9% from $31.0 million for the year ended December 31, 1995, due principally to an increase in interest and dividend income of $11.5 million which was partially offset by an increase of $2.9 million in interest expense.
The increase in interest and dividend income was derived primarily from the increase in interest on short-term investments from $3.3 million for the year ended December 31, 1995 to $10.9 million for the year ended December 31, 1996, reflecting an increase in the average balance of short-term investments from $56.3 million to $193.4 million at December 31, 1995 and 1996, respectively.
Interest expense increased $2.9 million or 5.3% during the year ended December 31, 1996, as compared to the year ended December 31, 1995, due primarily to increases in the average balance of time deposits of $62.1 million and short-term borrowings of $37.8 million, partially offset by a decrease in the cost of time deposit from 5.47% for the year ended December 31, 995 to 5.14% for the year ended December 31, 1996.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to operations to maintain an allowance for losses at a level that management considers adequate based upon an evaluation of known and inherent risks, historical loss experience, current economic conditions and other relevant factors. See "Business - Non-Performing Assets - Allowance for Loan Losses" for a discussion of management's procedures in monitoring the adequacy of the allowance for loan losses.
The provision for loan losses for the year ended December 31, 1996 decreased $1.8 million or 29.1% to $4.4 million from $6.2 million for the year ended December 31, 1995. The decrease in the provision is due to lower provisions related to the real estate loan portfolio. During the year ended December 31, 1995, net chargeoffs attributed to the single family, multifamily, and commercial real estate loan portfolio totaled $12.1 million compared to $2.9 million for the year ended December 31, 1996.
NONINTEREST INCOME. Noninterest income increased $2.1 million or 59.1% to $5.6 million for the year ended December 31, 1996 from $3.5 million for the year ended December 31, 1995. Approximately $1.4 million of this increase is due to higher fees and service charges collected resulting from the Bank's expanded conduit and correspondent loan programs as well as increased activity in the commercial lending area.
The remaining $700,000 increase is attributed to net gains on sales of mortgage-backed securities of approximately $500,000 during the year ended December 31, 1996 compared to net losses on sales of mortgage-backed securities of $215,000 for the year ended December 31, 1995.
NONINTEREST EXPENSE. Noninterest expense increased $8.5 million or 32.0% during the year ended December 31, 1996 from $26.6 million to $35.1 million for the year ended December 31, 1996. The largest component of noninterest expense was compensation and employee benefits which increased $2.1 million or 19.4% from $10.8 million for the year ended December 31, 1995 to $12.9 million for the year ended December 31, 1996. This increase was primarily due to an increase in the number of full-time equivalent employees from 276 as of December 31, 1995 to 329 as of December 31, 1996, reflecting the expansion of the Bank's business activities, particularly the implementation of a new marketing strategy emphasizing commercial real estate and business loans, trade finance and the generation of lower cost demand deposits. Towards this end, the Bank added several experienced commercial bankers to its senior management team with in- depth knowledge of business practices and cultures of the Asia Pacific region.
Another major contributor to the increase in noninterest expense is the payment of a one-time special assessment imposed on financial institutions to recapitalize the SAIF. During the year ended December 31, 1996, the Bank paid $7.0 million, gross of related tax benefits, towards this special assessment.
Other operating expenses increased by $393,000 or 8.6% for the year ended December 31, 1996 as compared to the year ended December 31, 1995 as a result of marketing, promotion and stationery expenses related to the Bank's conversion from a savings and loan institution to a full-service commercial bank.
Net expenses relating to OREO operations decreased by $1.3 million or 54.3% from $2.3 million for the year ended December 31, 1995 to $1.0 million for the year ended December 31, 1996, partially offsetting the increases in compensation and employee benefits and other operating expenses as well as the payment of the one-time recapitalization assessment. The decrease in net OREO expenses is primarily due to a $1.2 million decrease in the provision for OREO losses from $1.9 million to $702,000 during the year ended December 31, 1995 and 1996, respectively.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $1.8 million or 280.7% during the year ended December 31, 1996 when compared to the year ended December 31, 1995 primarily due to the increase in pre-tax earnings. The Bank's effective tax rate was 43.7% and 38.5% during 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Liquidity is the measurement of the Bank's ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund investments, originate commercial and real estate loans and purchase loan pools and mortgage-backed securities. The Bank's sources of cash include customer deposits, securitizations, net interest income and borrowings under its reverse repurchase financing facilities, federal funds facility, and the FHLB- San Francisco advances. The Bank's liquidity is actively managed on a daily basis and reviewed periodically by the Asset Liability Committee and the Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Bank, including adequate cash flow for off- balance sheet instruments.
At June 30, 1998, the Bank's available borrowing capacity include approximately $170 million in reverse repurchase arrangements with major investment banks, a $30 million fed fund line facility with a correspondent bank and $29 million in unused FHLB advances, which are secured by single-family and multifamily residential loans and investment securities.
The Bank's uses of cash primarily include the funding of commercial and real estate loans and purchases of investment and mortgage-backed securities.
CAPITAL RESOURCES. Capital adequacy is the ability of the Bank to support growth while protecting the interests of depositors and the deposit insurance fund. Bank regulatory agencies have developed certain capital ratio requirements, which are used to assist them in monitoring the safety and soundness of financial institutions. Management continually monitors these capital requirements and believes the Bank to be in compliance with these regulations at June 30, 1998. See also "Business - Regulation - The Bank."
Currently, due to the Bank's high level of capital, utilization of short- term reverse repurchase agreements and repurchase agreements with various primary securities dealers has been transacted to leverage the balance sheet achieving a positive spread with minimal interest rate risk. The actual dollar amount transacted by the Bank will vary depending on a number of factors, including interest spread potential, availability of collateral and management's determination as to the appropriate amount of leverage.
The following table sets forth the Bank's regulatory capital position at June 30, 1998, as compared to the minimum regulatory capital requirements imposed on the Bank and the requirements under the prompt corrective action regulations to be considered a well-capitalized institution.
June 30, 1998
--------------------------------------------------------------------------------------------
Required to be Excess over
Minimum Excess over Well Required to be
Actual Required Minimum Required Capitalized Well Capitalized
------ ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Total Capital (to
Risk-Weighted
Assets).......... $150,542 13.1% $92,046 8.0% $58,496 5.1% $115,058 10.0% $35,484 3.1%
Tier 1 Capital
(to Risk-Weighted
Assets).......... 136,329 11.8 46,023 4.0 90,306 7.8 69,035 6.0 67,294 5.8
Tier 1 Capital
(to Average
Assets).......... 136,329 7.9 69,010 4.0 67,319 3.9 86,262 5.0 50,067 2.9
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IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Bank and the notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting standards, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Bank's operations. Unlike most industrial companies, nearly all of the Bank's assets and liabilities are monetary. As a result, interest rates have a greater impact on the Bank's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. A transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in the exchange. This statement requires that liabilities and derivative securities incurred or obtained by transferors as part of a transfer of financial assets be initially valued at fair value, if practicable. It also requires that servicing rights and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of transfer. Furthermore, SFAS No. 125 requires that debtors reclassify financial assets pledged as collateral, and that secured parties recognize those assets and their obligation to return them in certain circumstances in which the secured party has taken control of those assets. Finally, SFAS No. 125 requires that a liability be eliminated if either: (a) the debtor pays the creditor and is relieved of its obligation for the liability, or (b) the debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. Accordingly, a liability is not considered extinguished by an in-substance defeasance. SFAS No. 125 supersedes SFAS No. 122, "Accounting for Mortgage Servicing Rights," which was adopted by the Bank on January 1, 1997 and which management of the Bank determined had no material impact on the Bank's results of operations or financial position. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127 deferred for one year the effective date of SFAS No. 125 as it relates to transactions involving secured borrowings and collateral and transfers and servicing of financial assets. This Statement also provides additional guidance on these types of transactions. The statements did not have a material impact on the Bank's results of operations or financial position when adopted.
In August 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This statement replaces the presentation of primary earnings per share with a presentation of basic earnings per share. The statement also requires dual presentation of basic and diluted earnings per share by entities with complex capital structures and requires a reconciliation of the numerators and denominators between the two calculations. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The statement did not have a material impact on the Bank's results of operations or financial position when adopted.
In August 1997, FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about capital structure, including pertinent rights and privileges of various securities outstanding. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. The statement did not have a material impact on the Bank's results of operations or financial position when adopted.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This Statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The statement did not have a material impact on the Bank's results of operations or financial position when adopted.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the way that public business enterprises report information about operating segments in both annual financial statements and interim financial reports issued to shareholders. The statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. Management of the Bank does not believe the statement will have a material impact on the Bank's results of operations or financial position when adopted.
In February 1998, the FASB issued SFAS No. 132, "Statement on Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS No. 132 does not change the measurement or recognition of those plans and is effective for fiscal years beginning after December 15, 1997. The statement did not have a material impact on the Bank's results of operations or financial position when adopted.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Management of the Bank has not yet determined whether the adoption of SFAS No. 133 will have a material impact on the Bank's results of operations or financial position when adopted.
BUSINESS
GENERAL
The Company has not yet engaged in any substantial business activity. The Company has filed with the Federal Reserve Board its application for prior approval to become a bank holding company through the acquisition of 100% of the voting shares of the Bank pursuant to the BHC Act. Furthermore, the Company and Merger Co. have filed an application with the FDIC, providing for the merger of Merger Co. with and into the Bank. Upon consummation of the Reorganization, the Company will own all of the outstanding Bank Common Stock and the Bank will become a wholly-owned subsidiary of the Company.
Subject to constraints under the BHC Act, the Company may acquire other financial institutions in the future. During the initial months following the consummation of the Reorganization, the principal business activity of the Company will be to serve as the bank holding company for the Bank. At the present time, the Company has no specific plans to engage in any activities other than acting as a bank holding company for the Bank.
The Bank is the fifth largest commercial bank headquartered in Los Angeles, California as of June 30, 1998, and one of the largest banks in the United States that focuses on the Chinese-American community. Until June 1998, the Bank was wholly-owned by two shareholders.
The Bank was chartered by the Federal Home Loan Bank Board on June 20, 1972, as the first federally-chartered savings institution focused primarily on the Chinese-American community, and opened for business at its first office in the Chinatown district of Los Angeles on January 3, 1973. Until the early 1990's, the Bank conducted a traditional savings and loan business by making predominately long-term, single-family residential and commercial and multi- family real estate loans with interest rates tied to the COFI principally within the ethnic Chinese market in Southern California funded primarily with retail savings deposits and advances from the Federal Home Loan Bank of San Francisco. Currently, the Bank specializes in lending for commercial, construction, and residential real estate projects and financing international trade for California companies as it continues to emphasize commercial lending since its conversion to a state-chartered commercial bank on July 31, 1995.
MARKET AREA AND COMPETITION
The Bank concentrates on marketing its services in the Los Angeles metropolitan area, Orange County, the San Francisco Bay area, and the Silicon Valley area in Santa Clara County, with a particular focus on regions with a high concentration of ethnic Chinese. The ethnic Chinese markets within the Bank's primary market area have experienced rapid growth in recent periods. According to the 1990 Census data, management believes there were an estimated 2.7 million Asian and Pacific Islanders residing in California. As California continues to gain momentum as the hub of the Pacific Rim, the Bank provides important competitive advantages to its customers participating in the Asia Pacific marketplace. Management believes the Bank's customers benefit from its understanding of Asian markets and cultures, its corporate and organizational ties throughout Asia, as well as its international banking products and services. Management believes that this approach, combined with the extensive ties of its management and Board of Directors to the growing Asian and ethnic Chinese communities, provides the Bank with an advantage in competing for customers in its market area.
The banking and financial services industry in California generally, and in the Bank's market areas specifically, are highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Bank competes for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Some of these competitors are larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Bank. The Bank has 22 offices located in the following counties: Los Angeles, Orange, San Francisco and Santa Clara. Neither the deposits nor loans of the offices of the Bank exceed 1% of all financial services companies located in the counties in which the Bank operates.
CURRENT BANKING SERVICES
Through its network of 22 retail branches, the Bank provides a wide range of personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals. The Bank offers multilingual services to all of its customers in English, Cantonese, Mandarin and Spanish. The Bank offers a variety of deposit products which includes the traditional range of personal and business checking and savings accounts, time deposits and individual retirement accounts, travelers' checks, safe deposit boxes, and Master Card and Visa merchant deposit services.
The Bank's lending activities include residential and commercial real estate, construction, commercial, trade finance, account receivables, inventory and working capital loans. The Bank provides commercial loans to small and medium-sized businesses with annual revenues that generally range from several million to $200 million. In addition, the Bank provides short-term trade finance facilities for terms of less than one year to U.S. importers, exporters, and manufacturers doing business in the Asia-Pacific region. Management believes that the Bank has not been adversely affected by the recent economic crisis in Asia. The Bank currently has no extensions of credit to foreign or overseas customers. The Bank's commercial borrowers are engaged in a wide variety of manufacturing, wholesale trade, and service businesses.
LENDING ACTIVITIES
Historically, the principal lending activities of the Bank have consisted of the origination of residential mortgage loans, multi-family real estate loans, and commercial real estate loans. The Bank also originates construction loans, consumer loans, and commercial and trade finance loans. At June 30, 1998, the Bank's gross loan portfolio totaled $986 million of which $302 million or 31% was in residential mortgage loans, $150 million or 15% of the loan portfolio was in multifamily mortgages, $331 million or 34% of the loan portfolio was in commercial real estate loans, $39 million or 4% of the loan portfolio was in construction loans, and $150 million or 15% of the loan portfolio was in commercial and trade finance.
The following table sets forth selected data related to the composition of the Bank's loan portfolio by type of loan on the date indicated.
December 31,
June 30, ------------------------------------------------------------
1998 1997 1996 1995
-------------------- ------------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- ------ ------- ------ -------
(Dollars in thousands)
Real estate loans:
Residential, one to four units...... $301,820 30.6% $356,478 37.6% $425,270 48.7% $474,192 60.4%
Residential, multifamily............ 150,108 15.2 144,147 15.2 141,649 16.2 150,333 19.1
Commercial and industrial real 330,660 33.6 269,028 28.3 214,599 24.5 142,423 18.1
estate.............................
Construction........................ 38,502 3.9 27,020 2.8 11,607 1.3 2,151 0.3
-------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans.......... 821,090 83.3 796,673 83.9 793,125 90.7 769,099 97.9
-------- ----- -------- ----- -------- ----- -------- -----
Other loans:
Business, commercial................ 150,108 15.2 138,408 14.5 71,672 8.2 11,880 1.5
Automobile.......................... 5,089 0.5 5,259 0.6 3,877 0.4 840 0.1
Other consumer...................... 9,768 1.0 9,137 1.0 5,953 0.7 3,680 0.5
-------- ----- -------- ----- -------- ----- -------- -----
Total other loans................ 164,965 16.7 152,804 16.1 81,502 9.3 16,400 2.1
-------- ----- -------- ----- -------- ----- -------- -----
Total gross loans.... 986,055 100.0% 949,477 100.0% 874,629 100.0% 785,499 100.0%
===== ===== ===== =====
Unearned fees, premiums and (2,448) (2,354) (1,903) (288)
discounts, net......................
Allowance for loan losses.............. (14,213) (12,273) (10,084) (8,735)
-------- -------- -------- --------
Loans receivable, net............ $969,394 $934,850 $862,640 $776,476
======== ======== ======== ========
December 31,
------------------------------------------------
1994 1993
--------------------- --------------------
Amount Percent Amount Percent
-------- ------- ------ -------
(Dollars in thousands)
Real estate loans:
Residential, one to four units...... $532,647 63.4% $463,966 60.2%
Residential, multifamily............ 159,093 18.9 161,518 21.0
Commercial and industrial real 133,643 15.9 124,979 16.2
estate.............................
Construction........................ 2,829 0.3 7,470 1.0
-------- ----- -------- -----
Total real estate loans.......... 828,212 98.5 757,933 98.4
-------- ----- -------- -----
Other loans:
Business, commercial................ 5,411 0.7 1,568 0.2
Automobile.......................... 1,849 0.2 3,171 0.4
Other consumer...................... 5,143 0.6 7,249 1.0
-------- ----- -------- -----
Total other loans................ 12,403 1.5 11,988 1.6
-------- ----- -------- -----
Total gross loans.... 840,615 100.0% 769,921 100.0%
===== =====
Unearned fees, premiums and (129) (720)
discounts, net......................
Allowance for loan losses.............. (14,515) (14,846)
-------- --------
Loans receivable, net............ $825,971 $754,355
======== ========
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RESIDENTIAL MORTGAGE LOANS. The Bank offers first mortgage loans secured by one-to-four family owner and non-owner occupied residential properties, condominiums, co-operatives, attached and detached planned unit developments, located in the Bank's primary lending area under its portfolio programs and under programs that are originated and sold into the secondary market to both agency and non-agency investors. Portfolio loans are generally 30 year fully amortizing loans with interest based on a 6-month or 1-year Treasury bill index, and with an option to have the rate fixed for the first 3 years. It is the Bank's policy that these loans generally will be originated at a maximum 80% loan to value ratio at the time of loan origination, unless adequate mortgage insurance is purchased on higher loan to values reducing the Bank's exposure to less than 80% in accordance with industry standards as established by the Federal Home Loan Mortgage Corporation ("FHLMC") and FNMA. At June 30, 1998, 31% of the loan portfolio was secured by one-to-four family residential real estate mortgages. The Bank currently offers three portfolio products as described in summary in the attached Residential Lending Division Loan Program Underwriting Guidelines as well as numerous non-portfolio products in compliance with investor requirements.
CONSTRUCTION LOANS. The Bank offers construction loans, which are interim loans to finance the construction of an income-producing or owner occupied building. The Bank targets residential, industrial, and commercial properties for such construction loans. The usual term for a construction loan is twelve to eighteen months, and may contain pre-approved extensions. The Bank generally prequalifies construction loan borrowers for permanent "take out" financing as a condition to making the construction loan. The Bank tries to limit its exposure in construction loans to no more than 25% of its total loans.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. While the Bank has historically originated a limited number of mortgage loans secured by multi- family and commercial real estate (office buildings, shopping centers, strip malls, hotels and motels, and industrial and retail facilities) as part of its business operations, in recent years the Bank has increased its emphasis on such lending activities. In originating multi-family and commercial real estate loans, the Bank's current emphasis is to focus on the cash flow and debt service coverage of the project instead of relying primarily on the appraised value of the underlying collateral.
COMMERCIAL LOANS. The Bank finances small and middle-market businesses in a wide spectrum of industries throughout California. The Bank offers commercial loans for working capital and to finance export/import, accounts receivable, and inventory. Such loans include loans with maturities ranging from thirty days to one year and "term loans," which are loans with maturities normally ranging from one to twenty-five years (although currently the Bank has no loans with maturities greater than fifteen years). Short-term business loans are generally intended to finance current transactions and typically provide for periodic principal payments, with interest payable monthly. Term loans normally provide for floating interest rates, with monthly payments of both principal and interest.
TRADE FINANCE. Commencing in 1994, the Bank introduced a variety of international finance and trade services and products, including letters of credit, revolving lines of credit, import loans, bankers' acceptances, working capital lines, domestic purchase financing and pre-export financing. Total fee income generated from trade finance activities has grown significantly from $26,000 in 1994 to $762,000 in 1997. A substantial portion of this business involves California-based customers engaged in import activities which, to the Bank's best knowledge, have not been adversely affected by the recent economic crisis in Asia. The Bank currently has no extensions of credit to foreign or overseas customers.
At June 30, 1998, loans to finance international trade totaled $81 million or 8% of the Bank's loan portfolio. Of this amount, approximately 93% was made to borrowers on the import side of international trade. These financings are generally made through letters of credit, whereby the Bank becomes liable to pay the beneficiary (i.e., a manufacturer) the amount drawn against the credit. The majority of the Bank's
letters of credit are between $100,000 and $1,000,000. The collateral for these types of loans is typically the property of the importer, such as a security interest in the products being shipped. At June 30, 1998, approximately 80% of the importers/exporters were of Asian (primarily ethnic Chinese) origin, who imported various food and general merchandise products.
LOAN UNDERWRITING RISKS. Adjustable-rate mortgage loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic interest rate adjustment permitted by the adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest rates. These risks have not had an adverse effect on the Bank.
While commercial real estate and consumer or other loans provide benefits to the Bank's asset/liability management program by reducing the Bank's exposure to interest rate changes, due to their generally shorter terms, and producing higher yields, such loans may entail significant additional credit risks compared to owner-occupied residential mortgage lending. However, the Bank believes that the higher yields and shorter terms compensate the Bank for the increased credit risk associated with such loans.
Multi-family and commercial real estate lending entails significant additional risks when compared with one-to-four family residential lending. For example, these loans typically involve larger loan balances to single borrowers or groups of related borrowers, and the payment experience on such loans typically is dependent on the successful operation of the project. These risks can be significantly impacted by the cash flow of the borrowers and supply and demand conditions in the market for the services or products offered by the borrower. In periods of decreasing cash flows, the borrower may permit a lapse in general maintenance of the property causing the value of the underlying collateral to deteriorate.
In addition, due to the type and nature of the collateral, and, in some cases the absence of collateral, consumer lending generally involves more credit risk when compared with one-to-four family residential lending. Consumer lending collections are typically dependent on the borrower's continuing financial stability, and thus, are more likely to be adversely effected by job loss, divorce, illness, and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower, however a deficiency judgment is normally filed against the borrower.
OBLIGATIONS OWED BY ONE PERSON. California chartered commercial banks, such as the Bank, are subject to limits on the amount of obligations that one person may owe to a bank. Under current law, obligations owed to the Bank by one person which are unsecured may not exceed 15% of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the Bank. In addition, obligations owed to the Bank by one person which are both unsecured and secured, in the aggregate, may not exceed 25% of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the Bank. In order to be considered secured, an obligation must be secured by collateral that has not been deemed ineligible property by the Commissioner and must have a designated market value at least 15% greater than the amount of the obligations secured thereby. Secured and unsecured obligations must be represented by separate notes. At June 30, 1998, based on the 15% limit applicable to unsecured obligations, the Bank may have obligations outstanding to one person of $22.6 million, and based on the 25% limit applicable to the aggregate of secured and unsecured obligations to one person, the Bank may have obligations outstanding to one person of $37.6 million. At June 30, 1998, the Bank's largest aggregation of
obligations owed by one person was approximately $17.7 million of loans secured by commercial real estate. At June 30, 1998, all of these loans were performing in accordance with their terms.
LOAN MATURITIES. The following table sets forth the maturity of the Bank's loans at June 30, 1998. The table does not include prepayments. All loans are shown maturing based upon contractual maturities:
1 to 4 Commercial
Family Multi-Family & Industrial Business, Other
Real Estate Real Estate Real Estate Construction Commercial Automobile Consumer Total
----------- ------------ ------------ ------------ ---------- ---------- -------- --------
(In thousands)
Non-accrual loans....... $ 3,139 $ 417 $ -- $ -- $ 822 $ -- $ -- $ 4,378
======== ======= ======== ======= ======== ====== ====== ========
Amounts Due:
Within 3 months....... $ 199 $ -- $ 17,624 $ 5,194 $ 70,035 $ 17 $2,293 $ 95,362
3 months to 1 year.... 924 3,504 15,814 21,473 54,507 358 1,335 97,915
-------- ------- -------- ------- -------- ------ ------ --------
Total due within
1 year............ 1,123 3,504 33,438 26,667 124,542 375 3,628 193,277
-------- ------- -------- ------- -------- ------ ------ --------
After 1 year:
1 to 3 years........ 2,123 5,260 17,217 7,816 7,708 2,840 80 43,044
3 to 5 years........ 3,445 21,109 132,587 4,019 14,699 1,874 -- 177,733
5 to 10 years....... 12,024 81,344 140,466 -- 3,159 -- -- 236,993
10 to 15 years...... 17,534 7,726 2,372 -- -- -- 1,896 29,528
Over 15 years....... 265,571 31,165 4,580 -- -- -- 4,164 305,480
-------- ------- -------- ------- -------- ------ ------ --------
Total due after
1 year (1)........ 300,697 146,604 297,222 11,835 25,566 4,714 6,140 792,778
-------- ------- -------- ------- -------- ------ ------ --------
Total.............. $301,820 $150,108 $330,660 $38,502 $150,108 $5,089 $9,768 $986,055
======== ======== ======== ======= ======== ====== ====== ========
Allowance for loan
losses(2) $ 651 $ 2,433 $ 2,038 $ 753 $ 6,646 $ 55 $ 17 $ 12,593
======== ======== ======== ======= ======== ====== ====== ========
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1 to 4 Commercial
Family Multi-Family & Industrial Business, Other
Real Estate Real Estate Real Estate Construction Commercial Automobile Consumer Total
----------- ------------ ------------ ------------ ---------- ---------- -------- -----
(In thousands)
Fixed rate.............. $ 78,263 $ 7,596 $ 64,074 $ -- $ 7,097 $4,714 $ 80 $161,824
Variable rate........... 222,434 139,008 233,148 11,835 18,469 -- 6,060 630.954
------- -------- ------- -------- ------ ------ --------
Total.............. $300,697 $146,604 $297,222 $11,835 $25,566 $4,714 $6,140 $792,778
======== ======== ======== ======= ======= ====== ====== ========
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(2) Excludes $1.6 million of unallocated allowance for loan losses.
LOAN SOLICITATION AND PROCESSING. Loan applications are obtained through the Bank's delivery networks consisting of its 22 branches and its lending departments. The branches originate loans by salaried personnel through customer contact, referral, and solicitation. The wholesale lending department originates residential loans with commissioned loan officers through loan brokers, while the commercial lending department originates commercial real estate and business loans through salaried loan officers.
Loan requests are processed by having the customer complete an application. Information such as credit references and credit history is verified. Additional financial information may be requested from the borrower and analyzed, and the value of the underlying collateral, if any, is assessed. The Bank generally uses independent outside appraisers to assess the value of real estate and the appraisal is usually then reviewed by the Bank. Loans exceeding a particular officer's lending authority are subject to review and approval by another lending officer. If the loan is in excess of $1 million, the loan must be approved by the Senior Lending Committee. The Senior Lending Committee is made up of the President, the Chief Credit Officer, the Chief Financial Officer, and three Senior Vice Presidents. In order for a loan in excess of $1 million to be approved, the loan must be reviewed and approved by four members of the Senior Lending Committee, one of which must be the President, the Chief Credit Officer, or the Chief Financial Officer.
LOAN COMMITMENTS. The Bank generally grants commitments to fund commercial loans and single-family mortgage loans for up to 30 days at a specified term and interest rate. In addition, commitments for revolving lines of credit, both consumer and commercial are made. These commitments are generally subject to annual review and renewal based upon past performance and the current credit worthiness of the borrower. In addition, to the loan and line of credit commitments, the Bank has various commitments under letters of credit. At June 30, 1998, commitments for unfunded loans and lines of credit, and letters of credit amounted to $178 million and $127 million, respectively.
NON-PERFORMING ASSETS
GENERAL. The Bank's general collection policy is to provide a late notice to commercial and consumer accounts immediately upon the expiration of the payment grace period which are generally set at ten and 15 days, respectively. Delinquent accounts are contacted by phone and collection letters are sent no later than 30 days after an account's contractual payment due date. Notice of Intent to foreclose notices are provided to consumer and commercial mortgage customers 30 days after the account's contractual payment due date. Foreclosure proceedings are initiated within 60 days after the contractual payment due date. Personal property is subject to repossession upon account default. The Bank's commencement of personal property repossession efforts usually begins within 30 days of default, but may vary depending upon circumstances and/or available legal remedies associated with particular account.
Effective January 1, 1995, the Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." Under SFAS No. 114, a loan is impaired when it is "probable" that a creditor will be unable to collect all amounts due (i.e., both principal and interest) according to the contractual terms of the loan agreement. The measurement of impairment may be based on (i) the present value of the expected future cash flows of the impaired loan discounted at the loan's original effective interest rate, (ii) the observable market price of the impaired loan, or (iii) the fair value of the collateral of a collateral-dependent loan. The adoption of SFAS No. 114, as amended by SFAS No. 118, had no material impact on the Bank's financial statements as the Bank's existing policy of measuring loan impairment is consistent with methods prescribed in these standards.
At June 30, 1998, the carrying value of loans that are considered to be impaired under SFAS No. 114 totaled $9.6 million. At June 30, 1998, charge-offs related to loans considered to be impaired under
SFAS No. 114 totaled $2.1 million. For the six months ended June 30, 1998, the Bank recognized $420,000 of interest income on those impaired loans.
Loans are continually monitored by management and the Board of Directors. Loans are placed on nonaccrual status when, in the opinion of management, the collection of additional interest is doubtful; but not longer than 90 days past due. Interest accrued and unpaid at the time the account is placed on nonaccrual status is generally charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income based upon management's assessment of the collectibility of the account. At June 30, 1998, the Bank had no loans greater than 90 days past due and still accruing interest, and $4.4 million in loans on nonaccrual status.
The following table sets forth non-performing loans, other real estate owned, and restructured loans at the periods indicated:
December 31,
------------------------------------------------------
June 30,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Nonaccrual loans....................... $ 4,378 $ 8,490 $11,613 $ 7,496 $13,682 $16,711
Loans past due 90 days or more but not
on nonaccrual.......................... -- 2,403 206 -- 904 1,230
------- ------- ------- ------- ------- -------
Total non-performing loans........ 4,378 10,893 11,819 7,496 14,586 17,941
------- ------- ------- ------- ------- -------
Restructured loans..................... 6,279 7,487 5,485 7,604 12,724 8,449
Other real estate owned, net........... 5,386 3,217 3,491 6,388 8,197 8,653
------- ------- ------- ------- ------- -------
Total non-performing assets....... $16,043 $21,597 $20,795 $21,488 $35,507 $35,043
======= ======= ======= ======= ======= =======
Total non-performing assets to total
assets................................ 0.89% 1.25% 1.28% 1.57% 2.69% 3.15%
Allowance for loan losses to non-
performing loans..................... 324.65 112.67 85.32 116.53 99.51 82.75
Non-performing loans to total assets... 0.24 0.63 0.73 0.55 1.11 1.61
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ALLOWANCE FOR LOAN LOSSES. The possibility of loan losses is one of the inherent risks associated with lending. Management realizes, and experience indicates, that losses may exist at any point in time in the loan portfolio. As a result, periodic provisions are made to the allowance for loan losses each year and charged to expense. Such provisions are made to maintain the allowance at a level sufficient to recognize this inherent risk.
In order to ensure the allowance is maintained at an adequate level, the Bank employs a comprehensive monthly internal loan review function. In addition, the loan portfolio is evaluated by an independent outside consultant twice a year. This review includes an assessment of significant loans and commitments, as well as, a continuing assessment of classified, problem, or non- performing loans, and assessment of the overall quality of the loan portfolio. Based upon this evaluation, allocations of the current allowance are made, with accounts not subject to specific review having allocations made based upon fixed and historical loan loss factors. The unallocated portion of the allowance is then assessed to ascertain if it is sufficient to withstand any previously unidentified losses.
In addition to monitoring classified and delinquent loan accounts, the Bank maintains a separate "watch list" of loan accounts that are subject to ongoing review and assessment. Loans placed on the watch
list are accounts that, while not exhibiting the deficiencies and characteristics associated with classified assets, exhibit one or more deficiencies or weaknesses, or a financial position that has exhibited signs of deterioration, such as a decline in certain performance ratios, where more frequent assessment of the account status is warranted. At June 30, 1998, accounts on the watch list totaled $22.1 million, comprised primarily of commercial/business loans.
The following table sets forth information with respect to the Bank's allowance for loan losses for the periods indicated:
At of for the Six At or for the Year Ended December 31,
Months Ended --------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- -------- -------- -------- -------- --------
(Dollars in thousands)
Average loans outstanding....................... $977,753 $915,202 $819,868 $814,970 $806,659 $758,615
======== ======== ======== ======== ======== ========
Total loans outstanding at end of period........ $986,055 $949,477 $874,627 $785,499 $840,615 $769,921
======== ======== ======== ======== ======== ========
Allowance balance at beginning of period........ $ 12,273 $ 10,084 $ 8,735 $ 14,515 $ 14,846 $ 11,024
Provision for loan losses....................... 3,325 5,588 4,398 6,200 4,155 6,928
Actual charge-offs:
1-4 family residential real estate............. 97 469 530 1,666 823 286
Multifamily real estate........................ 111 1,595 1,919 5,251 2,316 360
Commercial and industrial real estate.......... 60 1,079 985 5,350 410 2,387
Construction................................... -- -- -- -- -- 70
Business, commercial........................... 1,775 986 92 -- 140 3
Automobile..................................... 116 5 28 27 67 8
Other.......................................... 3 2 17 46 850 37
-------- -------- -------- -------- -------- --------
Total charge-offs.......................... 2,162 4,136 3,571 12,340 4,606 3,151
-------- -------- -------- -------- -------- --------
Recoveries:
1-4 family residential real estate............. 101 12 49 -- 3 6
Multifamily real estate........................ -- 275 174 35 -- --
Commercial and industrial real estate.......... 476 385 284 164 -- 1
Business, commercial........................... 173 41 3 -- 90 3
Automobile..................................... 27 19 9 9 14 --
Other.......................................... -- 5 3 152 13 35
-------- -------- -------- -------- -------- --------
Total recoveries........................... 777 737 522 360 120 45
-------- -------- -------- -------- -------- --------
Net chargeoffs........................... 1,385 3,399 3,049 11,980 4,486 3,106
-------- -------- -------- -------- -------- --------
Allowance balance at end of period.............. $ 14,213 $ 12,273 $ 10,084 $ 8,735 $ 14,515 $ 14,846
======== ======== ======== ======== ======== ========
Net chargeoffs as a percent of average loans.... 0.14% 0.37% 0.37% 1.47% 0.56% 0.41%
Allowance for loan losses to total gross loans
at end of period............................... 1.44 1.29 1.15 1.11 1.73 1.93
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The following table summarizes the allocation of the allowance for loan losses by loan type and the percent of loans in each category compared to total loans for the dates indicated:
December 31,
June 30, ---------------------------------------------------------------
1998 1997 1996 1995
--------------------- --------------------- -------------------- --------------------
Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in
Each Each Each Each
Category Category Category Category
to to to to
Allowance Total Allowance Total Allowance Total Allowance Total
Amount Loans Amount Loans Amount Loans Amount Loans
--------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
1-4 family residential real estate........ $ 651 30.6% $ 894 37.5% $ 996 48.7% $1,327 60.4%
Multifamily real estate................... 2,433 15.2 3,022 15.2 3,445 16.2 3,298 19.1
Commercial and industrial real estate..... 2,038 33.6 1,059 28.3 2,044 24.5 2,772 18.1
Construction.............................. 753 3.9 404 2.8 66 1.3 23 0.3
Business, commercial...................... 6,646 15.2 6,799 14.6 1,357 8.2 377 1.5
Automobile................................ 55 0.5 33 0.6 27 0.4 6 0.1
Other..................................... 17 1.0 32 1.0 23 0.7 19 0.5
Unallocated............................... 1,620 30 2,126 913
------- ----- ------- ----- ------- ----- ------ -----
Total................................ $14,213 100.0% $12,273 100.0% $10,084 100.0% $8,735 100.0%
======= ===== ======= ===== ======= ===== ====== =====
December 31,
---------------------------------------------
1994 1993
--------------------- ---------------------
Percent of Percent of
Loans in Loans in
Each Each
Category Category
to to
Allowance Total Allowance Total
Amount Loans Amount Loans
--------- -------- --------- --------
(Dollars in thousands)
1-4 family residential real estate........ $ 2,829 63.5% $ 2,801 60.3%
Multifamily real estate................... 5,113 18.9 5,487 21.0
Commercial and industrial real estate..... 5,920 15.9 3,136 16.2
Construction.............................. 249 0.3 681 1.0
Business, commercial...................... 128 0.6 286 0.2
Automobile................................ 28 0.2 58 0.4
Other..................................... 62 0.6 466 0.9
Unallocated............................... 186 1,931
------- ----- ------- -----
Total................................ $14,515 100.0% $14,846 100.0%
======= ===== ======= =====
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INVESTMENT PORTFOLIO
GENERAL. Income from investing activities provides a significant portion of the Bank's total income. The Bank maintains an investment portfolio of securities such as mortgage-backed securities, and to a lesser extent, U.S. government and agency securities. Management generally maintains an investment portfolio with adjustable-rates and relatively short maturities to minimize overall interest rate risk. At June 30, 1998, approximately 84% of the total securities portfolio had adjustable-rates.
Investment decisions are made within policy guidelines established by the Board of Directors. The main objective of the policy is to complement the overall asset/liability and liquidity objectives of the Bank, while limiting the related credit risk to an acceptable level..
The Bank's investment policy allows up to 100% of the investment portfolio to be classified as "available-for-sale." At June 30, 1998, 100% of the investment portfolio was classified as available-for-sale. While management believes it has the ability to hold all of its investments until maturity, maintaining the entire investment portfolio as available-for-sale allows the investment portfolio to be used as a tool to provide additional liquidity beyond that of normal principal and interest payments, while also allowing for a restructuring of the investment portfolio should market or other economic factors indicate the need to do so.
The following table sets forth the carrying value of the Bank's investment portfolio including equity investments in the FHLB at the dates indicated. At June 30, 1998, the market value of the Bank's investment portfolio totaled $526.4 million. During the periods indicated, the Company had no securities of a single issuer that exceeded 10% of stockholders' equity.
At June 30, At December 31,
-----------------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
(Dollars in thousands)
U.S. Treasury....................... $ -- $ -- $ 50,120 $ 59,876
U.S. Government agency.............. -- -- 5,000 9,276
Mortgage-backed securities.......... 508,353 374,810 351,348 284,283
Federal Home Loan Bank stock........ 18,085 13,881 10,074 9,515
-------- -------- -------- --------
Total investment securities.... $526,438 $388,691 $416,542 $362,950
======== ======== ======== ========
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MORTGAGE-BACKED SECURITIES. The Bank has a substantial investment in residential mortgage-backed securities. As of June 30, 1998, the carrying value of mortgage-backed securities totaled $508.4 million, or 28% of total assets of which 84% had adjustable rates. At June 30, 1998, $130.5 million in mortgage-backed securities were pledged as collateral for public funds.
The mortgage-backed securities portfolio as of June 30, 1998 consisted of primarily of adjustable rate pass through certificates issued by the Government National Mortgage Association ("GNMA"), FHLMC, and FNMA. To a lesser extent, the mortgage-backed securities portfolio also contains pass through certificates issued by private issuers. At June 30, 1998, the Bank held $2.6 million, $126.1 million, $337.3 million, and $42.3 million of mortgaged-backed securities issued by GNMA, FHLMC, FNMA, and private issuers, respectively.
Mortgage-backed securities represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally quasi-governmental agencies) that pool and repackage the participation interests in the form of securities, to investors such as the Bank. Such quasi-governmental agencies, which guarantee the payment of principal and interest to investors, primarily include FHLMC, FNMA, and GNMA.
FHLMC is a corporation chartered by the United States Government that issues participation certificates backed principally by conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate return or principal. FHLMC securities are indirect obligations of the United States Government. FNMA is a private corporation chartered by Congress with a mandate to establish a secondary market for conventional mortgage loans. FNMA guarantees the timely payment of principal and interest, and FNMA securities are indirect obligations of the United States Government. GNMA is a government agency within the United States Department of Housing and Urban Development ("HUD") which is intended to help finance government assisted housing programs. GNMA guarantees the timely payment of principal and interest, and GNMA securities are backed by the full faith and credit of the United States Government. Because FHLMC, FNMA, and GNMA were established to provide support for low- and middle-income housing, there are limits to the maximum size of loans that qualify for these programs. To accommodate larger-sized loans, and loans that, for other reasons, do not conform to the agency programs, a number of private institutions have established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable- rate mortgages. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed-rate or adjustable-rate) as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Mortgage-backed securities issued by FHLMC, FNMA, and GNMA make up the majority of the pass-through market.
In a declining interest rate environment, the Bank may experience significant prepayments on both fixed- and adjustable-rate mortgage-backed securities. In such an environment or in an environment where interest rates are perceived to be low, the Bank may not be able to reinvest the cash flow from these securities into comparable yielding investments.
The following table sets forth certain information regarding the carrying values, weighted average yields, and contractual maturity distribution, excluding periodic principal payments, of the Bank's investment securities portfolio at June 30, 1998.
After One Year After Five Years
Within One But Within But Within After
Year Five Years Ten Years Ten Years Total
-------------- -------------- -------------- --------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------- ----- -------- -----
U.S. Treasury.................. $ -- -.--% $ -- -.--% $ -- -.--% $ -- -.--% $ -- -.--%
U.S. Government Agency......... -- -.-- -- -.-- -- -.-- -- -.-- -- -.--
Mortgage-backed securities..... -- -.-- 6,714 5.50 4,809 6.37 496,830 5.93 508,353 5.93
Other.......................... -- -.-- -- -.-- -- -.-- 18,085 5.88 18,085 5.88
----- ------ ------ -------- --------
Total..................... $ -- -.--% $6,714 5.50% $4,809 6.37% $514,915 5.93% $526,438 5.93%
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MARKET RISK MANAGEMENT
The Bank's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of the Bank's net interest income and NPV to adverse movements in interest rates. Although the Bank manages other risks, such as credit and liquidity risk, in the normal course of its business, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Bank's financial condition and results of operations.
Risk management policies and procedures have been established and are utilized to manage the Bank's exposure to interest rate risk. The Bank's exposure to interest rate risk is reviewed on a regular basis by the Asset/Liability Committee. The committee considers the impact on both net interest income and NPV of the current outlook in interest rates, potential changes in interest rates, world and regional economies, liquidity, business strategies, and other factors. The Bank has no interest rate risk sensitive instruments held for trading purposes. Management believes that the Bank's interest rate risk is reasonable at this time.
The strategy of the Bank with respect to interest rate risk is to maximize net interest income and NPV while maintaining an acceptable level of risk to changes in interest rates. The achievement of this requires a balance between profitability, liquidity, and interest rate risk exposure. Management recognizes that certain risks are inherent and that the goal is to identify and minimize these risks.
The Bank utilizes a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on both an immediate increase or decrease in interest rates (rate shock) over a twelve-month period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The assumptions are based on the Bank's historical prepayment speeds and industry forecasts on assets and liabilities when interest rates increase or decrease by 200 basis points. The model factors in projections for anticipated activity levels by product lines offered by the Bank. The simulation model also takes into account the Bank's increased ability to control the rates on deposit products as compared to its ability to control the rates on adjustable-rate loans tied to published indices.
Based on the information and assumptions in effect at June 30, 1998, management believes that a 200 point rate shock over a twelve-month period, in either direction, would not significantly affect the Bank's annualized net interest income.
The table below provides information about the Bank's balance sheet, non- derivative financial instruments that are sensitive to changes in interest rates. For all outstanding financial instruments, the table presents the principal outstanding balance at June 30, 1998 and the weighted average interest yield/rate of the instruments by either the date the instrument reprices for variable rate financial instruments or the expected maturity date for fixed rate financial instruments.
The expected maturity or repricing categories take into consideration historical and industry forecasts of prepayment speeds as well as actual amortization of principal and do not take into consideration reinvestment of cash. The Bank's liabilities that do not have stated maturity dates are considered to have repricing characteristics that can reprice at any time and are reported in the appropriate column. The Bank does not consider these financial instruments materially sensitive to interest rate fluctuations and historically the balances have remained fairly constant over various economic conditions. The weighted average interest rates for the various assets and liabilities presented are actual as of June 30, 1998.
The fair values of federal funds sold and repurchase agreements approximate their book values due to their short maturities. The fair value of available for sale securities are based on bid quotations from independent broker/dealers or from an independent broker/dealer's pricing model. The fair value of loans are estimated in portfolios with similar financial characteristics and takes into consideration discounted cash flows through the estimated maturity or repricing dates using estimated market discount rates as projected through a third party asset/liability model and/or an independent broker/dealer's pricing model.
The fair values of NOW, money market and savings accounts utilize decay rate assumptions and are discounted by the one month LIBOR rate. The fair value of time deposits is based upon the discounted value of contractual cash flows, which is estimated using current rates offered for deposits of similar remaining terms. The fair value of reverse repurchase agreements approximates book value due to their short maturities. The fair value of FHLB advances is estimated by discounting the cash flows through maturity or the next repricing date based on current rates offered by the FHLB for borrowings with similar maturities.
Expected Maturity or Repricing Date by Year
------------------------------------------------------------------------------
After
1998 1999 2000 2001 2002 2002
---- ---- ---- ---- ---- -----
(Dollars in thousands)
ASSETS:
Federal funds sold.......... $ 35,300 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 6.23% -.--% -.--% -.--% -.--% -.--%
Repurchase agreements....... $188,153 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 5.91% -.--% -.--% -.--% -.--% -.--%
Investment securities,
available for sale........ $426,705 $ -- $ -- $ -- $ -- $ 81,648
weighted average yield..... 5.83% -.--% -.--% -.--% -.--% 6.46%
Total gross loans........... $825,655 $ 4,661 $ 3,078 $12,245 $13,840 $126,576
weighted average rate...... 8.32% 7.25% 8.82% 10.08% 9.14% 8.21%
LIABILITIES:
NOW accounts................ $77,885 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 1.50% -.--% -.--% -.--% -.--% -.--%
Money market checking....... $23,543 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 3.84% -.--% -.--% -.--% -.--% -.--%
Savings accounts............ $217,734 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 2.55% -.--% -.--% -.--% -.--% -.--%
Certificates of deposit..... $549,473 $269,237 $19,214 $ 3,386 $ 757 $ 1,422
weighted average rate...... 4.94% 5.08% 6.08% 3.40% 5.37% 6.06%
Federal funds purchased..... $ 800 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 6.50% -.--% -.--% -.--% -.--% -.--%
Reverse repurchase
agreements................. $155,153 $ -- $ -- $ -- $ -- $ --
weighted average rate...... 5.72% -.--% -.--% -.--% -.--% -.--%
FHLB advances............... $10,000 $ -- $17,000 $ -- $ -- $230,000
weighted average rate...... 4.76% -.--% 5.71% -.--% -.--% 5.12%
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Expected Maturity or Repricing Date by Year
-------------------------------------------
Fair value at
Total June 30, 1998
----- -------------
(Dollars in thousands)
ASSETS:
Federal funds sold............. $ 35,300 $35,300
weighted average rate......... 6.23%
Repurchase agreements.......... 188,153 188,153
weighted average rate......... 5.91%
Investment securities,
available for sale........... 508,353 508,353
weighted average yield........ 5.93%
Total gross loans.............. 986,055 997,800
weighted average rate......... 8.33%
LIABILITIES:
NOW accounts................... $ 77,885 68,011
weighted average rate......... 1.50%
Money market checking......... $23,543 22,898
weighted average rate......... 3.84%
Savings accounts............... $217,734 195,983
weighted average rate......... 2.55%
Certificates of deposit........ $843,489 843,052
weighted average rate......... 5.00%
Federal funds purchased........ $ 800 800
weighted average rate......... 6.50%
Reverse repurchase
agreements.................... $155,153 155,193
weighted average rate......... 5.72%
FHLB advances.................. $257,000 257,334
weighted average rate......... 5.14%
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The Bank utilizes derivative instruments, primarily interest rate swap and cap agreements, as part of its management of its asset and liability positions in connection with its overall goal of minimizing the impact of interest rate fluctuations on the Bank's net interest income and NPV. Derivatives are used as hedges against market fluctuations for certain available-for-sale securities and to effectively convert certain fixed rate commercial real estate loans to floating rate assets.
The total gross notional amount of the interest rate swaps on June 30, 1998 was $28.5 million. The net unrealized depreciation of the swap agreement portfolio was $1.0 million compared to net unrealized depreciation of $941,000 on December 31, 1997. This increase of approximately $76,000 in net unrealized depreciation reflects a decrease in interest rates when comparing June 30, 1998 to December 31, 1997.
The total gross notional amount of interest rate cap agreements on June 30, 1998 was $36.0 million. The net unrealized depreciation of the cap agreement portfolio was $638,000 compared to net unrealized depreciation of $569,000 on December 31, 1997. These cap agreements are primarily linked to the three-month LIBOR.
The following table summarizes the expected maturities, weighted average pay and receive rates, and the unrealized gains and losses on June 30, 1998 of the Bank's interest rate contracts.
Expected Maturity
-------------------------------------------------------------
Average
After Unrealized Expected
1998 1999 2000 2001 2002 2002 Total Gain (Loss) Maturity
---- ----- ----- ---- ---- ---- ----- ---------- --------
(Dollars in thousands)
Interest rate swap agreements:
Notional amount........... $ -- $ -- $ -- $10,000 $18,500 $ -- $28,500 $(1,017) 4.0 Years
Weighted average receive
rate.................. -.--% -.--% -.--% 5.89% 5.75% -.--% 5.80%
Weight average pay rate... -.--% -.--% -.--% 6.60% 6.45% -.--% 6.50%
Interest rate cap agreements:
Notional amount........... $ -- $ -- $ -- $18,000 $18,000 $ -- $36,000 $ (638) 3.6 Years
LIBOR Cap Rate............ -.--% -.--% -.--% 6.50% 7.00% -.--% 6.75%
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The fair value balances reflected in the table were derived as follows:
(1) For off-balance sheet derivatives, fair value is based on quoted market price of these securities by broker dealers making a market in these derivatives.
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending and investing activities. Secondary sources of funds are derived from loan repayments and investment maturities. Loan repayments can be considered a relatively stable funding source, while deposit activity is greatly influenced by interest rates and general market conditions. The Bank also has access to funds through credit facilities available from the FHLB and through its primary correspondent bank.
DEPOSITS. The Bank offers a wide variety of retail deposit account products to both consumer and commercial deposit customers. Time deposits, consisting principally of retail, fixed-rate certificates of deposit comprised 68% of the deposit portfolio at June 30, 1998. Core deposits considered to be noninterest bearing demand deposit accounts, NOW accounts, savings deposits, and money market accounts accounted for 32% of the deposit portfolio at June 30, 1998.
The Bank intends to continue to emphasize retail deposit accounts as its primary source of funds. Deposit products are promoted by posting a rate board in all branch offices. While the Bank does not solicit brokered certificates of deposits, it held $3.0 million of brokered deposits at June 30, 1998. The Bank's market strategy is based on its reputation as a community bank that provides quality products and personal customer service.
The Bank pays interest rates on its interest bearing deposit products that are competitive with rates offered by other financial institutions in its market area. Interest rates on deposits are reviewed weekly by management considering a number of factors including (1) the Bank's internal cost of funds; (2) rates offered by competing financial institutions; (3) investing and lending opportunities; and (4) the Bank's liquidity position.
JUMBO CERTIFICATES OF DEPOSIT. Jumbo certificates of deposit are accounts of $100,000 or more. These accounts totaled $368.8 million or 30% of the deposit portfolio at June 30, 1998 and consisted principally of deposits by consumers and public funds. Jumbo certificates of deposit had a weighted average interest rate of 5.20% at June 30, 1998. The Bank intends to continue to use such certificates of deposit as a source of funds to manage its liquidity. The following table sets forth the amount and maturity of jumbo certificates of deposit at June 30, 1998.
Jumbo
Certificates
Time Remaining Until Maturity of Deposit
--------------------------------------------------------------- ----------------
(In thousands)
Less than 3 Months............................................. $174,189
3 Months to 6 Months........................................... 85,801
6 Months to 12 Months.......................................... 96,316
Greater than 12 Months......................................... 12,508
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Total..................................................... $368,814
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BORROWINGS. While deposits are the primary funding source for the lending and investment activities of the Bank, other funding sources are available should the need arise or favorable market conditions exist. The Bank has access to funds through credit facilities made available by the FHLB and its primary correspondent bank. The Bank regularly uses borrowing from the FHLB as a means to augment its source of funding. At June 30, 1998, the Bank had $10 million of short-term advances outstanding and $247 million of long-term advances outstanding. At June 30, 1998, all of the Bank's advances from the FHLB were at fixed rates, with a weighted average rate of 5.14%. FHLB advances are secured by certain real estate loans and mortgage-backed securities. Of the Bank's total FHLB long-term advances, $216 million provide the right of the FHLB to call the advance on one specified day per quarter. If the advances are not called on the specified date, the advances cannot be called again until the specified date in the next quarter.
The Bank also sells securities under agreements to repurchase ("reverse repurchase agreements"). Generally, these reverse repurchase agreements mature within one to four days from the transaction date.
Prior to 1997, the Bank entered into dollar repurchase agreements by delivering to broker-dealers that arrange the transactions a certain amount of mortgage-backed securities. The broker-dealers may sell, lend, or otherwise dispose of the mortgage-backed securities in the normal course of operations and its agreement with the Bank only requires that the broker-dealer resell to the Bank substantially identical securities. The dollar reverse repurchase agreements typically entered into by the Bank had maturities of 90 days or less. The Bank did not enter into dollar reverse repurchase agreements during the six months ended June 30, 1998 or the year ended December 31, 1997.
The following table sets forth information pertaining to short-term borrowings for the periods indicated.
Six months
ended Year ended December 31,
June 30, --------------------------------
1998 1997 1996 1995
-------------- --------- --------- --------
(In thousands)
Short-term borrowings:
Average balance outstanding during the period........... $123,956 $157,054 $ 79,492 $41,716
Maximum amount outstanding at
any month-end during the period....................... $191,635 $300,000 $244,000 $91,597
Weighted average interest rate during the period........ 5.66% 5.61% 5.51% 5.49%
Total short-term borrowings at
period end............................................ $155,953 $139,000 $244,000 $19,691
Weighted average interest rate at period end............ 5.72% 6.08% 5.64% 4.02%
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The Bank conducts a certain portion of its operations utilizing leased premises and equipment under operating leases. The terms of the leases ranged from 51 months to 300 months with remaining lives ranging from 3 months to 161 months. The obligations remaining under the terms of these agreements totaled $7.0 million at June 30, 1998.
SUBSIDIARY ACTIVITY
The Company has one wholly-owned subsidiary, the Bank. As of June 30, 1998, the Bank had two wholly-owned subsidiaries. The first subsidiary, E-W Services, Inc., is a California corporation organized by the Bank in 1977. E-W Services, Inc. holds property used by the Bank in its operations. At June 30, 1998, the Bank's total investment in E-W Services, Inc. was $11.2 million. The second subsidiary, East-West Investments, Inc., is a California corporation organized by the Bank in 1972. East-West Investments, Inc. primarily acts as a trustee in connection with real estate secured loans. At June 30, 1998, the Bank's total investment in East-West Investments, Inc. was $52,000.
EMPLOYEES
The Company does not have any employees other than executive officers who are also executive officers of the Bank. Such employees are not separately compensated for their employment with the Company. As of June 30, 1998, the Bank had a total of 345 full-time employees and 45 part-time employees. Employees are not represented by a union or collective bargaining group. The management of the Bank believes that its employee relations are satisfactory.
PROPERTIES
The Company owns no real property but utilizes the main office of the Bank. The Company pays no rent or other consideration for use of this facility. The Bank owns the land and buildings at 11 of its 22 branch offices and all of its administrative locations. Those locations include:
Office Name Address Owned/Leased
-------------------------------- ------------------------------- --------------
Alhambra Valley 403 W. Valley Blvd. Owned
Alhambra, CA 91803
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Office Name Address Owned/Leased
-------------------------------- ------------------------------- --------------
Alhambra-Main 1881 West Main St. Owned
Alhambra, CA 91801
Arcadia 200 E. Duarte Road Owned
Arcadia, CA 91006
Artesia 18512 Gridley Road Owned
Artesia, CA 90701
Commercial Loan Center 475 Huntington Dr. Owned
San Marino, CA 91108
Cupertino 10945 Wolfe Road Leased
Cupertino, CA 95014
Diamond Bar 379 S. Diamond Bar Blvd. Leased
Diamond Bar, CA 91765
El Monte 9550 Flair Drive Leased
El Monte, CA 91731
Geary Street 4355 Geary Street #101 Owned
San Francisco, CA 94111
Headquarters 415 Huntington Dr. Owned
San Marino, CA 91108
Irvine 4860 Irvine Blvd. Leased
Irvine, CA 92720
Lincoln Heights 2601 No. Broadway Owned
Los Angeles, CA 90031
Los Angeles 942 North Broadway Leased
Chinatown Los Angeles, CA 90012
Market Street- 444 Market Street Leased
Financial District San Francisco, CA 94111
Montebello 2825 Via Campo Leased
Montebello, CA 90640
Monterey Park 101 W. Garvey Ave. Owned
Monterey Park, CA 91754
Rolling Hills 27421 Hawthorne Blvd. Owned
Rolling Hills Estates, CA 90274
Rosemead 8168 East Garvey Ave. Leased
Rosemead, CA 91770
Rowland Heights 18458 Colima Road Leased
Rowland Heights, CA 91748
San Francisco - 1241 Stockton St. Leased
Chinatown San Francisco, CA 94133
San Marino 805 Huntington Dr. Owned
San Marino, CA 91108
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Office Name Address Owned/Leased
-------------------------------- ------------------------------- --------------
Silverlake 2496 Glendale Blvd. Owned
Los Angeles, CA 90039
South Pasadena 1001 Fair Oaks Ave. Owned
S. Pasadena, CA 91030
Westminster 9032 Bolsa Avenue Leased
Westminster, CA 92683
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LEGAL PROCEEDINGS
Neither the Bank nor the Company is involved in any material legal proceedings. The Bank, from time to time, is party to litigation which arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial position, results of operations, or liquidity of the Bank or the Company.
SUPERVISION AND REGULATION
ECONOMIC CONDITIONS, GOVERNMENT POLICIES, LEGISLATION, AND REGULATION
The Bank's profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on its interest-earning assets, such as loans extended to its clients and securities held in its investment portfolio, comprise the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of the Company and the Bank, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on the Company and the Bank cannot be predicted.
The business of the Bank is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on the Company and the Bank of any future changes in monetary and fiscal policies cannot be predicted.
From time to time, legislative acts, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in the U.S. Congress, in the state legislatures and before various bank regulatory agencies.
GENERAL
Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of stockholders of the Company or the Bank. Set forth below is a summary description of certain laws and regulations which relate to the operations of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.
In recent years, significant legislative proposals and reforms affecting the financial services industry have been discussed and evaluated by Congress. Such proposals include legislation to revise the Glass-Steagall Act and the BHC Act, to expand permissible activities for banks, principally to facilitate the convergence of commercial and investment banking. Certain proposals also sought to expand insurance activities of banks. It is unclear whether any of these proposals, or any form of them introduced in the current Congress, will become law. Consequently, it is not possible to determine what effect, if any, they may have on the Company and the Bank.
THE COMPANY
GENERAL. Upon consummation of the Reorganization, the Company, as a registered bank holding company, will be subject to regulation under the BHC Act. The Company will be required to file with the Federal Reserve Board quarterly, semi-annual, and annual reports and such additional information as the Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve Board may conduct examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve Board believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve Board also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, the Company must file written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming its equity securities.
Under the BHC Act and regulations adopted by the Federal Reserve Board, a bank holding company and its nonbanking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. Further, the Company is required by the Federal Reserve Board to maintain certain levels of capital. See "- Capital Standards."
The Company is required to obtain the prior approval of the Federal Reserve Board for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve Board is also required for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHC Act, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. However, the Company, subject to the prior approval of the Federal Reserve Board, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
Under Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board's regulations or both.
Upon consummation of the Reorganization, the Company will also be a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and its subsidiaries will be subject to examination by, and may be required to file reports with, the DFI.
In addition, upon the exchange of Bank Common Stock for Company Common Stock, the Company may, but will not be required to, register the Company Common Stock with the SEC under the Exchange Act. If registered, the Company would be subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.
THE BANK
GENERAL. The Bank, as a California chartered bank, is subject to primary supervision, periodic examination, and regulation by the Commissioner and the FDIC. To a lesser extent, the Bank is also subject to certain regulations promulgated by the Federal Reserve Board. If, as a result of an examination of the Bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate the Bank's deposit insurance, which for a California chartered bank would result in a revocation of the Bank's charter. The Commissioner has many of the same remedial powers.
Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank's operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, and capital requirements. Further, the Bank is required to maintain certain levels of capital. See "- Capital Standards."
DIVIDENDS AND OTHER TRANSFERS OF FUNDS. Initially, dividends from the Bank will constitute the principal source of income to the Company. The Company is a legal entity separate and distinct from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Company. Under such restrictions, the amount available for payment of dividends to the Company by the Bank totaled $15.3 million at June 30, 1998. In addition, the DFI and the Federal Reserve Board have the authority to prohibit the Bank from paying dividends, depending upon the Bank's financial condition, if such payment is deemed to constitute an unsafe or unsound practice.
The FDIC and the Commissioner also have authority to prohibit the Bank from engaging in activities that, in the FDIC's or the Commissioner's opinion, constitute unsafe or unsound practices in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the FDIC or the Commissioner could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. Further, the FDIC and the Federal Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by banks or bank holding companies under their jurisdiction. Compliance with the standards set forth in such guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends which the Bank or the Company may pay. An insured depository institution is prohibited from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized. The Commissioner may impose similar limitations on the conduct of California-chartered banks. See "- Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" and "- Capital Standards" for a discussion of these additional restrictions on capital distributions.
The Bank will be subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of the Company or other affiliates. Such restrictions will prevent the Company and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in the Company or to or in any other affiliate will be limited, individually, to 10.0% of the Bank's capital and surplus (as defined by federal regulations), and such secured loans and investments will be limited, in the aggregate, to 20.0% of the Bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving the Company and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See also "- Prompt Corrective Action and Other Enforcement Mechanisms."
CAPITAL STANDARDS. The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as commercial loans.
The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS. Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed
minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At June 30, 1998, the Bank exceeded the required ratios for classification as "well capitalized."
An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines designed to assist the federal banking agencies in identifying and
addressing potential safety and soundness concerns before capital becomes
impaired. The guidelines set forth operational and managerial standards
relating to: (i) internal controls, information systems and internal audit
systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth,
(v) earnings, and (vi) compensation, fees and benefits. In addition, the
federal banking agencies have also adopted safety and soundness guidelines with
respect to asset quality and earnings standards. These guidelines provide six
standards for establishing and maintaining a system to identify problem assets
and prevent those assets from deteriorating. Under these standards, an insured
depository institution should: (i) conduct periodic asset quality reviews to
identify problem assets, (ii) estimate the inherent losses in problem assets and
establish reserves that are sufficient to absorb estimated losses, (iii) compare
problem asset totals to capital, (iv) take appropriate corrective action to
resolve problem assets, (v) consider the size and potential risks of material
asset concentrations, and (vi) provide periodic asset quality reports with
adequate information for management and the board of directors to assess the
level of asset risk. These new guidelines also set forth standards for
evaluating and monitoring earnings and for ensuring that earnings are sufficient
for the maintenance of adequate capital and reserves.
PREMIUMS FOR DEPOSIT INSURANCE. Although the Bank is a commercial bank, the Bank's deposit accounts are insured by the SAIF, as administered by the FDIC, up to the maximum amount permitted by law. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. Under this system as of June 30, 1998, SAIF members paid within a range of 0 to 27 basis points per $100 of insured deposits, depending upon the institution's risk classification. This risk classification is based on an institution's capital group and supervisory subgroup assignment. Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), the FDIC imposed a special assessment on SAIF members to capitalize the SAIF at the designated reserve level of 1.25% as of October 1, 1996. Based on the Bank's deposits as of March 31, 1995, the date for measuring the amount of the special assessment pursuant to the Paperwork Reduction Act, the
Bank paid a special assessment of $7.0 million in November 1996 to recapitalize the SAIF. This expense was recognized during the last quarter of fiscal 1996.
Pursuant to the Paperwork Reduction Act, the Bank pays, in addition to its normal deposit insurance premium as a member of the SAIF, an amount equal to approximately 6.4 basis points toward the retirement of the Financing Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the recovery of the savings and loan industry. Members of the Bank Insurance Fund ("BIF"), by contrast, pay, in addition to their normal deposit insurance premium, approximately 1.3 basis points. Under the Paperwork Reduction Act, the FDIC also is not permitted to establish SAIF assessment rates that are lower than comparable BIF assessment rates. Beginning no later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal for members of the BIF and the SAIF. The Paperwork Reduction Act also provides for the merging of the BIF and the SAIF by January 1, 1999 provided there are no financial institutions still chartered as savings associations at that time. Should the insurance funds be merged before January 1, 2000, the rate paid by all members of this new fund to retire the Fico Bonds would be equal.
INTERSTATE BANKING AND BRANCHING. The BHC Act currently permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including certain nationwide- and state-imposed concentration limits. The Bank has the ability, subject to certain restrictions, to acquire by acquisition or merger branches outside its home state. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS. The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based a performance-based evaluation system which bases CRA ratings on an institution's lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve Board will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. Based on an examination conducted in April 1997, the Bank was rated "Satisfactory" in complying with its CRA obligations.
YEAR 2000 COMPLIANCE. In May 1997, the Federal Financial Institutions Examination Council issued an interagency statement to the chief executive officers of all federally supervised financial institutions regarding year 2000 project management awareness. It is expected that unless financial institutions address the technology issues relating to the coming of the year 2000, there will be major disruptions in the operations of financial institutions. The statement provides guidance to financial institutions, providers of data services, and all examining personnel of the federal banking agencies regarding the year 2000 problem. The federal banking agencies intend to conduct year 2000 compliance examinations, and the failure to implement a year 2000 program may be seen by the federal banking agencies as an unsafe and unsound banking practice.
MARKET PRICE OF AND DIVIDENDS ON COMPANY
COMMON STOCK AND BANK COMMON STOCK
MARKET INFORMATION
From May 1991 through June 1998, all of the Bank's outstanding capital stock was privately owned either directly or indirectly through a bank holding company by two shareholders. Therefore, there was no trading in the Bank Common Stock during that period. The two shareholders sold all of their holdings in Bank Common Stock through a private placement to certain accredited investors, primarily institutions, during June 1998. From June 1998 until the date of this Written Consent Statement/Prospectus, there has been no trading in the Bank Common Stock by the investors, who are subject to substantial restrictions on their ability to sell the Bank Common Stock.
The Company has only recently been formed and as such, has never issued capital stock to the public. Consequently, there is no existing market for Company Common Stock. After consummation of the Reorganization, it is anticipated that the Company Common Stock will be traded in the over-the-counter market and most probably will not be, in the near term, listed on any exchange or on the Nasdaq Market.
As of the Record Date, the Bank has reserved 1,705,350 shares of Bank Common Stock for issuance upon the exercise of outstanding stock incentives granted pursuant to the Bank Incentive Plan and 196,650 shares that may be issued pursuant to stock incentives that may be granted in the future. Upon consummation of the Reorganization, the Company will assume the Bank's rights and obligations pursuant to the Bank Incentive Plan and under each of the outstanding incentives previously granted under the Bank Incentive Plan on the same terms and conditions.
Upon consummation of the Reorganization, up to 1% of the outstanding shares of Company Common Stock could be sold pursuant to Rule 144 under the Securities Act for the account of an affiliate of the Company during a three month period. For purposes of Rule 144, affiliates include the Company's directors and executive officers and the Bank's directors and executive officers.
DIVIDENDS
The Company has never paid a dividend. The Bank has not paid a dividend in the last five years. Upon consummation of the Reorganization, as a bank holding company without significant assets other than its equity interest in the Bank, the Company's ability to pay cash dividends will depend upon the dividends it receives from the Bank which, in turn, are subject to certain limitations. In addition, the Company's ability to pay dividends is limited by Delaware law. The Company does not intend to pay a dividend, but may consider the payment of dividends in the future. If a dividend is paid in the future, the dividend will be subject to determination and declaration by the board of directors of the Company, which will take into account a number of factors, including the financial condition of the Company and the Bank, and regulatory restrictions on the payment of dividends by the Bank to the Company, on which dividends the Company will be primarily dependent for its source of income. There can be no assurance that dividends will in fact be paid on the Company Common Stock, or that, if paid, such dividends will not be reduced or eliminated in future periods.
SHAREHOLDERS
As of the Record Date, there were two holders of record of Bank Common Stock. The Bank believes that the Common Stock is beneficially owned by approximately 164 persons and entities. As of the Record Date, there was one shareholder of record of Company Common Stock.
MANAGEMENT
DIRECTORS
The Bylaws of the Company require that the Company have no less than five directors and the Company Certificate requires that directors be divided into three classes, as nearly equal in number as possible, each class to serve for a term of three years, with approximately one-third of the directors elected annually.
All directors of the Bank became directors of the Company upon the Company's formation. Directors of the Bank are elected annually. Directors of the Bank are elected by the holders of Bank Common Stock, and upon consummation of the Reorganization, the Company will be the sole shareholder of the Bank. Shareholders of the Company will have no control, other than their ability to vote in the election of directors of the Company, over the selection or election of directors to the board of the Bank.
The following table sets forth for the directors and Named Executive Officers of the Company, such individual's name, age, and, if applicable, the year the director first became a director and the year the director's term as a director expires. The table also sets forth the number of shares and percentage of the Bank Common Stock beneficially owned by the directors, the Named Executive Officers, and all executive officers, as a group.
Shares of
Bank Common
Year First Current Stock
Name of Individual or Elected or Term to Beneficially Percent
Number of Persons in Group Age (1) Appointed (2) Expire Owned (3)(4) of Class
-------------------------- ----------- ----------------- ------------- ---------------- ----------
Dominic Ng 39 1992 1999 80,000 *
Herman Li 45 1998 1999 10,000 *
Jack C. Liu 40 1998 2000 -- --
Kenneth P. Slosser 34 1998 2000 -- --
Edward Zapanta 59 1998 2001 1,000 *
Julia Gouw 38 1997 2001 50,000 *
William Chu 42 n/a n/a 10,000 *
Douglas P. Krause 41 n/a n/a 30,000 *
Michael Tyminski 45 n/a n/a -- --
All directors and executive officers of
the Company as a group (14 persons) 231,000 *
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EXECUTIVE OFFICERS
The following table sets forth for the executive officers of the Company and the Bank, such individual's name, age, and position with the Company and/or the Bank.
Name Age (1) Position with Company or Bank
------------------------ ------- -----------------------------------------------------
Dominic Ng 39 Chairman of the Board, President, and Chief Executive
Officer of the Company and the Bank
Julia Gouw 38 Executive Vice President and Chief Financial Officer
of the Company and the Bank
John Stephan 43 Executive Vice President, Director of Retail Banking
of the Bank
Wayland M. Bourne 50 Senior Vice President, Commercial Services of the Bank
William Chu 42 Senior Vice President, Director of Planning and
Business Development of the Bank
Donald Chow 47 Senior Vice President, Commercial Loan Manager of the
Bank
Kenneth Fung 49 Senior Vice President, Deputy Director of Retail
Banking of the Bank
Douglas P. Krause 41 Senior Vice President, General Counsel, and Secretary
of the Company and the Bank
Victor Naramura 53 Senior Vice President, International Banking Manager
of the Bank
Michael Tyminski 45 Senior Vice President, Chief Credit Officer of the Bank
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The Executive Officers of the Company and Bank are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation, or removal by the Board of Directors.
BIOGRAPHICAL INFORMATION
The principal occupation during the past five years of each director and executive officer is set forth below. All directors and executive officers have held their present positions for at least five years, unless otherwise stated.
DOMINIC NG has served as a director and the President and Chief Executive Officer of the Bank since October 1992, and was elected Chairman of the Board in 1998. Mr. Ng has held the same positions with the Company since its formation. Mr. Ng also served as the director in charge of Chinese Business Services for the international accounting firm of Deloitte & Touche LLP. Mr. Ng serves on the board of directors of the
Los Angeles Chamber of Commerce, Town Hall Los Angeles, the Independent Bankers Association of America, The Anderson School at UCLA, United Way of Greater Los Angeles, National Association of Chinese American Bankers, and is the Chairman of the California State Treasurer's Financial Institutions Advisory Committee. Mr. Ng also serves on the Board of ESS Technology, Inc.
JULIA GOUW has served as Executive Vice President and Chief Financial Officer of the Bank since 1994 and as a director of the Bank since 1997, and has held these same positions with the Company since its formation. Ms. Gouw joined the Bank in July 1989 as Vice President and Controller. Prior to joining the Bank, Ms. Gouw was a Senior Audit Manager with the international accounting firm of KPMG Peat Marwick, LLP. Ms. Gouw is on the Board of Visitors of UCLA School of Medicine, a member of the Financial Executives' Institute and the California Society of CPA's and is a past president of the Financial Managers Society--Los Angeles Chapter.
HERMAN LI is the Chairman of C&L Restaurant Group, Inc., a franchisee of the Burger King Corporation, which owns and operates approximately 80 Burger King Restaurants. Mr. Li is the treasurer of the Southern California Burger King Franchisee's Association and a member of the executive committee, and co- chairman of the procurement committee, of the Diversity Action Council of the Burger King Corporation.
JACK C. LIU is an attorney, who has been Of Counsel to Morgan, Lewis & Bockius since 1996. Prior to that, Mr. Liu was Of Counsel to Sheppard, Mullin, Richter & Hampton, from 1990 to 1996. Mr. Liu represents a number of banks and financial institutions and high tech, industrial, real estate, and other companies, including many Asian companies doing business in the United States and United States companies doing business in Asia.
KENNETH P. SLOSSER is a senior vice president in the corporate finance group of the Placement Agent which he joined in December 1996. Prior to that time, Mr. Slosser served as an Assistant Director with the Office of Thrift Supervision, where he supervised savings associations located in California, Arizona, and Nevada.
EDWARD ZAPANTA is the Senior Medical Director of Health Care Partners Medical Group. Dr. Zapanta currently serves as a director of Times Mirror Corporation and Southern California Edison and is a member of the Board of Trustees of the University of Southern California.
JOHN STEPHAN has served as Executive Vice President and Director of Retail Banking of the Bank. Mr. Stephan joined the Bank in October 1997 and is charged with managing the retail branch network, retail bank marketing, retail operations, residential lending and consumer lending. Prior to joining the Bank, Mr. Stephan was Senior Vice President of Retail Banking at Great Western Bank where he managed all aspects of a 106 branch retail delivery network in Southern California. Mr. Stephan also served as Senior Vice President of Retail Banking at First Interstate Bank.
WAYLAND M. BOURNE serves as the Senior Vice President / Commercial Services of the Bank. Mr. Bourne joined the Bank in 1996 and is charged with building the commercial infrastructure that will allow the Bank to effectively differentiate itself and compete in the California banking arena. Mr. Bourne is responsible for cash management, and commercial non-credit products, sales, and service. Prior to joining the Bank, Mr. Bourne was a Senior Vice President at Metrobank, a Southern California regional business bank, where he developed its cash management and non-credit services programs. Mr. Bourne began his banking career at Union Bank, where he held a number of senior level positions.
WILLIAM CHU serves as the Senior Vice President, Director of Planning and Business Development of the Bank. Mr. Chu joined the Bank in June 1994. Mr. Chu created the commercial banking division for the Bank and manages three marketing teams which focus on commercial real estate, trade finance, and business banking loan products. Before joining the Bank, Mr. Chu was President and Chief Executive Officer of United Pacific Bank. Mr. Chu is a Certified Public Accountant.
DONALD CHOW serves as Senior Vice President and Commercial Lending Manager of the Bank. Mr. Chow has been with the Bank since April 1994. Mr. Chow has over 25 years of experience in commercial lending. Before joining the Bank, Mr. Chow was first Vice President and Senior Credit Officer for Mitsui Manufacturers Bank. Mr. Chow was also employed for over 10 years with Security Pacific National Bank where he held a number of positions, including Vice President and unit leader of commercial real estate lending.
KENNETH FUNG serves as Senior Vice President and Deputy Director of Retail Banking of the Bank. Mr. Fung has been with the Bank since 1990. As Deputy Director of Retail Banking, Mr. Fung oversees the retail branch network's commercial asset business development and marketing. Mr. Fung brings over 20 years of both domestic and international and commercial banking experience to the Bank and has held several management positions in various aspects of retail banking and branch network expansion in Hong Kong with the Hong Kong and Shanghai Banking Corporation, Plc.
DOUGLAS P. KRAUSE has served as Senior Vice President, General Counsel, and Secretary of the Bank since he joined the Bank in 1996 and has held these same positions with the Company since its formation. Prior to employment with the Bank, Mr. Krause was Corporate Senior Vice President and General Counsel of Metrobank. Prior to that, Mr. Krause was with the law firms of Dewey Ballantine and Jones, Day, Reavis and Pogue specializing in financial services. Mr. Krause is a member of the California Bar Association.
VICTOR NARAMURA serves as Senior Vice President and International Banking Manager of the Bank. Mr. Naramura joined the Bank in 1996 after spending over 20 years with The Hong Kong and Shanghai Banking Corporation, Plc as Senior Vice President and Head of the West Coast Region. Mr. Naramura has extensive experience in providing international trade credit facilities to importers and exporters and assisting foreign depositors, real estate investors and clients with overseas accounts. Prior to that, Mr. Naramura spent over 10 years with Security Pacific Bank as Manager of Credit Training and Officer of International Banking.
MICHAEL TYMINSKI serves as Senior Vice President and Chief Credit Officer of the Bank. Mr. Tyminski joined the Bank in April 1997 as Chief Credit Officer responsible for the Bank's credit administration. Prior to joining the Bank, Mr. Tyminski was Senior Credit Officer at Citicorp responsible for all credit risk management aspects of a $5 billion loan portfolio. During his 15-year career with Citicorp, Mr. Tyminski held a number of other senior level positions in commercial real estate, real estate corporate finance, corporate asset funding, and corporate banking.
DIRECTOR COMPENSATION
Directors of the Company are not compensated for service as directors of the Company. Nonemployee directors of the Bank receive an annual retainer of $7,000, plus $1,000 for each Board meeting of the Bank attended and $300 for each committee meeting of the Bank attended. The committee chair receives an additional $200 for each committee meeting attended. In addition, nonemployee directors have received 10,000 options to purchase Bank Common Stock at an exercise price of $10 per share, which options vest at the rate of 25% per year on each anniversary of the grant.
Directors of the Company and the Bank are also eligible to receive awards pursuant to the Bank Incentive Plan and upon consummation of the Reorganization, the Company Incentive Plan. See "Approval of East West Bancorp, Inc. 1998 Employee Stock Incentive Plan."
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE. It is expected that until the officers of the Company begin to devote significant time to the separate management of the Company's business, which is not expected to occur until such time as the Company becomes actively involved in additional businesses, the officers will only receive compensation for services as directors, officers, and employees of the Bank, and no separate compensation will be paid for their services to the Company. The following table sets forth the name and compensation of the Chief Executive Officer of the Bank and the Bank's four most highly compensated executive officers other than the Chief Executive Officer for the fiscal years ended December 31, 1997, 1996, and 1995.
Annual Compensation
------------------------------------------
Other annual All other
Name and principal position Year Salary Bonus compensation (1) compensation
--------------------------- ---- ------ ----- ---------------- ------------
Dominic Ng 1997 $296,321 $217,000 -- $5,541 (2)
Chairman, President, and Chief 1996 275,150 138,000 -- 5,541 (2)
Executive Officer 1995 254,901 127,500 -- 5,371 (2)
Julia Gouw 1997 120,786 51,000 -- 3,962 (3)
Executive Vice President, 1996 108,695 32,000 -- 3,754 (3)
Chief Financial 1995 99,567 29,000 -- 3,472 (3)
Officer and Director
William Chu 1997 142,579 32,000 -- 5,138 (4)
Senior Vice President and 1996 139,225 24,000 -- 5,213 (4)
Director of Planning and 1995 134,754 28,000 -- 4,646 (4)
Business Development
Michael Tyminski 1997 119,566 30,000 -- 50,000 (5)
Senior Vice President and 1996 -- -- -- --
Chief Credit Officer 1995 -- -- -- --
Douglas P. Krause 1997 114,506 36,500 -- --
Senior Vice President, General 1996 13,231 3,000 -- --
Counsel and Corporate 1995 -- -- -- --
Secretary
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(5) Relocation Allowance.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Bank entered into employment agreements with Mr. Ng and Ms. Gouw (the "Executives"). These employment agreements are intended to ensure that the Bank will be able to maintain a stable and competent management base.
The employment agreements provide for three-year terms. The term of the employment agreements is extended on a daily basis unless written notice of nonrenewal is given by the Board of Directors after conducting a performance evaluation of the respective Executive. The Bank has agreed to pay Mr. Ng an initial annual base salary of $450,000 and an annual cash bonus of up to 50% of his base salary, and to pay Ms. Gouw an initial annual base salary of $200,000, and an annual cash bonus of up to 40% of her base salary, in each case such bonus to be payable upon the satisfaction of performance criteria to be determined. The agreements provide that the Executives' base salaries will be reviewed annually.
In addition to the base salary and bonus, the agreements provide for, among
other things, participation in stock benefit plans and other fringe benefits
applicable to executive personnel. In the event the Bank chooses to terminate
the Executives' employment for any reasons other than for cause (as defined in
the agreements), or in the event of the Executive's resignation from the Bank
upon (i) failure to re-elect the Executive to Executive's current offices; (ii)
a material change in the Executive's functions, duties or responsibilities;
(iii) a relocation of the Executive's principal place of employment by more than
25 miles; (iv) liquidation or dissolution of the Bank; (v) a breach of the
agreement by the Bank; and (vi) the Executive's death or permanent disability;
the Executive or, in the event of death, the Executive's beneficiary, would be
entitled to receive an amount equal to the greater of (i) the remaining payments
due to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the agreement or (ii) three times the preceding taxable year's
base compensation. As of June 30, 1998, such payments upon the occurrence of
such an event are estimated to have a value of approximately $3.2 million. In
addition, the Executive may be entitled to an additional payment to the extent
the Executive is subject to an excise tax because such severance benefits
constitute "excess parachute payments," defined in the Internal Revenue Code of
1986, as amended (the "Code"). In general, under the Code, an "excess parachute
payment" is the amount by which payments contingent on a change in ownership or
control exceed three times the employee's average annual compensation over five
years.
The Bank has entered into employment agreements with each of its other executive officers, including Mr. Chu, Mr. Tyminski, and Mr. Krause, which provide that should any of the executives be terminated without cause, the Bank shall pay such executive a sum equal to six months' salary. The agreement with Mr. Stephan also provides that should Mr. Stephan be terminated without cause within 12 months following a change of control, the Bank shall pay Mr. Stephan a sum equal to twenty four months' salary. If such agreements are terminated without cause, such executive officers would be entitled to receive payments which are estimated to have an aggregate value of approximately $908,000 at June 30, 1998.
Although the above-described employment agreements could increase the cost of any acquisition of control of the Company or the Bank, management of the Company and the Bank do not believe that the terms thereof would have a significant anti-takeover effect.
EMPLOYEE STOCK INCENTIVE PLAN
Employees of the Company and the Bank are also eligible to receive awards pursuant to the Bank Incentive Plan and upon consummation of the Reorganization, the Company Incentive Plan. See "Approval of East West Bancorp, Inc. 1998 Employee Stock Incentive Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as provided herein, there are no existing or proposed material transactions between the Bank or the Company and any of its executive officers, directors, or the immediate family or associates of any of the foregoing persons. Mr. Slosser, a director of the Company and the Bank, is a senior vice president of the Placement Agent. The Bank has entered into an agreement whereby the Placement Agent will provide the Bank and the Company financial advisory services. In addition, in connection with the private placement of the Bank's securities privately held by the Bank's two former shareholders to certain qualified institutional buyers, the Placement Agent acquired warrants to purchase up to 475,000 shares of Company Common Stock at a per share purchase price of $10.
APPROVAL OF EAST WEST BANCORP, INC. 1998 EMPLOYEE STOCK INCENTIVE PLAN
SUMMARY OF PLAN
GENERAL. The Board of Directors of the Bank recently adopted the East-West Bank 1998 Employee Stock Incentive Plan. Pursuant to the Bank Incentive Plan, officers, directors, employees and consultants of the Bank are eligible to receive shares of Bank Common Stock or other securities or benefits with a value derived from the value of the Bank Common Stock. Upon consummation of the Reorganization, all obligations of the Bank under the Bank Incentive Plan will become obligations of the Company on the same terms and conditions, with the exception that securities issued pursuant to the Bank Incentive Plan or derived from the value of Bank Common Stock will become Company Common Stock.
The purpose of the Company Incentive Plan is to enable the Company to attract, retain and motivate officers, directors, employees and consultants by providing for or increasing their proprietary interests in the Bank and, in the case of non-employee directors, to attract such directors and further align their interests with those of the Bank's shareholders by providing or increasing their proprietary interests in the Bank.
The maximum number of shares of Bank Common Stock that may be issued pursuant to awards granted under the Bank Incentive Plan will be 1,902,000 (subject to adjustment to prevent dilution). As of the date of this Written Consent Statement/Prospectus, 1,705,350 shares of Bank Common Stock were subject to awards under the Bank Incentive Plan.
The Board of Directors believes the Company Incentive Plan is beneficial to the Company, the Bank and the Company's shareholder and prospective shareholders. The Company Incentive Plan is subject to approval of the California Commissioner of Corporations and the holders of a majority of the issued and outstanding shares of the Bank as prospective shareholders of the Company, subject to any required changes of any regulatory agency.
Shares of the Company's Common Stock to be issued upon exercise of stock options need not be registered with the SEC. However, the Company intends to register the Company Common Stock reserved for issuance under the Company Incentive Plan and the Purchase Plan with the SEC prior to issuing any Company Common Stock upon exercise thereof.
ADMINISTRATION. The Company Incentive Plan is administered by a committee of two or more directors appointed by the Board of Directors of the Company (the "Company Incentive Committee"). The Company Incentive Committee has full and final authority to select the recipients of awards and to grant such awards. Subject to the provisions of the Company Incentive Plan, the Company Incentive Committee has a wide degree of flexibility in determining the terms and conditions of awards and the number of shares to be issued pursuant thereto, including conditioning the receipt or vesting of awards upon the achievement by the Bank and the Company of specified performance criteria. The expenses of administering the Company Incentive Plan are borne by the Company.
TERMS OF AWARDS. The Company Incentive Plan authorizes the Company Incentive Committee to enter into any type of arrangement with an eligible recipient that, by its terms, involves or might involve the issuance of Company Common Stock or any other security or benefit with a value derived from the value of Company Common Stock. Awards are not restricted to any specified form or structure and may include, without limitation, sales or bonuses of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares. An award may consist of one such security or benefit or two or more of them in tandem or in the alternative.
An award granted under the Company Incentive Plan may include a provision accelerating the receipt of benefits upon the occurrence of specified events, such as a change of control of the Bank or a dissolution, liquidation, merger, reclassification, sale of substantially all of the property and assets of the Bank or other significant corporate transactions. The Committee may grant options that either are intended to be incentive stock options or non-qualified stock options. Awards to consultants and non-employee directors may only be non-qualified stock options.
Subject to limitations imposed by law, the Board of Directors may amend or terminate the Company Incentive Plan at any time and in any manner. However, no such amendment or termination may deprive the recipient of an award previously granted under the Company Incentive Plan of any rights thereunder without his consent.
Awards may not be granted under the Company Incentive Plan after the tenth anniversary of the adoption of the Company Incentive Plan. Although any award that was duly granted on or prior to such date may thereafter be exercised or settled in accordance with its terms, no shares of Company Common Stock may be issued pursuant to any award after the twentieth anniversary of the adoption of the Company Incentive Plan.
COMPARISON TO THE BANK INCENTIVE PLAN
The Company Incentive Plan and the Bank Incentive Plan are identical in all material respects.
NEW PLAN BENEFITS
The following table presents information on the number of shares with respect to which options will be exchanged pursuant to the Plan of Reorganization. All grants outstanding under the Bank Incentive Plan immediately prior to the Reorganization will automatically be converted to grants under the Company Incentive Plan upon consummation of the Reorganization. No additional awards under the Company Incentive Plan will be made in connection with the Reorganization.
EAST WEST BANCORP, INC. 1998 EMPLOYEE STOCK INCENTIVE PLAN
Name and principal position Dollar Value(1) Number of Options --------------------------- --------------- ----------------- Dominic Ng Chairman, President, and Chief Executive Officer n/a 1,069,875 Julia Gouw Executive Vice President, Chief Financial Officer and Director n/a 356,625 William Chu Senior Vice President and Director of Planning and Business Development n/a 10,000 Michael Tyminski Senior Vice President and Chief Credit Officer n/a -- Douglas P. Krause Senior Vice President, General Counsel and Corporate Secretary n/a 25,000 All Executive Officers as a group (10 persons) n/a 1,512,000 All non-employee Directors as a group (4 persons) n/a 40,000 All non-executive officer employees as a group (367 persons) n/a 153,350 |
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is only a summary of the principal federal income tax consequences of the compensation Awards to be granted under the Plan, and is based on existing federal law (including administrative regulations and rulings) which is subject to change, in some cases retroactively. This discussion is also qualified by the particular circumstances of individual participants, which may substantially alter or modify the federal income tax consequences herein discussed. Because of the wide range of Awards that may be made under the Plan, the following discussion is confined to the most common forms of Awards likely to be made. In addition, the following discussion does not address state, local or foreign income taxes or any taxes other than income taxes.
INCENTIVE STOCK OPTIONS. Generally under present law, when an option qualifies as an incentive stock option under Section 422 of the Code: (i) an optionee will not recognize taxable income either upon the grant or the exercise of the option, (ii) any gain or loss upon a qualifying disposition of the shares acquired by the exercise of the option will be treated as capital gain or loss, and (iii) no deduction will be allowed to the Company for federal income tax purposes in connection with the grant or exercise of an incentive stock option or a qualifying disposition of the shares. A disposition by an optionee of stock acquired upon exercise of an incentive stock option will constitute a qualifying disposition if it occurs more than two years after the grant of the option, and one year after the transfer of the shares to the optionee. If
such stock is disposed of by the optionee before the expiration of those time limits, the transfer may be a "disqualifying disposition," in which case the optionee will recognize ordinary income equal to the lesser of (i) the aggregate fair market value of the shares as of the date of exercise less the option price, or (ii) the amount realized on the disqualifying disposition less the option price. The Company would become entitled to a corresponding deduction, subject to satisfaction of any applicable withholding or reporting obligations. Ordinary income from a disqualifying disposition will constitute ordinary compensation income. Any gain in addition to the amount reportable as ordinary income on a "disqualifying disposition" generally will be capital gain. The Company does not obtain a deduction to the extent gain on disposition of the shares is capital gain
Upon the exercise of an incentive stock option, the difference between the fair market value of the stock subject to the exercised option on the date of exercise and the option exercise price is treated as an adjustment to taxable income in that taxable year for alternative minimum tax purposes, as are a number of other items specified by the Code. Such adjustments (along with tax preference items) form the basis for the alternative minimum tax (presently at graduated rates for individuals), which may apply depending on the amount of the computed "regular tax" of the employee for that year. Under certain circumstances the amount of alternative minimum tax is allowed as a carryforward credit against regular tax liability in subsequent years. The Company does not obtain a deduction due to an optionee's incurrence of the alternative minimum tax.
NON-QUALIFIED STOCK OPTIONS. In the case of stock options which do not qualify as an incentive stock option (non-qualified stock options), no income generally is recognized by the optionee at the time of the grant of the option. Under present law the optionee generally will recognize ordinary income at the time the non-qualified stock option is exercised equal to the aggregate fair market value of the shares acquired less the option price. Ordinary income from a non-qualified stock option will constitute compensation for which withholding or reporting may be required under federal and state law.
Subject to special rules applicable when an optionee uses stock of the Company to exercise an option, shares acquired upon exercise of a non-qualified stock option will have a tax basis equal to their fair market value on the exercise date or other relevant date on which ordinary income is recognized and the holding period for the shares generally will begin on the date of exercise or such other relevant date. Upon subsequent disposition of the shares, the optionee generally will recognize capital gain or loss. Provided the shares are held by the optionee for more than one year prior to disposition, such gain or loss will be long-term capital gain or loss. In the case of shares held for more than 18 months, the maximum individual federal tax rate on such gain currently is 20%.
The Company will generally be entitled to a deduction equal to the ordinary income (i.e., compensation) portion of the gain recognized by the optionee in connection with the exercise of a non-qualified stock option provided that the Company complies with any applicable withholding or reporting requirements of federal and state law. The Company does not obtain a deduction with respect to the capital gain on disposition of the shares.
OPTIONS TO NON-EMPLOYEE DIRECTORS. These options are non-qualified stock options for tax purposes, and the tax rules applicable to them are the same as the rules for non-qualified stock options described above. However, since the optionees are not employees, income tax withholding would not be required in order for the Company to qualify for its income tax deduction.
STOCK APPRECIATION RIGHTS (SARS). A recipient of a stock appreciation right will be taxed (and the Company will receive a corresponding deduction) when the recipient exercises the stock appreciation right. Income generated by such exercise will be ordinary compensation income and will be measured by the
amount of cash received or the then-current fair market value of the stock received upon such event. The Company will have a withholding or reporting obligation.
RESTRICTED STOCK. The income and deduction events in the case of restricted stock grants generally are deferred until the restrictions on the stock lapse. At that time, the recipient would report as ordinary compensation income the difference between the then-current fair market value of the stock and the amount (if any) paid for the stock. Subject to applicable withholding or reporting obligations, the Company is entitled to a corresponding deduction. The recipient may elect to report the income with respect to the restricted stock upon its receipt rather than at the time of the lapse of the restrictions. In such case, the valuation used for income and deduction purposes is the value of the restricted stock at the time of receipt, disregarding any restrictions other than those that will never lapse. Subject to satisfaction of any applicable withholding or reporting obligations, the Company's deduction also would be accelerated in the event of such an election.
PERFORMANCE SHARES AND PERFORMANCE UNITS. A recipient of a performance share or performance unit will be taxed (and the Company will receive a corresponding deduction) when the recipient receives payout at the end of the performance period. The recipient will have ordinary compensation income measured by the cash received and/or the then-current fair market value of the stock received upon such event. In the case of a performance share or performance unit granted to an employee, the Company will have a withholding or reporting obligation.
RESTRICTION ON DEDUCTIONS. Not every amount paid as compensation for services is currently deductible. For example, depending upon the services rendered, some compensation payments must be capitalized or added to inventory costs. Two other restrictions potentially applicable to deductions for executive compensation payments are the restriction on deduction of so-called "excess parachute payments" and the Code Section 162(m) deduction limit of $1,000,000 per year for certain executive compensation (discussed earlier herein). Whether any such restrictions will apply to specific payments of compensation by the Company cannot be predicted at this time.
The description herein is intended to highlight and summarize the principle terms of the Company Incentive Plan. For further information, shareholders are referred to a copy of the Company Incentive Plan which is attached hereto as Annex II.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF EAST WEST
BANCORP, INC. 1998 EMPLOYEE STOCK INCENTIVE PLAN.
APPROVAL OF EAST WEST BANCORP, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN
SUMMARY OF PLAN
The Stock Purchase Plan provides for eligible employees of the Company and its subsidiaries to participate in the ownership of the Company by acquiring the right to purchase shares of Company Common Stock. The Stock Purchase Plan covers a total of 1,000,000 shares of Company Common Stock. The purpose of the Stock Purchase Plan is to promote the interests of the Company by providing a method whereby employees of the Company may participate in the ownership of the Company by acquiring an interest in the Company's growth and productivity. The Stock Purchase Plan is intended to be an employee stock purchase plan within the meaning of Section 423 of the Code.
THE OPTIONS. The Stock Purchase Plan provides that, during each specified semi-annual period ("Option Period"), the Company may grant options to participants to purchase, at the termination of that Option Period, shares of Company Common Stock under the Stock Purchase Plan. Semi-annual option periods commence on April 1 and October 1 of each year.
The price at which each share covered by an option under the Stock Purchase Plan may be purchased is in all instances the lower of (i) 85% of the fair market value of a share of Company Common Stock on the first day of the applicable Option Period, and (ii) 85% of the fair market value of a share of Company Common Stock on the last day of that Option Period.
Unless terminated, options granted at the commencement of an Option Period are exercised automatically on the last day of that Option Period. An option terminates upon a voluntary withdrawal from participation in the Stock Purchase Plan by a participant, which may be effected any time prior to the last day of the Option Period by completing a notice of termination form. An option also terminates automatically if the participant holding the option ceases to be employed by the Company or a subsidiary of the Company for any reason (including death, disability, or retirement) prior to the last day of the Option Period.
An option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution, and may be exercised, during the lifetime of the optionee, only by such optionee. Optionees do not have rights as shareholders with respect to option shares until they have exercised their options.
ELIGIBILITY AND PARTICIPATION. All employees of the Company and its subsidiaries who, as of the date options are to be granted under the Stock Purchase Plan, are customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year are eligible to participate in the Stock Purchase Plan at their election. However, no employee may be granted an option if such employee would immediately thereafter own, directly or indirectly, 5% or more of the combined voting power of all classes of stock of the Company or a subsidiary, as determined pursuant to Section 423(b)(3) of the Code.
Eligible employees may enroll as participants in the Stock Purchase Plan by executing a form provided by the Company prior to the commencement of each Option Period on which they may designate the portion of their compensation, in any amount up to the stated maximum set forth on the form, to be deducted from regular payroll compensation, and accumulated for the purchase of shares of Company Common Stock. Once chosen, the contribution for that Option Period can be decrease only once during that Option Period without terminating the option. Contributions cannot be increased during an Option Period. The aggregate maximum dollar amount which may be designated by a participant to be applied to the purchase of shares under the Stock Purchase Plan may not exceed the lesser of 25% of base compensation or $25,000.
ADMINISTRATION AND AMENDMENT. The Stock Purchase Plan will be administered by the Board of Directors or a committee named by the Board of Directors. The Board of Directors will be empowered to interpret and construe any provision of the Stock Purchase Plan and may adopt such rules and regulations for administering the Stock Purchase Plan as it deems necessary.
The Board of Directors of the Company may at any time, insofar as is
permitted by law, alter, amend, suspend or discontinue the Stock Purchase Plan
with respect to any shares not already subject to options; provided, however, to
the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
regulation), the Company will obtain shareholder approval in such manner and
such a degree as so required.
To date, no benefits have been granted under the Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE EAST WEST BANCORP, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN.
COMMISSION'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Company, the Company has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure during the Bank's two most recent fiscal years or any subsequent interim period.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in this written consent statement/prospectus and elsewhere in the registration statement, have been audited by Deloitte & Touche LLP, independent accountants, as stated in their reports appearing herein, and have been so included in reliance on the report of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Company Common Stock being registered with the SEC will be passed upon for the Company and the Bank by Manatt, Phelps & Phillips, LLP. Manatt, Phelps & Phillips, LLP also passed upon certain other legal matters for the Company and the Bank.
INDEX TO FINANCIAL STATEMENTS
EAST WEST BANK AND SUBSIDIARIES
Interim Consolidated Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1998 (unaudited) and Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (unaudited)
Notes to Interim Consolidated Financial Statements (unaudited)
Independent Auditors' Report
Consolidated Financial Statements
Consolidated Statements of Financial Condition as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Financial Statements of the Company are not presented herein because the Company has no assets and liabilities and has not conducted any business other than of an organizational nature. All schedules are omitted because the required information is not applicable or is included in the Financial Statements of the Bank and the related notes.
INDEX TO FINANCIAL STATEMENTS
EAST WEST BANK AND SUBSIDIARIES
Interim Consolidated Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1998 (unaudited) and F - 2 December 31, 1997 Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997 F - 3 (unaudited) Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1998 F - 4 (unaudited) and Years Ended December 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 F - 5 (unaudited) Notes to Interim Consolidated Financial Statements (unaudited) F - 7 Independent Auditors' Report F - 10 Consolidated Financial Statements Consolidated Statements of Financial Condition as of December 31, 1997 and 1996 F - 11 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and F - 12 1995 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, F - 13 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and F - 14 1995 Notes to Consolidated Financial Statements F - 16 |
Financial Statements of the Company are not presented herein because the Company has no assets and liabilities and has not conducted any business other than of an organizational nature. All schedules are omitted because the required information is not applicable or is included in the Financial Statements of the Bank and the related notes.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
JUNE 30, DECEMBER 31,
1998 1997
--------------- ---------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 245,035 $ 347,601
Investment securities available for sale at fair value (with amortized cost
of $508,233 at June 30, 1998 and $376,138 at December 31, 1997) 508,353 374,810
Loans receivable, net (with allowance for loan losses of $14,213
at June 30, 1998 and $12,273 at December 31, 1997) 962,485 927,944
Loans held for sale, at lower of cost or market 6,909 6,906
Investment in Federal Home Loan Bank stock, at cost 18,085 13,881
Other real estate owned, net 5,386 3,217
Real estate investment 14,351 14,388
Premises and equipment, net 23,653 24,192
Premiums on deposits acquired, net 3,170 3,692
Excess of purchase price over fair value of net assets acquired, net 3,689 3,787
Accrued interest receivable and other assets 17,597 13,921
--------------- ---------------
TOTAL $ 1,808,713 $ 1,734,339
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposit accounts $ 1,239,280 $ 1,235,072
Other borrowings 155,953 139,000
Federal Home Loan Bank advances 257,000 211,000
Notes payable 1,615 1,615
Accrued expenses and other liabilities 9,382 9,461
Deferred income taxes 2,607 2,781
--------------- ---------------
Total liabilities 1,665,837 1,598,929
FAIR VALUE OF NET ASSETS ACQUIRED IN EXCESS
OF PURCHASE PRICE, NET 2,651 2,858
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY
Common stock, stated value $1 per share; 50,000,000 shares
authorized; 23,775,000 shares issued and outstanding in 1998;
and 110,000,000 shares issued and outstanding in 1997 23,775 110,000
Additional paid-in capital 86,225
Accumulated other comprehensive loss:
Unrealized losses on investment securities available for sale, net of tax (310) (1,138)
Retained earnings 30,535 23,690
--------------- ---------------
Total stockholders' equity 140,225 132,552
--------------- ---------------
TOTAL $ 1,808,713 $ 1,734,339
=============== ===============
|
See notes to interim consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1998 1997
-------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees $ 41,139 $ 34,123
Investment securities available for sale 17,858 17,662
-------------- ------------
Total interest and dividend income 58,997 51,785
-------------- ------------
INTEREST EXPENSE:
Customer deposit accounts 25,065 23,472
Federal Home Loan Bank advances 4,774 1,381
Other borrowings 3,507 5,286
-------------- ------------
Total interest expense 33,346 30,139
-------------- ------------
NET INTEREST INCOME BEFORE LOSS PROVISION 25,651 21,646
PROVISION FOR LOAN LOSSES 3,325 2,838
-------------- ------------
NET INTEREST INCOME AFTER LOSS PROVISION 22,326 18,808
-------------- ------------
NONINTEREST INCOME:
Loan fees 1,139 777
Branch fees 1,246 990
Letters of credit fees and commissions 1,041 499
Net gain on sales of investment securities available for sale 408 1,537
Amortization of fair value of net assets acquired in excess of purchase price 208 208
Other operating income 235 236
-------------- ------------
Total noninterest income 4,277 4,247
-------------- ------------
NONINTEREST EXPENSE:
Compensation and employee benefits 8,613 7,946
Net occupancy 2,436 2,238
Deposit insurance premiums and regulatory assessments 423 80
Data processing 638 590
Amortization of premiums on deposits acquired and excess of
purchase price over fair value of net assets acquired 621 621
Other real estate owned operations, net (195) 165
Other operating expenses 3,458 2,944
-------------- ------------
Total noninterest expense 15,994 14,584
-------------- ------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 10,609 8,471
PROVISION FOR INCOME TAXES 3,764 3,457
-------------- ------------
NET EARNINGS $ 6,845 $ 5,014
============== ============
BASIC AND DILUTED EARNINGS PER SHARE (1) $ 0.29 $ 0.21
AVERAGE NUMBER OF SHARES OUTSTANDING (1) 23,775,000 23,775,000
|
(1) Adjusted to reflect the 118,875 for 550,000 reverse stock split effective June 11, 1998.
See notes to interim consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCK-
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE HOLDERS'
STOCK CAPITAL INCOME (LOSS) EARNINGS INCOME EQUITY
------------------------------------------------------------- --------- ------------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
BALANCE, JANUARY 1, 1995 $ 100 $ 67,721 $(2,808) $ 8,430 $ 73,443
Comprehensive income
Net earnings 1,043 $ 1,043 1,043
Other comprehensive income, net of tax
Net change in unrealized losses on
investment securities available for sale,
net of tax 1,625 1,625 1,625
-------
Comprehensive income 2,668
-------
Capital contribution 42,179 42,179
Common stock issued in relation
to the conversion to a
state-chartered commercial bank 67,721 (67,721) -
-------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 110,000 - (1,183) 9,473 118,290
Comprehensive income
Net earnings 3,206 3,206 3,206
Other comprehensive income, net of tax
Net change in unrealized loss
on investment securities available
for sale, net of tax 879 879 879
-------
Comprehensive income 4,085
-------- -------- ------- ------- ------- --------
BALANCE, DECEMBER 31, 1996 110,000 - (304) 12,679 122,375
Comprehensive income
Net earnings 11,011 11,011 11,011
Other comprehensive income, net of tax
Net change in unrealized loss
on investment securities available
for sale, net of tax (834) (834) (834)
-------
Comprehensive income 10,177
-------- -------- ------- ------- ------- --------
BALANCE, DECEMBER 31, 1997 110,000 - (1,138) 23,690 132,552
Comprehensive income
Net earnings (unaudited) 6,845 6,845 6,845
Reverse stock split (unaudited) (86,225) 86,225 -
Other comprehensive income, net of tax
Net change in unrealized loss
on investment securities available
for sale, net of tax (unaudited) 828 828 828
-------
Comprehensive income (unaudited) 7,673
-------- -------- ------- ------- ------- --------
BALANCE, JUNE 30, 1998 (unaudited) $ 23,775 $ 86,225 $ (310) $30,535 $140,225
======== ======== ======= ======= ========
|
DISCLOSURE OF RECLASSIFICATION AMOUNT FOR JUNE 30, 1998:
Unrealized holding gains arising during period, net of tax (unaudited) $ 1,236
Less: reclassification adjustment for gains included in net income, net of tax (unaudited) (408)
-------
Net unrealized gains on investment securities, net of tax (unaudited) $ 828
=======
|
See notes to interim consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,845 $ 5,014
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Net amortization of premiums 895 505
Depreciation and amortization 1,086 976
Net loan fees deferred 1,040 358
Deferred tax provision (726) (1,141)
Provision for loan losses 3,325 2,838
Provision for other real estate losses 179 162
Net gains on sales of investment securities available for sale and other assets (1,168) (1,984)
Federal Home Loan Bank stock dividends (383) (313)
Proceeds from sale of loans held for sale 45,246 37,869
Originations of loans held for sale (42,870) (29,562)
(Increase) decrease in accrued interest receivable and other assets (3,901) 266
(Decrease) increase in accrued expenses and other liabilities (80) 821
--------- ---------
Total adjustments 2,643 10,795
--------- ---------
Net cash provided by operating activities 9,488 15,809
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans (72,667) (16,104)
Purchase of:
Premises and equipment (549) (1,046)
Federal Home Loan Bank stock (3,820) -
Loans (6,530) (140)
Investment securities available for sale (364,753) (302,697)
Real estate investment (469) -
Proceeds from sale, maturity, redemption or repayment of:
Investment securities available for sale 268,230 337,848
Other real estate owned 1,342 2,380
Principal repayments on foreclosed properties - 2
--------- ---------
Net cash (used in) provided by investing activities (179,216) 20,243
--------- ---------
|
(Continued)
See notes to interim consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- ----------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits 4,209 (24,304)
Proceeds from Federal Home Loan Bank advances 763,608 -
Repayment of Federal Home Loan Bank advances (717,608) (9,000)
Net increase in other borrowings 16,953 56,000
--------- --------
Net cash provided by financing activities 67,162 22,696
--------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (102,566) 58,748
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 347,601 292,570
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 245,035 $351,318
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 32,397 $ 29,985
Income tax payments, net $ 5,245 $ 4,650
Noncash investing and financing activities:
Other real estate acquired through foreclosure $ 4,039 $ 2,140
Loans made to facilitate sales of other real estate owned $ 582 $ 909
Mortgage loans exchanged for investment securities available for sale $ 35,875 $ -
|
See notes to interim consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of East West Bank and Subsidiaries (the "Bank"), are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Bank's Annual Report for the year ended December 31, 1997. A summary of the Bank's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the 1997 Annual Report.
In the opinion of management, all adjustments generally comprised of normal and recurring accruals necessary for fair presentation of the interim financial statements have been included and all intercompany transactions and accounts have been eliminated in consolidation. Operating results for the six months ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998.
The Bank has adopted SFAS No. 128, "Earnings per Share," effective for periods ending after December 15, 1997, and SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. Adoption of these accounting standards did not affect previously reported earnings per share data for fiscal years ending prior to January 1, 1998.
In February 1998, SFAS No. 132, "Statement on Employers' Disclosures about Pensions and Other Postretirement Benefits," was issued and effective for fiscal years beginning after December 15, 1997. The adoption of this standard is not expected to have a material impact on the Bank's consolidated financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued and effective for fiscal years beginning after June 15, 1999. Management of the Bank has not yet determined whether the adoption of this standard will have a material impact on the Bank's results of operations or financial position when adopted.
Certain reclassification of 1997 amounts were made in order to conform to the 1998 presentation, none of which affect previously reported net income.
EAST WEST BANK AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. STOCK OPTIONS AND WARRANTS
The Bank adopted the 1998 Employee Stock Incentive Plan on June 25, 1998. Under the Plan, the Bank may grant options not to exceed 1,902,000 shares of common stock over a ten-year period. The initial awards under the Plan were granted on June 25, 1998 with a four-year vesting period and a ten-year contractual life. As of June 30, 1998, 30,000 options had been granted to nonemployee directors under the Plan. The Bank also granted 475,500 stock warrants to its consultants on June 12, 1998 with a five-year contractual life.
The Bank applies SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for its Stock Plan. Since no significant compensation cost was incurred as of June 30, 1998, the Bank's net income and earnings per share for the six months ended June 30, 1998 and 1997 were not affected by the adoption of SFAS No. 123.
A summary of the Bank's stock options and warrants as of June 30, 1998 and changes during the six months ended June 30, 1998 is presented below:
STOCK OPTIONS STOCK WARRANTS
------------------------------------ ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------------- -------------- ------------- ------------
Outstanding at December 31, 1997 - $ - - $ -
Granted 1,676,500 10.00 475,500 10.00
-------------- -------------- ------------- ------------
Outstanding at June 30, 1998 1,676,500 $ 10.00 475,500 $ 10.00
============== ============== ============= ============
Options/warrants exercisable at June 30, 1998 None 475,500
Weighted average fair value of
options/warrants granted during the period $ 10.00 $ 10.00
|
3. SIGNIFICANT TRANSACTIONS
In April 1998, the Bank exchanged $35.9 million of mortgage loans for investment securities available for sale. No gain or loss was realized as a result of this transaction.
4. LOANS TO OFFICERS AND DIRECTORS
One of the Bank's directors is a guarantor of an extension of credit to a commercial business. At June 30, 1998, total approved commitment amounted to $680,000 with an outstanding balance of $180,000.
EAST WEST BANK AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
CREDIT EXTENSIONS - In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. The Bank does not anticipate losses as a result of these transactions; however, the commitments are a component of the allowance for loan losses. Commercial and standby letters of credit totaled $126,899,000 and $87,737,000 at June 30, 1998 and December 31, 1997, respectively. In addition, the Bank had unfunded loan commitments of $178,490,000 and $171,656,000 at June 30, 1998 and December 31, 1997, respectively.
LITIGATION - The Bank is a party to various legal proceedings arising in the normal course of business. While it is difficult to predict the ultimate outcome of such litigation, the Bank does not expect that such litigation will have a material adverse effect on its financial position as of June 30, 1998.
LEASE COMMITMENTS - The Bank conducts a portion of its operations utilizing leased premises and equipment under operating leases. Rental expense amounted to $682,000 and $530,000 for the six months ended June 30, 1998 and 1997, respectively.
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1998, East West Bankcorp, Inc. (the "Company"), a newly formed Delaware corporation, has been organized at the direction of the Bank's Board of Directors for the purpose of becoming a bank holding company. The Company will acquire all of the outstanding shares of the Bank by issuing, subject to certain limitations, common stock in the Company to each of the Bank's shareholders, in exchange for all of the outstanding shares of the Bank's common stock. Upon approval of the Plan of Reorganization and Merger Agreement, the Bank will become a subsidiary of the newly formed holding company.
Upon completion of the reorganization, the Company's 1998 Employee Stock Incentive Plan will replace the Bank's 1998 Employee Stock Incentive Plan. Further, the Company has adopted the 1998 Employee Stock Purchase Plan to provide eligible employees of the Company and its subsidiaries the opportunity to participate in the ownership of the Company by acquiring the right to purchase shares of the Company's common stock at a discount. The Purchase Plan covers a total of 1,000,000 shares of the Company Common Stock.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
East West Bank and Subsidiaries
San Marino, California:
We have audited the accompanying consolidated statements of financial condition of East West Bank and subsidiaries (the "Bank") as of December 31, 1997, and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of East West Bank and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
January 30, 1998
Los Angeles, California
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 347,601 $ 292,570
Investment securities available for sale at fair value 374,810 406,468
Loans receivable, net 927,944 851,973
Loans held for sale, at lower of cost or market 6,906 10,667
Investment in Federal Home Loan Bank stock, at cost 13,881 10,074
Other real estate owned, net 3,217 3,491
Real estate investment 14,388
Premises and equipment, net 24,192 23,861
Premiums on deposits acquired, net 3,692 4,737
Excess of purchase price over fair value of net assets acquired, net 3,787 3,984
Accrued interest receivable and other assets 13,921 13,722
---------- ----------
TOTAL $1,734,339 $1,621,547
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposit accounts $1,235,072 $1,182,886
Other borrowings 139,000 244,000
Federal Home Loan Bank advances 211,000 55,000
Notes payable 1,615
Accrued expenses and other liabilities 9,461 8,871
Deferred income taxes 2,781 5,141
---------- ----------
Total liabilities 1,598,929 1,495,898
FAIR VALUE OF NET ASSETS ACQUIRED IN EXCESS
OF PURCHASE PRICE, NET 2,858 3,274
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY:
Common stock, stated value $1 per share; 200,000,000 shares
authorized; 110,000,000 shares issued and outstanding 110,000 110,000
Unrealized losses on investment securities available for sale, net of tax (1,138) (304)
Retained earnings 23,690 12,679
---------- ----------
Total stockholders' equity 132,552 122,375
---------- ----------
TOTAL $1,734,339 $1,621,547
========== ==========
|
See notes to consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees $ 72,577 $ 62,706 $ 59,648
Investment securities available for sale 34,515 34,170 25,707
----------- ----------- -----------
Total interest and dividend income 107,092 96,876 85,355
----------- ----------- -----------
INTEREST EXPENSE:
Customer deposit accounts 48,394 49,716 48,760
Federal Home Loan Bank advances 5,441 3,170 3,326
Other borrowings 8,811 4,382 2,290
----------- ----------- -----------
Total interest expense 62,646 57,268 54,376
----------- ----------- -----------
NET INTEREST INCOME BEFORE LOSS PROVISION 44,446 39,608 30,979
PROVISION FOR LOAN LOSSES 5,588 4,398 6,200
----------- ----------- -----------
NET INTEREST INCOME AFTER LOSS PROVISION 38,858 35,210 24,779
----------- ----------- -----------
NONINTEREST INCOME:
Loan fees 1,688 1,779 1,034
Branch fees 2,091 1,702 1,401
Letters of credit fees and commissions 1,166 453 136
Net gain (loss) on sales of investment securities
available for sale 2,717 492 (215)
Amortization of fair value of net assets acquired in
excess of purchase price 415 415 415
Other operating income 416 730 731
----------- ----------- -----------
Total noninterest income 8,493 5,571 3,502
----------- ----------- -----------
NONINTEREST EXPENSE:
Compensation and employee benefits 15,732 12,884 10,788
Net occupancy 4,646 4,110 4,172
Deposit insurance premiums and regulatory assessments 148 2,721 2,584
SAIF recapitalization assessment 7,040
Data processing 1,239 1,069 906
Amortization of premiums on deposits acquired and excess
of purchase price over fair value of net assets acquired 1,241 1,241 1,242
Other real estate owned operations, net 300 1,061 2,323
Other operating expenses 5,704 4,963 4,570
----------- ----------- -----------
Total noninterest expense 29,010 35,089 26,585
----------- ----------- -----------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 18,341 5,692 1,696
PROVISION FOR INCOME TAXES 7,330 2,486 653
----------- ----------- -----------
NET EARNINGS $ 11,011 $ 3,206 $ 1,043
=========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE (1) $ 0.46 $ 0.13 $ 0.04
AVERAGE NUMBER OF SHARES OUTSTANDING (1) 23,775,000 23,775,000 23,775,000
|
(1) Adjusted to reflect the 118,875 for 550,000 reverse stock split effective June 11, 1998. See notes to consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED
LOSSES ON
INVESTMENT
SECURITIES TOTAL
ADDITIONAL AVAILABLE STOCK-
COMMON PAID-IN FOR SALE, RETAINED HOLDERS'
STOCK CAPITAL NET OF TAX EARNINGS EQUITY
-------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE, JANUARY 1, 1995 $ 100 $ 67,721 $(2,808) $ 8,430 $ 73,443
Net earnings 1,043 1,043
Capital contribution 42,179 42,179
Common stock issued in relation
to the conversion to a state-
chartered commercial bank 67,721 (67,721)
Net change in unrealized losses
on investment securities
available for sale, net of tax 1,625 1,625
-------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 110,000 - (1,183) 9,473 118,290
Net earnings 3,206 3,206
Net change in unrealized losses
on investment securities
available for sale, net of tax 879 879
-------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1996 110,000 - (304) 12,679 122,375
Net earnings 11,011 11,011
Net change in unrealized losses
on investment securities
available for sale, net of tax (834) (834)
-------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1997 $110,000 $ - $(1,138) $23,690 $132,552
======== ======== ======= ======= ========
|
See notes to consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------- --------- --------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 11,011 $ 3,206 $ 1,043
--------- --------- --------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net amortization of premiums 1,166 2,101 950
Depreciation and amortization 2,019 1,658 1,590
Net loan fees deferred 1,529 2,030 347
Deferred tax provision (1,633) 1,347 626
Provision for loan losses 5,588 4,398 6,200
Provision for other real estate owned losses 412 702 1,900
Net gains on sales of investment securities and other assets (3,729) (1,613) (119)
Federal Home Loan Bank stock dividends (641) (559) (460)
Proceeds from sale of loans held for sale 73,205 88,849 17,403
Originations of loans held for sale (62,885) (55,409) (21,152)
(Increase) decrease in accrued interest receivable and other assets (934) (4,498) 857
Increase (decrease) in accrued expenses and other liabilities 420 1,080 (2,755)
--------- --------- --------
Total adjustments 14,517 40,086 5,387
--------- --------- --------
Net cash provided by operating activities 25,528 43,292 6,430
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans (128,184) (113,451) 13,830
Purchase of:
Premises and equipment (2,365) (2,439) (1,654)
Federal Home Loan Bank stock (3,166) (169)
Loans (8,098) (14,438) (6,248)
Interest-bearing deposits in other banks (196)
Investment securities available for sale (638,295) (459,601) (64,258)
Real estate investment (12,983)
Proceeds from sale, maturity, redemption or repayment of:
Investment securities available for sale 714,207 406,593 150,493
Premises and equipment 3 75 707
Interest-bearing deposits in other banks 98 294
Other real estate owned 5,194 5,527 6,522
Principal repayments on foreclosed properties 4 118 74
--------- --------- --------
Net cash (used in) provided by investing activities (73,683) (177,518) 99,395
--------- --------- --------
(Continued)
|
See notes to consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------- -------- --------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits $ 52,186 $ 25,417 $ 90,523
Proceeds from Federal Home Loan Bank advances 313,397 5,000
Repayment of Federal Home Loan Bank advances (157,397) (6,000)
Net increase (decrease) in other borrowings (105,000) 224,309 (87,602)
Capital contributions 42,179
--------- -------- --------
Net cash provided by financing activities 103,186 243,726 50,100
--------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 55,031 109,500 155,925
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 292,570 183,070 27,145
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 347,601 $292,570 $183,070
========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 61,677 $ 57,156 $ 54,278
Income tax payments (refunds), net $ 10,050 $ 1,389 $ (1,089)
Noncash investing and financing activities:
Other real estate acquired through foreclosure $ 6,710 $ 5,754 $ 12,454
Loans made to facilitate sales of other real estate owned $ 1,690 $ 2,368 $ 5,871
Mortgage loans exchanged for investment securities
available for sale $ 43,466 $ - $ 33,100
Real estate investment acquired through notes payable $ 1,615 $ - $ -
Transfer of investment securities from held to maturity
to available for sale $ - $ - $366,861
|
See notes to consolidated financial statements.
EAST WEST BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of East West Bank and subsidiaries (the "Bank") are in accordance with generally accepted accounting principles and conform to practices within the banking industry.
Effective April 1995, Nuri Investments, former holding company of the Bank, was dissolved. As a result of the dissolution, the existing 100,000 shares of common stock that were wholly owned by Nuri Investments were distributed to the owners of Nuri Investments.
On July 31, 1995, the Bank officially converted from a federal savings bank to a California state-chartered commercial bank. Upon conversion, the Bank changed its name from East-West Federal Bank, f.s.b. to East West Bank. At the time of conversion, the owners contributed additional capital of $42,179,000 to the Bank, and the existing 100,000 shares of common stock were converted to 110,000,000 shares of common stock. In addition, the total authorized number of shares increased from 4,000,000 to 200,000,000 shares.
NATURE OF OPERATIONS - The Bank offers a full range of banking services to individuals and small to large businesses from its 22 branches located throughout California. The Bank specializes in financing international trade and lending for commercial, construction, and residential real estate projects. The Bank's revenue is derived from providing financing for residential and commercial real estate and business customers, as well as investing activities. Funding for lending and investing activities is obtained through acceptance of customer deposits, Federal Home Loan Bank advances and other borrowing activities.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of East West Bank and its wholly owned subsidiaries, E-W Services, Inc. and East-West Investments, Inc. All material intercompany transactions and accounts have been eliminated in consolidation.
INVESTMENT SECURITIES - Investment securities available for sale are reported at estimated fair value, with unrealized gains and losses, net of related tax effect, excluded from operations and reported as a separate component of stockholders' equity. Amortization of premiums and accretion of discounts on debt securities are recorded as yield adjustments on such securities using the effective interest method. The specific identification method is used for purposes of determining cost in computing realized gains and losses on investment securities sold.
In May 1995, the Bank transferred $366,861,000 of its held-to-maturity investment securities with an unrealized loss of $10,475,000 to the available-for-sale portfolio for asset and liability management purposes. Under the Bank's current operating plan, all securities will be classified as available for sale in the foreseeable future.
DERIVATIVE FINANCIAL INSTRUMENTS - The Bank is party to certain derivative transactions, including interest rate swaps and interest rate caps. These contracts are entered into for purposes of reducing the Bank's interest rate risk and not for trading purposes. The carrying values of derivative financial instruments are included in other assets.
Interest rate swaps are entered into for purposes of modifying the interest rate characteristics of certain loans within the Bank's loan portfolio. The interest rate swaps involve no exchange of principal either at inception or upon maturity; rather, they involve the periodic exchange of interest payments arising from an underlying notional principal amount. Interest rate swaps are reported at their initial cost, and unrealized gains or losses resulting from changes in their fair value are not recorded in the financial statements. Revenues or expenses associated with these agreements are accounted for on an accrual basis and are recognized as an adjustment to interest income on loans receivable, based on the interest rates currently in effect for such contracts.
The Bank purchases interest rate caps for purposes of hedging against fluctuations in the fair value of the Bank's investment securities available- for-sale portfolio. The interest rate caps involve the payment of a one-time premium to a counterparty who, if interest rates rise above a predetermined level, will make payments to the Bank at an agreed-upon rate for the term of the agreement until such time as interest rates fall below the cap level. The premiums paid for the interest rate caps are amortized to interest income on investments over the term of the agreements. The interest rate caps are reported at their estimated fair value, with unrealized gains and losses recognized in a separate component of stockholders' equity (net of tax effects) consistent with the hedged securities. Amounts receivable on the cap agreements are accrued and recognized as interest income on investments.
Upon termination or sale of a hedged item or if a hedge otherwise ceases to be effective, the related derivative financial instrument is accounted for at fair value, with resulting gains or losses being recorded in earnings, together with the gain or loss upon termination or sale of the hedged item, if applicable. If such derivative instruments are subsequently redesignated as a hedge, their fair value upon redesignation becomes their new cost basis which is amortized into earnings over the remaining life of the instrument.
LOANS RECEIVABLE - Loans receivable which management has the intent and ability to hold for the foreseeable future or until maturity are stated at their outstanding principal, reduced by an allowance for loan losses and deferred loan fees. Interest on loans is calculated using the simple-interest method on daily balances of the principal amount outstanding. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Generally, loans are placed on nonaccrual status when they become 90 days past due.
Loans held for sale are carried at the lower of aggregate cost or market value. A valuation allowance is established if the market value of such loans is lower than their cost and operations are charged for valuation adjustments.
Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method.
A loan is impaired when it is probable that a creditor will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as an expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.
PROVISION AND ALLOWANCE FOR LOAN LOSSES - The determination of the balance in the allowance for loan losses is based on an analysis of the loan portfolio and reflects an amount that, in management's judgment, is adequate to provide for probable losses after giving consideration to estimated losses on specifically identified impaired loans, as well as the characteristics of the loan portfolio, current economic conditions, past credit loss experience and such other factors as deserve current recognition in estimating credit losses. The provision for loan losses is charged to expense. Consumer and other homogeneous smaller balance loans are reviewed on a collective basis for impairment.
OTHER REAL ESTATE OWNED - Other real estate owned represents real estate acquired through foreclosure and is recorded at fair value at the time of foreclosure. Loan balances in excess of fair value of the real estate acquired at the date of foreclosure are charged against the allowance for loan losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations. Revenue recognition upon disposition of the property is dependent on the sale having met certain criteria relating to the buyer's initial investment in the property sold.
REAL ESTATE INVESTMENT - The Bank owns six limited partnership interests in projects of affordable housing for lower income tenants. Three of the investments in which the Bank has significant influence are recorded using the equity method of accounting. The remaining investments are being amortized using the level-yield method over the life of the related tax credits. The tax credits are being recognized in the consolidated financial statements to the extent they are utilized on the federal tax return.
PREMISES AND EQUIPMENT - Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed based on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of useful lives for the principal classes of assets are as follows:
Buildings and building improvements 25 years Furniture, fixtures and equipment 3 to 10 years Leasehold improvements Term of lease or useful life, whichever is shorter |
INTANGIBLE ASSETS - Excess of purchase price over fair value of net assets acquired and fair value of net assets acquired in excess of purchase price are amortized using the straight-line method over 25 years. Premiums on deposits represent the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions and are amortized using the straight-line method over 10 years.
STOCK OF FEDERAL HOME LOAN BANK OF SAN FRANCISCO - As a member of the Federal Home Loan Bank ("FHLB") of San Francisco, the Bank is required to own common stock in the FHLB of San Francisco based upon the Bank's balance of residential mortgage loans and outstanding FHLB advances.
OTHER BORROWINGS - The Bank enters into sales of securities pursuant to repurchase agreements (reverse repurchase agreements) with the FHLB and primary dealers only, which provide for the repurchase of the same security with substantially the same terms as the security sold. The reverse repurchase agreements are typically collateralized by U.S. government or agency mortgage-backed securities that are held in safekeeping in the name of the Bank by the dealers who arranged the transaction. These agreements are accounted for as financings, and the obligations of the Bank to repurchase the securities are reflected as liabilities. The securities underlying the agreements remain in the asset accounts in the consolidated balance sheets.
INCOME TAXES - Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
RELATED PARTY TRANSACTIONS - The Bank has entered into certain related party transactions with its affiliates in the normal course of business. These transactions are conducted at market terms.
EARNINGS PER SHARE - Earnings per share for all periods presented are calculated based upon the weighted average number of common shares outstanding during the year using the treasury stock method. There is no difference between basic and diluted earnings per share in any of the years reported.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES - The Bank adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," on a prospective basis beginning January 1, 1997. The new Statement establishes criteria based on legal control to determine whether a transfer of a financial asset is a sale or a secured borrowing. A sale is recognized when the Bank relinquishes control over a financial asset and is compensated for such asset. The difference between the net proceeds received and the carrying amount of the financial asset(s) being sold or securitized is recognized as a gain or loss on sale.
In general, the Bank expects that transactions recorded as sales under prior accounting standards would have continued to qualify for sales accounting treatment under the new Statement. The adoption of the new Statement did not have a material impact on the consolidated financial position or financial results of the Bank.
RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board recently issued SFAS No. 130, "Reporting Comprehensive Income," which provides guidance for the reporting and presentation of comprehensive income and its components in the financial statements. This Statement is effective for fiscal years beginning after December 15, 1997. The Bank will incorporate these disclosures at the time these pronouncements are adopted.
SFAS No. 132, "Statement on Employers' Disclosures about Pensions and Other Postretirement Benefits," was issued and effective for fiscal years beginning after December 15, 1997. The adoption of this standard is not expected to have a material impact on the Bank's consolidated financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued and effective for fiscal years beginning after June 15, 1999. Management of the Bank has not yet determined whether the adoption of this standard will have a material impact on the Bank's results of operations or financial position when adopted.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, amounts due from banks, and short- term investments with maturities of less than three months. Short-term investments, which include federal funds sold and securities purchased pursuant to resale agreements, are recorded at cost, which approximates market.
At December 31, 1997 and 1996, mortgage-backed securities purchased pursuant to resale agreements amounted to $313,000,000 and $253,000,000, respectively. The maximum amount of outstanding resale agreements at any month-end during 1997 and 1996 was $322,000,000 and $253,000,000, respectively. For the years ended December 31, 1997 and 1996, the average balance of outstanding resale agreements was $198,805,000 and $117,112,000, respectively.
The Bank has a $13,000,000 federal funds line commitment with an affiliate. This line is collateralized by loans with a total market value of 130% of the commitment amount. At December 31, 1997, $10,000,000 of the line commitment has been drawn.
The Bank is required to maintain a percentage of its deposits as reserves at the Federal Reserve Bank. The daily average reserve balance requirement was approximately $3,776,000 and $4,201,000 at December 31, 1997 and 1996, respectively.
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
Available for sale securities are summarized as follows:
DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS)
Mortgage-backed securities $376,138 $ 188 $(1,516) $374,810
======== ====== ======= ========
DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS)
U.S. government and agency obligations $ 55,062 $ 58 $ - $ 55,120
Mortgage-backed securities 351,768 1,417 (1,837) 351,348
-------- ------ ------- --------
Total $406,830 $1,475 $(1,837) $406,468
======== ====== ======= ========
|
For the years ended December 31, 1997, 1996, and 1995, proceeds from sales of available for sale securities were $622,009,000, $290,891,000, and $109,886,000, respectively, with related gross realized gains of $3,260,000, $974,000, and $717,000, and gross realized losses of $543,000, $482,000, and $932,000, respectively.
Accrued interest receivable amounted to $1,749,000 and $2,636,000 at December 31, 1997 and 1996, respectively.
The carrying amount of mortgage-backed securities with adjustable rates totaled $361,193,000 and $330,931,000 at December 31, 1997 and 1996, respectively.
Mortgage-backed securities are not due at single maturity dates and are subject to prepayments.
At December 31, 1997 and 1996, investment securities with a carrying value of $338,650,000 and $260,509,000, respectively, were pledged to secure public deposits, other borrowings, interest rate swap agreements and for other purposes required or permitted by law.
4. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative positions are integral components of the Bank's asset and liability management activities. Therefore, the Bank does not believe it is meaningful to separately analyze the derivatives component of its risk management activities in isolation from related positions.
The Bank uses derivative instruments, primarily interest rate swap and cap agreements, as part of its management of asset and liability positions in connection with its overall goal of minimizing the impact of interest rate fluctuations on the Bank's net interest margin or its stockholders' equity. Derivatives are used as hedges against market fluctuations in the Bank's available-for-sale securities portfolio, and to effectively convert certain fixed rate commercial real estate loans to floating rate assets. As of December 31, 1997 and 1996, all interest rate swaps were designated for purposes of converting fixed rate loans to floating rate, and interest rate cap agreements were designated as hedges against the available-for-sale securities portfolio.
The following table reflects summary information on derivative contracts used to hedge the Bank's interest rate risk as of December 31, 1997 and 1996. Amounts included in the estimated fair value column do not include gains or losses from changes in the value of the underlying asset or liability being hedged. Notional amounts are not exchanged but serve as a point of reference for calculating payments and do not represent exposure to credit or market risk. Amounts shown as unamortized premiums paid for interest rate swaps represent the cost basis of such instruments resulting from a prior mark-to-market adjustment upon sale of a previously hedged item, and subsequent redesignation to the current hedged item.
DECEMBER 31, 1997
-------------------------------------------------------------------
UNAMORTIZED GROSS GROSS ESTIMATED
NOTIONAL PREMIUM UNREALIZED UNREALIZED FAIR
AMOUNT PAID GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS)
Interest rate swap agreements:
Maturing on November 13, 2002,
pay 6.31% fixed and receive
3-month LIBOR $14,000 $478 $ - $(629) $(151)
Maturing on May 22, 1998, pay
6.06% fixed and receive
3-month LIBOR 8,000 (7) (7)
Maturing on January 17, 2002, pay
6.89% fixed and receive
3-month LIBOR 4,500 (146) (146)
Maturing on October 10, 2001,
pay 6.46% fixed and receive
3-month LIBOR 10,000 (159) (159)
Interest rate cap agreements:
Maturing on October 24, 2002,
7.00% LIBOR cap 18,000 559 (369) 190
Maturing on April 10, 2001, 6.50%
LIBOR cap 18,000 330 (200) 130
|
DECEMBER 31, 1996
-------------------------------------------------------------------
UNAMORTIZED GROSS GROSS ESTIMATED
NOTIONAL PREMIUM UNREALIZED UNREALIZED FAIR
AMOUNT PAID GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS)
Interest rate swap agreements:
Maturing on November 13, 2002,
pay 6.31% fixed and receive
3-month LIBOR $14,000 $580 $ - $(678) $ (98)
Maturing on May 22, 1998, pay
6.06% fixed and receive
3-month LIBOR 8,000 8 (33) (25)
Maturing on January 17, 2002, pay
6.89% fixed and receive
3-month LIBOR 4,500 (104) (104)
Maturing on October 10, 2001,
pay 6.46% fixed and receive
3-month LIBOR 10,000 26 (73) (47)
Interest rate cap agreements:
Maturing on October 24, 2002,
7.00% LIBOR cap 18,000 676 (147) 529
Maturing on April 10, 2001, 6.50%
LIBOR cap 18,000 395 2 397
|
The estimated fair value of the derivative financial instruments was determined using quoted market prices from dealers.
The Bank is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparties to fail to meet their obligations. The Bank deals only with highly rated counterparties. The current credit exposure of derivatives is represented by the estimated fair value of contracts having positive fair values at the reporting date.
5. LOANS RECEIVABLE
The following is a summary of loans receivable:
DECEMBER 31
----------------------
1997 1996
(DOLLARS IN THOUSANDS)
Real estate loans:
Residential, one to four units $349,572 $414,603
Residential, multifamily 144,147 141,649
Commercial and industrial real estate 269,028 214,599
Construction 27,020 11,607
Other loans:
Business, commercial 138,408 71,672
Automobile 5,259 3,877
Other consumer 9,137 5,953
-------- --------
942,571 863,960
Unearned fees, premiums and discounts, net (2,354) (1,903)
Allowance for estimated losses (12,273) (10,084)
-------- --------
Total $927,944 $851,973
======== ========
|
The weighted average interest rate on loans receivable at December 31, 1997 and 1996 was 8.09% and 7.82%, respectively. Accrued interest on loans receivable amounted to $5,620,000 and $4,880,000 at December 31, 1997 and 1996, respectively.
Loans serviced for others amounted to approximately $203,142,000 and $170,919,000 at December 31, 1997 and 1996, respectively, of which $2,902,000 and $4,936,000, respectively, represent loans serviced for an affiliate of the Bank.
CREDIT RISK AND CONCENTRATION - Commercial and multifamily residential real estate loans are considered by management to be of somewhat greater risk of uncollectibility due to the dependency on income production or future development of the real estate. Substantially all of the Bank's real estate loans are secured by real properties located in California.
Over 90% of the Bank's loans have original loan-to-value ratios equal to or less than 80%. The Bank generally requires customers to obtain private mortgage insurance on all fixed and adjustable rate residential loans with loan-to-value ratios above 80%.
6. ALLOWANCE FOR LOAN LOSSES
LOANS RECEIVABLE - An analysis of the activity in the allowance for loan losses is as follows:
YEAR ENDED
DECEMBER 31
-------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
Balance, beginning of year $10,084 $ 8,735 $ 14,515
Provision for loan losses 5,588 4,398 6,200
Recoveries 737 522 360
Charges for realized losses (4,136) (3,571) (12,340)
------- ------- --------
Balance, end of year $12,273 $10,084 $ 8,735
======= ======= ========
|
At December 31, 1997 and 1996, the Bank has classified $17,594,000 and $14,502,000, respectively, of its loans as impaired, with specific reserves of $1,550,000 and $256,000, respectively. The average recorded investment in impaired loans during the years ended December 31, 1997 and 1996 was approximately $18,763,000 and $15,027,000, respectively. Interest income of $1,129,000, $839,000, and $1,234,000 was recognized on impaired loans during the years ended December 31, 1997, 1996, and 1995, respectively.
7. OTHER REAL ESTATE OWNED
Other real estate owned consists of property obtained through foreclosure and purchased directly. Activity in the allowance for losses on other real estate owned is as follows:
YEAR ENDED
DECEMBER 31
-------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
Balance, beginning of year $ - $ - $ 665
Provision for losses 412 702 1,900
Charges for realized losses (412) (702) (2,565)
----- ----- -------
Balance, end of year $ - $ - $ -
===== ===== =======
|
8. REAL ESTATE INVESTMENT
The Bank has invested in six limited partnerships that were formed to develop and operate several apartment complexes designed as high-quality affordable housing for lower income tenants throughout the country. The Bank's ownership in each limited partnership varies from 1% to 19.8%. Three of the investments are being accounted for using the equity method of accounting, since the Bank exercises significant control over the partnership. The remaining investments are being amortized on a level yield method over the life of the related tax credits. Each of the partnerships must meet the regulatory requirements for affordable housing for a minimum 15 year compliance period to fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the credit is denied for any period in which the project is not in compliance and a portion of the credit previously taken is subject to recapture with interest.
The portion of federal tax credits to be utilized over a multiple-year period is $17.4 million. During 1997, the Bank utilized $337,000 in tax credits and no tax credits were sold. Investment amortization amounted to $210,000.
NOTES PAYABLE - The Bank financed the purchase of certain real estate tax credits on two properties currently under construction with nonrecourse notes which are collateralized by the Bank's partnership interest in the real estate investment tax credits. The notes are payable upon demand and if defaulted, interest will be imposed at an annual rate equal to the lesser of 16% per annum or the higher rate permitted by applicable law. No interest is due if the notes are paid on demand.
9. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
DECEMBER 31
--------------------
1997 1996
(DOLLARS IN THOUSANDS)
Land $ 9,796 $ 9,796
Office buildings 11,084 11,084
Leasehold improvements 2,201 1,223
Furniture, fixtures and equipment 8,989 7,723
------- -------
32,070 29,826
Accumulated depreciation and amortization (7,878) (5,965)
------- -------
$24,192 $23,861
======= =======
|
Total depreciation and amortization expense for the years ended December 31, 1997, 1996, and 1995 was $2,019,000, $1,658,000, and $1,590,000, respectively.
10. CUSTOMER DEPOSIT ACCOUNTS
Customer deposit account balances are summarized as follows:
DECEMBER 31
------------------------
1997 1996
(DOLLARS IN THOUSANDS)
Demand accounts:
Passbook $ 99,974 $ 102,635
NOW 78,305 74,249
Money market savings 105,898 110,512
Money market checking 21,152 16,962
Noninterest-bearing 67,258 50,572
---------- ----------
372,587 354,930
---------- ----------
Time deposits:
Less than $100,000 500,031 514,879
$100,000 or greater 362,454 313,077
---------- ----------
862,485 827,956
---------- ----------
Total deposits $1,235,072 $1,182,886
========== ==========
|
At December 31, 1997, the scheduled maturities of time deposits are as follows:
$100,000 OR LESS THAN
GREATER $100,000 TOTAL
------- -------- -----
(DOLLARS IN THOUSANDS)
1998 $344,830 $457,766 $802,596
1999 11,386 28,928 40,314
2000 6,000 11,051 17,051
2001 238 450 688
2002 and thereafter 1,836 1,836
-------- -------- --------
$362,454 $500,031 $862,485
======== ======== ========
|
Accrued interest payable was $1,021,000 and $767,000 as of December 31, 1997 and 1996, respectively.
Interest expense on customer deposits by account type is summarized as follows.
YEAR ENDED
DECEMBER 31
-----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
Demand accounts:
Passbook $ 2,008 $ 2,087 $ 2,121
NOW accounts 1,173 1,070 1,110
Money market savings 3,184 2,991 2,702
Money market checking 622 402 284
Time deposits:
Less than $100,000 24,771 27,078 27,343
$100,000 or greater 16,636 16,088 15,200
------- ------- -------
$48,394 $49,716 $48,760
======= ======= =======
|
11. OTHER BORROWINGS
Other borrowings, which include securities sold under agreements to repurchase ("reverse repurchase agreements") and dollar reverse repurchase agreements, generally mature within 90 days from the transaction date. Information concerning short-term borrowings is summarized as follows:
YEAR ENDED
DECEMBER 31
----------------------
1997 1996
(DOLLARS IN THOUSANDS)
Balance at year-end $139,000 $244,000
Average balance during the year $157,054 $ 79,492
Highest month-end balance during the year $300,000 $244,000
Weighted average interest rate during the year 5.61% 5.51%
Weighted average interest rate at end of year 6.08% 5.64%
|
Mortgage-backed securities underlying the agreements at year-end:
Amortized cost $147,167 $254,094 Estimated fair value $146,832 $254,235 |
12. FEDERAL HOME LOAN BANK ADVANCES
FHLB advances and weighted average interest rates are summarized as follows:
MATURING DURING DECEMBER 31
YEAR ENDING -------------------------------------------
DECEMBER 31 1997 1996
(DOLLARS IN THOUSANDS)
1997 - - 6.13% $ 9,000
1998 5.61% $180,000 4.99 15,000
2000 5.71 17,000 5.71 17,000
2003 5.94 14,000 5.94 14,000
----- -------- ----- -------
5.64% $211,000 5.64% $55,000
===== ======== ===== =======
|
At December 31, 1997, FHLB fixed and variable interest rate advances amount to $165,000,000 and $46,000,000, respectively. All FHLB advances at December 31, 1996 are at fixed interest rates. The advances are secured by certain real estate loans with remaining principal balances of approximately $434,675,000 and $298,749,000 at December 31, 1997 and 1996, respectively.
13. INCOME TAXES
The provision for income taxes consists of the following components:
YEAR ENDED
DECEMBER 31
--------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
Current $ 8,963 $1,139 $ 27
Deferred (1,633) 1,347 626
------- ------ -----
$ 7,330 $2,486 $ 653
======= ====== =====
|
The difference between the effective tax rate implicit in the consolidated financial statements and the statutory federal income tax rate can be attributed to the following:
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
Federal income tax provision at statutory rate 35.0 % 35.0 % 34.0 %
State franchise taxes, net of federal tax effect 7.1 7.7 8.7
Low income housing tax credit (1.8) - -
Tax sharing agreement with Nuri Investments - - (15.7)
Other, net (0.3) 1.0 11.5
---- ---- ----
Effective income tax rate 40.0 % 43.7 % 38.5 %
==== ==== ====
|
The federal income tax provision for the years ended December 31, 1997 and 1996 differs from the statutory corporate rate mainly due to state franchise taxes, tax credits from low income housing projects, tax sharing agreement with Nuri Investment, and others.
The tax effects of temporary differences that give rise to significant portions of the deferred tax (assets) liabilities are presented below:
DECEMBER 31
-----------------------
1997 1996
(DOLLARS IN THOUSANDS)
Deferred tax liabilities:
Core deposit premium $ 2,309 $ 2,618
Depreciation 3,424 3,517
FHLB stock dividends 1,937 1,637
Deferred loan fees 2,312 1,818
Other, net 794 748
------- -------
Total gross deferred tax liabilities 10,776 10,338
------- -------
Deferred tax assets:
Bad debt deduction (2,883) (2,446)
Purchased loan discounts (882) (917)
Deferred compensation accrual (551) (473)
California franchise tax (746) (588)
Unrealized loss on investment securities available for sale (759) (203)
Other, net (2,174) (570)
------- -------
Total gross deferred tax assets (7,995) (5,197)
------- -------
Net deferred tax liabilities $ 2,781 $ 5,141
======= =======
|
14. COMMITMENTS AND CONTINGENCIES
CREDIT EXTENSIONS - In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. The Bank does not anticipate losses as a result of these transactions; however, the commitments are a component of the allowance for loan losses. Commercial and standby letters of credit totaled $87,737,000 and $28,663,000 at December 31, 1997 and 1996, respectively. In addition, the Bank had unfunded loan commitments of $171,656,000 and $90,918,000 at December 31, 1997 and 1996, respectively.
The Bank uses the same credit policies in making commitments and conditional obligations as it does in extending loan facilities to customers. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
LITIGATION - The Bank is a party to various legal proceedings arising in the normal course of business. While it is difficult to predict the ultimate outcome of such litigation, the Bank does not expect that such litigation will have a material adverse effect on its financial position as of December 31, 1997.
LEASE COMMITMENTS - The Bank conducts a portion of its operations utilizing leased premises and equipment under operating leases. Rental expense amounted to $1,147,000, $1,307,000, and $1,546,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
During December 1996, the Bank, as tenant, entered into a lease agreement with an affiliate for the Los Angeles Chinatown branch. The term of the lease is for a period of 15 years, with an option to extend for an additional term of 5 years. For the years ended December 31, 1997 and 1996, the related rental expense amounted to $77,400 and $9,000, respectively.
Future minimum rental payments under noncancelable leases are as follows:
YEAR ENDING
DECEMBER 31 (DOLLARS IN THOUSANDS)
1998 $1,228
1999 1,198
2000 1,070
2001 797
2002 688
Thereafter 2,629
------
$7,610
======
|
15. REGULATORY MATTERS
As a state-chartered bank, the Bank is subject to various regulatory capital requirements administered by the federal banking agencies, including the Federal Deposit Insurance Corporation ("FDIC"). Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
As of December 31, 1997 and 1996, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain specific total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification which management believes have changed the Bank's category.
The Bank's actual and required capital ratios at December 31, 1997 and 1996 are as follows:
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------------- ------------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1997:
Total Capital (to Risk-Weighted Assets) $141,343 13.4% >= $84,571 >= 8.0% >= $105,714 >= 10.0%
Tier I Capital (to Risk-Weighted Assets) $129,070 12.2% >= $42,286 >= 4.0% >= $ 63,428 >= 6.0%
Tier I Capital (to Average Assets) $129,070 8.0% >= $64,677 >= 4.0% >= $ 80,846 >= 5.0%
AS OF DECEMBER 31, 1996:
Total Capital (to Risk-Weighted Assets) $127,316 14.3% >= $71,403 >= 8.0% >= $ 89,254 >= 10.0%
Tier I Capital (to Risk-Weighted Assets) $117,232 13.1% >= $35,702 >= 4.0% >= $ 53,553 >= 6.0%
Tier I Capital (to Average Assets) $117,232 7.9% >= $59,599 >= 4.0% >= $ 74,499 >= 5.0%
|
16. EMPLOYEE BENEFIT PLAN
The Bank sponsors a defined contribution plan for the benefit of its employees. The Bank's contributions to the plan are determined annually by the Board of Directors in accordance with plan requirements. For tax purposes, eligible participants may contribute up to a maximum of 15% of their compensation, not to exceed the dollar limit imposed by the Internal Revenue Service. For the plan years ended December 31, 1997, 1996, and 1995, the Bank contributed $239,000, $176,000, and $146,000, respectively.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
DECEMBER 31
---------------------------------------------------
1997 1996
---------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
(DOLLARS IN THOUSANDS)
Assets:
Cash and cash equivalents $347,601 $347,601 $292,570 $292,570
Investment securities available for sale 374,810 374,810 406,468 406,468
Loans receivable, net 934,850 949,303 862,640 866,842
Accrued interest receivable 8,155 8,155 8,310 8,310
FHLB stock 13,881 13,881 10,074 10,074
Derivative financial instruments:
Interest rate swaps 478 (463) 614 (274)
Interest rate caps 320 320 926 926
Liabilities:
Customer deposit accounts:
Demand accounts $372,587 $372,587 $354,930 $354,930
Time deposits 862,485 862,290 827,956 826,684
Other borrowings 139,000 139,025 244,000 244,034
Accrued interest payable 2,261 2,261 1,293 1,293
FHLB advances 211,000 211,084 55,000 54,246
|
The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below:
Cash and Cash Equivalents - The carrying amounts approximate fair values due to the short-term nature of these instruments.
Investment Securities and Derivative Instruments - The fair value is based on quoted market price from securities brokers or dealers in the respective instruments, if available. If a quoted market price is not available, fair value is estimated using quoted market price for similar instruments.
Loans - Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The fair values of fixed rate mortgage loans are based upon discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing for 15- and 30-year conventional loans as well as anticipated prepayment schedules. The fair values of adjustable rate mortgage loans are based upon discounted cash flows utilizing discount rates that approximate the risk-adjusted pricing of available mortgage- backed securities having similar rates and repricing characteristics as well as anticipated prepayment schedules. No adjustments have been made for changes in credit within the loan portfolio. It is management's opinion that the allowance for loan losses pertaining to performing and nonperforming loans results in a fair valuation of such loans. The carrying amount of accrued interest receivable approximates its fair value.
FHLB Stock - The carrying amount approximates fair value, as the stocks may be sold back to the Federal Home Loan Bank at carrying value.
Deposits - The fair values of deposits are estimated based upon the type of deposit products. Demand accounts, which include passbooks and transaction accounts, are presumed to have equal book and fair values, since the interest rates paid on these accounts are based on prevailing market rates. The estimated fair values of time deposits are determined by discounting the cash flows of segments of deposits having similar maturities, utilizing a yield curve that approximated the prevailing rates offered to depositors as of each reporting date. The carrying amount of accrued interest payable approximates its fair value.
Other Borrowings - The fair values of other borrowings are estimated by discounting the amounts contractually due under such agreements using the prevailing federal funds rate at each reporting date.
FHLB Advances - The fair values of FHLB advances are estimated based on the discounted value of contractual cash flows, using rates currently offered by the Federal Home Loan Bank of San Francisco for fixed-rate credit advances with similar remaining maturities at each reporting date.
Commitments to Extend Credit - The fair values of commitments to extend credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparty's credit standing. The fair values of these instruments are not material at December 31, 1997 and 1996.
The fair value estimates presented herein are based on pertinent information available to management as of each reporting date. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
QUARTERS ENDED
-------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1997 1997 1997 1997
-------------------------------------------------------------
Interest and dividend income $28,073 $27,234 $25,995 $25,790
Interest expense 16,394 16,113 14,978 15,161
------- ------- ------- -------
Net interest income before loss provision 11,679 11,121 11,017 10,629
Provision for loan losses 1,431 1,319 1,407 1,431
------- ------- ------- -------
Net interest income after loss provision 10,248 9,802 9,610 9,198
Noninterest income 1,862 2,384 2,406 1,841
Noninterest expense 7,461 6,965 7,415 7,169
------- ------- ------- -------
Earnings before provision for income taxes 4,649 5,221 4,601 3,870
Provision for income taxes 1,739 2,134 1,871 1,586
------- ------- ------- -------
Net earnings $ 2,910 $ 3,087 $ 2,730 $ 2,284
======= ======= ======= =======
QUARTERS ENDED
-------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1996 1996 1996 1996
-------------------------------------------------------------
Interest and dividend income $25,112 $25,527 $23,361 $22,876
Interest expense 14,705 15,405 13,291 13,867
------- ------- ------- -------
Net interest income before loss provision 10,407 10,122 10,070 9,009
Provision for loan losses 1,204 1,126 1,153 915
------- ------- ------- -------
Net interest income after loss provision 9,203 8,996 8,917 8,094
Noninterest income 1,793 1,466 1,158 1,154
SAIF recapitalization assessment - 7,040 - -
Noninterest expense 6,776 6,880 7,052 7,341
------- ------- ------- -------
Earnings (loss) before provision
for income taxes 4,220 (3,458) 3,023 1,907
Provision (benefit) for income taxes 1,779 (1,413) 1,285 835
------- ------- ------- -------
Net earnings (loss) $ 2,441 $(2,045) $ 1,738 $ 1,072
======= ======= ======= =======
|
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law sets forth circumstances under which directors, officers, employees, and agents may be insured or indemnified against liability which they may incur in their capacities as such.
The Certificate of Incorporation of Registrant attached as Exhibit 3(i) hereto, requires indemnification of directors and executive officers to the fullest extent permitted by Delaware law.
Registrant may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of Registrant or is or was serving at the request of Registrant as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against the person and incurred by the person in any such capacity or arising out of his status as such, whether or not Registrant would have the power to indemnify the person against such liability under the provisions of the Certificate of Incorporation.
Registrant believes that these provisions assist Registrant in, among other things, attracting and retaining qualified persons to serve Registrant and its subsidiary. However, a result of such provisions could be to increase the expenses of Registrant and effectively reduce the ability of stockholders to sue on behalf of Registrant because certain suits could be barred or amounts that might otherwise be obtained on behalf of Registrant could be required to be repaid by Registrant to an indemnified party.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted pursuant to the foregoing provisions to directors, officers or persons controlling Registrant, Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in said Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
2 Plan of Reorganization and Merger Agreement between East West
Bancorp, Inc. ("Registrant"), East-West Bank ("Bank"), and
East West Merger Co., Inc. ("Merger Co.") (Annex I of
Written Consent Statement/Prospectus)
3(i) Certificate of Incorporation of the Registrant
3(ii) Bylaws of the Registrant
4.1 Specimen Certificate of Registrant
4.2 Registration Rights Agreement
II-1
|
4.3 Warrant Agreement
5.1 Opinion of Manatt, Phelps & Phillips, LLP re: Legality of
Securities being Registered*
10.1 Employment Agreement with Dominic Ng
10.2 Employment Agreement with Julia Gouw
10.3 Employment Agreement with William Chu
10.4 Employment Agreement with Michael Tyminski
10.5 Employment Agreement with Douglas P. Krause
10.6 East West Bancorp, Inc. 1998 Employee Stock Incentive Plan
and Forms of Agreements
10.7 East West Bancorp, Inc. 1998 Employee Stock Purchase Plan
10.8 Agency Agreement
21 Subsidiaries of the Registrant
23.1 Consent of Manatt, Phelps & Phillips, LLP (included in
Exhibit 5.1)*
23.2 Consent of Deloitte & Touche LLP
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
--------
|
* To be filed by amendment. ** Contained in electronically filed version only.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because the required information is not applicable or is included in the Financial Statements of the Bank and the related notes.
(c) NOT APPLICABLE.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
II-2
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act.
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering.
(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Marino, State of California, on September 15, 1998.
EAST WEST BANCORP, INC.
By: /s/ Dominic Ng
-------------------------------------
Dominic Ng
Chairman of the Board, President, and
Chief Executive Officer
(Duly Authorized Representative)
|
We the undersigned directors and officers of East West Bancorp, Inc. do hereby severally constitute and appoint Dominic Ng and Douglas P. Krause our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below and to execute all instruments for us and in our names in the capacities indicated below which said attorneys may deem necessary or advisable to enable East West Bancorp, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-4 relating to the offering of East West Bancorp, Inc. common stock, including specifically but not limited to, power and authority to sign for us or any of us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that attorneys shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated as of September 15, 1998.
/s/ Dominic Ng /s/ Julia Gouw
--------------------------------- ------------------------------------
Dominic Ng Julia Gouw
Chairman of the Board, President, Executive Vice President,
Chairman, and Chief Chief Financial
Executive Officer Officer, and Director
(principal executive officer) (principal financial and accounting
officer)
/s/ Jack C. Liu /s/ Herman Li
--------------------------------- ------------------------------------
Jack C. Liu Herman Li
Director Director
/s/ Kenneth P. Slosser /s/ Edward Zapanta
--------------------------------- -------------------------------------
Kenneth P. Slosser Edward Zapanta
Director Director
II-4
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EXHIBIT 2
PLAN OF REORGANIZATION AND MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement is entered into as of _______ __, 1998, by and between East-West Bank ("Bank"), East West Merger Co., Inc. ("Merger Co."), and East West Bancorp, Inc. ("Company").
RECITALS AND UNDERTAKINGS
A. Bank is a California banking corporation with its principal office in the City of San Marino, California. Merger Co. is a corporation organized and existing under the laws of the State of California with its principal offices in the City of San Marino, California. Company is a corporation organized and existing under the laws of the State of Delaware with its principal offices in the City of San Marino, California.
B. As of June 30, 1998, Bank had 50,000,000 shares of common stock, no par value per share ("Bank Common Stock"), authorized and 23,775,000 shares issued and outstanding.
C. As of the date hereof, Merger Co. has 100 shares of common stock, no par value per share ("Merger Co. Common Stock"), authorized, and at the time of the merger referred to herein 100 of such shares of Merger Co. Common Stock will be outstanding, all of which outstanding shares will be owned by Company.
D. As of the date hereof, Company has 55,000,000 shares of capital stock authorized, of which 50,000,000 shares are common stock, $0.001 par value per share ("Company Common Stock"), and 5,000,000 shares are preferred stock, $0.001 par value per share ("Company Preferred Stock"), of which 100 shares of Company Common Stock will be outstanding and no shares of Company Preferred Stock will be outstanding at the time of the merger referred to herein.
E. The Boards of Directors of Bank and Merger Co. have, respectively, approved this Agreement and authorized its execution; and the Board of Directors of Company has approved this Agreement and has authorized the Company to join in and be bound by this Agreement, and authorized the undertakings and representations made herein by Company.
NOW, THEREFORE, in consideration of the promises and the mutual covenants, agreements, and undertakings of the parties herein set forth and for the purpose of prescribing the terms and conditions of the merger, the parties hereto agree as follows:
SECTION 1.
GENERAL
1.1 THE MERGER. On the Effective Date, Merger Co. shall be merged into Bank, which shall be the surviving corporation (the "Surviving Corporation") and a subsidiary of Company, and the name of the Surviving Corporation shall be "East West Bank."
1.2 EFFECTIVE DATE. The merger described herein shall become effective, and actions to consummate such merger shall commence, at the close of business on the date (the "Effective Date") upon which an executed counterpart of this Agreement (as amended, if necessary, to conform to any requirements of law or governmental authority or agency, which requirements are not materially in contravention of any of the substantive terms hereof) shall have been filed with the Office of the Secretary of State of the State of California, in accordance with Section 1103 of the California Corporations Code.
1.3 ARTICLES OF INCORPORATION, BYLAWS, CERTIFICATE OF AUTHORITY, AND DEPOSIT INSURANCE COVERAGE. At the close of business on the Effective Date, the Articles of Incorporation of Bank, as in effect immediately prior to such time on the Effective Date, shall be and remain the Articles of Incorporation of the Surviving Corporation, except that the Articles of Incorporation shall be amended such that the name of the Surviving Corporation shall be East West Bank; the Bylaws of Bank shall be and remain the Bylaws of the Surviving Corporation until altered, amended or repealed; the Certificate of Authority of Bank issued by the Commissioner of Financial Institutions of the State of California shall be and remain the Certificate of Authority of the Surviving Corporation; and Bank insurance of deposits coverage by the Federal Deposit Insurance Corporation shall be and remain the deposit insurance of the Surviving Corporation.
1.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the close of business on the Effective Date, the directors and officers of Bank immediately prior to such time on the Effective Date shall be and remain the directors and officers of the Surviving Corporation. Directors of the Surviving Corporation shall serve until the next Annual Meeting of Shareholders of the Surviving Corporation or until such time as their successors are elected and have qualified.
1.5 EFFECT OF THE MERGER.
(a) ASSETS AND RIGHTS. At the close of business on the Effective Date and thereafter, all rights, privileges, franchises and property of Merger Co., and all debts and liabilities due or to become due to Merger Co., including things in action and every interest or asset of conceivable value or benefit, shall be deemed fully and finally and without any right of reversion transferred to and vested in the Surviving Corporation without further act or deed, and the Surviving Corporation shall have and hold the same in its own right as fully as the same was possessed and held by Merger Co.
(b) LIABILITIES. At the close of business on the Effective Date and thereafter, all debts, liabilities, and obligations due or to become due of, and all claims and demands for any cause existing against, Merger Co. shall be and become the debts, liabilities or obligations of, or the claims and demands against, the Surviving Corporation in the same manner as if the Surviving Corporation had itself incurred or become liable for them.
(c) CREDITORS' RIGHTS AND LIENS. At the close of business on the Effective Date and thereafter, all rights of creditors of Merger Co., and all liens upon the property
of Merger Co., shall be preserved unimpaired, and shall be limited to the property affected by such liens immediately prior to the Effective Date.
(d) PENDING ACTIONS. At the close of business on the Effective Date and thereafter, any action or proceeding pending by or against Merger Co. shall not be deemed to have abated or been discontinued, but may be pursued to judgment with the full right to appeal or review. Any such action or proceeding may be pursued as if the merger described herein had not occurred, or with the Surviving Corporation substituted in place of Merger Co., as the case may be.
1.6 FURTHER ASSURANCES. Bank and Merger Co. each agree that at any time, or from time to time, as and when requested by the Surviving Corporation, or by its successors and assigns, it will execute and deliver, or cause to be executed and delivered, in its name by its last acting officers, or by the corresponding officers of the Surviving Corporation, all such conveyances, assignments, transfers, deeds or other instruments, and will take or cause to be taken such further or other action as the Surviving Corporation, its successors or assigns may deem necessary or desirable in order to evidence the transfer, vesting or devolution of any property right, privilege or franchise or to vest or perfect in or confirm to the Surviving Corporation, its successors and assigns, title to and possession of all the property rights, privileges, powers, immunities, franchises and interests referred to in this Section 1, or otherwise to carry out the intent and purposes of this Agreement.
SECTION 2. TREATMENT OF CAPITAL STOCK
2.1 STOCK OF MERGER CO. At the close of business on the Effective Date, each share of Merger Co. Common Stock issued and outstanding immediately prior thereto shall, by virtue of the merger described herein, be deemed to be exchanged for and converted into one share of fully paid nonassessable Bank Common Stock as the Surviving Corporation.
2.2 STOCK OF BANK. At the close of business on the Effective Date, each share of Bank Common Stock issued and outstanding immediately prior thereto shall, by virtue of the merger described herein, and without any action on the part of the holder thereof, be exchanged for and converted into one share of fully paid nonassessable Company Common Stock, in accordance with the provisions of Paragraph 2.3.
2.3 EXCHANGE OF STOCK BY BANK SHAREHOLDERS. The conversion of the shares of Bank provided in Paragraph 2.2 above shall occur automatically at the close of business on the Effective Date without action by the holders thereof. Each share certificate evidencing ownership of shares of Bank Common Stock thereupon shall be deemed to evidence one share of Company Common Stock. Each holder of shares of Bank Common Stock may but is not required to surrender such holders share certificate or certificates to the Company, or an Exchange Agent appointed by the Company, and shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares into which such holders shares theretofore represented by a certificate or certificates so surrendered shall have been converted.
2.4 EMPLOYEE STOCK OPTIONS AND INCENTIVES. At the close of business on the Effective Date, the Company will assume Bank's rights and obligations under Bank's 1998 Employee Stock Incentive Plan (the "Plan") and under each of the outstanding options and incentives previously granted under the Plan (each such option and incentive existing immediately prior to the Effective Date being an "existing award" and each such option or incentive so assumed by the Company being called an "assumed award"), by which assumption all rights of a grantee of an existing award relating to Bank Common Stock shall become the same right with respect to Company Common Stock on a one for one basis. Each assumed award, subject to such modification as may be required, shall constitute a continuation of the existing award substituting the Company for Bank and employment by the Company or any of its subsidiaries for employment by the Bank. The price per share of Company Common Stock at which the assumed award (or any installment) may be exercised shall be the price as was applicable to the purchase of the Bank Common Stock pursuant to the existing award, and all other terms and conditions applicable to the assumed awards shall, except as herein provided, be unchanged. Upon consummation of the merger, the Plan shall be terminated assumed awards shall become awards made pursuant to Company's 1998 Employee Stock Incentive Plan.
2.5 STOCK OF COMPANY. At the close of business on the Effective Date, each share of Company Common Stock issued and outstanding immediately prior thereto shall, by virtue of the merger described herein, be canceled.
SECTION 3.
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE OF MERGER
3.1 STOCKHOLDER APPROVALS. As soon as practicable, this Agreement shall be duly submitted to stockholders of Bank, Merger Co. and Company for the purpose of considering and acting upon this Agreement in the manner required by law. Each of the parties shall use its best efforts to obtain the requisite approval of its stockholders to this Agreement and the transactions contemplated herein.
3.2 REGULATORY APPROVALS. Each of the parties hereto shall execute and file with the appropriate regulatory authorities all necessary documents and instruments and shall take every reasonable and necessary step and action to comply with and to secure such regulatory approval of this Agreement and the transactions contemplated herein as may be required by all applicable statutes, rules and regulations, including without limitation the consents and approvals referred to in Paragraphs 4.1(b), 4.1(c), and 4.1(d).
SECTION 4.
CONDITIONS PRECEDENT, TERMINATION, AND PAYMENT OF EXPENSES
4.1 CONDITIONS PRECEDENT TO THE MERGER. Consummation of the merger described herein is subject to satisfaction of the following conditions:
(a) Ratification and confirmation of this Agreement by the respective stockholders of Bank, Merger Co. and Company, in accordance with the applicable provisions of law;
(b) Obtaining all other consents and approvals, on terms and conditions satisfactory to each of the parties hereto, and satisfying all other requirements, prescribed by law or otherwise, which are necessary for the merger described herein to be consummated, including without limitation: approvals from the Federal Deposit Insurance Corporation, the Commissioner of Financial Institutions of the State of California, and the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, approval from the California Commissioner of Corporations under the California Corporate Securities Law of 1968 and authorizations, to the extent necessary under applicable blue sky laws with respect to the securities of the Company issued upon consummation of the merger, and the declaration as effective by the Securities and Exchange Commission of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") with respect to the securities of the Company issuable upon consummation of the merger,
(c) Issuance (unless waived by each of the parties hereto) of a favorable ruling by the Internal Revenue Service of the United States Department of the Treasury, in form and substance satisfactory to each of the parties hereto and their counsel, with respect to the tax consequences to the parties and their stockholders of the merger described herein;
(d) Procuring all other consents or approvals, governmental or otherwise, which in the opinion of counsel for Bank are or may be necessary to permit or to enable the Surviving Corporation to conduct, upon and after the merger described herein, all or any part of the business and other activities in which Bank will be engaged up to the time of such merger, in the same manner and to the same extent Bank engages in such businesses and other activities immediately prior to such merger;
(e) Bank obtaining for Company prior to the Effective Date, a letter, in form and substance satisfactory to legal counsel for Company, signed by each person who is an "affiliate" of Bank for purposes of Rule 145 promulgated under the Securities Act, to the effect that (i) such person will not dispose of any shares of Company Common Stock to be received in the merger, in violation of the Securities Act or the rules and regulations promulgated thereunder, an in any event such person will not dispose of such shares prior to such time as financial results covering at least thirty days of post-merger combined operations have been published, and (ii) such person consents to the placing of a legend on the certificate(s) evidencing such shares, restricting transfer of such shares and referring to the issuance of such shares in a transaction in which Rule 145 applies and to the giving of stop-transfer instructions to Company's transfer agent(s) with respect to such certificate(s); and
(f) Performance by each of the parties hereto of all obligations under this Agreement which are to be performed prior to the consummation of the merger described herein.
4.2 TERMINATION OF THE MERGER. If any condition specified in Paragraph 4.1 has not been fulfilled, or prior to the Effective Date a majority of the members of the Board of Directors of any of the parties hereto has determined that:
(a) The number of shares of Bank Common Stock voting against the merger makes consummation of the merger inadvisable; or
(b) Any action, suit, proceeding or claim relating to the merger described herein has been instituted, made or threatened which makes consummation of the merger inadvisable; or
(c) For any other reason consummation of the merger is inadvisable;
then this Agreement may be terminated at any time before the merger becomes effective. Upon termination, this Agreement shall be void and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of the parties or their respective directors, officers, employees, agents or shareholders.
4.3 AMENDMENT, MODIFICATION, ETC. Bank, Company, and Merger Co., by mutual consent of their respective boards of directors, to the extent permitted by applicable law, may amend, modify, supplement, and interpret this Agreement in such manner as may be mutually agreed upon by them in writing at any time before or after adoption thereof by shareholders of the Bank, Company, and Merger Co., as applicable; provided, however, that no such amendment, modification, or supplementation shall change the number or kind of securities to be issued by Company in exchange for each security of Bank, or any other principal term, except by the affirmative action of such shareholders as required by law.
4.4 EXPENSES OF THE MERGER. All expenses of the merger, described herein, including, without limitation, filing fees, printing costs, mailing costs, accountant's fees and legal fees, shall be borne jointly by the Surviving Corporation and Company; provided, however, that if the merger is abandoned for any reason, then all of such expenses shall be paid by Bank.
SECTION 5. MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement among the parties and there have been and are no agreements, representations or warranties among the parties with respect to the subject matter of this Agreement other than those set forth herein or those provided for herein.
5.2 GOVERNING LAW. This Agreement has been executed in the State of California and the laws of such State shall govern the validity and the interpretation hereof and the performance by the parties hereto.
5.3 COUNTERPARTS. To facilitate the filing of this Agreement, any number of counterparts hereof maybe executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument.
5.4 RIGHTS OF DISSENTING SHAREHOLDERS. To the extent required by the California General Corporation Law, any shareholder of Bank who holds shares that were not voted in favor of the merger may be permitted, by complying with the procedures set forth in Chapter 13 of the General Corporation Law of California, to require Bank to purchase for cash such shares at their fair market value.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Reorganization and Merger Agreement to be executed by their duly authorized officers as of the day and year first above written.
EAST-WEST BANK EAST-WEST BANCORP, INC. ------------------------------ ------------------------------ Dominic Ng Dominic Ng Chairman of the Board, Chairman of the Board, President and Chief President and Chief Executive Officer Executive Officer ------------------------------ ------------------------------ Douglas P. Krause Douglas P. Krause Secretary Secretary |
EAST WEST MERGER CO., INC.
EXHIBIT 3(i)
CERTIFICATE OF INCORPORATION
OF
EAST WEST BANCORP, INC.
ARTICLE I
NAME
The name of the corporation is East West Bancorp, Inc. (herein the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Kevin F. Donnelly 11355 West Olympic Boulevard
Los Angeles, California 90064
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ARTICLE VI
CAPITAL STOCK
Each share of Common Stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of Common Stock of the Corporation.
The Board of Directors is authorized, by resolution or resolutions from time to time adopted, to provide for the issuance of Preferred Stock in one or more series and to fix and state the powers, designations, preferences, and relative, participating, optional, or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof, including, but not limited to determination of any of the following:
(i) The distinctive serial designation, the number of shares constituting such series and the stated value thereof if different from the par value thereof;
(ii) The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends;
(iii) The voting powers, full or limited, if any, of the shares of such series;
(iv) Whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed;
(v) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the Corporation;
(vi) Whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds;
(vii) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;
(viii) The subscription or purchase price and form of consideration for which the shares of such series shall be issued;
(ix) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of Preferred Stock and whether such shares may be reissued as shares of the same or any other series of Preferred Stock.
(xi) Any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of this Certificate of Incorporation, to the full extent permitted in accordance with the laws of the State of Delaware.
Each share of each series of Preferred Stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series.
The powers, preferences and relative, participating, optional and other special rights of each class of stock and of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding.
ARTICLE VII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures, or other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series; but any such unissued stock, bonds, certificates of indebtedness, debentures, or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to resolution of the Board of Directors of the Corporation to such persons, firms,
corporations, or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion.
ARTICLE VIII
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the Board of Directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by law or regulation.
ARTICLE IX
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
ARTICLE X
NOTICE FOR NOMINATIONS AND PROPOSALS
Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.
ARTICLE XI
DIRECTORS
for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.
Should the number of directors of the Corporation be reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. The Board of Directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Should the number of directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph.
ARTICLE XII
ELIMINATION OF DIRECTORS' LIABILITY
Directors of the Corporation shall have no liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article XII shall not eliminate liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which a director derived an improper personal benefit. If the Delaware General Corporation Law is amended after the effective date of this Certificate to further eliminate or limit the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE XIII
INDEMNIFICATION
(a) any person who is or was a director or executive officer of the Corporation; and
(b) any person who serves or served at the Corporation's request as a director, officer, employee, partner, or trustee of another corporation, partnership, joint venture, trust, or other enterprise.
ARTICLE XIV
APPROVAL OF BUSINESS COMBINATIONS
(a) 66-2/3% of the voting power of all outstanding shares of Voting Stock, regardless of class and voting together as a single voting class; and
(b) a majority of the voting power of all outstanding shares of Voting Stock, other than shares held by (i) an Interested Stockholder which is (or the Affiliate or Associate of which is) a party to such Business Combination or (ii) an Affiliate or Associate of such Interested Stockholder, regardless of class and voting together as a single voting class.
The affirmative votes referred to in paragraphs (a) and (b) of this Section 1 shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or proportion may be specified, by law, or by this Certificate of Incorporation or by the term of any series of Preferred Stock or any other securities of the Corporation having a preference over the Common Sock or in any agreement between the Corporation and any other person, including a national securities exchange, or otherwise.
(a) both of the following conditions specified in clauses (i) and
(ii) of this paragraph (a) have been satisfied:
(i) there are one or more Disinterested Directors and a majority of such Disinterested Directors shall have approved such Business Combination; and
(ii) such Business Combination shall have been approved by the affirmative vote of the Corporation's stockholders required by law, if any, such vote is so required; or
(b) all of the following conditions specified in clauses (i) through
(vii) of this paragraph (b) have been satisfied:
(i) such Business Combination shall have been approved by the affirmative vote of holders of a majority of the voting power of all outstanding shares of Voting Stock, regardless of class and voting together as a single voting class:
(ii) the aggregate amount of (A) the cash and (B) the Fair Market Value (as defined in paragraph (i) of Section 3 of this Article XIV), as of the date of the consummation of the Business Combination (the "Consummation Date"), of consideration other than cash received or to be received, per share, by holders of shares of Common Stock in such Business Combination, shall be at least equal to the greatest per share amount determined under the following alternatives:
(1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or agreed to be paid by or on behalf of the Interested Stockholder or any Affiliate or Associate of such Interested Stockholder which is (or the Affiliate or Associate of which is) a party to such Business Combination for any shares of Common Stock in connection with the acquisition by such interested Stockholder or any such Affiliate or Associate of beneficial ownership of shares of Common Stock (x) within the two-year period immediately prior to and including the date of the final public announcement of the terms of the proposed Business Combination (the "Announcement Date"), or (y) in the transaction in which such Interested Stockholder became an interested Stockholder, whichever is higher; and
(2) the Fair Market Value per share of Common Stock (x) on the Announcement Date, or (y) on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher;
(iii) the aggregate amount of (A) the cash and (B) the Fair Market Value, as of the Consummation Date, of consideration other than cash received or to be received, per share, by holders of shares of any class or series of outstanding Voting Stock, other than Common Stock in such Business Combination, shall be at least equal to the highest amount determined under clauses (1), (2), and (3) below (it being intended that the requirements of this clause (iii) shall be required to be met with respect to every class or series of outstanding Voting Stock other than Common Stock, whether or not such Interested Stockholder (or such Affiliate or Associate) has previously acquired any shares of a particular class or series of Voting Stock);
(1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or agreed to be paid by or on behalf of the Interested Stockholder or any Affiliate or Associate of such Interested Stockholder which is (or the Affiliate or Associate of which is) a party to such Business Combination for any shares of such class or series of Voting Stock in connection with the acquisition by such Interested Stockholder or any such Affiliated or Associate of beneficial ownership of shares of such class or series of Voting Stock (x) within the two-year period immediately prior to the Announcement Date, or (y) in the transaction in which such Interested Stockholder became an Interested Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of voting stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event; and
(3) the Fair Market Value per share of such class or series of Voting Stock (x) on the Announcement Date, or (y) on the Determination Date, whichever is higher;
(iv) the consideration to be received by the holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder (or any Affiliate or Associate of such Interested Stockholder) has previously paid (or agreed to pay) for shares of such class or series of Voting Stock. If the Interested Stockholder and/or his Affiliates or Associates paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received by holders of shares of such class or series of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by such Interested Stockholder and his Affiliates and Associates. The price determined in accordance with clauses (ii) and (iii) of this paragraph (b) shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event;
(v) after the Determination Date and prior to the consummation of such Business Combination, neither such Interested Stockholder nor any of its Affiliates or Associates shall have become the beneficial owner of any additional shares of Voting Stock, except (A) as part of the transaction which resulted in such Interested Stockholder becoming an Interested Stockholder, (B) upon the exercise of options or warrants granted prior to, or the conversion of convertible securities acquired prior to, the Determination Date, (C) pursuant to any employee benefit plan, including without limitation a stock plan, maintained by the Corporation or any Subsidiary, regardless of the date of acquisition of such beneficial ownership, or (D) as a result of a stock split or a pro rata stock dividend;
(vi) after the Determination Date and prior to the consummation of such Business Combination, neither such Interested Stockholder nor any of its Affiliates or Associates shall have received the benefit, directly or indirectly (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax
advantages provided by the Corporation (other than any of the foregoing provided under an employee benefit plan of the Corporation or any subsidiary, including without limitation stock option plans), whether in anticipation of or in connection with such Business Combination or otherwise; and
(vii) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such act, rules and/or regulations) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such act, rules and/or regulations or such subsequent provisions).
(a) "Disinterested Director" means, with respect to any Business Combination with, or proposed by or on behalf of, an Interested Stockholder (or his Affiliate or Associate) and with respect to any proposal by or on behalf of an Interested Stockholder (or his Affiliate or Associate) to amend or repeal any provision of this Certificate of Incorporation the amendment or repeal of which is governed by Article XVI hereof, any member of the Board of Directors of the Corporation who is not such Interested Stockholder or an Affiliate or Associate of such Interested Stockholder and who was a member of the Board of Directors of this Corporation prior to the time that the Interested Stockholder became an Interested Stockholder. The term "Disinterested Director" includes a successor to any such director if the successor is neither the Interested Stockholder nor an Affiliate or Associate of the Interested Stockholder and was recommended or elected to succeed the Disinterested Director on the Board by a majority of Disinterested Directors then on the Board. In connection with any vote, action or approval by the Board of Directors not involving a Business Combination with, or proposal by or on behalf of, an Interested Stockholder (or his Affiliate or Associate) the term "Disinterested Director" means any member of the Board of Directors then in office.
(b) "Business Combination" means:
(i) any merger or consolidation of the Corporation or any Subsidiary (as defined in paragraph (h) of this Section 3) with or into (A) any Interested Stockholder or (B) any other corporation (whether or not itself an Interested Stockholder) which immediately before is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder.
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder, Affiliate and/or any Associate of any Interested Stockholder of any assets of the Corporation or any Subsidiary, where such assets have an aggregate Fair Market Value of $1,000,000 or more;
(iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary, to a person which, immediately prior to such issuance or transfer, is an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, where such equity securities have an aggregate Fair Market Value of $1,000,000 or more;
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder;
(v) any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder), which has the effect, directly or indirectly, of increasing the percentage of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or by any Affiliate or Associate of any Interested Stockholder; or
(vi) any agreement, contract or other arrangement providing for any of the transactions described in clauses (i) through (v) of this paragraph (b).
(c) A "person" means an individual, firm, partnership, trust, corporation or other entity.
(d) "Interested Stockholder" means, as of any given date, any person who or which:
(i) is the beneficial owner (as defined in paragraph (e) of this
Section 3), directly or indirectly, of 10% or more of the voting power of (A)
all outstanding shares of Voting Stock or (B) all outstanding shares of the
capital stock of a Subsidiary having general voting power ("Subsidiary Stock");
(ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to such date was the beneficial owner, directly or indirectly, or 10% or more of the voting power of all outstanding shares of Voting Stock or all outstanding grew of Subsidiary Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock or Subsidiary Stock which were, at any time within the two-year period immediately prior to such date, beneficially owned by any person who at such time was an Interested Stockholder, unless such assignment or succession shall have occurred in the course of a transaction or series of transactions involving the purchase of shares in a public offering within the meaning of the Securities Act of 1933, as amended, or open market purchases of shares, if in either case the price and other terms of sale are not negotiated by the purchaser and seller of such shares; provided,
however, that the term "Interested Stockholder" shall not include (A) the Corporation or any Subsidiary or (B) any employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary, or any trustee of, or fiduciary with respect to, any such plan when acting in such capacity.
(e) A person is the "beneficial owner" of any shares of capital stock:
(i) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other person with which such first-mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation or a Subsidiary, as the case may be.
(f) "Voting Stock" means the capital stock of the Corporation entitled
to be voted generally in the election of directors. For the purpose of
determining whether a person is an Interested Stockholder pursuant to paragraph
(d) of this Section 3, the number of shares of Voting Stock or Subsidiary Stock,
as the case may be, deemed to be outstanding shall include shares deemed owned
by a beneficial owner through application of paragraph (e) of this Section 3,
but shall not include any other shares of Voting Stock or Subsidiary Stock, as
the case may be, which are not then outstanding but which may be issuable to any
person pursuant to any agreement, arrangement or understanding, or upon exercise
of conversion rights, warrants or options, or otherwise.
(g) A person shall be deemed to be an "Affiliate" of a specified person, if such person directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, such specified person. A person shall be deemed to be an "Associate" of a specified person, if such person is (a) a corporation or organization (other than the Corporation or any Subsidiary) of which such specified person is an officer or partner or of which such specified person is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (b) a trust or other estate (other than any pension, profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary) in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, or (c) a relative or spouse of such specified person, or a relative of such spouse, who has the same home as such specified person.
(h) "Subsidiary" means any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as in effect on January 1, 1986) is owned, directly or indirectly, by the Corporation.
(i) "Fair Market Value" means, (i) in the case of stock, (A) the
average of the last reported sale price per share of the Common Stock on the
NASDAQ National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, for ten (10)
consecutive Trading Days (as defined below) preceding the date of such
computation, or (B) if not quoted as described in clause (A), the mean between
the high bid and low asked quotations for the Common Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for the Common Stock on at least fifteen
of the thirty preceding Trading Days, or (C) if the Common Stock is listed or
admitted for trading on any national securities exchange, the last reported sale
price, or the closing bid price if no sale occurred, of the Common Stock on the
principal securities exchange on which the Common Stock is listed, or (D) if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined in good faith by a majority of the
Disinterested Directors (or if there are no Disinterested Directors, then by a
majority of the Board of Directors), and (ii) in the case of property other than
cash or stock, the fair market value of such property on the date in question as
determined in good faith by a majority of the Disinterested Directors (or if
there are no Disinterested Directors, then by a majority of the Board of
Directors). As used herein, the term "Trading Days" means (x) if the Common
Stock is quoted on the NASDAQ National Market or any similar system of automated
dissemination of quotations of securities prices, days on which trades may be
made on such system, or (y) if not quoted as described in clause (x), days on
which quotations are reported by the National Quotation Bureau Incorporated, or
(z) if the Common Stock is listed or admitted for trading or any national
securities exchange, days on which such national securities exchange is open for
business.
(j) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash received or to be received" as used in clauses (ii) and (iii) of paragraph (b) of Section 2 of this Article XIV shall include the shares of Common Stock and/or the shares of any other class of Voting Stock retained by the holder of such shares.
ARTICLE XV
EVALUATION OF OFFERS
The Board of Directors of the Corporation, when evaluating any offer to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, may, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to all relevant factors, including, without limitation, the social and economic effect of acceptance of such offer: on the Corporation's present and future customers and employees and those of its subsidiaries; on the communities in which the Corporation and its subsidiaries operate or are located; on the ability of the Corporation to fulfill its corporate objectives as a financial institution holding company; and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.
ARTICLE XVI
AMENDMENT OF BYLAWS OF THE CORPORATION
In furtherance and not in limitation of the powers conferred by statute, a majority of the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend, and rescind the Bylaws of the Corporation. The Bylaws may be adopted, repealed, rescinded, altered or amended in any respect by the stockholders of the Corporation, but only by the affirmative vote of the holders of not less than 66-2/3% of the voting power of all outstanding shares of Voting Stock (as defined in paragraph (f) of Section 3 of Article XIV hereof), regardless of class and voting
together as a single voting class, and where such action is proposed by an
Interested Stockholder as defined in paragraph (d) of Section 3 of Article XIV
hereof), or by any Affiliate or Associate (each as defined in paragraph (g) of
Section 3 of Article XIV hereof) of an Interested Stockholder, including the
affirmative vote of the holders of a majority of the voting power of all
outstanding shares of Voting Stock, regardless of class and voting together as a
single voting class, other than shares held by the Interested Stockholder which
proposed (or the Affiliate or Associate of which proposed) such action, or any
Affiliate or Associate of such Interested Stockholder; provided, however, that
where such action is approved by a majority of the Disinterested Directors (as
defined in paragraph (a) of Section 3 of Article XIV hereof), or by a majority
of a quorum of the full Board of Directors if such proposal is not made by or on
behalf of an Interested Stockholder or his Affiliate or Associate, the
affirmative vote of a majority of the voting power of all outstanding shares of
Voting Stock, regardless of class and voting together as a single voting class,
shall be required for approval of such action.
ARTICLE XVII
AMENDMENT OF CERTIFICATE OF INCORPORATION
Notwithstanding any requirements of law and other provisions of this Certificate of Incorporation, or the terms of any series of Preferred Stock or any other securities of the Corporation having a preference over the Common Stock (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation, or the terms of any series of Preferred Stock or any other securities of the Corporation having a preference over the Common Stock), the provisions set forth in this Article XVII and in Articles IX, X, XI, XII, XIII, XIV, XV and XVI hereof may not be repealed, rescinded, altered or amended in any respect, and no other provision or provisions may be adopted which impair(s) in any respect the operation or effect of any such provision, except by the affirmative vote of the holders of not less than 66-2/3% of the voting power of all outstanding shares of Voting Stock regardless of class and voting together as a single voting class, and, where such action is proposed by an Interested Stockholder or by any Associate or Affiliate of an Interested Stockholder, including the affirmative vote of the holders of a majority of the voting power of all outstanding shares of Voting Stock, regardless of class and voting together as a single class, other than shares beneficially owned by the Interested Stockholder which proposed (or the Affiliate or Associate of which proposed) such action, or beneficially owned by any Affiliate or Associate of such Interested Stockholder; provided, however, that where such action is approved by a majority of the Disinterested Directors (or by a majority of a quorum of the full Board of Directors if such proposal is not made by or on behalf of an Interested Stockholder or his Affiliate or Associate), the affirmative vote of a majority of the voting power of all outstanding shares of Voting Stock, regardless of class and voting together as a single voting class, shall be required for approval of such action.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and accordingly, have hereto set my hand this the 26th day of August, 1998.
/s/ Kevin F. Donnelly ---------------------------------------------- Kevin F. Donnelly, Incorporator |
EXHIBIT 3(ii)
BYLAWS
OF
EAST WEST BANCORP, INC.
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office of East West Bancorp, Inc. (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, Corporation Trust Center, City of Wilmington, County of New Castle, and the name of the registered agent at that address shall be The Corporation Trust Company.
SECTION 1.2 Principal Executive Office. The principal executive office of the Corporation shall be located at such place within or outside of the State of Delaware as the Board of Directors of the Corporation ("Board of Directors") from time to time shall designate.
SECTION 1.3 Other Offices. The Corporation may also have an office or offices at such other place of places, either within or without the State of Delaware, as the Board of Directors may, from time to time determine or as the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by the Board of Directors from time to time. In the absence of any such designation, stockholders' meetings shall be at the executive offices of the Corporation. Any other proper business may be transacted at the annual meeting. At the annual meeting of stockholders in 1999, the stockholders shall elect members of Class I of the Board of Directors for a term of three (3) years; at the annual meeting of stockholders in 2000, the stockholders shall elect members of Class II of the Board of Directors for a term of three (3) years; and at the annual meeting of stockholders in 2001, the stockholders shall elect members of Class III of the Board of Directors for a term of three (3) years. Thereafter, the stockholders at each annual meeting shall elect members of the Board of Directors for each class for terms of three (3) years to succeed those members of the Board of Directors whose terms shall have expired.
SECTION 2.2 Special Meetings. Subject to the rights of the holders of any class or series of stock having a preference over the Corporation's Common Stock, special meetings of stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors, by the Chairman of the Board or the President, or by the written request of the holders of not less than
10% of the voting power of all outstanding shares of Voting Stock regardless of class. Special meetings may not be called by any other person or persons. Each special meeting shall be held at such date and time as is requested by the person or persons calling the meeting, within the limits fixed by law. Only the business specified in this Notice of any special meeting of the stockholders shall come before such meeting.
SECTION 2.3 Notice of Meetings. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, unless otherwise provided by law, the written notice of any meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation.
Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend the meeting in person or by proxy without protesting, prior to or after the commencement of the meeting, the lack of proper notice or who shall waive notice thereof as provided in Article II of these Bylaws. Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are announced at the meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting.
SECTION 2.4 Adjournments. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 2.5 Quorum. At each meeting of stockholders, except where otherwise provided by law, the Certificate of Incorporation, the terms of any class or series of stock having a preference over the Corporation's Common Stock, or these Bylaws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum the stockholders so present may by majority vote, adjourn the meeting from time to time in the manner provided by Section 2.4 of these Bylaws until a quorum shall attend. Shares of its own capital stock belonging on the record date for the meeting
to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes: provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.
SECTION 2.6 Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
SECTION 2.7 Voting. Unless otherwise provided in the Certificate of Incorporation, or the terms of any class or series of stock having a preference over the Corporation's Common Stock, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, every reference in these Bylaws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. A stockholder may vote the shares owned of record by him either in person or by proxy executed in writing (which shall include writings sent by telex, telegraph, cable or facsimile transmission) by the stockholder himself or his duly authorized attorney in fact. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors or otherwise, all elections and questions shall, unless otherwise provided by law, by the Certificate of Incorporation, the terms of any class or series of stock having a preference over the Corporation's Common Stock or these Bylaws, be decided by the vote of the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at the meeting.
SECTION 2.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at the meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting (to the extent such action by the shareholders is permitted by these Bylaws) when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.9 Lists of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary, business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time and may be inspected by any stockholder who is present.
SECTION 2.10 Inspectors of Election. Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are appointed, the chairman of the meeting may, and on the request of any shareholder or his proxy shall appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholder or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors before the meeting, or by the meeting chairman at the meeting.
The duties of these inspectors shall be as follows:
(a) To determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) To receive votes, ballots, or consents;
(c) To hear and determine all challenges and questions in any way arising in connection with the right to vote;
(d) To count and tabulate all votes or consents;
(e) To determine the election results; and
(f) To do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.
SECTION 2.11 Stockholder Action. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, any action required or permitted to be taken by the stockholders of the Corporation may be effected at a duly called annual meeting or special meeting of stockholders of the Corporation, or by the written consent of the holders of outstanding shares of Voting Stock having not less than 66- 2/3% of the voting power of all outstanding shares of Voting Stock regardless of class and voting together as a single voting class, unless such action requiring or permitting stockholder approval is approved by a majority of the Disinterested Directors (as defined in the Certificate of Incorporation), in which case such action may be authorized or taken by the written consent of the holders of outstanding shares of stock having not less than the minimum voting power that would be necessary to authorize or take such action at a meeting of stockholders at which all shares entitled to vote thereon were present and voted, provided all other requirements of applicable law and the Certificate of Incorporation have been satisfied.
SECTION 2.12 Stockholder Proposals. At any Annual or special meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before the meeting,
business must be: (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before a meeting by a stockholder. For business to be
properly brought before any meeting of the stockholders, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not less than thirty (30)
days and not more than sixty (60) days prior to the meeting; provided, however,
that in the event that less than forty (40) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting: (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding
anything to the contrary contained in these Bylaws, no business shall be conducted at a meeting of the stockholders except in accordance with the procedures set forth in this Section 2.12. The chairperson of any meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 2.12, and if the chairperson should so determine, the chairperson shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the Certificate of Incorporation.
SECTION 3.2 Number of Directors. Except as may be provided by the terms
of any class or series of stock having a preference over the Corporation's
Common Stock, the number directors of the Corporation shall be fixed from time
to time by resolution of the Board of Directors, but shall not be less than five
(5), divided into three classes, with at least two (2) directors in Class I, two
(2) directors in Class II, and one (1) director in Class III with the terms of
office of one class expiring each year. The classes shall be initially
comprised of directors appointed by the Board of Directors. If the number of
directors is changed by the Board of Directors, then any newly created
directorships or any decrease in directorships shall be apportioned among the
classes as to make all classes as nearly equal as possible; provided that no
decrease in the number of directors shall shorten the term of any incumbent
director. Subject to the rights of the holders of any class or series of stock
having a preference over the Corporation's Common Stock as to dividends or upon
liquidation, at each annual meeting, the successors of the class of directors
whose terms expire at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. The first Board of Directors and subsequent Boards
of Directors shall consist of five (5) directors until changed as herein
provided. Directors need not be stockholders.
SECTION 3.3 Election and Term of Office. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, each director shall hold office until (i) the annual meeting of stockholders in the calendar year in which his or her term of office expires and until his successor is elected and qualified or (ii) his earlier death, resignation or removal in the manner that the directors of the Corporation, other than those who may be elected pursuant to the terms of any series of preferred stock or any other securities of the Corporation other than Common Stock, may determine from time to time. Except as may be otherwise provided by the terms of any series of Preferred Stock or any other securities of the Corporation, no decrease in the authorized number of directors shall shorten the term of any incumbent directors. In any election of directors, the persons receiving a plurality of the votes) cast up to a number of directors to be elected in such election, shall be deemed to be elected.
SECTION 3.4 Notification of Nominations. Subject to the rights of the holders of any class or series having a preference over the Common Stock as to dividends or upon liquidation, nominations for the elections of directors shall be made by the Board of Directors; or a committee thereof, or by any stockholder entitled to vote for the election of directors.
To be in proper written form, a stockholder's notice shall set forth in writing: (i) as to each person whom the stockholders proposes to nominate for election as a director, all information relating to that person that is required to be disclosed in solicitations of proxies for the election of directors or is otherwise required, in each case pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, included, but not limited to, the person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (ii) as to the stockholder giving the notice, (w) the name and record address, as they appear on the corporation's's books, of the stockholder, (y) a description of all arrangements or understandings between the stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nominations are to be made by the stockholder and (z) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person named in the notice. At the request of the Board of Directors, any person nominated by the Board of Directors, or a committee thereof, for election as a director shall furnish to the Secretary of the Corporation the information required to be set forth in a stockholder's notice of nomination which pertains to the nominee.
In the event that a stockholder seeks to nominate one or more directors,
the Secretary shall appoint an inspector, who shall not be affiliated with the
Corporation, to determine whether the stockholder has complied with this Section
3.4. If the inspector shall determine that the stockholder has not complied
with this Section 3.4, then the inspector shall direct the chairman of the
meeting to declare to the meeting that a nomination was not made in accordance
with the procedures prescribed by these Bylaws, and the chairman shall so
declare to the meeting and the defective nomination shall be disregarded.
SECTION 3.5 Election of Chairman of the Board. At the organizational meeting immediately following the annual meeting of stockholders, the directors shall elect a Chairman of the Board from among the directors who shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been elected or until his earlier
resignation or removal. Any vacancy in such office may be filled for the unexpired portion of the term in the same manner by the Board of Directors at any regular or special meeting.
SECTION 3.6 Vacancies and Additional Directorships. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote two-thirds (2/3rds) of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
SECTION 3.7 Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine and, if so determined, notice thereof need not be given.
SECTION 3.8 Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the President, or by a majority of the directors. Reasonable notice thereof shall be given by the person or persons calling the meeting.
SECTION 3.9 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee thereof, as the case may be, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Bylaw shall constitute presence in person at such meeting.
SECTION 3.10 Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the entire Board of Directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the Certificate of Incorporation or these Bylaws shall require a vote of a greater number. In case at any meeting of the Board of Directors a quorum shall not be present, the members of the Board of Directors present may adjourn the meeting from time to time until a quorum shall attend.
SECTION 3.11 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
SECTION 3.12 Action by Directors Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 3.13 Compensation of Directors. Each director who shall not at the time also be a salaried officer or employee of the Corporation or any of its subsidiaries (hereinafter referred to as an "outside director"), in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees for attendance at meetings of the Board of Directors or of committees of the Board of Directors, or both, as the Board of Directors shall from time to time determine. In addition, each director, whether or not an outside director, shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's duties as a director. Nothing contained in this Section 3.13 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving proper compensation therefor.
SECTION 3.14 Removal. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock, any director may be removed from office only as provided in Article XI of the Certificate of Incorporation.
ARTICLE IV
COMMITTEES
SECTION 4.1 Committees. The Board of Directors may by resolution passed by a majority of the Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they, constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially, all of the Corporation's property, and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or indemnifying directors or amending these Bylaws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
SECTION 4.2 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may adopt, amend and repeal rules for the conduct of its business, in the absence of a provision by the Board of Directors or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.1 Officers; Election. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and it may, if it so determines, elect from among its members a Chairman of the Board. The Board of Directors may also elect any other officer classified from time to time as a corporate officer by resolution of the Board of Directors. Any number of offices may be held by the same person.
SECTION 5.2 Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding this election, and until his successor is elected and qualified or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary, to make it effective. The Board of Directors or the President may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting or by the President.
SECTION 5.3 Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these Bylaws or in a resolution of the Board of Directors which is not inconsistent with these Bylaws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Secretary shall have the duty to record the proceedings of the meetings of stockholders, the Board of Directors and any committees in a book to be kept for that purpose and shall have custody of the corporate seal of the Corporation with the authority to affix such seal to any instrument requiring it. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER CORPORATE AGENTS
SECTION 6.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or executive officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, or was a director or executive officer of a foreign or domestic corporation which was a predecessor of the Corporation or of another enterprise at the request of such predecessor corporation, whether the basis of such proceeding is alleged action in an official capacity as a director or executive officer or in any other capacity while serving as a director or executive officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorney's fees, judgments, fines, ERISA excise taxes of penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 6.2 of this Article VI, the Corporation shall indemnify and such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 6.1 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Delaware General Corporation Law requires the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay, all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. This Article VI shall create a right of indemnification for each such indemnifiable party whether or not the proceeding to which the indemnification relates arose in whole or in part prior to adoption of this Article VI (or the adoption of the comparable provisions of the Bylaws of the Corporation's predecessor corporation).
SECTION 6.2 Right of Claimant to Bring Suit. If a claim under Section 6.1 of this Article VI is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper to the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
SECTION 6.3 Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 6.4 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
ARTICLE VII
STOCK
SECTION 7.1 Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, if any, or the President, or a Vice President, and by the Treasurer or an Assistant Treasurer, if any, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Any or all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 7.3 Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.9 of Article II, or the books of the Corporation, or to vote in person or by proxy at any meting of stockholders.
SECTION 7.4 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 7.5 Beneficial Owners. The Corporation shall be entitled to recognize, the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Contracts, Loans, Checks and Deposits
SECTION 8.1. Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation's Certificate of Incorporation or these Bylaws with respect to certificates for shares, the Board of Directors may authorize any officer, employee, or agent of
the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances.
SECTION 8.2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.
SECTION 8.3. Checks, Drafts, Etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees, or agents of the Corporation in such manner as shall from time to time be determined by resolution of the Board of Directors.
SECTION 8.4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the Board of Directors may select.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
SECTION 9.2 Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 9.3 Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawful, called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Unless either proper notice of a meeting of the Board of Directors, or any committee thereof, has been given or else the persons entitled thereto have waived such notice (either in writing or by attendance as set forth above), any business transacted at such meeting shall be null and void.
SECTION 9.4 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
SECTION 9.5 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.
SECTION 9.6 Execution of Documents. The Board of Directors or any committee thereof shall designate the officers, employees and agents of the Corporation who shall have the power to execute and deliver deeds, contracts, mortgages, bonds debentures, notes, checks and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize such officers, employees and agents to delegate such power (including, but not limited to, the authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. Such delegation may be by resolution or otherwise and the authority granted shall be general or confined to specific matters, all as to the Board of Directors or any such committee may determine. In the absence of such designation referred to in the first sentence of this Section 9.6, the officers of the Corporation shall have such power so referred to, to the extent incident to the normal performance of their duties.
SECTION 9.7 Proxies in Respect of Stock or Other Securities of Other Corporations. The Board of Directors or any committee thereof shall designate the officers of the Corporation who shall have the authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation and to vote or consent in respect of such powers and rights, and such designated officer may execute or case to be executed in the
name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem to be necessary or proper so that he Corporation may exercise its powers and rights. In the absence of any such designation, the Presidents shall have the authority granted under this Section 9.7.
SECTION 9.8 Amendment of Bylaws. Except as may be otherwise provided by the terms of any class or series of stock having a preference over the Corporation's Common Stock and subject to the Certificate of Incorporation, these Bylaws may be amended or repealed, and new Bylaws adopted, by the Board of Directors, but the stockholders entitled to vote may adopt additional Bylaws and may amend or repeal any Bylaw whether or not adopted by them.
SECTION 9.9 Bylaws Subject to Law and Certificate of Incorporation. Each provision of these Bylaws is subject to any contrary provision contained in the Certificate of Incorporation r of any applicable law as from time to time may be in effect, and to the extent any such provision is inconsistent, but for all other purposes these Bylaws shall continue in full force and effect.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of East West Bancorp, Inc., a Delaware corporation; and
2. That the foregoing bylaws, comprising 16 pages, constitute the bylaws of said corporation as duly adopted by action of the Board of Directors of the Corporation duly taken on September _____, 1998.
IN WITNESS, WHEREOF, I have hereunto subscribed my name and affixed the seat of said corporation this __________ day of September, 1998.
/s/ Douglas P. Krause ----------------------------------------------- Douglas P. Krause, Secretary |
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement"), dated as of June 12, 1998, by and among East-West Bank, a California banking corporation (the "Bank"), and each of the undersigned Investors (hereinafter referred to individually as an "Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the owners of all of the Bank Common Stock (the "Selling Shareholders"), desire to sell all of such Bank Common Stock;
WHEREAS, the Selling Shareholders, the Bank and each of the Investors have entered into a Purchase and Sale Agreement providing for the sale by the Selling Shareholders of all of the Bank Common Stock beneficially owned by the Selling Shareholders and the purchase by the Investors of all of such shares of Bank Common Stock, subject to the terms and conditions set forth therein;
WHEREAS, the Bank has previously determined that it is in the best interests of the Bank for the Bank to be reorganized into the holding company form of organization;
WHEREAS, the Investors are willing to facilitate the Bank's goals of forming such a holding company if, among other factors, the Investors receive registered securities of the Company in exchange for their shares of Bank Common Stock; and
WHEREAS, the Bank and the Investors have determined that it is in their respective best interests to specify the principal terms of such reorganization, including, without limitation, the registration of securities by be received in such reorganization;
NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein and for other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, the Bank and the Investors, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
(a) "Affiliate" shall mean, with respect to any Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings corresponding to the foregoing.
(b) "Agency Agreement" shall mean the Agency Agreement by and among the Selling Shareholders, the Bank and the Placement Agent with respect to the offering of the shares of
Common Stock of the Bank to the Investors, as amended, supplemented or modified from time to time.
(c) "Agreement and Plan of Reorganization" shall mean the Agreement and Plan of Reorganization to be entered into by the Bank, the Company and Interim providing for the terms of the Reorganization and the Exchange.
(d) "Bank Common Stock" shall mean the common stock, stated value $1.00 per share, of the Bank.
(e) "Business Day" shall mean any day except a Saturday, Sunday or other day on which commercial banks in the State of California are authorized or obligated by law to close.
(f) "Closing Date" shall mean June __, 1998, the date of the purchase and sale of the shares of Bank Common Stock pursuant to the Purchase and Sale Agreement.
(g) "Commission" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.
(h) "Company" shall mean the Company which will initially be formed as a wholly-owned subsidiary of the Bank and which will, pursuant to the terms of the Agreement and Plan of Reorganization, reorganize into the parent holding company for the Bank.
(i) "Company Common Stock" shall mean the common stock of the Company which will be issued in exchange for the Bank Common Stock in connection with the Reorganization.
(j) "Effective Date" shall mean the date the Reorganization will be effective pursuant to the terms of the Agreement and Plan of Reorganization.
(k) "Exchange" shall mean the exchange of Company Common Stock for shares of Bank Common stock pursuant to Section 3 hereof.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(m) "Exchange Registration" shall have the meaning set forth in Section 3 of this Agreement.
(n) "Exchange Registration Statement" shall mean a registration statement of the Company pursuant to the provisions of Section 3 of this Agreement which registers under the Securities Act the shares of Company Common Stock to be issued in exchange for Bank Common Stock pursuant to the Reorganization and the Exchange.
(o) "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor thereto.
(p) "Holder" shall mean any holder of outstanding Registrable Securities, including any Person to whom Registrable Securities have been transferred in compliance with this Agreement.
(q) "Initiating Holders" shall mean one or more Holders of not less than 25% of the Registrable Securities then outstanding.
(r) "Interim" shall mean the interim California banking corporation which will be organized by the Bank as a wholly-owned subsidiary of the Company and which, pursuant to the terms of the Agreement and Plan of Reorganization, will merge with and into the Bank in order to facilitate the Reorganization and the Exchange.
(s) "Person" shall mean an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
(t) "Placement Agent" shall mean Friedman, Billings, Ramsey & Co., Inc., in its capacity as private placement agent pursuant to the Agency Agreement with respect to the offering of shares of the Bank Common Stock to the Investors.
(u) "Prospectus" shall mean a prospectus/proxy statement included in an Exchange Registration Statement or any prospectus included in a Shelf Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by an Exchange Registration Statement or any prospectus included in a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.
(v) "Prospectus/Proxy Statement" shall mean the prospectus/proxy statement utilized by (i) the Bank to obtain shareholder approval of the Reorganization and by (ii) the Company in connection with the Exchange including, in each case, all amendments and supplements thereto.
(w) "Purchase and Sale Agreement" shall mean the Purchase and Sale Agreement among the Selling Shareholders, the Bank and the Investors, as amended, supplemented or otherwise modified from time to time.
(x) "Registrable Securities" shall mean (i) the shares of Bank Common Stock (including the shares of Bank Common Stock which may be issued upon exercise of the Warrants) and (ii) any shares of the capital stock (or rights to receive capital stock of the Bank) issued in respect of the Bank Common Stock (including the shares of Bank Common Stock which may be issued upon
exercise of the Warrants) by reason of or in connection with any stock dividend, stock distribution, stock split, purchase in any rights offering or in connection with any combination of shares, recapitalization, merger or consolidation, or any other equity securities issued pursuant to any other pro rata distribution with respect to the Bank Common Stock (including the shares of Bank Common Stock which may be issued upon exercise of the Warrants). Notwithstanding the foregoing, Registrable Securities shall not include otherwise Registrable Securities (i) sold to or through a broker or dealer or underwriter or (ii) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof, if in any such case all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale.
(y) "Registration Statement" shall mean any registration statement (including an Exchange Registration Statement and a Shelf Registration Statement) filed with the Commission pursuant to Sections 3 or 4 of this Agreement.
(z) "Reorganization" shall mean the reorganization of the Bank into the holding company form of organization through the merger of Interim with and into the Bank.
(aa) "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
(bb) "Shelf Registration" shall have the meaning set forth in Section 4 of this Agreement.
(cc) "Shelf Registration Statement" shall mean a registration statement of the Company pursuant to the provisions of Section 4 of this Agreement which covers all of the Registrable Securities required to be registered on an appropriate form for purposes of an offering on a continuous basis pursuant to Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission.
(dd) "Underwritten Offering" shall mean a bona fide underwritten public offering pursuant to a Registration Statement.
(ee) "Warrants" shall mean the Warrants of the Bank issued by the Bank to the Placement Agent pursuant to the Agency Agreement as compensation, in part, for its efforts in advising and assisting the Bank with respect to the sale of the Bank Common Stock.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY.
The Registrable Securities shall not be sold, transferred or otherwise disposed of, except in accordance with and subject to the provisions of the Securities Act and the rules and regulations promulgated thereunder.
SECTION 3. THE REORGANIZATION AND THE EXCHANGE
(a) The Bank hereby reaffirms its intention to cause the Company to be organized as a wholly-owned subsidiary for the purpose of becoming the holding company of the Bank in accordance with the provisions of this Section 3. The reorganization documents for the Company shall provide for, among other things, the corporate characteristics described in Exhibit A hereto. Upon any formation of the Company, the Bank shall cause the Company to assume and agree to be bound by the terms of this Registration Rights Agreement as if it was a party to this Registration Rights Agreement.
(b) Subject to the receipt of all requisite regulatory and shareholder approvals, the Bank shall cause Interim to be organized as a wholly-owned subsidiary of the Company, and the Bank, the Company and Interim shall enter into the Agreement and Plan of Reorganization.
(c) The Bank agrees that within 90 days of the Closing Date, the Bank and the Company shall cause to be filed with the applicable regulatory authorities all applications which are required in order to consummate the Reorganization.
(d) The Bank shall cause the Company to use its reasonable best efforts to
(i) cause to be filed with the Commission within 90 days after the Closing Date,
an Exchange Registration Statement on an appropriate form under the Securities
Act relating to the Exchange, and (ii) cause such Exchange Registration
Statement to be declared effective under the Securities Act by the Commission
not later than 150 days after the Closing Date.
(e) In connection with the Exchange and within 15 days following the declaration of the effectiveness by the Commission of the Exchange Registration Statement, the Bank shall mail to each Holder a copy of the Prospectus/Proxy Statement which forms a part of the Exchange Registration Statement, the Board of Directors shall recommend that the Holders vote in favor of the Reorganization and the Bank shall use its reasonable best efforts to obtain the requisite approval of the Reorganization by the shareholders of the Bank.
(f) On the Effective Date and pursuant to the terms of the Agreement and Plan of Reorganization, (i) each share of Bank Common Stock issued and outstanding immediately prior to the Effective Date shall, by virtue of the Reorganization and without any action on the part of the Holder thereof, be converted into one share of Company Common Stock, (ii) each option, warrant (including the Warrants) or other right to receive Bank Common Stock shall be converted into an option, warrant or other right to receive an identical number of shares of Company Common Stock, (iii) each share of common stock of Interim ("Interim Common Stock") issued and outstanding immediately prior to the Effective Date shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be converted into one share of Bank Common Stock, and (iii) each share of Company Common Stock issued and outstanding immediately prior to the Effective Date shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled.
(g) On and after the Effective Date, there shall be no registrations or transfers on the stock transfer books of Interim or the Bank of shares of Interim Common Stock or Bank Common Stock which were outstanding immediately prior to the Effective Date.
(h) At or after the Effective Date and pursuant to the terms of the Agreement and Plan or Reorganization, each holder of a certificate or certificates theretofore evidencing issued and outstanding shares of Bank Common Stock, upon surrender of the same to an agent, duly appointed by the Company ("Exchange Agent"), shall be entitled to receive in exchange therefor a certificate or certificates representing the number of full shares of Company Common Stock for which the shares of Bank Common Stock theretofore represented by the certificate or certificates so surrendered shall have been converted as provided in Section 3(f) hereof. The Exchange Agent shall mail to each Holder of record of an outstanding certificate which immediately prior to the Effective Date evidenced shares of Bank Common Stock, and which is to be exchanged for Company Common Stock as provided in Section 3(f) hereof, a form of letter of transmittal advising such Holder of the terms of the Exchange and of the procedure for surrendering to the Exchange Agent such certificate or certificates for shares of Bank Common Stock in exchange for a certificate or certificates evidencing Company Common Stock.
(i) After the Effective Date, certificates representing shares of Bank Common Stock shall be treated as evidencing ownership of the number of full shares of Company Common Stock into which the shares of Bank Common Stock represented by such certificates shall have been converted by virtue of the Reorganization, notwithstanding the failure on the part of the Holder thereof to surrender such certificates.
(j) Subject to the Bank's obligations provided for in Section 5, the Bank retains the right to cease formation and organization of the Company and the Exchange and Reorganization if it determines that it is in the best interests of the Bank to do so.
SECTION 4. SHELF REGISTRATION RIGHTS.
(a) In the event that following the completion of the Reorganization (i) the Company or the Bank reasonably determines, after conferring with counsel (which may be in-house counsel) and reviewing applicable law and regulations and currently prevailing interpretations of the staff of the Commission, that the Holders will not, upon consummation of the Exchange, receive registered shares of Company Common Stock pursuant to the Securities Act (such event being referred to as a "Shelf Registration Event" and the date of occurrence thereof, the "Shelf Registration Event Date"), then in lieu of conducting the Exchange contemplated by Section 3 above, the Company and the Bank shall use their reasonable best efforts to cause to be filed as promptly as practicable after such Shelf Registration Event Date, and, in any event, within 30 days after such Shelf Registration Event Date, a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities and shall use their reasonable best efforts to have such Shelf Registration Statement declared effective by the Commission as soon as practicable.
(b) The Company and the Bank shall, subject to Section 8 hereof,
(i) use their best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming a part thereof to be usable by Holders identified as selling security holders in such Shelf Registration Statement for a period of two years from the date the Shelf Registration Statement is declared effective by the Commission or until such earlier date as all Registrable Securities shall have been disposed of or on which all Registrable Securities shall be saleable without registration pursuant to Rule 144(k) (or any similar provision then in effect), or as a result of any changes in the existing registration requirements under the Securities Act which eliminate the Holders' need for the Shelf Registration Statement, or upon receipt of an opinion of counsel satisfactory to the Company which provides that all Registrable Securities may be resold without registration in a transaction that would result in the Registrable Securities being freely tradeable provided that the purchaser is not an affiliate of the Company (the "Effectiveness Period"); and
(ii) notwithstanding any other provisions hereof, use their best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming a part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain 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 (iii) any Prospectus forming a part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the Company and the Bank shall be entitled to rely on the information provided to them by the Holders with respect to such Holders.
(b) Any Holder desiring to sell Registrable Securities pursuant to the Shelf Registration Statement shall provide not less than ten (10) days' prior written notice to the Company and the Bank. Any such notice shall specify the number of shares of Company Common Stock proposed to be sold and the intended method of disposition thereof. The Company and the Bank shall use their best efforts to promptly file any required amendment(s) to the Shelf Registration Statement in order to facilitate any sales of shares of Common Stock as described above.
(c) If Initiating Holders so elect, the offering of such Registrable Securities pursuant to such Shelf Registration shall be in the form of an Underwritten Offering. If any Shelf Registration is in the form of an Underwritten Offering, the Initiating Holders will select and retain the investment banker or investment bankers and manager or managers that will administer the offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company and the Bank.
SECTION 5. REGISTRATION OF SHARES OF BANK COMMON STOCK UNDER THE EXCHANGE ACT
In the event that the Company and the Bank are unable to obtain either the requisite shareholder or regulatory approvals with respect to the Reorganization or are otherwise unable to consummate the Reorganization through the application of their reasonable best efforts, or the Bank terminates the Reorganization in its sole discretion, (any such event being referred to as an "Exchange Act Registration Event" and the date of the failure to obtain the requisite shareholder or regulatory approval or the date the Company and the Bank determine they are otherwise unable to consummate the Reorganization being referred to as the "Exchange Act Registration Event Date"), then in lieu of conducting the Exchange contemplated by Section 3 hereof or the Shelf Registration contemplated by Section 4 hereof, the Bank shall use its reasonable best efforts to cause to be filed with the FDIC as promptly as practicable after such Exchange Act Registration Event Date and, in any event, within 15 days after such Exchange Act Registration Event Date, a registration statement on the appropriate form registering the Common Stock under the Exchange Act.
SECTION 6. UNDERWRITTEN OFFERINGS.
(a) In connection with any public underwriting of Company securities that are covered by a Registration Statement, the Bank agrees to cause the Company, subject to the requirements of Section 4 hereof, to arrange for its underwriters to include in the securities to be so distributed by it the Registrable Securities of any Holder who makes such request of the Company. Each such Holder agrees that any of such Registrable Securities so included shall be distributed and sold through such underwriters. In the case of an underwritten offering, if the number of Registrable Shares desired to be offered by the Company exceeds the maximum number of shares of Holding Company Stock which the managing underwriter considers, in good faith, to be appropriate based on market conditions and other relevant factors (including pricing), then the number of Registrable Shares included in such offering shall be reduced to the number of Registrable Shares that, in the opinion of such managing underwriter, can be sold. The Holders of Registrable Shares to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and any such underwriting agreement shall require that the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also shall be made to and for the benefit of such Holders and that the conditions precedent to the obligations of such underwriters under such underwriting agreement shall be conditions precedent to the obligations of such Holders.
(b) No Holder may participate in any Underwritten Offering under Section 4 hereof unless such Holder (i) agrees to sell its Registrable Securities on the basis provided in any underwriting arrangement approved by the Company and (ii) completes and executes all questionnaires, powers of attorney, indemnities, securities escrow agreements, underwriting agreements and other documents required under the terms of such underwriting, and furnishes to the Company such information as the Company may reasonably request in writing for inclusion in the Registration Statement (and the prospectus included therein); provided, however, that no Holder
shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder and such Holder's intended method of distribution and any other representation required by law.
(c) (i) The managing underwriter of an Underwritten Offering of the
Company may advise the Company to cause Holders of Registrable Securities
to delay the public sale or distribution of such securities. Each Holder
agrees, whether or not such Holder participates in an Underwritten
Offering, if so required by the managing underwriter, not to effect any
public sale or distribution of such Holder's Registrable Securities or
sales of such shares pursuant to Rule 144, during the fifteen days prior to
and the ninety (90) days after any firm commitment Underwritten Offering
pursuant to Section 4 has become effective. If the managing underwriter
advises the Company in writing that, in its opinion, no such public sale or
distribution should be effected for a specified period longer than ninety
(90) days after such Underwritten Offering has become effective in order to
complete the sale and distribution of securities included in such
registration and the Company gives notice to such Holder of such advice,
such Holders shall not effect any public sale or distribution or sales
pursuant to Rule 144 for a reasonably longer period after such Underwritten
Offering has become effective, but in no event longer than one hundred
twenty (120) days, except as part of such Underwritten Offering.
(ii) The Bank agrees to cause the Company, if so required by the managing underwriter, (x) not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the fifteen days prior to and the ninety (90) days after any firm commitment Underwritten Offering pursuant to Section 4 has become effective, except as part of such Underwritten Offering and except pursuant to registrations on Form S-4 and Form S-8 or any successor or similar forms thereto, and (y) to use its best efforts to cause each holder of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased from the Company or the Bank at any time after the date hereof (other than in a public offering), to agree not to effect any such public sale or distribution of such securities during such period or, in either case, if the managing underwriter advises the Company in writing that in its opinion no such public sale or distribution should be effected for a specified period longer than ninety (90) days after such Underwritten Offering has become effective in order to complete the sale and distribution of securities included in such registration, during a reasonably longer period after such Underwritten Offering but in no event longer than one hundred twenty (120) days, except as part of such Underwritten Offering.
SECTION 7. REGISTRATION EXPENSES.
The Company and/or the Bank will pay all reasonable registration expenses in connection with any registration pursuant to Sections 3, 4 or 5 of this Agreement, including without limitation all registration and filing fees, fees with respect to filings required to be made with the National
Association of Securities Dealers, fees and expenses of compliance with securities or blue sky laws, printing expenses, and fees and expenses of counsel for the Company and the Bank and of the independent public accountants of the Company and the Bank (including the expenses of any "comfort" letters or update thereof required by or incident to the foregoing) in connection with such registration, except that the following expenses relating to the Registrable Securities shall not be borne by the Company or the Bank: underwriting discounts and commissions, underwriting expenses and transfer taxes, if any (other than discounts, commissions, expenses and transfer taxes relating to securities offered and sold), cost of liability insurance (except to the extent carried by the Company or the Bank on their own behalf), and fees and expenses of any separate counsel or accountant or other agent retained by any Holder with respect to the sale of Registrable Securities.
SECTION 8. REGISTRATION PROCEDURES.
Whenever the Company seeks to effect the registration of any shares of Registrable Securities under the Securities Act as provided in Sections 3 and 4, the Bank agrees that it will cause the Company to, as expeditiously as possible, subject to the terms and conditions of such sections (including without limitation the Company's right to terminate or delay a registration pursuant to Sections 3 and 4):
(a) prepare and file with the Commission the requisite Registration Statement to effect such registration, use its best efforts to cause such Registration Statement to become effective and promptly notify each Holder of securities covered by such Registration Statement and any managing underwriter of the effectiveness thereof;
(b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective, notify each Holder of securities covered by such Registration Statement and any managing underwriter as promptly as practicable of any request by the Commission for amendments or supplements to such Registration Statement or related Prospectus or for additional information and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement, but for no longer than 90 days subsequent to the effective date of such registration; provided that if less than all the securities covered by the Registration Statement are withdrawn from registration after the expiration of such period, the securities so withdrawn shall be allocated pro rata among the Holders thereof on the basis of the percentage of Registrable Securities held by them which were included in such registration;
(c) upon written request, furnish to each seller of shares covered by such Registration Statement such number of conformed copies of such Registration Statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the Prospectus contained in such Registration Statement (including each preliminary prospectus and
any summary prospectus) and any other Prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as such seller or such Holder may reasonably request;
(d) use its best efforts to register or qualify all shares covered by such
Registration Statement under such other securities or blue sky laws of such
jurisdictions as each seller thereof shall reasonably request, to keep such
registration or qualification in effect for so long as such Registration
Statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to (i) qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this Section 7(d) be obligated to be so qualified,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause all shares covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such shares;
(f) enter into customary agreements (including, in the case of an Underwritten Offering, an underwriting agreement in customary form) and take all other action in connection therewith in order to expedite or facilitate the distribution of the Registrable Securities included in such Registration Statement, and, in the case of an Underwritten Offering, make representations and warranties to the Holders of Registrable Securities covered by such Registration Statement and to the underwriters in such form and scope as are customarily made by issuers to underwriters in primary underwritten offerings and confirm the same to the extent customary if and when requested;
(g) make available for inspection during normal business hours by a representative of the Holders of Registrable Securities covered by such Registration Statement and any managing underwriter, and any attorney or accountant retained by such Holders or managing underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information reasonably requested by such representative, managing underwriter, attorney or accountant in connection with such Registration Statement;
(h) in the case of an Underwritten Offering by the Company, use its best efforts to furnish to each Holder of Registrable Securities covered by such Registration Statement and the underwriters a signed counterpart, addressed to such Holder and the underwriters, in each case in identical form, of
(i) an opinion of counsel for the Company, dated the effective date of such Registration Statement and dated the date of each closing under the underwriting agreement, reasonably satisfactory in form and substance to such Holder, and
(ii) a "comfort" letter, dated the effective date of such Registration Statement and the date of each closing under the underwriting agreement, signed by the independent public accountants who have certified the Company's financial statements included in such Registration Statement, covering substantially the same matters with respect to such Registration Statement (and the Prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as such Holder and the underwriters may reasonably request;
(i) immediately notify each Holder of Registrable Securities covered by such Registration Statement and any managing underwriter, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such Holder or any such managing underwriter, promptly prepare and furnish to such Holder or managing underwriter a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such Prospectus shall 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 in the light of the circumstances under which they were made;
(j) notify each Holder of Registrable Securities covered by such Registration Statement and any managing underwriter as promptly as practicable after becoming aware of the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose or the receipt by the Company of any notification with respect to the suspension of qualification of any Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and make all reasonable efforts to obtain as promptly as practicable the withdrawal of any order or other action suspending the qualification of the Registrable Securities for sale in any jurisdiction;
(k) (i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, (ii) make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and (iii) not file any Registration Statement or Prospectus or amendment or supplement to such Registration Statement or Prospectus to which any such Holder of Registrable Securities covered by any Registration Statement shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act, such Holder having been furnished with a copy thereof at least two Business Days prior to the filing thereof;
(l) provide a transfer agent and registrar for all shares of Common Stock covered by such Registration Statement not later than the effective date of such Registration Statement;
(m) file all reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, to the extent the Company's obligation to file such reports pursuant to Section 15(d) of the Exchange Act expires prior to the expiration of the Effectiveness Period, the Company shall register the Registrable Securities under the Exchange Act and shall maintain such registration through the Effectiveness Period.
(n) use its best efforts to list all shares of Common Stock covered by such Registration Statement on a securities exchange or national market system.
The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish the Company with such information and undertakings regarding such Holder and the distribution of such securities as the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities covered by any Registration Statement agrees (i) that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (i) of this Section 8, such Holder will forthwith discontinue such Holder's disposition of Registrable Securities pursuant to the Registration Statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by paragraph (i) of this Section 8 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies (which shall be conspicuously marked as such), then in such Holder's possession of the Prospectus relating to such Registrable Securities current at the time of receipt of such notice and (ii) that it will immediately notify the Company, at any time when a Prospectus relating to the registration of such shares is required to be delivered under the Securities Act, of the happening of any event as a result of which information previously furnished by such Holder to the Company in writing for inclusion in such Prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made.
If, at any time prior to the expiration of the Termination Date (as defined in Section 10 hereof) in the good faith reasonable judgment of the Company's Board of Directors, the disposition of Registrable Securities would require the premature disclosure of material non-public information which may reasonably be expected to have an adverse effect on the Company, then the Company shall not be required to maintain the effectiveness of or amend or supplement the Registration Statement for a period (a "Disclosure Delay Period") expiring upon the earlier to occur of (i) the date on which such material information is disclosed to the public or ceases to be material or (ii) up to thirty (30) calendar days after the date on which the Company provides a notice to the Investors stating that the failure to disclose such non-public information causes the Prospectus included in the
Registration Statement, as then in effect, to include an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. For the avoidance of doubt, in no event shall a Disclosure Delay Period exceed thirty (30) calendar days.
The Company will give prompt written notice to the Holders of each Disclosure Delay Period. Advance notice of the Disclosure Delay Period shall be given to the extent practicable. If practicable, such notice shall estimate the duration of such Disclosure Delay Period. Each Holder, by accepting Registrable Securities, agrees that, upon receipt of such notice prior to the Holder's disposition of all such Registrable Securities, such Holder will forthwith discontinue disposition of such Registrable Securities pursuant to the Registration Statement, and will not deliver any Prospectus forming a part thereof in connection with any sale of such Registrable Securities until the expiration of such Disclosure Delay Period. Notwithstanding anything herein to the contrary, there shall not be more than an aggregate of sixty (60) calendar days in any twelve (12) month period during which the Company is in a Disclosure Delay Period nor more than an aggregate of thirty (30) calendar days in any ninety (90) calendar day period during which the Company is in a Disclosure Delay Period.
SECTION 9. INDEMNIFICATION.
(a) In the event of any registration of any Holder's Registrable Securities under the Securities Act pursuant to this Agreement, the Company and the Bank, jointly and severally, shall indemnify and hold harmless each such Holder (a "Selling Holder"), its directors and officers, each underwriter and each controlling Person of any Selling Holder, if any (an "Indemnified Party"), against any losses, claims, damages or liabilities, joint or several (or actions in respect thereof), including reasonable attorneys' fees and costs, to which such Indemnified Party may be subject under the Securities Act, under any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement (or alleged untrue statement) of any material fact contained in any Registration Statement under which such securities were registered under the Securities Act, any Prospectus contained therein, any other document used to sell the securities (including an illegal prospectus) (collectively, the "Selling Documents"), or any amendment or supplement thereto (an "Amended Selling Document"), or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances in which they were made with respect to any Prospectus) not misleading, and shall reimburse each such Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that neither the Company nor the Bank shall be liable to any Indemnified Party, in any such event to the extent that any loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, Selling Document, Amended Selling Document, or any other document, in reliance upon and in conformity with written information furnished to the Company by such Indemnified Party specifically for use therein; and provided further that the neither the Company nor the Bank shall be liable under this paragraph (a) with respect to any
misstatement or omission or alleged misstatement or omission in any Selling Document to the extent that any such loss, claim, damage or liability results from the fact that the Indemnified Party sold securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of any Amended Selling Document if the Company had previously furnished copies thereof to such Selling Holder, underwriter or controlling Person and if the misstatement or omission or alleged misstatement or omission was corrected in the Amended Selling Document. The indemnity provided for herein shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party.
(b) In the event of any registration of any of the Company's securities or any Registrable Securities under the Securities Act, each Selling Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with such Registration Statement and agrees, severally and not jointly, to indemnify and hold harmless the Company and the Bank, and their respective directors, each underwriter and each controlling Person of the Company, if any, against any losses, claims, damages or liabilities, joint or several (or actions in respect thereof), to which the Company, the Bank, their respective directors, each underwriter or controlling Person may be subject under the Securities Act or under any other statute or at common law, insofar as such losses, claims, damages or liabilities, joint or several (or actions in respect thereof) arise out of or are based upon (i) any untrue statement (or alleged untrue statement) of any material fact contained in any Registration Statement under which such securities were registered under the Securities Act, any Selling Document or any Amended Selling Document, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances in which they were made with respect to any Prospectus) not misleading, and shall reimburse the Company, its directors, such underwriter and controlling Person for any legal or other expenses reasonably incurred by such Persons in connection with investigating or defending any such loss, claim, damage, liability or action; in each case, to the extent, and only to the extent, that each untrue statement or omission (or alleged untrue statement or omission) is made in reliance upon and in strict conformity with written information furnished to the Company by such Selling Holder.
(c) If the indemnification provided for in paragraph (a) or (b) above is unavailable to an indemnified party in accordance with its terms in respect of any losses, claims, damages or liabilities referred to therein, then the obligations of each indemnitor thereunder shall be limited to such amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities, in such proportion as is appropriate to reflect the relative fault of such indemnitor on the one hand and of the indemnified parties on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of each indemnitor and of the indemnified parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnitor, or by the indemnified parities, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities or actions in respect thereof referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expense reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by it exceeds the amount of any damages which such person has otherwise been required to pay and has actually paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnitor under paragraph (a) or (b) above, as
the case may be, notify the indemnitor in writing of the commencement thereof;
but the omission to so notify the indemnitor shall not relieve it from any
liability which it may have to any indemnified party under such subsection
unless the failure to provide such notice results in the forfeiture by the
indemnitor of substantial rights or defenses. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnitor of the
commencement thereof, the indemnitor shall be entitled to participate therein
and, to the extent that it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnitor and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it and/or other indemnified parties
which are in addition to or in conflict with those available to the indemnitor,
the indemnified party or parties shall have the right to select separate counsel
to assert such legal defenses (in which case the indemnitor shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnitor of the defense of such
action, and approval by the indemnified party of counsel, the indemnitor shall
not be liable to such indemnified party under this Section 9 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof (other than reasonable costs of investigation) unless
(i) the indemnified party shall have employed separate counsel in connection
with the assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnitor shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time, (iii) the indemnitor and its counsel do not actively and
vigorously pursue the defense of such action, or (iv) the indemnitor has
authorized the employment of counsel for the indemnified party at the expense of
the indemnitor. The indemnitor shall not be liable for any settlement of any
action or proceeding effected without its written consent, which consent shall
not be unreasonably withheld.
SECTION 10. TERMINATION OF RIGHTS.
All rights of any particular Holder under this Agreement shall terminate at 5:00 p.m., Western Time, on June 12, 2000 ("Termination Date"), provided that the provisions of Section 9 hereof shall survive any termination of this Agreement.
SECTION 11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed under the internal substantive laws of the State of California, without regard to its conflicts of laws principles
(b) SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the benefit of, and be binding upon, the parties and their respective successors, assigns, heirs, executors and administrators. The rights and obligations of any Investor hereunder may be assigned by such Investor to any Person acquiring Registrable Securities from the Investor contemporaneously with such assignment, provided that the rights so assumed shall apply only to the Registrable Securities so acquired. The rights and obligations of the Company and the Bank hereunder may not be assigned by them without the prior written consent of the Investors.
(c) ENTIRE AGREEMENT. This Agreement and the Purchase and Sale Agreement constitute the full and entire understanding and agreement among the parties with regard to the subject matter hereof and thereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. The Parties acknowledge and agree that no agreement or understanding exists by or among the Investors and the Bank regarding the management, policies, business or affairs of the Company or the Bank and that neither the Bank nor the Company is or will be an Affiliate of any Investor, group of Investors, Placement Agent or any other person.
(d) SEPARABILITY. Any invalidity, illegality or limitation of the enforceability of any one or more of the provisions of this Agreement, or any part thereof, shall in no way affect or impair the validity, legality or enforceability of the other provisions of this Agreement. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(e) AMENDMENT AND WAIVER. Any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), with the written consent of the Bank and the Holders of not less than a majority of the
Registrable Securities; provided, however, that no such amendment or waiver shall reduce the aforesaid percentage of Registrable Securities the Holders of which are required to consent to any waiver or supplemental agreement without the consent of the Holders of all outstanding Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Company, the Bank and each Holder under this Agreement. Upon the effectuation of each such amendment or waiver, the Company and/or the Bank shall promptly give written notice thereof to the Holders who have not previously consented thereto in writing.
(f) DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any Holder, any subsequent Holder of any Registrable Securities or the Company and/or the Bank upon any breach, default or noncompliance under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on the Holders' or the Bank's part of any breach, default or noncompliance under this Agreement or any waiver on the Holders' or the Bank's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing, and that all remedies afforded to the Holders, the Company and the Bank under this Agreement shall be cumulative and not alternative.
(g) NOTICES, ETC. All notices, demands and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to any Holder, initially at the address set forth below its
name on the Holder's signature page to this Agreement, and thereafter at
such other address, notice of which is given in accordance with this
Section 11(g); and
(ii) if to the Bank or the Company, initially at 415 Huntington Drive, San Marino, California 91108, Attention: President, and thereafter at such other address notice of which is given in accordance with this Section 11(g).
All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being sent by certified mail, return receipt requested, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery.
(h) TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
EAST-WEST BANK
By: /s/ Dominic Ng
--------------
Name: Dominic Ng
Title: President and Chief Executive Officer
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Investor Signature Page to the Registration Rights Agreement
By: __________________________________
Name:
Title:
Address: ________________________
EXHIBIT A
CORPORATE GOVERNANCE CHARACTERISTICS
OF HOLDING COMPANY
1. Any action may be taken only at a meeting of shareholders or by the written consent of holders of two-thirds of the outstanding voting shares.
2. Special meetings may only be called by the Company's Board of Directors, Chairman of the Board or Chief Executive Officer, or by the written request of holders of not less than 10% of the Company's voting shares.
3. If a shareholder wishes to propose an item for the consideration at a special meeting of shareholders, he or she must give written notice to the Company not less than 30 nor more than 60 days prior to the meeting, or, if later, the tenth day following the first public announcement of such meeting. If a shareholder wishes to propose an item for consideration at any subsequent annual meeting of shareholders, he or she must give written notice to the Company not less than 120 days prior to the day and month on which, in the immediately preceding year, the proxy statement for each year had been released to shareholders.
4. The number of directors shall be not less than 7 nor more than 13 until changed by an amendment duly adopted by the Company's shareholders. The exact number of directors shall be fixed from time to time, within such range, by the Board of Directors. The number of directors initially shall be fixed at 7.
5. The Board of Directors will be divided into three classes of directors, each serving for staggered three year terms.
6. Cumulative voting in the election of directors shall not be permitted.
7. Vacancies on the Board of Directors may be filled only by the affirmative vote of at least two-thirds of the remaining directors.
8. Shareholders amy remove a director either (i) with cause by the affirmative vote of at least a majority of the outstanding voting shares or (ii) without cause by the affirmative vote of at least two-thirds of the outstanding voting shares.
9. The Board of Directors may remove a director with cause by the affirmative vote of at least two-thirds of the directors.
10. The Articles will eliminate the liability of the Company's directors for monetary damages arising from a breach of their fiduciary duties, except to the extent required by applicable law.
11. The Company will indemnify its executive officers and directors to the maximum extent permitted by law.
12. The Bylaws may not be amended without the approval of the holders of at least two-thirds of the outstanding voting shares or the approval of at least a majority of the authorized directors.
13. The provisions contained in the Articles and Bylaws with respect to shareholder proposals, the number and nomination of directors, the required vote for shareholder action without a meeting, the classification of the Board of Directors, the elimination of cumulative voting, the filling of vacancies, removal of directors and indemnification of directors, officers and other may not be amended without the affirmative vote of at least two-thirds of the outstanding voting shares.
EXHIBIT 4.3
475,500 WARRANTS TO PURCHASE ONE SHARE OF COMMON STOCK EACH
EAST-WEST BANK
VOID AFTER 5:00 P.M., WESTERN TIME, ON JUNE 12, 2003
THIS CERTIFIES THAT for value received, FRIEDMAN, BILLINGS, RAMSEY & CO., INC., the registered holder hereof or registered assigns (the "Holder"), is entitled, subject to the terms and conditions hereinafter set forth, to purchase from East-West Bank (herein called the "Bank"), one fully paid and non- assessable share of Common Stock, $1.00 stated value per share, of the Bank (herein called the "Common Stock") for each Warrant comprising part of the aggregate number of Warrants set forth above, upon presentation and surrender of this Warrant Certificate with the Subscription Form attached hereto duly completed and at any time on or before the Expiration Date, as defined in Paragraph 2 of the attachment to this Warrant Certificate, to the Bank's transfer agent, U.S. Stock Transfer Company, or at such other office as shall have theretofore been designated by the Bank by notice pursuant hereto and upon payment therefor of the Purchase Price specified in Paragraph 3 hereof.
The shares of Common Stock of the Bank subject to purchase hereunder are the shares of Common Stock of the Bank as they may exist on the date of the exercise of the Warrants represented by this Warrant Certificate, whether or not the rights or interests represented by such shares are equivalent to the rights or interests represented by the shares of Common Stock of the Bank authorized at the date hereof.
Reference is hereby made to the further provisions attached to this Warrant Certificate, which further provisions shall for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Bank has caused this Warrant Certificate to be duly executed and delivered by one of its officers thereunto duly authorized.
EAST-WEST BANK
Dated: June 12, 1998 By: /s/ Dominic Ng
----------------------------------
Dominic Ng, President and
Chief Executive Officer
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The Warrants represented by this Warrant Certificate are subject to the following terms and conditions:
1. The purchase rights represented by this Warrant Certificate are exercisable, at the option of the Holder hereof, either in whole or from time to time in part (but not as to a fractional share of Common Stock), at any time during the period commencing on June 12, 1998 and terminating on the Expiration Date hereof. These Warrants shall expire in their entirety and no longer be exercisable at the close of business on the Expiration Date. Upon surrender of this Warrant Certificate and payment of the Purchase Price as set forth on the face hereof, the Bank shall issue and deliver or instruct its transfer agent to issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased upon the exercise of such Warrants. In case of the purchase of less than all the shares purchasable under this Warrant Certificate, the Bank shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver or instruct its transfer agent to deliver a new Warrant Certificate of like tenor for the balance of the shares purchasable hereunder.
2. The term "Expiration Date" shall mean 5:00 p.m., Western Time, on June 12, 2003, or if said date shall in the State of California be a holiday or a day on which financial institutions are authorized to close, then the next following date which in the State of California is not a holiday or a day on which financial institutions are authorized to close.
3. The purchase price for each share of Common Stock purchasable pursuant to the exercise of these Warrants (hereafter referred to as the "Purchase Price") shall be $10.00 per share subject to adjustment as provided in Paragraph 9 below. Payment of the aggregate Purchase Price shall be paid by certified or bank cashier's check or by wire transfer.
4. The Bank shall not be required to issue certificates representing fractions of shares of Common Stock.
5. The Bank will, at all times while the Warrants are exercisable, keep reserved, out of its authorized Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the outstanding Warrants. Promptly after the Expiration Date, no shares will be subject to reservation in respect of such Warrants. The Bank will take all such action as may be necessary to insure that all shares of capital stock issued upon exercise of these Warrants will be duly and validly authorized and issued and, upon receipt of the consideration therefor specified herein, fully paid and non- assessable.
6. Subject to certain restrictions, these Warrants and all rights hereunder are transferable in whole or in part upon the books of the Bank by the registered Holder hereof in person or by his duly authorized attorney, upon surrender of these Warrants duly endorsed, at the principal office of the Bank or at such other office as shall have theretofore been designated by the Bank by notice pursuant hereto; provided, however, that these Warrants are not transferable prior to the date of effectiveness of a registration statement related to the Common Stock which shall be exercisable pursuant to these Warrants. The Common Stock underlying these Warrants shall be subject to the registration rights provided pursuant to the Registration Rights Agreement, dated as of June 12, 1998, by and among the Bank and each the other parties named on the signature pages thereto.
7. Upon receipt by the Bank of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant Certificate, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Bank of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Bank will make and deliver or instruct its transfer agent to deliver a new Warrant Certificate of like tenor, in lieu of this Warrant Certificate.
8. Prior to the exercise of these Warrants, the Holder of these Warrants shall not be entitled to any rights of a shareholder of the Bank, including, without limitation, the right to vote or to receive dividends or other distributions.
9. The number and kind of securities purchasable upon the exercise of each Warrant and the Purchase Price shall be subject to adjustments from time to time upon the happening of certain events as hereinafter set forth:
9.1 The number of shares purchasable upon the exercise of each Warrant and the Purchase Price shall be subject to adjustment as follows:
(a) In case the Bank shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or
(iv) issue by reclassification of its shares of Common Stock or
capital reorganization other securities of the Bank, the number of
shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder of each Warrant shall
be entitled to receive the kind and number of shares or other
securities of the Bank which the Holder would have owned or have
been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior
to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Paragraph 9.1(a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.
(b) No adjustment in the number of shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of shares purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this Paragraph 9.1(b) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and, provided, further, that all adjustments carried forward by reason of this Paragraph 9.1(b) shall be taken into account and the number of shares purchased upon the exercise of each Warrant shall be adjusted as of 7 days prior to the Expiration Date. If any adjustment is carried forward pursuant to this Paragraph 9.1(b), the Bank may make the election available pursuant to Treasury Regulation (S) 1.305-3(d)(2)(iii). All calculations shall be made to the nearest one-hundredth of a share.
(c) Whenever the number of shares purchasable upon the exercise of each Warrant is adjusted, as herein provided, the Purchase Price payable upon exercise of each Warrant shall be adjusted by multiplying the Purchase Price immediately prior to the adjustment by a fraction, of which the numerator shall be the number of shares purchasable upon the exercise of each Warrant immediately prior to the adjustment, and of which the denominator shall be the number of shares so purchasable immediately thereafter.
(d) For the purpose of this Paragraph 9.1 the term "shares
of Common Stock" shall mean (i) the class of stock designated as
the Common Stock of the Bank at the date of this Warrant, or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in
par value, or from par value to no par value, or from no par value
to par value. In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9.1(a) above, the Holder
shall become entitled to purchase any shares of the Bank other
than shares of Common Stock, thereafter the number of such other
shares so purchasable upon exercise of each Warrant and the
Purchase Price of such shares shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares contained
in Paragraph 9.1(a) through (c), inclusive, above.
9.2 Whenever the number of shares purchasable upon the exercise of each Warrant or the Purchase Price of such shares is adjusted, as herein provided, the Bank shall cause to be mailed by first class mail, postage prepaid, to the Holder, notice of such adjustment or adjustments setting forth the number of shares purchasable upon the exercise of each Warrant and the Purchase Price of such shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Any failure by the Bank to give notice to the Holder or any defect therein shall neither affect the validity of such adjustment or of the event resulting in the adjustment, nor of the Holder's rights to such adjustment.
9.3 Except as provided in Paragraphs 9.1 and 9.5, no adjustment in respect of any dividends or distributions shall be made during the term of a Warrant or upon the exercise of a Warrant.
9.4 (a) In case of any consolidation of the Bank with or merger of the Bank into another corporation or in case of any sale or conveyance to another corporation of the property of the Bank as an entirety or substantially as an entirety, such successor or purchasing corporation may assume the obligations hereunder, and may execute with the Bank an agreement that the Holder shall have the right thereafter upon payment of the Purchase Price in effect immediately prior to such transaction to purchase upon exercise of each Warrant the kind and amount of shares and other securities and property (including cash) which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had such Warrant been exercised immediately prior to such action. The Bank shall mail by first class mail, postage prepaid, to the Holder, notice of the execution of any such agreement. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in Paragraph 9. The provisions of this Paragraph 9.4 shall similarly apply to successive consolidations, mergers, sales or conveyances.
(b) In the event that such successor corporation does not execute such an agreement with the Bank as provided in Paragraph 9.4(a), then the Holder shall be entitled to exercise outstanding Warrants during a period of at least 30 days, which period terminates at least 5 days prior to consummation of the consolidation, merger, sale or conveyance, and thereby receive consideration in the consolidation, merger, sale or reconveyance on the same basis as other previously outstanding shares of the same class as the shares acquired upon exercise. Warrants not exercised in accordance with this Paragraph 9.4(b) before consummation of the transaction will be cancelled and become null and void. In the event
such successor corporation does not execute an agreement with the Bank as provided in Paragraph 9.4(a), the Bank shall mail by first class mail, postage prepaid, to the Holder, at least 10 days prior to the first date on which the Warrant shall become exercisable pursuant to the provisions of this Paragraph 9.4(b), notice of the proposed transaction setting forth the first and last date on which the Holder may exercise outstanding Warrants and a description of the terms of this Warrant providing for cancellation of the Warrants in the event that Warrants are not exercised by the prescribed date.
(c) The Bank's failure to give any notice required by this Paragraph 9.4 or any defect therein shall not affect the validity of any such agreement, consolidation, merger, sale or conveyance of property.
9.5 In case (i) the Bank shall make any distribution of its assets to holders of its shares of Common Stock as a liquidation or partial liquidation dividend or (ii) the Bank shall liquidate, dissolve or wind up its affairs (other than in connection with a consolidation, merger or sale of all or substantially all of its property, assets and business as an entity), then the Bank shall cause to be mailed to the Holder, by first class mail, at least 20 days prior to the applicable record date, a notice stating the date on which such distribution, liquidation, dissolution or winding up is expected to become effective, and the date on which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property or assets (including cash) deliverable upon such distribution, liquidation, dissolution or winding up, and that the Holder may exercise outstanding Warrants during the 20-day period and, thereby, receive consideration in the liquidation on the same basis as other previously outstanding shares of the same class as the shares acquired upon exercise. The Bank's failure to provide the notice required by this Paragraph 9.5 or any defect therein shall not affect the validity of such distribution, liquidation, dissolution or winding up.
9.6 Irrespective of any adjustments in the Purchase Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrant Certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrant Certificates initially issued.
10. The Bank may deem and treat the registered holder hereof as the absolute owner of these Warrants (notwithstanding any notations of ownership or writing hereon made by anyone other than the Bank) for all purposes and shall not be affected by any notice to the contrary.
11. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first class postage prepaid:
(i) if to the registered holder of these Warrants, at the address of such holder as shown on the books of the Bank; or
(ii) if to the Bank, 415 Huntington Drive, San Marino, California 91108, or at such other address as may have been furnished to the Holder of these Warrants in writing by the Bank.
12. These Warrants shall be construed in accordance with and governed by the laws of the State of California.
EXERCISE FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE THESE WARRANTS)
To:
The undersigned hereby irrevocably exercise(s) the right to purchase ________ shares of the Bank's Common Stock covered by the within Warrant Certificate according to the conditions thereof and herewith make(s) payment of the Purchase Price of $10.00 per share for such shares in full and request(s) that certificates for such shares by issued in the name of:
Please print Name and Address and provide Social Security or Federal Tax I.D. No.:
and, if said number of shares shall not be all the shares purchasable thereunder, that a new Warrant Certificate for the balance remaining of the whole number of shares purchasable under the within Warrant Certificate be registered in the name of the undersigned Holder(s) or assignee(s) as indicated below and delivered to the address stated below:
Dated: ___________, ____.
Address:
Note: The above signature(s) must
correspond with the name(s) as
written upon the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever
unless the Warrants have been
assigned.
Signature(s) Guaranteed By:
ASSIGNMENT OF WARRANT
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)
To:
Attention:
FOR VALUE RECEIVED _________________________________ hereby sell(s), assign(s) and transfer(s) unto (please print or type Name, Address and Social Security or Federal Tax I.D. No. of Assignee):
_____________ Warrant(s), together with all right, title and interest therein, and hereby irrevocably constituting and appointing __________________________ attorney, to transfer said Warrant(s) on the books of the Bank, with full power of substitution in the premises.
Dated: _______________, ____
Note: The above signature(s) must
correspond with the name(s) as
written upon the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever.
Signature(s) Guaranteed By:
EXHIBIT 10.1
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and effective as of June 25, 1998, by and between EAST-WEST BANK, a California banking corporation (the "Company"), and DOMINIC NG (the "Employee"), with respect to the following facts:
A. The Company desires to be assured of the continued association and services of the Employee in order to take advantage of his experience, knowledge and abilities in the Company's business, and is willing to employ the Employee, and the Employee desires to be so employed, on the terms and conditions set forth in the Agreement.
B. The Employee from time to time in the course of his employment may learn trade secrets and other confidential information concerning the Company, and the Company desires to safeguard such trade secrets and confidential information against unauthorized use and disclosure.
ACCORDINGLY, on the basis of the representations, warranties and covenants contained herein, the parties hereto agree as follows:
material way with the business or interests of the Company; provided, however, that the Employee shall not serve on the board of any business, or hold any other position with any business without the consent of the Board.
(b) An annual bonus for each fiscal year of the Company, payable not more than ninety (90) days after the end of the fiscal year. The amount of the bonus for each year shall equal fifty percent (50%) of the Employee's annual base salary if the target level of performance criteria is realized, with a greater percentage payable if performance exceeds the target level and a lesser percentage payable if performance is at least at the minimum level but less than target). The exact amount of such increased or reduced percentage shall be equal to the percentage by which actual performance is below or above the target level criteria. The performance criteria for determining the bonus shall be based on achievement of the financial budget for the Company, and such additional criteria as may be determined by the Board after consultation with the Employee.
(c) Participation in all benefit plans or programs sponsored by the Company for executive officers in general, including, without limitation, participation in any group health, medical reimbursement, dental, disability, accidental death or dismemberment or life insurance plan (the costs, including premiums, of which shall be paid exclusively by the Company), vacation, sick leave, pension, profit sharing and salary continuation plans (including, without limitation, the non-qualified deferred compensation plan and the 401(k) match restoration plan); provided that the plans and programs shall be maintained by the Company on terms no less favorable to the Employee than those plans and programs in effect on the date hereof.
(d) Reimbursement of any and all reasonable and documented expenses incurred by the Employee from time to time in the performance of his duties hereunder.
(e) Four (4) weeks paid vacation per year, and all paid holidays observed by the Company. In scheduling vacations the Employee shall take into consideration the needs and activities of the Company. If the Employee has not been absent from the Company for two consecutive weeks in the preceding twelve months, no less than two weeks shall be taken consecutively.
(f) The use of a luxury automobile for business and personal use, together with all reasonable expenses for insurance, fuel, maintenance, repair and registration.
(g) All initiation fees and membership dues associated with the Employee's membership in professional, country, social and other clubs as may be approved by the Chairman of the Board (or, if the Employee is the Chairman, such other member or members of the Board as may be determined by the Board).
(h) The Company will, to the maximum extent permitted by law, defend, indemnify and hold harmless the Employee and the Employee's heirs, estate, executors and administrators against any costs, losses, claims, suits, proceedings, damages or liabilities to which the Employee may become subject which arise out of, are based upon or relate to the Employee's employment by the Company (and any predecessor company to the Company), or the Employee's service as an officer or member of the Board of Directors of the Company (or any predecessor company to the Company), including without limitation reimbursement for any legal or other expenses reasonably incurred by the Employee in connection with investigation and defending against any such costs, losses, claims, suits, proceedings, damages or liabilities. The Company shall maintain directors and officers liability insurance in commercially reasonable amounts (as reasonably determined by the Board), and the Employee shall be covered under such insurance to the same extent as other senior management employees of the Company.
(j) The Company shall pay for the Employee's financial counseling services at the rate of $16,000 per calendar year, with such amount to be payable either for services provided personally to the Employee or, at the election of the Employee, as a member of a group of executives who are eligible for this financial counseling payment.
Notwithstanding anything to the contrary contained herein, the Employee shall not be entitled to the payment of any severance benefit to the extent that such payment shall be deemed a "golden parachute payment" as defined in Section 359.1(f) of the Federal Deposit Insurance Corporation Rules and Regulations.
by any amount that the Employee receives for the period covered by such payments as disability compensation under insurance policies, if any, maintained by the Company or under government programs.
(a) If the Employee becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any similar tax that may hereafter be imposed (the "Excise Tax"), the Company shall pay to the Employee at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by the Employee, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 2.3, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in the Employee's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made
(b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to the Employee, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code in excess of the base amount within the meaning of section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax.
(ii) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the total amount of excess parachute payments within the meaning of section 280G(b)(1) of the Code (after applying clause (i) above).
(iii) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(c) For purposes of determining the amount of the Gross-up
Payment, the Employee shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Employee's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Employee's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Employee shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Employee or
otherwise realized as a benefit by the Employee) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Employee on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such
Excise Tax (including any interest or penalties thereof); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and the Employee shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. The Employee shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder.
(a) In the event that employment under the Agreement is
terminated, neither the Company nor the Employee shall have any remaining duties
or obligations hereunder, except that (i) the Company shall pay to the Employee,
or his estate, such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, (ii) the Employee shall continue to be bound by
Section 4 of the Agreement and (iii) in the event that such employment is
terminated (A) by the Company for any reason other than "for cause" (as defined
below) or (B) by the Employee with "just reason" (as defined below), the Company
shall pay or provide to the Employee, or his estate, (I) a lump sum payment, not
later than 30 days after such termination of employment, equal to the greater of
(A) the remaining payments due to the Employee under this contract, including
the contributions that would have been made on the Employee's behalf to any
employee benefit plans of the Bank during the remaining term of the agreement or
(B) three times the sum of the Employee's annual salary rate in effect on the
date of termination plus the annual bonus for the most recent fiscal year prior
to the fiscal year in which occurs the Employee's
termination of employment, and (II) participation in all benefit plans and programs sponsored by the Company for executive officers in general, all as set forth in Section 2.1(c), and all long-term incentive compensation (including, without limitation, those options set forth in Section 2.1(h)) shall vest at the date of such termination of employment.
(c) The Employee shall be deemed to have terminated his employment with "just reason" if such termination shall result, in whole or in part, from any of the following events:
(i) the breach by the Company of any material provision of this Agreement;
(ii) receipt by the Employee of a notice from the Company that the Company intends to terminate employment under this Agreement;
(iii) the failure of a successor or assign of the Company's rights under this Agreement to assume the Company's duties hereunder;
(iv) the Company directs the Employee to perform any unlawful act;
(v) the Employee ceases to be a member of the Board;
(vi) the Employee's duties are materially reduced;
(vii) a relocation of the Employee's principal place of employment by more than 25 miles by automobile from 415 Huntington Drive, San Marino, California;
(viii) liquidation or dissolution of the Bank; or
(ix) the death or disability of the Employee.
(d) The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall not be entitled to set off against the amounts payable to the Employee under this Agreement any amounts owed to the Company by the Employee, any amounts earned by the Employee in other employment after termination of his employment with the Company, or any amounts which might have been earned by the Employee in other employment had he sought such other employment.
be promptly returned to the Company by the Employee on the expiration or termination of his employment by the Company or at any time prior thereto upon the request of the Company.
provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
claim that it is not subject to the jurisdiction of any such court, any
objection that it may now or hereafter have to the establishment of the venue of
any such suit, action or proceeding brought in any such court and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum, (iii) agrees that a judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon
such party and may be enforced in the courts of the United States of America or
the State of California (or any other courts to the jurisdiction of which such
party is or may be subject) by a suit upon such judgment and (iv) consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof by registered or certified air mail, postage prepaid, return receipt
requested, to the address of such party specified in or designated pursuant to
Section 5.6. Each party agrees that such service (i) shall be deemed in every
respect effective service of process upon such party in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed as of the date and year first set forth above.
EAST-WEST BANK
By: _______________________________
Authorized Representative
415 Huntington Drive
San Marino, California 91108
Telecopier Number: (626) 799-2799
EXHIBIT A
EAST WEST BANK
1998 EMPLOYEE STOCK INCENTIVE PLAN
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between East West Bank, as a California banking corporation (the "Company"), and the person named below ("Participant").
WHEREAS, Participant is an employee, director or independent contractor of the Company or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1998 Employee Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Participant of an option to purchase shares of the common stock of the Company (the "Common Stock"), on the terms and conditions set forth herein; and
WHEREAS, the amount of compensation the recipient of the Option (as defined below) could receive hereunder is based solely on an increase in the value of the stock of the Company after the date of the grant;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto agree as follows:
Participant: Dominic Ng Date of Grant: June 25, 1998 Number of shares purchasable: 1,069,875 shares Exercise Price per share: $10.00 Annual Vesting Rate: 25% Expiration Date: June 25, 2008 |
The Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (an "Incentive Stock Option").
(I) any date upon which the directors of the Company who were last nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company;
voting securities of the Company for or pursuant to the terms of any such plan, (4) any person or entity if the transaction that resulted in such person or entity becoming a 25% Stockholder was approved in advance by the Board or (5) any person or entity who is a 25% Stockholder on the date of adoption of the Plan by the Board; or
Employee's estate or beneficiary designated by the Employee) until the three- year anniversary of the date of such Termination of Employment, at which time it shall terminate.
(I) the dissolution or liquidation of the Company; or
(II) as a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise.
(A) The Option shall be exercisable during Participant's lifetime only by Participant or by his or her guardian or legal representative, and after Participant's death only by the person or entity entitled to do so under Participant's last
(B) The "Fair Market Value" of a Common Share on any date (the "Determination Date") shall be equal to the closing price per Common Share on the business day immediately preceding the Determination Date, as reported in The Wall Street Journal, Western Edition, or, if no closing price was so reported for such immediately preceding business day, the closing price for the next preceding business day for which a closing price was so reported, or, if no closing price was so reported for any of the 30 business days immediately preceding the Determination Date, the average of the high bid and low asked prices per Common Share on the business day immediately preceding the Determination Date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if the Common Shares were not quoted by any such organization on such immediately preceding business day, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Common Shares selected by the Board.
of the Company and each of its subsidiaries to terminate the employment or
contract of Participant, with or without cause, or (iii) confer upon Participant
any right to participate in any employee welfare or benefit plan or other
program of the Company or any of its subsidiaries other than the Plan.
PARTICIPANT HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND EACH OF ITS
SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OR CONTRACT OF PARTICIPANT AT ANY TIME
AND FOR ANY REASON, OR FOR NO REASON, UNLESS PARTICIPANT AND THE COMPANY OR SUCH
SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT OR INDEPENDENT CONTRACTOR
AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
IN WITNESS WHEREOF, the Company and Participant have duly executed this Agreement as of the Date of Grant.
EAST-WEST BANK
By _________________________
Authorized Representative
PARTICIPANT
EXHIBIT 10.2
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and effective as of June 25, 1998, by and between EAST-WEST BANK, a California banking corporation (the "Company"), and JULIA GOUW (the "Employee"), with respect to the following facts:
A. The Company desires to be assured of the continued association and services of the Employee in order to take advantage of her experience, knowledge and abilities in the Company's business, and is willing to employ the Employee, and the Employee desires to be so employed, on the terms and conditions set forth in the Agreement.
B. The Employee from time to time in the course of her employment may learn trade secrets and other confidential information concerning the Company, and the Company desires to safeguard such trade secrets and confidential information against unauthorized use and disclosure.
ACCORDINGLY, on the basis of the representations, warranties and covenants contained herein, the parties hereto agree as follows:
material way with the business or interests of the Company; provided, however, that the Employee shall not serve on the board of any business, or hold any other position with any business without the consent of the Board.
(a) An annual base salary of $200,000, less income tax and other applicable withholdings, payable in installments consistent with the payments practices generally applicable to employees of the Company; provided, however, that effective as of each January 1 during the term of the Employee's employment by the Company, the Board and the Employee shall review the annual base salary and, if appropriate, revise the same (provided that in no event shall the Salary of the Employee be reduced to an amount that is less than $200,000 per year, or to an amount that is less than the amount that she was previously receiving).
(b) An annual bonus for each fiscal year of the Company payable not more than ninety (90) days after the end of the fiscal year. The amount of the bonus for each year shall equal forty percent (40%) of the Employee's annual base salary if the target level of performance criteria is realized, with a greater percentage payable if performance exceeds the target level and a lesser percentage payable if performance is at least at the minimum level but less than target). The exact amount of such increased or reduced percentage shall be equal to the percentage by which actual performance is below or above the target level criteria. The performance criteria for determining the bonus shall be based on achievement of the financial budget for the Company, and such additional criteria as may be determined by the Board.
(c) Participation in all benefit plans or programs sponsored by the Company for executive officers in general, including, without limitation, participation in any group health, medical reimbursement, dental, disability, accidental death or dismemberment or life insurance plan (the costs, including premiums, of which shall be paid exclusively by the Company), vacation, sick leave, pension, profit sharing and salary continuation plans (including, without limitation, the non-qualified deferred compensation plan and the 401(k) match restoration plan); provided that the plans and programs shall be maintained by the Company on terms no less favorable to the Employee than those plans and programs in effect on the date hereof.
(d) Reimbursement of any and all reasonable and documented expenses incurred by the Employee from time to time in the performance of her duties hereunder.
(e) Four (4) weeks paid vacation per year, and all paid holidays observed by the Company. In scheduling vacations the Employee shall take into consideration the
needs and activities of the Company. If the Employee has not been absent from the Company for two consecutive weeks in the preceding twelve months, no less than two weeks shall be taken consecutively.
(f) An allowance of $600 per month for use of a luxury automobile for business and personal use.
(g) The Company will, to the maximum extent permitted by law, defend, indemnify and hold harmless the Employee and the Employee's heirs, estate, executors and administrators against any costs, losses, claims, suits, proceedings, damages or liabilities to which the Employee may become subject which arise out of, are based upon or relate to the Employee's employment by the Company (and any predecessor company to the Company), or the Employee's service as an officer or member of the Board of Directors of the Company (or any predecessor company to the Company), including without limitation reimbursement for any legal or other expenses reasonably incurred by the Employee in connection with investigation and defending against any such costs, losses, claims, suits, proceedings, damages or liabilities. The Company shall maintain directors and officers liability insurance in commercially reasonable amounts (as reasonably determined by the Board), and the Employee shall be covered under such insurance to the same extent as other senior management employees of the Company.
(h) Options to purchase 356,625 shares of Common Stock of the Company on the terms and conditions set forth in Exhibit A hereto, with the grant date of June 25, 1998, and a $10.00 per-share exercise price.
(i) The Company shall pay for the Employee's financial counseling services at the rate of $8,000 per calendar year, with such amount to be payable either for services provided personally to the Employee or, at the election of the Employee, as a member of a group of executives who are eligible for this financial counseling payment.
Notwithstanding anything to the contrary contained herein, Employee shall not be entitled to the payment of any severance benefit to the extent that such payment shall be deemed a "golden parachute payment" as defined in Section 359.1(f) of the Federal Deposit Insurance Corporation Rules and Regulations.
(a) If the Employee becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other non- cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any similar tax that may hereafter be imposed (the "Excise Tax"), the Company shall pay to the Employee at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by the Employee, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 2.3, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in the Employee's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made.
(b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to the Employee, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code in excess of the base amount within the meaning of section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax.
(ii) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the total amount of excess parachute payments within the meaning of section 280G(b)(1) of the Code (after applying clause (i) above).
(iii) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(c) For purposes of determining the amount of the Gross-up Payment, the Employee shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the
calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Employee's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in the Employee's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to the Employee or otherwise realized as a benefit by the Employee) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Employee on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereof); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and the Employee shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. The Employee shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder.
(a) In the event that employment under the Agreement is
terminated, neither the Company nor the Employee shall have any remaining duties
or obligations hereunder, except that (i) the Company shall pay to the Employee,
or her estate, such compensation as is due pursuant to Section 2.1, prorated
through the date of termination, (ii) the Employee shall continue to be bound by
Section 4 of the Agreement and (iii) in the event that such employment is
terminated (A) by the Company for any reason other than "for cause" (as defined
below) or (B) by the Employee with "just reason" (as defined below), the Company
shall pay or provide to the Employee, or her estate, (I) a lump sum payment, not
later than 30 days after such termination of employment, equal to the greater of
(A) the remaining payments due to the Employee under this contract, including
the contributions that would have been made on the Employee's behalf to any
employee benefit plans of the Bank during the remaining term of the agreement or
(B) three times the sum of the Employee's annual salary rate in effect on the
date of termination plus the annual bonus for the most recent fiscal year prior
to the fiscal year in which occurs the Employee's termination of employment, and
(II) participation in all benefit plans and programs sponsored by the Company
for executive officers in general, all as set forth in Section 2.1(c), and all
long-term incentive compensation (including, without limitation, those options
set forth in Section 2.1(h)) shall vest at the date of such termination of
employment.
(b) The Company shall be deemed to have terminated the employment of the Employee "for cause" if, but only if, such termination (i) shall result solely from the Employee's continued and willful failure or refusal to substantially perform her duties in accordance with the terms of the Agreement and shall have been approved by 66.66% of the
(c) The Employee shall be deemed to have terminated her employment with "just reason" if such termination shall result, in whole or in part, from any of the following events:
(i) the breach by the Company of any material provision of this Agreement;
(ii) receipt by the Employee of a notice from the Company that the Company intends to terminate employment under this Agreement;
(iii) the failure of a successor or assign of the Company's rights under this Agreement to assume the Company's duties hereunder;
(iv) the Company directs the Employee to perform any unlawful act;
(v) the Employee ceases to be a member of the Board;
(vi) the Employee's duties are materially reduced;
(vii) a relocation of Employee's principal place of employment by more than 25 miles by automobile from 415 Huntington Drive, San Marino, California;
(viii) liquidation or dissolution of the Bank; or
(ix) the death or disability of the Employee.
(d) The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The
Company shall not be entitled to set off against the amounts payable to the Employee under this Agreement any amounts owed to the Company by the Employee, any amounts earned by the Employee in other employment after termination of her employment with the Company, or any amounts which might have been earned by the Employee in other employment had she sought such other employment.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed as of the date and year first set forth above.
EAST-WEST BANK
By: _______________________________
Authorized Representative
Huntington Drive
San Marino, California 91108
Telecopier Number: (626) 799-2799
EXHIBIT A
EAST WEST BANK
1998 EMPLOYEE STOCK INCENTIVE PLAN
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between East West Bank, as a California banking corporation (the "Company"), and the person named below ("Participant").
WHEREAS, Participant is an employee, director or independent contractor of the Company or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1998 Employee Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Participant of an option to purchase shares of the common stock of the Company (the "Common Stock"), on the terms and conditions set forth herein; and
WHEREAS, the amount of compensation the recipient of the Option (as defined below) could receive hereunder is based solely on an increase in the value of the stock of the Company after the date of the grant;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto agree as follows:
Participant: Julia Gouw Date of Grant: June 25, 1998 Number of shares purchasable: 356,625 shares Exercise Price per share: $10.00 Annual Vesting Rate: 25% Expiration Date: June 25, 2008 |
The Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (an "Incentive Stock Option").
(I) any date upon which the directors of the Company who were last nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company;
the Board or (5) any person or entity who is a 25% Stockholder on the date of adoption of the Plan by the Board; or
(I) the dissolution or liquidation of the Company; or
(II) as a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise.
(B) The "Fair Market Value" of a Common Share on any date (the "Determination Date") shall be equal to the closing price per Common Share on the business day
immediately preceding the Determination Date, as reported in The Wall Street Journal, Western Edition, or, if no closing price was so reported for such immediately preceding business day, the closing price for the next preceding business day for which a closing price was so reported, or, if no closing price was so reported for any of the 30 business days immediately preceding the Determination Date, the average of the high bid and low asked prices per Common Share on the business day immediately preceding the Determination Date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if the Common Shares were not quoted by any such organization on such immediately preceding business day, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Common Shares selected by the Board.
IN WITNESS WHEREOF, the Company and Participant have duly executed this Agreement as of the Date of Grant.
EAST-WEST BANK
By _________________________
Authorized Representative
PARTICIPANT
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into on this 24th day of March 1995 by and between EAST-WEST BANK, (hereinafter referred to as "Bank"), and William H. Chu (hereinafter referred to as "Executive").
WHEREAS, in order to insure the successful management of its business, Bank desires to avail itself of the experience, skills, abilities and knowledge of Executive; and
WHEREAS, both the Bank and the Executive desire to embody the terms and conditions of Executive's employment in this written agreement which supersedes all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid to Executive, and other terms and conditions of employment provided in this Agreement were duly fixed, stated, approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on March 15, 1995, at which meeting a quorum was present and voted, exclusive of Executive.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions, hereinafter set forth, the sufficiency of which is acknowledged, the parties hereto covenant and agree as follows:
Subject to the concurrence of all the appropriate state and/or federal regulatory agencies, Bank agrees to employ Executive as Senior Vice President, and Executive hereby accepts employment with Bank commencing on April 1, 1995 ("Commencement Date") and shall continue for a period of One (1) year(s) from and after the Commencement Date, unless sooner terminated or extended pursuant to the provisions of Sections 6 and 7 hereof. This period of employment shall be referred to herein as "the Term". The Bank and Executive will commence good faith discussions regarding the renewal or extension of this Agreement three (3) months prior to expiration of the Term of this Agreement.
During the term of this Employment Agreement, Executive shall perform his/her duties faithfully, diligently and to the best of his/her ability, consistent with the highest and best standards of the banking industry and in compliance with all applicable laws and the Bank's Articles of Association and Bylaws. The Executive may be assigned other titles and job responsibilities at the sole discretion of the Bank.
may not reduce, eliminate or modify existing benefits provisions applicable to all employees.
(a) Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state income tax returns of the Bank as a business expense and not as deductible compensation to Executive; and
(b) Executive furnishes to the Bank adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as deductible compensation to Executive.
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agreement.
4.4 401(k). Executive may participate in the Bank's 401(k) Plan subject
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to the terms and conditions thereof.
items relating to the business of the Bank, whether prepared by Executive or otherwise coming into Executive's possession, shall remain the exclusive property of the Bank and shall not be removed from the premises of the Bank under any circumstances whatsoever without the prior written consent of the Board of Directors.
Pursuant to the provisions of all applicable federal and state statutes and regulations including California Labor Code Section 2922, it is the specific intent of the Bank and the Executive that the employment shall be "at will", and any and all other provisions of this Agreement to the contrary notwithstanding, Executive's employment hereunder may be terminated as follows:
which Executive might enjoy hereunder other than the right, if any, to exercise any of the stock options vested prior to such termination.
specific waiver of Section 1542. Section 1542 of the Civil Code of the State of California states as follows:
"A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."
Executive hereby acknowledges that this Agreement may be subject to and contingent upon the prior approval of the regulatory authorities and only to the extent that any such prior approval is required. If such approval is not obtained, this contract is null and void and unenforceable.
East-West Federal Bank,
Attention: Human Resources Director
415 Huntington Drive
San Marino, CA. 91108
this Agreement and the masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so indicates or requires.
EAST-WEST FEDERAL BANK
By:_______________________________
W. Tom Niles
First Vice President
Human Resources Director
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the March 24, 1995 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of April, 1996 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and William H. Chu (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors, at which meeting a quorum was present and voted, exclusive of Executive:
Bank agrees to employ Executive as Senior Vice President, and Executive hereby accepts employment with Bank commencing on April 1, 1996 ("Commencement Date") and shall continue for a period of one (1) year from and after the Commencement Date.
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1996
EAST WEST BANK
By:_____________________________________
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the March 24, 1995 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of April, 1997 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and William H. Chu (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on March 19, 1997, at which meeting a quorum was present and voted, exclusive of Executive:
Bank agrees to employ Executive as Senior Vice President, and Executive hereby accepts employment with Bank commencing on April 1, 1997 ("Commencement Date") and shall continue for a period of one (1) year from and after the Commencement Date.
4. All references to East-West Federal Bank, f.s.b., in the Employment Agreement shall hereinafter refer to East West Bank.
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1997
EAST WEST BANK
By:_____________________________________
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the March 24, 1995 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of February, 1998 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and William H. Chu (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on January 22., 1998, at which meeting a quorum was present and voted, exclusive of Executive:
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1998
EAST WEST BANK
By:_____________________________________
Executive
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into on this 14th day of April, 1997 by and between EAST-WEST BANK, (hereinafter referred to as "Bank"), and MICHAEL TYMINSKI hereinafter referred to as "Executive").
WHEREAS, in order to insure the successful management of its business, Bank desires to avail itself of the experience, skills, abilities and knowledge of Executive; and
WHEREAS, both the Bank and the Executive desire to embody the terms and conditions of Executive's employment in this written agreement which supersedes all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid to Executive, and other terms and conditions of employment provided in this Agreement were duly fixed, stated, approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on April 14, 1997, at which meeting a quorum was present and voted, exclusive of Executive.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions, hereinafter set forth, the sufficiency of which is acknowledged, the parties hereto covenant and agree as follows:
Subject to the concurrence of all the appropriate state and/or federal regulatory agencies, Bank agrees to employ Executive as Senior Vice President and Chief Credit Officer, and Executive hereby accepts employment with Bank commencing on April 14, 1997 ("Commencement Date") and shall continue for a period of one(1) year(s) from and after the Commencement Date, unless sooner terminated or extended pursuant to the provisions of Sections 6 and 7 hereof. This period of employment shall be referred to herein as "the Term". The Bank and Executive will commence good faith discussions regarding the renewal or extension of this Agreement three (3) months prior to expiration of the Term of this Agreement.
with the highest and best standards of the banking industry and in compliance with all applicable laws and the Bank's Articles of Association and Bylaws. The Executive may be assigned other titles and job responsibilities at the sole discretion of the Bank.
(a) Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state income tax returns of the Bank as a business expense and not as deductible compensation to Executive; and
(b) Executive furnishes to the Bank adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as deductible compensation to Executive.
Pursuant to the provisions of all applicable federal and state statutes and regulations including California Labor Code Section 2922, it is the specific intent of the Bank and the Executive that the employment shall be "at will", and any and all other provisions of this Agreement to the contrary notwithstanding, Executive's employment hereunder may be terminated as follows:
"A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."
Executive hereby acknowledges that this Agreement may be subject to and contingent upon the prior approval of the regulatory authorities and only to the extent that any such prior approval is required. If such approval is not obtained, this contract is null and void and unenforceable.
East-West Bank,
Attention: Human Resources Director
415 Huntington Drive
San Marino, CA. 91108
as may be necessary to consummate more effectively the purposes and subject matter of this Agreement.
DATED: April 14, 1997
EAST-WEST BANK
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the April 14, 1997 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of February l, 1998 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and Michael Tyminski (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on January 22, 1998, at which meeting a quorum was present and voted, exclusive of Executive:
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1998
EAST WEST BANK
By:_____________________________________
Executive
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into on this 21st day of November, 1996 by and between EAST-WEST BANK, (hereinafter referred to as "Bank"), and Douglas P. Krause (hereinafter referred to as "Executive").
WHEREAS, in order to insure the successful management of its business, Bank desires to avail itself of the experience, skills, abilities and knowledge of Executive; and
WHEREAS, both the Bank and the Executive desire to embody the terms and conditions of Executive's employment in this written agreement which supersedes all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid to Executive, and other terms and conditions of employment provided in this Agreement were duly fixed, stated, approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on November 20, 1996, at which meeting a quorum was present and voted, exclusive of Executive.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions, hereinafter set forth, the sufficiency of which is acknowledged, the parties hereto covenant and agree as follows:
Subject to the concurrence of all the appropriate state and/or federal
regulatory agencies, Bank agrees to employ Executive as Senior Vice President &
General Counsel, and Executive hereby accepts employment with Bank commencing on
November 21, 1996 ("Commencement Date") and shall continue for a period of one
(1) year(s) from and after the Commencement Date, unless sooner terminated or
extended pursuant to the provisions of Sections 6 and 7 hereof. This period of
employment shall be referred to herein as "the Term". The Bank and Executive
will commence good faith discussions regarding the renewal or extension of this
Agreement three (3) months prior to expiration of the Term of this Agreement.
perform his/her duties faithfully, diligently and to the best of his/her ability, consistent with the highest and best standards of the banking industry and in compliance with all applicable laws and the Bank's Articles of Association and Bylaws. The Executive may be assigned other titles and job responsibilities at the sole discretion of the Bank.
(a) Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state income tax returns of the Bank as a business expense and not as deductible compensation to Executive; and
(b) Executive furnishes to the Bank adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as deductible compensation to Executive.
Pursuant to the provisions of all applicable federal and state statutes and regulations including California Labor Code Section 2922, it is the specific intent of the Bank and the Executive that the employment shall be "at will", and any and all other provisions of this Agreement to the contrary notwithstanding, Executive's employment hereunder may be terminated as follows:
obligations under this Agreement, his/her conviction of a felony or the closing of the Bank under order of regulatory authorities or any other governmental regulator of competent jurisdiction, in which event Executive or Executive's estate shall not receive any severance payment.
"A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor."
Executive hereby acknowledges that this Agreement may be subject to and contingent upon the prior approval of the regulatory authorities and only to the extent that any such prior approval is required. If such approval is not obtained, this contract is null and void and unenforceable.
East-West Bank,
Attention: Human Resources Director
415 Huntington Drive
San Marino, CA. 91108
Agreement shall be binding upon and insure to the benefit of the successors and assigns of Executive and the Bank, provided however, that Executive may not assign any or all of his rights or duties hereunder except upon the prior written consent of the Board of Directors in its sole and absolute discretion.
DATED: November 21, 1996
EAST-WEST BANK
By:_______________________________
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the November 21, 1996 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of April, 1997 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and Douglas Krause (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on March 19, 1997, at which meeting a quorum was present and voted, exclusive of Executive:
Bank agrees to employ Executive as Senior Vice President, and Executive hereby accepts employment with Bank commencing on April 1, 1997 ("Commencement Date") and shall continue for a period of one (1) year from and after the Commencement Date.
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1997
EAST WEST BANK
By:__________________________________
ANNUAL AMENDMENT TO EMPLOYMENT AGREEMENT
This Annual Amendment to the November 21, 1996 Employment Agreement (hereinafter "Employment Agreement") is entered into on this 1st day of February, 1998 by and between EAST-WEST BANK (hereinafter referred to as "Bank"), and Douglas Krause (hereinafter referred to as "Executive").
Pursuant to Section 9.3 of the Employment Agreement between the Bank and Executive, the following terms and conditions of the Employment agreement are hereby modified and agreed to, as approved and authorized for and on behalf of the Bank by action of its Board of Directors at a meeting held on January 22, 1998, at which meeting a quorum was present and voted, exclusive of Executive:
Bank agrees to employ Executive as Senior Vice President, and Executive hereby accepts employment with Bank commencing on February 1, 1998 ("Commencement Date") and shall continue for a period of one (1) year from and after the Commencement Date.
Except as expressly agreed to herein, the Employment Agreement between the parties shall remain in force and effect.
Dated:___________________________, 1998
EAST WEST BANK
By:________________________________
Executive
EXHIBIT 10.6
EAST WEST BANCORP, INC.
Section 1. PURPOSE OF PLAN
The purpose of this 1998 Stock Incentive Plan ("Plan") of East West Bancorp, Inc., a Delaware corporation (the "Company"), is to enable the Company and its subsidiaries to attract, retain and motivate their employees and consultants by providing for or increasing the proprietary interests of such employees and consultants in the Company, and to enable the Company and its subsidiaries to attract, retain and motivate nonemployee directors and further align their interests with those of the stockholders of the Company by providing for or increasing the proprietary interest of such directors in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Each of the following persons (each, a "Participant") shall be eligible to be considered for the grant of Awards (as hereinafter defined) hereunder: (1) any employee of the Company or any of its subsidiaries, including any director who is also such an employee, (2) any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries (a "Nonemployee Director") and (3) any consultant of the Company or any of its subsidiaries.
Section 3. AWARDS
(A) The Committee (as hereinafter defined), on behalf of the Company, is authorized under this Plan to enter into any type of arrangement with a Participant that is not inconsistent with the provisions of this Plan and that, by its terms, involves or might involve the issuance of (i) shares of common stock of the Company ("Common Shares") or (ii) a Derivative Security (as such term is defined in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such rule may be amended from time to time) with an exercise or conversion privilege at a price related to the Common Shares or with a value derived from the value of the Common Shares. The entering into of any such arrangement is referred to herein as the "grant" of an "Award."
(B) Awards are not restricted to any specified form or structure and may include, without limitation, sales or bonuses of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative.
(C) Awards may be issued, and Common Shares may be issued pursuant to an Award, for any lawful consideration as determined by the Committee, including, without limitation, services rendered by the recipient of such Award.
(D) Subject to the provisions of this Plan, the Committee, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted under this Plan, which terms and conditions may include, among other things:
(i) a provision permitting the recipient of such Award, including any recipient who is a director or officer of the Company, to pay the purchase price of the Common Shares or other property issuable pursuant to such Award, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the Committee;
(C) the delivery of previously owned shares of capital stock of the Company (including "pyramiding") or other property; or
(D) a reduction in the amount of Common Shares or other property otherwise issuable pursuant to such Award;
(ii) a provision conditioning or accelerating the receipt of benefits pursuant to such Award, either automatically or in the discretion of the Committee, upon the occurrence of specified events, including, without limitation, a change of control of the Company (as defined by the Committee), an acquisition of a specified percentage of the voting power of the Company, the dissolution or liquidation of the Company, a sale of substantially all of the property and assets of the Company or an event of the type described in Section 7 hereof; or
(e) Notwithstanding anything to the contrary contained in this
Section 3, neither an Award nor any interest therein may be sold, assigned,
transferred, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner other than by will or the laws of descent and distribution.
(f) All certificates evidencing Awards or Common Shares issued pursuant thereto should bear any legend determined by the Board or the Committee (as defined below) to be necessary or appropriate.
Section 4. STOCK SUBJECT TO PLAN
(A) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all Awards (including all Incentive Stock Options) granted
under this Plan shall not exceed 1,902,000 subject to adjustment as provided in
Section 7 hereof. In the case of stock options and stock appreciation rights,
the maximum number of Common Shares with respect to which options or rights may
be granted to any person during a calendar year shall be 1,902,000 shares.
(B) For purposes of Section 4(a) hereof, the aggregate number of Common Shares issued and issuable pursuant to Awards granted under this Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time pursuant to Awards granted under this Plan, other than Common Shares that were subsequently reacquired by the Company pursuant to the terms and conditions of such Awards and with respect to which the holder thereof received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior to such time pursuant to Awards granted under this Plan, but that were withheld by the Company as payment of the purchase price of the Common Shares issued pursuant to such Awards; plus
(iii) the maximum number of Common Shares that are or may be issuable at or after such time pursuant to Awards granted under this Plan prior to such time.
Section 5. DURATION OF PLAN
No Awards shall be made under this Plan after June 25, 2008. Although Common Shares may be issued after June 25, 2008 pursuant to Awards made prior to such date, no Common Shares shall be issued under this Plan after June 25, 2008.
Section 6. ADMINISTRATION OF PLAN
(B) Subject to the provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan, including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating to this Plan;
(ii) determine which persons are Participants and to which of such Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and conditions thereof, including the number of Common Shares issuable pursuant thereto;
(iv) determine whether, and the extent to which adjustments are required pursuant to Section 7 hereof;
(v) interpret and construe this Plan and the terms and conditions of any Award granted hereunder; and
(vi) certify in writing prior to payment of compensation that the performance goals and any other material terms of an Award were in fact satisfied. For this purpose, approved minutes of the Committee meeting in which the certification is made are treated as a written certification.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of securities, or if cash, property or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular cash dividend) or other distribution, stock split, reverse stock split or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in (i) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Awards theretofore granted under this Plan and (ii) the maximum number and type of shares or other securities that may be issued pursuant to Awards thereafter granted under this Plan.
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any manner, provided that no such amendment or termination shall deprive the recipient of any Award theretofore granted under this Plan, without the consent of such recipient, of any of his or her rights thereunder or with respect thereto.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of the latter of the date upon which it was approved by the Board of Directors of the Company and the date on which it was approved by the holders of a majority of the voting securities of the Company.
Section 10. GOVERNING LAW
This Plan and any Award granted hereunder shall be governed by and construed and enforced in accordance with the laws of the State of California without reference to choice or conflict of law principles.
EAST WEST BANCORP, INC.
1998 NON-QUALIFIED STOCK OPTION PLAN
FOR OFFICERS AND INDEPENDENT CONTRACTORS
This 1998 Non-Qualified Stock Option Plan for Officers and Independent Contractors ("Plan") sets forth the terms and conditions under which options to purchase shares of common stock of East West Bancorp, Inc., a Delaware corporation (the "Company"), may be granted from time to time to officers and independent contractors of the Company or one or more of its subsidiaries.
WHEREAS, the Board of Directors of the Company adopted the 1998 Stock Incentive Plan (the "1998 Stock Incentive Plan") under which the Board of Directors, or a committee of the Board of Directors of the Company administering the 1998 Stock Incentive Plan (the "Committee"), may from time to time approve the grant to employees, directors and independent contractors of the Company or one or more of its subsidiaries of options to purchase shares of the common stock of the Company (the "Common Stock"); and
WHEREAS, this Plan sets forth the terms and conditions of Options (as defined below) granted to officers and independent contractors of the Company or one or more of its subsidiaries ("Participants").
NOW, THEREFORE, this Plan is as follows:
This Plan and all Options granted under this Plan are subject to all of the terms and conditions of the 1998 Stock Incentive Plan. Options granted under this Plan are not intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.
(I) any date upon which the directors of the Company who were last nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company;
(III) a reorganization, merger or consolidation of the Company (other than a reorganization, merger or consolidation the purpose of which is (A) to change the Company's domicile solely within the United States or (B) the formation of a holding company in which the shareholders of the holding company after its formation are substantially the same as for the Company prior to the holding company formation), the consummation of which results in the outstanding securities of any class then subject to the Option being exchanged for or converted into cash, property or a different kind of securities.
(I) the dissolution or liquidation of the Company; or
(II) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise.
(B) The "Fair Market Value" of a Common Share on any date (the "Determination Date") shall be equal to the closing price per Common Share on the business day immediately preceding the Determination Date, as reported in The Wall Street Journal, Western Edition, or, if no closing price was so reported for such immediately preceding business day, the closing price for the next preceding business day for which a closing price was so reported, or, if no closing price was so reported for any of the 30 business days immediately preceding the Determination Date, the average of the high bid and low asked prices per Common Share on the business day immediately preceding the Determination Date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if the Common Shares were not quoted by any such organization on such immediately preceding business day, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Common Shares selected by the Board. If Common Shares are not registered on the Determination Date under applicable rules of the Securities and Exchange Commission, the Fair Market Value shall be determined by the Board of Directors upon consultation with an investment banker familiar with the Company and the market for its shares.
a Participant's rights under this Plan. The interpretation and construction by the Committee of the 1998 Stock Incentive Plan, this Plan, the Options and such rules and regulations as may be adopted by the Committee for the purpose of administering the 1998 Stock Incentive Plan and this Plan shall be final and binding upon all Participants. Until a Participant's Options shall have expired, terminated or exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to the Participant.
EXHIBIT 10.7
EAST WEST BANCORP, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase Plan of East West Bancorp, Inc.
a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code.
b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such an Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
a) The Plan shall be implemented by a series of Offering Periods of six
(6) months duration, with new Offering Periods commencing on or about
April 1 and October 1 of each year (or at such other time or times as
may be determined by the Board of Directors). The Plan shall continue
until terminated in accordance with Section 19 hereof. The Board of
Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Period with respect to future
offerings without shareholder approval if such change is announced at
least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected. Eligible employees may not participate in more than one Offering at a time.
a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given offering. The subscription agreement shall set forth the whole number percentage of the participant's Compensation (which shall be not less than 1% and not more than 25%) to be paid as Contributions pursuant to the Plan.
b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid prior to the Exercise Date of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10, provided however, that any payroll paid within ten (10) business days preceding the Exercise Date will be included in the subsequent Offering Period.
c) By enrolling in the Plan, each participant will be deemed to have authorized the establishment of a brokerage account in his or her name at a securities brokerage firm or other financial institution, if approved by the Committee in its discretion.
a) The participants shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than twenty-five percent (25%) (in whole number increments) of such participant's Compensation on each such payday. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account.
b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during the Offering Period, may decrease the rate of his or her Contributions during the Offering Period by completing and filing with the Company a new subscription agreement. The change in rate shall be effective as of the beginning of the next calendar month following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding calendar month.
a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to
purchase on the Exercise Date a number of share of the Company's
Common Stock determined by dividing such Employee's Contribution
accumulated prior to such Purchase Date and retained in the
participant's account as of the Purchase Date by the lower of
(i) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Exercise Date; provided however, that such purchase shall be subject to the limitations set forth in Section 3(b) and 13. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b).
b) The option price per share of the shares offered in a given Offering
Period shall be the lower of (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or
(ii) 85% of the fair market value of a share of the Common Stock of
the Company on the Exercise Date. The fair market value of the
Company's Common Stock on a given date shall be determined by the
Board in its discretion based on the closing price of the Common
Stock for date preceding the date of determination (or, in the event
that the Common Stock is not traded on such date, on the immediately
preceding trading date on which there was a closing price), as
reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Market or, in the event the Common Stock
is listed on a stock exchange, the fair market value per share shall
be the closing price on such exchange on the date preceding the date
of determination (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as
reported in the Wall Street Journal.
a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to two (2) business days prior to the Exercise Date of the Offering Period by completing a Company approved notification. All of the participant's Contributions credited to his or her account will be paid to him or her as soon as practicable after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of shares will be made during the Offering Period.
b) Upon termination of the participant's Continuous Status as an
Employee prior to the Exercise Date of an Offering Period for any
reason, including retirement or death, the Contributions credited to
his or her account will be returned to him or her or, in the case of
his or her death, to the person or persons entitled thereto under
Section 14, and his or her option will be automatically terminated.
c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.
d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company.
a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be one million (1,000,000) shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of Contributions, if necessary.
b) The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.
c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the "Street Name" of a Company approved broker.
a) A participant may file a written designation of a beneficiary who is to receive shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of an Offering Period but prior to delivery to him or her of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Exercise Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.
a) The Board of Directors of the Company may at any time terminate or amend the Plan. Except as provided in Section 19, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any
applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as so required.
b) Without shareholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, to permit purchases to be made by check or cash in addition to through payroll deductions, to arrange for Contributions to be held in an interest bearing account for the benefit of participants, permit payments the payment of interest on establish the exchange ratio applicable to amounts withheld in currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, to change the date as of which the fair market value of shares of Common Stock is calculated for shares purchased by participants, and establish such other limitations or procedures and make such other amendments as the Board (or its committee) determines at its sole discretion advisable and which do not require shareholder approval in order to comply with Rule 16b-3 under the Exchange Act, or Section 423 of the Code (or any successor rule or provision or any applicable law or regulation).
a) Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
b) As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
c) Each participant agrees, by entering the Plan, to promptly give the Company notice of any disposition of shares purchased under the Plan where such disposition occurs
within two (2) years after the date of grant of the Option pursuant to which such shares were purchased.
EXHIBIT 10.8
AGENCY AGREEMENT
BY AND AMONG
SJAMSUL NURSALIM AND ITJIH SJAMSUL NURSALIM,
EAST-WEST BANK
AND
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
DATED AS OF JUNE 1, 1998
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS
Section 1.1 Definitions................................. 1
ARTICLE II. PURCHASE AND SALE OF SHARES OF COMMON STOCK
Section 2.1 Appointment of Placement Agent.............. 5
Section 2.2 Costs, Expenses and Fees.................... 5
Section 2.3 Closing..................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the
Selling Shareholders....................... 6
Section 3.2 Representations and Warranties of the Bank.. 9
Section 3.3 Representations and Warranties of the
Placement Agent............................ 16
ARTICLE IV. CONDITIONS PRECEDENT TO THE CLOSING
Section 4.1 Conditions to the Obligations of the Parties 17
Section 4.2 Conditions to the Obligations of the
Selling Shareholders....................... 18
Section 4.3 Conditions to the Obligations of the Bank... 18
Section 4.4 Conditions to the Obligations of the
Placement Agent............................ 18
ARTICLE V. COVENANTS
Section 5.1 Information................................. 20
Section 5.2 Blue Sky.................................... 21
Section 5.3 Issuance.................................... 21
Section 5.4 Press Releases.............................. 21
Section 5.5 No Solicitation............................. 21
Section 5.6 Post Offering Engagement.................... 21
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ARTICLE VI. INDEMNIFICATION
Section 6.1 Bank Indemnification........................ 22
Section 6.2 Placement Agent Indemnification............. 24
Section 6.3 Selling Shareholder Indemnification......... 24
Section 6.4 Notice...................................... 25
ARTICLE VII. CONTRIBUTION
Section 7.1 Contribution................................ 26
Section 7.2 Reimbursement............................... 27
ARTICLE VIII. MISCELLANEOUS
Section 8.1 Survival of Provisions...................... 27
Section 8.2 Termination................................. 27
Section 8.3 Waiver; Amendments.......................... 28
Section 8.4 Communications.............................. 29
Section 8.5 Entire Agreement; Amendment................. 29
Section 8.6 Governing Law and Time...................... 29
Section 8.7 Consent to Jurisdiction..................... 30
Section 8.8 Severability................................ 30
Section 8.9 Headings and Gender......................... 30
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AGENCY AGREEMENT
Agreement, dated as of June 1, 1998 (the "Agreement") by and among Mr. Sjamsul Nursalim and Mrs. Itjih Sjamsul Nursalim (collectively, the "Selling Shareholders"), East-West Bank, a California banking corporation (the "Bank"), and Friedman, Billings, Ramsey & Co., Inc. (the "Placement Agent"), with respect to the offering and sale of the shares of Common Stock to each of the purchasers listed on the investor signature pages to the Purchase and Sale Agreement (collectively, the "Transaction").
ARTICLE I
DEFINITIONS
"Affiliate" means, with respect to any Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Agency Agreement by and between the Selling Shareholders, the Bank and the Placement Agent with respect to the offering of the shares of Common Stock, as amended, supplemented or modified from time to time.
"Bank" means East-West Bank, a California banking corporation, together with its successors.
"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks and savings institutions in the State of California are authorized or obligated by law to close.
"Capital Securities" of any Person means Capital Stock of the Person and Stock Equivalents of the Person.
"Capital Stock" of any Person means any and all shares or other equity interest of such Person.
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended (or any successor statute in effect from time to time), and the rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission and any successor thereto.
"Common Stock" means the Common Stock, stated value $1.00 per share, of the Bank.
"Custody Agreement" means the Custody Agreement to be entered into among the Selling Shareholders and Manatt Phelps Phillips LLP, as the Custodian.
"Department" means the California Department of Financial Institutions.
"Environmental Claim" means any written notice from any governmental authority or third party alleging potential liability (including without limitation potential liability for investigating costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence, or release into the environment of any Materials of Environmental Concern.
"Environmental Laws" means any law, statute, rule or regulation of any governmental, judicial, legislative, executive, administrative or regulatory authority of the United States, or of any state, local or foreign government or any subdivision thereof or of any governmental body or other regulatory or administrative agency or commission, domestic or foreign (a "Law"), relating to pollution or protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, and other Laws relating to (i) emissions, discharges or releases of pollutants, contaminants, chemicals, or industrial toxic or hazardous substances or wastes (collectively known as "Polluting Substances") or (ii) the handling, storage, disposal, reclamation, recycling or transportation of Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended (or any successor statute in effect from time to time).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and in effect from time to time (or any successor statute in effect from time to time), and the rules and regulations of the Commission promulgated thereunder.
"FDIA" means the Federal Deposit Insurance Act, as amended (or any successor statute in effect from time to time).
"FDIC" means the Federal Deposit Insurance Corporation and any successor
thereto.
2
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
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encumbrance, charge or security interest of any kind in respect of such asset.
"Management" means the following members of the senior management of the Bank: President, Chief Executive Officer, Chief Financial Officer and any Executive Vice President.
"Material Adverse Effect" means a material adverse effect on the financial condition, business or results of operations of the Bank and the Bank Subsidiaries, taken as a whole; provided, however, that Material Adverse Effect shall not be deemed to include the impact of the transactions contemplated by this Agreement or any Related Agreement, including the fees and expenses to be paid in connection with the consummation of the transactions contemplated by this Agreement and the Related Agreements or any impact or effect on the Bank resulting from actions taken by the Bank after the Closing.
"Materials of Environmental Concern" means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other materials regulated under Environmental Laws.
"Non-performing Assets" means the following consolidated assets of the Bank: (i) loans, securities or other assets with respect to which the Bank has ceased recognizing interest under generally accepted accounting principles or as to which any payments of principal or interest are past due 90 days or more as of the applicable date and (ii) Real Estate Owned; and references herein to the amounts of Non-performing Assets shall mean and refer to the aggregate carrying value of such assets as stated in the books and financial statements of the Bank under generally accepted accounting principles.
"Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or a political subdivision or an agency or instrumentality thereof.
"Placement Agent" means Friedman, Billings, Ramsey & Co., Inc. in its capacity as private placement agent pursuant to the Agency Agreement with respect to the offering of the shares of Common Stock of the Bank to the Purchasers, as described in the Private Offering Memorandum.
"Previously Disclosed" means disclosed either (i) in a letter dated the date hereof delivered from the Selling Shareholders to the Placement Agent or from the Bank to the Placement Agent, as applicable, specifically referring to the appropriate section of this Agreement and describing in reasonable detail the matters contained therein, or (ii) in the Private Offering Memorandum.
"Purchase and Sale Agreement" means the Purchase and Sale Agreement, by and between the Selling Shareholders, the Bank and each Purchaser, as amended, supplemented or modified from time to time.
"Private Offering Memorandum" means the Private Offering Memorandum, dated May 26, 1998, as amended or supplemented by the Bank at any time prior to the Closing.
"Purchaser" means each Person (other than the Bank) listed on the investor signature pages to the Purchase and Sale Agreement, and its permitted successors and assigns as provided therein, including any Person who becomes a party thereto by executing and delivering an investor signature page thereto after the date of such agreement.
"Real Estate Owned" means the consolidated properties of the Bank acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise included in the Bank's real estate owned for purposes of reporting asset quality of the Bank in its reports filed with the FDIC and the Department.
"Registration Rights Agreement" means the Registration Rights Agreement to be entered into among the Bank and the Purchasers, as amended, supplemented or otherwise modified from time to time, which provides for the reorganization of the Bank into the holding company form of organization, the registration of the shares of such holding company's common stock with the Commission, and the exchange of the holding company's common stock for the then outstanding Common Stock of the Bank.
"Related Agreements" means the Purchase and Sale Agreement, the Registration Rights Agreement, the Custody Agreement and the Power of Attorney.
"SAIF" means the Savings Association Insurance Fund administered by the FDIC, and any successor thereto.
"Securities Act" means the Securities Act of 1933, as amended (or any successor statute thereto as in effect from time to time), and the rules and regulations of the Commission promulgated thereunder.
"Selling Shareholders" shall mean Sjamsul Nursalim and Itjih Sjamsul Nursalim.
"State" means each of the states of the United States, the District of Columbia and the Commonwealth of Puerto Rico.
"Stock Equivalents" means, with respect to any Person, options, warrants, calls, contracts or other rights entered into or issued by such Person which confer upon the holder thereof the right (whether or not contingent) to acquire any Capital Stock, voting securities or securities convertible into or exchangeable for Capital Stock or voting securities of such Person.
"Subsidiary" of any Person means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by such Person.
"Taxes" means all taxes, charges, fees, levies or other governmental assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs, dues, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign).
"Tax Returns" means all federal, State and local returns relating to Taxes.
ARTICLE II
PURCHASE AND SALE OF SHARES OF COMMON STOCK
(i) The costs and expenses (calculated as of the Closing) and the fees of
the transactions contemplated by this Agreement and the Purchase and Sale
Agreement shall be paid at the Closing out of the proceeds from the sale of the
shares of Common Stock. The costs and expenses for such transaction includes,
without limitation, (i) the reasonable out-of-pocket expenses of the Placement
Agent incurred in connection with its engagement hereunder, including, without
limitation, the reasonable legal fees and expenses and disbursements of the
Placement Agent's legal counsel, and marketing promotional and travel expenses,
(ii) the cost of obtaining all securities approvals (if any); (iii) the cost of
printing and distributing the offering materials; (iv) the costs of blue sky
qualification (including fees and reasonable expenses (including any requisite
filing fees) of the Placement Agent's counsel) of the Common Stock in the
various states (if any); and (v) all fees and disbursements of the Bank's
counsel, accountants, agents and other advisors. In addition, the Selling
Shareholders shall be responsible for any federal and state taxes or withholding
obligations associated with the sale of the shares of Common Stock pursuant
thereto. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of Article VI.
(ii) The Placement Agent will be paid a placement fee of 7% of the gross proceeds raised from the sale of the Common Stock in immediately available funds at the Closing Date out of the proceeds raised from the sale of shares of Common Stock pursuant to this Agreement and the Purchase and Sale Agreement. The placement fee to be paid to the Placement Agent hereunder is referred to as the "Fee."
(iii) In connection with the Closing, the Bank shall issue to the Placement Agent a warrant to purchase Common Stock of the Bank in the form attached hereto as Appendix A.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
(i) The Selling Shareholders have, and immediately prior to the Closing such Shareholders will have, good and valid title to the shares of Common Stock free and clear of all Liens; and, upon delivery of such shares
of Common Stock and payment therefor pursuant hereto, good and valid title to such shares of Common Stock, free and clear of all Liens, will pass to the Purchasers.
(ii) Certificates in negotiable form representing all of the shares of Common Stock have been placed in custody under the Custody Agreement, duly executed and delivered by such Selling Shareholder to Manatt Phelps Phillips LLP, as custodian (the "Custodian"), and such Selling Shareholders have duly executed and delivered the Power of Attorney, appointing the Selling Shareholders' attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement and the Related Agreements to which the Selling Shareholders are or will become a party on behalf of such Selling Shareholders, to authorize the delivery of the shares of Common Stock to be sold by such Selling Shareholders hereunder and otherwise to act on behalf of such Selling Shareholders in connection with the transactions contemplated by this Agreement and the Related Agreements to which the Selling Shareholders are or will become a party.
(iii) The shares of Common Stock represented by the certificates held in custody for such Selling Shareholders under the Custody Agreement are subject to the interests of the Purchasers hereunder; the obligations of the Selling Shareholders hereunder are not intended to be terminated by operation of law, whether by the death or incapacity of any individual Selling Shareholder or by the occurrence of any other event; if any individual Selling Shareholder should die or become incapacitated, or if any other such event should occur, before the delivery of the shares of Common Stock hereunder, it is the intention of the Selling Shareholders that certificates representing the shares of Common Stock shall be delivered by or on behalf of the Selling Shareholders in accordance with the terms and conditions of this Agreement and of the Related Agreements to which the Selling Shareholders are or will become a party; and it is the intention of the Selling Shareholders that actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity or other event.
except as (A) enforceability may be limited by bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally and (B) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.
(i) To the actual knowledge of the Selling Shareholders, (x) the statements of financial condition of the Bank as of December 31, 1997 and 1996 and consolidated statements of operations, stockholders' equity and cash flows of the Bank for each of the years ended December 31, 1997, 1996 and 1995, accompanied by the related audit report of Deloitte & Touche LLP and (y) the unaudited consolidated statement of financial condition of the Bank as of March 31, 1998 and the unaudited consolidated statements of operations, stockholders' equity and cash flows of the Bank for the three months ended March 31, 1998 (the foregoing financial statements, including the related notes where applicable, are collectively referred to as the "Bank Financial Statements"), fairly present the consolidated financial condition of the Bank as of the respective dates set forth therein, and the consolidated results of operations, stockholders' equity and cash flows of the Bank for the respective periods or as of the respective dates set forth therein.
(ii) To the actual knowledge of the Selling Shareholders, except to the extent (x) reflected, disclosed or provided for in the consolidated statement of financial condition of the Bank as of March 31, 1998 (including related notes) and (y) of liabilities incurred since such date in the ordinary course of business, neither the Bank nor any of the Bank Subsidiaries has any liabilities, whether absolute, accrued, contingent or otherwise, which would have a Material Adverse Effect.
The representations and warranties set forth in Sections 3.1(f) and (g)
based on the knowledge or best knowledge of the Selling Shareholders are made in
reliance on the representations and warranties of the Purchasers contained in
Section 3.3(a) of this Agreement.
hereof, all outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable and none of the outstanding shares of Common Stock has been issued in violation of the preemptive rights of any Person. Except as Previously Disclosed, there are no Stock Equivalents authorized, issued or outstanding with respect to the Capital Stock of the Bank as of the date hereof.
to which it will become a party has been duly authorized by all necessary corporate action on the part of the Bank.
(i) The Private Offering Memorandum includes the Bank Financial Statements, which fairly present the consolidated financial condition of the Bank as of the respective dates set forth therein, and the
consolidated results of operations, stockholders' equity and cash flows of the Bank for the respective periods or as of the respective dates set forth therein.
(ii) The Bank Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied during the periods involved, except as stated therein. The books and records of the Bank and the Bank Subsidiaries are being maintained in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all material respects all dealings and transactions in respect of the business, assets, liabilities and affairs of the Bank and the Bank Subsidiaries.
(iii) Except to the extent (x) reflected, disclosed or
provided for in the consolidated statement of financial condition
of the Bank as of March 31, 1998 (including related notes) and
(y) of liabilities incurred since such date in the ordinary
course of business, neither the Bank nor any of the Bank
Subsidiaries has any liabilities, whether absolute, accrued,
contingent or otherwise, which would have a Material Adverse
Effect.
(iv) The accountants who certified the audited Bank Financial Statements included in the Private Offering Memorandum are independent public accountants within the meaning of the Securities Act.
(i) To the knowledge of the Bank, the Bank and the Bank Subsidiaries are in compliance with all Environmental Laws, except for any violations of any Environmental Law which would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Bank nor any Bank Subsidiary has received any communication alleging that the Bank or any Bank Subsidiary is not in such compliance and, to the knowledge of the Bank, there are no present circumstances that would prevent or interfere with the continuation of such compliance.
(ii) To the knowledge of the Bank, none of the properties owned, leased or operated by the Bank or the Bank Subsidiaries has been or is in violation of or liable under any Environmental Law, except for any such violations or liabilities which would not individually or in the aggregate have a Material Adverse Effect.
(iii) To the knowledge of the Bank, there are no past or present actions, activities, circumstances, conditions, events or incidents that would reasonably form the basis of any Environmental Claim or other claim or action or governmental investigation that would result in the imposition of any liability arising under any Environmental Law against the Bank or any Bank Subsidiary or against any Person whose liability for any Environmental Claim the Bank or any Bank Subsidiary has or may have retained or assumed either contractually or by operation of law, except such as would not have a Material Adverse Effect.
presently applicable provisions of ERISA, except where any such noncompliance
would not reasonably be expected to have a Material Adverse Effect; no
"reportable event" (as defined in Section 4043 of ERISA or the regulations
thereunder), other than an event as to which the 30- day statutory notice period
is waived by regulation, has occurred with respect to any Bank Plan that is a
"pension plan" (as defined in Section 3(2) of ERISA (each such Bank Plan, a
"Bank Pension Plan"); the Bank has not incurred and does not expect to incur any
material liability with respect to any Bank Pension Plan under (i) Title IV of
ERISA (with respect to the termination of, or withdrawal from, any such plan) or
(ii) Sections 412 or 4971 of the Code; and each Bank Pension Plan has received a
determination letter from the Internal Revenue Service regarding the
qualification of such plan under Section 401(a) of the Code, and to the
knowledge of the Bank, nothing has occurred, whether by action or by failure to
act, that would cause the loss of such qualification.
violation of any of the foregoing which would reasonably be expected to have any effect set forth in clauses (i) or (ii) above. Except as Previously Disclosed, neither the Bank nor any of the Bank Subsidiaries is subject to any regulatory or supervisory cease and desist order, agreement, written directive, memorandum of understanding or written commitment, and none of them has received any written communication requesting that they enter into any of the foregoing.
The representations and warranties set forth in Sections 3.2(h) and (p) are made in reliance on the representations and warranties of the Purchasers contained in Section 3.3(a) of this Agreement.
(a) The Placement Agent has offered the shares of Common Stock for sale, solicited offers to buy the shares of Common Stock, and otherwise negotiated in respect of the shares of
Common Stock only in a manner that conformed to the offering procedures set forth in the Private Offering Memorandum.
(b) The Placement Agent has delivered to each offeree a copy of the Private Offering Memorandum.
(c) Each offeree will be given the opportunity to ask questions of representatives of the Bank concerning the shares of Common Stock and the transactions relating to their purchase, and immediately prior to making the offer to each offeree, the Placement Agent will have reasonable grounds to believe and will believe that each such offeree was an "accredited investor" as such term is defined in Rule 501 of the General Rules and Regulations of the Commission under the Securities Act. The representations and warranties contained in this Section 3.3(c), insofar as they relate to federal and State securities laws requirements, are made in reliance on the representations and warranties of the Purchasers contained in Section 3.3 of the Purchase and Sale Agreement.
(d) The Placement Agent will not, directly or through any agent, offer the shares of Common Stock for sale, or solicit any offers to buy the shares of Common Stock, or otherwise negotiate with any person with respect to the shares of Common Stock on the basis of general solicitation or general advertising, including without limitation, any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio; or, distribute any letters, circulars, notices, memoranda, or other written communications of a general nature to customers announcing or describing, or inviting inquiries concerning the offering of the shares of Common Stock.
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
(a) All requirements prescribed by law which are necessary to the consummation of the transactions contemplated by this Agreement and the Related Agreements shall have been satisfied.
(b) No party to this Agreement or the Related Agreements shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of any of the transactions contemplated by this Agreement or the Related Agreements.
(c) No statute, rule or regulation shall have been enacted, entered, promulgated, interpreted, applied or enforced by any governmental authority which prohibits, restricts or
makes illegal consummation of any of the transactions contemplated by this Agreement or the Related and Sale Agreements.
(d) The Selling Shareholders shall have completed the sale of the shares of Common Stock as contemplated by the Purchase and Sale Agreement and this Agreement and the aggregate consideration paid for all or the Common Stock shall be U.S. $237,775,000, of which U.S. $220,000,000 shall have been paid to the Selling Shareholders in immediately available funds at the Closing. The remaining U.S. $17,775,000 shall have been used to pay the costs, fees and expenses of the Transaction, other than the fees and expenses of Chase Securities, Inc., the Attorneys-in-Fact and O'Melveny & Myers, LLP. The Selling Shareholders shall not be responsible for the payment of any of the costs or expenses of the Transaction other than for the payment of the fees and expenses of Chase Securities, Inc., the Attorneys-in-Fact and O'Melveny & Myers, LLP.
(e) No party to this Agreement shall be in material breach of this Agreement unless such breach shall have been waived in writing by the other party hereto.
(a) Each of the representations and warranties of the Placement Agent contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as if made on the Closing Date.
(b) Each Purchaser shall have delivered the applicable consideration for each of the shares of Common Stock to be purchased by it pursuant to the Purchase and Sale Agreement, such amount to be payable by wire transfer of immediately available funds to an account with a bank designated by the Placement Agent, by notice to each Purchaser to be provided no later than two Business Days prior to the Closing Date.
(a) Each of the representations and warranties of the Bank contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement
and as of the Closing Date as if made on the Closing Date (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date); the Bank shall have performed, in all material respects, each of its covenants and agreements contained in this Agreement to be performed prior to the Closing; and the Placement Agent and the Selling Shareholders shall have received a certificate signed by the Chief Executive Officer and the Chief Financial Officer of the Bank, dated the Closing Date, to the foregoing effect.
(b) Each of the representations and warranties of the Selling Shareholders contained in this Agreement shall be true and correct in all material respects as of the date of such agreement and as of the Closing Date as if made on the Closing Date (or on the date when made in the case of any representation or warranty which specifically relates to an earlier date); the Selling Shareholders shall have performed, in all material respects, each of their covenants and agreements contained in this Agreement to be performed prior to the Closing; and the Bank and the Placement Agent shall have received a certificate signed by the Selling Shareholders, dated the Closing Date, to the foregoing effect.
(c) Messrs. Wah, Chavy, Chow, Chu and Nursalim shall have resigned as directors of the Bank or shall have been removed by the Selling Shareholders and Messrs. Liu, Li, and Zapanta shall have been elected directors of the Bank.
(d) At the Closing Date, the Placement Agent and the Selling Shareholders shall have received the favorable opinion, dated as of the Closing Date, of Manatt Phelps Phillips LLP, counsel for the Bank, and the Placement Agent shall have received the favorable opinion, dated the Closing Date, of O'Melveny & Myers LLP, counsel for the Selling Shareholders, in each case, in form and substance reasonably satisfactory to counsel for the Placement Agent. Each counsel may state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Bank or the Selling Shareholders, as the case may be, and certificates of public officials.
(e) At the Closing Date, the Placement Agent shall have received an opinion from Deloitte & Touche LLP substantially to the effect that the sale of the shares of Common Stock as contemplated by this Agreement and the Related Agreements will be accounted for as a pooling of interests.
(f) At the Closing Date, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Private Offering Memorandum, any material adverse change in the financial condition, results of operations or business affairs of the Bank and the Bank Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Placement Agent and the Selling Shareholders shall have received a certificate of the President and Chief Executive Officer of the Bank and the chief financial or chief accounting officer of the Bank, dated as of Closing Date, to the effect that, except as Previously Disclosed, (i) there has been no such material adverse change, (ii) there shall have been no material transaction entered into by the
Bank from the latest date as of which the financial condition of the Bank
as set forth in the Private Offering Memorandum other than transactions
referred to or contemplated therein and transactions in the ordinary cause
of business, and (iii) the Bank shall not have received from the FDIC or
the Department any direction (oral or written) to make any material change
in the method of conducting its business with which it has not complied
(which direction, if any, shall have been disclosed to the Placement Agent)
or which materially and adversely would affect the business, financial
condition or results of operations of the Bank.
(g) As of the Closing Date, the Placement Agent and the Selling Shareholders shall have received from Deloitte & Touche LLP a letter dated such date, in form and substance satisfactory to the Placement Agent, to the effect that (i) they are independent public accountants with respect to the Bank within the meaning of the Code of Ethics of the AICPA and the Securities Act; (ii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that (A) as of a date not more than five days prior to the Closing Date, except as stated in such letter, there has been any change in the Bank's capital stock, any decrease in consolidated total assets, total deposits or stockholders' equity or increases in nonperforming assets of the Bank, in each case, as compared with the amounts shown in the Bank Financial Statements included in the Private Offering Memorandum or, (B) during the period from March 31, 1998 to a date not more than five days prior to the Closing Date, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated, net interest income or net income of the Bank, except in all instances for increases or decreases which the Private Offering Memorandum disclose have occurred or may occur; and (iii) in addition to the examination referred to in their opinion and the limited procedures referred to in clause (ii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Private Offering Memorandum and which are specified by the Placement Agent, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Bank identified in such letter.
(h) The Placement Agent and the Selling Shareholders shall have received such other certificates, opinions, documents and instruments related to the transactions contemplated hereby as may have been reasonably required by the Placement Agent and are customary for transactions of this type, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to it and its counsel.
ARTICLE V
COVENANTS
supplement the Private Offering Memorandum in order to make the Private Offering Memorandum not misleading in the light of the circumstances existing at the time it is delivered to a Purchaser, the Bank will forthwith amend or supplement the Private Offering Memorandum (in form and substance satisfactory to counsel for the Placement Agent) so that, as so amended or supplemented, the Private Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a Purchaser, not misleading, and the Bank will furnish to the Placement Agent a reasonable number of copies of such amendment or supplement. For the purpose of this subsection, the Bank will furnish such information with respect to itself as the Placement Agent may from time to time reasonably request.
Bank (an "Acquisition Transaction"), other than as contemplated by this Agreement, or (ii) solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, an Acquisition Transaction; provided, however, that with respect to this Section 5.5(ii), the Selling Shareholders and the Bank may continue discussions concerning an Acquisition Transaction with Development Bank of Singapore. Other than as set forth herein, the Selling Shareholders and/or the Bank will immediately notify the Placement Agent orally and in writing if any such inquiries or proposals are received by, and such information is required from, or any such negotiations or discussions are sought to be initiated with, the Bank.
ARTICLE VI
INDEMNIFICATION
(i) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, related to or arising out of the offer, purchase and sale of the Common Stock or any action taken by the Placement
Agent where acting as described in Article II hereof, except to the extent that any loss, liability, claim, damage or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from the Placement Agent's gross negligence or willful misconduct, and except to the extent that any loss, liability, claim, damage or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from the actions or conduct of the Selling Shareholders or any person other than the Bank involved in the Transaction;
(ii) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, based upon or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Private Offering Memorandum with respect to the Bank (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided, however, that the Bank shall not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Private Offering Memorandum (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished by the Selling Shareholders or the Placement Agent expressly for use therein;
(iii) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation involving or affecting the Bank, or any investigation or proceeding by any governmental agency or body, commenced or threatened involving or affecting the Bank, or of any claim whatsoever described in clauses (i) or (ii) above, if such settlement is effected with the written consent of the Bank, which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as
incurred (including, subject to Section 6.2 hereof, the fees and
disbursements of counsel chosen by the Placement Agent),
reasonably incurred in investigating, preparing for or defending
against any litigation, or any investigation, proceeding or
inquiry by any governmental agency or body, commenced or
threatened, or any claim whatsoever described in clauses (i) or
(ii) above, to the extent that any such expense is not paid under
(i), (ii) or (iii) above whether or not the purchase and sale of
the shares of Common Stock is consummated;
(v) In addition to, and without limiting, the provisions of
Section 6.1 hereof, in the event that the Placement Agent, any
person, if any, who controls the Placement Agent within the
meaning of Section 15 of the Securities Act or Section 20 of the
Securities Act or any of its partners, directors, officers,
employees and agents is requested or required to appear as a
witness or otherwise gives testimony in any action, proceeding,
investigation or inquiry involving or affecting the Bank, which
is brought by or on behalf of or against the Bank, the Placement
Agent or any of their respective affiliates in which the
Placement Agent or such person or agent is not named as a
defendant, the Bank agrees to reimburse the Placement Agent for
all reasonable and necessary out-of-pocket expenses incurred by
it in connection with preparing or appearing as a witness or
otherwise giving testimony.
Notwithstanding the foregoing, the indemnification provided for in Section
6.1(i) above shall not apply to the Bank to the extent that any loss, liability,
claim, damage or expense thereunder is found in a final judgment by a court of
competent jurisdiction to have resulted from the actions or conduct of any
person other than the Bank and such indemnification is found in a final judgment
by a court of competent jurisdiction to constitute a covered transaction under
Section 23A of the Federal Reserve Act or an unsafe or unsound banking practice.
To the extent that the Bank determines that it is in the best interests of the Bank to reorganize into the holding company form of organization, the Bank shall cause the holding company so formed to assume and agree to be bound by the terms of this Section 6.1, which shall constitute a joint and several obligation of the Bank and such holding company.
or supplement thereto) in reliance upon and in conformity with written information furnished to the Bank by or through the Placement Agent expressly for use therein.
(i) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, related to or arising out of the breach by the Selling Shareholders of their representations, warranties or covenants set forth in this Agreement or the Purchase and Sale Agreement;
(ii) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, based upon or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Private Offering Memorandum with respect to information furnished by the Selling Shareholders expressly for use therein (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided, however, that the Selling Shareholders shall not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Private Offering Memorandum (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished by the Bank or written information furnished by the Placement Agent expressly for use therein;
(iii) from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation involving or affecting the Selling Shareholders, or any investigation or proceeding by any governmental agency or body, commenced or threatened, involving or affecting the Selling Shareholders, or of any claim whatsoever described in clauses (i) or (ii) above, if such settlement is effected with the written consent of the Selling Shareholders which consent shall not be unreasonable withheld;
(iv) from and against any and all expense whatsoever, as incurred (including, subject to Section 6.2 hereof, the fees and disbursements of counsel chosen by the Placement Agent), reasonably incurred in investigating, preparing for or defending against any litigation, or any
investigation, proceeding or inquiry by any governmental agency or body, commenced or threatened, or any claim whatsoever described in clauses (i) or (ii) above, to the extent that any such expense is not paid under (i), (ii) or (iii) above whether or not the purchase and sale of the shares of Common Stock is consummated; and
(v) In addition to, and without limiting, the provisions of
Section 6.3 hereof, in the event that the Placement Agent, any
person, if any, who controls the Placement Agent within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or any of its partners, directors, officers,
employees and agents is requested or required to appear as a
witness or otherwise gives testimony in any action, proceeding,
investigation or inquiry involving or affecting the Selling
Shareholders, which is brought by or on behalf of or against the
Selling Shareholders, the Placement Agent or any of their
respective affiliates in which the Placement Agent or such person
or agent is not named as a defendant, the Selling Shareholders
agree to reimburse the Placement Agent for all reasonable and
necessary out-of-pocket expenses incurred by it in connection
with preparing or appearing as a witness or otherwise giving
testimony.
ARTICLE VII
CONTRIBUTION
fault of the Selling Shareholders and the Bank on the one hand and the Placement
Agent on the other, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Bank or the Selling Stockholders on the one hand or the Placement Agent on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Article VII,
each person, if any, who controls the Placement Agent within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Placement Agent, and each director of the
Bank shall have the same rights to contribution as the Bank. Notwithstanding
anything to the contrary set forth herein, to the extent permitted by applicable
law, in no event shall the Placement Agent be required to contribute an
aggregate amount in excess of the total fees received by the Placement Agent
pursuant to this Agreement (before deducting expenses), and in no event shall
the Selling Shareholders be required to contribute an amount in excess of the
gross proceeds received by them pursuant to the Purchase and Sale Agreement and
this Agreement.
Notwithstanding the foregoing, the contribution provided for in this Article VII shall not apply to the Bank to the extent that such contribution by the Bank is found in a final judgment by a court of competent jurisdiction to constitute a covered transaction under Section 23A of the Federal Reserve Act.
To the extent that the Bank determines that it is in the best interests of the Bank to reorganize into the holding company form of organization, the Bank shall cause the holding company so formed to assume and agree to be bound by the terms of this Article VII, which shall constitute a joint and several obligation of the Bank and such holding company.
jurisdiction to constitute a covered transaction under Section 23A of the Federal Reserve Act or an unsafe or unsound banking practice.
ARTICLE VIII
MISCELLANEOUS
(a) The Placement Agent may terminate this Agreement at any time at or
prior to the Closing Date (i) if there has been, since the date of this
Agreement or since the respective dates as of which information is given in the
Private Offering Memorandum, any material adverse change in the financial
condition, results of operations or business affairs of the Bank, or the Bank
and the Bank Subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, (ii) if there has occurred any material
adverse change in the financial markets in the United States or any outbreak of
hostilities or escalation thereof or other calamity or crisis the effect of
which, in the reasonable judgment of the Placement Agent, are so material and
adverse as to make it impracticable to market the shares of Common Stock or to
enforce contracts for the sale of the shares of Common Stock, (iii) if trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by either of said
exchanges or by order of the Commission or any other governmental authority, or
if a banking moratorium has been declared by either Federal or California
authorities, (iv) if any of the conditions specified in Article V shall not have
been met or waived by it pursuant to the terms of this Agreement by 5:00 p.m.
Eastern Time on June 14, 1998, or (v) if there shall have been such material
adverse change in the condition or prospects of the Bank and the Bank
Subsidiaries considered as one enterprise or the prospective market for the
Bank's securities as in the Placement Agent's good faith opinion would make it
inadvisable to proceed with the offering, sale or delivery of the shares of
Common Stock. The Placement Agent shall provide the Bank and the Selling
Shareholders with 5 days prior written notice of termination pursuant to this
Section 8.2(a).
(b) The Selling Shareholders may terminate this Agreement if any of the conditions specified in Article V has not been met or waived by it pursuant to the terms of this Agreement by 5:00 p.m., Eastern Time on June 14, 1998, provided that the Selling Shareholders provide 5 days prior written notice at any time after June 14, 1998. The termination date provided in this Section 8.2(b) shall be extended for an additional period of time which is equivalent to that period during
which the transaction contemplated by this Agreement and the Purchase and Sale Agreement is delayed due to (a) delays caused by the Selling Shareholders or (b) delays at the request of the Selling Shareholders. The Selling Shareholders shall provide the Placement Agent and the Bank with 5 days prior written notice of termination pursuant to this Section 8.2(b).
(c) The Bank may terminate this Agreement if any of the conditions specified in Article V of this Agreement has not been met or waived by it pursuant to the terms of this Agreement by 5:00 p.m., Eastern Time on June 14, 1998. The termination date provided in this Section 8.2(c) shall be extended for an additional period of time which is equivalent to that period during which the transaction contemplated by this Agreement and the Purchase and Sale Agreement is delayed due to (a) delays caused by the Selling Shareholders or (b) delays at the request of the Selling Shareholders. The Bank shall provide the Placement Agent and the Selling Shareholders with 5 days prior written notice of any termination pursuant to this Section 8.2(c) hereof.
(d) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except that the provisions of Articles VI and VII hereof shall survive any termination of this Agreement.
(i) if to the Selling Shareholders, to Jean-Pierre Chavy, Seyen Investments, Inc., 800 West Sixth Street, Suite 700, Los Angeles, California 90017 and to Barrye L. Wall, 1444 S. Marengo Avenue, Pasadena, California 91106, and thereafter at such other address notice of which is given in accordance with this Section 8.4;
(ii) if to the Bank, initially at 415 Huntington Drive, San Marino, California 91108, Attention: President; and thereafter at such other address, notice of which is given in accordance with this Section 8.4.; and
(iii) if to the Placement Agent, initially at 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention: Eugene S. Weil; and thereafter at such other address notice of which is given in accordance with this Section 8.4.
All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being sent by certified mail, return receipt requested, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery.
affect the construction of this Agreement. Use of a particular gender herein shall be considered to represent the masculine, feminine or neuter gender whenever appropriate.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
EAST-WEST BANK
By: /s/ Dominic Ng
--------------
Name: Dominic Ng
Title: President and Chief Executive
Officer
|
THE SELLING SHAREHOLDERS
SJAMSUL NURSALIM
By: /s/ Jean-Pierre Chavy
---------------------
Name: Jean-Pierre Chavy
Title: Attorney-in-fact
By: /s/ Barrye L. Wall
------------------
Name: Barrye L. Wall
Title: Attorney-in-fact
|
ITJIH SJAMSUL NURSALIM
By: /s/ Jean-Pierre Chavy
---------------------
Name: Jean-Pierre Chavy
Title: Attorney-in-fact
By: /s/ Barrye L. Wall
------------------
Name: Barrye L. Wall
Title: Attorney-in-fact
|
CONFIRMED AND ACCEPTED,
as of the date first above written:
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/
-----------------------------
Name:
Title:
|
East-West Bank (California)
East West Merger Co., Inc. (California)
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of this Registration Statement of East West Bancorp, Inc. on Form S-4 of our report dated January 30, 1998 appearing in the Written Consent Statement/Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Written Consent Statement/Prospectus.
/s/ Deloitte & Touche LLP Los Angeles, California September 17, 1998 |
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANK'S BALANCE SHEET AS OF JUNE 30, 1998, AND STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 21,582 |
| INT BEARING DEPOSITS | 0 |
| FED FUNDS SOLD | 223,453 |
| TRADING ASSETS | 0 |
| INVESTMENTS HELD FOR SALE | 508,353 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 969,394 |
| ALLOWANCE | 14,213 |
| TOTAL ASSETS | 1,808,713 |
| DEPOSITS | 1,239,280 |
| SHORT TERM | 155,953 |
| LIABILITIES OTHER | 16,255 |
| LONG TERM | 257,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 23,775 |
| OTHER SE | 116,450 |
| TOTAL LIABILITIES AND EQUITY | 1,808,713 |
| INTEREST LOAN | 41,139 |
| INTEREST INVEST | 10,610 |
| INTEREST OTHER | 7,248 |
| INTEREST TOTAL | 58,997 |
| INTEREST DEPOSIT | 25,065 |
| INTEREST EXPENSE | 33,346 |
| INTEREST INCOME NET | 25,651 |
| LOAN LOSSES | 3,325 |
| SECURITIES GAINS | 408 |
| EXPENSE OTHER | 15,994 |
| INCOME PRETAX | 10,609 |
| INCOME PRE EXTRAORDINARY | 6,845 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 6,845 |
| EPS PRIMARY | 0.29 |
| EPS DILUTED | 0.29 |
| YIELD ACTUAL | 8.42 |
| LOANS NON | 4,378 |
| LOANS PAST | 0 |
| LOANS TROUBLED | 6,279 |
| LOANS PROBLEM | 1,541 |
| ALLOWANCE OPEN | 12,273 |
| CHARGE OFFS | 2,162 |
| RECOVERIES | 777 |
| ALLOWANCE CLOSE | 14,213 |
| ALLOWANCE DOMESTIC | 14,213 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 1,620 |