<PAGE>
As filed with the Securities and Exchange Commission on July 28, 1997
Registration No. 333-25715
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________________________________
FIRSTPLUS FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 6141 75-2561085
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification No.)
1600 VICEROY, 8TH FLOOR
DALLAS, TEXAS 75235
(214) 599-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RONALD M BENDALIN
GENERAL COUNSEL
1600 VICEROY, 8TH FLOOR
DALLAS, TEXAS 75235
(214) 599-6400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
RONALD J. FRAPPIER KEITH T. HOLMES
JENKENS & GILCHRIST, KING, PURTICH, HOLMES,
A PROFESSIONAL CORPORATION PATERNO & BERLINER
1445 ROSS AVENUE, SUITE 3200 2121 AVENUE OF THE STARS, 22ND FLOOR
DALLAS, TEXAS 75202 LOS ANGELES, CALIFORNIA 90067
(214) 855-4500 (310) 282-8932
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger of Western
Interstate Acquisition, Inc. ("WIA") with and into Western Interstate Bancorp
("WIB") pursuant to the Agreement and Plan of Merger dated February 19, 1997,
as amended, among the Registrant, WIA and WIB, described in the enclosed Proxy
Statement/Prospectus.
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. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box [ ].
_____________________
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
<PAGE>
WESTERN INTERSTATE BANCORP
18302 IRVINE BOULEVARD
SUITE 300
TUSTIN, CALIFORNIA 92780
July 28, 1997
TO THE SHAREHOLDERS OF
WESTERN INTERSTATE BANCORP:
You are cordially invited to attend a Special Meeting of Shareholders (the
"WIB Meeting") of Western Interstate Bancorp ("WIB") to be held on August 27,
1997 at 12:00 noon (Tustin, California time) at the offices of Citizens Thrift
& Loan Association, 18302 Irvine Boulevard, Suite 300, Tustin, California
92780.
At the WIB Meeting, you will be asked to consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of February 19, 1997, as amended, by and among WIB, FIRSTPLUS
Financial Group, Inc., formerly known as RAC Financial Group, Inc. ("FPFG"),
and Western Interstate Acquisition, Inc. ("WIA"), a direct wholly owned
subsidiary of FPFG, pursuant to which WIA will be merged with and into WIB,
with WIB becoming a direct wholly owned subsidiary of FPFG (the "Merger"). A
copy of the Merger Agreement is attached to the accompanying Proxy
Statement/Prospectus as Appendix A.
At the effective time of the Merger (the "Effective Time"), each share of
common stock, no par value, of WIB (the "WIB Common Shares"), other than
shares held by WIB dissenting shareholders, will be converted into the right
to receive such fraction of a share of voting common stock, $.01 par value, of
FPFG (the "FPFG Common Stock") as is equal to (i) the "FPFG Share Number"
divided by (ii)(A) the number of WIB Common Shares outstanding as of the
Effective Time plus (B) the number of WIB Common Shares issuable upon exercise
of all outstanding stock options of WIB as of the Effective Time (the
"Conversion Ratio"). No scrip or fractional shares of FPFG Common Stock will
be issued in the Merger, but rather the total number of shares to be received
by each WIB shareholder will be rounded up to the next whole number of shares.
The term "FPFG Share Number" means the number determined by dividing (i)
$24,862,674 by (ii) the average closing price per share of the FPFG Common
Stock on the Nasdaq National Market for the ten trading days prior to the date
that is two calendar days prior to closing (the "Closing") of the Merger (the
"FMV of the FPFG Common Stock"). The Merger Agreement contains a $30.60 to
$37.40 collar mechanism based upon the FMV of the FPFG Common Stock. Under
this collar mechanism, if the FMV of the FPFG Common Stock falls between
$30.60 and $37.40, then the actual FMV of the FPFG Common Stock shall be used,
if the FMV of the FPFG Common Stock exceeds $37.40, then $37.40 shall be the
FMV of the FPFG Common Stock, and if the FMV of the FPFG Common Stock falls
below $30.60, then $30.60 shall be the FMV of the FPFG Common Stock.
As of July 23, 1997, the closing price of the FPFG Common Stock on the
Nasdaq National Market was $41.00 per share, there were 1,211,156 WIB Common
Shares outstanding and there were stock options outstanding exercisable for
197,136 WIB Common Shares. WIB does not anticipate issuing any additional WIB
Common Shares or any additional stock options exercisable for WIB Common
Shares prior to the Effective Time.
Enclosed are a Notice of Special Meeting of Shareholders and a Proxy
Statement/Prospectus which describes the Merger and the background to the
transaction. You are urged to read all of these materials carefully. The
Board of Directors of WIB has fixed the close of business on July 10, 1997 as
the record date for the WIB Meeting. Accordingly, only shareholders of record
on that date will be entitled to notice of, and to vote at, the WIB Meeting or
any adjournments or postponements thereof. The affirmative vote of the
holders of a majority of the WIB Common Shares outstanding and entitled to
vote is necessary to approve and adopt the Merger Agreement.
THE BOARD OF DIRECTORS OF WIB HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
BECAUSE OF THE SIGNIFICANCE OF THE PROPOSED MERGER TO WIB, YOUR
PARTICIPATION IN THE WIB MEETING, IN PERSON OR BY PROXY, IS ESPECIALLY
IMPORTANT. AN ABSTENTION OR FAILURE TO VOTE AT THE WIB MEETING OR FAILURE TO
SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER
AGREEMENT. ACCORDINGLY, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY IN THE POSTAGE-PAID ENVELOPE THAT HAS BEEN PROVIDED TO YOU FOR YOUR
CONVENIENCE. IF YOU ATTEND THE WIB MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
The Board and I urge you to vote "FOR" the Merger Agreement and each of
the transactions contemplated thereby.
Thank you, and we look forward to seeing you at the meeting.
Sincerely,
James T. Capretz
Chairman of the Board
Tustin, California
July 28, 1997
<PAGE>
WESTERN INTERSTATE BANCORP
18302 IRVINE BOULEVARD
SUITE 300
TUSTIN, CALIFORNIA 92780
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 27, 1997
TO THE SHAREHOLDERS OF
WESTERN INTERSTATE BANCORP:
You are cordially invited to attend a Special Meeting of Shareholders (the
"WIB Meeting") of Western Interstate Bancorp ("WIB") to be held at the offices
of Citizens Thrift & Loan Association, 18302 Irvine Boulevard, Tustin,
California 92780, at 12:00 noon (Tustin, California time) on August 27, 1997,
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of February 19,
1997, as amended, by and among WIB, FIRSTPLUS Financial Group, Inc.,
a Nevada corporation that was formerly named RAC Financial Group,
Inc. ("FPFG"), and Western Interstate Acquisition, Inc., a Nevada
corporation and a direct wholly owned subsidiary of FPFG ("WIA"),
pursuant to which WIA will be merged with and into WIB, with WIB
becoming a direct wholly owned subsidiary of FPFG, upon the terms
and subject to the conditions set forth in the Merger Agreement, as
more fully described in the accompanying Proxy Statement/Prospectus.
A copy of the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
2. To consider and vote on a proposal to give authority to the proxies
named in the form of proxy accompanying the Proxy
Statement/Prospectus to adjourn the WIB Meeting in order to permit
further solicitation of proxies.
3. To transact such other business as may properly be brought before
the WIB Meeting or any adjournment(s) thereof.
Holders of record of shares of WIB common stock, no par value per share
("WIB Common Shares"), at the close of business on July 10, 1997 (the "Record
Date") will be entitled to notice of, and to vote at, the meeting or any
adjournment(s) thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
By order of the Board of Directors,
Dr. James E. Rich,
Secretary
Tustin, California
July 28, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE WIB MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE WIB MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 28, 1997
WESTERN INTERSTATE BANCORP
PROXY STATEMENT
For a Special Meeting of Shareholders
_________________________
FIRSTPLUS FINANCIAL GROUP, INC.
PROSPECTUS
for
Shares of Common Stock
This Proxy Statement/Prospectus is being furnished to holders of the
shares of common stock, no par value per share ("WIB Common Shares"), of
Western Interstate Bancorp, a California corporation ("WIB"), in connection
with the solicitation of proxies by WIB's Board of Directors (the "WIB Board")
for use at the Special Meeting of Shareholders of WIB (the "WIB Meeting") to
be held on August 21, 1997, at the offices of Citizens Thrift & Loan
Association ("Citizens"), 18302 Irvine Boulevard, Tustin, California 92780, at
12:00 noon (Tustin, California time) and any adjournments thereof.
The shareholders of WIB will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of February 19, 1997, as amended, providing for the merger (the
"Merger") of Western Interstate Acquisition, Inc. ("WIA"), a Nevada
corporation and a wholly owned subsidiary of FIRSTPLUS Financial Group, Inc.,
a Nevada corporation that was formerly named RAC Financial Group, Inc.
("FPFG"), with and into WIB, with WIB continuing as the surviving corporation
(the "Surviving Corporation") and becoming a wholly owned subsidiary of FPFG.
This Proxy Statement/Prospectus also constitutes a prospectus of FPFG
included as part of a registration statement on Form S-4 (No. 333-25715) filed
with the Securities and Exchange Commission (the "Commission") with respect to
the shares of voting common stock, par value $.01 per share, of FPFG ("FPFG
Common Stock") to be issued to shareholders of WIB pursuant to the terms of
the Merger Agreement, as more fully described in this Proxy
Statement/Prospectus and the Merger Agreement. The Merger Agreement is
attached hereto as Appendix A. Under the terms of the Merger Agreement, (i)
WIA will be merged with and into WIB, (ii) WIB will become a direct wholly
owned subsidiary of FPFG, and (iii) each outstanding WIB Common Share, other
than shares held by dissenting shareholders of WIB, will be converted into the
right to receive such fraction of a share of FPFG Common Stock as is equal to
(A) the "FPFG Share Number" divided by (B) the number of WIB Common Shares
outstanding as of the Effective Time plus the number of WIB Common Shares
issuable upon exercise of all outstanding stock options of WIB as of the
Effective Time (the "Conversion Ratio").
No scrip or fractional shares of FPFG Common Stock will be issued in the
Merger, but rather the total number of shares to be received by each WIB
shareholder will be rounded up to the next whole number of Shares. The shares
of FPFG Common Stock to be issued to WIB shareholders in connection with the
Merger are referred to herein sometimes as the "Merger Consideration."
The term "FPFG Share Number" means the number determined by dividing (i)
$24,862,674 by (ii) the average closing price per share of the FPFG Common
Stock on the Nasdaq National Market for the ten trading days prior to the date
that is two calendar days prior to closing (the "Closing" and the date of such
Closing being referred to herein as the "Closing Date") of the Merger (such
average being referred to herein as the "FMV of the FPFG Common Stock"). The
Merger Agreement contains a $30.60 to $37.40 collar mechanism based upon the
FMV of the FPFG Common Stock. Under this collar mechanism, if the FMV of the
FPFG Common Stock falls between $30.60 and $37.40, then the actual FMV of the
FPFG Common Stock shall be used, if the FMV of the FPFG Common Stock exceeds
$37.40, then $37.40 shall be the FMV of the FPFG Common Stock, and if the FMV
of the FPFG Common Stock falls below $30.60, then $30.60 shall be the FMV of
the FPFG Common Stock. This collar mechanism means that the highest the FPFG
Share Number can be is 812,506 and the lowest it can be is 664,777.
Accordingly, the highest the Conversion Ratio can be is .5769 and the lowest
the Conversion Ratio can be is .4720 and the greatest number of shares of FPFG
Common Stock that will be issued in the Merger is 698,755 shares and the
fewest number of shares of FPFG Common Stock that will be issued in the Merger
is 571,666.
Had the Closing occurred on July 23, 1997, the FPFG Share Number would
have been 683,158, which equals (i) $24,862,674 divided by (ii) the average of
the closing prices for the FPFG Common Stock on the Nasdaq National Market for
July 7 through July 18, 1997. As of July 23, 1997, there were 1,211,156 WIB
Common Shares outstanding and stock options outstanding exercisable for
197,136 WIB Common Shares. Therefore, assuming no holders of WIB Common
Shares exercise dissenter's rights, the Conversion Ratio would have been .4851
had the Closing occurred on July 23, 1997. This Conversion Ratio makes the
pro forma equivalent per share value of each WIB Common Share approximately
$19.89 as of July 23, 1997. See "Summary--Market Price Data." WIB shareholders
are reminded, however, that they will not know with certainty at the time they
vote the number of shares of FPFG Common Stock they will receive in the Merger
and that the actual value of the Merger Consideration and the number of shares
of FPFG Common Stock that actually will be issued to WIB shareholders may
differ from the example above, given that the actual value and number of
shares to be issued will not be determined until two days prior to Closing.
<PAGE>
IN EVALUATING THE MERGER, WIB SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE
FACTORS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROXY
STATEMENT/PROSPECTUS.
FPFG Common Stock is traded on the Nasdaq National Market under the
symbol "FPFG." The closing sales price of shares of FPFG Common Stock was
$33.50 on February 19, 1997 (the last trading day prior to the public
announcement of the Merger) and $41.00 on July 23, 1997. There is no
established public market for WIB Common Shares.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER GOVERNMENTAL
AGENCY, OR OTHERWISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus, the foregoing Notice of Special Meeting
of Shareholders (the "Notice of Special Meeting") and the accompanying form of
proxy are first being mailed to the shareholders of WIB on or about July 30,
1997.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 28, 1997.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY FPFG, WIA, OR WIB. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY TO OR FROM ANY
PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION ABOUT FPFG, WIA, OR WIB CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
FPFG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed with the Commission are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such materials and
other information concerning FPFG can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
FPFG has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), a Registration Statement on Form S-4 (together
with all amendments, schedules and exhibits thereto, the "Registration
Statement") with respect to the shares of FPFG Common Stock issuable in
connection with the Merger. This Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement, including any amendments, schedules,
and exhibits thereto, is available for inspection and copying as set forth
above. Statements contained in this Proxy Statement/Prospectus as to the
contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Commission maintains a World Wide Web site that contains reports,
proxy and information statements, and other information filed electronically
with the Commission. The address of the site is http://www.sec.gov.
NOTE ON FORWARD-LOOKING INFORMATION
CERTAIN INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
CONSTITUTES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON
OR COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO
SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
(i)
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE FOLLOWING:
FIRSTPLUS Financial Group, Inc.
1600 Viceroy, 8th Floor
Dallas, Texas 75235
Attention: Ronald M Bendalin, Esq.
Phone: (214) 599-6400
Fax: (214) 599-7575
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN AUGUST 20, 1997. SUCH DOCUMENTS WILL BE SENT TO THE
REQUESTING PARTY BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY OF RECEIPT OF SUCH REQUEST.
The following FPFG documents are incorporated by reference herein:
(1) FPFG's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, filed with the Commission;
(2) FPFG's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997, each filed with the Commission;
(3) FPFG's Current Report on Form 8-K, dated December 19, 1996,
filed with the Commission; and
(4) Description of the FPFG Common Stock set forth in the
Registration Statement on Form 8-A, dated January 15, 1996, including any
amendment or report filed for the purpose of updating such description.
All documents filed with the Commission by FPFG pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus forms a part and prior to the date of the WIB Meeting are
incorporated herein by reference and such documents will be deemed to be a
part hereof from the date of filing of such documents. Any statement
contained in this Proxy Statement/Prospectus or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
(ii)
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY ................................................................ 1
The Parties ....................................................... 1
The Meeting; Vote Required ........................................ 2
Risk Factors ...................................................... 2
The Merger ........................................................ 2
Effective Time .................................................... 2
Conversion of Shares; Conversion Ratio ............................ 3
Stock Options ..................................................... 3
Recommendation of the Board of Directors of WIB ................... 3
Opinion of WIB's Financial Advisor ................................ 4
The Merger Agreement .............................................. 4
Conditions to the Merger; Termination of the Merger Agreement ..... 4
Fees, Expenses and Other Payments ................................. 4
Interests of Certain Persons in the Merger ........................ 4
Exchange of Stock Certificates .................................... 5
Fractional Shares ................................................. 5
Operations After the Merger ....................................... 5
Regulatory Matters ................................................ 5
Certain Federal Income Tax Consequences ........................... 6
Accounting Treatment .............................................. 6
Dissenters' Rights ................................................ 6
Market Price Data ................................................. 6
Selected Historical and Pro Forma Per Share Data .................. 7
Selected Consolidated Financial Data .............................. 8
RISK FACTORS ........................................................... 13
Liquidity and Capital Resources ................................... 13
Sensitivity to Interest Rates ..................................... 14
Credit Risk Associated with Borrowers ............................. 14
Credit Risk Associated with High LTV Loans ........................ 15
Excess Servicing Receivable Risks ................................. 15
Impact of Recent Accounting Pronouncements ........................ 16
Ability of FPFG to Continue Growth Strategy; Possible
Adverse Consequences From Recent Growth ...................... 16
Consolidation of Operations of Acquisitions ....................... 17
Concentration of Operations in California ......................... 17
Competition ....................................................... 18
Concentration of Correspondent Lenders ............................ 18
Limited Operating History ......................................... 18
Delinquencies; Right to Terminate Servicing; Negative
Impact on Cash Flow .......................................... 18
Dependence on Title I Program ..................................... 19
Impact of Regulation and Litigation ............................... 19
Concentration of Voting Control in Management ..................... 20
Dependence on Key Personnel ....................................... 20
Events of Default Under Certain Financing Facilities .............. 20
Effect of Certain Antitakeover Provisions ......................... 20
Securities Trading; Possible Volatility of Prices ................. 20
THE WIB MEETING ........................................................ 21
General ........................................................... 21
Purpose of the Meeting ............................................ 21
Voting Rights of WIB Shareholders ................................. 21
Solicitation and Revocation of Proxies; Quorum .................... 22
THE MERGER ............................................................. 23
General ........................................................... 23
(iii)
<PAGE>
Effective Time .................................................... 23
Conversion of Shares; Conversion Ratio ............................ 23
Background of and Reasons for the Merger .......................... 24
Recommendation of the WIB Board ................................... 26
Opinion of WIB's Financial Advisor ................................ 27
The Merger Agreement .............................................. 31
Interests of Certain Persons in the Merger ........................ 34
Exchange of Stock Certificates .................................... 37
Fractional Shares ................................................. 37
Management After the Merger ....................................... 37
Governmental and Regulatory Approvals ............................. 37
Certain Federal Income Tax Consequences ........................... 38
Accounting Treatment .............................................. 39
Consequences Under Federal Securities Laws ........................ 39
Resale of FPFG Common Stock ....................................... 40
Dissenting Shareholders' Rights ................................... 40
PRICE RANGES OF STOCK AND DIVIDEND POLICY .............................. 42
SELECTED FINANCIAL DATA OF WIB ......................................... 44
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION ........... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF WIB ...................................... 53
General ........................................................... 53
Financial Condition ............................................... 53
Results of Operations ............................................. 54
Asset/Liability Management ........................................ 57
Liquidity and Capital Resources ................................... 59
Impact of Inflation and Changing Prices ........................... 61
Effect of Recent Accounting Standards ............................. 61
BUSINESS OF WIB ........................................................ 63
General ........................................................... 63
Market Areas ...................................................... 63
Lending Activities ................................................ 63
Originations, Purchases, Sales and Servicing of Loans ............. 66
Non-Performing Assets and Classified Assets ....................... 67
Investment Activities ............................................. 71
Sources of Funds .................................................. 72
Competition ....................................................... 75
Supervision and Regulation ........................................ 75
MANAGEMENT OF WIB ...................................................... 76
Directors ......................................................... 76
Director Compensation ............................................. 76
Meetings and Committees of the WIB Board .......................... 77
Executive Officers of WIB ......................................... 77
Executive Compensation ............................................ 78
Certain Relationships and Related Party Transactions .............. 78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
WIB ............................................................... 79
COMPARISON OF SHAREHOLDER RIGHTS ....................................... 80
General ........................................................... 80
Shareholder Meetings .............................................. 80
Voting Rights ..................................................... 81
Amendments to Articles of Incorporation and Bylaws ................ 81
(iv)
<PAGE>
Certain Antitakeover Provisions ................................... 81
OTHER MATTERS .......................................................... 82
LEGAL AND TAX MATTERS .................................................. 82
EXPERTS ................................................................ 82
INDEX TO FINANCIAL STATEMENTS ......................................... F-1
APPENDIX A AGREEMENT AND PLAN OF MERGER, AS AMENDED
APPENDIX B OPINION OF CARPENTER & COMPANY
APPENDIX C CALIFORNIA CORPORATIONS CODE, CHAPTER 13
(v)
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT MATTERS DISCUSSED
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. SHAREHOLDERS ARE URGED TO
READ THIS ENTIRE PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO.
EXCEPT AS OTHERWISE NOTED HEREIN, ALL INFORMATION APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO
FPFG'S CAPITAL STOCK HAS BEEN ADJUSTED TO REFLECT SPLITS ON THE FPFG COMMON
STOCK OF 67-FOR-ONE AND TWO-FOR-ONE IN JULY 1995 AND NOVEMBER 1996,
RESPECTIVELY. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO FPFG'S
ORIGINATION OF STRATEGIC LOANS INCLUDES BULK PURCHASES OF LOANS ("BULK LOANS").
THE PARTIES
FPFG. FIRSTPLUS Financial Group, Inc. is a specialized consumer finance
company that originates, purchases, services and sells consumer finance
receivables, substantially all of which are debt consolidation or home
improvement loans secured primarily by second liens on real property. FPFG
offers uninsured home improvement and uninsured debt consolidation loans
("Conventional Loans") and to a lesser extent partially insured Title I home
improvement loans ("Title I Loans"). Title I Loans are insured, subject to
certain exceptions, for 90% of the principal balance and certain interest
costs under the Title I credit insurance program (the "Title I Program")
administered by the Department of Housing and Urban Development ("HUD") of
the Federal Housing Administration (the "FHA"). FPFG sells substantially all
of its Conventional Loans and Title I Loans that meet its securitization
parameters (collectively, FPFG's "strategic loans") primarily through its
securitization program and retains rights to service these loans.
FPFG relies principally on the creditworthiness of the borrower for
repayment of Conventional Loans. FPFG's borrowers typically have limited
access to consumer financing for a variety of reasons, primarily insufficient
home equity values. FPFG uses its own credit evaluation criteria to classify
its applicants as "A+" through "D" credits. FPFG currently makes loans only
to borrowers it classifies as "C+" or better for Conventional Loans and "C"
or better for Title I Loans. FPFG's credit evaluation criteria include, as a
significant component, the credit evaluation scoring methodology developed by
Fair, Isaac and Company ("FICO"), a consulting firm specializing in creating
default-predictive models through scoring mechanisms.
FPFG's principal origination channel is its network of regional
independent correspondent lenders. Correspondent lenders tend to be
commercial banks, thrifts or finance companies that do not have the
infrastructure to hold and service portfolios of Conventional and Title I
Loans. FPFG's correspondent lenders originate Conventional and Title I Loans
using FPFG's underwriting criteria and sell these loans to FPFG. During
fiscal 1995 and 1996 and the first six months of fiscal 1997, FPFG originated
loans through correspondent lenders ("Correspondent Loans") of $81.9
million, $1.0 billion and $1.3 billion, respectively, representing 68.5%,
93.9% and 85.1%, respectively, of FPFG's originations of strategic loans
during such periods (excluding Bulk Loans).
In early 1996, FPFG expanded its efforts to originate loans directly to
qualified homeowners ("Direct Loans"). FPFG originates Direct Loans through
television, radio and direct mail advertising campaigns and referrals from
independent home improvement contractors. FPFG is pursuing a strategy to
increase its Direct Loan originations because FPFG believes that Direct Loans
should prove to be more profitable and allow FPFG to have better control over
the quality and size of FPFG's production.
FPFG sells substantially all of the Conventional Loans and Title I Loans
it originates and purchases through its securitization program and generally
retains rights to service such loans. FPFG earns servicing fees on a monthly
basis ranging from 0.75% to 1.00% on the loans it services in the various
securitization pools. At March 31, 1997, the principal amount of strategic
loans serviced by the Company (the "Serviced Loan Portfolio") was $2.7
billion. The Serviced Loan Portfolio includes strategic loans held for sale
and strategic loans that have been securitized and are serviced by FPFG
(including $60.1 million of loans subserviced by a third party).
FPFG is a Nevada corporation that was formed in October 1994 to combine
the operations of SFA: State Financial Acceptance Corporation ("SFA"), a home
improvement lender formed in January 1990, and FIRSTPLUS Financial, Inc.,
formerly Remodelers National Funding Corporation ("FIRSTPLUS Financial"), an
approved Title I home improvement lender formed in April 1986 (the
"Combination"). FPFG's principal offices are located at 1600 Viceroy, 8th
Floor, Dallas, Texas 75235, and its telephone number is (214) 599-6400.
<PAGE>
WIB. WIB is a financial institution holding company organized in 1979
under the laws of the State of California for the primary purpose of holding
all of the outstanding shares of Citizens Thrift & Loan Association, a
California industrial loan company ("Citizens"). WIB's only significant
asset is the capital stock of Citizens. WIB also owns Citizens Group, Inc.,
which acts as a trustee on deeds of trust securing Citizens' real estate
loans. Citizens is a California licensed industrial loan company that
commenced business in 1980 and is supervised and regulated by the California
Department of Corporations ("DOC") and the Federal Deposit Insurance
Corporation ("FDIC"). The deposits of Citizens are insured by the FDIC up to
applicable limits. Citizens services its customers through five full service
branch offices located in the California cities of Anaheim Hills, Citrus
Heights, Concord, Irvine, and San Clemente. It also operates additional loan
production offices in Tustin, California, Las Vegas, Nevada, Phoenix,
Arizona, Kansas City, Missouri and Seattle, Washington.
In recent years, Citizens has focused its lending activities primarily
in the origination for sale of junior lien loans secured by one- to
four-family residential homes located in its market areas. Although Citizens
has originated commercial and multi-family real estate loans in its market
area, continued originations of such loans is expected to be limited. In
December 1996, Citizens sold substantially all of its commercial loan
portfolio of $9.7 million. Citizens offers "thrift" deposit accounts having a
wide range of interest rates and terms, which consist of passbook accounts
and term certificates of deposit. Citizens does not offer traditional banking
services, such as checking accounts or safe deposit boxes.
The executive offices of both WIB and Citizens are located at 18302
Irvine Boulevard, Suite 300, Tustin, California 92780, and its telephone
number at that address is (714) 573-7500.
WIA. WIA is a Nevada corporation and a wholly owned subsidiary of FPFG
organized solely for the purpose of facilitating the Merger. Upon
consummation of the Merger and the transactions associated therewith, WIA
will merge with WIB and WIB will continue as the Surviving Corporation and a
wholly owned subsidiary of FPFG. The mailing address of WIA's principal
executive offices is 1600 Viceroy, 8th Floor, Dallas, Texas 75235, and its
telephone number is (214) 630-6006.
THE MEETING; VOTE REQUIRED
The WIB Meeting will be held on August 27, 1997 at 12:00 noon (Tustin,
California time) at the offices of Citizens, 18302 Irvine Boulevard, Tustin,
California. At the WIB Meeting, shareholders of WIB will be asked to
consider and vote upon a proposal to approve the Merger Agreement. The
affirmative vote of a majority of the outstanding WIB Common Shares entitled
to vote is required to approve the Merger Agreement. Holders of record of
WIB Common Shares as of the close of business on July 10, 1997 will be
entitled to cast one vote for each WIB Common Share held as of such date. At
such date, there were 1,211,156 WIB Common Shares outstanding and entitled to
vote. THE WIB BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE MERGER AGREEMENT.
As of July 23, 1997, the directors of WIB, the executive officers of WIB
and their affiliates, in the aggregate, held or had the right to vote 386,688
WIB Common Shares or approximately 31.9% of the outstanding WIB Common
Shares. Such persons have indicated to WIB that they presently intend to
vote in favor of the Merger Agreement.
RISK FACTORS
WIB shareholders should carefully consider certain risk factors in
evaluating the Merger. See "Risk Factors."
THE MERGER
Shareholders of WIB will vote on the Merger Agreement. No approval of
the stockholders of FPFG is required to consummate the Merger. Upon
consummation of the Merger, WIA will merge with and into WIB, with WIB
becoming a direct wholly owned subsidiary of FPFG. WIB will continue its
corporate existence under the laws of the State of California. See "The
Merger."
EFFECTIVE TIME
Following the satisfaction or waiver of all conditions contained in the
Merger Agreement, the Merger will be consummated on the date and time of
filing of a Certificate of Approval of Merger with the Secretary of State of
the State of California and Articles of Merger with the Secretary of State of
the State of Nevada (the "Effective Time"). See "The Merger-Effective Time."
2
<PAGE>
CONVERSION OF SHARES; CONVERSION RATIO
Pursuant to the provisions of the Merger Agreement, each issued and
outstanding WIB Common Share, other than shares held by dissenting
shareholders of WIB, will be converted into the right to receive such
fraction of a share of FPFG Common Stock as is equal to (i) the FPFG Share
Number divided by (ii) the number of WIB Common Shares outstanding as of the
Effective Time plus the number of WIB Common Shares issuable upon exercise of
all outstanding stock options of WIB as of the Effective Time (the "Existing
Stock Rights"). No scrip or fractional shares of FPFG Common Stock will be
issued in the Merger, but rather the total number of shares to be received by
each WIB Shareholder will be rounded up to the next whole number of shares.
The Merger Agreement contains a $30.60 to $37.40 collar mechanism based
upon the FMV of the FPFG Common Stock. Under this collar mechanism, if the
FMV of the FPFG Common Stock falls between $30.60 and $37.40, then the actual
FMV of the FPFG Common Stock shall be used, if the FMV of the FPFG Common
Stock exceeds $37.40, then $37.40 shall be the FMV of the FPFG Common Stock,
and if the FMV of the FPFG Common Stock falls below $30.60, then $30.60 shall
be the FMV of the FPFG Common Stock.
Set forth below is a table that provides certain information with
respect to the formula determining the Merger Consideration, assuming no
shareholders of WIB dissent to the Merger. FPFG believes the prices
specified under "Assumed FMV of FPFG Common Stock on the Closing Date"
represent a reasonable range of prices that WIB shareholders might anticipate
for the FMV of FPFG Common Stock as of the Closing Date, particularly given
the collar mechanism described above. See "Risk Factors-Securities Trading;
Possible Volatility of Prices."
ASSUMED TOTAL NUMBER OF
FMV OF FPFG FPFG SHARES OF FPFG
COMMON STOCK SHARE CONVERSION COMMON STOCK
ON CLOSING DATE NUMBER RATIO ISSUED(3)
--------------- ------ ---------- ---------------
$30.60(1) 812,506 .5769 698,755
34.00 731,255 .5192 628,879
37.40(2) 664,777 .4720 571,708
- --------------------
(1) Lowest possible FMV of FPFG Common Stock given the collar mechanism.
(2) Highest possible FMV of FPFG Common Stock given the collar mechanism.
(3) Assumes no dissenting shareholders.
STOCK OPTIONS
The Merger Agreement provides that from and after the Effective Time
each outstanding Existing Stock Right will be converted into the right to
purchase (each a "New Option") the number of shares of FPFG Common Stock
equal to the product (rounded up to the next whole share) of (i) the number
of WIB Common Shares covered by such Existing Stock Right immediately prior
to the Effective Time multiplied by (ii) the Conversion Ratio. See "The
Merger-Conversion of Shares; Conversion Ratio." The exercise price per share
of such New Options shall be equal to the quotient obtained by dividing (i)
the per share exercise price for the WIB Common Shares subject to such
Existing Stock Right immediately prior to the Effective Time by (ii) the
Conversion Ratio. As of July 23, 1997, options to purchase 197,136 WIB
Common Shares were outstanding, which were "in-the-money" (i.e., the amount
by which the value of the WIB Common Stock exceeds the exercise price) by an
aggregate of approximately $2,901,314.
3
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS OF WIB
The WIB Board has unanimously approved the Merger Agreement. The WIB
Board has also determined that the terms of the proposed Merger are fair to
and in the best interests of WIB's shareholders and unanimously recommends
that WIB's shareholders vote "for" the Merger Agreement. See "The Merger-
Background of and Reasons for the Merger."
OPINION OF WIB'S FINANCIAL ADVISOR
Seapower Carpenter Capital, Inc., d/b/a Carpenter & Company
("Carpenter"), has rendered its opinion to the WIB Board that the
consideration to be received by WIB shareholders pursuant to the Merger is
fair to the WIB shareholders from a financial point of view. See "The
Merger-Opinion of WIB's Financial Advisor" and Appendix B.
THE MERGER AGREEMENT
The Merger Agreement sets forth the principal terms by which the Merger
will be consummated, and the rights of holders of WIB Common Shares to
receive FPFG Common Stock pursuant to the Merger. The Merger Agreement
contains representations, warranties and agreements of the parties, and
provides specific conditions to the consummation of the Merger and terms
under which the Merger may be terminated or abandoned. See "The Merger-The
Merger Agreement."
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT
Consummation of the Merger is subject to certain conditions, including
(i) the approval of the Merger Agreement by the affirmative vote of the
holders of a majority of the WIB Common Shares entitled to vote thereon; (ii)
the effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus forms a part; (iii) approval of the Merger by certain
federal and state regulatory authorities; (iv) receipt by WIB of an opinion
of KPMG Peat Marwick LLP as to the tax-free nature of the Merger for federal
income tax purposes; (v) receipt by FPFG of a letter from Ernst & Young LLP
to the effect that the Merger will qualify for "pooling-of-interests"
accounting; (vi) the listing, subject to notice of issuance, on the Nasdaq
National Market of the FPFG Common Stock to be issued in the Merger; (vii)
the absence of any injunction or legal restraint prohibiting consummation of
the Merger; and (viii) certain other customary closing conditions. There can
be no assurance as to when and if the conditions will be satisfied (or, where
permissible, waived) or that the Merger will be consummated, although FPFG
has received the approval of the applicable federal and state regulatory
authorities with respect to the Merger. The conditions specified in (i),
(ii), (iii), (vi), (vii) and (viii) above are not waivable by either WIB or
FPFG. See "The Merger-The Merger Agreement-Conditions to the Merger," "-
Governmental and Regulatory Approvals" and "-Listing."
The Merger Agreement is subject to termination by one or more parties at
any time prior to the Effective Time upon the occurrence of certain events,
which include failure of the WIB shareholders to approve the Merger, a breach
of representations, warranties or covenants specified in the Merger Agreement
by any party (if not cured within a specified cure period), and the failure
of certain other conditions specified in "The Merger-The Merger
Agreement-Conditions to the Merger." See "The Merger-The Merger
Agreement-Amendment of Merger Agreement," "-Extension; Waiver" and
"-Termination."
FEES, EXPENSES AND OTHER PAYMENTS
Under certain circumstances, upon termination of the Merger Agreement,
WIB is required to pay FPFG's expenses and costs in connection with the
preparation, execution and performance of the Merger Agreement and, in
addition, to pay FPFG a termination fee (the "Termination Fee") of
$1,500,000. See "The Merger-The Merger Agreement-Fees; Expenses; Termination
Fee."
Under certain circumstances, upon termination of the Merger Agreement,
FPFG is required to pay WIB's expenses and costs in connection with the
preparation, execution and performance of the Merger Agreement. See "The
Merger-The Merger Agreement-Fees; Expenses; Termination Fee."
4
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of WIB's management and the WIB Board may be deemed to
have certain interests in the Merger that are in addition to their interests
generally as shareholders of WIB. At July 23, 1997, eight directors and
executive officers of WIB held or had the right to vote, in the aggregate,
386,688 shares, or 31.9% of the outstanding WIB Common Shares. Such shares
have an aggregate value of approximately $6,826,783.
Michael W. McGuire, President of WIB and the President and Chief
Executive Officer of Citizens, will enter into an amendment to his existing
employment agreement (the "McGuire Employment Agreement"), effective as of
the Effective Time. Such amendment provides for a minimum base salary to Mr.
McGuire of $225,000 (compared to $185,000 presently), a minimum bonus to Mr.
McGuire of $185,000 following the end of each FPFG fiscal year during the
term of the McGuire Employment Agreement, and a grant of an option to Mr.
McGuire to purchase 50,000 shares of FPFG Common Stock at $28.50 per share.
Such options would have been "in-the-money" by approximately $625,000
assuming the Closing occurred on July 23, 1997. Marie A. Reich, Executive
Vice President and Chief Financial officer of Citizens, is party to an
agreement, dated March 4, 1996, providing for the payment to her of one
year's salary at the rate in effect at the time of her termination in the
event that her employment is terminated within one year following a merger,
sale or acquisition of Citizens. The Merger will constitute a merger, sale or
acquisition of Citizens within the meaning of such agreement with Ms. Reich.
Other than benefits that may become payable under Ms. Reich's agreement (which
are currently valued at approximately $88,000) and the McGuire Employment
Agreement, as so amended, no executive officer of WIB or Citizens shall be
entitled to any special compensation or severance pay as a result of
completion of the Merger.
Each director of WIB other than Mr. McGuire will enter into an agreement
(the "Director Agreements") pursuant to which such person will agree not to
compete with FPFG for a period of two years following the Effective Time. In
consideration of such agreement, FPFG has agreed to pay each such director
$22,500 on the Closing Date and $22,500 on the first anniversary of the
Closing Date.
All persons who are employees of WIB or its subsidiaries immediately
prior to the Effective Time shall continue as employees following the
Effective Time. FPFG has agreed that any employee benefit plans of FPFG
under which employees of WIB shall be covered following the Effective Time
shall give appropriate credit to such employees for services completed prior
to the Effective Time under the existing employee benefit plans of WIB.
The WIB Board was aware of these interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby. See "The Merger-Interests of Certain Persons in the
Merger" and "- Management After the Merger."
EXCHANGE OF STOCK CERTIFICATES
As of the Effective Time of the Merger, each WIB shareholder whose WIB
Common Shares are converted in the Merger into FPFG Common Stock will be
entitled to receive, upon surrender of certificate(s) formerly representing
WIB Common Shares, certificates representing the FPFG Common Stock to which
such holder is entitled in respect of the conversion of such shares.
Instructions with regard to the surrender of certificates, together with a
letter of transmittal to be used for this purpose, will be forwarded to the
former WIB shareholders by Chase Mellon Services, Inc., as exchange agent
(the "Exchange Agent"), as promptly as possible following the Effective Time.
Each shareholder should only surrender such certificates with an accompanying
letter of transmittal. See "The Merger-Exchange of Stock Certificates."
FRACTIONAL SHARES
No fractional shares of FPFG Common Stock will be issued as a result of
the Merger. The total number of shares to be received by each WIB
shareholder converted in the Merger will be rounded up to the next whole
number of shares. See "The Merger-Fractional Shares."
OPERATIONS AFTER THE MERGER
As a result of the Merger, WIA will be merged with and into WIB, and
FPFG will own all of the outstanding shares of WIB. Accordingly, after the
Merger, FPFG will own the business of WIB and WIB will be a wholly owned
subsidiary of FPFG. FPFG, as owner of all the capital stock of WIB following
the Effective Time, will appoint all of
5
<PAGE>
the directors of the Surviving Corporation. Until otherwise changed by the
WIB Board, the current executive officers of WIB will remain executive
officers of the Surviving Corporation. See "The Merger-Management After the
Merger."
REGULATORY MATTERS
Under applicable regulatory laws, the Merger must be approved by the
FDIC, as insurer of WIB's deposits, and by the DOC, as primary regulator of
WIB. Such approvals have been obtained. See "The Merger-Governmental and
Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a tax-free
"reorganization," within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, for federal
income tax purposes, (i) no gain or loss will be recognized by either WIB or
FPFG as a result of the Merger and (ii) in general, holders of WIB Common
Shares will not recognize gain or loss to the extent that they receive FPFG
Common Stock in exchange for WIB Common Shares. WIB shareholders who receive
cash in exchange for their WIB Common Shares (i.e., dissenters) will
generally be required to recognize taxable income as a result of the Merger.
WIB will receive, as of the Effective Date, an opinion from KPMG Peat
Marwick LLP, tax advisor to WIB, to the effect that the Merger will be
treated as a tax-free "reorganization" under Section 368(a) of the Code.
Consummation of the Merger is conditioned upon receipt by WIB of such an
opinion confirming the tax treatment of the Merger. See "The Merger-Certain
Federal Income Tax Considerations."
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a "pooling-of-interests"
under generally accepted accounting principles. Consummation of the Merger is
subject to the condition that FPFG receive an opinion from Ernst & Young LLP
that the Merger will qualify for "pooling-of-interests" accounting treatment.
See "The Merger-Accounting Treatment."
DISSENTERS' RIGHTS
Holders of WIB Common Shares will have dissenters' rights of appraisal
in connection with the Merger. The CCC provides specific procedures that
must be followed by a WIB shareholder who desires to dissent from the Merger
and receive payment of fair market value for his or her shares. A summary
of the procedures that must be followed is contained in "The Merger-Dissenting
Shareholders' Rights." The entire text of Chapter 13 of the CCC, governing
dissenters' rights for California corporations, is attached hereto as
Appendix C. See "The Merger-Dissenting Shareholders' Rights."
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, shareholders of WIB will become stockholders
of FPFG, whose rights will be governed by the Amended and Restated Articles
of Incorporation of FPFG, as amended (the "FPFG Articles"), the Amended and
Restated Bylaws of FPFG, as amended (the "FPFG Bylaws") and the Nevada
General Corporation Law (the "NGCL"). There are certain differences between
the rights of holders of WIB Common Shares and holders of FPFG Common Stock.
For example, the FPFG Articles provide that shareholders may propose business
at annual meetings only upon compliance with specified procedures. The FPFG
Articles also provide certain procedures that an FPFG stockholder must follow
to nominate directors. Neither the Articles of Incorporation of WIB (the
"WIB Articles"), the Bylaws of WIB (the "WIB Bylaws") nor the California
Corporations Code (the "CCC") provide for similar procedures or requirements.
The FPFG Bylaws provide that the holders of not less than 50% of all
shares entitled to vote may call a special meeting of stockholders, while the
WIB Bylaws require only 10% of the voting power to call a special meeting of
shareholders. FPFG is also subject to provisions of the NGCL that prohibit a
publicly-held Nevada corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates, owns
10% or more of the corporation's outstanding voting shares for three years
after the person became an interested stockholder, unless the business
combination is approved in prescribed manner. See "Comparison of Shareholder
Rights."
6
<PAGE>
MARKET PRICE DATA
FPFG completed its initial public offering on February 2, 1996. FPFG
Common Stock is traded on the Nasdaq National Market under the symbol "FPFG."
There is currently no established market for the WIB Common Shares.
The table below sets forth the high and low prices for shares of FPFG
Common Stock, for the calendar periods indicated:
HIGH LOW
------ ------
1996 (beginning February 2, 1996)...... $30.75 $ 8.75
1997 (through July 23, 1997)........... $41.25 $20.50
The following table sets forth the closing price of the FPFG Common Stock
and the equivalent per share price of WIB Common Shares giving effect to the
Merger on February 19, 1997 (the last trading day prior to the public
announcement of the proposed Merger) and July 23, 1997 (the latest
practicable trading day before the printing of this Proxy
Statement/Prospectus):
CLOSING SALES PRICE
----------------------------
PRO FORMA
FPFG EQUIVALENT
COMMON STOCK PER SHARE(1)
------------- ------------
Market value per share:
February 19, 1997 .................... $33.50 $18.75
July 23, 1997 ........................ $41.00 $19.89
- -------------
(1) Equivalent market value per WIB Common Share represents the
closing sales price of the FPFG Common Stock, as reported in
THE WALL STREET JOURNAL, on each specified date, multiplied
by the assumed Conversion Ratio, which has been calculated
assuming that the Merger closed on February 19, 1997
(assumed Conversion Ratio of .5598) and July 23, 1997
(assumed Conversion Ratio of .4851), respectively.
Shareholders are advised to obtain current market quotations for the
FPFG Common Stock. No assurance can be given as to the market price of the
FPFG Common Stock at the Effective Time, or of the FPFG Common Stock after
the Effective Time. Because the market price of the FPFG Common Stock is
subject to fluctuation, the value of the FPFG Common Stock that holders of
WIB Common Shares will receive in the Merger may increase or decrease prior
to and following the Merger.
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The unaudited information set forth in the following tables reflects
certain comparative per common share data related to income per share and
book value per share (i) on a historical basis for FPFG; (ii) on a pro forma
combined basis per share of FPFG Common Stock assuming consummation of the
Merger; and (iii) on an equivalent pro forma basis per WIB Common Share
assuming consummation of the Merger.
The information shown below should be read in conjunction with the
consolidated historical financial statements of FPFG and WIB, including the
respective notes thereto, included or incorporated by reference in this Proxy
Statement/Prospectus. The pro forma financial information below is presented
for comparative purposes only and is not necessarily indicative of the
combined financial position or results of operations that would have been
realized had the acquisitions been consummated during the periods or as of
the dates for which such pro forma financial information is presented.
7
<PAGE>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------ ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
FPFG COMMON STOCK
Earnings per share-primary(1):
Historical ....................... $ 0.31 $ 0.28 $ 1.35 $ 0.48 $ 1.51
Pro forma(2)...................... 0.33 0.30 1.40 0.48 1.54
Book value per share-end of period:
Historical ....................... $ 0.39 $ 0.65 $ 3.51 $ 2.65 $ 8.86
Pro forma(3) ..................... 1.07 1.11 3.82 2.92 9.02
Cash dividends paid:
Historical ....................... $ -- $ -- $ -- $ -- $ --
Pro forma ........................ 0.01 -- -- -- --
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
WIB COMMON SHARES
Earnings per share-primary(1):
Historical ....................... $ 0.34 $ 0.57 $ 1.98 $ 0.35 $ 0.82
Equivalent pro forma(4) .......... 0.16 0.15 0.68 0.13 0.42
Book value per share-end of period:
Historical ....................... $ 7.01 $ 7.62 $ 9.71 $ 7.89 $10.68
Equivalent pro forma(4) ............ 0.51 0.54 1.85 1.42 4.37
Cash dividends paid:
Historical ....................... $ 0.095 $ -- $ 0.10 $ 0.10 $ --
Equivalent pro forma(4) .......... -- -- -- -- --
- ---------------
(1) Earnings per share were calculated using income from continuing
operations. In calculating pro forma earnings per share, no adjustments
to the pro forma amounts have been made to reflect potential expense
reductions or revenue enhancements which may result from the Merger.
(2) Gives effect to the Merger as if it had occurred at the beginning of
each period presented.
(3) Gives effect to the Merger as if it had occurred at the end of the
period.
(4) The equivalent pro forma computations assume that for each WIB Common
Share outstanding WIB shareholders would receive .4851 shares of FPFG
Common Stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain historical financial data for
each of FPFG and WIB as of and for each of the periods indicated. The
following data should be read in conjunction with "Selected Financial Data of
WIB" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of WIB" contained elsewhere in this Proxy
Statement/Prospectus and the selected financial data and management's
discussion and analysis of financial condition and results of operations of
FPFG incorporated by reference herein.
8
<PAGE>
FIRSTPLUS FINANCIAL GROUP, INC.
<TABLE>
FOR THE SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------------------- -------------------
1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gain on sale of loans, net of costs but before
provision for possible credit losses ........... $ 17,115 $ 27,671 $ 29,113 $158,639 $48,493 $224,167
Provisions for possible credit losses on loans
sold............................................ -- -- (3,907) (53,271) (9,527) (91,627)
---------- ---------- ---------- ---------- ---------- ----------
Net gain on sale of loans(1) ................... 17,115 27,671 25,206 105,368 38,966 132,540
Interest income ................................. 145 1,845 2,860 25,727 4,057 53,480
Servicing income ................................ -- 72 1,049 4,008 1,634 6,344
Other income .................................... 54 252 873 9,683 3,082 15,511
---------- ---------- ---------- ---------- ---------- ----------
Total revenues ................................. 17,314 29,840 29,988 144,786 47,739 207,875
Expenses:
Other ........................................... 9,925 24,560 19,733 83,232 26,878 111,900
Provision for possible credit losses on loans held
for sale, interest only strips and excess
servicing receivable .......................... 0 125 513 6,373 2,977 18,264
---------- ---------- ---------- ---------- ---------- ----------
Total expenses .................................... 9,925 24,685 20,246 89,605 29,855 130,164
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ........................ 7,389 5,155 9,742 55,181 17,884 77,711
Provision for income taxes ........................ -- -- (3,903) (20,969) (6,800) (29,530)
---------- ---------- ---------- ---------- ---------- ----------
Net income ........................................ $ 7,389 $ 5,155 $ 5,839 $ 34,212 $11,084 $ 48,181
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Net income per share of FPFG Common Stock(2):
Primary ......................................... $ 0.47 $ 0.31 $ 0.28 $ 1.35 $ 0.48 $ 1.51
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Fully diluted ................................... $ 0.47 $ 0.31 $ 0.28 $ 1.31 $ 0.48 $ 1.35
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding:
Primary ......................................... 15,596,874 16,276,874 20,296,874 25,358,162 22,791,000 31,947,323
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Fully diluted ................................... 15,596,874 16,276,874 20,296,874 26,353,526 22,791,000 37,154,860
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
SEPTEMBER 30,
--------------------------------
1994 1995 1996 MARCH 31, 1997
------- ------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans held for sale, net.............................. $ 6,105 $19,435 $430,812 $ 987,775
Interest only strips and Excess Servicing Receivable.. -- 29,744 187,230 418,661
Allowance for possible credit losses on loans sold.... -- (3,907) (53,271) (148,078)
Total assets.......................................... 12,141 57,434 656,127 1,469,206
Warehouse financing facilities........................ 4,995 18,530 354,481 894,368
Warehouse Lender Term Line............................ -- 9,249 57,465 117,020
Subordinated notes payable to affiliates.............. -- 8.003 7,003 7,002
Convertible Notes(3).................................. -- -- 100,000 69,920
Total liabilities..................................... 7,821 45,700 561,558 1,161,568
Stockholders' equity.................................. 4,321 11,734 94,569 307,638
</TABLE>
- ---------------
(1) FPFG's net gain on sale of loans, ("Net gain on sale"), with
respect to securitizations, is equal to the present value of FPFG's
portion of the expected future excess cash flow to be received on the
loans sold through securitization transactions, in excess of
securitization costs and net premiums paid, net of sharing, and net of
FPFG's provision for possible credit losses on loans sold.
(2) Net income per share of Common Stock is computed by dividing net
income, less accrued and unpaid dividends on preferred stock (the
balance of which was redeemed in connection with FPFG's initial public
offering in February 1996), by the weighted average common and common
equivalent shares outstanding.
9
<PAGE>
(3) The presentation of FPFG's 7.25% Convertible Subordinated Notes
due 2003 issued in August 1996 (the "Convertible Notes") does not
reflect discounts and commissions incurred in connection with the sale
thereof.
10
<PAGE>
WESTERN INTERSTATE BANCORP
<TABLE>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income ........ $12,825 $13,150 $13,883 $13,067 $10,877 $2,520 $2,464
Total interest expense ...... 5,468 4,547 4,725 6,752 6,347 1,651 1,395
------- ------- ------- ------- -------
Net interest income ........ 7,357 8,603 9,158 6,315 4,530 869 1,069
Provision for loan losses .... 555 2,300 2,887 3,158 155 102 125
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses ... 6,802 6,303 6,271 3,157 4,375 767 944
Non-interest income:
Servicing fee income ........ 913 1,211 1,409 1,174 1,374 360 340
Gain on sales of loans ...... 1,033 982 1,724 6,215 9,341 1,759 3,520
Other non-interest income ... 88 70 156 74 100 8 32
------- ------- ------- ------- ------- ------- -------
Total non-interest income ... 2,034 2,263 3,289 7,463 10,815 2,127 3,892
Total non-interest expense ... 6,399 7,704 8,899 9,399 10,451 2,159 2,841
------- ------- ------- ------- ------- ------- -------
Income before provision for
income taxes ............... 2,437 862 661 1,221 4,739 735 1,995
Provision for income taxes ... 1,011 386 274 499 1,964 310 838
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect
of accounting change ........ 1,426 476 387 722 2,775 425 1,157
Cumulative effect of
accounting change ........... -- 133 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income ................... $ 1,426 $ 609 $ 387 $ 722 $ 2,775 $ 425 $ 1,157
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
AT DECEMBER 31, AT
---------------------------------------------------- --------------
1992 1993 1994 1995 1996 MARCH 31, 1997
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ...................... $104,773 $110,843 $119,184 $127,785 $124,548 $112,136
Loans receivable, net ............. 77,373 87,578 97,421 21,135 10,505 9,220
Loans held for sale ............... 8,094 4,556 6,537 18,960 30,107 27,766
Cash and cash equivalents ......... 7,664 7,087 3,177 22,083 12,298 17,728
Mortgage-backed securities ........ -- 998 3,497 55,428 14,010 13,032
Investment securities ............. 3,006 4,996 2,003 5,052 52,982 39,943
Deposits .......................... 94,046 99,784 107,671 113,808 106,902 94,106
Total borrowings .................. 1,634 1,472 1,837 1,736 1,723 1,355
Stockholders' equity .............. 6,981 7,799 8,126 9,245 11,761 12,934
</TABLE>
11
<PAGE>
<TABLE>
AT OR FOR THREE MONTHS
AT OR FOR YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(1):
Performance Ratios:
Return on assets (ratio of net income to
average total assets) ............................ 1.42% .57% .34% .57% 2.23% 1.34% 3.91%
Interest rate spread information:
Average during period .......................... 6.98 8.03 7.76 4.66 3.31 2.34 3.30
Net interest margin(2) ............................. 7.51 8.33 8.10 5.03 3.78 2.83 3.82
Ratio of non-interest expense to average total assets 6.36 7.23 7.75 7.37 8.41 6.81 9.60
Return of stockholders' equity (ratio of net income
to average equity) .............................. 22.50 8.09 4.78 8.40 27.47 18.07 37.48
Asset Quality Ratios:
Non-performing assets to total assets at end of
period(3) ........................................ 3.44 3.45 3.98 .67 .55 1.11 .59
Allowance for loan losses to non-performing loans .. 28.78 47.75 76.56 286.07 531.30 158.17 644.91
Allowance for loan losses to total loans ........... 1.04 1.79 3.16 5.05 3.23 5.46 3.53
Net charge-offs to average loans ................... .47 1.64 1.15 6.23 2.06 .30 .28
Capital Ratios:
Stockholders' equity to total assets ............... 6.66 7.04 6.82 7.23 9.44 7.60 11.53
Average stockholders' equity to average assets ..... 6.30 7.07 7.05 6.74 8.13 7.41 10.43
Ratio of average interest-earning assets to average
interest-bearing liabilities ..................... 1.09% 1.07% 1.08% 1.07% 1.09% 1.09% 1.10%
Per Share Data:
Net income per WIB Common Share:
Primary ........................................ $1.33 $ .55 $ .34 $ .57 $1.98 $ .35 $ .82
Fully-diluted .................................. 1.33 .55 .34 .57 1.98 .35 .82
Cash dividends per share ......................... 0.95 .095 .095 -- .10 .10 --
Dividend payout ratio (ratio of dividends declared
per share to net income per share) ............. 7.01% 17.95% 28.48% -- 4.37% 3.50% --
Book value per share ............................. $6.38 $6.82 $7.01 $7.62 $9.71 $7.89 $10.68
Number of shares outstanding ..................... 1,093,674 1,143,174 1,159,174 1,212,543 1,211,156 1,212,543 1,211,156
</TABLE>
- ----------
(1) Averages are computed using end of month balances.
(2) Net interest income divided by average interest-earning assets.
(3) Non-performing assets consist of nonaccruing loans past-due 90 or more
days and real estate owned.
12
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN RISK FACTORS OR INVESTMENT CONSIDERATIONS THAT
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE MERGER, IN ADDITION TO THE
RISKS AND OTHER INFORMATION DESCRIBED ELSEWHERE OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. As a result of FPFG's increasing volume of loan originations
and purchases, and its expanding securitization activities, FPFG has
operated, and expects to continue to operate, on a negative operating cash
flow basis, which is expected to increase as the volume of FPFG's loan
purchases and originations increases and its securitization program grows.
FPFG's primary operating cash requirements include the funding of (i) loan
originations and loan purchases, (ii) reserve accounts, overcollateralization
requirements, fees and expenses incurred in connection with its
securitization program, (iii) tax payments due on FPFG's taxable net income,
(iv) television, radio and direct mail advertising and other marketing
expenses, and (v) administrative and other operating expenses.
There can be no assurance that, as FPFG's existing lending arrangements
mature, FPFG will have access to the financing necessary for its operations
and its growth plans or that FPFG will have access to the financing necessary
for its operations and its growth plans or that such financing will be
available to FPFG on favorable terms. To the extent FPFG is unable to renew
existing warehouse facilities or arrange additional or new warehouse lines of
credit, FPFG may have to curtail loan origination and purchasing activities,
which could have a material adverse effect on FPFG's results of operations
and financial condition.
NEED FOR ADDITIONAL FINANCING. FPFG requires substantial capital to
fund its operations. Consequently, FPFG's operations and its ability to grow
are affected by the availability of financing and the terms thereof. Based
on the rate of growth of FPFG's originations in the recent past, FPFG
anticipates that it will need to arrange additional warehouse lines of credit
or other financing sources in the foreseeable future in order to maintain its
historical growth rates. FPFG is currently negotiating for increased and/or
new warehouse facilities; however, FPFG has no commitments for such increased
and/or additional financings, and there can be no assurance that FPFG will be
successful in consummating such financing transactions in the future or on
terms FPFG would consider to be favorable. If FPFG is unable to arrange new
warehouse lines of credit or other financing sources, FPFG may have to
curtail its loan origination and purchasing activities, which could have a
material adverse effect on FPFG's results of operations and financial
condition.
DEPENDENCE ON SECURITIZATION TRANSACTIONS. Since the beginning of
fiscal 1995, FPFG has utilized a securitization program that involves the
periodic pooling and sale of its strategic loans. The securitization
proceeds have historically been used to repay borrowings under warehouse
facilities, thereby making such warehouse facilities available to finance the
origination and purchase of additional strategic loans. There can be no
assurance that, as FPFG's volume of loans originated or purchased increases
and other new products available for securitization increases, FPFG will be
able to securitize its loan production efficiently. In addition, the
securitization market for many types of assets is relatively undeveloped and
may be more susceptible to market fluctuations or other adverse changes than
more developed capital markets. Securitization transactions may be affected
by a number of factors, some of which are beyond FPFG's control, including,
among other things, conditions in the securities markets in general,
conditions in the asset-backed securitizations market and the conformity of
loan pools to rating agency requirements and to the extent that monoline
insurance is used, the requirements of such insurers. Adverse changes in the
secondary market could impair FPFG's ability to originate, purchase and sell
loans on a favorable or timely basis. In addition, FPFG's securitizations
typically utilize credit enhancements in the form of financial guaranty
insurance policies in order to achieve better credit ratings. Failure to
obtain acceptable rating agency ratings or insurance company credit
enhancements could decrease the efficiency or affect the timing of future
securitizations. FPFG intends to continue public or private securitizations
of its loan pools on a quarterly basis. Any delay in the sale of a loan pool
beyond a quarter-end would substantially reduce and may eliminate FPFG's gain
on sale of loans, net (the "Gain on Sale"), in the given quarter and would
likely result in losses for such quarter being reported by FPFG. If FPFG
were unable to securitize loans due to changes in the secondary market or the
unavailability of credit enhancements, FPFG's growth would be materially
impaired and FPFG's results of operations and financial condition would be
materially adversely affected.
13
<PAGE>
RISKS ASSOCIATED WITH LOANS HELD FOR SALE. In order to increase its
interest income and, therefore, reduce the amount of cash used in FPFG's
operating activities, in the third quarter of fiscal 1996 FPFG began to
implement a strategy of maintaining a significant quantity of loans on its
balance sheet as "loans held for sale, net." During fiscal 1994 and 1995,
loans were held an average of one month before their sale. In fiscal 1996,
this average holding period increased to two months. FPFG expects this
holding period to increase to 180 days during fiscal 1997, and it could
exceed one year thereafter.
The interest rate on loans originated and purchased by FPFG are fixed at
the time FPFG issues a loan commitment. In addition, the interest rates on
FPFG's loans are fixed, and FPFG's loan financing facilities all bear
floating interest rates. See "--Sensitivity to Interest Rates." Accordingly,
FPFG's strategy to increase the dollar amount of loans held for sale and the
length of time such loans are held will significantly increase FPFG's
exposure to interest rate fluctuations and the risks that such fluctuations
will result in greater interest expense under warehouse facilities and
reduced Gain on Sale resulting from a reduced spread between the interest
rates charged to borrowers and the interest rate paid to investors in
securitizations. Moreover, in order to manage this increased risk, FPFG will
have to increase its hedging activities, and there can be no assurance that
such hedging activities will be successful in managing the risk or will not
themselves have a material adverse effect on FPFG's financial condition or
results of operations. Further, because FPFG's warehouse facilities bear
interest at variable rates, FPFG has a need for medium- to long-term, fixed
rate financing. As a result, there can be no assurance that this strategy
will not have a material adverse effect on FPFG's financial condition or
results of operations.
SENSITIVITY TO INTEREST RATES
FPFG's profitability may be directly affected by fluctuations in
interest rates. While FPFG monitors interest rates and employs a strategy
designed to hedge some of the risks associated with changes in interest
rates, no assurance can be given that FPFG's results of operations and
financial condition will not be adversely affected during periods of
fluctuations in interest rates. FPFG's interest rate hedging strategy
currently includes purchasing put contracts on treasury securities, selling
short treasury securities and maintaining a pre-funding strategy with respect
to its securitizations. Since the interest rates on FPFG's indebtedness used
to fund and acquire loans are variable and the rates charged on loans FPFG
originates and purchases are fixed, increases in the interest rates after
loans are originated and prior to their sale could have a material adverse
effect on FPFG's results of operations and financial condition. In addition,
increases in interest rates prior to sale of the loans may reduce the Gain on
Sale earned by FPFG. The ultimate sale of FPFG's loans will fix the spread
between the interest rates paid by borrowers and the interest rates paid to
investors in securitization transactions (the "Excess Servicing Spread") with
respect to such loans, although increases in interest rates may narrow the
potential spread that existed at the time the loans were originated or
purchased by FPFG. A significant, sustained rise in interest rates could
curtail FPFG's growth opportunities by decreasing the demand for loans at
such rates and increasing market pressure to reduce origination fees or
servicing spreads. FPFG has begun to implement a strategy of maintaining a
significant quantity of loans on its balance sheet, thus increasing the
length of time that loans are held for sale and materially increasing its
interest rate risk.
FPFG's investment in the Excess Servicing Receivable (as defined in
"Excess Servicing Receivable Risks") is also sensitive to interest rates. A
decrease in interest rates could cause an increase in the rate at which
outstanding loans are prepaid, thereby reducing the period of time during
which FPFG receives the Excess Servicing Spread and other servicing income
with respect to such prepaid loans, thereby possibly resulting in accelerated
amortization of the Excess Servicing Receivable. Although an increase in
interest rates may decrease prepayments, such increase may not offset the
higher interest costs of financing the Excess Servicing Receivable. See
"--Excess Servicing Receivable Risks."
CREDIT RISK ASSOCIATED WITH BORROWERS
Many of FPFG's borrowers are consumers who have limited access to
consumer financing for a variety of reasons, including insufficient home
equity value and, in the case of Title I borrowers, unfavorable past credit
experience. FPFG is subject to various risks associated with these
borrowers, including, but not limited to, the risk that borrowers will not
satisfy their debt service payments, including payments of interest and
principal, and that the realizable value of the property securing such loans
will not be sufficient to repay the borrower's obligation to FPFG. The risks
associated with FPFG's business increase during an economic downturn or
recession. Such periods may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces
14
<PAGE>
the ability of borrowers to use home equity to support borrowings and
increases the loan-to-value ratios of FPFG's existing loans, thereby
weakening collateral values and foreclosures and the frequency and severity
of losses generally increase during economic downturns or recessions.
Because FPFG lends to borrowers who may be credit-impaired, the actual rates
of delinquencies, foreclosures and losses on such loans could be higher under
adverse economic conditions than those currently experienced in the consumer
finance industry in general. While FPFG is experiencing declining
delinquency rates on its Serviced Loan Portfolio as a whole, delinquency
rates have followed historical trends on a pool-by-pool basis, which trends
assume increased rates of delinquencies over time. However, there can be no
assurance that delinquency rates will not increase beyond historical trends.
In addition, in an economic downturn or recession, FPFG's servicing costs
will increase. Any sustained period of such increased losses could have a
material adverse effect on FPFG's results of operations and financial
condition.
CREDIT RISK ASSOCIATED WITH HIGH LTV LOANS
Although FPFG's strategic loans are typically secured by real estate,
because of the relatively high loan-to-value ratio ("LTV") of most of FPFG's
loans, in most cases the collateral of such loans will not be sufficient to
cover the principal amount of the loans in the event of default. FPFG relies
principally on the creditworthiness of the borrower and to a lesser extent on
the underlying collateral for repayment of FPFG's Conventional Loans, and FHA
co-insurance with respect to Title I Loans. Consequently, many of FPFG's
loans equal or exceed the value of the mortgaged properties, in some
instances involving LTVs of up to 125%. With respect to many of FPFG's
loans, LTV determinations are based upon the borrowers' representations as to
the value of the underlying property; accordingly, there can be no assurance
that such represented values accurately reflect prevailing market prices.
With respect to any default, FPFG currently evaluates the cost effectiveness
of foreclosing on the collateral. To the extent that borrowers with high
LTVs default on their loan obligations, FPFG is less likely to use
foreclosure as a means to mitigate its losses. Under these circumstances,
losses would be applied to FPFG's allowances for possible credit losses on
loans sold and held for sale, except to the extent that Title I Program
insurance is available. Such absorption, if in excess of FPFG's allowance
for such losses, could have a material adverse effect on FPFG's financial
condition and results of operations, if such losses required FPFG to record
additional provisions for losses on loans sold.
EXCESS SERVICING RECEIVABLE RISKS
ILLIQUIDITY OF THE EXCESS SERVICING RECEIVABLE. When FPFG's loans are
pooled and sold in securitization transactions, FPFG recognizes Gain on Sale,
which constitutes a substantial majority of FPFG's revenues. FPFG records an
asset corresponding to its Gain on Sale (the "Excess Servicing Receivable")
on its balance sheet in an initial amount equal to the present value of the
Excess Servicing Spread it expects to collect over the life of the
securitized loans sold. FPFG is not aware of an active market for this kind
of receivable, and no assurance can be given that the receivable could in
fact be sold at its stated value on the balance sheet, if at all.
In addition, the Gain on Sale is recognized in the period during which
loans are sold, while cash payments are received by FPFG pursuant to its
pooling and servicing agreements and servicing fees are paid to FPFG by the
securitization trustees over the lives of the securitized loans. This
difference in the timing of cash flows could cause a cash shortfall, which
may have a material adverse effect on FPFG's financial condition and results
of operations.
EXCESS SERVICING RECEIVABLE MAY BE OVERSTATED; PROVISION FOR CREDIT
LOSSES MAY BE UNDERSTATED. The calculation of Gain on Sale and the valuation
of the Excess Servicing Receivable are based on certain management estimates
relating to the appropriate discount rate and anticipated average lives of
the loans sold. In order to determine the present value of this excess cash
flow, FPFG currently applies an estimated market discount rate of between 10%
and 11% to the expected pro forma gross cash flow calculated utilizing the
weighted average maturity of the securitized loans, and currently applies a
risk free discount rate of 6.5% to the anticipated losses attendant to this
pro forma cash flow stream. Accordingly, the overall effective discount rate
utilized on the cash flows, net of expected credit losses, is approximately
12.5%. Although FPFG records the Excess Servicing Receivable and the related
reserve on a gross basis, for purposes of evaluation and comparison, FPFG
calculates an average net discount rate for the net Excess Servicing
Receivable. This is calculated by subtracting the present value of the
anticipated losses attributable to loans being securitized and sold from the
present value of the expected stream of payments to derive the present value
of the net Excess Servicing Receivable. FPFG then determines the average
discount rate that equates the expected payments, net of expected losses, to
the value of the Excess Servicing Receivable, which, with respect to its most
recent securitization,
15
<PAGE>
is approximately 12.5%. To estimate the anticipated average lives of the
loans sold in securitization transactions, management estimates prepayment,
default and interest rates on a pool-by-pool basis. If actual experience
varies from management estimates at the time loans are sold, FPFG may be
required to write down the remaining Excess Servicing Receivable through a
charge to earnings in the period of adjustment.
Prepayment rates and default rates may be affected by a variety of
economic and other factors, including prevailing interest rates and the
availability of alternative financing, most of which are not within FPFG's
control. A decrease in prevailing interest rates could cause prepayments to
increase, thereby requiring a writedown of the Excess Servicing Receivable.
Even if actual prepayment rates occur more slowly and default rates are lower
than management's original estimates, the Excess Servicing Receivable would
not increase.
Furthermore, management's estimates of prepayment rates and default
rates are based, in part, on the historical performance of FPFG's Title I
Loans. FPFG is originating an increasing proportion of Conventional Loans,
while historical performance data is based primarily on Title I Loans. In
addition, a significant portion of FPFG's securitized loans sold were very
recently originated or were acquired in bulk purchases. No assurance can be
given that these loans, as with any new loan, will perform in the future in
accordance with FPFG's historical experience. In addition, when FPFG
introduces new loan products it may have little or no historical experience
on which it can base its estimates, and thus its estimates may be less
reliable. During the fiscal year ended September 30, 1996, FPFG increased its
provision for credit losses, $2.5 million of which was taken because the
default rate for a pool of Bulk Loans included in FPFG's 1995-2
securitization exceeded the estimates made at the time of the securitization
and the adjustment was in conformity with FPFG's current estimation
methodology. There can be no assurance that FPFG will not be required in the
future to write down its Excess Servicing Receivable in excess of its
provision for credit losses. Any such writedown could have a material
adverse effect on FPFG's financial condition and results of operations.
FINANCING OF THE EXCESS SERVICING RECEIVABLE. FPFG retains significant
amounts of Excess Servicing Receivable on its balance sheet. FPFG currently
does not hedge this asset. FPFG finances its Excess Servicing Receivable
with term-line borrowings under various term lines of credit with lenders
(collectively, the "Term Lines"). Borrowings under the Term Lines bear
interest at floating rates. FPFG, however, cannot reprice its Excess
Servicing Receivable on its balance sheet, which has an expected average life
of four to six years. Therefore, FPFG remains at risk that its financing
sources may increase the interest rates they charge FPFG.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125 ("FASB 125"), "Accounting
for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities." FASB 125 addresses the accounting for all types of
securitization transactions, securities lending and repurchase agreements,
collateralized borrowing arrangements and other transactions involving the
transfer of financial assets. FASB 125 distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. FASB 125
is generally effective for transactions that occur after December 31, 1996,
and it is to be applied prospectively. FASB 125 requires FPFG to allocate
the total cost of mortgage loans sold to the mortgage loans sold (servicing
released), retained certificates and servicing rights based on their relative
fair values. FPFG will be required to assess the retained certificates and
servicing rights for impairment based upon the fair value of those rights.
FPFG adopted FASB 125 during the quarter ended March 31, 1997. As a result of
the adoption of FASB 125, FPFG's earnings were decreased by $556,000 after
tax over the earnings that would have been recorded utilizing FPFG's previous
accounting method. Additionally, under FASB 115, the Company deferred $7.2
million of its gain on sale of loans, which was recorded as a separate
component of equity, net of tax. FASB 125 also required certain
reclassifications on FPFG's balance sheet and income statement. On the
balance sheet, the Excess Servicing Receivable has been reclassified as an
"available for sale" investment security and renamed as Interest Only Strip
("I/O Strip"), with the allowance for losses on loans sold reclassified from
liabilities to a contra asset to the I/O Strip. In the income statement, the
provision for losses on loans sold is now shown as a reduction of the gain on
sale of loans.
ABILITY OF FPFG TO CONTINUE GROWTH STRATEGY; POSSIBLE ADVERSE CONSEQUENCES
FROM RECENT GROWTH
FPFG's ability to continue its growth strategy depends on its ability to
increase the volume of loans it originates and purchases while successfully
managing its growth. This volume increase is, in part, dependent on FPFG's
ability
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to procure, maintain and manage its increasingly larger warehouse facilities
and lines of credit. In addition to FPFG's financing needs, its ability to
increase its volume of loans will depend on, among other factors, its ability
to (i) offer attractive products to prospective borrowers, (ii) attract and
retain qualified underwriting, servicing and other personnel, (iii) market
its products successfully, especially its new Direct Loan products, (iv)
establish new relationships and maintain existing relationships with
independent correspondent lenders in states where FPFG is currently active
and in additional states and (v) build national brand name recognition. In
addition, FPFG has recently begun to focus resources on the small loan
consumer finance industry. There can be no assurance that FPFG will
successfully enter or compete in this highly competitive segment of the
consumer finance industry.
In light of FPFG's rapid growth, the historical performance of FPFG's
operations, including its underwriting and servicing operations, which were
principally related to origination of Title I Loans, may be of limited
relevance in predicting future performance with respect to Conventional
Loans, especially debt consolidation loans or personal consumer loans. Any
credit or other problems associated with the large number of loans originated
in the recent past may not become apparent until sometime in the future.
Consequently, FPFG's historical results of operations may be of limited
relevance to an investor seeking to predict FPFG's future performance. In
addition, purchases of Bulk Loans require FPFG to rely to a certain extent on
the underwriting practices of the seller of the Bulk Loans. Although FPFG
has its own review process when purchasing Bulk Loans, FPFG occasionally must
rely upon the underwriting standards of the originator, which standards may
not be as rigorous as FPFG's.
FPFG's ability to successfully manage its growth as it pursues its
growth strategy will be dependent upon, among other things, its ability to
(i) maintain appropriate procedures, policies and systems to ensure that
FPFG's loans have an acceptable level of credit risk and loss, (ii) satisfy
its need for additional short-term and long-term financing, (iii) manage the
costs associated with expanding its infrastructure, including systems,
personnel and facilities, and (iv) continue operating in competitive,
economic, regulatory and judicial environments that are conducive to FPFG's
business activities. FPFG's requirement for additional operating procedures,
personnel and facilities is expected to continue over the near term. FPFG is
absorbing the effects of the implementation of new computer hardware and
software to manage its business operations, and it plans to continue to
procure hardware and software that require additional corresponding
investments in training and education. FPFG's significant growth has placed
substantial new and increased pressures on FPFG's personnel. There can be no
assurance that the addition of new operating procedures, personnel and
facilities together with FPFG's enhanced information systems, will be
sufficient to enable it to meet its current operating needs. Changes in
FPFG's ability to obtain or maintain any or all of these factors or to
successfully manage its growth strategy could have a material adverse effect
on FPFG's operations, profitability and growth.
CONSOLIDATION OF OPERATIONS OF ACQUISITIONS
Since November 1995, FPFG has made numerous acquisitions and intends to
acquire additional companies in the consumer finance industry. FPFG must
successfully integrate the management, marketing, products and systems
associated with its acquisitions if FPFG is to make current or prospective
acquisitions financially successful. In addition, FPFG's strategy of
acquiring personal consumer loan companies involves introducing FPFG's
strategic loan products, which are very different from the type of loans such
companies now originate, into this origination channel. Acquisitions may
produce excess costs and may become significant distractions to management if
they are not timely integrated. There can be no assurance that future
acquisition opportunities will become available, that such future
acquisitions can be accomplished on favorable terms or that such
acquisitions, if any, will result in profitable operations in the future or
can be integrated successfully with FPFG's existing business.
CONCENTRATION OF OPERATIONS IN CALIFORNIA
Approximately 51.9% of the loans in the Serviced Loan Portfolio at March
31, 1997 were secured by subordinate liens on residential properties located
in California. Consequently, FPFG's results of operations and financial
condition are dependent upon general trends in the California economy and its
residential real estate market. California has experienced an economic
slowdown or recession over the last several years, which has been accompanied
by a sustained decline in the California real estate market. Such a decline
may adversely affect the values of properties securing FPFG's loans, such
that the principal balances of such loans, together with any primary
financing on the mortgaged properties, may further increase LTVs, making
FPFG's ability to recoup losses in the event of a borrower's default
extremely unlikely. In addition, California historically has been vulnerable
to certain risks of natural disasters,
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such as earthquakes and erosion-caused mudslides, which are not typically
covered by the standard hazard insurance policies maintained by borrowers.
Uninsured disasters may adversely impact borrower's ability to repay loans
made by FPFG, which could have a material adverse effect on FPFG's results of
operations and financial condition.
COMPETITION
The consumer finance market is highly competitive and fragmented. FPFG
competes with a number of finance companies that provide financing to
individuals who may not qualify for traditional financing. To a lesser
extent, FPFG competes, or will compete, with commercial banks, savings and
loan associations, credit unions, insurance companies and captive finance
arms of major manufacturing companies that currently tend to apply more
traditional lending criteria. In addition, in recent months, several
companies have announced loan programs that will compete directly with FPFG's
loan products, particularly its Conventional Loans. Many of these
competitors or potential competitors are substantially larger and have
significantly greater capital and other resources than FPFG. In fiscal 1995
and 1996 and the first six months of fiscal 1997, approximately 68.5%, 93.9%
and 85.1%, respectively, of FPFG's loans originated (excluding Bulk Loans)
were Correspondent Loans, which are expected to remain a significant part of
FPFG's loan production program. As a purchaser of Correspondent Loans, FPFG
is exposed to fluctuations in the volume and price of Correspondent Loans
resulting from competition from other purchasers of such loans, market
conditions and other factors. In addition, the Federal National Mortgage
Association ("Fannie Mae") has purchased and is expected to continue to
purchase significant volumes of Title I Loans on a whole-loan basis.
Purchases by Fannie Mae could be made from sources from which FPFG also
purchases loans. To the extent that purchasers of loans, such as Fannie Mae,
enter or increase their purchasing activities in the markets in which FPFG
purchases loans, competitive pressures may decrease the availability of loans
or increase the price FPFG would have to pay for such loans, a phenomenon
that has occurred with respect to Title I Loans. In addition, increases in
the number of companies seeking to originate loans tends to lower the rates
of interest FPFG can charge borrowers, thereby reducing the potential value
of subsequently earned Gains on Sales of loans. To the extent that any of
these lenders or Fannie Mae significantly expand their activities in FPFG's
market, or to the extent that new competitors enter the market, FPFG's
results of operations and financial condition could be materially adversely
affected.
CONCENTRATION OF CORRESPONDENT LENDERS
Approximately 79.8%, 48.6% and 44.7% of the loans purchased from
correspondent lenders by FPFG during fiscal 1995 and 1996 and the first six
months of fiscal 1997, respectively, were originated through FPFG's ten
largest independent correspondent lenders. Approximately 50% of the loans
purchased from correspondent lenders during fiscal 1995 were originated
through two independent correspondent lenders. FPFG believes that it is
possible for its dependence on a small number of independent correspondent
lenders to continue for the foreseeable future as FPFG focuses extensively on
originating Direct Loans. Correspondent lenders are not contractually bound
to sell loans to FPFG, and, therefore, are able to sell their loans to others
or to undertake securitization programs of their own. To the extent that
FPFG is no longer able to purchase or originate loans from these significant
independent correspondent lenders, this could have a material adverse effect
on FPFG's results of operations and financial condition.
LIMITED OPERATING HISTORY
FPFG was formed in 1994 to combine the operations of FIRSTPLUS Financial
and SFAC. The Combination involved the integration of the operations of two
companies that previously operated independently. Consequently, FPFG has a
limited operating history under its new corporate structure upon which
prospective investors may base an evaluation of its performance.
DELINQUENCIES; RIGHT TO TERMINATE SERVICING; NEGATIVE IMPACT ON CASH FLOW
On March 31, 1997, approximately 64.4% (by dollar volume) of the
Serviced Loan Portfolio consisted of loans securitized by FPFG and sold to
grantor or owner trusts. FPFG's form of pooling and servicing agreement with
each of these trusts provides that the trustee of the related trust may
terminate FPFG's servicing rights if certain delinquency or loss standards
are not met. As of March 31, 1997, none of the pools of securitized loans
exceeded the foregoing delinquency standards and no servicing rights had been
terminated. However, there can be no assurance that delinquency rates with
respect to FPFG-sponsored securitized loan pools will not exceed this rate in
the future and, if exceeded, that
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servicing rights will not be terminated, which would have a material adverse
effect on FPFG's result of operations and financial condition.
FPFG's cash flow can also be adversely impacted by high delinquency and
default rates in its grantor and owner trusts. Generally, provisions in the
pooling and servicing agreement have the effect of requiring the
overcollateralization account, which is funded primarily by the excess
servicing on the loans held in the trust, to be increased up to approximately
two and on-half times the level otherwise required when the delinquency and
the default rates exceed various specified limits. The reserve account was
fully funded as of March 31, 1997.
DEPENDENCE ON TITLE I PROGRAM
A portion of FPFG's business is dependent on the continuation of the
Title I Program, which is federally funded. The Title I Program provides that
qualifying loans are eligible for FHA insurance, although such insurance is
limited. From time to time, legislation has been introduced in both houses
of the Congress that would, among other things, abolish the Department of
Housing and Urban Development ("HUD"), reduce federal spending for housing
and community development activities and eliminate the Title I Program. No
assurance can be given that the Title I Program will continue in existence or
that HUD will continue to receive sufficient funding for the operation of the
Title I Program. Discontinuation of or a significant reduction in the Title
I Program or FPFG's authority to originate or purchase loans under the Title
I Program could have a material adverse effect on FPFG's results of
operations and financial condition.
IMPACT OF REGULATION AND LITIGATION
FPFG's business is subject to regulation and licensing under various
federal, state and local statutes and regulations requiring, among other
things, the licensing of lenders, adequate disclosure of loan terms and
limitations on the terms and interest rates of consumer loans, collection
policies, creditor remedies and other trade practices. An adverse change in
these laws or regulations could have an adverse effect on FPFG by, among
other things, limiting the interest and fee income FPFG may generate on
existing and additional loans, limiting the states in which FPFG may operate
or restricting FPFG's ability to realize on the collateral securing its loans.
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal
income tax purposes, either entirely or in part, based on borrower income,
type of loan or principal amount. Because many of FPFG's loans are made to
borrowers for the purpose of consolidating consumer debt or financing other
consumer needs, the competitive advantages of tax deductible interest, when
compared with alternative sources of financing, could be eliminated or
seriously impaired by such government action. Accordingly, the reduction or
elimination of these tax benefits could have a material adverse effect on the
demand for loans of the kind offered by FPFG, which could have a material
adverse effect on FPFG's results of operations and financial condition.
Industry participants are frequently named as defendants in litigation
involving alleged violations of federal and state consumer lending laws and
regulations, or other similar laws and regulations, as a result of the
consumer-oriented nature of the industry in which FPFG operates and
uncertainties with respect to the application of various laws and regulations
in certain circumstances. If a significant judgment were rendered against
FPFG in connection with any litigation, it could have a material adverse
effect on FPFG's financial condition and results of operations.
FPFG's loans under the Title I Program are eligible for FHA insurance.
The FHA insures 90% of such loans and certain interest costs, provided that
FPFG has not depleted its loss reserve account established with the FHA and
the loans were properly originated according to FHA regulations. The amount
of insurance coverage in a lender's FHA loss reserve account is equal to 10%
of the original principal amount of all Title I Loans originated and the
amount of the reserves for purchased loans reported for insurance coverage by
the lender, less the amount of all insurance claims approved for payment in
connection with losses on such loans and other adjustments. If at any time
claims exceed the loss reserve balance, the remaining Title I Loans will be
uninsured. In addition, the Title I Program sets loan origination guidelines
that must be satisfied by the lender in connection with the origination of
Title I Loans in order for the FHA to insure those loans. FPFG's failure to
comply with such requirements could result in denial of payment by the FHA.
There can be no assurance that losses will not exceed FPFG's loss reserve
account or that FPFG will not be adversely affected by such defaults. FPFG's
Conventional Loans are not insured.
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CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
At June 30, 1997, Daniel T. Phillips, FPFG's President, Chief Executive
Officer and Chairman of the Board, and Eric C. Green, FPFG's Chief Financial
Officer, beneficially own or otherwise control an aggregate of approximately
13.1% and 1.6%, respectively, of the outstanding voting FPFG Common Stock.
Therefore, Messrs. Phillips and Green are able to exercise significant
influence with respect to the election of the entire Board of Directors of
FPFG (the "FPFG Board") and all matters submitted to FPFG stockholders.
Messrs. Phillips and Green are also able to significantly influence the
direction and future operations of FPFG, including decisions regarding the
issuance of additional shares of FPFG Common Stock and other securities. In
addition, as long as Messrs. Phillips and Green beneficially own or otherwise
control a significant block of issued and outstanding FPFG Common Stock, it
will be difficult for third parties to obtain control of FPFG through
purchases of FPFG Common Stock not beneficially owned or otherwise controlled
by Messrs. Phillips and Green.
DEPENDENCE ON KEY PERSONNEL
FPFG is dependent upon the continued services of Daniel T. Phillips or
Eric C. Green and certain of FPFG's other key employees. While FPFG believes
that it could find replacements for its executive officers and key employees,
the loss of their services could have an adverse effect on FPFG's operations.
Each of FPFG's executive officers has entered into an employment agreement
with FPFG.
EVENTS OF DEFAULT UNDER CERTAIN FINANCING FACILITIES
The loss of the services of Daniel T. Phillips as Chief Executive
Officer of FPFG would constitute an event of default under one of FPFG's
credit facilities, which in turn would result in defaults under other
indebtedness. Mr. Phillips has entered into an employment agreement with
FPFG.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the FPFG Articles, and the FPFG Bylaws, the Nevada
General Corporation Law (the "NGCL") and the Indenture for the outstanding
7.25% Convertible Subordinated Notes due 2003 of FPFG (the "Convertible
Notes") could delay or frustrate the removal of incumbent directors and could
make difficult a merger, tender offer or proxy contest involving FPFG, even
if such events could be viewed as beneficial by FPFG's stockholders. For
example, the FPFG Articles deny the right of stockholders to amend the FPFG
Bylaws and require advance notice of stockholder proposals and nominations of
directors. FPFG is also subject to provisions of the NGCL that prohibit a
publicly-held Nevada corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates, owns
10% or more of the corporation's outstanding voting shares (an "interested
stockholder") for three years after the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. In addition, the Indenture for the Convertible Notes provides that
in the event of a "change of control" (as defined therein) holders of the
Convertible Notes have the right to require that FPFG repurchase the
Convertible Notes in whole or in part.
SECURITIES TRADING; POSSIBLE VOLATILITY OF PRICES
The FPFG Common Stock is quoted on the Nasdaq National Market. The
market price for shares of FPFG Common Stock may be significantly affected by
such factors as quarter-to-quarter variations in FPFG's results of
operations, news announcements or changes in general market or industry
conditions.
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THE WIB MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of WIB
Common Shares in connection with the solicitation of proxies by the WIB Board
for use at the WIB Meeting to be held on August 21, 1997, at the offices of
Citizens, 18302 Irvine Boulevard, Tustin, California at 12:00 noon (Tustin,
California time) and any adjournments thereof.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
accompanying form of proxy are first being mailed to shareholders of WIB on
or about July 30, 1997.
PURPOSE OF THE MEETING
At the WIB Meeting, shareholders of WIB will be asked to consider and
vote upon a proposal to approve the Merger Agreement, providing for the
Merger of WIA with and into WIB. From and after the Effective Time, WIB will
continue as the Surviving Corporation and will be a wholly owned subsidiary
of FPFG. As a result of the Merger, each outstanding WIB Common Share, other
than shares held by dissenting shareholders of WIB, will be converted into
the right to receive shares of FPFG Common Stock in the manner described in
"The Merger--Conversion of Shares; Conversion." None of the currently
outstanding shares of FPFG Common Stock will be converted or otherwise
changed as a result of the Merger. Approval of the Merger Agreement by WIB
shareholders at the WIB Meeting is among the conditions to the consummation
of the Merger under the terms of the Merger Agreement.
THE WIB BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT.
VOTING RIGHTS OF WIB SHAREHOLDERS
The WIB Board has fixed July 10, 1997 as the Record Date for the
determination of WIB shareholders entitled to notice of and to vote at the
WIB Meeting. Accordingly, only holders of record of WIB Common Shares at the
close of business on the Record Date will be entitled to vote at the WIB
Meeting. At the close of business on the Record Date, there were outstanding
1,211,156 WIB Common Shares, each of which is entitled to one vote on each
matter properly submitted to a vote at the WIB Meeting. The affirmative vote
of a majority of the outstanding WIB Common Shares entitled to vote is
required to approve the Merger Agreement.
All proxies will be voted in accordance with the directions of the WIB
shareholder executing such proxy and, to the extent no directions are given,
will be voted "for" approval of the Merger Agreement. Abstentions may be
specified on the proposal to approve the Merger Agreement. Such abstentions
will be considered present and entitled to vote at the WIB Meeting but will
not be counted as votes cast in the affirmative. Abstentions on the proposal
to approve the Merger Agreement will have the effect of a negative vote
because this proposal requires the approval of a majority of the outstanding
shares entitled to vote.
WIB believes that brokers that hold WIB Common Shares in "street" name
for customers do not have the authority to vote those shares with respect to
the approval of the Merger Agreement if they have not received instructions
from the beneficial owner. A failure by brokers to receive instructions from
the beneficial owner to vote those shares will have the same effect as a vote
against the proposal to approve the Merger Agreement. WIB shareholders whose
shares are not registered in their name will need appropriate documentation
from the recordholder to vote personally at the WIB Meeting.
As of the close of business on the Record Date, the directors and
executive officers of WIB held or had the right to vote in the aggregate
approximately 31.9% of the outstanding WIB Common Shares, and have advised
WIB that they presently intend to vote their shares in favor of the Merger
Agreement.
Each shareholder can vote personally or by proxy; a person acting as a
proxy need not be a shareholder.
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SOLICITATION AND REVOCATION OF PROXIES; QUORUM
The WIB Board is making the solicitation of proxies from its
shareholders under this Proxy Statement/Prospectus. All shares represented
by properly executed proxies will be voted in accordance with the directions
on the proxies, unless such proxies are revoked prior to the vote. FORMS OF
PROXY CONTAINING NO INSTRUCTIONS REGARDING ANY PARTICULAR MATTER SPECIFIED
THEREIN WILL BE VOTED FOR THE APPROVAL OF THE MERGER AND THE PROXIES
APPOINTED IN THE PROXY WILL USE THEIR DISCRETION AS TO ALL OTHER MATTERS
PROPERLY BROUGHT BEFORE THE MEETING. The WIB Board is not aware of matters
other than those specified in the Notice of Special Meeting which may
properly come before the meeting of its shareholders. If any other matters
are properly presented for action at the WIB Meeting, it is intended that the
named proxies will vote in accordance with their best judgment on such
matters. WIB will bear the cost of solicitation of proxies for the WIB
Meeting. In addition to the use of the mails, proxies may be solicited by
telephone by directors and officers and employees of WIB and their respective
subsidiaries who will not be specially compensated for such services.
Brokerage houses, custodians, nominees and fiduciaries will be requested to
forward the proxy soliciting materials to the beneficial owners of WIB Common
Shares held of record by such persons, and WIB will reimburse them for their
charges and expenses.
Each holder of record of WIB Common Shares on the Record Date will be
entitled to one vote for each share of stock registered in his or her name on
each matter presented to a vote at the WIB Meeting. The presence, in person
or by proxy, of a majority of the outstanding shares of WIB Common Shares
entitled to vote is necessary to constitute a quorum of the shareholders A
shareholder of WIB who executes and returns a proxy has the power to revoke
it at any time before it is voted. The giving of a proxy does not affect a
shareholder's right to attend and vote in person at the WIB Meeting. A
shareholder's presence at a meeting, however, will not in itself revoke the
shareholder's proxy. WIB Common Shares which are present or represented by
proxy at the WIB Meeting will be counted for quorum purposes regardless of
whether the holder of the shares or proxy fails to vote on the Merger
Agreement or whether a broker with discretionary authority fails to exercise
its discretionary voting authority. In addition to any other manner provided
by law, a WIB shareholder giving a proxy pursuant to this solicitation may
revoke such proxy by delivering a written revocation to the Secretary of WIB
at 18302 Irvine Boulevard, Suite 300, Tustin, California 92780. No
revocation by written notice, however, will be effective unless and until
such notice is received by the Secretary of WIB prior to the date of the WIB
Meeting or by the inspector of election at the WIB Meeting prior to the
closing of the polls.
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THE MERGER
THE FOLLOWING IS A SUMMARY OF THE MATERIAL ASPECTS OF THE MERGER. THIS
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX A AND IS INCORPORATED HEREIN BY REFERENCE.
WIB SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
GENERAL
At the Effective Time, WIA, a wholly-owned subsidiary of FPFG, will be
merged with and into WIB, with WIB being the Surviving Corporation in the
Merger. Following the Merger, WIB will be a wholly-owned subsidiary of FPFG.
Except with respect to shares as to which dissenters' rights have been
exercised, if the Merger Agreement is approved and the Merger becomes
effective, each WIB Common Share outstanding immediately prior to the
Effective Time will be automatically converted into and exchange for the
right to receive shares of FPFG Common Stock based on the Conversion Ratio.
See "--Conversion of Shares; Conversion." Following the Effective Time, FPFG
will be the sole shareholder of WIB. Shares of FPFG Common Stock issued and
outstanding immediately before the Effective Time will remain issued and
outstanding immediately after the Effective Time.
EFFECTIVE TIME
WIB and WIA anticipate filing a Certificate of Approval of Merger with
the Secretary of State of the State of California and Articles of Merger with
the Secretary of State of the State of Nevada, as promptly as possible after
the adoption of the matters to be considered at the WIB Meeting and the
satisfaction or waiver of the conditions contained in the Merger Agreement.
See "The Merger--The Merger Agreement--Conditions to the Merger." The Merger
will be consummated, and the Effective Time will occur, on the date and time
of such filings.
CONVERSION OF SHARES; CONVERSION RATIO
The Merger Agreement provides that, upon the Effective Time of the
Merger, each issued and outstanding WIB Common Share, other than shares held
by WIB shareholders who dissent to the Merger, will be converted into the
right to receive shares of FPFG Common Stock. The number of shares of FPFG
Common Stock to be received by each WIB shareholder is determined by
dividing the "FPFG Share Number" by the sum of the number of WIB Common
Shares outstanding plus the number of WIB Common Shares issuable upon the
exercise of all Existing Stock Rights as of the Effective Time (the
"Conversion Ratio"). No fractional shares will be issued, but rather any
resulting fractional share will be rounded up to the next whole number. The
"FPFG Share Number" is the number determined by dividing (i) $24,862,674 by
(ii) the average closing price per share of the FPFG Common Stock on the
Nasdaq National Market as reported in THE WALL STREET JOURNAL for the ten
trading days prior to the date that is two calendar days prior to the Closing
of the Merger (the "FMV of the FPFG Common Stock").
The Merger Agreement contains a $30.60 to $37.40 collar mechanism based
upon the FMV of the FPFG Common Stock. Under this collar mechanism, if the
FMV of the FPFG Common Stock falls between $30.60 and $37.40, then the actual
FMV of the FPFG Common Stock shall be used, if the FMV of the FPFG Common
Stock exceeds $37.40, then $37.40 shall be the FMV of the FPFG Common Stock,
and if the FMV of the FPFG Common Stock falls below $30.60, then $30.60 shall
be the FMV of the FPFG Common Stock.
Assuming no WIB shareholders dissent from the Merger and assuming a FMV
of the FPFG Common Stock of $36.39375 per share (i.e., the FMV of the FPFG
Common Stock had the Closing Date been July 23, 1997), WIB shareholders would
have been entitled to receive an aggregate of approximately 587,528 shares of
FPFG Common Stock at the Effective Time. WIA's common stock outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of WIB as the Surviving Corporation. The shares of FPFG Common
Stock outstanding immediately prior to the Effective Time will not be changed
as a result of the Merger. All such shares of FPFG Common Stock will remain
issued and outstanding.
Based upon the same assumptions specified in the previous paragraph,
holders of FPFG Common Stock prior to the Effective Time of the Merger, in
the aggregate, will own approximately 98.4% of the outstanding FPFG
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Common Stock after giving effect to the Merger, and holders of WIB Common
Shares prior to the Effective Time of the Merger, in the aggregate, will own
approximately 1.6% of the outstanding FPFG Common Stock after giving effect
to the Merger.
BACKGROUND OF AND REASONS FOR THE MERGER
The decision to pursue a potential sale of WIB grew out of developments
respecting WIB in 1995 and 1996. In the fall of 1994 WIB, filed a
registration statement with the SEC in connection with its plan to raise
$7,000,000 to $10,000,000 through an initial public offering of WIB Common
Shares. WIB planned to use the offering proceeds to support and expand its
portfolio lending business. In January 1995, these efforts were terminated
due to unfavorable market conditions. WIB thereafter retained Carpenter in
January 1995 to explore the possibility of privately placing shares to obtain
additional capital or, if appropriate, to sell WIB.
In February 1995, the Board of Directors of Citizens, upon the
recommendation of management, determined that Citizens' portfolio of
wholly-owned Title I Loans should be sold in order to reduce Citizens' level
of participation in the Title I Program, including liabilities associated
with the reserves required to be maintained with HUD respecting such loans.
In April 1995, Michael W. McGuire, President and Chief Executive Officer of
Citizens, was contacted by a representative of FPFG expressing FPFG's
interest in purchasing the portfolio. The WIB Board and management were
satisfied with the pricing of the transaction and the ability to retain
subservicing responsibilities for the loans to be sold following their
securitization by FPFG. The sale of $86.7 million of Title I Loans to FPFG
was completed in June 1995. The sale, together with an increased emphasis on
originating loans for sale through mortgage banking activities, reduced WIB's
current capital needs significantly. As a result, the interest of WIB in
raising additional capital diminished.
During the course of the negotiation and closing of the loan sale
transaction, FPFG and WIB explored ways in which the two companies could work
together more closely in the future. Citizens desired to offer a home equity
loan product with an LTV exceeding 100% of the value of the home securing the
loan and desired to find a purchaser for that product. Working together,
FPFG and Citizens established underwriting and pricing criteria for this loan
program, and in July 1995 Citizens began producing this loan as a complement
to its existing Title I Loan business.
From July 1995 to April 1996, Citizens sold this product to FPFG
exclusively. In April 1996, Citizens began selling this product to other
investors as well. During this period, the new home equity loan products of
Citizens became the primary loan offered by Citizens. In addition to the
$86.7 million in Title I Loans sold to FPFG in June 1995, during the second
half of 1995 Citizens sold FPFG another $1.6 million in Title I Loans and
$21.0 million in home equity loans, amounting to approximately 45% of
Citizens' total loan production for such period. During 1996, Citizens sold
FPFG $61.2 million in loans, representing 46% of Citizens' loan production.
During the first quarter of 1997, approximately $24.9 million in loans have
been sold to FPFG, representing 63.8% of loan production. Citizens believes
that the terms of such sales have been favorable to Citizens and generally
competitive with the terms available in the secondary market for the product
sold to FPFG.
In November 1995, Mr. McGuire met with Daniel T. Phillips, Chairman of
the Board and Chief Executive Officer of FPFG, Eric C. Green, Executive Vice
President and Chief Financial Officer of FPFG, and a representative of Bear,
Stearns & Co. Inc. ("Bear Stearns"), FPFG's investment banker, in Dallas,
Texas, at which time the possible benefits of a closer alliance between the
two companies were discussed. FPFG elected not to pursue an investment in
WIB or Citizens at that time because FPFG was in the process of completing
its initial public offering, which closed in February 1996, and believed that
further consideration of an investment in a regulated financial institution
or holding company should be deferred.
In January 1996, the WIB Board asked Carpenter to negotiate with parties
who had expressed an interest in acquiring or investing in WIB or Citizens.
In connection with these discussions, Carpenter prepared an information
package respecting WIB to be made available to potential investors and
contacted other potential acquirors. Mr. McGuire advised Mr. Phillips and
Mr. Green to contact Carpenter if they were interested in further review of
WIB as a possible acquisition target. While FPFG obtained a copy of the
information package in March 1996, at that time serious discussions between
the parties did not occur.
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During the period from March 1996 to November 1996, WIB responded to
various indications of interest from potential acquirors and engaged in
extensive negotiations with one party for a sale of WIB for a combination of
cash and stock. This party proposed to acquire 45% of the outstanding shares
of WIB for cash equal to 1.65 times the December 31, 1996 adjusted book value
per share of the WIB Common Shares, and 55% of the outstanding shares for
shares of the parent company of the acquiror exchanged on a
book-value-for-book-value basis. The WIB Board declined to proceed with this
transaction because of concerns relating to the lack of a current market for
the shares to be received, the level of goodwill on the books of the
acquiror, the historical earnings of the acquiror, and price reductions
requested by the acquiror. The WIB Board believes the terms offered by FPFG,
including price, are superior to those offered by the other party. The
negotiations with such party were terminated in November 1996 prior to
receipt of FPFG's initial offer.
During the week of November 18, 1996, Mr. McGuire again met in Dallas
with Mr. Green, Mr. Phillips and a representative of Bear Stearns. At that
meeting, FPFG expressed its interest in discussing the possibility of an
acquisition of WIB or Citizens by FPFG. FPFG indicated that its interest had
increased in acquiring a financial institution, like Citizens, that was not
regulated as a bank holding company under federal law. On November 25, 1996,
a confidentiality agreement was executed by FPFG and thereafter materials
concerning WIB and its business were forwarded to FPFG for its review. On
December 3, 1996, FPFG presented a letter to WIB indicating its interest in
acquiring WIB in a transaction to be accounted for as a pooling of interests
and with the shareholders of WIB to receive FPFG Common Stock in an amount
equivalent to two times the book value per share of the WIB Common Shares at
December 31, 1996, on a fully diluted basis.
During December 1996 and January 1997, the parties continued discussions
over the material terms of the acquisition, including price, and WIB's desire
not to enter into a letter of intent but to proceed with the negotiation and
execution of a definitive agreement subject to no due diligence contingencies
on the part of FPFG. Representatives of FPFG advised WIB that it would not
have the personnel available to complete due diligence prior to the first
week of February, in light of commitments related to FPFG's pending public
offering of FPFG Common Stock (which closed during the last week of January
1997). The due diligence of both parties was concluded in early February and
WIB received a substantially final version of the agreement on or about
February 12, 1997, for consideration by the WIB Board.
On the afternoon of February 13, 1997, WIB received a letter from
another mortgage banking firm expressing an interest in a possible
acquisition of Citizens at a cash price of 1.75 times the book value per
share of Citizens as of the end of the quarter preceding the quarter in which
the closing of the transaction would occur, plus a contingent payment of $7.8
million if 1998 originations by Citizens exceeded $180 million and pre-tax
profits exceeded $5.6 million, and a contingent payment of $11.1 million if
1999 originations by Citizens exceeded $212 million and pre-tax profits
exceeded $6.6 million. The letter of intent was subject to a number of other
significant contingencies, including a comprehensive due diligence review of
Citizens. On February 14, 1997, James T. Capretz, Chairman of the Board of
WIB, wrote to the President of the potential buyer and advised him that
Carpenter would be responding to him shortly on behalf of WIB. That
afternoon, Carpenter spoke with the investment banker for the potential buyer
concerning the proposed transaction, and advised him that WIB was close to
concluding a transaction with another interested party and that any due
diligence contingencies to a proposed transaction by his client would have to
be satisfied very quickly for such a transaction to proceed.
Later that day, the WIB Board held a telephonic meeting to consider the
new proposal. During the meeting, representatives of Carpenter presented
information respecting the potential buyer, its financial resources and the
value of the offer. Mr. McGuire and Carpenter also expressed their opinion
that it was unlikely that the loan volume and net profit conditions to the
contingent payments set forth in the offer could be satisfied by Citizens.
The WIB Board then authorized Carpenter to respond to the offer. Carpenter
attempted to contact the investment banker for the interested party and the
President of the party by telephone, but was unable to reach them. At the
request of the WIB Board, Carpenter then sent a letter dated February 14,
1997 to the interested party and its investment banker indicating that a
final non-contingent offer for all of the shares of WIB (as opposed to
Citizens), with no contingencies other than shareholder and regulatory
approval, a cash purchase price of $20.00 per share for the WIB Common Shares
and a $2 million cash deposit, would be considered if presented by 5:00 p.m.
on Monday, February 17 and that WIB would make its books and records
available for inspection over the weekend of February 15 and February 16. No
immediate response was received to this letter. On Saturday, February 15,
Carpenter and the Chairman of the Board of WIB spoke with the investment
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banker and discussed the position of the WIB Board. On Monday, February 17,
Carpenter spoke with the President of the bidder, who was noncommittal as to
his company's continued level of interest. No further communications were
received from the bidder following such conversation. On February 19, 1997,
a telephone meeting of the WIB Board was held to consider the Merger and
Merger Agreement presented by FPFG.
The WIB Board determined not to proceed with the competing proposal
because the offer was subject to a due diligence contingency, there were
substantial future loan volume and earnings contingencies affecting the
amount of consideration to be received, and there were uncertainties
respecting the financial capacity of the acquiror to raise the cash necessary
to complete the transaction. The WIB Board was also influenced by the
acquiror's failure to respond to WIB's counter-offer, the advanced stage of
negotiations with FPFG, the lack of substantial contingencies to the FPFG
offer and the risk of losing the FPFG transaction should negotiations with
the third party not be successfully concluded.
At the February 19, 1997 meeting, following the WIB Board's
consideration of all relevant factors and discussion with Carpenter, during
which the WIB Board asked questions related to Carpenter's presentations and
oral opinion concluding the Merger Consideration offered by FPFG, was, as of
such date, fair, from a financial point of view, to the WIB shareholders, the
WIB Board approved the Merger Agreement and authorized its execution, and
recommended approval of the agreement by the WIB shareholders. The Merger
Agreement was then executed and a press release was issued announcing the
proposed Merger on the morning of February 20, 1997.
RECOMMENDATION OF THE WIB BOARD
The WIB Board believes the Merger is in the best interests of WIB's
shareholders and has unanimously approved the Merger Agreement and the
transactions contemplated thereby. THE BOARD OF DIRECTORS OF WIB UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF WIB VOTE "FOR" ADOPTION AND APPROVAL OF
THE MERGER AGREEMENT.
The terms of the proposed Merger are the result of arms-length
negotiations between representatives of WIB and representatives of FPFG,
culminating in the signing of the Merger Agreement on February 19, 1997. In
arriving at its decision to approve and recommend the terms of the Merger
Agreement, the WIB Board considered a number of factors, including, but not
limited to, the following:
1. WIB's business, results of operations, financial condition and
future prospects, including historical and projected earnings,
return on equity and return on assets, liquidity, and growth and
margins in its mortgage banking activities. WIB also considered
the premium offered by FPFG in relation to the earnings, book value
and deposits of WIB as compared to premiums paid in other
acquisitions of other federally insured financial institutions.
See "--Opinion of WIB's Financial Advisor" for a more expanded
discussion of these items.
2. FPFG's business, results of operation, financial condition and
future prospects, and the value of the shares of FPFG Common Stock
to be acquired by the shareholders of WIB. Specifically, the WIB
Board reviewed growth in lending volume and profits of FPFG, and
the relationship of the price of the FPFG Common Stock to both
earnings and the earnings multiples at which shares of other
finance and mortgage companies trade.
3. Carpenter's presentation to the WIB Board and the opinion of
Carpenter, WIB's financial advisor, that the Merger consideration
was, as of the date of such opinion, fair from a financial point of
view to the holders of WIB Common Shares. See "--Opinion of WIB's
Financial Advisor" and Appendix B.
4. The review by the WIB Board with its legal and financial advisors
of the provisions of the proposed Merger Agreement.
5. The belief of the WIB Board that the terms of the Merger were
attractive in that they would allow WIB shareholders to receive
shares of FPFG Common Stock listed on the Nasdaq National Market,
which are substantially more liquid than the WIB Common Shares, and
that receipt of such shares would generally allow WIB shareholders
to defer payment of taxes on the disposition of their WIB Common
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Shares until sale of their shares of FPFG Common Stock received in
the Merger. See "--Certain Federal Income Tax Considerations."
6. The general economic and competitive conditions of the market in which
WIB operates and trends in the consolidation of financial
institutions in the market, including the relative advantages
enjoyed by larger institutions with more products, larger
advertising budgets, greater access to capital markets and other
advantages attendant to greater size and capitalization.
7. Exploring other indications of interest from other potential
acquirors, which, after careful analysis by the WIB Board, were
determined to be less advantageous to the shareholders of WIB than
the Merger. See "Background of and Reasons for the Merger."
8. The absence of financing contingencies in connection with the FPFG
offer.
9. WIB's substantial experience with FPFG and its loan products and the
positive impact of the business done with FPFG on WIB's results.
FPFG is by far WIB's largest customer, having purchased 46% and
64%, respectively, of WIB's total loan production in 1996 and 1997.
In particular, the WIB Board considered the FPFG proposal in light of
other opportunities presented to WIB in 1995 and 1996, including the
undertaking of a public offering, a private placement to a strategic investor
or other sales proposals. The proposals received for both private and public
offerings were at prices substantially below the price offered by FPFG and
presented concerns that the shares of existing investors would have limited
or no additional liquidity. In addition, the redirection of WIB's business
to mortgage banking from portfolio lending had reduced WIB's capital
requirements and left the company with excess capital and liquidity, leaving
sale of WIB to a larger company a more attractive option. The acquisition
proposals received from other interested parties were, in turn, at prices
generally below the price offered by FPFG, or presented other risks, such as
availability of financing or contingencies that were not acceptable to the
WIB Board. See "Background of and Reasons for the Merger."
The FPFG Common Stock held by WIB's shareholders following the Merger,
while presenting risks to WIB's shareholders, would only represent
approximately two percent (2%) of total shares outstanding. The WIB Board
believes that the market for FPFG shares is sufficiently broad to permit
WIB's shareholders to dispose of such shares should they desire to do so. By
taking stock, WIB's investors may elect when to recognize any taxes from
disposition of the shares. Although the FPFG Common Stock carries certain
risks, including the need of FPFG for additional financing, dependence of
FPFG on an active market for securitized loans, interest rate risk, credit
risk, Title I lending and a high level of exposure to the California
marketplace, these risks were perceived by the WIB Board to be similar to the
risks inherent in WIB's business. See "Risk Factors."
The WIB Board recognizes that completion of the Merger will remove the
opportunity of WIB to grow independently and to perhaps ultimately achieve a
higher valuation based on its own business, whether through a future public
offering, a sale of WIB to a buyer at a higher price or otherwise. No
assurance can be given that FPFG will continue to experience the earnings
growth of recent periods, or that the FPFG Common Stock will prove to be a
superior investment to the WIB Common Shares. However, in the judgment of
the WIB Board such potential disadvantages and risks are outweighed by the
potential benefits described above.
In reaching its determination to approve and recommend the Merger, the
WIB Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given different weights to
different factors.
Certain members of the WIB Board have interests in the Merger in addition
to their interests as shareholders generally, including certain stock options
held by members of the WIB Board that will be converted into stock options to
acquire shares of FPFG Common Stock as a result of the Merger, and certain
payments to be received by the members of the WIB Board (other than Mr.
McGuire) under the Director Agreements. See "--Interests of Certain Persons
in the Merger."
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OPINION OF WIB'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 3, 1997 (the "Engagement
Letter"), WIB engaged Carpenter to provide a fairness opinion and other
financial advisory services with respect to the transaction. Carpenter is an
investment banking firm specializing in California financial institutions,
and, as part of its investment banking activities, is regularly engaged in
the valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, underwritings, private
placements and valuations for corporate and other purposes. WIB selected
Carpenter to render the opinion on the basis of its experience and expertise
in transactions similar to the Merger and its reputation in the banking and
investment communities. No limitations were imposed by WIB on Carpenter with
respect to the investigations made or procedures followed in rendering its
opinion.
At a meeting of the WIB Board on February 19, 1997, Carpenter delivered
its oral opinion that the consideration to be received by the holders of WIB
Common Shares pursuant to the Merger was fair to such shareholders from a
financial point of view, as of the date of such opinion. Carpenter's oral
opinion was subsequently confirmed in writing as of such date.
THE FULL TEXT OF CARPENTER'S WRITTEN OPINION TO THE WIB BOARD, DATED
MARCH 26, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED,
AND LIMITATIONS OF THE REVIEW, BY CARPENTER, IS ATTACHED HERETO AS APPENDIX B
AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
CARPENTER'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION, WHICH SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. IN
FURNISHING SUCH OPINION, CARPENTER DOES NOT ADMIT THAT IT IS AN EXPERT WITH
RESPECT TO THE REGISTRATION STATEMENT OF WHICH THIS PROXY
STATEMENT/PROSPECTUS IS A PART WITHIN THE MEANING OF THE TERM "EXPERTS" AS
USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER. NOR DOES CARPENTER ADMIT THAT ITS OPINION CONSTITUTES A REPORT
OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT.
CARPENTER'S OPINION IS DIRECTED TO THE WIB BOARD, COVERS ONLY THE FAIRNESS OF
THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF WIB COMMON SHARES FROM A
FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY HOLDER OF WIB COMMON SHARES AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT WIB MEETING.
In connection with its opinion, Carpenter, among other things: (i)
reviewed certain publicly available financial and other data with respect to
WIB and FPFG, including the consolidated financial statements for recent
years and interim periods to December 31, 1996 and certain other relevant
financial and operating data relating to WIB and FPFG made available to
Carpenter from published sources and from the internal records of WIB; (ii)
reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, WIB Common
Shares and FPFG Common Stock; (iv) compared WIB and FPFG from a financial
point of view with certain other companies in the financial services industry
which Carpenter deemed to be relevant; (v) considered the financial terms, to
the extent publicly available, of selected recent business combinations of
companies in the banking industry which Carpenter deemed to be comparable, in
whole or in part, to the Merger; (vi) compared to the Merger the financial
and other terms of recent business combinations proposals made to WIB by
other companies in 1996; (vii) reviewed and discussed with representative of
the management of WIB certain information of a business and financial nature
regarding WIB, furnished to Carpenter by them; (viii) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with WIB's counsel; and (ix) performed such other analyses
and examinations as Carpenter deemed appropriate.
In connection with its review, Carpenter did not assume any obligation
independently to verify the foregoing information and relied on such
information being accurate and complete in all material respects. Carpenter
also assumed that there were no material changes in WIB's or FPFG's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to it.
Carpenter relied on advice of counsel to WIB as to all legal matters with
respect to WIB, the Merger and the Merger Agreement. WIB acknowledged that
Carpenter did not discuss with WIB's independent accountants any financial
reporting matters with respect to WIB, the Merger or the Merger Agreement.
WIB informed Carpenter, and Carpenter assumed, that the Merger would be
accounted for as a pooling of interests under generally accepted accounting
principles. Carpenter assumed that the Merger would be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act, the Exchange Act and all other applicable federal and state
statutes, rules and regulations.
Carpenter assumed that the allowance for loan losses for each of WIB and
FPFG are in the aggregate adequate to cover such losses. In addition,
Carpenter did not assume responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection
of any of the assets or liabilities (contingent or
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otherwise) of WIB or FPFG, nor was Carpenter furnished with any such
appraisals. Finally, Carpenter's opinion was based on economic, monetary and
market and other conditions as in effect on, and the information made
available to Carpenter as of the date of the opinion. Accordingly, although
subsequent developments may affect Carpenter's opinion, it has not assumed
any obligation to update, revise or reaffirm such opinion.
Set forth below is a summary of Carpenter's analysis in connection with
its opinion that is complete in all material respects.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Carpenter reviewed public
transactions involving acquisitions of thrift and loan companies since
January 1, 1992. Because the number of publicly reported acquisitions of
thrift and loans consisted of a small number of transactions, Carpenter also
reviewed the consideration paid in recently announced transactions whereby
certain banks of various sizes were acquired. Specifically, Carpenter
reviewed five transactions involving the acquisition of thrift and loans
since 1992 and two transactions involving the acquisition of thrift and loan
companies in 1996, 101 transactions involving acquisitions of banks based in
California announced since January 1, 1992 (the "California Bank
Acquisitions"), and 58 acquisitions of banks based in California with total
assets of less than $200 million since the same date (the "Small Bank
Acquisitions"). Carpenter further analyzed 16 transactions in 1996 involving
California banks under $200 million (the "1996 Small Bank Acquisitions").
For each institution acquired or to be acquired in such transactions,
Carpenter analyzed data illustrating, among other things, the ratio of the
premium (i.e., purchase price in excess of tangible book value) to core
deposits, purchase price to tangible book value and purchase price to last 12
months' ("LTM") earnings.
The two thrift and loan company transactions during 1996 considered were
the acquisition of California Thrift and Loan by Bayview Federal Bank (the
"CTL Acquisition") and the acquisition of Town and Country Finance by Capital
Corp of the West (the "Town and Country Acquisition"). Both transactions
took place in 1996. The figures for the CTL Acquisition and the Town and
Country Acquisition produced, respectively: (i) percentage of premium to
core deposits of 6.1% and 9.4%; (ii) multiple of purchase price to tangible
book value of 130% and 157%; and (iii) multiple of purchase price to LTM
earnings of 11.4x and 9.1x. The figures for the California Bank Acquisitions,
Small Bank Acquisitions, and 1996 Small Acquisitions produced, respectively:
(i) median percentage of premium to core deposits of 6.3%, 6.2%, and 7.5%;
(ii) median multiple of purchase price to tangible book value of 163.1%,
147.4% and 168.6%; and (iii) median multiple of purchase price to LTM
earnings of 17.5x, 19.4x and 15.4x. In view of the wide range of WIB
earnings over the last several years, in addition to considering the price as
a multiple of WIB's LTM earnings, Carpenter also reviewed the price as a
multiple to the average of earnings for each of those years, a normalized
annual earnings rate of $1,294,783. In comparison, based upon an assumed
purchase price of $17.65 for each WIB Common Shares, Carpenter determined
that the consideration to be received by the holders of WIB Common Shares in
the Merger represented a percentage of premium to core deposits of 11.6%, a
multiple of price to tangible book value of 200.0%, a multiple of price to
WIB's year end 1996 earnings of 9.0x, and a multiple of price to WIB's
normalized three-year earnings of 19.2x.
No other company or transaction used in the above analysis, as a
comparison, is identical to WIB or the Merger. Accordingly, an analysis of
the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could
affect the public trading value and the announced acquisition prices of the
companies to which WIB and the Merger are being compared.
CONTRIBUTION ANALYSIS. Carpenter analyzed the contribution of each of
WIB and FPFG to, among other things, total tangible common equity, assets,
LTM net income, and gross loans of the pro forma combined companies. For
purposes of this analysis, because the growth of FPFG made utilization of
FPFG LTM earnings in the combination analysis inappropriate, the income
attributed to FPFG was based upon an annualization of its December 31, 1996
quarter. Similarly, the FPFG balance sheet utilized was for the period ending
January 31, 1997, which gave effect to FPFG's recent stock offering. For
WIB, the balance sheet for the period ending December 31, 1996 was used, and
the income statement for the calendar year 1996 and the normalized average
for the three years ending December 31, 1996 (as calculated above) were both
used for comparative purposes. This analysis showed, among other things,
that based on pro forma combined balance sheets for WIB and FPFG as defined
above, WIB would have contributed 4.1% of shareholders' equity, 8.1% of
assets, and 4.5% of loans. Pro forma income statements as defined above
indicated that WIB would have contributed 3.6% of the net income of the pro
forma combined companies based on 1996 earnings by WIB, and 1.7% of combined
pro forma earnings giving effect to a three-year average for WIB earnings.
Based upon analysis assuming a FMV of the FPFG Common Stock of $32.00 and,
therefore, a Conversion Ratio in the Merger of
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.5517 a share of FPFG Common Stock for each WIB Common Shares, holders of WIB
Common Shares would own approximately 1.9% of the combined companies based on
fully diluted shares outstanding on the date of the opinion.
REVIEW OF FPFG AND WIB. Carpenter analyzed the financial results of both
FPFG and WIB for the period from 1994 through 1996 as reported by both
companies in their respective annual reports and public filings.
Specifically, Carpenter reviewed total assets, shareholder equity, net
income, and return on assets and return on equity. Assets of FPFG grew from
$61,341,000 at September 30, 1995 to $1,469,206,000 at March 31, 1997.
Shareholder equity of FPFG grew from $11,734,000 at September 30, 1995 to
$94,569,000 at September 30, 1996 and $307,638,000 at March 31, 1997. Net
income of FPFG for the fiscal year ending September 30, 1995 was $5,839,000,
for the fiscal year ending September 30, 1996 was $34,212,000, and for the
six months ending March 31, 1997 was $48,181,000. Return on assets and
return on equity of FPFG for each of the fiscal years ending September 30,
1995, September 30, 1996 and annualized return on equity for the six months
ending March 31, 1997 were respectively 15.9% and 72.7%, 8.9% and 64.4%, and
8.8% and 47.9%. Total assets of WIB at the end of each of the fiscal year
ending December 31, 1994, December 31, 1995, and December 31, 1996 were
$119,184,000, $127,785,000, and $124,548,000, respectively. Shareholders'
equity of WIB at the end of each of the fiscal years ending December 31,
1994, December 31, 1995, and December 31, 1996 was $8,126,000, $9,245,000,
and $11,761,000, respectively. Net income of WIB for each of the fiscal
years ending December 31, 1994, December 31, 1995, and December 31, 1996 was
$387,000, $722,000, and $2,775,000, respectively. Return on assets and
return on equity of WIB for each of the fiscal years ending December 31,
1994, December 31, 1995, and December 31, 1996, were 0.34% and 4.78%, 0.57%
and 8.40%, and 2.23% and 27.47%, respectively.
TRADING ACTIVITY AND PRICES. Carpenter reviewed the trading activity and
sales prices in the common stock of both WIB and FPFG. FPFG Common Stock has
been quoted on the Nasdaq National Market since FPFG's initial public
offering in February 1996. As of June 30, 1997, there were 34,461,473 shares
of FPFG Voting Common Stock outstanding, and 690,905 shares of non-voting
common stock. Sales prices for the FPFG Common Stock in calendar year 1996
ranged from a low of $17.50 to a high of $30.75 per share. In the quarter
ending March 31, 1997, sales prices for the FPFG Common Stock varied from a
low of $20.50 to a high of $36.75. Trading volumes in calendar 1996 averaged
115,976 shares traded per day. Daily trading volumes in the first quarter of
1997 averaged 546,882 shares. WIB Common Shares are not listed on a national
exchange or quoted on any system of the Nasdaq Stock Market and are traded
only sporadically. At July 23, 1997, there were 1,211,156 WIB Common Shares
issued and outstanding. Management of WIB is aware of sales of approximately
56,239 WIB Common Shares in 1996 at prices ranging from $5.00 to $6.25 per
share, and one sale during the first quarter of 1997 at $7.25 per share.
The summary set forth above does not purport to be a complete description
of the presentation by Carpenter to the WIB Board or of the analysis
performed by Carpenter. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description.
Carpenter believes that its analyses and the summary set forth above must be
considered as a whole and that selecting a portion of its analyses and
factors, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the WIB Board. The range of valuations resulting from any
particular analysis described above should not be taken to be Carpenter's
view of the actual value of WIB or the combined companies.
In performing its analyses, Carpenter made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of WIB or FPFG. Material
among those assumptions were that of a reasonable stable economic and
interest rate environment, no changes in the regulatory and statutory regime
governing the business of both FPFG and WIB sufficient to materially impact
their results, and continued secondary financial market liquidity for the
products of both FPFG and WIB. The analyses performed by Carpenter are not
necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Such analyses were prepared solely as part of Carpenter's analysis of the
fairness of the consideration to be received by the holders of WIB Common
Shares in the Merger and were provided to the WIB Board in connection with
the delivery of Carpenter's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold
or the prices at which any securities may trade at the present time or any
time in the future. The forecasts utilized by Carpenter in certain of its
analyses are based on numerous variables and assumptions which are inherently
unpredictable and must be considered not certain of occurrence as projected.
Accordingly, actual results could vary significantly from those contemplated
in such forecasts.
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Pursuant to the Engagement Letter, WIB will pay Carpenter a transaction
fee in connection with the Merger, a substantial portion of which is
contingent upon the consummation of the Merger. Under the terms of the
Engagement Letter, WIB will pay Carpenter a transaction fee equal to 1% of
the aggregate purchase price paid in the transaction, less $50,000 previously
paid to Carpenter. WIB has also agreed to reimburse Carpenter for its
reasonable out-of-pocket expenses. WIB has agreed to indemnify Carpenter,
its affiliates, and their respective partners, directors, officers, agents,
consultants, employees and other controlling persons against certain
liabilities.
THE MERGER AGREEMENT
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
representations and warranties by WIB relating to, among other things, (a)
proper organization of WIB, proper organization of its subsidiaries and
similar corporate matters; (b) the capital structures of WIB and each of its
subsidiaries; (c) the authorization, performance and enforceability of the
Merger Agreement; (d) the absence of violations of WIB's governing
instruments and applicable laws and agreements; (e) governmental
authorizations required to effect the Merger; (f) the absence of claims and
litigation against WIB and its subsidiaries; (g) compliance by WIB and its
subsidiaries with applicable laws; (h) absence of material adverse changes on
WIB; (i) compliance by WIB and its subsidiaries with applicable environmental
laws and regulations; (j) WIB Board recommendations; (k) intellectual
property rights and other intangible personal property; (l) disclosures in
the Merger Agreement by WIB not being misleading; (m) preparation by WIB of
audited financial statements in accordance with generally accepted accounting
principles ("GAAP") for the periods covered; (n) the absence of undisclosed
liabilities by WIB; (o) WIB's taxes and tax matters; (p) WIB's loan
practices; (q) WIB's interests in real property; (r) WIB's material contracts
and the absence of any breach of or default under any such contract; (s)
WIB's employee benefit plans; (t) WIB's insurance; and (u) WIB's compensation
of its officers, directors, and employees.
The Merger Agreement also contains representations and warranties by FPFG
relating to, among other things, (a) proper organization of FPFG; (b) the
authorization, performance and enforceability of the Merger Agreement; (c)
the compliance in all material respects with applicable requirements of the
Exchange Act of certain filings made by FPFG with the Commission; (d) the
absence of a litigation except as described in such documents filed with the
Commission; and (e) governmental authorizations required to effect the Merger.
CONDUCT OF BUSINESS PRIOR TO THE MERGER. WIB has agreed that, prior to
the Merger, it and its subsidiaries will conduct their operations only in
the ordinary course of business, except as contemplated by the Merger
Agreement. WIB has agreed that, prior to the Merger, WIB will and will cause
each of its subsidiaries to (i) extend credit in accordance with existing
lending policies, except that neither the WIB nor any subsidiary shall,
without the prior written consent of FPFG (A) make any extensions of credit
aggregating in excess of $200,000 to a person or entity that is not a
borrower as of the date of the execution of the Merger Agreement (except for
loans which CIT Group/Consumer Finance, Inc. has committed to purchase prior
to their approval by Citizens) or (B) engage in any loan transaction or
series of contemporaneous loan transactions involving an aggregate of more
than $200,000 with any borrower who has aggregate extensions of credit in
excess of $200,000 as of the date of the consummation of the Merger; (ii) not
authorize or incur any long-term debt; (iii) not mortgage, pledge or subject
to lien or other encumbrance any of its properties, except in the ordinary
course of business; (iv) not enter into any material agreement, contract or
commitment in excess of $50,000 except banking transactions and treasury
investments in debt securities in the ordinary course of business; (v) not
make any investments except investments made in the ordinary course of
business, in accordance with past practice; (vi) not amend or terminate any
employee benefit plan except as required by law; (vii) not make any
contributions to any employee benefit plan except as required by the terms of
such plan in effect as of the date of the Merger Agreement; (viii) not
declare, set aside, make or pay any dividend or other distribution with
respect to WIB's capital stock; (ix) not redeem, purchase or otherwise
acquire, directly or indirectly, any of the capital stock of WIB; (x) not
increase the compensation of any officers, directors or executive employees,
except pursuant to existing compensation plans and practices (including bonus
plans); (xi) not sell or otherwise dispose of any shares of the capital stock
of any subsidiary; (xii) not sell or dispose of any of its assets or
properties other than in the ordinary course of business; (xiii) not issue
any equity interests in WIB other than pursuant to the exercise of Existing
Stock Rights; (xiv) not issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments under
which any additional equity interests in WIB's or a subsidiary's capital
stock may be authorized, issued or transferred from treasury; or (xv) not
amend or otherwise change its articles of incorporation; and (xvi) not
acquire any capital stock or other equity securities or acquisition of any
equity or ownership interest in any bank, corporation, partnership or other
entity, except (A) through settlement of indebtedness, foreclosure, or the
exercise of creditors' remedies or (B) in a fiduciary capacity, the ownership
of which does not expose it to any liability from the business, operations or
liabilities of such person.
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CERTAIN COVENANTS OF WIB AND FPFG. Each of FPFG and WIB have agreed to:
(i) except as required by law, consult with the other party prior to making
any press release or other public announcement regarding the Merger and any
matters contained in the Merger Agreement; (ii) use reasonable, good faith
efforts to take all necessary actions or cause to be done all things
necessary to consummate the transactions contemplated by the Merger Agreement
as soon as practicable including seeking or making all required filings,
orders, consents or authorizations required under applicable law or consents
from any governmental bodies or parties to any material contracts and to
refrain from any action that would materially impair the likelihood of the
consummation of the transaction contemplated by the Merger Agreement or take
any action that may materially and adversely affect the obtaining of any
consent, waiver, authorization or approval; (iii) not take any actions which
could prevent the Merger from qualifying for "pooling-of-interests"
accounting treatment or to be treated as a tax-free "reorganization" for
Federal income tax purposes; (iv) cooperate and use all reasonable efforts to
defend against any claim, action, suit, investigation or other proceeding;
(v) promptly notify the other of the occurrence of any event that renders any
of the representations or warranties of such party set forth in the Merger
Agreement materially inaccurate, the awareness of such party that any
representation or warranty of such party set forth in the Merger Agreement
was not accurate in all material respects when made or the failure of such
party to comply with or accomplish any of the covenants or agreements of
such party set forth in the Merger Agreement in any material respect.
ADDITIONAL COVENANTS OF WIB: WIB has also agreed to (i) continue in
force its and each subsidiary's existing insurance policies or replace them
with new policies providing substantially the same coverage and rates; (ii)
maintain in full force and effect all permits, licenses and authorizations
which are material to the condition (financial and otherwise) of assets,
liabilities, properties, business and results of operations of WIB and its
subsidiaries; (iii) cause Michael W. McGuire to enter into an amendment to
the McGuire Employment Agreement, effective as of the Effective Time; (iv)
cause the directors of WIB and its subsidiaries to execute and deliver to
FPFG his or her resignation from all directorships with WIB and its
subsidiaries, effective as of the Effective Time (the "Resignations"); and
(v) cause each of WIB's non-employee directors (other than Mr. McGuire) to
execute and deliver to FPFG the Director Agreements.
ADDITIONAL COVENANTS OF FPFG. FPFG has also agreed, among other things,
that it will (i) file an application with the Nasdaq National Market to list
the shares of FPFG Common Stock to be issued pursuant to the Merger and shall
use its best efforts to cause such application to be approved prior to the
Closing Date and to comply in all material respects with the requirements of
the Nasdaq National Market; (ii) prepare and file with the SEC as soon as
practicable the Registration Statement; and (iii) take any action required to
be taken under applicable "blue sky" or state securities laws in connection
with the issuance of the FPFG Common Stock pursuant to the Merger.
NO SOLICITATION BY WIB. During the term of the Merger Agreement, WIB has
agreed that it will not, and shall cause WIB's officers, directors and
affiliates and Carpenter not to, take any action that could impede or
adversely effect the likelihood of the consummation of the transactions
contemplated by the Merger Agreement, or otherwise directly or indirectly
make, solicit, initiate, participate in or otherwise encourage the submission
of any proposal or offer from any person (including, without limitation, any
of the managers, officers, or employees of WIB or any of its subsidiaries)
relating to any liquidation, dissolution, recapitalization, reorganization,
merger, consolidation or the acquisition of all or a material portion of the
assets of, or any equity interest in, WIB or any of its subsidiaries or any
other similar transaction or business combination involving WIB or any of
its subsidiaries (an "Alternative Transaction"), other than the Merger and
shall not, and shall cause WIB's officers, directors and affiliates and
Carpenter not to, directly or indirectly, participate in any negotiations or
discussions regarding, or furnish any information with respect to, or
otherwise cooperate in any way in connection with, or assist or participate
in, facilitate or encourage, any effort or attempt to effect or seek to
effect, any Alternative Transaction with or involving any person other than
FPFG or an affiliate of FPFG; PROVIDED, HOWEVER, that the actions
prohibited above shall be subject to any action taken by the WIB Board in the
exercise of its good faith judgment as to its fiduciary duties to the
shareholders of WIB, which judgment is based upon the advice of independent
counsel that a failure of the WIB Board to take such action might reasonably
constitute a breach of its fiduciary duties to the shareholders of WIB.
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to
certain conditions, including: (a) the approval of the Merger Agreement by
the affirmative vote of the holders of a majority of the WIB Common Shares
entitled to vote thereon; (b) the effectiveness of the Registration Statement
of which this Proxy Statement/Prospectus forms a part; (c) the Registration
Statement not being subject to any stop order, and no action, suit,
proceeding or investigation by the Commission to suspend the effectiveness of
the Registration Statement having been initiated and be continuing, or having
been threatened or be unresolved; (d) approval of the Merger by the FDIC and
the DOC; (e) receipt by WIB of an opinion of KPMG Peat Marwick LLP dated as
of the Effective Time as to the tax-free nature of the Merger for
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Federal income tax purposes; (f) receipt by FPFG of a letter from Ernst &
Young LLP to the effect that the Merger will qualify for
"pooling-of-interests" accounting treatment; (g) the absence of any
injunction law, order, writ, or decree of any governmental body of competent
jurisdiction, legal restraint or instituted or threatened legal proceeding
prohibiting consummation of the Merger; (h) receipt by FPFG of duly executed
copies of the agreements from holders of Existing Stock Rights agreeing to
the treatment of their options as described in the Merger Agreement; (i)
holders of no more than 9.9% of the outstanding WIB Common Shares shall have
elected to exercise appraisal rights pursuant to the CCC; and (j) certain
other customary closing conditions. There can be no assurance as to when and
if the conditions to consummation of the Merger will be satisfied (or, where
permissible, waived) or that the Merger will be consummated, although the
FDIC and DOC have approved the Merger. The conditions specified in (a), (b),
(c), (d), and (g) may not be waived by either WIB or FPFG. See "--Listing,"
"--Interests of Certain Persons in the Merger" and "--Governmental and
"Regulatory Approvals."
AMENDMENT OF MERGER AGREEMENT. The Merger Agreement may be amended by
the parties thereto, pursuant to action taken by their respective boards of
directors or pursuant to authority delegated by their respective boards of
directors, at any time before or after approval of the Merger Agreement by
WIB's shareholders; PROVIDED HOWEVER that, after the Merger Agreement is
approved by WIB's shareholders, pursuant to the CCC, no amendment can be made
to the Merger Agreement that changes in a manner materially adverse to WIB's
shareholders the consideration to be received by WIB's shareholders in the
Merger.
EXTENSION; WAIVER. Prior to the Effective Time, FPFG and WIB, may, to
the extent legally allowed (i) extend the time for the performance of any of
the obligations or other acts required of the other party contained in the
Merger Agreement or (ii) waive compliance by the other party of any of its
agreements or conditions contained in the Merger Agreement.
TERMINATION. The Merger Agreement may be terminated by FPFG or WIB any
time prior to the Effective Time if (i) any of the conditions precedent to
such party's obligation to close stated in the Merger Agreement have not been
fulfilled or waived by the scheduled Closing Date; (ii) the Closing shall not
have taken place by September 30, 1997; PROVIDED, HOWEVER, that neither party
shall be entitled to so terminate the Merger Agreement if such party is in
material breach of the Merger Agreement at such time; (iii) at the WIB
Meeting (including any adjournments thereof), the Merger Agreement and the
Merger shall fail to be approved and adopted by WIB's shareholders in
accordance with the CCC and the WIB Articles.
FPFG may terminate the Merger Agreement if (i) the WIB Meeting has not
been held and the Merger approved by WIB's shareholders by September 30,
1997, unless delayed by circumstances beyond the reasonable control of WIB;
(ii) the WIB Board fails to recommend prior to the WIB Meeting or withdraws,
modifies or changes its recommendations of the Merger Agreement or the Merger
(other than pursuant to a termination of the Merger Agreement as otherwise
permitted under the Merger Agreement) in a manner adverse to FPFG or shall
have resolved to do any of the foregoing; (iii) if the WIB Board shall have
recommended to the shareholders of WIB an Alternative Transaction or shall
have resolved to do so; (iv) a tender offer or exchange offer for 20% or more
of the outstanding shares of WIB is commenced, and the WIB Board recommends
that shareholders tender their shares in such tender or exchange offer; or
(v) any person shall have acquired after the date of the Merger Agreement
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d)(3) of the Exchange Act
and the rules and regulations promulgated thereunder) shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership of,
more than 20% of the then outstanding shares of WIB or shares representing
20% or more of the outstanding voting power of WIB. FPFG may also terminate
the Merger Agreement if there has been any misrepresentation or breach of or
failure to satisfy timely on the part of WIB of any condition or any
warranty, representation or agreement contained in the Merger Agreement, if
such breach or failure is not cured within ten days after receipt of notice
from FPFG. Notwithstanding the foregoing, FPFG shall not be entitled to
terminate the Merger Agreement by reason of (a) any misrepresentation or
breach of, or failure to cure any misrepresentation or breach of, any
warranty or representation made by WIB or (b) any breach of, or failure to
comply with, any covenant or agreement of WIB contained in the Merger
Agreement, if WIB has provided FPFG with written notice of such breach or
failure prior to the Closing, has used its best efforts to cure such breach
or failure promptly and in any event within any cure period provided under
the Merger Agreement and FPFG has not elected to terminate the Merger
Agreement within 15 days of the later to occur of (A) receipt by FPFG of
notice of such breach or failure and (B) the end of any applicable cure
period respecting such breach or failure;
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WIB may terminate the Merger Agreement if WIB, based upon the fiduciary
obligation of the WIB Board under applicable law, after taking into account
in good faith the advice of independent counsel with respect thereto, enters
into an Alternative Transaction. WIB also may terminate the Merger Agreement
if there has been any misrepresentation or breach of or failure to satisfy
timely on the part of FPFG of any condition or any warranty, representation
or agreement contained in the Merger Agreement, if such breach or failure is
not cured within ten days after receipt of notice from WIB. Notwithstanding
the foregoing, WIB shall not be entitled to terminate the Merger Agreement by
reason of (a) any misrepresentation or breach of, or failure to cure any
misrepresentation or breach of, any warranty or representation made by FPFG
or (b) any breach of, or failure to comply with, any covenant or agreement of
FPFG contained in the Merger Agreement, if FPFG has provided WIB with
written notice of such breach or failure prior to the Closing, has used its
best efforts to cure such breach or failure promptly and in any event within
any cure period provided under the Merger Agreement and WIB has not elected
to terminate the Merger Agreement within 15 days of the later to occur of
(A) receipt by WIB of notice of such breach or failure and (B) the end of any
applicable cure period respecting such breach or failure.
FEES; EXPENSES; TERMINATION FEE. Except as described below, all fees and
expenses incurred by the parties shall be borne solely and entirely by the
party that incurred such expenses.
WIB shall pay to FPFG, in same day funds, the aggregate amount of all
expenses incurred by FPFG and its affiliates in connection with the Merger
Agreement and the transactions contemplated therein (including fees and
expenses of counsel, accountants and financial advisors, the "FPFG Expense
Reimbursement") if any of the following events shall have occurred and there
shall be no material breach of the Merger Agreement continuing by FPFG: FPFG
shall have terminated the Merger Agreement in accordance with the terms of
Section 9.1(a), Section 9.1(d), Section 9.1(e), Section 9.1(f) or Section
9.1(g) of the Merger Agreement. Notwithstanding the foregoing, the FPFG
Expense Reimbursement shall be payable by WIB upon a termination by FPFG
pursuant to Section 9.1(a) of the Merger Agreement only if FPFG terminates
due to a breach of the Merger Agreement by WIB of a representation, warranty
or covenant of WIB in the Merger Agreement or a covenant of WIB in the Merger
Agreement, or due to a failure of the conditions to consummation set forth in
Section 8.3, Section 8.4, Section 8.7, Section 8.11, Section 8.12, Section
8.13, Section 8.14, Section 8.15, Section 8.16 or Section 8.17 of the Merger
Agreement. Please see the referenced sections of the Merger Agreement, which
is attached hereto as Appendix A, for a complete description of the contents
of such sections.
FPFG shall pay to WIB, in same day funds, the aggregate amount of all
expenses incurred by WIB and its affiliates in connection with the Merger
Agreement and the transactions contemplated therein (including fees and
expenses of counsel, accountants and financial advisors incurred by WIB, the
"WIB Expense Reimbursement") if any of the following events shall have
occurred and there shall be no material breach of the Merger Agreement
continuing by WIB. WIB shall have terminated the Merger Agreement due to the
failure of FPFG to receive approval of the Merger from the FDIC or the DOC on
or before September 30, 1997 or in accordance with Section 9.1(b) of the
Merger Agreement. Notwithstanding the foregoing, the WIB Expense
Reimbursement shall be payable by FPFG upon a termination by WIB pursuant to
Section 9.1(b) only if WIB terminates due to a breach of the Merger Agreement
by FPFG of a representation, warranty or covenant of FPFG contained in the
Merger Agreement, or due to a failure of the conditions to consummation set
forth in Section 7.3, Section 7.4 or Section 7.6 of the Merger Agreement.
Please see the referenced sections of the Merger Agreement, which is attached
hereto as Appendix A, for a complete description of the contents of such
sections.
In addition to the FPFG Expense Reimbursement, WIB shall pay to FPFG, in
same day funds, a Termination Fee of $1,500,000 upon demand, if: (i) the
Merger Agreement shall have been terminated; (ii) there shall be no material
breach of the Merger Agreement by FPFG continuing at the time of such
termination; (iii) (A) WIB shall have willfully breached the representations,
warranties, covenants or conditions contained in the Merger Agreement or the
other agreements executed in connection therewith, or (B) such termination
was by FPFG pursuant to Section 9.1(d), Section 9.1(f), or Section 9.1(g), or
(C) such termination was by WIB pursuant to Section 9.1(e) or due to a
failure of the condition to consummation set forth in Section 7.11; and (iv)
WIB shall have entered into an agreement with respect to an Alternative
Transaction on or prior to June 1, 1998, the WIB shareholders shall fail to
approve the Merger and shall approve an Alternative Transaction on or prior
to June 1, 1998, or, on or prior to June 1, 1998, WIB shareholders shall
receive a proposal for an Alternative Transaction and such proposal shall
result in a party unaffiliated with WIB acquiring a majority of the voting
power of WIB. Please see the referenced sections of the Merger Agreement,
which is attached hereto as Appendix A, for a complete description of the
contents of such sections.
LISTING. The Merger Agreement provides that FPFG will use its best
efforts to cause the FPFG Common Stock to be issued in the Merger to be
approved for quotation on the Nasdaq National Market prior to the Effective
Time. Such listing is also a condition precedent to consummation of the
Merger. FPFG anticipates that it will file a listing application
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with the Nasdaq National Market relating to the issuance by FPFG of the
Merger Consideration prior to the WIB Meeting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the WIB Board with respect to the
Merger, shareholders should be aware that certain directors, officers and
employees of WIB have interests in the consummation of the Merger, as
described below. The WIB Board was aware of these interests, and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
INTERESTS AS SHAREHOLDERS. At July 23, 1997, eight directors and
executive officers of WIB held or had the right to vote, in the aggregate,
386,688 shares, or 31.9%, of the outstanding WIB Common Shares entitled to
vote at the WIB Meeting. Such shares had a total value of approximately
$6,826,783.
STOCK OPTION PLANS. WIB utilizes stock options and other stock-related
incentive programs in order to attract and retain personnel. It currently
maintains a non-qualified 1982 Stock Option Plan (the "1982 Stock Option
Plan") and a 1994 Stock Option and Incentive Plan (the "1994 Stock Option
Plan"). At July 23, 1997, a total of 197,136 shares were the subject of
awards under such plans, of which 195,711 were held by the directors and
executive officers of WIB as a group. Such options were "in-the-money" by
approximately $2,901,314. See "Security Ownership of Certain Beneficial
Owners and Management of WIB." These plans are intended to provide added
incentive to directors, officers and key employees. All options pursuant to
such plans granted are at an exercise price of at least the fair market value
of WIB Common Shares on the date of grant. No options have been granted to
executive officers or directors since 1992. All outstanding stock options
provide for an immediate acceleration of the vesting period upon certain
events constituting a change in control. The Merger will constitute a change
in control for purposes of all options.
Under the Merger Agreement, each holder of an Existing Stock Right shall
enter into an agreement under which such Existing Stock Right shall be
substituted for a non-qualified stock option to be granted under FPFG's stock
option plan. The New Options shall have vesting terms and conditions
matching those contained in the Existing Stock Rights, provided that the
periodic vesting schedules set forth in the Existing Stock Rights shall be
accelerated as a result of the Merger so as to make such options immediately
exercisable, and all holders of the New Options shall have a period of not
less than one year following termination of their employment or other service
with WIB or Citizens in which to exercise the New Options. Each New Option
will evidence the right to purchase the number of shares of FPFG Common Stock
equal to the product (rounded up or down to the next whole share) of (i) the
number of shares of WIB Common Shares covered by the Existing Stock Right
immediately prior to the Effective Time multiplied by (ii) the Conversion
Ratio. The exercise price shall also be proportionately adjusted. The
delivery of executed agreements from the holders of Existing Stock Rights,
agreeing to such treatment, is a condition precedent to consummation of the
Merger.
EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN. On December 29, 1994, the WIB
Board adopted the Western Interstate Bancorp Employee Stock Ownership and
Savings Plan (the "KSOP") which amended and restated the prior Employee Stock
Ownership Plan dated as of January 1, 1988, and amended as of January 1,
1994, and the Citizens Thrift & Loan Association Profit Sharing and
Employees' Savings Plan of January 1, 1986, amended and restated as of
January 1, 1987. The KSOP encompasses both an employee stock ownership plan
(the "ESOP"), under which contributions by WIB and Citizens are used to
purchase WIB Common Shares, and a deferred compensation element under Section
401(k) of the Internal Revenue Code, under which participants may defer
current compensation and invest the deferred compensation as provided in the
plan (the "Savings Plan").
The WIB Board determines contributions to the ESOP in the form of either
WIB Common Shares or cash, which must be used within a reasonable period
after the date of contribution primarily to purchase WIB Common Shares.
Under the Savings Plan, participants may reduce their salary by up to a
maximum of 15% a year, subject to an annual limit ($9,500 for 1996). Subject
to certain limitations, WIB may also make contributions to the salary
reduction accounts of the participants. While all employee contributions are
immediately invested, contributions by WIB to the ESOP vest 100% after five
years and contributions to the Savings Plan vest 20% after three years, 40%
after four years and 100% after five years.
No contributions to the KSOP were made by the WIB Board for 1996 and
1995. A contribution of $370,594 was made in 1994. The KSOP acquired 7,866
and 52,000 shares of WIB Common Shares during 1996 and 1995, respectively.
At June 15, 1997, the KSOP owned 267,212 shares, representing 22.1% of the
total outstanding WIB Common Shares.
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In connection with the Merger, participants in the KSOP will be entitled to
vote the shares allocated to their accounts. Of the 267,212 shares held in
the KSOP, an aggregate of 67,637 shares are held in the accounts of Michael
W. McGuire, Marie A. Reich, Gus Mendoza and Javier S. Llanes, principal
executive officers of Citizens, representing 25.3% of the total shares held
by the KSOP. The KSOP participants shall have the right to vote all shares
allocated to their accounts at the WIB Meeting with respect to the Merger.
FPFG and WIB have approved the termination of the ESOP in connection with
the Merger. Upon such termination, all assets held by the ESOP, including
shares of FPFG Common Stock, will be distributed to the ESOP beneficiaries.
The Savings Plan is not being terminated.
CURRENT AND POST-MERGER EMPLOYMENT OF MICHAEL W. MCGUIRE. Effective
January 1, 1996, the WIB Board entered into the McGuire Employment Agreement
with Michael W. McGuire to serve as President of WIB and President and Chief
Executive Officer of Citizens for a term of five years. The McGuire
Employment Agreement provides for a base salary of $185,000 in 1996, subject
to annual review by the WIB Board, provided that such base salary shall not
be reduced below $166,500. In addition, the McGuire Employment Agreement
provides for a bonus based upon a formula tied to the return on average
equity and return on average assets of WIB, which bonus is capped at the
amount of Mr. McGuire's base salary. For 1996, Mr. McGuire was awarded a
bonus of $185,000 based on the return of average assets of WIB exceeding
1.25% and the return on average equity exceeding 15%. This bonus was paid in
1997.
The McGuire Employment Agreement also provides for participation in
retirement and employee benefit plans, the provision of a disability
insurance policy providing benefits of not less than $5,500 per month in the
event of disability, and a split-dollar whole-life insurance policy in the
amount of $250,000, as well as vacation and other customary benefits.
In addition, the McGuire Employment Agreement provides for the payment
of a lump sum severance benefit of twice the amount of Mr. McGuire's annual
salary at the rate then in effect if his employment is involuntarily
terminated other than for cause within 180 days following a change in control
of WIB or Citizens. The Merger will constitute a change of control within the
meaning of the Employment Agreement. Mr. McGuire will also receive medical
and dental insurance benefits at the employer's expense for the two years
following such termination. For purposes of the Agreement, involuntary
termination shall include a resignation by Mr. McGuire following (i) a change
in his principal workplace to a location outside a 35-mile radius from
Citizens' current headquarters, (ii) his demotion, (iii) a material reduction
in the number or seniority of other personnel reporting to him, or a material
reduction in the frequency with which, or in the nature of the matters with
respect to which, such persons report to him, other than as part of an
employee-wide reduction in staff, (iv) any material reduction or adverse
change in the salary, perquisites, benefits, contingent benefits or vacation
time which have been provided to him other than as otherwise permitted under
the McGuire Employment Agreement, or as part of an overall program applied
uniformly and with equitable effect to all members of senior management, and
(v) a permanent increase in his required hours of work or workload.
As a condition to the obligation of FPFG to complete the Merger, Mr.
McGuire shall enter into an amendment to his McGuire Employment Agreement
with FPFG and Citizens under which (i) Mr. McGuire's minimum base salary
shall be increased to $225,000, effective upon the Effective Time, and (ii)
Mr. McGuire shall receive a minimum bonus of $185,000 within 30 days
following the end of each fiscal year of FPFG during the term of the McGuire
Employment Agreement, a portion of which bonus for the current year shall be
paid within 90 days of the completion of the Merger, based upon the bonus Mr.
McGuire would have been entitled to receive under his existing contract had
the period commencing January 1, 1997 and ending with the effective date of
the Merger constituted an entire fiscal year. Accordingly, Mr. McGuire's
minimum compensation for the first year following the Merger and each
remaining year during the term of the McGuire Employment Agreement shall be
$410,000, consisting of $225,000 in salary and $185,000 in bonus.
The amendment to the McGuire Employment Agreement also provides for the
granting to Mr. McGuire of an option to purchase 50,000 shares of FPFG Common
Stock for a price equal to $28.50 per share. At July 23, 1997, the closing
price on the Nasdaq National Market for the FPFG Common Stock was $41.00
(putting Mr. McGuire's options "in-the-money" by approximately $625,000 had
the Closing Date been July 23, 1997). The option shall be 1/3 vested on the
completion of the Merger, with an additional 1/3 vesting on the first
anniversary and on the second anniversary thereafter. Such option is in
addition to the New Options that Mr. McGuire will receive upon the exchange
of his Existing Stock Rights. See "--Stock Option Plans."
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SEVERANCE AGREEMENT. Marie A. Reich, Executive Vice President and Chief
Financial Officer of Citizens, is a party to an agreement, dated March 4,
1996, providing for the payment to her of one year's salary, presently
$88,000, at the rate in effect at the time of her termination in the event
that her employment is terminated within one year following a merger, sale or
acquisition of Citizens. The Merger will constitute a merger, sale or
acquisition of Citizens within the meaning of such agreement.
POST-MERGER COMPENSATION AND BENEFITS. All persons who are employees of
WIB or its subsidiaries immediately prior to the Effective Time shall
continue as employees following the Effective Time. FPFG has agreed that any
employee benefit plans of FPFG under which employees of WIB shall be covered
following the Effective Time shall give appropriate credit to such employees
for services completed prior to the Effective Time under the existing
employee benefit plans of WIB.
DIRECTORS AGREEMENTS. As a condition to FPFG's obligation to complete
the Merger, each of the directors of WIB, other than Michael W. McGuire, has
agreed to execute and deliver the Directors Agreements effective as of the
Effective Time, under which they shall agree not to compete with FPFG or its
affiliates in the California cities of Anaheim, Irvine and Tustin for a
period of two years following the Effective Time. Under the Directors
Agreements, each of the directors shall be paid the sum of $45,000, with
one-half of such amount being payable on the Closing Date and one-half being
payable on the first anniversary of the Closing Date.
EXCHANGE OF STOCK CERTIFICATES
As of the Effective Time, each certificate formerly representing WIB
Common Shares, other than shares held by dissenting shareholders of WIB,
shall be deemed for all purposes to evidence ownership of the right to
receive the FPFG Common Stock issuable pursuant to the Merger Agreement until
surrendered to the Exchange Agent.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each record holder, as of the Effective Time, of an outstanding
certificate or certificates that immediately prior to the Effective Time
represented outstanding WIB Common Shares, a form of letter of transmittal
(that shall specify that delivery shall be effected, and risk of loss and
title to the certificates shall pass, only upon proper delivery of the
certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the certificates. Upon surrender to the Exchange Agent of such
certificates, together with such letter of transmittal duly executed, each
holder of such certificates formerly representing shares of WIB's capital
stock shall be entitled to receive in exchange therefor a certificate
representing such holder's pro rata portion of the Merger Consideration, and
such certificates formerly representing WIB Common Shares shall then be
canceled. Until so surrendered, each certificate (other than certificates for
dissenting shares) which prior to the Merger represented WIB Common Shares
shall be deemed, for all purposes, and without any further act or deed on the
part of the holder thereof, to evidence ownership of the whole number of
shares of FPFG Common Stock which the holder thereof would be entitled to
receive upon its surrender to the Exchange Agent; PROVIDED, HOWEVER, that no
dividends with respect to said shares of FPFG Common Stock shall be paid
until such holder shall surrender such certificate, at which time there shall
be paid to the record holder of the certificates issued in the exchange
therefor the amount of the dividends, without interest, which have
theretofore become payable with respect to the shares of FPFG Common Stock
represented thereby.
SHAREHOLDERS OF WIB SHOULD NOT SEND WIB STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
FRACTIONAL SHARES
No fractional shares of FPFG Common Stock will be issued as a result of
the Merger. The total number of shares to be received by each shareholder
pursuant to the Merger shall be rounded up to the next whole number of shares.
MANAGEMENT AFTER THE MERGER
As a result of the Merger, WIA will be merged with and into WIB, and FPFG
will own all of the outstanding shares of WIB. Accordingly, after the Merger,
FPFG will own the business of WIB and WIB will be a wholly owned subsidiary
of FPFG. FPFG will appoint all of the directors of the Surviving Corporation.
Until otherwise changed by the WIB Board, the current executive officers of
WIB will remain executive officers of the Surviving Corporation.
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GOVERNMENTAL AND REGULATORY APPROVALS
FPFG and WIB are aware of no governmental or regulatory approvals
required for the consummation of the Merger, other than compliance with
Federal and applicable state securities and corporate law, compliance with
FDIC and DOC requirements, and compliance with the Nasdaq National Market
listing requirements. FPFG and WIB have made application with the FDIC and
the DOC for approval of the Merger and FPFG anticipates filing a listing
application with respect to the Merger Consideration prior to the WIB
Meeting. In addition, the FDIC and DOC have approved the Merger; however, no
assurance can be given that the other necessary regulatory approvals will be
obtained or as to the timing or conditions of such approvals.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material Federal income tax
consequences of the Merger. It is intended to provide only a summary and
does not include a complete analysis of all the potential federal income tax
consequences or consequences that may vary with or are contingent upon the
individual circumstances of particular WIB shareholders such as financial
institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies, foreign taxpayers, and other special
status taxpayers. This discussion does not address any aspects of state,
local, or foreign tax laws or any federal tax laws other than those
pertaining to income tax. WIB shareholders who are individuals should be
aware that the federal income tax rate on long-term capital gains of
individuals is significantly lower than the tax rate that may apply to
ordinary income or short-term capital gains of individuals, and that the
amount of long-term capital gain, short-term capital gain or ordinary income
that may be realized by a particular WIB shareholder as a result of the
Merger may vary depending on a shareholders' particular circumstances. Each
WIB shareholder is advised to consult his or her own tax advisor concerning
the specific tax consequences of the Merger to such shareholder.
No ruling has been requested from the Internal Revenue Service (the
"Service") with respect to any of the matters discussed in this summary.
It is a condition to the obligation of WIB to consummate the Merger that
WIB receive an opinion from KPMG Peat Marwick LLP, tax advisors for WIB, at
the Effective Time, concluding that the Merger qualifies as a tax-free
reorganization within the meaning of Section 368(a) of the Code. WIB
shareholders should be aware that the opinion of the tax advisors represents
the best judgment of such advisors, but is not binding on the Service or the
courts. A draft of the opinion expected to be issued at the Effective Time
has been filed as an exhibit to the Registration Statement of which this
Proxy Statement/Prospectus is a part. WIB will resolicit shareholders prior
to proceeding with the Merger if the opinion from KPMG Peat Marwick LLP
cannot be issued and the material federal income tax consequences are
materially different than as described in this Proxy Statement/Prospectus.
The following summary is based upon the continued accuracy of the
representations made by WIB and FPFG with respect to the Merger, including
representations regarding the transfer of assets and intended actions of WIB
and certain WIB shareholders following the Merger. If any of these
representations is inaccurate, the tax consequences of the Merger could
differ from those described in this summary.
The treatment of the Merger as a tax-free "reorganization" will depend
upon, among other things, whether the shareholders of WIB maintain a
sufficient continuity of stock ownership interest in FPFG after the Merger.
Prior to its adoption of its current policy that it will not issue "comfort
rulings" regarding certain corporate reorganizations, the Service took the
position for purposes of issuing advance rulings under Section 368(a) of the
Code that the shareholders of an acquired corporation (such as WIB) had to
maintain a continuing equity ownership interest in the acquiring corporation
(such as FPFG) equal to at least 50% of the value of their equity ownership
interest in the acquired corporation. The case law standard is less
stringent than the Service's advance rulings standard, which expressly did
not define the lower limits of "continuity of interest" as a matter of
substantive law. This summary relies on the continuity of shareholder
interest standard under the decided cases rather than the Service's advance
rulings standard. It is anticipated that the Merger will satisfy the
continuity of shareholders interest requirement as reflected in the case law,
but it is possible that post-merger sales, exchanges or other transactions
affecting FPFG Common Stock undertaken by the former WIB shareholders could
disqualify the Merger as a tax-free "reorganization" within the meaning of
Section 368(a) of the Code. In that case, the Merger would constitute a
fully taxable transaction for WIB and its shareholders and FPFG would succeed
to WIB's tax liability (if any) resulting from the Merger.
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Subject to the assumptions discussed above, the federal income tax
consequences of the Merger to a shareholder of WIB are as follows:
RECEIPT OF FPFG COMMON STOCK IN EXCHANGE FOR WIB COMMON SHARES. A
shareholder of WIB who receives shares of FPFG Common Stock in exchange for
all the shares of WIB will recognize no gain or loss as a result of the
Merger. The basis of the FPFG Common Stock received by that shareholder will
be the same as the basis of the shares of the WIB Common Shares exchanged
therefor, and the holding period of those shares of FPFG Common Stock will
include the holding period of the WIB Common Shares surrendered in the
exchange, provided the latter shares were held by the shareholder as a
capital asset at the Effective Time.
OTHER CONSIDERATIONS APPLICABLE TO SHAREHOLDERS OF WIB. Shareholders of
WIB will be required to provide their social security numbers or their
taxpayer identification number or, in some circumstances, certain other
information to the Exchange Agent in order to avoid the "backup withholding"
requirements that might otherwise apply under the Code. If a WIB shareholder
is subject to backup withholding, tax will be withheld at the rate of 31% on
the cash consideration received by such shareholder in the Merger. Any
amount paid as backup withholding will be credited against the holder's
federal income tax liability. WIB shareholders who receive FPFG Common Stock
must also comply with the information reporting requirements of the Treasury
regulations under Section 368 of the Code.
FEDERAL INCOME TAX TREATMENT OF DISSENTING SHAREHOLDERS. Any shareholder
of WIB who effectively dissents from the Merger and who receives cash for his
or her shares will be treated as receiving a distribution in redemption of
their WIB Common Shares. In general, a distribution in redemption of stock
will be treated as a payment in exchange for the shares. As a result of the
distribution, WIB shareholders who receive cash under their dissenter rights,
will recognize a gain (or loss) for federal income tax purposes equal to the
difference between the cash received for those shares and the shareholder's
tax basis for the shares. The amount of that gain (or loss), if any, will be
treated as ordinary income (or loss) or long-term or short-term capital gain
(or loss) depending on the length of time the shares are held by the
dissenter and whether the shares are held as a capital asset.
The foregoing discussion of the expected federal income tax consequences
of the Merger is based on the Code, the regulations thereunder, and the
judicial and administrative interpretations thereof, all in effect on the
date thereof. There is no assurance that subsequent legislative, regulatory,
administrative, or judicial decisions may not be forthcoming that would
significantly change these expected consequences. Any such changes may or
may not be retroactive with respect to transactions prior to the date of
those changes.
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a
"pooling-of-interests" transaction under GAAP. Under such method of
accounting, holders of WIB Common Shares will be deemed to have combined
their existing voting common stock interest with that of holders of FPFG
Common Stock by exchanging their shares for the FPFG Common Stock.
Accordingly, the book value of the assets, liabilities and shareholders'
equity of WIB, as reported on its consolidated balance sheet, will be carried
over to the consolidated balance sheet of FPFG and no goodwill will be
created. The combined WIB and FPFG entity will be able to include in its
consolidated income the consolidated income of both companies for the entire
fiscal year in which the Merger occurs less the effect of any transactions
between the two companies in prior periods; however, certain expenses
incurred to effect the Merger must be treated as current charges against
income rather than adjustments to the balance sheet.
It is a condition to FPFG's obligation to effect the Merger that FPFG
receives an opinion from Ernst & Young LLP, the independent auditors of FPFG,
based upon certain material facts and certain representations and warranties
described, that the Merger will qualify for "pooling-of-interests" accounting
treatment.
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CONSEQUENCES UNDER FEDERAL SECURITIES LAWS
The FPFG Common Stock issuable in connection with the Merger has been
registered under the Securities Act. Accordingly, there will be no
restrictions upon the resale or transfer of such shares by WIB shareholders
except for those shareholders who are deemed "affiliates" of WIB, as that
term is defined in Rule 144 and Rule 145 adopted under the Securities Act.
See "--Resale of FPFG Common Stock."
RESALE OF FPFG COMMON STOCK
The shares of FPFG Common Stock issuable to shareholders of WIB upon the
Merger becoming effective have been registered under the Securities Act.
Such shares may be traded freely and without restriction by those
shareholders not deemed to be "affiliates" of WIB as that term is defined in
the rules under the Securities Act. FPFG Common Stock received by those
shareholders of WIB who are deemed to be "affiliates" of WIB may be resold
without registration as provided for by Rule 145 or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of WIB
generally include individuals or entities that control, are controlled by or
are under common control with, WIB and may include the executive officers and
directors of WIB as well as certain principal shareholders of WIB. In the
Merger Agreement, WIB has agreed to use its best efforts to cause each
shareholder who, in the opinion of WIB, is an affiliate of WIB to enter into
an agreement (each a "Company Affiliate Agreement") with FPFG providing that
such affiliate will not sell, transfer or otherwise dispose of the shares of
FPFG Common Stock to be received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations promulgated thereunder or (ii) sell, transfer or otherwise
dispose of the shares of FPFG Common Stock to be received by such persons in
the Merger or in any way reduce such shareholder's risk relative to such
shares until such time as financial results covering at least 30 days of
post-Merger combined operations of WIB and FPFG have been published. This
Proxy Statement/Prospectus does not cover any resales of FPFG Common Stock
received by affiliates of WIB.
DISSENTING SHAREHOLDERS' RIGHTS
THE FOLLOWING DISCUSSION IS A SUMMARY OF THE MATERIAL PROVISIONS OF
CALIFORNIA LAW RELATING TO DISSENTING SHAREHOLDERS' RIGHTS, AND IS QUALIFIED
BY REFERENCE TO APPENDIX C, WHICH SETS FORTH IN ITS ENTIRETY CHAPTER 13 OF
THE CALIFORNIA CORPORATIONS CODE ("CCC"), WHICH IS THE APPLICABLE LAW
RELATING TO DISSENTING SHAREHOLDERS' RIGHTS IN THIS CONTEXT AND WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS DISCUSSION AND APPENDIX C SHOULD BE
REVIEWED CAREFULLY BY EACH SHAREHOLDER OF WIB WHO WISHES TO EXERCISE
DISSENTERS' RIGHTS BECAUSE FAILURE TO COMPLY WITH THE REQUIRED PROCEDURES MAY
RESULT IN THE LOSS OF SUCH RIGHTS.
Any WIB Common Shares for which dissenters' rights are sought must not be
voted in favor of approval of the Merger Agreement. Such shares must either
be voted against approval of the Merger Agreement or not voted at all. Thus,
any shareholder of WIB who wishes to dissent and who executes and returns a
proxy must vote "AGAINST" approval of the Merger Agreement or abstain from
voting on the proposal to approve the Merger Agreement. If a shareholder of
WIB signs, dates and returns his or her proxy but does not indicate a choice
thereon or returns the written consent form by indicating that he or she
votes "FOR" the Agreement, his or her WIB Common Shares automatically will be
voted in favor of approval of the Merger Agreement and such stockholder will
lose any and all dissenters' rights with respect to those shares. However,
any shareholder who delivers a proxy has the right to revoke it at any time
prior to the WIB Meeting. See "The WIB Meeting--Solicitation and Revocation
of Proxies; Quorum."
Each dissenting WIB shareholder who has not voted his or her WIB Common
Shares in favor of approval of the Merger Agreement and who has complied with
the procedures of Chapter 13 of the CCC, will be entitled to payment by WIB
of the fair market value of his or her shares of WIB Common Shares. Such
value will be determined as of the last trading day prior to the first
announcement of the terms of the proposed WIB Merger (the "Pre-Announcement
Date"), excluding any change in such value in consequence of the proposed WIB
Merger. The Pre-Announcement Date was February 19, 1997 and, in the opinion
of the WIB Board and management of WIB, the fair market value of the WIB
Common Shares on the Pre-Announcement Date was $7.25 per share.
Chapter 13 of the CCC represents the exclusive statutory remedy available
to any WIB shareholder who elects, as a dissenting shareholder, to seek
payment of the fair market value of his or her shares of WIB Common Shares.
The following summary of Chapter 13 of the CCC is qualified in its entirety
by reference to the text of Chapter 13, a complete copy of which is reprinted
in Appendix C to this Proxy Statement/Prospectus.
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WIB is required to mail to each dissenting WIB shareholder a notice of
the approval by the shareholders of the Merger Agreement (the "Approval
Notice"), within ten days of the date of such approval, accompanied by a copy
of Sections 1300 through 1304 of the CCC, a statement of the price determined
by WIB to represent the fair market value of the dissenting WIB Common Shares
and a brief description of the procedures to be followed if a WIB shareholder
desires to exercise dissenters' rights. To preserve his or her dissenters'
rights, a dissenting WIB shareholder must, within 30 days after the Approval
Notice was mailed, make a written demand on WIB at its principal office or at
the office of any transfer agent thereof for the purchase of his or her
shares of WIB Common Shares and the payment in cash of their fair market
value. Such demand is required to state the number of shares of WIB Common
Shares which such shareholder demands WIB purchase and must contain a
statement of what such stockholder claims to be the fair market value of
those shares on the Pre-Announcement Date. WIB suggests that dissenting WIB
shareholders use registered or certified mail, return receipt requested, for
this purpose and that correspondence in this regard be directed to the
attention of James T. Capretz, Chairman of the Board of WIB, at 18302 Irvine
Boulevard, Suite 300, Tustin, California 92780. A vote against the Merger
Agreement, in person or by proxy, will not constitute such written demand. In
addition, within 30 days after the Approval Notice is mailed to the
dissenting WIB shareholder, such shareholder must submit to WIB at its
principal office or at the office of any transfer agent thereof such
shareholder's certificates representing the shares of WIB Common Shares
subject to such demand.
If WIB and the dissenting WIB shareholder agree that the shares of WIB
Common Shares subject to the demand are "dissenting shares" (as defined in
Section 1300(b) of the CCC) and agree upon the price of such shares, the
dissenting WIB shareholder will be entitled to the agreed upon price with
interest thereon from the date of such agreement. The purchase price will be
paid within 30 days after such agreement or within 30 days after any
statutory or contractual conditions to the Merger are satisfied, whichever is
later. If WIB denies that such WIB Common Shares are "dissenting shares," or
WIB and the dissenting WIB shareholder fail to agree upon the fair market
value of such shares, then such dissenting WIB shareholder may, within six
months after the Approval Notice is mailed to him or her, file a complaint in
the superior court of the proper county requesting the court to determine
whether the shares of WIB Common Shares subject to such demand are
"dissenting shares" or to determine the fair market value of such shares, or
both, or may intervene in any action pending on such a complaint. The court
may determine, or may appoint one or more impartial appraisers to determine,
the fair market value of the dissenting shares. If the court appoints an
independent appraiser or appraisers, they will promptly make such
determination. If the majority of the appraisers fail to file a report of
their findings within ten days from the date of their appointment or such
further time as the court allows, or if the report is not confirmed by the
court, the court will determine the fair market value of the dissenting WIB
Common Shares subject to such demand.
Once the court has determined the fair market value of each of such
dissenting WIB Common Shares, the court will enter a judgment requiring WIB
to pay an amount equal to the fair market value of each of those dissenting
shares multiplied by the number of dissenting shares that any dissenting WIB
shareholder who is a party to, or has intervened in, the action is entitled
to require WIB to purchase, with interest from the date of entry of the
judgment.
Dissenting WIB shareholders cease to be entitled to require payment for
their shares of WIB Common Shares if (i) the Merger is abandoned (in which
case WIB would pay any dissenting WIB shareholder who in good faith initiated
proceedings for an appraisal all necessary expenses incurred in such action
and reasonable attorneys' fees); (ii) the dissenting WIB shareholder and WIB
fail to agree upon the status of such shares as "dissenting shares" or upon
the purchase price therefor and neither files a complaint and the dissenting
WIB shareholder fails to intervene in a pending action within six months
after the Approval Notice is mailed to all dissenting WIB shareholders; or
(iii) the dissenting WIB shareholder withdraws the demand for the purchase of
his or her shares with the consent of WIB.
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PRICE RANGES OF STOCK AND DIVIDEND POLICY
FPFG. The FPFG Common Stock has been quoted on the Nasdaq National
Market since FPFG's initial public offering in February 1996 at a price of
$8.50 per share. The FPFG Common Stock traded under the symbol "RACF" until
March 7, 1997, when its trading symbol changed to "FPFG." The following
table sets forth the high and low sales prices of the Common Stock for the
periods indicated, as reported by the Nasdaq National Market.
HIGH LOW
------ ------
YEAR ENDED SEPTEMBER 30, 1996
Second Quarter (beginning February 1, 1996) $11.88 $ 8.75
Third Quarter $16.25 $11.00
Fourth Quarter $22.88 $12.44
YEAR ENDING SEPTEMBER 30, 1997
First Quarter $30.75 $19.75
Second Quarter $36.75 $20.50
Third Quarter $35.00 $20.50
Fourth Quarter (through July 23, 1997) $41.25 $32.75
On July 23, 1997, the last reported sales price for the Common Stock was
$41.00 per share. As of June 30, 1997, FPFG had 34,461,473 outstanding shares
of FPFG Voting Common Stock held by 105 stockholders of record. As of June
30, 1997, FPFG also had 690,905 outstanding shares of non-voting common
stock, par value $.01 per share, held by two stockholders of record.
FPFG has never paid, and has no present intention of paying, cash
dividends on the FPFG Common Stock. FPFG currently intends to retain its
earnings to finance the growth and development of its business. Any
determination in the future to pay dividends will depend on FPFG's financial
condition, capital requirements, results of operations, contractual
limitations and any other factors deemed relevant by the FPFG Board. Under
the terms of FPFG's warehouse facilities, term lines of credit and the
Convertible Notes, FPFG's ability to pay cash dividends to its stockholders
is limited.
WIB. WIB Common Shares are not listed on a national exchange or quoted
on any system of The Nasdaq Stock Market and are only traded sporadically.
At July 23, 1997, there were 135 holders of record of WIB Common Shares and
1,211,156 WIB Common Shares issued and outstanding. At July 23, 1997, the
last available sales price for WIB Common Shares was $7.25 per share, which
sale occurred in January 1997. Management of WIB is aware of sales of 52,369
WIB Common Shares in 1996 at prices of between $5.00 and $6.25 per share, and
64,722 shares in 1995 at prices of between $5.00 and $5.76 per share,
including purchases by the KSOP, totaling 52,000 shares in 1995 at a price of
$5.76 per share, and 7,866 shares in 1996 at $5.75 per share. During the
first quarter of 1997, one sale of 5,000 shares occurred at a price of $7.25
per share.
The WIB Board declared an annual cash dividend of $.095 per share in
1994, and declared regular dividends from 1988 through 1994. The WIB Board
elected to retain all 1995 earnings to increase the capital base and reserves
of WIB and Citizens, and no dividends were declared in 1995. In January
1996, a $0.10 per share dividend was declared. While the WIB Board may elect
to pay dividends in the future in the event the Merger is not concluded,
payment of future dividends will be subject to the discretion of the WIB
Board and will depend upon the consolidated earnings and financial condition
of WIB, the capital requirements of Citizens, applicable governmental
policies and regulations and such other matters as the WIB Board deems
appropriate. The Merger Agreement prohibits the payment of dividends by WIB
pending the completion of the Merger.
WIB's ability to pay dividends is also subject to restrictions set forth
under California law. Under the CCC, 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, or (ii)
after giving effect to the distribution, the assets of the corporation equal
at least 125% of its liabilities and the current assets of the corporation at
least equal its current liabilities, but if the average pre-tax net earnings
of the corporation before interest expense for the two fiscal years preceding
the distribution was less than the average interest expense of the
corporation for those years, the current assets of the corporation must equal
at least 125% of its current liabilities.
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WIB's ability to pay cash dividends in the future will depend in large
part on the ability of Citizens to pay dividends on its capital stock to WIB.
The ability of Citizens to pay dividends to WIB is also subject to the
restrictions set forth above. In addition, a California thrift and loan is
subject to certain other capital requirements, and federal law also restricts
payment of dividends by Citizens as an FDIC-insured institution. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of WIB--Liquidity and Capital Resources.
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SELECTED FINANCIAL DATA OF WIB
The selected financial data presented below under the captions "Income
Statement Data" and "Balance Sheet Data" for, and as of the end of, each of
the years in the four-year period ended December 31, 1996, are derived from
the consolidated financial statements of Western Interstate Bancorp and
subsidiaries, which financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors. The selected financial data presented below
under the Captions "Income Statement Data" and "Balance Sheet Data" as of and
for the year ended December 31, 1992, are derived from the consolidated
financial statements of Western Interstate Bancorp and subsidiaries, which
financial statements have been audited by other auditors. The selected
financial data presented below under the captions "Income Statement Data" and
"Balance Sheet Data" for the three-month periods ended March 31, 1997 and
1996, and as of March 31, 1997, are derived from unaudited financial
statements of Western Interstate Bancorp and subsidiaries included elsewhere
herein. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the operating results to be expected for a
full year. The consolidated financial statements as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31,
1996 and the report thereon, are included elsewhere herein.
<TABLE>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (IN THOUSANDS)
Total interest income $12,825 $13,150 $13,883 $13,067 $10,877 $2,520 $2,464
Total interest expense 5,468 4,547 4,725 6,752 6,347 1,651 1,395
------- ------- ------- ------- ------- ------ ------
Net interest income 7,357 8,603 9,158 6,315 4,530 869 1,069
Provision for loan losses 555 2,300 2,887 3,158 155 102 125
------- ------- ------- ------- ------- ------ ------
Net interest income after provision
for loan losses 6,802 6,303 6,271 3,157 4,375 767 944
Non-interest income:
Servicing fee income 913 1,211 1,409 1,174 1,374 360 340
Gain on sales of loans 1,033 982 1,724 6,215 9,341 1,759 3,520
Other non-interest income 88 70 156 74 100 8 32
------- ------- ------- ------- ------- ------ ------
Total non-interest income 2,034 2,263 3,289 7,463 10,815 2,127 3,892
Total non-interest expense 6,399 7,704 8,899 9,399 10,451 2,159 2,841
------- ------- ------- ------- ------- ------ ------
Income before provision for income taxes 2,437 862 661 1,221 4,739 735 1,995
Provision for income taxes 1,011 386 274 499 1,964 310 838
------- ------- ------- ------- ------- ------ ------
Income before cumulative effect
of accounting change 1,426 476 387 722 2,775 425 1,157
Cumulative effect of accounting change -- 133 -- -- -- -- --
------- ------- ------- ------- ------- ------ ------
Net income $ 1,426 $ 609 $ 387 $ 722 $ 2,775 $ 425 $1,157
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
AT DECEMBER 31,
---------------------------------------------------- AT MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Total assets $104,773 $110,843 $119,184 $127,785 $124,548 $112,136
Loans receivable, net 77,373 87,578 97,421 21,135 10,505 9,220
Loans held for sale 8,094 4,556 6,537 18,960 30,107 27,766
Cash and cash equivalents 7,664 7,087 3,177 22,083 12,298 17,728
Mortgage-backed securities -- 998 3,497 55,428 14,010 13,032
Investment securities 3,006 4,996 2,003 5,052 52,982 39,943
Deposits 94,046 99,784 107,671 113,808 106,902 94,106
Total borrowings 1,634 1,472 1,837 1,736 1,723 1,355
Stockholders' equity 6,981 7,799 8,126 9,245 11,761 12,934
</TABLE>
44
<PAGE>
<TABLE>
AT OR FOR THREE MONTHS
AT OR FOR YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(1):
Performance Ratios:
Return on assets (ratio of net income to
average total assets) 1.42% .57% .34% .57% 2.23% 1.34% 3.91%
Interest rate spread information:
Average during period 6.98 8.03 7.76 4.66 3.31 2.34 3.3
Net interest margin(2) 7.51 8.33 8.10 5.03 3.78 2.83 3.82
Ratio of non-interest expense to
average total assets 6.36 7.23 7.75 7.37 8.41 6.81 9.60
Return of stockholders' equity (ratio
of net income to average equity) 22.50 8.09 4.78 8.40 27.47 18.07 37.48
Asset Quality Ratios:
Non-performing assets to total assets
at end of period(3) 3.44 3.45 3.98 .67 .55 1.11 .59
Allowance for loan losses to
non-performing loans 28.78 47.75 76.56 286.07 531.30 158.17 644.91
Allowance for loan losses to total loans 1.04 1.79 3.16 5.05 3.23 5.46 3.53
Net charge-offs to average loans .47 1.64 1.15 6.23 2.06 .30 .28
Capital Ratios:
Stockholders' equity to total assets 6.66 7.04 6.82 7.23 9.44 7.60 11.53
Average stockholders' equity to average assets 6.30 7.07 7.05 6.74 8.13 7.41 10.43
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.09% 1.07% 1.08% 1.07% 1.09% 1.09% 1.10%
Per Share Data:
Net income per WIB Common Share:
Primary $1.33 $ .55 $ .34 $ .57 $1.98 $ .35 $ .82
Fully-diluted 1.33 .55 .34 .57 1.98 .35 .82
Cash dividends per share 0.95 .095 .095 -- .10 .10 --
Dividend payout ratio (ratio of dividends
declared per share to net income per share) 7.01% 17.95% 28.48% -- 4.37% 3.50% --
Book value per share $6.38 $6.82 $7.01 $7.62 $9.71 $7.89 $10.68
Number of shares outstanding 1,093,674 1,143,174 1,159,174 1,212,543 1,211,156 1,212,543 1,211,156
</TABLE>
- -----------------
(1) Averages are computed using end of month balances.
(2) Net interest income divided by average interest-earning assets.
(3) Non-performing assets consist of nonaccruing loans past-due 90 or more
days and real estate owned.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the merger of Western Interstate Bancorp with and into Western
Interstate Acquisition, Inc., a wholly owned subsidiary of FIRSTPLUS Financial
Group, Inc. pursuant to the Merger Agreement. It is anticipated that the
proposed Merger will be accounted for as a pooling-of-interests. The unaudited
pro forma condensed combined balance sheet presents the combined financial
position of FIRSTPLUS Financial Group, Inc. and WIB based upon the historical
balance sheet data of FIRSTPLUS Financial Group, Inc. and WIB as of March 31,
1997. The unaudited pro forma condensed combined statements of income present
the results of operations for FIRSTPLUS Financial Group, Inc. for each of the
fiscal years in the three-year period ended September 30, 1996 and the
six-month period ended March 31, 1997, with the results of operations of WIB
for each of the years in the three year period ended December 31, 1996 and the
six month period ended March 31, 1997, respectively, on a pooling-of-interest
basis as if the proposed Merger had occurred as of the beginning of each
period.
These unaudited pro forma condensed combined financial statements are
subject to the assumptions, estimates and adjustments in the accompanying
notes to the pro forma condensed combined financial statements. The following
information is not necessarily indicative of the financial position and
results of operations that would have occurred had the proposed Merger been
consummated on the dates for which the pro forma condensed combined financial
statements are being presented.
These unaudited pro forma condensed combined financial statements are
based upon assumptions, estimates and adjustments that FIRSTPLUS Financial
Group, Inc. and WIB believe are reasonable and should be read in conjunction
with the historical financial statements and notes thereto of FIRSTPLUS
Financial Inc. and WIB contained elsewhere in this prospectus. The
adjustments are set forth in the Notes to the Pro Forma Condensed Combined
Financial Statements.
46
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1994(a)
(UNAUDITED)
<TABLE>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1994 ADJUSTMENTS 1994
------------- ------------ ----------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net gains on sales of loans $27,671 $ 1,724 $ -- $29,395
Interest income 1,845 13,883 15,728
Servicing income 72 1,409 1,481
Other income 252 156 408
------- ------- ------- -------
Total revenues 29,840 17,172 -- 47,012
------- ------- ------- -------
Expenses:
Salaries and employee benefits 17,054 3,988 371 b 21,413
KSOP contribution 371 (371) b --
Interest 1,041 4,725 5,766
Other operating 6,465 4,540 b 11,005
General and administrative 3,772 (3,772) b --
Occupancy expenses 522 (522) b --
Real estate owned expenses 246 (246) b --
Provision for possible credit losses 125 2,887 3,012
------- ------- ------- -------
Total expenses 24,685 16,511 -- 41,196
------- ------- ------- -------
Income before income taxes 5,155 661 -- 5,816
Provision for income taxes (274) -- (274)
------- ------- ------- -------
Net income $ 5,155 $ 387 $ -- $ 5,542
------- ------- ------- -------
------- ------- ------- -------
Net income per share of common stock $ 0.31 $ -- $ 0.33
------- ------- -------
------- ------- -------
Weighted average common shares and
common equivalent shares
outstanding 16,277 683 16,960
------- ------- -------
------- ------- -------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information
47
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1995(a)
(UNAUDITED)
<TABLE>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1995 ADJUSTMENTS 1995
------------- ------------ ----------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net gains on sales of loans $25,206 $ 6,215 $ (393) d $31,028
Interest income 2,860 13,067 15,927
Servicing income 1,049 1,174 2,223
Other income 873 74 947
------- ------- ------- -------
Total revenues 29,988 20,530 (393) 50,125
------- ------- ------- -------
Expenses:
Salaries and employee benefits 10,110 4,665 14,775
Interest 2,660 6,752 9,412
Other operating 6,963 4,734 b 11,697
General and administrative 4,176 (4,176) b --
Occupancy expenses 564 (564) b --
Real estate owned expenses (6) 6 b --
Provision for possible credit losses 513 3,158 3,671
------- ------- ------- -------
Total expenses 20,246 19,309 -- 39,555
------- ------- ------- -------
Income before income taxes 9,742 1,221 (393) 10,570
Provision for income taxes (3,903) (499) 149 d (4,253)
------- ------- ------- -------
Net income $ 5,839 $ 722 $ (244) $ 6,317
------- ------- ------- -------
------- ------- ------- -------
Net income per share of common
stock $ 0.28 $ -- $ 0.30
------- ------- -------
------- ------- -------
Weighted average common shares and
common equivalent shares
outstanding 20,297 683 20,980
------- ------- -------
------- ------- -------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information
48
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1996(a)
(UNAUDITED)
<TABLE>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1996 ADJUSTMENTS 1996
------------- ----------- ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net gains on sales of loans $105,368 $ 9,341 $(1,050) d $113,659
Interest income 25,727 10,877 36,604
Servicing income 4,008 1,374 5,382
Other income 9,683 100 9,783
-------- ------- ------- --------
Total revenues 144,786 21,692 (1,050) 165,428
-------- ------- ------- --------
Expenses:
Salaries and employee benefits 36,402 5,278 41,680
KSOP contribution --
Interest 16,892 6,347 23,239
Other operating 29,938 5,173 b 35,111
General and administrative 4,588 (4,588) b --
Occupancy expenses 584 (584) b --
Real estate owned expenses 1 (1) b --
Provision for possible credit losses
on loans held for sale and excess
servicing receivable 6,373 155 6,528
-------- ------- ------- --------
Total expenses 89,605 16,953 -- 106,558
-------- ------- ------- --------
Income before income taxes 55,181 4,739 (1,050) 58,870
Provision for income taxes (20,969) (1,964) 399 d (22,534)
-------- ------- ------- --------
Net income $ 34,212 $ 2,775 $ (651) $ 36,336
-------- ------- ------- --------
-------- ------- ------- --------
Net income per share of common stock $ 1.35 -- $ 1.39
-------- ------- --------
-------- ------- --------
Weighted average common shares and
common equivalent shares
outstanding 25,358 683 26,041
-------- ------- --------
-------- ------- --------
</TABLE>
See Notes to the Pro Forma Condensed Combined Financial Information
49
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1997(a)
(UNAUDITED)
<TABLE>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
MARCH 31, MARCH 31, MARCH 31,
1997 1997 ADJUSTMENTS 1997
------------- ----------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net gains on sales of loans $132,540 $ 7,482 $(1,182) d $138,840
Interest income 53,480 5,232 58,712
Servicing income 6,344 620 6,964
Other income 15,511 68 15,579
-------- ------- ------- --------
Total revenues 207,875 13,402 (1,182) 220,095
-------- ------- ------- --------
Expenses:
Salaries and employee benefits 35,772 3,156 38,928
Interest 32,371 2,978 35,349
Other operating 43,757 2,982 b 46,739
General and administrative 2,624 (2,624) b --
Occupancy expenses 297 (297) b --
Real estate owned expenses 61 (61) b --
Provision for possible credit losses
on loans held for sale and interest
only strips 18,264 (281) 17,983
-------- ------- ------- --------
Total expenses 130,164 8,835 -- 138,999
-------- ------- ------- --------
Income before income taxes 77,711 4,567 (1,182) 81,096
Provision for income taxes (29,530) (1,910) 449 d (30,991)
-------- ------- ------- --------
Net income $ 48,181 $ 2,657 $ (733) $ 50,105
-------- ------- ------- --------
-------- ------- ------- --------
Net income per share of common stock $ 1.51 $ -- $ 1.53
-------- ------- --------
-------- ------- --------
Weighted average common shares and
common equivalent shares outstanding 31,947 683 32,630
-------- ------- --------
-------- ------- --------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information
50
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 1997(a)
(UNAUDITED)
<TABLE>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
-------------- -------------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 73,949 $ 17,728 $ 91,677
Interest-bearing deposits with banks 245 245
Loans held for sale, net 987,775 25,766 $(1,936) d 1,011,605
Investment securities, available for sale 52,975 52,975
Loans receivable, net 11,220 11,220
Accrued interest receivable 405 (405) b --
L/H improvements and equipment 1,074 (1,074) b --
Interest only strips and servicing rights 418,661 1,634 420,295
Allowance for possible credit losses on loans sold (148,078) (148,078)
Subordinated certificates held for sale 17,271 17,271
Servicing assets 10,643 10,643
Receivable from trusts 77,336 77,336
Deferred income taxes 281 (281) b --
Real estate owned, net 444 (444) b --
Prepaid expenses 194 (194) b --
Other assets 31,649 170 2,398 b 34,217
---------- -------- ------- ----------
Total assets $1,469,206 $112,136 $(1,936) $1,579,406
---------- -------- ------- ----------
---------- -------- ------- ----------
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities $ 22,357 $ 2,543 $ 1,198 b
(736) d $ 25,362
Thrift accounts 94,106 94,106
Warehouse financing facilities 894,368 894,368
Warehouse Lender term line of credit 117,020 117,020
Accrued interest payable 460 (460) b --
Notes payable 2,046 1,355 3,401
Income taxes payable 738 (738) b --
Subordinated notes payable 7,002 7,002
Convertible subordinated notes 69,920 69,920
Deferred tax liabilities, net 48,855 48,855
---------- -------- ------- ----------
Total liabilities 1,161,568 99,202 (736) 1,260,034
---------- -------- ------- ----------
Contingencies and Commitments
Stockholders' equity:
Common stock 319 3,554 (3,554) c
7 e 326
Non-voting common stock 28 28
Additional capital 213,857 3,554 c
(1,200) d
(7) e 216,204
Unrealized gain on interest only strips, net 7,155 7,155
Retained earnings 86,279 9,405 95,684
Securities valuation allowance (25) (25)
---------- -------- ------- ----------
Total stockholders' equity 307,638 12,934 (1,200) 319,372
---------- -------- ------- ----------
Total liabilities and stockholders' equity $1,469,206 $112,136 $(1,936) $1,579,406
---------- -------- ------- ----------
---------- -------- ------- ----------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information
51
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements give
effect to the following pro forma adjustments and are supplemented by the
following information:
(a) FPFG has a fiscal year ending on September 30 and WIB has a fiscal
year ending on December 31. The unaudited pro forma condensed combined
statements of income combined each company's historical results using their
respective year ends for all fiscal periods presented. For the six-month
periods ended March 31, 1997 and 1996, the results of operations for WIB have
been restated to conform to FPFG's fiscal year.
(b) The pro forma adjustments to various accounts are reclassifications
to conform WIB line items to FPFG financial presentation.
(c) The pro forma adjustments to Common Stock and Additional Capital
represents the reclassification of the existing common stock in WIB to
additional capital.
(d) Pro forma adjustments to loans held for sale, accounts payable and
accrued liabilities, additional capital, gain on sale of loans and provision
for income tax are to eliminate the gain on loans sold to FPFG by WIB, which
have not been securitized by FPFG.
(e) The pro forma adjustment to common stock and additional capital is
to record the issuance of stock in the acquisition of WIB, accounted for as a
pooling.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WIB
THIS DISCUSSION PRESENTS MANAGEMENT'S ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF WIB AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND MARCH 31, 1996, AND THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994. THE DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF WIB AS OF AND FOR THE YEARS THEN ENDED
AND THE NOTES RELATED THERETO PRESENTED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. REFERENCES HEREIN TO "WIB" ARE INTENDED TO REFER TO
THE CONSOLIDATED OPERATIONS OF WIB, INCLUDING CITIZENS, EXCEPT WHERE
OTHERWISE INDICATED OR THE CONTEXT CLEARLY REQUIRES.
GENERAL
WIB originates loans primarily for sale and, to a lesser extent, for
longer-term investment as part of its permanent loan portfolio, which
consists of all loans not held for sale. The primary sources of WIB's
operating income are gain on the sale of loans from mortgage banking
activities and net interest income earned on loans and investments. Net
interest income is the difference between the interest income earned on the
loan investment portfolios and the cost of funds of WIB, consisting primarily
of interest paid on its deposits. Net interest income is further reduced by
the provision for loan losses. Mortgage banking activities generate
significant revenue from the sale of loans in the secondary market and from
the servicing and subservicing of loans for third parties who have purchased
the loans from Citizens. Substantially all of the revenues of WIB are
derived from the operations of its wholly-owned subsidiary financial
institution, Citizens, an industrial loan company formed in 1980.
WIB's principal expenses are interest paid on "thrift" or deposit
accounts and operating expenses. Operating expenses consist primarily of
employee compensation, occupancy expense, advertising and promotion and other
general and administrative expenses. WIB's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact WIB. Lending activities are
influenced by the demand for real estate and other loans, which is in turn
affected by the interest rates at which Citizens' loans are made, general
economic conditions affecting loan demand, and the availability of funds for
lending activities.
FINANCIAL CONDITION
MARCH 31, 1997 COMPARED WITH DECEMBER 31, 1996. Total assets decreased
by $12.4 million, or 10.0%, to $112.1 million at March 31, 1997 from $124.5
million at December 31, 1996. The decline in total assets was primarily due
to a reduction in the investment securities portfolio. Citizens continued to
have liquidity in excess of the funding needs of its mortgage banking
operations, and priced its deposits at reduced levels to decrease its
liabilities. Total deposits decreased from $106.9 million at December 31,
1996 to $94.1 million at March 31, 1997, or by 12.0%.
DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995. Total assets
decreased $3.3 million, or 2.6%, to $124.5 million at December 31, 1996 from
$127.8 million at December 31, 1995. The decline in total assets was largely
attributable to the shrinkage of the permanent loan portfolio and cash
equivalents. Citizens sold substantially all of its commercial loan
portfolio of $9.7 million in December 1996. With the increased mortgage
banking activity of Citizens and the reduction in its permanent loan
portfolio, WIB required less resources to fund its business and the rates
offered on deposit accounts were reduced to lower total deposits and decrease
liabilities. Deposits decreased by $6.9 million, or 6.1%, to $106.9 million
at December 31, 1996 from $113.8 million at December 31, 1995.
Management continued to focus lending operations on the origination of home
equity loans secured primarily by second liens on real property for sale in
the secondary market and to largely discontinue commercial lending. Citizens
emphasizes the provision of loan products to borrowers who have limited
access to consumer financing for a variety of reasons, including insufficient
home equity values. This mortgage banking emphasis is reflected both in an
increase in loans held for sale by 58.4%, or from $19.0 million at December
31, 1995 to $30.1 million at December 31, 1996, and in a decrease in the
loans receivable held for portfolio purposes from $21.1 million to $10.5
million. Citizens also sold the majority of the held-to-maturity investment
portfolio, $24.6 million, and transferred the remainder of this portfolio to
the available-for-sale portfolio. This sale was motivated, in part, by
prevailing bond market conditions and interest rates, which permitted the
portfolio to be sold at a price believed to be favorable based on
management's assessment of market conditions. The sale resulted in a loss of
approximately $139,000. The funds received from the sale of the
held-
53
<PAGE>
to-maturity investment securities and commercial loans were generally
reinvested in shorter-term, high-grade investment securities. Investment
activities continued to be funded primarily by deposits.
DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994. Total assets
increased $8.6 million, or 7.2%, to $127.8 million at December 31, 1995 from
$119.2 million at December 31, 1994. As part of the redirection of WIB's
business toward mortgage banking activities, net loans receivable declined by
78.3% to $21.1 million at December 31, 1995 from $97.4 million at December
31, 1994. Included in such sales was the sale of the entire $86.7 million
Title I Loan portfolio of Citizens to FPFG in June 1995. See "The
Merger--Background of and Reasons for the Merger." At the same time, loans
held for sale in connection with mortgage banking activities increased from
$6.5 million at December 31, 1994 to $19.0 million at December 31, 1995, an
increase of 192.3%. As a result of the sale of the Title I Loans, WIB
experienced a substantial increase in its cash balances of $18.9 million or
590.6% from $3.2 million at December 31, 1994 to $22.1 million at December
31, 1995. Substantial investments were also made in mortgage-backed
securities, which increased from $3.5 million at December 31, 1994 to $55.4
million at December 31, 1995, or by approximately 1,482.9%. Growth in assets
in 1995 was funded largely by an increase in deposits which grew by 5.7% or
$6.1 million from $107.7 million at December 31, 1994, to $113.8 million at
December 31, 1995.
RESULTS OF OPERATIONS
GENERAL. Net income for the three-month period ended March 31, 1997 was
$1.2 million, an increase of 172.2%, from the $425,000 for the three months
ended March 31, 1996. This increase was substantially due to higher loan
sales in the period ended March 31, 1997 as compared to the same period in
1996. Net income for 1996 was $2.8 million, representing an increase of $2.1
million or 284.4% from 1995 net income. The primary reason for this
substantial increase was an increase in the gain on sale of loans in
connection with the mortgage banking activities of Citizens, together with a
substantial reduction in the provision for loan losses reflecting the
decrease in loan charge offs of $3.4 million or 75.9% from 1995 to 1996. Net
income in 1995 of $722,000 represented an increase of 86.6% as compared to
1994 net income of $387,000. Such increase was also largely attributable to
increased gain on sale of loans, and to a substantial contribution of
$371,000 to the KSOP in 1994. No KSOP contributions were made in 1995 or
1996.
TOTAL INTEREST INCOME. Total interest income in both the three months
ended March 31, 1997 and the three months ended March 31, 1996 was $2.5
million. Total interest income decreased substantially in 1996, to $10.9
million dollars from $13.1 million dollars in 1995, or a decline of 16.8%.
The major reason for the decline relates to the sale in June 1995 of $86.7
million in Title I Loans, which had a weighted average yield of almost 14%,
and its reinvestment in investment securities with substantially lower
yields. In 1996, actions which reduced interest income included sales of the
higher-yield, longer-term held-to-maturity securities portfolio and
mortgage-backed securities, and the commercial loan portfolio, and reduction
in the overall permanent loan portfolio held by Citizens as operations
continued to be strongly redirected towards mortgage banking activities.
Total interest income in 1995 was down $816,000, or 5.9%, as compared to
1994. This reduction was due largely to the same factors that reduced
interest income in 1996, including the sale of the Title I portfolio, which
substantially reduced interest income on loans for the second half of 1995.
TOTAL INTEREST EXPENSE. Total interest expense declined by $0.3
million, or 15.5%, to $1.4 million in the three months ended March 31, 1997
from $1.7 million in the three months ended March 31, 1996, reflecting lower
deposit balances and prevailing interest rates. Total interest expense
declined by $0.5 million, or 6.0%, from $6.8 million dollars in 1995 to $6.3
million dollars in 1996, reflecting the 6.3% decrease in average interest
earning liabilities, and management's lowering of the rates offered on
certain deposit accounts. Interest expense increased substantially in 1995,
by 42.9%, as compared to 1994, reflecting deposit growth in 1995 and
increases in the rates paid on term certificates of deposit.
NET INTEREST INCOME. Net interest income for the three months ended
March 31, 1997 was $1.1 million as compared to $0.9 million in the first
quarter of 1996 due primarily to lower interest expense. Net interest income
decreased by $1.8 million, or 28.3%, to $4.5 million dollars in 1996 as
compared to $6.3 million in 1995. This was primarily due to a 35.8% decrease
in average outstanding loan receivables, sales of higher-yielding,
longer-term securities. In 1995 net interest income dropped substantially
from $9.2 million in 1994 to $6.3 million in 1995, due in large part to the
decrease in outstanding average loan receivables, including the effect of the
sale of Title I Loans.
54
<PAGE>
NET INTEREST INCOME ANALYSIS. The following table presents for the
periods indicated the distribution of average interest-earning assets and the
resultant yields, and the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. All average balances are
monthly average balances. Loans receivable includes loans held for sale.
Nonaccrual loans have been included in the table as loans having a zero yield.
<TABLE>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1996
----------------------------------- -----------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
OUTSTANDING PAID RATE OUTSTANDING PAID RATE
----------- ----------- ------ ----------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable $ 71,052 $10,153 14.29% $ 45,690 $ 6,519 14.27%
Investment securities 3,852 221 5.74 8,080 300 3.71
Mortgage-backed securities
& collateralized mortgage
obligations (CMOs) 24,212 1,345 5.56 49,531 3,314 6.69
Other 26,352 1,348 5.12 16,479 744 4.51
-------- ------- ----- -------- ------- -----
Total interest-earning
assets $125,468 $13,067 10.41% $119,780 10,877 9.08%
Interest-Bearing Liabilities:
Certificates $ 86,091 5,173 6.01% $ 72,254 4,454 6.16%
Passbook accounts 29,525 1,419 4.81 36,001 1,705 4.74
Borrowings 1,834 161 8.78 1,825 188 10.30
-------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities $117,450 $ 6,753 5.75% $110,080 $ 6,347 5.77%
Net interest income $ 6,314 $ 4,530
Net interest rate spread 4.66% 3.31%
Net earning assets $ 8,018 $ 9,700
Net interest margin 5.03% 3.78%
Average interest-earning
assets to average interest-
bearing liabilities 1.07x 1.09x
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------
1996 1997
----------------------------------- -----------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
OUTSTANDING PAID RATE OUTSTANDING PAID RATE
----------- ----------- ------ ----------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable $ 42,171 $1,317 12.49% $ 43,591 $1,487 13.65%
Investment securities 5,032 71 5.64 44,346 618 5.57
Mortgage-backed securities
& collateralized mortgage
obligations (CMOs) 57,141 889 6.22 13,275 215 6.48
Other 18,571 243 5.23 10,770 144 5.35
-------- ------ ----- -------- ------ -----
Total interest-earning
assets $122,915 2,520 8.20% $111,982 2,464 8.80%
Interest-Bearing Liabilities:
Certificates $ 75,436 1,182 6.27% $ 65,708 973 5.92%
Passbook accounts 35,375 418 4.73 34,419 389 4.52
Borrowings 1,795 51 11.36 1,419 33 9.30
-------- ------ ----- -------- ------ -----
Total interest-bearing
liabilities $112,606 $1,651 5.86% $101,546 $1,395 5.50%
Net interest income $ 869 $1,069
Net interest rate spread 2.34% 3.30%
Net earning assets $ 10,309 $ 10,436
Net interest margin 2.83% 3.82%
Average interest-earning
assets to average interest-
bearing liabilities 1.09x 1.10x
</TABLE>
55
<PAGE>
Interest income and interest expense can fluctuate widely based upon
changes in the level of market interest rates. Net interest income can also
be affected by a change in the composition of assets and liabilities, for
example, if higher yielding loan assets were to replace a like amount of
lower yielding short term government securities. Net interest income is
affected by changes in volume and changes in rates. Volume changes are
caused by differences in the level of interest-earning assets and
interest-bearing liabilities. Rate changes result from differences in yields
earned on assets and rates paid on liabilities.
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets
and interest-bearing liabilities due to changes in outstanding balances and
changes in interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume; (i.e., changes in volume multiplied by old rate)
and (ii) changes in rate (i.e., changes in rate multiplied by old volume).
For purposes of this table, changes attributable to both rate and volume
which cannot be segregated, have been allocated proportionately to changes
due to volume and changes due to rate.
<TABLE>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------- ---------------------------
1995 VS. 1994 1996 VS. 1995 1997 VS. 1996
---------------------------- ------------------------------ ---------------------------
INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
-------------- --------------- -------------
TOTAL TOTAL TOTAL
INCREASE INCREASE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ---- ---------- ------ ---- --------- ------ ---- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $(3,906) $ 740 $ (3,166) $ (3,624) $ (10) $ (3,634) 177 (7) 170
Mortgage-backed securities and CMOs 1,154 26 1,180 1,408 561 1,969 2,728 (3,402) (674)
Investment Securities (45) 42 (3) 243 (164) 79 (2,217) 2,764 547
Other 803 370 1,173 (504) (100) (604) (408) 309 (99)
------- ------- -------- -------- ------- -------- ------- ------- ------
Total interest-earning assets $(1,994) $ 1,178 $ (816) $ (2,477) $ 287 $ (2,190) $ 280 $ (336) $ (56)
------- ------- -------- -------- ------- -------- ------- ------- ------
Interest-bearing liabilities:
Certificates $ 895 $ 1,070 $ 1,965 $ (832) $ 113 $ (719) $ (610) 401 (209)
Passbook accounts (243) 273 30 311 (25) 286 (45) 16 (29)
Borrowings 13 20 33 (1) 28 27 (43) 25 (18)
------- ------- -------- -------- ------- -------- ------- ------- ------
Total interest-bearing liabilities $ 665 $ 1,363 $ 2,028 $ (522) $ 116 $ (406) $ (698) $ 442 $ (256)
------- ------- -------- -------- ------- -------- ------- ------- ------
Net change in net interest income $ (2,844) $ (1,784) $ 200
======== ======= ======
</TABLE>
56
<PAGE>
57
<PAGE>
PROVISION FOR LOAN LOSSES. WIB provides for loan losses by a charge to
operations based upon management's evaluation of the loan portfolio, past
loan loss experience, economic conditions, and other factors. The level of
the allowance for loan losses as it relates to the total portfolio, the level
of classified assets and the loss experience determines the amount that will
be added to the provision. The provision for loan losses was $125,000 in the
three months ended March 31, 1997, an increase of $23,000, or 22.5%, from the
$102,000 provided in the first quarter of 1996, and was approximately the
amount of net loans charged off in such three-month period. The provision
for loan losses for 1996 decreased by $3.0 million, or 95.1%, to $0.2
million, as compared to $3.2 million in 1995. The reasons for the decrease
were a substantial reduction in loan charge-off experience in 1996, in which
$1.1 million in loans were charged off, as compared to 1995 in which $4.5
million in loans were charged off, coupled with the sale of commercial loans
of $9.7 million and a substantial reduction in non-accruing loans and other
classified assets, particularly with respect to the Title I portfolio.
Non-accruing Title I Loans were $0.2 million at December 31, 1996, as
compared to $0.3 million at December 31, 1995 and $4.1 million at December
31, 1994. See "Business of WIB -- Nonperforming Assets and Classified
Assets." The 1995 loan charge-offs related largely to the Title I Loan
business of Citizens. While economic conditions in California have improved
in 1996 and 1995, as compared with prior years, the generally weak California
economy in preceding periods, and attendant high unemployment and devaluation
of property values, continued to adversely affect the ability of borrowers to
repay loans in 1995 and 1996. The provision for loan losses increased from
$2.9 million in 1994 to $3.2 million in 1995, or 9.4%, reflecting higher
charge-offs in 1995 as compared to 1994 in which $1.2 million in loans were
charged off. During 1994 WIB maintained a higher total allowance for loan
losses than in 1995 and 1996, reflecting the generally weaker economy in such
year and prior years and the high level of non-accruing Title I Loans. As of
December 31, 1996, 1995 and 1994, the allowance for loan losses represented
3.2%, 5.0% and 3.2%, respectively, of total loans. The lower allowance (by
percentage of loans) in 1994 as compared to 1995 reflects the fact that the
Title I Loan HUD reserve account was higher in 1994 than in 1995, thereby
requiring a lower allowance on the part of WIB.
NONINTEREST INCOME. Total non-interest income for the three months ended
March 31, 1997 was $3.9 million, representing an increase of $1.8 million, or
83%, from the $2.1 million of non-interest income in the corresponding period
of 1996, due substantially to increased gains on the sale of junior lien home
equity loans. Total noninterest income for 1996 increased $3.4 million or
44.9%, to $10.8 million primarily due to increased gain on loan sales from
increased sales of junior lien home equity loans. Servicing fee income also
increased by $0.2 million from $1.2 million in 1995 to $1.4 million in 1996
primarily due to the effect of the sale of Title I Loans with servicing or
subservicing responsibilities retained. Noninterest income increased
substantially in 1995 to $7.5 million from $3.3 million in 1994, an increase of
126.9%. This increase was also due to the increase in gain on sale of loans.
NONINTEREST EXPENSE. Non-interest expense increased substantially in
the first quarter of 1997 to $2.8 million, as compared to $2.2 million in the
first quarter of 1996, an increase of 31.6%. The increase resulted from the
continued expansion of lending activities. Total noninterest expense
increased $1.1 million, or 11.2%, in 1996 as compared to 1995. Salaries and
employee benefits increased $0.6 million, or 13.1%, to $5.3 million due to
salary increases and additional staffing required for expanding operations.
Other general and administrative expenses also increased by $0.4 million, or
9.9%, due primarily to increased lending operations and loan volume,
including increases in retail marketing expenses and the opening of the
Seattle, Washington office and related marketing expense. Noninterest expense
increased from $8.9 million in 1994 to $9.4 million, or by 5.6%, due to
expansion in lending operations requiring increased personnel and general and
administrative costs. The increase was partially offset by a substantial
reduction in expenses of real estate owned which declined by $0.3 million in
1995 as compared to 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
from $0.3 million in the three months ended March 31, 1996 to $0.8 million in
the three months ended March 31, 1997, generally in line with increased
earnings. The provision for income taxes for 1996 increased $1.5 million,
from $0.5 million in 1995 to $2.0 million, and by $0.2 million in 1995 as
compared to 1994, primarily due to increased earnings before income taxes.
ASSET/LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated,
58
<PAGE>
based upon certain assumptions, to mature or reprice within a specific time
period and the amount of interest-bearing liabilities anticipated, based upon
certain assumptions, to mature and reprice within that same time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities and negative when
the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets. During a period of rising interest rates, a
negative gap would generally tend to adversely affect net interest income
while a positive gap would generally tend to result in an increase in net
interest income. During a period of declining interest rates, a negative gap
would generally tend to result in increased net interest income while a
positive gap would generally tend to adversely affect net interest income.
At March 31, 1997, total interest-bearing assets maturing or repricing within
one year exceeded total interest-bearing liabilities maturing or repricing in
the same period by $16.8 million, representing a positive one-year gap as a
percentage of assets of 17.03%.
In an attempt to manage its exposure to changes in interest rates,
management closely monitors WIB's interest rate risk. WIB has an
asset/liability committee of senior management which meets monthly to review
WIB's interest rate risk position, the various product lines and make
recommendations for adjusting such position. On a weekly basis, the
President reviews the rates on both loan and savings products to determine
appropriateness. In addition, the Board of Directors of Citizens reviews the
gap ratio on a monthly basis.
In the first quarter of 1997, WIB originated or purchased for sale or
portfolio a total of approximately $39.0 millions in loans, and sold $41.1
million in loans. During 1996, WIB originated or purchased for sale or
portfolio a total of approximately $134.0 million in loans, and sold $133.5
million in loans. During 1995, approximately $86.0 million in loans were
originated or purchased and $140.4 million in loans were sold. By comparison,
total loans purchased or originated in 1994 were approximately $60.0 million,
and loans sold were $27.9 million. Loans held for sale increased from $6.5
million at December 31, 1994 to $19.0 million at year-end 1995 and $30.1
million at year end 1996, before declining to $27.8 million at March 31,
1997, reflecting WIB's shift in the nature of its business over the last
three years from being primarily a portfolio lender to mortgage banking.
Loans held for sale are typically held for 30 to 60 days before being sold to
investors.
WIB has also shortened the maturity of its investment securities
portfolio from 16.87 years at December 31, 1994, and 20.32 years at year-end
1995 to 3.91 years at year-end 1996, and 4.40 years at March 31, 1997, and
has substantially increased its average cash holdings during the last two
years in order to fund loan production.
WIB's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the
results of operations are influenced by the level of short-term interest
rates. WIB offers a range of maturities on its deposit products at
competitive rates and monitors the maturities on an ongoing basis.
WIB emphasizes and promotes passbook accounts and term certificates of
deposit with maturities of six months through three years. The passbook
accounts tend to be less susceptible to rapid changes in interest rates;
however, Citizens has paid slightly higher rates on all deposit accounts than
full service commercial banks and savings associations in order to attract
longer-term certificates of deposit, promote the stability of its passbook
accounts and to expand its customer base.
The following table sets forth the interest rate sensitivity of WIB's
assets and liabilities at March 31, 1997 on the basis of certain assumptions.
Except as stated below, the amounts of assets and liabilities shown which
reprice or mature during a particular period were determined in accordance
with the earlier of the repricing timing or contractual term of the asset or
liability.
59
<PAGE>
<TABLE>
MATURING OR REPRICING
------------------------------------------------------------
6 MONTHS OVER 6-12 OVER 1-3 OVER 3-5 OVER 5
OR LESS MONTHS YEARS YEARS YEARS TOTAL
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fixed rate mortgage loans ..................................... $ 1 $ 8 $ 268 $ 247 $34,913 $ 35,437
Adjustable rate mortgage loans ............................... 2,670 627 433 -- -- 3,730
Consumer loans ................................................ 15 27 37 50 152 281
Mortgage backed securities .................................... 9,022 707 -- 1,412 1,891 13,032
Investment securities and other ............................... 55,903 -- -- 95 -- 55,998
------- --------- --------- --------- ------- --------
Total interest-earning assets ................................ 67,611 1,369 738 1,804 36,956 108,478
------- --------- --------- --------- ------- --------
INTEREST-BEARING LIABILITIES:
Certificates of deposit ....................................... 28,546 14,154 14,062 3,462 -- 60,224
Passbook accounts ............................................. 3,389 3,389 13,552 13,552 -- 33,882
Borrowings .................................................... 391 639 325 -- -- 1,355
------- --------- --------- --------- ------- --------
Total interest-bearing liabilities ........................... 32,326 18,182 27,939 17,014 -- 95,461
------- --------- --------- --------- ------- --------
Interest-earning assets less interest-bearing liabilities ...... $35,285 $(16,813) $(27,201) $(15,210) $36,956 $ 13,017
------- --------- --------- --------- ------- --------
------- --------- --------- --------- ------- --------
Cumulative interest-rate sensitivity gap ....................... $ -- $ 18,472 $ (8,729) $(23,939) $13,017
Cumulative interest-rate gap as a percentage of assets --% 17.03% (8.05)% (22.07)% 12.00%
</TABLE>
In evaluating WIB's exposure to interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the preceding table. For
example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, some adjustable-rate loans have features which restrict changes
in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, prepayment levels may
deviate significantly from those assumed in calculating the table. Finally,
the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase. WIB considers all of these factors in
monitoring its exposure to interest rate risk.
LIQUIDITY AND CAPITAL RESOURCES
Citizen's primary sources of funds are deposits, payments of principal and
interest on loans, and proceeds from loan sales. While maturities and
scheduled principal amortization are a reasonably predictable source of
funds, deposit flows, loan prepayments and loan sales are greatly influenced
by the level of interest rates, economic conditions and competition. At the
parent company level, WIB also raises funds from borrowings from the sale of
notes payable, dividends and management fees received from Citizens. WIB has
also received funds from the sale of WIB Common Shares to the KSOP.
WIB's primary lending and investment activities are the origination of one-
to four-family junior lien loans that are generated for sale, and to a lesser
extent, the purchase of investment and mortgage-backed securities. During
the years ended December 31, 1996, 1995 and 1994, WIB originated and
purchased loans held for sale of $125.6 million, $66.1 million and $29.9
million, respectively. For the three months ended March 31, 1997 such loans
totaled $39.0 million. Investing activities included the purchase of
investment and mortgage-backed securities. Lending and investment activities
are funded primarily by the sale of loans held for sale, principal and
interest payments on loans, and increases in deposits. Proceeds from the
sale of loans for the three months ended March 31, 1997 were $41.1 million,
and for the years ended December 31, 1996, 1995 and 1994 were $123.8 million,
$53.7 million and $28.0 million, respectively. Over the same period, deposit
balances were $107.7 million, $113.8 million and $106.9 million,
respectively, at year end 1994, 1995 and 1996. However, by March 31, 1997,
total deposits had been reduced to $94.1 million as deposit rates were
reduced and investment securities sold to run off excess liquidity.
WIB's liquid assets are cash, cash in banks, Fed Funds sold and investments
in investment securities with maturities of less than one year. The level of
these assets depends on WIB's operating, financing, lending and investing
activities during any given period. At March 31, 1997 these liquid assets
totaled $57.9 million, and at December 31, 1996, 1995 and 1994, these liquid
assets totaled $65.3 million, $31.0 million and $4.2 million, respectively.
60
<PAGE>
Excess funds are generally invested in interest-earning overnight deposits
or short-term investment securities. In the event Citizens or WIB should
require funds beyond its ability to generate them internally, additional
sources of funds are available through the use of lines of credit with a
third-party bank of $3.8 million, under which $3.2 million in funds were
available at March 31, 1997.
Management believes that the liquidity and resources of WIB are adequate to
fund all foreseeable needs.
In the first quarter of 1997, stockholders' equity increased to $12.9
million, or by $1.1 million, from $11.8 million at December 31, 1996, an
increase of 10%. Stockholders' equity increased by $2.5 million, or 27.2%,
to $11.8 million at December 31, 1996 from $9.2 million at December 31, 1995.
In 1995 stockholders' equity increased $1.1 million, or 13.8%, from $8.1
million at December 31, 1994. Such increases were largely attributable to
earnings, with stock purchased by the KSOP contributing approximately
$300,000 to stockholders' equity in 1995 and $45,000 in 1996.
Current risk-based capital standards of the FDIC imposed under federal law
generally require insured financial institutions to maintain a ratio of
"core" or "Tier 1" capital (consisting principally of common equity) to
adjusted total assets (leverage ratio) of at least 4% to 5%, a ratio of Tier
1 capital to risk weighted assets of at least 4%, and a ratio of total
capital (which includes Tier 1 capital plus certain forms of subordinated
debt, a portion of the allowance for loan losses and preferred stock) to risk
weighted assets of at least 8%. Risk weighted assets are calculated by
multiplying the balance in each category of assets according to a risk factor
which ranges from zero for cash assets and certain government obligations to
100% for some types of loans, and adding the products together.
In 1991, the Federal Deposit Insurance Corporation Improvements Act
("FDICIA") was enacted. FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, and specifies
requirements for the taking of prompt corrective action by the FDIC if an
institution fails to maintain certain capital ratios. The capital categories
are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."
Institutions characterized as undercapitalized or worse are subject to
certain restrictions including the requirement to file a capital plan with
its primary federal regulator, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation and increased
supervisory monitoring, among other things. Other restrictions may be
imposed on the institution by the DOC or by the FDIC, including requirements
to raise additional capital, sell assets or sell the entire institution.
The following is a summary of the capital ratios of Citizens at March 31,
1997 as compared to minimum regulatory requirements for an institution to be
considered adequately capitalized and the requirements for being well
capitalized.
<TABLE>
TO BE WELL-CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT
ACTUAL PURPOSES CORRECTIVE ACTION PROVISIONS
------------------- -------------------- ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted
assets) ............................ $14,218,159 26.5% $4,300,707 8.0% $5,375,884 10.0%
Tier 1 capital (to average assets) . 13,546,174 11.7 4,635,546 4.0 5,794,433 5.0
Tier 1 capital (to risk-weighted
assets) .......................... 13,546,174 25.2 2,150,353 4.0 3,225,530 6.0
</TABLE>
As reflected in the preceding table, at March 31, 1997, Citizens was
"well-capitalized" under the prompt corrective action provisions of FDICIA.
Regulations of the DOC also require industrial loan companies not to exceed
a defined ratio of outstanding "thrift" or deposit accounts in relation to
stockholders' equity less retained earnings restricted as to distribution and
certain intangible assets. The ratio established for Citizens is 20 to 1.
In addition, state law and regulations require Citizens to maintain a minimum
capital stock of $1,250,000 plus a portion of retained earnings restricted as
to distribution. At March 31, 1997, Citizens was in compliance with all
state capital requirements.
61
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented herein
have been prepared in accordance with GAAP, 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 WIB's operations. Unlike most industrial companies, nearly all the
assets and liabilities of WIB are monetary. As a result, interest rates have
a greater impact on WIB'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.
EFFECT OF RECENT ACCOUNTING STANDARDS
In June 1996, the FASB issued FASB 125. FASB 125 addresses the accounting
for all types of loan sales, securitization transactions, securities lending
and repurchase agreements, collateralized borrowing arrangements and other
transactions involving the transfer of financial assets. FASB 125
distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings. FASB 125 is generally effective for
transactions that occur after December 31, 1996, and it is to be applied
prospectively. FASB 125 will require WIB to allocate the total costs of
mortgage loans sold to the mortgage loans sold (servicing released), retained
certificates and servicing rights based on their relative fair values. WIB
will be required to assess the retained certificates and servicing rights for
impairment based upon the fair value of those rights. The pronouncement also
will require WIB to provide additional disclosure about the retained
certificates and to account for these assets at fair value in accordance with
FASB 115. WIB will apply the news prospectively beginning in the first
calendar quarter of 1997 and, based on current circumstances, does not
believe the application of the new rules would have a material impact on
WIB's financial statements. There can be no assurance, however, that the
implementation by WIB of FASB 125 will not reduce WIB's gain on sale of loans
in the future or otherwise adversely affect WIB's results of operations or
financial condition.
Prior to January 1, 1996, WIB accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, WIB adopted Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. WIB has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("FASB No. 128"), "Earnings Per Share." FASB No. 128
supersedes APB Opinion No. 15 ("APB 15"), "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per
share ("EPS") for entities with publicly held common stock or potential
common stock. FASB No. 128 was issued to simplify the computation of EPS and
to make the U.S. standard more compatible with the EPS standards of other
countries and that of the International Accounting Standards Committee
("IASC"). It replaces the presentation of primary EPS with a presentation of
basic EPS and fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under APB No. 15.
FASB No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior-period EPS data presented shall be
restated to conform with FASB No. 128. WIB has determined that this
statement will increase the earnings per share computation under Basic EPS as
compared to primary EPS.
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<PAGE>
FASB No. 129, Disclosure of Information about Capital Structure, is
effective for financial statements for periods ending after December 15,
1997. It is not expected that the issuance of FASB No. 129 will require
significant revision of prior disclosure since the Statement lists required
disclosures that had been included in a number of previously existing
separate statements and opinions.
63
<PAGE>
BUSINESS OF WIB
GENERAL
WIB is a financial institution holding company organized in 1979 under the
laws of the State of California for the primary purpose of holding all of the
outstanding shares of Citizens. WIB's only significant asset is the capital
stock of Citizens. WIB also owns Citizens Group, Inc., which acts as a
trustee in deeds of trust securing real estate loans made by Citizens. WIB
is not a bank holding company under the Bank Holding Company Act of 1956, as
amended, or a savings and loan association holding company under the Home
Owners' Loan Act of 1933, as amended, and, therefore, is not subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System or the Office of Thrift Supervision.
Citizens is a California licensed industrial loan company that commenced
business in 1980 and is supervised and regulated by the DOC and the FDIC.
The deposits of Citizens are insured by the FDIC up to applicable limits.
Citizens services its customers through five full service branch offices
located in the California cities of Anaheim Hills, Citrus Heights, Concord,
Irvine, and San Clemente. It also operates additional loan production
offices in Tustin, California, Las Vegas, Nevada, Phoenix, Arizona and
Seattle, Washington. The executive offices of both WIB and Citizens are
located at 18302 Irvine Boulevard, Suite 300, Tustin, California 92680 and
its telephone number at that address is (714) 573-7500.
In recent years, Citizens has focused its lending activities primarily in
the origination for sale of junior lien loans secured by one- to four-family
residential homes located in its market areas. Although Citizens has
originated commercial and multi-family real estate loans in its market area,
continued originations of such loans is expected to be limited. In December
1996, Citizens sold substantially all of its commercial loan portfolio of
$9.7 million.
Citizens offers deposit accounts having a wide range of interest rates and
terms, which consist of passbook accounts and term certificates of deposit.
Citizens does not offer traditional banking services, such as checking
accounts or safe deposit boxes.
At March 31, 1997, WIB employed a total of 153 full-time and four part-time
employees.
MARKET AREAS
Citizens accepts deposits at its California branches and originates one- to
four-family real estate mortgage loans primarily within California, Arizona,
Nevada and Washington. During 1996, these states accounted for 80.2%, 7.3%,
7.8% and 4.7%, respectively, of Citizens' total loan originations.
LENDING ACTIVITIES
GENERAL. WIB focuses its lending activities on one- to four-family junior
lien home equity loans, including Title I Loans, and, to a lesser extent
first lien mortgage loans, and, from time to time, commercial and
multi-family real estate loans. Loans are generally originated for sale in
the secondary market and, to a lesser extent, to be retained in its loan
portfolio.
Citizens' loans are primarily originated directly with the consumer by mass
mail solicitations, advertising in local newspapers, distributing fliers to
homes and references from realtors and the local business community. To a
lesser extent, Citizens also purchases loans from loan correspondents. Each
loan is pre-approved by Citizens prior to origination or purchase utilizing
WIB's underwriting criteria and those of its investors, in the case of loans
originated for sale. Citizens solicits and processes loan requests received
at each branch location. Following analysis of the borrower's credit and cash
flows and collateral appraisals, all loans may be approved by designated
officers up to $100,000 for junior lien loans and $225,000 for first lien
loans. All loans in excess of these amounts must be approved by the Loan
Committee which currently consists of Messrs. McGuire, Williams, Kagnoff and
Rich. See "Management of WIB--Meetings and Committees of the WIB Board."
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<PAGE>
PORTFOLIO COMPOSITION. The following information presents the composition
of the loan portfolio in dollar amounts and in percentages (before deductions
for loans held for sale, deferred fees and discounts and allowance for loan
losses) as of the dates indicated.
<TABLE>
DECEMBER 31,
--------------------------------------
1995 1996 MARCH 31, 1997
---------------- ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One to four family - first lien $ 6,761 15.67% $ 6,443 14.97% $ 5,773 14.64%
One to four family - junior lien 16,569 38.40 28,645 66.54 26,621 67.48
Title I 10,590 24.54 7,570 17.58 6,773 17.17
Commercial real estate 8,121 18.82 78 0.18 -- --
Multi-family 906 2.10 -- -- -- --
---------
---------
---------
Total real estate loans 42,947 42,736 39,167
Consumer loans 201 0.47 313 0.73 281 0.71
-------- ------ -------- ------ --------- ------
Total loans $ 43,148 100.0% $ 43,049 100.0% $ 39,448 100.0%
-------- ------ -------- ------ --------- ------
-------- ------ -------- ------ --------- ------
Less:
Loans held for sale $(18,960) $(30,107) (27,766)
Deferred fees and discounts (876) (1,045) (1,069)
Allowance for loan losses (2,177) (1,392) (1,393)
--------- --------- ---------
Total loans receivable, net $ 21,135 $ 10,505 $ 9,220
--------- --------- ---------
--------- --------- ---------
</TABLE>
65
<PAGE>
The following table shows the composition of WIB's loan portfolio by fixed
and adjustable rate at the dates indicated.
<TABLE>
DECEMBER 31,
-----------------------------------------
1995 1996 MARCH 31, 1997
----------------- ------------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate:
Title I $ 10,590 24.54% $ 7,570 17.58% $ 6,773 17.17%
One to four family - first lien 3,738 8.66 2,908 6.76 2,262 5.73
One to four family - junior lien 16,282 37.74 28,421 66.02 26,402 66.93
--------- -------- --------- -------- --------- --------
Total real estate loans 30,610 70.94 38,899 90.36 35,437 89.83
Consumer loans 201 0.47 313 0.73 281 0.71
--------- -------- --------- -------- --------- --------
Total fixed rate loans 30,811 71.41 39,212 91.09 35,718 90.54
--------- -------- --------- -------- --------- --------
Adjustable-Rate Loans:
Real Estate:
One- to four-family - first lien 287 0.66 224 0.52 3,511 8.90
One-to four-family - junior lien 8,121 18.82 78 0.18 219 0.56
Commercial real estate 906 2.10 -- -- -- --
Multi-family 3,023 7.01 3,535 8.21 -- --
--------- -------- --------- -------- --------- --------
Total adjustable-rate loans 12,337 28.59 3,837 8.91 3,730 9.46
--------- -------- --------- -------- --------- --------
Total loans $ 43,148 100.00% $ 43,049 100.00% $ 39,448 100.00%
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Less:
Loans held for sale $(18,690) $(30,107) $(27,766)
Deferred fees and discounts (876) (1,045) (1,069)
Allowance for loan losses (2,177) (1,392) (1,393)
--------- --------- ---------
Total loans receivable, net $ 21,135 $ 10,505 $ 9,220
--------- --------- ---------
--------- --------- ---------
</TABLE>
ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. WIB is also engaged in
residential loan originations in its market areas. WIB currently offers
fixed-rate and adjustable rate one- to four-family mortgage loans. WIB
focuses its one- to four-family lending efforts primarily on the origination
of home equity loans secured by junior liens on owner-occupied, one- to
four-family residences. Such loans are generally originated for sale to
investors in the secondary market. At March 31, 1997, WIB held $26.6 million
in such loans, or 67.5% of total loans at such date. LTV ratios for such
loans may go up to 125% at origination or purchase, depending on the loan
program and the requirements of investors. Loans have a maximum term of 20
years, fully amortized.
WIB also originates one- to four-family first lien loans with terms of up
to 30 years in amounts generally up to 90% of the appraised value of the
security property. For loans with a LTV ratio in excess of 80%, WIB
generally requires that private mortgage insurance be obtained in an amount
sufficient to reduce WIB's exposure to 75% or less of the LTV level. WIB
generally sells fixed-rate one- to four-family first lien loans, servicing
retained in the secondary market while holding in portfolio adjustable-rate
one- to four-family first lien loans.
In underwriting one- to four-family residential real estate loans, WIB
evaluates both the borrower's ability to make monthly payments and the value
of the property securing the loan. Properties securing real estate loans made
by WIB are generally appraised by independent appraisers approved by the WIB
Board. WIB generally requires borrowers to obtain title insurance (or
conducts a title search with respect to home equity loans) and fire and
property insurance (including flood insurance, if necessary) in an amount not
less than the lesser of the amount of the loan or replacement cost for loans
held in portfolio. Real estate loans originated by WIB generally contain a
"due on sale" clause allowing WIB to declare the unpaid principal balance due
and payable upon the sale of the security property.
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<PAGE>
FHA INSURED TITLE I PROPERTY IMPROVEMENT LOANS. Since 1984, WIB has been
involved in the origination, purchase and servicing of Title I Loans, which
are insured by the United States under a program administered by HUD. Title
I Loan originations are generated by WIB's marketing efforts, its present
customers, walk-in customers and referrals from real estate agents. Title I
loans are also purchased from other HUD-approved lenders. Under the Title I
Program sponsored by HUD, eligible borrowers finance property improvements
and HUD insures WIB against principal loss of 90% of the outstanding balance
at the time of default.
Prior to 1995, Title I lending constituted WIB's principal lending
activity. However, in 1995, other high LTV home equity loan products
offering higher loan balances diminished the competitiveness of the Title I
Program, in which loans on property in which the borrower has no equity are
limited to $25,000. In addition, the FDIC had expressed its concern to
Citizens that Citizens was overly concentrated in the Title I Loan business,
which amounted to $89.7 million, or 82.3% of total loans at December 31,
1994, and increasing delinquencies were requiring increased reserves for
losses on the Title I Loans. In June 1995, WIB sold $86.7 million in Title I
Loans then held in its portfolio to FPFG and is now emphasizing the
origination of other second mortgage home equity products for sale. In 1996,
WIB originated or purchased $13.0 million in Title I Loans, compared with
$30.5 million in 1995 and $35.4 million in 1994. At March 31, 1997, WIB held
$6.8 million in Title I Loans, amounting to 17.2% of all loans. At December
31, 1996, WIB held $7.6 million in Title I Loans, representing 17.6% of total
loans, as compared to $10.6 million at year-end 1995 and $89.7 million at
year-end 1994.
WIB currently sells the insured and uninsured portions of the Title I Loans
originated with interest rates below a designated yield in the secondary
market with servicing retained on sales to Fannie Mae and servicing released
on sales to other investors. Prior to 1996, WIB generally retained the
uninsured 10% portion for its portfolio.
The maximum loan amount permitted under this program is $25,000 for a
single-family residence, up to $60,000 for a multi-family unit and $25,000 on
non-residential real estate property. No equity is required for loans for
$25,000 or less. Title I Loans are fully amortizing with maximum terms to
maturity of 20 years. WIB evaluates the borrower's credit worthiness through
the use of a consumer credit report, verification of employment and a review
of the debt-to-income ratio of the borrower, which generally may not exceed
45% of the applicant's gross income.
WIB is obligated to pay 1/2% per year of the original principal balance on
the loan anniversary for the cost of FHA insurance. WIB passes this charge
on to the borrower. The FHA insurance is a coinsurance program in which HUD
insures 90% of the loss of the outstanding principal of each loan in the
event of default. In the event of default, WIB will incur a loss on the 10%
uninsured portion of the loan. WIB's insurance contract with HUD limits the
overall amount of insurance claims that may be paid to Citizens to 10% of the
amount disbursed, advanced or expended by WIB originating or purchasing Title
I Loans. HUD has established a reserve account in that amount and adjusts
the balance as claims are paid and new loans are originated or acquired and
annually reduces the reserve balance by 10% to provide for prepayments of
loans. At March 31, 1997, the entire $6.8 million in Title I Loans held by
WIB were uninsured.
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LENDING. WIB has also engaged in
commercial and multi-family real estate lending in its market areas, but does
not intend to make such loans on other than an occasional basis in the
future. At March 31, 1997, WIB had no commercial real estate loans or
multi-family real estate loans.
CONSUMER LENDING. WIB engages in consumer lending to a limited extent on a
secured or unsecured basis, as well as offering loans secured by deposit
accounts. However, at March 31, 1997, WIB had only $281,000 in such loans.
Management is considering expanding these product lines in the future.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS
For the year ended December 31, 1996, WIB originated or purchased, for sale
and for portfolio, approximately $134.0 million of net loans, compared to
$86.0 million and $60.0 million in 1995 and 1994, respectively. Originated
or purchased loans in the three months ended March 31, 1997 totaled $39.0
million. Loan originations are handled by the regular employees of WIB on
both a salary and commission basis. Loans are purchased through approved
correspondents.
WIB currently sells virtually all one-to four-family fixed rate, and a
substantial part of its variable rate loan production, junior lien loans and
Title I Loans, and one- to four-family fixed-rate first lien loans to
secondary market
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<PAGE>
purchasers. WIB sold loans in aggregate amounts of $123.8 million, $53.7
million and $27.9 million during the years ended December 31, 1996, 1995 and
1994 respectively, and $41.1 million in the three months ended March 31, 1997.
When loans are sold, WIB may retain the responsibility for servicing the
loans. WIB receives a fee for performing these services. WIB serviced for
others mortgage loans amounting to $100.8 million at March 31, 1997, and
$105.3 million, $118.7 million and $42.0 million at December 31, 1996, 1995
and 1994, respectively. Included within these amounts are $17.0 million,
$23.0 million, $27.9 million and $38.0 million of Title I Loans,
respectively, at March 31, 1997 and December 31, 1996, 1995 and 1994.
NON-PERFORMING ASSETS AND CLASSIFIED ASSETS
Generally, when a borrower fails to make a required payment on real estate
secured loans and other loans WIB institutes collection procedures by
telephone or mail when the loan becomes five days delinquent. For one- to
four-family home equity junior lien loans, a notice of breach is mailed 10
days after default. The customer is contacted again, by telephone, if the
delinquency is not promptly cured. In most cases, delinquencies are cured
promptly; however, if a loan secured by real estate or other collateral has
been delinquent for more than 60 days, a final letter is sent demanding
payment and the customer is requested to make arrangements to bring the loan
current. At 90 days past due, if in the opinion of management the equity in
the property warrants, a thirty-day foreclosure notice may be sent, and if
the loan is 120 days overdue, unless satisfactory arrangements have been
made, immediate repossession commences or foreclosure proceedings are
instituted. If a Title I Loan is 241 days overdue and is secured by equity
that is deemed insufficient for foreclosure a claim may be filed with HUD for
the payment of 90% of the principal and delinquent interest.
The following table sets forth WIB's loan delinquencies by type, by amount
and by percentage of type at March 31, 1997.
<TABLE>
30-59 DAYS 60-89 DAYS 90+ DAYS
------------------------- ------------------------- -------------------------
% OF LOAN % OF LOAN % OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------ -------- ------ ------ -------- ------ ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
Title I 34 $ 97 1.43% 13 $ 42 0.62% 61 $174 2.57%
One to four family - first liens 1 115 1.99 -- -- -- -- -- --
One to four family - junior liens 1 25 0.09 1 52 0.20 2 42 0.16
Commercial -- -- -- -- -- -- -- -- --
Consumer - Non-real estate -- -- -- -- -- -- -- -- --
------ ------ -------- ------ ------ -------- ------ ------ --------
Total 36 $237 0.60% 14 $ 94 0.24% 63 $216 0.55%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
The table below sets forth the amounts and categories of non-performing
assets in WIB's loan portfolio. Loans are placed on nonaccrual status when
the loans are 90 days delinquent or when collection of principal and/or
interest become doubtful. WIB does not have any loans classified as
"troubled debt restructurings" as defined in Statement of Financial
Accounting Standards No. 15. Foreclosed assets include assets acquired in
settlement of loans. As of March 31, 1997, WIB had no accruing loans that
were contractually past due 90 days or more. At December 31, 1995, WIB had
one restructured loan not included in the following table that was performing
in accordance with the restructured terms. At March 31, 1997, WIB had no
restructured loans.
68
<PAGE>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
------------------- MARCH 31,
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Nonaccrual loans:
Real Estate:
Title I $ 264 $ 167 $ 174
One- to four-family - first lien 45 -- --
One- to four-family - junior lien 56 16 42
Commercial real estate 396 78 --
Multi-family -- -- --
Consumer - non real estate -- 1 --
------- ------- -------
Total nonaccrual loans $ 761 $ 262 $ 216
------- ------- -------
Foreclosed assets:
Real Estate:
Commercial $ 96 $ 144 $ 176
Multi-family -- 185 184
One- to four-family - first lien -- 89 84
------- ------- -------
Total foreclosed assets $ 96 $ 418 $ 444
------- ------- -------
Total non-performing assets $ 857 $ 680 $ 660
======= ======= =======
Non-accruing loans as a percentage
of total loans 0.60% 0.67% 0.21%
Non-performing assets as a percentage
of total assets 0.55% 0.19% 0.59%
Allowance for loan losses to
non-performing loans 286.07% 531.30% 644.91%
For the three months ended March 31, 1997 and the year ended December 31,
1996, gross interest income which would have been recorded had the nonaccrual
loans been current in accordance with their original terms amounted to $9,557
and $10,399, respectively. No interest income was recorded on nonaccrual
loans in the first three months of 1997 or in 1996. All accrued interest is
reversed when loans are placed on nonaccrual status.
Real estate owned at March 31, 1997 consists of six real estate
properties with an aggregate net book value of $444,164.
OTHER LOANS OF CONCERN. As of March 31, 1997, there were six loans
aggregating $148,000 that were not included in the table or discussed above
where known information about the possible credit problems of borrowers caused
management to have doubts as to the ability of the borrower to comply with
present loan repayment terms. The largest of such loans is a home loan
secured by a second lien on a residence in Southern California with an unpaid
principal balance of $52,000 at March 31, 1997.
These loans have been considered by management in conjunction with the
analysis of the adequacy of the allowance for loan losses.
CLASSIFIED ASSETS. Federal regulations provide for the classification of
loans and other assets such as debt and equity securities considered by the
FDIC and DOC to be of lesser quality as "substandard," "doubtful" or "loss."
An asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of
the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions and values,
"highly questionable and improbable." Assets classified as "loss" are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
When an institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have
69
<PAGE>
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an institution classifies problem assets as
"loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge-off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the FDIC
and the DOC, who may order the establishment of additional general or specific
loss allowances.
On the basis of management's review of its assets at December 31, 1996,
Citizens classified assets, including real estate owned, totaled $173,000 as
substandard, $35,000 as doubtful and none as loss. At March 31, 1997, $97,000
in assets were classified as substandard, $74,000 as doubtful, and none as
loss.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers, among
other matters, the loan classifications discussed above, the estimated fair
value of the underlying collateral, economic conditions, historical loan loss
experience, and other factors that warrant recognition in providing for an
adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at fair
value less estimated carrying costs and costs of disposition. If fair value
at the date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations.
Although management believes that it uses the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the allowance will be the result of
periodic loan, property and collateral reviews, as well as the level of the
HUD reserve for Title I Loans and thus cannot be predicted in advance. In
addition, federal and state regulatory agencies, as an integral part of the
examination process, periodically review the allowance for loan losses. Such
agencies may require Citizens to recognize additions to the allowance level
based upon their judgment of the information available to them at the time of
their examination. At December 31, 1996, WIB had a total allowance for loan
losses of $1.4 million, representing 531.3% of total nonperforming loans, and
3.2% of total loans. At March 31, 1997, the total allowance was $1.4 million,
representing 644.9% of non-performing loans, and 3.5% of total loans.
70
<PAGE>
The following table sets forth an analysis of Citizens' allowance for
loan losses:
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
------------------ MARCH 31,
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 3,442 $ 2,177 $ 1,392
Charge-offs:
Title I 4,422 850 127
One to four family - first trust deed 25 23 --
One to four family - junior lien 81 39 --
Commercial -- 108 15
Multi-family -- 70 --
Non-real estate 10 4 1
------- ------- -------
Total $ 4,538 $ 1,094 $ 143
======= ======= =======
Recoveries:
Title I 104 100 17
One to four family - first trust deed -- 17 --
One to four family - junior lien 6 16 1
Commercial -- 17 --
Non-real estate 5 4 1
------- ------- -------
Total $ 115 $ 154 $ 19
======= ======= =======
Net charge-offs 4,423 940 124
Additions charged to operations 3,158 155 125
------- ------- -------
Balance at end of period $ 2,177 $ 1,392 $ 1,393
======= ======= =======
Ratio of net charge-offs during the
period to average loans outstanding
during the period 6.23% 2.06% 0.28%
Ratio of net charge-offs during the
period to average non-performing assets 164.61% 69.12% 18.79%
71
<PAGE>
The distribution of the allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
DECEMBER 31,
----------------------------------------
1995 1996 MARCH 31, 1997
------------------- ------------------- ------------------
% TO TOTAL % TO TOTAL % TO TOTAL
AMOUNT LOANS (1) AMOUNT LOANS (1) AMOUNT LOANS (1)
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Title I $1,288 24.54% $ 954 17.58% $ 802 17.17%
One to four family - first lien 36 15.67 26 14.97 23 14.64
One to four family - junior lien 204 38.40 326 66.54 357 67.48
Commercial 542 18.82 34 0.18 -- --
Multi-family 51 2.10 -- -- -- --
Consumer - Non-real estate 6 0.47 8 0.73 5 0.71
Unallocated 50 44 206
------ ------ ------ ------ ------ ------
Total $2,177 100.00% $1,392 100.00% $1,393 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
____________________
(1) Percentage is the percent of loans in each category to total loans
INVESTMENT ACTIVITIES
WIB's investments are managed in accordance with a written investment
policy adopted by the WIB Board. Generally, the investment policy of WIB is
to invest funds among various categories of investments and maturities based
upon WIB's need for liquidity, in order to generate income, to provide
collateral for borrowings, if needed, and to fulfill its asset/liability
management policies.
At March 31, 1997, WIB had an investment portfolio consisting principally
of United States government and federal agency obligations. At that date,
WIB's investment securities, including mortgage-backed securities, totaled
$53.0 million, or 47.3% of its total assets. It is WIB's general policy to
purchase United States Government securities and federal agency obligations
and other investment grade securities. Investments are classified as
"held-to-maturity" or "available-for-sale" in accordance with FASB 115. In
December 1996, WIB sold $24.7 million of its held-to-maturity portfolio and
transferred the balance of $2.4 million to the available-for-sale portfolio.
72
<PAGE>
The following table sets forth the composition of the available-for-sale
and held-to-maturity investment securities portfolios at the dates indicated:
<TABLE>
DECEMBER 31,
-----------------------------------------------
1995 1996 MARCH 31, 1997
---------------------- --------------------- ---------------------
(IN THOUSANDS)
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities (available-for-sale):
Federal National Mortgage Association "FNMA" $ 22,107 $ 22,161 $ 55,962 $ 55,868 $ 32,673 $ 32,632
Federal Home Loan Mortgage Corporation "FHLMC" 3,758 3,839 329 335 10,305 10,309
Small Business Administration "SBA" 9,907 9,925 8,396 8,315 7,754 7,702
Other Mortgages -- -- 2,377 2,474 2,287 2,332
--------- -------- --------- --------- --------- ---------
Total $ 35,772 $ 35,925 $ 67,064 $ 66,992 $ 53,019 $ 52,975
--------- -------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- ---------
Investment Securities (held-to-maturity):
FNMA $ 2,204 $ 2,246 $ -- $ -- $ -- $ --
FNMA 10,692 10,766 -- -- -- --
FHLMC 9,896 9,908 -- -- -- --
Student Loan Marketing Association 1,000 1,000 -- -- -- --
U.S. Treasuries -- -- -- -- -- --
Other Mortgages 762 762 -- -- -- --
--------- -------- --------- --------- --------- ---------
Total $ 24,554 $ 24,682 $ -- $ -- $ -- $ --
--------- -------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- ---------
</TABLE>
The composition, maturities and average yields of all investment
securities at March 31, 1997 are indicated in the following table:
<TABLE>
MARCH 31, 1997
------------------------------------------------------------------------
LESS THAN 1 YEAR 1 TO 5 YEARS 5 TO 10 YEARS OVER TEN YEARS
----------------- --------------- ---------------- --------------
AMOR- AMOR- AMOR- AMOR- TOTAL TOTAL
TIZED FAIR TIZED FAIR TIZED FAIR TIZED FAIR AMORTIZED FAIR
ISSUER COST VALUE COST VALUE COST VALUE COST VALUE COST VALUE
- --------------- ------- ------- ------ ------ ------ ------ ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA $29,961 $29,908 $1,423 $1,412 $ -- $ -- $ 1,289 $ 1,311 $ 32,673 $ 32,631
FHLMC 10,305 10,309 -- -- -- -- -- -- 10,305 10,309
SBA -- -- -- -- -- -- 7,754 7,703 7,754 7,703
Other Mortgages -- -- -- -- 602 601 1,685 1,731 2,287 2,332
------- ------- ------ ------ ------ ------ ------- -------- -------- --------
Total $40,266 $40,217 $1,423 $1,412 $ 602 $ 601 $10,728 $ 10,745 $ 53,019 $ 52,975
------- ------- ------ ------ ------ ------ ------- -------- -------- --------
------- ------- ------ ------ ------ ------ ------- -------- -------- --------
Weighted average yield 5.32% 6.73% 9.43% 6.73% 5.69%
</TABLE>
WIB's investment securities portfolio at March 31, 1997, contained
neither securities of any issuer nor tax-exempt securities with an aggregate
book value in excess of 10% of WIB's stockholders' equity, excluding those
issued by the United States Government.
SOURCES OF FUNDS
GENERAL. WIB's sources of funds are proceeds from the sale of loans,
deposits, borrowings, payment of principal and interest on loans, and
interest earned on or maturation of investment securities and funds provided
from the operations.
Borrowings, including lines of credit from commercial banks, have been
used at times to compensate for deposit inflows at less than projected levels
or as a cost-effective alternative to deposits, may be used on a longer-term
basis to support expanded lending activities, and may also be used to match
fund a corresponding asset. WIB, at the parent company level, also has
borrowings consisting of unsecured notes to directors, executive officers,
stockholders and other persons. See Notes 6 and 7 to Notes to consolidated
Financial Statements.
73
<PAGE>
DEPOSITS. WIB offers a variety of deposit accounts having varying
ranges of interest rates and terms. Deposits consist of passbook accounts
and term certificates of deposit. WIB only solicits deposits from the
geographic area surrounding its branch locations and may use brokers to
obtain deposits. The WIB Board has mandated that brokered deposits and
deposits from governmental and other public entities shall be limited to 5%
and 10%, respectively, of total deposits. At March 31, 1997, WIB had $99,000
in brokered deposits and $392,000 of deposits from governmental and other
public entities. WIB relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.
The variety of deposit accounts offered by WIB has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. WIB is susceptible to short-term fluctuations in deposit
flows, as customer are interest-rate sensitive. WIB endeavors to manage the
pricing of its deposits in keeping with its asset/liability management,
liquidity and profitability objectives. In this regard, WIB has paid
slightly higher rates than its full service competitors to attract
longer-term certificates of deposit. Based on its experience, WIB believes
that its passbook and certificate accounts are relatively stable sources of
deposits. However, the ability of WIB to attract and maintain certificates
of deposit and the rates paid on these deposits has been and will continue to
be significantly affected by market conditions.
The following table sets forth information regarding the amount of
deposits held in deposit programs offered by WIB for the periods indicated.
WIB offers no demand deposit accounts.
DECEMBER 31,
---------------------------------------
1995 1996 MARCH 31, 1997
------------------ ----------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Savings Deposits:
Passbook accounts $ 32,930 28.83% $ 33,240 30.94% $33,882 35.83%
-------- ------ -------- ------ ------- ------
Certificates by rate:
2.75 - 5.49% 17,582 15.39 21,150 19.69 17,324 18.32
5.50 - 7.49% 63,109 55.25 52,493 48.87 42,900 45.36
7.50 - 9.49% 187 0.16 19 0.02 -- --
-------- ------ -------- ------ ------- ------
Total certificates 80,878 70.80 73,662 68.58 60,224 63.68
-------- ------ -------- ------ ------- ------
Accrued interest 427 0.37 512 0.48 460 0.49
-------- ------ -------- ------ ------- ------
Total deposits $114,235 100.00% $107,414 100.00% $94,566 100.00%
74
<PAGE>
The following table shows rate and maturity information for WIB's
certificates of deposit as of March 31, 1997:
<TABLE>
MATURITY
----------------------------------------------------------------------------
OVER OVER OVER OVER
3 MONTHS 3 TO 6 6 TO 12 1 YEAR 3 YEARS
OR LESS MONTHS MONTHS THROUGH 3 YEARS THROUGH 5 YEARS TOTAL
--------- -------- --------- --------------- --------------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000 $ 15,526 $ 6,356 $ 10,852 $ 10,660 $ 2,857 $46,251
Certificates of deposit less
$100,000 or more 4,813 1,653 3,203 3,307 605 13,581
Public Funds(1) 198 -- 99 95 -- 392
--------- -------- --------- --------- -------- -------
Total certificates of deposit $ 20,537 $ 8,009 $ 14,154 $ 14,062 $ 3,462 $60,224
--------- -------- --------- --------- -------- -------
--------- -------- --------- --------- -------- -------
</TABLE>
- ----------------
(1) Deposits from governmental and other public entities.
The following table sets forth the maximum month-end balance and average
balance of WIB bank borrowings, securities sold under agreements to
repurchase and other borrowings for the periods indicated.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------- --------------
1995 1996 MARCH 31, 1997
-------- -------- --------------
(DOLLARS IN THOUSANDS)
Maximum Balance:
Bank borrowings $ 670 $ 754 $ 495
Other borrowings 1,475 1,251 1,355
Average Balance:
Bank borrowings 504 672 142
Other borrowings 1,331 1,154 1,277
The following table sets forth certain information as to WIB's bank
borrowings and other borrowings at the dates indicated.
<TABLE>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------- --------------
1995 1996 MARCH 31, 1997
-------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Bank borrowings $ 485 $ 495 $ --
Other borrowings 1,251 1,228 1,355
------- ------- -------
Total borrowings $ 1,736 $ 1,723 $ 1,355
------- ------- -------
------- ------- -------
Weighted average interest rate on bank borrowings 10.09% 9.52% 9.50%
------- ------- -------
------- ------- -------
Weighted average interest rate on other borrowings 8.14% 8.90% 9.28%
------- ------- -------
------- ------- -------
</TABLE>
75
<PAGE>
COMPETITION
WIB faces significant competition for new loans from other thrift and
loans, commercial banks, savings and loan associations, credit unions, credit
companies and mortgage bankers. Many of these competitors are much larger
than WIB and have larger branch systems and extensive advertising budgets.
WIB attempts to compensate for disadvantages that may exist by providing a
high level of personal service to borrowers and direct involvement of
management to facilitate the loan approval process.
WIB also faces competition for deposits from banks, savings and loans,
credit unions and, increasingly, from mutual funds and life insurance annuity
products. Many of WIB's competitors offer a greater array of products to
customers than WIB. WIB competes with other insured depository institutions
by offering an interest rate on deposits that is generally slightly higher
than the rates paid by most full-service financial institutions.
SUPERVISION AND REGULATION
WIB and Citizens are subject to extensive regulation and supervision
under various federal and state laws. Citizens is an industrial loan company
organized under the laws of the State of California and is subject to
regulation by the DOC, effective July 1, 1997, responsibility for the
regulation of Citizens and all industrial loan companies will be transferred
to the new California Department of Financial Institutions. The deposits of
Citizens are insured by the FDIC to the maximum extent permitted by law,
which is currently $100,000 per depositor in most cases.
California and federal law and regulations govern most aspects of the
business and operations of Citizens and WIB, including investments, reserves,
the nature and amount of any collateral for loans, maximum loans to one
borrower, the timing of availability of deposited funds, the issuance of
securities, payment of dividends, branching and expansion. Citizens is also
subject to requirements and restrictions of various consumer laws and
regulations in connection with both its lending and deposit-taking activities.
Federal and state agencies have broad enforcement powers over depository
institutions, including the power to impose substantial fines and other civil
and criminal penalties, to terminate deposit insurance and to appoint a
conservator or a receiver under a variety of circumstances.
76
<PAGE>
MANAGEMENT OF WIB
DIRECTORS
The WIB Board currently consists of five members, each of whom is also a
director of Citizens. Directors of WIB and Citizens serve one-year terms.
The directors are elected annually at each annual meeting of stockholders.
Because WIB owns all of the issued and outstanding shares of capital stock of
Citizens, directors of WIB elect the directors of Citizens.
The following table sets forth certain information regarding the
directors of WIB.
<TABLE>
POSITIONS(S) TERM
NAME HELD WITH WIB AGE DIRECTOR SINCE EXPIRES
------------------ ------------------------- --- -------------- -------
<S> <C> <C> <C> <C>
James T. Capretz Chairman of the Board and 58 1979 1997
Chief Executive Officer
Michael W. McGuire Director and President 53 1984 1997
Dr. David B. Kagnoff Director and Corporate 59 1979 1997
Vice President
Dr. James E. Rich Director and Secretary 53 1979 1997
Barry K. Williams Director 57 1979 1997
</TABLE>
The business experience of each director is set forth below.
JAMES T. CAPRETZ - Mr. Capretz has been a practicing attorney in the
Newport Beach/Irvine, California area for 25 years. He is the senior and
managing partner of Capretz & Radcliffe, a law partnership located in Newport
Beach, California. He has served as Chairman and Chief Executive Officer of
WIB and Chairman of Citizens since 1979.
MICHAEL W. MCGUIRE - Mr. McGuire has been President and Chief Executive
Officer of Citizens Thrift & Loan since 1980 and President of WIB since 1989.
As President of WIB and President and Chief Executive Officer of Citizens,
Mr. McGuire is responsible for overseeing the operations of all areas of
Citizens and WIB. Mr. McGuire is also a director of the California
Association of Thrift and Loan Companies, and a director of the Corporation
Commissioners Advisory Council for the DOC.
DR. DAVID B. KAGNOFF - Dr. Kagnoff has been a practicing pediatrician in
the Newport Beach/Irvine, California area for the last 30 years. Dr. Kagnoff
is also involved with the building and management of apartment complexes and
mobile home parks. Dr. Kagnoff also serve as a Corporate Vice President and
Treasurer of WIB.
DR. JAMES E. RICH - Dr. Rich has been a Doctor of Veterinary Medicine
for at least five years. Dr. Rich currently owns two animal hospitals, is a
licensed Real Estate Broker, and is an active broker of veterinary practices
and animal hospitals. Dr. Rich also serves as Secretary of WIB.
BARRY K. WILLIAMS - Mr. Williams has been for more than five years the
President of Williams and Associates, a real estate development, investment
and property management company with offices in both Northern and Southern
California.
DIRECTOR COMPENSATION
All directors of WIB currently receive fees of approximately $750 per
meeting. Directors of Citizens, other than Michael W. McGuire, also receive
fees of $750 per meeting for each Citizens board meeting. During fiscal year
1996, each non-employee director received additional payments of $24,000 for
serving on committees of WIB and Citizens.
Certain agreements and plans under which the forgoing persons currently
receive benefits may receive benefits in connection with the Merger are
described in "The Merger--Interests of Certain Persons in the Merger."
77
<PAGE>
MEETINGS AND COMMITTEES OF THE WIB BOARD
The WIB Board conducts its business through meetings of the WIB Board
and through activities of its committees. During the year ended December 31,
1996, the WIB Board held 17 meetings and the Board of Directors of Citizens
held 12 meetings. No incumbent director attended fewer than 75% of the total
meetings of the WIB Board and committees on which he served during this
period.
WIB and Citizens have established various committees composed of certain
members of their respective WIB Board. Set forth below is a description of
their principal committees. WIB's Executive Committee acts in lieu of the
full WIB Board between meetings. The current members of the Executive
Committee are Messrs. Capretz, McGuire, Kagnoff and Rich. The Executive
Committee met four times during 1996.
The Audit Committee reviews audit reports, evaluates audit performance
and handles relations with the WIB's independent auditors to ensure effective
compliance with regulatory and internal policies and procedures. The current
members of the Audit Committee are Messrs. Capretz, Kagnoff and Rich. The
Audit Committee met two times during 1996.
Citizens Loan Committee is responsible for the review and approval of
all first lien loans in excess of $225,000 and all junior loans in excess of
$100,000 and for the overall supervision of the lending department. The
current members of the Loan Committee are Messrs. McGuire, Williams, Kagnoff
and Rich. The Loan Committee met 11 times during 1996.
EXECUTIVE OFFICERS OF WIB
The executive officers of WIB are elected annually and hold office until
their respective successors have been elected and qualified or until death,
resignation or removal by the WIB Board. The executive officers of WIB are
as follows: James T. Capretz, Chairman of the Board and Chief Executive
Officer; Michael W. McGuire, President of WIB and President and Chief
Executive Officer of Citizens; Dr. James Rich, Secretary of WIB; Dr. David B.
Kagnoff, Corporate Vice President of WIB; Gustavo Mendoza, Executive Vice
President - Operations of Citizens; Marie A. Reich, Executive Vice President
and Chief Financial Officer of Citizens; and Javier S. Llanes, Vice
President, Regional Manager of Citizens. Each of the officers of Citizens
are elected annually by the Board of Directors of Citizens.
The business experience of the executive officers who are not also
directors is set forth below.
GUSTAVO MENDOZA, AGE 60 - Mr. Mendoza is currently Executive Vice
President - Operations of Citizens. In that capacity, Mr. Mendoza is
responsible for administering Citizens' loan policies as well as overseeing
asset quality. Prior to his position as Executive Vice President -
Operations, Mr. Mendoza served as Vice President - Operations of Citizens
since 1981.
MARIE A. REICH, AGE 46 - Ms. Reich is currently Executive Vice President
and Chief Financial Officer of Citizens. In that capacity, Ms. Reich is
responsible for establishing and maintaining the accounting system of
Citizens. In addition, Ms. Reich is responsible for overseeing investments
to establish their compliance with Citizens asset/liability management
policy. Ms. Reich joined Citizens in 1985 as Controller. She was
subsequently promoted to Chief Financial Officer and Vice President in 1991
and served in that capacity until she was promoted to her current position in
1993. Ms. Reich has also been Secretary of Citizens since 1988.
JAVIER S. LLANES, AGE 41 - Mr. Llanes is currently Vice President,
Regional Manager of Citizens. In that capacity, he is responsible for
supervising all branch locations as well as overseeing the lending functions
of Citizens such as loan production, loan approval and loan product training.
Mr. Llanes joined Citizens in 1981 as a branch representative.
78
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or granted to the Chief Executive Officer of WIB and to the other
executive officers of WIB whose aggregate cash compensation exceeded $100,000
in fiscal 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS (1) COMPENSATION (2) COMPENSATION (3)
- ------------------------------ ---- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
James T. Capretz 1996 $ -- -- $43,500 $ --
Chairman of the Board and 1995 -- -- 37,500 --
Chief Executive Officer of 1994 -- -- 37,320 --
WIB
Michael W. McGuire 1996 185,000 121,561 12,400 882
President of WIB; President 1995 129,288 90,989 8,275 862
and Chief Executive Officer 1994 127,211 130,118 10,338 21,681
of Citizens
Javier S. Llanes 1996 62,625 45,062 3,000 155
Vice President, 1995 59,680 26,349 3,000 348
Regional Manager of 1994 54,210 18,479 3,000 8,480
Citizens
Marie A. Reich 1996 85,750 15,000 900 348
Executive Vice President 1995 77,155 12,500 900 348
and Chief Financial Officer 1994 71,273 25,000 900 12,752
of Citizens
- ------------------------------
(1) All bonuses reflect payments made during the year indicated and accrued by WIB during the
preceding year.
(2) For Mr. Capretz, consists solely of fees relating to service on the WIB Board and the board of
directors of Citizens. For the other individuals, includes auto allowance and, in the case of
Mr. McGuire, fees for meetings of the WIB Board.
(3) Consists of certain insurance premiums and, for 1994, contributions made to the KSOP.
</TABLE>
Certain agreements and plans under which the foregoing person currently
receive and may receive benefits in connection with or following the Merger
are discussed in "The Merger--Interests of Certain Persons in the Merger"
herein.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Citizens is prohibited under California law from granting loans to
directors and officers or members of their immediate families. It is
Citizens' policy to grant loans to employees only if they are fully secured
by thrift accounts. All outstanding loans to Citizens' employees have been
made in the ordinary course of business and on the same terms and interest
rates as those prevailing at the time for comparable transactions and do not
involve more than the normal risk of collectibility.
WIB currently raises funds from time-to-time through the sale of
unsecured notes with terms of from one to two years at rates equal to three
percentage points in excess of the rate paid by Citizens on certificates of
deposit with comparable maturities. At December 31, 1996, the directors of
WIB held an aggregate of $229,000 in such notes with interest rates of
between 8.75% and 10.00%.
79
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF WIB
As of July 23, 1997, there were approximately 135 holders of record of
WIB Common Shares.
The following table presents information to the best knowledge of
management as to each beneficial owner of more than five percent of the
outstanding WIB Common Shares and as to the shares of WIB Common Shares owned
by each director of WIB, each person named in the Summary Compensation Table
above and all directors and executive officers of WIB as a group as of July
23, 1997. Except as otherwise described, all shares are held with sole voting
and investment power.
COMMON STOCK
BENEFICIALLY OWNED(1)
----------------------
PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS(2)
- ------------------------ ------ ----------
James T. Capretz 127,136 10.3%
Chairman of the Board and
Chief Executive Officer of WIB
5000 Birch, West Tower, Suite 2500
Newport Beach, California 92660
Michael W. McGuire 154,158 11.9
President and Director of WIB
18302 Irvine Boulevard, Suite 300
Tustin, California 92780
Marie A. Reich 27,369 2.2
Executive Vice President and
Chief Financial Officer of Citizens
18302 Irvine Boulevard, Suite 2500
Newport Beach, California 92660
Javier S. Llanes 11,414 *
Vice President, Regional Manager of Citizens
18302 Irvine Boulevard, Suite 2500
Newport Beach, California 92260
Barry K. Williams 89,027 7.3
Director of WIB
1601 Dove Street, Suite 190
Newport Beach, California 92660
James E. Rich 126,745 10.4
Director of WIB
17526-A Von Karman
Irvine, California 92714
David B. Kagnoff 125,894 10.3
Director of WIB
1401 Avocado, Suite 802
Newport Beach, California 92660
All directors and executive officers 582,399 41.4
as a group (8 persons)
__________________________
* Less than 1%
(1) Includes shares which (i) are subject to options exercisable within 60
days after July 23, 1997, (ii) are held in individual retirement, pension
or similar accounts and plans over which such persons may be deemed to
have voting or investment power or in family trusts, (iii) have been
allocated to such persons under the KSOP, or (iv) are owned by or for
minor children. The named persons hold options exercisable within 60
days of July 23, 1997 on the following shares: James T. Capretz (18,811),
Michael W. McGuire (90,507), Marie A. Reich (14,300), Javier S. Llanes
(1,000), Barry K. Williams (15,211), James. E. Rich (11,211) and David B.
Kagnoff (15,211).
80
<PAGE>
(2) Shares which the individual has the right to acquire currently or within
60 days after July 23, 1997 by the exercise of options are deemed to be
outstanding in calculating the percentage of shares beneficially owned,
but are not deemed to be outstanding as to any other individual.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
The rights of FPFG stockholders are currently governed by the FPFG
Articles, the FPFG Bylaws, and the NGCL. The rights of WIB shareholders are
governed by the WIB Articles, the Bylaws of WIB (the "WIB Bylaws"), and the
CCC. After the Effective Time, the rights of WIB shareholders who become
stockholders of FPFG will by governed by the FPFG Articles, the FPFG Bylaws
and the NGCL. In most respects, the rights of WIB shareholders are similar to
those of FPFG stockholders. The following is a summary of the material
differences between the rights of holders of WIB Common Shares and those of
holders of FPFG Common Stock. The following is a discussion only of those
material differences between the right of holders of FPFG Common Stock under
the FPFG Articles, FPFG Bylaws and the NGCL, on the one hand, and the rights
of holders of WIB Common Shares under the WIB Articles, the WIB Bylaws and the
CCC, on the other. This summary does not purport to be a complete discussion
of, and is qualified in its entirety by reference to the FPFG Articles, FPFG
Bylaws, the WIB Articles, the WIB Bylaws, the NGCL and the CCC.
SHAREHOLDER MEETINGS
BUSINESS AT ANNUAL MEETINGS. The FPFG Articles provide that at an annual
meeting of stockholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the FPFG Board or by
any stockholder of FPFG who complies with certain notice procedures. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of FPFG. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting certain
specified information, including a brief description of the business proposed
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, the name and address of the stockholder
proposing such business, the number of shares of FPFG which are beneficially
owned by the stockholder, and any material interest of the stockholder in such
business. If the foregoing provisions are not complied with, the business not
properly brought before the meeting shall not be transacted.
Neither the WIB Articles, WIB Bylaws nor the CCC provide for similar
procedures in respect of annual meetings of WIB.
SPECIAL MEETINGS. The FPFG Bylaws permit the Chairman, President,
Secretary or, at the request in writing of the holders of not less than 50% of
all shares entitled to vote at the meeting to call a special meeting of FPFG
Stockholders. The WIB Bylaws permit the Chairman, President, the WIB Board,
or one or more shareholders not holding less than 10% of the voting power of
WIB, to call a special meeting of the WIB Shareholders.
NOTICE OF NOMINATIONS. The FPFG Articles provide that nominations for
the election of directors may be made by the Board of Directors of FPFG or a
committee appointed by the Board of Directors, FPFG or by any stockholder
entitled to vote in the election of directors generally. However, a
stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been delivered to or mailed and received by the Secretary of
FPFG at the principal executive offices of FPFG not later than, with respect
to an election to be held at an annual meeting of stockholders, 90 days prior
to the date one year after the immediately preceding annual meeting of
stockholders, and with respect to an election to be held at a special meeting
of stockholders, the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. Each such notice
must set forth certain specified information, including, the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder and such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission,
81
<PAGE>
had the nominee been nominated, or intended to be nominated, by the FPFG
Board. The presiding officer at the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Neither the WIB Articles, WIB Bylaws nor the CCC provide for similar
procedures in respect of nominations of directors by shareholders.
PROXIES. Both the FPFG Bylaws and the WIB Bylaws allow voting by proxy
or proxies. The FPFG Bylaws specify that no such proxy shall be valid after
the expiration of six (6) months from the date of its execution, unless
coupled with an interest, or unless the person executing the proxy specifies
the length of time for which the proxy shall remain in force (which in no case
may exceed seven (7) years from the date of its execution). Any proxy duly
executed is not revoked and continues in force until revoked by another
instrument or a duly executed proxy bearing a later date. The WIB Bylaws
specify that no proxy is valid after the expiration of eleven (11) months from
the date of its execution unless otherwise provided in the proxy. Any such
duly executed proxy continues in force until revoked by the person executing
it prior to the vote by a writing delivered to WIB stating that it is revoked,
or by a subsequent proxy executed by that person, or by that person's
attending the meeting and voting in person.
QUORUM. The FPFG Bylaws specify that the holders of a majority of the
stock issued and outstanding and entitled to vote in person or by proxy shall
constitute a quorum at all meetings. If, however, a quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote at such meeting have the power to adjourn the meeting from time to time
until a quorum is present, at which time any business which might have been
transacted at the meeting as originally notified may be conducted at such
adjourned meeting. The WIB Bylaws specify that a majority of the shares
entitled to vote at any meeting constitutes a quorum. The shareholders
present at a meeting at which a quorum is present may continue to business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum if any action taken is approved by at least a
majority of the shares required to constitute a quorum. If, however, a quorum
is not present, no business other than adjournment of the meeting may be
conducted.
VOTING RIGHTS
The FPFG Bylaws provide that each outstanding share, regardless of class,
is entitled to one vote on each matter submitted to vote at a meeting, except
as limited by the FPFG Articles or the NGCL. No cumulative voting is permitted
under the FPFG Bylaws and there are no preemptive rights. The WIB Bylaws,
subject to the CCC, permit cumulative voting at any election of directors
provided the name of the candidate or candidates has been placed in nomination
prior to the voting and the shareholder has given notice of the intention to
cumulate that shareholder's votes.
The FPFG Articles expressly deny the right of stockholders to act by
written consent in lieu of a meeting. The WIB Bylaws expressly permit action
to be taken at any annual or special meeting to be taken without a meeting if
the consent of not less than the minimum number of votes necessary to
authorize or take such action were the shareholders present at a meeting is
given.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
The FPFG Articles delegate the power to adopt, alter, amend or repeal the
FPFG Bylaws exclusively to the FPFG Board, and may not be exercised by the
stockholders. The WIB Articles specify that any amendment to the WIB Articles
or WIB Bylaws must be approved by the WIB Board and approved by a majority of
the outstanding shares of each class entitled to vote on the amendment.
CERTAIN ANTITAKEOVER PROVISIONS
FPFG is subject to provisions of the NGCL that prohibit a publicly held
Nevada corporation from engaging in a broad range of business combinations
with a person who, together with affiliates and associates, owns 10% or more
of the corporation's outstanding voting shares for three years after the
person became an interested stockholder, unless the business combination is
approved in prescribed manner.
Neither the WIB Articles, WIB Bylaws nor the CCC provide for similar
treatment of business combinations.
82
<PAGE>
OTHER MATTERS
The WIB Board is not aware of any matters not set forth herein that may
come before the WIB Meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
LEGAL AND TAX MATTERS
Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas will
render an opinion with respect to the validity of the shares of FPFG Common
Stock to be issued in connection with the Merger. King, Purtich, Holmes,
Paterno & Berliner, Los Angeles, California, will render an opinion with
respect to certain matters on behalf of WIB. KPMG Peat Marwick LLP will
render an opinion with respect to certain tax matters on behalf of WIB.
EXPERTS
The consolidated financial statements of FIRSTPLUS Financial Group, Inc.,
formerly RAC Financial Group, Inc., appearing in FPFG's Annual Report (Form
10-K) for the year ended September 30, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of WIB and subsidiaries as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 included in this Proxy Statement/Prospectus have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
reports appearing in this Proxy Statement/Prospectus, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheets at December 31, 1996 and 1995
of Western Interstate Bancorp and Subsidiaries . . . . . . .F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1996, 1995 and 1994
of Western Interstate Bancorp and Subsidiaries . . . . . . .F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 of
Western Interstate Bancorpand Subsidiaries . . . . . . . . .F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 of Western Interstate
Bancorp and Subsidiaries . . . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements of Western
Interstate Bancorp and Subsidiaries . . . . . . . . . . . . F-8
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 of Western Interstate Bancorp and
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .F-31
Condensed Consolidated Statements of Earnings for the
Three Months Ended March 31, 1997 and 1996 of
Western Interstate Bancorp and Subsidiaries . . . . . . . . F-32
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 of
Western Interstate Bancorp and Subsidiaries. . . . . . . . .F-33
Notes to Condensed Consolidated Financial Statements for the
Three Months Ended March 31, 1997 and 1996 of
Western Interstate Bancorp and Subsidiaries. . . . . . . . .F-34
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Western Interstate Bancorp:
We have audited the accompanying consolidated balance sheets of Western
Interstate Bancorp (a California corporation) and subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company'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 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Western
Interstate Bancorp and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
February 28, 1997
F-2
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 12,298,155 22,082,518
Interest-bearing deposits with banks 245,000 249,000
Loans receivable held for sale, at lower of cost or market
(notes 3 and 15) 30,106,908 18,960,383
Investment securities, available-for-sale at fair value (note 2) 66,992,337 35,925,416
Investment securities, held-to-maturity, fair value of
$24,681,891 at December 31, 1995 (note 2) -- 24,554,415
Loans receivable, net (note 3) 10,504,696 21,134,993
Accrued interest receivable (note 4) 445,270 849,373
Leasehold improvements and equipment (note 9) 1,051,019 742,777
Servicing rights (notes 8 and 15) 1,737,575 1,734,505
Deferred income taxes (note 11) 363,162 600,484
Income taxes receivable (note 11) -- 499,614
Real estate owned, net (note 5) 417,559 96,134
Prepaid expenses 226,395 157,807
Other assets 159,712 197,328
------------- -------------
$ 124,547,788 $ 127,784,747
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Thrift accounts (note 10):
Passbooks $ 33,239,746 $ 32,929,964
Certificates 73,662,109 80,878,090
------------- -------------
106,901,855 113,808,054
Accrued interest payable 512,342 427,039
Notes payable (notes 6 and 7) 1,723,167 1,736,106
Accounts payable and accrued expenses 2,947,436 2,568,680
Income taxes payable (note 11) 702,441 --
------------- -------------
Total liabilities 112,787,241 118,539,879
------------- -------------
Stockholders' equity (notes 12, 13 and 14):
Common stock, no par value. Authorized 20,000,000 shares;
issued and outstanding 1,211,156 and 1,212,543 shares
in 1996 and 1995, respectively 3,553,917 3,561,911
Securities valuation allowance, net (note 2) (41,353) 89,029
Retained earnings, appropriated by the board of directors'
restriction (note 12) 8,247,983 5,593,928
------------- -------------
Total stockholders' equity 11,760,547 9,244,868
Commitments and contingencies (notes 14, 15, 18 and 19)
Subsequent event (note 20)
------------- -------------
$ 124,547,788 $ 127,784,747
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees and discounts $ 6,519,158 $10,152,870 $13,318,641
Investments 3,614,193 1,566,132 389,034
Cash equivalents 743,271 1,348,443 175,489
----------- ----------- -----------
Total interest income 10,876,622 13,067,445 13,883,164
----------- ----------- -----------
Interest expense on thrift accounts (note 10) 6,158,871 6,591,834 4,597,000
Interest expense on notes payable 187,639 160,742 128,327
----------- ----------- -----------
Total interest expense 6,346,510 6,752,576 4,725,327
----------- ----------- -----------
Net interest income 4,530,112 6,314,869 9,157,837
Provision for loan losses (note 3) 155,241 3,158,329 2,887,222
----------- ----------- -----------
Net interest income after
provision for loan losses 4,374,871 3,156,540 6,270,615
----------- ----------- -----------
Noninterest income:
Gain on sales of loans (notes 3 and 15) 9,340,879 6,215,434 1,724,293
Servicing fee income, net (note 15) 1,373,987 1,173,909 1,408,794
Other income 100,471 74,492 156,035
----------- ----------- -----------
Total noninterest income 10,815,337 7,463,835 3,289,122
----------- ----------- -----------
Noninterest expense:
General and administrative (note 16) 4,588,496 4,176,208 3,771,999
Salaries 5,277,848 4,665,098 3,988,525
KSOP contributions (note 14) -- -- 370,594
Occupancy expenses 584,437 563,565 522,218
Real estate owned expenses (income), net
(note 5) 515 (6,098) 245,340
----------- ----------- -----------
Total noninterest expense 10,451,296 9,398,773 8,898,676
----------- ----------- -----------
Earnings before income taxes 4,738,912 1,221,602 661,061
Income taxes (note 11) 1,963,603 499,264 274,358
----------- ----------- -----------
Net earnings $ 2,775,309 $ 722,338 $ 386,703
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Primary $ 1.98 $ .57 $ .34
----------- ----------- -----------
----------- ----------- -----------
Fully diluted $ 1.98 $ .57 $ .34
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
Securities Retained
Valuation Earnings,
Shares Common Allowance, Substantially
Outstanding Stock Net Restricted Total
----------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,143,174 $3,204,425 -- 4,595,009 7,799,434
Net earnings -- -- -- 386,703 386,703
Dividends Paid ($.095 per
share) -- -- -- (110,122) (110,122)
Shares issued for options
exercised (note 13) 16,000 50,080 -- -- 50,080
--------- ---------- -------- --------- ----------
Balance, December 31, 1994 1,159,174 3,254,505 -- 4,871,590 8,126,095
Net earnings -- -- -- 722,338 722,338
Shares issued (note 18) 4,340 24,999 -- -- 24,999
Change in net unrealized
holding gain on securities
available-for-sale -- -- 89,029 -- 89,029
Stock redemption (note 14) (2,971) (17,113) -- -- (17,113)
Shares issued to the KSOP
(note 14) 52,000 299,520 -- -- 299,520
--------- ---------- -------- --------- ----------
Balance, December 31, 1995 1,212,543 3,561,911 89,029 5,593,928 9,244,868
Net earnings -- -- -- 2,775,309 2,775,309
Change in net unrealized
holding gain on securities
available-for-sale -- -- (130,382) -- (130,382)
Stock redemption (note 14) (9,253) (53,224) -- -- (53,224)
Shares issued to KSOP
(note 14) 7,866 45,230 -- -- 45,230
Dividends paid ($.10 per
share) -- -- -- (121,254) (121,254)
--------- ---------- -------- --------- ----------
Balance, December 31, 1996 1,211,156 $3,553,917 (41,353) 8,247,983 11,760,547
--------- ---------- -------- --------- ----------
--------- ---------- -------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,775,309 $ 722,338 $ 386,703
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 847,813 880,001 698,824
Deferred income taxes (benefit) 331,739 873,115 (879,802)
Provision for loan losses 155,241 3,158,329 2,887,222
Provision for loss on real estate owned 44,460 86,337 162,439
Gain on sale of real estate owned (69,502) (103,078) --
Loss on disposal of leasehold
improvements and equipment 3,448 2,126 16,272
Gain on sale of loans (9,340,879) (6,215,434) (1,724,293)
Loans purchased or originated for sale, net (125,564,198) (66,088,328) (29,929,080)
Proceeds from loan sales 123,758,552 53,664,841 27,948,080
Capitalization of servicing rights (560,701) (869,209) --
(Increase) decrease in other assets and
liabilities 2,039,245 1,752,734 (741,713)
------------- ------------ ------------
Net cash used in operating activities (5,579,473) (12,136,228) (1,175,348)
------------- ------------ ------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits 4,000 197,000 196,000
Maturities and principal reductions of
investment securities 2,885,495 3,967,202 10,589,331
Purchases of investment securities
available-for-sale (44,669,405) (38,187,421) --
Purchases of investment securities
held-to-maturity (5,035,401) (20,606,495) (10,094,988)
Proceeds from sale of investment securities
available-for-sale 15,350,922 -- --
Proceeds from sale of investment securities
held-to-maturity 24,731,084 -- --
Net increase in loans receivable (81,125) (7,547,749) (11,166,431)
Proceeds from sale of loans receivable 9,748,774 86,694,489 --
Proceeds from sale of leasehold improvements
and equipment -- 2,190 1,199
Purchases of leasehold improvements
and equipment (601,872) (181,685) (451,084)
Proceeds from sale of real estate owned 511,024 360,118 --
------------- ------------ ------------
Net cash provided by (used in)
investment activities 2,843,496 24,697,649 (10,925,973)
------------- ------------ ------------
</TABLE>
F-6
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in passbook accounts $ 309,782 $ (448,576) $ (1,314,009)
Net increase (decrease) in certificate accounts (7,215,981) 6,585,546 9,200,886
Proceeds (repayments) from borrowings on
lines of credit 10,000 (14,112) 650,000
Proceeds from notes payable to stockholders 321,300 239,000 315,630
Repayment of notes payable to stockholders (344,239) (325,447) (600,838)
Stock purchased by ESOP 45,230 299,520 --
Proceeds from stock issued -- 24,999 --
Proceeds from stock options exercised -- -- 50,080
Stock redemption (53,224) (17,113) --
Dividends paid (121,254) -- (110,122)
------------- ------------ ------------
Net cash provided by (used in)
financing activities (7,048,386) 6,343,817 8,191,627
------------- ------------ ------------
Net increase (decrease) in cash (9,784,363) 18,905,238 (3,909,694)
Cash and cash equivalents, beginning of period 22,082,518 3,177,280 7,086,974
------------- ------------ ------------
Cash and cash equivalents, end of period $ 12,298,155 $ 22,082,518 $ 3,177,280
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest $ 6,261,207 $ 6,573,253 $ 4,739,973
Income taxes 678,508 5,000 1,387,000
============= ============ ============
Supplemental disclosure of noncash information
-- transfers to real estate owned $ 807,407 $ 192,177 $ 161,024
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Western Interstate Bancorp (the Company) was organized for the purpose
of acting as a holding company for Citizens Thrift & Loan Association
(the Association), a licensed industrial loan company, and Citizens
Group, Inc., dba Citizens Finance (Finance), a consumer finance
licensed company and a mortgage banking licensed company. The
Association is subject to the regulatory requirements and its thrift
deposits are insured by the Federal Deposit Insurance Corporation
(FDIC).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
items and transactions have been eliminated in consolidation.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
dates of the balance sheets and revenues and expenses for the periods.
Actual results could differ significantly from those estimates.
INTEREST-BEARING DEPOSITS WITH BANKS
Interest-bearing deposits with banks consist of certificates of deposit
with initial maturities of three months or greater and less than or
equal to one year.
INVESTMENT SECURITIES
Investments are classified as "held-to-maturity," "available-for-sale"
or "trading securities." Investments are classified as
"held-to-maturity" if there is a positive intent and ability to hold
those securities to maturity. Investments held-to-maturity are reported
at amortized cost, adjusted for the accretion of discounts and
amortization of premiums. Discount accretion and premium amortization
are included in interest income using a method which approximates the
level yield method. The adjusted cost of specific securities sold is
used to compute gain or loss an sales. Debt and equity securities that
are bought and held principally for the purpose of selling them in the
near term are classified as "trading securities" and are reported at
fair value, with unrealized gains and losses included in operations.
Debt and equity securities not classified as "held-to-maturity" or
"trading securities" are classified as "available-for-sale" and are
recorded at fair value, with unrealized gains and losses excluded from
operations and reported as a separate component of stockholders'
equity, net of tax effect. Investment securities "held-to-maturity"
are carried at amortized cost.
F-8
<PAGE>
WESTERN INSTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidate Financial Statements, Continued
Investments securities "available-for-sale" are recorded at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the tax effect. Designation of securities
is made at the time of acquisition by management. The Company has no
investments in trading securities.
LOANS RECEIVABLE
Loans are carried at face value, net of participations sold, unearned
discounts, net loan origination fees and the allowance for possible
loan losses. Interest is accrued daily on a simple-interest basis,
except where reasonable doubt exists as to the collectibility of the
interest, in which case the accrual of income amortization of fees and
accretion of discounts is discontinued. Unearned discounts, fees and
costs are recognized using the effective-interest method. Loans
receivable includes direct cash loans and real estate improvement loans
insured by the Federal Housing Administration (FHA) pursuant to Title
I, Section 2 of the National Housing Act (Title I Loans).
Loan fees and direct costs relating to loans are netted and amortized
to operations as an adjustment to yield over the respective lives of
the loans using the interest method. Net deferred loan fees are taken
directly into income when loans are sold.
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114) and in October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" (SFAS No. 118). Under the provisions of SFAS No. 114,
a loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
SFAS No. 114 requires creditors to measure impairment of a loan based
on the present value of expected future cash flows discounted at the
loan's effective interest rate. If the measure of the impaired loan is
less than the recorded investment in the loan, a creditor shall
recognize an impairment by recording a valuation allowance with a
corresponding charge to bad debt expense. This statement also applies
to restructured loans and eliminates the requirement to classify loans
that are in substance foreclosures as foreclosed assets except for
loans where the creditor has physical possession of the underlying
collateral but not legal title. SFAS No. 118 amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest
income on impaired loans. In addition, SFAS No. 118 amends certain
disclosure requirements of SFAS No. 114. SFAS Nos. 114 and 118 apply
to financial statements for fiscal years beginning after December 15,
1994 and initial adoption is required to be reflected prospectively.
The Company adopted these statements effective January 1, 1995 and the
effect on the financial statements was not material.
LOANS RECEIVABLE HELD FOR SALE
Loans receivable held for sale represent loans originated by the
Company for sale to third parties. Loans receivable held for sale are
stated at the lower of aggregate cost or market. Loan fees and costs
are deferred and recognized in income when the loans are sold.
F-9
<PAGE>
WESTERN INSTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidate Financial Statements, Continued
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established through a
provision for possible loan losses. Loans are charged against the
allowance for possible loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior credit loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio
quality, review of specific problem loans, regulatory guidelines,
adequacy of the HUD reserve and current economic conditions that may
affect the borrowers' ability to pay.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, the DOC and
FDIC, as an integral part of their examination process, periodically
review the Company's allowance for possible loan losses. These agencies
may require the Company to recognize additions to the allowance based
on their judgment about information available to them at the time of
their examination.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
which is charged to expense on a straight-line basis over the estimated
useful life of the assets which range from five to ten years.
Leasehold improvements are amortized over the shorter of the term of
the applicable lease or the life of the asset.
ADVERTISING
The Company accounts for its advertising costs as nondirect response
advertising. Accordingly, advertising costs are expensed as incurred.
REAL ESTATE OWNED
Real estate owned represents real estate acquired through foreclosure
or deed in lieu of foreclosure. Real estate owned is carried at fair
value, less estimated carrying costs and costs of disposition. Cost is
determined at the date of acquisition as the result of a foreclosure
sale and is equal to the receivable balance at that date. If the cost
(plus any liabilities assumed at foreclosure) exceeds fair value less
estimated selling costs, the carrying value of the property is reduced
by a charge to the allowance for loan losses. All related carrying
costs on revaluation are expensed as incurred. Any subsequent
write-downs are recognized as a valuation allowance on real estate
owned. Gains or losses on sales are recorded in conformity with
standards which apply to the accounting for sales of real estate.
SERVICING RIGHTS
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122 (SFAS No. 122), "Accounting for Mortgage Servicing
Rights," an amendment to Statement of Financial
F-10
<PAGE>
WESTERN INSTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidate Financial Statements, Continued
Accounting Standards No. 65 (SFAS No. 65). In June 1995, the Company
adopted early application of SFAS No. 122. SFAS No. 122 requires an
institution that purchases or originates mortgage loans and
subsequently sells or securitizes those loans with servicing rights
retained to allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. Institutions are required
to assess impairment of the capitalized mortgage servicing portfolio
based on the fair value of those rights on a stratum-by-stratum basis
with any impairment recognized through a valuation allowance for each
impaired stratum. Capitalized mortgage servicing rights should be
stratified based upon one or more of the predominant risk
characteristics of the underlying loans such as loan type, size, note
rate, date of origination, term and/or geographic location.
The Company elected to retroactively implement SFAS No. 122 as of
January 1, 1995. As a result, the Company capitalized servicing rights
that resulted from sales of receivables with servicing retained where a
clearly defined value of those rights was available. Also, at the time
of implementation, the Company established no impairment valuation
allowance based upon an evaluation performed on the entire servicing
rights portfolio under the provisions of the statement. As SFAS No.
122 prohibits retroactive application to 1994, the Company's financial
statement reporting for 1994 was accounted for under the original SFAS
No. 65.
In order to determine the fair value of the servicing rights, the
Company uses market prices under comparable servicing sale contracts,
when available, or alternatively, it uses a valuation model that
calculates the present value of future cash flows. Assumptions used in
the valuation model include market discount rates and anticipated
prepayment speeds. The prepayment speeds are determined from market
sources for fixed-rate mortgages with similar coupons and prepayment
reports for comparable ARM loans. In addition, the Company uses market
comparables for estimates of the cost of servicing per loan, float
value, an inflation rate, ancillary income per loan and default rates.
The Company amortizes the servicing rights in proportion to and over
the period of estimated future net servicing income.
For the purpose of measuring impairment, the Company stratified the
capitalized mortgage servicing rights using the type of loan as the
primary risk. Impairment is measured utilizing fair value.
Purchased servicing rights (PSR) represents the price paid to acquire
rights to service mortgage loans for investors. Purchased servicing
rights are being amortized in proportion to and over the period of
estimated net servicing revenues.
Excess servicing fee receivables (ESFR) result from the sale of
participating interests in Title I Loans on which the Company retains
servicing rights. The amount of ESFR is determined by computing the
difference between the weighted average yield of the loans sold and the
yield guaranteed to the purchaser, adjusted for a normal servicing fee
rate. Normal servicing fees are generally defined as the total of the
minimum servicing fee which comparable mortgage issuers typically
require servicers to charge and other costs born by the Company, if
any. The resulting excess servicing fee receivables are recorded as a
gain in the year of sale equal to the present value of net cash flows
to be received in future years over the estimated life of the loans,
adjusted for anticipated prepayments. The present value of the excess
servicing fees is calculated using market prepayment, default and
interest rate
F-11
<PAGE>
WESTERN INSTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidate Financial Statements, Continued
assumptions. The gain is recorded net of cash expenditures, including
discounts on the sale of the loans, and the recognition of deferred
amounts as expense, including net deferred origination costs and
purchase premiums related to the acquisition of the loans. The ESFR is
amortized using the interest method; such amortization offsets the
servicing fee income recorded on Title I Loans.
PSR and ESFR are periodically reviewed by management based upon many
factors, including the historical prepayment activity of the related
loans and management's estimates of the remaining future cash flows to
be generated by the underlying Title I Loans. At any point in time in
which PSR and ESFR are reviewed, an estimate of the future prepayment
rate of the underlying Title I Loans is made by management. If the
actual future prepayment rate proves to be higher than the estimate,
impairment of PSR and ESFR occurs. PSR and ESFR are adjusted downward
when an impairment is evident based upon management's review and
revised estimates.
LOAN SALES
Gains or losses resulting from sales of loans are recognized at the
date of settlement and are based on the difference between the selling
price and carrying value of the related loans sold. Such gains and
losses may be increased or decreased by the amount of any servicing
released premiums received. Nonrefundable fees and direct costs
associated with the origination of loans are deferred and recognized
when the loans are sold.
When selling participating interests in real estate improvement loans,
the Company retains an interest equivalent to 10% (uninsured portion)
of the principal balance sold and subordinates its interest with
respect to losses to the extent of the retained portion. Sales of
loans that involve the sale of a loan or pool of loans with
disproportionate credit and prepayment risk require the allocation of
cost based on the relative fair values of the portion sold and the
portion retained on the date that such loans were acquired or the date
of sale, whichever is most practical. In addition, the present value
of the excess servicing fees is calculated using market prepayment,
default and interest rate assumptions.
INCOME TAXES
Income taxes are provided by the Company based on income reported for
financial accounting purposes. The Company and its subsidiaries are
included in the consolidated tax return and are parties to the
tax-sharing agreement. In accordance with the agreement, the
consolidated taxes payable are allocated between the Company and its
subsidiaries based an their respective contributions to consolidated
taxable income.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
F-12
<PAGE>
WESTERN INSTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidate Financial Statements, Continued
EARNINGS PER COMMON SHARE
Primary earnings per share is computed based upon the weighted average
number of shares outstanding during the period plus dilutive effects of
common shares contingently issuable from stock options. Fully diluted
earnings per share reflect additional dilution related to common stock
equivalents due to the use of the market price at the end of the
period, when higher than the average price for the period. Common
stock equivalents are excluded from the computations of earnings per
share for all periods presented due to their antidilutive effect.
The weighted average number of shares outstanding are as follows:
December 31
----------------------------------
1996 1995 1994
--------- --------- ---------
Primary 1,410,106 1,267,409 1,150,626
Fully diluted 1,410,106 1,267,409 1,150,626
--------- --------- ---------
--------- --------- ---------
STATEMENTS OF CASH FLOWS
For the purposes of this statement, cash and cash equivalents include
cash on hand and Federal funds sold.
Cash and cash equivalents consisted of the following at:
December 31
----------------------------
1996 1995
------------ ------------
Cash and certificates of deposit $ 3,098,155 $ 2,982,518
Federal funds sold 9,200,000 19,100,000
------------ ------------
$ 12,298,155 $ 22,082,518
------------ ------------
------------ ------------
CURRENT ACCOUNTING PRONOUNCEMENTS
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion
F-13
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS No. 125), "Accounting for
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities." SFAS No. 125 addresses the accounting for all types of
securitization transactions, securities lending and repurchase
agreements, collateralized borrowing arrangements and other
transactions involving the transfer of financial assets. SFAS No. 125
distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is generally
effective for transactions that occur after December 31, 1996, and it
is to be applied prospectively. SFAS No. 125 requires the allocation of
the total cost of mortgage loans sold to the mortgage loans sold
(servicing released), interest-only and retained certificates and
servicing rights on their relative fair values. Under SFAS No. 125 the
interest-only and retained certificates and servicing rights are
assessed for impairment based upon the fair value of those rights. The
pronouncement also requires the additional disclosure about the
interest-only and retained certificates in securitizations and the
accounting for these assets at fair value in accordance with Statement
of Financial Accounting Standards No. 115. Management believes the
adoption of SFAS No. 125 on January 1, 1997 will not have a material
impact on the Company's operations.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
(2) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities
available-for-sale are as follows:
DECEMBER 31, 1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ----------
Federal National Mortgage
Association $ 55,962,076 -- 93,745 55,868,331
Federal Home Loan Mortgage
Corporation 392,202 6,319 -- 335,521
Small Business Association 8,395,320 -- 80,726 8,314,594
United Savings Participation
Certificates 1,175,849 76,430 -- 1,252,279
Other investments 1,201,191 27,556 7,135 1,221,612
------------ ---------- ---------- ----------
$ 67,063,638 110,305 181,606 66,992,337
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
F-14
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company recorded net unrealized losses of $41,353 as a separate
component of stockholders' equity calculated as the gross unrealized
loss on investment securities available-for-sale of $71,301, net of the
tax effect of $29,948.
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ----------
Federal National Mortgage
Association $ 22,107,078 53,746 -- 22,160,824
Federal Home Loan Mortgage
Corporation 3,758,314 81,191 -- 3,839,505
Small Business Association 9,906,526 18,561 -- 9,925,087
------------ ---------- ---------- ----------
$ 35,771,918 153,498 -- 35,925,416
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
The Association recorded net unrealized gains of $89,029 as a separate
component of stockholders' equity calculated as the gross unrealized
gains on investment securities available-for-sale of $153,498, net of
the tax effect of $64,469.
The maturities of investment securities available-for-sale at
December 31, 1996 are as follows:
AMORTIZED FAIR
COST VALUE
------------- ------------
Due in 1 year or less $ 53,111,835 $ 53,000,485
Due after 1 through 5 years 1,794,591 1,795,509
Due after 5 through 10 years -- --
Due after 10 years 12,157,212 12,196,343
------------- ------------
$ 67,063,638 $ 66,992,337
------------- ------------
------------- ------------
During the year ended December 31, 1996, the Association sold certain
investments from its held-to-maturity portfolio. The unamortized cost
on the sale date was $24,730,085 which yielded a loss of $138,595.
Management sold the securities to increase liquidity.
F-15
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ----------
Federal National Mortgage
Association $ 2,203,317 42,178 -- 2,245,495
Government National Mortgage
Association 10,691,866 74,505 -- 10,766,371
Student Loan Marketing
Association 1,000,691 -- 891 999,800
Federal Home Loan Mortgage
Corporation REMIC 9,896,118 11,684 -- 9,907,802
Mortgage Pass Through 762,423 -- -- 762,423
------------ ---------- ---------- ----------
$ 24,554,415 128,367 891 24,681,891
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
There were no sales of investment securities held-to-maturity during
the years ended December 31, 1995 and 1994.
During the year ended December 31, 1996, the Association transferred
investment securities in the amount of $2,426,949 to available-for-sale
and recognized an unrealized gain of $46,945 as an adjustment to the
securities valuation allowance. At December 31, 1996, the unrealized
gain on these securities was $96,851.
(3) LOANS RECEIVABLE
Receivables consist of the following at December 31:
1996 1995
------------ ----------
Multifamily $ -- 906,323
Commercial 77,955 8,120,997
Title I 7,569,921 10,590,417
Real Estate - first liens 6,443,033 6,760,584
Real estate - junior liens 28,644,609 16,569,370
Conditional sales contracts 4,047 4,902
Other loans 309,348 195,551
------------ ----------
43,048,913 43,148,144
------------ ----------
------------ ----------
Less:
Receivable held for sale 30,106,908 18,960,383
Unearned discounts, fees and costs 1,045,379 875,710
Allowance for loan losses 1,391,930 2,177,058
------------ ----------
$ 10,504,696 21,134,993
------------ ----------
------------ ----------
F-16
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table identifies the Company's total recorded investment in
impaired loans by type at December 31, 1996 and 1995:
1996 1995
------- -------
Nonaccrual loans- commercial $77,955 396,200
------- -------
Restructured loans - commercial $ -- 497,428
------- -------
------- -------
The related impairment valuation allowance at December 31, 1995 was $134,044
which is included as part of the allowance for loan losses in the
accompanying balance sheet. The provision for losses and any related
recoveries are recorded as part of the provision for loan losses in the
accompanying consolidated statements of earnings.
The average recorded investment in impaired loans for the years ended
December 31, 1996 and 1995 was $662,511 and $893,628, respectively. The
amount of interest income recorded on impaired loans for the year ended
December 31, 1996 and 1995 was $40,833 and $38,136, respectively.
The Company's primary service areas are Orange, Sacramento, Contra Costa and
Riverside counties; however, the Company extends credit to customers
throughout California, Arizona and Nevada. At December 31, 1996, 47% of
total Title I and real estate loans were concentrated in Southern California.
The FHA insurance on Title I loans is a coinsurance program in which the U.S.
Department of Housing and Urban Development (HUD) insures 90% of the loss of
the outstanding principal of each loan in the event of default. In the event
of default, the Company will incur a loss an the 10% uninsured portion of a
loan. HUD charges the Company a fee of .50% per annum of the original
balance for each loan it insures. In most cases, this fee is passed through
to the borrower. The Company's insurance contract with HUD limits the
overall amount of insurance claims that may be paid to the Company to 10% of
the amount disbursed, advanced or expended by the Company originating or
purchasing Title I loans. HUD has established a reserve account in that
amount and adjusts the balance as claims are paid and new loans are
originated or acquired. At December 31, 1996, the Company had no reserve
account available to insure Title I loans of approximately $24,706,848, of
which the Association has a participating interest in $5,758,577.
Loans on which the accrual of interest has been discontinued amounted to
$236,813, $760,902 and $5,456,204 at December 31, 1996, 1995 and 1994,
respectively. If these loans had been current throughout their terms,
interest income would have increased approximately $10,399, $21,734 and
$129,318 for 1996, 1995 and 1994, respectively.
F-17
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Activity in the allowance for loan losses is as follows:
DECEMBER 31
---------------------------------------
1996 1995 1994
----------- --------- ---------
Balance, beginning of year $ 2,177,058 3,441,615 1,707,376
Provision for loan losses 155,241 3,158,329 2,887,222
Recoveries 154,254 115,302 68,607
Charge-offs (1,094,623) (4,538,188) (1,221,590)
----------- --------- ---------
Balance, end of year $ 1,391,930 2,177,058 3,441,615
----------- --------- ---------
----------- --------- ---------
During the year, the Company sold commercial loans receivable for
approximately $9.7 million resulting in no gain or loss.
(4) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1996 and 1995 is summarized as
follows:
1996 1995
-------- -------
Interest on investments $288,349 503,941
Interest on loans 156,921 345,432
-------- -------
$445,270 849,373
-------- -------
-------- -------
(5) REAL ESTATE OWNED
Real estate acquired through foreclosure is summarized as follows:
DECEMBER 31
--------------------
1996 1995
-------- -------
Properties:
Acquired in settlement of loans $428,748 102,271
Less allowance for estimated losses (11,189) (6,137)
-------- -------
$417,559 96,134
-------- -------
-------- -------
Changes in the allowance for losses on real estate owned is as follows:
DECEMBER 31
-------------------------------
1996 1995 1994
-------- ------- -------
Balance, beginning of period $ 6,137 220,283 57,844
Add provisions 44,460 86,337 162,439
Less charge-offs (39,408) (300,483) --
-------- ------- -------
Balance, end of period $ 11,189 6,137 220,283
-------- ------- -------
-------- ------- -------
F-18
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Summary of real estate owned expenses (income) is as follows:
1996 1995 1994
--------- -------- -------
Rental income $(105,467) (32,219) (32,992)
Rental expenses 131,024 42,862 115,893
Gain on sales (69,502) (103,078) --
Provision for losses 44,460 86,337 162,439
--------- -------- -------
$ 515 (6,098) 245,340
--------- -------- -------
--------- -------- -------
(6) NOTES PAYABLE
Notes payable at December 31, 1996 and 1995 is summarized as follows:
<TABLE>
1996 1995
---------- ---------
<S> <C> <C>
A $700,000 revolving line of credit expiring in April 1996
which the Company intends to renew, interest due monthly
at Wall Street prime rate plus 1.25% (8.25% at
December 31, 1996), secured by the stock of the
Association $ 495,000 485,000
Unsecured notes payable to stockholders and to other persons
due at varying dates through January 1999 and bearing
interest at rates ranging from 7.50% to 10.0% 1,228,167 1,245,245
Unsecured notes payable bearing interest at 8% -- 5,861
---------- ---------
$1,723,167 1,736,106
---------- ---------
---------- ---------
</TABLE>
(7) INDEBTEDNESS TO RELATED PARTIES
Changes in unsecured notes payable to related parties consist of the
following:
DECEMBER 31
---------------------
1996 1995
--------- -------
Balance, beginning of period $ 286,378 207,000
Add proceeds from notes payable 103,000 128,378
Less payments on notes payable (231,378) (49,000)
--------- -------
Balance, end of period $ 158,000 286,378
--------- -------
--------- -------
F-19
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) SERVICING RIGHTS
An analysis of servicing rights is as follows:
DECEMBER 31
----------------------------------
1996 1995 1994
---------- --------- ---------
Mortgage servicing rights:
Balance, beginning of year $ 713,778 -- --
Gain on sales 560,701 869,209 --
Amortization (166,312) (155,431) --
---------- --------- ---------
Balance, end of year $1,108,167 713,778 --
---------- --------- ---------
Purchased servicing rights:
Balance, beginning of year 423,268 673,200 904,130
Amortization (185,270) (249,932) (230,930)
---------- --------- ---------
Balance, end of year 237,998 423,268 673,200
---------- --------- ---------
Excess servicing fee receivables:
Balance, beginning of year 597,459 809,379 1,010,181
Amortization (206,049) (211,920) (200,802)
---------- --------- ---------
Balance, end of year 391,410 597,459 809,379
---------- --------- ---------
$1,737,575 1,734,505 1,482,579
========== ========= =========
(9) LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment are recorded at cost and consist of
the following at December 31:
1996 1995
----------- ----------
Leasehold improvements $ 397,663 347,962
Furniture and equipment 2,322,956 1,823,423
Automobiles 24,961 24,961
----------- ----------
2,745,580 2,196,346
Accumulated depreciation and amortization (1,694,561) (1,453,569)
----------- ----------
$ 1,051,019 742,777
=========== ==========
F-20
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) THRIFT ACCOUNTS
Thrift accounts at December 31, 1996 and 1995 are summarized as follows:
1996 1995
------------ -----------
Passbook accounts $ 33,239,746 32,929,964
------------ -----------
Term certificate accounts:
Certificates under $100,000 53,270,434 62,710,601
Certificates of $100,000 or more 20,391,675 18,167,489
------------ -----------
Total term certificates accounts 73,662,109 80,878,090
------------ -----------
$106,901,855 113,808,054
============ ===========
Interest expense on thrift accounts for the years ended December 31, 1996,
1995 and 1994 is summarized as follows:
1996 1995 1994
---------- --------- ---------
Passbook accounts $1,704,646 1,418,581 1,388,576
Term certificate accounts 4,454,225 5,173,253 3,208,424
---------- --------- ---------
$6,158,871 6,591,834 4,597,000
========== ========= =========
(11) INCOME TAXES
The income taxes (benefit) consists of the following:
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- -------- ---------
Current:
Federal $1,448,508 (375,851) 806,988
State 183,358 2,000 347,172
---------- -------- ---------
1,631,866 (373,851) 1,154,160
---------- -------- ---------
Deferred:
Federal 68,109 671,200 (598,265)
State 263,628 201,915 (281,537)
---------- -------- ---------
331,737 873,115 (879,802)
---------- -------- ---------
$1,963,603 499,264 274,358
========== ======== =========
F-20
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Statements, Continued
Income taxes attributable to earnings before the cumulative effect of the
accounting change differed from the amounts computed by applying the Federal
income tax rate of 34% to pretax earnings as a result of the following:
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
----------- ------- -------
Computed "expected" tax expense $ 1,611,220 415,345 224,761
State income taxes, net of
Federal income tax benefit 353,049 87,299 43,319
Others, net (666) (3,380) 6,278
----------- ------- -------
$ 1,963,603 499,264 274,358
=========== ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are as follows:
1996 1995
---------- ---------
Deferred tax assets:
Allowance for possible credit losses $ 632,000 845,236
State taxes allowed for Federal purposes 133,000 --
Excess servicing fees receivables -- 93,858
Accrual for tax purposes, not deductible 68,000 --
Other 42,162 62,000
---------- ---------
875,162 1,001,094
Deferred tax liabilities:
Depreciation (60,000) (60,000)
Gain on loan sales (452,000) (322,000)
State taxes allowed for Federal purposes -- (18,610)
---------- ---------
Net deferred income tax asset $ 363,162 600,484
========== =========
Based on the Company's current and historical pretax earning for
significant items, management believes it is more likely than not that
the Company will realize the benefit of the existing net deferred tax
asset at December 31, 1996. Management believes the existing net
deductible temporary differences will reverse during periods in which
the Company generates net taxable income; however, there can be no
assurance that the Company will generate any earnings or any specific
level of continuing earnings in future years. Certain tax planning or
other strategies could be implemented, if necessary, to supplement
income from operations to fully realize recorded tax benefits.
(12) CAPITAL REQUIREMENTS AND REGULATORY MATTERS OF THE ASSOCIATION
State regulations require industrial loan companies not to exceed a
defined ratio of outstanding thrift accounts in relation to stockholder's
equity less retained earnings restricted as to distribution and certain
intangible assets. The Association's ratio has been established at 20 to 1
for the years ended December 31, 1996 and 1995. In addition, state
regulations require the Association to maintain a minimum capital stock
of $1,250,000 plus a portion of retained earnings restricted as to
distribution.
F-22
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Statements, Continued
FDICIA was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provision of FDICIA became effective on
December 19, 1992. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the Federal regulatory agencies, increased reporting
requirements for insured institutions and new regulations concerning
internal controls, accounting and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions including
the requirement to file a capital plan with its primary Federal regulator,
prohibitions on the payment of dividends and management fees, restrictions
on executive compensation and increased supervisory monitoring, among other
things. Other restrictions may be imposed on the institution either by its
primary Federal regulator or by the FDIC, including requirements to raise
additional capital, sell assets or sell the entire institution.
The table below presents the Association's capital ratios at December 31,
1996 as compared to minimum regulatory requirements for an institution to
be considered "adequately capitalized" and "well capitalized."
The Association's actual capital amounts and ratios as of December 31,
1996 are presented in the table.
<TABLE>
To be well capitalized under
For capital adequacy prompt corrective action
Actual purposes provisions
----------------- -------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $13,725,490 23.7% $4,643,797 8.0% $ 5,804,746 10.0%
Tier 1 capital (to
average assets) 12,999,897 10.3% 5,034,148 4.0% 6,292,684 5.0%
Tier 1 capital (to risk-
weighted assets) 12,999,897 22.4% 2,321,898 4.0% 3,482,848 6.0%
=========== ==== ========== === =========== ====
</TABLE>
An institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
The following table reconciles the Association's capital in accordance with
generally accepted accounting principles to the Association's risk-based
capital as of December 31, 1996:
Capital in accordance with general accepted accounting
principles $ 12,958,544
Adjustments for tangible and core capital 41,353
------------
Total Tier 1 capital 12,999,897
Adjustments for risk-based capital - allowance for general
loan losses(1) 725,593
------------
Total risk-based capital $ 13,725,490
============
(1) Limited to 1.25% of risk-weighted assets.
F-23
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Statements, Continued
At December 31, 1996, the Association's Board of Directors has designated
approximately $10,900,000 of the Association's stockholder's equity as
unavailable for distribution.
(13) STOCK OPTION PLAN
The Company has adopted a qualified incentive stock option plan under which
95,336 shares of common stock were reserved for officers and key employees of
the Company and its subsidiaries. Options were granted at prices not less
than the fair market value of the stock at the date of grant. Outstanding
options are exercisable immediately and expire in 2006.
The Company also has a nonqualified stock option plan under which 257,419
shares of common stock were reserved for directors, officers and key
employees of the Company and its subsidiaries. Options were granted at
prices not less than the fair market value of the stock at the date of grant.
Outstanding options are exercisable immediately and expire from 2002 to 2013.
A summary of stock option transactions under the plans for the years ended
December 31, 1996, 1995 and 1994 follows:
<TABLE>
1996 1995 1994
--------------------- --------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION NUMBER OPTION NUMBER OF OPTION NUMBER
PRICE OF SHARES PRICE SHARES PRICE OF SHARES
-------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year $ 3.52 198,136 $ 3.52 198,136 $ 3.49 214,136
Granted -- -- -- -- -- --
Exercised -- -- -- -- -- --
Canceled 5.11 (1,000) -- -- 3.13 (16,000)
------- ------- ------ ------- ------ -------
Options outstanding and
exercisable, end of year $ 3.51 197,136 $ 3.52 198,136 $ 3.52 198,136
======= ======= ====== ======= ====== =======
</TABLE>
(14) EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1988, the Company established an employee stock
ownership plan (ESOP) covering substantially all employees of the Company
and its subsidiaries. The Company converted the ESOP during 1995 to a KSOP.
Company contributions (whether in cash or stock) are determined annually
by the Board of Directors in an amount not to exceed the maximum allowable
as an income tax deduction. The employees can contribute cash to the KSOP.
The maximum amount that an employee could contribute for 1996 was $9,500.
On termination of employment, the employees have an option to redeem stock
or receive cash from KSOP. The contributions approved by the Board of
Directors were $0, $0 and $370,594 for 1996,1995 and 1994, respectively.
The KSOP acquired 7,866 and 52,000 shares of the Company during 1996 and
1995, respectively. There were no shares of the Company acquired by the
KSOP during 1994. At December 31, 1996, KSOP owns 276,460 shares (22.8%)
of the Company.
During 1996, fully vested terminated employees exercised their option and
redeemed 9,253 shares for cash of $53,224.
(15) LOAN SERVICING AND SALES ACTIVITIES
Loan servicing and sales activities are summarized as follows:
F-24
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1995 1994
------------- ----------- -----------
Loans serviced for others $ 105,307,686 118,701,865 42,044,453
============= =========== ===========
Balance sheet information:
Loans held for sale 30,106,908 18,960,383 6,536,896
============= =========== ===========
Excess servicing fee receivable 391,410 597,459 809,379
============= =========== ===========
Purchased servicing rights 237,998 423,268 673,200
============= =========== ===========
Mortgage servicing rights 1,108,167 713,778 --
============= =========== ===========
Statement of earnings information:
Servicing fee income 1,931,618 1,791,192 1,840,526
Amortization of:
Excess servicing fees (206,049) (211,920) (200,802)
Purchased mortgage servicing
rights (185,270) (249,932) (230,930)
Mortgage servicing rights (166,312) (155,431) --
------------- ----------- -----------
Servicing fee income, net $ 1,373,987 1,173,909 1,408,794
============= =========== ===========
Gain on sale of loans $ 9,340,879 6,215,434 1,724,293
============= =========== ===========
Statement of cash flow information:
Loans originated, net $(125,564,198) (66,088,328) (29,929,080)
============= =========== ===========
Loans sold $ 133,507,326 140,359,329 27,948,080
============= =========== ===========
The Company originated Title I loans, certain second trust deeds, Small
Business Administration guaranteed loans and conforming mortgage loans,
which depending upon whether the loans meet the Company's investment
objectives may be sold in the secondary market or to other private
investors. The servicing of these loans may or may not be retained by
the Company. Indirect nondeferrable origination and servicing costs
for loan servicing and sales activities cannot be presented as these
operations are integrated with and not separable from the origination
and servicing of portfolio loans and, as a result, cannot be accurately
estimated.
Title I loans serviced for investors at December 31, 1996, 1995 and
1994 were approximately $22,980,373, $27,892,000 and $38,014,000,
respectively. The Company also subserviced Title I loans for investors
which were approximated $83,900,000 and $86,950,000 at December 31,
1996 and 1995, respectively. There were no loans subserviced for
investors at December 31, 1994.
Included in loans serviced and subserviced for others are conforming
one-to-four first lien loans. Related fiduciary funds held by the
Company in non-interest bearing accounts totaled approximately
$2,543,000 and $2,214,000 at December 31, 1996 and 1995, respectively.
(16) GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- --------- ---------
Advertising and promotion $ 956,556 843,565 690,319
Recording fees 500,009 365,555 220,398
Data processing 358,798 324,963 284,840
Insurance and bond premiums 315,255 295,944 330,800
Offering expenses -- 277,870 150,000
Telephone 286,984 269,794 272,177
F-25
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Depreciation 290,182 262,718 267,092
Legal and accounting 303,166 231,154 164,405
Office supplies 249,627 202,381 195,225
FDIC & DOC assessments 10,933 161,622 282,422
Director fees 188,250 134,750 154,500
Travel, conferences and
entertainment 106,257 111,596 118,941
Other administrative expenses 1,022,479 694,296 640,880
---------- --------- ---------
$4,588,496 4,176,208 3,771,999
========== ========= =========
(17) DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS No. 107), "Disclosures
about Fair Value of Financial Instruments." The estimated fair value
amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions or
estimation methodologies may have a material impact an the estimated
fair value amounts.
Fair value information related to financial instruments is as
follows:
DECEMBER 31, 1996
---------------------------
CARRYING FAIR
FINANCIAL INSTRUMENT VALUE VALUE
---------------------------------------- ------------ ----------
Cash and cash equivalents $ 12,298,155 12,298,155
Certificates of deposit 245,000 245,000
Investment securities available-for-sale 66,992,337 66,992,337
Loans receivable 40,611,604 41,750,177
Passbooks 33,239,746 33,239,746
Certificates 73,662,109 73,786,348
============ ==========
CASH AND CASH EQUIVALENTS
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated
interest rate or credit concerns. The carrying amount of Federal funds
sold approximates fair value because these are overnight deposits and
do not present unanticipated interest rate or credit concerns.
CERTIFICATES OF DEPOSIT
The carrying amount approximates fair value because these certificates
have maturities of one year or less and do not present unanticipated
interest rate for credit concerns.
INVESTMENT SECURITIES
The fair value of investment securities is estimated based on quoted
market prices.
F-26
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
LOANS RECEIVABLE
The fair value of loans receivable is estimated by a method that
discounts the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and maturities.
DEPOSITS
For passbooks, fair value is the amount reported as payable in the
financial statements as such amounts are payable on demand. For
certificates, fair value is estimated using the rates currently offered
for deposits of similar remaining maturities.
(18) TRANSACTIONS WITH AFFILIATES, DIRECTORS AND OFFICERS
During 1996, 1995 and 1994, in the normal course of business, the
Company paid $47,985, $32,430 and $30,659, respectively, in legal fees
to a law firm in which one of the Association's directors is a partner.
For the year ended December 31, 1996, the chief executive officer has
entered into a new contract which provides a bonus of 15% to 100% of
the base salary based on certain financial performance achieved by the
Company.
Prior to January 1, 1996, the chief executive officer had a contract
which provided for a bonus of 10% of the Company's subsidiaries'
after-tax net income, less the bonus amounts for the previous year,
provided after-tax net income is at least $200,000. Approximately
$185,000, $103,000 and $86,000 were expensed under the new and old
agreement for 1996, 1995 and 1994, respectively.
(19) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases space under various noncancelable operating lease
agreements which expire at various dates through January 1999. Total
rental expense included in the statements of operations for the years
ended December 31, 1996, 1995 and 1994 is $542,028, $522,657 and
$487,500, respectively.
The total future minimum lease commitments under noncancelable
operating leases at December 31, 1996 are as follows:
December 31:
1997 $ 557,544
1998 466,115
1999 216,796
2000 45,228
2001 30,152
-----------
$ 1,315,835
===========
LITIGATION
The Company is involved in certain litigation which, in the opinion of
management and the Company's legal counsel, will not have a material
adverse effect on the Company's financial position.
F-27
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
SALE OF COMMERCIAL LOANS RECEIVABLE
Subsequent to the year end, the buyer of the Company's commercial loans
receivable (described in note 3) requested the Company to repurchase two
loans totaling $732,223 of the approximately $9.7 million of commercial
loans sold to them in December 1996. In the opinion of management, the
allowance for possible loan losses is sufficient to cover any potential
exposure for losses relating to these loans.
(20) SALE TO FIRSTPLUS FINANCIAL GROUP, INC.
On February 19, 1997, the Company entered into an "Agreement and Plan of
Merger" with FIRSTPLUS Financial Group, Inc., formerly named RAC
Financial Group, Inc. (the Acquiror), providing for the acquisition of
100% of outstanding shares of the Company in exchange for the right to
receive pro rata common shares of the Acquiror based an two times the
book value of the Company. The merger is subject to approval of state
and Federal regulators and the transaction is expected to be completed
soon after approval by state and Federal regulators.
The Company has retained a Financial Advisor (the Advisor) to the
Company to advise it with respect to the Agreement between the Acquiror
and the Company. The Company has agreed to pay a "Business Combination
Fee" equal to 1% for the aggregate purchase price to the Advisor for
services rendered.
(21) (PARENT ONLY) FINANCIAL INFORMATION
The following is condensed information as to the financial condition,
results of operations and cash flows of Western Interstate Bancorp only.
CONDENSED BALANCE SHEETS
DECEMBER 31
-------------------------
ASSETS 1996 1995
----------- ----------
Cash $ 3,548 3,053
Investment in subsidiaries 13,039,594 10,635,280
Income taxes receivable 623,777 415,705
Deferred income taxes 35,389 35,389
----------- ----------
$13,702,308 11,089,427
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 1,723,167 1,736,106
Accounts payable and accrued expenses 218,594 108,453
----------- ----------
Total liabilities 1,941,761 1,844,559
----------- ----------
Stockholders' equity:
Common stock 3,553,917 3,561,911
Retained earnings, substantially restricted 8,206,630 5,682,957
----------- ----------
Total stockholders' equity 11,760,547 9,244,868
----------- ----------
$13,702,308 11,089,427
----------- ----------
----------- ----------
F-28
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Equity in earnings of subsidiaries $3,108,696 $1,075,427 $ 832,189
Other income 75,273 75,248 80,628
Interest expense (171,170) (160,027) (126,546)
Offering costs -- (277,870) (150,000)
KSOP contributions -- -- (370,594)
Other expenses (478,908) (274,848) (263,625)
---------- ---------- ---------
Earnings before benefit for income
taxes 2,533,891 437,930 2,052
Benefit for income taxes (241,418) (284,408) (384,651)
---------- ---------- ---------
Net earnings $2,775,309 $ 722,338 $ 386,703
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-29
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,775,309 722,338 386,703
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Equity in earnings of subsidiaries (3,108,696) (1,075,427) (832,189)
Dividends received 574,000 233,000 442,587
Increase in net other assets and liabilities (97,931) (121,724) (264,619)
----------- ---------- --------
Net cash provided by (used in) operating activities 142,682 (241,813) (267,518)
----------- ---------- --------
Cash flows from financing activities:
Proceeds from notes payable to stockholders 321,300 325,444 315,630
Repayment of notes payable to stockholders (344,239) (261,003) (600,838)
Stock issued -- 24,999 --
Stock redemption (53,224) (17,113) --
Proceeds from (repayment of) line of credit 10,000 (165,000) 650,000
Dividends paid (121,254) -- (110,122)
Stock purchased by ESOP 45,230 299,520 --
Proceeds from stock options exercised -- -- 50,080
----------- ---------- --------
Net cash (used in) provided by financing activities (142,187) 206,847 304,750
----------- ---------- --------
Net increase (decrease) in cash 495 (34,966) 37,232
Cash and equivalents at beginning of year 3,053 38,019 787
----------- ---------- --------
Cash and equivalents at end of year $ 3,548 3,053 38,019
----------- ---------- --------
----------- ---------- --------
</TABLE>
F-30
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
Assets 1997 1996
------------ ------------
Cash and cash equivalents $ 17,727,851 $ 12,298,155
Interest-bearing deposits with banks 245,000 245,000
Loans receivable held for sale, at lower
of cost or market (note 3) 27,766,040 30,106,908
Investment securities, available-for-sale
at fair value (note 2) 52,974,998 66,992,337
Loans receivable, net (note 3) 9,220,122 10,504,696
Accrued interest receivable 404,578 445,270
Leasehold improvements and equipment 1,074,281 1,051,019
Servicing rights 1,633,979 1,737,575
Deferred income taxes 280,612 363,162
Real estate owned, net 444,164 417,559
Prepaid expenses 193,914 226,395
Other assets 170,096 159,712
------------ ------------
$112,135,635 $124,547,788
============ ============
Liabilities and Stockholders' Equity
Thrift accounts (note 4)
Passbooks $ 33,881,799 $ 33,239,746
Certificates 60,224,181 73,662,109
------------ ------------
94,105,980 106,901,855
Accrued interest payable 459,680 512,342
Notes payable 1,355,167 1,723,167
Accounts payable and accrued expenses 2,542,931 2,947,436
Income taxes payable 738,236 702,441
------------ ------------
Total liabilities 99,201,994 112,787,241
------------ ------------
Stockholders' equity:
Common stock, no par value. Authorized
20,000,000 shares; issued and outstanding
1,211,156 shares 3,553,917 3,553,917
Securities valuation allowance, net (25,316) (41,353)
Retained earnings, substantially restricted 9,405,040 8,247,983
------------ ------------
Total stockholders' equity 12,933,641 11,760,547
------------ ------------
$112,135,635 $124,547,788
============ ============
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings
Three Months ended March 31
---------------------------
1997 1996
---------- ----------
Interest income:
Loans, including fee discounts $1,487,064 $1,317,097
Investments 833,376 960,508
Cash equivalents 143,725 242,711
---------- ----------
Total interest income 2,464,165 2,520,316
---------- ----------
Interest expense on thrift accounts (note 4) 1,362,502 1,600,188
Interest expense on notes payable 33,011 51,103
---------- ----------
Total interest expense 1,395,513 1,651,291
---------- ----------
Net interest income 1,068,652 869,025
Provision for loan losses 125,000 101,798
---------- ----------
Net interest income after provision
for loan losses 943,652 767,227
---------- ----------
Noninterest income:
Gain on sales of loans 3,520,044 1,758,738
Servicing fee income, net 339,719 360,043
Other income 32,667 8,121
---------- ----------
Total noninterest income 3,892,430 2,126,902
---------- ----------
Noninterest expenses:
General and administrative 1,225,857 878,621
Salaries 1,400,981 1,172,055
Occupancy Expenses 149,010 140,710
Real estate owned expenses (income), net 65,379 (32,052)
---------- ----------
Total noninterest expenses 2,841,227 2,159,334
---------- ----------
Earnings before income taxes 1,994,855 734,795
Income taxes 837,798 309,919
---------- ----------
Net earnings $1,157,057 $ 424,876
========== ==========
Earnings per common share:
Primary $ 0.82 $ 0.35
========== ==========
Fully diluted $ 0.82 $ 0.35
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
<TABLE>
Three months ended March 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,157,057 $ 424,876
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 187,774 209,636
Deferred income taxes 98,587 1,022
Provision for loan losses 125,000 101,798
Provision for loss on real estate owned 36,350 1,850
Gain on sale of real estate owned -- (41,370)
Gain on sale of loans (3,520,044) (1,758,738)
Loans purchased or originated for sale, net (39,030,727) (18,939,162)
Proceeds from loan sales 41,072,337 23,579,279
(Increase) decrease in other assets and liabilities (358,583) 502,036
------------ ------------
Net cash provided by (used in) operating activities (232,249) 4,081,500
------------ ------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits -- (95,000)
Maturities and principal reductions of investment securities 54,041,927 3,223,326
Purchases of investment securities available-for-sale (40,024,588) (1,694,064)
Purchases of investment securities held-to-maturity -- (3,225,000)
Net increase in loans receivable 4,915,921 648,441
Purchases of leasehold improvements and equipment (107,440) (143,164)
Proceeds from sale of real estate owned -- 137,504
------------ ------------
Net cash provided by (used in) investing activities 18,825,820 (1,147,957)
------------ ------------
Cash flows from financing activities:
Net increase in passbook accounts 642,053 5,294,365
Net increase (decrease) in certificate accounts (13,437,928) (8,000,863)
Proceeds (repayments) from borrowings on lines of credit (495,000) 215,000
Proceeds from notes payable to stockholders 213,000 90,000
Repayment of notes payable to stockholders (86,000) (190,050)
Dividends paid -- (121,254)
------------ ------------
Net cash used in financing activities (13,163,875) (2,712,802)
------------ ------------
Net increase in cash 5,429,696 220,741
Cash and cash equivalents, beginning of period 12,298,155 22,082,518
------------ ------------
Cash and cash equivalents, end of period $ 17,727,851 $ 22,303,259
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during period:
Interest $ 1,488,175 $ 1,689,555
Income taxes 654,177 --
------------ ------------
Supplemental disclosure of non-cash information:
-transfer to real estate owned $ 62,995 $ 43,880
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1996 included elsewhere
herein.
RECENT ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS No. 125), "Accounting for
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities." SFAS No. 125 addresses the accounting for all types of
securitization transactions, securities lending and repurchase agreements,
collateralized borrowing arrangements and other transactions involving the
transfer of financial assets. SFAS No. 125 distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
SFAS No. 125 is generally effective for transactions that occur after
December 31, 1996, and it is to be applied prospectively. SFAS No. 125
requires the allocation of the total cost of mortgage loans sold to the
mortgage loans sold (servicing released), interest-only and retained
certificates and servicing rights, based on their relative fair values.
Under SFAS No. 125 the interest-only and retained certificates and servicing
rights are assessed for impairment based upon the fair value of those rights.
The pronouncement also requires the additional disclosure about the
interest-only and retained certificates in securitizations and the accounting
for these assets at fair value in accordance with Statement of Financial
Accounting Standards No. 115. The Company adopted SFAS No. 125 on January 1,
1997 and it did not have a material impact on the Company's operations.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, (FASB No. 128), "Earnings Per Share." FASB No. 128
supersedes APB Opinion No. 15, (APB 15), "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential common
stock. FASB No. 128 was issued to simplify the computation of EPS and to
make the U.S. standard more compatible with the EPS standards of other
countries and that of the International Accounting Standards Committee
(IASC). It replaces the presentation of primary EPS with a presentation of
basic EPS and fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under APB No. 15.
FASB No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior-period EPS data presented shall be
restated to conform with FASB No. 128. The Company has determined that this
statement will increase the earnings per share computation under Basic EPS as
compared to primary EPS.
FASB No. 129, Disclosure of Information about Capital Structure, is effective
for financial statements for periods ending after December 15, 1997. It is
not expected that the issuance of FASB No. 129 will require significant
revision of prior disclosure since the Statement lists required disclosures
that had been included in a number of previously existing separate statements
and opinions.
F-34
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(2) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities
available-for-sale are as follows:
<TABLE>
March 31, 1997
---------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Federal National Mortgage Association $32,672,744 $22,052 $ 63,229 $32,631,567
Federal Home Loan Mortgage
Corporation 10,304,998 4,287 -- 10,309,285
Small Business Association 7,753,573 -- 51,031 7,702,542
United Savings Participation Certificates 1,122,852 51,539 -- 1,174,391
Other investments 1,164,482 5,794 13,063 1,157,213
----------- ------- -------- -----------
$53,018,649 $83,672 $127,323 $52,974,998
=========== ======= ======== ===========
</TABLE>
The Company recorded net unrealized losses of $25,316 as a separate component
of stockholders' equity calculated as the gross unrealized loss on investment
securities available-for-sale of $43,651, net of the tax effect of $18,335.
F-35
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
<TABLE>
December 31, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Federal National Mortgage Association $ 55,962,076 $ -- $ 93,745 $ 55,868,331
Federal Home Loan Mortgage
Corporation 329,202 6,319 -- 335,521
Small Business Association 8,395,320 -- 80,726 8,314,594
United Savings Participation Certificates 1,175,849 76,430 -- 1,252,279
Other investments 1,201,191 27,556 7,135 1,221,612
------------ --------- --------- ------------
$ 67,063,638 $ 110,305 $ 181,606 $ 66,992,337
============ ========= ========= ============
</TABLE>
The Association recorded net unrealized losses of $41,353 as a separate
component of stockholders' equity calculated as the gross unrealized losses
on investment securities available-for-sale of $71,301, net of the tax effect
of $29,948.
The maturities of investment securities available-for-sale at March 31, 1997
are as follows:
Amortized Fair
cost value
------------ ------------
Due in 1 year or less $ 40,266,276 $ 40,217,600
Due after 1 through 5 years 1,422,653 1,412,386
Due after 5 through 10 years 601,686 600,844
Due after 10 years 10,728,034 10,744,168
------------ ------------
$ 53,018,649 $ 52,974,998
============ ============
F-36
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(3) LOANS RECEIVABLE
Receivables consist of the following at March 31, 1997 and December 31,
1996:
March 31, December 31
1997 1996
------------ ------------
Commercial $ -- $ 77,955
Title I 6,773,022 7,569,921
Real estate - first liens 5,773,295 6,443,033
Real estate - junior liens 26,620,917 28,644,609
Conditional sales contracts -- 4,047
Other loans 280,748 309,348
------------ ------------
39,447,982 43,048,913
Less:
Receivables held for sale 27,766,040 30,106,908
Unearned discounts, fees and costs 1,068,413 1,045,379
Allowance for loan losses 1,393,407 1,391,930
------------ ------------
$ 9,220,122 $ 10,504,696
============ ============
Activity in the allowance for loan losses is as follows:
March 31, December 31,
1997 1996
------------- -------------
Balance, beginning of period $ 1,391,930 $ 2,177,058
Provision for loan losses 125,000 155,241
Recoveries 18,944 154,254
Charge-offs (142,467) (1,094,623)
------------- -------------
Balance, end of period $ 1,393,407 $ 1,391,930
============= =============
F-37
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(4) THRIFT ACCOUNTS
Thrift accounts at March 31, 1997 and December 31, 1996 are summarized
as follows:
March 31 December 31,
1997 1996
------------- -------------
Passbook accounts $ 33,881,799 $ 33,239,746
------------- -------------
Term certificate accounts:
Certificates under $100,000 46,642,921 53,270,434
Certificates of $100,000 or more 13,581,260 20,391,675
------------- -------------
Total term certificate accounts 60,224,181 73,662,109
------------- -------------
$ 94,105,980 $ 106,901,855
============= =============
Interest expense on thrift accounts for the three months ended March 31, 1997
and 1996 is summarized as follows:
1997 1996
----------- -----------
Passbook accounts $ 388,879 $ 418,568
Term certificate accounts 973,623 1,181,620
----------- -----------
$ 1,362,502 $ 1,600,188
=========== ===========
F-38
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 19, 1997
AMONG
RAC FINANCIAL GROUP, INC.
WESTERN INTERSTATE ACQUISITION, INC.
AND
WESTERN INTERSTATE BANCORP
<PAGE>
AGREEMENT AND PLAN OF MERGER
<TABLE>
SECTION PAGE NO.
- ------- --------
<S> <C>
1. Transactions on or Prior to the Closing Date.......................................... 1
1.1 The Merger..................................................................... 1
1.2 Conversion of Stock............................................................ 2
1.3 Shareholders' Meeting.......................................................... 5
2. Closing............................................................................... 5
3. Representations and Warranties of the Company......................................... 5
3.1 Organization and Qualification; Subsidiaries................................... 6
3.2 Capitalization................................................................. 7
3.3 Financial Condition............................................................ 7
3.4 Tax Matters.................................................................... 9
3.5 Litigation and Claims; Regulatory Compliance................................... 10
3.6 Properties and Assets.......................................................... 11
3.7 Loans, Etc. ................................................................... 14
3.8 Insurance...................................................................... 14
3.9 Contracts and Other Instruments................................................ 15
3.10 Employee Benefit Plans......................................................... 16
3.11 Officers, Directors and Employees; Compensation of and Indebtedness
to and from Officers, Directors, Stockholders and Employees.................. 17
3.12 Agreement Not in Breach of Certain Instruments................................. 18
3.13 Approvals...................................................................... 18
3.14 No Undisclosed Liabilities..................................................... 18
3.15 Disclosure..................................................................... 18
3.16 Brokerage...................................................................... 19
3.17 Authorization of Agreement..................................................... 19
3.18 Proxy Statement, Etc........................................................... 19
4. Representations and Warranties of the Acquiror........................................ 20
4.1 Organization................................................................... 20
4.2 Authority...................................................................... 20
4.3 Brokerage...................................................................... 20
4.4 Issuance of Common Stock....................................................... 20
4.5 Acquiror Disclosure Documents.................................................. 20
4.6 Registration Statement, Etc. .................................................. 20
4.7 No Material Adverse Effect..................................................... 21
4.8 Litigation, Etc. .............................................................. 21
4.9 Violations of Law.............................................................. 21
4.10 Agreement Not in Breach of Certain Instruments................................. 21
4.11 Approvals...................................................................... 21
4.12 Certain Changes................................................................ 21
5. Covenants and Agreements of the Company............................................... 21
5.1 Articles of Incorporation and Bylaws........................................... 22
5.2 Existence and Rights; Loan Practices........................................... 22
5.3 Transactions Affecting Business and Properties of the Company.................. 22
5.4 Negotiations................................................................... 23
5.5 Access and Information Before the Closing...................................... 24
5.6 Current Information............................................................ 24
5.7 Consents....................................................................... 24
A-i
<PAGE>
5.8 Contracts...................................................................... 24
5.9 Insurance...................................................................... 25
5.10 No Default..................................................................... 25
5.11 Compliance with Laws........................................................... 25
5.12 Registration Statement......................................................... 25
5.13 Pooling........................................................................ 25
5.14 Amendment to Employment Agreement.............................................. 25
5.15 Affiliates..................................................................... 25
5.16 Resignations................................................................... 26
5.17 Annual Financial Statements.................................................... 26
5.18 Quarterly and Monthly Financial Statements..................................... 26
5.19 Supplements to Disclosure Schedules............................................ 26
5.20 Covenants Not to Compete....................................................... 26
6. Covenants and Agreements of the Acquiror.............................................. 27
6.1 Current Information............................................................ 27
6.2 Listing........................................................................ 27
6.3 Consents....................................................................... 27
6.4 Registration Statement......................................................... 27
6.5 Proxy Statement................................................................ 28
6.6 Pooling........................................................................ 28
6.7 Representations and Warranties................................................. 28
6.8 Affiliates..................................................................... 28
7. Conditions to Obligations of the Company.............................................. 28
7.1 Correctness of Representations and Warranties.................................. 28
7.2 Performance of Covenants and Agreements........................................ 28
7.3 Opinion of Counsel for Acquiror................................................ 29
7.4 Additional Closing Documents................................................... 29
7.5 No Legal Bar................................................................... 30
7.6 Listing........................................................................ 30
7.7 Shareholder Approval........................................................... 30
7.8 Registration Statement......................................................... 30
7.9 Acquiror MAE................................................................... 30
7.10 HSR Act........................................................................ 30
7.11 Tax-Free Opinion............................................................... 31
8. Conditions to Obligations of Acquiror................................................. 31
8.1 Correctness of Representations and Warranties.................................. 31
8.2 Performance of Covenants and Agreements........................................ 31
8.3 Opinion of Counsel for the Company............................................. 31
8.4 Additional Closing Documents................................................... 31
8.5 No Legal Bar................................................................... 32
8.6 Material Adverse Effect........................................................ 32
8.7 Listing........................................................................ 32
8.8 Pooling Letter................................................................. 33
8.9 Amendment to Employment Agreement.............................................. 33
8.10 Registration Statement......................................................... 33
8.11 Shareholder Approval........................................................... 33
8.12 Existing Stock Rights.......................................................... 33
8.13 Resignations................................................................... 33
8.14 Company Affiliate Agreements................................................... 33
8.15 Dissenters..................................................................... 33
8.16 Accountant's Letter............................................................ 33
8.17 HSR Act........................................................................ 33
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<PAGE>
8.18 Regulatory Approval............................................................ 33
8.19 Director Agreements............................................................ 33
9. Termination of Agreement.............................................................. 34
9.1 Events of Termination.......................................................... 34
9.2 Fees, Expenses and Other Payments.............................................. 35
10. Miscellaneous Provisions.............................................................. 37
10.1 Construction; Venue, Etc. ..................................................... 37
10.2 Notices........................................................................ 37
10.3 Assignment..................................................................... 38
10.4 Amendments and Waivers......................................................... 38
10.5 Survival....................................................................... 39
10.6 Attorneys' Fees................................................................ 39
10.7 Binding Nature of Agreement.................................................... 39
10.8 Entire Agreement............................................................... 39
10.9 Severability................................................................... 39
10.10 Counterparts; Section Headings................................................. 39
10.11 Public Announcements........................................................... 39
10.12 Best Efforts; Further Assurances; Cooperation.................................. 40
10.13 Tail Policy.................................................................... 40
10.14 Employee Credit For Service.................................................... 41
</TABLE>
A-iii
<PAGE>
SCHEDULES
Schedule 3.1(a)................................. Organization and Qualification
Schedule 3.1(b)................................................... Subsidiaries
Schedule 3.2(b).......................................... Existing Stock Rights
Schedule 3.3(c)............................................ Financial Condition
Schedule 3.4....................................................... Tax Matters
Schedule 3.5(a)..................................................... Litigation
Schedule 3.6(a)............................................ Real Property Liens
Schedule 3.6(b).................................. Defaults on Real Estate, Etc.
Schedule 3.6(c)............................................ Hazardous Materials
Schedule 3.6(d).......................................... Environmental Actions
Schedule 3.8(d)...................................................... Insurance
Schedule 3.9(a)...................................................... Contracts
Schedule 3.9(b).......................................... Defaults on Contracts
Schedule 3.9(c).............................................. Bids or Proposals
Schedule 3.10........................................... Employee Benefit Plans
Schedule 3.11(a)................................................ Officers, Etc.
Schedule 3.11(b).................................... Related Party Indebtedness
Schedule 3.14...................................................... Liabilities
Schedule 3.15....................................................... Disclosure
Schedule 3.16........................................................ Brokerage
EXHIBITS
Exhibit A - Company Shareholders and Percentage Interest
Exhibit B - Capitalization
Exhibit C - Form of Amendment to Employment Agreement
Exhibit D - Form of Opinion of Counsel for Acquiror
Exhibit E - Form of Opinion of Counsel for Company
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of February
19, 1997, by and among RAC Financial Group, Inc., a Nevada corporation (the
"Acquiror"), Western Interstate Acquisition, Inc., a Nevada corporation and
wholly owned subsidiary of Acquiror ("Acquisition"), and Western Interstate
Bancorp, a California corporation (the "Company").
R E C I T A L S
A. Acquiror and the Company desire to cause Acquisition to merge with and
into the Company in accordance with articles of merger and a certificate of
approval of merger, pursuant to the Nevada General Corporation Law (the "NGCL")
and the California Corporations Code (the "CCC"), respectively, and upon the
terms and conditions of this Agreement.
B. For reference, "Percentage Interest" of any of the holders (the
"Shareholders") of the Company's common stock, par value $.01 per share (the
"Company Common Stock") means with respect to the shares of Company Common Stock
(the "Common Shares") issued and outstanding at the Effective Time, a number,
expressed as a percentage, obtained by dividing the number of Common Shares
owned by such Shareholder immediately prior to the Effective Time, by the
aggregate number of Common Shares issued and outstanding.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and agreements contained herein, the parties agree as follows:
1. TRANSACTIONS ON OR PRIOR TO THE CLOSING DATE.
1.1 THE MERGER.
(a) Subject to the terms and provisions of this Agreement, and in
accordance with the NGCL and the CCC, at the Effective Time (as defined in
SECTION 1.1(e)), Acquisition shall be merged with and into the Company (the
"Merger"). The Company shall be the surviving corporation of the Merger
(sometimes called the "Surviving Corporation") and shall continue its corporate
existence under the laws of the State of California. At the Effective Time, the
separate corporate existence of Acquisition shall cease.
(b) At the Effective Time, the Merger shall have the effects provided
for in this Agreement and in the NGCL and the CCC.
(c) In connection with the filing of the Certificates (as defined in
SECTION 1.1(e)), the Articles of Incorporation and Bylaws of the Company as
respectively existing immediately prior to the Effective Time shall be the
Articles of Incorporation and Bylaws of the Surviving Corporation, unless and
until amended in the manner provided by law.
(d) Subject to SECTION 5.16, the board of directors, the committees
and members of the board, and the officers of the Company serving immediately
prior to the Effective Time shall be the board of directors of the Surviving
Corporation, and the committees and members of the board and the officers of the
Surviving Corporation.
(e) As soon as practicable following the Closing (as defined herein),
the parties to this Agreement shall effect the Merger by filing with the
Secretary of State of Nevada properly executed articles of merger and with the
Secretary of State of the State of California a properly executed certificate of
approval of merger (together with the Nevada articles of merger, the
"Certificates"). The date and time at which the Merger shall become effective
is herein referred to as the "Effective Time."
<PAGE>
(f) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right to Acquisition or the Company, as
the case may be, acquired or to be acquired by reason of, or as a result of, the
Merger, or (ii) otherwise to carry out the purposes of this Agreement, each of
Acquisition and the Company and its respective proper officers and directors
shall be deemed to have granted hereby to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to, and the possession of such property or rights
in, the Surviving Corporation and otherwise to carry out the purposes of this
Agreement, and the proper officers and directors of the Surviving Corporation
are hereby fully authorized in the name of Acquisition or the Company or
otherwise to take any and all such action.
1.2 CONVERSION OF STOCK.
(a) MERGER CONSIDERATION. At the Effective Time, by virtue of the
Merger and without any action on the part of the Shareholders, each one of the
Common Shares outstanding as of the Effective Time (except for Dissenting Shares
(as defined in SECTION 1.2(e)) shall be converted into the right to receive such
fraction of a share of common stock, par value $.01 per share (the "Common
Stock"), of the Acquiror as is equal to the decimal fraction determined by
dividing (i) the "Acquiror Share Number" by (ii)(A) the number of Common Shares
outstanding as of the Effective Time plus (B) the number of Common Shares
issuable upon exercise of all Existing Stock Rights (as defined herein) as of
the Effective Time (the "Conversion Ratio"); provided that no scrip or
fractional shares of Common Stock shall be issued in the Merger, but rather the
total number of shares to be received by each Shareholder pursuant to this
SECTION 1.2(a) shall be rounded up to the next whole number of shares (the
"Merger Consideration"). Upon the surrender by a Shareholder, other than a
Dissenting Shareholder (as defined in SECTION 1.2(e)), to the Exchange Agent (as
defined in SECTION 1.2(f)) of the certificates representing such Shareholder's
Common Shares in accordance with SECTION 1.2(f), the Acquiror shall deliver to
each such Shareholder certificates representing the number of shares equal to
such Common Shareholder's PRO RATA portion (based upon such Shareholder's
Percentage Interest immediately prior to the Effective Time) of the Merger
Consideration. For purposes hereof, the term "Acquiror Share Number" shall mean
the number determined by dividing (i) two times the December 31, 1996 "book
value per share" of the Company, as determined in accordance with generally
accepted accounting principles and as reflected on the 1996 Audited Statements
of the Company referred to in SECTION 5.17 hereof, by (ii) the "Fair Market
Value of the Common Stock." For purposes hereof, (i) the term "book value per
share" (A) shall be deemed to include the aggregate exercise price which would
have been payable to the Company upon exercise of all Existing Stock Rights if
such Existing Stock Rights had been exercised on December 31, 1996 and (B) shall
be calculated by the Company using the accounting methods, pronouncements and
nuances used by the Company in prior periods (the "Prior Procedures") if any new
methods, estimates, estimates, pronouncements and nuances are permissible under
generally accepted accounting principles and would result in an increase in the
book value per share as compared to the book value per share resulting from the
use of the Prior Procedures; and (ii) the term "Fair Market Value of the Common
Stock" shall mean the average closing price per share of the Common Stock on the
Nasdaq National Market as reported in THE WALL STREET JOURNAL for the ten (10)
trading days prior to the date that is two (2) calendar days prior to the
Closing Date.
(b) CONVERSION OF ACQUISITION COMMON STOCK. At the Effective Time,
by virtue of the Merger, and without any action on the part of the holders
thereof, each share of Acquisition's common stock outstanding immediately prior
to the Effective Time shall be converted into one share of common stock of the
Surviving Corporation.
(c) CANCELLATION OF SHARES. The Merger Consideration for which the
Common Shares shall have been converted pursuant to this SECTION 1 shall be
deemed to have been paid in full satisfaction of all rights pertaining to such
Common Shares. At the Effective Time, the Common Shares, and all treasury
shares of the Company shall be, by virtue of the Merger and without any action
on the part of the holders thereof, canceled.
(d) NO FURTHER TRANSFERS. After the Effective Time, there shall be
no further registration of transfers on the stock transfer books of the Company
of the shares of capital stock of the Company that were outstanding immediately
prior to the Effective Time and that are to be converted into the right to
receive the Merger Consideration, as provided in this SECTION 1.2.
A-2
<PAGE>
(e) DISSENTING SHARES.
(i) Notwithstanding anything in this Agreement to the contrary,
any Common Shares outstanding immediately prior to the Effective Time and which
are held by shareholders of the Company who object to the Merger and comply with
all of the relevant provisions of the CCC ("Dissenting Shares") shall not be
converted into or represent a right to receive Common Stock hereunder, but
instead shall be entitled to receive payment of the appraised value of such
shares in accordance with the provisions of the CCC, unless and until the holder
thereof shall have failed to perfect, or shall have waived or effectively
withdrawn or lost, his or her rights to appraisal and payment under the CCC.
The Company shall give Acquiror prompt notice upon receipt by the Company of any
written objection to the plan of merger set forth herein (any shareholder duly
making such objection being hereinafter called a "Dissenting Shareholder"). The
Company agrees that prior to the Effective Time, it will not, without the prior
written consent of Acquiror, voluntarily make or agree to make any payment with
respect to, or settle or offer to settle, any such objection.
(ii) Each Dissenting Shareholder who becomes entitled, pursuant
to the provisions of the CCC, to payment for his Dissenting Shares shall receive
payment therefor after the Effective Time from the Surviving Corporation (but
only after the amount thereof shall have been agreed upon or finally determined
pursuant to such provisions) and such shares shall be canceled.
(f) EXCHANGE OF CERTIFICATES. Promptly after the Effective Time,
Acquiror shall cause KeyCorp Shareholder Services, Inc. ("Exchange Agent") to
mail to each record holder, as of the Effective Time, of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented outstanding Common Shares, a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates shall pass, only upon proper delivery of the certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
certificate(s). Upon surrender to the Exchange Agent of such certificates,
together with such letter of transmittal duly executed, each holder of such
certificates formerly representing shares of the Company's capital stock shall
be entitled to receive in exchange therefor a certificate representing such
holder's PRO RATA portion of the Merger Consideration, and such certificates
formerly representing Common Shares shall then be canceled. Until so
surrendered, each certificate (other than certificates for Dissenting Shares)
which prior to the Merger represented Common Shares shall be deemed, for all
purposes, and without any further act or deed on the part of the holder thereof,
to evidence ownership of the whole number of shares of Common Stock which the
holder thereof would be entitled to receive upon its surrender to the Exchange
Agent; PROVIDED, HOWEVER, that no dividends with respect to said shares of
Common Stock shall be paid until such holder shall surrender such certificate,
at which time there shall be paid to the record holder of the certificates
issued in the exchange therefor the amount of the dividends, without interest,
which have theretofore become payable with respect to the shares of Common Stock
represented thereby.
(g) OPTIONS.
(i) At the Effective Time, Acquiror shall assume all of the
Company's rights and obligations with respect to certain outstanding stock
options held by employees and directors of the Company as set forth in SCHEDULE
3.2(b) hereto, which are outstanding and unexercised at the Effective Time (the
"Existing Stock Rights"), whether or not the Existing Stock Rights are then
exercisable. Immediately following such assumption, Acquiror shall substitute
for such Existing Stock Rights new options (each of which shall be a non-
qualified stock option) to be granted under Acquiror's option plan for employees
of acquired companies (the "New Options") with vesting terms and conditions
matching those contained in the Existing Stock Rights at the Effective Time to
the extent such vesting terms and conditions are consistent with the terms and
conditions of Acquiror's option plan for employees of acquired companies;
PROVIDED, HOWEVER, that the periodic vesting schedules set forth in the grant
provisions of the Existing Stock Rights, including any provisions accelerating
the vesting of the Existing Stock Rights as a result of the Merger, shall be
matched and the optionholders shall have a period of not less than one year
following termination of their employment or other service with the Company
within which to exercise the New Options. Each New Option shall thereafter
evidence the right to purchase the number of shares of Common Stock equal to the
product (rounded up or down as appropriate to the next whole share) of (i) the
number of Common Shares covered by such Existing Stock Right immediately prior
to the Effective Time, MULTIPLIED by (ii) the Conversion Ratio. The exercise
price of such New Options for each share of Common Stock subject thereto shall
be equal to the quotient obtained by DIVIDING (i) the per share exercise price
for Common Shares subject to such Existing Stock Right immediately prior to the
Effective Time by (ii) the Conversion Ratio.
A-3
<PAGE>
(ii) As soon as practicable after the Effective Time, Acquiror
shall deliver to each holder of a New Option an appropriate written notice and
option agreement setting forth Acquiror's assumption of the Existing Stock Right
and substitution of the New Option in accordance with the terms of SECTION
1.2(g).
(iii) The Company shall not grant any options, warrants or
other rights to acquire capital stock or securities of the Company under any
plan or otherwise after the date of this Agreement.
(iv) As soon as practicable following execution of this
Agreement, the Company shall cause each holder of Existing Stock Rights to
execute and deliver to Acquiror a written agreement (each a "Treatment of
Existing Stock Right Agreement"), in form reasonably satisfactory to Acquiror,
pursuant to which each holder of Existing Stock Rights agrees to the treatment
set forth in this SECTION 1.2(g).
(v) Acquiror will use its best efforts to register (on Form S-8
or other comparable form) the shares of Common Stock issuable upon exercise of
the New Options under the Securities Act of 1933, as amended, promptly following
the Effective Time.
1.3 SHAREHOLDERS' MEETING. The Company, acting through its board of
directors, shall duly call, give notice of, convene and hold a special meeting
(the "Special Meeting") of its shareholders as soon as practicable (and in any
event before May 15, 1997) for the purpose of considering and taking action upon
this Agreement and the Merger. The board of directors of the Company will
recommend to its shareholders approval of the Merger and this Agreement at the
Special Meeting, PROVIDED, HOWEVER, that such recommendation is subject to any
action taken by the board of directors of the Company in the exercise of its
good faith judgment as to its fiduciary duties to the shareholders of the
Company, which judgment is based upon the advice of independent counsel that a
failure of the board of directors to withdraw or change its recommendation might
reasonably constitute a breach of its fiduciary duties to such shareholders.
2. CLOSING.
(a) Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Jenkens & Gilchrist, a Professional Corporation,
1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, on (i) the later of (A)
May 30, 1997 and (B) the date of satisfaction or waiver of all other conditions
to the obligations of the parties hereto or (ii) such other time and place as
the parties may otherwise agree (the date thereof being the "Closing Date").
(b) Concurrent with the Closing, the Company and Acquisition shall
execute and deliver to the Secretary of State of Nevada and the Secretary of
State of California the Certificates, as required by the NGCL and the CCC,
respectively, and the parties shall take such other and further action as may be
required by law to make the Merger effective.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Acquiror as follows:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) The Company is duly organized and validly existing as a
corporation in good standing under the laws of California, with the power to
own, lease and operate its properties and assets and to carry on its business in
the manner in which such business is now being conducted. The Company is not a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended, nor is the Company required to be so registered. The Company is duly
qualified to transact business, and is in good standing, as a foreign
corporation in each jurisdiction where the character of its activities requires
such qualification (except for such failures as would not result in a material
adverse effect on the business or financial condition of the Company), and each
such jurisdiction of qualification is listed in SCHEDULE 3.1(a) hereto. True
and complete copies of the Articles of Incorporation, or other charter
documents, and Bylaws of the Company in effect on the date hereof have been
delivered to Acquiror in SCHEDULE 3.1(a).
(b) The Company does not own or control any "affiliate" (as defined
under the Securities Act of 1933, as amended (the "Securities Act")) or any
"Subsidiary" (as defined below) other than (i) Citizens Thrift and Loan
Association (the "Association") or (ii) the Subsidiaries set forth on
SCHEDULE 3.1(b). For purposes hereof the term
A-4
<PAGE>
"Subsidiary" means, when used with reference to an entity, any corporation, a
majority of the outstanding voting securities of which are owned directly or
indirectly by such entity, or any partnership, joint venture or other
enterprise in which any entity has, directly or indirectly, any equity
interest. All of the outstanding shares of capital stock and other ownership
interests of the Association and each of the other Subsidiaries are owned
directly by the Company, and are duly and validly issued and outstanding,
fully paid and nonassessable, and were not issued in violation of, and are
not subject to, preemptive rights. Except as set forth in SCHEDULE 3.1(b),
none of the shares or other ownership interests of the Association or any of
the other Subsidiaries owned or held by the Company is subject to any lien,
claim or encumbrance of any kind ("Lien"). No Subsidiary has outstanding any
shares of capital stock or other ownership interests or any securities
convertible into or exchangeable or exercisable for any shares of its capital
stock or other ownership interests, nor are there outstanding any options,
warrants, rights, calls, contracts, commitments, understandings, arrangements
or claims of any character by which the Company or any of its Subsidiaries is
or may become bound to issue, transfer or sell, repurchase or otherwise
acquire or retire any shares of capital stock or other ownership interests of
any Subsidiary or any securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire, any such shares
or ownership interests. The Association is an "industrial loan company" (as
such term is defined in Division 7 of the California Financial Code), duly
organized, validly existing and in good standing under the laws of California
and in good standing under all laws, rules and regulations applicable to
industrial loan companies in California. Each Subsidiary other than the
Association is duly organized and validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with the power
to own, lease and operate its properties and assets and to carry on its
business in the manner in which such business is now being conducted. The
Association is an insured bank as defined in the Federal Deposit Insurance
Act (the "FDIC") and is required to maintain such insurance under the
California Financial Code. The Association has the necessary corporate power
to own, lease and operate properties and assets and to carry on its business
in the manner in which such business is now being conducted. Each Subsidiary
is duly qualified to transact business, and is in good standing, as a foreign
corporation in each jurisdiction where the character of such activities
requires such qualification, except for such failures as would not result in
a material adverse effect on the business or financial condition of the
Company or any of such Subsidiaries.
(c) The depositors of the Association may not withdraw their deposits
by check or similar means for payment to third parties. The Association has not
permitted any overdraft (including any intraday overdraft), or incurred any such
overdraft in the Association's account at the Federal Reserve bank, on behalf of
the Association or any affiliate.
3.2 CAPITALIZATION.
(a) EXHIBIT B attached hereto sets forth the authorized
capitalization of the Company and of each Subsidiary and the number of
outstanding shares of the Company and of each Subsidiary as of the date hereof.
No person or entity, other than as shown on EXHIBIT A, owns of record any of the
outstanding capital stock of the Company. All of the outstanding capital shares
of the Company are and will be validly issued and outstanding and fully paid and
nonassessable. The outstanding capital shares of the Company are not subject to
and were not issued in violation of any preemptive rights. Each share of
capital stock was issued in conformity with applicable law and neither any party
to whom such shares of capital stock of the Company were issued nor any person
claiming through any such party has any claim against the Company in respect of
any such issuance. There are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the voting of the
capital stock of the Company. The Company is not nor, to the Company's
knowledge, is any shareholder of the Company party to or bound by any agreement
relating to or restricting the transfer of the outstanding capital shares of the
Company, except for this Agreement.
(b) Except for the Existing Stock Rights (which are listed in detail
on SCHEDULE 3.2(b)), or as otherwise set forth in SCHEDULE 3.2(b), there are no
outstanding subscriptions, options, rights, warrants, convertible securities or
other agreements or commitments ("Rights") obligating the Company to issue or to
transfer any additional outstanding shares of the Company or any securities
convertible into, or exchangeable or exercisable for, or otherwise evidencing a
right to acquire, any shares of capital stock of the Company. There are no
preemptive rights relating to the Company's shares of capital stock. There are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interest in the Company.
3.3 FINANCIAL CONDITION.
(a) The Company has furnished to the Acquiror: (a) its consolidated
financial statements for the fiscal years ended December 31, 1995 and 1994
consisting of balance sheets as of December 31, 1995 and 1994, and the related
statement of operations, statement of cash flows and statement of shareholders'
equity for the fiscal year ended
A-5
<PAGE>
December 31, 1995 and 1994, respectively (the "Audited Financial Statements"),
all as audited by KPMG Peat Marwick LLP (the "Auditors"); and (b) its unaudited
financial statements for the nine-month periods ended September 30, 1996 and
1995 consisting of unaudited balance sheets as of September 30, 1996 and 1995
and the related unaudited statements of operations, statements of cash flows and
statements of shareholders' equity for such nine-month periods (the "Unaudited
Financial Statements"). The Audited Financial Statements and Unaudited
Financial Statements are referred to herein collectively as the "Financial
Statements."
(b) The Financial Statements: (i) have been prepared in accordance
with the books and records of the Company; (ii) have been prepared in accordance
with generally accepted accounting principles consistently applied ("GAAP")
throughout the periods covered and subject, in the case of the Unaudited
Financial Statements, to normal year-end audit adjustments that may result or
may have resulted from the audit of such Unaudited Financial Statements by the
Auditors and the absence of detailed notes customary for GAAP financial
statements; (iii) reflect and provide adequate reserves and disclosures with
respect to all liabilities of the Company, including all contingent liabilities,
as of their respective dates to the extent required by GAAP; and (iv) present
fairly the financial position and results of operations of the Company at and
for the fiscal periods ended on such dates (subject to, in the case of the
Unaudited Financial Statements, normal year-end audit adjustments that may
result from the audit of such Unaudited Financial Statements by the Auditors).
(c) Except as set forth on SCHEDULE 3.3(c), since September 30, 1996
(the "Base Date") there has not been:
(i) any declaration, setting aside for, or payment of, a
dividend or any distribution of assets of any kind whatsoever by the Company or
any Subsidiary, including any distribution in redemption of, or as the purchase
price for, any equity interest, or in discharge or cancellation, in whole or in
part, of any indebtedness, whether in payment of principal, interest or
otherwise, owing to the equity holders of the Company or any of the
Subsidiaries;
(ii) any increase in the salary or other compensation payable or
to become payable to any officer, director or employee of the Company or any
Subsidiary, or the declaration, payment, commitment or obligation of any kind
for the payment of a bonus or other additional salary compensation or benefit,
other than normal cost-of-living and normal merit increases totaling not more
than 5% per annum (or 10% per annum to employees who made less than $25,000
during 1996) in the ordinary course of business consistent with past practice to
employees;
(iii) any entry into any agreement, commitment or transaction by
the Company or any Subsidiary not in the ordinary and usual course of business;
(iv) any Material Adverse Effect (as hereinafter defined);
(v) any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect;
(vi) any material alteration in the manner in which the Company
or any Subsidiary keeps its books, accounts or records or in the accounting
methods, principles or practices therein reflected;
(vii) other than in the ordinary course of business and consistent
with past practices and safe and sound banking practices, the incurrence of any
liability or issuance of any indebtedness for borrowed money or any commitment
to borrow money or any guaranty, direct or indirect, of indebtedness of others,
or any prepayment of long-term debt, except for deposits taken and federal funds
purchased;
(viii) any acquisition or lease of or commitment to acquire or lease any
realty, or any item of personal property in excess of $25,000;
(ix) any change in the Articles of Incorporation or other charter
document or in the Bylaws or other governing documents of the Company or any
Subsidiary, or in the authorized, issued or outstanding equity capital of the
Company or any Subsidiary;
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(x) any change in the operations, business or manner of conducting
the business of the Company or any Subsidiary, other than changes in the
ordinary and usual course of business consistent with past practice, none of
which, individually or in the aggregate, has had or is expected to have a
Material Adverse Effect;
(xi) any acquisition of any capital stock or other equity securities
or acquisition of any equity or ownership interest in any bank, corporation,
partnership or other entity, except (A) through settlement of indebtedness,
foreclosure, or the exercise of creditors' remedies or (B) in a fiduciary
capacity, the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person; or
(xii) any making, renewal or extension of, or alteration of any of
the material terms of, any loan to any single borrower and his or its related
interests in excess of the principal amount of $200,000.
As used in this Agreement, "Material Adverse Effect" means any change which
would have a material adverse effect on the Company's results of operations or
financial position taken as a whole.
3.4 TAX MATTERS. Within the times (including extensions) and in the
manner prescribed by law, the Company and each of the Subsidiaries have filed
all federal, state, local and foreign returns for Taxes (as defined below)
("Returns") required to be filed in any jurisdiction (including, without
limitation, informational returns) and such Returns are complete, true and
correct in all material respects; all Returns filed by the Company and the
Subsidiaries complied in all material respects with the tax laws, rules and
regulations, as presently interpreted, applicable to such Returns; neither the
Company nor any Subsidiary has waived or extended any statute of limitations
relating to the assessment of any federal, state, county, local or foreign
income, franchise or other taxes ("Taxes"); except as set forth in SCHEDULE 3.4
hereto, no audit or examination of any of the Returns of the Company or any
Subsidiary is currently in progress or threatened or has occurred in the past.
All Taxes required to be paid pursuant to such Returns have been paid on or
before their respective due dates; the charges, accruals, and reserves with
respect to Taxes on the respective books of the Company and each of the
Subsidiaries are adequate (determined in accordance with GAAP) and are at least
equal to the Company's and each Subsidiaries' liability for Taxes; all Taxes
that the Company and each of the Subsidiaries are required to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid; and no payment that is owed or may become due to any director,
officer, employee, or agent of the Company or any of the Subsidiaries will be
nondeductible to the Company or to that Subsidiary or subject to tax under
Section 280G or Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), nor will the Company or any Subsidiary be required to "gross up"
or otherwise compensate any such person because of the imposition of any excise
tax on a payment to such person.
3.5 LITIGATION AND CLAIMS; REGULATORY COMPLIANCE.
(a) LITIGATION PENDING OR THREATENED. Except as set forth in
SCHEDULE 3.5(a), there is no action, suit, arbitration proceeding, including any
grievance proceeding, or investigation pending or, to the knowledge of the
Company, threatened, before any court, tribunal, panel, master or governmental
agency, authority or body in which the Company or any Subsidiary is a party or
to which their respective businesses or properties are subject; nor is the
Company or any Subsidiary, or any officer or employee of the Company or any
Subsidiary, enjoined from any action or subject to any continuing restriction
that may have a Material Adverse Effect.
(b) VIOLATION OF LAW. Neither the Company nor any Subsidiary is in
violation of any provision of any law, decree, order or regulation applicable to
the Company or the Subsidiaries or their respective businesses or properties,
except for such violations as would not have a Material Adverse Effect. The
Company and the Subsidiaries have all federal, state, local and foreign
licenses, permits and other governmental authorizations required in the conduct
of their businesses and the operation of their properties.
(c) UNLAWFUL PRACTICES. None of the Company, any Subsidiary, or any
officer, employee or agent of the Company or any Subsidiary or any person acting
on their behalf has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, competitor or governmental employee
or official or has engaged in any other practice or received or retained any
such gift or similar benefit, that (i) in any case would subject the Company or
any Subsidiary to (A) any damage or penalty in any criminal litigation or
proceeding or (B) any material damage or penalty in any civil or governmental
litigation or preceding or (ii) would be grounds for termination or modification
of any material contract, license or other instrument to which the Company or
any Subsidiary is a party.
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(d) REGULATORY COMPLIANCE. All reports, records, registrations,
statements, notices and other documents or information required to be filed by
the Company or any of the Subsidiaries during the last three (3) years with any
federal or state regulatory authority including, without limitation, the
California Department of Corporations, the Federal Deposit Insurance Corporation
(the "FDIC"), the Board of Governors of the Federal Reserve System ("Federal
Reserve") and the Internal Revenue Service ("IRS") have been duly and timely
filed and all information and data contained in such reports, records or other
documents are true, accurate, correct and complete. None of the Company or any
Subsidiary is now or has been, within the past five (5) years, subject to any
memorandum of understanding, cease and desist order, written agreement or other
formal or informal administrative action with any such regulatory bodies. None
of the Company or any Subsidiary believes any such regulatory bodies have any
present intent to place the Company or any Subsidiary under any administrative
action.
3.6 PROPERTIES AND ASSETS.
(a) True and complete copies of all existing deeds, leases and title
insurance policies for all real property owned or leased by the Company or any
Subsidiary (collectively, the "Real Properties") and all mortgages, deeds of
trust, security agreements and other documents describing encumbrances to which
such property is subject have been made available to Acquiror. Each of the
Company and the Subsidiaries has good and indefeasible title to all of its
assets and properties including, without limitation, all personal and intangible
properties reflected in the Financial Statements or acquired subsequent thereto,
subject to no Liens except for: (i) those disclosed in SCHEDULE 3.6(a);
(ii) Liens for taxes not yet delinquent; (iii) Liens of landlords, carriers,
warehousemen, mechanics, materialmen and repairmen incurred in the ordinary
course of business for sums not yet delinquent; and (iv) other Liens which do
not impair the value of such assets.
(b) Except as set forth in SCHEDULE 3.6(b), (i) neither the Company
nor any Subsidiary is in default under any lease and there is no outstanding
notice of termination or cancellation in connection with any lease; (ii) each of
the tangible assets, including the Real Properties, of the Company is
structurally sound and in good repair and operating condition, normal wear and
tear excepted; and (iii) there is no pending or contemplated eminent domain or
condemnation proceedings, or under any environmental law concerning the disposal
of any hazardous substance, affecting any of the Real Properties. There are no
outstanding options or rights in any person to acquire any of such property or
assets, or any interest therein, except as is stated on SCHEDULE 3.6(b).
(c) (i) For purposes of SECTION 3.6(c)(ii) through SECTION
3.6(c)(vii) below, the following terms shall have the following meanings:
(A) "Hazardous Materials" shall mean (i) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 ET SEQ.), as amended from time to time, and regulations
promulgated thereunder or under the California Hazardous Waste Control Law
(Cal. Health & Safety Code Section 25100 ET SEQ., the California Hazardous
Substances Account Act (Cal. Health & Safety Code Section 25300 ET SEQ.)
and the regulations promulgated thereunder (collectively, the "California
Act and Rules"); (ii) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 ET SEQ.), as amended from time to time, and
regulations promulgated thereunder or under the Texas Act and Rules; (iii)
asbestos; (iv) polychlorinated biphenyls; (v) any substance the presence of
which on the Real Properties is prohibited by any governmental
requirements; (vi) any petroleum-based products; (vii) underground or
aboveground storage tanks; (viii) wells; (ix) covered-over surface
impoundments or similar areas; and (x) any other substance that by any
governmental requirements requires special handling or notification of any
federal, state, or local governmental entity in its collection, storage,
transport, treatment, or disposal.
(B) "Governmental Requirements" shall mean all laws, ordinances,
statutes, codes, rules, regulations, orders, and decrees of the United
States, the state, the county, the city, or any other political subdivision
in which the Real Properties is located, and any other political
subdivision, agency or instrumentality exercising jurisdiction over Seller
(collectively, the "Governmental Authority"), or the Real Properties
relating to pollution, the protection of the environment, the emission,
discharge, release or threatened release of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or waste or
Hazardous Materials into the environment (including, without limitation,
ambient air, surface water, ground water or land or soil), the provision of
information to a Governmental Authority for purposes relating to the
Governmental Authority's regulation of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or
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handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substance or waste or Hazardous Materials.
(C) "Environmental Costs" shall mean (i) costs incurred or required
to be incurred or reasonably expected to be required to be incurred under
any Governmental Requirement to remedy a condition or incident of on-site
or off-site environmental contamination arising due to actions, events, or
omissions occurring at or prior to the Closing or directly attributable to
conditions existing on or prior to the Closing, or (ii) damages to property
or people resulting from a condition or incident of on-site or off-site
environmental contamination arising due to actions, events, or omissions
occurring at or prior to the Closing or directly attributable to conditions
existing at or prior to the Closing.
(D) "Environmental Noncompliance" shall mean failure to comply on or
prior to the Closing with any existing Governmental Requirement.
(ii) Except as set forth on SCHEDULE 3.6(c), no Hazardous Materials
are or have been located on, at, upon or under the Real Properties at any time
during or, to the knowledge of the Company, prior to the tenancy, operation or
occupancy of the Real Properties by the Company.
(iii) Except as set forth on SCHEDULE 3.6(c) hereto, during and, to
the knowledge of the Company, prior to the ownership, tenancy, operation or
occupancy of the Real Properties by the Company, no Hazardous Materials have
been generated, manufactured, managed, transported, disposed on-site, recycled
or sent off-site from, on, at, or upon such Real Properties.
(iv) Except as set forth on SCHEDULE 3.6(c) hereto, there are no
on-site or off-site locations where Hazardous Materials generated, manufactured,
managed or transported from the Real Properties have been stored, treated,
recycled or disposed of.
(v) The Company does not have any permits, licenses or authorizations
from any Governmental Authority on account of any Governmental Requirement nor
is the Company required by reason of any Governmental Requirement to have any
such permit, license or authorization in order to operate any aspect of the Real
Properties or any business conducted at the Real Properties.
(vi) With respect to the Real Properties and/or the Company, there are
no Environmental Costs, there is no Environmental Noncompliance and the Company
has not received notice of any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions, or plans which may
result in Environmental Noncompliance or Environmental Costs or which may give
rise to any common law or legal liability based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling or omission, discharge, release or threatened release
into the environment, of any Hazardous Materials or exposure of any person to a
Hazardous Material.
(vii) No civil, criminal or administrative action, suit, claim,
hearing, investigation or proceeding has been brought or, to the best knowledge
of the Company, been threatened nor, except as set forth on SCHEDULE 3.6(c),
have any settlements been reached by or with any parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials from the use
or operation of the Real Properties or alleging Environmental Noncompliance.
(d) SCHEDULE 3.6(d) attached hereto sets forth a complete and
accurate description of the following (herein "Intangible Personal Property"):
(i) each United States and foreign patent license, patent
application, trade name, trademark, trade name and trademark registration,
copyright, copyright registration and application for any other of the foregoing
owned or used by the Company or any Subsidiary in the conduct of their
businesses;
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(ii) a description of each material license, franchise and similar
agreement or arrangement to which the Company or any Subsidiary is a party
either as licensee or licensor for each such item of Intangible Personal
Property; and
(iii) a description of all confidential and material inventions,
processes, designs and formulae owned by, in the possession of or used in the
business of the Company or any Subsidiary; and
(iv) a description of all royalty and other similar agreements or
arrangements to which the Company or any Subsidiary is a party or by which
either is bound.
The Company or a Subsidiary is the owner of all right, title and interest in and
to each item of such Intangible Personal Property and each other invention,
process, design, formula, license, royalty arrangement, trade secret, know how
and proprietary technique necessary for the conduct of the business of the
Company and/or the Subsidiaries. The Company or a Subsidiary has the right and
authority to use each item of Intangible Personal Property and each other
invention, process, design, formula, license, royalty arrangement, trade secret,
know how and proprietary technique necessary for the conduct of the business of
the Company and/or the Subsidiaries; and such use does not conflict with,
infringe upon or violate any patent, trademark, trade name, trademark or trade
name registration, copyright, copyright registration or any pending application
relating thereto of any other person, firm or corporation. There is no
outstanding or, to the knowledge of the Company, threatened dispute or other
disagreement with respect to any license or similar agreement used in the
Company's or any Subsidiary's business. Neither the Company nor any Subsidiary
has knowledge that any employee of the Company or any Subsidiary is obligated
under any contract (including any license, covenant or commitment of any
nature), or subject to any judgment, decree or order of any court or
administrative agency (other than through a decree of divorce), that would
materially interfere with the use of such employee's best efforts to promote the
interests of the Company and the Subsidiaries or would conflict with their
businesses as presently conducted. No prior employer of any employee of the
Company or any of the Subsidiaries has any right to, or interest in, any
inventions, improvements, discoveries or other information assigned to the
Company or any of the Subsidiaries by such employee.
3.7 LOANS, ETC.
(a) The Company and each Subsidiary has properly administered all
accounts for which it acts as a fiduciary, including but not limited to,
accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law. Neither the Company, the Subsidiaries nor any
director, officer or employee of the Company or any Subsidiary has committed any
breach of trust with respect to any such fiduciary account, and the accountings
for each such fiduciary account are true and correct in all material respects
and accurately reflect the assets of such fiduciary account.
(b) All evidences of indebtedness and leases that are reflected as
assets of the Company or any Subsidiary are legal, valid and binding obligations
of the respective obligors thereof, enforceable in accordance with their
respective terms (except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors generally and
the availability of injunctive relief, specific performance and other equitable
remedies) and are not subject to any known or threatened defenses, offsets or
counterclaims that may be asserted against the Company or any Subsidiary or the
present holder thereof. The credit files of the Company and the Subsidiaries
contain all material information known to the Company or any Subsidiary that is
reasonably required to evaluate in accordance with generally prevailing
practices in the banking industry the collectibility of the loan portfolio of
the Company and the Subsidiaries (including loans that will be outstanding if
any of them advances funds they are obligated to advance). The Company has
disclosed all of the substandard, doubtful, loss, nonperforming or loans
identified by the Company as problem loans on the internal watch list of the
Company, a copy of which as of December 31, 1996, has been provided to
Purchaser.
3.8 INSURANCE. SCHEDULE 3.8 attached hereto sets forth a summary
description of insurance coverage, including fidelity and bond insurance,
covering the business and properties of the Company and each of the
Subsidiaries, which description includes, among other things, the property
covered and the insurer and the amount and period of coverage. There are no
outstanding requirements or recommendations of any insurance company that issued
any policy of fire or extended coverage insurance covering the properties of the
Company or any of the Subsidiaries or by any Board of Fire Underwriters or other
similar body exercising similar functions, or by any governmental authority
exercising similar functions which require or recommend any repairs or other
work to be done on or with respect to any of the properties
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insured in any of said policies. Except as set forth in SCHEDULE 3.8, all of
such policies of insurance are on an occurrence basis and will be in full
force and effect immediately after the Closing Date. Except as set forth on
SCHEDULE 3.8, there has been no claim under any fidelity bond during the last
five (5) years and the Company is not aware of any facts that would form the
basis of a claim under such bonds.
3.9 CONTRACTS AND OTHER INSTRUMENTS.
(a) SCHEDULE 3.9(a) sets forth a list of each contract, agreement,
lease, license, indenture, commitment or mortgage, trust or other instrument,
written or oral, including all amendments or modifications thereof, to which the
Company or any Subsidiary is a party or by which any of their respective assets
are bound, that relates to any of the matters listed in (i) through (xii) below:
(i) All collective bargaining agreements involving the Company or any
Subsidiary and all other agreements with employees, as a group, of the Company
or any Subsidiary;
(ii) All employment agreements, contracts or commitments, not
terminable at will without contractual penalty, with or between the Company or
any Subsidiary and a director, officer or employee of the Company or any
Subsidiary;
(iii) All agreements of guaranty, repurchase or indemnification,
other than signature guaranties and bank items presented for collection or
contractual agreements related to loans sold, each in the ordinary course of
business, running from the Company or any Subsidiary to any person or entity
in excess of $5,000;
(iv) All agreements, contracts or commitments containing any
covenant limiting the right of the Company or any Subsidiary to engage in any
line of business or compete with any person or entity;
(v) All agreements, contracts or commitments to which the Company
or any Subsidiary is a party or by which either of them is bound evidencing
or providing for loans individually or in the aggregate in excess of $200,000
or purchase of receivables or other financing individually or in the
aggregate in excess of $200,000 which have been entered into since December
31, 1996;
(vi) All agreements, contracts or commitments of the Company or any
Subsidiary relating to material capital expenditures or involving material
future payments, excluding real estate borrowings made in the ordinary course
of business or existing leases;
(vii) All agreements, contracts or commitments relating to the
acquisition of assets or capital stock of any business enterprise other than
assets acquired in the ordinary course of business of the Company or any
Subsidiary;
(viii) All agreements, contracts or commitments involving the Company
or any Subsidiary relating to the syndication, sale or underwriting of
conventional or government or other guaranteed mortgages, loans or mortgage
loan pools or other securities other than such agreements, contracts or
commitments made in the ordinary course of business;
(ix) All agreements, contracts or commitments to which the Company
or any Subsidiary is a party and that may require consent by any other person
or entity in connection with the consummation of the transactions
contemplated hereby either to prevent a breach or to continue the
effectiveness thereof;
(x) All letters of credit, whether direct pay or contingent, and
all other commitments undertaken by the Company or any Subsidiary in excess
of $25,000;
(xi) Each lease with a third party where total annual lease
payments are in excess of $25,000 to which the Company or any Subsidiary is a
party; and
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(xii) Each other contract, agreement or instrument to which the
Company or any Subsidiary is a party which is material to the business,
results of operations or financial condition of the Company.
The contracts, agreements, leases, licenses, indentures or commitments that are
required to be identified in SCHEDULE 3.9(a) are referred to as the "Contracts."
True and complete copies of each of the Contracts, or where they are oral, true
and complete written summaries thereof, have been delivered to the Acquiror by
the Company.
(b) Except as set forth in SCHEDULE 3.9(b) attached hereto, there has
not been any breach of, nor has there occurred any default under any, Contract
on the part of the Company or any Subsidiary or, to the knowledge of the
Company, on the part of the other parties thereto, and no event has occurred
which with the giving of notice or the lapse of time, or both would constitute a
default under any Contract. Except as set forth in SCHEDULE 3.9(b), no consent
of any party to any Contract is required in order to permit the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby, nor will the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby, result in a breach of any of the terms and provisions of,
or constitute a default under, or conflict with, or result in a modification of,
or give any third party the right to terminate, cancel, accelerate or increase
the rate of interest payable under, any liabilities, obligations, rights or
benefits under, any Contract of the Company or any Subsidiary.
(c) Set forth in SCHEDULE 3.9(c) attached hereto is a list of
(i) each outstanding bid or proposal for a Contract and a description of and
projected dollar value of each such bid or proposal; and (ii) the aggregate
dollar amount of all outstanding claims against the Company or any Subsidiary or
claims, which, to the knowledge of the Company, have been threatened against the
Company or a Subsidiary, under each Contract presently or heretofore in effect.
3.10 EMPLOYEE BENEFIT PLANS. Except as listed on SCHEDULE 3.10
hereto, the Company does not maintain or sponsor or make and is not required to
make contributions to any pension, profit-sharing, stock bonus, stock option,
thrift or other retirement plan, medical, hospitalization, vision, dental, life,
disability, vacation or other insurance or benefit plan, employee stock
ownership plan, deferred compensation, stock ownership, stock purchase,
performance share, bonus, benefit or other incentive plan, severance plan or
other similar plan, agreement, arrangement or understanding relating to the
Company or its employees (the "Employee Benefit Plans"), whether or not such
plan is or is intended to be qualified under Section 401(a), 404A or any other
section of the Code, including without limitation, all employee benefit plans
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), whether or not subject to the provisions of
ERISA. Except as set forth in SCHEDULE 3.10, each Employee Benefit Plan
maintained or sponsored by the Company or to which the Company makes or is
required to make employer contributions (collectively, the "Plans") is in full
force and effect in accordance with its terms and is, and each plan
administrator and fiduciary of each Plan is, in compliance with all applicable
requirements of ERISA and other applicable laws, regulations and rulings. The
only Plans which are "pension benefit plans" (within the meaning of Section 3(2)
of ERISA), other than any such plans which are described in Section 401(a)(1) of
ERISA, maintained or sponsored by the Company or to which the Company makes or
is required to make employer contributions, are identified on SCHEDULE 3.10 as
such (the "Pension Benefit Plans"). No Pension Benefit Plan or any trust
created under one of the Pension Benefit Plans or any trustee, administrator or
sponsor thereof, has engaged in a "prohibited transaction" as that term is
defined in Section 4975(c)(1) of the Code, which could subject the Pension
Benefit Plan, trust, trustee, administrator or sponsor thereof, or any party
dealing with the Pension Benefit Plan or any such trust to the tax or penalty on
prohibited transactions imposed by said Section 4975, nor to the best of the
knowledge of the Company is the fiduciary (as defined in Section 3 of ERISA) of
any Pension Benefit Plan or any employee benefit plan (as defined in Section 3
of ERISA) maintained by the Company acting in a manner which constitutes a
breach of its fiduciary duty, as set forth in ERISA. Except as set forth in
SCHEDULE 3.10, the Pension Benefit Plans have not been terminated, nor have
contributions thereto been discontinued, nor, to the Company's knowledge, have
there been any "reportable events", as that term is defined in Section 4043 of
ERISA, since the effective date of Section 4043 of ERISA. The Pension Benefit
Plans have not incurred any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA (whether or not waived), since the effective
date of Section 302 of ERISA, or prior thereto, and all contributions required
to be made have been made. The Company does not have an existing defined
benefit pension plan covering its employees. None of the Pension Benefit Plans
identified on SCHEDULE 3.10 are multiemployer plans as defined in Section 3(37)
of ERISA. All appropriate administrative actions and required compliance with
appropriate administrative actions and required compliance with appropriate
Internal Revenue Service and Department of Labor rules and regulations have been
taken or are in process in a timely manner. No contributions pursuant to the
Pension Benefit Plans have been made in such amounts as would violate Section
404 of the Code so as to disqualify the accompanying trust. The Company has in
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force sufficient bonding for every fiduciary who is required to be bonded with
respect to the Pension Benefit Plans pursuant to Section 412 of ERISA. There
does not exist any pending or, to the best of the knowledge of The Company,
threatened litigation against any fiduciary of any Pension Benefit Plan, nor has
any bonding company been called on to defend any such fiduciary. A true and
complete copy of each existing Plan has been furnished to Purchaser along with
the most recent favorable determination letter issued by the Internal Revenue
Service with respect thereto and the two most recent annual reports (on form 550
series) required to be filed with respect thereto.
3.11 OFFICERS, DIRECTORS AND EMPLOYEES; COMPENSATION OF AND
INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS, STOCKHOLDERS AND EMPLOYEES.
(a) SCHEDULE 3.11(a) attached hereto sets forth a true and complete
list of the names of, the offices held by, and the compensation paid to, the
officers, directors and employees of the Company and each of the Subsidiaries.
(b) Except as set forth on SCHEDULE 3.11(b), neither the Company nor
any Subsidiary has any financial obligation or is otherwise indebted to any
person who is an officer, director, stockholder or employee of the Company or
any Subsidiary, or to any spouse, child or relative of any such person or to any
entity controlled directly or indirectly by such person, in any amount
whatsoever other than for compensation for services rendered since the start of
the current pay period of the Company and the Subsidiaries generally utilized by
their employees and for business expenses, nor is any director, stockholder or
employee of the Company or any Subsidiary, or any spouse, child or other
relative of such person, indebted to the Company or any Subsidiary except for
reimbursement of advances made in the ordinary course of business.
3.12 AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will violate or conflict with any provision of
the Articles of Incorporation or Bylaws of the Company or charter and bylaws of
any Subsidiary or result in a breach of any of the terms and provisions of, or
constitute a violation or default (or an event that with notice or lapse of
time, or both, would constitute a default) under, or conflict with, (a) any
Contract or permit to which the Company or any Subsidiary is or may be bound,
(b) any judgment, decree, order or award of any court, governmental body or
arbitrator to which the Company or any Subsidiary is a party, or (c) any law,
rule or regulation applicable to the Company or any of the Subsidiaries.
3.13 APPROVALS. Other than (i) the filing of any required blue sky
filings, (ii) applicable regulatory approvals of the Merger (including, if
necessary, approval of the transaction under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")), and (iii) Shareholder
approval of the Merger, no consent, declaration, filing or approval or
authorization of, or registration with, any federal, state, municipal or local
governmental or regulatory authority or any other person is required in
connection with the execution and delivery of this Agreement by the Company or
the consummation of the transactions contemplated hereby by the Company or the
continuation of the Company's and each Subsidiaries' business and operations
after the Closing.
3.14 NO UNDISCLOSED LIABILITIES. Except as and to the extent
disclosed in SCHEDULE 3.14 and except:
(a) as and to the extent reflected or reserved against in the
Financial Statements at the date thereof; or
(b) obligations incurred after the Base Date, in the ordinary and
usual course of business in amounts and on terms consistent with past
practice;
neither Company nor any Subsidiary has any Liability. "Liability" means any
liability or obligation of any nature, whether direct, indirect, absolute,
accrued, contingent or otherwise, and whether due or to become due (including,
without limitation, any liability for Taxes and interest, penalties and other
charges payable with respect to any such liability or obligation).
3.15 DISCLOSURE. Except as contemplated by or disclosed in this
Agreement, including the Schedules and other documents delivered with such
Schedules, and in SCHEDULE 3.15, there is no fact or circumstance within the
knowledge of the Company that might reasonably result in any Material Adverse
Effect. None of the statements or information contained in any of the
representations, warranties or covenants of the Company set forth in this
Agreement (including the Schedules and other certificates, agreements or other
documents to be furnished hereunder) or in any other
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document or written statement furnished to the Acquiror by the Company contains
or will contain any misstatement of a material fact or omission to state a
material fact necessary to make the statements contained herein or therein not
misleading.
3.16 BROKERAGE. Except as set forth in SCHEDULE 3.16, neither the
Company nor any Subsidiary has dealt with any finder, broker, investment banker
or financial advisor in connection with any of the transactions contemplated by
this Agreement or the negotiations looking toward the consummation of such
transactions which might as a result reasonably give rise to the obligation to
pay a fee therefor.
3.17 AUTHORIZATION OF AGREEMENT.
(a) The Company has full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the board of directors of the Company, and no other proceedings on the part of
the Company, other than approval by its Shareholders, are necessary.
(b) This Agreement and all other agreements herein contemplated to be
executed in connection herewith by the Company have been duly executed and
delivered by or for the benefit of the Company, and of the Company, constitute
binding obligations, enforceable in accordance with their respective terms
against the Company. The Company is not, and immediately prior to the Closing
Date each of the Company will not be, a party to, subject to or bound by any
provision of the Articles of Incorporation or Bylaws of the Company, or any
agreement or judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body that would prevent the execution and delivery
of, or the consummation of the transactions contemplated by, this Agreement.
3.18 PROXY STATEMENT, ETC. None of the information regarding the
Company and the Subsidiaries supplied or to be supplied by the Company for
inclusion in (i) a Registration Statement on Form S-4 to be filed with the SEC
by Acquiror for the purpose of registering the shares of Common Stock to be
exchanged for Common Shares pursuant to the provisions of the Merger (the
"Registration Statement"), or (ii) the proxy statement to be mailed to the
Company's shareholders in connection with the Special Meeting (the "Proxy
Statement") will, at the respective times such documents are filed with the SEC
or any regulatory authority and, in the case of the Registration Statement, when
it becomes effective and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the Special Meeting, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for such meeting.
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR. The Acquiror
represents and warrants to the Company as follows:
4.1 ORGANIZATION. Acquiror is duly organized and validly existing as
a corporation in good standing under the laws of Nevada, with the corporate
power to own, lease and operate its properties and assets and to carry on its
business in the manner in which such business is now being conducted. The
Acquiror is duly qualified to transact business, and is in good standing, as a
foreign corporation where the character of its activity requires such
qualification.
4.2 AUTHORITY. The Acquiror has the requisite corporate power, and
prior to the Closing Date will have taken all corporate action, necessary to
execute, deliver and perform this Agreement. This Agreement and all other
agreements herein contemplated to be executed by the Acquiror have been (or upon
execution will have been) duly executed and delivered by the Acquiror have been
effectively authorized by all necessary corporate action on the part of the
Acquiror and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Acquiror, enforceable against the Acquiror in
accordance with their respective terms.
4.3 BROKERAGE. Neither the Acquiror nor any affiliate, director,
officer or employee of the Acquiror has dealt with any finder or broker, in
connection with any of the transactions contemplated by this Agreement or the
negotiations looking toward the consummation of such transactions.
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4.4 ISSUANCE OF COMMON STOCK. The issuance, sale and delivery of the
shares of Common Stock pursuant to the Merger, in accordance with this
Agreement, have been, or will be on or prior to the Closing Date, duly
authorized by all necessary corporate action on the part of the Acquiror, and
such shares when so issued and sold, in accordance with the provisions of this
Agreement, will be duly and validly issued, fully paid and nonassessable.
4.5 ACQUIROR DISCLOSURE DOCUMENTS. Acquiror has furnished to the
Company its Annual Report on Form 10-K and its Annual Report to Shareholders for
the fiscal year ended September 30, 1996, its Proxy Statement for the 1997
Annual Meeting of Shareholders, and its Quarterly Report on Form 10-Q for the
period ending December 31, 1996,(such documents are collectively referred to
herein as the "Disclosure Documents"). Each of such Disclosure Documents, at
the time it was filed, complied in all material respects with all applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and of the forms, rules and regulations of the SEC promulgated
thereunder, and did not contain at the time filed any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6 REGISTRATION STATEMENT, ETC. None of the information regarding
Acquiror and its subsidiaries supplied or to be supplied by Acquiror for
inclusion in the Registration Statement or any other documents to be filed with
the SEC or any regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed with
the SEC or any regulatory authority and, in the case of the Registration
Statement, when it becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading. All documents which Acquiror is responsible
for filing with the SEC and any other regulatory authority in connection with
the Merger will comply as to form in all material respects with the provisions
of applicable law.
4.7 NO MATERIAL ADVERSE EFFECT. Since September 30, 1996, there has been
no change which would have a material adverse effect on Acquiror's (on a
consolidated basis) results of operations or financial position (an "Acquiror
MAE").
4.8 LITIGATION, ETC. Except as disclosed in the Disclosure Documents,
there is no action, suit, arbitration, proceeding, including any grievance
proceeding, or investigation pending or, to the knowledge of Acquiror,
threatened, before any court, tribunal, panel, master or governmental agency,
authority or body in which Acquiror or any of its subsidiaries is a party or to
which their respective businesses or properties are subject, except for such
actions, suits or proceedings as would not have an Acquiror MAE. There has not
been any legal proceeding instituted or, to Acquiror's knowledge, threatened
against Acquiror or any of its subsidiaries seeking to prohibit the consummation
of the transactions contemplated by this Agreement.
4.9 VIOLATIONS OF LAW. Neither Acquiror nor any of its subsidiaries is in
violation of any provision of any law, decree, order or regulation applicable to
Acquiror and its subsidiaries, except for such violations as would not have an
Acquiror MAE.
4.10 AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will violate or conflict with any provision of the Articles
of Incorporation or Bylaws of the Acquiror or Acquisition or result in a breach
of any of the terms and provisions of, or constitute a violation or default (or
an event that with notice or lapse of time, or both, would constitute a default)
under of conflict with (a) any of the documents filed as "material contracts"
pursuant to Item 601(a)(10) of Regulation S-K in any of the Disclosure
Documents, (b) any judgment, decree, order or award of any court, governmental
body or arbitrator to which Acquiror or any of its subsidiaries is a party, or
(c) any material law, rule or regulation applicable to Acquiror or any of its
subsidiaries.
4.11 APPROVALS. Other than (i) the filing of any required blue sky
filings, (ii) applicable regulatory approvals of the Merger (including, if
necessary, approval of the transaction under the HSR Act), (iii) Shareholder
approval of the Merger and (iv) the filing and effectiveness of the Registration
Statement, no consent, declaration, filing or approval or authorization or, or
registration with, any federal, state, municipal or local governmental or
regulatory authority or any other person is required in connection with the
execution and delivery of this Agreement by Acquiror and Acquisition or the
consummation of the transactions contemplated hereby by Acquisition or Acquiror.
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4.12 CERTAIN CHANGES. Except as disclosed in the Disclosure Documents,
since September 30, 1996, there has not been any material alteration in the
manner in which the Acquiror or any of its subsidiaries keeps its books,
accounts or records or in the accounting methods, principles or practices
therein reflected.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees that it will comply with each of the covenants and agreements set forth
in this SECTION 5.
5.1 ARTICLES OF INCORPORATION AND BYLAWS. Except as specifically
required by this Agreement, the Company will not, and will not allow any of the
Subsidiaries to, without the prior written consent of the Acquiror, take any of
the following actions or agree to take any of such actions:
(a) amend or otherwise change its Articles of Incorporation and
Bylaws or any instrument similar in purpose and intent to them;
(b) other than pursuant to the exercise or conversion of Existing
Stock Rights, issue any equity interests in the Company or such Subsidiary;
(c) issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any
additional equity interests in the Company's or such Subsidiary's capital
stock may be authorized, issued or transferred from treasury;
(d) take any action that would make any of the representations and
warranties made by the Company in this Agreement untrue or incorrect; or
(e) agree to do any of the acts listed above.
5.2 EXISTENCE AND RIGHTS; LOAN PRACTICES. Except as specifically
required by this Agreement, between the date hereof and the Closing Date, the
Company will take all necessary actions to keep in full force and effect the
existence and good standing of the Company and each of the Subsidiaries and will
cause the operations of the Company and the Subsidiaries to be conducted only
according to their ordinary and usual course. Neither the Company nor any
Subsidiary shall do, nor permit to be done, anything that is represented or
warranted not to have occurred since the date of the Financial Statements as
represented in SECTION 3.3(c) hereof. The Company shall and shall cause each of
the Subsidiaries to: extend credit in accordance with existing lending
policies, except that neither the Company nor any Subsidiary shall, without the
prior written consent of Acquiror (A) make any extensions of credit aggregating
in excess of $200,000 to a person or entity that is not a borrower as of the
date hereof, except for loans which CIT Group/Consumer Finance, Inc. has
committed to purchase prior to their approval by the Association, or (B) engage
in any loan transaction or series of contemporaneous loan transactions involving
an aggregate of more than $200,000 with any borrower who has aggregate
extensions of credit in excess of $200,000 as of the date hereof; maintain
proper business and accounting records in accordance with generally accepted
principles; maintain its properties in good repair and condition, ordinary wear
and tear excepted; use its best efforts to preserve its business organization
intact, to keep the services of its present principal employees and to preserve
its good will and the good will of its suppliers, customers and others having
business relationships with it; use its best efforts to obtain any approvals or
consents required to maintain existing leases and other contracts in effect
following the Merger; comply in all respects with all laws, regulations,
ordinances, codes, orders, licenses and permits applicable to the properties and
operations of the Company and each Subsidiary the non-compliance with which
might reasonably be expected to have a Material Adverse Effect.
5.3 TRANSACTIONS AFFECTING BUSINESS AND PROPERTIES OF THE COMPANY.
Except as specifically required by this Agreement, between the date hereof and
the Closing Date, neither the Company nor any Subsidiary will authorize or incur
any long-term debt (other than deposit liabilities and liabilities under the
existing investor note program of the Company, provided that each note issued
under such program shall be pre-payable at any time by the Company without
penalty); mortgage, pledge or subject to lien or other encumbrance any of its
properties, except in the ordinary course of business; enter into any material
agreement, contract or commitment in excess of $50,000 except banking
transactions and treasury investments in debt securities, each in the ordinary
course of business and in accordance with policies and procedures in effect on
the date hereof, and except for agreements and commitments related to the
implementation by the Association of a wide area network that will be compatible
with Acquiror's systems (and not to exceed $200,000 for such
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implementation); make any investments except investments made in the ordinary
course of business, in accordance with past practice; amend or terminate any
Employee Benefit Plan except as required by law; make any contributions to
any Employee Benefit Plan except as required by the terms of such Employee
Benefit Plan in effect as of the date hereof; declare, set aside, make or pay
any dividend or other distribution with respect to its capital stock; redeem,
purchase or otherwise acquire, directly or indirectly, any of the capital
stock of the Company; increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans and
practices (including bonus plans); sell or otherwise dispose of any shares of
the capital stock of any Subsidiary; or sell or dispose of any of its assets
or properties other than in the ordinary course of business.
5.4 NEGOTIATIONS. During the term of this Agreement, the Company
agrees not to, and shall cause the Company's officers, directors and affiliates
(as such term is defined in the regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) and its representative, Carpenter & Co.,
not to, take any action, which could impede, or adversely effect the likelihood
of, the consummation of the transactions contemplated by this Agreement, or
otherwise directly or indirectly make, solicit, initiate, participate in or
otherwise encourage the submission of any proposal or offer from any person
(including, without limitation, any of the managers, officers, or employees of
the Company or any of its Subsidiaries) relating to any liquidation,
dissolution, recapitalization, reorganization, merger, consolidation or the
acquisition of all or a material portion of the assets of, or any equity
interest in, the Company or any of its Subsidiaries or any other similar
transaction or business combination involving the Company or any of its
Subsidiaries, other than the Merger (an "Alternative Transaction") and shall
not, and shall cause the Company's officers, directors and affiliates and its
representative, Carpenter & Co., not to, directly or indirectly, participate in
any negotiations or discussions regarding, or furnish any information with
respect to, or otherwise cooperate in any way in connection with, or assist or
participate in, facilitate or encourage, any effort or attempt to effect or seek
to effect, any Alternative Transaction with or involving any person other than
Acquiror or an affiliate of Acquiror; PROVIDED, HOWEVER, that the actions
prohibited above shall be subject to any action taken by the Board of Directors
of the Company in the exercise of its good faith judgment as to its fiduciary
duties to the stockholders of the Company, which judgment is based upon the
advice of independent counsel that a failure of the Board of Directors to take
such action might reasonably constitute a breach of its fiduciary duties to the
shareholders of the Company. The Company shall immediately cease and cause to
be terminated any existing activities, discussion or negotiations with any third
parties which may have been conducted on or prior to the date hereof with
respect to an Alternative Transaction and shall direct and use reasonable
efforts to cause its officers, advisors and representatives not to engage in any
such activities, discussions or negotiations. The Company shall notify Acquiror
promptly in writing if the Company becomes aware that any inquiries or proposals
are received by, any information is rejected from, or any negotiations or
discussions are sought to be initiated with the Company in respect of an
Alternative Transaction.
5.5 ACCESS AND INFORMATION BEFORE THE CLOSING. Between the date
hereof and the Closing Date, the Company and the Subsidiaries will afford to the
Acquiror and the Acquiror's counsel, accountants and other representatives
reasonable access, upon reasonable notice, to all of the properties, books,
contracts and records of the Company and the Subsidiaries and will furnish the
Acquiror and the Acquiror's counsel, accountants and other representatives with
all information, including copies of books, contracts and records, concerning
the affairs of the Company and the Subsidiaries, which Acquiror may reasonably
request.
5.6 CURRENT INFORMATION. The Company will advise the Acquiror in
writing as promptly as possible of:
(a) the occurrence of any event that renders any of the
representations or warranties of the Company set forth herein materially
inaccurate;
(b) the awareness of the Company that any representation or warranty
of the Company set forth herein was not accurate in all material respects
when made; and
(c) the failure of the Company to comply with or accomplish any of
the covenants or agreements set forth herein in any material respect.
The Company will also provide the Acquiror promptly on becoming available copies
of all material operating and financial reports prepared by or for the normal
conduct of business of the Company.
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5.7 CONSENTS. Subject to SECTION 5.4, the Company agrees to use its
best efforts to take, or cause to be taken, all action, and to do or cause to be
done all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, and shall refrain from any action that would materially impair
the likelihood of the consummation of the transactions contemplated by this
Agreement. In particular, the Company shall use its best efforts to obtain as
soon as practicable, and, in any event, prior to the Closing Date, all consents,
authorizations, orders and approvals required in connection with, and waivers of
violations, breaches and defaults that may be caused by, the consummation of the
transactions contemplated by this Agreement, and to make all declarations,
filings and registrations, required to be obtained or made by it pursuant to any
law, regulation, order, agreement or instrument prior to consummating the
transactions contemplated hereby, whether any such consent, waiver,
authorization or approval, or such declaration, filing or registration, is to be
obtained from or made with private parties or governmental or regulatory
authorities. Subject to SECTION 5.4, the Company hereby agrees not to take any
action that may materially and adversely affect the obtaining of any such
consent, waiver, authorization or approval.
5.8 CONTRACTS. Between the date hereof and the Closing Date, the
Company will not and will not allow any Subsidiary to, without the prior written
consent of the Acquiror, amend or allow to be amended in any material respect or
consent to the termination of any Contract.
5.9 INSURANCE. Between the date hereof and the Closing Date, the
Company and each of the Subsidiaries shall continue in force its existing
insurance policies or replace them with new policies providing substantially the
same coverage and rates.
5.10 NO DEFAULT. Neither the Company nor any Subsidiary shall do any
act or omit to do any act, or permit any act or omission to act which will cause
a breach of any contract, agreement or commitment of the Company or any
Subsidiary which could have a Material Adverse Effect and the Company and the
Subsidiaries shall maintain in full force and effect all permits, licenses and
authorizations which are material to the condition (financial and otherwise),
assets, liabilities, properties, business and results of operations of the
Company and the Subsidiaries.
5.11 COMPLIANCE WITH LAWS. The Company and its Subsidiaries shall
duly comply with all laws applicable to them and their properties, business,
operations and employees, except to the extent that any such noncompliance would
not have a Material Adverse Effect.
5.12 REGISTRATION STATEMENT. The Company will furnish or cause to be
furnished to Acquiror all the information concerning the Company and the
Subsidiaries required for inclusion in the Registration Statement, or any
statement or application made by Acquiror to any governmental body in connection
with the transactions contemplated by this Agreement. Any financial statement
for any fiscal year provided under this paragraph must include the audit opinion
and the consent of the Auditors to use such opinion in such Registration
Statement.
5.13 POOLING. Neither the Company nor any Subsidiary shall take any
action which with respect to the Company would disqualify the Merger as a
"pooling of interests" for accounting purposes.
5.14 AMENDMENT TO EMPLOYMENT AGREEMENT. The Company shall cause Mike
McGuire to enter into an amendment (the "Amendment to Employment Agreement") to
his existing Employment Agreement with the Association, effective as of the
Closing Date, substantially on the terms set forth in EXHIBIT C hereto. Prior
to the Effective Time, no amendment to Mr. McGuire's Employment Agreement shall
be made or effected, except for the Amendment to Employment Agreement.
5.15 AFFILIATES. Prior to the Effective Time, the Company shall
deliver to Acquiror a letter identifying all persons who are, at the time the
Merger is submitted to a vote to the stockholders of the Company, "affiliates"
of the Company for purposes of Rule 145 under the Securities Act. The Company
shall cause each person who is identified as an "affiliate" in such letter to
deliver to Acquiror on or prior to the Effective Time a written statement, in
form satisfactory to Acquiror and the Company (each a "Company Affiliate
Agreement"), that such person will not offer to sell, transfer or otherwise
dispose of any of the shares of Common Stock issued to such person pursuant to
the Merger (or any other shares of Common Stock held by such "affiliate"),
except in accordance with the applicable provisions of the Securities Act and
the rules and regulations thereunder. Acquiror shall be entitled to place
legends on any certificates of Common Stock issued to such affiliates to
restrict transfer of such shares as set forth above. Each such Company
Affiliate Agreement shall also
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contain, among other things, an agreement of such "affiliate" to refrain from
selling the shares of Common Stock issued to such "affiliate" in the Merger
(or any other shares of Common Stock held by such "affiliate") until such
time as a post-Merger financial statement covering 30 days or more of
post-Merger combined results of operations have been published as provided in
SEC Release Nos. AS-130 and 135 (the "Post-Merger Statement"). Acquiror
agrees to use its best efforts to cause the Post-Merger Statement to be
published as soon as possible following the end of the first fiscal quarter
of Acquiror containing 30 days of post-Merger combined results of operations.
5.16 RESIGNATIONS. Prior to the Effective Time, the Company and the
Subsidiaries shall cause each of their respective directors to execute and
deliver to Acquiror his or her resignation from all directorships with the
Company, effective as of the Effective Time (the "Resignations").
5.17 ANNUAL FINANCIAL STATEMENTS. As soon as available, the Company
shall deliver to Acquiror its consolidated financial statements for the fiscal
year ended December 31, 1996 consisting of a balance sheet as of December 31,
1996 and the related statement of operations, statement of cash flows and
statement of shareholders' equity for the fiscal year ended December 31, 1996
(the "1996 Audited Statements"), as audited by the Auditors. Such delivery
shall constitute an additional representation and warranty of the Company that
the 1996 Audited Statements: (i) have been prepared in accordance with the books
and records of the Company; (ii) have been prepared in accordance with GAAP
throughout the periods covered; (iii) reflect and provide adequate reserves and
disclosures with respect to all liabilities of the Company, including all
contingent liabilities, as of their respective dates to the extent required by
GAAP; and (iv) present fairly the financial position and results of operations
of the Company at and for the fiscal periods ended on such dates. Such 1996
Audited Statements shall have fully accrued for, and shall reflect as such, (i)
all bonuses payable to employees of the Company or any Subsidiary that are
payable based upon the financial condition of results of operations of the
Company or any Subsidiary for 1996, (ii) all amounts reasonably estimated to be
due and/or payable as a result of any matter disclosed on SCHEDULE 3.4, and
(iii) any fees listed in SCHEDULE 3.16, except for an aggregate of $225,000
(which, if proper, may be accrued in 1997). The report of the Auditors in such
1996 Audited Statements shall be unqualified and such 1996 Audited Statements
shall reflect shareholders' equity of at least $10,000,000.
5.18 QUARTERLY AND MONTHLY FINANCIAL STATEMENTS. Prior to the
Effective Time, the Company shall deliver to Acquiror, as soon as possible but
in no event later than 45 days after the end of each fiscal quarter, a
consolidated balance sheet as of the last day of such fiscal period and the
consolidated statements of income, shareholders' equity and cash flows of the
Company and its subsidiaries for the fiscal period then ended prepared in
accordance with generally accepted accounting principles. The Company shall
also deliver to Acquiror, as soon as available but in no event later than 30
days after the end of each month, monthly statements of income and financial
position for any periods after the date hereof.
5.19 SUPPLEMENTS TO DISCLOSURE SCHEDULES. From time to time prior to
the Effective time, the Company will promptly supplement or amend the Disclosure
Schedules which it has delivered pursuant to this Agreement with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in any such
Disclosure Schedules or which is necessary to correct any information in any
such disclosure letter which has been rendered inaccurate thereby. Subject to
SECTION 9.1, no supplement or amendment to any such Disclosure Schedule shall
have any effect for the purpose of determining satisfaction of the conditions
set forth in SECTION 8.1 of this Agreement.
5.20 COVENANTS NOT TO COMPETE. Prior to the Closing, the Company shall
cause each one of its nonemployee directors to execute and deliver to Acquiror a
written agreement (the "Directors Agreements"), effective as of the Effective
Time, wherein each such nonemplyee director agrees not to compete with Acquiror
or its affiliates in the California cities of Anaheim, Irvine and Tustin for a
period of two (2) years following the Effective Time. The Director Agreements
shall provide for a payment to each such nonemployee director of $45,000 (with
one-half being payable on the Closing Date and one-half being payable on the
first anniversary of the Closing Date) and shall contain such other terms as are
mutually satisfactory to each of such nonemployee directors and Acquiror.
6. COVENANTS AND AGREEMENTS OF THE ACQUIROR. The Acquiror covenants and
agrees that it will comply with each of the covenants and agreements set forth
in this SECTION 6.
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6.1 CURRENT INFORMATION. The Acquiror will advise the Company in
writing as promptly as possible, but in any event prior to the Closing, of:
(a) the occurrence of any event that renders any of the
representations or warranties of the Acquiror set forth herein materially
inaccurate;
(b) the awareness of the Acquiror that any representation or warranty
of the Acquiror, set forth herein was not accurate in all material respects
when made; and
(c) the failure of the Acquiror to comply with or accomplish any of
the covenants or agreements set forth herein in any material respect.
6.2 LISTING. Acquiror shall file an application with the Nasdaq
National Market to list the shares of Common Stock to be issued hereunder and
shall use its best efforts to cause such application to be approved prior to the
Closing Date and to comply in all material respects with the requirements of the
Nasdaq National Market.
6.3 CONSENTS. Acquiror agrees to use its best efforts to take, or
cause to be taken, all action, and to do or cause to be done all things
necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
and shall refrain from any action that would materially impair the likelihood of
the consummation of the sale of the Interests hereunder and the transactions
contemplated by this Agreement. In particular, the Acquiror shall use its best
efforts to obtain as soon as practicable, and, in any event, prior to the
Closing Date, all consents, authorizations, orders and approvals required in
connection with, and waivers of violations, breaches and defaults that may be
caused by, the consummation of the Merger hereunder and the other transactions
contemplated by this Agreement, and to make all declarations, filings and
registrations, required to be obtained or made by it pursuant to any law,
regulation, order, agreement or instrument prior to consummating the
transactions contemplated hereby, whether any such consent, waiver,
authorization or approval, or such declaration, filing or registration, is to be
obtained from or made with private parties or governmental or regulatory
authorities. Acquiror hereby agrees not to take any action that may materially
and adversely affect the obtaining of any such consent, waiver, authorization or
approval.
6.4 REGISTRATION STATEMENT. Acquiror shall prepare and file with the
SEC as soon as is reasonably practicable a Registration Statement on Form S-4
relating to the shares of Common Stock to be issued in the Merger and shall use
all reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable. Acquiror also shall take any action
required to be taken under state blue sky or securities laws in connection with
the issuance of the Common Stock pursuant to the Merger. Acquiror and the
Company will furnish each other with all information concerning themselves,
their subsidiaries, directors, officers and stockholders and such other matters
as may be necessary or advisable for the Registration Statement, filings under
the blue sky laws, and any other statement or application made by or on behalf
of Acquiror or the Company to any governmental body in connection with the
Merger and the other transactions contemplated by this Agreement.
6.5 PROXY STATEMENT. Acquiror will furnish the Company all the
information concerning Acquiror required for inclusion in the Proxy Statement to
be sent to the shareholders of the Company, or in any statement or application
made by the Company to any governmental body in connection with the transactions
contemplated by this Agreement.
6.6 POOLING. Neither Acquiror nor any of its subsidiaries shall take
any action which with respect to Acquiror would disqualify the Merger as a
"pooling of interests" for accounting purposes.
6.7 REPRESENTATIONS AND WARRANTIES. Except as specifically required
by this Agreement, Acquiror will not, and will not allow Acquisition to, without
the prior written consent of the Company take any action that would make any of
the representations and warranties made by Acquiror in this Agreement untrue or
incorrect.
6.8 AFFILIATES. At the Closing, Acquiror shall deliver to the
Company a letter identifying all persons who are, at the time of the Closing
Date, "affiliates" of the Company for purposes of Rule 145 under the Securities
Act. Acquiror shall cause each person who is identified as an "affiliate" in
such letter to deliver to the Company on or prior to the Effective Time a
written statement, in form satisfactory to Acquiror and the Company (each an
"Acquiror Affiliate
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Agreement"), that such person will not offer to sell, transfer or otherwise
dispose of any of the shares of Common Stock held by such person, except in
accordance with the applicable provisions of the Securities Act and the rules
and regulations thereunder. Acquiror shall be entitled to place legends on
any certificates of Common Stock issued to such affiliates to restrict
transfer of such shares as set forth above. Each such Acquiror Affiliate
Agreement shall also contain, among other things, an agreement of such
"affiliate" to refrain from selling any of such "affiliate's" shares of
Common Stock until the publication of the Post-Merger Statement.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate the Merger hereunder and to make the deliveries
contemplated at the Closing shall, in addition to the conditions set forth
elsewhere herein, be subject to satisfactory completion on or prior to the
Closing Date of each of the following conditions:
7.1 CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. Subject to
SECTION 9.1(b), each of the representations and warranties of the Acquiror
contained in this Agreement shall have been true and correct on the date hereof
and shall be true and correct on the Closing Date with the same effect as if
made on the Closing Date, and the Acquiror shall have executed and delivered to
the Company at Closing a certificate to that effect.
7.2 PERFORMANCE OF COVENANTS AND AGREEMENTS. Subject to
SECTION 9.1(b), all of the covenants and agreements of the Acquiror contained in
this Agreement and required to be performed by the Acquiror before the Closing
Date shall have been performed in all respects, and the Acquiror shall have
executed and delivered to the Company at Closing a certificate to that effect.
7.3 OPINION OF COUNSEL FOR ACQUIROR. The Company shall have received
an opinion of counsel from Jenkens & Gilchrist, a Professional Corporation,
counsel for the Acquiror, in form and substance reasonably satisfactory to the
Company and dated the Closing Date, substantially in the form of EXHIBIT D
hereto. In rendering such opinion, counsel may rely upon certificates of public
officials and upon certificates of officers of the Acquiror as to factual
matters and on opinions of other counsel of good standing whom such counsel
believes to be reliable as to matters with respect to which the Nevada General
Corporation Law or the laws of California are applicable, provided that all such
certificates and opinions of other counsel shall be delivered to the Company
along with such counsel's opinion.
7.4 ADDITIONAL CLOSING DOCUMENTS. At the Closing, Acquiror shall
execute and acknowledge (where appropriate) and deliver to the Company such
documents and certificates necessary to carry out the terms and provisions of
this Agreement, including without limitation, the following:
(i) True, correct and complete copies of Acquiror's Articles of
Incorporation and all amendments thereto, duly certified as of a recent date
by the Secretary of State of the State of Nevada.
(ii) True, correct and complete copies of the Articles of
Incorporation and all amendments thereto, of Acquisition, duly certified as
of a recent date by the Secretary of State of the State of Nevada.
(iii) Good standing and existence certificates for Acquiror and
Acquisition, each dated as of the recent date, issued by the appropriate
state officials, duly certifying as to the existence and good standing of
Acquiror and Acquisition in the State of Nevada.
(iv) A certificate, dated as of the Closing Date, executed by the
Secretary or an Assistant Secretary of Acquiror pursuant to which such
officer shall certify (a) the due adoption by the Board of Directors of
Acquiror of corporate resolutions attached to such certificate authorizing
the execution and delivery of this Agreement and the other agreements and
documents contemplated hereby and the taking of all actions contemplated
hereby and thereby; (b) the incumbency and true signatures of those officers
of Acquiror duly authorized to act on its behalf in connection with the
transactions contemplated by this Agreement and to execute and deliver this
Agreement and other agreements and documents contemplated hereby and the
taking of all actions contemplated hereby and thereby on behalf of Acquiror,
and (c) that the copy of the Bylaws of Acquiror attached to such certificate
is true and correct and such Bylaws have not been amended except as reflected
in such copy.
(v) A certificate, dated as of the Closing Date, executed by the
Secretary or an Assistant Secretary of Acquisition, pursuant to which such
officer shall certify (a) the due adoption by the Board of Directors of
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Acquisition of corporate resolutions attached to such certificate authorizing
the execution and delivery of the Agreement and the taking of all actions
contemplated thereby; (b) the due adoption by the sole shareholder of the
Acquisition of resolutions authorizing the Merger and the execution and
delivery of this Agreement and the other agreements and documents
contemplated hereby and the taking of all actions contemplated hereby and
thereby; and (c) the incumbency and true signatures of those officers of
Acquisition duly authorized to act on its behalf in connection with the
transactions contemplated by this Agreement and to execute and deliver the
Agreement and the taking of all actions contemplated thereby on behalf of
Acquisition; and (d) that the copy of the bylaws of Acquisition attached to
such certificate is true and correct and such Bylaws have not been amended
except as reflected in such copy.
(vi) All consents required to be obtained by Acquiror or
Acquisition from third parties to consummate the transactions contemplated by
this Agreement.
(viii) All other documents required to be delivered to the Company by
Acquiror under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by the Company or
its counsel.
7.5 NO LEGAL BAR.
(a) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement or to obtain substantial damages with respect thereto.
(b) None of the parties hereto shall be prohibited by any law, order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement, and no action
or proceeding shall then be pending that questions the validity of this
Agreement, any of the transactions contemplated hereby or any action that has
been taken by any of the parties or any corporate entity, in connection
herewith, or in connection with any of the transactions contemplated hereby.
7.6 LISTING. The Nasdaq National Market shall have approved the
listing, subject to official notice of issuance, of the shares of Common Stock
to be issued hereunder.
7.7 SHAREHOLDER APPROVAL. This Agreement shall have been approved by
the shareholders of the Company in accordance with the applicable requirements
of the CCC and of the Articles of Incorporation and Bylaws of the Company.
7.8 REGISTRATION STATEMENT. The Registration Statement (as amended
or supplemented) shall have become effective under the Securities Act and shall
not be subject to any stop order, and no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness of the Registration
Statement shall have been initiated and be continuing, or have been threatened
and be unresolved. Acquiror shall have received all state securities law or
blue sky authorizations necessary to carry out the transactions contemplated by
this Agreement.
7.9 ACQUIROR MAE. Since September 30, 1996, there shall have been no
Acquiror MAE.
7.10 HSR ACT. If filing under the HSR Act is required to be made
prior to consummation of the Merger, early termination shall have been granted
or applicable waiting periods shall have expired under the HSR Act.
7.11 TAX-FREE OPINION. The Company shall have received an opinion
from KPMG Peat Marwick LLP or Company counsel to the effect that the Merger will
be treated as a "tax-free" reorganization within Section 368 of the Internal
Revenue Code of 1986, as amended.
8. CONDITIONS TO OBLIGATIONS OF ACQUIROR. The obligations of the
Acquiror to consummate the Merger hereunder and to make the deliveries
contemplated at the Closing shall, in addition to conditions set forth elsewhere
herein, be subject to the satisfactory completion on or prior to the Closing
Date of each of the following conditions, any of which may be waived by the
Acquiror:
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8.1 CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. Subject to
SECTION 9.1(a), each of the representations and warranties of the Company
contained in this Agreement shall have been true and correct on the date hereof
and shall be true and correct in all respects on the Closing Date with the same
effect as if made on the Closing Date, and the Company shall have executed and
delivered to the Acquiror at Closing a certificate of an officer of the Company
to that effect.
8.2 PERFORMANCE OF COVENANTS AND AGREEMENTS. Subject to
SECTION 9.1(a), all of the covenants and agreements of the Company contained in
this Agreement and required to be performed on or before the Closing Date shall
have been performed in all respects, and the Company and shall have delivered to
the Acquiror at Closing a certificate of an officer of the Company to that
effect.
8.3 OPINION OF COUNSEL FOR THE COMPANY. The Acquiror shall have
received an opinion of counsel from King, Purtich, Holmes, Paterno & Berliner,
counsel for the Company, in form and substance reasonably satisfactory to the
Acquiror and dated the Closing Date, and substantially in the form of EXHIBIT E
hereto. In rendering such opinion, counsel may rely upon certificates of public
officials and upon certificates of officers of the Company as to factual matters
and on opinions of other counsel of good standing, whom such counsel believes to
be reliable, provided that all such certificates and opinions of other counsel
shall be delivered to the Acquiror along with such counsel's opinion.
8.4 ADDITIONAL CLOSING DOCUMENTS. At the Closing, the Company shall
execute and acknowledge (where appropriate) and deliver to Acquiror such
documents and certificates necessary to carry out the terms and provisions of
this Agreement, including without limitation, the following (all of such actions
constituting conditions precedent to Acquiror's obligations to close hereunder):
(i) True, correct and complete copies of the Articles of
Incorporation of the Company and each of the Subsidiaries and all amendments
thereto, each duly certified as of a recent date by the California Secretary
of State, and true, correct and complete copies of the Bylaws of the Company
and each of the Subsidiaries and all amendments thereto.
(ii) Certificates of existence, each dated as of a recent date,
issued by the California Secretary of State, duly certifying as to the
existence of the Company and each of the Subsidiaries under the laws of the
State of California.
(iii) Certificates of good standing, each dated as of a recent date,
issued by the California Franchise Tax Board, duly certifying as to the good
standing of the Company and each of the Subsidiaries in the State of
California.
(iv) A certificate, dated as of a recent date, issued by the
Federal Deposit Insurance Corporation (the "FDIC"), duly certifying that the
deposits of the Association are insured by the FDIC pursuant to the FDIA.
(v) A certificate, dated as of the Closing Date, executed by the
President or other appropriate executive officer of the Company, pursuant to
which such officer shall certify (a) the due adoption by the Board of
Directors of the Company of corporate resolutions attached to such
certificate authorizing the execution and delivery of this Agreement and the
other agreements and documents contemplated hereby, and the taking of all
actions contemplated hereby and thereby; (b) the due adoption by the
shareholders of the Company of resolutions authorizing the Merger and the
execution and delivery of this Agreement and the other agreements and
documents contemplated hereby and the taking of all actions contemplated
hereby and thereby; and (c) the incumbency and true signatures of those
officers of the Company duly authorized to act on its behalf in connection
with the transactions contemplated by this Agreement and to execute and
deliver this Agreement and other agreements and documents contemplated hereby
and the taking of all actions contemplated hereby and thereby on behalf of
the Company.
(vi) All consents required to be obtained by the Company or any
Subsidiary from third parties to consummate the transactions contemplated by
this Agreement.
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(vii) All other documents required to be delivered to Acquiror by
the Company under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by Acquiror or its
counsel.
8.5 NO LEGAL BAR.
(a) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement or to obtain substantial damages with respect thereto.
(b) None of the parties hereto shall be prohibited by any law, order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement and no action
or proceeding shall then be pending that questions the validity of this
Agreement, any of the transactions contemplated hereby or any action that has
been taken by any of the parties in connection herewith or in connection with
any of the transactions contemplated hereby.
8.6 MATERIAL ADVERSE EFFECT. Since the Base Date, there shall have
been no Material Adverse Effect.
8.7 LISTING. The Nasdaq National Market shall have approved the
listing, subject to official notice of issuance, of the shares of Common Stock
to be issued hereunder.
8.8 POOLING LETTER. Acquiror shall have received a letter from
Ernst & Young LLP, in form reasonably acceptable to Acquiror, to the effect that
the transactions contemplated by this Agreement will be accounted for as a
"pooling of interests" under GAAP.
8.9 AMENDMENT TO EMPLOYMENT AGREEMENT. Mike McGuire shall have
entered into the Amendment to Employment Agreement.
8.10 REGISTRATION STATEMENT. The Registration Statement (as amended or
supplemented) shall have become effective under the Securities Act and shall not
be subject to any stop order, and no action, suit, proceeding or investigation
by the SEC to suspend the effectiveness of the Registration Statement shall have
been initiated and be continuing, or have been threatened or be unresolved.
Acquiror shall have received all state securities law or blue sky authorizations
necessary to carry out the transactions contemplated by this Agreement.
8.11 SHAREHOLDER APPROVAL. This Agreement shall have been approved by
the shareholders of the Company in accordance with the applicable requirements
of the CCC and of the Articles of Incorporation and Bylaws of the Company.
8.12 EXISTING STOCK RIGHTS. Acquiror shall have received duly
executed copies of the Treatment of Existing Stock Right Agreements.
8.13 RESIGNATIONS. Acquiror shall have received duly executed copies
of the Resignations.
8.14 COMPANY AFFILIATE AGREEMENTS. Acquiror shall have received duly
executed copies of the Company Affiliate Agreements.
8.15 DISSENTERS. Holders of no more than 9.9% of the outstanding
Common Shares shall have elected to exercise appraisal rights pursuant to the
CCC.
8.16 ACCOUNTANT'S LETTER. Acquiror shall have received from KPMG Peat
Marwick LLP a letter dated the effective date of the Registration Statement
under the Securities Act, with respect to certain financial and statistical
information concerning the Company included or incorporated by reference in the
Registration Statement, in form and substance customary in transactions of the
nature of the Merger.
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8.17 HSR ACT. If filing under the HSR Act is required to be made
prior to consummation of the Merger, early termination shall have been granted
or applicable waiting periods shall have expired under the HSR Act.
8.18 REGULATORY APPROVAL. Acquiror shall have received approval of
the Merger and the "change in control" of the Association contemplated hereby
from all applicable regulatory agencies, including without limitation the FDIC
and the California Department of Corporations.
8.19 DIRECTOR AGREEMENTS. The Director Agreements shall have been
duly executed and delivered to Acquiror.
9. TERMINATION OF AGREEMENT.
9.1 EVENTS OF TERMINATION. This Agreement may be, by written notice
given prior to the Closing Date in the manner hereinafter provided, terminated
and the transactions contemplated hereby shall be abandoned (and, subject to
SECTION 9.2, this Agreement shall be of no further force or effect between the
parties hereto, except as to liabilities for misrepresentations, breaches or
defaults in connection with any warranty, representation, covenant, duty or
obligation given, occurring or arising prior to the date of termination and
abandonment):
(a) MISREPRESENTATION, BREACH OR FAILURE BY THE COMPANY. By the
Acquiror, at Acquiror's election, if any of the conditions precedent to its
obligation to close stated in SECTION 8 have not been fulfilled or waived by the
scheduled Closing Date, or if there has been any misrepresentation or breach of
or failure to satisfy timely on the part of the Company any condition or any
warranty, representation or agreement contained herein, if such breach or
failure is not cured within ten (10) days after receipt of notice from the
Acquiror. Notwithstanding the foregoing, the Acquiror shall not be entitled to
terminate the Agreement by reason of (i) any misrepresentation or breach of, or
failure to cure any misrepresentation or breach of, any warranty or
representation made by the Company or (ii) any breach of, or failure to comply
with, any covenant or agreement of the Company contained in this Agreement, if
Company has provided Acquiror with written notice of such breach or failure
prior to the Closing, has used its best efforts to cure such breach or failure
promptly and in any event within any cure period provided hereunder and Acquiror
has not elected to terminate this Agreement within 15 days of the later to occur
of (A) receipt by Acquiror of notice of such breach or failure and (B) the end
of any applicable cure period respecting such breach or failure.
(b) MISREPRESENTATION, BREACH OR FAILURE BY THE ACQUIROR. By the
Company, at the Company's election, if any of the conditions precedent to its
obligations to close stated in SECTION 7 have not been fulfilled or waived by
the scheduled Closing Date, or if there has been any misrepresentation or breach
of or failure to satisfy timely on the part of the Acquiror any condition or any
warranty, representation or agreement contained herein, if such breach or
failure is not cured within ten (10) business days of receipt of notice from the
Company. Notwithstanding the foregoing, the Company shall not be entitled to
terminate the Agreement by reason of (i) any misrepresentation or breach of, or
failure to cure any misrepresentation or breach of, any warranty or
representation made by the Acquiror or (ii) any breach of, or failure to comply
with, any covenant or agreement of the Acquiror contained in this Agreement, if
Acquiror has provided the Company with written notice of such breach or failure
prior to the Closing, has used its best efforts to cure such breach or failure
promptly and in any event within any cure period provided hereunder and the
Company has not elected to terminate this Agreement within 15 days of the later
to occur of (A) receipt by the Company of notice of such breach or failure and
(B) the end of any applicable cure period respecting such breach or failure.
(c) EXPIRATION OF TIME. By either the Company, on the one hand, or
the Acquiror, on the other hand, if the Closing shall not have taken place by
September 30, 1997; provided, however, that neither the Company nor the Acquiror
shall be entitled to terminate this Agreement pursuant to this SECTION 9.1(c) if
such party is in material breach of this Agreement at such time.
(d) LACK OF SHAREHOLDER APPROVAL. By either Acquiror or the Company
if, at the Special Meeting (including any adjournments thereof), this Agreement
and the Merger shall fail to be approved and adopted by the Company's
shareholders in accordance with the CCC and the Company's Articles of
Incorporation.
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(e) LACK OF SHAREHOLDER MEETING. By Acquiror, if the Special Meeting
has not been held and the Merger approved by the Company's shareholders by
May 15, 1997, unless delayed by circumstances beyond the reasonable control of
the Company.
(f) FIDUCIARY DUTY. By the Company, if the Company, based upon the
fiduciary obligation of the Board of Directors under applicable law, after
taking into account in good faith the advice of independent counsel with respect
thereto, enters into an Alternative Transaction.
(g) WITHDRAWAL OF RECOMMENDATION, ETC. By Acquiror, if (i) the Board
of Directors of the Company fails to recommend prior to the Special Meeting or
withdraws, modifies or changes its recommendations of this Agreement or the
Merger (other than pursuant to a termination of this Agreement as otherwise
permitted hereunder) in a manner adverse to Acquiror or shall have resolved to
do any of the foregoing; (ii) if the Board of Directors of the Company shall
have recommended to the Shareholders of the Company an Alternative Transaction
or shall have resolved to do so; (iii) a tender offer or exchange offer for 20%
or more of the outstanding shares of the Company is commenced, and the Board of
Directors of the Company recommends that Shareholders tender their shares in
such tender or exchange offer; or (iv) any person shall have acquired after the
date of this Agreement beneficial ownerships or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d)(3) of
the Exchange Act and the rules and regulations promulgated thereunder) shall
have been formed which beneficially owns, or has the right to acquire beneficial
ownership of, more than 20% of the then outstanding shares of the Company or
shares representing 20% or more of the outstanding voting power of the Company.
9.2 FEES, EXPENSES AND OTHER PAYMENTS.
(a) Subject to SECTION 9.2(c) and (d), all Expenses (as defined in
paragraph (b) of this SECTION 9.2) incurred by the parties hereto shall be borne
solely and entirely by the party which has incurred such Expenses.
(b) "Expenses" as used in this Agreement shall include all out-of-
pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Registration Statement and the Proxy Statement, the solicitation of
stockholder approvals and all other matters related to the consummation of the
transactions contemplated hereby.
(c) The parties agree that:
(i) The Company shall pay to Acquiror in same day funds the
aggregate amount of all Expenses incurred by Acquiror and its affiliates in
connection with this Agreement and the transactions contemplated hereby
(including fees and expenses of counsel, accountants, and financial advisors
incurred by Acquiror) (the "Acquiror Expense Reimbursement") if any of the
following events shall have occurred and there shall be no material breach of
this Agreement continuing by Acquiror: Acquiror shall have terminated this
Agreement in accordance with the terms of SECTION 9.1(a), SECTION 9.1(d),
SECTION 9.1(e), SECTION 9.1(f) OR SECTION 9.1(g); provided, however, that the
Acquiror Expense Reimbursement shall be payable by the Company upon a
termination by Acquiror pursuant to SECTION 9.1(a) only if Acquiror terminated
due to a breach of this Agreement by the Company of a representation, warranty
or covenant of the Company contained herein or due to a failure of any of the
conditions set forth in SECTION 8.3, SECTION 8.4, SECTION 8.9, SECTION 8.11,
SECTION 8.12, SECTION 8.13, SECTION 8.14, SECTION 8.15, SECTION 8.16, or
SECTION 8.19 (other than by reason of the failure of the Acquiror to reasonably
approve the terms of the Director Agreements).
(ii) Acquiror shall pay to the Company in same day funds the
aggregate amount of all Expenses incurred by the Company and its affiliates in
connection with this Agreement and the transactions contemplated hereby
(including fees and expenses of counsel, accountants and financial advisors
incurred by the Company) (the "Company Expense Reimbursement") if any of the
following events shall have occurred and there shall be no material breach of
this Agreement continuing by the Company: the Company shall have terminated this
Agreement (A) due to the failure of Acquiror to receive approval of the Merger
from the FDIC and/or the California Department of Corporations on or before
September 30, 1997 or (B) in accordance with SECTION 9.1(b); provided, however,
that the Company Expense Reimbursement shall be payable by Acquiror pursuant to
SECTION 9.1(b) only if the Company terminated due to a breach
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of this Agreement by Acquiror of a representation, warranty or covenant of
Acquiror contained herein or due to a failure of any of the conditions set
forth in SECTION 7.3, SECTION 7.4 OR SECTION 7.6.
(iii) The Company shall pay to Acquiror in same day funds a fee
of $1,500,000 (the "Termination Fee") upon demand and with the Acquiror
Expense Reimbursement, if (A) this Agreement shall have been terminated; (B)
there shall be no material breach of this Agreement by Acquiror continuing at
the time of such termination; (C) any of the following events shall have
occurred: (I) the Company shall have willfully breached the representations
warranties, covenants or conditions contained in this Agreement or the other
agreements executed in connection herewith; or (II) such termination was by
Acquiror pursuant to SECTION 9.1(d), SECTION 9.1(f), or SECTION 9.1(g); or
(III) such termination was by the Company pursuant to SECTION 9.1(e) or due
to a failure of the condition set forth in SECTION 7.11 hereof; and (D)(I)
the Company shall have entered into an agreement with respect to an
Alternative Transaction on or prior to June 1, 1998; or (II) the stockholders
of the Company shall fail to approve the Merger and the transactions
contemplated hereby and shall approve an Alternative Transaction on or prior
to June 1, 1998; or (III) on or prior to June 1, 1998, the Company's
stockholders shall receive a proposal for an Alternative Transaction and such
proposal shall result in a party unaffiliated with Acquiror acquiring
securities of the Company representing in excess of a majority of the voting
power of the Company's then outstanding voting securities.
(d) Any payment required to be made pursuant to SECTION 9.2(c) of
this Agreement shall be made as promptly as practicable but not later than 5
business days after such payment becomes due and shall be made by wire transfer
of immediately available funds to an account designated by Acquiror.
10. MISCELLANEOUS PROVISIONS.
10.1 CONSTRUCTION; VENUE, ETC.
(a) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
(b) THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING AGAINST
THE COMPANY UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT
OR AGREEMENT EVIDENCING OR RELATING TO THE RIGHTS OR OBLIGATIONS OR ANY PARTY
THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN CLARK COUNTY, NEVADA.
THE COMPANY HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURTS AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. THE COMPANY AGREES THAT SERVICE OF PROCESS UPON IT
MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS
ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER INSTRUMENT OR AGREEMENT
EVIDENCING OR RELATING TO THE OBLIGATIONS OR ANY PARTY THEREOF SHALL AFFECT THE
RIGHT OF ACQUIROR OR ACQUISITION TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR SHALL LIMIT THE RIGHT OF ACQUIROR OR ACQUISITION TO BRING ANY ACTION
OR PROCEEDING AGAINST THE COMPANY OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY THE COMPANY AGAINST
ACQUIROR OR ACQUISITION SHALL BE BROUGHT ONLY IN A COURT LOCATED IN CLARK
COUNTY, NEVADA.
10.2 NOTICES. All notices and other communications called for or
contemplated hereunder shall be in writing and shall be deemed to have been duly
given when delivered to the party to whom addressed or when sent by telecopy,
telegram, telex or wire (if promptly confirmed by registered or certified mail,
return receipt requested, prepaid and addressed) to the parties, their
successors in interest, or their assignees at the following addresses, or at
such other addresses as the parties may designate by written notice in the
manner aforesaid:
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If to the Acquiror: RAC Financial Group, Inc.
1250 West Mockingbird Lane
Dallas, Texas 75247
Attn: Chief Financial Officer
Facsimile: (214) 583-4901
With copies to: Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
Attn: Ronald J. Frappier, Esq.
Facsimile: 214-855-4300
If to the Company: Western Interstate Bancorp.
5000 Birch, West Tower
Suite 2500
Newport Beach, California 92660
Attn: Mr. Mike McGuire
Facsimile: (310) 282-8903
With copies to: King, Purtich, Holmes, Paterno & Berliner
2181 Avenue of the Stars
Twenty-Second Floor
Los Angeles, California 90067
Attn: Keith T. Holmes
Facsimile: (310) 282-8903
10.3 ASSIGNMENT. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof nor any of the
documents executed in connection herewith may be assigned by any party without
the consent of the other parties. Nothing contained herein, express or implied,
is intended to confer upon any person or entity other than the parties hereto
and their successors in interest and permitted assignees any rights or remedies
under or by reason of this Agreement unless so stated herein to the contrary.
10.4 AMENDMENTS AND WAIVERS. No breach of any covenant, agreement,
warranty or representation shall be deemed waived unless expressly waived in
writing by the party who might assert such breach. No waiver of any right
hereunder shall operate as a waiver of any other right or of the same or a
similar right on another occasion. This Agreement and all Exhibits and
Schedules hereto may be modified only by a written instrument duly executed by
the parties hereto.
10.5 SURVIVAL. The representations and warranties set forth herein
shall not survive the Closing; provided, however, that nothing herein shall
prejudice the right of Acquiror or Acquisition to maintain an action or claim
for fraud or intentional misrepresentation.
10.6 ATTORNEYS' FEES. In the event that any action or proceeding,
including arbitration, is commenced by any party hereto for the purpose of
enforcing any provision of this Agreement, the parties to such action,
proceeding or arbitration may receive as part of any award, judgment, decision
or other resolution of such action, proceeding or arbitration their costs and
reasonable attorneys' fees as determined by the person or body making such
award, judgment, decision or resolution. Should any claim hereunder be settled
short of the commencement of any such action or proceeding, including
arbitration, the parties in such settlement shall be entitled to include as part
of the damages alleged to have been incurred reasonable costs of attorneys or
other professionals in investigation or counseling on such claim.
10.7 BINDING NATURE OF AGREEMENT. The Agreement includes each of the
Schedules and Exhibits that are referred to herein or attached hereto, all of
which are incorporated by reference herein. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective executors, heirs, legal representatives, successors
and assigns. The provisions of SECTION 6.8 will inure to the benefit of and
shall be
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enforceable by the directors, affiliates and officers of the Company, each of
whom is a beneficiary of such Section. There are no other third-party
beneficiaries of this Agreement.
10.8 ENTIRE AGREEMENT. Except for the confidentiality agreement,
dated November 22, 1996, executed by the parties hereto, this Agreement contains
the entire understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements and understandings relating to the
subject matter hereof.
10.9 SEVERABILITY. Any provision of this Agreement that is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
10.10 COUNTERPARTS; SECTION HEADINGS. This Agreement may be executed
by the parties in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument. The headings of each Section,
subsection or other subdivision of this Agreement are for reference only and
shall not limit or control the meaning thereof.
10.11 PUBLIC ANNOUNCEMENTS. The Acquiror and the Company will
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement and shall not issue any such
press release or make any such public statement prior to an agreement among the
Company and the Acquiror as to the content of any such press release, except as
may be required by law or the Nasdaq National Market.
10.12 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to
the other provisions of this Agreement, the parties hereto shall each use their
reasonable, good faith efforts to perform their obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be effected
as promptly as is practicable, and in any event on or prior to September 30,
1997, in accordance with the terms hereof and shall cooperate fully with each
other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) Acquiror and the Company shall promptly make their
respective filings and submissions and shall take, or cause to be taken, all
actions and do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to obtain any required approval of any
other federal, state or local governmental agency or regulatory body with
jurisdiction over the transactions contemplated by this Agreement.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which questions
the validity or legality of the Merger or any of the other transactions
contemplated hereby or seeks damages in connection therewith, the parties agree
to cooperate and use all reasonable efforts to defend against such claim,
action, suit, investigation or other proceeding and, if an injunction or other
order is issued in any such action, suit or other proceeding, to use all
reasonable efforts to have such injunction or other order lifted, and to
cooperate reasonably regarding any other impediment to the consummation of the
transactions contemplated by this Agreement.
(c) Without the prior written consent of Acquiror, the Company
will not terminate any employee if such termination would result in the payment
of any amounts pursuant to "change in control" provisions of any employment
agreement or arrangement.
10.13 TAIL POLICY. Notwithstanding anything herein to the contrary,
the Company may provide for officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering the
officers and directors of the Company. Such policy shall provide for a term
not to exceed three (3) years from the Effective Time and shall be at
competitive rates.
10.14 EMPLOYEE CREDIT FOR SERVICE. Acquiror covenants and agrees
with the Company that the employee benefit plans of Acquiror under which the
employees of the Company are covered following the Effective Time
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<PAGE>
shall give appropriate credit to such employees for service completed prior
to the Effective Time with the Company under the Employee Benefit Plans. The
provisions of this SECTION 10.14 shall inure solely to the benefit of the
Company, and no third party (including, without limitation, any employee of
the Company) shall be permitted to rely hereon as a third party beneficiary
or otherwise.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
and Plan of Merger as of the date first written above.
ACQUIROR:
RAC FINANCIAL GROUP, INC.
By: /s/ ERIC C. GREEN
------------------------------
Name: Eric C. Green
Title: Chief Financial Officer
ACQUISITION:
WESTERN INTERSTATE
ACQUISITION, INC.
By: /s/ ERIC C. GREEN
------------------------------
Name: Eric C. Green
Title: President
THE COMPANY:
WESTERN INTERSTATE BANCORP
By: /s/ JAMES T. CAPRETZ
------------------------------
Name: James T. Capretz
Title: Chairman and Chief
Executive Officer
<PAGE>
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
AMONG FIRSTPLUS FINANCIAL GROUP, INC., FORMERLY KNOWN AS
RAC FINANCIAL GROUP, INC., WESTERN INTERSTATE ACQUISITION, INC.,
AND WESTERN INTERSTATE BANCORP
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of July 18, 1997, is entered into by and among FIRSTPLUS Financial
Group, Inc., formerly known as RAC Financial Group, Inc. (the "Acquiror"),
Western Interstate Acquisition, Inc. ("Acquisition") and Western Interstate
Bancorp (the "Company").
WHEREAS, the undersigned parties have entered into that certain Agreement
and Plan of Merger (the "Merger Agreement"), dated as of February 19, 1997,
as amended by an Amendment and Restatement to First Amendment thereto dated
July 1, 1997 (the "First Amendment"); and
WHEREAS, the parties desire to further amend the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the undersigned parties hereby agree
as follows.
1. Capitalized terms used herein and not otherwise defined shall have the
meanings given them in the Merger Agreement.
2. The parties hereto agree that the term "Fair Market Value of the
Common Stock" as defined in Section 1.2(a) of the Merger Agreement is hereby
amended to read in its entirety as follows:
"Fair Market Value of the Common Stock" shall mean the average closing
price per share of the Common Stock on the Nasdaq National Market as reported
in THE WALL STREET JOURNAL for the ten (10) trading days prior to the date
that is two (2) calendar days prior to the Closing Date; provided, that in no
instance shall the Fair Market Value of the Common Stock be less than $30.60
and in no instance shall it be greater than $37.40.
3. The parties hereto agree that in each place in the Merger Agreement,
as amended by the First Amendment, where it requires that the Company hold
the Special Meeting and/or that the shareholders of the Company approve the
Merger by August 15, 1997, such date of August 15, 1997 is hereby amended to
be September 30, 1997.
4. Except as modified by this Amendment, the Merger Agreement shall
continue in full force and effect. This Amendment supercedes the First
Amendment.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as
of the date first written above.
ACQUIROR:
FIRSTPLUS FINANCIAL GROUP, INC.
By: /s/ ERIC C. GREEN
------------------------------
Name: Eric C. Green
Title: Chief Financial Officer
ACQUISITION:
WESTERN INTERSTATE
ACQUISITION, INC.
By: /s/ ERIC C. GREEN
------------------------------
Name: Eric C. Green
Title: President
THE COMPANY:
WESTERN INTERSTATE BANCORP
By: /s/ JAMES T. CAPRETZ
------------------------------
Name: James T. Capretz
Title: Chairman and Chief
Executive Officer
<PAGE>
APPENDIX B
CARPENTER & COMPANY
March 26, 1997
Board of Directors
Western Interstate Bancorp
18302 Irvine Blvd. Suite 300
Tustin, CA 62680
Members of the Board:
We understand that Western Interstate Bancorp (the "Company") has entered
into a Plan of Acquisition and Merger Agreement dated as of February 19,
1997 ("the Agreement") with FirstPlus Financial Group (formerly RAC
Financial Group, Inc, and hereinafter referred to as "FirstPlus") pursuant
to which FirstPlus will acquire all the shares of common stock of the
Company (the "Merger") in exchange for common shares of FirstPlus valued at
approximately $24,862,000, as set forth in the Agreement ("the
Consideration"). You have asked for our opinion as to whether the
Consideration to be received by shareholders of the Company, as described
in the Agreement, taken as a whole is fair from a financial point of view
to such shareholders, as of the date hereof.
In connection with our opinion, we have among other activities: (a)
reviewed certain publicly available financial and other data with respect
to the Company and FirstPlus, including the consolidated financial
statements for recent years and for interim periods to December 31, 1996,
and certain other relevant financial and operating data relating to the
Company made available to us from published sources and from the internal
records of the Company; (b) reviewed the terms of the Agreement; (c)
reviewed certain historical market prices and trading volume of common
stock of California thrift and loan and banking companies; (d) compared the
Company and FirstPlus Financial from a financial point of view with certain
other companies in the industry which we deemed to be relevant; (e)
considered the financial terms, to the extent publicly available, of
selected recent transactions which we deem to be comparable, in whole or in
part, to the Merger; (f) reviewed and discussed with representatives of the
management of the Company certain information of a business and financial
nature regarding the Company, including financial forecasts and related
assumptions of the Company; (g) made inquiries and held discussions on the
Merger and the Agreement and other matters relating thereto with the
Company's counsel; and (h) performed such other analyses and examinations
as we have deemed appropriate.
<PAGE>
FAIRNESS OPINION MARCH 26, 1997
WESTERN INTERSTATE BANCORP PAGE 2
In connection with our review, we have not independently verified any of
the foregoing information with respect to the Company or FirstPlus. We have
relied on all such information provided by the Company and have assumed
that all such information is complete and accurate in all material
respects. We have assumed that there have been no material changes in the
Company's or FirstPlus's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on advice of
counsel to the Company as to all legal matters with respect to the Company,
the Merger, and the Agreement. In addition, we have not made an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of the Company or FirstPlus, nor have we been furnished with any
such appraisals. Further, our opinion is based upon economic, monetary, and
market conditions existing as of the date hereof.
Based upon the foregoing, and in reliance thereon, it is our opinion that,
as of today's date, the Consideration is fair to the shareholders of the
Company from a financial point of view.
This opinion is furnished pursuant to our engagement letter dated January
3, 1997, and is solely for the benefit of the Board of Directors and
stockholders of the Company. In furnishing this opinion, we do not admit
that we are an expert with respect to any registration statement or other
securities filing within the meaning of the term "experts" as used in the
Securities Act and the rules and regulations promulgated thereunder. Nor do
we admit that this opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act. Our opinion is directed to
the Board of the Company, covers only the fairness of the consideration to
be received by holders of the Company's common stock from a financial point
of view as of the date hereof and does not constitute a recommendation to
any holder of Company Common Stock as to how such shareholder should vote
concerning the Merger. Except as provided in the engagement letter, this
opinion may not be used or referred to by the Company or quoted or
disclosed to any person in any manner without our prior written consent.
Very truly yours,
SEAPOWER CARPENTER CAPITAL, INC.,
DBA CARPENTER & COMPANY
By: /s/ John Fleming
-------------------------
<PAGE>
APPENDIX C
CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. LEG.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective
February 17, 1982, 1990 ch. 1018, 1993 ch. 543.
1993 NOTES: Nothing in this act shall be construed to modify or alter the
prohibition contained in Sections 15503 and 15616 of the Corporations Code or
Section 1648 of the Insurance Code, or modify or alter any similar prohibition
relating to the operation of a business in limited partnership form.
Stats. 1993 ch. 543 Section 24.
Nothing in this act shall be construed to modify or impair any rights of
limited partners under the Thompson-Killea Limited Partners Protection Act of
1992 (chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 Section 25.
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SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
LEG.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs.501,
1155.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed or (b) if the shares are uncertificated securities, written
notice of the number of shares which the shareholder demands that the
corporation purchase. Upon subsequent transfers of the dissenting shares on the
books of the corporation, the new certificates, initial transaction statement,
and other written statements issued therefor shall bear a like statement,
together with the name of the original dissenting holder of the shares. LEG.H.
1975 ch. 682, effective January 1, 1997, 1986 ch. 766.
SECTION 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement. LEG.H. 1975 ch. 682, effective
January 1, 1977, 1980 ch. 501, 1986 ch. 766.
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SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. LEG.H. 1975
ch. 682, effective January 1, 1977.
SECTION 1305. APPRAISER'S REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301). LEG.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977,
1977 ch. 235, 1986 ch. 766.
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. LEG.H. 1975 ch. 682, effective
January 1, 1977.
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SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. LEG.H. 1975 ch. 682, effective January 1, 1977.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto. LEG.H. 1975 ch. 682, effective January 1, 1977.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
LEG.H. 1975 ch. 682, effective January 1, 1977.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation. LEG.H. 1975 ch. 682, effective January 1, 1977.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger. LEG.H. 1975
ch. 682, effective January 1, 1977, 1988 ch. 919.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
C-4
<PAGE>
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. LEG.H. 1975 ch. 682, 1976
ch. 641, effective January 1, 1977, 1988 ch. 919.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICER
(a) The Amended and Restated Articles of Incorporation, as amended, of the
Registrant, together with its Amended and Restated Bylaws, as amended, provide
that the Registrant shall indemnify officers and directors, and may indemnify
its other employees and agents, to the fullest extent permitted by law. The
laws of the State of Nevada permit, and in some cases require, corporations to
indemnify officers, directors, agents and employees who are or have been a
party to or are threatened to be made a party to litigation against judgments,
fines, settlements and reasonable expenses under certain circumstances.
(b) The Registrant has also adopted provisions in its Amended and Restated
Articles of Incorporation, as amended, that limit the liability of its
directors and officers to the fullest extent permitted by the laws of the
State of Nevada. Under the Registrant's Amended and Restated Articles of
Incorporation, as amended, and as permitted by the laws of the State of
Nevada, a director or officer is not liable to the Registrant or its
stockholders for damages for breach of fiduciary duty. Such limitation of
liability does not affect liability for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law, or (ii) the
payment of any unlawful distribution.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit Sequential
Number Description
------- -----------
2.1* Agreement and Plan of Merger, dated February 19, 1997, as
amended, among WIB, FPFG and WIA is Appendix A to the Proxy
Statement/Prospectus included in Part I and is incorporated
herein by reference
4.1** Amended and Restated Articles of Incorporation of the
Registrant, as amended
4.2** Amended and Restated Bylaws of the Registrant, as amended
4.3+ Form of FPFG Common Stock Certificate (Exhibit 4)
5.1** Opinion of Jenkens & Gilchrist, a Professional Corporation,
regarding legality of the shares being registered
8.1** Opinion of KPMG Peat Marwick LLP regarding tax matters
23.1** Consent of Jenkens & Gilchrist, a Professional Corporation
(included in its opinion filed as Exhibit 5.1 hereto)
23.2* Consent of Ernst & Young LLP regarding the Registrant
23.3* Consent of KPMG Peat Marwick LLP regarding Western Interstate
Bancorp and tax matters
23.4* Consent of Carpenter & Company
24** Power of Attorney
<PAGE>
99.1* Form of Proxy of Western Interstate Bancorp
99.2** Form of Employment Agreement of Michael W. McGuire, as proposed
to be amended
(b) Financial Statement Schedules:
Not Applicable
- -----------------
* Filed herewith.
** Previously filed.
+ Incorporated by reference from the exhibit shown in parenthesis contained
in the Registrant's Registration Statement on Form S-1 (No. 33-96688),
filed by the Company with the Commission.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph (2) immediately preceding, or (b) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
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
thereof.
(4) 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, 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 of
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Dallas, Texas, on July ____, 1997.
FIRSTPLUS FINANCIAL GROUP, INC.
By: *
-----------------------------
Daniel T. Phillips
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement on Form S-4 has been signed below by
the following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
* President, Chief Executive Officer July 28, 1997
- ------------------------- and Director (Principal Executive
Daniel T. Phillips Officer)
/s/ Eric C. Green Executive Vice President, Chief July 28, 1997
- ------------------------- Financial Officer and Director
Eric C. Green (Principal Financial
and Accounting Officer)
* Director July 28, 1997
- -------------------------
John Fitzgerald
* Director July 28, 1997
- -------------------------
Dan Jesse
* Director July 28, 1997
- -------------------------
Paul Seegers
* Director July 28, 1997
- -------------------------
Sheldon I. Stein
* By: /s/ Eric C. Green
-------------------
Eric C. Green,
Attorney-in-Fact
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary --
Conditions to the Merger; Termination of the Merger Agreement," "Summary --
Accounting Treatment," "The Merger -- Accounting Treatment" and "Experts"
in Amendment No. 2 to the Registration Statement (Form S-4 No. 333-25715) and
related Prospectus of FIRSTPLUS Financial Group, Inc. for the registration of
1,243,134 shares of its common stock and to the incorporation by reference
therein of our report dated October 25, 1996, with respect to the consolidated
financial statements of FIRSTPLUS Financial Group, Inc., formerly RAC Financial
Group, Inc., included in its Annual Report (Form 10-K) for the year ended
September 30, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
July 25, 1997
<PAGE>
Exhibit 23.3
The Board of Directors of
Western Interstate Bancorp:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Summary-Conditions to the Merger; Termination of
the Merger Agreement", "Summary -- Certain Federal Income Tax Consequences",
"The Merger -- The Merger Agreement -- Conditions to the Merger", "The
Merger -- Certain Federal Income Tax Consequences", "Selected Financial Data
of WIB", "Legal and Tax Matters" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Orange County, California
July 28, 1997
<PAGE>
EXHIBIT 23.4
July 2, 1997
Board of Directors
Western Interstate Bancorp
5000 Birch, Suite 2500
Newport Beach, CA 92660
Re: Consent of Seapower Carpenter Capital, Inc.
d/b/a Carpenter & Company
Gentlemen:
We hereby consent to the inclusion in the Proxy Statement/Prospectus
forming part of this Amendment No. 1 to Registration Statement on Form S-4 of
Firstplus Financial Group, Inc. of our opinion attached as Appendix B thereto
and to the reference to such opinion and to our firm therein. We also confirm
the accuracy in all material respects of the description and summary of such
fairness opinion, the description and summary of our analyses, observations,
beliefs and conclusions relating thereto set forth under the heading "The
Merger--Opinion of WIB's Financial Advisor" therein. In giving such consent,
we do not admit that (i) we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 and the rules and
regulations of the Securities and Exchange Commission issued thereunder or (ii)
that we are experts with respect to any part of the Proxy Statement/Prospectus
within the meaning of the term "experts" as used in the Securities Act and the
rules and regulations of the Securities and Exchange Commission promulgated
herein.
Seapower Carpenter Capital, Inc.
d/b/a/ Carpenter & Company
By: /s/ John Fleming
--------------------------
Name: John Fleming
------------------------
Title: E.V.P.
------------------------
Dated: 7-2-97
------------------------
<PAGE>
Exhibit 99.1
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PROXY Revoking any such prior appointment, the undersigned, a shareholder of Western
Interstate Bancorp ("WIB"), hereby appoints David B. Kagnoff, James E. Rich and
WESTERN INTERSTATE BANCORP Barry K. Williams, and each of them, attorneys and agents of the undersigned, with
18302 Irvine Boulevard full power of substitution, to vote all shares of the Common Stock of the
Suite 300 undersigned in WIB at the Special Meeting of Shareholders of WIB to be held at 18302
Tustin, CA 926780 Irvine Boulevard, Suite 300, Tustin, CA 92780 on Wednesday, August 27, 1997 at 12:00 noon
local time and at any adjournments thereof, as fully and effectually as the undersigned
could do if personally present and voting, hereby approving, ratifying and confirming
all that said attorneys and agents or their substitutes may lawfully do in place of the
undersigned as indicated below.
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE SPECIAL MEETING
TO BE HELD WEDNESDAY, AUGUST 27, 1997
- ------------------------------------------------------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF WESTERN INTERSTATE BANCORP.
- ------------------------------------------------------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED AND DATED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2 AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 3.
- ------------------------------------------------------------------------------------------------------------------------------
1. Approval of the Agreement and Plan of Merger, as described in the accompanying Proxy Statement/Prospectus.
FOR / / AGAINST / / WITHHOLD VOTE / /
- ------------------------------------------------------------------------------------------------------------------------------
2. Approval of the proposal to give authority to the Proxies to adjourn the Special Meeting in order to permit further
solicitation of proxies.
FOR / / AGAINST / / WITHHOLD VOTE / /
- ------------------------------------------------------------------------------------------------------------------------------
3. With respect to the transaction of such other business as may properly come before the Special Meeting or any adjournments
thereof, as the Proxies, in their sole discretion, may see fit.
FOR / / AGAINST / / WITHHOLD VOTE / /
- ------------------------------------------------------------------------------------------------------------------------------
Please sign exactly as name appears. When shares are held by joint tenants, both should sign. When signing as attorney,
as executor, administrator, trustee or guardian, please give full title as such; if
Dated __________________, 1997 a corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
- ----------------------------------
Signature
- ----------------------------------
Signature if held jointly
- ------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
