<PAGE>
As filed with the Securities and Exchange Commission on April 24, 1997
Registration No. 333-______
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------------------
FIRSTPLUS FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
NEVADA 6141 75-2561085
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) 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) 599-6000
(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
</TABLE>
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
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 [ ].
<TABLE>
<CAPTION>
---------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate Amount of
securities to be registered be registered per unit (2) offering price registration fee
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 1,243,134 shares(1) N/A $11,760,547(2) $3,564
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the estimated number of shares that may be issued in the
transaction described herein.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended
(the "Securities Act"), based upon the book value as of December 31, 1996
of all shares of WIB common stock to be acquired by the Registrant in the
transaction described herein.
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
April 30, 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 May 30, 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 ("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").
As of April 15, 1997, the closing price of the FPFG Common Stock on the
Nasdaq National Market was $26.50 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 April 15, 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
<PAGE>
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
April 30, 1997
<PAGE>
WESTERN INTERSTATE BANCORP
18302 IRVINE BOULEVARD
SUITE 300
TUSTIN, CALIFORNIA 92780
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 30, 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 May 30, 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 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 April 15, 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
April 30, 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 APRIL 23, 1997
WESTERN INTERSTATE BANCORP
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
---------------
FIRSTPLUS FINANCIAL GROUP, INC.
PROSPECTUS
FOR 1,243,134
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
May 30, 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-_______) 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").
IN EVALUATING THE MERGER, WIB SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE
FACTORS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 12 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 $26.50 on April 15, 1997. There is no established public market for
WIB Common Shares.
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
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
(i)
<PAGE>
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 April 30,
1997.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS _____________ ___, 1997.
(ii)
<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.
(iii)
<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) 599-6000
Fax: (214) 583-3737
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN MAY 23, 1997.
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 Report on Form 10-Q for the quarter ended
December 31, 1996, 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.
(iv)
<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 . . . . . . . . . . . . . . . . . . . . 3
Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recommendation of the Board of Directors of WIB. . . . . . . . . . . . . 3
Opinion of WIB's Financial Advisor . . . . . . . . . . . . . . . . . . . 3
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conditions to the Merger; Termination of the Merger Agreement. . . . . . 3
Fees, Expenses and Other Payments. . . . . . . . . . . . . . . . . . . . 4
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . 4
Exchange of Stock Certificates . . . . . . . . . . . . . . . . . . . . . 4
Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Operations After the Merger. . . . . . . . . . . . . . . . . . . . . . . 5
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . 5
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Market Price Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Selected Historical and Pro Forma Per Share Data . . . . . . . . . . . . 6
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . .12
Sensitivity to Interest Rates. . . . . . . . . . . . . . . . . . . . . .13
Credit Risk Associated with Borrowers. . . . . . . . . . . . . . . . . .13
Credit Risk Associated with High LTV Loans . . . . . . . . . . . . . . .14
Excess Servicing Receivable Risks. . . . . . . . . . . . . . . . . . . .14
Impact of Recent Accounting Pronouncements . . . . . . . . . . . . . . .15
Ability of FPFG to Continue Growth Strategy; Possible Adverse
Consequences From Recent Growth. . . . . . . . . . . . . . . . . . . .15
Consolidation of Operations of Acquisitions. . . . . . . . . . . . . . .16
Concentration of Operations in California. . . . . . . . . . . . . . . .16
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Concentration of Correspondent Lenders . . . . . . . . . . . . . . . . .17
Limited Operating History. . . . . . . . . . . . . . . . . . . . . . . .17
Delinquencies; Right to Terminate Servicing; Negative Impact on
Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dependence on Title I Program. . . . . . . . . . . . . . . . . . . . . .18
Impact of Regulation and Litigation. . . . . . . . . . . . . . . . . . .18
Concentration of Voting Control in Management. . . . . . . . . . . . . .18
Dependence on Key Personnel. . . . . . . . . . . . . . . . . . . . . . .19
Events of Default Under Certain Financing Facilities . . . . . . . . . .19
Effect of Certain Antitakeover Provisions. . . . . . . . . . . . . . . .19
Securities Trading; Possible Volatility of Prices. . . . . . . . . . . .19
THE WIB MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Purpose of the Meeting . . . . . . . . . . . . . . . . . . . . . . . . .20
Voting Rights of WIB Shareholders. . . . . . . . . . . . . . . . . . . .20
Solicitation and Revocation of Proxies; Quorum . . . . . . . . . . . . .21
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
(v)
<PAGE>
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Conversion of Shares; Conversion . . . . . . . . . . . . . . . . . . . .22
Background of and Reasons for the Merger . . . . . . . . . . . . . . . .23
Recommendation of the WIB Board. . . . . . . . . . . . . . . . . . . . .24
Opinion of WIB's Financial Advisor . . . . . . . . . . . . . . . . . . .25
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .28
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . .32
Exchange of Stock Certificates . . . . . . . . . . . . . . . . . . . . .34
Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Management After the Merger. . . . . . . . . . . . . . . . . . . . . . .35
Governmental and Regulatory Approvals. . . . . . . . . . . . . . . . . .35
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . .35
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . .36
Consequences Under Federal Securities Laws . . . . . . . . . . . . . . .37
Resale of FPFG Common Stock. . . . . . . . . . . . . . . . . . . . . . .37
Dissenting Shareholders' Rights. . . . . . . . . . . . . . . . . . . . .37
PRICE RANGES OF STOCK AND DIVIDEND POLICY. . . . . . . . . . . . . . . . . .39
SELECTED FINANCIAL DATA OF WIB . . . . . . . . . . . . . . . . . . . . . . .41
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION . . . . . . . . . . . . .43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WIB . . . . . . . . . . . . . . . . . . . .49
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . .49
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . .50
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . .53
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . .54
Impact of Inflation and Changing Prices. . . . . . . . . . . . . . . . .56
Effect of Recent Accounting Standards. . . . . . . . . . . . . . . . . .56
BUSINESS OF WIB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Market Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Originations, Purchases, Sales and Servicing of Loans. . . . . . . . . .61
Non-Performing Assets and Classified Assets. . . . . . . . . . . . . . .62
Investment Activities. . . . . . . . . . . . . . . . . . . . . . . . . .66
Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . .70
MANAGEMENT OF WIB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . .71
Director Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .71
Meetings and Committees of the WIB Board . . . . . . . . . . . . . . . .72
Executive Officers of WIB. . . . . . . . . . . . . . . . . . . . . . . .72
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . .72
Certain Relationships and Related Party Transactions . . . . . . . . . .73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF WIB. . . .74
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . .75
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . .75
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Amendments to Articles of Incorporation and Bylaws . . . . . . . . . . .76
Certain Antitakeover Provisions. . . . . . . . . . . . . . . . . . . . .76
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
(vi)
<PAGE>
LEGAL AND TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .71
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
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
(vii)
<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, FPFG
originated loans through correspondent lenders ("Correspondent Loans") of
$81.9 million and $1.0 billion, respectively, representing 68.5% and 93.9%,
respectively, of FPFG's originations of strategic loans during such years
(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 December 31, 1996, the principal amount of strategic
loans serviced by the Company (the "Serviced Loan Portfolio") was $1.9 billion.
The Serviced Loan Portfolio includes strategic loans held for sale and strategic
loans that have been securitized and are serviced by FPFG (including
$64.1 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) 599-6000.
1
<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 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 May 30, 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 April 15, 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 April 15, 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.
Assuming that the Closing Date of the Merger was April 15, 1997, the FMV of
the FPFG Common Stock would have been $28.525, the FPFG Share Number would have
been 871,610 and the Conversion Ratio would have been .6189. Accordingly,
approximately 749,600 shares of FPFG Common Stock would be issued to
shareholders of WIB in connection with the Merger, assuming no shareholders of
WIB dissent to the Merger.
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 April 15, 1997,
options to purchase 197,136 WIB Common Shares were outstanding. See "The
Merger--Stock Options."
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 &
Company"), 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 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; the effectiveness of
the Registration Statement of which this Proxy Statement/Prospectus forms a
part; approval of the Merger by certain Federal and state regulatory
authorities; 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; receipt by FPFG
of a letter from Ernst & Young LLP to the effect that the Merger will qualify
for "pooling-of-interests" accounting; the listing, subject to notice of
issuance, on the Nasdaq National Market of the FPFG Common Stock to be issued in
the Merger; the absence of any injunction or legal restraint prohibiting
consummation of the Merger; and 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.
3
<PAGE>
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. 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."
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.
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. 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 which may become payable under this
agreement 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 KeyCorp Shareholder 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."
4
<PAGE>
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 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.
Application has been made by WIB and FPFG to obtain such approvals; however, no
assurance can be given that the necessary regulatory approvals will be obtained
or as to the timing or conditions of such approvals. 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 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. See "The Merger--Dissenting Shareholders' Rights."
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 April 21, 1997). . . . . . $36.75 $20.50
5
<PAGE>
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 April 15, 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
April 15, 1997 . . . . . 26.50 16.40
- -------------
(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 April 15, 1997 (assumed Conversion
Ratio of .6189), 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 which 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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------- ---------------------------------
1994 1995 1996 1995 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
FPFG COMMON STOCK
Earnings per share-primary(1):
Historical. . . . . . . . . . . . . $0.31 $0.28 $1.35 $0.23 $0.64
Pro forma(2). . . . . . . . . . . . 0.32 0.30 1.39 0.22 0.66
Book value per share-end of period:
Historical. . . . . . . . . . . . . $0.39 $0.65 $3.51 $0.92 $4.99
Pro forma(3). . . . . . . . . . . . 1.05 1.10 3.79 1.35 5.21
Cash dividends paid:
Historical. . . . . . . . . . . . . $ - $ - $ - $ - $ -
Pro forma . . . . . . . . . . . . . 0.01 - - - -
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
WIB COMMON SHARES
Earnings per share-primary(1):
Historical. . . . . . . . . . . . . $0.34 $0.57 $1.98
Equivalent pro forma(4) . . . . . . 0.20 0.19 0.86
Book value per share-end of period:
Historical. . . . . . . . . . . . . $7.01 $7.62 $9.71
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Equivalent pro forma(4) . . . . . . 0.65 0.68 2.35
Cash dividends paid:
Historical. . . . . . . . . . . . . $0.095 $ -- $0.10
Equivalent pro forma. . . . . . . . 0.01 -- --
</TABLE>
- ---------------
(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 common holders would receive .6189 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.
7
<PAGE>
<TABLE>
<CAPTION>
FIRSTPLUS FINANCIAL GROUP, INC.
FOR THE THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
--------------------------------------------------- -------------------------
1993 1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gain on sale of loans, before sharing . . . . . $17,115 $27,671 $40,112 $159,175 $20,809 $95,848
Sharing arrangements(1) . . . . . . . . . . . . - -- (10,999) (536) (536) -
------------ ------------ ------------ ------------ ------------ ------------
Gain on sale of loans, net(2) . . . . . . . . 17,115 27,671 29,113 158,639 20,273 95,848
Interest income . . . . . . . . . . . . . . . . 145 1,845 2,860 25,727 1,767 20,432
Servicing income. . . . . . . . . . . . . . . . -- 72 1,049 4,008 694 2,908
Other income. . . . . . . . . . . . . . . . . . 54 252 873 9,683 734 4,400
------------ ------------ ------------ ------------ ------------ ------------
Total revenues. . . . . . . . . . . . . . . . 17,314 29,840 33,895 198,057 23,468 123,588
Expenses:. . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . 9,925 24,560 19,733 83,232 11,263 49,018
Provision for possible credit losses. . . . . . 0.00 125 4,420 59,644 4,649 44,388
------------ ------------ ------------ ------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . 9,925 24,685 24,153 142,876 15,912 93,406
Income before income taxes . . . . . . . . . . . 7,389 5,155 9,742 55,181 7,556 30,182
Provision for income taxes . . . . . . . . . . . -- -- (3,903) (20,969) (2,871) (11,469)
Net income . . . . . . . . . . . . . . . . . . . $7,389 $5,155 $5,839 $34,212 $4,685 $18,713
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
PER SHARE DATA:
Net income per share of FPFG Common Stock(3):. .
Primary . . . . . . . . . . . . . . . . . . . . $0.47 $0.31 $0.28 $1.35 $0.23 $0.64
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Fully diluted . . . . . . . . . . . . . . . . . $0.47 $0.31 $0.28 $1.31 $0.23 $0.57
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Weighted average common and common equivalent
shares outstanding: . . . . . . . . . . . . . .
Primary . . . . . . . . . . . . . . . . . . . . 15,596,874 16,276,874 20,296,874 25,358,162 20,296,874 29,033,369
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Fully diluted . . . . . . . . . . . . . . . . . 15,596,874 16,276,874 20,296,874 26,353,526 20,296,874 34,956,718
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1994 1995 1996 DECEMBER 31, 1996
------------ ------------ ------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:. . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale, net . . . . . . . . . . . . . . . . . . . . $ 6,105 $19,435 $430,812 $ 694,816
Excess servicing receivable. . . . . . . . . . . . . . . . . . . -- 29,744 187,230 288,717
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 12,141 61,341 710,384 1,083,141
Warehouse financing facilities . . . . . . . . . . . . . . . . . 4,995 18,530 354,481 628,594
Warehouse Lender Term Line . . . . . . . . . . . . . . . . . . . -- 9,249 57,465 84,625
Subordinated notes payable to affiliates . . . . . . . . . . . . -- 8.003 7,003 7,002
Convertible Notes(4) . . . . . . . . . . . . . . . . . . . . . . -- -- 100,000 69,920
Allowance for possible credit losses . . . . . . . . . . . . . . -- 3,907 54,257 92,321
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 7,821 49,607 615,815 936,235
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 4,321 11,734 94,569 146,906
</TABLE>
- --------------
(1) FPFG contractually agreed to share in gain on sale of loans, net, with
Residential Funding Corporation (the "Warehouse Lender"), as a condition of
obtaining certain financing facilities, and also with Farm Bureau Life
Insurance Company ("Farm Bureau").
(2) FPFG's 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, but before FPFG's provision for possible
credit losses.
8
<PAGE>
(3) 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.
(4) 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.
9
<PAGE>
<TABLE>
<CAPTION>
WESTERN INTERSTATE BANCORP
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest income. . . . . . . . . . . . . . $12,825 $13,150 $13,883 $13,067 $10,877
Total interest expense . . . . . . . . . . . . 5,468 4,547 4,725 6,752 6,347
Net interest income. . . . . . . . . . . . . 7,357 8,603 9,158 6,315 4,530
Provision for loan losses. . . . . . . . . . . . 555 2,300 2,887 3,158 155
------- ------- -------- ------- -------
Net interest income after provision for loan losses 6,802 6,303 6,271 3,157 4,375
Non-interest income: . . . . . . . . . . . . . .
Servicing fee income . . . . . . . . . . . . . 913 1,211 1,409 1,174 1,374
Gain on sales of loans . . . . . . . . . . . . 1,033 982 1,724 6,215 9,341
Other non-interest income. . . . . . . . . . . 88 70 156 74 100
------- ------- -------- ------- -------
Total non-interest income. . . . . . . . . . . . 2,034 2,263 3,289 7,463 10,815
Total non-interest expense . . . . . . . . . . . 6,399 7,704 8,899 9,399 10,451
------- ------- -------- ------- -------
Income before provision for income taxes . . . . 2,437 862 661 1,221 4,739
Provision for income taxes . . . . . . . . . . . 1,011 386 274 499 1,964
------- ------- -------- ------- -------
Income before cumulative effect
of accounting change . . . . . . . . . . . . . 1,426 476 387 722 2,775
Cumulative effect of accounting change . . . . . - 133 - - -
------- ------- -------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 1,426 $ 609 $ 387 $ 722 $ 2,775
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . $104,773 $110,843 $119,184 $127,785 $124,548
Loans receivable, net. . . . . . . . . . . . . . 77,373 87,578 97,421 21,135 10,505
Loans held for sale. . . . . . . . . . . . . . . 8,094 4,556 6,537 18,960 30,107
Cash and cash equivalents. . . . . . . . . . . . 7,664 7,087 3,177 22,083 12,298
Mortgage-backed securities . . . . . . . . . . . - 998 3,497 55,428 14,010
Investment securities. . . . . . . . . . . . . . 3,006 4,996 2,003 5,052 52,982
Deposits . . . . . . . . . . . . . . . . . . . . 94,046 99,784 107,671 113,808 106,902
Total borrowings . . . . . . . . . . . . . . . . 1,634 1,472 1,837 1,736 1,723
Stockholders' equity . . . . . . . . . . . . . . 6,981 7,799 8,126 9,245 11,761
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <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%
Interest rate spread information:. . . . . . . . . . . . . . . .
Average during period. . . . . . . . . . . . . . . . . . . . 6.98 8.03 7.76 4.66 3.31
Net interest margin(2) . . . . . . . . . . . . . . . . . . . . . 7.51 8.33 8.10 5.03 3.78
Ratio of non-interest expense to average total assets. . . . . . 6.36 7.23 7.75 7.37 8.41
Return of stockholders' equity (ratio of net income
to average equity) . . . . . . . . . . . . . . . . . . . . . 22.50 8.09 4.78 8.40 27.47
Asset Quality Ratios:
Non-performing assets to total assets at end of period(3). . . . 3.44 3.45 3.98 .67 .55
Allowance for loan losses to non-performing loans. . . . . . . . 28.78 47.75 76.56 286.07 531.30
Allowance for loan losses to total loans . . . . . . . . . . . . 1.04 1.79 3.16 5.05 3.23
Net charge-offs to average loans . . . . . . . . . . . . . . . . .47 1.64 1.15 6.23 2.06
Capital Ratios:
Stockholders' equity to total assets . . . . . . . . . . . . . . 6.66 7.04 6.82 7.23 9.44
Average stockholders' equity to average assets . . . . . . . . . 6.30 7.07 7.05 6.74 8.13
Ratio of average interest-earning assets to average interest-
bearing liabilities . . . . . . . . . . . . . . . . . . . . 1.09% 1.07% 1.08% 1.07% 1.09%
Per Share Data:
Net income per WIB Common Share: . . . . . . . . . . . . . . . .
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . $1.33 $ .55 $ .34 $ .57 $1.98
Fully-diluted. . . . . . . . . . . . . . . . . . . . . . . 1.33 .55 .34 .57 1.98
Cash dividends per share . . . . . . . . . . . . . . . . . . . 0.95 .095 .095 - .10
Dividend payout ratio (ratio of dividends declared per
share to net income per share) . . . . . . . . . . . . . . . 7.01% 17.95% 28.48% - 4.37%
Book value per share . . . . . . . . . . . . . . . . . . . . . $6.38 $6.82 $7.01 $7.62 $9.71
Number of shares outstanding . . . . . . . . . . . . . . . . . 1,093,674 1,143,174 1,159,174 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.
11
<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.
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
12
<PAGE>
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 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
13
<PAGE>
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, 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.
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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 will require 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 values. FPFG 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
FPFG to provide additional disclosure about the retained certificates in its
securitizations and to account for these assets at fair value in accordance with
Statement of Accounting Standards No. 115 ("FASB 115"), "Accounting for Certain
Investments in Debt and Equity Securities." FPFG will apply the new rules
prospectively beginning in the first calendar quarter of 1997. There can be no
assurance that the implementation by FPFG of FASB 125 will not reduce FPFG's
Gain on Sale of loans in the future or otherwise adversely affect FPFG's results
of operations or financial condition.
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 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.
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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 56.3% of the loans in the Serviced Loan Portfolio at
December 31, 1996 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, 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.
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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, approximately 68.5% and
93.9%, 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% and 48.6% of the loans purchased from correspondent
lenders by FPFG during fiscal 1995 and 1996, respectively, were originated
through FPFG's ten largest 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 December 31, 1996, approximately 66.3% (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 December 31, 1996, 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 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 December 31, 1996.
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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.
CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
At March 31, 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
14.2% 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
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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 FPFG's Amended and Restated Articles of
Incorporation, as amended (the "FPFG Articles"), and FPFG's Amended and
Restated Bylaws, as amended (the "FPFG Bylaws"), the Nevada General Corporation
Law 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 May 30, 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 April 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 April 15, 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 other matters 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 BRIEF SUMMARY OF CERTAIN 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
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").
Assuming no WIB shareholders dissent from the Merger and assuming a FMV of
the FPFG Common Stock of $28.525 per share (i.e., the FMV of the FPFG Common
Stock had the Closing Date been April 15, 1997), WIB shareholders would have
been entitled to receive an aggregate of approximately 749,600 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 97.6% of the outstanding FPFG 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 2.4% of
the outstanding FPFG Common Stock after giving effect to the Merger.
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BACKGROUND OF AND REASONS FOR THE MERGER
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.
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 64.0% 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,
in which the possible benefits of a closer alliance between the two companies
were discussed. At that time, FPFG concluded that pursuing an investment in or
acquisition of WIB or Citizens was not in the best interests of FPFG.
In January 1996, the WIB Board retained Carpenter & Company to negotiate
with parties who had expressed an interest in acquiring or investing in WIB or
Citizens. In connection with these discussions, Carpenter & Company 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 & Company 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. 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. These negotiations terminated in November 1996.
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
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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 & Company would be responding
to him shortly on behalf of WIB. That afternoon, Carpenter & Company 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 & Company
presented information respecting the potential buyer, its financial resources
and the value of the offer. Mr. McGuire and Carpenter & Company 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 & Company to respond to
the offer. Carpenter & Company 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 & Company 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 & Company and the Chairman of the Board of WIB spoke with the
investment banker and discussed the position of the WIB Board. On Monday,
February 17, Carpenter & Company spoke with the President of the bidder, who was
noncommittal as to his company's continued level of interest. On February 19,
1997, a telephone meeting of the WIB Board was held to consider the Merger and
Merger Agreement presented by FPFG.
At the February 19, 1997 meeting, following the WIB Board's consideration
of all relevant factors and discussion with Carpenter & Company, during which
the WIB Board asked questions related to Carpenter & Company'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.
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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.
3. Carpenter & Company's presentation to the WIB Board and the opinion of
Carpenter & Company, 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 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 that market.
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.
8. The absence of financing contingencies in connection with the FPFG
offer.
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 which 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."
OPINION OF WIB'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 3, 1997 (the "Engagement
Letter"), WIB engaged Carpenter & Company to provide a fairness opinion and
other financial advisory services with respect to the transaction. Carpenter &
Company 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 & Company 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 & Company 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 & Company
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 & Company's
oral opinion was subsequently confirmed in writing as of March 26, 1997.
THE FULL TEXT OF CARPENTER & COMPANY'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 & COMPANY, IS ATTACHED HERETO AS
APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
CARPENTER &
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COMPANY'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 & COMPANY 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 &
COMPANY ADMIT THAT ITS OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE
MEANING OF SECTION 11 OF THE SECURITIES ACT. CARPENTER & COMPANY'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 & Company, 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 &
Company 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 & Company deemed to be relevant; (v) considered the financial terms,
to the extent publicly available, of selected recent business combinations of
companies in the banking and thrift and loan industries which Carpenter &
Company deemed to be comparable, in whole or in part, to the Merger;
(vi) considered 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 & Company 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 & Company deemed
appropriate.
In connection with its review, Carpenter & Company 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 &
Company 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 & Company relied on advice of counsel to WIB as to all legal matters
with respect to WIB, the Merger and the Agreement. WIB acknowledged that
Carpenter & Company did not discuss with WIB's independent accountants any
financial reporting matters with respect to WIB, the Merger or the Agreement.
WIB informed Carpenter & Company, and Carpenter & Company assumed, that the
Merger would be accounted for as a pooling of interests under generally accepted
accounting principles. Carpenter & Company 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 & Company 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 & Company 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 otherwise) of WIB
or FPFG, nor was Carpenter & Company furnished with any such appraisals.
Finally, Carpenter & Company's opinion was based on economic, monetary and
market and other conditions as in effect on, and the information made available
to Carpenter & Company as of the date of the opinion. Accordingly, although
subsequent developments may affect Carpenter & Company's opinion, it has not
assumed any obligation to update, revise or reaffirm such opinion.
Set forth below is a brief summary of Carpenter & Company's analysis in
connection with its opinion.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Carpenter & Company 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 & Company also
reviewed the consideration paid in recently announced transactions whereby
certain banks of various sizes were acquired. Specifically, Carpenter & Company
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 &
Company
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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 & Company 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"). 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 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, respectively. In view of the wide range of
WIB earnings over the last three years, in addition to considering the price as
a multiple of WIB's LTM earnings, Carpenter & Company 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 Share, Carpenter & Company
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 transactions 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 & Company 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
LTM earnings for FPFG 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 .5517 a share of FPFG Common Stock for each WIB Common Share, 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.
The summary set forth above does not purport to be a complete description
of the presentation by Carpenter & Company to the WIB Board or of the analysis
performed by Carpenter & Company. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Carpenter &
Company 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. In addition, Carpenter & Company may have given various analyses more or
less weight than other analyses, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Carpenter &
Company's view of the actual value of WIB or the combined companies. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given greater weight than any other
analysis.
In performing its analyses, Carpenter & Company 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
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or FPFG. The analyses performed by Carpenter & Company 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 & Company'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
& Company'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 & Company 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.
Pursuant to the Engagement Letter, WIB will pay Carpenter & Company 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 & Company a transaction fee equal to
1% of the aggregate purchase price paid in the transaction, less $50,000
previously paid to Carpenter & Company. WIB has also agreed to reimburse
Carpenter & Company for its reasonable out-of-pocket expenses. WIB has agreed
to indemnify Carpenter & Company, 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,
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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.
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"); (v) cause each of WIB's non-employee
directors (other than Mr. McGuire) to execute and deliver to FPFG the Directors
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 & Company not to, take any action which 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 & Company 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
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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 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. 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 May 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
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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;
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
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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 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 recommendation of the WIB Board with respect to the Merger,
shareholders should be aware that certain directors, officers and employees of
WIB have an interest 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 April 15, 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.
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
April 15, 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. 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
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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 April 15,
1997, the KSOP owned 276,460 shares, representing 22.8% of the total outstanding
WIB Common Shares. In connection with the Merger, participants in the KSOP will
be entitled to vote the shares allocated to their accounts. Of the 276,460
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 24.5% 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 KSOP in connection with
the Merger. Upon such termination, all assets held by the KSOP, including
shares of FPFG Common Stock held in the ESOP portion of the KSOP, will be
distributed to the KSOP beneficiaries.
CURRENT AND POST-MERGER EMPLOYMENT OF MICHAEL W. MCGUIRE. In 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.
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,
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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.
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 the lesser of $30.50 per share or the price at which
shares of FPFG will be issued in connection with the Merger. At April 15, 1997,
the closing price on the Nasdaq National Market for the FPFG Common Stock was
$26.50. 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."
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 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 which immediately prior to the Effective Time
represented outstanding WIB Common Shares, a form of 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
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.
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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.
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; however, no
assurance can be given that the 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 certain of the material Federal income
tax consequences of the Merger. It is intended to provide only a general
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. The tax
consequences discussed below are based on the assumption that the Merger does so
qualify. 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.
The following summary is based on certain assumptions regarding the factual
circumstances that will exist at the Effective Time of the Merger and on certain
representations made by WIB and FPFG with respect to the Merger, including
representations regarding intended actions of WIB and certain WIB shareholders
following the Merger. If any of these factual assumptions or 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
35
<PAGE>
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.
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.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. 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
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<PAGE>
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 in such opinion, that the Merger will qualify for "pooling-of-
interests" accounting treatment.
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 NOT A COMPLETE STATEMENT OF THE 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
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<PAGE>
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 of the WIB shareholders 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.
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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<PAGE>
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 has been traded under the symbol "FPFG" since
March 7, 1997. 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 (through April 22, 1997) . . . . . . . . . $30.00 $23.375
On April 17, 1997, the last reported sales price for the Common Stock was
$25.625 per share. As of March 31, 1997, FPFG had 31,903,427 outstanding shares
of FPFG Voting Common Stock held by 74 stockholders of record. As of March 31,
1997, FPFG also had 2,798,967 outstanding shares of non-voting common stock, par
value $.01 per share, held by three 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 Subordinated 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
April 15, 1997, there were 131 holders of record of WIB Common Shares and
1,211,156 WIB Common Shares issued and outstanding. At April 15, 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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<PAGE>
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 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 HEREON, ARE INCLUDED ELSEWHERE HEREIN.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (IN THOUSANDS)
Total interest income . . . . . . . . . . . . . . . . $12,825 $13,150 $13,883 $13,067 $10,877
Total interest expense. . . . . . . . . . . . . . . 5,468 4,547 4,725 6,752 6,347
------ ------ ------ ------ ------
Net interest income . . . . . . . . . . . . . . . 7,357 8,603 9,158 6,315 4,530
Provision for loan losses . . . . . . . . . . . . . . 555 2,300 2,887 3,158 155
------ ------ ------ ------ ------
Net interest income after provision for loan losses . 6,802 6,303 6,271 3,157 4,375
Non-interest income:
Servicing fee income. . . . . . . . . . . . . . . . 913 1,211 1,409 1,174 1,374
Gain on sales of loans. . . . . . . . . . . . . . . 1,033 982 1,724 6,215 9,341
Other non-interest income . . . . . . . . . . . . . 88 70 156 74 100
------ ------ ------ ------ ------
Total non-interest income . . . . . . . . . . . . . . 2,034 2,263 3,289 7,463 10,815
Total non-interest expense. . . . . . . . . . . . . . 6,399 7,704 8,899 9,399 10,451
------ ------ ------ ------ ------
Income before provision for income taxes. . . . . . . 2,437 862 661 1,221 4,739
Provision for income taxes. . . . . . . . . . . . . . 1,011 386 274 499 1,964
------ ------ ------ ------ ------
Income before cumulative effect
of accounting change. . . . . . . . . . . . . . . . 1,426 476 387 722 2,775
Cumulative effect of accounting change. . . . . . . . - 133 - - -
------ ------ ------ ------ ------
Net income. . . . . . . . . . . . . . . . . . . . . . $1,426 $ 609 $ 387 $ 722 $2,775
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Total assets . . . . . . . . . . . . . . . . . . . . . $104,773 $110,843 $119,184 $127,785 $124,548
Loans receivable, net. . . . . . . . . . . . . . . . . 77,373 87,578 97,421 21,135 10,505
Loans held for sale. . . . . . . . . . . . . . . . . . 8,094 4,556 6,537 18,960 30,107
Cash and cash equivalents. . . . . . . . . . . . . . . 7,664 7,087 3,177 22,083 12,298
Mortgage-backed securities . . . . . . . . . . . . . . - 998 3,497 55,428 14,010
Investment securities. . . . . . . . . . . . . . . . . 3,006 4,996 2,003 5,052 52,982
Deposits . . . . . . . . . . . . . . . . . . . . . . . 94,046 99,784 107,671 113,808 106,902
Total borrowings . . . . . . . . . . . . . . . . . . . 1,634 1,472 1,837 1,736 1,723
Stockholders' equity . . . . . . . . . . . . . . . . . 6,981 7,799 8,126 9,245 11,761
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <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% 0.34% 0.57% 2.23%
Interest rate spread information:
Average during period . . . . . . . . . . . . . . . . . . . 6.98 8.03 7.76 4.66 3.31
Net interest margin(2). . . . . . . . . . . . . . . . . . . . 7.51 8.33 8.10 5.03 3.78
Ratio of non-interest expense to average total assets . . . . 6.36 7.23 7.75 7.37 8.41
Return of stockholders' equity (ratio of net income to average
equity). . . . . . . . . . . . . . . . . . . . . . . . . . 22.50 8.09 4.78 8.40 27.47
Asset Quality Ratios:
Non-performing assets to total assets at end of period(3). . . . 3.44 3.45 3.98 0.67 0.55
Allowance for loan losses to non-performing loans. . . . . . . . 28.78 47.75 76.56 286.07 531.30
Allowance for loan losses to total loans . . . . . . . . . . . . 1.04 1.79 3.16 5.05 3.23
Net charge-offs to average loans . . . . . . . . . . . . . . . . .47 1.64 1.15 6.23 2.06
Capital Ratios:
Stockholders' equity to total assets . . . . . . . . . . . . . . 6.66 7.04 6.82 7.23 9.44
Average stockholders' equity to average assets . . . . . . . . . 6.30 7.07 7.05 6.74 8.13
Ratio of average interest-earning assets to average interest-
bearing liabilities. . . . . . . . . . . . . . . . . . . . 1.09 1.07 1.08 1.07 1.09
Per Share Data:
Net income per WIB Common Share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.33 $ .55 $ .34 $ .57 $ 1.98
Fully-diluted . . . . . . . . . . . . . . . . . . . . . . . 1.33 .55 .34 .57 1.98
Cash dividends per share . . . . . . . . . . . . . . . . . . . . 0.95 .095 .095 - .10
Dividend payout ratio. . . . . . . . . . . . . . . . . . . . . . 7.01% 17.95% 28.48% - 4.37%
Book value per share . . . . . . . . . . . . . . . . . . . . . . $ 6.38 $ 6.82 $ 7.01 $ 7.62 $ 9.71
Number of shares outstanding . . . . . . . . . . . . . . . . . . 1,093,674 1,143,174 1,159,174 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.
42
<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 December 31, 1996. The unaudited pro forma
condensed combined statements of income give effect to the proposed Merger by
combining the results of operations of FIRSTPLUS FINANCIAL GROUP, INC. for
each of the years in the three year period ended September 30, 1996 and the
three month period ended December 31, 1996 with the results of operations of
WIB for each of the years in the three year period ended December 31, 1996
and the three month period ended December 31, 1996, 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.
43
<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:
Gains on sales of loans, net $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 - $ 0.32
------- ------- -------
------- ------- -------
Weighted average common shares and common
equivalent shares outstanding 16,277 872 17,149
------- ------- -------
------- ------- -------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
44
<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:
Gains on sales of loans, net $29,113 $ 6,215 $ (393) d $34,935
Interest income 2,860 13,067 15,927
Servicing income 1,049 1,174 2,223
Other income 873 74 947
------- ------- ------- -------
Total revenues 33,895 20,530 (393) 54,032
------- ------- ------- -------
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 4,420 3,158 7,578
------- ------- ------- -------
Total expenses 24,153 19,309 - 43,462
------- ------- ------- -------
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 20,297 872 21,169
------- ------- -------
------- ------- -------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
45
<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:
Gains on sales of loans, net $158,639 $ 9,341 $(1,050) d $166,930
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 198,057 21,692 (1,050) 218,699
-------- ------- ------- --------
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 59,644 155 59,799
-------- ------- ------- --------
Total expenses 142,876 16,953 - 159,829
-------- ------- ------- --------
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 25,358 872 26,230
-------- ------- --------
-------- ------- --------
</TABLE>
See Notes to the Pro Forma Condensed Combined Financial Information.
46
<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 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
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 will continue 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-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, 1996 from
$119.2 million at December 31, 1995. 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,
47
<PAGE>
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 as well as other investment 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 earnings 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 earnings 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 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 $0.5 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 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.
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.
48
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, 1996 (a)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
ASSETS 1996 1996 ADJUSTMENTS 1996
----------- ----------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,496 $ 12,298 $ 19,794
Interest-bearing deposits with banks 245 245
Loans held for sale, net 694,816 30,107 $ (1,443)d 723,480
Investment securities, available for sale 66,992 66,992
Loans receivable, net 10,505 10,505
Accrued interest receivable 445 (445)b -
L/H improvements and equipment 1,051 (1,051)b -
Excess servicing receivable and
servicing rights 288,717 1,738 290,455
Subordinated certificates held for sale 16,879 16,879
Receivable from trusts 50,211 50,211
Deferred income taxes 363 (363)b -
Real estate owned, net 418 (418)b -
Prepaid expenses 226 (226)b -
Other assets 25,022 160 2,503 b 27,685
----------- --------- -------- ----------
Total assets $ 1,083,141 $ 124,548 $ (1,443) $1,206,246
----------- --------- -------- ----------
----------- --------- -------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 18,884 $ 2,947 $ 1,215 b
(548)d $ 22,498
Investor payable -
Thrift accounts 106,902 106,902
Warehouse financing facilities 628,594 628,594
Warehouse Lender term line of credit 84,625 84,625
Accrued interest payable 512 (512)b -
Notes payable 2,446 1,723 4,169
Income taxes payable 703 (703)b -
Subordinated notes payable 7,002 7,002
Convertible subordinated notes 69,920 69,920
Allowance for possible credit losses on
loans sold 92,321 92,321
Deferred tax liabilities, net 32,443 32,443
----------- --------- -------- ----------
Total liabilities 936,235 112,787 (548) 1,048,474
----------- --------- -------- ----------
Contingencies and Commitments
Stockholders' equity:
Common stock 250 3,554 (3,554)c
9 e 259
Non-voting common stock 44 44
Additional capital 87,823 3,554 c
(895)d
(9)e 90,473
Retained earnings 58,789 8,248 67,037
Securities valuation allowance (41) (41)
----------- --------- -------- ----------
Total stockholders' equity 146,906 11,761 (895) 157,772
----------- --------- -------- ----------
Total liabilities and stockholders'
equity $ 1,083,141 $ 124,548 $ (1,443) $1,206,246
----------- --------- -------- ----------
----------- --------- -------- ----------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information
49
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FIRSTPLUS WESTERN PRO
FINANCIAL INTERSTATE FORMA
GROUP, INC. BANCORP COMBINED
FOR THE THREE FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 ADJUSTMENTS 1996
---------- --------- ------------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Gains on sales of loans, net $ 95,848 $ 3,962 $ (689)d $ 99,121
Interest income 20,432 2,768 23,200
Servicing income 2,908 280 3,188
Other income 4,400 35 4,435
--------- -------- ------- ---------
Total revenues 123,588 7,045 (689) 129,944
--------- -------- ------- ---------
EXPENSES:
Salaries and employee benefits 14,838 1,847 16,685
KSOP contribution -
Interest 13,132 1,582 14,714
Other operating 21,048 1,450 b 22,498
General and administrative 1,306 (1,306)b -
Occupancy expenses 148 (148)b -
Real estate owned expenses (4) 4 b -
Provision for possible credit losses 44,388 (406) 43,982
--------- -------- ------- ---------
Total expenses 93,406 4,473 - 97,879
--------- -------- ------- ---------
Income before income taxes 30,182 2,572 (689) 32,065
Provision for income taxes (11,469) (1,072) 262 d (12,279)
--------- -------- ------- ---------
Net income $ 18,713 $ 1,500 $ (427) $ 19,786
--------- -------- ------- ---------
--------- -------- ------- ---------
Net income per share of common stock $ 0.64 - $ 0.66
--------- ------- ---------
--------- ------- ---------
Weighted average common shares and
common equivalent shares outstanding 29,033 872 29,905
--------- ------- ---------
--------- ------- ---------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
50
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
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's has a fiscal year ending on September 30 and WIB has a
fiscal year ending on December 31. Accordingly, the unaudited Pro Forma
Condensed Combined Statements of Income combined FPFG's historical results as
of and for the three months ended December 31, 1996 and for the fiscal years
ended September 30, 1994, 1995 and 1996, with WIB's historical results as of
and for the three months ended December 31, 1996 and for the years ended
December 31, 1994, 1995 and 1996, respectively.
(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.
51
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995
----------------------------------------
AVERAGE INT.EARNED/ YIELD/
OUTSTANDING PAID RATE
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest-Earning Assets:
Loans Receivable . . . . . . . . . . . . . . . $ 71,052 $ 10,153 14.29%
Investment securities. . . . . . . . . . . . . 3,852 221 5.74
Mortgage-backed securities &
collateralized mortgage
obligations ("CMOs"). . . . . . . . . . . . 24,212 1,345 5.56
Other. . . . . . . . . . . . . . . . . . . . . 26,352 1,348 5.12
----------- ----------- -----------
Total interest-earning assets. . . . . . . . $125,468 $ 13,067 10.41%
Interest-Bearing Liabilities:
Certificates . . . . . . . . . . . . . . . . . $ 86,091 5,173 6.01%
Passbook accounts. . . . . . . . . . . . . . . 29,525 1,419 4.81
Borrowings . . . . . . . . . . . . . . . . . . 1,834 161 8.78
----------- ----------- -----------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . $117,450 $ 6,753 5.75%
Net interest income. . . . . . . . . . . . . . . $ 6,314
Net interest rate spread . . . . . . . . . . . . 4.66%
Net earning assets . . . . . . . . . . . . . . . $ 8,018
Net interest margin. . . . . . . . . . . . . . . 5.03%
Average interest-earning assets to
average interest-bearing
liabilities. . . . . . . . . . . . . . . . . . 1.07x
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996
----------------------------------------
AVERAGE INT.EARNED/ YIELD/
OUTSTANDING PAID RATE
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable . . . . . . . . . . . . . . . $ 45,690 $ 6,519 14.27%
Investment securities. . . . . . . . . . . . . 8,080 300 3.71
Mortgage-backed securities & . . . . . . . . . 49,531 3,314 6.69
collateralized mortgage
obligations ("CMOs"). . . . . . . . . . . . 16,479 744 4.51
----------- ----------- -----------
Other. . . . . . . . . . . . . . . . . . . . . $ 119,780 10,877 9.08%
Total interest-earning assets. . . . . . . .
Interest-Bearing Liabilities:
Certificates . . . . . . . . . . . . . . . . . $ 72,254 4,454 6.16%
Passbook accounts. . . . . . . . . . . . . . . 36,001 1,705 4.74
Borrowings . . . . . . . . . . . . . . . . . . 1,825 188 10.30
----------- ----------- -----------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . $ 110,080 $ 6,347 5.77%
Net interest income. . . . . . . . . . . . . . . $ 4,530
Net interest rate spread . . . . . . . . . . . . 3.31%
Net earning assets . . . . . . . . . . . . . . . $ 9,700
Net interest margin. . . . . . . . . . . . . . . 3.78%
Average interest-earning assets to . . . . . . .
average interest-bearing
liabilities 1.09x
</TABLE>
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.
52
<PAGE>
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>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 VS. 1994 1996 VS. 1995
----------------------------------- -------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
--------------------- --------------------
TOTAL TOTAL
INCREASE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
---------- -------- ---------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $(3,906) $ 740 $(3,166) $(3,624) $ (10) $(3,634)
Mortgage-backed securities and
CMOs 1,154 26 1,180 1,408 561 1,969
Investment Securities (45) 42 (3) 243 (164) 79
Other 803 370 1,173 (504) (100) (604)
------- ------ -------- -------- ----- -------
Total interest-earning assets $(1,994) $1,178 $ (816) $(2,477) $ 287 $(2,190)
------- ------ -------- -------- ----- -------
Interest-bearing liabilities:
Certificates $895 $1,070 $ 1,965 $ (832) $ 113 $ (719)
Passbook accounts (243) 273 30 311 (25) 286
Borrowings 13 20 33 (1) 28 27
------- ------ -------- -------- ----- -------
Total interest-bearing liabilities $ 665 $1,363 $ 2,028 $ (522) $ 116 $ (406)
------- ------ -------- -------- ----- -------
Net decrease in net interest income $(2,844) $(1,784)
-------- --------
-------- --------
</TABLE>
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 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.
53
<PAGE>
NONINTEREST INCOME. 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. 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 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, 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 December 31,
1996, total interest-bearing assets maturing or repricing within one year
exceeded total interest-earning liabilities maturing or repricing in the same
period by $8.6 million, representing a positive cumulative one-year gap as a
percentage of assets of 7.07%.
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.
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, 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 has substantially increased its average cash
holdings during the last two years in order to fund loan production.
54
<PAGE>
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 December 31, 1996 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.
<TABLE>
<CAPTION>
MATURING OR REPRICING
--------------------------------------------------------------------
LESS THAN 6-12 OVER 1-3 OVER 3-5 OVER 5
6 MONTHS MONTHS YEARS YEARS YEARS TOTAL
--------- ------ -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fixed rate mortgage loans. . . . . . . . . . . . . . . . . $ 3 $ 10 $ 210 $ 414 $38,262 $ 38,899
Adjustable rate mortgage loans . . . . . . . . . . . . . . 3,246 142 449 - - 3,837
Consumer loans . . . . . . . . . . . . . . . . . . . . . . 92 29 26 12 154 313
Mortgage backed securities . . . . . . . . . . . . . . . . 9,722 467 317 1,479 2,035 14,010
Investment securities and other. . . . . . . . . . . . . . 64,418 - - 95 - 64,513
------- -------- -------- -------- ------- --------
Total interest-earning assets. . . . . . . . . . . . . . 77,481 648 1,002 2,000 40,441 121,572
------- -------- -------- -------- ------- --------
INTEREST-BEARING LIABILITIES:
Certificates of deposit. . . . . . . . . . . . . . . . . . 50,185 11,396 8,576 3,505 - 73,662
Passbook accounts. . . . . . . . . . . . . . . . . . . . . 3,324 3,324 13,296 13,296 - 33,240
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 823 477 423 - - 1,723
------- -------- -------- -------- ------- --------
Total interest-bearing liabilities . . . . . . . . . . . 54,332 15,197 22,295 16,801 - 108,625
------- -------- -------- -------- ------- --------
Interest-earning assets less
interest-bearing liabilities . . . . . . . . . . . . . . . $23,149 $(14,549) $(21,293) $(14,801) $40,441 $ 12,947
------- -------- -------- -------- ------- --------
------- -------- -------- -------- ------- --------
Cumulative interest-rate sensitivity gap . . . . . . . . . . $ - $ 8,600 $(12,693) $(27,494) $12,947
Cumulative interest-rate gap as a percentage of assets . . . -% 7.07% (10.44)% (22.62)% 10.65%
</TABLE>
In evaluating WIB's exposure to interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the following 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.
55
<PAGE>
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.
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 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 relatively static,
amounting to $107.7 million, $113.8 million and $106.9 million, respectively, at
year end 1994, 1995 and 1996.
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 December 31, 1996, 1995 and 1994, these
liquid assets totaled $65.3 million, $31.0 million and $4.2 million,
respectively.
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
December 31, 1996.
Management believes that the liquidity and resources of WIB are adequate to
fund all foreseeable needs.
Shareholders' 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.
56
<PAGE>
The following is a summary of the capital ratios of Citizens at December
31, 1996 as compared to minimum regulatory requirements for an institution to be
considered adequately capitalized and the requirements for being well
capitalized.
<TABLE>
<CAPTION>
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). . . . . . . . . . . . . . $13,725,490 23.7% $4,463,797 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>
As reflected in the preceding table, at December 31, 1996, 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 December 31, 1996, Citizens was in compliance with all state
capital requirements.
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
57
<PAGE>
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.
58
<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 December 31, 1996, WIB employed a total of 133 full-time and 18
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."
59
<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>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1996
------------------ -------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate:
Title I . . . . . . . . . . . . . . . . . . . $ 10,590 24.54% $ 7,570 17.58%
One to four family - first lien . . . . . . . 6,761 15.67 6,443 14.97
One to four family - junior lien. . . . . . . 16,569 38.40 28,645 66.54
Commercial real estate. . . . . . . . . . . . 8,121 18.82 78 0.18
Multi-family. . . . . . . . . . . . . . . . . 906 2.10 - 0.00
Total real estate loans. . . . . . . . . . 42,947 42,736
Consumer loans . . . . . . . . . . . . . . . . . 201 0.47 313 0.73
------- ------ -------- ------
Total loans. . . . . . . . . . . . . . . . $ 43,148 100.0 % $ 43,049 100.0 %
-------- ----- -------- ------
-------- ----- -------- ------
Less:
Loans held for sale . . . . . . . . . . . . . $(18,960) $(30,107)
Deferred fees and discounts . . . . . . . . . ( 876) ( 1,045)
Allowance for loan losses . . . . . . . . . . ( 2,177) ( 1,392)
-------- --------
Total loans receivable, net. . . . . . . . $ 21,135 $ 10,505
-------- --------
-------- --------
</TABLE>
60
<PAGE>
The following table shows the composition of WIB's loan portfolio by fixed
and adjustable rate at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1996
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate:
Title I . . . . . . . . . . . . . . . . . . . $ 10,590 24.54% $ 7,570 17.58%
One to four family - first lien . . . . . . . 3,738 8.66 2,908 6.76
One to four family - junior lien. . . . . . . 16,282 37.74 28,421 66.02
-------- ------ -------- ------
Total real estate loans. . . . . . . . . . 30,610 70.94 38,899 90.36
Consumer loans . . . . . . . . . . . . . . . . . 201 0.47 313 0.73
-------- ------ -------- ------
Total fixed rate loans . . . . . . . . . . 30,811 71.41 39,212 91.09
-------- ------ -------- ------
Adjustable-Rate Loans:
Real Estate:
One- to four-family - first lien. . . . . . . 287 0.66 224 0.52
One-to four-family - junior lien. . . . . . . 8,121 18.82 78 0.18
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
-------- ------ -------- ------
Total loans. . . . . . . . . . . . . . . . $ 43,148 100.00% $ 43,049 100.00%
-------- ------ -------- ------
-------- ------ -------- ------
Loans held for sale . . . . . . . . . . . . . $(18,690) $(30,107)
Deferred fees and discounts . . . . . . . . . ( 876) ( 1,045)
Allowance for loan losses . . . . . . . . . . ( 2,177) ( 1,392)
-------- --------
Total loans receivable, net. . . . . . . . $ 21,135 $ 10,505
-------- --------
-------- --------
</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 December 31, 1996, WIB held $28.6 million or 66.5% 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
61
<PAGE>
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.
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 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 December 31,
1996, the entire $7.6 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 December 31, 1996, WIB had commercial real estate loans, of which $78,000
were nonaccrual, and no 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 December 31, 1996, WIB had only $313,000 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. Loan originations are
handled by the regular employees of WIB on both a salary and commission basis.
Loans are purchased through approved correspondents
62
<PAGE>
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 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.
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 $105.3 million, $118.7 million and $42.0
million at December 31, 1996, 1995 and 1994, respectively. Included within
these amounts are $23.0 million, $27.9 million and $38.0 million of Title I
Loans, respectively, at 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 December 31, 1996.
<TABLE>
<CAPTION>
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. . . . . . . . . . . . . . . . . 57 $ 264 3.49% 25 $ 74 0.98% 50 $ 167 2.21%
One to four family - first liens . . . . 2 151 2.34 - - - - - -
One to four family - junior liens. . . . 1 26 0.09 - - - 1 16 0.06
Commercial . . . . . . . . . . . . . . . - - - - - - 1 78 100.00
Consumer - Non-real estate . . . . . . . . - - - 1 5 1.60 1 1 0.32
------ ----- ----- ----- ------ ------
Total. . . . . . . . . . . . . . . . 60 $ 441 1.02% 26 $ 79 0.18% 53 $ 262 0.61%
------ ----- ----- ----- ------ ------
------ ----- ----- ----- ------ ------
</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 December 31, 1996, 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 foregoing table that was performing in accordance with the
restructured terms. At December 31, 1996, WIB had no restructured loans.
63
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans:
Real Estate:
Title I . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 264 $ 167
One- to four-family - first lien . . . . . . . . . . . . . . . 45 -
One- to four-family - junior lien. . . . . . . . . . . . . . . 56 16
Commercial real estate . . . . . . . . . . . . . . . . . . . . 396 78
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . - -
Consumer - non real estate . . . . . . . . . . . . . . . . . . . - 1
-------- --------
Total nonaccrual loans . . . . . . . . . . . . . . . . . . . $ 761 $ 262
-------- --------
Foreclosed assets:
Real Estate:
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96 $ 144
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . - 185
One- to four-family - first lien . . . . . . . . . . . . . . . - 89
-------- --------
Total foreclosed assets. . . . . . . . . . . . . . . . . . $ 96 $ 418
-------- --------
Total non-performing assets. . . . . . . . . . . . . . . . $ 857 $ 680
-------- --------
-------- --------
Non-accruing loans as a percentage of total loans. . . . . . . 0.60% 0.21%
Non-performing assets as a percentage of total assets. . . . . 0.67% 0.55%
Allowance for loan losses to non-performing loans. . . . . . . 286.07% 531.30%
</TABLE>
For 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 $10,399. No interest income was recorded on
nonaccrual loans in 1996. All accrued interest is reversed when loans are
placed on nonaccrual status.
Real estate owned at December 31, 1996 consists of five real estate
properties with an aggregate net book value of $417,559.
OTHER LOANS OF CONCERN. As of December 31, 1996, there were four loans
aggregating $116,000 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 December 31, 1996.
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 been established to recognize the inherent risk associated with
lending activities, but which, unlike specific
64
<PAGE>
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.
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.
65
<PAGE>
The following table sets forth an analysis of Citizens' allowance for loan
losses:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(DOLLARS IN THOUSANDS)
Balance at beginning of period . . . . . . . . . $ 3,442 $ 2,177
Charge-offs:
Title I. . . . . . . . . . . . . . . . . . . . 4,422 850
One to four family - first trust deed. . . . . 25 23
One to four family - junior lien . . . . . . . 81 39
Commercial . . . . . . . . . . . . . . . . . . - 108
Multi-family . . . . . . . . . . . . . . . . . - 70
Non-real estate. . . . . . . . . . . . . . . . 10 4
---------- ----------
Total . . . . . . . . . . . . . . . . . . . $ 4,538 $ 1,094
---------- ----------
---------- ----------
Recoveries:
Title I. . . . . . . . . . . . . . . . . . . . 104 100
One to four family - first trust deed. . . . . - 17
One to four family - junior lien . . . . . . . 6 16
Commercial . . . . . . . . . . . . . . . . . . - 17
Non-real estate. . . . . . . . . . . . . . . . 5 4
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . $ 115 $ 154
---------- ----------
---------- ----------
Net charge-offs. . . . . . . . . . . . . . . . . 4,423 940
Additions charged to operations. . . . . . . . . 3,158 155
---------- ----------
Balance at end of period . . . . . . . . . . . . $ 2,177 $ 1,392
---------- ----------
---------- ----------
Ratio of net charge-offs during the
period to average loans outstanding
during the period . . . . . . . . . . . . . . 6.23% 2.06%
Ratio of net charge-offs during the period
to average non-performing assets . . . . . . . 164.61% 69.12%
66
<PAGE>
The distribution of the allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
DECEMBER 31,
-------------------------------------
1995 1996
------------------ -----------------
% TO TOTAL % TO TOTAL
AMOUNT LOANS (1) AMOUNT LOANS (1)
------ --------- ------ ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Title I. . . . . . . . . . . . . . . . $1,288 24.54% $ 954 17.58%
One to four family - first lien. . . . 36 15.67 26 14.97
One to four family - junior lien . . . 204 38.40 326 66.54
Commercial . . . . . . . . . . . . . . 542 18.82 34 0.18
Multi-family . . . . . . . . . . . . . 51 2.10 - 0.00
Consumer - Non-real estate . . . . . . 6 0.47 8 0.73
Unallocated. . . . . . . . . . . . . . 50 44
------ ------- ------ -------
Total. . . . . . . . . . . . . . . $2,177 100.00% $1,392 100.00%
------ ------- ------ -------
------ ------- ------ -------
</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 December 31, 1996, 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
$67.0 million, or 53.8% 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.
67
<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>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996
--------------------- ---------------------
(IN THOUSANDS)
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investment Securities (available-for-sale):
Federal National Mortgage Association ("FNMA") . . . $ 22,107 $ 22,161 $ 55,962 $ 55,868
Federal Home Loan Mortgage Corporation ("FHLMC") . . 3,758 3,839 329 335
Small Business Administration ("SBA"). . . . . . . . 9,907 9,925 8,396 8,315
Other Mortgages. . . . . . . . . . . . . . . . . . . -- -- 2,377 2,474
--------- --------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 35,772 $ 35,925 $ 67,064 $ 66,992
--------- --------- --------- ---------
--------- --------- --------- ---------
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. . . . . . . . . . . . . . . . . . . 0 0 - -
Other Mortgages. . . . . . . . . . . . . . . . . . 762 762 - -
--------- --------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 24,554 $ 24,682 $ - $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The composition, maturities and average yields of all investment securities
at December 31, 1996 are indicated in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
LESS THAN 1 YEAR 1 TO 5 YEARS OVER TEN YEARS
------------------- ------------------ --------------------
AMOR- AMOR- AMOR- TOTAL TOTAl
TIZED FAIR TIZED FAIR TIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
------- ------- ------ ------ ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA.. . . . . . . . . . . . $53,093 $52,981 $1,484 $1,479 $1,385 $1,408 $55,962 $55,868
FHLMC. . . . . . . . . . . . 18 18 311 317 - - 329 335
SBA. . . . . . . . . . . . . - - - - 8,396 8,315 8,396 8,315
Other Mortgages. . . . . . . - - - - 2,377 2,474 2,377 2,474
------- ------- ------ ------ ------- ------- ------- -------
Total. . . . . . . . . . . $53,111 $52,999 $1,795 $1,796 $12,158 $12,197 $67,064 $66,992
------- ------- ------ ------ ------- ------- ------- -------
------- ------- ------ ------ ------- ------- ------- -------
Weighted average yield . . . 5.28% 6.95% 6.57% 5.56%
</TABLE>
68
<PAGE>
WIB's investment securities portfolio at December 31, 1996 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.
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 December 31, 1996, 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
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------
(DOLLARS IN THOUSANDS)
Savings Deposits:
Passbook accounts. . . . . . $ 32,930 28.83% $ 33,240 30.94%
-------- ----- -------- -----
Certificates by rate:
2.75 - 5.49% . . . . . . . . 17,582 15.39 21,150 19.69
5.50 - 7.49% . . . . . . . . 63,109 55.25 52,493 48.87
7.50 - 9.49% . . . . . . . . 187 0.16 19 0.02
-------- ----- -------- ----
Total certificates . . . . 80,878 70.80 73,662 68.58
-------- ----- -------- -----
Accrued interest . . . . . . 427 0.37 512 0.48
-------- ---- -------- ----
Total deposits . . . . . . $114,235 100.00% $107,414 100.00%
69
<PAGE>
The following table shows rate and maturity information for WIB's
certificates of deposit as of December 31, 1996:
<TABLE>
<CAPTION>
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>
Certificates of deposit less
than $100,000 . . . . . . . . . . . $20,211 $15,138 $ 8,635 $ 6,194 $ 2,701 $52,879
Certificates of deposit less
$100,000 or more . . . . . . . . . . 11,055 3,484 2,761 2,287 804 20,391
Public Funds (1) . . . . . . . . . . . 99 198 - 95 - 392
-------- ------- ------- --------------- --------------- -------
Total certificates of deposit . . . . $ 31,365 $18,820 $11,396 $ 8,576 $ 3,505 $73,662
-------- ------- ------- --------------- --------------- -------
-------- ------- ------- --------------- --------------- -------
</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.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- --------
(DOLLARS IN THOUSANDS)
Maximum Balance:
Bank borrowings. . . . . . . . . . . . . . . . $ 670 $ 754
Other borrowings . . . . . . . . . . . . . . . 1,475 1,251
Average Balance:
Bank borrowings . . . . . . . . . . . . . . . 504 672
Other borrowings . . . . . . . . . . . . . . . 1,331 1,154
The following table sets forth certain information as to WIB's bank
borrowings and other borrowings at the dates indicated.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Bank borrowings . . . . . . . . . . . . . . . $ 485 $ 495
Other borrowings . . . . . . . . . . . . . . . 1,251 1,228
--------- ---------
Total borrowings . . . . . . . . . . . . . . $ 1,736 $ 1,723
--------- ---------
--------- ---------
Weighted average interest rate on bank borrowings 10.09% 9.52%
--------- ---------
--------- ---------
Weighted average interest rate on other borrowings 8.14% 8.90%
--------- ---------
--------- ---------
70
<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.
71
<PAGE>
MANAGEMENT OF WIB
DIRECTORS AND EXECUTIVE OFFICERS
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.
Positions(s) Term
Name Held With WIB Age Director Since Expires
- -------------------- ------------------------- --- -------------- -------
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
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."
72
<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.
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.
73
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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
Chairman of the Board and 1996 $ - $ - $ 43,500 $ -
Chief Executive Officer of 1995 - - 37,500 -
WIB 1994 - - 37,320 -
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
</TABLE>
- ---------------------
(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.
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%.
74
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF WIB
As of April 15, 1997, there were approximately 131 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 April 15, 1997.
Except as otherwise described, all shares are held with sole voting and
investment power.
COMMON STOCK BENEFICIALLY OWNED(1)
----------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF 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 10.27
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 April 15, 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 April 15, 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).
75
<PAGE>
(2) Shares which the individual has the right to acquire currently or within 60
days after April 15, 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, had the nominee been nominated, or intended to be
nominated, by the FPFG Board. The presiding
76
<PAGE>
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.
77
<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 thereon
included 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 accountants, 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.
78
<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 Bancorp and
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
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>
<CAPTION>
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 30,106,908 18,960,383
(notes 3 and 15)
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 3,553,917 3,561,911
in 1996 and 1995, respectively
Securities valuation allowance, net (note 2) (41,353) 89,029
Retained earnings, substantially restricted 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>
<CAPTION>
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>
<CAPTION>
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>
<CAPTION>
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>
<CAPTION>
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, Continued
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 INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated 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 INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated 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 INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated 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 INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated 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 INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated 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 No. 25 and
provide pro forma net income and pro forma earnings per share disclosures
for employee
F-13
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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:
<TABLE>
<CAPTION>
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 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
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
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
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
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
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
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
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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:
1996 1995
--------- --------
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
----------- ----------
----------- ----------
(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:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
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
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(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-21
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial 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 353,049 87,299 43,319
Federal income tax benefit
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 Financial 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>
<CAPTION>
To be well capitalized
For capital adequacy under prompt corrective
Actual purposes action 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.
F-23
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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:
<TABLE>
<CAPTION>
<S> <C>
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
------------
------------
</TABLE>
(1) Limited to 1.25% of risk-weighted assets.
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>
<CAPTION>
1996 1995 1994
-------------------------- ------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION NUMBER OPTION NUMBER OPTION NUMBER
PRICE OF SHARES PRICE OF 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>
F-24
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
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
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-25
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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
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
F-26
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
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.
F-27
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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.
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
F-28
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
request is not valid and any potential exposure for losses relating to
these loans has been adequately provided for.
(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.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31
----------------------------------
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
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 8,206,630 5,682,957
------------- ------------
Total stockholders' equity 11,760,547 9,244,868
------------- ------------
$ 13,702,308 11,089,427
------------- ------------
------------- ------------
</TABLE>
F-29
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
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-30
<PAGE>
WESTERN INTERSTATE BANCORP
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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-31
<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
SECTION PAGE NO.
- ------- --------
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.......................................21
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
i
<PAGE>
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
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
ii
<PAGE>
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
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
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
iv
<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
<PAGE>
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."
(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
2
<PAGE>
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.
(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
3
<PAGE>
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
4
<PAGE>
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.
(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").
5
<PAGE>
(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 "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
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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.
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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 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);
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(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;
(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
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("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.
(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
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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
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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 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.
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(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;
(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
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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
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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 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;
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(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
(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
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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 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.
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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;
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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 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
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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.
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.
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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
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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 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
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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.
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
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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
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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 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.
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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.
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
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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 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
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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.
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(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
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.
(viiiI) 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.
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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:
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
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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.
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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.
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.
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(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.
(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
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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
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<PAGE>
shall be payable by Acquiror pursuant to SECTION 9.1(b) only if the Company
terminated due to a breach 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
37
<PAGE>
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:
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
38
<PAGE>
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 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.
39
<PAGE>
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
40
<PAGE>
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 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.
41
<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>
FIRST 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 FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of April 21, 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; and
WHEREAS, the parties desire to amend the Merger Agreement as provided
for herein.
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 in each place in the Merger Agreement
where it requires that the Company hold the Special Meeting and/or that the
shareholders of the Company approve the Merger by May 15, 1997, such date of
May 15, 1997 is hereby amended to be May 30, 1997.
3. Except as modified by this Amendment, the Merger Agreement shall
continue in full force and effect.
[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
-------------------------------------------
<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.
<PAGE>
(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.
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.
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
(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.
<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, 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
<PAGE>
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 (included on the signature page)
99.1* Form of Proxy of Western Interstate Bancorp
(b) Financial Statement Schedules:
Not Applicable
- ---------------------
* Filed herewith.
** To be filed by amendment.
+ 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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Dallas, Texas, on
April 22, 1997.
FIRSTPLUS FINANCIAL GROUP, INC.
By: /s/ DANIEL T. PHILLIPS
----------------------
Daniel T. Phillips
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Daniel T. Phillips,
Eric C. Green and Ronald M Bendalin, and each of them acting alone, his true
and lawful attorney-in-fact, with full power of substitution, for him in any
and all capacities, to execute and cause to be filed with the Securities and
Exchange Commission any or all amendments and post-effective amendments to
this Registration Statement, with exhibits thereto and other documents in
connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done
by virtue hereof.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Daniel T. Phillips President, Chief Executive Officer April 22, 1997
- -------------------------- and Director (Principal Executive
Daniel T. Phillips Officer)
/s/ Eric C. Green Executive Vice President, Chief April 22, 1997
- -------------------------- Financial Officer and Director
Eric C. Green (Principal Financial and Accounting
Officer)
/s/ John Fitzgerald Director April 22, 1997
- --------------------------
John Fitzgerald
/s/ Dan Jesse Director April 22, 1997
- --------------------------
Dan Jesse
/s/ Paul Seegers Director April 22, 1997
- --------------------------
Paul Seegers
/s/ Sheldon I. Stein Director April 22, 1997
- --------------------------
Sheldon I. Stein
</TABLE>
<PAGE>
Exhibit 4.1
RESTATED ARTICLES OF INCORPORATION
OF
REMODELERS ACCEPTANCE CORPORATION
Pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78,
the undersigned officers do hereby certify:
FIRST: The name of the corporation is Remodelers Acceptance Corporation
(the "Company").
SECOND: The Board of Directors of the Company duly adopted the following
resolutions on August 25, 1995:
WHEREAS, it is deemed to be in the best interests of the Company and
its stockholders that the Company's Articles of Incorporation, as
amended, be amended and restated as provided for in the Amended and
Restated Articles of Incorporation attached hereto as EXHIBIT A (the
"Amended and Restated Articles of Incorporation").
NOW, THEREFORE, BE IT RESOLVED, that the amendment and restatement of
the Company's Articles of Incorporation, as such amendment and
restatement is embodied in the Amended and Restated Articles of
Incorporation attached hereto as EXHIBIT A, is hereby approved,
adopted, ratified and confirmed.
FURTHER RESOLVED, that such amendment and restatement of the Articles
of Incorporation be submitted to the stockholders of the Company for
their approval in accordance with the NGCL and the Articles of
Incorporation.
FURTHER RESOLVED, that the officers of the Company are directed and
authorized to execute, deliver and file all documents, and to take all
such actions, necessary or appropriate to amend and restate the
Articles of Incorporation consistent with the substance of the Amended
and Restated Articles of Incorporation.
THIRD: The total number of shares entitled to vote on the Amended and
Restated Articles of Incorporation were 100,000 shares of Series A Cumulative
Preferred Stock (the "Series A Stock"), 2,300,000 shares of Series B Cumulative
Preferred Stock (the "Series B Stock"), 100,000 shares of Common Stock and
22,105 shares of Non-Voting Common Stock.
FOURTH: The holders of all of the issued and outstanding shares of Series
A Stock, Series B Stock, Common Stock and Non-Voting Common Stock dispensed with
the holding of a meeting and adopted the Amended and Restated Articles of
Incorporation by written consent signed by each of them.
<PAGE>
EXECUTED on the 7th day of September, 1995.
REMODELERS ACCEPTANCE CORPORATION
/s/ Daniel T. Phillips
------------------------------
President
/s/ Jack Draper
------------------------------
Secretary
STATE OF TEXAS )
) SS:
COUNTY OF DALLAS )
On September 7th, 1995, personally appeared before me, a Notary Public for
the State and County aforesaid, Daniel T. Phillips, as President of Remodelers
Acceptance Corporation ("RAC"), and Jack Draper, Secretary of RAC, who
acknowledged that they have executed the above instrument.
/s/ Lori V. Muncrief
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
THIS FORM SHOULD ACCOMPANY AMENDED AND RESTATED ARTICLES
OF INCORPORATION FOR A NEVADA CORPORATION
Name of corporation Remodelers Acceptance Corporation
-------------------------------------------------------
Date of adoption of Amended and Restated Articles August 25, 19956
-------------------------
If the articles were amended, please indicate what changes have been made:
A. Was there a name change Yes /X/ No / / If yes, what is
the new name?
RAC FINANCIAL GROUP, INC.
----------------------------------------------------------------------
B. Did you change the resident agent? Yes / / No /X/ If yes,
please indicate the new resident agent and address.
---------------------------------------------------------------------
---------------------------------------------------------------------
Please attach the resident agent acceptance certificate.
C. Did you change the purposes? Yes / / No /X/ Did you add
Banking? / / Gaming? / / Insurance? / /
None of these? /X/
D. Did you change the capital stock? Yes /X/ No / / If yes, what is
the new capital stock?
27,600 Preferred Stock, $1.00 par value per share; 100,000,000
----------------------------------------------------------------------
Common Stock, $.01 par value per share; 25,000,000 Non-Voting Common Stock, $.01
- --------------------------------------------------------------------------------
par value per share.
- -------------------------------------------------------------------------------
E. Did you change the directors? Yes / / No /X/ If yes, indicate the
change:
---------------------------------------------------------------------
F. Did you add the directors liability provision? Yes / / No /X/
G. Did you change the period of existence? Yes / / No /X/
If yes, what is the new existence?
----------------------------------------------------------------------
H. If none of the above apply, and you have amended or modified the
articles, how did you change your articles?
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
/S/ Ronald M. Mankoff 4/5/95
- -------------------------------------------------- --------------------
Name and Title of Officer Date
RONALD M. MANKOFF, CHAIRMAN OF THE BOARD
State of Texas Section
----------
Section
County of Dallas Section
----------
On September 5, 1995, personally appeared before me, a Notary Public,
Ronald M. Mankoff, who acknowledged that he/she executed the above instrument.
/s/ Terry Stolte
------------------------------
Notary Public
<PAGE>
EXHIBIT A
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RAC FINANCIAL GROUP, INC.
(FORMERLY NAMED REMODELERS ACCEPTANCE CORPORATION)
FIRST
NAME. The name of the corporation is RAC FINANCIAL GROUP, INC. (the
"Corporation").
SECOND
REGISTERED OFFICE. The registered office in the State of Nevada is located
at One East First Street, Reno, Nevada 89501. The name of its resident agent at
that address is The Corporation Trust Company of Nevada.
THIRD
DURATION. The period of its duration is perpetual.
FOURTH
PURPOSES. The purpose for which the Corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the General Corporation Law of the State of Nevada.
FIFTH
CAPITAL STOCK. The capital stock of the Corporation shall be as follows:
A. GENERAL. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 152,600,000, consisting of (1)
27,600,000 shares of Preferred Stock, $1.00 par value per share ("Preferred
Stock"), 300,000 of which shall be designated as Series A Cumulative Preferred
Stock and 2,300,000 of which shall be designated as Series B Cumulative
Preferred Stock and shall be governed by the rights, limitations and preferences
set forth in Section (B)(2) hereof, (2) 100,000,000 shares of Common Stock, $.01
par value per share ("Common Stock"), and (3) 25,000,000 shares of Non-Voting
Common Stock, $.01 par value per share ("Non-Voting Common Stock").
B. SERIES OF PREFERRED STOCK.
1. GENERAL. The Board of Directors is hereby expressly authorized, by
resolution or resolutions from time to time adopted, to provide,
out of the unissued shares of Preferred Stock, for the issuance of
serial Preferred Stock. Before any shares of any such series are
issued, the Board of Directors shall fix and state, and hereby is
<PAGE>
expressly empowered to fix, by resolution or resolutions, the
designations, preferences, and relative, participating, optional or
other special rights of the shares of each such series, and the
qualifications, limitations or restrictions thereon, including but
not limited to, determination of any of the following:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if
different from the par value thereof;
(b) whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so,
the terms of such voting rights, which may be full or
limited;
(c) the dividends, if any, payable on such series and at what
rates, whether any such dividends shall be cumulative, and,
if so, from what dates, the conditions and dates upon which
such dividends shall be payable, the preference or relation
that such dividends shall bear to the dividends payable on
any such shares of stock of any other class or any other
series of this class;
(d) whether the shares of such series shall be subject to
redemption by the corporation, and, if so, prices and other
terms and conditions of such redemption;
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the
voluntary or involuntary liquidation, dissolution or winding
up of, or upon any distribution of the assets of, the
corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking
fund shall be applied to the purchase or redemption of the
shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or
any other series of this class or any other class or classes
of securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitation and restrictions, if any, to be effective
while the shares of such series are outstanding, upon the
payment of dividends or the making of other distributions on,
and upon the purchase, redemption or other acquisition by the
corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any
additional stock, including additional shares of such series
or any other series of this class or of any other class; and
6
<PAGE>
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications,
limitations and restrictions thereof.
The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative. The
Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing series by a resolution adding to such series
authorized and unissued shares of the Preferred Stock not designated for any
other series. The Board of Directors may decrease the number of shares of
Preferred Stock designated for any existing series by a resolution, subtracting
from such series unissued shares of the Preferred Stock designated for such
series, and the shares so subtracted shall become authorized, unissued and
undesignated shares of the Preferred Stock.
2. The first two series, designated respectively as Series A
Cumulative Preferred Stock and Series B Cumulative Preferred Stock,
shall consist of 300,000 shares and 2,300,000 shares, respectively,
and will have the designations, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions as follows:
(a) The Series A Cumulative Preferred Stock and Series B
Cumulative Preferred Stock are referred to herein,
collectively, as "Cumulative Preferred." All shares of the
Cumulative Preferred shall be of equal rank and identical,
except as provided herein. Each share of Cumulative
Preferred shall be entitled to receive out of the surplus of
the Corporation a cumulative dividend, as and when declared
by the Board of Directors, at the rate of eight cents ($.08)
per annum (which shall be adjusted appropriately for stock
splits, stock dividends, subdivisions, combinations,
exchanges of shares, reclassifications or other
recapitalizations). Payment of accrued dividends shall be
made at the discretion of the Board of Directors; provided,
however, that upon the redemption of any Cumulative Preferred
shares, all cumulative dividends shall be paid in full.
(b) In no event, so long as any shares of the Cumulative
Preferred shall be outstanding, shall any dividend, whether
in cash or property, be paid or declared, nor shall any
distribution be made, on any shares of any other class or
series of capital stock of the Corporation, nor shall any
other shares of any class or series of capital stock of the
Corporation be purchased, or otherwise acquired for value by
the Corporation, and no funds shall be made available or set
aside therefor. The foregoing provision shall not prohibit a
dividend payable solely in shares of Common Stock or Non-
Voting Common Stock.
(c) Dissolution, Liquidation or Winding Up.
(i) In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the affairs
of the Corporation, the holders of the Cumulative
Preferred shares shall be entitled to be paid in full
an amount equal to
7
<PAGE>
$1.00 per share (which shall be adjusted appropriately
for stock splits, stock dividends, subdivisions,
combinations, exchanges of shares, reclassifications
or other recapitalizations), together with dividends
accrued to the distribution or payment date, whether
or not earned or declared or legally available (the
"Liquidation Value") before any distribution or
payment shall be made to the holders of shares of any
other class or series of capital stock.
(ii) If, on any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation, the assets of the Corporation are
insufficient to permit full payment of the Liquidation
Value, the holders of the Cumulative Preferred shares
shall share ratably in any distribution of assets in
proportion to the full amounts to which they would
otherwise be respectively entitled.
(iii) After payment in full of the Liquidation Value, the
preferential amounts shall be paid to the holders of
all other shares of outstanding Preferred Stock.
(iv) Neither the consolidation nor the merger of the
Corporation, nor the sale, lease or conveyance of all
or substantially all of its assets, shall be deemed a
liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this
Section (B)(2)(c).
(v) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs
of the Corporation, stating the payment date and the
place where the distributable amounts shall be
payable, shall be given by certified mail, postage
prepaid, not less than thirty (30) days prior to the
payment dates stated therein, to the holders of record
of the shares of Cumulative Preferred at their
respective addresses on the books of the Corporation.
(d) The Cumulative Preferred shares shall be subject to
redemption as follows:
(i) If not redeemed earlier, the Corporation shall on
September 30, 2000, from funds legally available
therefor, first redeem all shares of Series B
Cumulative Preferred Stock outstanding, at $1.00 per
share plus all accrued dividends to date and second
redeem all shares of Series A Cumulative Preferred
Stock outstanding, at $1.00 per share plus all accrued
dividends to date.
(ii) Shares of Cumulative Preferred shall be redeemed from
each holder thereof in proportion to the total number
of shares of the particular series to be redeemed.
(iii) If not redeemed earlier, the Corporation shall, upon
the consummation of an underwritten public offering of
Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as
amended, from
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funds legally available therefor, redeem all
Cumulative Preferred shares outstanding, at $1.00 per
share plus all accrued dividends to date.
(iv) Notice of redemption shall be mailed by the
Corporation, postage prepaid, not more than twenty
(20) days prior to the date fixed for redemption, to
each holder of record of Cumulative Preferred to be
redeemed at his address upon the books of the
Corporation. The notice of redemption shall state the
date fixed for redemption, the number of shares to be
redeemed, the redemptive price and the place at which
the stockholders may obtain payments upon surrender of
the respective share certificates.
(v) If the Corporation deposits on or before the date
fixed for redemption with one or more banks having
capital and surplus of at least $50,000,000 and doing
business in Dallas County, Texas, trust funds for the
benefit of the holders of shares of Cumulative
Preferred to be redeemed, in an amount sufficient to
redeem such shares with irrevocable instructions to
the depository banks to pay to the holders of shares
of Cumulative Preferred, then dividends thereon shall
cease to accrue after said date on the shares fixed
for redemption, and the deposit shall be deemed to
constitute full redemptive payment of such shares of
Cumulative Preferred which shall no longer be deemed
to be outstanding. Monies so deposited and unclaimed
at the end of one (1) year shall be repaid to the
Corporation, and thereafter the holders of shares of
Cumulative Preferred to be redeemed shall look only to
the Corporation for payment.
(vi) All shares of Cumulative Preferred which are redeemed
shall be canceled, and none of such shares shall
thereafter be reissued.
(vii) If the Corporation fails for any reason to redeem the
Series B Cumulative Preferred Stock in full by
September 30, 2000, the holders of the Series B
Cumulative Preferred Stock, voting as a class, shall
be entitled to elect the smallest number of directors
which will constitute a majority of the entire Board
of Directors, and the holders of Common Stock and
Series A Cumulative Preferred Stock, voting as a
class, shall be entitled to elect the remaining
directors. The terms of all directors previously
elected by the holders of the Common Stock and
Series A Cumulative Preferred Stock then serving the
Corporation shall be automatically terminated upon the
election of directors by the holders of the Series B
Cumulative Preferred Stock pursuant hereto. Such
voting rights shall be exercisable by the holders of
Series B Cumulative Preferred Stock (A) at a special
meeting of all stockholders called for the purpose,
upon the same notice as is required for the annual
meeting of stockholders, by the Secretary of the
Corporation, who shall call the meeting upon the
request of the holder of record of any of the Series B
Cumulative Preferred Stock then outstanding, and (B)
at the next annual meeting of stockholders (notice of
which shall be given to the holders of the Series B
Cumulative Preferred Stock at the same time in the
same manner as notice thereof is required to be given
to the holders of the Common Stock), and until such
date as the Series B Cumulative Preferred
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Stock shall have been redeemed in its entirety, and
all accrued dividends thereon shall have been paid.
(viii) Any or all of the outstanding shares of Cumulative
Preferred shall be subject to redemption at the option
of the Corporation at any time or from time to time,
as determined by the Board of Directors in their sole
discretion; provided, however, that after April 30,
1995, no shares of Series A Cumulative Preferred Stock
shall be redeemed unless and until there are no
outstanding shares of Series B Cumulative Preferred
Stock. The redemption price shall be $1.00 per share.
For each share so redeemed, the Corporation shall also
pay all accrued dividends to date. The Corporation
shall only use legally available funds for such
optional redemptions.
(e) While shares of Cumulative Preferred are outstanding, the
Corporation, without first obtaining the consent, either
expressed in writing or by affirmative vote at a meeting
called for such purpose, of the holders of at least two-
thirds of the total number of shares of Cumulative Preferred
then outstanding, shall not, and shall not permit any
subsidiary to:
(i) Change, amend, add or repeal any of the provisions of
the Corporation's Articles of Incorporation or Bylaws
applicable to a series which would adversely affect
the preferences, voting power or other rights of the
Cumulative Preferred;
(ii) Increase the presently authorized number of shares of
Cumulative Preferred, or authorize or issue any stock
(or any security convertible into or exchangeable for
such stock) ranking prior to or on a parity with the
Cumulative Preferred in any respect;
(iii) Effect any sale, lease or other conveyance of all or
substantially all of the assets of the Corporation or
a significant subsidiary, or any consolidation or
merger involving the Corporation or a significant
subsidiary, or any reclassification or change of any
stock, or any recapitalization of the Corporation;
(iv) Redeem, purchase or otherwise acquire for value any
shares of Preferred Stock otherwise then by redemption
of the Cumulative Preferred in accordance with
subsection (d) hereof; or,
(v) Purchase, redeem or otherwise acquire any of the
Common Stock or Non-Voting Common Stock.
C. COMMON STOCK AND NON-VOTING COMMON STOCK - GENERAL. Each holder of
Common Stock shall be entitled to one vote for each share of Common
Stock held of record on all matters on which stockholders generally are
entitled to vote. Holders of Non-Voting Common Stock shall not be
entitled to voting rights, unless otherwise required by applicable law.
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Subject to the provisions of law and the rights of the Preferred Stock
and any other class or series of stock having a preference as to dividends over
the Common Stock and the Non-Voting Common Stock then outstanding, dividends may
be paid on the Common Stock and Non-Voting Common Stock out of assets legally
available for dividends, but only at such times and in such amounts as the Board
of Directors shall determine and declare; provided, however, that no such
dividend shall be declared or paid unless the holders of both the Common Stock
and Non-Voting Common Stock receive the same per share dividend payable in the
same amount and type of consideration, as if such classes constituted a single
class, except that in the event that any dividend is declared that is payable in
shares of Common Stock or Non-Voting Common Stock, such dividend shall be
declared and paid at the same rate per share with respect to the Common Stock
and Non-Voting Common Stock, and the dividend payable on shares of Common Stock
shall be payable only in shares of Common Stock and the dividend payable on
Non-Voting Common Stock shall be payable only in shares of Non-Voting Common
Stock.
Upon the dissolution, liquidation or winding up of the Corporation,
after any preferential amounts to be distributed to the holders of the Preferred
Stock and any other class or series of stock having a preference over the Common
Stock and Non-Voting Common Stock then outstanding have been paid or declared
and set apart for payment, the holders of the Common Stock and Non-Voting Common
Stock shall be entitled to receive all the remaining assets of the corporation
available for distribution to its stockholders ratably in proportion to the
number of shares held by them, respectively. For purposes of this section C,
neither (i) the merger or consolidation of the Corporation with or into any
other corporation or entity, (ii) the sale, transfer or lease of all or
substantially all the assets of the Corporation or (iii) a share exchange
between the Corporation and any other corporation or entity shall be deemed to
be a liquidation, dissolution or winding up of the Corporation.
D. CONVERSION OF NON-VOTING COMMON STOCK INTO COMMON STOCK.
1. Each share of Non-Voting Common Stock shall be convertible at any
time, at the option of the holder or transferee thereof, into one
fully paid and nonassessable share of Common Stock of the
Corporation; provided that neither Farm Bureau Life Insurance
Company, Banc One Capital Partners II, Limited Partnership, Bank
One Capital Partners V, Ltd., nor any affiliate of such persons may
convert its or their shares of Non-Voting Common Stock pursuant to
this Section (D)(1) of Article Fifth.
2. No fractional shares of Common Stock shall be issued upon such
conversion, but in lieu thereof the Corporation shall pay to the
holder or transferee an amount in cash equal to the fair market
value of such fractional share.
3. To convert shares of Non-Voting Common Stock under this Section
(D), the holder or transferee thereof shall surrender the
certificate or certificates representing such shares, duly endorsed
to the Corporation or in blank (which endorsement shall correspond
exactly with the name or names of the record holder or holders set
forth on the face of the certificates and on the stock transfer
records of the Corporation), at the office of the transfer agent
for the shares of Non-Voting Common Stock (which may be either the
Corporation or any third party retained by it for such purpose),
and shall give written notice to the transfer agent and the
Corporation that such holder or
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transferee elects to convert all or part of the shares represented
thereby, stating therein the name or names (with the address or
addresses) in which the certificate or certificates for shares of
Common Stock are to be issued.
4. If the stockholder or transferee fully complies with paragraph (3),
the Corporation shall, as soon as practicable thereafter, instruct
the transfer agent to deliver to such holder or transferee , or to
such holder's nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which such holder or
transferee shall be entitled, rounded to the nearest whole number
of shares, and a check for any amount payable hereunder in lieu of
a fractional share, along with a certificate representing any
shares of Non-Voting Common Stock that the holder or transferee has
not elected to convert hereunder but which constituted part of the
shares of Non-Voting Common Stock represented by the certificate or
certificates surrendered.
5. Shares of Common Stock shall be deemed to have been converted as of
the close of business on the date of the due surrender of the
certificates representing the shares to be converted as provided
above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock at such time.
6. If the Corporation shall in any manner split or subdivide the
outstanding shares of Common Stock or Non-Voting Common Stock, the
outstanding shares of the other such class of stock shall be split
or subdivided in the same manner, proportionately and on the same
basis per share.
7. When shares of Non-Voting Common Stock have been converted pursuant
to any paragraph of this Section (D), they shall be irrevocably
canceled and not reissued.
SIXTH
GOVERNANCE. The governing board of this Corporation shall be known as the
Board of Directors, and the number of directors serving on such board may from
time to time be increased or decreased in such manner as shall be provided by
the Bylaws of this Corporation.
SEVENTH
INTERESTED TRANSACTIONS. No contract or other transaction between the
Corporation and any other corporation and no other act of the Corporation shall,
in the absence of fraud, be invalidated or in any way affected by the fact that
any of the stockholders, directors or officers of the Corporation are
pecuniarily or otherwise interested in such contract, transaction, or other act,
or are stockholders, directors or officers of such Corporation. Any
stockholder, director or officer of the Corporation, individually, or any firm
or association of which any such stockholder, director or officer may be a
member, may be a party to, or be pecuniarily or otherwise interested in, any
contract or transaction of the Corporation, provided that the fact that he
individually or such firm or association is so interested shall be disclosed or
shall have been known to the Board of Directors or a majority of such members
thereof as shall be present at any meeting of the Board of Directors at which
action upon any such contract or transaction shall be taken; and any director
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of the Corporation who is a stockholder, director or officer of such other
corporation or who is so interested may be counted in determining the existence
of a quorum at any meeting of the Board of Directors which shall authorize any
such contract or transaction and may vote thereat to authorize so interested;
every stockholder, director or officer of the Corporation being hereby relieved
from any disability which might otherwise prevent him from carrying out
transactions with or contracting with the Corporation for the benefit of himself
or any firm or corporation, association, trust or organization in which or with
which he may be in any way interested or connected.
EIGHTH
AMENDMENT OF BYLAWS. The power to adopt, alter, amend, or repeal the
Bylaws of the Corporation is hereby delegated to the Board of Directors and such
power shall be deemed to be vested exclusively in the Board of Directors and
shall not be exercised by the stockholders.
NINTH
NO PREEMPTIVE RIGHTS. No stockholder shall have a preemptive right to
acquire any shares or securities of any kind, whether now or hereafter
authorized, which may at any time be issued, sold or offered for sale by the
Corporation.
TENTH
NO CUMULATIVE VOTING. No stockholder shall have the right to cumulate his
or her votes in an election of directors or for any other matter(s) to be voted
upon by the stockholders of the Corporation.
ELEVENTH
NOTICE OF NOMINATIONS. Nominations for the election of directors may be
made by the Board of Directors or a committee appointed by the Board of
Directors 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 the Corporation at the principal executive offices of the
Corporation not later than (A) with respect to an election to be held at an
annual meeting of stockholders, ninety (90) days prior to the date one year
after the immediately preceding annual meeting of stockholders, and (B) with
respect to an election to be held at a special meeting of stockholders, the
close of business on the tenth (10th) day following the date on which notice of
such meeting is first given to stockholders. Each such notice shall set forth:
(i) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (ii) a representation that the
stockholder is a holder of record stock of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) 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; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement
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<PAGE>
filed pursuant to the proxy rules of the Securities and Exchange Commission, had
the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (v) the consent of each nominee to serve as a director of the
Corporation if so elected. The presiding officer at the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
TWELFTH
LIMITATION OF LIABILITY. No director or officer of the corporation shall
be personally liable to the corporation or any of its stockholders for damages
for breach of fiduciary duty as a director or officer involving any act or
omission of any of such director or officer except, that the foregoing provision
shall not eliminate the liability of a director or officer for:
1. acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or
2. the payments of distributions in violation of Section 78.300 of the
Nevada General Corporation Law, as amended.
Neither the amendment nor repeal of this Article Twelfth, nor the adoption of
any provision of the Articles of Incorporation inconsistent with this Article
Twelfth shall eliminate or reduce the effect of this Article Twelfth with
respect to any matter occurring, or any cause of action, suit or claim that, but
for this Article Twelfth would accrue or arise, prior to such amendment, repeal
or adoption of any inconsistent provision.
THIRTEENTH
INDEMNIFICATION. The Corporation shall be subject to the following
indemnification provisions:
A. The Corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or is or was serving at the
request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, or
conviction, or on plea of nolo contendere or its equivalent shall not,
of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and
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with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
B. The Corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer, trustee, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation. Indemnification
may not be made for any claim, issue or matter as to which such a
person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Corporation or
for amounts paid in settlement to the Corporation, unless and only to
the extent that the court in which the action was brought or other
court of competent jurisdiction determines upon application that in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court
shall deem proper.
C. Any indemnification under sections A and B of this Article Thirteenth,
unless ordered by a court or advanced pursuant to section D of this
Article Thirteenth, must be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances.
The determination must be made:
1. By the stockholders;
2. By the Board of Directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
3. If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
4. If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
D. The expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the Corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is
not entitled to be indemnified by the corporation. The provisions of
this section D of this Article Thirteenth do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise
by law.
E. The indemnification and advancement of expenses provided by this
Article Thirteenth:
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1. Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
these Articles of Incorporation or any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity
while holding his office, except that indemnification, unless
ordered by a court pursuant to section B of this Article Thirteenth
or for the advancement of expenses of any director or officer, may
not be made to or on behalf of any officer or director if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and
was material to the cause of action.
2. Continues for a person who has ceased to be a director, officer,
employee or agent and insures to the benefit of the heirs,
executors and administrators of such a person.
F. The Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise for any liability asserted against him and
liability and expenses incurred by him in his capacity as a director,
officer, employee or agent, or arising out of his status as such,
whether or not the Corporation has the authority to indemnify him
against such liability and expenses.
G. The other financial arrangements made by the Corporation pursuant to
paragraph F of this Article Thirteenth may include the following:
1. The creation of a trust fund.
2. The establishment of a program of self-insurance.
3. The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
4. The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this section may provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be liable for intentional misconduct, fraud or a
knowing violation of law, except with respect to the advancement of expenses or
indemnification by a court.
H. Any insurance or other financial arrangement made on behalf of a person
pursuant to this Article Thirteenth may be provided by the Corporation
or any other person approved by the Board of Directors, even if all or
part of the other person's stock or other securities are owned by the
Corporation.
I. In the absence of fraud:
1. The decision of the Board of Directors as to the propriety of the
terms and conditions of any insurance or other financial
arrangement made pursuant to this Article
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Thirteenth and the choice of the person to provide the insurance or
other financial arrangement shall be conclusive; and
2. The insurance or other financial arrangement:
(a) Is not void or voidable; and
(b) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of
the insurance or other financial arrangement.
J. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in section A and B of
this Article Thirteenth, or in defense of any claim, issue or matter
therein, he must be indemnified by the Corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
FOURTEENTH
WRITTEN CONSENTS; SPECIAL MEETINGS. The right of stockholders to act by
written consent pursuant to Section 78.320(2) of the NGCL is hereby expressly
denied.
Special meetings of stockholders may be called by the Chairman of
the Board, the President, a majority of the Board of Directors or the holders of
not less than fifty percent (50%) of all shares entitled to vote at the meeting.
FIFTEENTH
BUSINESS AT ANNUAL MEETINGS. At an annual meeting of stockholders, only
such business shall be conducted as shall have been brought before the meeting
(A) by or at the direction of the Board of Directors or (B) by any shareholder
of the Corporation who complies with the notice procedures set forth in this
Article Fifteenth. 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 the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than twenty (20) days nor more than fifty
(50) days prior to the meeting; PROVIDED, HOWEVER, that in the event that less
than thirty (30) days' notice or prior public disclosure of the date of the
meeting is given or made to the stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting the following information: (i) 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; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the number of shares of the Corporation which are beneficially
owned by the stockholder; and (iv) any material interest of the stockholder in
such business. The presiding officer at an annual meeting shall, if he
determines the facts so warrant, determine and declare to the meeting that the
business was not properly brought before the meeting and in accordance with
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the provisions of this Article Fifteenth. Upon such determination and
declaration, the business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Article Fifteenth,
a stockholder seeking to have a proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
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Executed on August 30, 1995.
REMODELERS ACCEPTANCE
CORPORATION
By: /s/ Daniel T. Phillips
------------------------------
President
By: /s/ Jack Draper
------------------------------
Secretary
STATE OF TEXAS Section
Section SS.:
COUNTY OF DALLAS Section
On August 30, 1995, personally appeared before me, a Notary Public for the
State and County aforesaid, Daniel T. Phillips, as President of Remodelers
Acceptance Corporation ("RAC"), and Jack Draper, as Secretary of RAC, who
acknowledged that they executed the above instrument.
/s/ Lori V. Muncrief
------------------------------
Notary Public
Lori V. Muncrief
------------------------------
Print Name
My Commission Expires:
- -----------------------
19
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CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RAC FINANCIAL GROUP, INC.
Pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78, the
undersigned officers do hereby certify:
FIRST: The name of the corporation is RAC Financial Group, Inc.
SECOND: The Board of Directors of the Corporation has duly adopted resolutions
proposing the amendment to the Amended and Restated Articles of Incorporation
set forth herein and declaring such amendment advisable.
THIRD: The amendment adopted changes Article FIRST of the corporation's
Amended and Restated Articles of Incorporation to read in its entirety as
follows:
"The name of the corporation is FIRSTPLUS FINANCIAL GROUP, INC. (the
"Corporation")."
FOURTH: At a meeting of stockholders held on March 5, 1997, notice of which was
duly given, the amendment herein certified was adopted by the holders of
18,065,127 shares, which represent 18,065,127 votes, and which constitute at
least a majority of all of the voting power of the holders of shares having
voting power.
FIFTH: The total number of outstanding shares having voting power of the
corporation at such shareholders' meeting was 24,989,252, and the total number
of votes entitled to be cast by the holders of all of said outstanding shares
was 24,989,252.
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Signed on March 5, 1997
RAC FINANCIAL GROUP, INC.
By: /s/ Daniel T. Phillips
------------------------------
Daniel T. Phillips, President
By: /s/ Ronald M. Bendalin
------------------------------
Ronald M. Bendalin, Secretary
STATE OF TEXAS )
) SS.:
COUNTY OF DALLAS )
On March 5, 1997, personally appeared before me, a Notary Public, for the
State and County aforesaid, Daniel T. Phillips, as President of RAC Financial
Group, Inc., and Ronald M. Bendalin, Secretary of RAC Financial Group, Inc., who
acknowledged that they executed the above instrument.
/s/ Velda J. Powers
------------------------------
Notary Public
SEAL
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Exhibit 4.2
REMODELERS ACCEPTANCE CORPORATION
(TO BE RENAMED RAC FINANCIAL GROUP, INC.)
A M E N D E D A N D R E S T A T E D B Y L A W S
----------------------------------------------------
ARTICLE I
OFFICES
Section 1. The registered office of the Corporation shall be located at
such place within the State of Nevada as the Board of Directors may determine
from time to time. The initial registered office of the Corporation shall be as
specified in the Articles of Incorporation of the Corporation.
Section 2. The Corporation may also have offices at such other places,
within and without the State of Nevada, as the Board of Directors may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of stockholders shall be held at the
offices of the Corporation in the City of Dallas, State of Texas, or at such
other place as from time to time may be designated by resolution of the Board of
Directors. Special meetings of the stockholders may be held at such time and
place, within or without the State of Nevada, as may be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1996,
shall be held at such time and date as may be designated by the Board of
Directors, at which the stockholders shall elect a Board of Directors, and
transact such other business as may properly be brought before the meeting.
<PAGE>
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the chairman of the board or the president and
shall be called by the president or secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of the holders
of not less than fifty percent (50%) of all shares entitled to vote at the
meeting. Such request shall state the purpose or purposes of the proposed
meeting.
Section 4. Notices of meetings shall be in writing and signed by the
chairman of the board, the president, a vice president, the secretary, an
assistant secretary, or by such other person or persons as the directors shall
designate. Such notice shall state the purpose or purposes for which the
meeting is called and the time when, and the place, which may be within or
without Nevada, where it is to be held. A copy of such notice shall be either
delivered personally to, or shall be mailed postage prepaid to, each stockholder
of record entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before such meeting. If mailed, it shall be directed to a
stockholder at his address as it appears upon the records of the Corporation and
upon such mailing of any such notice, the service thereof shall be complete,
and the time of the notice shall begin to run from the date upon which such
notice is deposited in the mail for transmission to such stockholder. Personal
delivery of any such notice to any officer of a Corporation or association, or
to any member of a partnership shall constitute delivery of such notice to such
Corporation, association or partnership. In the event of the transfer of stock
after delivery or mailing of the notice of and prior to the holding of the
meeting, it shall not be necessary to deliver or mail notice of the meeting to
the transferee.
Section 5. Business transacted at any special meeting shall be limited to
the purposes stated in the notice.
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<PAGE>
Section 6. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Articles of
Incorporation. If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes or of the Articles of Incorporation, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 8. Each outstanding share, regardless of class, shall be entitled
to one vote on each matter submitted to a vote at a meeting of stockholders,
except to the extent that voting rights of any class are increased, limited or
denied by the Articles of Incorporation or the Nevada General Corporation Law,
as amended.
Section 9. At any meeting of the stockholders, any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so
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<PAGE>
designated unless the instrument shall otherwise provide. 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 it specifies
therein the length of time for which it is to continue in force, which in no
case shall exceed seven years from the date of its execution. Subject to the
above, any proxy duly executed is not revoked and continues in full force and
effect until an instrument revoking it or a duly executed proxy bearing a later
date is filed with the secretary of the Corporation.
Section 10. Any action which may be taken by the vote of the stockholders
at a meeting may be taken without a meeting if authorized by the written consent
of stockholders holding at least a majority of the voting power, unless the
provisions of the statutes or of the Articles of Incorporation require a greater
proportion of voting power to authorize such action, in which case such greater
proportion of written consents shall be required.
ARTICLE III
DIRECTORS
Section 1. The number of directors shall be neither more than five (5) nor
less than three (3), as such number may be from time to time specified by
resolution of the Board of Directors; provided, however, that no director's term
shall be shortened by reason of a resolution reducing the number of directors.
The directors shall be elected at the annual meeting of the stockholders, and
except as provided in Section 2 of this article, each director elected shall
hold office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies, including those caused by an increase in the number
of directors, may be filled by a majority of the remaining directors though less
than a quorum. When one or more directors shall give notice of his or their
resignation to the board, effective at a future date,
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<PAGE>
the board shall have the power to fill such vacancy or vacancies to take effect
when such resignation or resignations shall become effective, each director so
appointed to hold office during the remainder of the term of office of the
resigning director or directors.
Section 3. The business of the Corporation shall be managed by its Board
of Directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
Section 4. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Nevada.
Section 5. The first meeting of each newly elected Board of Directors
shall be at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as shall
be specified in a written waiver by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
Section 7. Special meetings of the Board of Directors may be called by the
chairman of the board, the president or secretary on the written request of one
director. Written notice of special meetings of the Board of Directors shall be
given to each director at least one (1) day before the date of the meeting.
Section 8. A majority of the directors, at a meeting duly assembled, shall
be necessary to constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation. Any
action required or permitted to be taken at a meeting of the directors may be
taken without
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<PAGE>
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof.
Section 9. The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees; each committee shall
include at least one director of the Corporation, such other members may be
natural persons who are not directors. To the extent provided in the
resolution, each committee shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 10. The committees shall keep regular minutes of their proceedings
and report the same to the board when required.
Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of
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<PAGE>
the Corporation. Notice by mail shall be deemed to be given at the time when
same shall be mailed. Notice to directors may also be given by telegram or
facsimile.
Section 2. Whenever all parties entitled to vote at any meeting, whether
of directors or stockholders, consent, either by a writing on the records of the
meeting or filed with the secretary, or by presence at such meeting and oral
consent entered on the minutes, or by taking part in the deliberations at such
meeting without objection, the doings of such meeting shall be as valid as if
had at a meeting regularly called and noticed, and at such meeting any business
may be transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at the time, and
if any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote at
such meetings; and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
Section 3. Whenever any notice is required to be given under the
provisions of the statutes, of the Articles of Incorporation or of these bylaws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall consist of a chairman of
the board, a president and chief executive officer, one or more executive vice
presidents, one or more vice presidents, a secretary and a treasurer, and may
also include a vice-chairman of the board, one
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<PAGE>
or more assistant vice presidents, one or more assistant secretaries, one or
more assistant treasurers, one chief financial officer, one chief administrative
officer and one chief legal officer, each of whom shall be elected by the Board
of Directors. The chairman and vice-chairman of the board, if any, shall each
be members of the Board of Directors, but no other officers of the Corporation
need be a director. Any two or more offices may be held by the same person.
Such officers shall have such powers and duties as may be prescribed by these
bylaws or determined by the Board of Directors.
Section 2. At the first meeting of the Board of Directors after each
annual meeting of stockholders, the Board of Directors shall elect a president
and a secretary. Such other officers and assistant officers and agents as may
be deemed necessary may also be elected or appointed by the Board of Directors.
The salaries of all officers and agents of the Corporation shall be fixed by the
Board of Directors or a committee thereof.
Section 3. The officers of the Corporation shall hold office until their
respective successors are chosen and qualify. Any officer or agent who is
elected or appointed by the Board of Directors may be removed by the Board of
Directors at any time, if, in the judgment of the Board of Directors, the best
interests of the Corporation will be served thereby; PROVIDED, that such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Any vacancy occurring in any office of the Corporation (whether by
death, resignation, removal or otherwise) shall be filled by resolution of the
Board of Directors.
Section 4. The Board of Directors shall choose a director to serve as
chairman of the board. The chairman of the board shall preside at meetings of
the stockholders and of the Board of Directors and shall have such other powers
and perform such other duties as the Board of Directors may from time to time
prescribe. In addition, the chairman of the board may sign and
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<PAGE>
execute contracts, agreements, instruments and other documents on behalf of the
Corporation, and may sign and execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 5. The Board of Directors may, in its discretion, choose a director
to serve as vice-chairman of the board. The vice-chairman of the board, if any,
shall in the absence of the chairman of the board perform the duties and
exercise the powers of the chairman of the board, and shall perform such other
duties and exercise such other powers as the Board of Directors may from time to
time prescribe.
Section 6. The president shall be the chief executive officer of the
Corporation, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect and, in the absence of the chairman of the
board, the president shall preside at meetings of the stockholders and the Board
of Directors. The president may sign and execute contracts, agreements and
other documents on behalf of the Corporation, and may sign and execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. In addition, the president shall have such other powers and
perform such other duties as shall be designated by the Board of Directors from
time to time.
Section 7. From time to time, the Board of Directors shall appoint an
executive vice president to be senior executive vice president, and the senior
executive vice president shall, in
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<PAGE>
the absence or disability of the president and in the order of their seniority,
perform the duties and exercise the powers of the president. Further, the
executive vice presidents (other than the senior executive vice presidents) and
vice presidents, if any, in the order of their seniority, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
senior executive vice presidents, perform the duties and exercise the powers of
the president. The executive vice presidents and vice presidents, if any, shall
perform such other duties and exercise such other powers as the Board of
Directors may from time to time prescribe. The assistant vice presidents, if
any, shall perform such duties and exercise such powers as the Board of
Directors may from time to time prescribe.
Section 8. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and shall maintain a record of
all the proceedings of the meetings of the Corporation and of the Board of
Directors in a book to be kept for that purpose and shall perform like duties
for any committees when required. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or president, under whose supervision he shall be. The
secretary shall keep in safe custody the seal of the Corporation and, when
authorized by the Board of Directors, affix the same to any instrument requiring
it and, when so affixed, it shall be attested by his signature or by the
signature of an assistant secretary, the treasurer or an assistant treasurer.
In addition, the secretary may sign and execute contracts, agreements,
instruments and other documents on behalf of the Corporation, and may sign and
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be otherwise
signed and executed and
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<PAGE>
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation.
Section 9. The assistant secretaries, if any, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the secretary, perform the duties and exercise the
powers of the secretary. They shall perform such other duties and exercise such
other powers as the Board of Directors may from time to time prescribe.
Section 10. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the president and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 11. The assistant treasurers, if any, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and exercise such
other powers as the Board of Directors may from time to time prescribe.
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<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every stockholder shall be entitled to have a certificate,
signed by the chairman of the board, the president or a vice president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the Corporation, certifying the number of shares owned by the stockholder in
the Corporation. When the Corporation is authorized to issue shares of more
than one class or more than one series of any class, there shall be set forth
upon the face or back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any stockholders upon request and
without charge, a full or summary statement of the designations, preferences and
relative, participating, optional or other special rights of the various classes
of stock or series thereof and the qualifications, limitations or restrictions
of such rights, and, if the Corporation shall be authorized to issue only
special stock, such certificate shall set forth in full or summarize the rights
of the holders of such stock.
Section 2. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then a
facsimile of the signatures of the officers or agents of the Corporation may be
printed or lithographed upon such certificate in lieu of the actual signatures.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile
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<PAGE>
signature or signatures shall have been used thereon, had not ceased to be the
officer or officers of such Corporation.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. The directors may prescribe a period not exceeding sixty days
(60) prior to any meeting of the stockholders during which no transfer of stock
on the books of the Corporation may be made, or may fix a day not more than
sixty days (60) prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined; and only stockholders of record on such day shall be entitled to
notice or to vote at such meeting.
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and
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<PAGE>
to hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Nevada.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of its Articles of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserves in the
manner in which it was created.
CHECKS
All checks or demands for money and notes of the Corporation shall be signed by
such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
FISCAL YEAR
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Section 4. The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Corporate Seal,
Nevada."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered or repealed only by the Board of
Directors at any regular or special meeting of the Board of Directors. The
stockholders shall have no right to alter or repeal these bylaws.
I, THE UNDERSIGNED, being the secretary of REMODELERS ACCEPTANCE
CORPORATION (TO BE RENAMED RAC FINANCIAL GROUP, INC.), DOES HEREBY CERTIFY the
foregoing to be the amended and restated bylaws of said Corporation, as adopted
at a meeting of the directors held on the25 day of August 1995.
/S/ ACTING SECRETARY
---------------------------------------
,Secretary
------------------------
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<PAGE>
AMENDMENTS TO THE BYLAWS
OF
RAC FINANCIAL GROUP, INC.
The following amendment to the Bylaws of RAC Financial Group, Inc. was
adopted by the Board of Directors:
1 Article II, Section 10 of the Bylaws is deleted in its entirety and,
in the form of Bylaws, the space for Article II, Section 10 shall be reserved in
blank for its future use; and.
2. Article III, Section 1 of the Bylaws is hereby amended to read in its
entirety as follows:
Section 1. The number of Directors that shall constitute the whole
Board of Directors shall be as fixed from time to time by resolution
of the Board of Directors. The directors shall be elected at the
annual meeting of the stockholders, and except as provided in Section
2 of this article, each director elected shall hold office until his
successor is elected and qualified. Directors need not be
stockholders.
<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 the Registration Statement (Form S-4 to be filed on or about April 23,
1997) 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
April 22, 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
April 17, 1997
<PAGE>
EXHIBIT 23.4
April 15, 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 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: 4-15-97
------------------------
<PAGE>
<TABLE>
Exhibit 99.1
<CAPTION>
<S><C>
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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,
18302 Irvine Boulevard with 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
Tustin, CA 926780 18302 Irvine Boulevard, Suite 300, Tustin, CA 92780 on Friday, May 30, 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.
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FOR THE SPECIAL MEETING
TO BE HELD FRIDAY, MAY 30, 1997
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THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF WESTERN INTERSTATE BANCORP.
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THIS PROXY WHEN PROPERLY EXECUTED AND DATED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 2.
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1. Approval of the Agreement and Plan of Merger, as described in the accompanying Proxy Statement/Prospectus.
FOR / / AGAINST / / WITHHOLD VOTE / /
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2. 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 / /
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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;
Dated , 1997 if 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
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PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
