As filed with the Securities and Exchange Commission on July 2, 1997
Registration No. 333-
------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
FIRST COLORADO BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 6711 84-1320788
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
215 S. Wadsworth Boulevard
Lakewood, Colorado 80226
(303) 232-2121
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Malcolm E. Collier, Jr., President and Chief Executive Officer
215 S. Wadsworth Boulevard
Lakewood, Colorado 80226
(303) 232-2121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
WITH COPIES TO
<TABLE>
<CAPTION>
<S> <C> <C>
Gregory A. Gehlmann Brian L. Johnson Martin L. Meyrowitz, P.C.
Malizia, Spidi, Sloane & Fisch, P.C. Executive Vice President and Silver, Freedman & Taff, L.L.P.
One Franklin Square Treasurer 1100 New York Avenue, N.W.
1301 K Street, N.W. First Colorado Bancorp, Inc. Washington, DC 20005
Suite 700, East 215 S. Wadsworth Boulevard
Washington, DC 20005 Lakewood, Colorado 80226
</TABLE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effectiveness of the Registration Statement.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share (1) Price (1) Registration Fee (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $0.10 per share......... 300,000 $18.50 $3,392,252 $1,027.95
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
par value $0.10 per share......... 30,000(2) $18.50 $311,447 $94.38
====================================================================================================================================
</TABLE>
(1) Based upon the last sales price per share of the common stock of Delta
Federal Savings, F.S.B. on May 21, 1997. As of July 2, 1997, Delta Federal
Savings, F.S.B. had 183,365 shares of common stock outstanding. As of July
2, 1997, Delta Federal Savings, F.S.B. has 16,835 options to purchase
common stock outstanding.
(2) As a part of the merger and, as described herein, First Colorado Bancorp,
Inc., is registering 30,000 shares to be issued upon the exercise of
options granted under a stock option plan of Delta Federal Savings, F.S.B.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Delta Federal Savings, F.S.B.
145 W. Fourth Street
Delta, Colorado 81416
August ____, 1997
To the Shareholders of
Delta Federal Savings, F.S.B.
You are cordially invited to attend the Special Meeting of
Shareholders (the "Special Meeting") of Delta Federal Savings, F.S.B. ("Delta"),
which will be held at the Delta Fireside Inn located at 820 Highway 92, Delta,
Colorado, at 2:00 p.m. Delta, Colorado time, on September __, 1997.
At the Special Meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger, dated May 21, 1997 (the "Merger Agreement"), among
Delta, First Colorado Bancorp, Inc. ("First Colorado") and First Federal Bank of
Colorado ("First Federal") under which Delta will be merged (the "Merger") with
and into First Federal, a subsidiary of First Colorado. Upon consummation of the
Merger, each outstanding share of Delta common stock will be converted into the
right to receive First Colorado common stock and cash in lieu of fractional
shares of First Colorado common stock, based upon an exchange ratio, all as more
fully described in the accompanying Proxy Statement/Prospectus. In addition, you
will also be asked to consider and vote upon the approval and adoption of an
amendment to Delta's charter which would repeal Section 8(a) of Delta's charter
in its entirety. Section 8(a) of Delta's charter currently imposes certain
restrictions on voting by Delta's shareholders owing more than 10% of Delta's
outstanding common stock. If the Merger is not consummated, the charter will not
be amended.
Enclosed with this letter are a Notice of Special Meeting of Delta's
Shareholders and the Proxy Statement/Prospectus, which describes in detail the
proposed Merger, the background of the Merger, and other related information.
Also enclosed is a proxy solicited by Delta's Board of Directors in connection
with the Special Meeting.
Charles Webb & Company, a division of Keefe, Bruyette & Woods, an
investment banking firm, has issued its opinion to your board of directors
regarding the fairness from a financial point of view, of the consideration to
be received by the shareholders of Delta pursuant to the Merger Agreement as of
the date of such opinion. A copy of the opinion is attached as Appendix II to
the Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER
AND RECOMMENDS THAT SHAREHOLDERS VOTE THEIR SHARES "FOR" APPROVAL OF THE MERGER
AND THE AMENDMENT TO THE CHARTER. THE BOARD OF DIRECTORS BELIEVES THAT THE
PROPOSED MERGER IS IN THE BEST INTEREST OF DELTA AND ITS SHAREHOLDERS. THE
AFFIRMATIVE VOTE OF TWO-THIRDS OF DELTA'S OUTSTANDING SHARES ENTITLED TO VOTE IS
NECESSARY TO APPROVE THE MERGER. ACCORDINGLY, FAILURE TO VOTE, EITHER BY
RETURNING YOUR PROXY CARD OR VOTING IN PERSON AT THE SPECIAL MEETING WILL HAVE
THE EFFECT OF A VOTE AGAINST THE MERGER.
We urge you to consider carefully all of the materials in the Proxy
Statement/Prospectus and to execute and return the enclosed proxy as soon as
possible. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
Sincerely,
David A. Humphries
President and Chief Executive Officer
<PAGE>
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. YOU WILL
RECEIVE INSTRUCTIONS FOLLOWING THE MERGER FOR EXCHANGE OF STOCK
CERTIFICATES.
<PAGE>
Delta Federal Savings, F.S.B.
145 W. Fourth Street
Delta, Colorado 81416
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
August ___, 1997
The Special Meeting of Shareholders (the "Special Meeting") of Delta
Federal Savings, F.S.B. ("Delta") will be held on September ___, 1997, at the
Delta Fireside Inn located at 820 Highway 92, Delta, Colorado, at 2:00 p.m.
local time, for the purpose of considering and voting upon the following:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger (the "Merger Agreement") dated May 21, 1997, among
Delta, First Colorado Bancorp, Inc. ("First Colorado") and First
Federal Bank of Colorado ("First Federal"), pursuant to which
Delta will be merged with and into First Federal, a subsidiary of
First Colorado and shareholders of Delta will receive First
Colorado common stock, and cash in lieu of fractional shares of
First Colorado common stock, for each share of Delta common
stock, held by them, based upon an exchange ratio as more fully
described in the accompanying Proxy Statement/Prospectus. As part
of this proposal, stockholders will also be asked to approve and
adopt an amendment to Delta's charter, in conjunction with the
Merger (the "Merger Proposal"). The charter amendment would
repeal Section 8(a) of Delta's charter in its entirety. Section
8(a) of Delta's charter currently imposes certain restrictions on
voting by stockholders owning more than 10% of Delta's
outstanding common stock. A vote in favor of the Merger Proposal
will also be deemed to be a vote in favor of the charter
amendment. However, in the event the stockholders of Delta
approve the Merger Proposal but the Merger is not consummated,
Section 8(a) of Delta's charter will not be repealed and will
remain unchanged.
2. To approve a proposal to adjourn the Special Meeting to permit
further solicitation in the event that an insufficient number of
shares is present in person or by proxy to approve the Merger
Agreement.
Only shareholders of record at the close of business on the record
date, __________ ___, 1997, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. The affirmative vote of not less than
two-thirds of outstanding Delta common stock entitled to vote is necessary to
approve the Merger Proposal. Accordingly, failure to vote either by failing to
return your proxy card or failing to vote in person at the Special Meeting will
have the same effect as a vote against the Merger. In the event there are not
sufficient shares represented for a quorum or votes to approve the Merger
Proposal at the Special Meeting, Delta's Board of Directors may adjourn the
Special Meeting to permit further solicitation. We urge you to execute and
return the enclosed proxy as soon as possible to ensure that your shares will be
represented at the Special Meeting. Your proxy may be revoked in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the Special Meeting.
By Order of the Board of Directors
Nina L. Willis
Secretary
Delta, Colorado
August ___, 1997
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF
THE PROPOSALS STATED ABOVE. PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL
MEETING.
<PAGE>
Proxy Statement/Prospectus
Proxy Statement
of
Delta Federal Savings, F.S.B.
For a Special Meeting of Shareholders
To Be Held on September ____, 1997
First Colorado Bancorp, Inc.
Prospectus
330,000 Shares of Common Stock
This Proxy Statement/Prospectus is being furnished to the Shareholders
of Delta Federal Savings, F.S.B. ("Delta") in connection with the solicitation
of proxies by Delta's Board of Directors for use at a special meeting of
shareholders of Delta (the "Special Meeting") to be held on September __, 1997.
The primary purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Agreement and Plan of Merger (the "Merger Agreement")
dated May 21, 1997, among Delta, First Colorado Bancorp, Inc. ("First Colorado")
and First Federal Bank of Colorado ("First Federal"), which agreement provides
for the merger (the "Merger") of Delta with and into First Federal, a wholly
owned subsidiary of First Colorado. The Merger Agreement is attached to this
Proxy Statement/Prospectus as Appendix I and is incorporated by reference
herein. As part of this proposal, stockholders will also be asked to consider
and vote upon the approval and adoption of an amendment to Delta's charter. The
charter amendment would repeal Section 8(a) of Delta's charter in its entirety.
Section 8(a) of Delta's charter currently imposes certain restrictions on voting
by stockholders owning more than 10% of Delta's outstanding common stock. A vote
in favor of the Merger Proposal will be deemed to be a vote in favor of the
charter amendment. However, in the event the stockholders of Delta approve the
Merger Proposal but the Merger is not consummated for any reason, the board of
directors of Delta intends to abandon the charter amendment prior to the filing
of such amendment with the Office of Thrift Supervision ("OTS"). Therefore, if
the Merger is not consummated, Section 8(a) of Delta's charter will not be
repealed and will remain unchanged. Shareholders will also vote at the meeting
for adjournment to permit further solicitation if an insufficient number of
shares have voted for approval of the Merger Agreement.
Upon consummation of the Merger, each outstanding share of Delta's
common stock, par value $0.01 per share ("Delta Common Stock"), (excluding any
dissenting shares and any shares held in the treasury of Delta) will be
converted into the right to receive a number of shares of First Colorado's
common stock, par value $0.10 per share ("First Colorado Common Stock")
(together with the number of Rights ("Bancorp Rights") issued pursuant to the
Rights Agreement) equal to the quotient (rounded to the nearest one
one-hundredth) of $30 divided by the average of the midpoint of the last bid and
ask price for First Colorado's Common Stock as reported on The Nasdaq National
Market for the 20 trading days immediately preceding the effective date of the
Merger (the "Exchange Ratio"). The last reported sales price of First Colorado's
Common Stock at May 20, 1997 was $16.9375 (the last trading date prior to the
announcement of the Merger). The last reported sales price of First Colorado's
common stock at August ____, 1997 was $__________.
This Proxy Statement also constitutes a prospectus of First Colorado
relating to approximately 330,000 shares of First Colorado Common Stock that
will be issued in connection with the Merger and the exercise of certain options
granted under the Delta Federal Savings, F.S.B. 1993 Stock Option and Incentive
Plan (the "Plan").
THE SHARES OF FIRST COLORADO COMMON STOCK TO BE ISSUED PURSUANT TO THE
MERGER AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
<PAGE>
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FIRST COLORADO COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS AUGUST ___, 1997.
<PAGE>
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus or
incorporated by reference herein in connection with the solicitation of proxies
or the offering of securities made hereby and, if given or made, such
information or representations must not be relied upon as having been authorized
by First Colorado or Delta. This Proxy Statement/Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of First Colorado or Delta since
the date of this Proxy Statement/Prospectus or that the information herein or
the documents or reports incorporated by reference herein are correct as of any
time subsequent to such date. All information contained in this Proxy
Statement/Prospectus relating to Delta and its subsidiary has been supplied by
Delta and all information contained in this Proxy Statement/Prospectus relating
to First Colorado and its subsidiaries has been supplied by First Colorado.
AVAILABLE INFORMATION
First Colorado is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and other
information, when filed, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's Regional offices in New York (7
World Trade Center, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of such
material can also be obtained from the Public Reference Section of the
Commission, at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. First Colorado furnishes its shareholders with annual reports
containing audited consolidated financial statements with an opinion expressed
by independent certified public accountants for each fiscal year and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission and the address of such site is
http://www.sec.gov.
Delta was subject to the informational requirements of the Exchange Act
from April 6, 1993 to September 12, 1996, and in accordance therewith filed
reports, proxy statements and other information with the Office of Thrift
Supervision ("OTS"). The reports, proxy statements and other information filed
by Delta with the OTS, during such time period, can be inspected at the Office
of Thrift Supervision, Information Services Division, 1700 G Street, N.W.,
Washington, D.C. 20552.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by First Colorado (File No. 0-27126) with
the Commission are hereby incorporated by reference into and made a part of this
Proxy Statement/Prospectus.
1. The Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
3. The description of First Colorado Common Stock contained in
First Colorado's Registration Statement on Form 8-A filed with
the Commission.
4. The description of First Colorado Preferred Share Purchase
Rights contained in First Colorado's Registration Statement on
Form 8-A filed with the Commission.
5. First Colorado's report on Form 8-K dated May 21, 1997, filed
with the Commission.
6. All documents filed by First Colorado after the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, prior to the termination
of the offering covered by this Prospectus.
First Colorado has filed with the Commission a Registration Statement
on Form S-4 (together with any amendments thereof, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of First Colorado Common Stock it will issue pursuant to
the Merger Agreement. This Proxy Statement/Prospectus does not contain all
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus as to the contents
of any contract or other document referred to herein or therein 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 or such other document), each such statement being qualified in all
respects by such reference. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference in this Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON WRITTEN REQUEST (WITHOUT CHARGE) TO __________, FIRST COLORADO
BANCORP, INC., 215 S. WADSWORTH BOULEVARD, LAKEWOOD, COLORADO 80226. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST MUST BE RECEIVED BY
__________ ___, 1997.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION....................................................................
SUMMARY INFORMATION.............................................................
The Parties...................................................................
The Special Meeting of Delta Shareholders.....................................
Effective Date................................................................
Merger Consideration..........................................................
Recommendation of Delta's Board of Directors..................................
Opinion of Delta's Financial Advisor..........................................
Federal Income Tax Consequences...............................................
Accounting Treatment..........................................................
Conditions; Regulatory Approvals; Termination.................................
Effect of the Merger on Shareholders' Rights..................................
Dissenters' Rights of Appraisal...............................................
Interests of Certain Persons in the Merger....................................
Market Prices and Dividends...................................................
Comparative Per Share Financial Information...................................
SELECTED CONSOLIDATED FINANCIAL INFORMATION.....................................
THE SPECIAL MEETING OF DELTA SHAREHOLDERS.......................................
Matters to be Considered at the Special Meeting...............................
Record Date; Vote Required....................................................
Voting of Proxies; Revocability of Proxies; Solicitation of Proxies...........
Dissenters' Appraisal Rights..................................................
PROPOSAL I-THE MERGER...........................................................
The Merger....................................................................
Background of the Merger......................................................
Reasons for the Merger........................................................
Opinion of Delta's Financial Advisor..........................................
Conditions To Consummation Of The Merger; Waiver..............................
Termination...................................................................
No Solicitation of Transactions...............................................
Expenses: Termination Fees....................................................
Business Pending Consummation.................................................
Delta's Stock Option Plan.....................................................
Certain Federal Income Tax Consequences.......................................
<PAGE>
Accounting Treatment..........................................................
Exchange Of Certificates......................................................
Interests of Certain Persons in the Merger....................................
Resales by Affiliates.........................................................
Regulatory Approvals..........................................................
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS....................................
General.......................................................................
Board of Directors............................................................
Meetings of Shareholders; Cumulative Voting; Proxies..........................
Nominations to the Board of Directors, Shareholder Proposals, and
Conduct of Meetings.........................................................
Authorized Shares.............................................................
Limitations on Voting.........................................................
Indemnification; Limitation of Liability......................................
First Colorado Rights Agreement...............................................
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.................................
PROPOSAL II-ADJOURNMENT OF THE MEETING..........................................
EXPERTS.........................................................................
LEGAL MATTERS...................................................................
OTHER MATTERS...................................................................
APPENDICES:
Appendix I - Agreement and Plan of Merger dated May 21, 1997
Appendix II - Fairness Opinion of Charles Webb & Company
Appendix III - Section 552.14 of OTS Regulations
Appendix IV - Delta Federal Savings Bank, F.S.B.
1996 Annual Report and Financial Statements for March 31, 1997
This Proxy Statement/Prospectus contains forward-looking statements which
involve risks and uncertainties. First Colorado's and Delta's actual results may
differ significantly from the results discussed in the forward-looking
statements.
<PAGE>
INTRODUCTION
Delta is furnishing this Proxy Statement/Prospectus and the
accompanying proxy (the "Proxy") to Delta's shareholders in connection with the
solicitation of Proxies by Delta's Board of Directors for a Special Meeting to
be held at the Delta Fireside Inn located at 820 Highway 92, Delta, Colorado, at
2:00 p.m. local time, on September ____, 1997, and any adjournments thereof, to
consider and vote upon a proposal to approve the Agreement and Plan of Merger
(the "Merger Agreement") dated May 21, 1997, among Delta, First Colorado and
First Federal and all actions necessary to consummate the transactions
contemplated thereby, including the adoption of an amendment to Delta's Charter
(the "Merger Proposal").
This Proxy Statement/Prospectus and the Proxy will be first sent or
given to Delta shareholders on or about August ____, 1997.
The shares of Delta Common Stock represented by a Proxy will be voted
as directed if the Proxy is properly signed and received by Delta prior to the
Special Meeting. The Proxy will be voted "FOR" the approval of the Merger
Proposal if no direction is made to the contrary on a duly executed and returned
Proxy. The Proxy will also be voted, if necessary and unless otherwise
instructed, in favor of a proposal to adjourn the Special Meeting to solicit
additional proxies should an insufficient number of shares be present to approve
the Merger Proposal. A person giving a Proxy has the power to revoke it at any
time before it is voted by notifying Delta in person, by giving timely written
notice to Delta of the revocation of the proxy, by submitting to Delta a
subsequently dated Proxy, or by attending the Special Meeting and withdrawing
the Proxy before it is voted.
Delta will bear the cost of the solicitation of the Proxies, including
the charges and expenses of brokerage firms and others, if any, for forwarding
solicitation material to beneficial owners of Delta Common Stock.
Representatives of Delta may solicit proxies by mail, telegram, telephone or
personal interview. See "The Special Meeting of Delta Shareholders--Voting of
Proxies; Revocability of Proxies; Solicitation of Proxies."
Shareholders of record of Delta at the close of business on __________
___, 1997 (the "Record Date"), will be entitled to vote at the Special Meeting.
1
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY INFORMATION
The following is a brief summary of the matters to be considered at the
Special Meeting. This summary is not intended to be complete and is qualified in
its entirety by reference to, and should be read in conjunction with, the
detailed information, including the appendices attached hereto, contained or
incorporated by reference herein. A copy of the Merger Agreement is attached as
Appendix I to this Proxy Statement/Prospectus. Shareholders are urged to read
carefully the entire Proxy Statement/Prospectus. The terms "First Colorado,"
"Delta," and "First Federal" refer to such organizations, and unless the context
otherwise requires, such organizations and their respective subsidiaries.
The Parties
First Colorado. First Colorado is a Colorado corporation organized in
September 1995, at the direction of the Board of Directors of First Federal to
facilitate the conversion of First Savings Capital, M.H.C. ("Mutual Holding
Company") from the mutual to stock form of ownership and to acquire and hold all
of the capital stock of First Federal (collectively, the "Conversion and
Reorganization"). Prior to the consummation of the Conversion and
Reorganization, the Mutual Holding Company was the majority shareholder of First
Federal and upon consummation of the Conversion and Reorganization, the Mutual
Holding Company was merged with and into First Federal. The Company acquired
First Federal as a wholly owned subsidiary upon the consummation of the
Conversion and Reorganization on December 29, 1995. In connection with the
Conversion and Reorganization, First Colorado sold 13,403,798 shares of its
common stock to the public in an initial public offering and issued 6,619,539
shares in exchange for the outstanding shares of First Federal held by persons
other than the Mutual Holding Company. As of March 31, 1997, the Company had
total assets of $1.51 billion, total deposits of $1.14 billion, and
stockholders' equity of $192.09 million, or 12.7% of total assets.
The primary activity of First Colorado is holding the common stock of
First Federal. First Colorado is therefore a unitary savings and loan holding
company. First Colorado has no significant assets other than all of the
outstanding shares of First Federal common stock and the note evidencing First
Colorado's loan to First Federal's Employee Stock Ownership Plan. First Colorado
neither owns nor leases any property, but instead uses the premises, equipment
and furniture of First Federal. At the present time, First Colorado does not
intend to employ any persons other than executive officers who are also
executive officers of First Federal, and First Colorado will utilize the support
staff of First Federal from time to time. Additional employees will be hired as
appropriate to the extent First Colorado expands or changes its business in the
future.
Management believes that the holding company structure provides First
Colorado with additional flexibility to diversify, should it decide to do so,
its business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions and
financial services related companies.
First Colorado's executive offices are located at 215 S. Wadsworth
Boulevard, Lakewood, Colorado 80226 and its telephone number is (303) 232-2121.
First Federal. First Federal is a federally chartered stock savings
bank, originally chartered by the State of Colorado as the Cooperative Building
and Loan Association on April 25, 1885. In connection with the Conversion and
Reorganization, First Federal changed its name from First Federal Savings Bank
of Colorado to its current name and became a wholly owned subsidiary of First
Colorado. A federal charter was granted to the First Federal in 1934, the same
year that deposit accounts became federally insured and First Federal became a
member of the Federal Home Loan Bank ("FHLB") System.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
First Federal's deposits are insured by the FDIC under the Savings Association
Insurance Fund ("SAIF"), and First Federal is regulated by the OTS.
The principal business of First Federal is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one-to
four-family residences and other improved residential and commercial real
estate. First Federal is also active in the origination of home equity loans.
First Federal's income is derived largely from interest on interest-earning
assets such as loans, mortgage-backed securities and investments. Its principal
expenses are interest paid on deposits and borrowings, operating expenses and
provisions for loan losses.
Delta. Delta is a federally chartered capital stock savings bank
headquartered in Delta, Colorado, and is in the principal business of attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, primarily in one-to four-family
residential mortgage loans. Delta operates one full service office in Delta
County located in western Colorado. At March 31, 1997, Delta reported total
assets of approximately $39.1 million, loans of approximately $33.4 million and
total deposits of approximately $30.6 million.
Delta's executive offices are located at 145 W. Fourth Street, Delta,
Colorado 81416 and its telephone number is (970) 874-9755.
The Special Meeting of Delta Shareholders
The purpose of the Special Meeting is to approve the Merger Proposal
which provides for the merger of Delta with and into First Federal and the
amendment to Delta's charter. Delta's Board of Directors has unanimously
approved the Merger Proposal and recommends that the shareholders of Delta vote
"FOR" the Merger Proposal. See "Proposal I-The Merger -- Background of the
Merger" and "-- Reasons for the Merger."
Shareholders of record of Delta at the close of business on the Record
Date will be entitled to vote at the Special Meeting. Delta shareholders are
entitled to cast one vote for each share of Delta Common Stock they hold on the
Record Date. To approve the Merger Proposal, a vote of two-thirds of the issued
and outstanding shares of Delta Common Stock is required. As of the Record Date,
the directors, executive officers and affiliates of Delta owned 23,023 shares,
or 12.6% of the issued and outstanding common stock of Delta. Management of
Delta expects that such shares will be voted "FOR" the approval of the Merger
Proposal.
A Proxy for use by Delta's shareholders in connection with the Special
Meeting is enclosed with this Proxy Statement/Prospectus. The Proxy will be
voted as specified thereon by the shareholder. Where no specification is made on
the proxy, a properly executed Proxy will be voted "FOR" approval of the Merger
Proposal, and "FOR" adjournment of the Special Meeting, if necessary, in order
to further solicit proxies in favor of the Merger.
A person giving a Proxy may revoke it at any time before it is voted by
notifying Delta in person, by giving timely written notice to Delta of the
revocation of the Proxy, by submitting to Delta a subsequently dated proxy or by
attending the Special Meeting and withdrawing the Proxy before it is voted at
the Special Meeting. See "The Special Meeting of Delta Shareholders."
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Effective Date
Subject to the conditions to the obligations of the parties to effect
the Merger, the Merger will become effective (the "Effective Date") at the time
specified by the Secretary of the OTS in its endorsement of the articles of
combination filed by First Federal. Subject to the foregoing, it is currently
anticipated that the Merger will be consummated in the fourth quarter of 1997.
Merger Consideration
Upon consummation of the Merger, each outstanding share of Delta Common
Stock (excluding any dissenting shares and any shares held in the treasury of
Delta) will be converted into the right to receive a number of shares of First
Colorado Common Stock (together with Bancorp Rights issued pursuant to the
Rights Agreement) equal to the quotient (rounded to the nearest one
one-hundredth) of $30 divided by the average of the midpoint of the last bid and
ask price for First Colorado Common Stock as reported on The Nasdaq National
Market for the 20 trading days immediately preceding the Effective Date (the
"Exchange Ratio"). The last reported sales price of First Colorado's common
stock at August ____, 1997 was $__________. The affirmative vote of not less
than two-thirds of the outstanding shares of Delta Common Stock is required to
approve the Merger. See "Proposal I - The Merger -- Conditions to Consummation
of the Merger."
Recommendation of Delta's Board of Directors
The Board of Directors of Delta unanimously recommends that the Delta
shareholders vote to approve the Merger Proposal and the Adjournment Proposal.
See "Proposal I - The Merger--Background of the Merger" and "-- Reasons for the
Merger."
Opinion of Delta's Financial Advisor
Charles Webb & Company, a division of Keefe, Bruyette of Woods, Inc.
("Webb"), Delta's financial advisor, has rendered its opinion to Delta's Board
of Directors that the consideration to be received by Delta's shareholders is
fair from a financial point of view. As discussed in "The Merger-- Reasons for
the Merger," Webb's opinion and presentations were among the factors considered
by Delta's board in reaching the determination to approve the Merger. A copy of
Webb's opinion is attached hereto as Appendix II and should be read in its
entirety with respect to the assumptions made, other matters considered, and
limitations on the review undertaken by Webb in rendering its opinion. See
"Proposal I - The Merger -- Opinion of Delta's Financial Advisor."
Federal Income Tax Consequences
The Merger will be a tax-free reorganization for federal income tax
purposes. Delta's shareholders will receive First Colorado Common Stock in
exchange for their Delta Common Stock under the terms of the Merger Agreement.
Upon the exchange of stock, Delta's shareholders will recognize no gain or loss
upon their exchange of Delta Common Stock solely for shares of First Colorado
Common Stock. Upon the exchange of cash for fractional shares of Delta Common
Stock, Delta's shareholders will recognize gain, but not in an amount in excess
of cash received. See "Proposal I - The Merger -- Federal Income Tax
Consequences."
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Accounting Treatment
First Colorado expects that the Merger will be accounted for under the
purchase method of accounting. See "The Merger -- Accounting Treatment".
Conditions; Regulatory Approvals; Termination
Consummation of the Merger is subject to various conditions, including
among others, receipt of approval by two-thirds of the shares entitled to be
voted by Delta's shareholders, receipt of certain legal opinions and the
satisfaction of other customary closing conditions. In addition, the Merger is
subject to receipt of required approvals from the FDIC, Department of Justice,
and the OTS. An application seeking approval of the Merger was filed with the
OTS on __________ ___, 1997, and notice of the Merger was filed with the FDIC on
__________ ___, 1997. See "Proposal I--The Merger -- Regulatory Approvals."
Upon satisfaction or waiver of all conditions under the Merger
Agreement, First Federal will file articles of combination with the Secretary of
the OTS. First Colorado and Delta anticipate that the Merger will be completed
prior to December 31, 1997. There can be no assurance, however, that the
necessary regulatory and other approvals will be received by the parties or as
to the timing of such approvals. Accordingly, there may be extended delays
following the Special Meeting before the Merger is consummated, and if any of
the conditions of the Merger Agreement are not satisfied or waived, the Merger
might not be consummated. See "Proposal I-The Merger -- Conditions to
Consummation of the Merger" and "--Termination." Also, the Merger Agreement may
be terminated under certain circumstances. See "Proposal I - The Merger --
Termination."
Effect of the Merger on Shareholders' Rights
If the Merger Agreement is approved, Delta shareholders will receive
shares of First Colorado Common Stock which have different rights with respect
to certain important matters including certain provisions which are intended to
ensure that a party seeking control of First Colorado will discuss its proposal
with First Colorado's Board of Directors. Delta is a federal savings bank
incorporated under the laws of the United States, and upon consummation of the
Merger, Delta's shareholders will become shareholders of a Colorado corporation.
See "Effect of the Merger on Shareholders' Rights."
Dissenters' Rights of Appraisal
Holders of Delta Common Stock will be entitled to dissenters' rights of
appraisal under applicable federal law. See "The Special Meeting of Delta
Shareholders--Appraisal Rights" and Appendix III-- Section 552.14 of the OTS
Regulations.
Interests of Certain Persons in the Merger
Certain members of Delta's management and Board of Directors have
interests in the Merger in addition to their interests as Delta shareholders.
These include provisions in the Merger Agreement relating to continued
employment, indemnification, severance payments and benefit plan payments. See
"Proposal I--The Merger -- Interests of Certain Persons in the Merger."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Market Prices and Dividends. First Colorado common stock is traded on
The Nasdaq National Market under the symbol "FFBA". The Company's offering of
common stock closed on December 29, 1995 and shares of common stock were issued
and sold in that offering at $10.00 per share. The table below sets forth, for
the calendar quarters indicated, the reported high and low sales prices of First
Colorado common stock as reported on the Nasdaq Stock Market, based on published
financial sources, and the dividends declared on such stock.
First Colorado Common Stock
High Low Dividends
---- --- ---------
1996
First Quarter................. $12.50 $11.00 $.075
Second Quarter................ 13.75 11.75 .080
Third Quarter................. 15.62 12.50 .080
Fourth Quarter................ 17.88 14.94 .090
1997
First Quarter................. 18.88 16.50 .100
Second Quarter
through June 25, 1997)...... 19.88 19.50 .110
Delta converted from a federal mutual savings bank to a federal stock
savings bank on April 6, 1993 through the issuance of 182,000 shares of common
stock at the price $10.00 per share. Delta is not listed or quoted on any
exchange or automatic quotation system and no institution makes a market in the
stock. The common stock is traded sporadically and the last reported sales price
was $27.00 on or about May 23, 1997, based upon a negotiated sales price. Delta
declared cash dividends of $0.30 per share during fiscal 1996.
The following table sets forth the last reported sales price per share
of First Colorado Common Stock and Delta Common Stock giving effect to the
Merger on (i) May 20, 1997, the last business day preceding public announcement
of the signing of the Merger Agreement and (ii) August ____, 1997, the last
practicable date prior to the mailing of this Proxy Statement/Prospectus.
Equivalent Price
First Colorado Delta per Delta
Common Stock Common Stock Common Stock (1)
------------ ------------ ----------------
May 20, 1997................ $16.9375 $18.5000 $32.7675
August ____, 1997...........
footnote on next page
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
- -------------------
(1) The equivalent price per share of Delta Common Stock at each specified
date was determined by multiplying (i) the last reported sales price of
Delta on such date; and (ii) the Exchange Ratio ($30 divided by the
last reported sales price of First Colorado on such date).
No assurance can be given as to what the Exchange Ratio will be or as
to what the market price of First Colorado Common Stock will be at the time the
Merger is consummated. Delta shareholders are encouraged to obtain current
market quotations for shares of First Colorado.
Comparative Per Share Financial Information. The following summary
presents, for the periods indicated, selected comparative and pro forma per
share financial information: (i) on a historical basis for both First Colorado
and Delta; and (ii) on a pro forma equivalent basis per common share for Delta.
Such financial information is computed on a pro forma equivalent basis with
respect to a share Delta common stock by multiplying the pro forma combined
amount (giving effect to the Merger) by Exchange Ratios of 1.7712 and
__________. See "-- Merger Consideration".
<TABLE>
<CAPTION>
Period Ended For the Most
June 30, 1997 Recent Fiscal Year(1)
------------- ---------------------
Net Income per Share
<S> <C> <C>
First Colorado.............................. $.72
Delta ...................................... .92
Pro forma Delta equivalent at Exchange
Ratio of
1.7712.................................... 1.63
_____.....................................
Dividends per Share
First Colorado..................................... .325
Delta.............................................. .300
Pro forma Delta equivalent at Exchange
Ratio of
1.7712........................................... .531
_____............................................
Book Value per Share
First Colorado..................................... $11.91
Delta.............................................. 18.22
Pro forma Delta equivalent at Exchange
Ratio of 32.27
1.7712...........................................
-----............................................
</TABLE>
(1) First Colorado's most recent fiscal year end is December 31, 1996 and
Delta's most recent fiscal year end is September 30, 1996.
- --------------------------------------------------------------------------------
7
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data for the two years
ended September 30, 1996, are derived from the consolidated financial statements
of Delta. The selected consolidated financial data for the six months ended
March 31, 1997 and 1996, are derived from unaudited consolidated financial
statements. Such information should be read in conjunction with the consolidated
financial statements of Delta contained in Appendix IV. The unaudited
consolidated financial statements include all adjustments (consisting of normal
recurring adjustments) which management of Delta considers necessary for a fair
presentation of the financial position and the results of operation for these
periods. Operating results for the six months ended March 31, 1997, are not
necessarily indicative of the results that may be expected for the entire year
ending September 30, 1997 or any other period.
8
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30,
--------- -------------
1997 1996 1996 1995
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................................ $39,073 $42,961 $39,853 $35,210
Loans receivable, net....................................... 33,403 37,827 34,221 28,804
Mortgage-backed and related securities...................... 562 591 557 689
Investment securities, net.................................. 2,411 1,741 2,511 2,950
Deposits.................................................... 30,620 32,607 29,914 30,340
Borrowings.................................................. 4,700 6,700 6,040 1,000
Retained earnings, substantially restricted................. 2,002 1,831 1,831 1,717
Shareholders' Equity........................................ 3,549 3,374 3,340 3,284
Earnings Per Share (weighted)............................... 0.93 0.77 0.92 0.83
Cash dividends per share.................................... 0.15 0.15 0.30 0.27
Number of shares outstanding................................ 183,365 183,365 183,365 183,365
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
--------- -------------
1997 1996 1996 1995
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Selected Operations Data:
Total interest income....................................... $1,578 $1,509 $3,058 $2,570
Total interest expense...................................... (834) (816) (1,636) (1,343)
------ ------ ------ ------
Net interest income....................................... 744 693 1,422 1,227
Provision for loan losses................................... (6) (12) (27) (32)
------ ------ ------ ------
Net interest income after provision
for loan losses......................................... 738 681 1,395 1,195
Total non-interest income................................... 56 82 169 72
Total non-interest expense.................................. 533 549 1,307 1,051
Income before income taxes and
effect of accounting changes............................ 261 214 257 216
------ ---- ------ ------
Income tax expense.......................................... 90 72 88 64
------ ---- ------ ------
Income before effect of accounting changes................ 171 142 169 152
Net effect of changes in accounting principles............ -- -- -- --
------ ------ ------ ------
Net income.................................................. $ 171 $ 142 $ 169 $ 152
====== ====== ====== ======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
--------- -------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net
income to average total assets)........................... 0.88% 0.72% 0.45% 0.44%
Interest rate spread information:
Average during period..................................... 3.37 3.08 3.18 3.09
End of period............................................. 3.42 3.19 3.29 2.97
Net interest margin ........................................ 3.89 3.62 3.73 3.68
Ratio of operating expense to average total assets.......... 2.73 2.81 3.48 3.07
Return on equity (ratio of net income
to average equity)........................................ 9.90 8.49 5.11 4.78
Quality Ratios:
Non-performing assets to total
assets at end of period................................. 0.01 0.16 0.02 0.02
Allowance for loan losses to
loans receivable, net.................................... 0.86 0.85 0.91 0.95
Capital Ratios:
Shareholders' equity to total
assets at end of period.................................. 9.08 7.86 8.38 9.33
Average shareholders' equity to average assets............ 8.84 8.51 8.83 9.27
Ratio of average interest-earning assets to
average interest-bearing liabilities..................... 112.08 112.56 112.72 114.55
Number of full service offices.............................. 1 1 1 1
</TABLE>
10
<PAGE>
THE SPECIAL MEETING OF DELTA SHAREHOLDERS
Matters to be Considered at the Special Meeting
This Proxy Statement/Prospectus is being furnished by Delta to its
shareholders in connection with the solicitation of proxies by the Board of
Directors of Delta for use at the Special Meeting to be held at 2:00 p.m., local
time, on September __, 1997, at the Delta Fireside Inn located at 820 Highway
92, Delta, Colorado, and any adjournment or adjournments thereof, to consider
and vote upon the Merger Proposal and a proposal for adjournment in the event
there are insufficient votes to approve the Merger Agreement and any other
business as may properly come before the Special Meeting.
The Board of Directors of Delta has unanimously approved the Merger
Proposal and believes it is in the best interests of Delta and its shareholders
and unanimously recommends its approval by Delta shareholders. See "Proposal
I--The Merger--Background of the Merger" and "--Reasons for the Merger."
Record Date; Vote Required
The Board of Directors of Delta has fixed the close of business on
__________ ____, 1997, as the Record Date for determining shareholders entitled
to notice of and to vote at the Special Meeting, and accordingly, only holders
of Delta Common Stock of record at the close of business on that day will be
entitled to notice of and to vote at the Special Meeting. The number of shares
of Delta Common Stock outstanding on the Record Date was __________, each of
such shares being entitled to one vote.
As to the approval of the Merger Proposal, by checking the appropriate
box, a stockholder may: (i) vote "FOR" approval of the Merger Proposal; (ii)
vote "AGAINST" approval of the Merger Proposal; or (iii) "ABSTAIN." Because the
affirmative vote of the holders of two-thirds of the outstanding shares of Delta
Common Stock entitled to vote on the Merger is required to approve and adopt the
Merger Proposal and the transaction contemplated thereby, abstentions will have
the effect of a vote against the approval of the Merger Proposal. In addition,
brokers who hold shares in street name for individuals who are the beneficial
owners of such shares are prohibited from giving a proxy to vote shares held for
such individuals on the approval and adoption of the Merger Proposal without
specific instructions from such individuals. The failure of such individuals to
provide specific instructions with respect to their shares of Delta Common Stock
to their broker will have the effect of a vote against the approval of the
Merger Proposal.
As to the approval of the proposal to adjourn the Special Meeting in
the event that there is an insufficient number of shares present in person or by
proxy to approve the Merger Proposal, a shareholder may: (i) vote "FOR" the
adjournment; (ii) vote "AGAINST;" or (iii) "ABSTAIN." Approval of the
adjournment requires the affirmative vote of the holders of a majority of the
Common Stock of Delta present in person or by proxy at the Special Meeting,
without regard to Broker Non-votes. Proxies marked "ABSTAIN" will have the same
effect as a vote against the proposal to adjourn the Special Meeting.
The directors and executive officers of Delta (including certain of
their related interests) beneficially own, as of the Record Date, and are
entitled to vote at the Special Meeting 23,023 shares of Delta Common Stock. See
"Voting Securities and Principal Holders Thereof."
11
<PAGE>
Voting of Proxies; Revocability of Proxies; Solicitation of Proxies
After having been submitted, the enclosed Proxy may be revoked by the
person giving it, at any time before it is exercised, by: (i) submitting written
notice of revocation of such Proxy to the Secretary of Delta; (ii) submitting a
Proxy having a later date; or (iii) appearing at the Special Meeting and
requesting a return of the Proxy. All shares represented by valid Proxies will
be exercised in the manner specified thereon. If no specification is made, duly
executed Proxies will be voted in favor of the Merger Proposal, and the proposal
to adjourn the Special Meeting.
The solicitation is being made by Delta. Directors, officers and
employees of Delta may solicit proxies from Delta shareholders, either
personally or by telephone, telegraph or other form of communication. Such
persons will receive no additional compensation for such services. All expenses
associated with the solicitation of Proxies will be paid by Delta.
Dissenters' Appraisal Rights
As set forth in Section 552.14 of the OTS Regulations for Federal
Savings Associations, record holders of Delta Common Stock will be entitled to
appraisal rights because the Delta Common Stock will not be quoted on the
National Association of Securities Dealer's Automated Quotation System on the
date of the Special Meeting. Each shareholder electing to make a demand for
appraisal and payment shall deliver to Delta, before voting on the Merger
Proposal, a writing identifying himself or herself and stating his or her
intention thereby to demand appraisal of and payment for his or her shares of
Delta Common Stock. A Shareholder's failure to vote against the Merger Proposal
shall not constitute a waiver of his or her appraisal rights. Delta is
satisfying the notice requirements of Section 552.14 of the OTS Regulations by
providing all Delta shareholders, on the close of business as of the record
date, this Proxy Statement/Prospectus. See Appendix III -- Section 552.14 of the
OTS Regulations.
PROPOSAL I--THE MERGER
THE FOLLOWING INFORMATION CONCERNING THE MERGER, INSOFAR AS IT RELATES
TO MATTERS CONTAINED IN THE MERGER AGREEMENT, IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT WHICH IS ATTACHED AS APPENDIX
I TO THIS PROXY STATEMENT/PROSPECTUS.
The Merger
On May 21, 1997, Delta, First Colorado, and First Federal entered into
a Merger Agreement which provides for the merger of Delta with and into First
Federal, a subsidiary of First Colorado. On the Effective Date, the shareholders
of Delta will become shareholders of First Colorado, and the separate existence
and corporate organization of Delta will cease. Upon consummation of the Merger,
Delta Common Stock (excluding any dissenting shares and any shares held in the
treasury of Delta) will be converted into the right to receive a number of
shares of First Colorado Common Stock (together with Bancorp's Rights issued
pursuant to the Rights Agreement) equal to the quotient (rounded to the nearest
one one-hundredth) of $30 divided by the average of the midpoint of the last bid
and ask price for First Colorado Common Stock as reported on The Nasdaq National
Market for the 20 trading days immediately preceding the Effective Date. The
last reported sales price of First Colorado's common stock at August ____, 1997
was $__________. As part of the Merger Proposal, Section 8(a) of Delta's charter
would
12
<PAGE>
be repealed. Section 8(a) of Delta's charter currently imposes certain
restrictions on voting by stockholders owning more than 10% of Delta's
outstanding common stock.
The affirmative vote of not less than two-thirds of the outstanding
shares of Delta entitled to vote is required to approve the Merger Proposal.
Subject to shareholder approval, the satisfaction of certain conditions
and the receipt of all requisite regulatory approvals, the Merger shall become
effective on the date specified by the Secretary of the OTS in its endorsement
of the articles of combination filed by First Federal.
Following consummation of the Merger, Delta's corporate existence will
cease. First Federal's charter and bylaws will continue as the surviving
institution in the Merger.
Background of the Merger
Delta is a federally chartered stock savings bank headquartered in
Delta, Colorado. Its deposits are insured up to the maximum allowable amount by
the FDIC. Delta currently serves Delta County in western Colorado through its
office in Delta. Delta County has a population of approximately 21,000 and an
economy with an emphasis on agriculture and natural resources. In recent
periods, Delta's market area has been below national averages in population
growth and personal income, and has experienced an above average unemployment
rate. Major employers are in the natural resources industries and state and
federal government. The largest growth in recent periods has occurred in the
service sector.
Like other thrifts, the core of Delta's business has consisted of
attracting deposits from the general public and originating loans to finance the
acquisition, construction, or improvement of residential properties located in
the market areas served by Delta. Management has worked over a number of years
to diversify Delta's activities by expanding commercial and consumer lending and
improving the array of deposit products and non-deposit investment services.
While a measure of success has been realized in such diversification, it is also
recognized that the basic business and identity of Delta remains closely tied to
its roots as a traditional thrift institution.
In April 1993, Delta converted from the mutual to the stock form of
organization through an initial public offering of common stock. Since the
public offering, the Board of Directors and management of Delta have recognized
that the increased competition from commercial banks and other financial
institutions has changed fundamentally the environment in which traditional
thrifts have operated and threatens the market share held by thrifts for their
traditional services. Competition with these commercial banks, with other
financial institutions and with other providers of financial services, such as
credit unions, is strong, making it extremely difficult for Delta, despite its
diversification efforts and accomplishments, to meaningfully expand into the
commercial banking business or make significant market share gains in any one
market area.
The Riegle-Neal Interstate Banking and Branching Efficiency Act (the
"Interstate Banking Act"), enacted by Congress in September 1994, also has
raised new questions about the future, nature and structure of the financial
services industry and the options open to local institutions offering limited
lines of financial services and products.
The Board of Directors and management of Delta have assessed the
foregoing and other developments and their significance to Delta and its
shareholders. At the same time, the Board of
13
<PAGE>
Directors has been cognizant of changes in Delta's operating environment,
including rising interest rates and shrinking interest margins, causing the
Board of Directors and management to project slower growth in earnings and a
decline in the estimated fair value of financial assets compared to their
carrying values over the next few years.
In light of these occurrences and conditions, the Board of Directors,
in December 1996, decided to undertake a comprehensive study of Delta's future
and the strategic options available to Delta. The Board of Directors employed
Webb to provide business and financial advice regarding the strategic future of
Delta. With the assistance of Webb, the Board of Directors reviewed the economic
and competitive conditions in the market areas of Delta, changes in the
residential mortgage industry, the trend of consolidation among
federally-insured depository institutions, the potential effects of the
Interstate Banking Act and the advent of interstate banking, and the effects
that rising interest rates and cyclical trends could have on bank and thrift
stock prices in coming years. The Board of Directors also analyzed the history
and market performance of Delta since it converted to a stock institution in
1993.
The Board of Directors considered several options for the future of
Delta, including: (i) remaining independent and seeking to generate growth and
added profits by expanding and diversifying Delta's financial services and
product offerings, (ii) expanding through establishment of new branches, (iii)
expanding by acquiring smaller savings institutions, commercial banks or
branches, (iv) merging with an institution of nearly equal size, and (v) being
acquired by a larger bank or thrift holding company. The Board reviewed each
option and concluded, in light of current business conditions, Delta's
particular circumstances and prospects, and the risks and expenses of expanding
its products, services, and/or branch network on an independent basis, that the
best interests of Delta and its shareholders should be served by exploring
closely the possibility of combining with another institution in a sale
transaction in the near term.
Accordingly, the Board of Directors decided to survey the most likely
obtainable terms and conditions on which Delta could combine with a larger
in-state or out-of-state bank or thrift holding company. Webb, on behalf of
Delta, communicated directly with certain financial institutions it considered
to be the most likely potential acquirors of Delta to invite expressions of
interest in pursuing acquisition proposals. Several companies, including First
Colorado, acting pursuant to written confidentiality agreements and with the aid
of certain information provided by Webb and Delta, expressed indications of
value, with First Colorado ultimately submitting a proposal in response to
Webb's communications. The Delta Board determined, with the assistance of Webb,
that First Colorado's indication of value represented the highest value to, and
the best strategic alternative for Delta and its shareholders. With the advice
of Webb, Delta proceeded to enter into further discussions with First Colorado.
Over the next three months, several lengthy meetings of certain members of the
senior management of First Colorado and Delta were held to discuss and develop
the basis for a potential acquisition of Delta by First Colorado. Between
meetings, and subject to a confidentiality agreement between the parties, an
appreciable exchange of information occurred. Representatives of First Colorado
conducted due diligence of Delta and Webb conducted due diligence of First
Colorado on behalf of Delta. Webb further conducted a due diligence examination
of Delta and its subsidiary.
Throughout the foregoing process, management advised and informed the
Board of Directors of Delta of developments and was directed by the Board to
pursue discussions.
On March 6, 1997 the Executive Committee of Delta met with senior
management of Delta. Management reviewed with the Executive Committee the
alternative strategies for the future operation
14
<PAGE>
of Delta including the potential of a merger with First Colorado. On this same
date, the full Board of Directors of Delta met with senior management and Webb
representatives in attendance. Management repeated the review of alternative
strategies for the future operation of Delta previously discussed with the
Executive Committee. Webb addressed the Board on these strategies and reviewed
with the Board the tentative proposal of First Colorado. Webb also briefed the
Board on the general climate of the merger/acquisitions market place and
reported on all contacts with other financial institutions by Webb acting in
Delta's behalf. The Board directed senior management to continue negotiations
with First Colorado, including the conduct of due diligence by both parties.
Through the month of April, 1997, senior management of both
institutions, with the assistance of Webb and outside counsel, negotiated a form
of definitive merger agreement. Draft copies of the proposed agreement were
distributed to the Board of Directors of Delta for their review.
On May 21, 1997, the Board of Directors reviewed the proposal and met
with Webb and Delta's attorneys to discuss and review the final proposal. Webb
presented a detailed analysis of the final proposal to the Board of Directors
and concluded that in Webb's opinion First Colorado's proposal was fair to
Delta's shareholders from a financial point of view.
On the basis of the independent judgment of the members of the Board of
Directors of Delta, and the advice of Webb, that the First Colorado proposal was
fair to Delta's shareholders from a financial point of view, the Board of
Directors concluded that First Colorado's offer was in the best interests of
Delta and its shareholders. Accordingly, for all of the reasons discussed above,
on May 21, 1997, Delta's Board of Directors accepted First Colorado's offer and
authorized execution of the Merger Agreement.
Reasons for the Merger
In reaching its conclusion to approve the Merger, the Delta Board
considered a number of factors. The Delta Board did not assign any relative or
specific weights to the factors considered. Among other things, the Delta Board
considered: (i) the Merger consideration in relation to the book value, assets
and earnings of Delta and First Colorado; (ii) information concerning the
financial condition, results of operations and prospects of Delta, including the
return on assets and return on equity of Delta; (iii) the financial terms of
other recent business combinations in the banking industry; and (iv) the opinion
of Webb as to the fairness of the Exchange Ratio to Delta shareholders from a
financial point of view.
The Delta Board believes that the terms of the Merger Agreement, which
are the product of arms-length negotiations between First Colorado and Delta,
are in the best interest of Delta and its stockholders. In the course of
reaching its determination, the Delta Board consulted with legal counsel with
respect to its legal duties, the terms of the Merger Agreement and the issues
related thereto; with its financial advisor with respect to the financial
aspects and fairness of the transaction; and with senior management regarding,
among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the
Delta Board considered all factors it deemed material, which are the following:
(a) The Delta Board analyzed information with respect to the financial
condition, results of operations, businesses and prospects of Delta and First
Colorado. In this regard, the Delta Board analyzed the options of selling Delta
or continuing on a stand-alone basis. The range of values on a sale basis
15
<PAGE>
were determined to generally exceed the present value of Delta shares on a
stand-alone basis under business strategies which could be reasonably
implemented by Delta.
(b) The Delta Board considered the written opinion of Webb that, as of
May 21, 1997, the Merger Consideration was fair to Delta shareholders from a
financial point of view. See "--Opinion of Delta's Financial Advisor."
(c) The Delta Board considered the current operating environment,
including, but not limited to, the continued merger and increasing competition
in the banking and financial services industries, the prospect for further
changes in these industries, and the importance of being able to capitalize on
developing opportunities in these industries. This information has been
periodically reviewed by the Delta Board at its regular board meetings and was
also discussed between the Delta Board and Delta's various advisors.
(d) The Delta Board considered the other terms of the Merger Agreement
and exhibits, including the tax-free nature of the transaction.
(e) The Delta Board considered the detailed financial analyses and
other information with respect to Delta and First Colorado discussed by Webb, as
well as the Delta Board's own knowledge of Delta, First Colorado and their
respective businesses. In this regard, the latest publicly-available financial
and other information for Delta and First Colorado were analyzed, including a
comparison to publicly-available financial and other information for other
similar institutions.
(f) The Delta Board considered the value of Delta Common Stock
continuing as a stand-alone entity compared to the effect of Delta combining
with First Colorado in light of the factors summarized above and the current
economic and financial environment, including, but not limited to, other
possible strategic alternatives, the results of the contacts and discussions
between Delta and its financial advisor and various third parties and the belief
of the Delta Board and management that the Merger offered the best transaction
available to Delta and its shareholders.
(g) The Delta Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities, including factors such as
market share analysis, First Colorado's Community Reinvestment Act rating at
that time and the estimated pro forma financial impact of the Merger on First
Colorado.
The foregoing discussion of the information and factors considered by
the Delta Board is not intended to be exhaustive, but constitutes the material
factors considered by the Delta Board. In reaching its determination to approve
and recommend the Merger Agreement, the Delta Board did not assign any relative
or specific weights to the foregoing factors, and individual directors may have
weighted factors differently. After deliberating with respect to the Merger and
the other transactions contemplated by the Merger Agreement, considering, among
other things, the matters discussed above and the opinion of Webb referred to
above, the Delta Board approved and adopted the Merger Agreement and the
transactions contemplated thereby as being in the best interests of Delta and
its shareholders.
Opinion of Delta's Financial Advisor
In December 1996, Webb was retained by Delta to evaluate Delta's
strategic alternatives as part of a shareholder enhancement program and after
reviewing the alternatives it was determined that a sale
16
<PAGE>
transaction was appropriate. Webb would assist in identifying prospective
acquirers and evaluate any specific proposals that might be received regarding
an acquisition of Delta. Webb, as part of its investment banking business, is
regularly engaged in the evaluation of business and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. Webb is familiar with the market for common
stocks of publicly traded banks, thrifts and bank and thrift holding companies.
The Delta Board selected Webb on the basis of the firm's reputation and its
experience and expertise in transactions similar to the Merger.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Merger Consideration to
shareholders of Delta. Webb delivered its opinion to the Delta Board that, as of
May 21, 1997, the Merger Consideration is fair, from a financial point of view,
to the shareholders of Delta. No limitations were imposed by the Delta Board
upon Webb with respect to the investigations made or procedures followed by it
in rendering its opinion. Webb has consented to the inclusion herein of the
summary of its opinion to the Delta Board and to the reference to the entire
opinion attached hereto as Appendix II.
The full text of the opinion of Webb, which is attached as Appendix II
to this Proxy Statement/Prospectus, sets forth certain assumptions made, matters
considered and limitations on the review undertaken by Webb, and should be read
in its entirety. The summary of the opinion of Webb set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the opinion.
In rendering its opinion, Webb (i) reviewed the Agreement and Plan of
Merger ("Merger Agreement"), (ii) reviewed Delta's Annual Reports and Proxy
Statements for the years ended September 30, 1996, 1995, 1994, 10-Ks for the
years ended September 30, 1995, 1994, quarterly report on Form 10-QSB for
December 31, 1996 and March 31, 1997 and certain other internal financial
analysis considered relevant, (iii) reviewed First Colorado's Annual Reports,
Proxy Statements and Form 10-Ks for the years ended December 31, 1996, 1995,
1994, 10-Q for the quarter ended March 31, 1997 and certain other internal
financial analysis considered relevant, (iv) discussed with senior management
and the boards of directors of Delta the current position and prospective
outlook for Delta, (v) discussed with senior management of First Colorado their
operations, financial performance and future plans and prospects, (vi)
considered historical quotations, levels of activity and prices of recorded
transactions in Delta's and First Colorado's common stock (vii) reviewed
financial and stock market data of other thrifts in a comparable asset range to
Delta (viii) reviewed financial and stock market data of other thrifts in a
comparable asset range to First Colorado, (ix) reviewed certain recent business
combinations with thrifts as the acquired company, which Webb deemed comparable
in whole or in part, (x) performed other analyses which Webb considered
appropriate.
In rendering its opinion, Webb assumed and relied upon the accuracy and
completeness of the financial information provided to it by Delta and First
Colorado. In its review, with the consent of the Delta Board, Webb did not
undertake any independent verification of the information provided to it, nor
did it make any independent appraisal or evaluation of the assets or liabilities
of Delta or First Colorado, and potential or contingent liabilities of Delta or
First Colorado.
Analysis of Recent Comparable Acquisition Transactions
In rendering its opinion, Webb analyzed certain comparable merger and
acquisition transactions of both pending and completed thrift deals, comparing
the acquisition price relative to tangible book
17
<PAGE>
value, last-twelve-months ("LTM") earnings, total assets, total deposits, and
premium to core deposits. The analysis included a comparison of the median of
the above ratios for completed and pending acquisitions, based on the following
five comparable groups: (i) all thrift acquisitions completed and pending since
June 30, 1996; ("Recent Transactions"); (ii) all thrift acquisitions with a
total aggregate sale price less than $25 million ("Comparable Aggregate Price");
(iii) all thrift acquisitions with the target thrift having assets less than $75
million ("Comparable Asset Size"); (iv) all acquisitions since June 30, 1996
with the selling thrift having tangible equity to total assets of between 8.0%
and 12.0% ("Comparable Equity Ratio"); and (v) all thrift acquisitions since
June 30, 1996 located in the Western Region ("Comparable Regional Deals").
The information in the following table summarizes the material
information analyzed by Webb with respect to the Merger. The summary does not
purport to be a complete description of the analysis performed by Webb and
should not be construed independently of the other information considered by
Webb in rendering its opinion. Selecting portions of Webb's analysis or
isolating certain aspects of the comparable transactions without considering all
analysis and factors, could create an incomplete or potentially misleading view
of the evaluation process.
<TABLE>
<CAPTION>
Price to
-----------------------------------------------------------
Core Deposit
TangBook (a)LTM EPS (b) Assets Deposits Premium (c)
(%) (x) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Consideration -$30.00 per
share of First Colorado Stock 165.7 32.4 14.9 19.0 7.4
</TABLE>
<TABLE>
<CAPTION>
Recent Transactions Number Median for all deals since June 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Completed 79 147.8 19.6 13.4 16.5 6.5
Pending 44 167.9 24.6 16.1 23.0 10.6
Comparable Total Price
Completed 63 144.7 19.4 13.5 15.5 6.0
Pending 12 146.3 25.6 18.7 23.0 6.5
Comparable Asset Size
Completed 24 130.0 20.8 15.9 18.4 6.2
Pending 14 143.0 24.6 18.9 23.3 8.0
Comparable Equity Ratio
Completed 18 149.5 20.7 14.1 16.0 6.3
Pending 14 176.1 21.3 18.1 23.6 10.9
Comparable Regional Deals
Completed 17 130.4 22.1 9.7 13.3 3.8
Pending 5 168.4 30.3 13.7 15.9 7.6
</TABLE>
- ---------------------
(a) Based on total deal value of $5.8 million and Delta's tangible equity
of $3.5 million at 3/31/97.
(b) LTM earnings per share based on 1996 earnings
(c) Based on total deal value of $5.8 million less equity of $3.5 million,
divided by deposits of $30.6 million at 3/31/97.
18
<PAGE>
Based on the above information Webb concluded that the multiples
implied by the $30.00 per share price and the implied exchange ratio, were in
the ranges of each mentioned comparable group.
In preparing its analysis, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and Delta. The analyses performed
by Webb are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
Webb will receive a fee of $131,000 for services rendered in connection
with advising and issuing a fairness opinion regarding the Merger. As of the
date of the Proxy Statement/Prospectus, Webb has received $32,800 of such fee,
the remainder of the fee is due upon closing of the Merger.
Conditions to Consummation of the Merger; Waiver
The Merger will occur only if holders of two-thirds of the issued and
outstanding shares of Delta Common Stock approve the Merger Agreement.
Consummation of the Merger is subject to the satisfaction of certain other
conditions, including: (i) receipt of the regulatory approvals referred to below
under "-- Regulatory Approvals"; (ii) representations and warranties of First
Colorado and Delta contained in the Merger Agreement being true and correct in
all material respects on the effective date of the Merger; (iii) receipt of
certain legal opinions from counsel, including an opinion regarding certain
federal tax aspects of the Merger; (iv) no suit, action or proceeding may be
pending or overtly threatened before any court or other governmental agency by
the federal or any state government, to restrain or prohibit the consummation of
the Merger and no temporary restraining order, or other legal restraint or
prohibition preventing the consummation of the Merger may be in effect; (v) the
obligations of Delta, First Colorado, and First Federal required to be performed
at or prior to the Closing Date must have been duly performed and complied with
in all material respects; (vi) the shares of First Colorado Common Stock to be
issued in the Merger must be approved for listing on the Nasdaq National Market,
as of the Effective Date; (vii) continued effectiveness of the registration
statement filed with the Securities and Exchange Commission and the absence of
any pending or threatened stop order proceedings with respect thereto; and
(viii) absence of any material adverse change, or discovery of a condition or
the occurrence of any event that has or is likely to result in such a change, in
the financial condition, results of operations or business of Delta from
December 31, 1996 to the Closing Date.
Either First Colorado or Delta may waive the performance of any of the
obligations of the other, waive compliance by the other with any of the
covenants or conditions contained in the Merger Agreement, or agree to the
amendment or modification of the Merger Agreement by an agreement in writing
executed in the same manner as the Merger Agreement; provided, however, that
after the favorable vote by Delta shareholders of the Merger Agreement, such
waiver, amendment, or modification will not have a material adverse effect on
the benefits intended under the Merger Agreement for the shareholders of Delta
and will not require resolicitation of any proxies from Delta shareholders.
Subject to the conditions to the obligations of the parties to effect
the Merger, the Merger will become effective on such date specified by the
Secretary of the OTS in its endorsement of the articles of combination filed by
First Federal. Subject to the foregoing, it is currently anticipated by the
parties that the Merger will be consummated by December 31, 1997. The Board of
Directors of either First Colorado or Delta may terminate the Merger Agreement
if the Effective Date does not occur on or before
19
<PAGE>
January 1, 1998. See "-- Exchange of Delta Common Stock Certificates," "--
Conditions to Consummation of the Merger" and "-- Termination."
Termination
The Merger Agreement may be terminated, either before or after the
Special Meeting, (i) by mutual written consent of the respective Boards of
Directors of Delta, First Colorado and First Federal; (ii) by written notice of
Delta and First Colorado if certain conditions of the Merger Agreement become
impossible to substantially satisfy or have not been substantially satisfied or
waived in writing; (iii) by written notice from First Colorado or First Federal
to Delta or by written notice from Delta to First Colorado, if any warranty or
representation made by Delta or First Colorado is discovered to be or to have
become untrue or incorrect in any material respect, or where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be discovered to be or to have become untrue or incorrect in any
respect taking into consideration the standard of materiality contained therein,
in either case where any such breach has not been cured within thirty (30) days
following receipt of notice of such discovery; (iv) by written notice of a
non-breaching party if the other party to the Merger Agreement breaches one or
more provisions of the Merger Agreement in any material respect considering all
such breaches in the aggregate, where such breach has not been cured within
thirty (30) days following receipt of notice of such breach; (v) by written
notice from First Colorado to Delta if First Colorado determines, upon
completion of its due diligence conducted pursuant to the Merger Agreement, that
the financial condition and/or operations of Delta are materially different than
previously represented by Delta to First Colorado; (vi) by First Colorado if the
Board of Directors of Delta withdraws or modifies, in a manner adverse to First
Colorado, its recommendation to Delta shareholders to approve the Merger
Agreement; (vii) by First Colorado or Delta if the shareholders of Delta do not
approve the Merger Agreement by required vote, provided that certain
circumstances contemplated by the Merger Agreement have not have occurred and
provided further that the party seeking termination has materially complied with
the terms of the Merger Agreement; by First Colorado, First Federal or Delta if
the Merger has not been consummated on or before January 1, 1998.
No Solicitation of Transactions
Pursuant to the Merger Agreement, Delta may not (i) solicit, initiate,
participate in discussions of, or encourage or take any other action to
facilitate (including by way of the disclosing or furnishing of any information
that is not legally obligated to disclose or furnish) any inquiry or the making
of any proposal relating to any Acquisition Transaction (as defined in the
Merger Agreement) or a potential Acquisition Transaction with respect to itself,
(ii) solicit, initiate, participate in discussions of, or encourage or take any
other action to facilitate any inquiry or proposal, or (iii) enter into any
agreement, arrangement, or understanding (whether written or oral) regarding any
proposal or transaction providing for or requiring it to abandon, terminate or
fail to consummate the Merger Agreement. Delta must immediately instruct and
otherwise use its best efforts to cause its directors, officers, employees,
agents, advisors (including, without limitation, any investment banker,
attorney, or accountant retained by it), consultants and other representatives
to comply with such prohibitions. Delta must immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with any
parties conducted heretofore with respect to such activities. Notwithstanding
the foregoing, Delta may provide information at the request of or enter into
negotiations with a third party with respect to an Acquisition Transaction if
the Board of Directors of Delta determines, in good faith, that the exercise of
its fiduciary duties to Delta's shareholders under applicable law, as advised in
a written opinion issued by its counsel, requires it to take such action, and,
provided further, that Delta may not, in any event, provide to such third party
20
<PAGE>
any information which it has not provided to First Colorado or First Federal.
Delta must promptly notify First Colorado or First Federal orally and in writing
in the event it receives any such inquiry or proposal and shall provide
reasonable detail of any relevant facts relating to such inquiries, along with a
summary of the written opinion of its counsel.
Expenses; Termination Fee
All expenses incurred by or on behalf of the parties in connection with
the Merger Agreement and the transactions contemplated thereby shall be borne by
the party incurring the same. If following the execution of the Merger
Agreement: (i) Delta enters into an agreement to complete an Acquisition
Transaction prior to the termination of the Merger Agreement, or (ii) within
fifteen months after the termination of the Merger Agreement, Delta enters into
an Acquisition Transaction, Delta shall pay First Federal compensation and
damages totalling $500,000, in addition to any payments that may be required in
accordance with the Merger Agreement.
In the event that Delta refuses to consummate the Merger, after all the
conditions required under the Merger Agreement have been satisfied or waived, or
in the event the Merger Agreement is terminated by First Colorado and First
Federal by reason of a breach by Delta of any of its material representations,
warranties, covenants or agreements, or by reason of the willful breach of any
of Delta's representations, warranties, covenants or agreements, then, in lieu
of any other rights or remedies of First Colorado and First Federal, Delta shall
reimburse First Federal for its expenses not to exceed $125,000. Such amount
will be in addition to, and in no way limit the $500,000 payment that Delta may
be required to pay First Federal as compensation and damages under the Merger
Agreement.
In the event that First Colorado or First Federal refuses to consummate
the Merger after all of the required conditions have been satisfied or waived,
or in the event that this Merger Agreement is terminated by Delta by reason of a
breach by First Colorado or First Federal of any of their material
representations, warranties, covenants or agreements contained herein, or by
reason of the willful breach of any of First Colorado's or First Federal's
representations, warranties, covenants or agreements contained herein, then, in
lieu of any other rights or remedies of Delta, First Colorado must reimburse
Delta for its expenses not to exceed $125,000.
Business Pending Consummation
Delta has agreed in the Merger Agreement not to take certain actions
relating to the operation of Delta pending consummation of the Merger without
the prior written consent of First Colorado except as otherwise permitted in the
Merger Agreement. See the Merger Agreement attached hereto as Appendix I.
Delta's Stock Option Plan
On April 6, 1993, Delta's shareholders adopted the Delta Federal
Savings, F.S.B. 1993 Stock Option and Incentive Plan ("Delta Option Plan"). The
Delta Option Plan permits the granting of stock options for up to 18,200 shares
of Delta Common Stock (all of which have been granted, and 16,835 are currently
outstanding to Delta's directors and key employees. Pursuant to the Merger
Agreement, on the Effective Date of the Merger, each option granted under the
Delta Option Plan which is outstanding and unexercised will generally be
converted automatically into a certain number of options to purchase shares of
First Colorado Common Stock. The number of shares of First Colorado Common Stock
to be subject
21
<PAGE>
to the new option will equal to the product of the number of shares of Delta
Common Stock subject to the original option and the Exchange Ratio, provided
that any fractional shares of First Colorado Common Stock resulting from such
multiplication shall be rounded down to the nearest share. The exercise price
per share of First Colorado Common Stock under the new option shall be equal to
the exercise price per share of Delta Common Stock under the original option
divided by the Exchange Ratio, provided that such exercise price shall be
rounded up to the nearest cent. In addition, upon proper written notice to First
Colorado prior to the Closing Date of the Merger, the option holder may elect to
convert all or a portion of his Delta options which have not been exercised and
have not expired prior to the Effective Date into the right to receive cash in
the amount of $30.00 per option, less the applicable option exercise price.
Certain Federal Income Tax Consequences
The following is a summary description of the material federal income
tax consequences of the Merger. This summary is not a complete description of
all of the consequences of the Merger and, in particular, may not address
federal income tax consequences which may be applicable to particular categories
of taxpayers, such as broker-dealers, or to any shareholder who acquired his or
her Delta Common Stock through the exercise of an employee stock option
including a plan under Section 422 of the Code, or otherwise as compensation.
This discussion does not address the effect of any applicable foreign, state,
local or other tax laws. SHAREHOLDERS OF DELTA ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY OF AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX
LAWS.
In the opinion of Malizia, Spidi, Sloane & Fisch, P.C., counsel to
First Colorado, the Merger will have the following tax consequences:
1. The Merger will constitute a tax-free reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code and Delta, First Federal, and
First Colorado will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized by Delta, First Colorado, or
First Federal as a result of the Merger.
3. The basis of the assets of Delta acquired by First Federal in the
Merger will be the same as the basis of such assets in the hands of Delta
immediately prior to the Merger, and the holding period of the assets of Delta
in the hands of First Federal will include, in each instance, the holding period
during which such assets were held by Delta.
4. Except as provided in (5) below, no gain or loss will be recognized
by Delta's shareholders upon their receipt of First Colorado Common Stock solely
in exchange for Delta Common Stock.
5. The payment of cash in lieu of fractional share interests of First
Colorado Common Stock will be treated as if the fractional shares were exchanged
as part of the Merger and then were redeemed by First Colorado. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of the
Code.
22
<PAGE>
6. The basis of the First Colorado Common Stock to be received by
Delta's shareholders will be, in each instance, the same as the basis of the
Delta Common Stock surrendered in exchange therefor decreased by the amount of
cash, if any, received by the shareholder and increased by the amount of gain,
if any, recognized by such shareholder with respect to any cash received
pursuant to the Merger.
7. The holding period of the First Colorado Common Stock received by
Delta shareholders will include the period during which the Delta Common Stock
surrendered in exchange therefor was held by the Delta shareholder, provided
that the Delta Common Stock was a capital asset in the hands of the Delta
shareholder on the date of the exchange.
8. First Federal will succeed to and take into account those attributes
of Delta described in Section 381(c) of the Code, and First Federal will be the
"acquiring corporation" within the meaning of Section 1.381(a)-1(b)(2) of the
Treasury Regulations. These items will be taken into account by First Federal
subject to the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and regulations thereunder.
In rendering the above opinions, Malizia, Spidi, Sloane & Fisch, P.C.
has relied upon written representations and covenants of First Colorado and
Delta. No ruling has been sought from the Internal Revenue Service as to the
federal income tax consequences of the Merger, and the opinions of Malizia,
Spidi, Sloane & Fisch, P.C. set forth above are not binding on the Internal
Revenue Service or any court.
Accounting Treatment
Under generally accepted accounting principles, it is anticipated that
the Merger will be accounted for under the purchase method of accounting. The
assets and liabilities of Delta will be reflected in the consolidated financial
statements of First Colorado based upon their fair values as of the effective
date of the Merger. Results of operations will be reflected in the consolidated
financial statements of First Colorado for all periods subsequent to the
effective date of the Merger. Under the purchase method of accounting, the
excess purchase price paid over the fair market value of assets is amortized as
an expense over the period estimated to be benefitted.
Exchange of Certificates
As soon as practicable after the effective date of the Merger, the
certificates representing the outstanding shares of Delta Common Stock will be
surrendered to American Securities Transfer and Trust Inc. (the "Exchange
Agent") and, upon such surrender, the Exchange Agent will issue certificates
representing the appropriate number of shares of First Colorado Common Stock
into which surrendered shares have been converted and will issue cash in lieu of
fractional shares (without interest).
CERTIFICATES FOR DELTA COMMON STOCK SHOULD NOT BE FORWARDED TO THE EXCHANGE
AGENT UNTIL AFTER RECEIPT OF A LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED
TO DELTA WITH THE ENCLOSED PROXY.
Certificates representing shares of Delta Common Stock which are not
surrendered will be deemed for all purposes to evidence the ownership of the
number of shares of First Colorado Common Stock into which the shares of Delta
Common Stock will have been converted. No dividends or distributions payable to
holders of record of First Colorado Common Stock will be paid to former Delta
shareholders who have not surrendered their certificates formerly representing
shares of Delta Common
23
<PAGE>
Stock, until they have exchanged their certificates representing their Delta
Common Stock for certificates representing First Colorado Common Stock, at which
time the holder will be paid the amount of dividends previously declared on such
shares without interest. All unclaimed dividends at the end of one year from the
Effective Date of the Merger will be repaid by the Exchange Agent to First
Colorado, and thereafter, the holders of certificates of Delta Common Stock will
be paid directly by First Colorado.
Interests of Certain Persons in the Merger
First Federal will continue to indemnify officers and directors of
Delta for prior acts in accordance with the provisions of First Federal bylaws
and applicable OTS regulations for a period of three years from the date of the
Merger. Ongoing insurance will be provided for any Delta officers retained under
the policy of First Federal.
Pursuant to the Merger Agreement, Delta generally may not initiate the
termination of the employment of David A. Humphries, President, or Lesley R.
McPherson, Vice President, (collectively, the "Officers") absent termination for
cause, or the death or disability of the employee, prior to the Effective Date
of the Merger, nor shall Delta make any payment under any employment agreements
between Delta and either or both Officers associated with the Merger prior to
the Effective Date without the prior written consent of First Federal.
Payments under the employment agreements between Delta and the Officers
(the "Employment Agreements") will be paid in accordance with their respective
Employment Agreements, provided however, in the case of Mr. Humphries, prior to
the receipt of such payments in accordance with termination of employment under
his Employment Agreement, Mr. Humphries will enter into a written agreement with
First Federal that provides that Mr. Humphries will not, other than as requested
by First Colorado or First Federal, engage in employment or other professional
activities for the benefit of a financial institution or other business entity
involved in transactions involving banking, mortgage lending, consumer debt
financing, business financing, accepting of retail insured deposits and other
related activities currently engaged in by Delta, First Colorado, and First
Federal within a one hundred mile radius of Delta, Colorado, for a period of not
less than eighteen months from the date of termination of employment with Delta,
without the prior written consent of First Federal.
Upon the closing date of the Merger, Delta will terminate the
employment of Mr. Humphries, President and Mr. McPherson, Vice President, and
will immediately pay these individuals in the form of a lump sum payment, equal
to approximately $237,000 and $52,000, respectively, which amounts are due under
their respective Employment Agreements. As of the closing date of the Merger,
First Federal may enter into an agreement with the Officers setting forth the
terms of any future employment relationship between First Federal and the
Officers.
On or prior to the Effective Date, the Officers will execute an
agreement whereby the Officers will acknowledge and consent that the opportunity
to participate in the group medical insurance program sponsored by First Federal
for its employees will be accepted as constituting benefits which are
substantially the same health benefits as are offered by Delta for its executive
officers, and that eligibility to participate in such First Federal plans will
satisfy applicable provisions of the Employment Agreements.
Delta employees employed by First Federal as of the Effective Date will
be eligible thereafter to receive the same employee benefits, including but not
limited to medical insurance, vacation pay, sick
24
<PAGE>
leave, and severance pay as are extended to First Federal's other similarly
situated employees, giving effect to all prior years of service with Delta. All
accrued but unused vacation time of Delta employees, employed by First Federal
immediately after the Effective Date, will be maintained by First Federal.
Other than as described herein and under "--Delta Stock Option Plan,"
no director or officer of Delta or First Colorado has any direct or indirect
material interest in the Merger, except in the case of such persons insofar as
ownership of Delta Common Stock might be deemed to constitute an interest.
Resales by Affiliates
The shares of First Colorado Common Stock issued to Delta shareholders
upon consummation of the Merger have been registered under the Securities Act,
but such registration does not cover resales by affiliates of Delta
("Affiliates"). First Colorado Common Stock received and beneficially owned by
those Delta shareholders who are deemed to be Affiliates may be resold without
registration as provided for by Rule 145 under the Securities Act, or as
otherwise permitted. The term "Affiliate" is defined to include any person who,
directly or indirectly, controls, or is controlled by, or is under common
control with Delta at the time the Merger Agreement is submitted for approval by
a vote of the holders of Delta Common Stock. Generally, this definition includes
executive officers, directors and 10% or more shareholders of Delta. Each
Affiliate who desires to resell First Colorado Common Stock received in the
Merger must sell such First Colorado Common Stock either (i) pursuant to an
effective registration statement under the Securities Act, (ii) in accordance
with the applicable provisions of Rule 145 under the Securities Act or (iii) in
a transaction which, in the opinion of counsel for such Affiliate or as
described in a "no-action" or interpretive letter from the staff of the
Securities and Exchange Commission, in each case reasonably satisfactory in form
and substance to First Colorado, to the effect that such resale is exempt from
the registration requirements of the Securities Act.
Rule 145(d) requires that persons deemed to be Affiliates resell their
First Colorado Common Stock pursuant to certain of the requirements of Rule 144
under the Securities Act if such First Colorado Common Stock is sold within the
first year after the receipt thereof. After one year, if such person is not an
affiliate of First Colorado and First Colorado is current in the filing of its
periodic securities law reports, a former Affiliate of Delta may freely resell
the First Colorado Common Stock received in the Merger without limitation. After
two years from the issuance of the First Colorado Common Stock, if such person
is not an affiliate of First Colorado at the time of sale or for at least three
months prior to such sale, such person may freely resell such First Colorado
Common Stock, without limitation, regardless of the status of First Colorado's
periodic securities law reports.
Regulatory Approvals
Consummation of the Merger is subject to the receipt of all regulatory
approvals required for the completion of the Merger. The primary regulatory
agency governing both First Federal and Delta is the OTS. First Federal may not
acquire control of Delta pursuant to the Merger without first receiving written
approval from the OTS. Following the approval of the Merger by the OTS, the
United States Department of Justice will have an opportunity to file objections
to the Merger under applicable antitrust laws.
Applications with respect to the Merger are required to be filed with
the OTS, seeking the requisite regulatory approval. In addition, the FDIC must
receive notification of the Merger. The parties currently anticipate that the
required regulatory approvals will be received by the third calendar quarter
25
<PAGE>
of 1997 and that proper notice of the Merger will be provided to the FDIC in a
timely manner. No assurance can be given, however, as to the receipt or timing
of such regulatory approvals, or, if received, that such approvals will be on
conditions acceptable to the parties to the Merger Agreement.
With respect to the regulatory approvals of the Merger, the OTS
regulations provide a certain period of time, after the filing of an application
for approval of the Merger, during which anyone may file comments in favor of or
in protest of the application or notice and in so doing may submit such
information as he or she deems relevant. Comments received after the comment
period, unverified accusations, or materials pertaining to an application,
notice, other filing or public comment which the commenter is unwilling to have
disclosed to the party making such submission, will not be part of the record
and need not be considered by the OTS. Any comments in protest of the Merger
could delay the receipt of regulatory approvals required for consummation of the
Merger.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained, and, if the Merger is approved, there can be no assurance as to the
date of any such approvals. There can also be no assurance that any such
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement
and described below under "-- Termination." There can likewise be no assurance
that the U.S. Department of Justice or a state Attorney General will not
challenge the Merger or, if such a challenge is made, as to the result thereof.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
General
The following is a summary explanation of the material differences
between the rights of Delta shareholders and the rights of First Colorado
shareholders. This summary is qualified in its entirety by reference to the
governing documents of Delta and First Colorado.
Board of Directors.
Delta. Delta's board of directors consists of five members and is
divided into three classes as nearly equal in number as possible. The members of
each class are elected for a term of three years and until their successors are
elected and qualified. One class is elected by ballot annually. Each director
must at all times be the beneficial owner of not less than 100 shares of Delta
Common Stock.
Any vacancy occurring on Delta's board of directors may be filled by
the affirmative vote of a majority of the remaining directors although less than
a quorum of the board of directors. A director elected to fill a vacancy will be
elected to serve until the next election of directors by Delta shareholders. Any
directorship to be filled by reason of an increase in the number of directors
for a term of office continuing only until the next election of directors by
Delta shareholders.
First Colorado. The number of directors of First Colorado will not be
less than three nor more than 15, as provided from time to time in or in
accordance with the Bylaws of First Colorado, provided that no decrease in the
number of directors will have the effect of shortening the term of any incumbent
director, and provided further that no action will be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office concur in said action.
26
<PAGE>
Vacancies in the board of directors of First Colorado, however caused, and newly
created directorships are filled by a vote of two-thirds of the directors then
in office, whether or not a quorum, and any director so chosen will hold office
for a term expiring at the annual meeting of stockholders at which the term of
the class to which the director has been chosen expires and when the director's
successor is elected and qualified.
Each director of First Colorado must at all times be a resident of the
State of Colorado. For the purposes of this section, "resident" means any
natural person who occupies a dwelling within Colorado, has an intention to
remain within Colorado for a period of time (manifested by establishing a
physical, on-going, non transitory presence within Colorado) and continues to
reside in Colorado for the term of his or her directorship.
The board of directors of First Colorado is divided into three classes
of directors which are designated Class I, Class II and Class III. The members
of each class are elected for a term of three years and until their successors
are elected and qualified. Such classes are as nearly equal in number as the
then total number of directors constituting the entire board of directors shall
permit, with the terms of office of all members of one class expiring each year.
A director whose term expires at any annual meeting will continue to serve until
such time as his successor is duly elected and qualified unless his position on
the board of directors is abolished by action taken to reduce the size of the
board of directors prior to said meeting.
Should the number of directors of First Colorado be reduced, the
directorship(s) eliminated will be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors will designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors will have the effect of shortening the term
of any incumbent director. Should the number of directors of First Colorado be
increased, the additional directorships will be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of
First Colorado shall have the right, voting separately as a class, to elect one
or more directors of First Colorado, the board of directors will consist of said
directors so elected in addition to the number of directors fixed as provided by
First Colorado's Articles of Incorporation. Notwithstanding the foregoing, and
except as otherwise may be required by law, whenever the holders of any one or
more series of preferred stock of First Colorado shall have the right, voting
separately as a class, to elect one or more directors of First Colorado, the
terms of the director or directors elected by such holders shall expire at the
next succeeding annual meeting of stockholders.
Meetings of Shareholders; Cumulative Voting; Proxies.
Delta. A meeting of Delta shareholders for the election of directors
and for the transaction of any other business of Delta is held annually within
120 days after the end of Delta's fiscal year on the fourth Wednesday of each
January, if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at 2:00 p.m., or at such other date and
time within such 120-day period as the board of directors may determine.
27
<PAGE>
A special meeting of the shareholders for any purpose or purposes,
unless otherwise prescribed by the regulations of the OTS, may be called at any
time by the chairman of the board, the president or a majority of the board of
directors, and must be called by the chairman of the board, the president, or
the secretary upon the written request of the holders of not less than one-tenth
of all the outstanding capital stock of Delta entitled to vote at the meeting.
Such written request must state the purpose or purposes of the meeting and must
be delivered to Delta's home office addressed to the chairman of the board, the
president, or the secretary.
At all meetings of shareholders, a shareholder may vote by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Proxies solicited on behalf of the management must be voted as
directed by the shareholder or, in the absence of such direction, as determined
by a majority of the board of directors. No proxy will be valid more than eleven
months from the date of its execution except for a proxy coupled with an
interest.
For a period of five years from the date of completion of Delta's
conversion from mutual to stock form (i.e., April 1993), Delta shareholders are
not permitted to cumulate their votes for election of directors.
All annual and special meetings of shareholders are held at the home
office of Delta or at such other place in the State in which the principal place
of business of Delta is located as the board of directors may determine.
First Colorado. An action required to be taken or which may be taken at
any annual or special meeting of stockholders of First Colorado may be taken
without a meeting if all stockholders entitled to vote thereon consent to such
action in writing.
Special meetings of the stockholders of First Colorado for any purpose
or purposes may be called at any time by the chairman of the board, a majority
of the board of directors of First Colorado, or by a committee of the board of
directors which has been duly designated by the board of directors and whose
powers and authorities, as provided in a resolution of the board of directors or
in the Bylaws of First Colorado, include the power and authority to call such
meetings. Shareholders are prohibited from calling special meetings except as
provided by Colorado law.
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by proxy, but no such proxy
will be voted or acted upon after 11 months from its date, unless the proxy
provides for a longer period. Without limiting the manner in which a stockholder
may authorize another person or persons to act for him as proxy, the following
constitutes a valid means by which a stockholder may grant such authority.
A shareholder may appoint a proxy by signing an appointment form,
either personally or by the shareholder's attorney-in fact. A shareholder may
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written statement of the
appointment to the proxy, to a proxy solicitor, proxy support service
organization, or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to First Colorado; except that the
transmitted appointment shall set forth or be transmitted with written evidence
from which it can be determined that the shareholder transmitted or authorized
the transmission of the appointment.
28
<PAGE>
Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment could be
used.
There is no cumulative voting by stockholders of any class or series in
the election of directors of First Colorado.
Meetings of stockholders may be held within or without the State of
Colorado, as the Bylaws of First Colorado may provide.
Nominations to the Board of Directors, Shareholder Proposals, and Conduct of
Meetings.
Delta. Delta's board of directors act as a nominating committee for
selecting the management nominees for election as directors. Except in the case
of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee must deliver written nominations to
Delta's secretary at least 20 days prior to the date of the annual meeting. Upon
delivery such nominations must be posted in a conspicuous place in each office
of Delta. Provided the nominating committee makes such nominations, no
nominations for directors except those made by the nominating committee will be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to Delta's secretary at least 10 days prior to the
date of the annual meeting. Ballots bearing the names of all the persons
nominated by the nominating committee and by shareholders will be provided for
use at the annual meeting. If the nominating committee fails or refuses to act
at least 20 days prior to the annual meeting, nominations for directors may be
made at the annual meeting by any shareholder entitled to vote and will be voted
upon.
First Colorado. Nominations of candidates for election as directors at
any annual meeting of shareholders may be made (a) by or at the direction of, a
majority of the board of directors or (b) by any shareholder entitled to vote at
such annual meeting. Only persons nominated in accordance with certain
procedures described in First Colorado's Bylaws (which are summarized below)
will be eligible for election as directors at an annual meeting. Ballots bearing
the names of all the persons who have been nominated for election as directors
at an annual meeting will be provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the board
of directors, must be made pursuant to timely notice in writing to First
Colorado's Secretary. To be timely, a shareholder's notice shall be delivered
to, or mailed and received at, First Colorado's principal office not less than
60 days prior to the anniversary date of the immediately preceding annual
meeting of shareholders.
Proposals, other than those made by or at the direction of the board of
directors, must be made pursuant to timely notice in writing to First Colorado's
Secretary. For shareholder proposals to be included in First Colorado's proxy
materials, the shareholder must comply with all the timing and informational
requirements of Rule 14a-8 of the Exchange Act or any successor regulation. With
respect to shareholder proposals to be considered at the annual meeting of
shareholders but not included in First Colorado's proxy materials, the
shareholder's notice must be delivered to, or mailed and received at, the
principal office of First Colorado not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders of
First Colorado.
The board of directors may reject any nomination by a shareholder or
shareholder proposal not timely made. If the board of directors, or a designated
committee thereof, determines that the
29
<PAGE>
information provided in a shareholder's notice does not satisfy the
informational requirements in any material respect, the Secretary of First
Colorado will notify such shareholder of the deficiency in the notice. The
shareholder will have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five days from the date such deficiency notice is given to the
shareholder, as the board of directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the board of
directors or such committee reasonably determines that the additional
information provided by the shareholder, together with information previously
provided, does not satisfy the specified requirements in any material respect,
then the board of directors may reject such shareholder's nomination or
proposal. The Secretary of First Colorado will notify a shareholder in writing
whether his nomination or proposal has been made in accordance with the time and
informational requirements. Notwithstanding the procedures set forth in this
paragraph, if neither the board of directors nor such committee makes a
determination as to the validity of any nominations or proposals by a
shareholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination or proposal was made in
accordance with the terms of First Colorado's Bylaws.
Authorized Shares.
Delta. The total number of shares of all classes of capital stock which
Delta has authority to issue is 6,000,000 of which 5,000,000 will be common
stock of par value of $0.01 per share and of which 1,000,000 will be serial
preferred stock. The shares may be issued from time to time as authorized by the
board of directors without the approval of Delta shareholders, except as
otherwise provided in Delta's Federal Stock Charter or to the extent that such
approval is required by governing law, rule or regulation. The consideration for
the issuance of the shares will be paid in full before their issuance and will
not be less than the par value. Neither promissory notes nor future services
will constitute payment or part payment for the issuance of shares of Delta
stock. The consideration for the shares will be cash, tangible or intangible
property (to the extent direct investment in such property would be permitted),
labor or services actually performed for Delta or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor or services, as determined by the board of directors of Delta,
will be conclusive. Upon payment of such consideration, such shares will be
deemed to be fully paid and non-assessable. In the case of a stock dividend,
that part of the surplus of Delta which is transferred to stated capital upon
the issuance of shares as a share dividend will be deemed to be the
consideration for their issuance.
First Colorado. The aggregate number of shares of all classes of
capital stock which First Colorado has authority to issue is 75,000,000 of which
50,000,000 are to be shares of common stock, $0.10 par value per share, and of
which 25,000,000 are to be shares of serial preferred stock, $0.10 par value per
share. The shares may be issued by First Colorado without the approval of
stockholders except as otherwise provided in its Articles of Incorporation or
the rules of a national securities exchange, if applicable. The consideration
for the issuance of the shares will be paid to or received by First Colorado in
full before their issuance and will not be less than the par value per share.
The consideration for the issuance of the shares will be cash, services
rendered, personal property (tangible or intangible), real property, leases of
real property or any combination of the foregoing. In the absence of actual
fraud in the transaction, the judgment of First Colorado's board of directors as
to the value of such consideration will be conclusive. Upon payment of such
consideration such shares will be deemed to be fully paid and nonassessable. In
the case of a stock dividend, the part of the surplus of First Colorado which is
transferred to stated capital upon the issuance of shares as a stock dividend
will be deemed to be the consideration for their issuance.
30
<PAGE>
Limitations on Voting.
Delta. Notwithstanding anything contained in Delta's charter or bylaws
to the contrary, for a period of five years from the date of completion of the
conversion of Delta from mutual to stock form (i.e., April 1993), no person may
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than ten percent of any class of an equity security of Delta. This
limitation does not apply to a transaction in which Delta forms a holding
company without a change in the respective beneficial ownership interests of its
shareholders other than pursuant to the exercise of any dissenter and appraisal
rights, the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements under ss.574.3(c)(1)(vi) of
the OTS regulations.
In the event shares are acquired in violation of the ten percent limit,
all shares beneficially owned by any person in excess of ten percent shall be
considered "excess shares" and will not be counted as shares entitled to vote
and will not be voted by any person or counted as voting shares in connection
with any matters submitted to the shareholders for a vote.
First Colorado. In no event may any record owner of any outstanding
First Colorado Common Stock which is beneficially owned, directly or indirectly,
by a person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of First Colorado Common Stock (the "Limit"), be
entitled, or permitted to any vote in respect of the shares held in excess of
the Limit. The number of votes which may be cast by any record owner by virtue
of the provisions hereof in respect of First Colorado Common Stock beneficially
owned by such person owning shares in excess of the Limit shall be a number
equal to the total number of votes which a single record owner of all First
Colorado Common Stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series which are both beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total number of shares of
First Colorado Common Stock beneficially owned by such person owning shares in
excess of the Limit.
Further, for a period of five years from the completion of the
conversion of the Mutual Holding Company (i.e., December 29, 1995) to stock
form, no person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of any equity security of
First Colorado.
Indemnification; Limitation of Liability.
Delta. Section 545.121 of the OTS Regulations for Federal Savings
Associations (12 C.F.R. Section 545.121) provides for indemnification of any
person against whom any action is brought or threatened by reason of the fact
that such person is or was a director, officer, or employee of a federal savings
association. Indemnification is permitted only under certain circumstances and
subject to satisfaction of certain conditions, all as specified in Section
545.121 of the OTS Regulations.
First Colorado. First Colorado will 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, including actions by or in the right of
First Colorado, whether civil, criminal, administrative, or investigative, by
reason of the fact that such person is or was a director, officer, employee,
fiduciary or agent of First Colorado, or was serving at the request of First
Colorado as a director, officer, employee, fiduciary or agent of
31
<PAGE>
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 such person in connection with
such action, suit, or proceeding to the full extent permissible under Colorado
law.
Reasonable expenses incurred by an officer, director, employee,
fiduciary or agent of First Colorado in defending any action, suit, or
proceeding described in Section A of First Colorado's Articles of Incorporation
may be paid by First Colorado in advance of the final disposition of such
action, suit, or proceeding if authorized by the board of directors (without
regard to whether participating members thereof are parties to such action,
suit, or proceeding) or as otherwise required and to the fullest extent
permitted by Colorado law, upon receipt of an undertaking by or on behalf of
such person to repay such amount if it shall ultimately be determined that the
person is not entitled to be indemnified by First Colorado.
First Colorado has the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, fiduciary or
agent of First Colorado, or who, while a director, officer, employee, fiduciary
or agent of First Colorado, is or was serving at the request of First Colorado
as a director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any liability asserted against him or incurred by him in that capacity,
or arising out of his status as such, whether or not First Colorado would have
the power to indemnify him against such liability under the provisions of
Colorado law.
The duties of First Colorado to indemnify and to advance expenses to
any person as provided in its Articles of Incorporation will be in the nature of
a contract between First Colorado and each such person, and no amendment or
repeal of any provision of its Articles of Incorporation, and no amendment or
termination of any trust or other fund created pursuant to its Articles of
Incorporation, will alter to the detriment of such person the right of such
person to the advancement of expenses or indemnification related to a claim
based on an act or failure to act which took place prior to such amendment,
repeal, or termination.
If Colorado law is amended to permit further indemnification of the
directors, officers, employees, fiduciaries and agents of First Colorado, then
First Colorado shall indemnify such persons to the fullest extent permitted by
Colorado law, as so amended. Any repeal or modification of this Article by the
stockholders of First Colorado shall not adversely affect any right or
protection of a director, officer, employee, fiduciary or agent existing at the
time of such repeal or modification.
Directors of First Colorado have no liability to First Colorado or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that a director's liability for the following is not eliminated: (i)
for any breach of the director's duty of loyalty to First Colorado or its
stockholders, (ii) for acts or omissions not made in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) acts specified in
Section 7-108-403 of the Colorado Business Corporation Act pertaining to
unlawful distributions, or (iv) for any transaction from which a director
derived an improper personal benefit. If the Colorado Business Corporation Act
is amended after the effective date of these Articles to further eliminate or
limit the personal liability of directors, then the liability of a director of
First Colorado will be eliminated or limited to the fullest extent permitted by
the Colorado Business Corporation Act, as so amended.
32
<PAGE>
No director or officer of First Colorado shall be personally liable for
any injury to person or property arising out of a tort committed by an employee
unless such director or officer was personally involved in the situation giving
rise to the litigation or unless such director or officer committed a criminal
offense in connection with such situation. Any repeal or modification of the
foregoing by the stockholders of First Colorado will not adversely affect any
right or protection of a director or officer of First Colorado existing at the
time of such repeal or modification.
First Colorado Rights Agreement
On July 24, 1996, the First Colorado Board declared a dividend of one
preferred share purchase right (a "First Colorado Right") for each outstanding
share of First Colorado Common Stock to stockholders of record at the close of
business on August 5, 1996. Each First Colorado Right, when exercisable, will
entitle the registered holder to purchase from First Colorado one one-hundredth
of a share (a"Unit") of Series A Junior Participating Voting Preferred Stock,
$.10 par value, of First Colorado, at a purchase price of $41 per Unit, subject
to adjustment. The First Colorado Rights are not currently exercisable. The
description and terms of the First Colorado Rights are set forth in the Rights
Agreement, dated as of July 24, 1996, (the "First Colorado Preferred Share
Purchase Rights"), a copy of which is incorporated by reference herein. See
"Incorporation of Certain Information By Reference."
The First Colorado Rights have certain anti-takeover effects and will
cause substantial dilution to a person or group that attempts to acquire First
Colorado on terms not approved by the First Colorado Board.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, persons or
groups who beneficially own more than 5% of the Common Stock and the beneficial
ownership of David A. Humphries, each director of Delta, and all executive
officers and directors of Delta as a group. Other than as noted below,
management knows of no person or group that owns more than 5% of the outstanding
shares of Common Stock at the Record Date.
33
<PAGE>
<TABLE>
<CAPTION>
Percent of Shares
Amount and Nature of of Common Stock
Name and Address of Beneficial Owner(1) Beneficial Ownership(2) Outstanding
- --------------------------------------- ----------------------- -----------
<S> <C> <C>
Delta Federal Savings, F.S.B.
Employee Stock Ownership Plan
145 W. Fourth Street
Delta, Colorado 81416 10,907 5.9%
Lindoe, Inc.
PO Box 278
Ordway, Colorado 81063 16,662 9.0%
Robert D. Taylor
1313 N. Webb Rd
Wichita, Kansas 67206 12,133 6.8%
David A. Humphries 11,379(3)(4) 6.2%
Andrew A. White 1,515(3) --%(5)
Brad Percefull 2,865(3) 1.6%
Karen O'Brien 100 --%(5)
All Directors and Executive Officers
as a Group (5 persons) 19,809 10.8%
</TABLE>
- ----------------------------------
(1) The address of each director and named executive officer is 145 W.
Fourth Street, Delta, Colorado 81416.
(2) Includes shares of Delta Common Stock held directly as well as by
spouses or minor children, in trust and other indirect ownership, over
which shares the individuals effectively exercise sole voting and
investment power, unless otherwise indicated.
(3) Amount includes 5,460, 1,365 and 1,365 shares of Delta Common Stock
that Mr. Humphries, Mr. White and Mr. Percefull, respectively, has the
right to acquire pursuant to the exercise of options within 60 days
from the Record Date.
(4) Amount includes 1,919 shares of Delta Common Stock allocated under the
ESOP to Mr. Humphries, over which he exercises shared voting and
investment power.
(5) Less than 1%.
34
<PAGE>
PROPOSAL II -- ADJOURNMENT OF THE MEETING
In the event there is an insufficient number of shares present in
person or by proxy at the Special Meeting to approve the Merger Agreement, the
Board of Directors of Delta intends to adjourn the Special Meeting to a later
date. The place and date to which the Special Meeting would be adjourned would
be announced at the Special Meeting.
The effect of any such adjournment would be to permit Delta to solicit
additional proxies for approval of the Merger Agreement. While such an
adjournment would not invalidate any proxies previously filed, including those
voting against the Merger Agreement, it would give Delta the opportunity to
solicit additional proxies in favor of the Merger Agreement.
THE BOARD OF DIRECTORS OF DELTA RECOMMENDS A VOTE "FOR" APPROVAL OF THE
ADJOURNMENT UNDER THE CIRCUMSTANCES DESCRIBED HEREIN. APPROVAL OF THE
ADJOURNMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
SHARES OF DELTA COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE SPECIAL
MEETING.
EXPERTS
The consolidated financial statements of First Colorado at December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, incorporated by reference in the Proxy Statement/Prospectus and the
Registration Statement have been audited by KPMG Peat Marwick, LLP, independent
auditors, as set forth in their report thereon incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Delta at September 30, 1996
and 1995, and for each of the years in the three-year period ended September 30,
1996 have been audited by Dalby, Wendland & Co., P.C., independent auditors, as
set forth herein and are included in reliance upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the First Colorado Common Stock to be issued to Delta
Shareholders pursuant to the Merger and certain other legal matters in
connection with the Merger will be passed upon for First Colorado by Malizia,
Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters in
connection with the Merger will be passed upon for Delta by Silver, Freedman &
Taff, L.L.P., Washington, D.C.
OTHER MATTERS
As of the date of this Proxy Statement, management of First Colorado
and Delta know of no other business that will come before the Special Meeting.
Should any other matters properly come before the Special Meeting, the proxy in
the enclosed form confers upon the person or persons designated to vote the
shares discretionary authority to vote the same with respect to any other matter
in accordance with the direction of the Board of Directors of Delta.
35
<PAGE>
APPENDIX I
Agreement and Plan of Merger
By and Among
First Colorado Bancorp, Inc.
and
First Federal Bank of Colorado
and
Delta Federal Savings, F.S.B.
Dated: May 21, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C> <C> <C> <C>
ARTICLE I.......................................................................................................... 1
THE MERGER................................................................................................ 1
1.1 The Merger.............................................................................. 1
----------
1.2 Effective Date of the Merger............................................................ 1
----------------------------
1.3 Effects of the Merger................................................................... 2
---------------------
1.4 Closing................................................................................. 2
-------
ARTICLE II......................................................................................................... 2
EFFECT OF THE MERGER; CERTAIN ACTIONS IN CONNECTION
THEREWITH........................................................................................ 2
2.1 Effect of the Merger.................................................................... 2
--------------------
2.2 Effect on Common Stock of Delta and Bancorp............................................. 3
-------------------------------------------
2.3 Bancorp and FFBC to Make Stock Certificates and Cash Available.......................... 3
--------------------------------------------------------------
2.4 Payment of Consideration................................................................ 3
------------------------
2.5 Delta Stock Options..................................................................... 4
-------------------
ARTICLE III........................................................................................................ 5
CONVERSION OF SHARES/CONSIDERATION........................................................................ 5
3.1 Conversion of Shares.................................................................... 5
--------------------
3.2 Exchange of Certificates................................................................ 6
------------------------
3.3 Closing of Stock Transfer Books......................................................... 6
-------------------------------
ARTICLE IV......................................................................................................... 7
REPRESENTATIONS AND WARRANTIES OF DELTA................................................................... 7
4.1 Corporate Organization and Qualification................................................ 7
----------------------------------------
4.2 Authorization of Agreement.............................................................. 7
--------------------------
4.3 No Violation of Other Instruments....................................................... 8
---------------------------------
4.4 Financial Statements.................................................................... 8
--------------------
4.5 Absence of Certain Changes or Events.................................................... 9
------------------------------------
4.6 Form 10-KSB Annual Report and Other Reports............................................. 9
-------------------------------------------
4.7 Capitalization.......................................................................... 9
--------------
4.8 No Actions, Etc......................................................................... 10
----------------
4.9 Compliance with Laws and Orders......................................................... 10
-------------------------------
4.10 Governmental Regulation................................................................. 10
-----------------------
4.11 Contracts and Commitments............................................................... 10
-------------------------
4.12 Broker's Fees........................................................................... 11
-------------
4.13 Agreements with Directors, Officers and Shareholders.................................... 11
----------------------------------------------------
4.14 Title to Properties..................................................................... 11
-------------------
4.15 Environmental Matters................................................................... 11
---------------------
4.16 Insurance............................................................................... 12
---------
4.17 Proxy Statement......................................................................... 12
---------------
4.18 Good Faith.............................................................................. 12
----------
4.19 Employee and Employee Benefit Matters................................................... 12
-------------------------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
4.20 Labor Disputes.......................................................................... 13
--------------
4.21 Loan Losses............................................................................. 14
-----------
4.22 Taxes................................................................................... 14
-----
4.23 Consents and Approvals.................................................................. 14
----------------------
4.24 Knowledge as to Conditions.............................................................. 14
--------------------------
4.25 Accuracy of Information................................................................. 14
-----------------------
4.26 Absence of Certain Changes.............................................................. 15
--------------------------
4.27 Full Disclosure......................................................................... 15
---------------
4.28 Opinion................................................................................. 15
-------
ARTICLE V.......................................................................................................... 16
REPRESENTATIONS AND WARRANTIES OF BANCORP................................................................. 16
5.1 Organization and Qualification of Bancorp............................................... 16
-----------------------------------------
5.2 Authorization of Agreement.............................................................. 16
--------------------------
5.3 No Violation of Other Instruments....................................................... 16
---------------------------------
5.4 Financial Statements.................................................................... 17
--------------------
5.5 Absence of Certain Changes or Events.................................................... 17
------------------------------------
5.6 Form 10-K Annual Report and Other Reports............................................... 17
-----------------------------------------
5.7 No Actions, Etc......................................................................... 17
---------------
5.8 Capitalization.......................................................................... 18
--------------
5.9 Good Faith.............................................................................. 18
----------
5.10 Registration............................................................................ 18
------------
5.11 Copies of Public Information............................................................ 18
----------------------------
5.12 Undisclosed Liabilities: Taxes.......................................................... 18
------------------------------
5.13 Title to Properties..................................................................... 19
-------------------
5.14 Absence of Regulatory Actions........................................................... 19
-----------------------------
5.15 Labor Disputes.......................................................................... 19
--------------
5.16 Reserve for Possible Loan Losses........................................................ 19
--------------------------------
5.17 Benefit Plans........................................................................... 19
--------------
5.18 Accuracy of Information................................................................. 20
------------------------
5.19 Knowledge as to Conditions.............................................................. 20
--------------------------
5.20 Other Transactions...................................................................... 20
------------------
5.21 Full Disclosure......................................................................... 20
---------------
ARTICLE VI......................................................................................................... 20
COVENANTS OF THE PARTIES.................................................................................. 20
6.1 Conduct of Delta's Business............................................................. 20
---------------------------
6.2 Covenants of Bancorp.................................................................... 23
--------------------
6.3 Reports................................................................................. 24
-------
6.4 Breaches................................................................................ 24
--------
6.5 Consents and Approvals.................................................................. 24
----------------------
6.6 Non-Solicitation........................................................................ 24
----------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
ARTICLE VII........................................................................................................ 25
INVESTIGATION - CONFIDENTIALITY........................................................................... 25
7.1 Access to Information................................................................... 25
---------------------
7.2 Confidentiality......................................................................... 26
---------------
ARTICLE VIII....................................................................................................... 27
ADDITIONAL AGREEMENTS..................................................................................... 27
8.1 Delta Shareholders' Meeting............................................................. 27
---------------------------
8.2 Proxy Statement for Shareholders' Meetings.............................................. 27
------------------------------------------
8.3 Cooperation: Regulatory Approvals....................................................... 27
---------------------------------
8.4 Organization and Qualification of Interim, FFBC and Bancorp............................. 27
-----------------------------------------------------------
8.5 Reports................................................................................. 28
-------
8.6 Brokers or Finders...................................................................... 28
------------------
8.7 Additional Agreements: Reasonable Efforts............................................... 28
-----------------------------------------
8.8 Release of Information.................................................................. 28
----------------------
8.9 Subsequent Interim Financial Statements................................................. 28
---------------------------------------
8.10 Employee Matters........................................................................ 29
----------------
8.11 Board Members........................................................................... 29
-------------
8.12 Breaches................................................................................ 29
--------
8.13 Reimbursement for Expenses - Subsequent Acquisition Transaction......................... 29
---------------------------------------------------------------
8.14 Supplements to Disclosure Schedules..................................................... 29
-----------------------------------
8.15 Confidentiality......................................................................... 29
----------------
8.16 Due Diligence........................................................................... 29
-------------
8.17 Indemnification of Directors and Officers............................................... 30
-----------------------------------------
8.18 Dividends............................................................................... 30
---------
8.19 Other Benefits Matters.................................................................. 30
----------------------
8.20 Accountants' Letters.................................................................... 31
--------------------
8.21 Stock Exchange Listing.................................................................. 31
----------------------
8.22 Directors............................................................................... 31
---------
ARTICLE IX......................................................................................................... 31
CONDITIONS TO THE OBLIGATIONS OF BANCORP AND FFBC......................................................... 31
9.1 No Material Adverse Effect.............................................................. 31
--------------------------
9.2 Representations and Warranties.......................................................... 32
------------------------------
9.3 Performance and Compliance.............................................................. 32
--------------------------
9.4 No Proceeding or Litigation............................................................. 32
---------------------------
9.5 Consents Under Agreements............................................................... 32
-------------------------
9.6 No Amendments to Resolutions............................................................ 32
----------------------------
9.7 Certificate of Delta Officers........................................................... 32
-----------------------------
9.8 Satisfactory Completion of Due Diligence................................................ 32
----------------------------------------
9.9 Maintenance of Stockholders' Equity of Delta............................................ 32
--------------------------------------------
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C> <C>
ARTICLE X.......................................................................................................... 33
CONDITIONS TO THE OBLIGATIONS OF DELTA.................................................................... 33
10.1 Representations and Warranties.......................................................... 33
------------------------------
10.2 Performance and Compliance.............................................................. 33
--------------------------
10.3 Corporate Proceedings................................................................... 33
---------------------
10.4 Certificate of Bancorp Officers......................................................... 33
-------------------------------
10.5 Opinion of Financial Advisor............................................................ 33
----------------------------
ARTICLE XI......................................................................................................... 33
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES.............................................................. 33
11.1 Governmental Approvals.................................................................. 33
----------------------
11.2 Registration Statement.................................................................. 34
----------------------
11.3 No Injunctions or Restraints............................................................ 34
----------------------------
11.4 Delta Shareholder Approval.............................................................. 34
--------------------------
11.5 Corporate Proceedings................................................................... 34
----------------------
11.6 Legal Opinions.......................................................................... 34
--------------
11.7 Tax Opinion............................................................................. 34
-----------
11.8 Stock Exchange Listing.................................................................. 34
----------------------
ARTICLE XII........................................................................................................ 34
TERMINATION............................................................................................... 34
12.1 Reasons for Termination................................................................. 34
-----------------------
12.2 Effect of Termination................................................................... 36
---------------------
ARTICLE XIII....................................................................................................... 36
MISCELLANEOUS............................................................................................. 36
13.1 Survival of Representations, Warranties and Agreements................................. 36
------------------------------------------------------
13.2 Expenses............................................................................... 36
--------
13.3 Waivers: Amendments.................................................................... 36
-------------------
13.4 Assignment: Parties in Interest........................................................ 36
-------------------------------
13.5 Captions and Counterparts.............................................................. 37
-------------------------
13.6 Certain Definitions.................................................................... 37
-------------------
13.7 Enforcement of the Agreement........................................................... 37
----------------------------
13.8 Governing Law.......................................................................... 37
-------------
13.9 Notices................................................................................ 37
--------
13.10 Arbitration of Disputes................................................................ 38
-----------------------
13.11 Further Assurances..................................................................... 38
------------------
13.12 Exhibits and Disclosure Schedules...................................................... 38
---------------------------------
13.13 Severability........................................................................... 38
------------
13.14 Written Agreement to Govern............................................................ 39
---------------------------
13.15 No Waiver of Rights.................................................................... 39
-------------------
</TABLE>
(iv)
<PAGE>
SCHEDULES
Schedule 4.1(a)
Schedule 4.5
Schedule 4.7
Schedule 4.9
Schedule 4.10
Schedule 4.11
Schedule 4.13
Schedule 4.15
Schedule 4.16
Schedule 4.19(a)
Schedule 4.19(b)
Schedule 4.23
Schedule 4.26
Schedule 5.5
Schedule 5.8
Schedule 6.1
Schedule 6.2
(v)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of May 21, 1997 (the
"Agreement"), is entered into by and among First Colorado Bancorp, Inc.
("Bancorp"), First Federal Bank of Colorado ("FFBC") and Delta Federal Savings,
F.S.B ("Delta") (collectively, the "Parties").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Bancorp is a savings and loan holding company
incorporated under the laws of the State of Colorado, headquartered in Lakewood,
Colorado, and owns 100% of the issued and outstanding capital stock of FFBC, a
federally chartered stock savings bank headquartered in Lakewood, Colorado; and
WHEREAS, Delta is a federal stock savings bank headquartered
in Delta, Colorado; and
WHEREAS, the Boards of Directors of Bancorp, FFBC and Delta
have each approved this Agreement, authorized the execution hereof in
counterparts and the Board of Directors of Delta has directed that the Agreement
be submitted for shareholder approval; and
WHEREAS, the Boards of Directors of Bancorp and Delta believe
that the transaction is in the best interest of their respective stockholders;
and
WHEREAS, Bancorp and Delta intend, and it is a condition
hereof, that the Merger (as defined below) constitute a tax-free reorganization;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, representations, warranties, and agreements herein contained,
and in order to set forth the conditions upon which the foregoing Merger will be
carried out, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I.
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
and in accordance with the provisions of the Colorado Business Corporation Act
and the Rules and Regulations of the Office of Thrift Supervision ("OTS
Regulations") at the Effective Date, Delta shall be merged with and into FFBC or
a subsidiary interim stock savings bank of FFBC ("Interim"). Following the
merger of Interim with Delta, whereby Delta shall be the surviving entity, Delta
shall be a wholly-owned subsidiary of FFBC. Thereafter, Delta shall merge with
and into FFBC with FFBC being the surviving entity (collectively, the "Merger").
Upon the consummation of the Merger, the separate existence of Delta shall
cease, and FFBC shall continue as the surviving corporation in the Merger.
1.2 Effective Date of the Merger. As soon as practicable after each of
the conditions set forth in Articles IX, X and XI hereof have been satisfied or
waived, FFBC will file, or cause to be filed, articles of combination with the
Office of Thrift Supervision ("OTS"). The foregoing articles of combination
shall be in the form required by and executed in accordance with the applicable
provisions of the OTS
<PAGE>
Regulations. The Merger shall become effective at the time specified by the
Secretary of the OTS in its endorsement of the articles of combination (the
"Effective Date").
1.3 Effects of the Merger. At the Effective Time, the corporate name
and existence of Delta shall cease and all of its purposes, powers and objects,
and all of its rights, assets, liabilities and obligations, shall pass to and
vest in FFBC as the surviving institution without any conveyance or transfer,
and FFBC as the surviving institution shall continue to be governed by the laws
of the United States of America and of the State of Colorado, to the extent
applicable, and shall also succeed to all rights, assets, liabilities, and
obligations of Delta in accordance with the laws of the United States of America
and the laws of the State of Colorado, to the extent applicable. FFBC will
continue to operate under its present name and form as a subsidiary of Bancorp.
The Board of Directors of Bancorp, at its sole discretion, may merge Delta and
FFBC at or subsequent to Closing.
1.4 Closing. If (a) the Agreement and the transactions contemplated
hereby have been duly approved as required by the shareholders of Delta, and (b)
all relevant conditions of the Agreement have been satisfied or waived, the
closing (the "Closing") shall take place as promptly as practicable thereafter
at the main offices of FFBC. At the Closing, the parties hereto will exchange
certificates, letters and other documents as required hereby and will cause the
filing described in Section 1.2 hereof with respect to the Merger to be made.
Such Closing is expected to take place within five (5) business days of the
satisfaction or waiver of all conditions and/or obligations contained in
Articles IX, X and XI of this Agreement. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
ARTICLE II.
EFFECT OF THE MERGER; CERTAIN ACTIONS IN CONNECTION THEREWITH
2.1 Effect of the Merger.
(a) FFBC, as the surviving institution in the Merger, shall possess all
of the properties and rights and be subject to all of the liabilities and
obligations of Delta, all as more fully described in the OTS Regulations. The
name of FFBC, as the surviving institution in the Merger, shall remain "First
Federal Bank of Colorado."
(b) At the Effective Time, each share of capital stock of Delta issued
and outstanding immediately prior thereto shall, by virtue of the Merger, be
exchanged for shares of Common Stock of Bancorp based upon the Exchange Ratio.
(c) The charter and bylaws of FFBC, as in effect immediately prior to
the Effective Time, shall be the charter and bylaws of FFBC, as the surviving
institution of the Merger.
(d) The directors and officers of FFBC immediately prior to the
Effective Time shall be the directors and officers of FFBC, as the surviving
institution of the Merger, and shall continue in office until their successors
are duly elected or otherwise duly selected.
(e) The liquidation account established by Delta pursuant to the plan
of conversion adopted in connection with its conversion from mutual to stock
form shall continue to be maintained by FFBC after the
2
<PAGE>
Effective Time for the benefit of those persons and entities who were savings
account holders of Delta on March 31, 1992, and who continue from time to time
to have rights therein.
(f) All deposit accounts of Delta existing immediately prior to the
Merger shall, upon consummation of the Merger, remain insured by the Savings
Association Insurance Fund ("SAIF"), as administered by the Federal Deposit
Insurance Corporation ("FDIC"), to the fullest extent permitted by law and
regulation.
2.2 Effect on Common Stock of Delta and Bancorp. As of the Effective
Time, by virtue of the Merger and without any action except as specified herein
on the part of the holders of shares of common stock, $0.01 par value, of Delta
("Delta Common Stock"), each issued and outstanding share of Delta Common Stock
(except as otherwise provided in the OTS Regulations with respect to the rights
of dissenting shareholders of Delta) shall be converted into the right to
receive common stock, $0.10 par value per share, of Bancorp ("Bancorp Common
Stock") based upon the Exchange Ratio, less any fractional shares, as defined in
Section 3.1(b) hereof. All shares of Delta Common Stock which are held in the
treasury of Delta or by any direct or indirect wholly-owned subsidiary of Delta
and any shares of Delta Common Stock owned by FFBC or any direct or indirect
wholly-owned subsidiary or parent of FFBC shall be canceled.
2.3 Bancorp and FFBC to Make Stock Certificates and Cash Available. At
the Effective Time, FFBC shall make available to the Exchange Agent (as defined
in Section 2.4(a) hereof) the common stock of Bancorp and cash payments
necessary for the transaction pursuant to Section 2.2 and Section 2.5 hereof.
2.4 Payment of Consideration.
(a) At least twenty (20) days before the Effective Time, FFBC shall
designate an exchange agent (the "Exchange Agent") in connection with the
Merger. As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and form of letter of transmittal to each holder of record
of Delta Common Stock at the Effective Time advising such shareholder of the
effectiveness of the Merger and the procedures for surrendering to the Exchange
Agent outstanding certificates formerly evidencing shares of Delta Common Stock.
Each holder of shares of Delta Common Stock subject to conversion into Bancorp
Common Stock and cash as provided in Section 2.2 hereof who thereafter delivers
his or her certificate or certificates representing such shares to the Exchange
Agent shall be mailed new stock certificates for Bancorp Common Stock equal to
the number of shares represented by the certificate or certificates so
surrendered to the Exchange Agent multiplied by the Exchange Ratio, less any
fractional shares, as defined in Section 3.1(b) hereof. Upon surrender, each
certificate evidencing Delta Common Stock shall be canceled. Until so
surrendered, each outstanding certificate which prior to the Effective Time
evidenced shares of Delta Common Stock will be deemed for all purposes (except
as otherwise provided in Section 2.2 hereof) to evidence the right to receive
Bancorp Common Stock equal to the number of shares represented by the
certificate or certificates multiplied by the Exchange Ratio. After the
Effective Time, there shall be no further registration of transfers on the
records of Delta of shares of Delta Common Stock and, if a certificate
evidencing such shares is presented for transfer, it shall be canceled in
exchange for Bancorp Common Stock based upon the Exchange Ratio (except as
otherwise provided in Section 2.2 hereof) in the appropriate amount as
calculated above. Notwithstanding any provision of this Agreement, neither the
Exchange Agent nor any person, firm or entity shall be liable or obligated to
any former holder of any share of Delta Common Stock (or to anyone claiming
through any such former holder) with respect to amounts to which any such holder
would have been entitled as a consequence of the Merger, if such amounts have
been
3
<PAGE>
properly paid, or are properly payable, to any public official pursuant to any
abandoned property, escheat or similar laws.
(b) If delivery of all or any part of the Bancorp Common Stock and cash
to be paid in connection with the Merger is to be paid to a person other than
the person in whose name the certificate surrendered in exchange therefor is
registered, it shall be a condition to such delivery that the certificate
surrendered in exchange shall be properly endorsed and otherwise in proper form
for transfer and that the person requesting such a delivery pay to the Exchange
Agent any transfer or other taxes required by reason of such delivery in any
name other than that of the registered holder of the certificate surrendered or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(c) In the event any certificate for Delta Common Stock shall have been
lost, stolen or destroyed, the Exchange Agent shall deliver (except as otherwise
provided in Section 2.2 hereof) in exchange for such lost, stolen or destroyed
certificate, upon the making of an affidavit of that fact by the holder thereof,
the Exchange Shares to be issued in the Merger as provided for herein; provided,
however, that FFBC may, in its sole discretion and as a condition precedent to
the delivery thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such reasonable sum as Bancorp may direct as
indemnity against any claim that may be made against Bancorp, FFBC, Delta, the
Exchange Agent or any other party with respect to the certificate alleged to
have been lost, stolen or destroyed.
2.5 Delta Stock Options.
(a) At the Effective Time, each option granted by Delta (a "Delta
Option") to purchase shares of Delta Common Stock which is outstanding and
unexercised immediately prior to the date of this Agreement shall, except as
otherwise provided in Section 2.5(c) hereof, be converted automatically into an
option to purchase shares of Bancorp Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of Delta's 1993 Stock Option and Incentive Plan (the "Option Plan")); provided
however that upon termination of service or employment by the option holder,
such options shall cease being exercisable not later than in accordance with
their original terms or three months from the date of termination of service or
employment, whichever is earlier:
(i) The number of shares of Bancorp Common Stock to be subject
to the new option shall be equal to the product of the number of shares
of Delta Common Stock subject to the original option and the Exchange
Ratio, provided that any fractional shares of Bancorp Common Stock
resulting from such multiplication shall be rounded down to the nearest
share; and
(ii) The exercise price per share of Bancorp Common Stock
under the new option shall be equal to the exercise price per share of
Delta Common Stock under the original option divided by the Exchange
Ratio, provided that such exercise price shall be rounded up to the
nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")) shall be and is intended to be effected
in a manner which is consistent with Section 424(a) of the Code. The duration
and other terms of the new option shall be the same as the original option,
except that all references to Delta shall be deemed to be references to Bancorp.
4
<PAGE>
(b) Within 60 days after the Effective Time, Bancorp shall file with
the Securities and Exchange Commission (the "SEC") a registration statement on
an appropriate form under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares of Bancorp Common Stock subject to
options to acquire Bancorp Common Stock issued pursuant to Section 2.5(a)
hereof, and shall use its reasonable best efforts to maintain the current status
of the prospectus contained therein, as well as comply with applicable state
securities or "Blue sky" laws, for so long as such options remain outstanding.
(c) Without limiting the foregoing, and provided that the right
contained in this Section 2.5(c) is not inconsistent with any of the conditions
contained in Articles IX, X and XI hereof, each holder of a Delta Option shall
have the right (which right shall be exercised at least 5 days prior to the
Closing Date by written notice to Bancorp) to elect, in lieu of the provisions
of Section 2.5(a), to convert, at the Effective Time, all or a portion of his
Delta Options which have not been exercised and which have not expired prior to
the Effective Time into the right to receive cash in the amount of $30.00 per
option, less the applicable option exercise price.
ARTICLE III.
CONVERSION OF SHARES/CONSIDERATION
3.1 Conversion of Shares. On the Effective Date:
(a) All issued and outstanding shares of Delta Common Stock shall at
the Effective Time of the Merger, be converted into the number of shares of
common stock of Bancorp, par value $.10, ("Bancorp Common Stock") multiplied by
the Exchange Ratio at the Effective Time.
(b) Each share of Delta Common Stock then issued and outstanding
(excluding (i) any shares held in the treasury of Delta; and (ii) any shares as
to which dissenters' rights are exercised pursuant to the requirements of the
OTS Regulations all of which shares shall be canceled) shall and, without action
of the holder thereof, be converted by the Merger into a number of shares of
Bancorp Common Stock (together with the number of rights ("Bancorp Rights")
issued pursuant to the Rights Agreement (as defined at Section 5.10 hereof)
associated therewith) equal to the quotient (rounded to the nearest one
one-hundredth) of $30 divided by the average of the midpoint of the last bid and
ask price (the "Bancorp Stock Price") for Bancorp Common Stock as reported on
The Nasdaq National Market for the 20 trading days immediately preceding the
Effective Date (the "Exchange Ratio"). All such shares of Bancorp Common Stock
shall be validly issued, fully paid and nonassessable. Each person who, but for
the provisions of this Section 3.1(b), would be entitled to a fractional share
interest in the common stock of Bancorp as a result of the conversion, upon
surrender of certificates theretofore representing shares of common stock of
Bancorp, shall receive in lieu thereof an amount in cash equal to such fraction
multiplied by the Bancorp Stock Price.
(c) The Exchange Ratio at the Effective Time shall be adjusted to
reflect any consolidation, split-up, other subdivisions or combinations of
Bancorp Common Stock, any dividend declared and payable in Bancorp Common Stock,
or any capital reorganization involving the reclassification of Bancorp Common
Stock subsequent to the date of this Agreement.
5
<PAGE>
(d) Shareholders of Delta asserting dissenters' rights under OTS
Regulations shall have their rights determined pursuant to the OTS Regulations
and shall be entitled to cash payment pursuant to the terms and provisions of
said law with funds to be provided by Bancorp.
(e) From and after the Effective Time, the holders of the certificates
representing common stock of Delta shall cease to have any rights with respect
to such shares (except such rights as they may have as dissenting shareholders)
and their sole right shall be to receive cash and common stock of Bancorp as
herein provided.
3.2 Exchange of Certificates. As soon as practicable after the
Effective Time, the certificates representing the outstanding shares of Delta
shall be surrendered to the Exchange Agent and, upon such surrender, the
Exchange Agent shall issue and deliver in substitution therefore, cash and
certificates representing the number of shares of Bancorp Common Stock into
which such surrendered shares have been converted as hereinbefore provided, and
cash in lieu of fractional shares (without interest). Certificates representing
shares of Delta (other than the shares of Delta Common Stock as to which there
are perfected dissenters' rights) which are not surrendered shall be deemed for
all purposes to evidence the ownership of the number of shares of Bancorp Common
Stock into which said shares of Delta shall have been converted as hereinbefore
set forth and the right to receive cash in the amount determined pursuant to
Section 3.1; provided, however, that Bancorp will not distribute to the holder
of an unsurrendered certificate for Delta Common Stock dividends declared with
respect to Bancorp Common Stock until such owner shall surrender such
certificate, at which time the holder thereof shall be paid the amount of the
dividends having a record date on or after the Effective Time theretofore
declared with respect to common stock without interest. All such dividends
unclaimed at the end of one year from the Effective Time shall be repaid by the
Exchange Agent to Bancorp, and thereafter the holders of such outstanding
certificates shall look, subject to applicable escheat, unclaimed funds and
other laws, as general creditors only to Bancorp for payment thereof.
3.3 Closing of Stock Transfer Books. At the close of business on the
business day immediately preceding the Effective Time, the stock transfer books
of Delta shall be deemed closed, and no shares of Delta Common Stock shall
thereafter be transferred.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF DELTA
Except as set forth in the disclosure schedules to be delivered by
Delta to FFBC (the "Delta Disclosure Schedule"), Delta represents and warrants
to FFBC that:
4.1 Corporate Organization and Qualification.
(a) Delta is duly organized and validly existing as a federal stock
savings bank under the laws of the United States of America and has the
corporate power to own all of its properties and assets and to carry on its
business as it is now being conducted, and neither the ownership of its property
nor the conduct of its business requires it to be qualified to do business in
any other jurisdiction. The deposits of Delta are insured by the Savings
Association Insurance Fund ("SAIF") to the fullest extent permitted by law, and
all premiums required to be paid in connection therewith have been paid when due
by Delta. Except as set forth in Schedule 4.1(a) to the Delta Disclosure
Schedule, the issued and outstanding shares of stock of Delta
6
<PAGE>
are all duly authorized, validly issued, fully paid and nonassessable. Delta has
delivered to FFBC true, complete and correct copies of its Charter, or other
organizing documents and of the bylaws, as in effect on the date of this
Agreement. Delta is qualified to do business as a federal stock savings bank and
is in good standing in each jurisdiction in which qualification is necessary
under applicable law, except to the extent that any failures to so qualify would
not, in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of Delta, taken as a whole.
(b) Delta Financial Service Corp (the "Subsidiary") is Delta's only
subsidiary. The Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization. The Subsidiary has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or the location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure to be
so licensed or qualified would not have a Material Adverse Effect on Delta,
taken as a whole. The certificate of incorporation, bylaws or similar governing
documents of the Subsidiary, copies of which have previously been delivered to
Bancorp, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement. The capital stock of the Subsidiary has been
fully paid, is duly authorized and validly issued, is non-assessable and is not
issued in violation of the preemptive rights of any stockholder. The capital
stock of the Subsidiary is beneficially owned by Delta and is held free and
clear of any claims, liens, encumbrances or security interests. Except for the
Subsidiary, Delta does not own 5% or more of the shares of stock of any other
corporation.
(c) The minute books of Delta and the Subsidiary contain true, complete
and accurate records in all material respects of all meetings and other
corporate actions held or taken since December 31, 1992 of their respective
stockholders and Boards of Directors (including committees of their respective
Boards of Directors).
4.2 Authorization of Agreement. The Board of Directors of Delta has
authorized the execution of this Agreement as set forth herein, and Delta,
subject to the approval of this Agreement by the shareholders of Delta and all
appropriate regulatory authorities as provided under the Rules and Regulations
of the OTS and the FDIC, has the corporate power to execute and deliver this
Agreement, and has taken all action required by law, its Charter and bylaws or
otherwise to authorize such, and is duly authorized to merge with Interim and
FFBC, and to execute and deliver the Agreement and related documents to FFBC
associated with the Merger and the consummation of the transactions contemplated
thereby, and upon its execution (and assuming due execution and delivery by
Bancorp) this Agreement is a valid and binding agreement of Delta enforceable in
accordance with its terms, subject to (a) all applicable bankruptcy, insolvency,
moratorium or other similar law affecting the enforcement of creditors' rights
generally, and (b) the application of equitable principles if equitable remedies
are sought.
4.3 No Violation of Other Instruments. The execution and delivery of
this Agreement do not, and the consummation of the Merger will not, (i) violate
any provisions of Delta's Charter or bylaws, (ii) violate any provision of, or
result in the acceleration of any obligation under or in the termination, if
applicable, of, any mortgage, deed of trust, note, lien, lease, franchise,
license, permit, agreements, instrument, order, arbitration award, judgment or
decree to which Delta or the Subsidiary is a party or by which it is bound
except for such as would not have a material adverse effect on the financial
condition, business, properties, or results of operations of Delta, taken as a
whole, or the transactions contemplated hereby, (iii) violate or conflict with
any other material restriction of any kind or character by which either
7
<PAGE>
Delta or the Subsidiary is bound, or (iv) enable any person to enjoin the
transactions contemplated hereby. After the approval of this Agreement by the
Board of Directors of Delta, the shareholders of Delta, the OTS, and the FDIC,
if necessary, Delta will have taken all action required by law, the Charter of
Delta, its bylaws, or otherwise to authorize the execution and delivery of this
Agreement and to authorize the Merger of Delta with Interim and FFBC pursuant to
this Agreement and the consummation of the transactions contemplated hereby.
Delta knows of no reason (including those relating to fair lending laws or other
laws relating to discrimination, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Truth
in Lending Act, and the Home Mortgage Disclosure Act, and anti-trust or consumer
disclosure laws and regulations) why the regulatory approvals should not be
obtained.
4.4 Financial Statements.
(a) Delta has previously delivered to Bancorp copies of the
consolidated statements of financial condition of Delta as of September 30, for
the fiscal years 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the fiscal years
1994 through 1996, inclusive, as incorporated by reference in Delta's Annual
Report to Stockholders in each case accompanied by the audit report of Dalby,
Wendland & Co., P.C., independent public accountants with respect to Delta, and
the unaudited consolidated statements of financial condition of Delta as of
December 31, 1996 and the related unaudited consolidated statements of
operations, changes in stockholders' equity and cash flows for the three month
periods then ended as reported in Delta's quarterly report to shareholders. The
consolidated statements of financial condition of Delta referred to herein
(including the related notes, where applicable) fairly present the consolidated
financial condition of Delta as of the respective dates set forth therein, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows (including the related notes, where applicable) fairly
present the results of the consolidated operations, changes in stockholders'
equity and cash flows of Delta for the respective periods or as of the
respective dates set forth therein, it being understood that Delta's interim
financial statements are not audited, not prepared with related notes and are
subject to normal year-end adjustments.
(b) From April 6, 1993 to September 12, 1996, the consolidated
statement of condition of Delta included in the Forms 10-KSB and Forms 10-QSB
reports of Delta filed with the OTS (including the related notes, where
applicable), fairly presented the consolidated financial condition of Delta as
of the respective dates set forth therein, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
(including the related notes, where applicable) fairly presented the results of
the consolidated operations, changes in stockholders' equity and changes in
financial position of Delta for the respective periods set forth therein, it
being understood that Delta's interim consolidated financial statements were
neither audited nor prepared with related notes and that such interim
consolidated financial statements were subject to normal year-end adjustments.
(c) Each of the financial statements referred to in Sections 4.4(a) and
4.4(b) (including the related notes, where applicable) has been prepared in
accordance with generally accepted accounting principles consistently applied
during the periods involved. The books and records of Delta are being maintained
in accordance with applicable legal and accounting requirements, and reflect
only actual transactions.
(d) The consolidated statement of financial condition of Delta to be
included in subsequent shareholder and OTS reports (including related notes
thereto, where applicable) referred to in Section 8.9,
8
<PAGE>
will fairly present the consolidated financial condition of Delta as of the
respective dates set forth therein, and related consolidated statements of
operations, changes in stockholders' equity and cashflows (including the related
notes, where applicable) referred to in Section 8.9 will fairly present the
results of the consolidated operations, changes in stockholders' equity and cash
flows for the respective periods set forth therein, it being understood that
Delta's interim financial statements will neither be audited nor prepared with
related notes and that such interim consolidated financial statements will be
subject to normal year-end adjustments.
4.5 Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.5 to the Delta Disclosure Schedule, since December 31, 1996, (i)
neither Delta nor the Subsidiary has incurred any material liability, except in
the ordinary course of their business consistent with their past practices
(excluding the incurrence of expenses in connection with this Agreement and the
transactions contemplated thereby); (ii) there has been no material adverse
change, or development involving a reasonably foreseeable prospective material
adverse change, in or affecting the financial condition, businesses, properties,
or results of operations of Delta, taken as a whole; and (iii) Delta and the
Subsidiary have carried on their respective businesses in the ordinary course
consistent with their past practices (excluding the execution of this Agreement
and related matters).
4.6 Form 10-KSB Annual Report and Other Reports. From December 31, 1991
to the date of this Agreement, Delta has filed with the OTS and the FDIC all
documents and reports required to be filed and such reports do not contain, as
of their respective dates, an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.7 Capitalization. The authorized capital stock of Delta consists of
5,000,000 shares of common stock, par value of $0.01 per share, 183,365 of which
as of the date hereof are issued and outstanding and are duly authorized,
validly issued, fully paid and nonassessable. No other class or series of
capital stock of Delta is or has been authorized. There are no options,
warrants, calls, reservations for issuance or commitments of any kind relating
to, or securities convertible into, Delta common stock, except as detailed at
Schedule 4.7 to the Delta Disclosure Schedule.
4.8 No Actions, Etc. There are no actions, suits, claims, proceedings
or to the knowledge of the executive officers or directors of Delta,
investigations pending, threatened or contemplated against or relating to Delta
and/or the Subsidiary or any of their properties which, individually or in the
aggregate, could materially and adversely affect the financial condition,
businesses, properties or results of operations of Delta, taken as a whole, or
the ability of Delta to consummate the transactions contemplated hereby, and
such officers and directors do not know of any basis for any such action or
proceeding. Delta and the Subsidiary are not transacting business in violation
of any applicable law or regulation which could materially adversely affect the
financial condition, businesses, properties or results of operations of Delta,
taken as a whole, or the ability of Delta to consummate the transactions
contemplated hereby. Delta and/or the Subsidiary are not parties to any order,
judgment or decree which would reasonably be expected to have a Material Adverse
Effect, and Delta and/or the Subsidiary (a) are not the subject of any cease and
desist order, or other formal or informal enforcement action by any regulatory
authority or (b) have made any commitment to or entered into any agreement with
any regulatory authority that restricts or adversely affects their operations or
financial condition.
9
<PAGE>
4.9 Compliance with Laws and Orders. Except as set forth in Schedule
4.9 to the Delta Disclosure Schedule, to the knowledge of Delta, Delta and the
Subsidiary have not received notice of any violation or alleged material
violation of, or are subject to, any liability (whether accrued, absolute,
contingent, direct or indirect) for past or continuing material violations of,
any material law, statute or regulation. Delta is not in default under, and no
event has occurred that, with the lapse of time or action by a third party or
both, could result in a default under the terms of any judgment, decree, order,
writ, rule or regulation of any governmental authority or court, whether
federal, state or local and whether at law or in equity, where the failure to be
in full compliance would reasonably be expected to result alone or in the
aggregate in damages, which would be reasonably likely to have a Material
Adverse Effect.
4.10 Governmental Regulation. Delta and the Subsidiary hold all
material licenses, certificates, permits, franchises and rights from all
appropriate federal, state and other public authorities necessary for the
conduct of their businesses; and, between the date hereof and the Closing Date,
Delta will use its best efforts to, maintain all such licenses, certificates,
permits, franchises and rights in effect. Except as set forth in Schedule 4.10
to the Delta Disclosure Schedule, Delta and the Subsidiary are not parties or
subject to any agreements, directives, orders or similar arrangements between or
involving Delta and/or the Subsidiary and any federal or state banking
regulatory authority.
4.11 Contracts and Commitments. Except as set forth in Schedule 4.11 to
the Delta Disclosure Schedule, Delta and the Subsidiary are not parties to or
bound by any written (a) material lease or license with respect to any property,
real or personal; (b) material contract or commitment for capital expenditures;
(c) material contract or commitment for total expenses for the purchase of
materials, supplies or for the performance of services by third parties for a
period of more than 60 days from the date of this Agreement; or (d) material
contract or option for the purchase or sale of any real or personal property
other than in the ordinary course of business. To Delta's knowledge, Delta and
the Subsidiary have performed in all material respects all obligations required
to be performed by them to date and are not in default under, and no event has
occurred which, with the lapse of time or action by a third party or both, could
result in a default resulting in material damages or other material default
under any outstanding mortgage, lease, contract, commitment or agreement to
which Delta and/or the Subsidiary is a party or by which Delta and/or the
Subsidiary is bound or under any provision of their articles, charter or bylaws.
Each such outstanding material mortgage, lease, contract, commitment or
agreement is a valid and legally binding obligation of Delta and/or the
Subsidiary subject to (x) all applicable bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors rights generally or
the rights of creditors of savings associations the accounts of which are
insured by the FDIC, and (y) the application of equitable principles if
equitable remedies are sought.
4.12 Broker's Fees. Neither Delta nor the Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any transactions contemplated by this Agreement, except that Delta has
engaged, and will pay a fee or commission to, Charles Webb & Company, a Division
of Keefe, Bruyette & Woods, Inc. (the "Financial Advisor"), in accordance with
the terms of a letter agreement between Delta and the Financial Advisor, a true,
complete and correct copy which has previously been delivered to Bancorp by
Delta.
4.13 Agreements with Directors, Officers and Shareholders. Except as
set forth in Schedule 4.13 to the Delta Disclosure Schedule, no director,
executive officer, or holder of ten percent (10%) or more of the outstanding
capital stock of Delta nor any associate of any such person (a "Delta
Principal") (a) is or has
10
<PAGE>
during the period subsequent to December 31, 1996, been a party (other than as a
depositor) to any transaction with Delta, whether as a borrower or otherwise,
that (i) was made other than in the ordinary course of business, (ii) was made
on other than substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other persons, or (iii) involves more than the normal risk of collectability or
presents other unfavorable features; or (b) is a party to any material loan or
loan commitment, whether written or oral. Except as disclosed in Schedule 4.13
to the Delta Disclosure Schedule, no Delta Principal holds any position with or
owns more than five percent (5%) of the outstanding shares of any class of
voting stock of any depository organization other than Delta. For the purposes
of this Section 4.13, the term "depository organization" means a commercial bank
(including a private bank), a savings bank, a trust company, a savings and loan
association, a homestead association, a cooperative bank, an industrial bank, a
credit union, or a depository holding company.
4.14 Title to Properties. Delta has good and marketable title to all
its property and assets, whether real or personal, tangible or intangible,
including, without limitation, all assets set forth in its balance sheet as of
September 30, 1996, except property and assets sold or otherwise disposed of
since September 30, 1996, in the ordinary course of business, subject to no
liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said balance sheet and except liens for taxes and assessments not
delinquent, pledges to secure deposits and such other liens and encumbrances and
imperfections of title as do not materially affect the value of such property as
reflected on said balance sheet and which do not interfere with or impair its
present or continued use, and all of their material leases are in full force and
effect and Delta is not in default in any material respect thereunder.
4.15 Environmental Matters. Except as set forth in Schedule 4.15 to the
Delta Disclosure Schedule, to the knowledge of Delta, the real property owned by
Delta associated with its main office as well as other real property held as an
asset and real property held as real estate owned as collateral on loans ("Real
Properties") are in material compliance with all Environmental Laws, as
hereinafter defined, and there are no conditions existing currently which would
subject Delta to damages, penalties, injunctive relief or cleanup costs under
any Environmental Laws or assertions thereof, or which require cleanup, removal,
remedial action or other response pursuant to Environmental Laws by Delta.
Copies of all environmental studies, reports, notices and the like known to
exist with regard to the Real Properties is contained at Schedule 4.15 to the
Delta Disclosure Schedule. Delta is not a party to any litigation or
administrative proceeding, nor has Delta (either in its own capacity or as
trustee or fiduciary), materially violated Environmental Laws nor, to the
knowledge of Delta and except as set forth in Schedule 4.15 to the Delta
Disclosure Schedule, is Delta (either in its own capacity or as trustee or
fiduciary) required to clean up, remove or take remedial or other responsive
action due to the disposal, depositing, discharge, leaking or other release of
any hazardous substances or materials. To the knowledge of Delta, none of the
Real Properties are, nor is Delta, subject to any judgment, decree, order or
citation related to or arising out of any Environmental Laws. To the knowledge
of Delta, no material permits, licenses or approvals are required under
Environmental Laws relative to the Real Properties; and, except as disclosed in
Schedule 4.15 to the Delta Disclosure Schedule, Delta has not stored, deposited,
treated, recycled, used or disposed of any materials (including, without
limitation, asbestos) on, under or at the Real Properties (or tanks or other
facilities thereon containing such materials), which materials if known to be
present on the Real Properties or present in soils or ground water, would
require cleanup, removal or some other remedial action under the Environmental
Laws. The term "Environmental Laws" shall mean all federal, state and local
laws, including statutes, regulations, ordinances, codes, rules and other
governmental restrictions, standards and requirements relating to the discharge
of air pollutants, water pollutants or process waste water or substances, as now
or at any time hereafter in effect, including, but not limited to, the Federal
Solid Waste
11
<PAGE>
Disposal Act, the Federal Hazardous Materials Transportation Act, the Federal
Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Comprehensive Environmental Responsibility
Cleanup and Liability Act of 1980, as amended ("CERCLA"), regulations of the
Environmental Protection Agency, regulations of the Nuclear Regulatory Agency,
regulations of the Occupational Safety and Health Administration, and any
so-called "Superfund" or "Superlien" Laws.
4.16 Insurance. Delta has delivered to FFBC as part of Schedule 4.16 to
the Delta Disclosure Schedule true, accurate and complete copies of all
insurance policies and fidelity bonds of Delta. Each such policy is in full
force and effect, with all premiums due thereon on or prior to the Closing Date
having been paid as and when due. Delta has not been notified that its fidelity
or insurance coverage will not be renewed by their carrier(s) on substantially
the same terms as their existing coverage. Delta agrees that prior to the
Effective Date, Delta will not decrease its existing insurance coverage without
the written consent of FFBC. Except as disclosed, no claim is pending under any
such policy with respect to the business or operations of Delta.
4.17 Proxy Statement. The information pertaining to Delta which has
been or will be furnished by or on behalf of Delta or its management for
inclusion in the Proxy Statement referred to in Section 8.2 and the Registration
Statement referred to in Section 5.10 or any amendment or supplement thereto (a)
will comply in all material respects with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (b) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
4.18 Good Faith. Delta shall use its best efforts in good faith to take
or cause to be taken all action required under this Agreement on its part to be
taken as promptly as practicable so as to permit the consummation of this
Agreement at the earliest practicable date and cooperate fully with the other
parties to that end.
4.19 Employee and Employee Benefit Matters.
(a) Schedule 4.19(a) to the Delta Disclosure Schedule lists
(i) each pension, profit sharing, stock bonus, thrift, savings, employee stock
ownership or other plan, program or arrangement, which constitutes an "employee
pension benefit plan" within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which is
maintained by Delta and/or the Subsidiary or to which Delta and/or the
Subsidiary contribute for the benefit of any current or former employee,
officer, director, consultant or agent; (ii) each plan, program or arrangement
for the provision of medical, surgical, or hospital care or benefits, benefits
in the event of sickness, accident, disability, death, unemployment, severance,
vacation, apprenticeship, day care, scholarship, prepaid legal services or other
benefits which constitute an "employee welfare benefit plan" within the meaning
of Section 3(1) of ERISA, which is maintained by Delta and/or the Subsidiary or
to which Delta and/or the Subsidiary contribute for the benefit of any current
or former employee, officer, director, consultant or agent; and (iii) every
other retirement or deferred compensation plan, bonus or incentive compensation
plan or arrangement, stock option plan, stock purchase plan, severance or
vacation pay arrangement, or other fringe benefit plan, program or arrangement
through which Delta and/or the Subsidiary provide benefits for or on behalf of
any current or former employee, officer, director, consultant or agent.
12
<PAGE>
(b) All of the plans, programs and arrangements described in
this Section 4.19 or listed in Schedule 4.19(a) to the Delta Disclosure Schedule
(hereinafter referred to as the "Delta Benefit Plans") that are subject to ERISA
are in material compliance with all applicable requirements of ERISA and all
other applicable federal and state laws, including the reporting and disclosure
requirements of Part I of Title I of ERISA. Each of the Delta Benefit Plans that
is intended to be a pension, profit sharing, stock bonus, thrift, savings or
employee stock ownership plan that is qualified under Section 401(a) of the Code
satisfies the applicable requirements of such provision and there exist no
circumstances that would adversely affect the qualified status of any such Plan
under that section, except with respect to any required retroactive amendment
for which the remedial amendment period has not yet expired. Except as set forth
in Schedule 4.19(b) to the Delta Disclosure Schedule, there is no pending or, to
the best knowledge of Delta, threatened litigation, governmental proceeding or
investigation against or relating to any Delta Benefit Plan and there is no
reasonable basis for any material proceedings, claims, actions or proceedings
against any such Delta Benefit Plan. No Delta Benefit Plan (or Delta Benefit
Plan fiduciary, in his capacity as such) has engaged in a non-exempt "Prohibited
Transaction" (as defined in Section 406 of ERISA and Section 4975(c) of the
Code) since the date on which said sections became applicable to such Plan.
There have been no acts or omissions by Delta that have given rise to any fines,
penalties, taxes or related charges under Sections 502(c), 502(i) or 4071 of
ERISA or Chapter 43 of the Code, or that may give rise to any material fines,
penalties, taxes or related damages under such laws for which Delta may be
liable. All group health plans of Delta, including any plans of current and
former Affiliates of Delta that must be taken into account under Section 4980B
of the Code or Section 601 of ERISA or the requirements of any similar state law
regarding insurance continuation, have been operated in material compliance with
the group health plan continuation coverage requirements of Section 4980B of the
Code and Section 601 of ERISA to the extent such requirements are applicable.
All payments due from any Delta Benefit Plan (or from Delta with respect to any
Delta Benefit Plan) have been made, and all amounts properly accrued to date as
liabilities of Delta that have not yet been paid have been properly recorded on
the books of Delta.
4.20 Labor Disputes. Delta is not directly or indirectly involved in or
to the knowledge of Delta threatened with any labor dispute or trouble or
organizational effort, including, without limitation, matters regarding actual
or alleged discrimination by reason of race, creed, sex, disability or national
origin, which might materially and adversely affect the financial condition,
assets, businesses or results of operations of Delta and the Subsidiary, taken
as a whole.
4.21 Loan Losses. The reserve for possible loan losses shown on the
consolidated balance sheet of Delta as of September 30, 1996, and on the
unaudited balance sheet as of December 31, 1996, is adequate as of the dates
thereof, and no notices have been received from the OTS or the FDIC related to
the adequacy of such reserves within the prior thirty-six months.
4.22 Taxes.
(a) Delta has filed on a timely basis all Federal Income Tax Returns
and all other federal, state, municipal and other tax returns which each of them
is required to file, and each has paid all taxes shown to be due on such returns
and, in the opinion of its Chief Executive and Financial Officers, has
adequately reserved for all current taxes;
(b) Neither the Internal Revenue Service nor any other taxing authority
is now asserting against Delta, or, to its knowledge, threatening to assert
against it, any deficiency or claim for additional taxes, interest or penalty;
13
<PAGE>
(c) There is no pending, or to the knowledge of Delta, threatened
examination of the Federal Income Tax Returns of Delta and, except for tax years
still subject to the assessment and collection of additional federal income
taxes under the three-year period of limitations prescribed in Section 6501(a)
of the Internal Revenue Code, no tax year of Delta remains open to the
assessment and collection of additional Federal Income Taxes; and
(d) There is no pending or, to the knowledge of Delta, threatened
examination of the State of Colorado Sales Use and/or Personal Property Tax, or
other local, county or municipal taxing authorities (the "Colorado Taxes")
returns of Delta or any of the Subsidiaries and, except for tax years still
subject to the assessment and collection of additional Colorado Taxes under the
applicable statutes of limitations, no tax year of Delta remains open to the
assessment and collection of additional taxes.
4.23 Consents and Approvals. Other than as set forth in Schedule 4.23
to the Delta Disclosure Schedule and other than the receipt of approvals
required by the Bank Merger Act, the Rules and Regulations of the OTS, the FDIC,
and applicable federal securities and state laws, and the approval of the
holders of Delta Common Stock as described in Section 8.1 hereof, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any third party or any public or governmental body or authority is
necessary for the consummation by Delta of the transactions contemplated by the
Agreement or to enable Delta to continue to conduct its business after the
Effective Date in a manner which is consistent with that in which it is
presently conducted, except where the failure to make such filing or obtain such
permit, authorization, consent or approval will not in the aggregate have a
Material Adverse Effect.
4.24 Knowledge as to Conditions. Delta knows of no reason relating to
Delta why the approvals, consents and waivers of governmental authorities
referred to in Section 8.3 hereof should not be obtained.
4.25 Accuracy of Information. The statements made by Delta in the
Agreement and in any other written documents executed and/or delivered by or on
behalf of Delta pursuant to the terms of the Agreement are true and correct in
all material respects.
4.26 Absence of Certain Changes. Since September 30, 1996, and except
as otherwise permitted by this Agreement, Delta has not, except as set forth in
Schedule 4.26 to the Delta Disclosure Schedule, (a) issued or sold any corporate
debt securities; (b) granted any option for the purchase of its capital stock;
(c) declared or set aside or paid any dividend or other distribution in respect
of its capital stock; (d) incurred any material obligation or liability
(absolute or contingent), except obligations or liabilities incurred in the
ordinary course of business in accordance with past practices; (e) mortgaged,
pledged or subjected to lien or encumbrance (other than statutory liens for
taxes not yet delinquent and landlord liens) any of its material assets or
properties except pledges to secure government deposits and in connection with
repurchase or reverse repurchase agreements; (f) discharged or satisfied any
material lien or encumbrance or paid any obligation or liability (absolute or
contingent), other than current liabilities included in Delta's balance sheet as
of September 30, 1996, and current liabilities incurred since the date thereof
in the ordinary course of business in accordance with past practices; (g) sold,
exchanged or otherwise disposed of any of its material capital assets other than
in the ordinary course of business in accordance with past practices; (h)
materially made or modified any wage or salary increase other than those routine
periodic increases consistent with past practices, entered into or modified any
employment contract with any officer or salaried employee or instituted any
employee welfare, bonus, stock option, profit sharing, retirement or similar
plan or arrangement; (i) suffered any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting its business,
property or assets or waived any rights of value that are material in the
14
<PAGE>
aggregate, considering its business taken as a whole; (j) except in the ordinary
course of business in accordance with past practices, entered, or agreed to
enter, into any agreement or arrangement granting any preferential right to
purchase any of its assets, properties or rights or requiring the consent of any
party to the transfer and assignment of any such assets, properties or rights;
(k) entered into any material transaction outside the ordinary course of its
business in accordance with past practices, except as expressly contemplated by
the Agreement or (1) except in the ordinary course of business in accordance
with past practices or as reflected in Delta's consolidated financial
statements, sold or otherwise disposed of any of its material investment
securities.
4.27 Full Disclosure. No representation or warranty made herein or in
any Disclosure Schedule by Delta, nor any statement or certificate given or to
be given to FFBC pursuant hereto, or with respect to the transactions
contemplated hereby, contains or will contain any untrue statements of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading and Delta has made,
and will make in good faith on or before the Closing Date, full disclosure of
all material facts with respect to the physical condition of the properties and
assets of Delta and with respect to the financial condition, liabilities and
operation of Delta.
4.28 Opinion. Delta has received a written opinion from the Financial
Advisor to the effect that, subject to the terms, conditions and qualifications
set forth therein, as of the date thereof, the consideration to be received by
the stockholders of Delta pursuant to this Agreement is fair to such
stockholders from a financial point of view. Such opinion has not been amended
or rescinded as of the date of this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BANCORP AND FFBC
Bancorp and FFBC represent and warrant to and covenants with Delta
that:
5.1 Organization and Qualification of Bancorp. Bancorp is a corporation
duly organized and validly existing under the laws of the State of Colorado and
has the corporate power to own all of its properties and assets and to carry on
its business as it is now being conducted. Bancorp and FFBC have delivered to
Delta true and correct copies of their Articles of Incorporation, Charter and
Bylaws, as the case may be, in effect on the date of this Agreement. The
deposits of FFBC are insured by the SAIF to the fullest extent permitted by law,
and all premiums required to be paid in connection therewith have been paid when
due by FFBC. Bancorp owns 100% of the issued and outstanding shares of stock of
FFBC. FFBC is duly organized, validly existing and in good standing as a federal
savings bank under the laws of the United States and has the corporate power to
own all of its assets and to carry on its business as it is now being conducted.
Bancorp and FFBC are qualified to do business as corporations and are in good
standing in each jurisdiction in which qualification is necessary under
applicable law, except to the extent that any failures to so qualify would not,
in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of Bancorp and FFBC, taken as a whole.
5.2 Authorization of Agreement. The Boards of Directors of Bancorp and
FFBC have authorized the execution of this Agreement as set forth herein, and
Bancorp and FFBC, subject to the approval of this Agreement by the shareholders
of Delta and all appropriate regulatory authorities as provided in the Colorado
Business Corporation Act and the Rules and Regulations of the OTS and the FDIC,
have the
15
<PAGE>
corporate power to execute and deliver this Agreement, and has taken all action
required by law, their respective Articles of Incorporation, Charter, and Bylaws
or otherwise to authorize such execution and delivery, the Merger and the
consummation of the transactions contemplated hereby, and upon its execution and
delivery (and assuming due execution and delivery by Delta) this Agreement is a
valid and binding agreement of FFBC and Bancorp enforceable in accordance with
its terms, subject to (a) all applicable bankruptcy, insolvency, moratorium or
other similar law affecting the enforcement of creditors' rights generally, and
(b) the application of equitable principles if equitable remedies are sought.
5.3 No Violation of Other Instruments. The execution and delivery of
this Agreement do not, and the consummation of the Merger will not, (i) violate
any provision of the Articles of Incorporation or Bylaws of Bancorp, (ii)
violate any provision of the Charter or Bylaws of FFBC, (iii) violate any
provision of, or result in the acceleration of any obligation under or in the
termination, if applicable, of, any mortgage, deed of trust, note, lien, lease,
franchise, license, permit, agreement, instrument, order, arbitration award,
judgment or decree to which Bancorp or any of its subsidiaries is a party or by
which it is bound except for such as would not have a material adverse effect on
the financial condition, business, properties, or results of operations of
Bancorp and its subsidiaries, taken as a whole, or the transactions contemplated
hereby, (iv) violate or conflict with any other material restriction of any kind
or character to which Bancorp or FFBC is subject, or (v) enable any person to
enjoin the transactions contemplated hereby. After approval of this Agreement by
the Board of Directors of Bancorp and FFBC, and the approvals of the OTS and the
FDIC, Bancorp and FFBC will have taken all action required by law and their
respective Articles of Incorporation, Charter and Bylaws necessary to authorize
the execution and delivery of this Agreement and to authorize the Merger and the
consummation of the transactions contemplated hereby. Except as set forth in
Schedule 5.3 of the Bancorp Disclosure Schedule, Bancorp and FFBC know of no
reason (including those relating to fair lending laws or other laws relating to
discrimination, including, without limitation, the Equal Credit Opportunity Act,
the Fair Housing Act, the Community Reinvestment Act, the Truth in Lending Act,
and the Home Mortgage Disclosure Act, and anti-trust or consumer disclosure laws
and regulations) why the regulatory approvals should not be obtained.
5.4 Financial Statements. Bancorp has previously delivered to Delta
copies of (a) the consolidated balance sheets of Bancorp and FFBC as of December
31 for the fiscal years 1996 and 1995 and the related consolidated statements of
income, changes in stockholder's equity and cash flows for the fiscal years 1994
through 1996, inclusive, as reported in Bancorp's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 filed with the SEC under the Exchange
Act, in each case accompanied by the audit report of KPMG Peat Marwick LLP. The
December 31, 1996 consolidated balance sheet of Bancorp (including related
notes, where applicable) fairly presents the consolidated financial position of
Bancorp and its Subsidiary as of the date thereof and the financial statements
referred to in Section 8.9 hereof will fairly present (subject, in the case of
any unaudited statements, to recurring audit adjustments normal in nature and
amount) the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of Bancorp and FFBC for the
respective fiscal periods or as of the respective dates therein set forth; each
of such statements (including the related notes, where applicable) comply, and
the financial statements referred to in Section 8.9 hereof will comply, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been, and the
financial statements referred to in Section 8.9 hereof will be, prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicted in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q.
16
<PAGE>
5.5 Absence of Certain Changes or Events. Except as set forth in
Schedule 5.5 of the Bancorp Disclosure Schedule, since December 31, 1996, (i)
neither Bancorp nor FFBC has incurred any material liability, except in the
ordinary course of their business consistent with their past practices
(excluding the incurrence of expenses in connection with this Agreement and the
transactions contemplated thereby); (ii) there has been no material adverse
change, or development involving a reasonably foreseeable prospective material
adverse change, in or affecting the financial condition, businesses, properties,
or results of operations of Bancorp and FFBC, taken as a whole; and (iii)
Bancorp and FFBC have carried on their respective businesses in the ordinary
course consistent with their past practices (excluding the execution of this
Agreement and related matters).
5.6 Form 10-K Annual Report and Other Reports. Bancorp's Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 1996, heretofore delivered to Delta, does not contain, as of
the date thereof, any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading. Since
December 29, 1995, Bancorp has filed with the Securities and Exchange Commission
all documents and reports required to be filed and such reports do not contain,
as of their respective dates, an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
5.7 No Actions, Etc. There are no actions, suits, claims or proceedings
or, to the knowledge of the executive officers or directors of Bancorp,
investigations pending, threatened or contemplated against or relating to
Bancorp and/or FFBC or any of their properties which, individually or in the
aggregate, could materially and adversely affect the financial condition,
businesses, properties or results of operations of Bancorp, taken as a whole, or
the ability of Bancorp or FFBC to consummate the transactions contemplated
hereby, and such officers and directors do not know of any basis for any such
action or proceeding. Bancorp and FFBC are not transacting business in violation
of any applicable law or regulation which could materially adversely affect the
financial condition, businesses, properties or results of operations of Bancorp,
taken as a whole, or the ability of Bancorp or FFBC to consummate the
transactions contemplated hereby. Bancorp and/or FFBC are not parties to any
order, judgment or decree which would reasonably be expected to have a Material
Adverse Effect, and Bancorp and/or FFBC (a) are not the subject of any cease and
desist order, or other formal or informal enforcement action by any regulatory
authority or (b) have made any commitment to or entered into any agreement with
any regulatory authority that restricts or adversely affects their operations or
financial condition.
5.8 Capitalization. As of the date hereof, the authorized capital stock
of Bancorp consists of (i) 50,000,000, shares of common stock, par value $.10
per share, of which 16,561,425, are issued and outstanding and are fully paid
and nonassessable and 3,579,059 were held in Bancorp's treasury, and (ii)
25,000,000 shares of preferred stock, par value of $.10 per share ("Bancorp
Preferred Stock"), of which none are issued and outstanding. As of the date of
this Agreement, except as set for in Schedule 5.8 to the Bancorp Disclosure
Schedule, no shares of Bancorp Common Stock were reserved for issuance. As of
the date of this Agreement, no shares of Bancorp Preferred Stock were reserved
for issuance, except for 1,500,000 shares of Series A Junior Participating
Preferred Stock reserved for issuance upon exercise of the rights distributed to
the holders of Bancorp Common Stock pursuant to the Rights Agreement, dated as
of July 21, 1996, between Bancorp and American Securities Transfer & Trust,
Inc., as Rights Agent (the "Rights Agreement"). As of the date hereof, the
authorized capital stock of FFBC consists of (i) 15,000,000 shares of common
stock, par value $1.00 per share, of which 100,000 are issued and outstanding
solely to
17
<PAGE>
Bancorp and are fully paid and nonassessable and (ii) 5,000,000 shares of serial
preferred stock, none of which is issued.
5.9 Good Faith. Bancorp and FFBC shall use their best efforts in good
faith to take or cause to be taken all action required under this Agreement on
its part to be taken as promptly as practicable so as to permit the consummation
of this Agreement at the earliest practicable date and cooperate fully with the
other parties to that end.
5.10 Registration. Bancorp will cause a Registration Statement (or
other appropriate form) to be filed with and declared effective by the
Securities and Exchange Commission ("SEC"), appropriate agencies regulating
securities, and other governmental agencies having jurisdiction, with respect to
the securities to be issued in conjunction with the Merger. The information
pertaining to Bancorp which will appear in the Registration Statement and Proxy
Statement will contain no untrue statement of any material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
5.11 Copies of Public Information. Bancorp has made or will make
available for review by Delta all information publicly available concerning
Bancorp and all pension, retirement, thrift, group insurance or similar plans
with respect to any of the directors, officers or other employees of Bancorp or
FFBC.
5.12 Undisclosed Liabilities: Taxes. Bancorp has no material
liabilities other than those liabilities disclosed on or provided for in its
consolidated balance sheet as of December 31, 1996, and liabilities incurred
since such date in the ordinary course of business. Bancorp has paid all
federal, state and local taxes now due and payable and there are no material tax
items now in dispute or anticipated to be disputed.
5.13 Title to Properties. Bancorp has good and marketable title to all
its property and assets set forth on its consolidated balance sheet as of
December 31, 1996, except property and assets sold or otherwise disposed of
since December 31, 1996, in the ordinary course of business, subject to no
liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said consolidated balance sheet and except liens for taxes and
assessments not delinquent, pledges to secure deposits, and such other liens and
encumbrances and imperfections of title as do not materially affect the value of
such property as reflected on said balance sheet and which do not interfere with
or impair its present or continued use, and all of its leases are in full force
and effect and Bancorp is not in default thereunder.
5.14 Absence of Regulatory Actions. Neither Bancorp nor FFBC is a party
to any cease and desist order, written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the request of,
federal or state governmental authorities charged with the supervision or
regulation of the operations of any of them nor has it been advised by any such
government authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum or understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
5.15 Labor Disputes. Bancorp is not directly or indirectly involved in
or threatened with any labor dispute or trouble or organizational effort,
including, without limitation, matters regarding actual or alleged
discrimination by reason of race, creed, sex, disability or national origin,
which might materially and adversely affect its financial condition, assets,
businesses or results of operations.
18
<PAGE>
5.16 Reserve for Possible Loan Losses. The reserve for possible loan
losses shown on the consolidated balance sheet of Bancorp as of December 31,
1996, is adequate as of the date thereof.
5.17 Benefit Plans. All of the employee benefit plans, programs and
arrangements maintained by Bancorp or FFBC ("Bancorp Benefit Plans") that are
subject to ERISA are in material compliance with all applicable requirements of
ERISA and all other applicable federal and state laws, including the reporting
and disclosure requirements of Part I of Title I of ERISA. Each of the Bancorp
Benefit Plans that is intended to be a pension, profit sharing, stock bonus,
thrift, savings or employee stock ownership plan that is qualified under Section
401(k) of the Code satisfies the applicable requirements of such provision and
there exist no circumstances that would adversely affect the qualified status of
any such Plan under that section, except with respect to any required
retroactive amendment for which the remedial amendment period has not yet
expired. There is no pending or, to the best knowledge of Bancorp, threatened
litigation, governmental proceeding or investigation against or relating to any
Bancorp Benefit Plan and there is no reasonable basis for any material
proceedings, claims, actions or proceedings against any such Bancorp Benefit
Plan. No Bancorp Benefit Plan (or Bancorp Benefit Plan fiduciary in his capacity
as such) has engaged in a non-exempt "Prohibited Transaction" (as defined in
Section 406 of ERISA and Section 4975(c) of the Code) since the date on which
said sections became applicable to such Plan. There have been no acts or
omissions by Bancorp or FFBC that have given rise to any fines, penalties, taxes
or related charges under Sections 502(c), 502(i) or 4071 of ERISA or Chapter 43
of the Code, or that may give rise to any material fines, penalties, taxes or
related damages under such laws for which Bancorp or FFBC may be liable. All
group health plans of Bancorp and FFBC, including any plans of current and
former Affiliates of Bancorp or FFBC that must be taken into account under
Section 4980B of the Code or Section 601 of ERISA or the requirements of any
similar state law regarding insurance continuation, have been operated in
material compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA to the extent
such requirements are applicable. All payments due from any Bancorp Benefit Plan
(or from Bancorp or FFBC with respect to any Bancorp Benefit Plan) have been
made, and all amounts properly accrued to date as liabilities of Bancorp or any
Bancorp Subsidiary that have not yet been paid have been properly recorded on
the books of Bancorp or FFBC, as appropriate.
5.18 Accuracy of Information. The statements made by Bancorp and FFBC
in the Agreement and in any other written documents executed and/or delivered by
or on behalf of Bancorp and FFBC pursuant to the terms of the Agreement are true
and correct in all material respects.
5.19 Knowledge as to Conditions. Bancorp and FFBC know of no reason
relating to Bancorp and FFBC why the approvals, consents and waivers of
governmental authorities referred to in Section 5.5 should not be obtained.
5.20 Other Transactions. Nothing contained herein shall in any manner
limit the ability of Bancorp and FFBC to acquire additional banking institutions
or other corporations, either before or after the Effective Date, for such
consideration (cash, notes, common or preferred stock) and upon such terms and
conditions as Bancorp deems appropriate. Notwithstanding the foregoing, Bancorp
will not, and will cause its subsidiaries to not, make or agree to make any
acquisition or take any action that materially adversely affects its ability to
consummate the transactions contemplated hereby in a reasonably timely manner.
5.21 Full Disclosure. No representation or warranty made herein or in
any Disclosure Schedule by Bancorp and FFBC, nor any statement or certificate
given or to be given to Delta pursuant hereto, or
19
<PAGE>
with respect to the transaction contemplated hereby, contains or will contain
any untrue statements of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading and Bancorp has made, and will make in good faith on or before the
Closing Date, full disclosure of all material facts with respect to the physical
condition of the properties and assets of Bancorp and with respect to the
financial condition, liabilities and operation of Bancorp.
ARTICLE VI.
COVENANTS OF THE PARTIES
6.1 Conduct of Delta's Business.
(a) Unless the prior written consent of FFBC shall have been obtained
(which shall not be unreasonably withheld) and except as otherwise contemplated
herein, Delta will, and Delta shall cause the Subsidiary to:
(i) operate its businesses in the ordinary course in
accordance with past business practices, except however, as of the date
of this Agreement and thereafter, Delta's residential construction
lending activities shall be limited as detailed at Schedule 6.1 herein;
(ii) use its best efforts to preserve intact its business
organization and assets, maintain their rights and franchises, retain
the services of its officers and key employees (except that it shall
have the right to terminate the employment of any officer or key
employee in accordance with established employment procedures) and
maintain its relationships with customers;
(iii) maintain its corporate existence in good standing and
file all required Delta Reports (as defined in Section 13.6 hereof);
(iv) use its best efforts to maintain and keep their
properties in as good repair and condition as at present, except for
ordinary wear and tear;
(v) use its best efforts to keep in full force and effect
adequate fire, casualty, public liability, employer fidelity and other
insurance coverage and bonds comparable in amount and scope of coverage
to that now maintained by it and, in the event that Delta is unable to
keep such insurance and bonds in full force and effect, to provide
prompt notice of such failure to FFBC and Bancorp;
(vi) perform all material obligations required to be performed
by it under all material contracts, leases, and documents relating to
or affecting its assets, properties, and business;
(vii) use its best efforts to comply with and perform in all
material respects all obligations and duties imposed upon it by all
applicable laws and regulations;
(viii) as soon as reasonably practicable, furnish FFBC copies
of all of Delta's periodic reports filed with the OTS and the FDIC
subsequent to the date hereof;
20
<PAGE>
(ix) Delta shall (i) give Bancorp prompt written notice of the
receipt of any notice from a stockholder of his intent to demand
payment for his shares, (ii) not settle or offer to settle any such
demands without the prior written consent of Bancorp and (iii) not,
without the prior written consent of Bancorp, waive any failure to
timely deliver a written objection to the Merger and a demand for
appraisal of such shares in accordance with applicable law; and
(x) immediately upon the execution of this Agreement, direct
its accountants and attorneys to give FFBC and Bancorp access to all
relevant and material information, documents and working papers
pertaining to Delta.
(b) Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the Effective Date, Delta shall not do,
nor cause the Subsidiary to do, without the prior written consent of FFBC and
Bancorp, any of the following:
(i) incur any material liabilities or material obligations,
whether directly or by way of guaranty, including any obligation for
borrowed money whether or not evidenced by a note, bond, debenture or
similar instrument or enter into or extend any material agreement
(including existing employment agreements) or lease, except in the
ordinary course of business consistent with past business practices or
in connection with the transactions contemplated and permitted by the
Agreement. Notwithstanding the foregoing, the term of the employment
agreement between Delta and Mr. Lesley R. McPherson, Vice President,
may be extended up to a term ending on June 1, 1998, within the
discretion of Delta. Notwithstanding the foregoing, the employment
agreement between Delta and Mr. Humphries may be amended within the
discretion of Delta to provide for an extension of the term of the
employment agreement for a term ending on June 1, 2000, provided that
any such amendment also provides that such individual shall not, other
than as requested by Delta, or any successor to Delta, engage in
employment or other professional activities for the benefit of a
financial institution or other business entity involved in transactions
involving banking, mortgage lending, consumer debt financing, business
financing, accepting of retail insured deposits and other related
activities currently engaged in by Delta, or any succesor to Delta,
within a one hundred mile radius of Delta, Colorado, for a period of
not less than eighteen months from the date of termination of
employment with Delta or any successor to Delta, if later, without the
prior written consent of Delta or any successor to Delta.
(ii) (A) grant any material increase in compensation to its
directors or grant any increase in compensation to its officers and
employees either individually or as a class, except routine periodic
increases and performance bonuses pursuant to Delta's existing bonus
plan in the ordinary course of business and in accordance with past
practices or as required by law, (B) effect any change in retirement
benefits to any class of employees or officers (unless any such change
shall be required by applicable law) that would increase its retirement
benefit liabilities, (C) adopt, enter into, amend or modify any Delta
Benefit Plan, or (D) enter into or amend any employment, severance or
similar agreements or arrangements with any directors or officers,
except as contemplated by the Agreement; provided, however that any
bonuses pursuant to Delta's bonus plan shall be limited to 115% of the
awards granted in fiscal 1996;
(iii) declare or pay any dividend on, or make any other
distribution in respect of, its outstanding shares of capital stock
other than in accordance with past practice as detailed at Section 8.8
hereinafter;
21
<PAGE>
(iv) (A) except pursuant to the exercise of existing options
as of the date of this Agreement, redeem, purchase or otherwise acquire
any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock,
or any options, warrants, conversion or other rights to acquire any
shares of their capital stock or any such securities or obligations;
(B) subject to the fiduciary obligations of Delta's Board of Directors,
merge with or into any other corporation, savings institution or bank,
permit any other corporation, savings institution or bank to merge into
it or consolidate with any other corporation or bank, or effect any
reorganization or recapitalization; (C) purchase or otherwise acquire
any substantial portion of the assets, or more than five percent (5%)
of any class of stock, of any corporation, savings institution, bank or
other business; (D) liquidate, sell, dispose of, or encumber any assets
or acquire any assets, other than in the ordinary course of its
business consistent with past practices; or (E) split, combine or
reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock;
(v) except pursuant to the exercise of existing options as of
the date of this Agreement, issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale of,
any shares of its capital stock of any class (including shares held in
treasury), any debt instrument having a right to vote or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting debt or convertible securities;
(vi) except to the extent legally required for the discharge
by the board of directors of its fiduciary duties, Delta shall direct,
and shall use its best efforts to cause its directors, employees,
agents and representatives not to, during the period beginning on the
date hereof and ending on the first to occur of (a) the Effective Date
or (b) the termination of this Agreement (i) sell or arrange for the
sale of any Delta capital stock; (ii) negotiate, solicit or encourage
or authorize any person to solicit from any third party any proposals
relating to the merger or consolidation of Delta, disposition of the
business or assets of Delta or the acquisition of the capital stock or
the common stock or Delta; or (iii) make any information concerning
Delta available to any person for the purpose of affecting or causing a
merger, consolidation or disposition of Delta or their assets or common
stock.
(vii) propose or adopt any amendments to Delta's Charter or
bylaws, except such amendments as may be required to consummate the
transactions contemplated by this Agreement;
(viii) enter into an agreement in principle with respect to
any acquisition of a material amount of assets or securities or any
release or relinquishment of any material contract rights not in the
ordinary course of business;
(ix) except in its fiduciary capacity, purchase any shares of
capital stock of Bancorp;
(x) change any of its methods of accounting in effect at
September 30, 1996, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year
ending September 30, 1996, except as may be required by law or
generally accepted accounting principles;
(xi) willfully take action which would or is reasonably likely
to (i) adversely affect the ability of either of Bancorp, FFBC or Delta
to obtain any necessary approvals of governmental
22
<PAGE>
authorities required for the transactions contemplated hereby; (ii)
adversely affect Delta's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the
conditions to the Merger set forth in Articles X and XI not being
satisfied;
(xii) change in any material respect the lending, investment,
deposit, asset and liability management and other material policies
concerning the business of Delta, unless required by law or regulation
or, with respect to lending or depository activities, unless such
change is made in response to market conditions;
(xiii) file any applications or make any contract with respect
to branching by Delta (whether de novo or by purchase, sale or
relocation);
(xiv) form any new subsidiary or cause or permit a material
change in the activities presently conducted by Delta or make
additional material investments in subsidiaries or enter into or invest
in any partnership, joint venture or other business enterprise;
(xv) purchase any debt securities or derivative securities
including collateralized mortgage obligations or real estate mortgage
investment conduits products that are defined as "high risk mortgage
securities" under OTS Thrift Bulletin No. 52;
(xvi)agree in writing or otherwise to do any of the foregoing.
6.2 Covenants of Bancorp. Except as set forth in Schedule 6.2 of the
Bancorp Disclosure Schedule or as otherwise contemplated by this agreement or
consented to in writing by Delta, Bancorp shall not, and shall not permit FFBC
to:
(a) solely, in the case of Bancorp, declare or pay any
extraordinary or special dividends on or make any other extraordinary or special
distributions in respect of any of its capital stock; provided, however, that
nothing contained herein shall prohibit Bancorp from increasing the quarterly
cash dividend of the Bancorp Common Stock;
(b) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article IX not being satisfied, or in
a violation of any provision of this agreement except in every case, as may be
required by applicable law;
(c)take or cause to be taken any action which would disqualify
the Merger as a tax free reorganization under Section 368 of the Code;
(d) amend its Articles of Incorporation or Bylaws or other
governing instrument in a manner which would adversely affect in any manner the
terms of the Bancorp Common Stock or the ability of Bancorp to consummate the
transactions contemplated hereby;
(e) make any acquisition that individually or in the aggregate
can reasonably be expected to materially adversely affect the ability of Bancorp
to consummate the transactions contemplated hereby in a reasonably timely
manner, or enter into any agreement providing for, or otherwise participate in,
any merger, consolidation or other transaction in which Bancorp or any surviving
corporation may be required
23
<PAGE>
not to consummate the Merger or any of the other transactions contemplated
hereby in accordance with the terms of this Agreement; or
(f) engage in any conversations or negotiations with any
existing loan origination correspondent of Delta prior to the closing of the
Merger, without the prior consent of Delta, such consent shall not unreasonably
be withheld.
(g) agree to do any of the foregoing.
6.3 Reports. The Parties will use their best efforts to keep the other
Parties fully informed concerning all trends and developments of which it
becomes aware that may have a material adverse effect upon the business,
properties or condition (either financial or otherwise) of Delta, FFBC or
Bancorp, as the case may be.
6.4 Breaches. The Parties shall, in the event they become aware of the
impending or threatened occurrence of any event or condition which would cause
or constitute a material breach (or would have caused or constituted a breach
had such event occurred or been known prior to the date hereof) of any of its
representations or agreements contained or referred to herein, give prompt
written notice thereof to the other Party and use their best efforts to prevent
or promptly remedy the same.
6.5 Consents and Approvals. The Parties shall use their best efforts to
assist the Parties in obtaining the consents and approvals referenced in Section
8.3 hereof.
6.6 Non-Solicitation.
(a) Delta shall not (i) solicit, initiate, participate in discussions
of, or encourage or take any other action to facilitate (including by way of the
disclosing or furnishing of any information that is not legally obligated to
disclose or furnish) any inquiry or the making of any proposal relating to any
Acquisition Transaction (as defined below) or a potential Acquisition
Transaction with respect to itself or (ii) (A) solicit, initiate, participate in
discussions of, or encourage or take any other action to facilitate any inquiry
or proposal, or (B) enter into any agreement, arrangement, or understanding
(whether written or oral) regarding any proposal or transaction providing for or
requiring it to abandon, terminate or fail to consummate this Agreement, or
compensating it under any of the instances described in this clause. Delta shall
immediately instruct and otherwise use its best efforts to cause its directors,
officers, employees, agents, advisors (including, without limitation, any
investment banker, attorney, or accountant retained by it), consultants and
other representatives to comply with such prohibitions. Delta shall immediately
cease and cause to be terminated any existing activities, discussions, or
negotiations with any parties conducted heretofore with respect to such
activities. Notwithstanding the foregoing, Delta may provide information at the
request of or enter into negotiations with a third party with respect to an
Acquisition Transaction if the Board of Directors of Delta determines, in good
faith, that the exercise of its fiduciary duties to Delta's stockholders under
applicable law, as advised in a written opinion issued by its counsel, requires
it to take such action, and, provided further, that Delta may not, in any event,
provide to such third party any information which it has not provided to Bancorp
or FFBC. Delta shall promptly notify Bancorp or FFBC orally and in writing in
the event it receives any such inquiry or proposal and shall provide reasonable
detail of any relevant facts relating to such inquiries, along with a summary of
the written opinion of its counsel. This Section shall not prohibit accurate
disclosure by Delta in any document (including the Proxy Statement and the
Registration Statement) or other disclosure to the extent required under
applicable law if in the opinion of
24
<PAGE>
the Board of Directors of Delta, disclosure is required under applicable law as
to transactions contemplated hereby.
(b) "Acquisition Transaction" shall, with respect to Delta, mean any of
the following: (i) a merger or consolidation, or any similar transaction (other
than the Merger) of any company with Delta, (ii) a purchase, lease or other
acquisition of all or substantially all the assets of Delta, (iii) a purchase or
other acquisition of "beneficial ownership" by any "person" or "group" (as such
terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) (including by way of merger, consolidation, share exchange, or
otherwise) which would cause such person or group to become the beneficial owner
of securities representing 20.0% or more of the voting power of Delta, but
excluding the acquisition of beneficial ownership by any employee benefit plan
maintained or sponsored by Delta, (iv) a tender or exchange offer to acquire
securities representing 20.0% or more of the voting power of Delta, (v) a public
proxy or consent solicitation made to stockholders of Delta seeking proxies in
opposition to any proposal relating to any of the transactions contemplated by
this Agreement that has been recommended by the Board of Directors of Delta,
(vi) the filing of an application or notice with the Federal Reserve Board, the
OTS, or any other federal or state regulatory authority (which application has
been accepted for processing) seeking approval to engage in one or more of the
transactions referenced in clauses (i) through (iv) above, or (vii) the making
of a bona fide proposal to Delta or its stockholders by public announcement or
written communication, that is or becomes the subject of public disclosure, to
engage in one or more of the transactions referenced in clauses (i) through (v)
above.
ARTICLE VII.
INVESTIGATION - CONFIDENTIALITY
7.1 Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Delta shall, and shall cause the Subsidiary to,
afford to the officers, employees, accountants, counsel and other
representatives of Bancorp and FFBC, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, Delta shall, and shall cause the
Subsidiary to, make available to Bancorp and FFBC (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws or
Federal or state banking laws (other than reports or documents which Delta is
not permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as Bancorp and FFBC may
reasonably request. Neither Delta nor the Subsidiary shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of Delta customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Bancorp will hold all such information in confidence
to the extent required by, and in accordance with, the provisions of this
Agreement.
25
<PAGE>
(b) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Bancorp shall, and shall cause its subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of Delta, access, during normal business hours during the period
prior to the Effective Time, to such information regarding Bancorp and its
subsidiaries as shall be reasonably necessary for Delta to fulfill its
obligations pursuant to this Agreement to prepare the Proxy Statement or which
may be reasonably necessary for Delta to confirm that the representations and
warranties of Bancorp and FFBC contained herein are true and correct and that
the covenants of Bancorp and FFBC contained herein have been performed in all
material respects. Neither Bancorp nor any of its subsidiaries shall be required
to provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of Bancorp's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Delta will hold all such information in confidence to
the extent required by, and in accordance with, the provisions of this
Agreement.
7.2 Confidentiality. Until the Closing Date, neither Bancorp nor Delta
shall, without the prior written consent of the other party, disclose to third
parties, and shall use care to assure that their directors, officers, employees,
and advisers do not disclose to third parties, any confidential information,
which shall include all information received from Bancorp or Delta in the course
of discussing, investigating, negotiating and performing the transactions
contemplated by this Agreement, whether such information has been obtained
before or after the date of execution of this Agreement. The term "confidential
information" does not include information which (i) is known to Bancorp or FFBC,
their directors, officers, employees, or advisers, prior to its disclosure to
Bancorp by Delta; (ii) is or becomes publicly known or available; or (iii) is
independently developed or discovered by Bancorp or FFBC, their directors,
officers, employees, or advisers outside of the discussions, investigations,
negotiations and performance contemplated by this Agreement. "Third parties" do
not include directors, officers, employees, or advisors of Delta.
In the event that the Merger contemplated by this Agreement is not
consummated, or this Agreement is otherwise terminated, the Parties shall
promptly return to each other all such confidential information (and all copies
thereof), without retaining any copies, or to the extent agreed by Bancorp, FFBC
or Delta, as the case may be, shall destroy information and documents not to be
returned, including all electronic images, and confirm such destruction in
writing to any other Party; and thereafter all such information shall continue
not to be disclosed by Bancorp, FFBC or Delta, as the case may be, and their
directors, officers, employees, or advisors to third parties without the other
Party's written consent.
ARTICLE VIII.
ADDITIONAL AGREEMENTS
8.1 Delta Shareholders' Meeting. Delta shall, as soon as is reasonably
practicable but in no event later than September 15, 1997, call and hold a
meeting of their shareholders (the "Shareholders' Meeting") to submit for
shareholder approval this Agreement and any amendments to Delta's Charter deemed
necessary to effectuate the Agreement. The Board of Directors of Delta will,
subject to their fiduciary obligations, recommend that holders of Delta Common
Stock, vote in favor of and approve this Agreement at the Shareholders' Meeting.
26
<PAGE>
8.2 Proxy Statement for Shareholders' Meetings.
(a) For the purposes of holding the Shareholders' Meeting, Delta and
Bancorp shall prepare an appropriate joint proxy statement(s) and prospectus
satisfying all applicable legal requirements of the applicable statutes, rules
and regulations (said proxy statement(s), together with any and all amendments
or supplements thereto, being herein referred to as the "Proxy Statement").
(b) As soon as practicable after the date hereof, Bancorp and Delta
shall file the Proxy Statement with the OTS and the SEC, as may be applicable,
and use its best efforts to respond to the comments of the OTS and the SEC and
to obtain the clearance of the OTS and the SEC for mailing the Proxy Statement.
Promptly after the Proxy Statement is cleared by the OTS and the SEC, Delta and
Bancorp shall mail the Proxy Statement to all holders of record of shares of
Delta Common Stock who are holders on the record date for the Shareholders'
Meeting.
8.3 Cooperation: Regulatory Approvals. The Parties shall cooperate, and
shall cause each of their affiliates and subsidiaries to cooperate, in the
preparation and submission by them, as promptly as reasonably practicable, of
such applications, petitions, and other documents and materials as any of them
may reasonably deem necessary or desirable to the OTS, the FDIC, the Department
of Justice ("DOJ"), other regulatory authorities, including such filings and
approvals as are required to be made or obtained under the securities or "blue
Sky" laws of various states in connection with the issuance of the shares of
Bancorp Common Stock pursuant to this Agreement, and any other persons for the
purpose of obtaining any approvals or consents necessary to consummate the
transactions contemplated by the Agreement. Each party will have the right to
review and comment on such applications, petitions and other documents and
materials and shall furnish to the other copies thereof promptly after filing or
submission thereof. At the date hereof, none of the parties is aware of any
reason that the regulatory approvals required to be obtained by it would not be
obtained. The obligation to take action as provided in this Section 8.3 shall
not be construed as including an obligation to accept any terms of or conditions
to a consent, authorization, order or approval of, or any exemption by, any
party that in the reasonable judgment of the Boards of Directors of Bancorp or
Delta would so materially and adversely impact the economic or business benefits
to Bancorp or Delta, as appropriate, from the transaction contemplated by this
Agreement so as to render inadvisable the consummation of the Merger. In the
event of a restraining order or injunction which prevents the Closing by reason
of the operation of Section 11.3, each of the parties hereto shall use its
respective best efforts to cause such order or injunction to be lifted and the
Closing to be consummated as soon as reasonably practicable.
8.4 Organization and Qualification of Interim, FFBC and Bancorp. FFBC,
Interim and Delta shall enter into a merger agreement in substantially the form
attached as Exhibit A to this Agreement and shall cause the Parties to take such
action as is provided in this Agreement to consummate the Merger.
8.5 Reports. Prior to the Effective Date, Delta shall prepare and file
with the OTS and the FDIC as the case may be, as and when required all Delta
Reports. Delta shall prepare such Delta Reports so that (a) they comply in all
material respects with all of the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they are filed and do not
contain any untrue statement of a material fact or omit to state a 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, and (b) with respect to any Delta Reports containing financial
information of the type included in Delta's financial statements, the financial
information (i) is prepared in accordance with generally accepted accounting
27
<PAGE>
principles and practices as utilized in Delta's financial statements applied on
a consistent basis, (ii) presents fairly the consolidated financial condition of
Delta at the dates, and the consolidated results of operations and cash flows
for the periods, stated therein and (iii) in the case of interim fiscal periods,
reflects all adjustments, consisting only of normal recurring items, subject to
year-end audit adjustments.
8.6 Brokers or Finders. Each of Bancorp and Delta represents that no
agent, broker, investment banker, financial advisor or other firm or person is
or will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, except the Financial Advisor, whose fees and expenses will be paid by
Delta, in accordance with the agreement with such firm, and each of Bancorp and
Delta respectively agrees to indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any other
fees, commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliate.
8.7 Additional Agreements: Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable 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
the Agreement, subject to the appropriate vote of the shareholders of Delta
described in Section 8.1, including cooperating fully with the other party. In
case at any time after the Effective Date any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest Bancorp with
full title to all properties, assets, rights, approvals, immunities and
franchises of Delta, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
8.8 Release of Information. Bancorp, FFBC and Delta agree that prior to
making any public announcement with respect to the transactions contemplated by
this Agreement, the Parties will consult with each other and will use their best
efforts either to agree upon the text of the proposed joint announcement to be
made by the Parties or to obtain the other's approval (which approval shall not
be unreasonably withheld) of the text of an announcement to be made solely on
behalf of such party. In the event that the Parties do not ultimately agree on
the text of any proposed public announcement, no such disclosure shall be made
unless the party seeking to make an announcement is advised by counsel that its
failure to do so would be reasonably likely to constitute a violation of law.
8.9 Subsequent Interim Financial Statements.
(a) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the date of this Agreement
(other than the last quarter of each fiscal year), Bancorp will deliver to
Delta, Bancorp's quarterly report of Form 10-Q, as filed with the SEC under the
Exchange Act, and as soon as reasonably available, but in no event more than 90
days after the end of each fiscal year, Bancorp will deliver to Delta, Bancorp's
Annual Report on Form 10-K, as filed with the SEC under the Exchange Act.
(b) As soon as reasonably available and in accordance with past
practice, Delta will deliver to Bancorp, Delta's Office of Thrift Supervision
Thrift Financial Report and quarterly report to shareholders, and as soon as
reasonably available, following the end of each fiscal year, Delta will deliver
to Bancorp, Delta's Annual Report to Stockholders.
28
<PAGE>
8.10 Employee Matters.
Future employment of the employees of Delta will be based on FFBC's
staffing needs. The ultimate decisions relating to the retention, assignment and
compensation of personnel will be the responsibility of management of FFBC. To
the extent that as of the Closing Date employment with FFBC is not scheduled to
commence following the Closing Date by a Delta employee employed by Delta as of
the Closing Date and at work at Delta within the six business day period prior
to the Closing Date, Delta employees as of the Closing Date shall receive
severance benefits in accordance with Delta's severance plan in effect as of
March 3, 1997, with a minimum benefit of eight (8) weeks base pay and the costs
of continuing medical insurance coverage to participants as in effect as of the
Closing Date under the programs offered by FFBC for a period of two months paid
by FFBC. Thereafter, such terminated former Delta employees shall be eligible to
continue such medical insurance at their own personal expense in accordance with
applicable law ("COBRA Rights"). Such severance benefits shall not be applicable
to employees referenced at Section 8.19(b) who have entered into written
agreements with Delta.
8.11 Board Members. The existing members of the Board of Directors
of FFBC as of the Closing date will continue to be the board members of FFBC.
8.12 Breaches. Bancorp, FFBC and Delta, as the case may be, shall, in
the event they become aware of the impending or threatened occurrence of any
event or condition which would cause or constitute a material breach (or would
have caused or constituted a breach had such event occurred or been known prior
to the date hereof) of any of its representations or agreements contained or
referred to herein, give prompt written notice thereof to the other party and
use their best efforts to prevent or promptly remedy the same.
8.13 Payment upon Termination - Subsequent Acquisition Transaction.
(a) Delta hereby agrees, if following the execution of the Agreement:
(i) Delta enters into an agreement to complete an Acquisition Transaction prior
to the termination of the Agreement, or (ii) within fifteen months after the
termination of the Agreement, Delta enters into an Acquisition Transaction,
Delta shall pay FFBC compensation and damages totalling $500,000, in addition to
any payments that may be required in accordance with Section 8.13(b) herein.
Notwithstanding the foregoing, payments pursuant to this Section 8.13(a) shall
not be required in the event of termination of the Agreement pursuant to
Sections 12.1(a) or 12.1(b)(v), or in the event that Delta shall receive
reimbursements pursuant to Section 8.13(c) of the Agreement.
(b) In the event that Delta refuses to consummate the Merger after all
of the conditions in Article X and XI have been satisfied or waived, or in the
event that this Agreement is terminated by Bancorp and FFBC by reason of the
breach by Delta of any of its material representations, warranties, covenants or
agreements contained herein, or by reason of the willful breach of any of
Delta's representations, warranties, covenants or agreements contained herein,
then, in lieu of any other rights or remedies of Bancorp and FFBC, Delta shall
reimburse FFBC for its expenses not to exceed $125,000. Such amount shall be in
addition to, and in no way limit any payments that may be required in accordance
with Section 8.13(a) herein.
(c) In the event that Bancorp or FFBC refuses to consummate the Merger
after all of the conditions in Article IX and XI have been satisfied or waived,
or in the event that this Agreement is
29
<PAGE>
terminated by Delta by reason of the breach by Bancorp or FFBC of any of their
material representations, warranties, covenants or agreements contained herein,
or by reason of the willful breach of any of Bancorp's or FFBC's
representations, warranties, covenants or agreements contained herein, then, in
lieu of any other rights or remedies of Delta, Bancorp shall reimburse Delta for
its expenses not to exceed $125,000.
8.14 Supplements to Disclosure Schedules. Bancorp, FFBC and Delta will
promptly supplement or amend their Disclosure Schedules with respect to any
matter hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedules. No supplement or amendment to the Disclosure Schedules
will have any effect for the purpose of determining satisfaction of the
conditions set forth in Sections 10.2 and 11.1 hereof.
8.15 Confidentiality. Bancorp, FFBC and Delta agree to treat as
strictly confidential and agrees not to divulge to any other person, natural or
corporate (other than employees of, and attorneys and accountants for, such
party) any proprietary financial statements, schedules, contracts, agreements,
instruments, papers, documents and other information relating to Delta, FFBC or
Bancorp (as the case may be) by which it may come to know or which may come into
its possession during the course of its due diligence investigation of Delta,
FFBC or Bancorp, as the case may be, and, if the transactions contemplated
hereby are not consummated for any reason, Bancorp agrees promptly to return to
Delta (and Delta to Bancorp) all written proprietary material furnished in
connection with such investigation.
8.16 Due Diligence. Bancorp, FFBC and Delta shall complete their due
diligence review of the books, records and operations of the other parties
within thirty days of the date of this Agreement. If written notice of an
objection is not received within a thirty (30) day period of the date of this
Agreement, it will be assumed that the due diligence review has been completed
to the satisfaction of the parties. Notwithstanding the foregoing, FFBC shall
have 45 days from the date of execution of this Agreement to cause an
independent environmental consultant of its choice to inspect and audit at
FFBC's expense, the assets and real property of Delta and the Subsidiary for the
evaluation and determination of the existence of any and all environmental
conditions and any and all violations of environmental laws, as is commonly
referred to as a Phase I environmental study (the "Environmental Audit"). If
such Environmental Audit discovers any environmental condition that FFBC
reasonably finds unacceptable within its sole discretion ("Environmental
Condition"), FFBC may terminate this Agreement by delivery of written notice of
termination on or before the day which is forty-five (45) days from the date of
the Agreement, which notice shall identify such Environmental Condition. Delta
shall have 45 days from the receipt of such notice of termination to undertake
such actions as are necessary to the reasonable satisfaction of FFBC to cure
such defects or conditions in which case such notice of termination shall be
deemed withdrawn. FFBC shall furnish Delta with a copy of the results of such
Environmental Audit within three (3) business days of receipt of such report.
The result of such Environmental Audit shall not be disclosed to any third party
without the prior written consent of the Parties. Further, FFBC may contract
with an independent firm at its own expense to conduct structural, engineering
and mechanical inspections of the premises and Leasehold improvements related to
Delta's office building within 30 days from the signing of the Agreement. Delta
shall provide reasonable access to the property and leasehold improvements
during these time periods. The inspection may include, but not be limited to,
areas of heating, air conditioning, plumbing, roof, electric, basement, well,
septic, insulation, radon, termite, structure of the premises, banking equipment
and related matters. Delta shall also allow samples to be taken of the contents
of the building and the surrounding property, including test borings, to
determine the presence of underground storage tanks and or ground/water
contamination. Should the inspection report be reasonably unacceptable to FFBC
and Delta is unable to cure
30
<PAGE>
within 30 days, FFBC within its sole discretion, may void the Agreement. Time
periods of the inspection may be expanded for a reasonable period of time
pending delivery of laboratory results.
8.17 Indemnification of Directors and Officers. FFBC will continue to
indemnify officers and Directors of Delta for prior acts in accordance with the
provisions of FFBC bylaws and applicable OTS regulations for a period of three
years from the Merger date. Ongoing insurance will be provided for the retained
officer(s) under the policy of FFBC.
8.18 Dividends. Delta will continue its ongoing semi-annual dividend
policy through the Closing Date in accordance with past practice.
8.19 Other Benefits Matters.
(a) Employee Stock Ownership Plan. On or before the Merger date,
Delta will terminate the Delta Federal Savings Bank ESOP and distribute such
plan assets to plan participants.
(b) Employment Agreements.
(i) Except as set forth below, Delta shall not initiate the
termination of the employment of David A. Humphries, President, or
Lesley R. McPherson, Vice President, (collectively, the "Officers")
absent termination for cause, or the death or disability of the
employee, prior to the Closing, nor shall Delta make any payment under
any employment agreements between Delta and either or both Officers
associated with the Merger prior to the Closing without the prior
written consent of FFBC.
(ii) Payments under the Employment Agreements between Delta
and the Officers (the "Employment Agreements") shall be paid in
accordance with their respective Employment Agreements, provided
however, in the case of Mr. Humphries, prior to the receipt of such
payments in accordance with termination of employment under the
Employment Agreement, Mr. Humphries shall enter into a written
agreement with FFBC that provides that such individual shall not, other
than as requested by Bancorp or FFBC, engage in employment or other
professional activities for the benefit of a financial institution or
other business entity involved in transactions involving banking,
mortgage lending, consumer debt financing, business financing,
accepting of retail insured deposits and other related activities
currently engaged in by Delta, Bancorp and FFBC within a one hundred
mile radius of Delta, Colorado, for a period of not less than eighteen
months from the date of termination of employment with Delta, without
the prior written consent of FFBC.
(iii) As of the Closing, Delta shall terminate the employment
of Mr. David Humphries, President and Mr. Lesley R. McPherson, Vice
President, and shall immediately pay such individuals in the form of a
lump sum payment the amounts due such individuals under the Employment
Agreements. Prior to such payments by Delta, Delta shall furnish FFBC
with documentation of the calculation of such payments. As of the
Closing, FFBC may enter into an agreement with the Officers setting
forth the terms of any future employment relationship between FFBC and
the Officers.
(iv) On or prior to the Closing Date, the Officers shall
execute an agreement whereby such Officers shall acknowledge and
consent that the opportunity to participate in the group medical
insurance program sponsored by FFBC for its employees, as may be
amended from time to time, shall be accepted as constituting benefits
which are substantially the same health benefits as are
31
<PAGE>
offered by Delta for its executive officers, and that eligibility to
participate in such FFBC plans shall satisfy the applicable provisions
of the Employment Agreements.
(c) Such Delta employees employed by FFBC as of the Closing Date will
be eligible thereafter to receive the same employee benefits, including but not
limited to medical insurance, vacation pay, sick leave, and severance pay as are
extended to FFBC's other similarly situated employees, giving effect to all
prior years of service with Delta prior to the Closing Date (with no uninsured
waiting periods or pre-existing condition limitations being imposed on otherwise
eligible employees). With respect to any Code Section 401(a) plans of FFBC, such
employees shall have all prior Delta service recognized for purposes of
eligibility to participate and benefits vesting under such plans, but not with
regard to benefits accrual.
(d) As of the Closing Date, Delta shall take such actions that are
necessary to pay all liabilities for all wages payable through the Closing Date
as of the Closing Date. FFBC shall not assume any liabilities with respect to
wages or benefits earned or accrued by Delta employees prior to the Closing
Date; provided however, with respect to Delta employees that shall as of the
Closing Date be employed by FFBC, all accrued but unused vacation time shall be
maintained by FFBC. With respect to Delta employees that shall terminate
employment as of the Closing Date, all accrued vacation shall be paid as of the
Closing Date, provided however, such payments for accrued vacation shall not
exceed the annual vacation benefit payable to any such terminating employee pro
rata based upon the product of (.08333) times the number of calendar months that
have commenced in the calendar year, plus any prior year carryover allowances,
multiplied by the hourly rate of pay in effect as of the Closing Date.
8.20 Accountants' Letters. Delta shall use its reasonable efforts to
cause to be delivered to the other party a letter of its independent public
accountants dated (i) the date on which the S-4 shall become effective and (ii)
a date shortly prior to the Effective Time, and addressed to Bancorp and FFBC,
in form and substance customary for "comfort" letters delivered by independent
accountants in accordance with Statement of Financial Accounting Standards No.
72.
8.21 Stock Exchange Listing. Bancorp shall use all reasonable efforts
to cause the shares of Bancorp Common Stock to be issued in the Merger to be
approved for listing on the Nasdaq National Market, subject to official notice
of issuance, as of the Effective Time.
8.22 Directors. Delta shall cause each of its directors to deliver to
FFBC and Bancorp duly signed resignations which resignations shall be effective
as of the Effective Time.
ARTICLE IX.
CONDITIONS TO THE OBLIGATIONS OF BANCORP AND FFBC
The obligations of Bancorp and FFBC under this Agreement to cause the
transactions contemplated herein to be consummated shall be subject to the
satisfaction or written waiver by Bancorp of the following conditions:
9.1 No Material Adverse Effect. Except as disclosed in Schedule 4.5 to
the Delta Disclosure Schedule and except for general changes in market interest
rates, payments due under any employment agreements or benefit plans which may
be modified, altered or terminated in connection with this Agreement and the
transactions contemplated hereby, costs and expenses relating to this Agreement
and the transactions
32
<PAGE>
contemplated hereby, there shall not have been any material adverse change, or
discovery of a condition or the occurrence of any event that has or is likely to
result in such a change, in the financial condition, results of operations or
business of Delta from December 31, 1996 to the Closing Date.
9.2 Representations and Warranties. Each of the representations and
warranties by Delta contained in this Agreement shall be true and correct in all
material respects (or where any statement in a representation or warranty
expressly contains a standard of materiality, such statement shall be true and
correct in all respects taking into consideration the standard of materiality
contained therein) at, or as of, the date of this Agreement and (except to the
extent such representation speaks as of an earlier date) and as of any date
subsequent, until and including the Closing Date (except as otherwise
contemplated or permitted by this Agreement) as though such representations and
warranties were made on and as of said date. Any information provided by Delta
pursuant to Section 8.12 hereof as a supplement to the Delta Disclosure Schedule
shall be true and correct in all material respects as of the date such
information is supplied to Bancorp.
9.3 Performance and Compliance. Delta shall have performed or complied
in all material respects with all covenants and agreements required by the
Agreement to be performed and satisfied by them on or prior to the Closing Date.
9.4 No Proceeding or Litigation. On the Closing Date, no suit, action
or proceeding shall be pending or overtly threatened, and no liability or claim
shall have been asserted against Delta involving any of the assets, properties,
business or operations of Delta that would reasonably be expected to have a
Material Adverse Effect.
9.5 Consents Under Agreements. Bancorp shall have received the consent
or approval of each person whose consent or approval shall be required in order
to permit consummation of the Merger under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument to which Delta is a
party or to which its respective property is subject, except those for which
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Bancorp, whether prior to (if
applicable) or following the consummation of the transactions contemplated
hereby.
9.6 No Amendments to Resolutions. Neither the Board of Directors of
Delta nor any committees thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by such Boards of Directors with respect to the
Agreement or shall have adopted any other resolutions in connection with the
Agreement and the transactions contemplated hereby which are inconsistent with
such resolutions, except resolutions adopted consistent with the express rights
of Delta under the Agreement.
9.7 Certificate of Delta Officers. Delta shall have furnished Bancorp a
certificate, signed by their Chief Executive Officer and Chief Financial
Officer, dated the Closing Date, to the effect, based on his knowledge, that the
conditions described in Sections 9.1, 9.2, 9.3, 9.4, 9.5, and 9.6. of this
Agreement have been fully satisfied.
9.8 Satisfactory Completion of Due Diligence. Bancorp and FFBC shall
have completed their due diligence procedures within the time period set forth
in Section 8.16 of this Agreement, and nothing adverse will have come to its
attention to cause Bancorp to desire to terminate or amend this Agreement.
33
<PAGE>
9.9 Maintenance of Stockholders' Equity of Delta. As of the Closing
Date, Delta shall have not less than $3.5 million of stockholder's equity,
except for such reductions that may be agreed to by the Parties as detailed at
Schedule 9.9 herein.
ARTICLE X.
CONDITIONS TO THE OBLIGATIONS OF DELTA
The obligations of Delta under this Agreement to cause the transactions
contemplated herein to be consummated shall be subject to the satisfaction or
written wavier by Delta of the following conditions:
10.1 Representations and Warranties. All representations and warranties
of Bancorp and FFBC contained in this Agreement shall be true and correct in all
material respects (or where any statement in a representation or warranty
expressly contains a standard of materiality, such statement shall be true and
correct in all respects taking into consideration the standard of materiality
contained therein) at, or as of, the date of this Agreement and (except to the
extent such representation speaks as of an earlier date) and as of any date
subsequent, until and including the Closing Date (except as otherwise
contemplated or permitted by this Agreement) as though such representations were
made on and as of said date. Any information provided by Bancorp and FFBC
pursuant to Section 8.12 hereof as a supplement to the Bancorp Disclosure
Schedule shall be true and correct in all material respects as of the date such
information is supplied to Delta.
10.2 Performance and Compliance. Bancorp and FFBC shall have performed
or complied in all material respects with all covenants and agreements required
by this Agreement to be performed and satisfied by it on or prior to the Closing
Date.
10.3 Corporate Proceedings. All action required to be taken by, or on
the part of Bancorp to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken by Bancorp and Bancorp.
10.4 Certificate of Bancorp Officers. Bancorp and FFBC shall have
furnished to Delta a certificate, signed by its Chief Executive Officer and its
Chief Financial Officer and dated the Closing Date, to the effect, based on
their best knowledge, that the conditions described in Sections 10.1, 10.2 and
10.3 of this Agreement have been satisfied.
34
<PAGE>
10.5 Opinion of Financial Advisor. Within five days prior to the
mailing of the Proxy Statement, Delta shall have received the opinion of the
Financial Advisor, to the effect that, the consideration to be received in the
Merger by Delta shareholders is fair to Delta's shareholders from a financial
point of view.
ARTICLE XI.
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES
In addition to the provisions of Articles IX and X hereof, the
obligations of Bancorp and Delta to cause the transactions contemplated herein
to be consummated, shall be subject to the satisfaction or written waiver by
both Bancorp and Delta of the following conditions:
11.1 Governmental Approvals. The parties hereto shall have received all
necessary approvals of the transactions contemplated by the Agreements from
governmental agencies and authorities, including, without limitation, those of
the OTS, the FDIC, and the DOJ, and each of such approvals shall remain in full
force and effect and all statutory waiting periods in connection therewith shall
have expired at the Closing Date and such approvals and the transactions
contemplated thereby shall not have been contested by any federal or state
governmental authority nor by any other third party by formal proceeding.
11.2 Registration Statement. The Registration Statement shall have been
declared effective by the SEC, no stop order suspending the effectiveness of
such Registration Statement shall be in effect and no proceedings for such
purpose shall have been initiated or threatened by or before the SEC. All state
securities and "blue sky" permits or approvals required (in the opinion of
Bancorp) to carry out the transactions contemplated by this Agreement shall have
been received;
11.3 No Injunctions or Restraints. No suit, action or proceeding shall
be pending or overtly threatened before any court or other governmental agency
by the federal or any state government in which it is sought to restrain or
prohibit the consummation of the Merger and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
11.4 Delta Shareholder Approval. This Agreement shall have been duly
approved by the affirmative vote of at least two-thirds of the outstanding
shareholders of Delta as contemplated by Section 8.1 hereof.
11.5 Corporate Proceedings. The obligations of the parties to this
Agreement required to be performed at or prior to the Closing Date shall have
been duly performed and complied with in all material respects. All action
required to be taken by, or on the part of, the parties to this Agreement to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by the parties hereto.
11.6 Legal Opinions. Bancorp shall have received from legal counsel to
Delta a written opinion pertaining to the transactions herein provided for,
dated the Effective Date, in form and substance acceptable to counsel for
Bancorp.
11.7 Tax Opinion. Unless waived by Bancorp, Bancorp shall have received
an opinion of its counsel to the effect that the transaction will constitute a
tax free reorganization within the meaning of Section 368 of the Internal
Revenue Code.
35
<PAGE>
11.8 Stock Exchange Listing. The share of Bancorp Common Stock to be issued
in the Merger shall be approved for listing on the Nasdaq National Market,
subject to official notice of issuance, as of the Effective Time.
ARTICLE XII.
TERMINATION
12.1 Reasons for Termination. This Agreement may be terminated and the
Merger abandoned at any time before the Closing Date, whether before or after
the approval or adoption of the Agreements by the shareholders of Delta:
(a) By mutual written consent of the Board of Directors of Bancorp, the
Board of Directors of Delta and the Board of Directors of FFBC;
(b) By written notice from Bancorp and FFBC to Delta if:
(i) any condition set forth in Article IX of this Agreement
shall have become impossible to substantially satisfy at any time or has not
been substantially satisfied or waived in writing; or
(ii) any condition set forth in Article XI of this Agreement
shall have become impossible to substantially satisfy at any time or has not
been substantially satisfied or waived in writing, provided, however, Bancorp
shall not have the right to terminate this Agreement pursuant to this Section
12.1(b)(ii) if any condition imposed by Section 11.1 hereof was not met due to
the failure of Bancorp or FFBC to perform or observe the covenants and
agreements set forth in this Agreement; or
(iii) any warranty or representation as set forth in Article
IV hereof made by Delta shall be discovered to be or to have become untrue or
incorrect in any material respect, or where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
discovered to be or to have become untrue or incorrect in any respect taking
into consideration the standard of materiality contained therein, in either case
where any such breach has not been cured within thirty (30) days following
receipt by Bancorp or FFBC of notice of such discovery; or
(iv) Delta shall have breached one or more provisions of the
Agreement in any material respect considering all such breaches in the
aggregate, where such breach has not been cured within thirty (30) days
following receipt by Bancorp of notice of such breach; or
(v) Bancorp has determined, upon completion of its due
diligence conducted pursuant to Section 8.16 of this Agreement, that the
financial condition and/or operations of Delta are materially different than
previously represented by Delta to Bancorp.
(c) By written notice from Delta to Bancorp, which has been approved by
the Board of Directors of Delta, if
(i) any condition set forth in Article X of this Agreement
shall have become impossible to substantially satisfy at any time or has not
been substantially satisfied or waived in writing; or
36
<PAGE>
(ii) any condition set forth in Article XI of this Agreement
shall have become impossible to substantially satisfy at any time or has not
been substantially satisfied or waived in writing, provided, however, Delta
shall not have the right to terminate this Agreement pursuant to this Section
12.1(c)(ii) if any condition imposed by Section 11.1 hereof was not met due to
the failure of Delta to perform or observe the covenants and agreements set
forth in this Agreement; or
(iii) any warranty or representation as set forth in Article V
hereof made by Bancorp or FFBC shall be discovered to be or to have become
untrue or incorrect in any material respect, or where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be discovered to be or to have become untrue or incorrect in any
respect taking into consideration the standard of materiality contained therein,
in either case where any such breach has not been cured within thirty (30) days
following receipt by Delta of notice of such discovery; or
(iv) Bancorp shall have breached one or more provisions of the
Agreement in any material respect considering all such breaches in the
aggregate, where such breach has not been cured within thirty (30) days
following receipt by Delta of notice of such breach.
(d) By the Board of Directors of Bancorp if the Board of Directors of
Delta shall not recommend, or shall withdraw or modify in a manner adverse to
Bancorp, its recommendation to the holders of Delta Common Stock to approve the
Agreement.
(e) By the Boards of Directors of Bancorp or Delta at any time after
the Shareholders' Meeting as contemplated in Section 8.1 if the shareholders of
Delta have not approved this Agreement by the requisite affirmative vote,
provided that the circumstances contemplated by Sections 6.6 or 8.1 shall not
have occurred and provided further that the party seeking to effect such
termination shall have complied in all other material respects with and not
committed a willful breach of the terms of, or its obligations under, this
Agreement.
(f) By the Boards of Directors of Bancorp, FFBC or Delta if the Merger
has not been consummated on or before January 1, 1998.
12.2 Effect of Termination. In the event of termination of this
Agreement by Bancorp, FFBC or Delta as provided in Section 12.1, this Agreement
shall forthwith become void, and there shall be no liability or obligation on
the part of Bancorp, FFBC or Delta or their respective officers or directors
except with respect to Sections 7.2, 8.6, 8.13, 8.15, 12.2, and 13.2 hereof.
ARTICLE XIII.
MISCELLANEOUS
13.1 Survival of Representations, Warranties and Agreements. The
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time for a period of one year, except as otherwise provided herein.
13.2 Expenses. Except as otherwise provided herein, all expenses
incurred by Bancorp, FFBC and Delta in connection with or related to the
authorization, preparation and execution of the Agreement, the solicitation of
shareholder approvals and all other matters related to the closing of the
transactions contemplated thereby, including, without limitation of the
generality of the foregoing, all fees and expenses
37
<PAGE>
of agents, representatives, counsel and accountants employed by either such
party or its Affiliates, shall be borne solely and entirely by the party that
has incurred the same.
13.3 Waivers: Amendments. At any time prior to the Closing Date, either
Bancorp, by action taken by its Board of Directors, or any committees or
officers thereunto authorized, or Delta, by action taken by their Boards of
Directors, or any committees or officers thereunto authorized, may waive the
performance of any of the obligations of the other or waive compliance by the
other with any of the covenants or conditions contained in the Agreement or
agree to the amendment or modification of the Agreement by an agreement in
writing executed in the same manner as the Agreement; provided, however, that
after the favorable vote by the shareholders of Delta pursuant to Section 8.1 of
this Agreement any such action shall be taken only if, in the opinion of Delta's
Board of Directors, such waiver, amendment or modification will not have a
material adverse effect on the benefits intended under the Agreement for the
shareholders of Delta and will not require resolicitation of any proxies from
such shareholders.
13.4 Assignment: Parties in Interest. The Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assigned by the parties hereto, by
operation of law or otherwise, without the prior written consent of the other
parties. Nothing in the Agreement, express or implied, is intended to confer
upon any third party any rights or remedies of any nature whatsoever under or by
reason of the Agreement.
13.5 Captions and Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
13.6 Certain Definitions. For purposes of this Agreement, the term:
(a) "Affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, another person;
(b) "Material Adverse Effect" shall mean any material adverse
change in or material adverse effect on the business, operations or financial
condition of the parties to this Agreement.
(c) "Delta Reports" shall mean all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were and are required to be filed with the OTS, the FDIC, or any
other applicable federal or state securities or banking institution authorities:
and
(d) "to the knowledge of Bancorp" or "to the best knowledge of
Bancorp" shall mean the actual knowledge of any member of the Board of Directors
or of any senior officer of Bancorp or FFBC.
(e) "to the knowledge of Delta" or "to the best knowledge of
Delta" shall mean the actual knowledge of any member of the Board of Directors
or of any senior officer of Delta or the Subsidiary.
13.7 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of the
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will be
entitled to an injunction or injunctions to prevent breaches of the Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
38
<PAGE>
13.8 Governing Law. The Agreement shall be construed and interpreted in
accordance with the laws of the State of Colorado, except to the effect that
Federal Law applies, without regard to the conflicts of laws rules.
13.9 Notices. All notices given hereunder shall be in writing and shall
be mailed by first class mail, postage prepaid, or sent by facsimile
transmission or by nationally recognized overnight delivery service, addressed
as follows:
(a) If to Bancorp to: First Colorado Bancorp, Inc.
215 S. Wadsworth Boulevard
Lakewood, Colorado 80226
Attention: Brian Johnson, Executive Vice President
Facsimile No. (303) 237-2601
with a copy to: Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, DC 20005
Attention: Richard Fisch, Esq.
Facsimile No. (202) 434-4661
(b) If to Delta to: Delta Federal Savings, F.S.B.
145 W. Fourth Street
Delta, Colorado 81416
Attention: David A. Humphries, President
Facsimile No. (970) 874-3021
With A Copy To: Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, Suite 700
Washington, DC 20005
Attention: Martin Meyrowitz, Esq.
Facsimile No. (202) 682-0354
13.10 Arbitration of Disputes. It is agreed that all disputes, claims
and controversies between the parties to this Agreement, whether individual or
joint in nature, arising from or in connection with this Agreement or otherwise,
including, without limitation, contract, tort and other claims, shall be
arbitrated pursuant to the Rules of the American Arbitration Association. Any
disputes, claims or controversies concerning the lawfulness or reasonableness of
any act, or exercise of any right, concerning this Agreement, including any
claim to rescind, reform, or otherwise modify any provision of this Agreement,
shall also be arbitrated, provided, however, that no arbitrator shall have the
right or power to enjoin or restrain any act of any party. Judgment upon any
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable.
39
<PAGE>
13.11 Further Assurances. At all times before or after the Closing, the
Parties hereto shall each perform such acts, execute and deliver such
instruments and documents and do all such other things consistent with the terms
of this Agreement as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement or to otherwise carry out the purpose of this
Agreement.
13.12 Exhibits and Disclosure Schedules. All Disclosure Schedules and
Exhibits referred to in and attached to this Agreement are incorporated herein
by such reference as if fully set forth in the text hereof.
13.13 Severability. The Parties expressly agree that it is not the
intention of any party to violate any public policy, law, rule, regulation,
treaty or decision of any government or agency thereof of any state or country.
If any provision of this Agreement is judicially or administratively interpreted
to be in violation of any such provision in any state or country, such
provisions, sentences, words, clauses or combination thereof shall be
inoperative in each such state or country; and the remainder of this Agreement
shall remain binding upon the parties hereto in each such state or country with
this Agreement as a whole unaffected elsewhere.
13.14 Written Agreement to Govern. This Agreement sets forth the entire
understanding and supersedes all prior and contemporaneous agreements between
the Parties relating to the subject matter contained herein, and merges all
prior and contemporaneous discussions between them. No party shall hereto be
bound by any definition, condition, representation, warranty, covenant or
provision other than as expressly stated in or contemplated by this Agreement or
as subsequently set forth in writing and executed by a duly authorized
representative of the party to be bound thereby.
13.15 No Waiver of Rights. Any waivers hereunder must be made in
writing, and failure of any party at any time to require the other parties'
performance of any obligation under this Agreement shall not affect the right
subsequently to require performance of that obligation. Any waiver of any breach
of any provision of this Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision or a waiver or modification of
the provision.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
ATTEST: FIRST COLORADO BANCORP, INC.
By: /s/ Brian L. Johnson By: /s/ Malcolm E. Collier, Jr.
Brian L. Johnson Malcolm E. Collier, Jr.
[Corporate Seal]
ATTEST: FIRST FEDERAL BANK OF COLORADO
By: /s/ Brian L. Johnson By: /s/ Malcolm E. Collier, Jr.
Brian L. Johnson Malcolm E. Collier, Jr.
[Corporate Seal]
ATTEST: DELTA FEDERAL SAVINGS, F.S.B.
By: /s/ Nina L. Willis By: /s/ David Humphries
Nina L. Willis David Humphries
[Corporate Seal]
A-1
<PAGE>
APPENDIX II
[LOGO] Charles Webb & Company
A Division of
Keefe, Bruyette & Woods, Inc. {LOGO]
May 21, 1997
Board of Directors
Delta Federal Savings Bank, FSB
145 West Fourth Street
Delta, CO 81416
Dear Directors:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Delta Federal Savings Bank, FSB ("Delta" or the "Company"), of the consideration
to be received by such stockholders in the merger (the "Merger") between Delta
and First Colorado Bancorp, Inc. ("First Colorado"). We have not been requested
to opine as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger and Reorganization, dated May 21,
1997 by and among Delta and First Colorado (the "Agreement"), at the effective
time of the Merger, First Colorado will acquire all of the Company's issued and
outstanding shares of common stock (183,365 shares as of the date of the
Agreement). The holders of Company common stock will receive in exchange for
each share of Company common stock shares of common stock of First Colorado
based on an Exchange Ratio which equates to a $30.00 per share price for each
share of Company common stock. For calculation purposes the "Average First
Colorado Stock Price" means the average closing price of First Colorado common
stock on the Nasdaq National Market System for the twenty days ending on the
fifth business day immediately prior to closing.
In addition, the holders of unexercised and outstanding options awarded pursuant
to the Company's 1993 Stock Option Plan and Incentive Plan will receive merger
consideration as described in Section
of the Agreement (16,835 unexercised options outstanding as of the date of the
Agreement). The complete terms of the proposed transaction are described in the
Agreement, and this summary is qualified in its entirety by reference thereto.
Charles Webb & Company, as part of its investment banking business, is regularly
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. We are familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by the Company including (i) Annual Reports, Proxy
Statements and Form 10-Ks for the years ended September 30, 1994, 1995 and 1996,
(ii) Quarterly Reports ended December 31, 1996,and March 31, 1997 and (iii)
certain other information we deemed relevant. We discussed with senior
management
- ------------------- Investment Bankers and Financial Advisors ------------------
211 Bradenton - Dublin, Ohio 43017-3541 - 614-766-8400 - Fax 614-766-8406
<PAGE>
Board of Directors
Delta Federal Savings Bank, FSB
May 21, 1997
Page 2
and the boards of directors of the Company the current position and prospective
outlook for the Company. We considered historical quotations and the prices of
recorded transactions in the Company's common stock since April, 1993. We
reviewed financial and stock market data of other savings institutions,
particularly in the western region of the United States, and the financial and
structural terms of several other recent transactions involving mergers and
acquisitions of savings institutions or proposed changes of control of
comparably situated companies.
For First Colorado, we reviewed the audited financial statements for the fiscal
years ended December 31, 1996 and 1995, quarterly financial statements
(unaudited) for the quarters ending March 31, 1997, and certain other
information deemed relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Delta
and First Colorado and the material otherwise made available to us, including
information from published sources, and we have not made any independent effort
to verify such data. With respect to the financial information, including
forecasts and asset valuations we received from the Company, we assumed (with
your consent) that they had been reasonably prepared reflecting the best
currently available estimates and judgment of the Company's management. In
addition, we have not made or obtained any independent appraisals or evaluations
of the assets or liabilities, and potential and/or contingent liabilities of the
Company or First Colorado. We have further relied on the assurances of
management of the Company and First Colorado that they are not aware of any
facts that would make such information inaccurate or misleading. We express no
opinion on matters of a legal, regulatory, tax or accounting nature or the
ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
<PAGE>
Board of Directors
Delta Federal Savings Bank, FSB
May 21, 1997
Page 3
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/Charles Webb & Company
- -------------------------
Charles Webb & Company,
A Division of Keefe, Bruyette & Woods , Inc.
<PAGE>
APPENDIX III
DISSENTERS RIGHTS STATUTE
12 CFR Section 552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with Section 552.13 of this part shall have
the right to demand payment of the fair or appraised value of his stock:
Provided, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to Section 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing
to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten
days after the effective date of the combination, the resulting association
shall:
(i) Give written notice by mail to stockholders of
constituent Federal stock association who have
<PAGE>
complied with the provisions of paragraph (c)(2) of this section and
have not voted in favor of the combination, of the effective day of the
combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting association to be
the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out
in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefore shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty
days of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his or her stock certificates for such notation
shall no longer be entitled to appraisal rights under this section and shall be
deemed to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any
time within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms
<PAGE>
offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares, direct payment by
the resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any propose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payment to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) STATUS. Shares of the resulting association into which
shares of the stockholders demanding appraisal rights would have been converted
or exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
<PAGE>
APPENDIX IV
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
[DELTA FEDERAL SAVINGS, F.S.B. LOGO]
DELTA FEDERAL SAVINGS, F.S.B.
Delta, Colorado
YOUR LOCAL ADVANTAGE BANK
-------------------------
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
President's Message......................................................... i
Selected Consolidated Financial Information ................................ 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 3
Consolidated Financial Statements........................................... 14
Corporate Information....................................................... 36
<PAGE>
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
To Our Shareholders:
The past year has been an interesting year for the Bank. On the
regulatory front we were faced with the recapitalization of the Savings
Association Insurance Fund ("SAIF"). For most of the year we were unsure as to
the outcome of any legislation relating to SAIF. On the last day of our fiscal
year, legislation was enacted which provided for the recapitalization of the
fund. Our portion of the assessment totaled approximately $193,000 pre-tax and
carried with it an income tax benefit of approximately $66,000. The assessment's
impact upon net income was approximately $127,000.
Earnings in 1996 increased $17,541, an 11.57% increase over fiscal
1995, even with the assessment. The increase in our earnings was due primarily
to the restructuring of the major concentrations of interest earning assets over
the last several years. Once again our loan portfolio is generating the types of
income levels that we desire. The current level of our portfolio loans totals
approximately $29,331,000, representing 73.59% of total assets at September 30,
1996.
Prior to the close of our fiscal year the determination was made to
discontinue the operations of Delta Financial Service Corp. The service
corporation had yet to show a profit and the assets under management had not
reached the levels that we had anticipated. The consolidated loss for the
service corporation for 1996 was $42,095, before income tax benefits of $14,312,
which resulted in a total loss of $27,778.
Our stock has experienced minimal trading activity over the year. The
last reported trade was at $14.50 on December 4, 1996. The book value of our
stock increased from $17.92 per share at September 30, 1995 to $18.22 per share
at September 30, 1996. Our semi-annual dividend payments have increased from
$25,670 to $27,505.
We wish to express our thanks for your continued support and investment
in our future.
Sincerely,
/s/David A. Humphries
---------------------
David A. Humphries
President and Chief Executive Officer
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ----------------------------------
Total assets........................................ $39,853 $35,210 $34,839 $34,331 $34,293
Loans receivable, net............................... 34,221 28,804 21,180 26,249 27,870
Mortgage-backed and related
securities........................................ 557 689 1,564 908 1,046
Investment securities, net 2,511 2,950 4,911 1,500 ---
Deposits............................................ 29,914 30,340 30,908 30,459 32,390
Borrowings.......................................... 6,040 1,000 400 400 400
Retained earnings, substantially
restricted........................................ 1,831 1,717 1,615 1,445 1,176
Shareholders' Equity................................ 3,340 3,284 3,083 2,962 ---
Earnings Per Share (weighted)....................... 0.92 0.83 1.15 3.15 ---
Cash dividends per share............................ 0.30 0.27 0.22 0.10 ---
Number of shares outstanding........................ 183,365 183,365 182,000 182,000 ---
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
- -------------------------
Total interest income............................... $3,058 $2,570 $2,353 $2,565 $2,960
Total interest expense.............................. (1,636) (1,343) (1,174) (1,358) (1,882)
------ ------ ------ ------ ------
Net interest income............................... 1,422 1,227 1,179 1,207 1,078
Provision for loan losses........................... (27) (32) (13) (10) (6)
------ ------ ------ ------ ------
Net interest income after provision
for loan losses................................. 1,395 1,195 1,166 1,197 1,072
Total non-interest income........................... 169 72 90 165 230
Total non-interest expense.......................... (1,307) (1,051) (983) (934) (874)
------ ------ ------ ------ ------
Income before income taxes and
effect of accounting changes.................... 257 216 273 428 428
Income tax expense.................................. (88) (64) (94) (141) (126)
------ ------ ------ ------ ------
Income before effect of accounting
changes......................................... 169 152 179 287 302
Net effect of changes in accounting
principles..................................... --- --- 31 --- ---
------ ------ ------ ------ ------
Net income.......................................... $ 169 $ 152 $ 210 $ 287 $ 302
====== ====== ====== ====== ======
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
- -----------------------------------------
Performance Ratios:
Return on assets (ratio of net income to
average total assets)....................... 0.45% 0.44% 0.62% 0.83% 0.86%
Interest rate spread information:
Average during period....................... 3.18 3.09 2.93 2.95 2.92
End of period............................... 3.29 2.97 3.36 3.18 3.83
Net interest margin (1)....................... 3.73 3.68 3.54 3.55 3.21
Ratio of operating expense to average
total assets................................ 3.48 3.07 2.89 2.67 2.51
Return on retained earnings (ratio of net
income to average retained earnings)........ 5.11 4.78 6.91 14.94 28.44
Quality Ratios:
Non-performing assets to total assets at
end of period............................... 0.02 0.02 0.21 0.46 1.12
Allowance for loan losses to loans receivable,
net......................................... 0.91 0.95 1.08 1.04 1.00
Capital Ratios:
Shareholders' equity to total assets
at end of period............................ 8.38 9.33 8.85 8.68 3.43
Average shareholders' equity to
average assets.............................. 8.83 9.27 8.94 5.53 3.04
Ratio of average interest-earning assets
to average interest-bearing liabilities..... 112.72 114.55 117.37 114.96 105.09
Number of full service offices.................. 1 1 1 1 1
</TABLE>
- ------------------
(1) Net interest income divided by average interest-earning assets.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Delta Federal Savings, F.S.B. converted from a federal mutual savings bank
to a federal stock savings bank on April 6, 1993 (the "Conversion"). In the
Conversion, 182,000 shares of common stock, par value of $.01 per share, of the
Bank were sold in an initial public offering for an aggregate consideration of
$1.82 million.
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its loans,
mortgage-backed securities, and investment portfolios and its cost of funds,
consisting of the interest paid on its deposits and borrowings. In addition, to
a lesser extent, the Bank's operating results are affected by non-interest
income and non-interest expense. Non-interest expense includes operating
expenses consisting primarily of employee salaries and benefits, office
occupancy expenses, equipment costs, federal deposit insurance premiums, and
other general and administrative expenses. Operating results are also affected
by general economic conditions (particularly changes in interest rates),
competition, government policies and actions by regulatory agencies.
Delta Federal's operating philosophy is to provide, in a safe and profitable
manner, financial services to families and small local businesses in the
communities that it serves. The Bank's immediate market area consists of Delta,
Montrose and Mesa Counties. Consistent with its operating philosophy, the Bank
focuses upon attracting deposits from the general public and using such deposits
to originate residential mortgages for its own portfolio and to fund a
residential loan warehouse operation, whereby loans are purchased from local
mortgage brokers and then sold to institutional investors. To a lesser extent,
FHA Title One home improvement loans are made for the portfolio. In an effort to
control interest rate risk, the Bank also makes investments in mortgage-backed
securities, investment securities consisting primarily of U.S. Government
obligations, financial institution certificates of deposit (in amounts which
allow for them to be fully insured by the FDIC), and other liquid assets.
Asset/Liability Management
The Bank, like other financial institutions, is subject to interest rate
risk to the extent that its interest-bearing liabilities with short and
intermediate-term maturities reprice more rapidly, or on a different basis, than
its interest-earning assets. Management of the Bank believes it is critical to
manage the relationship between interest rates and the effect on the Bank's net
portfolio value ("NPV"). This approach calculates the difference between the
present value of expected cash flow from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. Management of the Bank's assets and liabilities is done within
the context of the marketplace, but also considering limits established by the
Board of Directors on the amount of NPV which is acceptable given certain
interest rate changes.
3
<PAGE>
The OTS regulations provide a net market value methodology to measure the
interest rate risk exposure of thrift institutions. In essence, this approach
calculates the difference between the present value of expected cash flows from
assets and the expected cash flows from liabilities, as well as cash flows from
off-balance sheet contingencies. Under OTS regulations, an institution's
"normal" level of interest rate-risk in the event of an assumed change in
interest rates is a decrease in the institution's NPV in an amount not exceeding
2% of the present value of its assets. The OTS has adopted, but temporarily
postponed implementation until further notice, a final rule requiring every
thrift institution with greater than "normal" interest rate exposure to take a
deduction from their total capital available to determine if they meet their
risk-based capital requirement. The amount of the deduction is one-half of the
difference between (a) the institution's actual calculated exposure to a 200
basis point interest rate increase or decrease (whichever results in the greater
pro forma decrease in NPV) and (b) its "normal" level of exposure which is
defined as 2% of the present value of its assets. Utilizing this measurement
concept, at September 30, 1996, the Bank's interest rate risk was considered
normal under the OTS regulations and no additional risk-based capital was
required.
Presented below, as of September 30, 1996, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point increments, up and down
400 basis points and compared to Board policy limits and in accordance with OTS
regulations, based on the assumptions described below. Such limits have been
established with consideration of the dollar impact of various rate changes and
the Bank's strong capital position. As illustrated in the table, the Bank's NPV
is more sensitive to rising rates than declining rates.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Change in Board Limit % September 30, 1996
Interest Rate Change
(Basis Points)
--------------------------------------
$ Change in NPV % Change in NPV
-----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 (75)% $(2,420) (53)%
+300 (50) (1,759) (39)
+200 (25) (1,098) (24)
+100 (15) (475) (10)
-0- --- --- ---
-100 (15) 281 6
-200 (25) 443 10
-300 (50) 660 15
-400 (75) 978 22
</TABLE>
As of September 30, 1996, the Bank was in compliance with the Board limit
for a 200 basis point change in interest rates by 1%.
Financial Condition at September 30, 1996
The Bank's assets at September 30, 1996 totalled $39.9 million, representing
an increase of $4.6 million or 13.19% when compared with September 30, 1995.
This increase occurred primarily as a result of an increase in the balance of
loans receivable, net. This increase is due more to managements efforts towards
increasing loan originations than to a change in interest rates.
4
<PAGE>
Cash and due from banks, FHLB overnight deposits, certificates of deposit
and securities held to maturity and available for sale decreased $924,668 from
$5.4 million at September 30, 1995, to $4.5 million at September 30, 1996. This
decrease was primarily a result of the utilization of cash to fund the increase
in loans receivable, loans held for sale, and FHLB stock.
Loans receivable increased by $3.9 million from $25.5 million at September
30, 1995, to $29.3 million at September 30, 1996. This increase in the loan
portfolio was a continuation of the Bank's focus on purchasing loans originated
by mortgage brokers, that met the Bank's underwriting criteria, for retention in
its portfolio. The Bank's own loan originations also contributed to this
increase. The increase more than offset the normal monthly payments and
prepayments over the past year.
Loans held for sale increased by $1.5 million from $3.3 million at September
30, 1995, to $4.8 million at September 30, 1996. This increase was due primarily
to increased loan demand in the mortgage brokers primary lending areas. The
increased loan demand is the result of an increase in the number of individuals
relocating to the state of Colorado and is marginally impacted by changes in
interest rates.
Accrued interest receivable increased $15,945 from $212,147 at September 30,
1995, to $228,092 at September 30, 1996. The increase was related primarily to
the increase in loans.
FHLB stock increased by $151,200 from $362,700 at September 30, 1995, to
$513,900 at September 30, 1996. This increase was due primarily to additional
purchases made at the discretion of management in order to increase the Bank's
borrowing capacity at the FHLB. To a lessor extent, the increase was due to the
FHLB declaring dividends in the form of stock.
Property and equipment and other assets decreased by $16,805 from $386,768
at September 30, 1995, to $369,963 at September 30, 1996. This decrease was
related primarily to a decrease of $29,908 in various prepaid assets and was
partially offset by a net increase in property and equipment of $13,103.
Deposits decreased by $462,442 from $30.3 million at September 30, 1995, to
$29.9 million at September 30, 1996. This decrease was primarily the result of
lower interest rates in transaction based savings products as depositors sought
higher yielding investment options.
FHLB advances increased by $5.0 million from $1.0 million at September 30,
1995, to $6.0 million at September 30, 1996. The increase in FHLB advances was
due primarily to the increase in loans. Utilization of funds from the FHLB to
accommodate asset growth was a more economical than acquiring additional
deposits.
Accounts payable and accrued expenses increased by $16,434 from $533,443 at
September 30, 1995, to $549,877 at September 30, 1996. The increase was
primarily related to the accrual of the SAIF assessment of $193,000 and was
offset by a decrease in the Bank's in-house checking accounts of $163,298 and in
other accruals of $13,268.
Shareholders' equity increased $55,972 from $3.3 million at September 30,
1995, to $3.3 million at September 30, 1996. The increase was related to
increased net income of $169,118 and was partially offset by a decrease in
valuation allowances of $18,608, issuance of an ESOP note for $39,528, and
payment of dividends of $55,010.
5
<PAGE>
Comparison of Operating Results for the Fiscal Years Ended September 30, 1996
and September 30, 1995
General. The Bank had net income of $169,118 in fiscal 1996 compared to net
income of $151,577 in fiscal 1995, an increase of $17,541. The increase was
primarily related to an increase in net interest income after provisions for
loan losses of $199,930 to $1.4 million in fiscal 1996 from $1.2 million in
1995. The increase was also partially attributable to an increase in noninterest
income of $97,640 to $169,224 in fiscal 1996 from $71,584 in fiscal 1995. The
increase in net income was partially offset by an increase in noninterest
expense of $255,485 to $1.3 million in fiscal 1996 from $1.1 million in fiscal
1995 and an increase in income tax expense of $24,544 to $88,200 in fiscal 1996
from $63,656 in fiscal 1995.
Interest Income. Interest income increased by $488,283 or 19.00% to $3.1
million in fiscal 1996 from $2.6 million in fiscal 1995. This increase was
primarily related to an overall increase in the volume of interest earning
assets, based on management objectives to increase the size of the Bank. The
increase was partially due to an overall increase in the weighted average yield
on interest-earning assets from 7.71% in fiscal 1995 to 8.02% in fiscal 1996.
Interest on loans receivable increased $740,787 or 37.06% to $2.7 million in
fiscal 1996 from $2.0 million in fiscal 1995. The increase in interest on loans
receivable was due primarily to the increase in the Bank's loan portfolio and
was partially attributed to an increase in the yields.
Interest on mortgage-backed securities decreased $52,230 or 55.75% to
$41,449 in fiscal 1996 from $93,679 in fiscal 1995. The decrease was primarily
related to the decrease in the amount of mortgage-backed securities and was
partially offset by an increase in the average yield paid on the securities.
Interest earned on investment securities decreased $124,931 or 44.29% to
$157,169 in fiscal 1996 from $282,100 in fiscal 1995. The decrease was due
primarily to the decrease in the average balance of investments and was
partially offset by an increase in the average yield of the investments.
Interest earned on interest-earning deposits and FHLB stock decreased
$75,343 or 38.50% to $120,338 in fiscal 1996 from $195,681 in fiscal 1995. This
decrease was primarily the result of decreases in the average outstanding
balance of the accounts as the funds were utilized to fund loans and was
partially offset by an increase in the average rates.
Interest Expense. Interest expense increased $292,680 or 21.79% during
fiscal 1996 to $1.6 million from $1.3 million in 1995. This increase in interest
expense was due primarily to an increase in the average balance of
interest-bearing liabilities and was partially related to an increase in the
average rate paid on interest bearing liabilities.
Provision for Losses on Loans. The Bank decreased its loan loss provision by
$4,327 during fiscal 1996 to $27,518 from $31,845 during fiscal 1995 which
brought the total valuation allowances to $270,227 as of September 30, 1996
compared to $243,619 at September 30, 1995. Although management feels loan loss
provisions are adequate for the present economic environment, the Bank adds to
its general loss provisions monthly, based on new loan originations and its
increased loan portfolio. General valuation allowances are included in the
computation of risk-based capital while specific valuation allowances are not
included in any capital component. Increases were noted primarily as a result of
the change in the loan portfolio composition, when analyzed to the Bank's
historical loan loss experience.
6
<PAGE>
Non-Interest Income. Non-interest income increased $97,640 or 136.40% to
$169,224 in fiscal 1996 from $71,584 in fiscal 1995. The increase is primarily
related to an increase in service charges of $42,813 to $79,144 in fiscal 1996
from $36,331 in fiscal 1995, due to an increase in loan originations from
mortgage bankers and a decrease in losses on securities available for sale of
$36,425 to $242 in fiscal 1996 from $36,667 in fiscal 1995. Non-interest income
was also impacted by an increase in the gain on sale of other assets of $14,757,
due to a cooperative investment in the Bank's data processing provider being
purchased. Also contributing to the increase was an increase of $3,645 from
$71,920 at fiscal 1995 to $75,565 at fiscal 1996 in deficiency judgements, late
payment fees and commission income, primarily as a result of improved asset
quality.
Non-Interest Expense. Non-interest expense increased $255,485 to $1.3
million in fiscal 1996 from $1.1 million in fiscal 1995. The increase was due
primarily to the accrual of the SAIF assessment of $193, 000, associated with
the recapitalization of the SAIF which is administered by the FDIC. Increases
were also attributable to an increase in compensation of $62,220 to $578,647 in
fiscal 1996 from $516,427 in fiscal 1995. The increase in compensation was due
primarily to a buy-out of an employment contract with the manager of the service
corporation, normal salary increases and various incentive programs. Other
increase were noted in general and administrative expense of $7,838 from
$216,936 in fiscal 1995 to $224,774 in fiscal 1996, SAIF premiums of $1,715 from
$68,586 in fiscal 1995 to $70,301 in fiscal 1996, depreciation and amortization
of $4,727 from $52,357 in fiscal 1995 to $57,084 in fiscal 1996, computer
processing expense of $1,032 from $46,453 in fiscal 1995 to $47,485 in fiscal
1996, and in professional fees of $456 from $51,338 in fiscal 1995 to $51,794 in
fiscal 1996.
The increases were partially offset by decreases in occupancy expense of
$2,547 from $48,234 in fiscal 1995 to $45,687 in fiscal 1996 and advertising
expense of $12,956 from $50,874 in fiscal 1995 to $37,918 in fiscal 1996.
Income Taxes. Provisions for income taxes increased by $24,544 from $63,656
in fiscal 1995 to $88,200 in fiscal 1996. The increase was due primarily to
increased pretax income for fiscal 1996, as well as various temporary
differences between book and tax income.
Comparison of Operating Results for the Fiscal Years Ended September 30, 1995
and September 30, 1994
General. The Bank had net income of $151,577 in fiscal 1995 compared to net
income of $209,707 in fiscal 1994, a decrease of $58,220. The decrease was
related primarily to a decrease in non-interest income of $18,914 to $71,584 in
fiscal 1995 from $90,498 in fiscal 1994 and a decrease in the benefit from
adopting SFAS 109 (see Note 1) of $30,500 to $0 in fiscal 1995 from $30,500 in
fiscal 1994. See Note 1 of the Notes to Consolidated Financial Statements. The
decrease was also partially attributable to an increase in provision for loan
losses of $19,044 to $31,845 in fiscal 1995 from $12,801 in fiscal 1994 and an
increase in non-interest expense of $67,951 to $1.1 million in fiscal 1995 from
$1.0 million in fiscal 1994. The decrease in net income was partially offset by
an increase in net interest income of $47,745 to $1.2 million in fiscal 1995
from $1.2 million in fiscal 1994 and a decrease in income tax expense of $30,444
to $63,656 in fiscal 1995 from $94,100 in fiscal 1994.
7
<PAGE>
Interest Income. Interest income increased by $217,009 or 9.22% to $2.6
million in fiscal 1995 from $2.4 million in fiscal 1994. This increase was
primarily related to an overall increase in the weighted average yield on
interest-earning assets from 7.07% in fiscal 1994 to 7.71% in fiscal 1995. This
increase was partially due to the change in asset mix (moving lower yielding,
more liquid investments such as cash and certificates of deposit into loans,
investments and mortgage-backed securities which generally carry a higher rate
of interest), and partially due to the increase in market rates of interest
generally.
Interest on loans receivable increased $96,068 or 5.05% to $2.0 million in
fiscal 1995 from $1.9 million in fiscal 1994. The increase in interest on loans
receivable was primarily related to the increase in the Bank's loan portfolio
and was partially attributed to an increase in the yields. The increase in the
loan portfolio occurred primarily in the last two quarters of the fiscal year.
Interest on mortgage-backed securities increased $47,296 or 101.97% to
$93,679 in fiscal 1995 from $46,383 in fiscal 1994. The increase was primarily
related to an increase in the average yield on mortgage-backed securities from
4.34% in fiscal 1994 to 7.42% in fiscal 1995 and was partially attributed to an
increase in the average balance of the securities.
Interest earned on investment securities increased $146,963 or 108.75% to
$282,100 in fiscal 1995 from $135,137 in fiscal 1994. The increase was primarily
related to an increase in the average balance of investments and was partially
related to an increase in the average yield.
Interest earned on interest-earning deposits and FHLB stock decreased
$73,318 or 27.26% to $195,681 in fiscal 1995 from $268,999 in fiscal 1994. This
decrease was primarily the result of decreases in the average outstanding
balance of the accounts and was partially offset by an increase in the average
rates.
Interest Expenses. Interest expense increased $169,264 or 14.42% to $1.3
million in fiscal 1995 from $1.2 million in fiscal 1994. This increase in
interest expense was due primarily to an increase in the average rate paid on
interest-bearing deposits from 4.14% in fiscal 1994 to 4.62% in fiscal 1995. The
increase was also partially related to an overall change in the mix of
interest-bearing liabilities from lower priced demand type accounts to higher
priced certificates.
Provision for Losses on Loans. The Bank increased its loan loss provision by
$19,044 during fiscal 1995 to $31,845 from $12,801 during fiscal 1994 which
brought the total valuation allowances to $243,619 as of September 30, 1995
compared to $220,859 at September 30, 1994. Although management feels loan loss
provisions are adequate for the present economic environment, the Bank adds to
its general loss provisions monthly, based on new loan originations and its
increased loan portfolio. General valuation allowances are included in the
computation of risk-based capital while specific valuation allowances are not
included in any capital component. Increases were noted primarily as a result of
the change in the loan portfolio composition, when analyzed to the Bank's
historical loan loss experience.
Non-Interest Income. Non-interest income decreased $18,914 or 20.90% to
$71,584 in fiscal 1995 from $90,498 in fiscal 1994. Service charges decreased
$6,105 to $36,331 in fiscal 1995 from $42,436 in fiscal 1994, primarily as a
result of reduced loan originations in the first half of the fiscal year from
mortgage bankers. A decrease of $12,039 from $50,093 at fiscal 1994 to $38,054
at fiscal 1995 was noted in deficiency judgments, late payment fees and net gain
(loss) on real estate owned, as a result of continuted improvements in asset
quality.
8
<PAGE>
Non-Interest Expense. Non-interest expense increased $67,951 to $1.1 million
in fiscal 1995 from $983,254 in fiscal 1994. The increase was due primarily to
an increase in general and administrative expenses of $42,456 from $174,480 in
fiscal 1994 to $216,936 in fiscal 1995. These increased costs were a result of
direct costs of being a public company, penalties of $13,000 for prepayment of
fixed FHLB advances and additional costs of first year operations of the service
corporation. Increases were also attributable to an increase in compensation of
$57,469 to $516,427 in fiscal 1995 from $458,958 in fiscal 1994. The increase in
compensation was due to compensation expenses related to the operations of the
service corporation for a full operating cycle in the current year and to normal
salary increases from the previous year. Other increases were also noted in
depreciation and amortization expense of $4,540 from $47,817 in fiscal 1994 to
$52,357 in fiscal 1995 and in advertising of $2,849 from $48,025 in fiscal 1994
to $50,874 in fiscal 1995.
The increases were partially offset by decreases in occupancy expense of
$4,816 from $53,050 in fiscal 1994 to $48,234 in fiscal 1995, SAIF premiums of
$6,561 from $75,147 in fiscal 1994 to $68,586 in fiscal 1995, and computer
processing expense of $2,382 from $48,835 in fiscal 1994 to $46,453 in fiscal
1995. The most significant decrease was noted in professional fees of $25,604
from $76,942 in fiscal 1994 to $51,388 in fiscal 1995. The decrease in
professional fees was primarily the result of services that had been performed
outside of the Bank, now being performed inside by the hiring of staff to
accomplish these tasks.
Income Taxes. Provisions for income taxes decreased by $30,444 to $63,656 in
fiscal 1995 from $94,100 in fiscal 1994. The decrease was due primarily to
reduced pretax income for fiscal 1995, as well as various temporary differences
between book and tax income.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
9
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- -------------------------------------- -------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------------ -------- ------ ----------- -------- ------ ----------- ------- ------
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Receivable $33,382 $2,740 8.21% $23,878 $1,999 8.37% $23,071 $1,903 8.25%
Mortgage-backed Securities 464 41 8.84% 1,266 94 7.42% 1,061 46 4.34%
Investment Securities 2,331 157 6.74% 4,468 282 6.31% 2,869 135 4.71%
Certificates of Deposit 356 20 5.62% 2,101 110 5.24% 3,197 152 4.75%
Other 1,580 100 6.33% 1,620 85 5.25% 3,104 117 3.77%
------- ------ ------- ------ ------- ------
Total Interest-
Earning Assets $38,113 $3,058 8.02% $33,333 $2,570 7.71% $33,302 $2,353 7.07%
======= ====== ======= ====== ======= ======
Interest-Bearing Liabilities
Demand and NOW Deposits $ 6,668 $ 190 2.85% $ 7,082 $ 242 3.42% $ 7,104 $ 206 2.90%
Savings Deposits 1,843 52 2.82% 1,976 58 2.94% 2,030 57 2.81%
Certificate Accounts 21,238 1,171 5.51% 19,562 1,002 5.12% 18,839 864 4.59%
FHLB Advances 4,062 223 5.49% 480 41 8.54% 400 47 11.75%
------- ------ ------- ------ ------- ------
Total Interest-
Bearing Liabilities $33,811 $1,636 4.84% $29,100 $1,343 4.62% $28,373 $1,174 4.14%
======= ====== ======= ====== ======= ======
Net interest income $1,422 $1,227 $1,179
====== ====== ======
Net interest rate spread 3.18% 3.09% 2.93%
==== ==== ====
Net earning assets $4,302 $4,233 $4,929
====== ====== ======
Net yield on average
interest-ets 3.73% 3.68% 3.54%
==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities 112.72% 114.55% 117.37%
====== ====== ======
</TABLE>
10
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the unprecedented levels and
volatility of 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 new 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 the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
1995 vs. 1996 1994 vs. 1995
---------------------------------- -----------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due To Increase Due To Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable ..................... $ 780 $ (39) $ 741 $ 68 $ 28 $ 96
Mortgage-backed Securities ........... (71) 18 (53) 15 33 48
Investment Securities ................ (144) 19 (125) 101 46 147
Certificates of Deposit .............. (98) 8 (90) (57) 15 (42)
Other ................................ (3) 18 15 (78) 46 (32)
----- ----- ----- ----- ----- -----
Total Interest-Earning Assets $ 465 $ 23 $ 488 $ 48 $ 169 $ 217
===== ===== ===== ===== ===== =====
Interest-Bearing Liabilities
Demand and NOW Deposits .............. $ (12) $ (40) $ (52) $ (1) $ 37 $ 36
Savings Deposits ..................... (4) (2) (6) (2) 3 1
Certificate Accounts ................. 92 77 169 37 101 138
FHLB Advances ........................ 197 (15) 182 7 (13) (6)
----- ----- ----- ----- ----- -----
Total Interest-Bearing Liabilities $ 274 $ 19 $ 293 $ 42 $ 127 $ 169
===== ===== ===== ===== ===== =====
Increase (decrease) in net
interest income $ 195 $ 48
===== =====
</TABLE>
11
<PAGE>
The following table presents the yields received on loans, investments and
other interest-earning assets, the ratios paid on savings deposits and
borrowings and the resultant interest rate spreads at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable 8.41% 8.15% 8.76%
Mortgage-backed securities 7.01 7.50 6.15
Investment securities 7.17 6.83 5.37
Other interest-earning assets 5.85 5.74 4.90
Combined weighted average yield on
interest-earning assets 8.20 7.88 7.45
Weighted average rate paid on:
Savings deposits 2.93 2.92 2.82
Demand and NOW deposits 3.21 3.07 2.90
Certificates 5.35 5.49 4.61
Borrowings 5.64 6.55 9.65
Combined weighted average rate
paid on interest-bearing liabilities 4.91 4.91 4.09
Spread 3.29 2.97 3.36
</TABLE>
Liquidity and Capital Resources
The Bank's principal sources of funds are deposits and borrowings,
amortization and prepayment of loan principal (including mortgage-backed
securities), sales or maturities of investment securities, mortgage-backed
securities and short-term investments and operations. While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan repayments are influenced by interest rates, general economic
conditions, competition and, most recently, the restructuring of the thrift
industry. The Bank generally manages the pricing of its deposits to maintain a
steady deposit balance, but has from time to time, decided not to pay deposit
rates that are as high as those of its competitors and, when necessary, to
supplement deposits with longer term and/or less expensive alternative sources
of funds.
Federal regulations historically have required the Bank to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. government, agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. The Bank has historically maintained its liquidity ratio at
levels in excess of those required. For September 1996, the Bank's liquidity
ratio was 13.16% compared to September 1995, where the liquidity ratio was
13.68%.
The primary source of cash from operating activities is net income. For the
year ended September 30, 1996, operating activities used funds of $1,316,604,
primarily due to increased warehouse activity.
12
<PAGE>
The primary investing activities of the Bank are lending and purchasing
mortgage-backed securities and investment securities. Loan originations, net of
principal repayments, used $3.9 million during fiscal 1996. Mortgage-backed and
investment securities purchases were $1.3 million, while mortgage-backed and
investment securities maturities, principal repayments and sales totaled $1.7
million; thus using net funds of $900,000 during fiscal 1996. Maturing purchased
certificates of deposit totaled $593,000. If general interest rates decline, the
Bank would expect to experience an increase in prepayments, particularly in its
adjustable-rate mortgage loans and adjustable-rate mortgage-backed securities.
The increased funds from these sources could not necessarily be re-invested in
similar instruments at yields and terms to maintain the increasing net interest
margin the Bank experienced during fiscal 1996. The net cash used by investing
activities was $2,951,426.
The primary financing activity of the Bank is deposits and FHLB advances.
For fiscal 1996, a net increase in certificate of deposit accounts and
borrowings provided $5.0 million of funds, which was substantially offset by a
decrease in savings accounts of $426,442. The net cash provided by financing
activities was $4,507,115.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) the projected amount
of loans and mortgage-backed securities to mature or prepay, (iii) expected
deposit flows, (iv) yields available on interest-bearing deposits, and (v) the
objective of its asset/liability management strategy. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Bank requires funds beyond its ability
to generate them internally, it has additional borrowing capacity with the FHLB
of Topeka.
The Bank anticipates that it will have sufficient funds available to meet
current loan commitments. At September 30, 1996, the Bank had outstanding loan
and warehouse commitments to extend credit which amount to $5.4 million.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are monetary. As a
result, interest rates have a greater impact on the Bank's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
Effect of New Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued several new
accounting standards which may affect the accounting for transactions of the
Bank. The new standards are discussed in detail at Note 1 of the Notes to
Consolidated Financial Statements.
13
<PAGE>
Board of Directors
Delta Federal Savings, F.S.B.
and subsidiary
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated statements of financial condition
of Delta Federal Savings, F.S.B. and subsidiary (the Bank) as of September 30,
1996 and 1995, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended September 30, 1996. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 consolidated financial position of Delta
Federal Savings, F.S.B. and subsidiary as of September 30, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 8 to the consolidated financial statements, the Bank
changed its method of accounting for income taxes and certain investment
securities in fiscal 1994.
/s/Dalby, Wendland & Co., P.C.A
- -------------------------------
DALBY, WENDLAND & CO., P.C.
Grand Junction, Colorado
November 7,1996
-14-
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 491,761 $ 270,946
FHLB overnight deposits and demand account 860,808 842,538
Certificates of deposit 99,000 692,000
Securities held to maturity, fair value, $251,066 (1996), $1,048,714 (1995) 249,133 1,042,886
Securities available for sale, at fair value 2,819,409 2,596,409
Loans held for sale, at market value 4,890,472 3,342,684
Loans receivable, net 29,330,865 25,461,333
Accrued interest receivable 228,092 212,147
Federal Home Loan Bank stock, at cost 513,900 362,700
Property and equipment, net 297,452 284,349
Prepaid expenses and other assets 72,511 102,419
----------- -----------
Total Assets $39,853,403 $35,210,411
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $29,913,977 $30,340,419
Advances from Federal Home Loan Bank 6,000,000 1,000,000
Advances by borrowers for taxes and insurance 54,483 67,751
Accounts payable and accrued expenses 302,394 465,692
Accrued SAIF special assessment 193,000 -
Note payable 39,528 -
Deferred income taxes 9,700 52,200
----------- -----------
Total Liabilities 36,513,082 31,926,062
----------- -----------
Commitments and contingencies - -
Shareholders' Equity:
Common stock, $.01 par value, 5,000,000 shares authorized; 183,365 shares
issued and outstanding 1,834 1,834
Additional paid-in capital 1,533,911 1,533,911
Retained income - substantially restricted 1,830,940 1,716,832
ESOP note payable (39,528) -
Net unrealized gain on securities available for sale 13,164 31,772
----------- -----------
Total Shareholders' Equity 3,340,321 3,284,349
----------- -----------
Total Liabilities and Shareholders' Equity $39,853,403 $35,210,411
=========== ===========
</TABLE>
See accompanying notes.
-15-
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $2,739,487 $1,998,700 $1,902,632
Mortgage-backed securities 41,449 93,679 46,383
Investment securities 157,169 282,100 135,137
Certificates of deposit 19,937 109,742 151,904
Other 100,401 85,939 117,095
---------- ---------- ----------
Total Interest Income 3,058,443 2,570,160 2,353,151
---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,413,299 1,302,114 1,126,589
Advances and other 222,842 41,347 47,608
---------- ---------- ----------
Total Interest Expense 1,636,141 1,343,461 1,174,197
---------- ---------- ----------
Net Interest Income 1,422,302 1,226,699 1,178,954
Provision for loan losses 27,518 31,845 12,801
---------- ---------- ----------
Net Interest Income After Provision for Loan Losses 1,394,784 1,194,854 1,166,153
---------- ---------- ----------
NONINTEREST INCOME
Service charges 79,144 36,331 42,436
Commission income 36,059 33,866 -
Late payment charges and other fees 30,339 28,830 31,205
Income on deficiency judgments 7,383 6,416 9,371
Loss on sale of securities available for sale (242) (36,667) (2,031)
Gain (loss) on sale of real estate owned and other assets 14,757 - (231)
Other 1,784 2,808 9,748
---------- ---------- ----------
Total Noninterest Income 169,224 71,584 90,498
---------- ---------- ----------
NONINTEREST EXPENSE
Compensation to officers and employees 578,647 516,427 458,958
General and administrative 224,774 216,936 174,480
SAIF special assessment 193,000 - -
SAIF premium 70,301 68,586 75,147
Depreciation and amortization 57,084 52,357 47,817
Professional fees 51,794 51,338 76,942
Advertising 37,918 50,874 48,025
Occupancy expense 45,687 48,234 53,050
Computer processing expense 47,485 46,453 48,835
---------- ---------- ----------
Total Noninterest Expense 1,306,690 1,051,205 983,254
---------- ---------- ----------
Income Before Income Taxes 257,318 215,233 273,397
Provision for income taxes 88,200 63,656 94,100
---------- ---------- ----------
Net Income Before Cumulative Effect of Adopting SFAS 109 169,118 151,577 179,297
Cumulative effect of adopting SFAS 109 - - 30,500
---------- ---------- ----------
Net Income $ 169,118 $ 151,577 $ 209,797
========= ========== ==========
</TABLE>
See accompanying notes.
-16-
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended September 30, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Employee Net Unrealized
Common Stock Additional Stock Securities Gain
-------------------- Paid-in Ownership Retained On Available
Shares Amount Capital Plan Income for Sale Total
--------- ------ ---------- ----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 182,000 $1,820 $1,520,275 $ (5,400) $1,444,829 $ - $2,961,524
Change in accounting method
for securities - - - - - 9,282 9,282
Employee Stock Ownership
Plan - - - 5,400 - - 5,400
Cash dividends declared - - - - (40,040) - (40,040)
Net income - - - - 209,797 - 209,797
Change in net unrealized (loss)
gain on securities available
for sale - - - - - (62,740) (62,740)
------- ------ ---------- --------- ---------- ------- ----------
Balance at September 30, 1994 182,000 1,820 1,520,275 - 1,614,586 (53,458) 3,083,223
Stock options exercised 1,365 14 13,636 - - - 13,650
Cash dividends declared - - - - (49,331) - (49,331)
Net income - - - - 151,577 - 151,577
Change in net unrealized gain
on securities available for sale - - - - - 85,230 85,230
------- ------ ---------- --------- ---------- ------- ----------
Balance at September 30, 1995 183,365 1,834 1,533,911 - 1,716,832 31,772 3,284,349
Employee Stock Ownership
Plan - issuance of note payable - - - (39,528) - - (39,528)
Cash dividends declared - - - - (55,010) - (55,010)
Net income - - - - 169,118 - 169,118
Change in net unrealized gain
on securities available for sale - - - - - (18,608) (18,608)
------- ------ ---------- --------- ---------- ------- ----------
Balance at September 30, 1996 183,365 $1,834 $1,533,911 $(39,528) $1,830,940 $13,164 $3,340,321
======= ====== ========== ======== ========== ======= ==========
</TABLE>
See accompanying notes.
-17-
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 169,118 $ 151,577 $ 209,797
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 52,456 29,620 48,827
Provision for loan losses 27,518 31,845 12,801
Income tax effect of securities available for sale - - 29,800
Net (gain) loss on sale of securities available for sale (242) 36,667 2,031
Net (gain) loss on sale of real estate owned - - 231
Net change in assets and liabilities
Loans held for sale (1,547,788) (2,301,905) 5,229,442
Interest receivable
Interest receivable (15,945) (27,679) (56,887)
Other assets, net (3,592) 2,178 (131,646)
Deferred loan origination fees 6,381 (27,098) 4,575
Accounts payable and accrued expenses 37,990 181,851 (64,781)
Deferred income taxes (42,500) (16,400) 2,600
----------- ------------ ----------
Net Cash Provided (Used) By Operating Activities (1,316,604) (1,939,344) 5,286,790
----------- ------------ ----------
INVESTING ACTIVITIES
Net change in loans originated or acquired (3,903,430) (5,327,319) (176,295)
Sale of real estate owned and held for investment, net - - 52,623
Purchases of equipment (65,187) (27,762) (90,864)
Abandonment of equipment - - 1,551
Purchase FHLB stock (122,700) - -
Purchase of securities held to maturity - (511,422) (844,315)
Purchase of securities available for sale (1,192,190) (1,045,070) (3,955,625)
Sale of securities available for sale 494,465 3,637,504 247,969
Maturities of securities available for sale 1,138,616 564,815 401,208
Maturities of securities held to maturity 106,000 305,433 -
Net change in certificates of deposit held by other financial
institutions 593,000 2,929,327 (758,712)
----------- ------------ ----------
Net Cash Provided (Used) By Investing Activities (2,951,426) 525,506 (5,122,460)
----------- ------------ ----------
FINANCING ACTIVITIES
Net decrease in savings accounts (565,724) (1,981,777) (324,976)
Net increase in certificates of deposit 139,282 1,413,785 774,732
Proceeds from borrowings 49,875,000 14,800,000 11,600,000
Principal paid on borrowings (44,875,000) (14,200,000) (11,600,000)
Net increase (decrease) in advances by borrowers (13,268) 13,410 518
Net proceeds on sale of common stock - 13,650 -
Cash dividends paid (53,175) (45,500) (36,400)
----------- ------------ ----------
Net Cash Provided By Financing Activities 4,507,115 13,568 413,874
----------- ------------ ----------
Increase (Decrease) in Cash and Cash Equivalents 239,085 (1,400,270) 578,204
Cash and cash equivalents - October 1 1,113,484 2,513,754 1,935,550
----------- ------------ ----------
Cash and cash equivalents - September 30 $ 1,352,569 $ 1,113,484 $2,513,754
=========== ============ ==========
</TABLE>
See accompanying notes.
-18-
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The consolidated financial statements include the accounts
of Delta Federal Savings, F.S.B. (the Bank) and its
wholly-owned subsidiary Delta Financial Service Corp. The
investment in subsidiary is accounted for using the equity
method. All significant intercompany transactions have
been eliminated in consolidation.
Nature of Operations
The Bank, a federally charted savings bank, is subject to
certain federal agencies and their respective
requirements. Pursuant to a filing with the Securities and
Exchange Commission (SEC), the Bank deregistered its stock
with the SEC on September 12, 1996.
The Bank provides a wide range of financial related
services to customers in western Colorado. Delta Financial
Service Corp., provided investment services through a
contract with Investment Center of America.(TM) Effective
September 30, 1996, the Bank discontinued the investment
services provided through Delta Financial Service Corp.
but maintains the contract with Investment Center of
America.(TM)
A summary of significant accounting policies follows:
Interest-Bearing Deposits
Interest-bearing deposits consisted of the following at
September 30:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Included in cash $ 315,022 $ 80,640
FHLB overnight deposits and demand account 860,808 842,538
---------- --------
$1,175,830 $923,178
========== ========
</TABLE>
Securities Held to Maturity and Available for Sale
Effective October 1, 1993, the Bank adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
Securities that may be sold in response to or in
anticipation of changes in interest rates and resulting
prepayment risk, or other factors, are classified as
available for sale and carried at fair value. The
unrealized gains and losses on these securities are
reported net of applicable taxes in a separate component
of
-19-
<PAGE>
shareholders' equity. Securities that the Bank has the
positive intent and ability to hold to maturity continue
to be carried at amortized cost.
Interest income on securities, including amortization of
premiums and accretion of discounts, is recognized using
the interest method. The Bank anticipates prepayments of
principal in the calculation of the effective yield for
collateralized mortgage obligations and mortgage-backed
securities. The specific identification method is used to
determine realized gains and losses on sales of
securities, which are reported in securities gains.
Loans Held for Resale
Loans held for resale are carried at the individual loan's
purchased cost, which is considered to approximate market
value. The loans are guaranteed as to their resale value
by the mortgage banking companies from whom they were
purchased. Each loan has been presold to a third party
investor (see Note 3).
Loans Receivable
Loans are reported at the principal amount outstanding,
net of deferred loan fees, loan purchase discounts and the
allowance for loan losses. Interest on loans is calculated
by using the simple interest method on the daily balance
of the principal amount outstanding.
The Bank has established a lending policy whereby the
credit worthiness of each customer is reviewed and the
amount of collateral obtained upon approval is based on
management's credit evaluation of the customer. Generally,
the loans at the Bank are collateralized by deeds of trust
held by the Bank.
Nonrefundable loan fees are deferred and recognized as
income over the life of the loan as an adjustment of the
yield. Direct costs associated with originating loans are
deferred and amortized as a yield adjustment over the life
of the loan.
Effective October 1, 1995, the Bank adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, and SFAS
No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures. The adoption of
these standards did not have a material effect on the
financial statements.
A loan is considered impaired when, based on current
information and events, it is probable that the Bank will
be unable to collect all amounts due according to the
contractual terms of the loan agreement. Loans are not
classified as impaired because of minimal payment delays
or insignificant shortfalls in amounts if management
expects to collect all amounts due including interest.
Management determines loan impairments on a loan by loan
basis for the entire portfolio.
-20-
<PAGE>
Accrual of interest can be discontinued on impaired loans
and loans designated as nonaccrual loans. Accrual of
interest on loans is generally discontinued either when
reasonable doubt exists as to the full, timely collection
of interest or principal, or when a loan becomes
contractually past due 90 days or more with respect to
interest or principal. When a loan is placed on impaired
or nonaccrual status, all interest previously accrued but
not collected is charged against income. Income on such
loans is then recognized only to the extent that cash is
received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only
when they are brought fully current with respect to such
interest and principal and when, in the judgment of
management, the loans are estimated to be fully
collectible as to both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is established through a
provision of loan losses charged to expense. Loans are
charged against the allowance for 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 losses
inherent in existing loans, based on evaluations of the
collectibility and prior loss experience of loans. The
evaluations take into consideration such factors as
changes in the nature and size of the portfolio, overall
portfolio quality, specific problem loans, and current and
anticipated economic conditions that may affect borrowers'
ability to pay.
For impaired loans, if the present value of expected
future cash flows is less than the recorded investment in
the loan, an allowance is recognized with a charge to the
provision for loan losses.
Real Estate Owned
Real estate owned represents property acquired through
foreclosure or settlement of loans and is recorded at the
lower of cost or fair value of the property at the time of
foreclosure less estimated costs to sell.
Valuations are periodically performed by management and
subsequent charges to income are taken when it is
determined that the carrying value of the property exceeds
the fair value less estimated costs to sell.
Federal Home Loan Bank Stock
Federal Home Loan Bank (FHLB) stock is an equity interest
in the FHLB of Topeka. The Bank, as a member of the FHLB,
is required to maintain an investment in capital stock of
the FHLB. The stock is classified as a restricted
investment security, carried at cost, and evaluated for
impairment. The stock can only be sold, at par value, to
the FHLB or to another member institution. As a result the
stock is assumed to have a market value equal to cost for
disclosure purposes.
-21-
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the
estimated useful lives of the related assets.
Income Taxes
Income taxes are provided in accordance with SFAS No. 109,
Accounting for Income Taxes (see Note 8). Under the
provisions of SFAS No. 109, deferred tax assets and
liabilities are recorded based on the differences between
the financial statement and tax bases of assets and
liabilities and the tax rates which will be in effect when
these differences are expected to reverse. If appropriate,
deferred tax assets are reduced by a valuation allowance
which reflects expectations of the extent to which such
assets will be realized.
The Bank adopted SFAS No. 109, effective October 1, 1993,
and has reported the cumulative effect of the change in
the method of accounting for income taxes as of the
beginning of the 1994 fiscal year in the consolidated
statements of operations.
Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Net Income Per Share
Net income per share for the years ended September 30 was
$.92 (1996), $.83 (1995) and $.98 (1994) determined by
dividing net income for the year by 183,365 (1996),
182,228 (1995), and 182,000 (1994), the weighted average
number of shares outstanding.
Certain Reclassifications - Not Material
Certain reclassifications have been made to the
consolidated financial statements for September 30, 1994
to conform to the September 30, 1996 and 1995
presentation.
-22-
<PAGE>
Effect of New Accounting Standards
The Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed which is
effective for fiscal years beginning after December 15,
1995. SFAS No. 121 requires the review of long-lived
assets for impairment, recognition of an impairment loss
when applicable, and the reporting of certain assets to be
disposed of at the lower of carrying amount or fair value
less cost to sell.
SFAS No. 122, Accounting for Mortgage Servicing Rights,
was also issued and is effective for fiscal years
beginning after December 15, 1995. SFAS No. 122 provides
accounting standards for recording mortgage servicing
rights for rights originated by the institution or
acquired by purchase.
In October 1995, FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation, which is effective for fiscal
years beginning after December 15, 1995, or for the fiscal
year for which this SFAS is initially adopted for
recognizing compensation cost, whichever is first. SFAS
No. 123 establishes a fair value based method of
accounting for stock-based compensation plans.
The Bank expects to adopt the standards when required.
Management believes adoption of these new accounting
standards will not have a material effect on consolidated
financial position and results of operations, nor will
adoption require additional capital resources.
Supplemental Disclosure of Cash Flow Information
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand, demand deposits at other
financial institutions and overnight deposits.
Certificates of deposit with original maturities of three
months or more are considered as part of a larger pool of
investments and are not treated as cash equivalents. Cash
and cash equivalents consisted of the following at
September 30:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash and due from banks $ 491,761 $ 270,946 $ 538,747
FHLB overnight deposits and demand account 860,808 842,538 1,975,007
---------- ---------- ----------
$1,352,569 $1,113,484 $2,513,754
========== ========== ==========
</TABLE>
Selected cash payments and noncash activities were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid on deposits and borrowings $1,644,718 $1,348,672 $1,169,661
Income taxes paid $ 88,383 $ 29,800 $ 112,600
Non-cash transactions
Dividends declared $ 27,505 $ 49,331 $ 40,040
</TABLE>
-23-
<PAGE>
NOTE 2 - SECURITIES
On October 1, 1993, the Bank adopted SFAS No. 115, which
addresses the accounting for investments in equity
securities that have readily determinable fair values and
for investments in all debt securities. Such securities
are classified in three categories and accounted for as
follows: debt securities that the Bank has the positive
intent and ability to hold to maturity are classified as
held to maturity and are measured at amortized cost; debt
and equity securities bought and held principally for the
purpose of selling in the near term are classified as
trading securities and are measured at fair value, with
unrealized gains and losses included in earnings; debt and
equity securities not classified as either held to
maturity or trading securities are deemed available for
sale and are measured at fair value, with unrealized gains
and losses, net of applicable taxes, reported in a
separate component of stockholders' equity.
The Financial Accounting Standards Board (FASB) allowed
entities to make a transfer of securities between
classifications during the month of December 1995.
Accordingly, the Bank transferred securities classified as
held to maturity to the available for sale classification
in December 1995. The amortized cost and unrealized gain
of the securities transferred was $486,649 and $3,960,
respectively.
Held to Maturity Securities
The amortized cost and estimated fair value of held to
maturity securities at September 30 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
----
U.S. Government and Federal
Agency/Corporation Obligations:
Mortgage-backed securities $249,133 $1,933 $ - $251,066
-------- ------ --------- --------
Total Held to Maturity Securities $249,133 $1,933 $ - $251,066
======== ====== ========= ========
1995
----
U.S. Government and Federal
Agency/Corporation Obligations:
U.S. Treasuries $105,678 $ - $ (118) $105,560
U.S. Agencies 248,046 3,416 - 251,462
Mortgage-backed securities 689,162 2,530 - 691,692
--------- ----- ------ --------
Total Held to Maturity Securities $1,042,886 $5,946 $(118) $1,048,714
========== ====== ===== ==========
</TABLE>
-24-
<PAGE>
Available for Sale Securities
The amortized cost and estimated fair value of available
for sale securities at September 30 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
----
U.S. Government and Federal
Agency/Corporation Obligations:
U.S. Treasuries $ 247,372 $ - $(1,757) $ 245,615
U.S. Agencies 2,243,666 23,950 (1,596) 2,266,020
Mortgage-backed securities 307,512 262 - 307,774
---------- ----------- ------- ----------
Total Available For Sale Securities $2,798,550 $24,212 $(3,353) $2,819,409
========== =========== ======= ==========
1995
----
U.S. Government and Federal
Agency/Corporation Obligations:
U.S. Treasuries $2,546,837 $49,852 $ (280) $2,596,409
---------- ------- ------- ----------
Total Available For Sale Securities $2,546,837 $49,852 $ (280) $2,596,409
========== ======== ======= ==========
</TABLE>
The amortized cost and estimated fair value of debt
securities at September 30, 1996, by contractual maturity,
are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Held to Maturity Securities Cost Value
--------------------------- ---------- ----------
<S> <C> <C> <C>
Due in one year or less $ 249,133 $ 251,066
---------- ----------
Total Held to Maturity Securities $ 249,133 $ 251,066
========== ==========
Available for Sale Securities
-----------------------------
Due in one year or less $ 99,169 $ 100,078
Due after one year through five years 2,699,381 2,719,331
--------- ---------
Total Available for Sale Securities $2,798,550 $2,819,409
========== ==========
</TABLE>
-25-
<PAGE>
NOTE 3 - LOANS RECEIVABLE
The following is a summary of loans receivable at
September 30:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
Real estate loans:
One-to-four family $23,377,526 $21,537,724
Commercial 1,894,511 1,289,558
Construction 2,375,942 965,930
Land 37,587 89,687
Second mortgages 184,522 209,420
Other loans:
Home improvement loans 1,091,446 1,027,374
Unsecured consumer loans 276,785 290,680
Loans on deposits 49,269 134,420
Automobile 360,608 182,225
Student - -
Consumer 20,576 17,446
----------- -----------
29,668,772 25,744,464
Allowance for estimated loan losses (270,227) (243,619)
Deferred loan fees (69,894) (63,512)
Unearned premium on purchased loans 2,214 24,000
----------- -----------
$29,330,865 $25,461,333
=========== ===========
</TABLE>
A summary of the changes in the allowance for loan losses
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Beginning of the period $243,619 $220,859 $210,586
Provision for losses 27,518 31,845 12,801
Loan charge-offs and transfers
to REO (910) (9,085) (2,528)
-------- -------- --------
$270,227 $243,619 $220,859
======== ======== ========
</TABLE>
Unsecured consumer loans are loans that were made for the
acquisition of one to four family residences. The average
balances of those loans at September 30 were approximately
$12,581 (1996) and $10,380 (1995). The average balance is
higher than typical unsecured loans; however, these are
well-seasoned loans that are at least seventeen years old
and have an average remaining life of eleven years.
-26-
<PAGE>
The Bank has approved various warehouse lines of credit
for mortgage banking companies. Under a warehouse
agreement, the amounts advanced are secured by notes and
deeds of trust on individual properties. Each loan under
these agreements has also been presold to a third party
investor. At September 30 the lines are approved for a
level of $10,000,000 (1996) and $15,000,000 (1995). At
September 30 advances of $4,890,472 (1996) and $3,342,684
(1995) had been made under the terms of the agreements.
Interest income earned under the agreements for September
30 totaled $414,639 (1996), $105,943 (1995), $222,550
(1994). Under the terms of the agreement, the Bank is not
exposed to any market fluctuation in interest rates.
At September 30, the Bank had pledged approximately
$870,221 (1996) and $643,200 (1995) of loans on real
property as collateral for deposits of public funds.
Loans serviced by the Bank for the benefit of others at
September 30 were $363,557 (1996), $561,984 (1995),
$713,462 (1994).
For the years ended September 30, loans sold with recourse
totaled $139,097 (1996) and $295,820 (1995).
NOTE 4 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30 consists of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C> <C>
Loans $148,168 $134,880
Investments 54,348 67,845
Other 25,576 9,422
-------- --------
$228,092 $212,147
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at
September 30:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C> <C>
Land $ 54,156 $ 54,156
Building and improvements 444,036 444,036
Furniture, fixtures and equipment 320,321 259,506
--------- ---------
818,513 757,698
Less accumulated depreciation (521,061) (473,349)
--------- ---------
$ 297,452 $ 284,349
========= =========
</TABLE>
Depreciation expense for the years ended September 30 was
$52,084 (1996), $47,357 (1995), and $46,984 (1994).
-27-
<PAGE>
NOTE 6 - DEPOSITS
The following is a summary of deposits at September 30:
<TABLE>
<CAPTION>
1996** 1996 1995
------ ----------- -----------
<S> <C> <C> <C> <C>
Noninterest checking 0.00% $ 1,330,447 $ 1,140,011
Negotiable order of withdrawal accounts 2.04% 1,016,677 1,490,469
Statement savings 2.93% 1,795,867 1,902,967
Money market deposit accounts 3.45% 4,932,519 5,107,787
----------- ------------
9,075,510 9,641,234
----------- ------------
Certificates of deposit
0.00% - 2.99% 193,947 591
3.00% - 3.99% - 410,193
4.00% - 4.99% 5,505,524 5,426,406
5.00% - 5.99% 12,352,759 9,387,233
6.00% - 6.99% 2,503,324 4,561,923
7.00% - 7.99% 271,997 789,795
8.00% - 8.20% 10,916 123,044
----------- ------------
5.35% 20,838,467 20,699,185
----------- ------------
$29,913,977 $30,340,419
=========== ===========
</TABLE>
** Weighted average rate at September 30, 1996
At September 30, 1996, scheduled maturities of
certificates of deposit are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Total
----------- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
0.00% - 2.99% $ 193,618 $ - $ 329 $ - $ - $ 193,947
3.00% - 3.99% - - - - - -
4.00% - 4.99% 5,269,124 167,287 69,113 - - 5,505,524
5.00% - 5.99% 9,231,243 2,316,614 519,338 108,207 177,357 12,352,759
6.00% - 6.99% 1,809,173 242,859 40,000 246,983 164,309 2,503,324
7.00% - 7.99% 271,997 - - - - 271,997
8.00% - 8.99% - - - - 10,916 10,916
----------- ---------- -------- -------- -------- -----------
$16,786,071 $2,726,760 $628,780 $355,190 $341,666 $20,838,467
=========== ========== ======== ======== ======== ===========
</TABLE>
Interest expense on deposits for the years ended September
30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Money market $ 157,573 $ 194,558 $ 185,440
Savings 52,461 57,945 57,105
Negotiable order of withdrawal 31,773 48,413 20,420
Certificates of deposit 1,171,492 1,001,198 863,624
---------- ---------- ----------
$1,413,299 $1,302,114 $1,126,589
========== ========== ==========
</TABLE>
-28-
<PAGE>
Federal Deposit Insurance Corporation (FDIC), an agency of
the U.S. Government, insures all depositors up to $100,000
in accordance with the rules and regulations of the FDIC.
Deposits with a balance in excess of $100,000 at September
30 were $1,327,000 (1996) and $2,149,000 (1995).
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK
At September 30, the Bank had an approved line of credit
for $9,948,000 (1996) and $6,748,000 (1995) with the FHLB.
The Bank had advances on the line of $4,000,000 (1996) and
$1,000,000 (1995) at September 30. The line of credit
expires in April 1997. The Bank has pledged collateral
under a blanket pledge agreement with the FHLB which
includes FHLB stock, real estate loans, and other
non-pledged securities.
The Bank had fixed rate advances from the FHLB at
September 30, 1996 as follows:
<TABLE>
<CAPTION>
Interest Maturity Principal
Rate Date Balance
---- ---- -------
<S> <C> <C> <C>
6.04% 11/06/98 $1,000,000
5.82% 01/04/01 1,000,000
----------
$2,000,000
==========
</TABLE>
NOTE 8 - INCOME TAXES
The Bank adopted SFAS No. 109, Accounting for Income
Taxes, as of October 1, 1993. The cumulative effect of
this change in accounting for income taxes, as of October
1, 1993, increased net income by $30,500 and is reflected
as a cumulative effect of change in accounting principle
in the statements of income for the year ended September
30, 1994.
The provision for income taxes, exclusive of the tax
benefit related to the adoption of SFAS No. 109 of $30,500
as of October 1, 1993, consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C> <C>
Current $119,900 $47,256 $46,300
Deferred (31,700) 16,400 47,800
-------- ------- -------
$ 88,200 $63,656 $94,100
======== ======= =======
</TABLE>
-29-
<PAGE>
Deferred income taxes and benefits are provided for
significant income and expense items recognized in
different years for tax and financial reporting purposes.
Temporary differences which give use to significant
deferred tax assets and liabilities as of September 30,
1996, are as follows:
SAIF assessment accrued $ 72,000
State net operating loss carryforward 7,800
Deferred loan fees 8,600
State tax credits 5,000
Other 900
--------
94,300
--------
Valuation allowance -
Total Deferred Assets 94,300
--------
Cash to accrual adjustment 62,200
FHLB stock dividends 34,000
Market value adjustment - investments 7,800
--------
Total Deferred Liabilities (104,000)
--------
Net Deferred Liabilities $ (9,700)
========
The provisions for federal income taxes have been provided
at an effective rate of 34.3% (1996), 37.0% (1995), 34.4%
(1994). These rates are different than the normal
"expected" corporate rate of 34% due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C> <C>
Normal "expected corporate taxes $87,500 $58,400 $93,000
Change in tax provision resulting from:
Increase resulting from provision
for loan and real estate losses 6,800 8,600 5,100
Bad debt deduction based on tax methods (12,900) (10,200) (4,100)
Tax rate differential 3,200 (500) (1,200)
Other 3,600 7,356 1,300
------- ------- -------
Total Income Tax Expense $88,200 $63,656 $94,100
======= ======= =======
</TABLE>
The Bank files consolidated federal and state income tax
returns with its wholly-owned subsidiary. The Bank has met
certain definitions and other conditions prescribed by the
Internal Revenue Service which permit annual bad debt
deductions (not related to amount of losses actually
anticipated and charged to earnings) in computing taxable
income. Included in retained income of the Bank at
September 30 is the accumulation of such bad debt
deductions of approximately $966,000 (1996) and $948,000
(1995) for which no provision for income taxes has been
made. If, in the future, these amounts are treated as
being used for any purpose other than to absorb losses on
bad debts, the federal and state tax liability will be
imposed on these amounts at the then current tax rates.
-30-
<PAGE>
At September 30, 1996, the Bank had net operating loss
carryforwards for state income tax purposes of
approximately $157,000, which expire in 2003 through 2005.
There were no net operating loss carryforwards for federal
income tax purposes.
NOTE 9 - RELATED PARTY TRANSACTIONS
Transactions between the Bank and its directors and
officers are considered to be between related parties.
Terms and rates of interest on loans and deposit accounts
of directors and officers are substantially the same as
those extended to unrelated bank customers. At September
30, related party deposits with the Bank totaled $75,612
(1996) and $235,308 (1995). The Bank has no loans
outstanding to officers and directors.
NOTE 10 - RETIREMENT PLAN
The Bank sponsors a salary reduction simplified employee
pension plan, a defined contribution plan, covering
substantially all employees. Contributions to the plan are
made at the discretion of the Board of Directors. Total
contributions under this plan were $11,257 (1996), $11,363
(1995), $18,053 (1994).
NOTE 11 - SHAREHOLDERS' EQUITY
Net Worth Requirement
The Office of Thrift Supervision (OTS) regulations require
institutions to have minimum regulatory capital as
follows: core capital equal to 3% of total assets,
tangible capital equal to 1.5% of total assets, and
risk-based capital as a percentage of risk-weighted assets
of 8%.
At September 30, 1996, the Bank had the following
regulatory capital calculated in accordance with OTS
regulations ($ in thousands):
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Actual $3,328 8.4% $3,328 8.4% $3,552 16.5%
Required 596 1.5% 1,192 3.0% 1,561 8.0%
------ --- ------ --- ------ ---
Excess $2,732 6.9% $2,136 5.4% $1,991 8.5%
====== === ====== === ====== = ===
</TABLE>
-31-
<PAGE>
Employee Stock Ownership Plan
In 1993, the Bank created an Employee Stock Ownership Plan
(ESOP) for eligible employees. During fiscal year ended
September 30, 1996, the ESOP borrowed $17,000 and $25,000
from another financial institution. The loans are
unsecured and mature in 2000 and 2001, respectively.
The proceeds of the loans were used to purchase Bank stock
on the open market. The ESOP's loan payments are provided
by the Bank's contributions to the ESOP. The unpaid
principal balance of the loans at September 30, 1996, is
shown as a note payable and a reduction in shareholders'
equity.
The ESOP owns 10,907 shares at September 30, 1996, and
made open market purchases of 3,857 shares (1996) and
1,050 shares (1995).At September 30, 1996, 3,857 shares
were unallocated.
Contributions to the ESOP are made at the discretion of
the Board of Directors. Allocation of shares purchased on
the open market are determined based upon eligibility of
employees and their compensation levels. There were no
federal income tax benefits realized from payment of the
dividends to the ESOP, due to the ESOP retaining all
dividends earned. The provision for expense in connection
with the ESOP was $14,869 (1996), $9,895 (1995), and
$8,413 (1994).
Stock Option and Incentive Plan
The Bank has adopted a stock option and incentive plan
(the Plan) for the benefit of directors, officers and
employees of the Bank.
The number of common shares authorized by the Plan is up
to 10% of the shares issued upon conversion for officers
and employees, and up to .75% of the shares issued upon
conversion for each current and future director. The
option exercise price must be at least equal to the fair
value per share of the common stock on the date of grant.
The Plan also provides for the issuance of restricted
stock.
At September 30 options totaled 16,835 (1996) and (1995)
at a weighted average exercise price of approximately
$10.20 per share. No options were exercised or expired
during the year ended September 30, 1996 and 1994. During
the year ended September 30, 1995, 1,365 options were
granted, 1,365 expired and 1,365 were exercised.
-32-
<PAGE>
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial
instruments include commitments to extend credit through
mortgage loans. Those instruments involve, to varying
degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the statements of
financial position. The contract amounts of those
instruments reflect the extent of the Bank's involvement
in particular classes of financial instruments.
Financial instruments whose contract amounts represent
credit risk at September 30 are commitments to originate
loans of $335,000 (1996) and $964,000 (1995).
The above commitments are conditional agreements to lend
to a customer, subject to the commitment agreement. The
commitments generally have fixed expiration dates or other
termination clauses and may require a minimum fee payment.
Since commitments often expire without being drawn upon,
the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis using
the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based
upon management's credit evaluation.
The Bank grants commercial and residential loans to
customers throughout western Colorado. Although the Bank
has a diversified loan portfolio, the debtors' ability to
honor their contracts is dependent upon state and local
economic conditions. The concentrations of credit by type
of loan are set forth in Note 3.
A portion of the Bank's operations is related to warehouse
lines of credit provided to mortgage banking companies
located in western Colorado. The Bank also purchases loans
from the same companies. Changes in the level of business
conducted with the mortgage banking companies could have a
significant effect on the Bank's operations.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various
outstanding commitments and contingencies that are not
reflected in the financial statements. In addition, the
Bank is involved in various legal actions arising in the
ordinary course of business. In the opinion of management,
after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a
material adverse effect on the financial position of the
Bank.
-33-
<PAGE>
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, requires that the Bank disclose fair value
information, whether or not such financial instruments are
recognized on the balance sheet. Fair value is the amount
at which a financial instrument could be exchanged in a
current transaction between willing parties, other than a
forced sale or liquidation, and is best evidenced by a
quoted market price, if one exists.
Fair value estimates are made as of a specific point in
time based on the characteristics of the financial
instruments and relevant market information. Where
available, quoted market prices are used. In other cases,
fair values are based on estimates using present value or
other valuation techniques. These techniques involve
uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk
characteristics of various financial instruments, discount
rates, estimates of future cash flows, future expected
loss experience and other factors. Changes in assumptions
could significantly affect these estimates and the
resulting fair values. Derived fair value estimates cannot
be substantiated by comparison to independent markets and,
in many cases, could not be realized in an immediate sale
of the instrument. Also, because of the differences in
methodologies and assumptions used to estimate fair
values, the Bank's fair values should not be compared to
those of other financial institutions.
The fair value estimates are based on existing financial
instruments without attempting to estimate the value of
anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do
not purport to represent the Bank's underlying market
value.
The fair value of certain financial assets carried at
cost, including cash and due from banks, deposits with
banks, Federal Reserve Bank stock and accrued interest
receivable is considered to approximate their respective
book values due to their short-term nature and negligible
credit losses.
Fair values of the Bank's available for sale securities
are based on quoted market prices of dealer quotes. If
quoted prices are not available for a specific security,
fair value is based on quoted market prices of comparable
instruments.
-34-
<PAGE>
Fair values for loans are estimated using a discounted
cash flow analysis, based on interest rates currently
offered for loans with similar terms to borrowers of
similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and
risk characteristics. Fair value of commitments to extend
credit is considered to be the related fee the Bank would
earn should the commitment be fulfilled and is considered
immaterial for disclosure.
The fair value of accounts payable, accrued liabilities
and accrued interest payable are considered to approximate
their respective book values due to their short-term
nature. By definition, fair values of deposits with no
stated maturities, such as demand deposits, savings, NOW
accounts and money market deposit accounts are equal to
the amounts payable on demand at the reporting date.
The fair values of fixed rate deposits are based on
discounted cash flows using rates currently offered for
deposits of similar remaining maturities.
The estimated fair values for the Bank's financial
instruments were as follows at September 30, 1996 (rounded
to nearest thousand):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
<S> <C> <C> <C>
Financial assets
Assets for which fair value approximates
book value $ 7,084,000 7,084,000
Securities 3,048,000 3,070,000
Loans 29,331,000 30,056,000
Off-balance sheet deposit intangibles -- 554,000
Financial liabilities
Liabilities for which fair value approximates
book value 590,000 590,000
Time deposits 29,914,000 29,895,000
FHLB advances 6,000,000 5,993,000
</TABLE>
-35-
<PAGE>
CORPORATE INFORMATION
================================================================================
Annual Meeting
The annual meeting of Delta Federal Savings, F.S.B. will be held on January
28, 1997 at 2:00 p.m. at the Delta Fireside Inn, located at 820 Highway 92,
Delta, Colorado.
Market Information
Delta Federal Common Stock is traded in the Over-the-Counter Market and is
only traded sporadically. Delta Federal Common Stock was issued at $10.00 per
share in connection with the conversion of Delta Federal from mutual to stock
form on April 6, 1993. At December 1, 1996, there were 219 holders of Delta
Federal Common Stock and 183,365 shares of common stock issued and outstanding.
Dividends
Delta Federal's current policy is to pay semi-annual cash dividends on the
common stock. During fiscal 1996, such dividends were paid at an annualized rate
of approximately 3.02% of the original issuance price of the common stock.
Dividends are paid upon the determination of the Board of Directors in its
discretion that such payment is consistent with the long-term interests of the
Bank. The factors affecting this determination include Delta Federal's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, regulatory restrictions, general
business practices and other relevant factors. Delta Federal declared cash
dividends of $0.30 per share during fiscal 1996.
Delta Federal may not declare or pay a cash dividend or repurchase shares
of its stock if the effect thereof would be to cause its regulatory capital to
be reduced below the amount required for the liquidation account or to meet
applicable regulatory capital requirements. Federal regulations limit the Bank's
capital distributions during a calendar year to one hundred percent of its net
income plus one-half of its capital surplus ratio at the beginning of the
calendar year. In addition, the Bank must give the OTS thirty days notice prior
to the declaration of a dividend.
-36-
<PAGE>
Annual Report and Other Investor Information
Delta Federal will furnish upon written request at no charge to any
stockholder a copy of Delta Federal's Annual Report for the year ended September
30, 1996 by writing to:
Rhonda Vincent
Treasurer
Delta Federal Savings, F.S.B.
145 W. Fourth Street (P.O. Box 18)
Delta, Colorado 81416
970-874-9755
<TABLE>
<CAPTION>
<S> <C>
Transfer Agent and Registrar Auditors
Delta Federal Savings, F.S.B. Dalby, Wendland & Co., P.C.
145 W. Fourth Street (P.O. Box 18) 464 Main Street
Delta, Colorado 81416 Grand Junction, Colorado 81501
970-874-9755
Special Counsel General Counsel
Silver Freedman & Taff, L.L.P. Aaron Clay, Esquire
1100 New York Avenue, N.W. Clay & Dodson, P.C.
7th Floor, East Tower 415 Palmer Street
Washington, D.C. 20005 Delta, Colorado 81416
BOARD OF DIRECTORS OF DELTA FEDERAL SAVINGS, F.S.B.
David A. Humphries, Chairman
Glenn N. Beil, Vice President
Andrews A. White, Optometrist
Brad B. Percefull, Managing Partner, The Whiteside Insurance Center
Karen O'Brien, Owner, Aspen Computer/Radio Shack
OFFICERS OF DELTA FEDERAL SAVINGS, F.S.B.
David A. Humphries Ronald R. Chinn
President and Chief Executive Officer Vice President
Lesley R. McPherson Nina L. Willis
Vice President and Chief Financial Officer Vice President and Secretary
Glenn N. Beil Rhonda J. Vincent
Vice President Treasurer
</TABLE>
<PAGE>
PRESIDENT'S MESSAGE
To Our Shareholders:
The second quarter of the Banks fiscal 1997 year has been a good quarter,
even with the prepayment of the outstanding ESOP loan of $40,000. Cumulative
earnings for the three and six month periods are attributed primarily to an
increase in the net interest margin of the bank. Even though we have a decreased
level of loan activity in our warehouse lines, the Banks management and
directors have placed a strong focus on quality portfolio loans, bearing
reasonable rates, and experiencing few delinquencies.
Earnings decreased $36,868, to $54,754 for the second quarter of 1997, from
$91,622 for the second quarter of 1996. The decrease was related to a
combination of items from growth of the Banks deposit base, to changes in the
overall asset and liability mix. Included in the decrease was a net decrease in
interest income of $27,930, partially offset by a decrease in net interest
expense of $4,662 and a decrease in the provision for loan losses of $2,591.
These items resulted in a net decrease of $20,677 in net interest income after
provision for loan losses. A decrease was also noted in noninterest income of
$22,527 and there was an increase in noninterest expense of $10,028. Income
before income taxes resulted in a net decrease of $53,232 and was partially
offset by a decrease in income taxes of $16,364.
Earnings increased $29,708 for the six month period ended March 31, 1997,
from $141,335 to $171,043 primarily as a result of a $69,758 increase in
interest income, a decrease in provision for loan losses of $5,993, and a
decrease in noninterest expense of $15,801. These items were partially offset by
an increase in interest expense of $18,330, a decrease in noninterest income of
$25,580, and an increase in the provision for income taxes of $17,934.
At March 31, 1997 shareholders' equity was $3,549,323 or $19.36 per share,
an increase of $1.14 from September 30, 1996. This increase is related to year
to date earnings of $171,043, reduction of ESOP notes payable by $39,528, and a
decrease in the unrealized gain on securities available for sale of $1,569.
Earnings for the quarter were $0.30 per share compared to $0.50 per share for
the same period last year. For the six month period, earnings were $0.93 per
share compared to $0.77 per share for the same period last year.
We wish to express our thanks for your continued support and investment.
Sincerely,
/s/David A. Humphries
David A. Humphries
President and Chief Executive Officer
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 369,577 $ 491,761
Certificates of deposit - 99,000
FHLB overnight deposits and demand account 1,259,802 860,808
Securities held to maturity, fair value, $250,372 and $251,066 249,669 249,133
Securities available for sale, at fair value 2,723,581 2,819,409
Loans receivable, net 30,589,606 29,330,865
Loans held for resale 2,813,847 4,890,472
Accrued interest receivable 218,180 228,092
Federal Home Loan Bank stock, at cost 530,700 513,900
Property and equipment, at cost, less accumulated depreciation 254,435 297,452
Prepaid expenses and other assets 63,784 72,511
----------- -----------
Total Assets $39,073,181 $39,853,403
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $30,619,955 $29,913,977
Advances from Federal Home Loan Bank 4,700,000 6,000,000
Advances by borrowers for taxes and insurance 4,397 54,483
Accounts payable and accrued expenses 191,510 495,394
Other notes payable - 39,528
Deferred income taxes 7,996 9,700
----------- -----------
Total Liabilities 35,523,858 36,513,082
----------- -----------
Shareholders' Equity:
Common stock, $.01 par value, 5,000,000 shares authorized;
183,365 shares issued and outstanding 1,834 1,834
Employee Stock Ownership Plan - (39,528)
Additional paid in capital 1,533,911 1,533,911
Retained income - substantially restricted 2,001,983 1,830,940
Net unrealized gain , securities available for sale, (net of tax) 11,595 13,164
----------- -----------
Total Shareholders' Equity 3,549,323 3,340,321
----------- -----------
Total Liabilities and Shareholders' Equity $39,073,181 $39,853,403
=========== ===========
</TABLE>
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- ------------
INTEREST INCOME
<S> <C> <C>
Loans $ 674,951 $ 704,817
Mortgage-backed securities 9,666 15,218
Investment securities 43,569 35,848
Certificates of deposit - 5,940
Other 26,992 21,285
----------- ------------
Total Interest Income 755,178 783,108
----------- ------------
INTEREST EXPENSE
Deposits 354,089 348,152
Advances and other 59,717 70,316
----------- ------------
Total Interest Expense 413,806 418,468
----------- ------------
Net Interest Income 341,372 364,640
Provision for loan losses 3,000 5,591
----------- ------------
Net Interest Income After Provision for Loan Losses 338,372 359,049
----------- ------------
NONINTEREST INCOME
Loan Fees 10,446 25,023
Commission income 2,551 10,362
Income on deficiency judgments 1,664 1,902
Late payment charges and other fees 6,633 8,844
Other 2,641 331
----------- ------------
Total Noninterest Income 23,935 46,462
----------- ------------
NONINTEREST EXPENSE
General and administrative 42,705 59,859
Compensation to officers and employees 167,105 135,667
Occupancy expense 10,517 12,291
SAIF premium 891 17,310
Computer processing expense 13,570 11,820
Professional fees 21,876 8,320
Advertising 6,046 8,586
Depreciation 14,009 12,838
----------- ------------
Total Noninterest Expense 276,719 266,691
----------- ------------
Income Before Income Taxes 85,588 138,820
Provision for income taxes 30,834 47,198
----------- ------------
Net Income $ 54,754 $ 91,622
=========== ============
Net Income Per Share $ 0.30 $ 0.50
=========== ============
</TABLE>
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- ------------
INTEREST INCOME
<S> <C> <C>
Loans $ 1,421,332 $ 1,349,702
Mortgage-backed securities 16,723 28,178
Investment securities 88,785 77,746
Certificates of deposit 1,158 14,786
Other 50,995 38,823
----------- ------------
Total Interest Income 1,578,993 1,509,235
----------- ------------
INTEREST EXPENSE
Deposits 694,934 716,570
Advances and other 139,079 99,113
----------- ------------
Total Interest Expense 834,013 815,683
----------- ------------
Net Interest Income 744,980 693,552
Provision for loan losses 6,000 11,993
----------- ------------
Net Interest Income After Provision for Loan Losses 738,980 681,559
----------- ------------
NONINTEREST INCOME
Loan Fees 24,518 46,083
Commission income 2,551 16,113
Income on deficiency judgments 2,836 3,292
Late payment charges and other fees 22,621 15,237
Other 3,566 947
----------- ------------
Total Noninterest Income 56,092 81,672
----------- ------------
NONINTEREST EXPENSE
General and administrative 80,714 113,471
Compensation to officers and employees 313,896 279,346
Occupancy expense 21,312 23,332
SAIF premium 17,675 34,374
Computer processing expense 27,665 25,628
Professional fees 32,466 27,742
Advertising 12,027 19,938
Depreciation 27,534 25,259
----------- ------------
Total Noninterest Expense 533,289 549,090
----------- ------------
Income Before Income Taxes 261,783 214,141
Provision for income taxes 90,740 72,806
----------- ------------
Net Income $ 171,043 $ 141,335
=========== ============
Net Income Per Share $ 0.93 $ 0.77
=========== ============
</TABLE>
<PAGE>
DELTA FEDERAL SAVINGS, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Employee Loss on
Additional Stock Securities
Common Paid-in Ownership Retained Available
Stock Capital Plan Earnings For Sale Total
---------- ------------- ------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 1,834 $ 1,533,911 $(39,528) $ 1,830,940 $ 13,164 $ 3,340,321
Employee Stock Ownership Plan - - 39,528 - - 39,528
Adjustment of Securities to Market - - - - (1,569) (1,569)
Net Income - - - 171,043 - 171,043
---------- ------------- --------- ----------- -------- -----------
Balance at March 31, 1997 $ 1,834 $ 1,533,911 $ - $ 2,001,983 $ 11,595 $ 3,549,323
========== ============= ========= =========== ======== ===========
</TABLE>
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 7-109-103 of the Colorado Business Corporation Act ("CBCA")
provides for mandatory indemnification, if a director or officer of a
corporation is successful on the merits or otherwise, in defense of any
proceeding, whether third party or derivative.
Colorado law allows a corporation to indemnify its directors, officers,
employees, fiduciaries and agents against expenses (including attorneys' fees),
judgements, fines, and amounts paid in settlement actually and reasonably
incurred in connection with an action or proceeding if that person to be
indemnified acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the corporation. In the case of a
shareholder derivative suit, the person will be indemnified if he was not
adjudged liable or, in the case of any other proceeding, the person was not
adjudged liable for receiving an improper personal benefit. (CBCA ss.7-109-102).
Indemnification in a shareholder derivative action is limited to reasonable
expenses. With respect to any criminal action or proceeding, a person will be
indemnified if that person did not have reasonable cause to believe that his
conduct was unlawful. (CBCA ss.7-109-102(1)).
Colorado law also allows for indemnification in actions or proceedings
even if the person to be indemnified was adjudged to be liable or did not meet
the standards for indemnification as described above. Indemnification must be
determined by the same court that adjudged such person liable or another court
of competent jurisdiction. Only directors and officers are entitled to apply for
mandatory indemnification (CBCA ss.7-109-105, ss.7-109-107).
Colorado requires that indemnification payments (other than court
ordered payments and advancement of expenses) may be made only on a case-by-case
basis (CBCA ss.7-109-106). Advance payments may be made covering expenses if the
individual to be indemnified furnishes the corporation with a written
affirmation of his good faith belief that he has met the standard of conduct
necessary for indemnification and undertakes to repay such payments if
indemnification is later determined to not be available to that individual.
(CBCA ss.7-109-104).
The aforementioned indemnification provisions under Colorado law are
non-exclusive. Indemnification of directors of a Colorado corporation is
governed by statute but a Colorado corporation may grant additional or greater
indemnification rights to officers, employees, fiduciaries and agents through
its bylaws, or through an agreement, a vote of shareholders, or a vote of
disinterested directors, both as to action in a person's official capacity, and
as to action in another capacity while holding office (CBCA ss.53-11-4.1(G)). A
Colorado corporation may also have the power to purchase insurance or other
similar protection against liability whether or not the person was entitled to
indemnification as described in the section above (CBCA ss.7-109-107).
The articles of incorporation of a corporation organized under the law
of Colorado may also contain a provision which may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty. However, no such provision can
eliminate or limit a director's liability for (i) for breach of the director's
duty of loyalty, (ii) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds, or (iv) for any transaction from which the director
derives an improper personal benefit (CBCA ss.7-108-401).
II-1
<PAGE>
The Colorado law also states that no director or officer will be
personally liable for any injury to a person or party unless the director or
officer was personally involved in the situation giving rise to the litigation
or the director or officer committed a criminal offense in connection with the
situation (CBCA ss.7-108-402).
With respect to the performance of a director's duty, Colorado allows a
director to rely in good faith on opinions, information, reports and financial
data presented to him by officers or employees of the company, counsel and
accountants as to matters which the director reasonably believes to be in the
expert competence of such person, and committees of the board on which the
director does not serve (CBCA ss.7-108-401).
Colorado directors have additional protection from liability from the
"conflicting interest transaction" provisions of Colorado law which state that
no loan, contract, or transaction between a corporation and a director will be
voidable, enjoined, set aside or give rise to an award of damages in a
proceeding by shareholders, solely because the conflicting interest transaction
involves a director of the corporation or an entity in which a director of the
corporation is a director or officer or has a financial interest or solely
because the director is present at or participates in the meeting of the
corporation's board of directors or of the committee of the board of directors
which authorizes, approves, or ratifies the conflicting interest transaction or
solely because the director's vote is counted for such purpose if the director's
interest was disclosed to the board of directors or shareholders of the
corporation (if shareholders are entitled to vote on the transaction) and the
transaction is fair to the corporation at the time it is approved. (CBCA
ss.7-108-501)
The Registrant believes that these provisions assist the registrant in,
among other things, attracting and retaining qualified persons to serve the
registrant and its subsidiary. However, a result of such provisions could be to
increase the expenses of the registrant and effectively reduce the ability of
stockholders to sue on behalf of the registrant since certain suits could be
barred or amounts that might otherwise be obtained on behalf of the registrant
could be required to be repaid by the registrant to an indemnified party.
First Colorado has in force a Directors and Officers Liability Policy
underwritten by CNA Insurance, Inc. with a $5.0 million aggregate limit of
liability and an aggregate deductible of $500,000 per loss both for claims
directly against officers and directors and for claims where the Company is
required to indemnify directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("1933 Act") may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is
therefore unenforceable.
II-2
<PAGE>
<TABLE>
<CAPTION>
Item 21. Exhibits
<S> <C>
2.1 Agreement and Plan of Merger dated as of May 21, 1997, by and between First Colorado
Bancorp, Inc. and Delta Federal Savings, F.S.B. (attached as Appendix I to the Proxy
Statement/Prospectus filed as a part of this Registration Statement).
3.1 Articles of Incorporation of First Colorado, filed as part of First Colorado's Registration
Statement on Form S-1 (file no. 33-97228) declared effective by the SEC on November 13, 1995.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. as to the legality of the securities being
registered and the Merger.*
8.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. concerning certain federal tax consequences.*
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its Opinions 5.1 and 8.1).*
23.2 Consent of KPMG Peat Marwick, LLP.*
23.3 Consent of Dalby, Wendland & Co., P.C.*
23.4 Consent of Charles Webb & Company.*
99.1 Opinion of Charles Webb & Company (attached as Appendix II to the Proxy
Statement/Prospectus filed as a part of this Registration Statement).
</TABLE>
- ------------------
* To be filed by Amendment.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration 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.
II-3
<PAGE>
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(5) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction,
and the Company being acquired involved therein, that was not the
subject of and included in the registration statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, First Colorado has
duly caused this registration statement to be signed on behalf of the
undersigned, thereunto in the City of Lakewood, State of Colorado, on
July 2, 1997
First Colorado Bancorp, Inc.
By: Malcolm E. Collier, Jr.
--------------------------------------------
Malcolm E. Collier, Jr.
President, Chief Executive Officer,
and Chairman of the Board
(Duly Authorized Representative)
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: Malcolm E. Collier, Jr. By: Brian L. Johnson
----------------------------------- -----------------------------------------
Malcolm E. Collier, Jr. Brian L. Johnson
President, Chief Executive Officer, Treasurer and Chief Financial Officer
and Chairman of the Board (Principal Financial and Accounting
(Principal Executive Officer) Officer)
Date: July 2, 1997 Date: July 2, 1997
------------- -------------
By: John J. Nicholl By: Robert T. Person, Jr.
----------------------------------- -----------------------------------------
John J. Nicholl Robert T. Person, Jr.
Director Director
Date: July 2, 1997 Date: July 2, 1997
------------- -------------
By: Leon E. Hayden By: Robert W. Richards
----------------------------------- -----------------------------------------
Leeon E. Haydon Robert W. Richards
Director Director
Date: July 2, 1997 Date: July 2, 1997
------------- -------------
By: E. W. Forester, Jr. By: James R. Wexels
----------------------------------- -----------------------------------------
E. William Foerster, Jr. James R. Wexels
Director Director
Date: July 2, 1997 Date: July 2, 1997
------------- -------------
By: Polly Baca By:
----------------------------------- -----------------------------------------
Polly Baca Stephen Burkholder
Director Director
Date: July 2, 1997 Date: , 1997
------------- --------------------
</TABLE>
