<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1997
REGISTRATION NO. 333-27975
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BANK PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<CAPTION>
DELAWARE 6712 95-1782887
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
---------------
4565 COLORADO BOULEVARD
LOS ANGELES, CALIFORNIA 90039
(818) 549-3116
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GODFREY B. EVANS, ESQ.
GENERAL COUNSEL
BANK PLUS CORPORATION
4565 COLORADO BOULEVARD
LOS ANGELES, CALIFORNIA 90039
(818) 549-3330
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPY TO:
DHIYA EL-SADEN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7196
---------------
APPROXIMATE DATE OF COMMENCEMENT OF OFFERS TO THE HOLDERS OF SECURITIES: As
soon as possible after this Post-Effective Amendment No. 1 to this
Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes two prospectuses: (i) a proxy
statement/prospectus, added by Post-Effective Amendment No. 1 pursuant to
General Instruction H of Form S-4, containing information about the proposed
acquisition by Bank Plus Corporation (the "Registrant") of Hancock Savings
Bank, F.S.B. and covering the shares of common stock, par value $.01 per share
("Common Stock") to be issued by the Registrant in connection with such
transaction and (ii) a "base" prospectus covering the remaining shares of
Common Stock that may be issued from time to time by the Registrant under this
Registration Statement pursuant to Rule 415 under the Securities Act of 1933
in connection with transactions of the type described in General Instruction A
to Form S-4.
<PAGE>
HANCOCK SAVINGS BANK, F.S.B.
3550 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90010
July , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting in lieu of Annual
Meeting of Stockholders (the "Meeting") of Hancock Savings Bank, F.S.B., a
Federal Savings Bank ("Hancock"), to be held on , July , 1997 at
8:00 a.m. at the offices of Hancock located at 157 North Larchmont, Los
Angeles, California 90004.
At the Meeting, you will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger, dated as of June 25, 1997 (the
"Merger Agreement"), pursuant to which Hancock would be merged into Fidelity
Federal Bank, A Federal Savings Bank ("Fidelity" or the "Bank"), a wholly-
owned subsidiary of Bank Plus Corporation ("Bank Plus"), a Delaware
corporation, with Fidelity as the surviving federal savings bank (the
"Merger"). The enclosed Proxy Statement/Prospectus more fully describes the
proposed Merger, including information about Hancock, Fidelity and Bank Plus.
Also at the Meeting, you will also be asked (a) to elect three directors to
serve for three-year terms and until their successors are elected and
qualified; and (b) to consider and vote upon the grant of a stock option award
to Hancock's new President and Chief Executive Officer, Kathleen L. Kellogg.
Under the terms of the Merger Agreement, each outstanding share of common
stock, $6.40 par value per share, of Hancock (the "Hancock Stock") will be
converted into the right to receive a number of shares or fraction of a share
of common stock, $.01 par value, of Bank Plus (the "Bank Plus Common Stock"),
to be determined under a formula described more fully in the enclosed Proxy
Statement/Prospectus. Shares held by Hancock stockholders properly exercising
dissenters' rights will not be converted into the right to receive Bank Plus
Common Stock, but will be converted into cash pursuant to the dissenters'
rights provisions described herein. Pursuant to the Merger Agreement, the
maximum value of the consideration, payable in Bank Plus Common Stock to be
paid for all of the Hancock Stock in the Merger is $12,012,000, subject to
downward adjustment as set forth in the Merger Agreement.
Smith & Crowley, Inc. has acted as one of the financial advisors to Hancock
in connection with the Merger and has rendered an opinion to the Board of
Directors of Hancock that the consideration to be received by Hancock
stockholders pursuant to the Merger Agreement is fair to such holders from a
financial point of view.
The Board of Directors of Hancock has carefully considered the terms and
conditions of the Merger Agreement and the proposed Merger. THE BOARD OF
DIRECTORS OF HANCOCK BELIEVES THE PROPOSED MERGER IS IN THE BEST INTERESTS OF
HANCOCK AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
ITS APPROVAL.
We urge you to read carefully the enclosed Notice of Special Meeting in lieu
of Annual Meeting and Proxy Statement/Prospectus, which more fully describe
the terms of the Merger Agreement and the proposed Merger. It is important
that your shares be represented at the Meeting, whether or not you plan to
attend in person. Therefore, you should complete, sign and date the enclosed
proxy card and return it as soon as possible in the enclosed postage-paid
envelope so that your shares will be represented at the Meeting. If you attend
the Meeting, you may vote in person if you wish, even if you have previously
returned a proxy card.
<PAGE>
We look forward to seeing you at this important meeting. If you have any
questions regarding the Meeting or the proposed Merger, you are encouraged to
call Jeannine Fairchild, Assistant Secretary of Hancock, at (213) 383-2200.
/s/ Kathleen L. Kellogg
Michael Noel Kathleen L. Kellogg
Chairman of the Board President and Chief Executive
Officer
IT IS VERY IMPORTANT THAT EVERY STOCKHOLDER VOTE. WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON AT THAT TIME. YOU MAY REVOKE YOUR PROXY AT ANY
TIME PRIOR TO ITS EXERCISE.
<PAGE>
HANCOCK SAVINGS BANK, F.S.B.
3550 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90010
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY , 1997
TO THE STOCKHOLDERS OF HANCOCK SAVINGS BANK, F.S.B.:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the call of its
Board of Directors, the 1997 Special Meeting in lieu of Annual Meeting of
Stockholders (the "Meeting") of Hancock Savings Bank, F.S.B., a Federal
Savings Bank ("Hancock"), will be held at the offices of Hancock located at
157 North Larchmont, Los Angeles, California, on , July , 1997, at 8:00
a.m., for the following purposes, all as set forth more fully in the attached
Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of June 25, 1997 (the "Merger Agreement"), by and among
Bank Plus Corporation ("Bank Plus"), a Delaware corporation, Fidelity
Federal Bank, A Federal Savings Bank ("Fidelity"), and Hancock, pursuant to
which Hancock would merge with and into Fidelity, with Fidelity as the
surviving federal savings bank (the "Merger"). A copy of the Merger
Agreement is included as Annex A to the attached Proxy
Statement/Prospectus. Under the terms of the Merger Agreement, each
outstanding share of the common stock, par value $6.40 per share, of
Hancock (the "Hancock Stock"), except for shares held by Hancock
stockholders properly exercising dissenters' rights, will be converted into
the right to receive a number of shares or fraction of a share of common
stock, par value $.01 per share, of Bank Plus (the "Bank Plus Common
Stock"), to be determined by applying a formula set forth in the Merger
Agreement, all as described more fully in the attached Proxy
Statement/Prospectus.
2. To elect three directors to serve for three-year terms and until their
successors are elected and qualified. As described in the attached Proxy
Statement/Prospectus, the Board of Directors' nominees for election as
director are Ezunial Burts, Eric D. Hovde and Kathleen L. Kellogg.
3. To consider and vote upon the grant of a stock option award to
Hancock's new President and Chief Executive Officer, Kathleen L. Kellogg
(the "Kellogg Option").
4. To transact such other business that may properly come before the
Meeting or at any adjournments or postponements thereof.
Only those stockholders of record at the close of business on June 16, 1997
(the "Record Date") are entitled to notice of and to vote at the Meeting or
any adjournments or postponements thereof. The affirmative vote of the holders
of at least two-thirds (66 2/3%) of the outstanding shares of Hancock Stock is
required to approve the principal terms of the Merger Agreement. In the
election of directors, the three candidates receiving the highest number of
votes will be elected. The affirmative vote of the holders of at least a
majority of the outstanding shares of Hancock Stock eligible to be cast at the
Meeting is required to approve the Kellogg Option.
If the Merger is consummated, holders of Hancock Stock who comply with the
requirements of Section 552.14 ("Section 552.14") of the Rules and Regulations
of the Office of Thrift Supervision (the "OTS") have the right to receive from
Bank Plus a cash payment equal to the fair market value of their Hancock Stock
determined in accordance with Section 552.14. See "PROPOSAL 1--APPROVAL OF THE
MERGER--Dissenters' Rights" in the attached Proxy Statement/Prospectus for a
discussion of the availability of dissenters' rights and a description of the
procedures which must be followed to enforce such rights under Section 552.14.
Pertinent provisions of Section 552.14 are included as Annex B to the Proxy
Statement/Prospectus and incorporated herein by this reference.
The Bylaws of Hancock provide for the nomination of director(s) at the
Meeting by any stockholder in writing and delivered to the Secretary of
Hancock at least five (5) days prior to the date of the Meeting. Stockholders
will be entitled to one vote per share of Hancock Stock held by them of record
as of the
<PAGE>
close of business on the Record Date on any matter that may be presented for
consideration and action by the stockholders, except that, upon request,
stockholders will have cumulative voting rights with respect to the election
of directors. Cumulative voting rights entitle each stockholder to cast for
one nominee a total number of votes equal to the number of shares the
stockholder held of record on the Record Date multiplied by the number of
directors to be elected or to distribute those votes on the same principle
among as many nominees as the stockholder chooses. No stockholder will be
entitled to cumulate votes for a nominee unless that nominee's name has been
placed in nomination prior to the voting and a stockholder has given notice at
the Meeting prior to the voting of that stockholder's intention to cumulate
his votes. Discretionary authority to cumulate votes is hereby solicited by
the Board of Directors, and the return of an executed proxy shall grant such
authority.
Proxies received in response to this solicitation will be voted as directed,
but if no instructions are specified, the proxy will be voted "FOR" approval
of the Merger Agreement, "FOR" each of the nominees for director and "FOR"
approval of the Kellogg Option.
The Board does not know of any other business to be presented for action at
the Meeting, except as described herein. However, if any other business is
properly presented before the Meeting and may be properly voted upon, the
proxy solicited hereby will be voted on such matters in accordance with the
best judgment of the proxy holders and in their discretion, and authority to
do so is included in the proxy.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the Meeting by (a) delivering an instrument of revocation to the
Secretary of Hancock, (b) by duly executing and submitting a proxy card
bearing a later date, or (c) by appearing at the Meeting and voting in person.
The costs of this proxy solicitation will be paid by Hancock. Proxies may be
solicited in person or by telephone, telegram, or other means by personnel of
Hancock, who will not receive any additional compensation therefor. Hancock
may request that record holders of shares beneficially owned by others (such
as banks, brokerage firms and other trustees) forward this Proxy
Statement/Prospectus and related materials to the beneficial owners of the
shares and will reimburse these record holders for their reasonable expenses
incurred in doing so.
More detailed information about the proposals and other matters regarding
the Meeting is included in the attached Proxy Statement/Prospectus.
By order of the Board of Directors
/s/ Kathleen L. Kellogg
Kathleen L. Kellogg
President and Chief Executive
Officer
Los Angeles, California
July , 1997
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN AND DATE THE
ENCLOSED REVOCABLE PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE AS SOON AS
POSSIBLE. RETURNING THE REVOCABLE PROXY WILL NOT PREVENT YOU FROM VOTING IF
YOU ATTEND THE MEETING AND ELECT TO VOTE IN PERSON.
2
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 30, 1997
PROXY STATEMENT PROSPECTUS
--------------- ----------
HANCOCK SAVINGS BANK, BANK PLUS CORPORATION
F.S.B. 4565 COLORADO BOULEVARD
3550 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA
SUITE 700 90039
LOS ANGELES, CALIFORNIA (818) 549-3116
90010-2432 COMMON STOCK
(213) 382-2200 (PAR VALUE $0.01 PER SHARE)
SPECIAL MEETING IN LIEU OF
ANNUAL MEETING TO BE HELD
ON JULY , 1997
This Proxy Statement/Prospectus is being furnished to the holders of common
stock, par value $6.40 per share (the "Hancock Stock"), of Hancock Savings
Bank, F.S.B., a Federal Savings Bank ("Hancock"), in connection with the
solicitation of proxies by the Board of Directors of Hancock for use at a
Special Meeting in lieu of Annual Meeting of Stockholders of Hancock (the
"Meeting"), to be held at the offices of Hancock located at 157 North
Larchmont, Los Angeles, California 90004, on , July , 1997, at 8:00
a.m., local time, and at any adjournments or postponements thereof.
At the Meeting, the stockholders of record of Hancock Stock as of the close
of business on June 16, 1997 will consider and vote upon a proposal to approve
an Agreement and Plan of Merger, dated June 25, 1997 (the "Merger Agreement"),
by and between Bank Plus Corporation ("Bank Plus" or, together with its
subsidiaries, the "Company"), a Delaware corporation, its wholly-owned
subsidiary, Fidelity Federal Bank, A Federal Savings Bank ("Fidelity" or the
"Bank"), and Hancock, pursuant to which Hancock will merge with and into
Fidelity, with Fidelity as the surviving entity (the "Merger"). See "THE
HANCOCK STOCKHOLDERS' MEETING." Upon consummation of the Merger, each
outstanding share of Hancock Stock, except for shares held by Hancock
stockholders properly exercising dissenters' rights, will be converted into the
right to receive a number of shares or a fraction of a share of common stock,
par value $.01 per share, of Bank Plus (the "Bank Plus Common Stock"), to be
determined by applying a formula set forth in the Merger Agreement, all as
described more fully in this Proxy Statement/Prospectus. See "PROPOSAL 1--
APPROVAL OF THE MERGER--Consideration Payable Upon Consummation of the Merger."
The Merger Agreement is included as Annex A to this Proxy Statement/Prospectus
and is incorporated herein by reference. Subject to regulatory approval, the
stockholder approval being sought at the Meeting, and satisfaction or waiver of
the other conditions contained in the Merger Agreement, the Merger currently is
expected to be consummated during the third quarter of 1997.
This Proxy Statement/Prospectus also constitutes a prospectus of Bank Plus in
respect of shares of Bank Plus Common Stock to be issued upon consummation of
the Merger pursuant to the Merger Agreement.
Bank Plus Common Stock is listed on the Nasdaq National Market under the
symbol "BPLS." The last reported sales price per share of Bank Plus Common
Stock, as quoted on the Nasdaq National Market on June 27, 1997 was $10.625 per
share.
Hancock Stock is listed on the over the counter market under the symbol
"HASB." The last reported sales price per share of Hancock Stock, as reported
by the OTC Bulletin Board on June 17, 1997 was $7.75 per share.
This Proxy Statement/Prospectus, the attached Notice to Stockholders and the
accompanying proxy card are first being mailed to stockholders of Hancock on or
about July , 1997.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 21 OF THE PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE CAREFULLY CONSIDERED BY
HOLDERS OF HANCOCK STOCK IN DETERMINING HOW TO VOTE IN RESPECT OF
THE MERGER AGREEMENT.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE
SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND,
SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
-----------
The date of this Proxy Statement/Prospectus is July , 1997.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
SUMMARY................................................................... 2
The Companies........................................................... 2
Special Meeting in Lieu of Annual Meeting............................... 4
Proposal 1--Approval of the Merger Agreement............................ 4
Proposal 2--Election of Directors....................................... 12
Proposal 3--Approval of the Kellogg Option.............................. 12
Selected Financial Data of the Company.................................. 13
Selected Financial Data of Hancock...................................... 15
Selected Unaudited Pro Forma Combined Financial Data.................... 17
Comparative Per Share Data.............................................. 18
Market Prices and Dividends............................................. 19
RISK FACTORS.............................................................. 21
THE HANCOCK STOCKHOLDERS' MEETING......................................... 27
Time, Place and Date of the Meeting..................................... 27
Matters to be Considered at the Meeting................................. 27
Record Date............................................................. 27
Proxies................................................................. 27
Quorum.................................................................. 27
Vote Required........................................................... 28
Stockholdings of Certain Beneficial Owners and Hancock's Management..... 28
PROPOSAL 1--APPROVAL OF THE MERGER ....................................... 29
Background and Reasons for the Merger................................... 29
Opinion of Financial Advisor to Hancock................................. 31
Effect of Merger........................................................ 36
Consideration Payable Upon Consummation of the Merger................... 36
Treatment of Stock Options.............................................. 37
Effective Time.......................................................... 38
Surrender of Hancock Certificates....................................... 38
Representations and Warranties.......................................... 38
Conduct of Business Pending the Merger.................................. 38
No Solicitation of Alternative Transactions............................. 40
Certain Additional Covenants............................................ 40
Conditions to Consummation of the Merger................................ 42
Amendment and Termination............................................... 42
Regulatory Approvals.................................................... 43
Interests of Certain Persons in the Merger.............................. 43
Effect on Hancock Employee Benefit Plans................................ 44
Accounting Treatment.................................................... 44
Expenses................................................................ 44
Resale of Bank Plus Common Stock........................................ 44
Management of Bank Plus After the Merger................................ 45
Certain Federal Income Tax Consequences................................. 45
Dissenters' Rights...................................................... 46
Description of Bank Plus Common Stock to be Issued...................... 47
Comparison of Rights of Holders of Bank Plus Common Stock and Hancock
Stock.................................................................. 48
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 53
PROPOSAL 2--ELECTION OF HANCOCK DIRECTORS................................. 57
PROPOSAL 3--APPROVAL OF THE KELLOGG OPTION................................ 59
INFORMATION REGARDING HANCOCK............................................. 60
Business of Hancock..................................................... 60
Supervision and Regulation of Hancock................................... 66
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Hancock............................................... 75
Executive Officer Compensation of Hancock............................... 84
Beneficial Ownership of Hancock Stock................................... 85
INFORMATION REGARDING BANK PLUS
Directors and Executive Officers of Bank Plus........................... 87
Compensation/Stock Option Committee Report on Executive Compensation.... 90
Summary Compensation Table.............................................. 92
Stock Option Grants in Last Fiscal Year................................. 93
Unexercised Stock Options............................................... 93
Retirement Income (Defined Benefit) Plan................................ 93
Employment Contracts.................................................... 94
Severance Agreements.................................................... 95
Director Compensation................................................... 96
Related Party Transactions.............................................. 97
Beneficial Ownership of Bank Plus Capital Stock......................... 99
LEGAL MATTERS............................................................. 101
EXPERTS................................................................... 101
OTHER MATTERS............................................................. 101
HANCOCK CONSOLIDATED FINANCIAL STATEMENTS................................. F-1
ANNEX A--Agreement and Plan of Merger dated June 25, 1997 among Bank Plus
and Hancock.............................................................. A-1
ANNEX B--Section 552.14--Dissenters' Rights............................... B-1
ANNEX C--Fairness Opinion of Smith & Crowley.............................. C-1
ANNEX D--Kellogg Stock Option Agreement................................... D-1
ANNEX E--Bank Plus Form 10-K/A for the year ended December 31, 1996....... K-1
ANNEX F--Bank Plus Form 10-Q for the quarter ended March 31, 1997......... Q-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Bank Plus is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by Bank Plus should be available for inspection and copying at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549 and at the regional offices of the Commission located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at Seven World Trade Center, New York, New York 10048. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
prescribed fees. In addition, such reports, proxy statements and other
information should be available for inspection at the Commission's Web site,
available at http://www.sec.gov.
Bank Plus became the holding company of Fidelity pursuant to a
reorganization effected in May of 1996; until that time, such reports, proxy
statements and other information were filed by Fidelity with the Office of
Thrift Supervision ("OTS"). Reports, proxy statements and other information
filed by Fidelity should be available for inspection and copying at the public
reference facilities maintained by the OTS at the Office of Public
Information, Office of Thrift Supervision, 1700 G Street, N.W., Washington,
D.C. 20552, and also can be obtained by written request from such office at
prescribed rates. In addition, Bank Plus Common Stock is listed on the Nasdaq
National Market, and accordingly such reports, proxy statements and other
information concerning Bank Plus and Fidelity also should be available for
inspection and copying at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
If the Merger is consummated, Bank Plus will continue to file reports, proxy
statements and other information with the Commission pursuant to the Exchange
Act.
Bank Plus has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations thereunder, a
Registration Statement on Form S-4 (as it may be amended, the "Registration
Statement"), with respect to the shares of Bank Plus Common Stock covered by
this Proxy Statement/Prospectus. This Proxy Statement/Prospectus does not
contain all of the information contained in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission and to which reference is hereby made. Any
statements contained herein or in any document incorporated by reference
herein concerning the provisions of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or other document, each such statement being qualified in its
entirety by such reference. The Registration Statement (and exhibits thereto)
should be available for inspection at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained
from the Commission at prescribed rates.
1
<PAGE>
SUMMARY
The following information is not intended to constitute a complete
description of Bank Plus and Hancock and is qualified in its entirety by, and
should be read in conjunction with, the other detailed information,
consolidated financial statements and notes thereto appearing elsewhere in, or
attached to, this Proxy Statement/Prospectus. Certain capitalized terms used in
this Proxy Statement/Prospectus Summary are defined elsewhere herein. Unless
the context otherwise requires, all references to "Bank Plus" or the "Company"
refer to Bank Plus Corporation, a Delaware corporation, and its consolidated
subsidiaries, which include Fidelity and Gateway Investment Services, Inc.
("Gateway"), and all references to "Fidelity" or the "Bank" refer to Fidelity
Federal Bank, A Federal Savings Bank, and its subsidiaries, and, with respect
to the period between August 3, 1994 and May 16, 1996, include Gateway, which
was a wholly-owned subsidiary of Citadel Holding Corporation ("Citadel") from
November 1, 1992 through August 3, 1994, a direct wholly-owned subsidiary of
Fidelity from August 4, 1994 to May 16, 1996 and a direct wholly-owned
subsidiary of Bank Plus since May 16, 1996. "Hancock" refers to Hancock Savings
Bank, F.S.B., a Federal Savings Bank.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Proxy Statement/Prospectus, including
without limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or Hancock to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the continuing impact of California's economic recession on collateral values
and the ability of certain borrowers to repay their obligations; the potential
risk of loss associated with Fidelity's and Hancock's high level of
nonperforming assets and other assets with increased risk; changes in or
amendments to regulatory authorities' capital requirements or other regulations
applicable to Fidelity or Hancock; fluctuations in interest rates; increased
levels of competition for loans and deposits; and other factors referred to
under "Risk Factors" and elsewhere in this Proxy Statement/Prospectus. GIVEN
THESE UNCERTAINTIES, POTENTIAL INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company and Hancock disclaim
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements included herein to
reflect future events or developments.
THE COMPANIES
Bank Plus Corporation....... Bank Plus was formed on March 14, 1996 to be the
holding company of Fidelity and Gateway. In May
1996, Fidelity completed a reorganization
pursuant to which all of the outstanding common
stock of Fidelity was converted on a one-for-one
basis into all of the outstanding common stock of
Bank Plus (the "Reorganization"). Bank Plus'
principal operating subsidiaries are Fidelity and
Gateway, which prior to the Reorganization was a
subsidiary of the Bank. Bank Plus currently has
no significant business or operations other than
serving as the holding company for Fidelity and
Gateway. The principal executive offices of Bank
Plus, Fidelity and Gateway are located at 4565
Colorado Boulevard, Los Angeles, California
90039, (818) 549-3116.
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<PAGE>
Fidelity Federal Bank....... Fidelity offers a broad range of consumer
financial services, including demand and term
deposits and loans to consumers, through 33 full-
service branches, all of which are located in
Southern California, principally in Los Angeles
and Orange counties. At this time, the Bank
primarily provides residential mortgages and
consumer loans, which the Bank does not
underwrite or fund, by referral to certain
established providers of mortgage and consumer
loan products with which the Bank has negotiated
strategic alliances.
Hancock Savings Bank........ Hancock offers consumer financial services
through five full-service branches in Los Angeles
County. The principal executive offices of
Hancock are located at 3550 Wilshire Boulevard,
Los Angeles, California 90010, (213) 383-2200.
As a result of substantial losses incurred by
Hancock since 1992, its continuing high levels of
nonperforming assets and the deterioration in its
financial condition and capital levels, Hancock
is subject to special supervisory attention by
the OTS. On March 28, 1997, Hancock stipulated
and consented to the issuance of an Order to
Cease and Desist (the "Order") by the OTS in
which Hancock agreed to take affirmative action
to improve its deteriorating financial condition,
high problem asset levels and poor earnings
performance and to correct certain operating and
management deficiencies. The Order requires,
among other things, that by no later than June
30, 1997, Hancock must raise at least
$3.0 million in capital and substantially
increase its regulatory capital ratios or
alternatively recapitalize by merging or being
acquired. Hancock is not in compliance with these
requirements of the Order. Hancock has advised
the OTS of the pending Merger and in view of the
progress being made toward consummating the
Merger, the OTS has to date forebeared from
taking any action against Hancock because of such
noncompliance. However, if the OTS determines, in
its sole discretion that Hancock is failing to
make adequate progress toward complying with
these requirements, it may, pursuant to the
Order, take such further supervisory enforcement
or resolution action as it deems appropriate,
including the appointment of a conservator or a
receiver. In addition, on May 2, 1997, the OTS
notified Hancock (the "PCA Notification") that
Hancock is considered to be "significantly
undercapitalized" under the prompt corrective
action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991, as
amended (the "FDICIA"). In its report on the
consolidated financial statements of Hancock
included in this Proxy Statement/Prospectus,
Deloitte & Touche LLP states that these matters
raise serious doubt about Hancock's ability to
continue as a going concern. See "INFORMATION
REGARDING HANCOCK--Supervision and Regulation of
Hancock--Prompt Corrective Action Notification;
Cease and Desist Order"; "--Prompt Corrective
Regulatory Action"; the Independent Auditors'
Report with respect to the Consolidated Financial
Statements of Hancock and Note 2 of Notes to
Consolidated Financial Statements of Hancock."
3
<PAGE>
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
Time, Place and Date of the
Meeting.................... The Meeting will be held at the offices of
Hancock located at 157 North Larchmont, Los
Angeles, California, on , July , 1997, at
8:00 a.m., Los Angeles time.
Matters to be Considered at
the Meeting................ The purposes of the Meeting are to consider and
vote upon a proposals: (i) to approve the Merger
Agreement ("Proposal 1"); (ii) to elect three
directors to serve for three-year terms or until
their successors are elected and qualified
("Proposal 2"); and (iii) to approve the Kellogg
Option ("Proposal 3").
Quorum; Vote Required;
Record Date................. The presence, either in person or by properly
executed proxies, of the holders of a majority of
the outstanding shares of Hancock Stock entitled
to vote at the Meeting is necessary to constitute
a quorum at the Meeting. Only Hancock
stockholders of record at the close of business
on June 16, 1997 (the "Record Date") will be
entitled to vote at the Meeting. The affirmative
vote of the holders of two-thirds (66 2/3%) of
the outstanding shares of Hancock Stock is
required to approve the Merger Agreement. In the
election of directors, the three candidates
receiving the highest number of votes will be
elected. The affirmative vote of the holders of
at least a majority of the outstanding shares of
Hancock Stock eligible to be cast at the Meeting
is required to approve the Kellogg Option. As of
the Record Date, there were 1,302,862 shares of
Hancock Stock outstanding. See "THE HANCOCK
STOCKHOLDERS' MEETING."
As of the Record Date, directors, executive
officers and affiliates of such directors and
executive officers of Hancock beneficially owned
an aggregate of 751,787 shares of Hancock Stock
(not including shares issuable upon exercise of
stock options) or approximately 57.7% of the
shares outstanding as of the Record Date.
PROPOSAL 1--APPROVAL OF THE MERGER AGREEMENT
Effect of Merger............ Upon the consummation of the Merger, Hancock will
be merged with and into Fidelity, with Fidelity
as the surviving federal savings bank in the
Merger. By virtue of the Merger, each share of
Hancock Stock issued and outstanding immediately
prior to the effective time of the Merger (the
"Effective Time"), other than shares with respect
to which dissenters' rights are perfected, shall
automatically be converted into the right to
receive a number of shares or a fraction of a
share of Bank Plus Common Stock as described more
fully below. At the Effective Time, each holder
of a certificate representing shares of Hancock
Stock will cease to have any rights with respect
to such shares, except the right to receive such
shares of Bank Plus Common Stock and cash payable
in lieu of fractional share interests in
accordance with the Merger Agreement or the right
to an appraisal if such holder has properly
exercised his or her dissenters' rights.
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<PAGE>
Consideration Payable Upon
Consummation; No
FractionalShares........... The aggregate value of the Merger consideration
(the "Bank Plus Stock Consideration Value") will
be: $12,012,000 less (i) 4.25% of the difference,
whether positive or negative, of (a) $190,073,000
minus (b) the aggregate amount of deposits
(excluding brokered deposits) of Hancock at June
30, 1997, plus (ii) the difference, whether
positive or negative, of (a) $3,787,000 minus (b)
the stockholders' equity of Hancock at June 30,
1997 less (to the extent not reflected on
Hancock's balance sheet at June 30, 1997), the
aggregate of (c) Hancock's costs and expenses for
(1) the Merger, (2) terminating its leases on
Hancock's Fairfax, Glendale and Wilshire offices
following the Effective Time, (3) terminating
certain of its employees, (4) cashing out its
options, and (5) losses, if any, on its
investment portfolio. Any amount paid to Hancock
upon exercise of a stock option, and any gain in
its investment portfolio between July 1, 1997 and
the day ending two full trading days prior to the
Effective Time, will be added to (ii)(b) above,
but the Bank Plus Stock Consideration Value will
never exceed $12,012,000.
The Bank Plus Stock Consideration Value as
determined pursuant to the above formula will be
divided by the Market Value Per Bank Plus Share
(as defined below) to determine the aggregate
number of shares of Bank Plus Common Stock (the
"Merger Shares") to be issued for all of the
shares of Hancock Stock issued and outstanding
immediately prior to the Effective Time. Each
share of Hancock Stock issued and outstanding
immediately prior to the Effective Time (except
for shares held by Hancock stockholders properly
exercising dissenters' rights) will be converted
into a share or fraction of a share of Bank Plus
Common Stock equal to the quotient obtained by
dividing (i) the aggregate number of Merger
Shares (ii) by the number of shares of Hancock
Stock issued and outstanding immediately prior to
the Effective Time.
"Market Value Per Bank Plus Share" means the
average of the daily closing prices of a share of
Bank Plus Common Stock on the Nasdaq National
Market, as reported in The Wall Street Journal,
during the twenty consecutive trading days on
which trades in Bank Plus Common Stock occurred
ending two full trading days prior to the
Effective Time.
Assuming the Bank Plus Stock Consideration Value
is $12,012,000 and the number of shares of
Hancock Stock issued and outstanding immediately
prior to the Effective Time is 1,302,862, each
outstanding share of Hancock Stock would receive
consideration in the Merger of $9.22 per share,
payable in Bank Plus Common Stock. Assuming the
Market Value Per Bank Plus Share is $10.625 (the
last reported sales price of the Bank Plus Common
Stock on June 27, 1997), then each outstanding
share of Hancock Stock (except for shares held by
Hancock stockholders properly exercising
dissenters' rights) would be converted into .8677
of a share of Bank Plus
5
<PAGE>
Common Stock ($9.22 divided by $10.625). Based on
these assumptions, the aggregate number of Merger
Shares issued to the Hancock stockholders would
be 1,130,541 or 5.8% of the outstanding Bank Plus
Common Stock after giving effect to the Merger.
Any number of a number of factors, however, could
cause the Bank Plus Consideration Value to be
adjusted below $12,012,000. No assurance can be
given that the Bank Plus Stock Consideration
Value will not be adjusted below $12,012,000 or
that certain of the outstanding options to
purchase Hancock Stock would not be exercised
prior to the Effective Time, either of which
event would cause the per share consideration to
be less than $9.22 per share.
For example, assuming the Bank Plus Stock
Consideration Value is $11,750,000 and the number
of shares of Hancock Stock issued and outstanding
immediately prior to the Effective Time is
1,302,862, each outstanding share of Hancock
Stock would receive consideration in the Merger
of $9.01 per share, payable in Bank Plus Common
Stock. In such case, assuming the Market Value
Per Bank Plus Share is $10.625 (the last reported
sales price of the Bank Plus Common Stock on June
27, 1997), then each outstanding share of Hancock
Stock (except for shares held by Hancock
stockholders properly exercising dissenters'
rights) would be converted into .8488 of a share
of Bank Plus Common Stock ($9.01 divided by
$10.625). Based on the assumptions in this
paragraph, the aggregate number of Merger Shares
issued to the Hancock stockholders would be
1,105,882 or 5.7% of the outstanding Bank Plus
Common Stock after giving effect to the Merger.
Treatment of Stock Options.. Pursuant to the Merger Agreement, all options
granted by Hancock under the Hancock Savings Bank
Incentive Stock Option Plan, the "Hancock Stock
Option Plan") and, assuming it is approved by the
Hancock stockholders, the Kellogg Option
(collectively, the "Options") shall become
immediately exercisable, whether vested or not.
Each Option that is outstanding and unexercised
immediately prior to the Effective Time shall be
canceled in consideration of the payment by
Hancock to each holder of such Options of an
aggregate amount in cash equal to the positive
difference, if any, of (a) the product of (i) the
quotient obtained by dividing the Bank Plus Stock
Consideration Value by the number of shares of
Hancock Stock outstanding immediately prior to
the Effective Time (which will be equal to the
per share consideration received by stockholders
of Hancock), multiplied by (ii) the number of
shares of Hancock Stock as to which such holder
has Options, minus (b) the aggregate exercise
price of such Options. As of the Record Date,
there were 77,225 options outstanding with an
average exercise price of $7.11 per share. See
"PROPOSAL 1--APPROVAL OF THE MERGER--
Consideration Payable Upon Consummation of the
Merger" and "PROPOSAL 3--APPROVAL OF THE KELLOGG
OPTION" and "INFORMATION REGARDING HANCOCK--
Executive Officer Compensation of Hancock."
6
<PAGE>
Reasons for the Merger;
Recommendation of the
Hancock Board of Directors
with Respect to the
Merger..................... In view of, among other things, the financial
terms of the Merger to Hancock's stockholders,
Hancock's current financial condition, including
its status as a "significantly undercapitalized"
institution under the prompt corrective action
provisions of the FDICIA, and the provisions of
the Order requiring Hancock, among other things,
to either engage in a capital-raising transaction
or, alternatively, recapitalize by merging or
being acquired, the Hancock Board of Directors
has unanimously concluded that the Merger is in
the best interests of Hancock and its
stockholders and unanimously recommends that
stockholders vote for approval of the Merger
Agreement. See "PROPOSAL 1--APPROVAL OF THE
MERGER--Background and Reasons for the Merger."
For information on the interests of certain
officers and directors of Hancock in the Merger,
see "PROPOSAL 1--APPROVAL OF THE MERGER--
Interests of Certain Persons in the Merger."
Opinion of Hancock's
Financial Advisor.......... Smith & Crowley Inc. ("Smith & Crowley") has
served as a financial advisor to Hancock in
connection with the Merger and has delivered a
written opinion to the Hancock Board of Directors
that the aggregate consideration to be paid to
Hancock's stockholders as a result of the Merger
is fair from a financial point of view. For more
information, see "PROPOSAL 1--APPROVAL OF THE
MERGER--Opinion of Financial Advisor to Hancock."
The opinion of Smith & Crowley is attached as
Annex C to this Proxy Statement/Prospectus.
Stockholders are urged to read such opinion in
its entirety for descriptions of the procedures
followed, assumptions made and matters
considered, as well as limitations on the reviews
undertaken by Smith & Crowley in connection with
evaluating the Merger.
Effective Time.............. The Effective Time of the Merger will be on a
date, selected by Bank Plus and Fidelity within
five business days after the expiration of all
applicable regulatory waiting periods in
connection with the approval of the Merger and
the satisfaction or waiver of all other
conditions to the consummation of the Merger, on
which the Articles of Combination of Fidelity and
Hancock are filed with the OTS. The Merger shall
be effective on the date specified in the
endorsement of the Articles of Combination by the
OTS. It is anticipated that the Effective Time
will be prior to July 31, 1997.
Conditions to the Merger;
Regulatory Approval........ The obligations of Bank Plus, Fidelity and
Hancock to consummate the Merger are subject to
the satisfaction of certain conditions,
including, among others: (i) the approval of the
Merger Agreement by the holders of 66 2/3% of the
outstanding shares of Hancock Stock shall have
been obtained; (ii) all regulatory approvals,
consents and waivers required to consummate the
transactions contemplated by the Merger Agreement
shall have been obtained and all applicable
statutory waiting periods in respect thereof
shall have expired;
7
<PAGE>
(iii) no order, decree, injunction or law
prohibiting the Merger shall be in effect and no
litigation seeking to prevent the Merger or the
transactions contemplated by the Merger Agreement
shall be pending; (iv) no stop order suspending
the effectiveness of the Registration Statement
shall be in effect; (v) the Merger Shares shall
be approved for listing by the Nasdaq National
Market; (vi) Deloitte & Touche LLP shall have
issued an opinion that the Merger will be treated
for federal income tax purposes as a tax-free
reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); and (vii) a general release
from liability from Hancock's previous chief
executive officer shall be in full force and
effect.
In addition, the obligations of Bank Plus and
Fidelity to effect the Merger are subject to the
satisfaction of certain conditions, including,
among others: (i) the representations and
warranties of Hancock set forth in the Merger
Agreement shall be true and correct in all
material respects; (ii) Hancock shall have
performed in all material respects all
obligations required to be performed by it under
the Merger Agreement; (iii) there shall not have
occurred any "Material Adverse Change" (as
defined below) in the financial condition of
Hancock (as reflected in Hancock's unaudited
balance sheet at June 30, 1997); (iv) Bank Plus
and Fidelity shall have received an opinion from
Manatt, Phelps & Phillips, LLP, counsel to
Hancock covering certain matters addressed in the
Merger Agreement; (v) no regulatory approval
shall have imposed a burdensome condition on Bank
Plus or Fidelity; (vi) the Order issued by the
OTS, any prompt corrective action directive,
order or restriction, and all enforcement
proceedings applicable to Hancock shall have been
terminated; and (vii) the Hancock Stock Option
Plan and the Kellogg Option shall have been
canceled. The Merger Agreement defines a Material
Adverse Change as having occurred if: (A) there
is an outflow of Hancock's deposits at June 30,
1997, as compared to Hancock's audited balance
sheet at December 31, 1996 in excess of $10
million and/or (B) the Adjusted Net Book Value
(as defined herein) of Hancock at June 30, 1997
is equal to or less than $3,537,000.
In addition, the obligations of Hancock to effect
the Merger are subject to the satisfaction of
certain conditions, including, among others: (i)
the representations and warranties of Bank Plus
and Fidelity set forth in the Merger Agreement
shall be true and correct in all material
respects; (ii) Bank Plus and Fidelity shall have
performed in all material respects all covenants
and agreements required to be performed by them
under the Merger Agreement; (iii) Hancock shall
have received an opinion from Gibson, Dunn &
Crutcher LLP, counsel to Bank Plus and Fidelity
covering certain matters addressed in the Merger
Agreement; and (iv) there shall not have
occurred any event that has had or would be
reasonably likely to have a Material Adverse
Effect as defined in the Merger Agreement on Bank
Plus since March 31, 1997.
8
<PAGE>
Such conditions may be waived by the parties in
whole or in part at any time and from time to
time in their sole discretion. Each of the
parties reserves the right to terminate the
Merger upon the failure of any of its conditions
to be satisfied. See "PROPOSAL 1 --APPROVAL OF
THE MERGER--Conditions to Consummation of the
Merger."
Conduct of Business Pending
the Merger................. Pursuant to the Merger Agreement, Hancock is
subject to certain restrictions in conducting its
business, and must obtain the approval of Bank
Plus prior to engaging in certain activities. See
"PROPOSAL 1--APPROVAL OF THE MERGER--Conduct of
Business Pending the Merger."
No Solicitation of
Alternative Transactions... Hancock has agreed that it will not initiate,
solicit or otherwise facilitate any alternative
"Acquisition Proposal" as defined in the Merger
Agreement. Notwithstanding the foregoing, in the
event that Hancock receives a "Superior Proposal"
(as defined in the Merger Agreement), nothing
contained in the Merger Agreement shall prevent
the Board of Directors of Hancock from providing
information to the party making the Superior
Proposal or making a recommendation in favor of
the Superior Proposal if the Board of Directors
of Hancock determines in good faith that such
action or actions are required by reason of the
fiduciary duties of the members of the Board of
Directors of Hancock to the stockholders of
Hancock. Should Hancock accept a Superior
Proposal, it shall pay to the Company $500,000 as
liquidated damages. See "PROPOSAL 1 --APPROVAL OF
THE MERGER--No Solicitation of Alternative
Transactions."
Termination................. The Merger Agreement may be terminated (i) by
mutual consent; (ii) by any party if regulatory
approvals are denied or a government authority
enjoins the Merger; (iii) by any party if the
Merger is not consummated by September 30, 1997;
(iv) by any party if the stockholders of Hancock
do not approve the Merger Agreement; (v) by any
party for an uncured material breach of a
representation, warranty or covenant of the
Merger Agreement by the other party; (vi) by
Hancock if there has occurred any event that has
had or would be reasonably likely to have a
Material Adverse Effect on Bank Plus or Fidelity;
(vii) by Bank Plus or Fidelity if there has been
a Material Adverse Change in the financial
condition of Hancock; or (viii) by Hancock if the
Market Value Per Bank Plus Share is less than
$8.00.
If Bank Plus or Fidelity terminates the Merger
Agreement as a result of a willful breach by
Hancock of any of its obligations thereunder or
as a result of the failure by Hancock to obtain
the requisite vote of its stockholders to approve
the Merger Agreement, then Hancock shall pay to
Bank Plus, as liquidated damages, $500,000.
9
<PAGE>
Surrender of Hancock Stock
Certificates............... For a description of how to exchange Hancock
Stock certificates, see "PROPOSAL 1--APPROVAL OF
THE MERGER--Surrender of Hancock Certificates."
HOLDERS OF HANCOCK STOCK SHOULD NOT SURRENDER
THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
LETTERS OF TRANSMITTAL OR INSTRUCTIONS AFTER THE
EFFECTIVE TIME.
Interests of Certain
Persons in the Merger...... As of the Record Date, the directors and
executive officers of Hancock beneficially owned
751,787 shares of Hancock Stock which will be
converted into the right to receive shares of
Bank Plus Common Stock in the Merger. Directors,
executive officers and other employees of Hancock
held as of the Record Date options to purchase
77,225 shares of Hancock Stock, which (if not
exercised prior to the Effective Time) will be
canceled in connection with the Merger in
exchange for cash payments.
Pursuant to an employment agreement with Hancock,
Kathleen L. Kellogg, President and Chief
Executive Officer of Hancock, is entitled to a
lump sum payment of $240,000 if her employment is
terminated upon consummation of the Merger.
Pursuant to a change of control employment
agreement with Hancock, Ken Paris, Senior Vice
President and Chief Credit Officer of Hancock, is
entitled to a lump sum payment of six months'
salary if a change in control occurs and his
employment is terminated or materially changed or
he resigns for good cause.
On April 18, 1997, Hancock entered into an
engagement letter with Hovde Financial, Inc.
("Hovde") whereby Hovde agreed to provide
financial advisory services to Hancock in
connection with a possible transaction with Bank
Plus. Hovde is affiliated with Hancock Park
Acquisition, L.P., a principal stockholder of
Hancock, and with Eric D. Hovde, a director of
Hancock. See "INFORMATION REGARDING HANCOCK--
Beneficial Ownership of Hancock Stock" and
"PROPOSAL 2--ELECTION OF DIRECTORS." Under the
engagement letter, Hovde agreed to perform
various services for Hancock, including
introducing Hancock to Bank Plus and assisting
Hancock in negotiating the financial terms of the
Merger. Under the engagement letter, Hovde is
entitled to receive a fee in the event a
transaction (including transactions such as the
Merger) is consummated by Hancock with Bank Plus
by September 30, 1998. Such fee will, under the
engagement letter, equal the greater of $200,000
or 2% of the consideration paid by Bank Plus in
the Merger. Hovde is also entitled to receive
expenses up to $2,000 and will be entitled to
indemnification by Hancock under certain
circumstances.
On June 6, 1997, Hancock entered into a
Settlement Agreement and Release (the "Settlement
Agreement") with Daniel E. Wolfus, whose
executive positions with Hancock ceased effective
March 25, 1997 and whose service as a director of
Hancock ceased effective May 23, 1997. The
effectiveness of the Settlement Agreement is, by
10
<PAGE>
its terms, specifically conditioned upon the
closing of the Merger. Pursuant to the Settlement
Agreement, on consummation of the Merger Hancock
will pay to Mr. Wolfus $10,900, and a lump sum
based upon certain stock options that Mr. Wolfus
held as of March 25, 1997. Specifically, Mr.
Wolfus is entitled to receive, as of the closing
of the Merger, the difference between the per
share consideration for Hancock Stock in the
Merger and $3.85 per share (the per share
exercise price of his former stock options)
multiplied by 6,250 stock options. Mr. Wolfus and
Hancock each agreed to provide a general release
to the other party under the Settlement
Agreement.
Under the Merger Agreement, Bank Plus and
Fidelity have agreed to cooperate with Hancock in
obtaining, and may participate in funding,
adequate directors' and officers' and other
insurance "tail" coverage for a period of three
years.
See "PROPOSAL 1--APPROVAL OF THE MERGER--
Interests of Certain Persons in the Merger."
Certain Federal Income Tax
Considerations............. As a condition of closing, the parties shall have
received the opinion of Deloitte & Touche LLP,
independent auditors of Bank Plus, Fidelity and
Hancock, to the effect that the Merger
constitutes a tax-free "reorganization" within
the meaning of Section 368(a) of the Code, and
each of Bank Plus, Fidelity and Hancock will be a
party to such tax-free reorganization within the
meaning of Section 368(a). Based on such opinion,
no gain or loss will be recognized by the
stockholders of Hancock upon exchange of their
Hancock Stock for Bank Plus Common Stock pursuant
to the Merger, except for cash received in lieu
of fractional shares of Bank Plus Common Stock.
See "PROPOSAL 1--APPROVAL OF THE MERGER--Certain
Federal Income Tax Consequences."
Accounting Treatment........ The Merger is expected to be accounted for under
the "purchase" method of accounting, in
accordance with generally accepted accounting
principles. See "PROPOSAL 1--APPROVAL OF THE
MERGER--Accounting Treatment."
Dissenters' Rights.......... Pursuant to Section 552.14 of the Rules and
Regulations of the OTS, a copy of which is
attached hereto as Annex B, a stockholder of
Hancock who wishes to assert dissenters' rights
with respect to the Merger must deliver to
Hancock, prior to the Meeting, a written
objection identifying himself or herself and
stating his or her intention to demand appraisal
of and payment for his or her shares. The demand
for appraisal and payment must be in addition to
and separate from any proxy or vote against the
Merger by the stockholder. In addition, in order
to dissent, the stockholder must not vote "FOR"
the Merger. THE REQUIRED PROCEDURES SET FORTH IN
SECTION 552.14 MUST BE FOLLOWED EXACTLY OR ANY
DISSENTERS' RIGHTS MAY BE LOST. See "PROPOSAL 1--
APPROVAL OF THE MERGER--Dissenters' Rights."
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<PAGE>
Market Value of Bank Plus
Common Stock and Hancock
Stock...................... As of June 27, 1997, the closing per share price
of Bank Plus Common Stock was $10.625, as quoted
by the Nasdaq National Market. On June 17, 1997
(the last date on which a trade occurred before
the date hereof), the sales price for the Hancock
Stock was $7.75, as reported by the OTC Bulletin
Board.
PROPOSAL 2--ELECTION OF DIRECTORS
Election of Directors of
Hancock..................... At the Meeting, Hancock stockholders shall elect
three directors of Hancock, to serve for three-
year terms or until their successors are elected
and qualified. If the Merger is consummated, the
terms of all directors of Hancock will end at the
Effective Time.
Nominees.................... The Hancock Board of Directors' nominees for
election are Ezunial Burts, Eric D. Hovde and
Kathleen L. Kellogg. See "PROPOSAL 2--ELECTION OF
DIRECTORS."
PROPOSAL 3--APPROVAL OF THE KELLOGG OPTION
Kellogg Option.............. In March 1997, Hancock granted Ms. Kellogg, the
President and Chief Executive Officer of Hancock,
the Kellogg Option which entitles Ms. Kellogg to
purchase up to 50,000 shares of Hancock Stock at
an exercise price of $7.46 per share. The Kellogg
Option requires the approval of Hancock's
stockholders to become effective. If the Merger
is consummated, Hancock intends to cancel the
Kellogg Option and make a cash payment to
Ms. Kellogg pursuant to the formula set forth
under "--Treatment of Stock Options" above. See
"PROPOSAL 3--APPROVAL OF THE KELLOGG OPTION."
12
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with the financial statements
and notes thereto (including, without limitation, notes 1 and 13 regarding
certain reorganizations and recapitalizations) and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in Annex E
hereto. The selected operating data for the years ended December 31, 1996, 1995
and 1994 and the selected balance sheet data as of December 31, 1996 and 1995
are derived from, and are qualified by reference to, the audited financial
statements of the Company included in Annex E hereto. The selected operating
data for the years ended December 31, 1993 and 1992 and the selected balance
sheet data as of December 31, 1994, 1993 and 1992 are derived from audited
financial statements not included herein. The selected operating data for the
three-month periods ended March 31, 1997 and 1996, and the selected balance
sheet data as of March 31, 1997 and 1996 are derived from the unaudited
financial statements of the Company. In the opinion of the Company's
management, the unaudited financial statements have been prepared by the
Company on a basis consistent with the Company's audited financial statements
and include all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position and the results of
operations for those periods. Operating results for the three-month period
ended March 31, 1997 are not necessarily indicative of the results that will be
achieved for the entire year ended December 31, 1997. The Company paid no
common stock cash dividends during the periods reflected in the following
tables.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........... $3,294,647 $3,279,564 $3,330,290 $3,299,444 $3,709,838 $4,389,781 $4,695,518
Total loans, net....... 2,642,217 2,878,311 2,691,931 2,935,116 3,288,303 3,712,051 3,990,449
Deposits............... 2,516,991 2,579,062 2,495,933 2,600,869 2,697,272 3,368,664 3,459,648
FHLB advances.......... 387,151 232,700 449,851 292,700 332,700 326,400 581,400
Other borrowings....... 140,000 209,900 140,000 150,000 500,000 407,830 327,000
Preferred stock issued
by consolidated
subsidiary............ 51,750 -- 51,750 -- -- -- --
Subordinated notes..... -- -- -- -- -- 60,000 60,000
Stockholders' equity... 161,993 227,539 161,657 229,043 156,547 182,284 220,171
Stockholders' equity
per common
share(1)(2)........... 8.88 12.47 8.86 9.72(3) 24.11 173.51 209.57
Common shares
outstanding(1)(2)..... 18,245,265 18,242,465 18,245,265 18,242,465 6,492,465 1,050,561 1,050,561
OPERATING DATA:
Interest income........ $ 58,707 $ 60,052 $ 237,913 $ 246,477 $ 241,465 $ 289,331 $ 370,715
Interest expense....... 38,350 38,214 152,623 174,836 155,828 188,494 240,124
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.... 20,357 21,838 85,290 71,641 85,637 100,837 130,591
Provision for estimated
loan losses........... 4,251 3,905 15,610 69,724(4) 65,559 65,100 51,180
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
estimated loan losses. 16,106 17,933 69,680 1,917 20,078 35,737 79,411
Gains (losses) on loan
sales, net............ 7 -- 22 522 (3,963) 194 1,117
Gains on securities and
trading activities,
net................... 1,221 (83) 1,336 4,098 1,130 1,304 --
Gains on sales of
servicing............. -- -- -- 4,604 -- -- --
Fee income from sale of
uninsured investment
products(5)........... 1,513 1,199 4,456 4,117 3,419 -- 2,606
Loans, retail banking
and other fees........ 1,258 1,604 5,339 6,866 9,040 8,660 12,291
Real estate operations,
net................... (2,301) (2,455) (8,907) (9,145) (17,419) (48,843) (22,261)
SAIF special
assessment............ -- -- (18,000) -- -- -- --
1994 restructuring and
recapitalization
charges, net.......... -- -- -- -- (65,394) -- --
Operating expense other
than SAIF special
assessment and 1994
restructuring and
recapitalization
charges............... (14,336) (16,627) (64,451) (81,954) (91,859) (98,732) (75,044)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Loss) before income
taxes and minority
interest in
subsidiary............ 3,468 1,571 (10,525) (68,975) (144,968) (101,680) (1,880)
Income tax (benefit)
expense............... (2,300) 40 (1,093) 4 (16,524) (35,793) (2,167)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings
before minority
interest in
subsidiary............ 5,768 1,531 (9,432) (68,979) (128,444) (65,887) 287
Minority interest in
subsidiary (dividends
on subsidiary
preferred stock)...... (1,553) -- (4,657) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings.... 4,215 1,531 (14,089) (68,979) (128,444) (65,887) 287
Preferred stock
dividends............. -- 1,553 (1,553) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings
available for common
stockholders.......... $ 4,215 $ (22) $ (15,642) $ (68,979) $ (128,444) $ (65,887) $ 287
========== ========== ========== ========== ========== ========== ==========
Net (loss) earnings per
common share(1)(2).... $ 0.23 $ -- $ (0.86) $ (8.84) $ (39.08) $ (62.72) $ 0.27
========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares
outstanding(1)(2)..... 18,245,265 18,242,465 18,242,887 7,807,201 3,286,960 1,050,561 1,050,561
========== ========== ========== ========== ========== ========== ==========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING
RATIOS:
(Loss) return on
average assets........ 0.51 % 0.19 % (0.42)% (1.92)% (3.17)% (1.43)% 0.01%
(Loss) return on
average equity........ 10.40 % 2.69 %(6) (7.01)%(6) (42.31)% (83.00)% (29.99)% 0.13%
Average equity divided
by average assets..... 4.87 % 6.96 % 6.71 % 4.54 % 3.82 % 4.77 % 4.57%
Ending equity divided
by ending assets...... 4.92 % 6.94 % 4.85 % 6.94 % 4.22 % 4.15 % 4.69%
Operating expense to
average assets(7)..... 1.72 % 2.04 % 1.94 % 2.28 % 2.27 % 2.14 % 1.52%
Efficiency ratio(8).... 61.97 % 67.71 % 67.77 % 89.81 % 97.58 % 79.66 % 45.38%
Interest rate spread
for the period........ 2.13 % 2.35 % 2.31 % 1.89 % 2.24 % 2.31 % 2.66%
Net yield on interest-
earning assets........ 2.44 % 2.68 % 2.63 % 2.05 % 2.22 % 2.31 % 2.80%
ASSET QUALITY DATA:
NPAs(9)................ $ 63,353 $ 63,644 $ 60,788 $ 71,431 $ 85,729 $235,621 $234,405
NPAs to total assets... 1.92 % 1.94 % 1.83 % 2.16 % 2.31 % 5.37 % 4.99%
Nonaccruing loans...... $ 39,713 $ 40,111 $ 36,125 $ 51,910 $ 71,614 $ 93,475 $112,041
Nonaccruing loans to
total loans, net...... 1.50 % 1.39 % 1.34 % 1.77 % 2.18 % 2.52 % 2.83%
Classified assets...... $144,863 $288,902 $174,096 $219,077 $141,536 $372,502 $353,738
Classified assets to
total assets.......... 4.40 % 8.81 % 5.23 % 6.64 % 3.82 % 8.49 % 7.53%
REGULATORY CAPITAL
RATIOS:
Tangible capital
ratio................. 6.46 % 6.95 % 6.28 % 6.91 % 4.28 % 4.10 % 4.27%
Core capital ratio..... 6.47 % 6.96 % 6.29 % 6.92 % 4.29 % 4.15 % 4.35%
Risk-based capital
ratio................. 12.29 % 12.49 % 11.85 % 12.43 % 8.28 % 9.32 % 9.76%
OTHER DATA:
Sales of investment
products(5)........... $ 38,405 $ 30,359 $118,061 $ 89,824 $112,430 $ 96,253 $ 77,078
Real estate loans
funded................ $ 6,488 $ 250 $ 13,859 $ 19,396 $521,580 $422,355 $435,690
Average interest rate
on new loans.......... 8.00 % 10.00 % 8.41 % 9.61 % 5.85 % 6.75 % 7.77%
Loans sold, net(10).... $ (3,044) $ (1,753) $ (2,069) $ 390 $273,272 $115,003 $204,435
Number of:
Real estate loan
accounts (in
thousands).......... 10 11 11 12 14 16 18
Deposit accounts (in
thousands).......... 192 205 194 207 216 241 233
Retail branch
offices(11)......... 33 33 33 33 33 42 43
</TABLE>
- -------
(1) For the periods prior to August 4, 1994, Fidelity's one share owned by
Citadel, its former holding company and sole stockholder, has been
retroactively reclassified into 1,050,561 shares of Class A Common Stock.
(2) On February 9, 1996, the Bank's stockholders approved a one-for-four
reverse stock split (the "Reverse Stock Split"). All per share data and
weighted average common shares outstanding have been retroactively
adjusted to reflect this change.
(3) Calculation excludes $51.8 million of preferred stock issued by
consolidated subsidiary.
(4) In 1995, the Bank recorded a $45 million loan portfolio charge in
connection with its adoption of an Accelerated Asset Resolution Plan (the
"Accelerated Asset Resolution Plan").
(5) Includes 100% of Gateway investment product sales.
(6) Net of dividends on preferred stock of subsidiary of $1.6 million.
(7) Excludes the impact of the Savings Association Insurance Fund ("SAIF")
special assessment and the net 1994 restructuring and recapitalization
charges (the "1994 Restructuring and Recapitalization").
(8) The efficiency ratio is computed by dividing total operating expense by
net interest income and noninterest income, excluding infrequent items,
provisions for estimated loan and real estate losses, direct costs of real
estate operations and gains/losses on the sale of securities.
(9) Nonperforming assets ("NPAs") include nonaccruing loans and foreclosed
real estate, net of special valuation allowances ("SVAs"), writedowns and
real estate owned ("REO") general valuation allowance ("GVA"), if any.
(10) Excludes loans sold in certain bulk sales consummated in 1994 (the "Bulk
Sales"), and is net of repurchases.
(11) All retail branch offices are located in Southern California.
14
<PAGE>
SELECTED FINANCIAL DATA OF HANCOCK
The following selected financial data of Hancock is qualified by reference to
and should be read in conjunction with Hancock's consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hancock included elsewhere
herein. The selected operating data for the years ended December 31, 1996, 1995
and 1994 and the selected balance sheet data as of December 31, 1996 and 1995
are derived from, and are qualified by reference to, the audited financial
statements of Hancock included elsewhere in this Proxy Statement/Prospectus.
The selected operating data for the years ended December 31, 1993 and 1992 and
the selected balance sheet data as of December 31, 1994, 1993 and 1992 are
derived from audited financial statements not included herein. The selected
operating data for the three-month periods ended March 31, 1997 and 1996, and
the selected balance sheet data as of March 31, 1997 are derived from the
unaudited financial statements of Hancock. In the opinion of Hancock's
management, the unaudited financial statements have been prepared by Hancock on
a basis consistent with Hancock's audited financial statements and include all
adjustments, consisting of only normal recurring accruals, necessary for a fair
presentation of the financial position and the results of operations for those
periods. Operating results for the three-month period ended March 31, 1997 are
not necessarily indicative of the results that will be achieved for the entire
year ended December 31, 1997. Hancock paid no cash dividends during the periods
reflected in the following tables.
<TABLE>
<CAPTION>
AT AT OR FOR THE YEARS ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............ $ 202,336 $ 198,159 $195,544 $189,651 $183,185 $179,755
Total loans, net........ 145,522 144,729 153,473 151,291 141,398 135,637
Deposits................ 194,645 190,073 185,424 178,784 171,396 166,936
Stockholders' equity.... 5,073 5,410 7,965 9,587 10,670 11,109
Stockholders' equity per
share.................. 3.89 4.15 10.94 13.17 14.66 15.26
Shares outstanding...... 1,302,463 1,302,463 728,034 728,034 728,034 728,034
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income......... $3,661 $3,669 $14,442 $14,192 $12,305 $12,258 $14,720
Interest expense........ 2,116 2,098 8,335 8,039 6,049 5,997 7,539
------ ------ ------- ------- ------- ------- -------
Net interest income... 1,545 1,571 6,107 6,153 6,256 6,261 7,181
Provision for estimated
loan losses............ 360 250 6,975 3,499 1,549 1,263 378
------ ------ ------- ------- ------- ------- -------
Net interest income
(loss) after
provision for
estimated loan
losses............... 1,185 1,321 (868) 2,654 4,707 4,998 6,803
Noninterest income...... 164 106 992 555 367 962 1,350
Real estate operations,
net.................... (96) (111) (512) (61) (829) (1,173) (133)
SAIF special assessment. 1,191
Noninterest expense..... 1,585 1,334 5,288 5,521 5,407 5,722 5,430
Income (loss) before
income tax expense
(benefit)............ (332) (18) (6,867) (2,373) (1,162) (935) 2,590
Income tax expense
(benefit).............. -- (5) 2 (698) (251) (380) 874
Net (loss) income..... $ (332) $ (13) $(6,869) $(1,675) $ (911) $ (555) $ 1,716
====== ====== ======= ======= ======= ======= =======
Net (loss) income per
share.................. $(0.25) $(0.02) $ (7.27) $ (2.30) $ (1.25) $ (0.76) $ 2.36
====== ====== ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING
RATIOS:
(Loss) return on
average assets....... (0.66)% (0.03)% (3.49)% (0.86)% (0.49)% (0.31)% 0.95%
(Loss) return on
average equity....... (25.17)% (0.65)% (76.72)% (18.39)% (8.93)% (5.06)% 16.63%
Average equity divided
by average assets.... 2.61% 4.12% 4.55% 4.68% 5.43% 6.03% 5.71%
Ending equity divided
by ending assets..... 2.51% 4.07% 2.73% 4.07% 5.06% 5.82% 6.18%
Operating expense to
average assets(1).... 3.14% 2.75% 2.69% 2.70% 2.88% 3.15% 3.00%
Efficiency ratio(2)... 92.74% 79.55% 74.79% 82.30% 81.64% 79.22% 63.65%
Interest rate spread
for the period....... 2.76% 3.01% 2.91% 2.98% 3.20% 3.26% 3.50%
Net yield on interest
earning assets....... 2.98% 3.16% 3.03% 3.08% 3.27% 3.30% 3.54%
ASSET QUALITY RATIOS:
NPA's(3).............. $ 6,390 $ 8,312 $ 6,992 $ 7,886 $ 4,107 $11,418 $ 8,044
NPA's to total assets. 3.16% 4.25% 3.53% 4.03% 2.17% 6.23% 4.47%
Nonaccruing loans..... $ 5,209 $ 4,364 $ 5,448 $ 5,689 $ 1,904 $ 7,319 $ 6,084
Nonaccruing loans to
loans, net........... 3.58% 2.91% 3.76% 3.71% 1.26% 5.18% 4.49%
Classified assets..... $25,568 $23,719 $27,006 $24,692 $13,477 $14,043 $10,967
Classified assets to
total assets......... 12.64% 12.14% 13.63% 12.63% 7.11% 7.67% 6.10%
Classified assets as a
percent of
stockholder's equity
and general allowance
for loan losses...... 279.07% 239.32% 297.77% 249.92% 119.87% 118.69% 90.72%
REGULATORY CAPITAL
RATIOS:
Core capital ratio(4). 3.11% 4.07% 3.34% 4.07% 5.08% 5.82% 5.79%
Tier I risk-based
capital ratio(4)..... 4.49% 5.61% 4.84% 5.62% NA NA NA
Risk-based capital
ratio(4)............. 5.67% 6.86% 6.03% 6.87% 8.26% 8.45% 8.23%
OTHER DATA:
Real estate loans
funded............... $ 3,866 $ 4,485 $18,365 $17,430 $24,703 $19,462 $23,935
</TABLE>
- --------
(1) Excludes the impact of the Savings Association Insurance Fund ("SAIF")
special assessment.
(2) The efficiency ratio is computed by dividing total operating expense by net
interest income and noninterest income, excluding infrequent items,
provisions for estimated loan and real estate losses, direct costs of real
estate operations and gains/losses on the sale of securities.
(3) Non performing assets ("NPA's") include nonaccruing loans and foreclosed
real estate, net of special valuation allowances ("SVA's"), writedowns and
real estate owned ("REO").
(4) On June 30, 1997, Hancock paid $1.0 million representing the unamortized
special SAIF assessment. If Hancock would have paid the SAIF assessment as
of March 31, 1997 the capital ratios would have been as follows: Core
capital at 2.63%, Tier I risk-based capital at 3.78% and Risk-based capital
at 4.96%.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statement of earnings data for the
fiscal year ended December 31, 1996 and for the three months ended March 31,
1997 assume that the Merger occurred at the beginning of the periods presented.
The following unaudited pro forma combined balance sheet data as of March 31,
1997 assumes that the Merger occurred as of that date. The pro forma earnings
and balance sheet data are presented after giving effect to the purchase
accounting and other merger-related adjustments described in the respective
notes to the pro forma combined financial statements included elsewhere in this
Proxy Statement/Prospectus.
The selected unaudited pro forma combined financial data have been derived
from, or prepared on a basis consistent with, the unaudited pro forma combined
condensed financial statements included herein. This data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred or that will occur after
consummation of the Merger.
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE COMPANIES'
HISTORICAL AND PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS AND NOTES
THERETO, EITHER INCLUDED IN ANNEXES E AND F HERETO OR INCLUDED ELSEWHERE
HEREIN. SEE "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR
THE
THREE MONTHS FOR THE YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $3,505,616
Total loans, net..................................... 2,783,505
Deposits............................................. 2,712,150
FHLB advances........................................ 387,151
Other borrowings..................................... 140,000
Preferred stock issued by consolidated subsidiary.... 51,750
Stockholders' equity................................. 174,005
Stockholders' equity per common share................ 8.98
Common shares outstanding............................ 19,375,618
OPERATING DATA:
Interest income...................................... $ 62,395 $ 252,463
Interest expense..................................... 40,743 162,073
---------- ----------
Net interest income.................................. 21,652 90,390
Provision for estimated loan losses.................. 4,611 22,585
---------- ----------
Net interest income after provision for estimated
loan losses......................................... 17,041 67,805
Other income......................................... 1,766 2,726
Operating expense.................................... 15,970 89,125
---------- ----------
Earnings (loss) before income taxes and minority
interest in subsidiary.............................. 2,837 (18,594)
Income tax benefit................................... (2,300) (1,091)
---------- ----------
Earnings (loss) before minority interest in
subsidiary.......................................... 5,137 (17,503)
Minority interest in subsidiary (dividends on
subsidiary preferred stock)......................... 1,553 4,657
---------- ----------
Net earnings (loss).................................. 3,584 (22,160)
Preferred stock dividends............................ -- 1,553
---------- ----------
Net earnings (loss) available for common
stockholders........................................ $ 3,584 $ (23,713)
========== ==========
Pro forma net earnings (loss) per common share....... $ .18 $ (1.23)
Weighted average common shares outstanding........... 19,375,618 19,373,240
</TABLE>
17
<PAGE>
COMPARATIVE PER SHARE DATA
Comparative Per Share Data. The following table sets forth for each of Bank
Plus Common Stock and Hancock Stock certain historical, unaudited pro forma and
unaudited pro forma equivalent per share financial information to reflect
consummation of the Merger, based upon the historical financial statements of
Bank Plus and Hancock. The information presented herein is for information
purposes only and should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, including the notes thereto, appearing elsewhere
in this Proxy Statement/Prospectus and the separate historical consolidated
financial statements of Bank Plus and Hancock which, in the case of Bank Plus,
appear as an Annex to this Proxy Statement/Prospectus and, in the case of
Hancock, are included in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF OR
FOR THE THREE FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Net Earnings (loss) Per Common Share:
Bank Plus Common Stock:
Historical net earnings (loss) per
share................................. $ 0.23 $(0.86)
Pro forma (Bank Plus and
Hancock)(1)(4)........................ $ 0.18 $(1.23)
Cash dividends per share............... $ -- $ --
Hancock Stock:
Net loss per share..................... $(0.25) $(7.27)
Equivalent pro forma earnings (loss)
per share(3).......................... $ .16 $(1.07)
Cash dividends per share............... $ -- $ --
Book Value Per Common Share (End of
Period):
Bank Plus Historical..................... $ 8.88
Hancock Historical....................... $ 3.89
Pro forma (Bank Plus and Hancock)(2)(4).. $ 8.98
Equivalent pro forma for Hancock(3)...... $ 7.79
</TABLE>
- --------
(1) Represents the pro forma combined information of Bank Plus and Hancock as
if the Merger were consummated on January 1, 1997 and January 1, 1996
respectively, and accounted for as a purchase.
(2) Represents the pro forma combined information of Bank Plus and Hancock as
if the Merger were consummated on March 31, 1997 and accounted for as a
purchase.
(3) Represents pro forma combined information of Bank Plus and Hancock
multiplied by an assumed exchange ratio of .8677 of a share of Bank Plus
Common Stock for each share of Hancock Stock. This assumes the Bank Plus
Stock Consideration Value is $12,012,000, the number of shares of Hancock
Stock issued and outstanding immediately prior to the Effective Time is
1,302,862 and the Market Value Per Bank Plus Share is $10.625 (the last
reported sales price of the Bank Plus Common Stock on June 27, 1997). No
assurance can be given that the Bank Plus Stock Consideration Value will
not be adjusted below $12,012,000, that certain of the outstanding options
to purchase Hancock Stock will not be exercised prior to the Effective
Time, and/or that the Market Value Per Bank Plus Share will not be more or
less than $10.625, any of which events would cause the exchange ratio to be
different from the assumed exchange ratio mentioned above.
(4) Pro forma earnings per share and book value per share were calculated
assuming a Bank Plus stock price of $10.625 and a Bank Plus Stock
Consideration Value of $12,012,000.
18
<PAGE>
MARKET PRICES AND DIVIDENDS
BANK PLUS COMMON STOCK
Effective March 14, 1996, the Bank's Class A Common Stock was listed and
quoted on the Nasdaq National Market under the symbol "BPLS". Commencing May 5,
1996, the Bank Plus Common Stock was listed and quoted on the Nasdaq National
Market replacing the Bank's Class A Stock. During 1995 and part of 1994, the
Class A Common Stock of the Bank was traded over the counter and quoted on the
Over the Counter Bulletin Board (the "OTCBB").
The following table sets forth the high and low daily closing sales prices of
the Bank Plus Common Stock on the Nasdaq National Market commencing May 5,
1996, the high and low daily closing sales prices of the Bank's Class A Common
Stock on the Nasdaq National Market between March 14, 1996 and May, 1996 and
the high and low bid price of the Bank's Class A Common Stock on the OTCBB
between May 5, 1995 and May 5, 1996 for each of the following quarters:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997(1)
Second quarter (through June 27, 1997).................. $11.50 $ 9.63
First quarter........................................... 13.75 10.38
1996(1)
Fourth quarter.......................................... $11.75 $10.63
Third quarter........................................... 10.63 8.75
Second quarter.......................................... 9.50 8.63
First quarter........................................... 9.75 8.50
1995(1)(2)
Fourth quarter.......................................... $ 9.25 $ 5.50
Third quarter........................................... 11.50 6.00
Second quarter.......................................... 18.00 11.00
First quarter........................................... 20.00 16.00
</TABLE>
- --------
(1) Closing sale prices reflect the one-for-four reverse stock split approved
by stockholders of the Bank on February 9, 1996.
(2) Prior to May 5, 1995, the Bank's Class A Common Stock was not quoted on the
OTCBB and bid prices were provided by J.P. Morgan Securities, Inc.
The last reported sales price per share of the Bank Plus Common Stock, as
quoted on the Nasdaq National Market on June 27, 1997 was $10.625 per share.
The number of holders of record of the Bank Plus Common Stock on June 20, 1997
was 553.
Bank Plus has paid no dividends on the Bank Plus Common Stock since its
formation in May 1996. Prior thereto, the Bank had not paid dividends on its
Class A Common Stock since August 1994. Bank Plus currently has no plans to pay
dividends on the Bank Plus Common Stock.
Stockholders of Hancock are encouraged to obtain current quotations for
shares of Bank Plus Common Stock.
19
<PAGE>
HANCOCK STOCK
Hancock Stock is listed on the OTC Bulletin Board under the trading symbol
"HASB." To date there has been limited trading in Hancock Stock, and such
trades cannot be characterized as constituting an active trading market.
Hancock is aware of two securities dealers who trade in the Hancock Stock. The
following table sets forth, for the periods indicated, the high and low sales
prices of Hancock Stock as reported by the OTC Bulletin Board for the periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
1997
Second Quarter (through June 27, 1997)........................ $ -- $--
First Quarter................................................. 9.00 8.625
1996
Fourth Quarter................................................ 9.00 8.50
Third Quarter................................................. 10.00 7.75
Second Quarter................................................ 8.25 7.25
First Quarter................................................. 8.00 3.25
1995
Fourth Quarter................................................ 3.50 3.125
Third Quarter................................................. 3.25 2.50
Second Quarter................................................ 2.00 2.00
First Quarter................................................. 4.375 2.00
</TABLE>
On June 17, 1997, (the last day on which a trade occurred before the date
hereof), the sales price for the Hancock Stock was $7.75 per share, as reported
by the OTC Bulletin Board. Hancock paid no cash dividends during 1995, 1996 or
1997. As a federally chartered and insured financial institution with an
inadequate capital position, Hancock is subject to restrictions on the ability
to pay cash dividends. See "INFORMATION REGARDING HANCOCK--Supervision and
Regulation of Hancock--Prompt Corrective Action Notification; Cease and Desist
Order" and "--Federal Savings Institution Regulation--Limitation on Capital
Distributions." As of the Record Date, there were 1,302,862 shares of Hancock
Stock outstanding, held by approximately 360 stockholders of record.
20
<PAGE>
RISK FACTORS
The Bank Plus Common Stock offered hereby involve a high degree of risk. In
considering whether to vote in favor of the Merger Agreement, holders of
Hancock Stock are urged to read and carefully consider the matters set forth
below, as well as the other information contained herein.
RISK OF CONTINUING LOSSES
Beginning in late 1991, the impact of the economic recession and substantial
declines in real estate values in Southern California began to adversely
affect collateral values and the ability of certain borrowers to repay their
obligations to the Bank. This led to high levels of NPAs and net chargeoffs in
1991, which adversely affected the Bank's asset quality and results of
operations. The foregoing factors contributed to a net loss of $65.9 million
($62.72 per share), a net loss of $128.4 million ($39.08 per share) and a net
loss of $69.0 million ($8.84 per share) for the years ended December 31, 1993,
1994 and 1995, respectively. The Bank's losses during these periods were
primarily due to significant increases in the provision for loan and real
estate losses, lower net interest income due primarily to high levels of NPAs,
decreased fee income due primarily to shrinkage of the Bank's deposit base,
and increased operating and other expenses relating to managing the Bank's
problem asset portfolio and the write-off of certain intangible assets.
For the year ended December 31, 1996, the Company reported a net loss before
minority interest in subsidiary of $9.4 million (after giving effect to the
Savings Association Insurance Fund ("SAIF") special assessment of $18.0
million). Earnings during 1996 were positively affected by, among other
things, a reduced provision for estimated loan losses of $15.6 million
compared to provisions of $69.7 million (including the effect of a $45 million
loan portfolio charge taken in connection with the Bank's adoption of the
Accelerated Asset Resolution Plan (the "Accelerated Asset Resolution Plan")),
$65.6 million and $65.1 million during 1995, 1994 and 1993, respectively. The
lower provision during 1996 is attributable to, among other things, lower
levels of NPAs and classified assets in 1996 compared to prior years and the
effect of the Accelerated Asset Resolution Plan and the $45.0 million reserve
taken in connection therewith in 1995. No assurance can be given that economic
conditions that may affect the Bank's market area or other circumstances will
not require an increased provision which could have an adverse effect on the
Company's financial condition and results of operations. See "--Adequacy of
Allowance for Loan and Real Estate Losses."
HIGH LEVELS OF NONPERFORMING ASSETS AND OTHER ASSETS WITH INCREASED RISK
Due to significant decreases in rental rates and property values, loans
originated during the years 1987 through 1991 (which included the peak years
of Southern California real estate values in recent periods) are characterized
by generally higher loan to value ratios and lower debt coverage ratios. The
levels of the Bank's NPAs between 1989 and 1994 increased as economic
conditions worsened and contributed to substantial declines in real estate
values. Subsequent to the 1994 Recapitalization and Restructuring, the levels
of NPAs decreased substantially and remained at such lower levels during 1995
and 1996. As of March 31, 1997, 62% of the outstanding gross loan portfolio
was originated between 1987 and 1991. Of the loan and REO chargeoffs for the
three months ended March 31, 1997, 81% were associated with loans originated
in such period. High levels of NPAs were exacerbated as a result of the Bank's
concentration of loans secured by multifamily properties in geographic areas
that suffered particularly significant declines in rental rates and real
estate values and the impact of the Northridge earthquake. See "--Dependence
on Real Estate and High Concentration of Multifamily Residential Loans."
Levels of NPAs may remain at current levels or may increase in the future as
problem loans are worked out and in some instances properties are taken into
REO. The real estate market in Southern California and the overall economy in
the areas where the Bank operates are likely to continue to have a significant
effect on the quality of the Company's assets in the future.
21
<PAGE>
ADEQUACY OF ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
The Company's results of operations have been adversely affected in recent
years by significant loan and real estate loss provisions taken in light of
significant charge-offs against the Bank's allowance for estimated loan and
REO losses and high levels of NPAs and increased levels of REO, particularly
with respect to the Bank's loans on multifamily properties of 5 units or more.
The amount of the Bank's allowance for loan losses represents management's
estimate of the amount of loan losses likely to be incurred by the Bank, based
upon various assumptions as to economic and other conditions. As such, the
allowance for loan losses does not represent the amount of such losses that
could be incurred under adverse conditions that management does not consider
to be the most likely to arise. In addition, management's classification of
assets and evaluation of the adequacy of the allowance for loan losses is an
ongoing process. Consequently, there can be no assurance that material
additions to the Bank's allowance for loan losses will not be required in the
future, thereby adversely affecting earnings and the Bank's ability to
maintain or build capital. While management believes that the current
allowance is adequate to absorb the known and inherent risks in the loan
portfolio, no assurances can be given that the allowance is adequate or that
economic conditions which may adversely affect the Bank's market area or other
circumstances will not result in future loan or REO losses, which may not be
covered completely by the current allowance or may require an increased
provision which could have an adverse effect on the Bank's financial condition
and results of operations. Significant additional loan and real estate loss
provisions may negatively impact the Bank's future results of operations and
levels of regulatory capital.
ECONOMIC CONDITIONS IN FIDELITY'S MARKET AREA
The performance of the Bank's multifamily and commercial loan portfolios has
been adversely affected by Southern California economic conditions. These
portfolios are particularly susceptible to the potential for further declines
in the Southern California economy, such as increasing vacancy rates,
declining rents, increasing interest rates, declining debt coverage ratios and
declining market values for multifamily and commercial properties. In
addition, the possibility that investors may abandon properties or seek
bankruptcy protection with respect to properties experiencing negative cash
flow, particularly where such properties are not cross-collateralized by other
performing assets, can also adversely affect the multifamily loan portfolio.
California has been hit particularly hard by adverse economic conditions and
Southern California has experienced the brunt of the economic downturn in the
state. Although certain economic indicators suggest that the Southern
California economy is beginning to improve, many factors key to recovery may
be impacted adversely by the Federal Reserve Board's interest rate policy as
well as other factors. Consequently, rents and real estate values may not
stabilize, which may affect future delinquency and foreclosure levels and may
adversely impact the Company's asset quality, earning performance and capital
levels.
DEPENDENCE ON REAL ESTATE AND HIGH CONCENTRATION OF MULTIFAMILY RESIDENTIAL
LOANS
At March 31, 1997, substantially all of the Bank's loan portfolio was
secured by real estate, and the Company had $23.6 million of net REO. In light
of the economic recession in Southern California and the impact it has had and
may have on the Southern California real estate market, the Bank's real estate
dependence and high concentration of multifamily loans on properties of 5 or
more units (approximately 62% of the Bank's mortgage loan portfolio) increases
the risk of loss in the Bank's loan portfolio.
Prior to the 1994 Restructuring and Recapitalization, the Bank experienced
high delinquency rates in its multifamily portfolio of 5 or more units
reflecting, among other things, (i) high vacancy rates, (ii) low apartment
rental rates, (iii) a greater willingness of borrowers to abandon such
properties or seek bankruptcy protection, particularly where such properties
are experiencing negative cash flow and the loans are not cross-collateralized
by other performing properties, and (iv) the substantial decreases in the
market value of multifamily properties experienced in recent periods
(resulting, in many cases, in appraised values less than the outstanding loan
balances).
22
<PAGE>
Multifamily lending on properties of 5 or more units typically involves
larger loans to a single obligor and is generally viewed as exposing the
lender to a greater risk of loss than single family and multifamily (2 to
4 units) lending. The liquidation value of multifamily properties may be
adversely affected by risks generally incident to interests in real property,
which include: changes or continued weakness in general or local economic
conditions and/or specific industry segments, declines in real estate values,
declines in rental, room or occupancy rates, increases in interest rates, real
estate and personal property tax rates and other operating expenses (including
energy costs), the availability of refinancing, changes in governmental rules,
regulations and fiscal policies, including rent control ordinances and
environmental legislation, and other factors beyond the control of the
borrower or the lender.
CAPITAL REQUIREMENTS
The minimum capital requirements applicable to savings associations, such as
the Bank, were significantly increased by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"). Under FIRREA, as implemented
to date by the OTS, thrifts are required to maintain ratios of tangible
capital to adjusted total assets (as defined in the regulations) of at least
1.5%, core capital to adjusted total assets (as defined in the regulations) of
at least 3% and total capital to risk-weighted assets (as defined in the
regulations) of at least 8%.
The FDICIA, among other things, required the OTS to implement a system
providing for regulatory sanctions against institutions that are not
adequately capitalized. The severity of the sanctions increases to the extent
that an institution's capital continues to decline. Under the Prompt
Corrective Action ("PCA") Regulations, an institution is adequately
capitalized (and, therefore, not undercapitalized) if (1) its ratio of core
capital to adjusted total assets (as defined in the regulations) is at least
4%, (2) its ratio of core capital to risk-weighted assets (as defined in the
regulations) is at least 4% and (3) its ratio of total capital to risk-
weighted assets (as defined in the regulations) is at least 8%. An institution
is treated as well capitalized if its core capital to adjusted total assets
ratio is at least 5%, its core capital to risk-weighted assets ratio is at
least 6%, and its total capital to risk-weighted assets is at least 10% and no
OTS order or directive requiring higher capital ratios is then in effect.
At March 31, 1997, the Bank met the requirements to be deemed well
capitalized for regulatory purposes. However, there can be no assurance that
the Bank will remain well capitalized in the future.
The OTS also has the authority to establish, for individual thrifts, an
individual minimum capital requirement ("IMCR") in excess of the standard
requirement upon a determination by the OTS that such an IMCR is necessary or
appropriate in light of such thrift's particular circumstances. For example,
the OTS may determine that an IMCR is appropriate if, among other things, the
OTS believes that an institution (i) has a high degree of exposure to interest
rate risk or credit risk, (ii) has a high degree of exposure to concentration
of credit risk or risks arising from nontraditional activities or fails to
adequately monitor and control the risks presented by concentration of credit
and nontraditional activities, (iii) may be adversely affected by the
operation or condition of its holding company, (iv) has a portfolio reflecting
weak credit quality or a significant likelihood of financial loss or (v) has
inadequate underwriting standards or procedures. If the OTS determines that an
IMCR should be imposed on an institution, the institution has an opportunity
to submit a response to the OTS, but may have no opportunity for judicial
review of an IMCR. If an institution fails to meet either the standard minimum
capital requirements or any IMCR that may be imposed on it, it will become
subject to a number of regulatory sanctions. Although the Bank is not
currently subject to an IMCR, there can be no assurance that the Bank will not
be subject to an IMCR in the future.
The Bank's failure to meet its regulatory capital requirements would provide
grounds for one or more of the following actions, depending on the severity of
the violation: a requirement that the Bank file a capital restoration plan, a
requirement that the Bank take additional actions to comply with the capital
restoration plan, the issuance of a cease and desist order, the issuance of a
capital directive, the imposition of civil money penalties on the Bank and
certain affiliated parties, the imposition of such operating restrictions as
the OTS deems
23
<PAGE>
appropriate at the time, such other actions by the OTS as it may be authorized
or required to take under applicable statutes and regulations and, under
certain circumstances, the appointment of a conservator or receiver for the
Bank.
FLUCTUATIONS IN INTEREST RATES
Prevailing economic conditions, particularly changes in market interest
rates, as well as governmental policies and regulations concerning, among
other things, monetary and fiscal affairs, significantly affect interest rates
and a savings institution's net interest income. The results of operations of
the Company depend to a large extent on net interest income, which is the
difference between interest the Company receives from its loans, securities
and other interest-earning assets and the interest expense the Company pays on
its deposits and other interest-bearing liabilities. The Company is subject to
risk from fluctuations in interest rates to the extent its interest-bearing
liabilities mature or reprice at different times or on a different basis than
its interest-earning assets. Generally speaking, maturing liabilities, such as
deposits, may be replaced only with new liabilities paying interest rates
prevailing at the time of maturity, which may possibly be higher than the
rates applicable to the liabilities they replaced. Similarly, rates paid on
liabilities which reprice or adjust are adjusted based on interest rates
prevailing at the time of the repricing or adjustment. "Gap," generally
speaking, represents the estimated difference between the amount of interest-
earning assets and interest-bearing liabilities repricing during future
periods as adjusted for interest-rate swaps and other financial instruments as
applicable, and based on certain assumptions. One method the Company uses to
measure its exposure to interest rate fluctuations is by calculating its one-
year Gap, which is the ratio of (i) the difference between interest-sensitive
assets and those liabilities that mature or reprice within 12 months to (ii)
total assets. Analysis of the Gap provides only a static view of the Bank's
interest rate sensitivity at a specific point in time. The actual impact of
interest rate movements on the Company's net interest income may differ from
that implied by any Gap measurement. The Company's maturity and repricing
mismatch between interest rate sensitive assets and liabilities due within one
year was a positive 18.99% at March 31, 1997, compared to a negative one-year
Gap of 2.84% at December 31, 1996 and a positive one-year Gap of 7.06% at
December 31, 1995. With a positive one-year Gap, the Company would anticipate
a rising net interest rate margin over the near term in a rising rate
environment. Conversely, in a falling interest rate environment, the Company
would anticipate that net interest margin would be adversely affected.
At March 31, 1997, approximately 93.5% of the Company's total loan portfolio
consisted of loans which mature or reprice in accordance with the Federal Home
Loan Bank Eleventh District Cost of Funds Index within one year, compared with
approximately 92.6% at December 31, 1996, approximately 92.4% at December 31,
1995 and approximately 90.6% at December 31, 1994. During the latter part of
1995 and early 1996, the Company benefited from the fact that decreases in the
interest rates accruing on the Company's adjustable rate mortgage ("ARM")
loans lagged the decreases in interest rates accruing on its deposits. During
the rising interest rate environment experienced in early 1995 and the latter
part of 1996, however, the Company's net interest margin was reduced. If
interest rates were to increase again, the Company's net interest income may
suffer further as a result.
SIGNIFICANT REGULATION
The financial institutions industry is subject to significant regulation,
which has materially affected the industry in the past and will likely do so
in the future. Such regulations, which affect Fidelity and Bank Plus on a
daily basis, may be changed at any time, and the interpretation of the
relevant law and regulations is also subject to change by the authorities who
examine the Bank and interpret those laws and regulations. There can be no
assurance that any present or future changes in the laws or regulations or in
their interpretation will not materially and adversely affect the Company.
LEGAL PROCEEDINGS
The Bank was named as a defendant in a purported class action lawsuit
alleging violations of federal securities laws in connection with the offering
of common stock by the Bank in 1994 as part of the Bank's 1994
24
<PAGE>
Restructuring and Recapitalization. The suit was filed by Harbor Finance
Partners ("Harbor") in an alleged class action complaint in the United States
District Court-Central District of California on July 28, 1995 and originally
named as defendants the Bank, Citadel, Richard M. Greenwood (the Bank's chief
executive officer and Citadel's former chief executive officer), J.P. Morgan
Securities, Inc. and Deloitte & Touche LLP. The suit alleged that false or
misleading information was provided by the defendants in connection with the
Bank's 1994 Restructuring and Recapitalization and stock offering and that the
defendants knew and failed to disclose negative information concerning the
Bank. A motion to dismiss the original complaint was filed by the Bank, and
was granted without opposition. Thereafter, Harbor filed an amended complaint
that did not include J.P. Morgan Securities, Inc. and Deloitte & Touche LLP as
defendants and that contained some factual and legal contentions which were
different from those set forth originally. On May 21, 1996, the court granted
the Bank's and Greenwood's motion to dismiss the first amended complaint, but
granted leave to amend. Following the filing of a second amended complaint,
the Bank and Greenwood filed a motion to dismiss. At a hearing on July 22,
1996, the court ruled that the case should be dismissed with prejudice and a
formal order to that effect was submitted to the court for execution. Harbor
lodged certain objections to the proposed order, including objections that the
state law claims in the second amended complaint should not be dismissed with
prejudice. The court's order of dismissal was entered on August 5, 1996 and
provided that all claims asserted in the second amended complaint under
federal law were dismissed with prejudice and those under state law were
dismissed without prejudice to their renewal in state court pursuant to 28
U.S.C. (S) 1367(b)(3). Harbor has filed a notice of appeal to the order of
dismissal. The briefing in the appeal is now concluded and the appeal awaits
hearing and disposition. On August 30, 1996, Harbor filed an alleged class
action complaint in state court containing allegations similar to those raised
in the federal court action as well as claims for unfair business practices to
which the Bank and Greenwood filed demurrers seeking to have the case
dismissed for failure to state a legally sufficient claim. These demurrers
were sustained without leave to amend on March 13, 1997 and a judgment of
dismissal has been entered in the trial court. The plaintiff has 60 days from
notice of the entry of judgment to file an appeal.
In addition, the Bank is a defendant in several individual and purported
class actions brought by several borrowers which raise claims with respect to
the manner in which the Bank serviced certain adjustable rate mortgages which
were originated during the period 1983 through 1988. The actions have been
filed between July 1, 1992 and February of 1995. In one case the Bank won a
summary judgment in Federal District Court. This judgment was appealed. On
July 25, 1996, the Ninth Circuit Court of Appeals filed its opinion which
affirmed in part, reversed in part and remanded back to the Federal District
Court for further hearing. In three Los Angeles Superior Court cases,
judgments in favor of the Bank were recently entered. Plaintiff has appealed
in all three cases. Two other cases are pending in the Los Angeles Superior
Court. The plaintiffs' principal claim is that the Bank selected an
inappropriate review date to consult the index upon which the rate adjustment
is based that was one or two months earlier than what was required under the
terms of the notes. In a declining interest rate environment, the lag effect
of an earlier review period defers the benefit to the borrower of such
decline, and the reverse would be true in a rising interest rate environment.
The Bank strongly disputes these contentions and is vigorously defending these
suits. The legal responsibility and financial exposure of these claims
presently cannot be reasonably ascertained and, accordingly, there is a risk
that the final outcome of one or more of these actions could result in the
payment of monetary damages that could be material in relation to the
financial condition or results of operations of the Bank. The Bank does not
believe the likelihood of such a result is probable and has not established
any specific litigation reserves with respect to such lawsuits.
Although there can be no assurance, the Company's management and its counsel
believe that none of the foregoing lawsuits or claims will have a material
adverse effect on the financial condition or business of the Company.
25
<PAGE>
COMPETITION
The Company faces substantial competition for loans and deposits throughout
its market areas. The Company competes on a daily basis with commercial banks,
other savings institutions, thrift and loans, credit unions, finance
companies, retail investment brokerage houses, mortgage banks, money market
and mutual funds and other investment alternatives and other financial
intermediaries, many of which have substantially greater resources, experience
and capital than the Company. The Company faces competition throughout its
market area from local institutions, which have a large presence in the
Company's market areas, as well as from out-of-state financial institutions
which have offices in the Company's market areas. Many of these other
institutions offer services which the Company does not offer, including trust
services. Furthermore, banks with a larger capital base and financial firms
not subject to the restrictions imposed by banking regulation have larger
lending limits and can therefore serve the needs of larger customers.
26
<PAGE>
THE HANCOCK STOCKHOLDERS' MEETING
TIME, PLACE AND DATE OF THE MEETING
The Meeting will be held at the offices of Hancock located at 157 North
Larchmont, Los Angeles, California, on , July , 1997, at 8:00 a.m., Los
Angeles time.
MATTERS TO BE CONSIDERED AT THE MEETING
The purposes of the Meeting are (i) to consider and vote upon a proposal to
approve the Merger Agreement; (ii) to elect three directors to serve for
three-year terms or until their successors are elected and qualified; and
(iii) to consider and vote upon the grant of the Kellogg Option.
RECORD DATE
The Hancock Board of Directors has fixed the close of business on June 16,
1997 as the Record Date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting. Accordingly, only holders of record of
shares of Hancock Stock on the Record Date will be entitled to vote at the
Meeting. As of the Record Date, there were 1,302,862 shares of Hancock Stock
outstanding, held by approximately 360 stockholders of record.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the Meeting and if a stockholder
does not return the signed proxy card, such holder's shares will not be voted
and this will have the effect of a vote "AGAINST" the approval of the Merger
Agreement and "AGAINST" the approval of the grant of the Kellogg Option.
Stockholders are therefore urged to mark the box on the proxy card to indicate
how their shares are to be voted. If a stockholder returns a signed proxy card
but does not indicate how the shares represented by the proxy card are to be
voted, such shares will be voted "FOR" approval of the Merger Agreement, "FOR"
election of the director nominees and "FOR" the approval of the Kellogg
Option.
The proxy card also confers discretionary authority on the proxy holder to
vote the shares represented thereby on any other matter that is properly
presented for action at the Meeting. A stockholder who has given a proxy may
revoke it at any time prior to its exercise at the Meeting by delivering an
instrument of revocation to the Secretary of Hancock, by duly executing and
submitting a proxy card bearing a later date, or by appearing at the Meeting
and voting in person. However, the mere presence at the Meeting of the
stockholder who has given a proxy will not revoke such proxy. BROKERS WHO HOLD
SHARES OF HANCOCK STOCK AS NOMINEES WILL NOT HAVE DISCRETIONARY AUTHORITY TO
VOTE SUCH SHARES IN CONNECTION WITH THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT IN THE ABSENCE OF INSTRUCTIONS FROM THE BENEFICIAL OWNERS.
Proxies will be solicited through the use of mails. In addition, certain
directors, officers and employees of Hancock may solicit proxies (for no
additional compensation) by personal interview, telephone, telegram or similar
means of communication.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of Hancock Stock entitled to
vote at the Meeting is necessary to constitute a quorum at the Meeting.
Abstentions and broker non-votes will be treated as shares present and
entitled to vote for purposes of determining the presence of a quorum.
27
<PAGE>
VOTE REQUIRED
Hancock stockholders are entitled to one vote at the Meeting for each share
of Hancock Stock held of record by them as of the Record Date on each matter
to be considered at the Meeting, except that, upon request, stockholders will
have cumulative voting rights with respect to the election of directors.
Cumulative voting rights entitle each stockholder to cast for one nominee a
total number of votes equal to the number of shares the stockholder held of
record on the Record Date multiplied by the number of directors to be elected
or to distribute those votes on the same principle among as many nominees as
the stockholder chooses. No stockholder will be entitled to cumulate votes for
a nominee unless that nominee's name has been placed in nomination prior to
the voting and a stockholder has given notice at the Meeting prior to the
voting of that stockholder's intention to cumulate his votes. Discretionary
authority to cumulate votes in the event that cumulative voting is invoked is
solicited by the Board of Directors. The affirmative vote of the holders of
two-thirds (66 2/3%) of the outstanding shares of Hancock Stock is required to
approve the Merger Agreement. Abstentions and broker non-votes will have the
same effect as a vote "AGAINST" the proposal. In the election of directors,
the three candidates receiving the highest number of votes will be elected.
Discretionary authority to cumulate votes is hereby solicited by the Board of
Directors, and the return of an executed proxy shall grant such authority. The
affirmative vote of the holders of at least a majority of the outstanding
shares of Hancock Stock eligible to be cast at the Meeting is required to
approve the Kellogg Option.
In the event that the votes necessary to approve any of the foregoing
proposals have not been obtained by the date of the Meeting or a quorum is not
present at the Meeting, the Chairman of the Meeting may, in his or her
discretion, adjourn the Meeting from time to time to permit the solicitation
of additional proxies by the Board of Directors.
As of the Record Date, directors, executive officers and affiliates of such
directors and executive officers of Hancock beneficially owned an aggregate of
751,787 shares of Hancock Stock (not including shares issuable upon exercise
of Options) or approximately 57.7% of the shares outstanding as of the Record
Date. As of the Record Date, Bank Plus beneficially owned no shares of Hancock
Stock.
STOCKHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND HANCOCK'S MANAGEMENT
Management of Hancock knows of no person or entity, other than those listed
in the table under "INFORMATION REGARDING HANCOCK--Beneficial Ownership of
Hancock Stock--Principal Stockholders" below, who owns, beneficially or of
record, either individually or as a group, five percent or more of the
outstanding shares of Hancock Stock.
28
<PAGE>
PROPOSAL 1--APPROVAL OF THE MERGER
BACKGROUND AND REASONS FOR THE MERGER
On September 2, 1995, Hancock retained Hovde to assist the Board in
evaluating strategic options, including the potential sale of Hancock to a
prospective merger partner or acquiror. The Board's decision to engage Hovde
was motivated primarily by the increasing level of merger and acquisition
activity in California and in response to inquiries directed to Hancock by two
prospective acquirors. Commencing in the fourth quarter of 1995, Hovde
marketed Hancock to a number of financial institutions. Although Hovde
received preliminary expressions of interest from three financial
institutions, no proposals satisfactory to the Hancock Board were received.
As a result of the absence of a satisfactory acquisition proposal coupled
with the issuance by the OTS of a prompt corrective action directive in March
1996 and regulatory demands for increased capital, the Board elected to
temporarily abandon marketing efforts and seek a recapitalization of Hancock.
The Board then contacted and interviewed three financial advisory firms to
assist Hancock in completing a recapitalization. The Board selected Hovde to
assist Hancock in completing a private placement of $4.0 million in new
equity. The new equity was to be raised through the issuance of Hancock Stock
to Hancock Park Acquisition, L.P., a newly formed limited partnership
controlled by principals of Hovde. In electing to complete a private
placement, the Board believed that the infusion of new equity would enable
management to stabilize operations, eliminate regulatory concerns and address
lingering asset quality problems.
As a result of losses incurred during the second quarter of 1996 and the
OTS' requirement that Hancock have minimum capital ratios required for an
institution to be "well capitalized" under the prompt corrective action
provisions of the FDICIA following completion of the offering, the private
placement to Hovde, which was completed in August 1996, was increased to $4.4
million.
The OTS conducted an examination of Hancock during the third and fourth
quarters of 1996. The results of the examination together with the additional
losses incurred by Hancock which again caused Hancock to fall below the
capital levels required to be a "well capitalized" institution, caused the OTS
to impose increased regulatory pressure for the Board either to raise
additional capital or to find an acquiror for the institution. Thereafter, the
Board accelerated its efforts to market Hancock and, in December 1996,
retained Wedbush Morgan Securities Inc. ("Wedbush") to assist Hancock in
identifying a suitable acquiror.
During the first quarter of 1997, Wedbush marketed Hancock to several
financial institutions. These efforts resulted in one institution completing
on-site due diligence and then withdrawing and one other institution
("California I") completing an extensive off-site due diligence and delivering
a non-binding proposal to Hancock. California I's proposal included a pricing
formula set as a multiple to book value, with book value to be determined
following completion of due diligence. In addition, this proposal required
Hancock to enter a definitive agreement with "lock up" provisions prior to the
commencement of due diligence by California I.
On March 21, 1997, Hancock's Board of Directors authorized Hovde to contact
Bank Plus and one other institution that Hovde had previously contacted on
Hancock's behalf in order to evaluate a potential business combination with
Hancock. On March 28, 1997, the Hancock Board stipulated to the issuance of by
the OTS of the Order which, among other things, requires Hancock to raise
additional capital or alternatively to recapitalize by merging or being
acquired by no later than June 30, 1997. In late March 1997, representatives
of Hovde met with representatives of Bank Plus to discuss a potential
combination and expected pricing levels. During this meeting, representatives
of Hovde discussed a price of $10.00 per fully diluted share of Hancock, or
total consideration of approximately $13.2 million. Following this meeting,
representatives of Bank Plus stated a preliminary interest in acquiring
Hancock and proceeded with discussions on the basis of a $10.00 fully diluted
per share price.
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On April 1, 1997, Hovde met with Hancock's Board of Directors to present the
Bank Plus proposal and obtain authorization for Bank Plus to commence due
diligence. The Bank Plus proposal was presented to the Board at the same time
Hancock was considering California I's proposal. Based upon the strength of
the Bank Plus proposal relative to California I's proposed offer, and
following extensive deliberations by the Board, Hancock authorized Bank Plus
to commence due diligence.
During April 1997, representatives of Bank Plus conducted a due diligence
examination of Hancock's loan portfolio. During the course of this
examination, Bank Plus identified a number of areas of Hancock's loan
portfolio which they believed would require additional loss reserves beyond
the level represented by Hovde's $10.00 per fully diluted share analysis.
Based upon these findings, and the results of Hancock's internal analysis,
Bank Plus advised Hovde that they would lower their bid from $10.00 per fully
diluted share to a level of $8.00 per fully diluted share. On April 17, 1997,
Hovde met with Hancock's Board to present Bank Plus' conclusions and revised
offer. Based upon Hovde's analysis of the Bank Plus offer relative to expected
valuations following completion of a recapitalization, the Board concluded
that the $8.00 per fully diluted share offer was unacceptable and directed
Hovde to attempt to continue negotiations with Bank Plus in an effort to
negotiate a higher price. From April 17 through April 21, 1997, Hovde met with
representatives of Bank Plus to seek an increase in the offer to a level of no
less than $9.00 per fully diluted share. On April 25, 1997, Bank Plus
indicated a possible willingness to provide Hancock's stockholders with total
consideration of $12,012,000 or an equivalent of $9.00 per fully diluted
share, which amount would be subject to certain offsets to be more fully set
forth in a definitive merger agreement, subject to completion of due diligence
and negotiation of a definitive merger agreement acceptable to the Boards of
Directors of Hancock, Bank Plus and Fidelity.
On April 26, 1997, representatives of Hovde and Hancock management discussed
the new proposal with Hancock's Board. Following a thorough discussion of the
merits of the proposal, Hancock's Board authorized management to proceed with
negotiation of a definitive merger agreement consistent with the new proposal.
On April 30, 1997, Bank Plus' and Fidelity's Boards of Directors authorized
their management to proceed with negotiations to acquire 100% of Hancock's
issued and outstanding stock for total consideration of no more than
$12,012,000, subject to certain price adjustments. The consideration was to be
all stock and the transaction was intended to qualify as a tax-free
reorganization. On May 2, 1997, the OTS issued the PCA Notification to
Hancock, which notified Hancock that it was "significantly undercapitalized"
under the prompt corrective action provisions of the FDICIA. As such, Hancock
became subject to a number of significant operating restrictions which placed
a limit on Hancock's business operations and the requirement to submit an
acceptable capital restoration plan to the OTS within 45 days of May 2, 1997.
During May and June 1997, representatives of Hovde, Hancock, Bank Plus and
Fidelity and legal counsel to Hancock, Bank Plus and Fidelity met on several
occasions and held several telephone conferences to negotiate the terms of the
definitive Merger Agreement. On May 20, 1997, the Board received a verbal and
written opinion from Smith & Crowley indicating that the offer from Bank Plus
was fair from a financial point of view to the stockholders of Hancock. On
June 11, 1997, representatives of Hovde and Hancock's legal counsel met with
Hancock's Board to present the terms of the definitive Merger Agreement and
answer questions concerning the Merger and the Merger Agreement. In addition,
Ms. Kellogg advised the Hancock Board that Smith & Crowley had orally
confirmed its May 20, 1997 opinion. On such date, after discussion, the Board
authorized management, subject to the satisfactory negotiation of certain
outstanding items, to execute the Merger Agreement with Bank Plus. On June 13,
1997, the Boards of Directors of Bank Plus and Fidelity approved the proposed
acquisition subject to the resolution of certain issues. On June 25, 1997,
Hancock, Bank Plus and Fidelity executed the Merger Agreement.
In evaluating the proposed terms of the Merger, the Board of Directors of
Hancock considered a variety of factors, reviewed information relating to Bank
Plus and Fidelity and received reports from and presentations by its officers,
financial advisors and legal counsel. Among the factors considered by the
Board of Directors were: (i) the fact that the value of the consideration to
be paid in the Merger represents a premium over the current market price of
Hancock Stock; (ii) the requirements of the Order and alternatives to an
acquisition of Hancock, including the advisability of continuing to operate
Hancock as an independent entity, in light of Hancock's continued operating
losses and "significantly undercapitalized" status; (iii) the results of
operations and prospects of Bank Plus; (iv) the book value and earnings per
share of Hancock; (v) the value and form of the
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consideration to be paid in the Merger compared with prices paid in
acquisitions of comparable savings institutions; (iv) the opinion of Smith &
Crowley, confirmed in a letter to the Board of Directors, that the
consideration to be received in the Merger is fair from a financial point of
view to Hancock and its stockholders (see "--Opinion of Financial Advisor to
Hancock," below); (vii) the tax consequences of the transaction to Hancock
stockholders; (viii) the value of Bank Plus Common Stock as an investment,
including the opportunity to participate in the future performance of a larger
financial institution than Hancock, and (ix) the Board's belief that the
Merger will result in an expansion of the range of financial and investment
products that will be offered to Hancock's customers after the Merger, as well
as the opportunity to access Fidelity's larger branch network. The Hancock
Board concluded in light of these factors and other factors that it considered
appropriate, that the Merger is in the best interests of Hancock and its
stockholders.
The foregoing discussion of the information and factors considered by the
Hancock Board of Directors is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Hancock Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Hancock Board of Directors may have given different weights to different
factors.
THE BOARD OF DIRECTORS BELIEVES THE PROPOSED MERGER IS IN THE BEST INTERESTS
OF HANCOCK AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO HANCOCK
General. Pursuant to an engagement letter dated April 30, 1997 (the
"Engagement Letter"), Hancock engaged Smith & Crowley to act as a financial
advisor in connection with its evaluation of strategic alternatives, including
the possible merger of Hancock with Bank Plus and its subsidiary, Fidelity.
Smith & Crowley is an investment banking firm specializing in commercial
banks, savings and loan associations, savings banks and other financial
intermediaries, and, as part of its investment banking activities, is called
upon to advise clients in mergers, acquisitions, valuations and business
activities involving financial institutions. Hancock selected Smith & Crowley
as its financial advisor on the basis of this experience and the expertise of
Smith & Crowley and its principals in transactions similar to this Merger.
Prior to the May 20, 1997 meeting of Hancock's Board of Directors, the
management of Hancock presented information concerning the proposed terms of
the Merger to Smith & Crowley, upon which, at the May 20, 1997 meeting, Smith
& Crowley delivered its verbal and written opinion, that the consideration to
be received by the stockholders of Hancock pursuant to the Merger Agreement,
taken as a whole, is fair to Hancock and its stockholders from a financial
point of view. No limitations were imposed by Hancock on Smith & Crowley with
respect to the investigations made or procedures followed in rendering its
opinion. The May 20, 1997 written opinion was confirmed orally on June 11,
1997 and confirmed in writing on June 30, 1997. The full text of Smith &
Crowley's written opinion to the Hancock Board of Directors, which sets forth
the assumptions made, matters considered and limitations of the review by
Smith & Crowley, is attached hereto as Annex C and is incorporated herein by
reference and should be read carefully and in its entirety in connection with
this Proxy Statement/Prospectus. Smith & Crowley's opinion is addressed to the
Hancock Board of Directors, and does not constitute a recommendation to the
Board of Directors or to any stockholder of Hancock concerning the basic
business decision to proceed with or effect the Merger.
In connection with its opinion, Smith & Crowley, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Hancock, Bank Plus and Fidelity, including the annual audited consolidated
financial statements for 1992 through the latest available year end (1995 for
Hancock and 1996 for Bank Plus and Fidelity), unaudited interim periods to
March 31, 1997 and certain other relevant financial and operating data
relating to Hancock, Bank Plus and Fidelity made available to Smith & Crowley
from published
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sources and from the internal records; (ii) reviewed the form of the Merger
Agreement and made inquiries regarding and discussed the Merger, the Merger
Agreement and other matters related thereto with Hancock's management and
advisors; (iii) compared Hancock, Bank Plus and Fidelity from a financial
point of view with certain other companies and groups of companies in the
thrift industry that Smith & Crowley deemed to be relevant; (iv) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of companies in the thrift industry, which Smith &
Crowley deemed to be comparable, in whole or in part, to the Merger; (v)
reviewed and discussed with representatives of the management of Hancock,
certain information of a business and financial nature regarding Hancock
furnished to Smith & Crowley by them, including legal matters, credit quality
data and business plans and prospects of Hancock; (vi) reviewed and discussed
with representatives of the management of Bank Plus and Fidelity certain
information of a business and financial nature regarding Bank Plus furnished
to Smith & Crowley by them concerning the holding company and its principal
subsidiaries, including primarily publicly-available data on current financial
condition, credit quality and other pending business developments and general
business plans; (vii) reviewed the price history, trading volume and valuation
of Bank Plus Common Stock and, subject to more limited availability of
information, that of Hancock; (viii) met with various officers and other
members of management of Hancock, Bank Plus and Fidelity to discuss the
foregoing, as well as other matters Smith & Crowley viewed as relevant to its
analyses; and (ix) considered such other information, financial data and
analyses and economic and market criteria and performed such other analyses
and examinations as Smith & Crowley deemed appropriate.
In connection with its review, Smith & Crowley did not assume any
responsibility for independent verification of any of the foregoing
information, and relied on all such information and assumed all such
information was complete and accurate in all material respects. With respect
to the business plan for Hancock, provided to Smith & Crowley by Hancock's
management, Smith & Crowley assumed for purposes of its opinion that such plan
was reasonably prepared on bases reflecting the best available estimates and
judgments of the Hancock management at the time of preparation as to the
future business and financial performance of Hancock and provided a reasonable
basis upon which Smith & Crowley could form its opinion. Smith & Crowley
obtained publicly-available financial forecasts for Bank Plus, and Smith &
Crowley discussed the forecasts and general business plans, trends and
expectations with management of Bank Plus and Fidelity. Smith & Crowley also
assumed that there were no material changes in Hancock's, Bank Plus's or
Fidelity's assets, financial condition, results of operations, business or
prospects since the respective dates of the last financial statements made
available to Smith & Crowley. Smith & Crowley also discussed with legal
counsel for Hancock, Bank Plus and Fidelity pending or threatened litigation
involving the institutions. Smith & Crowley is not expert in the evaluation of
loan portfolios for purposes of assessing the adequacy of the allowance for
losses with respect thereto and assumed for purposes of its opinion that such
allowances for Hancock, Bank Plus and Fidelity are in the aggregate adequate
to cover such losses. In addition, Smith & Crowley did not review any
individual credit files, did not make an independent evaluation, appraisal or
physical inspection of the assets or individual properties of Hancock, Bank
Plus or Fidelity and was not furnished with any such appraisals. Further,
Smith & Crowley's opinion was based on economic, monetary, market and other
conditions as in effect on, and the information made available to Smith &
Crowley as of, the date of the opinion, and on the assumption that the Merger
will be consummated in accordance with its terms, without any amendment
thereto and without waiver by Bank Plus or Hancock of any of the conditions to
their obligations thereunder.
Set forth below is a brief summary of the analyses made by Smith & Crowley
in conjunction with its written opinion, which is attached hereto as Annex C.
Comparable Company Analysis. Using public and other available information
including FDIC Thrift Financial Report ("TFR") data, Smith & Crowley compared
certain financial ratios of Hancock, Bank Plus and Fidelity (including the
ratio of net income to average total assets ("return on average assets" or
"ROA"), the ratio of net income to average total equity ("return on average
equity" or "ROE"), certain capital adequacy ratios, certain credit quality
ratios, net interest margin, net interest income as a percent of average
assets and certain other income and cost control ratios) for 1994, 1995 and
1996 to four proxy groups: (i) a composite of all savings institutions in the
United States; (ii) a composite of all 66 California-based savings
institutions operating as of December 31, 1996; (iii) a similar composite of
all 33 California-based savings institutions with
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total assets of less than $400 million; and (iv) a similar composite of 23
Southern California-based savings institutions with assets of less than $400
million. Analysis of profitability (ROA and ROE) showed that Hancock trailed
all proxy group averages in all three time periods: In 1996, 1995 and 1994,
Hancock registered ROAs of (2.88)%, (0.86)% and (0.49)%, respectively.
Comparable data for the four composites were: United States: 0.60%, 0.68% and
0.51%, respectively; California: 0.36%, 0.55% and 0.20%, respectively;
California thrifts under $400 million: (0.05)%, (0.05)% and (0.04)%,
respectively; and Southern California thrifts under $400 million: (0.01)%,
(0.18)% and (0.01)%, respectively. Comparable data for Fidelity were
(0.29)%, (1.96)% and (2.75)%, respectively. Bank Plus was not formed until
1996 and its ROA in that year was (0.42)%. In 1996, 1995 and 1994, Hancock
registered ROEs of (69.02)%, (18.58)% and (8.99)%, respectively. Comparable
data for the four composites were: United States: 7.54%, 8.77% and 7.27%,
respectively; California: 5.38%, 8.46% and 3.15%, respectively; California
thrifts under $400 million: (0.72)%, (0.80)% and (0.58)%, respectively; and
Southern California thrifts under $400 million: (0.11)%, (3.02)% and
(0.17)%, respectively. Comparable data for Fidelity were (4.36)%, (41.99)% and
(62.88)%, respectively. Bank Plus's ROE for 1996 was (8.22)%. It was noted
that both Bank Plus and Fidelity would have been profitable in 1996, were it
not for the special assessment levied on thrift institutions by the Savings
Association Insurance Fund (the "SAIF"), which assessment cost Bank Plus and
Fidelity $18 million. In the first quarter of 1997, Hancock reported an
additional loss of $332,000, equal to an ROA of (0.66)% and an ROE of
(25.17)%. In the same period, Bank Plus, including the results of Fidelity,
reported net income of $4,215,000, equal to an ROA of 0.51% and an ROE of
10.40%.
In terms of capital adequacy measures (among them, Equity Capital/Total
Assets, Risk-based Capital/Risk-weighted Assets, Core Capital/Adjusted
Tangible Assets), Hancock's capital ratios displayed a pattern of
deterioration both in absolute terms and relative to the proxy groups, a trend
that on May 2, 1997, caused the OTS to issue the PCA Notification, describing
the Hancock as "significantly undercapitalized" and placing it under certain
mandatory PCA restrictions. At year end 1996, 1995 and 1994, Hancock's ratios
of equity capital to total assets were 3.33%, 4.07% and 5.05%, respectively.
The comparable ratios for the four proxy groups were: United States: 7.92%,
8.02% and 7.39%; California: 6.56%, 6.81% and 6.27%; California thrifts under
$400 million: 6.68%, 6.59% and 5.83%; and Southern California thrifts under
$400 million: 6.51%, 6.36% and 5.64%. The comparable ratios for Fidelity were
6.32%, 6.94% and 4.64%, respectively. Bank Plus, formed in 1996, reported a
year-end 1996 equity/asset ratio of 4.85%. Because of an additional first
quarter net loss of $332,000, Hancock's equity/asset ratio was 3.09% as of
March 31, 1997, on a regulatory accounting ("RAP") basis, which permits the
inclusion in capital of approximately $1.19 million of previously accrued
expenses associated with its special SAIF assessment, which was levied on
thrift institutions in the third quarter of 1996. Because of Hancock's
financial condition at the time, imposition of the assessment on Hancock was
temporarily waived. However, generally accepted accounting principles ("GAAP")
record Hancock's capital as net of that obligation. Thus, Hancock's year-end
1996 GAAP financials result in an equity/asset ratio of 2.73% and its
unaudited financials for April 30, 1997 produce an equity/asset ratio of
2.47%. Hancock's ratios of core capital to adjusted tangible assets and
tangible capital to tangible assets (two important ratios utilized by thrift
regulators) were essentially identical with Hancock's equity/asset ratios on a
RAP basis in each of the three years. Comparable ratios for the four proxy
groups, where available, were marginally lower than their respective
equity/assets ratios, but continued to be substantially higher than those of
Hancock. Comparable ratios for Fidelity and Bank Plus approximated their
equity/asset ratios cited above. As measured by a fourth capital adequacy
ratio (risk-based capital to risk-weighted assets) at year end 1996, 1995 and
1994, Hancock reported 6.02%, 6.87% and 8.26%, respectively. Comparable ratios
for the four proxy groups were as follows: United States: 14.62%, 15.24% and
14.73%, respectively; California: 11.89%, 12.46% and 12.13%, respectively;
California thrifts under $400 million: 12.35%, 12.07% and 11.14%,
respectively; and Southern California thrifts under $400 million: 12.23%,
11.77% and 10.76%, respectively. Comparable risk asset ratios for Fidelity
were 11.85%, 12.43% and 8.89%, respectively. Bank Plus's year-end 1996 risk
asset ratio was 12.29%.
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Analysis of Hancock's key credit quality ratios (the ratio of net loan loss
charge-offs to average loans, allowance for loan losses as a percentage of
total loans, nonperforming assets as a percent of total loans plus other real
estate owned and allowance for loan losses as a percentage of loans on which
interest is not being accrued) showed the following:
. Hancock reported net loan loss charge-off experience that was generally
significantly higher than the proxy groups; this was particularly evident
in 1996, when Hancock reported net charge-offs equal to 2.19% of average
loans outstanding. Comparable ratios for the four proxy groups were:
United States: 0.33%; California: 0.52%; California thrifts under $400
million: 0.51%; and Southern California thrifts: 0.61%. Comparable ratios
for Bank Plus and Fidelity were 1.29% and 1.60%, respectively.
. Hancock's ratio of its reserve for loan losses to its total loans
outstanding increased from 1.40% in 1994 to 3.19% in 1995 and to 5.72% in
1996, as loan loss provisions charged against earnings exceeded net loan
loss charge-offs. Hancock's loan loss reserve ratio at year-end 1996
substantially exceeded the four proxy groups, which registered year-end
1996 loan loss reserve ratios of: United States: 1.03%; California:
1.20%; California thrifts under $400 million: 1.87%; and Southern
California thrifts under $400 million: 1.98%. Comparable ratios for Bank
Plus and Fidelity were 2.09% and 2.12%, respectively.
. Hancock's ratio of nonperforming assets ("NPAs") to total loans plus
other real estate owned ("OREO") increased significantly from 2.68% at
year-end 1994 to 5.58% in 1995, to 6.44% in 1996 and to 6.47% at March
31, 1997, based on its TFR filings. All four of the proxy groups had NPA
ratios higher than Hancock in 1994; in 1995, two proxy groups exceeded
Hancock's ratio (California thrifts under $400 million and Southern
California thrifts under $400 million), while the remaining two proxy
groups reduced their NPA ratio levels significantly below Hancock's. By
1996, all four of the proxy groups has reduced their NPA ratios to levels
significantly below Hancock's, as follows: United States: 2.27%;
California: 3.05%; California thrifts under $400 million: 5.14%; and
Southern California thrifts under $400 million: 5.65%. Comparable ratios
for Bank Plus and Fidelity were 3.82% and 4.74%, respectively.
. Hancock's reserve coverage of nonaccrual loans equaled approximately 100%
at year-end 1996 and 98% as of March 31, 1997, according to its TFR
filings. This was slightly higher than the general levels of the proxy
groups as of December 31, 1996. Comparable ratios for Bank Plus and
Fidelity were alike at 159% as of December 31, 1996 and 133% as of March
31, 1997.
Hancock's ratios of net interest income, noninterest income and noninterest
expense to average assets were generally in line with proxy group data. Bank
Plus and Fidelity were moderately lower than Hancock and the proxy group data
in net interest income as a percent of average assets, but were in line with
Hancock and the proxy groups in other respects.
No companies used in the analyses are identical to Hancock, Bank Plus or
Fidelity and there are differences between Hancock and the proxy groups. The
analyses necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics of the companies.
Analysis of Selected Thrift Merger Transactions. Smith & Crowley reviewed
the consideration paid in recently announced transactions whereby certain
savings institutions were acquired. While Smith & Crowley reviewed the median
and average terms of 359 transactions involving acquisitions of thrifts in the
United States announced since year-end 1993 (the "National Thrift
Transactions"), 43 transactions involving acquisitions of thrifts in the
Western Region of the United States ("Western Thrift Transactions") announced
since year-end 1993, 126 transactions involving acquisitions of thrifts
nationwide where the value of the transaction (deal value) was within a $10
million to $50 million range ("Small Deal Thrift Transactions") and 93
transactions involving the announced acquisitions of thrifts with assets
between $100 million and $300 million ("Small-Sized Thrift Transactions"),
Smith & Crowley believes that factors unique to California and Southern
California, particularly the weak, but gradually improving economic, business
and financial environment, have impacted the value of
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thrift merger transactions, particular those of smaller institutions with weak
operating histories and on-going regulatory issues; therefore, Smith & Crowley
placed particular emphasis on the terms of 11 proposed transactions involving
acquisitions of California thrifts with assets between $100 million and $300
million, announced since year-end 1993 and for which key financial terms were
publicly disclosed (the "Small California Thrift Transactions"). For each
thrift acquired or proposed to be acquired in the Small-Sized Thrift
Transactions and the Small California Thrifts Transactions, Smith & Crowley
compiled figures illustrating, among other things, the ratios of the purchase
price to book value, purchase price to latest twelve-months ("LTM") earnings
(where meaningful) and the ratios of the premium (i.e., purchase price in
excess of tangible book value) to core deposits (excluding deposit accounts
with balances in excess of $100,000 and deposits of other financial
institutions).
The figures for the National Thrift Transactions, the Western Thrift
Transactions, the Small Deal Thrift Transactions, the Small-Sized Thrift
Transactions and the Small California Thrift Transactions produced:
(i) average purchase price to book value percentages of 153%, 130%, 151%, 149%
and 111%, respectively; (ii) median purchase price to LTM earnings ratios of
17.1, 16.9, 17.7, 17.0 and 11.0, respectively; and (iii) median percentage of
premium (purchase price in excess of book value) to core deposits percentages
of 7.03%, 4.12%, 6.09%, 6.33% and 1.93%, respectively. In comparison, assuming
as of May 20, 1997 that the consideration to be paid in the Merger for each
share of Hancock common equals $9.00 in the form of Bank Plus Common Stock,
Smith & Crowley determined that the consideration to be received by the
holders of the Hancock Stock in the Merger represented a purchase price to
book value percentage of 235%, a purchase price to LTM earnings ratio that was
not meaningful because of the Hancock's net losses, and a percentage premium
to core deposits percentage of 3.64%.
No other company or transaction used in the above analysis as a comparison
is identical to Hancock or to the Merger. Accordingly, any analysis of the
results of the foregoing is not purely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the value of the companies to which Hancock and the Merger are being compared.
The summary set forth above does not purport to be a complete description of
the analyses performed by Smith & Crowley. The preparation of a fairness
opinion necessarily is not susceptible to partial analysis or summary
description. Smith & Crowley believes that its analyses and the summary set
forth above must be considered as a whole and that selecting a portion of
these analyses and factors would create an incomplete view of the process
underlying the analyses. In addition, Smith & Crowley may have given certain
analyses more or less weight than other analyses and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges
of valuations resulting from any particular analysis described above should
not be taken to be Smith & Crowley's view of the actual value of Hancock or
the combined companies. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis.
In performing its analyses, Smith & Crowley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Hancock. The analyses
performed by Smith & Crowley are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part of
Smith & Crowley's analysis of the consideration to be received by the Hancock
stockholders in the Merger. The analyses do not purport to be appraisals or to
reflect the prices at which a company might be sold or the prices at which any
securities may trade at the present time or any time in the future.
As described above, Smith & Crowley's verbal and written fairness opinions
received by the Hancock Board of Directors were among the many factors taken
into consideration by the Board in making its determination to approve the
Merger.
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Pursuant to the Engagement Letter, Hancock agreed to pay Smith & Crowley
$20,000 for rendering its opinion as to the fairness of the Merger from a
financial point of view to the stockholders of Hancock. Hancock has also
agreed to reimburse Smith & Crowley for its reasonable out-of-pocket expenses
and has agreed to indemnify Smith & Crowley, its directors, officers, agents,
employees and owners against certain liabilities. Smith & Crowley has had no
prior business relationships with any of the parties to the Merger.
EFFECT OF MERGER
Upon the consummation of the Merger, Hancock will be merged with and into
Fidelity, with Fidelity as the surviving federal savings bank. By virtue of
the Merger, each share of Hancock Stock issued and outstanding immediately
prior to the Effective Time shall automatically be converted into the right to
receive a number of shares or a fraction of a share of Bank Plus Common Stock.
At the Effective Time, each holder of a certificate representing shares of
Hancock Stock will cease to have any rights with respect to such shares,
except the right to receive such shares of Bank Plus Common Stock and cash
payable in lieu of fractional share interests in accordance with the Merger
Agreement or the right to an appraisal if such holder has properly exercised
his or her dissenters' rights. At the Effective Time, the Charter and Bylaws
of Fidelity as in effect immediately prior thereto will be the Charter and
Bylaws of the surviving federal savings bank. In addition, the directors and
officers of Fidelity immediately prior to the Effective Time will continue as
the directors and officers of the surviving federal savings bank.
CONSIDERATION PAYABLE UPON CONSUMMATION OF THE MERGER
By virtue of the Merger, automatically and without any action on the part of
the holders of Hancock Stock, each share of Hancock Stock issued and
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights are perfected under 12 C.F.R. Section 552.14, and any
shares of Hancock Stock that are owned by Hancock or any direct or indirect
wholly-owned subsidiary of Hancock) shall become and be converted into the
right to receive a number of shares, or fraction of a share, of Bank Plus
Common Stock (the "Bank Plus Stock Consideration") (rounded to the nearest
1/10,000 of a share of Bank Plus Common Stock) equal to the quotient obtained
by dividing (a) the Bank Plus Stock Consideration Value (as defined below) by
(b) the product of the Market Value Per Bank Plus Share (as defined below)
times the number of shares of Hancock Stock issued and outstanding immediately
prior to the Effective Time. Notwithstanding any of the foregoing, each holder
of Hancock Stock who would otherwise have been entitled to receive a fraction
of a share of Bank Plus Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product of such fractional share
of Bank Plus Common Stock multiplied by the Market Value Per Bank Plus Share.
"Market Value Per Bank Plus Share" means the average of the daily closing
sales prices of a share of Bank Plus Common Stock on the Nasdaq National
Market as reported in The Wall Street Journal, during the twenty (20)
consecutive trading days on which trades in Bank Plus Common Stock occurred
ending two (2) full trading days prior to the Effective Time of the Merger.
"Bank Plus Stock Consideration Value" means the difference of Twelve Million
Twelve Thousand Dollars ($12,012,000) minus the "Price Adjustment" (as defined
below). The Bank Plus Stock Consideration Value shall be set forth on a
certificate (the "Bank Plus Stock Consideration Certificate") prepared by
Hancock and approved by the parties to the Merger.
"Price Adjustment" means the sum of (i) 4.25% of the difference, whether
positive or negative, of $190,073,000 minus the aggregate amount of deposits
(excluding brokered deposits) of Hancock at June 30, 1997 plus (ii) the
"Adjusted Net Book Value Differential" (as defined below); provided, however,
that the Price Adjustment shall never be less than zero.
"Adjusted Net Book Value Differential" means the difference, whether
positive or negative, of $3.787 million minus the "Adjusted Net Book Value"
(as defined below) of Hancock at June 30, 1997;
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provided, however, that if such difference equals an amount between $0 and
positive $50,000, inclusive, such difference shall be deemed to equal $0.
"Adjusted Net Book Value" of Hancock at June 30, 1997 shall equal the
stockholders' equity of Hancock at June 30, 1997 determined in accordance with
GAAP applied consistently with prior periods, (a) less the sum of the
following, to the extent not already reflected in the calculation of Hancock's
stockholders' equity on Hancock's balance sheet at June 30, 1997: (i)
Hancock's costs and expenses of the transactions contemplated hereby, (ii)
costs and expenses associated with termination of Hancock's leases on its
Fairfax, Glendale and Wilshire offices following the Effective Time, (iii)
costs and expenses associated with the termination of Hancock's employees in
contemplation of the Merger and (iv) costs and expenses relating to the cash
out of the options pursuant to the Merger Agreement, (b) plus any amount paid
to Hancock upon exercise of an Option between July 1, 1997 and the day ending
two full trading days prior to the Effective Time and (c) minus (plus)
unrealized loss (gain) on securities available for sale or held for investment
on the day ending two full trading days prior to the Effective Time.
Assuming the Bank Plus Stock Consideration Value is $12,012,000 and the
number of shares of Hancock Stock issued and outstanding immediately prior to
the Effective Time is 1,302,862, each outstanding share of Hancock Stock would
receive consideration in the Merger of $9.22 per share, payable in Bank Plus
Common Stock. Assuming the Market Value Per Bank Plus Share is $10.625 (the
last reported sales price of the Bank Plus Common Stock on June 27, 1997),
then each outstanding share of Hancock Stock (except for shares held by
Hancock stockholders properly exercising dissenters' rights) would be
converted into .8677 of a share of Bank Plus Common Stock ($9.22 divided by
$10.625). Based on these assumptions, the aggregate number of Merger Shares
issued to the Hancock stockholders would be approximately 1,130,541 or 5.8% of
the outstanding Bank Plus Common Stock after giving effect to the Merger.
Any one of a number of factors could cause the Bank Plus Consideration Value
to be adjusted below $12,012,000. No assurance can be given that the Bank Plus
Stock Consideration Value will not be adjusted below $12,012,000 or that
certain of the outstanding options to purchase Hancock Stock would not be
exercised prior to the Effective Time, either of which event would cause the
per share consideration to be less than $9.22 per share. For example, assuming
the Bank Plus Stock Consideration Value is $11,750,000 and the number of
shares of Hancock Stock issued and outstanding immediately prior to the
Effective Time is 1,302,862, each outstanding share of Hancock Stock would
receive consideration in the Merger of $9.01 per share, payable in Bank Plus
Common Stock. In such case, assuming the Market Value Per Bank Plus Share is
$10.625 (the last reported sales price of the Bank Plus Common Stock on June
27, 1997), then each outstanding share of Hancock Stock (except for shares
held by Hancock stockholders properly exercising dissenters' rights) would be
converted into .8488 of a share of Bank Plus Common Stock ($9.01 divided by
$10.625). Based on the assumptions in this paragraph, the aggregate number of
Merger Shares issued to the Hancock stockholders would be 1,105,882 or 5.7% of
the outstanding Bank Plus Common Stock after giving effect to the Merger.
Upon the consummation of the Merger, Bank Plus shall deliver to the
stockholders of Hancock, on a pro rata basis, the Bank Plus Stock
Consideration. Stock certificates for fractions of Merger Shares shall not be
issued in the Merger and such fractional interests shall not entitle the
owners thereof to vote, to receive dividends or to exercise any other right of
a stockholder. In lieu of any such fractional interests, each holder of
Hancock Stock who would otherwise have been entitled to a fraction of a Merger
Share will be paid cash upon such surrender in an amount equal to such
fraction times the Market Value Per Bank Plus Share.
TREATMENT OF STOCK OPTIONS
Hancock shall take appropriate action such that Options that are outstanding
and unexercised immediately prior to the Effective Time shall be canceled in
consideration of the payment by Hancock to each holder of such Options of an
aggregate amount in cash equal to the positive difference, if any, of (a) the
product of (i) the quotient obtained by dividing the Bank Plus Stock
Consideration Value by the number of shares of Hancock Stock outstanding
immediately prior to the Effective Time, multiplied by (ii) the number of
shares of Hancock
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Stock as to which such holder has Options, minus (b) the aggregate exercise
price of such Options. At the Effective Time, each Option to purchase a share
of Hancock Stock pursuant to the Hancock Stock Option Plan and the Kellogg
Option shall terminate and any rights thereunder to purchase shares of Hancock
Stock shall also terminate.
EFFECTIVE TIME
The Effective Time of the Merger shall be on a date selected by Bank Plus
and Fidelity within five business days after the expiration of all applicable
regulatory waiting periods in connection with the approval of the Merger and
the satisfaction or waiver of all other conditions to the consummation of the
Merger on which the Articles of Combination of Fidelity and Hancock shall be
filed with the OTS and the Merger shall be effective on the date specified in
the endorsement of the Articles of Combination by the OTS. It is anticipated
that the Effective Time will be prior to July 31, 1997.
SURRENDER OF HANCOCK CERTIFICATES
At the Effective Time, Bank Plus will deposit with American Stock Transfer
(the "Exchange Agent"), the number of Merger Shares issuable in the Merger and
the cash amount in lieu of fractional shares. As soon as possible after the
Effective Time, Bank Plus shall cause the Exchange Agent to mail to each
holder of record of Hancock Stock a letter specifying that delivery of Merger
Shares shall be effected only upon delivery of certificates of Hancock Stock
to the Exchange Agent and instructions for use in effecting the surrender of
the certificates to the Exchange Agent. Upon the proper surrender of a
certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder will be entitled to receive in
exchange therefor a certificate representing a number of shares of Bank Plus
Common Stock, as well as any cash in lieu of fractional shares which such
holder has the right to receive and the Hancock Stock certificate shall be
canceled.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by Hancock with
respect to, among other things: corporate organization and qualification,
capitalization, authority relative to the Merger Agreement and the
transactions contemplated thereby, no violations, consents and approvals,
financial statements, filing of bank reports, absence of certain changes or
events, taxes, absence of claims and no undisclosed liabilities, absence of
regulatory actions, certain agreements, labor matters, employee benefit plans,
title to assets, compliance with laws, fees, environmental matters, classified
loans, material interests of certain persons, insurance, books and records,
corporate documents, Board of Directors action, no indemnification agreements,
loans, derivatives contracts, structured notes, related party transactions,
securities owned, the Exchange Act, information provided for inclusion in this
Proxy Statement/Prospectus, release from liability, and the Community
Reinvestment Act.
Bank Plus and Fidelity have also made certain representations and warranties
with respect to corporate organization and qualification, capitalization,
corporate authority, no violations, consents and approvals, Board of Directors
action, financial statements and reports, absence of certain changes or
events, absence of regulatory actions, compliance with laws, information
provided for inclusion in this Proxy Statement/Prospectus, and the Community
Reinvestment Act.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains certain restrictions on the conduct of
Hancock's business pending consummation of the Merger. In particular, prior to
the Effective Time, the Merger Agreement requires Hancock to (i) conduct its
business and maintain its books and records in the usual, regular and ordinary
course in all material respects, consistent with prudent banking practice, the
Order issued by the OTS and the PCA Notification; (ii) use commercially
reasonable efforts to maintain and preserve intact its business organization,
employees, properties, leases and other advantageous business relationships,
and to retain the services of its officers and key employees; (iii) take no
action (except as required by applicable law) which would adversely
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affect or delay the parties' ability to obtain any necessary approvals,
consents or waivers of any governmental authority required to consummate the
transactions contemplated by the Merger Agreement or to perform its covenants
and agreements under the Merger Agreement on a timely basis; and (iv) except
as required by applicable law or as set forth in Schedule 2.2 of the Merger
Agreement, take no action that could be deemed to have a material adverse
effect on Hancock.
In addition, prior to the Effective Time, the Merger Agreement requires
Hancock to obtain the prior written consent of Bank Plus before taking certain
specified actions, including, but not limited to, the following: (i) borrowing
money or guaranting the obligations of any other person (except for ordinary
course banking transactions or certain short-term borrowings); (ii) entering
into transactions or making adjustments involving its stock, other than the
issuance of Hancock Stock pursuant to the Hancock Stock Option Plan and the
Kellogg Option, or declaring or paying dividends; (iii) other than in the
ordinary course of business consistent with prudent banking practice,
transferring, encumbering or disposing of any of its properties, leases or
assets, or canceling, releasing or assigning any indebtedness of any person,
except pursuant to agreements in force at the date of the Merger Agreement and
disclosed to Bank Plus; (iv) entering into, renewing or amending any
employment agreement, voluntarily accelerating the vesting of any compensation
or benefit or increasing the compensation or fringe benefits of any of its
employees or directors, or instituting or making any payments pursuant to any
severance, bonus or incentive compensation plan or package, paying any pension
or retirement allowance not required by any existing plan or agreement, or
becoming a party to, amending or establishing any trust or account related to
any employee plan, other than any amendment to any employee plan required by
applicable law; (v) other than in the ordinary course of business consistent
with prudent banking practice, making any investment or purchase of any
property or assets in excess of $100,000, except in securities which would be
reported under the caption "cash and cash equivalents" on Hancock's
consolidated statement of financial condition or in certain short-term federal
government securities, provided, however, that in no event shall Hancock make
any acquisition of equity securities or business operations without Bank Plus'
prior written consent; (vi) entering into, renewing, amending or terminating
any contract, agreement, or making any material changes to its leases or
contracts; (vii) settling any claim, action or proceeding involving any
liability for damages in excess of $50,000, exclusive of contributions from
insurers, or involving material restrictions upon the business or operations
of Hancock; (viii) except in the ordinary course of business, waiving or
releasing any material right or collateral or canceling or compromising any
extension of credit or other debt or claim; (ix) making, renegotiating,
renewing, increasing, extending or purchasing any loan, lease, advance, credit
enhancement or other extension of credit, or making any commitment in respect
of any of the foregoing, except for those in amounts less than $250,000 made
in the ordinary course of business or loans made pursuant to commitments made
by Hancock prior to the date of the Merger Agreement; (10) changing its method
of accounting except as required by changes in generally accepted accounting
or regulatory principles or requirements; (xi) entering into any new
activities or lines of business or ceasing to conduct any material activities
or lines of business that it conducts on the date of the Merger Agreement, or
conduct any material business activity not consistent with prudent banking
practice; (xii) amending its charter documents; (xiii) making any capital
expenditure which exceeds $50,000 per project or related series of projects or
(b) $100,000 in the aggregate; (xiv) merging or consolidating with any other
person or acquire any capital stock of or other equity interest in any person
or create any subsidiary; (xv) opening, relocating or closing any branches;
(xvi) changing its lending, pricing or approval policies for making loans, its
investment policies, its deposit pricing policies, its asset/liability
management policies or its internal asset review and reserving policies;
(xvii) booking reserves for loan losses of less than $50,000 per month; and
(xviii) increasing its total average cost of deposits by more than 0.25% above
its total average cost of deposits as of the date of the Merger Agreement.
The Merger Agreement also contains certain restrictions on the conduct of
Bank Plus pending consummation of the Merger. In particular, the Merger
Agreement provides, among other things, that Bank Plus shall (i) not take any
action which would reasonably be expected to adversely affect or delay the
ability of the parties to obtain any necessary approvals, consents or waivers
of any governmental authority required for the transactions contemplated by
the Merger Agreement, or to perform their respective obligations on a timely
basis
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under the Merger Agreement; (ii) not amend its Certificate of Incorporation in
any respect that materially and adversely affects the rights and privileges
attendant to Bank Plus Common Stock; or (iii) agree to or make any commitments
to take any of such actions.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
Hancock has agreed that it shall not authorize or permit any of its
officers, directors, employees, agents or representatives to directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to a merger, consolidation
or similar transaction involving, or any purchase of all or any significant
portion of the assets, deposits or any equity securities of, Hancock (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal")
or, except to the extent legally required for the discharge by Hancock's Board
of Directors of its fiduciary duties as advised by such Board's counsel with
respect to an unsolicited offer from a third party, engage in any negotiations
concerning or provide any confidential information to, or have any discussions
with, any person relating to an Acquisition Proposal, or otherwise facilitate
any effort to make an Acquisition Proposal. Hancock agreed to immediately
cease any existing activities, discussions or negotiations with any parties
(other than the Company) conducted heretofore with respect to any of the
foregoing. Hancock agreed that it will notify the Company immediately if any
such inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with Hancock, and Hancock shall promptly thereafter
provide the details of any such communication to the Company. Hancock also
agreed that it promptly shall request each other person (other than the
Company) that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring the Hancock to return all
confidential information heretofore furnished to such person by or on behalf
of Hancock.
Notwithstanding the foregoing, in the event that Hancock receives a bona
fide Acquisition Proposal by any person other than the Company, which proposal
is, in the reasonable good faith judgment of the Board of Directors of
Hancock, financially more favorable to the stockholders of Hancock than the
terms of the Merger (a "Superior Proposal"), nothing contained in the Merger
Agreement shall prevent the Board of Directors of Hancock from providing
information to the party making the Superior Proposal, communicating the
Superior Proposal to the stockholders of Hancock or making a recommendation in
favor of the Superior Proposal if the Board of Directors of Hancock determines
in good faith, after consultation with legal counsel, that such action or
actions are required by reason of the fiduciary duties of the members of the
Board of Directors of Hancock to the stockholders of Hancock under applicable
law. Hancock agreed that it shall immediately notify the Company, however, of
each Acquisition Proposal it may receive to afford the Company the opportunity
to counter with a proposal that is equal to or better than any Superior
Proposal that Hancock may receive. The parties agreed that, should Hancock
accept a Superior Proposal to the detriment of the interests of the Company
under the Merger Agreement, the Company would suffer direct and substantial
damages, which damages cannot be determined with reasonable certainty.
Therefore, Hancock has agreed that, in such event, it shall pay to the Company
the amount of $500,000 as liquidated damages (which amount will, in part,
reimburse the Company for its expenses incurred in connection with the
Merger). Such payment shall be the sole obligation of Hancock to the Company
in connection with such an event.
CERTAIN ADDITIONAL COVENANTS
The Merger Agreement contains certain additional covenants and agreements,
certain of which are summarized below.
Certain Policies of the Bank. At the request of Bank Plus, after the date on
which all required approvals are received and prior to the Effective Time,
Hancock shall (i) to the extent consistent with GAAP and regulatory accounting
principles and requirements, in each case as applied to financial institutions
and not objected to by Hancock's independent certified public accountants,
modify its policies, practices and accounting methods or periods so as to be
consistent with those of the Bank; (ii) pay or accrue certain expenses, (iii)
dispose of certain assets, and (iv) take any other action as Bank Plus or the
Bank may reasonably request in order to facilitate and
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effect the transfer of contractual and other rights to the Bank and the
integration of the businesses and operations of Hancock and the Bank;
provided, however, that Hancock shall not be required to take such action
unless (A) Bank Plus and the Bank agree in writing that all conditions to
their obligations to consummate the Merger (other than the expiration of the
30-day statutory waiting period following the approval of the OTS) have been
satisfied or waived, (B) Hancock shall have received a written, irrevocable
waiver by the each of Bank Plus and the Bank of its rights to terminate the
Merger Agreement and (C) all of the conditions to Hancock's obligation to
consummate the Merger (other than the statutory waiting period described
above) shall have been satisfied.
Labor and Employment Matters. The Bank shall have the right, but not the
obligation, to seek to employ, in its discretion, as officers and employees of
the Bank immediately following the Effective Time, all persons who are
officers and employees of Hancock immediately before the Effective Time. All
employees of Hancock who will become employees of the Bank at the Effective
Time shall be entitled to participate in stock plans, bonus plans and all
other benefit plans of the Bank on the same basis as other similarly situated
employees of the Bank. Subject to the policies and procedures of the Bank in
place at the Effective Time, each of these employees will be credited for
eligibility, participation, vesting and accrual purposes, with such employee's
respective years of past service with Hancock (or other prior service so
credited by Hancock) as though they had been employees of the Bank (provided
that no more than 480 hours of sick leave may be carried over into the Bank's
sick leave program).
Regulatory Matters. The parties shall cooperate with each other and use
their reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and governmental authorities which are
necessary or advisable to consummate the transactions contemplated by the
Merger Agreement.
Publicity. Subject to applicable law, Hancock shall obtain the consent of
Bank Plus prior to issuing any press releases or otherwise making any public
statements with respect to Hancock, Bank Plus or the transactions contemplated
by the Merger Agreement.
Stockholders' Meeting. Hancock will take all action necessary to convene a
meeting of the holders of its common stock as promptly as practicable for the
purpose of considering and taking action required by the Merger Agreement.
Except to the extent legally required for the discharge by the Board of
Directors of Hancock of its fiduciary duties as advised by such board's
counsel, the Board of Directors of Hancock will recommend that the holders of
Hancock Stock vote in favor of and approve the Merger and adopt the Merger
Agreement.
Actions Contrary to Tax Free Treatment. The parties will not knowingly take
any action inconsistent with the qualification of the Merger as a tax-free
reorganization.
Termination of Employees. On or before the Effective Time, Hancock will
provide designated employees with notices of termination effective no later
than the Effective Time, in accordance with a termination plan submitted by
the Bank to Hancock. Hancock shall book all costs associated with the
termination of employees in connection with the Merger on its June 30, 1997
financial statements.
Insurance. The parties shall cooperate with each other and use their
commercially reasonable efforts in seeking to obtain adequate insurance
coverage, including, but not limited to, "tail" coverage for a period of three
years, for Hancock and its directors and officers. Hancock shall purchase such
insurance coverage if available and if the cost of such insurance coverage is
not in excess of $200,000; provided, that, if such coverage is in excess of
$200,000, Bank Plus may, in its sole discretion, agree to such cost and
Hancock shall pay $200,000 and Bank Plus shall pay any amount in excess of
$200,000. Hancock shall only be required to include in the price adjustment
provided under the Merger Agreement the lesser of the aggregate cost for all
such insurance coverage and $200,000.
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CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Bank Plus, Fidelity and Hancock to effect the Merger are
subject to the satisfaction of certain conditions, including, among others:
(i) the approval of the Merger Agreement by the holders of 66 2/3% of the
outstanding shares of Hancock Stock shall have been obtained; (ii) all
regulatory approvals, consent and waivers required to consummate the
transactions contemplated by the Merger Agreement shall have been obtained and
all applicable statutory waiting periods in respect thereof shall have
expired; (iii) no order, decree, injunction or law prohibiting the Merger
shall be in effect and no litigation seeking to prevent the Merger or the
transactions contemplated by the Merger Agreement shall be pending; (iv) no
stop order suspending the effectiveness of the Registration Statement shall be
in effect; (v) the Merger Shares shall be approved for listing by the Nasdaq
National Market; (vi) Deloitte & Touche LLP shall have issued an opinion that
the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; and (vii) a
general release from liability from Hancock's previous chief executive officer
shall be in full force and effect.
In addition, the obligations of Bank Plus and Fidelity to effect the Merger
are subject to the satisfaction of certain conditions, including, among
others: (i) the representations and warranties of Hancock set forth in the
Merger Agreement shall be true and correct in all material respects; (ii)
Hancock shall have performed in all material respects all obligations required
to be performed by it under the Merger Agreement; (iii) there shall not have
occurred any Material Adverse Change (as defined below) in the financial
condition of Hancock (as reflected in Hancock's unaudited balance sheet at
June 30, 1997); (iv) Bank Plus and Fidelity shall have received an opinion
from Manatt, Phelps & Phillips, LLP, counsel to Hancock; (v) no regulatory
approval shall have imposed a burdensome condition on Bank Plus or Fidelity;
(vi) the Order issued by the OTS, any prompt corrective action directive,
order or restriction, and all enforcement proceedings applicable to Hancock
shall have been terminated; (vii) the Hancock Stock Option Plan and the
Kellogg Option shall have been canceled. The Merger Agreement defines a
Material Adverse Change as having occurred if: (A) an outflow of Hancock's
deposits at June 30, 1997, as compared to Hancock's audited balance sheet at
December 31, 1996 in excess of $10 million, and/or (B) the Adjusted Net Book
Value of Hancock at June 30, 1997 is equal to or less than $3.537 million.
In addition, the obligations of Hancock to effect the Merger are subject to
the satisfaction of certain conditions, including, among others: (i) the
representations and warranties of Bank Plus and Fidelity set forth in the
Merger Agreement shall be true and correct in all material respects; (ii) Bank
Plus and Fidelity shall have performed in all material respects all covenants
and agreements required to be performed by them under the Merger Agreement;
(iii) Hancock shall have received an opinion from Gibson, Dunn & Crutcher LLP,
counsel to Bank Plus and Fidelity; and (iv) there shall not have occurred any
event that has had or would be reasonably likely to have a material adverse
effect on Bank Plus since March 31, 1997.
Such conditions may be waived by the parties in whole or in part at any time
and from time to time in their sole discretion. Each of the parties reserves
the right to terminate the Merger upon the failure of any of the conditions of
the Merger to be satisfied.
AMENDMENT AND TERMINATION
Any provision of the Merger Agreement may be amended or modified at any time
by an agreement in writing between the parties to the Merger Agreement and
approved by their respective boards of directors, except that, after the vote
of the Hancock stockholders, no amendment may be made that would contravene
any provision of applicable law.
The Merger Agreement may be terminated (i) by mutual consent; (ii) by any
party if regulatory approvals are denied or a governmental authority enjoins
the Merger; (iii) by any party if the Merger is not consummated by September
30, 1997; (iv) by any party if the stockholders of Hancock do not approve the
Merger Agreement; (v) by any party for an uncured material breach of a
representation, warranty or covenant of the Merger Agreement by the other
party; (vi) by Hancock if there has been a Material Adverse Effect on Bank
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<PAGE>
Plus or Fidelity; (vii) by Bank Plus or Fidelity if there has been a Material
Adverse Change in the financial condition of Hancock; and (viii) by Hancock,
if the Market Value Per Bank Plus Share is less than $8.00. If Bank Plus or
Fidelity terminates the Merger Agreement as a result of a willful breach by
Hancock of any of its obligations thereunder or as a result of the failure by
Hancock to obtain the requisite vote of its stockholders to approve the Merger
Agreement, then Hancock shall pay to Bank Plus, as liquidated damages,
$500,000.
REGULATORY APPROVALS
Under the rules and regulations promulgated by the OTS (the "OTS Rules"),
the Merger cannot be consummated until the OTS approves the Merger. Bank Plus
and Fidelity have filed an application with the OTS in order to obtain the
OTS's approval. The parties believe that the Merger can be effected in
compliance with the OTS Rules. However, there can be no assurance that the OTS
will approve the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of Hancock
beneficially owned 751,787 shares of Hancock Stock (not including shares such
persons may acquire through the exercise of vested stock options) which will
be converted into the right to receive shares of Bank Plus Common Stock in the
Merger in the same manner as the holders of shares of Hancock Stock held by
all other Hancock stockholders. Directors, executive officers and other
employees of Hancock held as of the Record Date options to purchase 77,225
shares of Hancock Stock. In connection with the Merger and pursuant to the
Merger Agreement, Hancock will cancel such options in exchange for cash
payments equal to the difference between the value of the per share
consideration received by Hancock stockholders in the Merger minus the stock
option exercise price, multiplied by the number of shares which the option
holder is entitled to purchase under the stock options, without regard to
vesting status.
Pursuant to the terms of a March 25, 1997 Employment Agreement entered into
with Kathleen L. Kellogg, President and Chief Executive Officer of Hancock, if
Ms. Kellogg's employment is terminated within one year following a Change of
Control of Hancock (as defined in such agreement), such as the Merger, Ms.
Kellogg will be entitled to receive (i) a lump sum payment of $240,000 if such
termination occurs in 1997 or 1998; or (ii) an amount equal to 150% of her
prior year's compensation if such termination occurs in 1999. In addition,
pursuant to a stock option agreement entered into with Ms. Kellogg on March
25, 1997 (see "PROPOSAL 3--APPROVAL OF THE KELLOGG OPTION" below), the Kellogg
Option will, if approved by the stockholders at the Meeting, become vested
immediately upon a change of control of Hancock, rather than in annual
installments over four years beginning March 1, 1998. Such immediate vesting
would entitle Ms. Kellogg to a payment for all of such shares upon the
cancellation of such options as discussed in the preceding paragraph.
Pursuant to the terms of a June 1997 Change of Control Employment Agreement
entered into with Ken Paris, Senior Vice President and Chief Credit Officer of
Hancock, in the event of a change in control of Hancock (as defined in such
agreement) and Mr. Paris's employment is terminated or materially changed or
if he resigns for good cause (as defined in such agreement), he will be
entitled to receive a lump sum payment equal to six months' of his then
current annual salary.
On April 18, 1997, Hancock entered into an engagement letter with Hovde
whereby Hovde agreed to provide financial advisory services to Hancock in
connection with a possible transaction with Bank Plus. Hovde is affiliated
with Hancock Park Acquisition, L.P., a principal stockholder of Hancock, and
with Eric D. Hovde, a director of Hancock. See "INFORMATION REGARDING
HANCOCK--Beneficial Ownership of Hancock Stock--Principal Stockholders" and
"PROPOSAL 2--ELECTION OF DIRECTORS." Under the engagement letter, Hovde agreed
to perform various services for Hancock, including introducing Hancock to Bank
Plus and assisting Hancock in negotiating the financial terms of the Merger.
Under the engagement letter, Hovde is entitled to receive a fee in the event a
transaction (including transactions such as the Merger) is consummated by
Hancock with Bank Plus by September 30, 1998. Such fee will, under the
engagement letter, equal the greater of $200,000 or 2% of the consideration
paid by Bank Plus in the Merger. Hovde is also entitled to receive expenses up
to $2,000 and will be entitled to indemnification by Hancock under certain
circumstances.
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On June 6, 1997, Hancock entered into the Settlement Agreement with Daniel
E. Wolfus, whose executive positions with Hancock ceased effective March 25,
1997 and whose service as a director of Hancock ceased effective May 23, 1997.
The effectiveness of the Settlement Agreement is, by its terms, specifically
conditioned upon the closing of the Merger. Pursuant to the Settlement
Agreement, upon consummation of the Merger, Hancock will pay to Mr. Wolfus
$10,900 and a lump sum based upon certain stock options that Mr. Wolfus held
as of March 25, 1997. Specifically, Mr. Wolfus is entitled to receive, as of
the closing of the Merger, the difference between the per share consideration
for Hancock Stock in the Merger and $3.85 per share (the per share exercise
price of his former stock options) multiplied by 6,250 stock options. Mr.
Wolfus and Hancock each agreed to provide a general release to the other party
under the Settlement Agreement.
Under the Merger Agreement, Bank Plus and Fidelity have agreed to cooperate
with Hancock and use their respective commercially reasonable efforts in
seeking to obtain adequate directors' and officers' insurance coverage,
including tail coverage for a period of three years for Hancock and its
directors and officers. Hancock is required to purchase such coverage if
available and if the cost of such insurance is not in excess of $200,000, but
if such coverage costs in excess of $200,000, Bank Plus may, in its sole
discretion, agree to such cost, in which case Hancock would pay $200,000 and
Bank Plus would pay the excess over $200,000. Hancock will only be required to
include in the adjustment to the Merger consideration the amount of such
coverage less than or equal to $200,000.
EFFECT ON HANCOCK EMPLOYEE BENEFIT PLANS
Upon consummation of the Merger, Fidelity has the right, but not the
obligation, to seek to employ, in its discretion, as officers and employees of
Fidelity following the Effective Time all persons who are officers or
employees of Hancock immediately before the Effective Time. All employees of
Hancock who will become employees of Fidelity at the Effective Time shall be
entitled to participate in stock plans, bonus plans and all other benefit
plans of Fidelity on the same basis of other similarly situated employees of
Fidelity. Subject to the policies and procedures of Fidelity in place at the
Effective Time, each of these employees will be credited for eligibility,
participation, vesting and accrual purposes, with such employee's respective
years of past service with Hancock (or other prior service so credited by
Hancock) as though they had been employees of Fidelity provided that no more
than 480 hours of sick leave may be carried over into Fidelity's sick leave
program.
All employee benefit plans, including the Hancock Stock Option Plan, the
Kellogg Option and agreements of Hancock shall terminate upon the Effective
Date other than the Hancock 401(k) Plan which will be merged into the Fidelity
Federal Bank 401(k) Plan after consummation of the Merger.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for under the "purchase" method of
accounting, in accordance with generally accepted accounting principles.
EXPENSES
Each party to the Merger Agreement will bear all expenses incurred by it in
connection with the Merger Agreement and the transactions contemplated
thereby. The expenses of printing and mailing the Proxy Statement/Prospectus
will be shared equally by Bank Plus and Hancock.
RESALE OF BANK PLUS COMMON STOCK
The issuance of the Merger Shares has been registered under the Securities
Act and, therefore, such shares will be freely transferable, except that any
Merger Shares received by persons who are deemed to be "Affiliates" (as such
term is defined under the Securities Act) of Hancock prior to the Merger may
be resold by them only in transactions permitted by the resale provisions of
Rule 145 under the Securities Act (or Rule 144 under the Securities Act if
such persons are or become Affiliates of Bank Plus) or as otherwise permitted
under the
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Securities Act. Persons who may be deemed to be Affiliates of Hancock or Bank
Plus generally include individuals or entities that directly, or indirectly
through one or more intermediaries, control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party.
MANAGEMENT OF BANK PLUS AFTER THE MERGER
The Merger shall not affect the management of Bank Plus. The directors and
officers of Bank Plus immediately prior to the Effective Time will continue as
the directors and officers of Bank Plus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to Bank Plus, Hancock and the holders of Hancock
Stock. This discussion is based on the current provisions of the Code,
applicable Treasury Regulations, judicial decisions, and administrative
rulings and practice. Changes in any of the foregoing could alter the
conclusions reached herein, and such changes may have retroactive effect. The
tax treatment of a stockholder may vary depending upon his or her particular
situation, and certain stockholders (including individuals who hold restricted
stock or stock options or who otherwise received compensation for services in
the form of stock, options or other interests in Hancock, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers and foreign
persons or entities) may be subject to special rules not discussed below.
EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISER AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
The opinion of Deloitte & Touche LLP, accountants for Bank Plus and Hancock
will state:
1. The merger of Hancock with and into Fidelity will constitute a
reorganization within the meaning of Section 368(a)(1)(A), by reason of
the application of Section 368(a)(2)(D). Each of Bank Plus, Fidelity and
Hancock will be treated as a part to the reorganization. Section 368(b).
2. No gain or loss will be recognized to Hancock on the transfer of its
assets to Fidelity in the reorganization. Sections 361(a), 361(b)(1)(A)
and 357(a).
3. No gain or loss will be recognized by either Bank Plus or Fidelity on
the issuance of Bank Plus Common Stock in the reorganization. Regulation
Section 1.1032-2(b)/1/.
4. No gain or loss will be recognized by those stockholders of Hancock who
receive solely Bank Plus Common Stock (including fractional shares which
they otherwise would be entitled to receive) in exchange for their
Hancock Stock pursuant to the reorganization. Section 354(a)(1).
5. The basis of Bank Plus Common Stock (including fractional shares which
they otherwise would be entitled to receive) received by holders of
Hancock Stock in the reorganization will be the same as the basis of
their Hancock Stock surrendered in the exchange. Section 358(a)(1).
6. The holding period of the Bank Plus Common Stock (including fractional
shares which they otherwise would be entitled to receive) received by
holders of Hancock Stock will include the period during which the
Hancock Stock surrendered in exchange were held, provided that Hancock
Stock was held as a capital asset on the date of the reorganization.
Section 1223(1).
- --------
1 All references herein to Regulations are to the Income Tax Regulations
issued by the Department of the Treasury.
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7. Cash received by a stockholder of Hancock otherwise entitled to receive
a fractional share of Bank Plus Common Stock in exchange for Hancock
Stock will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by Bank Plus. 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). This receipt of cash will result in gain or loss measured by the
difference between the basis of such fractional share interest and the
cash received. Such gain or loss will be capital gain or loss to the
former Hancock stockholder, provided the Hancock Stock was a capital
asset in such former stockholder's hands. Rev. Rul. 66-365, 1966-1 C.B.
116 and Rev. Rul 77-41, 1977-2 C.B. 574.
The opinion of Deloitte & Touche LLP will be based on current law, the
information contained in this Proxy Statement/Prospectus and certain
representations as to factual matters made by Bank Plus, Fidelity, Hancock and
certain stockholders (the "Specified Stockholders") of Hancock. Any inaccuracy
or change with respect to such information or representations, or any past or
future actions by Bank Plus, Fidelity, Hancock or the Specified Stockholders
contrary to such representations, could adversely affect the conclusions set
forth herein.
An opinion from a company's accounting firm is not binding on the Internal
Revenue Service or the courts, and only represents such firm's best judgment.
The parties have not and will not request a ruling from the Internal Revenue
Service in connection with the federal income tax consequences of the Merger.
If the Internal Revenue Service successfully challenges the status of the
Merger as a tax-free reorganization, holders of Hancock Stock will be treated
as if they sold their Hancock Stock in a taxable transaction. In such event,
each holder of Hancock Stock would recognize gain or loss equal to the
difference between the holder's tax basis in the shares of the Hancock Stock
surrendered in the Merger and the fair market value, at the Effective Time, of
the Bank Plus Common Stock received in exchange therefor (plus any cash
received for fractional shares of Bank Plus Common Stock).
DISSENTERS' RIGHTS
Rights of Dissenting Stockholders. Pursuant to Section 552.14 of the Rules
and Regulations of the OTS, dissenters' rights will be available to
stockholders of Hancock in the Merger. A copy of Section 552.14 is attached
hereto as Annex B and should be reviewed for more complete information
concerning dissenters' rights. THE REQUIRED PROCEDURES SET FORTH IN SECTION
552.14 MUST BE FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE LOST. The
information set forth below is a general summary of dissenters' rights as they
apply to Hancock stockholders and is qualified in its entirety by reference to
Annex B.
In order to be entitled to exercise dissenters' rights, a stockholder of
Hancock must deliver to Hancock, prior to the Meeting, a written objection
identifying himself or herself and stating his or her intention to demand
appraisal of and payment for his or her shares. Such demand for appraisal and
payment must be in addition to and separate from any proxy or vote "AGAINST"
the Merger. The stockholder must also not vote "FOR" the Merger in order to
dissent. Thus, any stockholder who wishes to dissent and executes and returns
a proxy in the accompanying form MUST specify that his or her shares are to be
voted "AGAINST" or "ABSTAIN" on the Merger. If the stockholder returns a proxy
without any voting instructions or with instructions to vote "FOR" the Merger,
then the stockholder will lose any dissenters' rights. Stockholders who have
delivered the written objection to Hancock referred to above prior to the
Meeting and who did not vote "FOR" the Merger are referred to as "Dissenting
Stockholders," and their shares are "Dissenting Shares."
Within ten (10) days after the Effective Time, Bank Plus must: (i) mail
written notice thereof to each Dissenting Stockholder; (ii) make a written
offer to each Dissenting Stockholder to pay for his or her shares at a
specified price deemed by Bank Plus to be the fair value thereof; and (iii)
inform such Dissenting Stockholders that within sixty (60) days of the
Effective Time, the offer must be agreed to or formally rejected or the terms
of the Merger will be deemed accepted. The notice and offer must be
accompanied by a balance sheet and statement of income of Hancock for the
fiscal year ended December 31, 1996, with the latest available interim
financial statements during 1997.
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If the Dissenting Stockholder and Bank Plus agree upon a fair value within
sixty (60) days, then payment must be made within ninety (90) days of the
Effective Time. If within sixty (60) days of the Effective Time the Dissenting
Stockholder and Bank Plus do not agree, then the Dissenting Stockholder may
file a petition with the OTS, with a copy by registered or certified mail to
Bank Plus, demanding a determination of the fair market value of the shares of
all Dissenting Stockholders. A Dissenting Stockholder who fails to file such
petition within sixty (60) days of the Effective Time will be deemed to have
accepted the terms offered under the Merger. Within sixty (60) days of the
Effective Time, each Dissenting Stockholder demanding appraisal and payment
must submit to the transfer agent his or her stock certificates for notation
thereon that an appraisal and payment have been demanded with respect to such
shares and that appraisal proceedings are pending. Any stockholder who fails
to submit his or her stock certificates for such notation will no longer be
entitled to appraisal rights under the OTS Regulations and will be deemed to
have accepted the terms offered under the Merger.
If a Dissenting Stockholder properly files a petition with the OTS, the OTS
will make its determination of fair value in accordance with the OTS
Regulations. The OTS will also apportion costs and expenses related to the
appraisal in its own discretion. At any time within sixty (60) days after the
Effective Time any stockholder has the right to withdraw his or her demand for
appraisal and to accept the terms of the Merger.
The above summary of rights of stockholders to dissent and demand payment
for their shares does not purport to be a complete statement of the applicable
OTS Rules and Regulations and is qualified by reference to the provisions of
Section 552.14 thereof, which have been set forth in full as Annex B to this
Proxy Statement. Each stockholder is encouraged to consult with his or her own
legal counsel concerning the specific procedures and available remedies.
ANY FAILURE TO FOLLOW STRICTLY THE DETAILED PROCEDURES SET FORTH IN THE OTS
REGULATIONS REGARDING DISSENTERS' RIGHTS MAY RESULT IN A STOCKHOLDER LOSING
ANY RIGHT HE OR SHE MAY HAVE TO CLAIM FAIR VALUE FOR HIS OR HER SHARES. IF A
STOCKHOLDER FAILS TO PERFECT HIS OR HER DISSENTERS' RIGHTS, HIS OR HER SHARES
OF HANCOCK SHARES WILL BE CONVERTED IN THE MERGER INTO A RIGHT TO RECEIVE BANK
PLUS COMMON STOCK AS DESCRIBED HEREIN.
Federal Income Tax Treatment of Dissenters. Any stockholder of Hancock who
effectively dissents from the Merger and who receives cash for his or her
shares will recognize a gain (or loss) for federal income tax purposes equal
to the amount by which the cash received for those shares exceeds (or is less
than) the stockholder's tax basis for the shares. The amount of such gain (or
loss), if any, will be treated as ordinary income (or loss) or long-term or
short-term capital gain (or loss) depending on the length of time the shares
are held by the dissenter, whether the shares are held as a capital asset and
whether the dissenter is deemed to own shares of Hancock Stock pursuant to the
attribution rules of Section 318 of the Code. In certain circumstances, a
dissenter can be deemed for tax purposes to own shares that are actually owned
by a non-dissenter that is related to the dissenter, with the possible result
that the cash received in the exercise of the dissenter's rights could be
treated as a dividend received pursuant to a corporate distribution rather
than an amount received pursuant to a sale or exchange of Hancock Stock.
DESCRIPTION OF BANK PLUS COMMON STOCK TO BE ISSUED
The Bank Plus Common Stock and certain provisions of the Company's
Certificate of Incorporation and By-laws are described below. The Certificate
of Incorporation and By-laws have been filed as exhibits to Registration
Statement of which this Proxy Statement/Prospectus is a part. The authorized
capital stock of Bank Plus consists of 78,500,000 shares of Bank Plus Common
Stock, $.01 par value per share, of which 18,245,265 shares were outstanding
as of May 1, 1997, and 10,000,000 shares of Preferred Stock, par value $.01
per share, of which no shares are outstanding.
The holders of outstanding shares of Bank Plus Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and
in such amounts as the board of directors may from time to
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time determine. The shares of Bank Plus Common Stock are neither redeemable
nor convertible, and the holders thereof have no preemptive or subscription
rights to purchase any securities of Bank Plus. Upon liquidation, dissolution
or winding up of Bank Plus, the holders of Bank Plus Common Stock are entitled
to receive pro rata the assets of Bank Plus which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding. Each
outstanding share of Bank Plus Common Stock is entitled to one vote on all
matters submitted to a vote of stockholders. There is no cumulative voting.
Bank Plus' Certificate of Incorporation authorizes the Board of Directors to
issue up to 10,000,000 shares of Preferred Stock in classes or series and to
fix the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of any class or series
with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the amount payable in the event of
voluntary or involuntary liquidation, the terms and conditions for conversion
or exchange into any other class or series of the stock, voting rights and
other terms. Bank Plus may issue, without the approval of the holders of Bank
Plus Common Stock, Preferred Stock which has voting, dividend or liquidation
rights superior to the Bank Plus Common Stock and which may adversely affect
the rights of holders of Bank Plus Common Stock. Under certain circumstances,
the issuance of such Preferred Stock may tend to discourage a merger, tender
offer, proxy context, the assumption of control by a holder of a large block
of Bank Plus' securities, or the removal of incumbent management.
COMPARISON OF RIGHTS OF HOLDERS OF BANK PLUS COMMON STOCK AND HANCOCK STOCK
General. Bank Plus is a Delaware corporation and, accordingly, is governed
by the Delaware General Corporation Law ("DGCL") and its Delaware Certificate
of Incorporation (the "Bank Plus Certificate") and By-laws (the "Bank Plus By-
laws"). Hancock is a federally chartered savings bank and, accordingly, is
governed by the Home Owners Loan Act of Home Owners' Loan Act, as amended
("HOLA"), and the Rules and Regulations of the OTS and by its Federal Stock
Charter (the "Hancock Charter") and its Bylaws (the "Hancock Bylaws"). The
holders of Hancock Stock, other than holders who properly exercise dissenters'
rights, will, upon the exchange of their shares of Hancock Stock for shares of
Bank Plus Common Stock pursuant to the Merger, become stockholders of Bank
Plus, and their rights as such will be governed by the DGCL and the Bank Plus
Certificate and the Bank Plus By-laws.
The following is a general comparison of the material differences between
the rights of Hancock Stockholders under the Hancock Charter, the Hancock
Bylaws and the HOLA, on the one hand, and the rights of Bank Plus stockholders
under the Bank Plus Certificate, the Bank Plus By-laws and the DGCL, on the
other. This discussion is only a summary of certain provisions and does not
purport to be a complete description of such similarities and differences, and
is qualified in its entirety by reference to the DGCL and the HOLA and the
Rules and Regulations of the OTS, the common law thereunder, and the full text
of the Bank Plus Certificate, Bank Plus By-laws, Hancock Charter and Hancock
Bylaws.
Cumulative Voting and Classified Boards. Hancock's Bylaws provide for
cumulative voting and for three classes of directors divided as nearly equal
in number as possible, and each class has a term of three years. Under the
DGCL, the stockholders of Bank Plus are not entitled to cumulate their votes
in the election of directors unless the Bank Plus Certificate so provides. The
Bank Plus Certificate does not provide for cumulative voting, but does provide
for a classified Board of Directors. As a result, the holders of shares
representing a majority of the votes entitled to be cast in an election of
directors for Bank Plus will be able to elect all directors then being
elected. The absence of cumulative voting could have the effect of preventing
representation of minority stockholders on the Board of Directors of Bank
Plus.
Change in Number of Directors. Hancock's Charter provides for a Board of
not fewer than five or more than fifteen members, except when a greater number
is approved by the OTS. The Hancock Bylaws provide that the Board of Directors
shall consist of seven members.
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Under the DGCL, the number of directors is fixed by, or in the manner
provided in, the bylaws, unless the certificate of incorporation fixes the
number of directors, in which case a change in the number of directors may be
made only by amendment to the certificate. Under the Bank Plus By-laws, the
number of members of the Board of Directors is determined by resolution of the
Board of Directors. The exact number of the Board of Directors is currently
set at seven.
Removal of Directors. Pursuant to the Hancock Bylaws, at a meeting of
stockholders called expressly for that purpose, any director may be removed
for cause by a vote of the holders of a majority of the shares then entitled
to vote at an election of directors. If less than the entire Board is to be
removed, no one of the directors may be removed if the votes cast against the
removal would be sufficient to elect a director if then cumulatively voted at
an election of the class of directors of which such director is a part.
Whenever the holders of the shares of any class are entitled to elect one or
more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Under the DGCL, any or all directors may be removed, with or without cause,
by the holders of a majority of the shares entitled to vote at an election of
directors. In the case of a corporation whose board of directors is
classified, stockholders may remove directors only for cause, and in the case
of a corporation having cumulative voting, if less than the entire board is to
be removed, no director may be removed without cause if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors. The Bank Plus Certificate does not
currently provide for cumulative voting.
Filling Vacancies on the Board of Directors. The Hancock Bylaws provide that
any vacancy occurring on the 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 shall
be elected to serve until the next election of directors by the stockholders.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of directors by the
stockholders.
The Bank Plus Bylaws provide that a vacancy on the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director. The directors so chosen shall hold
office until the next annual meeting of stockholders and until their
successors are duly elected and shall qualify or until their earlier
resignations or removals. Under the DGCL, however, if, at the time of filling
any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the entire Board of Directors as
constituted immediately prior to any such increase, the Delaware Court of
Chancery may, under certain circumstances, order an election to be held to
fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office. Additionally, when a
director has been removed from office with or without cause by the
stockholders, the stockholders have the right to fill such vacancy by the
affirmative vote of at least a majority of the voting power of the then
outstanding stock. If the stockholders fail to fill such vacancy, the Board
may then do so as set forth above.
Amendment of Charter or Certificate. Except for the issuance of authorized
shares as provided in the Hancock Charter, no amendment, addition, alteration,
change or repeal of this charter shall be made, unless such is first proposed
by the Board of Directors and then is preliminarily approved by the OTS, which
preliminary approval may be granted by the OTS pursuant to regulations
specifying pre-approved charter amendments, and thereafter approved by the
stockholders by a majority of the total votes eligible to be cast at a legal
meeting. Any amendment, addition, alteration, change, or repeal so acted upon
shall be effective upon filing with the OTS in accordance with regulatory
procedures or on such other date as the OTS may specify in its preliminary
approval.
Under the DGCL, the Bank Plus Certificate may be amended if such amendment
is approved by the Board of Directors and by a majority of the stockholders.
In addition, if Bank Plus were to have more than one class of
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stock outstanding, amendments that would adversely affect the rights of any
class would require the vote of a majority of the shares of that class.
Amendment of Bylaws. Pursuant to the DGCL, the regulations of the OTS, the
Hancock Bylaws and the Bank Plus Bylaws, the stockholders and the directors of
both Bank Plus and Hancock have the power to adopt, amend or repeal bylaws. In
the case of Hancock, however, certain Bylaw amendments specified in the Rules
and Regulations of the OTS require the prior approval of the OTS in order to
become effective.
Dividends. Hancock is subject to the regulations of the OTS governing
dividend payments and other capital distributions. See "INFORMATION REGARDING
HANCOCK--Supervision and Regulation of Hancock--Federal Savings Institution
Regulation--Limitation on Capital Distributions."
The DGCL provides that a corporation may, unless otherwise restricted by its
certificate of incorporation, declare and pay dividends out of surplus, or if
no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the
amount of capital of the corporation following the declaration and payment of
the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon
the distribution of assets). The Bank Plus Certificate places no restriction
on the declaration or payment of dividends. The DGCL also provides that a
corporation may redeem or repurchase its shares only out of surplus. The
ability of a Delaware corporation to pay dividends on, or to make repurchases
or redemptions of, its shares is dependent on the financial status of the
corporation standing alone and not on a consolidated basis. In addition to the
restrictions on dividends imposed under the DGCL, Bank Plus, as the parent
company of Fidelity, is subject to the ability of Fidelity to pay dividends to
Bank Plus under federal regulatory restrictions applicable to savings
associations holding companies.
Special Meetings of Stockholders and Action by Stockholders Without a
Meeting. The DGCL provides that a special meeting may be called by the board
of directors or such other persons as may be authorized by the certificate of
incorporation or bylaws. The Bank Plus Bylaws provide that a special meeting
may also be called by the Chairman of the Board, Vice Chairman of Board, the
President or by a majority of the directors, and shall be called by the
Secretary at the request in writing of the stockholders owning one-tenth of
the outstanding capital stock.
The Hancock Bylaws are the same, unless otherwise prescribed by OTS
regulations, except that a special meeting must be called upon the request in
writing of one-tenth or more of the outstanding shares entitled to vote at the
meeting.
Under the DGCL (unless otherwise provided in the certificate of
incorporation), any action which is required to be taken or may be taken at a
meeting of stockholders may be taken by a written consent signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to take such action at a meeting.
The Hancock Bylaws are the same, except that any action taken without a
meeting requires the written consent of all of the Hancock stockholders
entitled to vote with respect to the subject matter.
Indemnification and Limitation of Liability. Federal savings associations
are required by an OTS Regulation to indemnify their directors, officers, and
employees against any action brought or threatened because that person is or
was a director, officer, or employee for: (i) any amount for which such person
becomes liable under a judgment in such action, and (ii) reasonable costs and
expenses, including reasonable attorney's fees, actually paid or incurred by
that person in defending or settling such action or in enforcing such person's
rights under the applicable regulation if he or she attains a favorable
judgment in such enforcement action. Indemnification shall be made to such
person only if: (i) final judgment on the merits is in such person's favor, or
(ii) in the case of: (a) settlement, (b) final judgment against such person,
or (c) final judgment in such person's favor, other than on the merits, if a
majority of the disinterested directors of the savings association determine
that such person was acting in good faith within the scope of such person's
employment or authority as such person could reasonably
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have perceived it under the circumstances and for a purpose such person could
reasonably have believed under the circumstances was in the best interests of
the savings association or its stockholders. No indemnification shall be made
unless the association gives the OTS at least sixty (60) days' notice of its
intentions to make such indemnification and if the OTS, within such notice
period, advises the association in writing of its objection thereto.
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to the corporation and its stockholders for monetary
damages in connection with the breach of a director's fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitation authorized by
the DGCL, directors could be accountable to corporations and their
stockholders for monetary damages for conduct that does not satisfy such duty
of care. Although the DGCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. Bank Plus' Certificate limits the liability of
directors to Bank Plus or its stockholders to the fullest extent permitted by
the DGCL as in effect from time to time. Specifically, directors of Bank Plus
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Bank Plus or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision does not affect a director's responsibilities under
certain other laws such as the federal securities laws or state or federal
environmental laws.
The Bank Plus Bylaws provide that Bank Plus shall indemnify its officers,
directors and employees to the fullest extent permitted by the DGCL. Bank Plus
believes that indemnification under its bylaws covers at least negligence and
gross negligence on the part of the indemnified parties.
Bank Plus has entered into indemnification agreements with its directors and
officers which provide for broad indemnification, except where the "reviewing
party" has determined that the indemnitee would not be entitled to be
indemnified under applicable law. The "reviewing party" is defined as the
majority vote of the directors of Bank Plus not subject to the particular
claim or, if none, independent legal counsel selected by the indemnitee and
approved by Bank Plus. No payments may be made under these indemnification
agreements in connection with claims made against a director or officer for
which payment is made under an insurance policy or for which such person is
otherwise indemnified.
Under an insurance policy currently maintained by Bank Plus, the directors
and officers of Bank Plus are insured, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which may be imposed as a result of such claims, actions, suits or
proceedings which may be brought against them by reason of being or having
been such directors or officers.
Stockholder Vote for Mergers and Other Reorganizations.
OTS regulations require that the mergers, consolidations or sales of all or
substantially all of the assets of a federal savings bank must be approved by
the vote of at least two-thirds of the outstanding stock entitled to vote.
Neither the Bank Plus Certificate nor the DGCL requires a vote of more than
a majority on such mergers. The DGCL also does not require a stockholder vote
of the surviving constituent corporation in a merger if (a) the merger
agreement does not amend the existing certificate of incorporation, (b) each
outstanding share of the surviving corporation before the merger is unchanged
after the merger, and (c) the merger involves the issuance of no more than 20%
of the shares of the surviving corporation outstanding immediately prior to
such issuance.
Stockholder Proposals.
The Hancock Bylaws provide that any new business proposals by stockholders
at an annual meeting must be submitted in writing to the Secretary at least
five days before the date of the original meeting.
51
<PAGE>
The Bank Plus By-laws provide that stockholder proposals must be submitted
not less than five days prior to the annual or special meeting in order to be
considered at such meeting.
Anti-takeover Effects.
Certain provisions of the Bank Plus Certificate and Bylaws discussed above
deal with matters of corporate governance and rights of stockholders. Certain
of these provisions relating to voting of shares for the election of directors
and the classified Board of Directors may be deemed to have an "anti-takeover"
effect, and may discourage takeover attempts not first approved by the
Directors (including takeovers that certain stockholders, or even a majority
of stockholders, might deem to be in their interests). Other than a classified
board, the Hancock Charter and Bylaws do not have comparable provisions. These
provisions also may make it more difficult to remove members of Bank Plus's
management.
Limitations on "Business Combinations."
Delaware law prohibits a Delaware corporation, such as Bank Plus, from
engaging in a "business combination" with an "interested stockholder" for
three years following the date that a person becomes an interested
stockholder. An "interested stockholder" is a person who owns 15% or more of
the corporation's outstanding voting stock, or an affiliate or associate of
the corporation who owned 15% in the previous three years, and his or her
affiliates and associates.
Generally, a "business combination" is defined broadly to include (i)
mergers with or caused by an interested stockholder, (ii) sales or other
dispositions of assets of the corporation or a subsidiary equal to 10% or more
of the value of the corporation's consolidated assets or its outstanding
stock, (iii) transfers of stock of the corporation or a subsidiary to the
interested stockholder (except for transfers in a conversion or exchange or a
pro rata distribution which does not increase the interested stockholder's
proportionate ownership of a class or series) or any receipt by the interested
stockholder (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits.
The three-year moratorium imposed on business combinations does not apply
if:
1. prior to a person becoming an interested stockholder, the Board of
Directors approves the business combination or the transaction which
resulted in the person becoming an interested stockholder, or
2. the interested stockholder owns at least 85% of the corporation's
voting stock outstanding upon consummation of the transaction which made
him or her an interested stockholder (excluded from shares outstanding for
purposes of this calculation are shares owned by Directors who are also
officers and shares held by ESOP's or other employee stock plans which do
not permit employees to decide confidentially whether to accept a tender
offer), or
3. on or after the date a person becomes an interested stockholder, the
board approves the business combination and it is also approved at a
stockholder's meeting by two-thirds of the voting stock not owned by the
interested stockholder.
Dissenters' Rights. See "--Dissenters' Rights" and Annex B regarding the
dissenters' rights of the Hancock stockholders.
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a corporation in a merger or consolidation;
provided that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve such
transaction, were either (i) listed on a national securities exchange or (ii)
held of record by more than 2,000 stockholders; and further provided that no
appraisal rights are available to stockholders of the surviving corporation if
the merger did not require their approval. Appraisal rights are, however,
available for such class or series if the holders thereof receive in the
merger or consolidation anything except: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation is either listed on a national securities exchange or
held of record by more than 2,000 stockholders; (iii) cash in lieu of
fractional shares; or (iv) any combination of the foregoing.
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based on the historical consolidated Balance Sheet and statements of
operations of Bank Plus and Hancock, adjusted to give effect to the Merger,
using the purchase method of accounting for business combinations. Under the
purchase method of accounting, the purchase price will be allocated to the
assets acquired and liabilities assumed based on their estimated fair values
at closing.
The unaudited pro forma combined condensed Balance Sheet as of March 31,
1997 assumes that the Merger occurred as of that date and reflects the
combination of the historical financial position of Bank Plus with the
historical financial position of Hancock as of March 31, 1997 after giving
effect to the purchase accounting and other Merger-related adjustments
described in the respective Notes herein.
The unaudited pro forma combined condensed statements of operations for the
fiscal year ended December 31, 1996 and for the three months ended March 31,
1997 combine the historical results of operations of Bank Plus for those
periods with the historical results of operations of Hancock for the same
periods and assumes that the Merger occurred at the beginning of the periods
presented.
The following unaudited pro forma combined condensed financial statements
have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of Bank Plus
and Hancock, which, in the case of Bank Plus, appear as an Annex to this Proxy
Statement/Prospectus and in the case of Hancock, are included in this Proxy
Statement/Prospectus. These pro forma financial statements are presented for
illustrative purposes only and are not indicative of the operating results
that would have been achieved or the financial position that would have
existed had the Merger been consummated on the dates indicated in the
preceding paragraphs, nor are they indicative of the future operating results
or financial position of the combined companies. The pro forma adjustments
made in connection with the development of the pro forma information are
preliminary and have been made solely for purposes of developing such pro
forma information as necessary to comply with the disclosure requirements of
the Commission. Changes to the adjustments included in the unaudited pro forma
combined financial statements are expected as evaluations of assets and
liabilities are completed and as additional information becomes available.
53
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------------------
BANK PLUS HANCOCK COMBINED ADJUSTMENTS(4) PRO FORMA
---------- -------- ---------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents.......... $ 103,871 $ 7,402 $ 111,273 $ -- $ 111,273
Investment securities. 160,024 32,856 192,880 (268)(1) 192,612
Mortgage-backed
securities........... 235,264 4,235 239,499 (58)(1) 239,441
Deposits and other
investments.......... -- 4,728 4,728 -- 4,728
Loans receivable, net
of allowances........ 2,642,217 145,522 2,787,739 (4,234)(1) 2,783,505
Other assets.......... 153,271 7,593 160,864 13,193 (1) 174,057
---------- -------- ---------- ------- ----------
$3,505,616
$3,294,647 $202,336 $3,496,983 $ 8,633
========== ======== ========== ======= ==========
LIABILITIES
Deposits.............. $2,516,991 $194,645 $2,711,636 $ 514 (1) 2,712,150
FHLB advances......... 387,151 -- 387,151 -- 387,151
Other borrowings...... 140,000 -- 140,000 -- 140,000
Other liabilities..... 36,762 2,618 39,380 1,180 (2) 40,560
---------- -------- ---------- ------- ----------
3,080,904 197,263 3,278,167 1,694 3,279,861
---------- -------- ---------- ------- ----------
Minority Interest:
Preferred stock of
subsidiary............. 51,750 -- 51,750 -- 51,750
Stockholders' equity
Common stock.......... 182 8,336 8,518 (8,325)(3) 193
Paid-in Surplus....... 261,902 2,243 264,145 9,758 (3) 273,903
Unrealized losses on
securities........... (2,836) (41) (2,877) 41 (2,836)
Accumulated deficit... (97,255) (5,465) (102,720) 5,465 (3) (97,255)
---------- -------- ---------- ------- ----------
161,993 5,073 167,066 6,939 174,005
---------- -------- ---------- ------- ----------
$3,294,647 $202,336 $3,496,983 $ 8,633 $3,505,616
========== ======== ========== ======= ==========
</TABLE>
Pro forma Adjustments:
(1) Represents the fair value adjustments and recognition of intangible assets
(core deposit intangible of $8.3 million and Goodwill of $4.9 million) to
be recorded in connection with the purchase price allocation.
(2) Represents recognition of liabilities for direct costs to be incurred in
connection with the Merger relating to lease exit costs, severance expense
and professional services.
(3) Represents adjustment of equity accounts to reflect issuance of shares in
connection with the Merger and elimination of Hancock equity accounts,
based on the exchange of shares of Hancock Stock for shares of Bank Plus
Common Stock. Assuming the Bank Plus Stock Consideration Value is
$12,012,000, the number of shares of Hancock Stock issued and outstanding
immediately prior to the Effective Time is 1,302,862 and the Market Value
Per Bank Plus Share is $10.625 (the last reported sales price of the Bank
Plus Common Stock on June 27, 1997), the total number of shares of Bank
Plus Common Stock to be issued are estimated to be 1,130,541.
(4) Due to the Company's current tax status, there are no net tax adjustments
anticipated to be recorded as a result of the Merger under the purchase
accounting method.
54
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------
BANK PLUS HANCOCK COMBINED ADJUSTMENTS PRO FORMA
---------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest income......... $ 58,707 $ 3,661 $ 62,368 $ 27(1) $ 62,395
Interest expense........ 38,350 2,116 40,466 277(2) 40,743
---------- --------- -------- ------- ----------
Net interest income
(expense).............. 20,357 1,545 21,902 (250) 21,652
Provision for estimated
loan losses............ 4,251 360 4,611 -- 4,611
---------- --------- -------- ------- ----------
Net interest income
(expense) after
provision for estimated
loan losses............ 16,106 1,185 17,291 (250) 17,041
Other income............ 1,698 68 1,766 -- 1,766
Operating expenses...... 14,336 1,585 15,921 49(3) 15,970
---------- --------- -------- ------- ----------
Income (loss) before
income taxes and
minority interest in
subsidiary............. 3,468 (332) 3,136 (299) 2,837
Income tax benefit...... (2,300) -- (2,300) -- (2,300)
---------- --------- -------- ------- ----------
Income (loss) before
minority interest in
subsidiary............. 5,768 (332) 5,436 (299) 5,137
Minority interest in
subsidiary (preferred
stock dividend)........ 1,553 -- 1,553 -- 1,553
---------- --------- -------- ------- ----------
Net income (loss)....... $ 4,215 $ (332) $ 3,883 $ (299) $ 3,584
========== ========= ======== ======= ==========
Net income (loss) per
common share........... $ 0.23 $ (0.25) $ .18(4)
Weighted average common
shares outstanding..... 18,245,265 1,302,463 19,375,806(4)
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
BANK PLUS HANCOCK COMBINED ADJUSTMENTS PRO FORMA
---------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest income......... $ 237,913 $ 14,442 $252,355 $ 108(1) $ 252,463
Interest expense........ 152,623 8,335 160,958 1,115(2) 162,073
---------- --------- -------- ------- ----------
Net interest income
(expense).............. 85,290 6,107 91,397 (1,007) 90,390
Provision for estimated
loan losses............ 15,610 6,975 22,585 -- 22,585
---------- --------- -------- ------- ----------
Net interest income
expense after provision
for estimated loan
losses................. 69,680 (868) 68,812 (1,007) 67,805
Other income............ 2,246 480 2,726 -- 2,726
Operating expenses...... 82,451 6,479 88,930 195(3) 89,125
---------- --------- -------- ------- ----------
Loss before income taxes
and minority interest
in subsidiary.......... (10,525) (6,867) (17,392) (1,202) (18,594)
Income tax (benefit)
expense................ (1,093) 2 (1,091) -- (1,091)
---------- --------- -------- ------- ----------
Loss before minority
interest in subsidiary. (9,432) (6,869) (16,301) (1,202) (17,503)
Minority interest in
subsidiary (preferred
stock dividend)........ 4,657 -- 4,657 -- 4,657
---------- --------- -------- ------- ----------
Net loss................ (14,089) (6,869) (20,958) (1,202) (22,160)
Preferred stock
dividends.............. 1,553 -- 1,553 -- 1,553
---------- --------- -------- ------- ----------
Net loss available for
common stockholders.... $ (15,642) $ (6,869) $(22,511) $(1,202) $ (23,713)
========== ========= ======== ======= ==========
Loss per common share... $ (0.86) $ (7.27) $ (1.23)(4)
Weighted average common
shares outstanding..... 18,242,887 944,837 19,373,428(4)
</TABLE>
55
<PAGE>
Pro forma adjustments:
(1) Represents the amortization of the fair value adjustments of mortgage-
backed securities and investments over their estimated remaining
maturities.
(2) Represents the amortization of the core deposit intangible of $8.3 million
over 7 years (the useful life over which the benefit of the intangible
asset is expected to be realized) and the amortization of the fair value
adjustment of interest bearing deposits over their estimated remaining
maturities.
(3) Represents the amortization of goodwill of $4.9 million over 25 years (the
useful life over which the benefit of the intangible asset is expected to
be realized).
(4) Pro forma earnings (loss) per share and weighted average common shares
outstanding are based on the number of common shares that would have been
outstanding had the Merger occurred January 1, 1996 and 1997.
56
<PAGE>
PROPOSAL 2--ELECTION OF HANCOCK DIRECTORS
Action is to be taken at the Meeting with respect to the election of three
directors. The directors will be elected for full three-year terms. The
Federal Stock Charter of Hancock provides for a Board of Directors consisting
of not less than five nor more than fifteen members. The Bylaws of Hancock
have fixed the number of directors at seven. However, due to a vacancy on the
Board of Directors, there are presently six directors of Hancock.
In accordance with Rules and Regulations of the OTS, the Bylaws of Hancock
provide for "staggered"elections of directors in which approximately one-third
of the members of the Board of Directors are elected each year for a three-
year term. Three directors are to be elected for full three-year terms. The
Board of Directors proposes the election of Ezunial Burts, Eric D. Hovde and
Kathleen L. Kellogg. If elected, Messrs. Burts and Hovde and Ms. Kellogg will
serve from the date of the Meeting until the Annual Meeting of Stockholders to
be held in 2000 and until their successors have been duly elected and
qualified. However, if the Merger is consummated the terms of all of Hancock's
directors will end as of the Effective Time. Messrs. Burts and Hovde and Ms.
Kellogg are currently serving as directors of Hancock and have indicated their
willingness to continue serving if elected. In the event that Messrs. Burts or
Hovde or Ms. Kellogg should become unavailable, the Board of Directors of
Hancock intends to vote the proxies for a substitution nominee or nominees
nominated by the Board of Directors. The Board of Directors has no present
knowledge that Messrs. Burts or Hovde or Ms. Kellogg will be unavailable to
serve. Unless authority is withheld, all proxies received in response to this
solicitation will be voted for Messrs. Burts and Hovde and Ms. Kellogg.
The following table contains certain information concerning the directors of
Hancock, including the nominees, Messrs. Burts and Hovde and Ms. Kellogg.
<TABLE>
<CAPTION>
TERM
NAME RELATIONSHIP TO HANCOCK EXPIRES AGE
---- ----------------------- ------- ---
<C> <S> <C> <C>
Ezunial Burts(*)........ Director since 1986 1997 50
Eric D. Hovde(*)........ Director since 1996 1997 33
Kathleen L. Kellogg(*).. Director, President and Chief 1997 43
Executive Officer since March 1997
Joon Y. Koh, M.D........ Director since 1979 1998 62
Michael Noel............ Director since 1986; Chairman of the 1998 56
Board of Directors since February
1997
Richard L. Stever....... Director and Secretary since 1979 1999 66
</TABLE>
- --------
(*) Designates a nominee for Director.
Mr. Burts became the President and Chief Operating Officer of the Los
Angeles Area Chamber of Commerce in January 1997. From 1984 through January
1997, he served as the Executive Director of the Port of Los Angeles. Prior to
1984, Mr. Burts was an Executive Assistant to former Los Angeles Mayor Tom
Bradley for over twelve years.
Mr. Hovde has served in executive positions with Hovde Financial, Inc. since
1987 and is currently President of such firm.
Ms. Kellogg became President and Chief Executive Officer of Hancock on March
19, 1997. She was elected a director by the vote of the Board of Directors on
March 25, 1997. Prior to joining Hancock, she served as President and Chief
Executive Officer of Frontier Bank, N.A. from 1994 to February 1997. She was
Senior Vice President/Business Banking Division Manager of California Federal
Bank from 1991 through 1994 and Commercial Banking Regional Vice President of
California Federal Bank from 1989 through 1991. Ms. Kellogg's banking
experience also includes positions with Home Federal Bank, Imperial Bank,
Crocker National Bank and Union Bank.
57
<PAGE>
Dr. Koh's primary business activity for more than the past five years has
been as an orthopedic surgeon.
Mr. Noel has been an independent financial consultant since January 1995.
Mr. Noel retired on December 31, 1994 as the Executive Vice President of
Mission Land Company, a position he held since January 1994. Previously, he
served as Senior Vice President and Chief Financial Officer or Mission Energy
Company from February 1992 to January 1994. Mr. Noel was a Senior Vice
President (from 1991 to 1992) and Vice President/Treasurer (from 1980 to 1991)
of Southern California Edison Company, an investor-owned electrical utility
company. He has been a Director of Software Toolworks, Inc. from July 1989 to
April 1994. He is currently a Director of Stepstone Funds, from November 1990
to present and a Director of Current Income Shares, Inc. from May 1981 to
present. Mr. Noel became Chairman of the Board of Hancock in February 1997.
Mr. Stever was a Senior Vice President of National Medical Enterprises,
Inc., a hospital management company, from 1976 to 1982. He was a director of
that company from 1968 to 1993.
Members of the Board of Directors, other than Ms. Kellogg, receive director
fees of $800 per month plus $400 for each Board meeting actually attended, and
$500 for each committee meeting attended, except that amount is $250 when a
committee meeting is on the same day as a Board meeting, provided the director
attends at least nine (9) Board of Directors meetings during the twelve month
period preceding the meeting in question. Directors receive no other
additional compensation for attendance at Committee meetings.
For information regarding executive officer compensation of Hancock, see
"INFORMATION REGARDING HANCOCK--Executive Officer Compensation of Hancock."
The Board of Directors of Hancock has various committees including an Audit
Committee and a Compensation Committee.
The Audit Committee. Composed of Board members Burts, Hovde, Noel and
Stever, the principal functions of the Audit Committee are to review and
examine internal audit controls, meet with Hancock's auditors concerning their
recommendations for improving Hancock's audit procedures and controls, and
report to the Board of Directors regarding the Audit Committee's
recommendations. The Audit Committee met twice during 1996.
The Compensation Committee. Composed of Board members Koh, Burts, Hovde,
Noel and Stever this Committee meets at least annually to review the results
of Hancock's operations and the performance of its employees. This Committee
met once during 1996.
During 1996, Hancock's Board of Directors held 12 regular meetings. Each of
the directors attended at least 90% of all meetings of the Board of Directors
and of the Committees on which such director served.
58
<PAGE>
PROPOSAL 3--APPROVAL OF THE KELLOGG OPTION
TERMS OF STOCK OPTION GRANT
In March 1997, Hancock entered into an employment agreement (the "Employment
Agreement") with Kathleen L. Kellogg, pursuant to which Ms. Kellogg agreed to
serve as President and Chief Executive Officer of Hancock. Pursuant to the
Employment Agreement, Hancock, among other things, agreed to grant a stock
option to Ms. Kellogg to purchase up to 50,000 shares of Hancock Stock at an
exercise price of $7.46 per share. The Kellogg Option was not granted under
Hancock's 1993 Incentive Stock Option Plan, and therefore, under Hancock's
Charter, the Kellogg Option requires the approval of Hancock's stockholders to
become effective. The form of the Kellogg Option agreement is attached hereto
as Annex D.
The Kellogg Option vests in equal annual installments over four years
beginning March 1, 1998 and expires on March 25, 2002. The options which have
not vested at the time Ms. Kellogg's employment is terminated will be
canceled. However, in the event of a "change of control" of Hancock (which
includes a merger where Hancock stockholders own less than 50% of the
surviving entity, such as the proposed Merger with Bank Plus), all of
Ms. Kellogg's options will vest in full. If the proposal to approve the
Kellogg Option is approved by the stockholders at the Meeting, Hancock
intends, immediately prior to consummation of the Merger, to cancel the
Kellogg Option and pay to Ms. Kellogg cash in an amount based on the value of
the Merger consideration pursuant to the formula described under "PROPOSAL 1--
APPROVAL OF THE MERGER--Treatment of Stock Options."
FEDERAL INCOME TAX CONSEQUENCES
The Kellogg Option is classified as a non-qualified option ("NQO") under the
Code. Under the Code, an optionee does not recognize any taxable income, and
the issuer is not entitled to a deduction, upon the grant of an NQO. Upon the
exercise of an NQO, Ms. Kellogg will recognize ordinary compensation income
(subject to wage and employment tax withholding) equal to the excess of the
fair market value of the shares acquired over the option exercise price. The
amount of such excess is generally determined by reference to the fair market
value of Hancock's Stock on the date of exercise. Ms. Kellogg's basis in the
stock received is equal to such stock's fair market value on the date of
exercise. Hancock is entitled to a deduction equal to the compensation taxable
to Ms. Kellogg.
If Ms. Kellogg sells shares acquired pursuant to the exercise of the Kellogg
Option she will recognize capital gain or loss equal to the difference between
the selling price of the shares and her basis in the shares. Such capital gain
or loss is long- or short-term depending on whether she has held the shares
for more than one year. Hancock is not entitled to any deduction with respect
to any capital gain recognized by Ms. Kellogg. Capital losses on the sale of
such shares may be used to offset capital gains. The net long-term capital
gain of an individual taxpayer is subject to a maximum tax rate of 28%. If
capital losses exceed capital gains, then up to $3,000 of the excess losses
may be deducted from ordinary income. Remaining capital losses may be carried
forward to future tax years.
THE BOARD OF DIRECTORS HAS APPROVED THE KELLOGG OPTION AND RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THE KELLOGG OPTION.
59
<PAGE>
INFORMATION REGARDING HANCOCK
BUSINESS OF HANCOCK
General
Hancock's principal business is focused on originating single and
multifamily residential mortgage loans, and commercial and construction loans
and providing retail banking services. Recently, Hancock has also been
developing lending products for small- to medium-sized businesses and
professionals. Hancock's lending and investment activities are funded
primarily by deposits derived from Hancock's deposit network. This network is
comprised of its main branch office, located in Larchmont and four other
branch offices located in Burbank, Glendale, Toluca Lake and the Fairfax areas
of Los Angeles. All of these locations are in Los Angeles County.
Hancock's business strategy is to focus on niche lending, quality customer
service and deposit market segments in which management believes Hancock can
differentiate its products and services from those offered by larger or more
traditional financial services firms, with the goal of enhancing net interest
margin.
As a result of substantial losses incurred by Hancock since 1992, its
continuing high levels of nonperforming assets and the deterioration in its
financial condition and capital levels, Hancock is subject to special
supervisory attention by the OTS. On March 28, 1997, Hancock stipulated and
consented to the issuance of the Order by the OTS in which Hancock agreed to
take affirmative action to improve its deteriorating financial condition, high
problem asset levels and poor earnings performance and to correct certain
operating and management deficiencies. The Order requires, among other things,
that by no later than June 30, 1997, Hancock must raise at least $3.0 million
in capital and substantially increase its regulatory capital ratios or
alternatively recapitalize by merging or being acquired. Hancock is not in
compliance with these requirements of the Order. Hancock has advised the OTS
of the pending Merger and in view of the progress being made toward
consummating the Merger, the OTS has to date forebeared from taking any action
against Hancock because of such noncompliance. However, if the OTS determines,
in its sole discretion that Hancock is failing to make adequate progress
toward complying with these requirements, it may, pursuant to the Order, take
such further supervisory enforcement or resolution action as it deems
appropriate, including the appointment of a conservator or a receiver. In
addition, on May 2, 1997, the OTS issued the PCA Notification which notified
Hancock that Hancock is considered to be "significantly undercapitalized"
under the prompt corrective action provisions of the FDICIA. In its report on
the consolidated financial statements of Hancock included in this Proxy
Statement/Prospectus, Deloitte & Touche LLP states that these matters raise
serious doubt about Hancock's ability to continue as a going concern. See--
"Regulation and Supervision of Hancock--Prompt Corrective Action Notification;
Cease and Desist Order;--Prompt Corrective Regulatory Action; the Independent
Auditors' Report with respect to the Consolidated Financial Statements of
Hancock and Note 2 of Notes to Consolidated Financial Statements of Hancock."
Lending Activities
General. Hancock originates loans for residential, commercial, construction
and consumer purposes. The majority of loans originated by Hancock are secured
by real estate.
60
<PAGE>
Loan Portfolio. The following table sets forth the composition of Hancock's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------
1997 1996 1995 1994
------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family................. $ 38,152 $ 38,291 $ 42,987 $ 41,453
Multifamily......................... 84,643 85,379 82,926 79,123
Commercial real estate and land..... 26,748 26,897 30,057 31,549
Construction........................ 6,082 7,071 4,377 2,192
-------- -------- -------- --------
Total real estate loans........... 155,625 157,638 160,347 154,317
-------- -------- -------- --------
Non-real estate loans:
Commercial loans.................... 1,628 -- -- --
SBA loans........................... 514 -- -- --
-------- -------- -------- --------
Total non-real estate loans....... 2,142 -- -- --
-------- -------- -------- --------
Consumer loans:
Loans on savings accounts........... 239 74 154 236
Other Loans......................... 166 171 147 42
-------- -------- -------- --------
Total consumer loans.............. 405 245 301 278
-------- -------- -------- --------
Less:
Allowance for loan losses........... 8,538 8,498 4,917 2,135
Undisbursed loan funds.............. 3,342 3,914 1,677 557
Unearned discounts on purchased
loans.............................. 302 234 37 (2)
Deferred loan fees.................. 468 508 544 614
-------- -------- -------- --------
Total............................. 12,650 13,154 7,175 3,304
-------- -------- -------- --------
Total net loans................. 145,522 144,729 153,473 151,291
-------- -------- -------- --------
Mortgage-backed securities............ 4,235 5,832 7,500 9,331
-------- -------- -------- --------
Total net loans receivable and
mortgage-backed securities..... $149,757 $150,561 $160,973 $160,622
======== ======== ======== ========
</TABLE>
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Non Performing Assets. The following table sets forth the amounts of
nonaccrual loans, as well as real estate owned ("REO") and troubled debt
restructurings ("TDRs") net of specific reserves, at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -----------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ------ ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate:
One- to four-family....... $ 250 $1,106 $1,547 $1,830 $ 1,306 $1,841
Multifamily............... 4,959 4,342 3,253 74 6,013 3,572
Commercial real estate and
land..................... -- -- 889 -- -- 621
Construction.............. -- -- -- -- -- --
Consumer.................... -- -- -- -- -- 50
------ ------ ------ ------ ------- ------
Total................... 5,209 5,448 5,689 1,904 7,319 6,084
REO........................... 1,181 1,544 2,197 2,203 4,099 1,960
------ ------ ------ ------ ------- ------
Total nonperforming
assets................. $6,390 $6,992 $7,886 $4,107 $11,418 $8,044
====== ====== ====== ====== ======= ======
TDRs.......................... $2,833 $3,087 $8,394 $6,811 $ -- $ --
====== ====== ====== ====== ======= ======
</TABLE>
Residential Real Estate Loans; General. Hancock's principal lending
activities have been focused on the origination of single and multifamily
loans as well as construction loans for single family tracts and owner-
occupied single family dwellings. Total residential real estate mortgage loans
at March 31, 1997 were $126.3 million, constituting 81.2% of Hancock's loan
portfolio at that date (net of loans in process).
Single Family Loans. Hancock offers adjustable rate mortgages ("ARM") loans
secured by one-to-four family residences, substantially all of which are
owner-occupied and featuring loan maturities of up to 30 years. The interest
rates on such loans generally adjust monthly or annually and range from two to
four percentage points above the applicable index. Historically, Hancock has
offered adjustable rate residential loans indexed to the weighted average cost
of funds of the Eleventh District of the Federal Home Loan Bank ("COFI"). In
1992, Hancock introduced loan products whose indices were based on the Federal
Cost of Funds. Typically, both products had interest rate floors and periodic
payment adjustment limitations.
Hancock also offers fixed-rate loans with maturities of up to 30 years,
secured by first liens on owner-occupied single-family residences. The
interest rates on these fixed rate loans are established based on money market
conditions and the requirement of the secondary market agencies which purchase
these loans. Hancock typically charges an origination fee of approximately one
to two percentage points of the principal amount of the loan.
Hancock's policy is to originate single-family residential real estate loans
in amounts generally not in excess of 80% of the lower of the appraised value
or the selling price of the property securing the loan, although this amount
may vary based upon the characteristics of the loan and the borrower. Hancock
requires either private mortgage insurance or a loan purchase commitment for
loans originated with loan to value ratios exceeding 90% at origination.
Multifamily Residential Loans. Hancock originates mortgage loans secured by
multifamily residential properties (five units or larger). Pursuant to
Hancock's underwriting policies, a multifamily loan may be made only in an
amount of up to 75% of the appraised value. In addition, Hancock requires a
minimum debt service coverage ratio of 1.20 for fixed rate loans and 1.15 for
adjustable rate loans.
Multifamily loans involve essentially the same additional risks as discussed
below with respect to commercial real estate loans. Accordingly, Hancock
considers the borrower's experience in managing similar properties in addition
to other factors, in deciding whether to grant a multifamily loan.
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Commercial Real Estate Loans. Hancock originates commercial real estate
loans, which mostly consist of permanent loans on income-producing properties
such as office buildings, motels and other commercial real estate. Pursuant to
Hancock's underwriting policies, commercial real estate loans are generally
made in amounts up to the lesser of 70% of the appraised value of the security
property or the sales price. These loans may be made with terms ranging from
five to thirty years and predominantly have an adjustable interest rate. This
rate is generally based on the COFI or on the Federal Cost of Funds index.
Hancock considers the net operating income of the property in making
commercial real estate loans and generally requires a debt service coverage
ratio of at least 1.20.
Commercial real estate loans are generally larger and involve a greater
degree of risk than single family residential loans. The liquidation value of
commercial and multifamily loans may be adversely affected by risks generally
incident to owning interests in real property, including changes or continued
weakness in the general real estate market, local economic conditions and
specific industry segments; declines in real estate values; declines in
occupancy rates; increases in interest rates; and increases in real estate and
personal property tax rates and other operating expenses (including energy
costs). Because of these factors, Hancock generally considers, among other
things, the borrower's experience in owning and managing similar properties
and Hancock's experience with the specific borrower when evaluating loan
applications for loans secured by income-producing real property.
Construction Loans. Hancock provides construction financing for single
multifamily residential properties. Total net construction loans were
approximately $3.5 million at March 31, 1997, constituting 2.0% percent of
Hancock's total loan portfolio.
Applicants for construction loans are required to submit a detailed project
budget, including complete cost estimates. Hancock's procedures require that
construction loan applications be reviewed by construction loan department
staff for accuracy of construction cost estimates, verification of costs and
engineering and architectural matters. Construction loans relating to income
producing improvements also require a feasibility study and a detailed cash
flow analysis. In addition, Hancock requires an appraisal to be conducted by a
qualified outside fee appraiser for each such loan.
Hancock typically funds the interest on construction loans from an interest
reserve established at funding out of the proceeds of the loan. The interest
reserve plus construction and land costs may not, in the aggregate, exceed 75%
of the estimated appraised value of the property as completed. Hancock
requires a periodic report on disbursements and progress based on an on-site
inspection. Approval for loan disbursement requests are subject to
satisfactory compliance with the conditions for funding contained in the
applicable loan agreement, including those conditions described above. These
procedures are designed to minimize the risk of inadequate funds for
completion in the event of foreclosure on a construction project.
Due to uncertainties inherent in estimating construction costs, market
values of completed projects and the effects of governmental regulations
affecting real property, there can be no assurance that Hancock will be able
to recover all of its unpaid principal balance, accrued interest, fees and
costs on a construction loan in the event that Hancock is forced to foreclose
on a project prior to or at completion. In addition, Hancock may be required
to fund additional amounts to complete the project and may have to hold
properties for an indefinite period of time.
Construction lending can present greater risks than other types of lending.
The analysis of prospective construction loan projects requires an expertise
that is different in significant respects from the expertise that is required
for the analysis of loans secured by existing projects. Hancock seeks to
minimize these risks through its underwriting standards and procedures and by
monitoring the progress of projects on which it lends through the construction
period.
Origination, Purchase and Sale of Loans. Hancock originates real estate-
secured loans principally through loan brokers and loan correspondents. In
1997, Hancock initiated a new lending strategy to augment its real estate
lending program. This strategy focuses on originating loans to small- to-
medium-sized businesses located within
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Hancock's principal market area. These loans are originated through Hancock's
branch network. Although Hancock has sold loans from time to time to achieve
its asset/liability objectives and generate fee income through retention of
loan servicing rights, loans are originated primarily for portfolio purposes.
Underwriting Policies and Procedures. Hancock's lending activities are
subject to underwriting standards and procedures prescribed by the Board of
Directors and implemented by management. Each loan must meet minimum
underwriting criteria established in Hancock's lending policies and must fit
within Hancock's strategies for yield and portfolio enhancement. Hancock's
lending policies require that detailed loan applications be obtained to
determine the borrower's ability to repay the loan. The creditworthiness of
the borrower is verified through to use of credit reports, financial
statements, federal income tax returns, verifications of employment and
deposits and other types of independent confirmation. Loan applications are
processed and submitted to Hancock's Loan Committee and, if appropriate, to
Hancock's Board of Directors for approval.
Hancock requires an independent appraisal on every property securing real
estate loans. The Board of Directors reviews and approves the independent
appraisers utilized by Hancock on an annual basis and approves Hancock's
appraisal policy. Each appraisal is reviewed by Hancock's Appraisal Department
or by a third-party review appraiser. All properties securing real estate
loans are inspected by Hancock's loan origination officer. In addition, the
comparable properties used by the appraiser to develop the appraised value for
the property are inspected to ensure that the appraiser's conclusions
regarding these properties are reasonable.
Hancock requires borrowers to purchase a lender's title policy, insuring the
priority of its lien by a title insurer. Hancock's underwriting policies also
require that borrowers obtain policies of fire and extended coverage insurance
prior to closing and, in certain cases, flood and earthquake insurance, all of
which name Hancock as a loss payee. In certain cases, Hancock requires monthly
impound payments by the borrower in order to provide for payment of insurance
and taxes with respect to the security property.
Subject to the above standards, The Board of Directors has authorized the
following persons to approve new loans involving total liability of the
borrower (new loans plus existing loans): the loan manager may approve loans
secured by existing single family residences and conforming to the
underwriting criteria of Federal Home Loan Mortgage Corporation ("FHLMC") or
Federal National Mortgage Association ("FNMA"), and the Loan Committee may
approve all loans up to $750,000.
Interest Rates, Terms, Points and Fees. Hancock regularly resets the
interest rate that it offers to new loan customers. All changes in interest
rates offered are approved by Hancock's Loan Committee. In general, interest
rates charged are primarily affected by general market rates, the demand for
loans and the supply of money available for lending purposes. These factors
are affected by, among other things, general economic conditions and the
policies of the federal government and regulatory agencies, including the
Federal Reserve Board.
In addition to interest earned on loans, Hancock receives fees in connection
with loan originations, loan prepayments, loan modifications, late payments,
changes of property ownership and related services. The income realized by
Hancock from these sources varies significantly from period to period and
depends upon the volume and type of loans made, sold and purchased. Loan fees
and service charges recorded as income by Hancock totaled $54,000 for the
three months ended March 31, 1997 and $193,000, $205,000 and $241,000,
respectively, for the years ended December 31, 1996, 1995 and 1994.
In accordance with generally accepted accounting principles, Hancock has
historically deferred recognition of income from loan origination fees to the
extent that the amounts received exceeded loan origination costs. The excess
amount is deferred and amortized using the interest method over the remaining
contractual life of the loan. Unamortized loan fees are recognized as income
when the related loan is sold or paid in full. As of March 31, 1997, the
balance of unamortized loan fees totaled $468,000.
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<PAGE>
Other Investments
Hancock is required to maintain a minimum amount (currently 5%) of liquid
assets, which may be invested in specified short-term securities. In addition,
Hancock is permitted to make certain other securities investments. Hancock's
investment portfolio is classified into two components, (i) debt securities
that Hancock intends to hold to maturity and (ii) debt and equity securities
available for sale. Debt securities that Hancock intends to hold to maturity
are reported at amortized cost. Debt and equity securities not classified as
held to maturity are classified as available for sale. These securities are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity.
Deposits and Borrowings
General. Hancock has utilized savings accounts and other types of deposits
as its principal source of funds for lending and for other general business
purposes. In addition to deposits, Hancock derives funds from earnings, loan
repayments, whole loan and loan participation sales, FHLB advances and other
borrowings. Borrowings may be used on a short-term basis to compensate for
seasonal or other reductions in deposits or inflows at less than projected
levels, as well as on a longer term basis to support expanded lending
activities.
Deposits. Hancock has several types of deposit programs designed to attract
both short-term and long-term savings. Hancock's current deposit products
include savings accounts, a variety of checking accounts, money market deposit
accounts, passbook accounts and certificates of deposit with maturities
ranging from 7 days to 5 years.
Interest rates paid on, and minimum balance requirements for, deposit
accounts may vary from time to time as determined by the management of
Hancock. Savings deposits are obtained from the areas in Southern California
immediately surrounding its offices. As of March 31, 1997, approximately 23.0%
of Hancock's deposits were withdrawable on demand.
"Jumbo" certificates of deposit ($98,000 minimum) are offered as a means of
meeting short-term cash requirements of Hancock and as an alternative to
short-term borrowings. The interest rates paid on, and maturities of, jumbo
certificates mostly reflect general money market conditions as of the date of
their issuance. The interest rates which are paid on jumbo certificates in
order to attract investors' funds have historically made these accounts among
the most costly type of savings accounts issued by Hancock. At March 31, 1997,
the weighted average rate paid by Hancock on such accounts was 4.67%. At March
31, 1997, Hancock had $313,000 in jumbo certificates.
The following table sets forth the dollar amounts of deposits in the various
types of accounts offered by Hancock at the dates indicated, as well as the
changes in such amounts.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------
1997 1996 1995 1994
------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial checking non interest-
bearing........................... $ 11,184 $ 10,974 $ 9,530 $ 8,566
Regular checking................... 12,761 11,806 11,564 12,364
Money market checking and savings.. 18,243 15,759 18,592 23,667
Passbook........................... 2,552 2,619 3,314 4,250
Certificates accounts.............. 149,905 148,915 142,424 129,936
-------- -------- -------- --------
Total deposits at end of period.. $194,645 $190,073 $185,424 $178,783
======== ======== ======== ========
Net increase in deposits....... $ 4,572 $ 4,649 $ 6,641 $ 7,387
======== ======== ======== ========
</TABLE>
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<PAGE>
Borrowings. Hancock may borrow funds from third parties or obtain advances
from the FHLB upon the security of the capital stock in the FHLB it owns and
certain of its home mortgage loans. The FHLB system functions in a reserve
credit capacity for savings banks and certain other home financing
institutions. Each credit program has its own interest rate and range of
maturities, and the FHLB of places limitations on the size of the advance.
Depending upon the credit program used, FHLB advances bear interest at fixed
rates or at rates that vary with market conditions. Variable rate advances can
be prepaid without penalty, but a prepayment penalty normally is imposed for
early repayment of fixed-rate advances. At March 31, 1997, Hancock had no
borrowings from the FHLB.
SUPERVISION AND REGULATION OF HANCOCK
General
Hancock is subject to extensive regulation, examination and supervision by
the OTS, as its chartering agency, and by the Federal Deposit Insurance
Corporation ("FDIC"), as the insurer of its deposits. Hancock is a member of
the Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") of the
FDIC. Hancock is required to file reports with the OTS and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the OTS and the FDIC to test Hancock's compliance with various regulatory
requirements. These types of regulation and supervision establish a
comprehensive framework of activities in which an institution such as Hancock
may engage, and is intended primarily for the protection of the insurance fund
and depositors. This structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or the
Congress, could have a material adverse impact on Hancock and its operations.
Any change in the regulatory structure or the statutes or regulations
applicable to Hancock, whether by the OTS, the FDIC or the Congress, could
have a material impact on Hancock and its operations. Congress is expected to
consider in 1997 the elimination of the federal thrift charter and the
abolishment of the OTS. The results of such consideration, including possible
enactment of legislation, is uncertain. Therefore, Hancock is unable to
determine the extent to which the results of such consideration or possible
legislation, if enacted, would affect its business.
Certain of the regulatory requirements applicable to Hancock are referred to
below or elsewhere herein. The descriptions of statutory provisions and
regulations applicable to savings institutions set forth herein do not purport
to be complete descriptions of such statutes and regulations or their actual
or potential effects on Hancock, and are qualified in their entirety by
reference to such statutes and regulations.
Savings associations such as Hancock may be subject to potential enforcement
actions by the OTS for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver,
the issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits, the imposition of civil money penalties,
the issuance of directives to increase capital, the issuance of formal and
informal agreements, the issuance of removal and prohibition orders against
institution-affiliated parties and the imposition of restrictions and
sanctions under the prompt corrective action provisions of FDICIA, as
discussed further below.
Prompt Corrective Action Notification; Cease and Desist Order
On May 2, 1997, the OTS issued the PCA Notification notifying Hancock that
it is considered to be "significantly undercapitalized" under the prompt
corrective action provisions of the FDICIA, effective the date of the
notification. In accordance with the provisions of the prompt corrective
action provisions of the FDICIA,
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<PAGE>
Hancock has submitted a capital restoration plan to the OTS advising it that
the consummation of the Merger constitutes its capital plan to achieve
required capital levels. See "--Prompt Corrective Regulatory Action" below.
The PCA Notification was based upon Hancock's core capital ratio of 3.11%,
Tier 1 risk-based capital ratio of 4.49% and total risk-based capital ratio of
5.67% as of March 31, 1997. See "--Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hancock--Capital Resources"
below. The PCA Notification informed Hancock that it may not, without prior
regulatory approval, engage in any of the following activities: (i) make a
capital distribution if, after such distribution, Hancock would be
undercapitalized; (ii) pay management fees to any person having control of
Hancock if, after such distribution, Hancock would be undercapitalized; (iii)
allow its average total assets during any calendar quarter to grow over the
preceding quarter except under certain limited circumstances; (iv) make an
acquisition, establish or acquire a new branch office or engage in new line of
business except under certain limited circumstances; or (v) pay any bonus to
or increase the compensation of any senior executive officer. If the OTS
determines that Hancock has failed to comply with the PCA Notification, it
would have available remedies including the power to assess civil monetary
penalties against Hancock and its institution affiliated parties who
participated in such noncompliance, and to seek enforcement through judicial
or administrative proceedings, including seeking an injunction or a cease and
desist order. For further information regarding the background of the PCA
Notification, see "--Prompt Corrective Regulatory Action" below.
On March 28, 1997, Hancock stipulated and consented to the issuance of an
Order to Cease and Desist (the "Order") by the OTS in which Hancock agreed to
take affirmative action to improve its deteriorating financial condition, high
problem asset levels and poor earnings performance and to correct certain
other deficiencies. On issuance of the Order, the OTS terminated the
Supervisory Agreement entered into between the OTS and Hancock in 1994. The
Order was issued as a result of the third quarter 1996 examination of Hancock
by the OTS. The Order provides that by no later than June 30, 1997, Hancock
must either (a) raise at least $3.0 million in capital and have minimum
capital ratios required of an institution to be categorized as well-
capitalized under the prompt corrective action provisions of the FDICIA (see
"--Prompt Corrective Regulatory Action" below) or (b) alternatively
recapitalize by merging or being acquired.
In addition, the Order provides that Hancock must, among other things: (i)
cease and desist from causing or taking any action that would bring about any
unsafe or unsound practice or any violation of certain specified federal laws
or regulations regarding savings association capital requirements, lending
limitations, asset classification, establishment and maintenance of records,
re-evaluation of assets, appraisals, regulatory reporting and loans to
insiders; (ii) maintain an added capital cushion to address asset quality
deterioration; (iii) increase the size of the Board, and (iv) by May 31, 1997
develop an annual comprehensive three-year business plan, an annual internal
audit plan, a management plan and plan to correct oversight deficiencies noted
in the OTS' 1996 Report of Examination. The stipulation and consent was signed
by all of the directors of Hancock.
Hancock is not in compliance with the requirements of the Order. However,
Hancock has advised the OTS of the pending Merger and in view of the progress
being made toward consummating the Merger, the OTS has to date forebeared from
taking any action against Hancock because of such noncompliance. However, if
the OTS determines, in its sole discretion, that Hancock is failing to make
adequate progress toward complying with the requirements of the Order to
recapitalize through either raising additional capital, merging or being
acquired, it may take such further supervisory enforcement or resolution
action as it deems appropriate, including the appointment of a conservator or
a receiver. In the event that Hancock fails to continue to comply with the
other provisions of the Order, the OTS or FDIC could also take additional
enforcement actions against Hancock or its officers and directors. See "--
Federal Savings Institution Regulation--Enforcement."
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by the Home Owners' Loan Act ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act (the "FDI Act"), and the regulations issued by
the various federal banking agencies to implement these statutes. These laws
and regulations delineate the nature and extent of the activities in which
federal savings institutions such as Hancock may engage. In
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<PAGE>
particular, many types of lending authority for federal savings institutions,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of Hancock's unimpaired capital and surplus (as of December 31,
1996 this amount was $6.4 million) plus an additional 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and gold bullion,
although management generally does not make loans in excess of $1 million. At
March 31, 1997, Hancock's largest aggregate amount of loans to one borrower
was $4.4 million.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender ("QTL") test. Under the QTL test, a savings institution is required to
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) in at
least nine months out of each 12-month period. A savings institution that
fails the QTL test must either convert to a bank charter or operate under
certain restrictions. As of March 31, 1997, Hancock maintained 67.73% of its
portfolio assets in qualified thrift investments and, therefore, met the QTL
test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered as "qualified
thrift investments."
Nonresidential Real Estate Loans. OTS regulations impose limitations on
Hancock's ability to make loans secured by nonresidential real estate, which
includes commercial real estate but does not include multifamily residential
real estate. Under the OTS regulations, an institution such as Hancock would
be limited to holding loans on the security of nonresidential real estate to a
maximum of 400% of total capital. Hancock may sell or participate out new or
existing loans in this category in order to maintain compliance with the
limit. The OTS regulations permit lending in excess of the prescribed limit if
the OTS finds that such lending "will not present a significant risk to the
safe and sound operation of the association and is consistent with prudent
operating practices." There can be no assurance that the OTS would make such a
finding in the case of Hancock.
Limitation on Capital Distributions. OTS regulations impose limitations on
all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a
proposed capital distribution and has not been advised by the OTS that it is
in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year; or (ii) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior OTS approval. In the event an institution's capital fell
below its capital requirements or the OTS notified it that it was in need of
more than normal supervision, the institution's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution
would constitute an unsafe or unsound practice.
Liquidity. Hancock is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 5%) of its net withdrawable deposit accounts
plus short-term borrowings. OTS regulations also require each savings
institution to maintain an average daily balance of short-term liquid assets
at a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and borrowings payable in one year or less. Monetary
penalties may be imposed for failure to meet these liquidity requirements.
Hancock's average liquidity ratio at March 31, 1997 was 6.05%, which exceeded
the then applicable requirements.
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general
assessment, paid on a semi-annual basis, is computed upon the savings
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<PAGE>
institution's total assets, including consolidated subsidiaries, as reported
in Hancock's latest quarterly Thrift Financial Report. The assessments paid by
Hancock for the years ended December 31, 1996 and 1995 totaled $86,000 and
$85,000, respectively.
Branching. OTS regulations permit federally chartered savings institutions
to branch nationwide under certain conditions. Generally, federal savings
institutions may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings institutions.
Transactions with Related Parties. Hancock's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution) is limited by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). Section 23A
limits the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and
also limits the aggregate amount of transactions with all affiliates to 20% of
the savings institution's capital and surplus. Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B generally requires that
certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. Notwithstanding Sections 23A and 23B, savings institutions are
prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies under Section 4(c) of Bank
Holding Company Act (the "BHC Act"). Further, no savings institution may
purchase the securities of any affiliate other than a subsidiary.
Hancock's authority to extend credit to executive officers, directors and
10% stockholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require that such loans to be made on
terms and conditions substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of repayment. Regulation
O also places individual and aggregate limits on the amount of loans Hancock
may make to such persons based, in part, on Hancock's capital position, and
requires certain board approval procedures be followed. The OTS regulations,
with certain minor variances, apply Regulation O to savings institutions.
Enforcement. Under federal banking law, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate
in wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive
or cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under federal banking law, the FDIC has the
authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establish criminal penalties for
certain violations.
Standards for Safety and Soundness. Federal banking law requires each
federal banking agency to prescribe for all insured depository institutions
standards relating to, among other things, internal controls, information
systems and audit systems, loan documentation, credit underwriting, interest
rate risk exposure, asset growth, compensation, fees and benefits and such
other operational and managerial standards as the agency deems appropriate.
The federal bank regulatory agencies have adopted final regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness
("Guidelines") to implement these safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. The Guidelines address internal controls and
information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. If the
69
<PAGE>
appropriate federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by federal banking law. The final regulation
establishes deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital
standard, a 3% leverage (core capital) ratio and an 8% risk-based capital
standard. Core capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and
related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain purchased mortgage servicing
rights ("PMSRs") and credit card relationships. The OTS regulations also
require that, in meeting the leverage ratio, tangible and risk-based capital
standards, institutions generally must deduct investments in and loans to
subsidiaries engaged in activities not permissible for a national bank. In
addition, the OTS prompt corrective action regulation provides that a savings
institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--
Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, including certain off-balance
sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by
the OTS capital regulation based on the risks OTS believes are inherent in the
type of asset. The components of core capital are equivalent to those utilized
for purposes of determining the leverage ratio. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and, within specified limits, the allowance
for loan and lease losses. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component in its regulatory
capital rule. The final interest rate risk rule also adjusts the risk-
weighting for certain mortgage derivative securities. Under the revised rule,
savings institutions with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. An institution's interest rate risk is
measured by the decline in net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of Hancock's assets, as calculated in
accordance with guidelines set forth by the OTS. An institution whose measured
interest rate risk exposure exceeds 2% must deduct an interest rate component
in calculating its total capital under the risk-based capital rule. The
interest rate risk component is an amount equal to one-half of the difference
between an institution's measured interest rate risk and 2%, multiplied by the
estimated economic value of Hancock's assets. That dollar amount is deducted
from total capital in calculating compliance with the risk-based capital
requirement. Under the rule, there is a lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. An institution with assets of less than $300
million and risk-based capital ratios in excess of 12% is not subject to the
interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer a bank's
interest rate risk component on a case-by-case basis. The OTS has postponed
indefinitely the date that the component will first be deducted from an
institution's total capital to provide it with an opportunity to review the
interest rate risk approaches taken by the other federal banking agencies.
Prompt Corrective Regulatory Action
Provisions of the FDICIA enacted in 1991 require each federal banking
agency, including the OTS, to take prompt corrective action to resolve the
problems of insured depository institutions, including but not limited to
those that fall below one or more prescribed minimum capital ratios. The
FDICIA requires each federal banking agency to promulgate regulations defining
the following five categories in which an insured depository institution
70
<PAGE>
will be placed, based on the level of its capital ratios: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
In September 1992, the federal banking agencies, including the OTS, issued
uniform final regulations implementing the prompt corrective action provisions
of the FDICIA. Under such regulations, an insured depository institution will
be classified in the following categories:
. "well capitalized" if it (i) has total risk-based capital of 10% or
greater, Tier 1 risk-based capital of 6% or greater and a leverage ratio
of 5% or greater and (ii) is not subject to an order, written agreement,
capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure;
. "adequately capitalized" if it has total risk-based capital of 8% or
greater, Tier 1 risk-based capital of 4% or greater and a leverage ratio
of 4% or greater (or a leverage ratio of 3% or greater if the institution
is rated composite "1" under the applicable regulatory rating system in
its most recent report of examination);
. "undercapitalized" if it has total risk-based capital that is less than
8%, Tier 1 risk-based capital that is less than 4% or a leverage ratio
that is less than 4% (or a leverage ratio that is less than 3% if the
institution is rated composite "1" under the applicable regulatory rating
system in its most recent report of examination);
. "significantly undercapitalized" if it has total risk-based capital that
is less than 6%, Tier 1 risk-based capital that is less than 3% or a
leverage ratio that is less than 3%; and
. "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if, after such transaction, the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject
to asset growth restrictions and be required to obtain prior regulatory
approval for acquisitions, branching and engaging in new lines of business.
Any undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency within 45 days
after becoming undercapitalized. The appropriate federal banking agency cannot
accept a capital plan unless, among other things, it determines that the plan
(i) specifies the steps the institution will take to become adequately
capitalized, (ii) is based on realistic assumptions and (iii) is likely to
succeed in restoring the depository institution's capital. In addition, each
company controlling an undercapitalized depository institution must guarantee
that the institution will comply with the capital plan until the depository
institution has been adequately capitalized on an average basis during each of
four consecutive calendar quarters and must otherwise provide adequate
assurances of performance. The aggregate liability of such guarantee is
limited to the lesser of (a) an amount equal to 5% of the depository
institution's total assets at the time the institution became undercapitalized
or (b) the amount which is necessary to bring the institution into compliance
with all capital standards applicable to such institution as of the time the
institution fails to comply with its capital restoration plan. Finally, the
appropriate federal banking agency may impose any of the additional
restrictions or sanctions that it may impose on significantly undercapitalized
institutions if it determines that such action will further the purpose of the
prompt correction action provisions.
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<PAGE>
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to
implement, an acceptable capital restoration plan, is subject to additional
restrictions and sanctions, some of which are mandatory and others of which
are at the discretion of the appropriate federal banking agency. Some of these
restrictions and sanctions include, among other things: (i) a forced sale of
voting shares to raise capital or, if grounds exist for appointment of a
receiver or conservator, a forced merger; (ii) restrictions on transactions
with affiliates; (iii) further limitations on interest rates paid on deposits;
(iv) further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by
the holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by
the appropriate federal banking agency. Although the appropriate federal
banking agency has discretion to determine which of the foregoing restrictions
or sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action provisions. In
addition, without the prior written approval of the appropriate federal
banking agency, a significantly undercapitalized institution may not pay any
bonus to its senior executive officers or provide compensation to any of them
at a rate that exceeds such officer's average rate of base compensation during
the 12 calendar months preceding the month in which the institution became
undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most
importantly, however, except under limited circumstances, the appropriate
federal banking agency, not later than 90 days after an insured depository
institution becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
stockholders or creditors for consenting in good faith to the appointment of a
receiver or conservator or to an acquisition or merger as required by the
regulator.
As of March 31, 1997, Hancock's ratio of total capital to risk-weighted
assets was 5.67%, its ratio of Tier 1 capital to risk-weighted assets was
4.49% and its ratio of Tier 1 capital to adjusted total assets was 3.11%. On
June 30, 1997 Hancock paid $1.0 million representing the unamortized special
SAIF assessment. If Hancock would have paid the SAIF assessment as of March
31, 1997 the capital ratios would have been as follows: total capital to risk-
weighted assets at 4.96%; Tier 1 Capital to risk-weighted assets at 3.78% and
Tier 1 Capital to adjusted total assets at 2.63%. Under the prompt corrective
action categories discussed above, Hancock is considered to be "significantly
undercapitalized" as of March 31, 1997.
Insured depository institutions, such as Hancock, and their institution-
affiliated parties may be subject to potential enforcement actions for unsafe
or unsound practices in conducting their businesses or for violations of law,
rules or regulations, including a failure to meet regulatory capital
requirements. Depending on the severity of the unsafe or unsound practice or
violation, enforcement actions may include a requirement that Hancock file a
capital restoration plan, a requirement that Hancock take additional actions
to comply with the capital restoration plan, the issuance of a cease and
desist order, the issuance of a capital directive, the imposition of civil
money penalties on Hancock and certain affiliated parties, the imposition of
such operating restrictions as the OTS deems appropriate at the time, such
other actions by the OTS as it may be authorized or required to take under
applicable statutes and regulations and, under certain circumstances, the
appointment of a conservator or receiver for Hancock. In the event of a
liquidation of Hancock, the interests of the holders of the Common Stock will
be subordinate to the interests of, among others, creditors of Hancock,
including depositors. Historically, with few exceptions, equity holders of
financial institutions such as Hancock have not obtained any recovery for
their investment following the appointment of a conservator or a receiver. See
"--Federal Savings Institution Regulation--Enforcement."
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<PAGE>
Insurance of Deposit Accounts
Deposits of Hancock are presently insured by the SAIF. Both the SAIF and the
Bank Insurance Fund ("BIF") (the deposit insurance fund that covers most
commercial bank deposits) are statutorily required to be capitalized to a
ratio of 1.25% of insured reserve deposits. Until recently, members of the
SAIF and BIF were paying average deposit insurance premiums of between 24 and
25 basis points. The BIF met the required reserve in 1995, whereas the SAIF
was not expected to meet or exceed the required level until 2002 at the
earliest. This situation was primarily due to greater levels of prior losses
in the thrift industry and the statutory requirement that SAIF members make
payments on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF.
In view of the early satisfaction by the BIF of the target 1.25% ratio, the
FDIC ultimately adopted a new assessment rate schedule of between 0 and 27
basis points, under which 92% of BIF members paid an annual premium of only
$2,000. With respect to SAIF member institutions, the FDIC adopted a final
rule retaining the previously existing assessment rate schedule applicable to
SAIF member institutions of 23 to 31 basis points. As long as the premium
differential continued, it could have had adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, SAIF members, such as Hancock, could have
been placed at a substantial competitive disadvantage to BIF members with
respect to pricing of loans and deposits and the ability to achieve lower
operating costs.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a
special one-time assessment on SAIF-member institutions, including Hancock, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995, payable November 27, 1996 (the "SAIF Special Assessment"). The
SAIF Special Assessment was recognized by Hancock as an expense in the quarter
ended December 31, 1996 and is generally tax deductible. The SAIF Special
Assessment recorded by Hancock amounted to $1.2 million.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits
will be assessed for FICO payment of 1.3 basis points, while SAIF deposits
will pay 6.48 basis points. Full pro rata sharing of the FICO payments between
BIF and SAIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999, provided no savings associations remain as
of that time.
As a result of the Funds Act, the FDIC recently voted to effectively lower
SAIF assessments to between 0 and 27 basis points as of January 1, 1997, a
range comparable with that of BIF members. However, SAIF members will continue
to make the FICO payments described above. The FDIC also lowered the SAIF
assessment schedule for the fourth quarter of 1996 to between 18 and 27 basis
points. Management cannot predict the level of FDIC insurance assessments on
an on-going basis, whether the savings association charter will be eliminated
or whether the BIF and SAIF will eventually be merged.
Hancock's assessment rate for the 1996 was 27 basis points and the premium
paid for this period was $590,000. A significant increase in SAIF insurance
premiums would likely have an adverse effect on the operating expenses and
results of operations of Hancock.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or
the OTS. Management of Hancock does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
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<PAGE>
Thrift Rechartering Legislation
The Funds Act provides that the BIF and SAIF will merge on January 1, 1999
if there are no more savings associations as of that date. That legislation
also requires that the Department of Treasury submit a report to Congress by
March 31, 1999 that makes recommendations regarding a common financial
institutions charter, including whether the separate charters for thrifts and
banks should be abolished. Various proposals to eliminate the federal thrift
charter, create a uniform financial institutions charter and abolish the OTS
were introduced in the 104th Congress. It is likely that legislation will be
introduced in the current 105th Congress addressing the elimination of the
savings association charter. However, Hancock is unable to predict whether
such legislation would be enacted and, if so, the extent to which the
legislation would restrict or disrupt its operations.
Federal Home Loan Bank System
Hancock is a member of the Federal Home Loan Bank System consisting of 12
regional Federal Home Loan Banks, which each provide a central credit
facility, primarily for member institutions. Hancock, as a member of the FHLB,
is required to acquire and hold shares of capital stock in the FHLB in an
amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 5% of its advances (borrowings) from the FHLB, whichever is greater.
Hancock was in compliance with this requirement with an investment in FHLB
stock at March 31, 1997 of $1.36 million. FHLB advances must be secured by
specified types of collateral and all long-term advances may only be obtained
for the purpose of providing funds for residential housing finance.
The regional Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that these
institutions pay to their members and could also result in higher rates of
interest on FHLB advances. For the years ended December 31, 1996, 1995 and
1994, dividends from the FHLB to Hancock amounted to approximately $74,000,
$60,000 and $59,000, respectively. If dividends were reduced, or interest on
future FHLB advances increased, Hancock's income would likely also be reduced.
Further, there can be no assurance that the impact of recent or future
legislation on the FHLBs will not also cause a decrease in the value of the
FHLB stock held by Hancock.
Community Reinvestment Act Developments
Hancock is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. On May 4, 1995, the federal bank
regulatory agencies, including the OTS, issued final regulations which changed
the manner in which they measure an institution's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending, service and
investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with
other procedural requirements.
In addition, under the final regulations, an institution's size and business
strategy will determine the type of CRA examination that it will receive.
Large, retail-oriented institutions will be examined using a performance-based
lending, investment and service test. Small institutions will be examined
using a streamlined approach. Wholesale and limited purpose institutions will
be examined under a community development test. All institutions have the
option of being evaluated under a strategic plan formulated with community
input and pre-approved by the applicable bank regulatory agency.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HANCOCK
The following presents management's discussion and analysis of the
consolidated financial condition and results of operations of Hancock as of
and for the three months ended March 31, 1997 and 1996 and as of and for the
years ended December 31, 1996, 1995 and 1994. The discussion should be read in
conjunction with Hancock's consolidated financial statements and notes thereto
appearing elsewhere herein.
General
As a result of substantial losses incurred by Hancock since 1992, its
continuing high levels of nonperforming assets and the deterioration in its
financial condition and capital levels, Hancock is subject to special
supervisory attention by the OTS. On March 28, 1997, Hancock stipulated and
consented to the issuance of the Order by the OTS in which Hancock agreed to
take affirmative action to improve its deteriorating financial condition, high
problem asset levels and poor earnings performance and to correct certain
other deficiencies. The Order requires, among other things, that by no later
than June 30, 1997, Hancock must raise at least $3.0 million in capital and
substantially increase its regulatory capital ratios or alternatively
recapitalize by merging or being acquired. Hancock is not in compliance with
these requirements of the Order. Hancock has advised the OTS of the pending
Merger and in view of the progress being made toward consummating the Merger,
the OTS has to date forebeared from taking any action against Hancock because
of such noncompliance. However, if the OTS determines, in its sole discretion
that Hancock is failing to make adequate progress toward complying with this
requirement, it may, pursuant to the Order, take such further supervisory
enforcement or resolution action as it deems appropriate, including the
appointment of a conservator or a receiver. In addition, on May 2, 1997, the
OTS issued the PCA Notification which notified Hancock that Hancock is
considererd to be "significantly undercapitalized" under the prompt corrective
action provisions of the FDICIA. In its report on the consolidated financial
statements of Hancock included in this Proxy Statement/Prospectus, Deloitte &
Touche LLP states that these matters raise serious doubt about Hancock's
ability to continue as a going concern. See "--Supervision and Regulation of
Hancock--Prompt Corrective Action Notification; Cease and Desist Order,"--
Prompt Corrective Regulatory Action; the Independent Auditors' Report with
respect to the consolidated financial statements of Hancock and Note 2 of
Notes to Consolidated Financial Statements of Hancock.
Overview--Results of Operations
Hancock's business principally involves the origination of loans secured by
single family dwellings and income-producing real estate, located
predominately in Southern California. While such lending has provided Hancock
with interest-earning assets generally bearing higher yields compared with
those of other savings institutions nationwide, Hancock has also incurred
generally higher provisions for credit losses and REO expense than such
institutions.
Hancock conducts its lending activities in Southern California. Over the
past several years, Southern California has experienced both a recession and a
significant decline in property values. These factors contributed to higher
levels of non-performing assets and associated costs (including provisions for
loan losses and REO expenses) over the past three fiscal years. Hancock
recorded net losses of $6.9 million, $1.7 million and $0.9 million in 1996,
1995 and 1994, respectively.
Three Months Ended March 31, 1997 and 1996. Hancock incurred a net loss of
$332,000 for the three months ended March 31, 1997, compared to a net loss of
$13,000 for the comparable period in 1996. The principal reasons for the
increase in net loss were (i) an increase of $110,000 in provision for loan
losses and (ii) an increase in noninterest expense of $251,000. The adverse
impact of these expense increases were partially offset by an increase in
noninterest income of $58,000. Noninterest income was $164,000 for the three-
month period ended March 31, 1997, compared with $106,000 for the same period
in 1996.
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Years Ended December 31, 1996, 1995 and 1994. Hancock's net loss of $6.9
million in 1996 compared with a net loss of $1.7 million in 1995. The 1996
loss is primarily attributable to the following factors in 1996: a non-
recurring charge of $1.2 million for the SAIF Special Assessment; an increase
of $3.5 million in the provision for estimated loan losses and an increase of
$0.5 million in net real estate losses. Hancock incurred a net loss of $1.7
million in 1995, compared with a net loss of $0.9 million in 1994. The higher
net loss in 1995 was principally attributable to an increase in the provision
for loan losses to $3.5 million in 1995 compared with $1.6 million in 1994,
partially offset by a decrease in real estate losses to $61,000 in 1995
compared to $829,000 in 1994.
The changes in Hancock's principal income and expense items for the three-
month periods ended March 31, 1997 and 1996 and the years ended December 31,
1996, 1995 and 1994 are highlighted in the following tables of condensed
statements of operations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
INCREASE/
1997 1996 (DECREASE)
------ ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total interest income............................... $3,661 $3,669 $ (8)
Total interest expense.............................. 2,116 2,098 18
------ ------ -----
Net interest income................................. 1,545 1,571 (26)
Provision for loan losses........................... 360 250 110
Total non-interest income........................... 164 106 58
Total non-interest expense.......................... 1,585 1,334 251
Total net cost of operations and provision of real
estate acquired through foreclosure................ 96 111 (15)
------ ------ -----
Loss before income taxes............................ (332) (18) (314)
Benefit for income taxes............................ (5) 5
------ ------ -----
Net Loss.......................................... $ (332) $ (13) $(319)
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
INCREASE/ INCREASE/
1996 1995 (DECREASE) 1995 1994 (DECREASE)
------- ------- ---------- ------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total interest income... $14,442 $14,192 $ 250 $14,192 $12,305 $ 1,887
Total interest expense.. 8,335 8,039 296 8,039 6,049 1,990
------- ------- ------- ------- ------- -------
Net interest income .... 6,107 6,153 (46) 6,153 6,256 (103)
Provision for loan loss-
es..................... 6,975 3,499 3,476 3,499 1,549 1,950
Total non-interest in-
come .................. 992 555 437 555 367 188
Total non-interest
expense................ 6,479 5,521 958 5,521 5,407 114
Total net cost of
operations and
provision for real
estate acquired through
foreclosure............ 512 61 451 61 829 (768)
------- ------- ------- ------- ------- -------
Loss before income tax-
es..................... (6,867) (2,373) (4,494) (2,373) (1,162) (1,211)
Provision (benefit) for
income taxes........... 2 (698) 700 (698) (251) (447)
------- ------- ------- ------- ------- -------
Net Loss.............. $(6,869) $(1,675) $(5,194) $(1,675) $ (911) $ (764)
======= ======= ======= ======= ======= =======
</TABLE>
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Net Interest Income
The following tables set forth condensed average balance sheet information
relating to Hancock for the periods indicated together with interest income
and yields earned on average interest earning assets and interest expense and
rates paid on average interest bearing liabilities. Management does not
believe that the use of average monthly balances instead of average daily
balances has caused any material difference in the information presented.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST(1) COST BALANCE INTEREST(1) COST
-------- ----------- ------- -------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans(2)................ $154,024 $2,911 7.56% $156,299 $3,100 7.93%
Mortgage backed
securities(3).......... 4,245 66 6.22% 6,787 111 6.54%
Investments............. 42,453 631 5.95% 24,951 371 5.95%
-------- ------ ---- -------- ------ ----
Total interest earning
assets............... 200,722 $3,608(6) 7.19% 188,037 $3,582(6) 7.62%
------ ------
Non-interest earning
assets................. 1,495 5,865
-------- --------
Total assets.......... $202,217 $193,902
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Noninterest bearing..... $ 10,956 $ 0 0.00% $ 8,872 $ 0 0.00%
Regular checking........ 12,308 30 0.99% 10,842 30 1.12%
Money market savings.... 17,657 91 2.09% 17,261 98 2.30%
Passbook................ 2,572 12 1.89% 3,070 16 2.11%
Certificate accounts.... 150,103 1,982 5.36% 144,626 1,953 5.48%
-------- ------ -------- ------
Total interest bearing
liabilities.......... 193,596 $2,115(7) 4.43% 184,671 $2,097(7) 4.61%
------ ------
Noninterest bearing
liabilities............ 3,346 1,246
Stockholders equity..... 5,275 7,985
-------- --------
Total liabilities and
stockholders equity.. $202,217 $193,902
======== ========
Net interest income..... $1,493(6)(7) $1,485(6)(7)
====== ======
Interest rate spread(4). 2.76% 3.01%
Net interest margin(5).. 2.98% 3.16%
Ratio of interest
earning assets to
interest bearing
liabilities............ 103.68% 101.82%
</TABLE>
- --------
(1) Includes loan fees of $54,000 for the three months ended March 31, 1997
and 1996.
(2) Loans include nonaccrual loans.
(3) Includes securities available for sale and unamortized discounts and
premiums.
(4) Interest rate spread represents the difference between the yields on
interest earning assets and rates paid on interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest earning assets.
(6) Excludes loan servicing fee income, net.
(7) Excludes other borrowings.
77
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST(1) COST BALANCE INTEREST(1) COST BALANCE INTEREST(1) COST
-------- ----------- ------- -------- ----------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans(2)............... $155,829 $11,962 7.68% $157,342 $11,959 7.60% $146,142 $10,275 7.03%
Mortgage backed
securities(3)......... 6,267 404 6.45% 7,726 465 6.02% 8,717 470 5.40%
Investments............ 29,203 1,755 6.01% 22,654 1,397 6.17% 24,742 1,165 4.71%
-------- ------- -------- ------- -------- -------
Total interest
earnings assets...... 191,299 14,121(6) 7.38% 187,722 13,821(6) 7.36% 179,601 11,910(6) 6.63%
------- ------- -------
Noninterest earning
assets................ 5,296 6,847 8,106
-------- -------- --------
Total assets.......... $196,595 $194,569 $187,707
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Non interest bearing... $ 9,894 $ -- 0.00% $ 8,781 $ -- 0.00% $ 8,051 $ -- 0.00%
Regular checking....... 11,156 115 1.03% 11,795 127 1.08% 12,714 119 0.94%
Money market savings... 16,427 338 2.06% 19,306 447 2.32% 25,869 490 1.89%
Passbook............... 2,876 56 1.95% 3,518 77 2.19% 4,356 77 1.77%
Certificate accounts... 145,958 7,822 5.36% 140,259 7,385 5.27% 125,287 5,356 4.27%
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities.......... 186,311 $ 8,331(7) 4.47% 183,659 $ 8,036(7) 4.38% $176,277 $ 6,042(7) 3.43%
------- ------- -------
Noninterest bearing
liabilities........... 1,330 1,800 1,193
Stockholders' equity... 8,954 9,110 10,237
-------- -------- --------
Total liabilities and
stockholders' equity. $196,595 $194,569 $187,707
======== ======== ========
Net Interest Income.... $ 5,790(6)(7) $ 5,785(6)(7) $ 5,868(6)(7)
======= ======= =======
Interest rate
spread(4)............. 2.91% 2.98% 3.20%
Net interest margin(5). 3.03% 3.08% 3.27%
Ratio of interest
earning assets to
interest bearing
liabilities........... 102.68% 102.21% 101.89%
</TABLE>
- --------
(1) Includes loan fees of $193,000, $205,000 and $241,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
(2) Loans include nonaccrual loans.
(3) Includes securities available for sale and unamortized discounts and
premiums.
(4) Interest rate spread represents the difference between the yields on
interest earning assets and rates paid on interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest earning assets.
(6) Excludes loan servicing fee income, net.
(7) Excludes other borrowings.
Net interest income provides Hancock with its primary source of revenue.
Hancock's net interest income is affected by (i) the difference between the
yields received on interest earning assets, such as loans, mortgage-backed
securities and other investments and interest rates paid on interest bearing
liabilities, which consist of deposits and borrowings, and (ii) the relative
amounts of interest earning assets and interest bearing liabilities.
When interest earning assets equal or exceed interest bearing liabilities,
any positive interest rate spread will generate net interest income; if
interest bearing liabilities exceed interest earning assets, Hancock may incur
a decline in net interest income even when the interest rate spread is
positive. During 1996, Hancock's ratio of interest earning assets to interest
bearing liabilities was 102.68%.
78
<PAGE>
The following tables represent the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest bearing
liabilities have affected Hancock's interest income and expense during the
periods indicated. Information is provided for each major component of
interest earning assets and interest bearing liabilities with respect to: (i)
changes attributable to changes in volume (changes in volume multiplied by
prior rate); (ii) changes attributable to rate (changes in rate multiplied by
prior volume); and (iii) the net change. The changes attributable to both
volume and rate have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1995
COMPARED TO THREE MONTHS YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR
ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
INCREASE ENDED DECEMBER 31, 1995 1994 INCREASE
(DECREASE) DUE TO: INCREASE (DECREASE) DUE TO: (DECREASE) DUE TO:
-------------------------- ------------------------------ --------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ------- ------- ------ -------- -------- ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans................... $ (180) $ (9) $ (189) $ (115) $ 118 $ 3 $787 $ 897 $1,684
Mortgage backed
securities............. (166) 121 (45) (88) 27 (61) (54) 48 (6)
Investments............. 1,041 (781) 260 404 (46) 358 (98) 330 232
-------- ------- ------- --------- -------- -------- ---- ----- ------
Total interest income on
interest earning
assets................. 695 (669) 26 201 99 300 635 1275 1910
INTEREST EXPENSE:
Deposits................ 411 (393) 18 116 179 295 253 1,741 1,994
-------- ------- ------- --------- -------- -------- ---- ----- ------
Total interest expense.. 411 (393) 18 116 179 295 253 1,741 1,994
-------- ------- ------- --------- -------- -------- ---- ----- ------
Increase (decrease) in
net interest income.... $ 284 $ (276) $ 8 $ 85 $ (80) $ 5 $382 $(466) $ (84)
======== ======= ======= ========= ======== ======== ==== ===== ======
</TABLE>
Three Months Ended March 31, 1997 and 1996. Net interest income for the
three-month period ended March 31, 1997 was $1.55 million compared with $1.57
million for the same period in 1996. Interest income for the three-month
period ended March 31, 1997 decreased slightly to $3.66 million compared with
$3.67 million for the three-month period ended March 31, 1996.
Interest expense was $2.12 million for the three-month period ended March
31, 1997 compared with $2.10 million over the comparable period in 1996.
Years Ended December 31, 1996, 1995 and 1994. Net interest income totaled
$6.1 million in 1996 compared with $6.2 million in 1995. Interest income for
1996 increased by $250,000 during 1996 to $14.4 million, compared to $14.2
million for 1995. This increase was primarily the result of a $358,000
increase in interest income on Hancock's investment portfolio for 1996 due to
an increase in the volume of the portfolio, partially offset by a decrease in
interest income on mortgage backed securities of $61,000 and a decrease in
loan servicing income net of $50,000.
The cost of interest bearing liabilities increased to 4.47% during 1996
compared to 4.38% during 1995, resulting in a decrease in Hancock's annualized
net interest margin to 3.03% for 1996 from 3.08% for 1995.
Interest expense for 1996 was $8.3 million, compared to $8.0 million for
1995, a increase of $296,000 or 3.7%. This increase was due primarily to
increased deposits. The average interest rate paid on average interest bearing
deposits increased to 4.47% for 1996 from 4.38% for 1995, as the average
volume on interest bearing deposits increased in 1996 to $186.3 million from
$183.7 during 1995.
79
<PAGE>
Net interest income totaled $6.2 million in 1995 compared with $6.3 million
in 1994. Interest income for 1995 was $14.2 million, compared to $12.3 million
for 1994, an increase of $1.9 million. This increase was primarily the result
of an increase in the average yield on loans and, to a lesser extent, an
increase in the average volume of loans. This increase in yield was due
primarily to the favorable repricing of adjustable rate loans. The average
volume of loans receivable increased by $11.2 million during 1995 compared to
1994. This increase was offset by the more rapid repricing of interest bearing
liabilities during 1995, and resulted in a decline in Hancock's annualized net
interest margin to 3.08% for 1995 from 3.27% for 1994.
Interest expense for 1995 was $8.0 million, compared to $6.0 million for
1994, an increase of $2 million or 31.1%. This increase was primarily due to
increased interest rates during 1995 compared to 1994. The average interest
rate paid on average interest bearing deposits increased to 4.38% for 1995
from 3.43% for 1994. In addition, the average volume of interest bearing
liabilities also increased by $7.4 million to $183.7 million during 1995 from
$176.3 million during 1994.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans and REO. Nonaccrual loans
reduce the overall yield on Hancock's loan portfolio (and therefore, Hancock's
actual interest rate spread and net interest margin) since the outstanding
principal balances are included in the average balances of loans when
calculating the yield on the portfolio, even though interest is not accrued on
these loans. In addition, REO is not an interest-earning asset, and therefore
adversely impacts the ratio of Hancock's interest earning assets to interest
bearing liabilities. Any income related to REO is included in the net cost of
operations of REO, rather than in interest income. Also, nonaccrual loans and
REO have a cost to carry, as those assets are generally funded by interest-
bearing liabilities.
A troubled debt restructuring ("TDR") occurs when a creditor, for economic
or legal reasons related to a debtor's difficulties, grants a concession to
the debtor that it would not otherwise consider, including restructurings by
temporarily or permanently reducing interest rates, allowing interest only
payments, reducing the loan balance, extending property tax repayment plans,
extending maturity dates or recasting principal and interest payments.
Hancock's level of TDRs totaled $2.8 million, $3.1 million and $8.4 million at
March 31, 1997 and December 31, 1996 and 1995, respectively.
Three Months Ended March 31, 1997 and 1996. Nonperforming assets decreased
as of March 31, 1997 by $1.9 million compared with March 31, 1996.
Nonperforming assets were $6.4 million and $8.3 million at March 31, 1997 and
1996, respectively.
Years Ended December 31, 1996, 1995 and 1994. Nonperforming assets, net of
specific reserves decreased as of December 31, 1996 by $0.9 million compared
to December 31, 1995. Nonperforming assets, net of specific reserves increased
as of December 31, 1995 by $3.8 million compared to December 31, 1994.
Nonperforming assets, net of specific reserves were $7.0 million, $7.9 million
and $4.1 million at December 31, 1996, 1995 and 1994, respectively.
For further information concerning nonperforming assets, see "--Business of
Hancock--Lending Activities--Nonperforming Assets."
Provision for Loan Losses
Hancock maintains an allowance for loan losses in order to provide for
estimated, probable losses associated with its loan portfolio. The provision
for loan losses is charged against income and is applied to the allowance for
loan losses.
Management periodically assesses the adequacy of the allowance for loan
losses by reference to both objective and subjective factors. The measurement
of the allowance is inherently uncertain and depends upon the outcome of
future events. Management's determination of the adequacy of the allowance is
based on an evaluation of the loan portfolio, previous loan loss experience,
current economic conditions, growth and composition of the loan portfolio, the
value of the collateral and other relevant factors.
80
<PAGE>
Three Months Ended March 31, 1997 and 1996. Hancock's provisions for loan
losses were $360,000 and $250,000 for the three-month period ended March 31,
1997 and 1996, respectively. The increase in the provision reflects the
continued high level of Hancock's nonperforming loans. Net loan chargeoffs
were $271,000 and $989,000 for the three-month periods ended March 31, 1997
and 1996, respectively. The resulting allowances for loan losses at March 31,
1997 and 1996 were $8.5 million and $4.4 million, respectively. While
management believes that the current allowance for loan losses is adequate to
absorb the known and inherent risks in the loan portfolio, no assurances can
be given that economic conditions which may adversely affect Hancock's market
areas or other circumstances will not result in increases in problem loans and
future loan losses, which losses may not be covered completely by the current
allowance and may require provisions for loan losses in excess of past
provisions, which would likely have a material adverse effect on Hancock's
financial condition and results of operations.
Years Ended December 31, 1996, 1995 and 1994. Hancock's provisions for loan
losses were $7.0 million, $3.5 million and $1.6 million for the years ended
December 31, 1996, 1995 and 1994, respectively. Hancock's increased provision
for 1996 compared with 1995 reflects Hancock's continued high level of
nonperforming loans. Net loan chargeoffs were $2.6 million, $.7 million and
$1.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The resulting allowances for loan losses at December 31, 1996,
1995 and 1994 were $8.5 million, $4.9 million and $2.1 million, respectively.
Noninterest Income
Three Months Ended March 31, 1997 and 1996. Noninterest income for the
three-month period ended March 31, 1997 increased to $164,000 from $106,000
for the comparable period in 1996. A loss on sale of mutual funds in the
amount of $49,000 was recorded in the first quarter of 1996. No gains or
losses on mutual funds were recognized during the three-month period ended
March 31, 1997.
Years Ended December 31, 1996, 1995 and 1994. Noninterest income for 1996
increased by $0.4 million to $1.0 million from $0.6 million for 1995. This
increase was due principally to a recognition of excess servicing fee income.
Noninterest income for 1995 increased by $0.2 million to $0.6 million from
$0.4 million for 1994. This increase was due in part to losses on sale of
mutual funds of $131,000 in 1994.
Noninterest Expense
Three Months Ended March 31, 1997 and 1996. Noninterest expense increased by
$251,000 from $1.33 million for the three-month period ended March 31, 1996 to
$1.59 million for the comparable three-month period in 1997. The increase is
mainly attributable to increases in compensation and other employee costs,
from $658,000 to $811,000; and in other general and administrative expense,
from $355,000 to $452,000.
Years Ended December 31, 1996, 1995 and 1994. Noninterest expense consists
of general and administrative expense and the SAIF insurance premium.
Noninterest expense for 1996 increased by $1.0 million to $6.5 million from
$5.5 million for 1995 due to an accrual of the SAIF special assessment of $1.2
million in 1996. As a result, the ratio of general and administrative expenses
to average assets increased to 3.3% during 1996, compared to 2.8% during 1995.
Excluding the effects of the SAIF Special Assessment, Hancock's ratio of
general and administrative expense to average assets in 1996 would have been
2.7%. Noninterest expense for 1995 increased by $0.1 million from $5.4 million
for 1994.
Real Estate Losses
Three Months Ended March 31, 1997 and 1996. Real estate losses consist of
operating losses on foreclosed real estate, gain and losses of the sale of
real estate and provision for real estate. Real estate losses for the three-
month period ended March 31, 1997 decreased to $96,000 loss from $111,000 loss
for the comparable period in 1996 due to a reduced provision for real estate
in the first quarter of 1997.
Years Ended December 31, 1996, 1995, and 1994. Real estate losses for 1996
increased by $451,000 to $511,000 loss from $61,000 loss for 1995 due to
losses on sale of real estate and increased provision in 1996 compared to
gains on sale of real estate and reduced provision for real estate. Real
estate losses for 1995 decreased by $768,000 from $829,000 loss in 1994.
81
<PAGE>
Income Taxes
The provision (benefit) for income taxes for 1996, 1995 and 1994 was $2,000,
($.7) million and ($0.3) million, respectively. Hancock's combined, effective
federal and state income tax rates for 1996, 1995 and 1994 were 0%, (29.4%)
and (21.6%), respectively. Hancock's statutory federal and state income tax
rates for 1996, 1995 and 1994 were approximately (41%) in each year.
Financial Condition
Comparison of Financial Condition at March 31, 1997 and December 31, 1996
Total assets at March 31, 1997 were $202.3 million, compared to $198.2
million at December 31, 1996. Hancock's cash and cash equivalents decreased to
$7.4 million at March 31, 1997 from $13.0 million at December 31, 1996,
primarily due to decreased federal funds sold of $3.8 million.
Total liabilities at March 31, 1997 were $197.3 million, compared to $192.7
million at December 31, 1996. This increase was due primarily to an increase
in deposits of $4.5 million from $190.1 million at December 31, 1996 to $194.6
million at March 31, 1997. Stockholders' equity at March 31, 1997 was $5.1
million, compared to $5.4 million at December 31, 1996.
Comparison of Financial Condition for the Years Ended December 31, 1996 and
1995
Total assets at December 31, 1996 were $198.2 million, compared to $195.5
million at December 31, 1995. Hancock's cash and cash equivalents increased to
$13.0 million at December 31, 1996 from $4.5 million at December 31, 1995,
primarily due to increased federal funds sold of $7.5 million. Loans
receivable decreased by $8.7 million during 1996 as a result of increased loan
loss reserves and a decline in loan demand.
Total liabilities at December 31, 1996 were $192.8 million, compared to
$187.6 million at December 31, 1995. This increase was due primarily to an
increase in deposits of $4.7 million from $185.4 million at December 31, 1995
to $190.1 million at December 31, 1996. Stockholders' equity at December 31,
1996 was $5.4 million, compared to $8.0 million at December 31, 1995.
Comparison of Financial Condition for the Years Ended December 31, 1995 and
1994
Total assets at December 31, 1995 were $195.5 million, compared to $189.7
million at December 31, 1994. Hancock's mutual fund investments-trading
portfolio increased by $6.5 million to $8.2 million at December 31, 1995 from
$1.8 million at December 31, 1994. Net loans receivable also increased during
1995 from $151.3 million at December 31, 1994 to $153.5 million at December
31, 1995. These increases were offset by a decrease in the mortgage-backed
securities portfolio (available for sale) of $1.7 million from $1.9 million at
December 31, 1994 to $0.2 million at December 31,1995 and a increase of $1.0
million in cash over the same period.
Total liabilities at December 31, 1995 were $187.6 million, compared to
$180.1 million at December 31, 1994. This increase was due primarily to an
increase in deposits of $6.6 million from $178.8 million at December 31, 1994
to $185.4 million at December 31, 1995, and by an increase in accounts payable
and other liabilities of $0.9 million over the same period. Stockholders'
equity at December 31, 1995 was $8.0 million, compared to $9.6 million at
December 31, 1994.
Liquidity
Liquidity management requires the maintenance of an appropriate level of
liquid resources to meet not only regulatory requirements but also to provide
the liquidity necessary to fund the institution's business activities and
obligations. Federal regulations currently require that, for each calendar
month, savings institutions maintain an average daily balance of cash and cash
equivalents, and certain marketable securities, which are not
82
<PAGE>
committed, equal to 5% of net withdrawable accounts and borrowings due in one
year or less. Under FIRREA, the percentage of assets which must constitute
liquid assets will be determined by the OTS, but may be set at no less than 4%
and no more than 10% of the obligations of the institution on withdrawable
accounts and borrowings due in one year or less. At March 31, 1997, Hancock's
liquidity ratio was 6.05%, compared to 9.43%, 14.82% and 12.7% at December 31,
1996, 1995 and 1994, respectively. Hancock's liquidity ratio may vary from
time to time, depending upon savings flows, future loan fundings, operating
needs and general economic conditions.
Hancock is permitted to borrow from the FHLB, in addition to other sources,
both to meet short-term liquidity requirements and for longer term needs.
Hancock's liquidity potential is supported by additional borrowing capacity
available to it from the FHLB. Hancock is currently authorized to borrow up to
5% of its assets from the FHLB. As of December 31, 1996, Hancock did not have
any outstanding borrowings with the FHLB.
Capital Resources
The capital levels of Hancock have declined substantially as a result of
losses incurred since 1992. In August 1996, in an effort to meet regulatory
capital requirements, Hancock raised $4.4 million through a private placement
of Hancock Stock to Hancock Park Acquisition, L.P. See "INFORMATION REGARDING
HANCOCK--Beneficial Ownership of Hancock Stock." However, as a result of
continued losses, Hancock still fails to meet minimum regulatory capital
requirements and is deemed "significantly undercapitalized" under the prompt
corrective action provisions of the FDICIA. In addition, Hancock is subject to
the Order which provides, among other things, that by no later than June 30,
1997 Hancock must either raise at least $3.0 million in capital and have
minimum capital ratios required of an institution to be categorized as "well
capitalized" under the prompt corrective action provisions of the FDICIA or
alternatively recapitalize by merging or being acquired. Hancock is not in
compliance with these requirements of the Order. See INFORMATION REGARDING
HANCOCK--Supervision and Regulation of Hancock--Prompt Corrective Action
Notification; Cease and Desist Order; "--Prompt Corrective Regulatory Action";
the Independent Auditors' Report with respect to the Consolidated Financial
Statements of Hancock; and Note 2 of Notes to Consolidated Financial
Statements of Hancock.
The following table sets forth Hancock's regulatory capital ratios at March
31, 1997, December 31, 1996 and December 31, 1995 and Hancock's minimum
capital requirement under the Order.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31, MINIMUM
1997(1) 1996(1) 1995 REQUIREMENT
--------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Tier I (core) capital... 3.11% 3.34% 4.07% 5.0%
Tier I risk-based
capital................ 4.49% 4.84% 5.62% 6.0%
Total risk-based
capital................ 5.67% 6.03% 6.87% 10.0%
</TABLE>
- --------
(1) SAIF Assessment--During 1996, a special one-time assessment to
recapitalize the SAIF deposit insurance fund was imposed upon institutions
holding SAIF-insured deposits as of March 1995. Due to its weak capital
position, Hancock obtained an exemption from having to pay this assessment
during 1996. Hancock accrued $1.2 million during 1996. For purposes of
reporting regulatory capital and determining compliance with minimum
capital ratios (see table above), Hancock is not required to deduct this
accrual. On June 30, 1997, Hancock paid $1.0 million representing the
unamortized special SAIF assessment. If Hancock would have paid the SAIF
assessment as of March 31, 1997, the Tier I (core) capital ratio would
have been 2.63%, the Tier I risk-based capital ratio would have been 3.78%
and the total risk-based capital ratio would have been 4.96%.
83
<PAGE>
EXECUTIVE OFFICER COMPENSATION OF HANCOCK
The following table sets forth the compensation paid or accrued for the
fiscal year ended December 31, 1996 to Daniel E. Wolfus, who served as
Chairman, President and Chief Executive Officer of Hancock during 1996, and to
Joan Wyckoff, Karen McAulay, Jay R. Geldhof and Judith Bambush, the four
highest compensated individuals, other than Mr. Wolfus, who served as
executive officers of Hancock at December 31, 1996. Mr. Wolfus ceased to serve
as an executive officer with Hancock effective March 25, 1997 and as a
director effective May 23, 1997.
CASH COMPENSATION TABLE
<TABLE>
<CAPTION>
CASH
NAME CAPACITIES IN WHICH SERVED COMPENSATION(1)
---- -------------------------- ---------------
<C> <S> <C>
Daniel E. Wolfus........ Chairman of the Board, President
and Chief Executive Officer $190,000
Joan Wyckoff............ Executive Vice President and
Director of Operations $ 71,500
Karen McAulay........... Senior Vice President and Acting
Chief Financial Officer $ 57,323
Jay R. Geldhof.......... Senior Vice President, and
Director of Information Systems $ 56,250
Judith Bambush.......... Senior Vice President and Chief
Internal Auditor $ 54,750
</TABLE>
- --------
(1) Officers and certain other employees of Hancock receive insurance and
other benefits as part of their compensation. Certain officers of Hancock
are provided with an automobile or an automobile allowance for business
purposes. Additionally, certain officers of Hancock have received benefits
under Hancock's 401(K) Plan. These matters are not reflected in the table
set forth above.
On March 25, 1997, Hancock entered into an employment agreement with
Kathleen L. Kellogg, Hancock's President and Chief Executive Officer governing
her at-will employment by Hancock. The agreement sets forth a base salary of
$160,000 per year through February 28, 1998 and $170,000 from March 1, 1998
through February 28, 1999, after which her base salary will be reviewed
annually for increase by the Board of Directors. The agreement also provides
for an annual bonus of up to 35% of her base salary upon fulfillment of
certain performance goals, and an additional annual bonus of up to 15% of her
base salary upon fulfillment of certain additional performance goals. The
agreement provides for certain additional benefits to Ms. Kellogg, including
severance compensation upon a change of control of Hancock (see "THE MERGER--
Interests of Certain Persons in the Merger"), an automobile allowance of $750
per month, paid vacations, group benefit plan participation and disability
insurance. The agreement includes a nonsolicitation agreement, which is
effective for two years after termination of Ms. Kellogg's employment.
On June 6, 1997, Hancock entered into a Settlement Agreement and Release
(the "Settlement Agreement") with Daniel E. Wolfus, whose executive positions
with Hancock ceased effective March 25, 1997 and whose service as a director
of Hancock ceased effective May 23, 1997. The effectiveness of the Settlement
Agreement is, by its terms, specifically conditioned upon the closing of the
Merger. Pursuant to the Settlement Agreement, on consummation of the Merger,
Hancock will pay to Mr. Wolfus $10,900, and a lump sum based upon certain
stock options that Mr. Wolfus held as of March 25, 1997. Specifically, Mr.
Wolfus is entitled to receive, as of the closing of the Merger, the difference
between the per share consideration for Hancock Stock in the Merger and $3.85
per share (the per share exercise price of his former stock options)
multiplied by 6,250 stock options. Mr. Wolfus and Hancock each agreed to
provide a general release to the other party under the Settlement Agreement.
84
<PAGE>
The following table sets forth as of the Record Date certain information
regarding the grant of stock options to key employees of Hancock. These grants
are not reflected in the compensation table above. The options set forth below
were granted pursuant to and in accordance with the Hancock Stock Option Plan
which was adopted at the 1993 Annual Meeting of the Stockholders of Hancock.
All options granted under earlier stock option plans of Hancock, since
expired, have either expired or been rescinded and reissued under the Hancock
Stock Option Plan.
STOCK OPTIONS GRANTED AND OUTSTANDING
<TABLE>
<CAPTION>
OPTIONS TO SHARES SUBJECT AVERAGE
PURCHASE SHARES TO OPTIONS PER SHARE
GRANTED (UNEXERCISED) EXERCISE PRICE
--------------- -------------- --------------
<S> <C> <C>
Kathleen L. Kellogg............................ 50,000 $7.46
Ken Paris...................................... 10,000 $8.63
Joan Wyckoff................................... 9,500 $5.80
Karen McAulay.................................. 1,100 $4.64
Judith Bambush................................. 875 $4.21
Other Officers (14 Employees).................. 5,750 $4.48
All Employees as a Group....................... 77,225 $7.11
</TABLE>
CERTAIN TRANSACTIONS
Some of the directors and executive officers of Hancock and the companies
with which they are associated were customers of, and had banking transactions
with, Hancock in the ordinary course of its business during 1996, and Hancock
expects to have such banking transactions in the future. All loans and
commitments included in such transactions were made on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with other persons of
similar creditworthiness and, in the opinion of the Board of Directors of
Hancock, did not involve more than a normal risk of collectibility or present
other unfavorable features.
On April 18, 1997, Hancock entered into an engagement letter with Hovde, a
company which is affiliated with Eric D. Hovde, a director of Hancock, and
Hancock Park Acquisition, L.P., a principal stockholder of Hancock, pursuant
to which Hovde agreed to provide financial advisory services to Hancock in
connection with a possible transaction with Bank Plus. For information
concerning the engagement letter, see "PROPOSAL 1--APPROVAL OF THE MERGER--
Interests of Certain Persons in the Merger".
BENEFICIAL OWNERSHIP OF HANCOCK STOCK
Security Ownership of Management
The following table sets forth the shares of Hancock Stock beneficially
owned as of the Record Date by each director and the directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES OF
STOCK PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) STOCK
------------------------ ------------ -------
<S> <C> <C>
Ezunial Burts.......................................... 3,321 *
Eric D. Hovde.......................................... 580,751(2) 44.6%
Kathleen L. Kellogg.................................... 100 *
Joon Y. Koh, M.D....................................... 84,025(4) 6.5%
Michael Noel........................................... 2,452 *
Richard L. Stever...................................... 81,138(5) 6.2%
All Directors and Executive Officers as a Group (11
persons).............................................. 751,787 57.7%
</TABLE>
- --------
* Represents less than one percent of the outstanding shares of Hancock Stock.
For footnotes, see "--Principal Stockholders" below.
85
<PAGE>
Principal Stockholders
The following table sets forth, as of the Record Date, (i) the name of each
person known to Hancock to be the beneficial owner of more than 5% of the
outstanding shares of Hancock Stock, (ii) the total number of shares of
Hancock Stock owned by each person and (iii) the percentage of all Hancock
Stock outstanding held by each such person.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF BENEFICIALLY-
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED COMMON STOCK
---------------- ---------------------- ------------------------
<S> <C> <C>
Hancock Park Acquisition, 580,751(2) 44.6%
L.P........................
1826 Jefferson Place, N.W.
Washington, D.C. 20036
Daniel E. Wolfus............ 208,601(3) 16.0%
423 S. Las Palmas Ave.
Los Angeles, CA 90020
Joon Y. Koh, M.D. .......... 84,025(4) 6.5%
301 S. Hudson Avenue
Los Angeles, CA 90020
Richard L. Stever .......... 81,138(5) 6.2%
760 S. Orange Grove
Boulevard
Pasadena, CA 91105
</TABLE>
- --------
(1) Does not include Options exercisable pursuant to the Hancock Stock Option
Plan.
(2) Hancock Park Acquisition L.P. is a Delaware limited partnership as to
which the general partner is Hancock Park Acquisitions, L.L.C., an
Illinois limited liability company. The controlling members of Hancock
Park Acquisition, L.L.C. are Eric D. Hovde and Steven D. Hovde, each of
whom controls 50% of the voting interests of that entity.
(3) 196,849 of these shares are held in the names of Daniel E. and Christine
M. Wolfus. The remaining 11,752 shares are held in a trust for the benefit
of the Wolfus's daughters.
(4) 32,649 of these shares are beneficially owned by the Joon Y. Koh Medical
Corporation Employee Pension Fund, 29,514 shares are owned by Dr. Joon Y.
Koh, individually, and the remaining shares are beneficially owned by the
Joon Y. Koh Medical Corporation Employee Profit Sharing Plan. Dr. Koh is
the sole trustee of the profit sharing plan and Dr. Koh and his wife are
co-trustees of the pension fund.
(5) 64,951 of these shares are held in the names of Richard L. and Virginia
Stever. 11,787 shares are held in a retirement plan for the benefit of
Virginia Stever, 4,400 shares are held in a retirement plan for the
benefit of Richard L. Stever.
86
<PAGE>
INFORMATION REGARDING BANK PLUS
DIRECTORS AND EXECUTIVE OFFICERS OF BANK PLUS
Directors
The following table sets forth the names and certain information with
respect to the members of the Board of Directors of Bank Plus. Except for Mr.
Sullivan, each nominee and each director listed below served on the board of
directors of Fidelity prior to becoming a director of Bank Plus.
<TABLE>
<CAPTION>
TO POSITIONS HELD WITH BANK
DIRECTOR AGE EXPIRE SINCE(1) PLUS
-------- --- ------ -------- ------------------------
<C> <C> <C> <C> <S>
Waldo H. Burnside.... 68 2000 1994 Director
Lilly V. Lee......... 66 2000 1994 Director
Mark Sullivan III.... 55 2000 1997 Director
Norman Barker, Jr.... 74 1998 1994 Chairman and Director
Richard M. Greenwood. 49 1999 1992 Vice Chairman, President,
Chief Executive Officer and
Director
George Gibbs, Jr..... 66 1999 1994 Director
Gordon V. Smith...... 64 1998 1996 Director
</TABLE>
- --------
(1) For periods prior to May 16, 1996, the relevant director served as a
director of Fidelity.
Set forth below is certain information concerning the principal occupation
and business experience of each of the persons listed in the table above
during the past five years.
MR. BARKER was Chairman of the Board and Chief Executive Officer of First
Interstate Bank of California until his retirement in 1986. He has served as
the Chairman of the Board of Pacific American Income Shares, a bond fund,
since 1974. Mr. Barker also serves as a director of TCW Convertible
Securities, Inc., American Health Properties, Inc., and ICN Pharmaceuticals,
Inc.
MR. BURNSIDE served as President of Carter Hawley Hale Stores, Inc. until
his retirement in 1991. He was a director of both Bank of America, N.A. and
BankAmerica Corp. from 1992 until 1993. Mr. Burnside currently serves as a
director of the Automobile Club of Southern California and as a member of the
boards of a number of educational, charitable, and municipal service
organizations.
MR. GIBBS has been a principal and senior vice president of Johnson &
Higgins, an insurance agency, since 1987. Prior to joining Johnson & Higgins
in 1987, he was with Stewart Smith West for 33 years where he was the founding
director of Associated International Insurance Company and Calvert Insurance
Company, two insurance companies organized by the Stewart Smith West
organization. Mr. Gibbs currently serves as a director of Bank Plus and
Fidelity, on the board of First Alliance Corporation and on the boards of a
number of educational and charitable trusts and foundations. Johnson & Higgins
is the Company's insurance broker and a consultant to the Company on certain
health benefit matters. See "--Related Party Transactions--Insurance
Commissions" and "--First Alliance Transaction."
MR. GREENWOOD joined Fidelity in June 1992 as President and Chief Executive
Officer and served as Chairman of the Board from June 1992 to August 1994.
Since the Reorganization in May 1996, Mr. Greenwood has served as Vice
Chairman, President and Chief Executive Officer of Bank Plus, and as Chairman
of the Board and Chief Executive Officer of Fidelity. Prior to joining
Fidelity, he served as Chief Financial Officer of CalFed, Inc. and California
Federal Bank from 1990 to 1992. Mr. Greenwood also served as President and
Chief Executive Officer and a director of Citadel from June 1992 to August
1994.
MS. LEE is the Chairman of the Board of Lilly International, Inc. and a
director of Fidelity and Gateway. Ms. Lee currently serves as Chairman of the
Board of the Thrift Depositor Protection--Regional Oversight Board and on the
boards of a number of political, educational, charitable and industry
organizations.
87
<PAGE>
MR. SMITH is chairman, founder and principal stockholder of Miller & Smith,
Inc., a diversified real estate investment and construction company in the
Washington, D.C. area. Mr. Smith also serves as a director of Crown North
Corporation, a real estate management company located in Columbus, Ohio. From
1987 until 1993, he served as Chairman of the Board, Chief Executive Officer
and director of Providence Savings and Loan Association in Virginia.
MR. SULLIVAN is a co-founder of the Small Business Funding Corporation, a
company providing a secondary market facility for the purchase and
securitization of non-guaranteed small business loans, and has served as its
President since 1996. From 1989 through 1996, Mr. Sullivan practiced law in
Washington, D.C., advising senior management of financial institutions on
legal and policy matters.
Committees of the Board of Directors
In 1996 Bank Plus had standing Executive, Audit and Compensation/Stock
Option Committees. The principal responsibilities of these committees and the
number of meetings of each held in 1996, both by Bank Plus and by Fidelity
prior to the Reorganization, appear below.
Executive Committee. Subject to the authority conferred on the Company's
other committees, the Executive Committee is empowered to exercise all
authority in lieu of the Board which may be exercised by a committee of the
Board pursuant to applicable law. In January 1996, the responsibilities of the
Nominating Committee were assumed by the Executive Committee. The Executive
Committee held six meetings in 1996. Any stockholder who wishes to recommend a
prospective nominee for the Board of Directors for the Executive Committee's
consideration may do so by giving the candidate's name and qualifications to
the Secretary of the Company, 4565 Colorado Boulevard, Los Angeles, California
90039. The members of the Executive Committee are Mr. Greenwood, Chairman, and
Messrs. Barker and Gibbs and Ms. Lee.
Audit Committee. The Audit Committee is a joint committee with Fidelity's
Audit Committee. Its responsibilities are generally to assist the Board and
Fidelity's Board in fulfilling their legal and fiduciary responsibilities
relating to accounting, audit and financial reporting policies and practices
of the Company and its subsidiaries. The Audit Committee also, among other
things, recommends to the Board the engagement of the Company's independent
accountants; monitors and reviews the quality and activities of the Company's
internal audit function and those of its independent accountants; and monitors
the adequacy of the Company's operating and internal controls as reported by
management, the independent accountants and internal auditors. In 1996,
Fidelity's Audit Committee held two meetings prior to the Reorganization, and
the joint Audit Committee held three meetings following the Reorganization.
The Bank Plus members of the joint Audit Committee are Mr. Gibbs, Chairman,
and Mr. Burnside.
Compensation/Stock Option Committee. The Compensation/Stock Option Committee
is a joint committee with Fidelity's Compensation/Stock Option Committee. It
is authorized to review salaries and compensation, including non-cash
benefits, of directors, officers and other employees of the Company and its
subsidiaries and to recommend to the Board salaries, remuneration and other
forms of additional compensation and benefits as it deems necessary. The joint
Compensation/Stock Option Committee held four meetings in 1996. The Bank Plus
members of the joint Compensation/Stock Option Committee are Mr. Barker,
Chairman, and Mr. Smith.
Meetings of the Board of Directors
In 1996, there were six meetings of the Board of Directors of Bank Plus and
six meetings of the board of directors of Fidelity prior to the
Reorganization. All directors attended at least 75% of the aggregate of
meetings of the Board of Directors and the committees of the Board on which
they serve, in each case, after the election of such individual to the Board
or such committee.
88
<PAGE>
Executive Officers
Set forth below are the executive officers of the Company and the Bank
(other than Mr. Greenwood--see "Directors" above), together with the positions
currently held by those persons.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH BANK PLUS OR SUBSIDIARY
---- --- ------------------------------------------
<C> <C> <S>
James E. Stutz...... 54 President of Fidelity
Stephen J. Austin... 57 Executive Vice President and Internal Audit
Director of Fidelity
Robert P. Condon.... 55 Executive Vice President of Fidelity, Vice
Chairman and Chief Executive Officer of Gateway
and President of Citadel Service Corporation
Godfrey B. Evans.... 43 Executive Vice President, General Counsel and
Corporate Secretary of Bank Plus and Fidelity
William L. Sanders.. 50 Executive Vice President and Chief Financial
Officer of Bank Plus and Fidelity
W.C. Taylor III..... 39 Executive Vice President and Chief Lending Officer
of Fidelity
Dennis J. McNamara.. 43 Senior Vice President and Treasurer of Fidelity
Richard M. Villa.... 32 Senior Vice President, Controller and Chief
Accounting Officer of Bank Plus and Fidelity
</TABLE>
MR. STUTZ joined Fidelity in January 1994 as Executive Vice President,
Retail Banking. Prior to joining Fidelity, Mr. Stutz served since 1985 as
Executive Vice President and Chief Operating Officer, Consumer Banking, of
HomeFed Bank, where he was responsible for a 215 branch network. Mr. Stutz was
also Chairman, President and Chief Executive Officer of Columbus Savings, a
wholly owned subsidiary of HomeFed Corporation, where he was responsible for
the consolidation of several savings institutions and the subsequent merger of
the company into HomeFed Bank. Mr. Stutz became President of Fidelity on June
1, 1996.
MR. AUSTIN joined Fidelity in November 1995 as Senior Vice President and
Internal Audit Director. Before joining Fidelity, Mr. Austin was employed at
Union Federal Bank in Brea, California from 1991 until 1995 in various
financial management positions including, most recently, Senior Vice President
and Chief Financial Officer. Mr. Austin became an Executive Vice President of
the Bank on June 1, 1996.
MR. CONDON joined Gateway as President and Chief Executive Officer in
September 1993. In November 1994, Mr. Condon also became an Executive Vice
President of Fidelity. Prior to joining Gateway, Mr. Condon served as General
Manager of WellPoint Life Insurance Company, a subsidiary of Blue Cross of
California. Before that, he was President and Chief Executive Officer of
CalFed Investment Services, in charge of the development and sale of
alternative investment products through the bank branch network.
MR. EVANS joined Fidelity as Senior Vice President and Senior Corporate
Counsel in 1987 and has been General Counsel and Corporate Secretary of
Fidelity since 1989 and 1990, respectively, and of Bank Plus since its
formation. Mr. Evans became an Executive Vice President of Fidelity in April
1994.
MR. SANDERS was named Executive Vice President and Chief Financial Officer
of Fidelity in December 1995 and has served in those positions with Bank Plus
since its formation. Before joining Fidelity, Mr. Sanders served as Chief
Financial Officer of H.F. Ahmanson & Co. and Home Savings of America, F.S.B.
from 1992 to 1993, and as Chief Financial Officer and Treasurer of First
Executive Corporation from 1990 until 1992.
MR. TAYLOR joined Fidelity in May 1993 as Senior Vice President in charge of
loan administration and was appointed Chief Lending Officer in September 1994.
From 1992 through 1993, Mr. Taylor was employed as a Senior Vice President and
Senior Lending Officer at Metrobank Home Lenders. Mr. Taylor became an
Executive Vice President of Fidelity in September 1994.
MR. McNAMARA joined Fidelity in August 1996 as Senior Vice President &
Treasurer. Before that, he worked for Kleinwort Benson, an investment banking
concern, for eight years, serving most recently as a
89
<PAGE>
managing director for Kleinwort Benson Capital Management. He holds an MBA
from the University of Chicago.
MR. VILLA joined Fidelity in April 1996 as Vice President and Corporate
Planning Manager. Before joining Fidelity, Mr. Villa worked as an audit
manager in the internal audit department of Union Bank and, from 1993 until
1996, was employed as a manager by the public accounting firm of Deloitte &
Touche LLP. Mr. Villa was named Senior Vice President and Controller of Bank
Plus and Fidelity in February 1997.
COMPENSATION/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The report of the Compensation/Stock Option Committee (the "Committee")
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the
Company specifically incorporates this report by reference, and shall not
otherwise be deemed filed under such acts or regulations.
Committee Composition
The Committee is composed of independent, non-employee members of Bank Plus'
Board of Directors and is advised by members of management and outside experts
in the field of compensation program design. The Committee administers,
reviews, and recommends for full Board approval each of the elements of the
executive compensation program of Bank Plus and Fidelity.
Compensation Philosophy
It is the philosophy of the Committee, Bank Plus and the Bank to provide
executives with total compensation opportunities that are competitive with the
marketplace while emphasizing stock ownership over annual cash compensation.
To ensure competitiveness, the Committee reviews compensation levels of a peer
group of California financial institutions considered as competitors for
executive talent.
Compensation practices (i.e., program design) of the California peer group
and of similar size U.S. financial institutions are also reviewed to assess
compensation design "best practices", namely programs which encourage
executive ownership and strengthen the alignment of executives and Bank Plus
stockholders.
Annual Cash Compensation
Base Salary
Each year, the Committee reviews the salary levels of the executive officers
for external competitiveness, internal equity, and individual contribution;
however, salary increases are generally administered in 18 month or longer
cycles, excluding promotional adjustments. Based on input from management, the
Committee develops its recommendations for salary increases, if any, and
presents them to the Board for approval. During 1996, three executive officers
received salary increases, including a 9% increase for Mr. Evans effective
January 1996.
The Board approved 1997 salary increases for executive officers at its
January 1997 meeting. Messrs. Condon and Stutz each received a 25% increase
effective immediately, representing the first salary increase each executive
has received since 1994. Mr. Sanders also received a 25% increase, to be
effective June 1997, representing his first salary increase since he was hired
in December 1995. Mr. Evans received a 11% increase, also effective June 1997.
Annual Incentive
There has been no formal annual incentive plan for Bank Plus executives;
however, in 1995, the Board approved a Recapitalization Transaction and
Retention bonus for four of the five Named Executive Officers (as
90
<PAGE>
defined below under "Executive Compensation"). Cash bonus awards were
generally paid in two equal installments; the first in November 1995, the
remainder in December 1996. All Named Executive Officers who were recipients
of the November 1995 award purchased Fidelity stock with their net proceeds.
To determine bonus awards, if any, for 1996 and in the absence of a formal
executive incentive plan, the Committee reviewed the Bank's 1996 corporate
performance and recommended for the Board's approval discretionary bonus
awards for Executive Vice Presidents and the CEO to recognize corporate
achievement and individual performance. At its January 1997 meeting, the Board
approved awards to seven executive officers, including all of the Named
Executive Officers, totaling $482,500.
In early 1997, the Board approved the 1997 Annual Incentive Plan for the
CEO, Executive Vice Presidents and selected Senior Vice Presidents who have a
significant impact on corporate performance. Target incentive awards are set
at 30% of salary for Senior Vice Presidents, 50% for Executive Vice
Presidents, and 60% for the CEO. Awards are capped at 200% of those targets
(or 60%, 100% and 120% of salary, respectively). Performance measures include
net income, stock price growth versus the thrift index, and business
unit/individual performance.
To further encourage executive stock ownership, at the beginning of each
year, the Committee may determine an exchange formula, if any, for
participants to receive all or a portion of their earned award in the form of
restricted stock, deferred stock units, or stock options. For 1997, the
exchange formula provides $2.00 of restricted stock for each dollar of annual
incentive payment foregone. The stock will vest ratably over a three-year
period.
Executive Ownership
It is the Committee's goal that stock ownership be the largest component of
the executive compensation program to align stockholder and executive
interests and to encourage executive retention. To this extent, executives are
eligible for stock option grants and, subject to stockholder approval of the
amendments to and restatement of the 1996 Stock Option Plan more fully
described below, the Board may also grant awards of restricted stock and
deferred stock units. The Committee believes the amended plan will provide the
necessary means for Bank Plus to reward executives with a significant
opportunity to build a meaningful stake in the Company, and assist in the
retention of key employees.
CEO Compensation
The Committee applies the same philosophy and methodology in determining the
CEO's compensation as with all other executive officers. Pursuant to his
contract, Mr. Greenwood is not eligible for a salary increase until August
1997. At the January 1997 Board meeting, an increase of 20.5% was approved, to
take effect September 1, 1997, resulting in an annual base salary of $500,000
for the CEO. The September adjustment is the first salary increase Mr.
Greenwood has received since June 1994.
In recognition of Mr. Greenwood's significant contributions to Bank Plus'
overall 1996 performance, the Committee recommended, and the Board approved at
its January 1997 meeting, a discretionary cash bonus of $137,500, or 33% of
his annual base salary.
The CEO participates in the 1997 Annual Incentive Plan which rewards net
income results, stock price growth versus the thrift index, and individual
performance. Mr. Greenwood's target award level is 60% of his ending annual
base salary; his bonus award is capped at a maximum award level of 200% of
target (or 120% of ending annual base salary).
91
<PAGE>
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code limits the deduction a publicly
held company is allowed for compensation paid to its highly compensated
executive officers. Generally, amounts in excess of $1 million (other than
performance-based compensation) paid in any tax year to a covered executive
cannot be deducted. The Committee will continue to monitor the compensation
levels of the executive officers and determine the appropriate response to
Section 162(m), including considering ways to maximize the deductibility of
executive compensation while retaining the discretion the Committee deems
necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment, when and if necessary.
The foregoing report has been furnished by the following members of the
Compensation/Stock Option Committee.
Norman Barker, Jr., Chairman
Gordon V. Smith
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the compensation earned
during the three years ended December 31, 1996 by the Company's Chief
Executive Officer and the four other most highly compensated executive
officers during 1996 who were serving as executive officers at December 31,
1996 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ----------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK COMPEN-
POSITION YEAR SALARY BONUS(1) SATION(2) OPTIONS SATION(3)
- ------------------ ---- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Greenwood 1996 $415,000 $287,500(4) $-- -- $ --
President & CEO of
Bank Plus; 1995 415,000 150,000(4) -- 300,000 $23,492(5)
Chairman & CEO of
Fidelity 1994 394,653 -- -- 480,000(6) --
James E. Stutz 1996 $220,000 $125,000(4) $-- -- $ --
President of Fidelity 1995 220,000 50,000(4) -- 168,750 --
1994 173,461 43,553(7) -- 270,000(6) 9,000(8)
Robert P. Condon 1996 $220,000 $125,000(4) $-- -- $ 1,125
Executive Vice
President of 1995 220,000 50,000(4) -- 168,750 4,500
Fidelity; CEO of
Gateway 1994 177,471 -- -- 270,000(6) 1,523
Godfrey B. Evans 1996 $175,000 $100,000(4) $-- -- $ 1,125
Executive Vice
President & 1995 160,000 50,000(4) -- 143,750 4,500
General Counsel of 1994 142,692 60,000(9) -- 150,000(6) 4,620
Bank Plus
and Fidelity
William L. Sanders(10) 1996 $220,000 $ 75,000 $-- -- $ --
Executive Vice
President & 1995 13,538 -- -- 143,750 --
Chief Financial
Officer of 1994 N/A N/A N/A N/A N/A
Bank Plus and Fidelity
</TABLE>
- --------
(1) Bonuses are presented in the period earned and may have been paid in
subsequent years.
(2) Excludes perquisites if the aggregate amount thereof is less than
$50,000, or 10% of salary plus bonus, if less.
(3) Except as otherwise noted, consists of the Company's matching
contributions to the Company's 401(k) Plan.
92
<PAGE>
(4) Includes 50% of a Recapitalization Transaction and Retention Bonus
awarded in October 1995. The bonus was paid in two equal installments:
the first in November 1995, the remainder in December 1996. All Named
Executive Officers who received the November 1995 award purchased
Fidelity common stock with their net proceeds. Payment of the second
installment in December 1996 was conditioned on the executive remaining
an employee of the Bank until that time. Mr. Greenwood was awarded a
bonus of $300,000; Messrs. Condon, Evans and Stutz were awarded bonuses
of $100,000 each.
(5) Consists of compensation for unused vacation time.
(6) Consists of options granted under the 1995 Equity Incentive Plan. That
plan and all related options have been terminated.
(7) Relocation bonus paid to Mr. Stutz upon hiring on January 5, 1994.
(8) Consists of a moving allowance.
(9) Special bonus for individual contributions and achievements.
(10) Mr. Sanders' employment commenced on December 1, 1995.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
No options to acquire shares of Common Stock were granted by the Company
during 1996.
UNEXERCISED STOCK OPTIONS
During 1996, none of the executive officers of the Company exercised any
stock options. The following table provides information concerning unexercised
options held by the Named Executive Officers as of the end of 1996.
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT YEAR-END(1)
NAME YEAR-END EXERCISABLE/UNEXERCISABLE
---- ----------- -------------------------
<S> <C> <C>
Richard M. Greenwood................. 300,000 $94,500/$850,500
Robert P. Condon..................... 168,750 $53,156/$478,406
Godfrey B. Evans..................... 143,750 $45,281/$407,531
William L. Sanders................... 143,750 $45,281/$407,531
James E. Stutz....................... 168,750 $53,156/$478,406
</TABLE>
- --------
(1) Based upon the difference between the option exercise price of $8.35 per
share and the closing price of the Common Stock on December 31, 1996 of
$11.50 per share.
On December 11, 1995 the Board of Directors of Fidelity adopted the 1996
Stock Option Plan and granted awards pursuant thereto, subject to subsequent
approval by the Bank's stockholders. At a special meeting held on February 9,
1996, Fidelity's stockholders approved the 1996 Stock Option Plan.
Accordingly, Fidelity's non-employee directors, executive officers and certain
other key employees received options to purchase Fidelity common stock. In May
1996, Bank Plus assumed the 1996 Stock Option Plan in connection with the
Reorganization, and the options granted thereunder became options to purchase
Bank Plus Common Stock. The exercise price of all such options is $8.35 per
share. Ten percent of the options granted became exercisable on February 13,
1996, an additional thirty percent of such options became exercisable on
February 9, 1997 and an additional thirty percent of such options will become
exercisable on each of the second and third anniversaries of stockholder
approval of the Plan.
RETIREMENT INCOME (DEFINED BENEFIT) PLAN
Fidelity maintains a Retirement Income Plan which is a qualified, non-
contributory defined benefit retirement plan. The Retirement Income Plan
provides for monthly retirement payments or an actuarially
93
<PAGE>
equivalent lump sum to or on behalf of each covered employee or beneficiary
upon retirement at age 65 or upon early retirement (i.e., the attainment of
age 55 and the completion of 10 years of service) and, under certain
circumstances, upon disability, death or other termination of employment,
based upon the employee's average monthly salary and the aggregate number of
years of service. Effective February 28, 1994, the Retirement Income Plan was
suspended, thereby freezing benefit levels and reducing related expense
accruals by approximately $1 million annually.
The following table illustrates approximate annual benefits payable under
the Retirement Income Plan at normal retirement age for various combinations
of service and compensation:
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
FINAL ---------------------------------------
COMPENSATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 50,000........................ $11,302 $15,069 $18,836 $22,603 $26,370
100,000........................ 24,427 32,569 40,711 48,853 56,995
150,000........................ 37,552 50,069 62,586 75,103 87,620
200,000........................ 37,552 50,069 62,586 75,103 87,620
250,000........................ 37,552 50,069 62,586 75,103 87,620
300,000........................ 37,552 50,069 62,586 75,103 87,620
350,000........................ 37,552 50,069 62,586 75,103 87,620
400,000........................ 37,552 50,069 62,586 75,103 87,620
</TABLE>
Compensation under the Retirement Income Plan includes all regular pay,
excluding overtime, commissions and bonuses, limited by the Internal Revenue
Code Section 401(a)(17) compensation limit. The benefit amounts listed above
were computed on a 10-year certain and life basis, which is the normal form
under the plan, and are not subject to deduction for Social Security or other
offset amounts.
The years of credited service as of December 31, 1996 for each of the Named
Executive Officers are as follows:
<TABLE>
<CAPTION>
CREDITED
SERVICE
NAME YEARS
---- --------
<S> <C>
Richard M. Greenwood......................................... 1 year
Robert P. Condon............................................. None(1)
Godfrey B. Evans............................................. 6 years
William L. Sanders........................................... None(1)
James E. Stutz............................................... None(1)
</TABLE>
- --------
(1) No participation due to plan suspension on February 28, 1994.
EMPLOYMENT CONTRACTS
Mr. Greenwood and the Bank entered into an employment agreement in June
1995, providing for his employment as President and Chief Executive Officer of
the Bank until June 1997, subject to extension, at an annual base salary of at
least $415,000. If Mr. Greenwood's employment is terminated other than for
cause or because of death, disability or retirement, his employment agreement
provides that he will receive, subject to certain limitations, his full base
salary until the second anniversary of the date of termination (provided,
however, that during the second year following such date of termination, the
Bank will only pay such base salary to the extent it exceeds the total cash
compensation received by Mr. Greenwood from other employers during such
period), plus the incentive compensation for the portion of the year preceding
the date of termination that would have otherwise been payable. The employment
agreement does not address termination in connection with a change in control
of the Bank, which is governed by the terms of Mr. Greenwood's severance
agreement. See "--Severance Agreements."
94
<PAGE>
SEVERANCE AGREEMENTS
Fidelity has entered into severance agreements (the "Severance Agreements")
with Mr. Greenwood and certain other executive officers providing for
severance benefits (a) in the event of terminations following a change in
control of the Bank and (b) upon termination without cause under circumstances
other than following a change in control. The purpose of the Severance
Agreements is (i) to secure the employment of key executives, (ii) to ensure
that executive management is reasonably compensated in the light of
competitive industry practices and (iii) to ensure that the executive
management team is able to concentrate on advising the Board of Directors and
maintaining stability in the event of a change in control of the Bank.
The initial term of each Severance Agreement is three years, with one-year
renewals thereafter, subject to Board review and approval before each renewal.
After a change in control, the Severance Agreement will continue automatically
for two years. A "change in control" is generally defined in the Severance
Agreement as: (a) acquisition of 25% or more of the Bank's voting stock by any
"person" (as defined) with certain limited exclusions or (b) change in a
majority of the members of the Board of Directors over a two-year period or
(c) stockholder approval of a merger or consolidation other than a merger or
consolidation that results in the Bank owning 60% or more of the surviving
entity or (d) the Bank entering into one or more agreements to sell or
transfer to one or more third parties, in one transaction or a series of
related transactions, assets and/or liabilities representing fifty (50)
percent or more of the book value of its assets and/or liabilities. Each
Severance Agreement will be terminated if the officer or the Bank experiences
certain regulatory problems.
Termination by the Bank because of disability, retirement or cause, or the
officer's resignation (other than for "good reason" as described below) does
not entitle the officer to any benefits under the Severance Agreement.
Termination for "cause" requires either (i) a willful and continued failure of
an officer to perform substantially all of such officer's duties or (ii)
certain acts of dishonesty, incompetence or illegality. If, following a change
in control, the officer is terminated or voluntarily terminates for "good
reason," the officer is entitled to a specified multiple of base salary plus
the annual costs of (i) the officer's automobile allowance, (ii) the officer's
medical and dental premiums and (iii) 401(k) matching contributions made by
the Bank for the officer's benefit.
Termination by an officer for "good reason" means that an officer may
terminate such officer's own employment and still receive benefits under the
Severance Agreement if (among other reasons listed in the agreement) (1) such
officer's status or position in the Bank has adversely changed from the date
of the Severance Agreement, (2) the officer's base salary is reduced from its
level on the date of the Severance Agreement, (3) the Bank fails to credit the
officer for the correct number of vacation days, (4) the Bank requires the
officer to be based at an office more than thirty-five miles from such
officer's office on the date of the Severance Agreement or (5) after a change
in control, either (a) the Bank fails to continue any benefit plan in which
the officer was participating prior to the change in control or (b) the Bank
does not allow the officer to continue to engage in any business or civic
activities not related to the business of the Bank in which it had, before the
change in control, allowed the officer to participate.
In the event of termination following a change in control, Messrs. Condon,
Evans, Sanders and Stutz would receive 2.0 times annual base salary plus 2.0
times the annual cost of the benefits specified above; and Mr. Greenwood would
receive 2.5 times annual base salary plus 2.5 times the annual cost of the
benefits specified above. In the event of termination without cause and not
following a change in control, Messrs. Condon, Evans and Stutz would be
entitled to receive an amount equal to their annual base salary in effect at
termination.
The officer is entitled to reimbursement for legal expenses for matters
arising under the Severance Agreement following a change in control of the
Bank unless a court finds that the officer seeks reimbursement of funds for
litigating a position that a court determines was frivolous or brought in bad
faith.
95
<PAGE>
DIRECTOR COMPENSATION
Board Retainer and Fees. Until February 1996, the Board of Directors
retainer and meeting fee schedules for non-employee members of the Board of
Directors provided for: (1) Board membership annual retainer of $25,000; (2)
Board Chairmanship annual retainer of $10,000; (3) Committee Chairmanship
annual retainer of $5,000; (4) Board meeting fees of $1,000 per meeting; and
(5) Committee meeting fees of $850 per meeting. In February 1996, the Board of
Directors modified the retainers for Committee Chairmanships by increasing the
annual retainer for the Chairmen of the Audit and Asset Quality and Loan
Committees to $6,000 and decreasing the retainer for all other Committee
Chairmen to $3,000. In February 1997, the Board approved an increase in the
annual retainer to $30,000 for all directors who receive their retainers and
fees in the form of deferred stock grants under the Non-Employee Director
Compensation Program described below. Telephonic Board or Committee meetings
fees are paid at the same rate as in-person meetings, except that telephonic
meetings lasting less than 30 minutes are paid at 50% of the normal meeting
fee rate. Any director who fails to attend at least 50% of the meetings held
in any consecutive six-month period may forfeit a portion or all of his/her
retainer for the subsequent six months, unless absences were due to illness or
unavoidable circumstances, as approved by the Chairman of the Board. Directors
are also reimbursed for reasonable out-of-pocket expenses incurred in the
performance of their duties.
Non-Employee Director Retirement Plan. In November 1994, the Board of
Directors of Fidelity approved a retirement plan for non-employee directors
who have at least three years of Board service, including service on the Board
prior to the 1994 restructuring and recapitalization by Citadel and the Bank
(the "1994 Restructuring and Recapitalization"), and have reached the age of
55. Only directors initially elected prior to January 1, 1996 are eligible to
participate in this plan.
An eligible director shall, after termination from Board service for any
reason other than cause, be entitled to receive a quarterly payment equal to
one quarter of his/her average annual compensation (including compensation for
service on the Board of any of the Company's subsidiaries), including all
retainers and meeting fees, received during his/her last three years of Board
service. Such payments shall commence at the beginning of the first fiscal
quarter subsequent to termination and continue for a 3-year period. If a
director's Board membership is terminated for cause, no benefits are payable
under this plan.
If a director's Board membership is terminated within two years following
the effective date of a change in control, then he/she also shall be eligible
for a lump sum payment in an amount that is the greater of: (1) 150% times
average annual compensation during the preceding 3-year period, (2) the sum of
all retirement benefits payable under normal retirement provisions described
in the preceding paragraph or (3) $78,000.
1996 Stock Option Plan. On December 11, 1995, the Board of Directors of the
Bank adopted the 1996 Stock Option Plan and granted awards pursuant thereto to
its non-employee directors subject to subsequent approval by the Bank's
stockholders. At a special meeting held on February 9, 1996 the Bank's
stockholders approved the plan and in May 1996, Bank Plus assumed the plan in
connection with the Reorganization. Accordingly, each of the Company's and the
Bank's non-employee directors has received options representing 23,000 shares
of Common Stock. All such options were granted at an exercise price of $8.35
per share. Ten percent of the options granted to each non-employee director
became exercisable immediately upon stockholder approval and another thirty
percent became exercisable on the first anniversary of such approval; an
additional thirty percent will become exercisable on each of the second and
third anniversaries of stockholder approval.
Non-Employee Director Compensation Program. At the February 26, 1997 joint
meeting of the Boards of Directors of Bank Plus and Fidelity, both boards
approved the Non-Employee Director Compensation Program to take effect
immediately, subject to stockholder approval of the amended and restated 1996
Stock Option Plan (see "Proposal Number 2" below). The program is designed to
strengthen the relationship between directors and stockholders by aligning
their interests through stock ownership.
96
<PAGE>
Under the new program, non-employee directors initially elected to the Board
on or after January 1, 1996 will receive no cash compensation; their retainers
and meeting fees will be paid in the form of deferred stock grants. Other non-
employee directors may do so on a voluntary basis, until the annual meeting of
stockholders in the year 2000, when it will become mandatory for all directors
to receive their retainers and fees in the form of deferred stock grants. For
example, assuming attendance at twelve Board meetings and eight Committee
meetings, annual earnings of a director who chairs one Committee would be
$51,800. At a stock price of $11 1/8 (the closing price for the Common Stock
on March 26, 1997), a director would have 4,656 shares credited to his or her
deferred stock account.
In addition, subject to stockholder approval of the amended and restated
1996 Stock Option Plan, each non-employee director will receive automatic
annual grants of options to purchase 2,500 shares of Common Stock, at an
exercise price equal to the fair market value of the stock on the grant date,
which will be fully vested and exercisable upon grant.
RELATED PARTY TRANSACTIONS
Loans to Management
Fidelity offers home loans to directors, officers, and employees of the
Bank. These loans are made in the ordinary course of business and, in the
judgment of management, do not involve more than the normal risk of
collectibility. The loans are secured by real property and are made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with non-affiliated
persons.
However, pursuant to the provisions of Fidelity's employee loan program
which existed prior to the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), the interest rate generally
charged was one-half percent less than the rate for comparable transactions
with non-affiliated persons on fixed-rate loans and was one percent below the
margin on adjustable-rate loans. In addition, employees generally do not pay
loan fees or closing costs on their loans. The rate on these types of loans
remain at the reduced level only for so long as the individual obtaining the
loan continues to be employed by, or serves as a director of, the Bank. Since
the passage of FIRREA, Federal Reserve Board regulations applicable to savings
institutions prohibit the making of preferential loans to directors and
executive officers of Fidelity who perform policy-making functions.
Accordingly, Fidelity no longer grants such loans to any director or any
officer who influences corporate policy. Prior to the enactment of FIRREA,
directors and executive officers with policy making functions could
participate in Fidelity's employee loan program and to the extent they had
loans outstanding on the effective date of FIRREA's enactment, such loans have
grandfathered status. Listed below are the currently outstanding loans to
executive officers.
<TABLE>
<CAPTION>
HIGHEST UNPAID
INDEBTEDNESS BALANCE AS INTEREST
SINCE OF RATE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31, YEAR
NAME 1994 1996 1996 MADE
---- ------------ ------------ ------------ ----
<S> <C> <C> <C> <C>
Godfrey B. Evans................. $194,416 $181,330 5.823% 1987
Godfrey B. Evans................. $ 76,951 $ 73,451 7.339% 1989
</TABLE>
Greenwood Loan
On July 30, 1996, the Board of Directors approved a personal loan to Mr.
Greenwood in the principal amount of $265,000. The loan is payable on demand
and is interest free. The proceeds of the loan were used by Mr. Greenwood to
refinance an existing loan that had been made to Mr. Greenwood by Citadel in
1992 when Mr. Greenwood commenced his employment with Citadel.
97
<PAGE>
Insurance Commissions
Johnson & Higgins served in 1996 as insurance broker for the Bank. During
1996, the Bank paid to Johnson & Higgins insurance premiums of approximately
$3.0 million, with respect to which the Company has been advised that Johnson
& Higgins has retained commissions of approximately $200,000. Mr. Gibbs, a
director of Bank Plus and of Fidelity, is a principal and senior vice
president of Johnson & Higgins.
First Alliance Transaction
Fidelity has entered into an agreement with First Alliance Corporation
("FACO") pursuant to which FACO will function as Fidelity's affinity partner
in the development of real estate secured credit card receivables. Fidelity
will provide the bank issuer presence required to initiate Visa and Mastercard
accounts and the funding, up to a maximum aggregate amount of $175,000,000,
with individual credit limits of $5,000 to $12,000. FACO will provide credit
enhancement to mitigate any loss exposure Fidelity may have. Mark Mason, a
member of the board of directors of Fidelity, is Executive Vice President and
Chief Financial Officer and a director of FACO. George Gibbs, a director of
both Bank Plus and Fidelity, is also a director of FACO.
98
<PAGE>
BENEFICIAL OWNERSHIP OF BANK PLUS CAPITAL STOCK
Security Ownership of Management
The following table sets forth the shares of Common Stock beneficially owned
as of March 26, 1997 by all directors and executive officers as a group, by
each director, the CEO and the Named Executive Officers of the Company during
1996.
<TABLE>
<CAPTION>
SHARES OF SHARES UNDERLYING
COMMON STOCK OPTIONS EXERCISABLE TOTAL PERCENT OF
BENEFICIALLY WITHIN 60 DAYS OF BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNED JUNE , 1997(1) OWNERSHIP STOCK
- ------------------------ ------------ ------------------- ---------- ----------
<S> <C> <C> <C> <C>
Norman Barker, Jr....... 1,250 9,200 10,450 *
Waldo H. Burnside....... 625 9,200 9,825 *
George Gibbs, Jr........ 625 9,200 9,825 *
Lilly V. Lee............ 1,250 9,200 10,450 *
Gordon V. Smith(2)...... 100,112 -- 100,112 *
Mark Sullivan III....... 2,750 -- 2,750 *
Richard M. Greenwood.... 12,500 120,000 132,500 *
Robert P. Condon........ 12,500 67,500 80,000 *
Godfrey B. Evans........ 5,250 57,500 62,750 *
William L. Sanders...... -- 57,500 57,500
James E. Stutz.......... 6,250 67,500 73,750 *
All directors and
executive officers as a
group (15 persons)..... 155,612 451,800 607,412 3.3%
</TABLE>
- --------
(1) Options exercisable within 60 days of March 26, 1997 that were granted
pursuant to the 1996 Stock Option Plan. See "Executive Compensation" and
"Director Compensation" for discussion of the amounts and terms of such
options.
(2) Shares are registered in the name of Gordon V. and Helen C. Smith
Foundation, a Section 501(3)(c) organization of which Mr. Smith is
president.
* Represents less than one percent of the outstanding shares of Common Stock.
99
<PAGE>
Security Ownership by Others
The following table sets forth, as of March 26, 1997, (i) the name of each
person known to the Company to be the beneficial owner of more than 5% of the
outstanding Bank Plus Common Stock, (ii) the total number of shares of Bank
Plus Common Stock beneficially owned by each person and (iii) the percentage
of all Bank Plus Common Stock outstanding held by each such person.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK OF PERCENT OF
BENEFICIAL BENEFICIALLY-OWNED
NAME AND ADDRESS OWNER COMMON STOCK(1)
---------------- --------------- ------------------
<S> <C> <C>
Boston Partners, Inc. ................. 1,234,582(2) 6.8%
Boston Partners Asset Managers, L.P.
Desmond John Heathwood
One Financial Center, 43rd Floor
Boston, MA 02111
CNA Financial Corporation.............. 1,220,610 6.7%
Continental Casualty Company
CNA Plaza
Chicago, IL 60685
John Hancock Advisers, Inc. ........... 1,076,502 5.9%
John Hancock Place
P.O. Box 111
Boston, MA 02199
Jenswold, King and Associates, Inc. ... 991,104(3) 5.4%
Two Post Oak Central
1980 Post Oak Blvd., Suite 2400
Houston, TX 77056
</TABLE>
- --------
(1) Except as otherwise indicated, the persons listed as beneficial owners of
the shares have the sole voting and investment power with respect to such
shares.
(2) Boston Partners, Inc., Boston Partners Asset Managers, L.P. and Desmond
John Heathwood share voting and investment power with respect to these
shares, as reported on a Schedule 13G dated February 7, 1997.
(3) Jenswold, King and Associates, Inc. has sole investment power with respect
to all of these shares, and sole voting power with respect to 734,747 of
these shares, according to a Schedule 13G dated February 21, 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the directors and executive
officers of the Company to file reports of ownership and changes in ownership
of their equity securities of the Company. Directors and executive officers
are required to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such reports received by it
during or with respect to the year ended December 31, 1996, and/or written
representations from such reporting persons, the Company believes that all
reports required to be filed by such reporting persons during or with respect
to the year ended December 31, 1996 were timely filed.
100
<PAGE>
LEGAL MATTERS
The validity of the Merger Shares offered hereby will be passed upon by
Gibson, Dunn & Crutcher LLP, Los Angeles, California, counsel to Bank Plus and
Fidelity.
EXPERTS
The consolidated financial statements and related financial statement
schedules of Hancock as of December 31, 1996 and 1995 and for each of the
years in the three year period ended December 31, 1996 included in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein (which report expresses
an unqualified opinion and includes explanatory paragraphs referring to
regulatory matters and the uncertainty about Hancock's ability to continue as
a going concern) and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Bank Plus as of December 31, 1996
and 1995 and for each of the years in the three year period ended December 31,
1996 included in the Form 10-K/A attached to this Proxy Statement/Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
OTHER MATTERS
The Board of Directors of Hancock does not know of any matter to be
presented at the Meeting other than that set forth above. However, if other
matters come before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote the shares represented by the Proxy in their
discretion, taking into account any recommendations of the Board of Directors
of Hancock on such matters, and discretionary authority to do so is included
in the Proxy.
101
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................... F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995:
Consolidated Statements of Financial Condition............................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996:
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition (Unaudited)............... F-23
Consolidated Statements of Operations (Unaudited)........................ F-24
Consolidated Statements of Cash Flows (Unaudited)........................ F-25
Notes to Consolidated Financial Statements............................... F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Hancock Savings Bank, FSB
Los Angeles, California:
We have audited the accompanying consolidated statements of financial
condition of Hancock Savings Bank, FSB and subsidiary (the "Company") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Hancock Savings Bank, FSB and
subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, at December 31, 1996 and
1995, the Company did not meet the minimum capital requirements prescribed by
the Office of Thrift Supervision ("OTS"). During 1996 and 1995, the Company
operated under a regulatory agreement with the OTS that was superseded by a
Cease and Desist Order (the "Order") entered into with the OTS in March 1997.
The Order requires that, among other things, the Company must meet prescribed
capital ratios by no later than June 30, 1997. In addition, on May 2, 1997,
the Company was notified by the OTS that it is categorized as "significantly
undercapitalized," and was given a Prompt Corrective Action Directive (the
"Directive"). The Directive requires that, among other things, the Company
must submit a capital restoration plan to the OTS within 45 days of May 2,
1997.
If the Company is unable to meet minimum capital requirements of the Order
or the additional requirements of the Directive, the OTS may take such further
supervisory, enforcement or resolution action as it deems appropriate and can
ultimately appoint a conservator or receiver. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
April 17, 1997
(except Note
2 as to
which the
date is May
2, 1997)
F-2
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash..................................................... $ 5,450 $ 4,465
Federal funds sold....................................... 7,506 --
-------- --------
Cash and cash equivalents................................ 12,956 4,465
Interest-bearing deposits with financial institutions.... 2,476 1,587
Investments (Notes 3 and 4):
Mutual fund investments--available for sale............ 3,000 --
Mutual fund investments--trading....................... -- 8,198
Mortgage-backed securities--available for sale......... 196 236
Mortgage-backed securities--held to maturity........... 5,636 7,264
Investment securities--held to maturity................ 21,857 12,484
Loans receivable, net (Note 4)........................... 144,729 153,473
Real estate owned, net (Note 5).......................... 1,544 2,197
Accrued interest receivable (Note 6)..................... 1,260 1,270
Investment in stock of the Federal Home Loan Bank, at
cost.................................................... 1,338 1,260
Property and equipment, net (Note 7)..................... 1,591 1,696
Other assets............................................. 1,576 1,414
-------- --------
$198,159 $195,544
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 8)........................................ $190,073 $185,424
Accounts payable and other liabilities................... 1,485 2,155
SAIF accrual (Note 2).................................... 1,191 --
-------- --------
Total liabilities...................................... 192,749 187,579
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 10)
STOCKHOLDERS' EQUITY (Notes 2 and 11):
Common stock, $6.40 par value; authorized, 5,000,000
(1996) and 1,781,250 (1995) shares; issued and
outstanding, 1,302,463 (1996) and 728,034 (1995) shares. 8,336 4,660
Additional paid-in capital............................... 2,243 1,570
(Accumulated deficit) retained earnings.................. (5,133) 1,736
Net unrealized losses on securities available for sale,
net of taxes of $0 and $(1) at December 31, 1996 and
1995, respectively...................................... (36) (1)
-------- --------
Total stockholders' equity............................. 5,410 7,965
-------- --------
$198,159 $195,544
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans............................................. $11,962 $11,959 $10,275
Mortgage-backed securities........................ 404 465 471
Investment securities and other interest-earning
assets........................................... 1,755 1,397 1,165
Loan servicing fee income, net.................... 321 371 394
------- ------- -------
Total interest and dividend income.............. 14,442 14,192 12,305
------- ------- -------
INTEREST EXPENSE:
Deposits (Note 8)................................. 8,331 8,036 6,042
Other borrowings.................................. 4 3 7
------- ------- -------
Total interest expense.......................... 8,335 8,039 6,049
------- ------- -------
Net interest income............................. 6,107 6,153 6,256
PROVISION FOR ESTIMATED LOSSES ON LOANS (Note 4).... 6,975 3,499 1,549
------- ------- -------
NET INTEREST (LOSS) INCOME AFTER PROVISION FOR
ESTIMATED LOSSES ON LOANS.......................... (868) 2,654 4,707
------- ------- -------
REAL ESTATE INCOME (LOSS):
(Loss) income on real estate operations (Note 5).. (112) 123 (353)
Provision for loss on real estate held for sale
(Note 5)......................................... (400) (184) (476)
------- ------- -------
Net real estate loss............................ (512) (61) (829)
------- ------- -------
NONINTEREST INCOME:
Other loan fees................................... 92 84 53
Gain (loss) on sale of mutual fund investments.... 15 (131)
Excess servicing fees............................. 387
Bank charges...................................... 195 191 168
Other............................................. 318 265 277
------- ------- -------
Total noninterest income........................ 992 555 367
------- ------- -------
NONINTEREST EXPENSE:
Compensation and employee-related costs (Notes 10
and 11).......................................... 2,579 2,642 2,668
Facilities (Note 10).............................. 726 813 796
Office supplies................................... 201 194 228
Service bureau and related equipment rental....... 280 300 325
SAIF insurance premium (Note 2)................... 1,750 535 512
Professional services............................. 348 427 299
Bank charges...................................... 209 217 215
Advertising....................................... 62 63 87
Other general and administrative (Note 2)......... 324 330 277
------- ------- -------
Total noninterest expense....................... 6,479 5,521 5,407
------- ------- -------
LOSS BEFORE PROVISION FOR INCOME TAX EXPENSE (BENE-
FIT)............................................... (6,867) (2,373) (1,162)
INCOME TAX EXPENSE (BENEFIT) (Note 9)............... 2 (698) (251)
------- ------- -------
NET LOSS............................................ $(6,869) $(1,675) $ (911)
======= ======= =======
LOSS PER SHARE...................................... $ (7.27) $ (2.30) $ (1.25)
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
RETAINED SECURITIES
COMMON STOCK ADDITIONAL EARNINGS AVAILABLE FOR
---------------- PAID-IN (ACCUMULATED SALE, NET OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) TAXES EQUITY
--------- ------ ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... 728,034 $4,660 $1,570 $ 4,322 $ 118 $10,670
Unrealized
depreciation on
securities available
for sale, net of
taxes................ (172) (172)
Net loss.............. (911) (911)
--------- ------ ------ ------- ----- -------
BALANCE, DECEMBER 31,
1994................... 728,034 4,660 1,570 3,411 (54) 9,587
Unrealized
appreciation on
securities available
for sale, net of
taxes................ 53 53
Net loss.............. (1,675) (1,675)
--------- ------ ------ ------- ----- -------
BALANCE, DECEMBER 31,
1995................... 728,034 4,660 1,570 1,736 (1) 7,965
Issuance of common
stock................ 567,743 3,633 682 4,315
Stock options
exercised (Note 11).. 6,686 43 (9) 34
Unrealized
depreciation on
securities available
for sale............. (35) (35)
Net loss.............. (6,869) (6,869)
--------- ------ ------ ------- ----- -------
BALANCE, DECEMBER 31,
1996................... 1,302,463 $8,336 $2,243 $(5,133) $ (36) $ 5,410
========= ====== ====== ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (6,869) $ (1,675) $ (911)
Reconciliation of net loss to net cash provided
by (used in) operating activities:
Accretion of discounts on investments and
mortgage-backed securities................... (314) (191)
Net decrease (increase) in mutual fund
investments--trading......................... 8,198 (6,432) 14,862
(Gain) loss on mutual fund investments--
trading...................................... (15) 131
Amortization of deferred loan fees, net....... (210) (235) (315)
Provision for loan and real estate losses..... 7,375 3,683 2,025
Loss (gain) on sale of real estate............ 95 (62) 54
Depreciation.................................. 189 252 247
Decrease (increase) in accrued interest
receivable................................... 10 (177) (128)
Federal Home Loan Bank stock dividend......... (74) (60) (59)
(Increase) decrease in other assets........... (162) (845) 455
Deferred income taxes......................... 140 31
Accrual of special SAIF assessment............ 1,191
(Decrease) increase in accounts payable and
other liabilities............................ (670) 875 (104)
-------- -------- --------
Net cash provided by (used in) operating
activities................................. 9,073 (4,865) 16,097
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on mortgage-backed
securities..................................... 1,668 186 383
Proceeds from sales of mortgage-backed
securities--available for sale................. 1,727 --
Purchase of investment securities--held to
maturity....................................... (33,857) (15,323) (10,668)
Purchase of mortgage-backed securities-held to
maturity....................................... -- -- (1,982)
Proceeds from maturities of investment
securities--held to maturity................... 24,484 14,000 --
Purchase of mutual fund investments--available
for sale....................................... (3,000) --
Net decrease (increase) in loans................ 1,002 (6,740) (10,980)
Proceeds from sales of real estate.............. 1,648 1,668 1,576
Capitalized cost of real estate................. (549) (399) (92)
Purchase of Federal Home Loan Bank stock........ (4) (56) 120
Purchase of property and equipment.............. (84) (71) (47)
Net (increase) decrease in interest-bearing
deposits with financial institutions........... (889) 4,364 (1,345)
Other........................................... 1 (75) --
-------- -------- --------
Net cash used in investing activities....... (9,580) (719) (23,035)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificate account deposits
and money market accounts...................... 3,658 7,412 5,474
Net increase (decrease) in demand deposits and
passbook accounts.............................. 991 (772) 1,914
Proceeds from issuing common stock.............. 4,315 -- --
Proceeds from exercise of stock options......... 34 -- --
-------- -------- --------
Net cash provided by financing activities... 8,998 6,640 7,388
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 8,491 1,056 450
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..... 4,465 3,409 2,959
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR........... $ 12,956 $ 4,465 $ 3,409
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--Cash paid (received) for:
Interest........................................ $ 8,346 $ 8,036 $ 6,053
======== ======== ========
Income taxes.................................... $ 99 $ (171) $ (528)
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
ACTIVITIES:
Mortgage-backed securities transferred from
available for sale to held to maturity......... $ 7,542
========
Real estate acquired through foreclosure........ $ 8,558 $ 4,681 $ 7,353
======== ======== ========
Loans to facilitate sales of real estate owned.. $ 7,576 $ 3,387 $ 7,235
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations--The consolidated
financial statements include the accounts of Hancock Savings Bank, FSB (the
"Company") and its wholly owned subsidiary, Hancock Service Corporation. The
Company is primarily engaged in attracting savings deposits and making loans
collateralized by real estate and operates five branches serving individuals
and small to medium-sized businesses in the Southern and Central California
regions. Activities of the subsidiary are not material to the operations of
the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
Investment Securities, Mortgage-Backed Securities and Mutual Fund
Investments--The Company's investments are classified into three categories
and accounted for as follows: (i) debt securities that the enterprise has the
positive intent and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost; (ii) debt and equity
securities that are bought and held principally for the purpose of selling in
the near term are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; and (iii) debt and
equity securities not classified as either held-to-maturity securities or
trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity.
Loans Receivable--Loans are generally presented at amortized cost, based
upon the Company's intention and ability to hold the loans for the foreseeable
future.
Interest on loans receivable is accrued as earned, except nonaccrual loans
on which interest is normally discontinued whenever the payment of principal
or interest is considered to be in doubt. When a loan is placed on nonaccrual,
all previously accrued but not collected interest is reversed against current
period income.
The Company receives fees on loans that do not pertain to the origination
process. These fees are recorded as income at the time of payment. Fees and
costs associated with the loan origination process are deferred and amortized
as interest income over the lives of the loans, using the level yield method.
Allowance for Loan Losses--In each reporting period, the allowance for loan
losses is increased by provisions for losses charged against operations in
that period and recoveries of loans previously charged off, and is reduced by
charge-offs of loans recognized in that period.
The allowance is an estimate involving both subjective and objective
factors, and its measurement is inherently uncertain, pending the outcome of
future events. As discussed in Note 4, the Company has significant levels of
impaired loans subject to valuation estimation. Management's determination of
the adequacy of the allowance is based on an evaluation of the loan portfolio,
previous loan loss experience, current economic conditions, volume, growth and
composition of the loan portfolio, the value of collateral, and other relevant
factors. The Company's lending is concentrated in multi-family residential
loans and other real estate loans collateralized by properties in Southern and
Central California. Southern and Central California include areas that have
recently experienced adverse economic conditions, such as declining real
estate values. Such factors adversely affected some borrowers' ability to
repay loans and may indicate reductions in the value of collateral that may
become a source of repayment of some loans. In addition, the Company is
examined annually by regulatory authorities who have sometimes required
adjustments to the allowance. Although management believes the level of the
allowance as of December 31, 1996 is adequate to absorb losses inherent in the
loan portfolio, additional deterioration in the economy of the Company's
lending area and/or rising interest rates could result in levels of loan
losses that cannot be reasonably predicted at that date.
F-7
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Real Estate Owned--Real estate acquired through foreclosure is recorded at
estimated fair value at the time of foreclosure. Any subsequent operating
expense or income, reduction in estimated fair values, and gains or losses on
disposition of such properties are included in current operations.
Depreciation and Amortization--Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives, principally on a straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
Income Taxes--Deferred tax liabilities or assets are calculated by applying
applicable tax rates to the difference between the financial statement and tax
bases of assets and liabilities currently recognized in the financial
statements. Deferred taxes are provided for in the consolidated statements of
operations in the amount of the net change during the year of the deferred tax
balances in the consolidated statements of financial condition.
Statement of Cash Flows--For purposes of reporting cash flows, cash includes
cash on hand, amounts due from banks and federal funds sold.
Loss per Share--Loss per share is based upon the weighted average number of
shares of stock outstanding during each year. The weighted average number of
shares used in the calculation of loss per share is 944,837, 728,034 and
728,034 in 1996, 1995 and 1994, respectively. Stock options are not included
in the weighted average number of shares because they would have an
antidilutive effect.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements--Management does not believe that any
accounting pronouncements that became effective in 1996, 1995 or 1994, that
have been issued and will become effective at a future date, have had or would
have had (if adopted early) a material effect on the consolidated financial
statements for the three years ended December 31, 1996. Disclosure
requirements of new pronouncements have been included in these footnotes, if
applicable.
Reclassifications--Certain items in the consolidated financial statements
for 1995 and 1994 were reclassified to conform to the 1996 presentation.
2. REGULATORY MATTERS
Going Concern--The accompanying consolidated financial statements have been
prepared on a going-concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
As shown in the financial statements, the Company incurred net losses of
$6,869,000, $1,675,000 and $911,000 during the years ended December 31, 1996,
1995, and 1994, respectively. At December 31, 1996 and 1995, the Company was
not in compliance with certain provisions of a supervisory agreement (the
"Agreement") entered into with the Office of Thrift Supervision ("OTS") in
October 1994. At December 31, 1996 and 1995, the Company also was not in
compliance with minimum regulatory capital requirements prescribed by the OTS.
The Company's capital ratios cause the Company to be categorized as
"undercapitalized" under the prompt corrective action provisions (the "PCA
provisions") of the Federal
F-8
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deposit Insurance Act. As a result of this condition at December 31, 1995, the
Company received a Prompt Corrective Action Directive (the "1996 Directive")
from the OTS. Although the Company raised additional capital sufficient to
temporarily meet minimum regulatory requirements and to satisfy the targets
established in the 1996 Directive, additional net losses in 1996 again caused
the Company to fall out of compliance with minimum capital requirements.
During March 1997, the Company entered into a Cease and Desist Order (the
"Order") from the OTS. The Order replaces the Agreement, and requires the
Company to raise additional capital, by June 30, 1997, sufficient for the
Company to have minimum capital ratios required of an institution to be
categorized as "well capitalized" under PCA provisions. Alternatively, the
Company can merge or be acquired in order to be recapitalized. The Order also
requires the Company to submit reports to the OTS concerning recapitalization
efforts and to develop, submit to the OTS and implement various "plans," as
defined--a business plan, a management plan, a plan to increase the size of
the Board of Directors and enhance the Board's oversight of the Company, and
an internal audit plan.
On May 2, 1997, the Company was notified by the OTS that it is categorized
as "significantly undercapitalized" under PCA provisions, and received a new
Prompt Corrective Action Directive (the "1997 Directive"). The 1997 Directive
orders the Company to submit an acceptable capital restoration plan with 45
days of May 2, 1997. Also, because the Company is categorized as
"significantly undercapitalized," it is prohibited from growing total assets,
increasing compensation or paying bonuses to senior executive officers, making
acquisitions or opening new branches, and paying certain capital distributions
or management fees. Certain of these restrictions may be removed with OTS
permission and when a capital restoration plan is submitted by the Company and
approved by the OTS.
If the Company is unable to meet minimum capital requirements or other
conditions of the Order or the 1997 Directive, one or more regulatory
sanctions may result, including the appointment of a conservator or receiver.
These factors, among others, may indicate that the Company will be unable to
continue as a going concern. The consolidated financial statements do not
include the adjustments, if any, that might have been required had the outcome
of the above-mentioned uncertainties been known, or any adjustments relating
to the recoverability of recorded assets amounts or the amounts of liabilities
that may be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent on the
Company's ability to comply with the terms of the Order and the 1997
Directive, meet prescribed capital requirements, maintain sufficient liquidity
and, ultimately, return to profitability.
Management Plans--Management and the Board of Directors have begun efforts
to raise additional capital and comply with other terms of the Order and the
1997 Directive. Options being considered to raise capital include issuing
securities and being acquired by another institution. However, as of May 2,
1997, a specific course of action has not been decided and there are no firm
commitments from other parties to provide additional capital or to acquire the
Company.
Regulatory Capital Requirements--The Company is subject to various
regulatory capital requirements administered by federal banking regulatory
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators that,
if undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines
that involve quantitative measures of assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgment by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation, notwithstanding the Order
and the 1997 Directive, to ensure capital adequacy require the Company to
maintain minimum amounts and ratios (set forth in the table
F-9
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
below) of total capital to risk-weighted assets of 8.0%, and of core capital
of 3.0% and tangible capital of 1.5%. In the table below, tier I capital to
average assets is substantially the same as core capital for the Company.
As of December 31, 1996 and 1995, the most recent notifications from the OTS
categorized the Company as "undercapitalized" under PCA provisions. As
discussed above, the Company was categorized as "significantly
undercapitalized" on May 2, 1997, and will be required to achieve capital
ratios enabling it to be categorized as "well capitalized" by June 30, 1997.
The following table represents the Company's actual and required capital
amounts and ratios as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
TO BE
CATEGORIZED
AS WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES(1) PROVISIONS(2)
------------- ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk weighted
assets)........................... $8,254 6.03% $10,959 8.0% $13,699 10.0%
Tier I Capital (to risk weighted
assets)........................... 6,637 4.84% N/A N/A 8,219 6.0%
Tier I (core) capital (to average
assets)........................... 6,637 3.34% 5,956 3.0% 9,926 5.0%
Tangible capital................... 6,637 3.34% 2,978 1.5% N/A N/A
As of December 31, 1995:
Total capital (to risk weighted
assets)........................... 9,738 6.87% 11,337 8.0% 14,172 10.0%
Tier I Capital (to risk weighted
assets)........................... 7,966 5.62% N/A N/A 8,503 6.0%
Tier I (core) capital (to average
assets)........................... 7,966 4.07% 5,867 3.0% 9,779 5.0%
Tangible capital................... 7,966 4.07% 2,934 1.5% N/A N/A
</TABLE>
- --------
(1) These ratios represent minimums required of all savings institutions.
(2) These ratios are the minimums required of the Company for capital adequacy
under the terms of the Order entered into with the OTS in 1997.
SAIF Assessment--During 1996, a special one-time assessment to recapitalize
the SAIF deposit insurance fund was imposed upon institutions holding SAIF-
insured deposits as of March 1995. Due to its weak capital position, the
Company obtained an exemption from having to pay this assessment during 1996.
However, management expects the exemption to expire if and when the Company
exceeds the capital targets specified in the Order, and if and when payment of
the assessment would not cause the Company to be in violation of capital
targets specified by the OTS. The Company accrued $1,191,000 at December 31,
1996. For purposes of reporting regulatory capital and determining compliance
with minimum capital ratios (see table above), the Company is not required to
deduct this accrual.
F-10
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
----------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mutual fund investments--available for
sale--
Invested in short-term U.S. Treasury
securities.............................. $ 3,026 $ 3,000
======= =======
Mutual fund investments--trading--
Invested in short-term U.S. Treasury
securities.............................. $ 8,198 $ 8,198
======= =======
Mortgage-backed securities--available for
sale--issued by
U.S. government agencies with stated
maturities after ten years.............. $ 206 $ 196 $ 238 $ 236
======= ======= ======= =======
Mortgage-backed securities--held to
maturity--issued by
U.S. government agencies with stated
maturities after ten years.............. $ 5,636 $ 5,642 $ 7,264 $ 7,267
======= ======= ======= =======
Investment securities--held to maturity--
issued by:
U.S. Treasury with stated maturities
within one year......................... $ 1,994 $ 2,000 $ 2,984 $ 2,970
FNMA, FHLMC and FHLB with stated maturity
within one through three years.......... 19,863 19,784 9,500 9,509
------- ------- ------- -------
$21,857 $21,784 $12,484 $12,479
======= ======= ======= =======
</TABLE>
Gross unrealized gains and losses on investments were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
UNREALIZED UNREALIZED
------------ ------------
GAINS LOSSES GAINS LOSSES
----- ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mutual funds--available for sale................... $26
Mortgage-backed securities--available for sale..... 10 $ 2
Mortgage-backed securities--held to maturity....... $ 6 $ 3
Investment securities--held to maturity............ 73 5
</TABLE>
Gross realized gains and (losses) included in earnings on mutual fund
investments held for trading purposes were $15,000 and $(131,000) in 1995 and
1994, respectively. During 1995, mortgage backed securities--available for
sale of $1,727,000 were sold. At the sale date, fair value of the securities
approximated cost. There were no sales of debt securities in 1996.
Although stated maturities of mortgage-backed securities are after ten
years, actual maturities are shorter due to scheduled payments and
prepayments.
F-11
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Real estate loans:
Conventional loans collateralized by first trust deeds:
Residential--one to four units......................... $ 43,272 $ 48,774
Residential--more than four units...................... 117,088 122,577
Commercial and land.................................... 26,897 30,057
Construction........................................... 7,071 4,377
Loans collateralized principally by second trust deeds... 2,091 1,636
-------- --------
196,419 207,421
-------- --------
Less:
Participants' portions, serviced for others (primarily
residential)............................................ 38,781 47,074
Deferred loan fees, net of costs....................... 508 544
Undisbursed loan funds................................. 3,914 1,677
Allowance for estimated losses......................... 8,498 4,917
Discount on loans and other............................ 234 37
-------- --------
51,935 54,249
-------- --------
Loans to depositors, secured by deposit accounts........... 74 154
Other loans................................................ 171 147
-------- --------
245 301
-------- --------
$144,729 $153,473
======== ========
Weighted average interest rate............................. 7.83% 8.00%
======== ========
</TABLE>
The Company originates both adjustable and fixed interest rate real estate
loans. At December 31, 1996, the composition of the fixed interest rate real
estate loans (net of participants' portions) was as follows:
<TABLE>
<CAPTION>
TERM TO MATURITY BOOK VALUE
---------------- ----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
1 year--10 years................................................ $2,462
10 years to 20 years............................................ 139
Over 20 years................................................... 1,668
------
$4,269
======
</TABLE>
The adjustable rate real estate loans of $149,455,000 (net of participants'
portions and undisbursed loans), the majority of which adjust within one year,
have interest rate adjustment limitations and are generally indexed to the
Federal Home Loan Bank's Eleventh District cost of funds index, the federal
cost of funds index or the prime rate. Future market factors may affect the
correlation of the interest rate adjustment with the rates the Company pays on
the short-term deposits that have been primarily utilized to fund these loans.
At December 31, 1996, the Company had no outstanding commitments for new
loan originations.
F-12
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for estimated losses on loans is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year........................ $ 4,917 $2,135 $ 1,925
Provision for estimated losses on loans........... 6,975 3,499 1,549
Transfer (to) from contingent liability on loans
sold with recourse............................... (779) 49 (265)
Charge-offs....................................... (2,630) (746) (1,087)
Recoveries........................................ 10 130 13
Other............................................. 5 (150) --
------- ------ -------
Balance, end of year.............................. $ 8,498 $4,917 $ 2,135
======= ====== =======
</TABLE>
Loans for which impairment has been recognized in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 114 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Impaired loans with no specific valuation
allowances.................................... $ 876 $ 1,997
Impaired loans with specific valuation
allowances.................................... 12,673 13,198
Less specific valuation allowances............. (4,852) (2,717)
----------- -----------
Impaired loans, net of valuation allowances.... $ 8,697 $ 12,478
=========== ===========
Average recorded investment during the year.... $ 9,628 $ 10,598
Interest income recognized using cash basis of
accounting for impaired loans................. $ 49 $ 99
</TABLE>
The Company generally continues to recognize interest income on loans that
are considered to be impaired until they are over 60 days past due.
Thereafter, interest is recognized on a cash basis.
Certain loan sales in 1989 contain defined recourse provisions. Gains on
such sales were reduced by the estimated effect of the recourse provisions.
Loans sold subject to recourse provisions had remaining unpaid principal
balances at December 31, 1996 and 1995 of $29,952,000 and $36,857,000,
respectively. At December 31, 1996 and 1995, the Company had pledged mortgage-
backed securities of $5,616,000 and $7,241,000, respectively, as security
relative to the recourse contingencies associated with these loans. Actual
losses incurred by the Company due to these recourse provisions may vary from
the Company's estimate due to a number of factors beyond the Company's
control. As of December 31, 1996 and 1995, a contingent liability of $989,000
and $216,000, respectively, was recorded and is included in other liabilities
on the consolidated statements of financial condition.
5. REAL ESTATE OWNED
Real estate owned consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate acquired through foreclosure....... $ 1,735 $ 2,389
Allowance for estimated losses on foreclosed
real estate................................... (191) (192)
----------- -----------
$ 1,544 $ 2,197
=========== ===========
</TABLE>
F-13
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Real estate loss, net, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995 1994
----- ----- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
(Expense) income from foreclosed real estate........ $ (17) $ 61 $(299)
(Losses) gains on sale of foreclosed real estate.... (95) 62 (54)
----- ----- -----
(112) 123 (353)
Provision for estimated loss on real estate held for
sale............................................... (400) (184) (476)
----- ----- -----
$(512) $ (61) $(829)
===== ===== =====
</TABLE>
Activity in the allowance for estimated losses on real estate owned is
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995 1994
----- ---- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year........................... $ 192 $ 43 $ 255
Charge-offs.......................................... (401) (74) (688)
Provision for estimated losses on foreclosed real
estate.............................................. 400 184 476
Other additions...................................... 39
----- ---- -----
Balance, end of year................................. $ 191 $192 $ 43
===== ==== =====
</TABLE>
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans and mortgage-backed securities............. $ 1,385 $ 1,462
Investments...................................... 296 198
----------- -----------
1,681 1,660
Less allowance for uncollectible interest........ 421 390
----------- -----------
$ 1,260 $ 1,270
=========== ===========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank premises owned--land......................... $ 420 $ 420
Bank premises owned--building..................... 1,030 1,030
Leasehold improvements............................ 969 965
Furniture and equipment........................... 2,736 2,658
Automobiles....................................... 14 14
----------- -----------
5,169 5,087
Less accumulated depreciation and amortization.... 3,578 3,391
----------- -----------
$ 1,591 $ 1,696
=========== ===========
</TABLE>
F-14
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial checking accounts--noninterest-
bearing................................... $ 10,974 $ 9,530
Regular checking accounts.................. 11,806 1.00% 11,564 1.00%
Money market checking and savings accounts. 15,759 2.00% 18,592 2.00%
Passbook accounts.......................... 2,619 1.92% 3,314 1.93%
Certificate accounts under $100............ 148,502 5.39% 141,230 5.54%
Certificates of $100 and greater........... 413 4.60% 1,194 5.61%
-------- --------
$190,073 4.48% $185,424 4.55%
======== ========
</TABLE>
At December 31, 1996, maturities of certificate accounts are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
1997........................................................ $122,540
1998........................................................ 21,627
1999........................................................ 2,839
2000........................................................ 1,429
2001........................................................ 367
Thereafter.................................................. 113
--------
$148,915
========
</TABLE>
The Company's interest expense, by category, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Regular checking accounts........................... $ 115 $ 127 $ 119
Money market checking and savings accounts.......... 338 447 490
Passbook accounts................................... 56 77 77
Certificate accounts under $100..................... 7,780 7,257 5,216
Certificates of $100, and greater................... 42 128 140
------ ------ ------
$8,331 $8,036 $6,042
====== ====== ======
</TABLE>
F-15
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current taxes (benefit):
Federal..................................... $ -- $ (840) $ (351)
State....................................... 2 2 69
------- -------- --------
2 (838) (282)
------- -------- --------
Deferred taxes:
Federal..................................... 140 (170)
State....................................... 201
------- -------- --------
140 31
------- -------- --------
$ 2 $ (698) $ (251)
======= ======== ========
</TABLE>
The Company's provision for income taxes for the years ended December 31,
1996 and 1995 differs from the amounts determined by applying the statutory
federal tax rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal statutory tax rate................. (35.0)% (35.0)% (35.0)%
Increase (decrease) resulting from:
State income taxes, net of federal income
tax benefit............................. (7.5) (7.5) (7.5)
State net operating loss limitation...... 7.5 6.4
Valuation allowance--deferred tax asset.. 42.5 5.5 17.4
Other.................................... 0.1 (2.9)
------- ------- -------
0.0 % (29.4)% (21.6)%
======= ======= =======
</TABLE>
F-16
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax asset at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FEDERAL
Deferred tax liabilities:
Loan fees....................................... $ 252 $ 282
FHLB stock dividends............................ 251 226
Depreciation.................................... 11
Provision for loan loss......................... 108
Other........................................... 97 70
------------ ----------
708 589
------------ ----------
Deferred tax assets:
Deferred interest income........................ 241 124
Provision for losses on loans................... 428
Net operating losses............................ 1,201
Tax credits..................................... 51 63
Contribution carryforward....................... 7
Depreciation.................................... 4
SAIF assessment................................. 405
Other........................................... 6
------------ ----------
1,909 621
------------ ----------
Net deferred tax asset--federal, before valuation
allowance........................................ 1,201 32
Valuation allowance............................... (1,201) (32)
------------ ----------
Net deferred tax asset--federal................... -- --
------------ ----------
STATE
Deferred tax liabilities:
Loan fees....................................... $ 41 $ 56
FHLB stock dividends............................ 84 75
Other........................................... 32 23
------------ ----------
157 154
------------ ----------
Deferred tax assets:
Provision for losses on loans................... 312 574
Deferred interest income........................ 80 41
California franchise tax net operating loss
carryforward................................... 259 164
SAIF assessment................................. 135
------------ ----------
786 779
Net deferred tax asset--state, before valuation
allowance........................................ 629 625
Valuation allowance............................... (629) (625)
------------ ----------
Net deferred tax asset--state..................... -- --
------------ ----------
Net deferred tax asset--federal and state......... $ -- $ --
============ ==========
</TABLE>
F-17
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In computing taxes on income, savings and loan associations that meet
certain definitional tests and other conditions prescribed by the Internal
Revenue Code are allowed, within limitations, a bad debt deduction. Bad debt
deductions for income tax purposes are included in taxable income of later
years only if the bad debt reserve is used subsequently for purposes other
than to absorb bad debt losses. The bad debt deduction is considered a
temporary difference, and the effective federal tax rate is 35.0%. In
accordance with SFAS No. 109, a deferred tax liability has not been recognized
for the tax bad debt reserves that arose prior to December 31, 1987. At
December 31, 1996 and 1995, the amount of these reserves was approximately
$310,000. This amount represents allocations of earnings to bad debt reserves
and is a restriction on retained earnings. Under current law, if, in the
future, this portion of retained earnings is reduced for any purpose other
than net operating losses or tax bad debt losses, including distributions in
liquidation, federal income taxes will be imposed at the then-applicable
rates. Cash dividends paid in excess of current earnings would be deemed to be
paid from these reserves.
The Company has a net operating loss carryforward of approximately
$3,966,000 that expires 1998 through 2009.
A valuation allowance has been established against deferred tax assets
because of uncertainty as to the ultimate realization of these assets.
10. COMMITMENTS AND CONTINGENCIES
Leases--The Company conducts a majority of its operations in leased
facilities under noncancelable operating lease agreements and has an operating
agreement with its service bureau. Presented below is a schedule of minimum
rental payments due under these leases, which expire on various dates through
2003.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
1997........................................................... $503
1998........................................................... 240
1999........................................................... 83
2000........................................................... 75
2001........................................................... 34
Thereafter..................................................... 34
----
$969
====
</TABLE>
Certain leases provide for cost-of-living increases, as well as payment of
property taxes, insurance and other items.
Included in facilities expense for the years ended December 31, 1996, 1995
and 1994 are rental payments for office facilities of $380,000, $383,000, and
$392,000, respectively.
Litigation--The Company is involved in various litigation. In the opinion of
management, based on the advice of legal counsel, the disposition of all
pending litigation will not have a material effect on the Company's
consolidated financial statements.
Employee Benefits--The Company sponsors a defined contribution 401(k) plan
benefiting substantially all employees with over one year of service.
Participants may contribute up to 15% of their compensation (or the limit
allowed by the law, if less) to their plan each year. The Company matches 25%
of employee contributions up to 6% of compensation. For the years ended
December 31, 1996, 1995, and 1994, the Company contributed $13,000, $15,000,
and $12,000, respectively, in matching contributions. The Company offers no
other post-employment benefits.
F-18
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCK OPTION PLANS
Under an employee stock option plan, options are issued with an exercise
price equal to market price at the date of grant and become exercisable 25%
annually, commencing on the first anniversary of the date of grant.
Changes in the status of stock options are summarized as follows:
<TABLE>
<CAPTION>
PRICE PER
OUTSTANDING SHARE
----------- --------------
<S> <C> <C>
Balance, January 1, 1994......................... 41,846 $5.00 to $7.00
Granted........................................ 14,000 $4.75
Terminated/expired............................. (13,651) $6.76 to $7.44
-------
Balance, December 31, 1994....................... 42,195
Granted........................................ 29,550 $3.50 to $3.85
Terminated/expired............................. (11,945) $4.75 to $7.27
-------
Balance, December 31, 1995....................... 59,800
Granted........................................ 10,000 $8.63
Terminated/expired............................. (8,439) $3.50 to $6.25
Exercised...................................... (6,686) $3.50 to $6.25
-------
Balance, December 31, 1996....................... 54,675
=======
</TABLE>
At December 31, 1996, options for 17,138 shares are exercisable at $3.50 to
$4.75 per share. An additional 13,575 options become exercisable in 1997 at
$3.50 to $8.63 per share. At December 31, 1996, there were 75,648 shares
available for future grant.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under the plan consistent with the methodology prescribed under SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss and
loss per share would have been increased by approximately $22,000, or $.02 per
share, during the year ended December 31, 1996, and $12,000, or $.02 per
share, during the year ended December 31, 1995. The fair value of the options
granted for the years ended December 31, 1996 and 1995 was estimated using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 79%, risk-free interest rate of 6.5%, and an
expected life of 4 years.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth below
for the Company's instruments.
Cash and Interest-Bearing Deposits--The carrying amounts for cash and
interest-bearing deposits with financial institutions approximate fair value
because they mature in one year or less and do not present unanticipated
credit concerns.
Investments, Mortgage-Backed Securities and Mutual Fund Investments--The
fair value of investments, mortgage-backed securities, and mutual fund
investments is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers.
F-19
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loans Receivable--Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated by type, such as first
mortgage, second mortgage and nonmortgage loans. Each loan category is further
segmented into fixed- and adjustable-rate interest terms and by performing and
nonperforming categories.
The fair value of performing nonmortgage loans is calculated by the static
discounted cash flow approach. These loans are assumed to be level payment,
amortizing loans that generate monthly cash flow of interest and principal.
Loans that reprice in more than three months are assumed to be fixed-rate
loans, while loans that reprice in three months or less are assumed to be
adjustable-rate loans with maturities assumed to be equal to the average
maturity of the fixed-rate loans.
The fair value of performing one-to-four mortgage loans is calculated by the
option-based approach. Cash flows consist of scheduled principal, interest and
prepaid principal. Prepayments were calculated by using a prepayment equation
that relates the prepayment rate for a particular period to, among other
things, the difference between the mortgage coupon rate and the current market
interest rate. The coupon rate for adjustable-rate mortgages reflects any
reported discount from the fully indexed rate and is constrained by any annual
cap or lifetime cap that may apply.
The fair value for performing other first-mortgage loans and second-mortgage
loans is calculated by the static discounted cash flow approach. These loans
are assumed to be level payment, amortizing loans that generate monthly cash
flows of interest and principal. No prepayment assumptions are used unless the
loan terms specify a balloon payment.
The fair value for significant nonperforming loans is based on recent
external appraisals of collateral. If appraisals are not available, estimated
cash flows are discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash flows
and discount rates are judgmentally determined using available market
information and specific borrower information.
Investment in the Stock of the Federal Home Loan Bank--The carrying amounts
approximate fair values, as the stock may be sold back to the Federal Home
Loan Bank at fair value.
Deposit Liabilities--The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, savings, NOW, money market and
checking accounts, is equal to the amount payable on demand as of December 31,
1996 and 1995. The fair value of fixed maturity deposits is calculated using
the discounted value of contractual cash flows. The discount rate is based on
the current wholesale certificate of deposit ("CD") interest rate.
F-20
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fixed maturity deposits are considered retail deposits and are assumed to
remain on deposit until scheduled maturity. In addition to principal and
accumulated interest, the cash flows of retail CDs include an estimate of the
noninterest costs attributable to maintaining such deposits, based on an
industry-wide average noninterest cost of retail CD balances at December 31,
1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 12,956 $ 12,956 $ 4,465 $ 4,465
Interest-bearing deposits with financial
institutions.............................. 2,476 2,476 1,587 1,587
Investments:
Mutual fund investments--available for
sale (trading 1995)..................... 3,000 3,000 8,198 8,198
Mortgage-backed securities--available for
sale.................................... 196 196 236 236
Mortgage-backed securities--held to
maturity................................ 5,636 5,642 7,264 7,267
Investment securities--held to maturity.. 21,857 21,784 12,484 12,479
Loans receivable, net...................... 144,729 144,695 153,473 154,821
Investment in stock of the Federal Home
Loan Bank................................. 1,338 1,338 1,260 1,260
Interest-bearing deposits.................. 179,099 179,613 175,894 176,786
Noninterest-bearing deposits............... 10,974 10,974 9,530 9,530
</TABLE>
Limitations--Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
F-21
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
1996:
Interest income................ $3,669 $3,526 $ 3,651 $ 3,596 $14,442
Interest expense............... 2,098 2,057 2,072 2,108 8,335
Provision for estimated losses
on loans...................... 250 300 1,252 5,173 6,975
Real estate loss, net.......... 111 83 24 294 512
Noninterest income............. 106 144 149 593 992
Noninterest expense............ 1,334 1,357 1,259 2,529 6,479
Income tax (benefit) expense... (5) (43) 11 39 2
------ ------ ------- ------- -------
Net loss....................... $ (13) $ (84) $ (818) $(5,954) $(6,869)
------ ------ ------- ------- -------
Loss per share................. $(0.02) $(0.12) $ (0.29) $ (6.84) $ (7.27)
====== ====== ======= ======= =======
1995:
Interest income................ $3,331 $3,560 $ 3,635 $ 3,666 $14,192
Interest expense............... 1,810 2,022 2,094 2,113 8,039
Provision for estimated losses
on loans...................... 63 435 2,652 349 3,499
Real estate loss, net.......... 76 (35) 8 12 61
Noninterest income............. 158 115 133 149 555
Noninterest expense............ 1,342 1,371 1,357 1,451 5,521
Income tax expense (benefit)... 85 (51) (519) (213) (698)
------ ------ ------- ------- -------
Net income (loss).............. $ 113 $ (67) $(1,824) $ 103 $(1,675)
====== ====== ======= ======= =======
Earnings (loss) per share...... $ 0.16 $ (.09) $ (2.51) $ 0.14 $ (2.30)
====== ====== ======= ======= =======
</TABLE>
F-22
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................. $ 3,711 $ 5,450
Fed Funds sold........................................ 3,691 7,506
-------- --------
Cash and cash equivalents............................. 7,402 12,956
Interest-bearing deposits with financial institutions. 1,682 2,476
Investments (Note 3):
Mutual fund investments--available for sale......... 3,046 3,000
Investment Securities--held to maturity............. 32,856 21,857
Mortgage-backed securities--held to maturity ....... 4,046 5,636
Mortgage-backed securities--available for sale...... 189 196
Loans receivable (net of allowance for losses of
$8,538 and $8,498)................................... 145,522 144,729
Accrued interest receivable........................... 1,606 1,260
Real estate held for sale, net........................ 1,181 1,544
Investment in stock of the Federal Home Loan Bank--at
cost................................................. 1,360 1,338
Property and Equipment, net........................... 1,566 1,591
Other Assets.......................................... 1,880 1,576
-------- --------
Total Assets........................................ $202,336 $198,159
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.............................................. $194,645 $190,073
Accounts payable and other liabilities................ 1,427 1,485
SAIF Accrual.......................................... 1,191 1,191
-------- --------
Total Liabilities................................... 197,263 192,749
-------- --------
Commitments and Contingencies
Stockholder's Equity:
Common Stock, $6.40 par value; authorized
5,000,000 shares; issued and outstanding, 1,302,463
shares............................................. 8,336 8,336
Additional paid-in capital.......................... 2,243 2,243
Accumulated deficit................................. (5,465) (5,133)
Unrealized holding losses on mortgage-backed
securities, net of tax............................. (41) (36)
-------- --------
Total Stockholders' Equity........................ $ 5,073 $ 5,410
-------- --------
Total Liabilities and Stockholder's Equity........ $202,336 $198,159
======== ========
</TABLE>
F-23
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1996
--------- -------
(UNAUDITED)
<S> <C> <C>
Interest and dividend income
Loans receivable......................................... $ 2,911 $ 3,100
Mortgage-backed securities............................... 66 111
Investment securities.................................... 631 371
Loan servicing fee income, net........................... 53 87
--------- -------
Total.................................................. 3,661 3,669
Interest Expense
Deposits................................................. 2,115 2,097
Other Borrowings......................................... 1 1
--------- -------
Total.................................................. 2,116 2,098
Provision for estimated losses on loans.................... 360 250
--------- -------
Net interest income after provision for estimated losses
on loans................................................ 1,185 1,321
Real estate operations
Real estate operations, net.............................. (50) (39)
Provision for loss on real estate........................ (46) (72)
--------- -------
Total.................................................. (96) (111)
Non interest income (loss)
Other loan fees.......................................... 16 18
Loss on sale of mutual funds............................. -- (49)
Other.................................................... 148 137
--------- -------
Total.................................................. 164 106
Non interest expense
Compensation and employee-related cost................... 811 658
Facilities............................................... 177 187
Advertising.............................................. 13 14
Office Supplies.......................................... 59 50
Service bureau and related equipment rental.............. 73 70
Other general and administrative......................... 452 355
--------- -------
Total.................................................. 1,585 1,334
Loss before income tax benefit........................... (332) (18)
Income tax benefit....................................... -- (5)
--------- -------
NET LOSS................................................... $ (332) $ (13)
========= =======
Net loss per share (Note 2)................................ $ (.25) $ (.02)
========= =======
Weighted average shares outstanding........................ 1,302,463 728,034
</TABLE>
F-24
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1997 1996
-------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (332) $ (13)
Reconciliation of net loss to net cash (used in) provided
by operating activities:
Accretion of discounts on investments................... (16)
Net decrease in mutual fund investments-trading......... 8,198
Amortization of deferred loan fees, net................. (54) (54)
Provision for loan and real estate losses............... 406 322
Loss on sale of real estate............................. 25 22
Depreciation............................................ 44 53
Increase in accrued interest receivable................. (346) (123)
Federal Home Loan Bank stock dividend................... (22) (16)
Increase in other assets................................ (304) (17)
Decrease in accounts payable and other liabilities...... (58) (1,772)
-------- -------
Net cash (used in) provided by operating activities... (641) 6,584
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on mortgage-backed securities. 1,597 730
Purchase of investment securities--held to maturity....... (13,000)
Proceeds from maturities of investment securities--held to
maturity................................................. 2,000 7,500
Purchase of mutual fund investments--available for sale... (51) (3,827)
Net (increase) decrease in loans.......................... (989) 1,655
Proceeds from sales of real estate........................ 224 200
Capitalized cost of real estate........................... (42) (342)
Purchase of property and equipment........................ (19) (17)
Net decrease (increase) in interest-bearing deposits with
financial institutions................................... 794 (1,695)
Other..................................................... 1 (4)
-------- -------
Net cash (used in) provided by investing activities... (9,485) 4,200
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificate account deposits and money
market accounts.......................................... 3,474 2,426
Net increase (decrease) in demand deposits and passbook
accounts................................................. 1,098 (754)
-------- -------
Net cash provided by financial activities............. 4,572 1,672
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (5,554) 12,456
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 12,956 4,465
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 7,402 $16,921
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash paid
for:
Interest.................................................. $ 2,104 $ 2,098
======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Real estate acquired through foreclosure.................. $ 683 $ 4,599
======== =======
Loans to facilitate sales of real estate owned............ $ 793 $ 2,896
======== =======
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
HANCOCK SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
NOTE 1--BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATIONS
The unaudited consolidated financial statements include the accounts of
Hancock Savings Bank, F.S.B., a Federal Savings Bank (the "Company") and its
wholly owned subsidiary, Hancock Service Corporation. Activities of the
subsidiary are not material to operations of the Company. All significant
intercompany transactions and balances have been eliminated. The accounting
and reporting policies of the Company conform with generally accepted
accounting principles and general practice within the banking industry.
The consolidated financial statements have been prepared in accordance with
the requirements for interim financial statement presentation and, therefore,
do not include all footnotes normally required for complete financial
statement disclosure. While management believes that the disclosures presented
are sufficient to make the information not misleading, reference may be made
to the consolidated financial statements and notes thereto included elsewhere
in this document for the year ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying consolidated statements of financial condition and
statements of operations, and cash flows reflect, in the opinion of
management, all material adjustments necessary for a fair presentation of the
Company's financial position as of March 31, 1997 and results of operations
and cash flows for the three-month periods ended March 31, 1997 and 1996. The
results of operations for the three month period ended March 31, 1997 are not
necessarily indicative of the results of operations for the full year ending
December 31, 1997.
Certain items in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
NOTE 2--LOSS PER SHARE
Loss per share is computed using the weighted average number of common
shares outstanding during the period. The weighted average number of common
shares outstanding for the three-month periods ended March 31, 1997 and 1996
was 1,302,463 and 728,034, respectively. Stock options are not included in the
weighted average number of shares because they would have an antidilutive
effect.
NOTE 3--INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mutual fund investments--available for
sale..................................... $3,077 $3,046 $3,026 $3,000
Investment securities--held to maturity... 32,856 32,588 21,857 21,784
Mortgage-backed securities--held to
maturity................................. 4,046 3,988 5,636 5,642
Mortgage-backed securities--available for
sale..................................... 199 189 206 196
</TABLE>
F-26
<PAGE>
Gross unrealized gains and losses on investments consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ------------
GAINS LOSSES GAINS LOSSES
----- ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mutual fund investments--available for sale........ $31 $26
Investment securities--held to maturity............ 268 73
Mortgage-backed securities--held to maturity....... 58 6
Mortgage-backed securities--available for sale..... 10 10
</TABLE>
During June 1997, the Company sold $34.0 of investments from their held to
maturity category. The investments and mortgage-backed securities sold had a
realized loss of $146,000. Subsequently, the Company transferred the remaining
investments and mortgage-backed securities classified as held to maturity to
available for sale at fair value.
F-27
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BANK PLUS CORPORATION
FIDELITY FEDERAL BANK, A FSB
AND
HANCOCK SAVINGS BANK, FSB
JUNE 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. THE MERGER...................................................... A-1
Section 1.1. Structure of the Merger...................................... A-1
Section 1.2. Effect on Outstanding Shares................................. A-2
Section 1.3. Exchange Procedures.......................................... A-3
Section 1.4. Tax-Free Reorganization...................................... A-4
Section 1.5. The Closing.................................................. A-4
Section 1.6. Stock Options................................................ A-4
Section 1.7. Conversion of Shares of Dissenting Common Stock.............. A-5
ARTICLE II. CONDUCT PENDING THE MERGER..................................... A-5
Section 2.1. Conduct of the Bank's Business Prior to the Effective Time... A-5
Section 2.2. Forbearance by the Bank...................................... A-5
Section 2.3. Cooperation.................................................. A-7
Section 2.4. Conduct by BPC Prior to the Effective Time................... A-7
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................ A-8
Section 3.1. Definitions.................................................. A-8
Section 3.2. Representations and Warranties of the Bank................... A-8
Section 3.3. Representations and Warranties of BPC and Acquirer........... A-20
ARTICLE IV. COVENANTS...................................................... A-23
Section 4.1. Acquisition Proposals........................................ A-23
Section 4.2. Certain Policies of the Bank................................. A-24
Section 4.3. Labor and Employment Matters................................. A-24
Section 4.4. Access and Information....................................... A-24
Section 4.5. Regulatory Matters........................................... A-25
Section 4.6. Right to Access and Information.............................. A-25
Section 4.7. Actions...................................................... A-25
Section 4.8. Publicity.................................................... A-26
Section 4.9. Proxy Statement/Prospectus................................... A-26
Section 4.10. Stockholders' Meeting........................................ A-26
Section 4.11. Notification of Certain Matters.............................. A-26
Section 4.12. Advice of Changes............................................ A-26
Section 4.13. Current Information.......................................... A-26
Section 4.14. Additional Agreements........................................ A-26
Section 4.15. Loans........................................................ A-27
Section 4.16. Actions Contrary to Tax Free Treatment....................... A-27
Section 4.17. Notification of Pending OTS, State Regulator or FDIC Exams... A-27
Section 4.18. Transferability of BPC Common Stock.......................... A-27
Section 4.19. No Manipulation of BPC Common Stock.......................... A-27
Section 4.20. Termination of Employees..................................... A-27
Section 4.21. Indemnification Agreements................................... A-27
Section 4.22. Financial Statements......................................... A-27
Section 4.23. Insurance.................................................... A-27
ARTICLE V. CONDITIONS TO CONSUMMATION...................................... A-28
Section 5.1. Conditions to Each Party's Obligations....................... A-28
Section 5.2. Conditions to the Obligations of BPC and Acquirer............ A-28
Section 5.3. Conditions to the Obligation of the Bank..................... A-29
ARTICLE VI. TERMINATION.................................................... A-30
Section 6.1. Termination.................................................. A-30
Section 6.2. Effect of Termination........................................ A-31
</TABLE>
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII. INTENTIONALLY OMITTED......................................... A-31
ARTICLE VIII. EFFECTIVE DATE AND EFFECTIVE TIME............................ A-31
Section 8.1. Effective Date and Effective Time............................ A-31
ARTICLE IX. OTHER MATTERS.................................................. A-32
Section 9.1. Interpretation............................................... A-32
Section 9.2. Waiver....................................................... A-32
Section 9.3. Counterparts................................................. A-32
Section 9.4. Governing Law................................................ A-32
Section 9.5. Expenses..................................................... A-32
Section 9.6. Notices...................................................... A-32
Section 9.7. Entire Agreement; Binding Agreement; Third Parties........... A-34
Section 9.8. Assignment................................................... A-34
Section 9.9. Captions..................................................... A-34
Section 9.10. Construction of Agreement.................................... A-34
Section 9.11. Survival..................................................... A-34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of the 25th day of June, 1997 (this
"Agreement"), by and among BANK PLUS CORPORATION, a Delaware corporation
("BPC"), FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK ("Acquirer"), and
HANCOCK SAVINGS BANK, A FEDERAL SAVINGS BANK (the "Bank").
RECITALS:
A. BPC. BPC has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Delaware.
B. Acquirer. Acquirer is a federal savings bank organized under the laws of
the United States. All the shares of the capital stock of Acquirer are owned
directly by BPC.
C. The Bank. The Bank is a federal savings bank organized under the laws of
the United States. The Bank has 5,000,000 authorized shares of common stock,
par value $6.40 per share ("Bank Common Stock"), of which 1,302,862 shares
were outstanding as of the date hereof, and 1,000,000 authorized shares of
preferred stock, par value $.01 per share, of which no shares were outstanding
as of the date hereof (no other class of capital stock of the Bank being
authorized). As of the date hereof, the Bank had an aggregate of 77,225 shares
of Bank Common Stock reserved for issuance upon exercise of stock options,
warrants or other rights ("Options") granted pursuant to its Hancock Savings
Bank Incentive Stock Option Plan (the "Bank Stock Plan") and pursuant to a
stock option agreement between the Bank and Kathleen Kellogg (the "Kellogg
Option").
D. Rights, Etc. The Bank does not have any shares of its capital stock
reserved for issuance, any outstanding option, call or commitment relating to
shares of its capital stock or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any person any
right (including, without limitation, preemptive rights) to subscribe for or
acquire from it, any shares of its capital stock (collectively, "Rights"),
except pursuant to stock options or other rights granted pursuant to the Bank
Stock Plan and the Kellogg Option as previously disclosed to Acquirer.
E. Board Approvals. The respective Boards of Directors of BPC, Acquirer and
the Bank have duly approved this Agreement and have duly authorized its
execution and delivery.
F. Tax Treatment. For federal income tax purposes, it is intended that the
Merger (as defined below) shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Agreement and prescribe the
terms and conditions hereof and the manner and basis of carrying it into
effect, which shall be as follows:
ARTICLE I.
THE MERGER
Section 1.1. Structure of the Merger. At the Effective Time (as defined in
Article 8), the Bank will merge (the "Merger") with and into the Acquirer,
with the Acquirer being the surviving bank (the "Surviving Bank"), pursuant to
the provisions of, and with the effect provided in, the Home Owners' Loan Act
of 1933, as amended, and applicable regulations adopted thereunder ("HOLA"),
and any other applicable law, rule, regulation, administrative interpretation,
order, directive or other requirement of any governmental agency ("Applicable
Law"). The separate corporate existence of the Bank shall thereupon cease. The
name of the Surviving Bank shall be Fidelity Federal Bank, A Federal Savings
Bank, and shall continue to be governed by HOLA and its separate corporate
existence with all of its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. At the Effective Time, the
Charter and By-Laws of Acquirer, in effect immediately prior to the Effective
Time, shall become the Charter and By-Laws of the Surviving Bank. At the
Effective Time,
A-1
<PAGE>
the directors and officers of Acquirer shall become the directors and officers
of the Surviving Bank. On and after the Effective Time, the offices of the
Bank shall become Acquirer offices, which shall be the offices of the
Surviving Bank. As of the Effective Time, the location of the home office of
the Surviving Bank and of each branch office will be as set forth on Schedule
1.1 hereto. On and after the Effective Time, all saving accounts of the Bank,
without reissue, shall be and become savings accounts in the Surviving Bank
without change in their respective terms, including, without limitation,
maturity, minimum required balances or withdrawal value. Each savings account
of the Bank shall, as of the Effective Time, be considered, for all purposes
thereafter, as if it had been a savings account of the Surviving Bank at the
time it was opened and at all times thereafter until such account ceases to be
a savings account of the Surviving Bank. On and after the Effective Time, the
number, names, residence addresses and terms of directors of the Surviving
Bank shall be as set forth on Schedule 1.1 hereto.
Section 1.2. Effect on Outstanding Shares. (a) By virtue of the Merger,
automatically and without any action on the part of the holders of Bank Common
Stock, each share of Bank Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares as to which dissenters' rights
are perfected under 12 C.F.R. Section 552.14, and any shares of Bank Common
Stock that are owned by the Bank or any direct or indirect wholly-owned
subsidiary of the Bank) shall become and be converted into the right to
receive a number of shares, or fraction of a share, of common stock, par value
$.01 per share ("BPC Common Stock"), of BPC (the "BPC Stock Consideration")
(rounded to the nearest 1/10,000 of a share of BPC Common Stock) equal to the
quotient obtained by dividing (a) the BPC Share (as defined below) times the
number of shares of Bank Common Stock issued and outstanding immediately prior
to the Effective Time. Notwithstanding any of the foregoing, each holder of
Bank Common Stock who would otherwise have been entitled to receive a fraction
of a share of BPC Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to the product of such fractional share of BPC
Common Stock multiplied by the Market Value Per BPC Share.
"Market Value Per BPC Share" means the average of the daily closing sales
prices of a share of BPC Common Stock on the Nasdaq National Market
("NASDAQ"), as reported in The Wall Street Journal, during the twenty (20)
consecutive trading days on which trades in BPC Common Stock occurred ending
two (2) full trading days prior to the Effective Time.
"BPC Stock Consideration Value" means the difference of Twelve Million
Twelve Thousand Dollars ($12,012,000) minus the "Price Adjustment" (as defined
below). The BPC Stock Consideration Value shall be set forth on a certificate
(the "BPC Stock Consideration Certificate") prepared by the Bank and approved
in accordance with Section 5.1.
"Price Adjustment" means the sum of (i) 4.25% of the difference, whether
positive or negative, of $190,073,000 minus the aggregate amount of deposits
(excluding brokered deposits) of the Bank at June 30, 1997 plus (ii) the
"Adjusted Net Book Value Differential" (as defined below); provided, however,
that the Price Adjustment shall never be less than zero.
"Adjusted Net Book Value Differential" means the difference, whether
positive or negative, of $3.787 million minus the "Adjusted Net Book Value"
(as defined below) of the Bank at June 30, 1997; provided, however, that if
such difference equals an amount between $0 and positive $50,000, inclusive,
such difference shall be deemed to equal $0.
"Adjusted Net Book Value" of the Bank at June 30, 1997 shall equal the
stockholders' equity of the Bank at June 30, 1997 determined in accordance
with GAAP applied consistently with prior periods, (a) less the sum of the
following, to the extent not already reflected in the calculation of the
Bank's stockholders' equity on the Bank's balance sheet at June 30, 1997: (i)
the Bank's costs and expenses of the transactions contemplated hereby, (ii)
costs and expenses associated with termination of Bank leases on the Bank's
Fairfax, Glendale and Wilshire offices following the Effective Date, (iii)
costs and expenses associated with the termination of Bank employees under
Section 4.20 in contemplation of the Merger and (iv) costs and expenses
relating to the cash out of the
A-2
<PAGE>
options pursuant to Section 1.6 hereof, (b) plus any amount paid to the Bank
upon exercise of an Option between July 1, 1997 and the day ending two full
trading days prior to the Effective Time and (c) minus (plus) unrealized loss
(gain) on securities available for sale or held for investment on the day
ending two full trading days prior to the Effective Time.
(b) If, between the date of this Agreement and the Effective Date, the
outstanding shares of BPC Common Stock shall have been increased, decreased,
changed or exchanged for a different number or kind of shares or securities by
reason of any reclassification, recapitalization, splits, reverse splits,
stock dividends, combination or other similar change in BPC's capitalization,
the consideration to be issued to the holders of Bank Common Stock shall be
correspondingly adjusted.
(c) The shares of common stock of Acquirer issued and outstanding
immediately prior to the Effective Time shall become shares of Common Stock of
the Surviving Bank after the Merger and shall thereafter constitute issued and
outstanding shares of capital stock of the Surviving Bank.
Section 1.3. Exchange Procedures. (a) At and after the Effective Time, each
certificate (each a "Certificate") previously representing shares of Bank
Common Stock shall represent only the right to receive the BPC Stock
Consideration.
(b) As of the Effective Time, BPC shall deposit, or shall cause to be
deposited, with American Stock Transfer (the "Exchange Agent"), for the
benefit of the holders of shares of Bank Common Stock, for exchange in
accordance with this Section 1.3, the number of shares of BPC Common Stock
issuable in the Merger and the cash amount in lieu of fractional shares.
(c) As soon as practicable after the Effective Time, BPC shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates the following: (i) a letter of transmittal specifying that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent,
which shall be in a form and contain any other reasonable provisions as BPC
may determine; and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the BPC Stock Consideration. Upon the proper
surrender of a Certificate to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing such number of BPC's shares of Common Stock as well as the cash
in lieu of fractional shares which such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions hereof and
the Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of any shares of Bank Common Stock not registered in the
transfer records of the Bank, a certificate representing the applicable number
of BPC's shares of Common Stock may be issued to the transferee if the
Certificate representing such Bank Common Stock is presented to the Exchange
Agent, accompanied by documents sufficient, in the discretion of BPC and the
Exchange Agent, (i) to evidence and effect such transfer and (ii) to evidence
that all applicable stock transfer taxes have been paid.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer records of the Bank of any shares of Bank Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to BPC or the Surviving Bank, they
shall be canceled and exchanged for the BPC Stock Consideration, as well as
cash in lieu of fractional shares of BPC Common Stock, deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Section 1.3.
(e) Any portion of the aggregate BPC Stock Consideration, as well as cash in
lieu of fractional shares of BPC Common Stock, that remains unclaimed by the
stockholders of the Bank (the "Stockholders") for one year after the Effective
Time shall be delivered by the Exchange Agent to BPC. Any Stockholders of the
Bank who have not theretofore complied with this Section 1.3 shall thereafter
look only to BPC for payment of their BPC Stock Consideration deliverable in
respect of each share of Bank Common Stock such stockholder holds as
determined pursuant to this Agreement. If outstanding Certificates are not
surrendered or the payment for them
A-3
<PAGE>
not claimed prior to the date on which such payments would otherwise escheat
to or become the property of any governmental unit or agency, the unclaimed
items shall, to the extent permitted by abandoned property and any other
Applicable Law, become the property of BPC (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, none of BPC, the Surviving Bank, the Exchange Agent or any other
person shall be liable to any former holder of Bank Common Stock for any
amount delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Exchange
Agent, the posting by such person of a bond in such amount as the Exchange
Agent may reasonably direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the BPC Stock
Consideration deliverable in respect thereof pursuant to this Agreement.
(g) Former shareholders of record of the Bank shall be entitled to vote
after the Effective Time at any meeting of BPC stockholders the number of
whole shares of BPC Common Stock into which their respective shares of Bank
Common Stock are converted, regardless of whether such holders have exchanged
their Certificates representing Bank Common Stock for BPC Common Stock
pursuant to this Agreement. Until surrendered for exchange in accordance with
the provisions of Section 1.3 of this Agreement, each Certificate theretofore
representing shares of Bank Common Stock shall from and after the Effective
Time represent for all purposes only the right to receive shares of BPC Common
Stock and cash in lieu of fractional shares, as set forth in this Agreement.
No dividends or other distributions declared or made after the Effective Time
with respect to BPC Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate of Bank Common
Stock with respect to the shares of BPC Common Stock represented thereby,
until the holder of such Certificate of Bank Common Stock shall surrender such
Certificate. Subject to the effect of Applicable Law, following surrender of
any such Certificates of Bank Common Stock for which shares of BPC Common
Stock are to be issued, there shall be paid to the holder of the Certificates,
without interest, (i) the amount of any cash payable with respect to a
fractional share of BPC Common Stock to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of BPC
Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of BPC Common Stock.
Section 1.4. Tax-Free Reorganization. The parties intend to adopt this
Agreement as a Plan of Reorganization within the meaning of Section 368 of the
Code and to consummate the Merger in accordance with Section 368(a)(2)(D) of
the Code. If necessary, each of BPC, Acquirer and the Bank will use its best
efforts to restructure this Agreement in order to cause the Merger to qualify
as a tax-free reorganization.
Section 1.5. The Closing. Upon satisfaction or satisfactory waiver of all
conditions set forth in Article 5 of this Agreement, the closing (the
"Closing") of the Merger shall take place at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California 90071-3197 at
9:00 a.m. on the Effective Date, or such other place, time and date as BPC,
Acquirer and the Bank may mutually agree.
Section 1.6. Stock Options. Prior to the Effective Time, the Bank shall take
appropriate action such that each Option granted pursuant to the Bank Stock
Plan and the Kellogg Option that is outstanding and unexercised immediately
prior to the Effective Time shall be canceled by the Bank in consideration of
the payment by the Bank to each holder of such Options of an aggregate amount
in cash equal to the positive difference, if any, of (a) the product of (i)
the quotient obtained by dividing the BPC Stock Consideration Value by the
number of shares of Bank Common Stock outstanding immediately prior to the
Effective Time, multiplied by (ii) the number of shares of Bank Common Stock
as to which such holder has Options, minus (b) the aggregate exercise price of
such Options. At the Effective Time, each Option to purchase a share of Bank
Common Stock pursuant
A-4
<PAGE>
to the Bank Stock Plan and the Kellogg Option shall terminate and be of no
further force or effect, and any rights thereunder to purchase shares of Bank
Common Stock shall also terminate and be of no further force or effect.
Section 1.7. Conversion of Shares of Dissenting Common Stock. The Bank shall
give BPC and Acquirer prompt notice upon receipt by the Bank of any written
demands for appraisal rights, withdrawal of such demands and any other
documents received or instruments served pursuant to 12 C.F.R. Section 552.14
and shall give BPC and Acquirer the opportunity to direct all negotiations and
proceedings with respect to such demands. The Bank shall not voluntarily make
any payment with respect to such demands for appraisal rights and shall not,
except with the prior written consent of BPC or Acquirer, settle or offer to
settle such demands. If any holders of shares of Bank Common Stock dissent
from the Merger and exercise and perfect the right to obtain valuation of and
payment for his or her shares of Bank Common Stock (the "Dissenting Shares")
under the provisions of said Section, then (i) the Dissenting Shares will be
deemed for all purposes to have been retired and canceled automatically
immediately prior to the consummation of the Merger, with the effect that such
shares will not be exchanged for the BPC Stock Consideration pursuant to
Section 1.2 hereof, and (ii) all payments to be made to the holders of such
Dissenting Shares will be made directly by BPC.
ARTICLE II.
CONDUCT PENDING THE MERGER
Section 2.1. Conduct of the Bank's Business Prior to the Effective
Time. Except as expressly provided in this Agreement or as agreed to by BPC,
during the period from the date of this Agreement to the Effective Time, the
Bank shall, and shall cause its Subsidiaries (as defined below) to: (i)
conduct its business and maintain its books and records in the usual, regular
and ordinary course in all material respects consistent with (a) prudent
banking practice, (b) the Cease and Desist Order dated March 28, 1997 (the
"C&D") issued by the OTS, as in effect on the date hereof, a copy of which has
been made available to BPC, and (c) the Prompt Corrective Action ("PCA")
directive, a copy of which has been made available to BPC, (ii) use its
commercially reasonable efforts to maintain and preserve intact its business
organization, properties, leases, employees, goodwill of the customers of the
Bank and other advantageous business relationships and retain the services of
its officers and key employees, (iii) except as required by Applicable Law,
take no action which would adversely affect or delay the ability of the Bank,
BPC, or the Acquirer to obtain any necessary approvals, consents or waivers of
any governmental authority required for the transactions contemplated hereby
or to perform its covenants and agreements on a timely basis under this
Agreement, and (iv) except as required by Applicable Law or as set forth in
Schedule 2.2, take no action that could be deemed to have a Material Adverse
Effect (as defined in Section 3.1 hereof) on the Bank. As used in this
Agreement, the word "Subsidiary" when used with respect to any party means any
corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes.
Section 2.2. Forbearance by the Bank. During the period from the date of
this Agreement to the Effective Time, and except as contemplated by this
Agreement, required by Applicable Law or as set forth in Schedule 2.2, the
Bank shall not, and shall not permit any of its Subsidiaries, without the
prior written consent of BPC (which consent shall be deemed to have been given
if within five (5) business days after receipt by BPC of a written notice from
the Bank of the Bank's intention to act contrary to any one of the covenants
set forth in this Section 2.2, BPC shall not have given written notice to Bank
of BPC's or Acquirer's objection to such action), to do any of the following:
(a) other than in the ordinary course of business consistent with prudent
banking practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for
the obligations of any other person; provided, however, that neither the
Bank nor any of its Subsidiaries shall incur any indebtedness for borrowed
money (including reverse repurchase agreements), other than deposits
(excluding brokered deposits) and short-term borrowings, Federal Funds and
Federal Home Loan Bank advances, in each case that do not exceed thirty
(30) days in maturity;
A-5
<PAGE>
(b) change the number of shares of its authorized or issued capital stock
or issue, grant or amend any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to
the authorized or issued capital stock of the Bank or its Subsidiaries, or
any securities convertible into shares of any such stock, or split, combine
or reclassify any shares of its capital stock, or declare, set aside or pay
any dividend, or other distributions (whether in cash, stock or property or
any combination thereof) in respect of the capital stock of the Bank or its
Subsidiaries or redeem or purchase or otherwise acquire any shares of such
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or liquidate, sell,
transfer, assign, encumber or otherwise dispose of any shares of capital
stock of the Bank or its Subsidiaries, except for the Bank's issuance of
Bank Common Stock pursuant to the Bank Stock Plan and the Kellogg Option;
(c) other than in the ordinary course of business consistent with prudent
banking practice, sell, transfer, mortgage, encumber or otherwise dispose
of any of its properties, leases or assets to any person, or cancel,
release or assign any indebtedness of any person, except pursuant to
contracts or agreements in force at the date of this Agreement and
disclosed to BPC;
(d) enter into, renew or amend any employment agreement with any employee
or director, voluntarily accelerate the vesting of any compensation or
benefit or increase, in any manner, the compensation or fringe benefits of
any of its employees or directors, or create or institute, or make any
payments pursuant to, any severance plan, bonus plan, incentive
compensation plan, or package, or pay any pension or retirement allowance
not required by any existing plan or agreement to any such employees or
directors, or become a party to, amend or commit itself to, or otherwise
establish any trust or account related to, any Employee Plan (as defined in
Section 3.2(o)), with or for the benefit of any employee, other than any
amendment to any Employee Plan required by Applicable Law (provided that
the Bank shall use its best efforts to minimize the cost of any such
amendment as permitted under such Applicable Law);
(e) other than in the ordinary course of business consistent with prudent
banking practice, make any investment either by purchase of stock or
securities, contributions to capital, property transfers, or purchase of
any property or assets of any person; provided, however, that no investment
or series of related investments shall be made in an amount in excess of
$100,000 except in (i) securities which would be reported under the caption
"cash and cash equivalents" on the Bank's consolidated statement of
financial condition and (ii) federal government securities with a maturity
of not more than two (2) years, provided further, however, that in no event
shall the Bank or any of its Subsidiaries make any acquisition of equity
securities or business operations without BPC's prior written consent;
(f) enter into, renew, amend or terminate any contract or agreement, or
make any material change in any of its leases or contracts, other than any
(i) loan or deposit agreement or (ii) lease, contract or other agreement,
involving aggregate payments of $50,000 or less per annum, and either (x)
having a term of less than or equal to one year or (y) which may be
terminated with notice of thirty days without payment by the Bank or any of
its Subsidiaries of a fee, penalty or other payment;
(g) settle any claim, action or proceeding involving any liability of the
Bank or any of its Subsidiaries for money damages in excess of $50,000,
exclusive of contributions from insurers, or involving material
restrictions upon the business or operations of the Bank or any of its
Subsidiaries;
(h) except in the ordinary course of business, waive or release any
material right or collateral or cancel or compromise any extension of
credit or other debt or claim;
(i) make, renegotiate, renew, increase, extend or purchase any loan,
lease (credit equivalent), advance, credit enhancement or other extension
of credit, or make any commitment in respect of any of the foregoing,
except for loans, advances or commitments in amounts less than $250,000
made in the ordinary course of business consistent with prudent banking
practice and made in conformity with applicable Bank policies and
procedures or loans made pursuant to commitments made by the Bank prior to
the date hereof;
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(j) change its method of accounting as in effect at December 31, 1996,
except as required by changes in generally accepted accounting principles
("GAAP") as concurred in by the Bank's independent auditors, or as required
by regulatory accounting principles or regulatory requirements and except
as contemplated by Section 4.2;
(k) enter into any new activities or lines of business, or cease to
conduct any material activities or lines of business that it conducts on
the date hereof, or conduct any material business activity not consistent
with prudent banking practice;
(l) amend its charter, by-laws or other similar governing documents;
(m) make any capital expenditure which exceeds (A) $50,000 per project or
related series of projects or (B) $100,000 in the aggregate;
(n) hold any meeting with the Appeals Office of the Internal Revenue
Service or any similar state taxing authority to settle or compromise any
audit, examination or other proceeding with respect to any federal or state
income tax liability of the Bank or any of its Subsidiaries without prior
notification to BPC and allowing a representative of BPC to attend, but not
participate in, such meeting;
(o) execute Form 870-AD or comparable document agreeing to the finality
of any audit, examination or other proceeding with respect to any federal
or state income tax liability of the Bank or any of its Subsidiaries;
(p) merge or consolidate with any other person or acquire any capital
stock of or other equity interest in any person or create any subsidiary;
(q) make application for the opening, relocation or closing of any, or
open, relocate or close any, branches;
(r) change in any material manner its lending or pricing policies or
approval policies for making loans, its investment policies, its deposit
pricing policies, its asset/liability management policies, its internal
asset review and reserving policies, or any other material banking
policies;
(s) engage or participate in any material transaction or incur or sustain
any material obligation not in the ordinary course of business;
(t) book reserves for loan losses of less than $50,000 per month;
(u) increase the Bank's total average cost of deposits by more than 0.25%
above its current total average cost of deposits as of the date hereof; and
(v) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.2.
Section 2.3. Cooperation. Each of the Bank, BPC and Acquirer shall cooperate
with one another in completing the transactions contemplated hereby and shall
not take, cause to be taken or agree or make any commitment to take any
action: (i) that is intended or may reasonably be expected to cause any of its
representations or warranties set forth in Article III hereof not to be true
and correct, or (ii) that is inconsistent with or prohibited by Article II;
except in any case as may be required by Applicable Law.
Section 2.4. Conduct by BPC Prior to the Effective Time. Except as expressly
provided in this Agreement, during the period from the date of this Agreement
to the Effective Time, BPC shall (a) not take any action which would
reasonably be expected to adversely affect or delay the ability of BPC,
Acquirer or the Bank to obtain any necessary approvals, consents or waivers of
any governmental authority required for the transactions contemplated by this
Agreement or to perform its covenants or agreements on a timely basis under
this Agreement, (b) amend its Certificate of Incorporation in any respect that
materially and adversely affects the rights and privileges attendant to the
BPC Common Stock, or (c) agree to, or make any commitment to, take any of the
actions prohibited by this Section 2.4.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Definitions. As used in this Agreement, the term "Material
Adverse Effect" means an effect that (i) is material and adverse to the
business, properties, assets, liabilities, financial condition or results of
operations of the Bank or BPC, as the context may dictate, and its
Subsidiaries taken as a whole, or (ii) significantly and adversely affects the
ability of the Bank or BPC, as the context may dictate, to consummate the
Merger by September 30, 1997 or to perform its material obligations hereunder,
provided however, that any actions taken by the Bank or any of its
Subsidiaries at the request of BPC with respect to the matters described in
Section 4.2 of this Agreement or any consequences of such actions shall not,
individually or in the aggregate, constitute a Material Adverse Effect on the
Bank.
Section 3.2. Representations and Warranties of the Bank. The Bank represents
and warrants to BPC and Acquirer that:
(a) Recitals True. The facts set forth in the Recitals of this Agreement
with respect to the Bank are true and correct in all material respects.
(b) Capital Stock. All outstanding shares of capital stock of the Bank
and its Subsidiaries are duly authorized, validly issued and outstanding,
fully paid and non-assessable, and subject to no preemptive rights. As of
the date hereof, the Bank has 5,000,000 authorized shares of common stock,
par value $6.40 per share, of which 1,302,862 shares are issued and
outstanding, and 1,000,000 authorized shares of preferred stock, of which
no shares have been designated. The shares of capital stock of each of the
Bank's Subsidiaries are owned directly or indirectly by the Bank free and
clear of all liens, claims, encumbrances and restrictions on transfer, and
there are no Rights with respect to such capital stock.
(c) Qualification. Each of the Bank and its Subsidiaries has the power
and authority, and is duly qualified in all jurisdictions where such
qualification is required, except for jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect on the Bank or its
Subsidiaries. Each of the Bank and its Subsidiaries carry on its business
as it is now being conducted and to own all its properties and assets, and
it has all federal, state, local, and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on
its business as it is now being conducted, except for such authorizations
as would not have a Material Adverse Effect on the Bank or its
Subsidiaries.
(d) Subsidiaries. The only Subsidiaries of the Bank are those listed on
Schedule 3.2(d). The Bank is a federal savings bank duly organized, validly
existing and in good standing under the laws of the United States of
America. The deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") through the Savings Association
Insurance Fund (the "SAIF") to the fullest extent permitted by law, and,
except as set forth on Schedule 3.2(d), all premiums and assessments
required to be paid in connection therewith have been paid when due by the
Bank. Each of the Subsidiaries of the Bank is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. The minute books of the Bank and each of its
Subsidiaries contain true, complete and accurate records in all material
respects of all meetings and other corporate actions held or taken since
December 31, 1994 of their respective Stockholders and Boards of Directors
(including committees of their respective Boards of Directors).
(e) Authority and Stockholder Approvals.
(i) The Bank has the requisite corporate power and authority to
execute and deliver this Agreement and, subject to the receipt of all
necessary stockholder and regulatory approvals, consents or
nonobjections, as the case may be, to consummate the transactions
contemplated hereby. Subject to the receipt of all necessary
stockholder approvals, the execution and delivery of this Agreement
and consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action of the Bank.
This Agreement has been duly and validly executed and delivered by the
Bank and (assuming due authorization, execution and delivery by BPC)
constitutes a valid and binding agreement of the Bank
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enforceable against the Bank in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
receivership, conservatorship, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(ii) The affirmative vote of at least two-thirds of the outstanding
shares of Bank Common Stock entitled to vote on this Agreement is the only
vote of holders of any of the capital stock of the Bank or any of its
Subsidiaries required for approval of this Agreement and consummation of
the Merger.
(f) No Violations; Consents and Approvals.
(i) Neither the execution, delivery and performance of this Agreement by
the Bank nor the consummation by the Bank of the transactions contemplated
hereby will constitute (A) a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of the Bank or any
of its Subsidiaries or to which the Bank or any of its Subsidiaries (or any
of their respective properties) is subject, which breach, violation or
default would have a Material Adverse Effect on the Bank or any of its
Subsidiaries, (B) a breach or violation of, or a default under, the charter
or by-laws or similar organizational documents of the Bank or any of its
Subsidiaries or (C) a material breach or violation of, or a material
default under (or an event which with due notice or lapse of time or both
would constitute a material default under), or result in the termination
of, accelerate the performance required by, or result in the creation of
any lien, pledge, security interest, charge or other encumbrance upon any
of the properties or assets of the Bank or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, indenture,
deed of trust, loan agreement or other agreement, instrument or obligation
to which the Bank or any of its Subsidiaries is a party, or to which any of
their respective properties or assets may be bound or affected, which
breach, violation or default would have a Material Adverse Effect on the
Bank or any of its Subsidiaries.
(ii) Except for (A) the filing of an application with the Office of
Thrift Supervision (the "OTS") and approval of such application, (B) the
filing with the Department of Justice, the FDIC, the Federal Reserve Bank
and the Comptroller of the Currency of the OTS application, (C) the
adoption of this Agreement by the requisite vote of the Stockholders of the
Bank, (D) the filing of the articles of combination effecting the Merger
with the OTS (the "Articles of Combination"), and (E) such consents and
approvals of third parties which are not Governmental Entities (as defined
below) the failure of which to obtain will not have and would not be
reasonably expected to have a Material Adverse Effect on the Bank, no
consents or approvals of, or filings or registrations with, any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with the execution and delivery by the Bank of this
Agreement and the consummation by the Bank of the Merger and the other
transactions contemplated hereby, and the Bank knows of no reason why the
Requisite Regulatory Approvals (as defined in Section 5.1(b)) should not be
obtained.
(g) Financial Statements. Set forth in Schedule 3.2(g) are copies of (i) the
consolidated statements of financial condition of the Bank and its
Subsidiaries as of December 31 for the fiscal years 1994, 1995 and 1996, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996, in each case accompanied by the audit report of Deloitte &
Touche LLP, independent auditors with respect to the Bank and (ii) the
unaudited consolidated statements of financial condition of the Bank and its
Subsidiaries as of March 31, 1996 and March 31, 1997 and the related unaudited
consolidated statements of operations for each of the three-month periods then
ended. The December 31, 1996 consolidated statement of financial condition of
the Bank (including the related notes, where applicable) fairly presents the
consolidated financial position of the Bank and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section
3.2(g) (including the related notes, where applicable) fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated
operations and, where applicable, changes in shareholders' equity and
consolidated financial position of the entity or entities to which they relate
for the respective fiscal periods or as of the respective dates therein set
forth. Each of such statements (including the related notes, where applicable)
complies, in all material respects, with applicable accounting requirements
and with the published
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rules and regulations of the OTS, with respect thereto, and each of such
statements (including the related notes, where applicable) has been prepared
in accordance with GAAP consistently applied during the periods involved,
except in each case as indicated in such statements or in the notes thereto.
The Bank has not changed its independent auditing firm since 1987, and there
has been no disagreement (as such term is used in Item 304 of Regulation S-K
promulgated under the Securities Act of 1933, as amended (the "Securities
Act")) between the Bank and its independent auditing firm(s) since 1992
concerning any aspect of the manner in which the Bank maintains its books and
records or the manner in which it has reported upon its financial condition
and results of operations during such period.
(h) Bank Reports.
(i) The Bank has previously made available to BPC an accurate and
complete copy of each (A) report and schedule filed since January 1, 1994
by the Bank with the OTS, as the case may be, pursuant to HOLA or other
Applicable Law (the "Bank Reports") and (B) communications mailed by the
Bank to its Stockholders since January 1, 1994, and no such report,
schedule or communication contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as of
an earlier date. Except as set forth in Schedule 3.2(h)(i), the Bank has
timely filed, all Bank Reports and other documents required to be filed by
it under HOLA, the Securities Exchange Act and other Applicable Law, and,
as of their respective dates, all Bank Reports complied in all material
respects with the published rules and regulations of the OTS, with respect
thereto, except where the failure to timely file or comply would not have a
Material Adverse Effect.
(ii) The Bank and each Bank Subsidiary have each timely filed, except
where the failure to file would not have a Material Adverse Effect, all
monthly, quarterly, semiannual and annual reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1994 with (A)
the OTS, (B) the FDIC, (C) the SAIF, (D) the Federal Housing Finance Board
("FHFB"), (v) the Federal Home Loan Bank of San Francisco ("FHLBSF"), (F)
any state banking commission or other regulatory authority ("State
Regulator"), and (G) the National Association of Securities Dealers, Inc.
and any other self-regulatory organization ("SRO") (all governmental and
regulatory entities set forth in this Section 3.2(h) are collectively
referred to as the "Regulatory Agencies"), and all other material reports
and statements required to be filed by them since December 31, 1994,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, the OTS,
the FDIC, SAIF, FHFB, FHLBSF, any State Regulator or any SRO, and have paid
all fees and assessments due and payable in connection therewith. Except
for normal examinations conducted by a Regulatory Agency in the regular
course of the business of the Bank and its Subsidiaries, and except as set
forth in Schedule 3.2(h)(ii), no Regulatory Agency has initiated any
proceeding or, to the best knowledge of the Bank, investigation into the
business or operations of the Bank or any of its Subsidiaries since
December 31, 1994. Except as set forth on Schedule 3.2(h)(ii), there is no
unresolved material violation, criticism or exception by any Regulatory
Agency with respect to any report or statement relating to any examinations
of the Bank or any of its Subsidiaries.
(i) Absence of Certain Changes or Events. Except as disclosed on Schedule
3.2(i), any other Schedule delivered pursuant to this Agreement or the Bank
Reports filed prior to the date of this Agreement, since December 31, 1996,
(A) the Bank and its Subsidiaries have conducted their respective businesses
only in the ordinary and usual course of such businesses consistent with
prudent banking practice, and (B) there has not been any change in the assets,
liabilities, financial condition, properties, business or results of
operations of the Bank or its Subsidiaries, or any occurrence, development or
event of any nature (including without limitation any earthquake or other act
of God), which, individually or in the aggregate, has had or could reasonably
be expected to have a Material Adverse Effect on the Bank.
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(j) Taxes.
(i) Except as set forth in Schedule 3.2(j): (A) all Tax Returns required
to be filed by or on behalf of the Bank or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any
such extension shall have been granted and not have expired, and all such
filed returns are complete and accurate in all material respects; (B) the
Bank and its Subsidiaries have paid all Taxes (whether or not shown on any
Tax Return) for any period ending on or before the Effective Date or
adequate provision has been made for any such Taxes in the financial
statements of the Bank and its Subsidiaries (in accordance with GAAP); (C)
there is no audit examination, deficiency assessment, or refund litigation
currently pending with respect to any Taxes of the Bank or any of its
Subsidiaries; (D) all Taxes due with respect to completed and settled
examinations or concluded litigation relating to the Bank or any of its
Subsidiaries have been paid in full or adequate provision has been made for
any such amounts in the financial statements of the Bank and its
Subsidiaries (in accordance with GAAP); (E) no extensions or waivers of
statutes of limitations have been given by or requested with respect to any
Taxes of the Bank or any of its Subsidiaries; and (F) there are no liens
for Taxes upon the assets or property of any of the Bank or its
Subsidiaries except for statutory liens for current Taxes not yet due.
(ii) Except for the affiliated group among the Bank and its Subsidiaries,
the Bank has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code, or a member of combined,
consolidated or unitary group for state, local or foreign Tax purposes. The
Bank has not filed a consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income Tax law) or agreed to have Section 341(f)(2)
of the Code (or any corresponding provision of state, local or foreign
income Tax law) apply to any disposition of any asset owned by it. The Bank
has not made or will not make a consent dividend election under Section 565
of the Code.
(iii) Except as set forth in Schedule 3.2(j), the Bank has not agreed to
make, nor is it required to make, any adjustment under Sections 481(a) or
263A of the Code or any comparable provision of state or foreign tax laws
by reason of a change in accounting method or otherwise. The Bank has taken
no action that is not in accordance with prudent banking practice that
could defer a liability for Taxes of the Bank from any taxable period
ending on or before the Effective Date to any taxable period ending after
such date.
(iv) The Bank is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, separately or in the aggregate, in
connection with the Merger, any change of control of the Bank or any other
transaction contemplated by this Agreement, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(v) The Bank is not, and has not been, a United States real property
holding corporation (as defined in Section 897(C)(2) of the Code) during
the applicable period specified in Section 897(C)(1)(A)(ii) of the Code.
(vi) The Bank does not have and has not had a permanent establishment in
any foreign country, as defined in any applicable Tax treaty or convention
between the United States and such foreign country, and, except as set
forth in Schedule 3.2(j), the Bank has not engaged in a trade or business
within any foreign country.
(vii) The Bank is not party to any joint venture, partnership, or other
arrangement or contract which could reasonably be expected to be treated as
a partnership for federal income tax purposes.
(viii) All outstanding options to acquire equity of the Bank that purport
to be or were otherwise intended (when issued) to be treated as "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Code (and
any predecessor provision and any similar provision applicable state, local
or other Tax law) were issued in compliance with such section. All such
outstanding options currently qualify for treatment as ISOs, and are held
by persons who are employees of the Bank.
(ix) As used in this Agreement, (A) the term "Tax" or "Taxes" means taxes
and other impost, levies, assessments, duties, fees or charges imposed or
required to be collected by any federal, state, county, local,
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municipal, territorial or foreign governmental authority or subdivision
thereof, including, without limitation, income, excise, gross receipts, ad
valorem, profits, gains, property, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangible, franchise, personal
property, and other taxes, charges, levies or like assessments, together
with all penalties and additions to tax and interest thereon, and (B) the
term "Tax Return" shall mean any return, report, information return or
other document (including elections, declarations, disclosures, schedules,
estimates, and other returns or supporting documents) with respect to
Taxes.
(k) Absence of Claims; Undisclosed Liabilities.
(i) No litigation, proceeding, claim or controversy involving any court
or governmental agency is pending, and there is no pending claim, action or
proceeding against the Bank or any of its Subsidiaries, or challenging the
validity or propriety of the transactions contemplated by this Agreement,
and, to the best knowledge of the Bank, except as set forth in Schedule 3.2
(k)(i), no such litigation, proceeding, controversy, claim or action has
been threatened, in each case as to which there is a reasonable possibility
of an adverse determination and which, if adversely determined, would,
individually or in the aggregate have or be reasonably expected to have a
Material Adverse Effect on the Bank. There are no claims (statutory or
otherwise), demands, proceedings or other actions pending or, to the best
knowledge of the Bank, threatened against the Bank or any of its
Subsidiaries by (A) any of their present or former employees or (B) any
person who sought to become employed by the Bank or any of its
Subsidiaries.
(ii) Except as set forth in Schedule 3.2(k)(ii), there is no injunction,
order, judgment, decree, or regulatory restriction imposed upon the Bank,
any of its Subsidiaries or the assets of the Bank or any of its
Subsidiaries which has had, or could reasonably be expected to have, a
Material Adverse Effect on the Bank.
(iii) Except (A) as set forth in Schedule 3.2(k)(iii) and any other
schedules hereto, (B) for those liabilities that are reflected or reserved
against on the consolidated financial statements, including the notes
thereto, of the Bank as of March 31, 1997 and (C) for liabilities incurred
in the ordinary course of business consistent with prudent banking practice
since March 31, 1997 and that, either alone or when combined with all
similar liabilities, have not had, and could not reasonably be expected to
have, a Material Adverse Effect on the Bank, neither the Bank nor any of
its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due) that would be required to be reflected in the financial
statements of the Bank.
(l) Absence of Regulatory Actions. Except as set forth in Schedule 3.2(l),
neither the Bank nor any of its Subsidiaries 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 depository institutions or depository institution holding companies or
engaged in the insurance of bank and/or savings and loan deposits ("Government
Regulators") nor has it been advised by any Government Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement,
memorandum of understanding, extraordinary supervisory letter, commitment
letter, board resolutions or similar undertaking.
(m) Agreements.
(i) Except as disclosed in Schedule 3.2(m)(i), neither the Bank nor any
of its Subsidiaries is a party to an oral or written (A) consulting
agreement (including data processing, software programming and licensing
contracts) involving the payment of more than $25,000 per annum, in the
case of any such agreement with an individual, or $25,000 per annum, in the
case of any other such agreement, (B) agreement with any executive officer
or other key employee of the Bank or any of its Subsidiaries the benefits
of which are contingent, or the terms of which are materially altered or
any payments or rights are accelerated, upon the occurrence of a
transaction involving the Bank or any of its Subsidiaries of the nature
contemplated by this Agreement and which provides for the payment of more
than $25,000, (C) agreement with respect to any
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executive officer of the Bank or any of its Subsidiaries providing any term
of employment or compensation guarantee extending for a period longer than
one year and for the payment of more than $25,000 per annum, (D) agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement, or (E) except as set forth in Schedule 3.2(m)(i)(E), agreement
containing covenants that limit the ability of the Bank or any of its
Subsidiaries to compete in any line of business or with any person, or that
involve any restriction on the geographic area in which, or method by
which, the Bank (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by
law or any regulatory agency) or any other material contract (as defined in
Item 601(b)(10) of Regulation S-K) to be performed after the date hereof.
Each contract, arrangement, commitment or understanding with an aggregate
annual payment by the Bank of $50,000 or more, whether or not set forth in
Schedule 3.2(m)(i), is referred to herein as a "Material Bank Contract."
The Bank has previously delivered to BPC true and correct copies of each
Material Bank Contract.
(ii) Except as set forth in Schedule 3(m)(ii), (A) each Material Bank
Contract is a valid and binding obligation of the Bank or one of its
Subsidiaries and is in full force and effect, (B) the Bank and each of its
Subsidiaries have in all material respects performed all obligations
required to be performed by it to date under each Material Bank Contract,
(C) no event or condition exists which constitutes or, after notice or
lapse of time or both, would constitute a material default on the part of
the Bank or any of its Subsidiaries under any such Material Bank Contract,
except where such default, individually or in the aggregate, would not have
or be reasonably likely to have a Material Adverse Effect on the Bank and
(D) no other party to such Material Bank Contract is, to the best knowledge
of the Bank, in default in any respect thereunder.
(n) Labor Matters. Neither the Bank or any of its Subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization, nor is
the Bank or any of its Subsidiaries the subject of any proceeding asserting
that it has committed an unfair labor practice or seeking to compel it or any
such Subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor, is there any strike, other labor dispute or
organizational effort involving the Bank or any of its Subsidiaries pending or
threatened. Except as set forth in Schedule 3.2(n), no employee, director, or
agent of the Bank or its Subsidiaries, currently, or since December 31, 1994,
has claimed, filed, or to the Bank's knowledge threatened to file any (i)
discrimination charges; (ii) employment litigation; (iii) wage and error
issues; (iv) occupational safety and health administration issues; or (v)
intellectual property claims. Except as set forth in Schedule 3.2(n), there
are no employment, consulting or severance agreements or other agreements of a
similar nature whatsoever (collectively "Employee Agreements") between the
Bank or any of its Subsidiaries and any officer, director, employee or agent
of the Bank or any of its Subsidiaries or any of their respective family
members, including, without limitation, any such agreement concerning the
continued employment or use of such officer, director, employee, agent or
family member after the consummation of the transactions contemplated by this
Agreement, or any other benefits to be granted to any such officer, director,
employee, agent or family member, upon, after or in connection with the
consummation of the transactions contemplated by this Agreement. Except as set
forth in Schedule 3.2(n), there are no such Employee Agreements under which
the transactions contemplated herein: (i) will require any payment by the Bank
or any of its Subsidiaries to, or any consent or waiver from, any officer,
director, employee or agent of the Bank or any of its Subsidiaries, or any
other Person, or (ii) will result in a change of any nature in the rights or
any party under an agreement with any officer, director, employee or agent of
the Bank, or any other Person, including, without limitation, any acceleration
or change in the award, grant, vesting or determination of options, warrants,
rights, severance payments, or other contingent obligations of any nature
whatsoever of the Bank or any of its Subsidiaries. Except as set forth on
Schedule 3.2(n), the Bank or its Subsidiaries have no agreements with any
employee or officer that are inconsistent with the status of all employees and
officers of the Bank and its Subsidiaries being "at-will" employees. Each
reference in this Agreement to "officer," "director," "employee" or "agent" of
the Bank and its Subsidiaries shall include, without limitation, both current
and former officers, directors, employees and agents (including, without
limitation, consultants), as the case may be,
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of the Bank and its Subsidiaries. Acquirer has been provided with true,
correct and complete copies of all Employee Agreements.
(o) Employee Benefit Plans. Schedule 3.2(o) contains a complete list of all
pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, employment, termination, severance, medical, health
and other benefit plans, contracts, agreements, arrangements, including, but
not limited to, "employee benefit plans", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
incentive and welfare policies, contracts, plans and arrangements and all
trust agreements related thereto in respect to any present or former
directors, officers, or other employees of the Bank or any of its Subsidiaries
(hereinafter referred to collectively as the "Employee Plans"). (i) All of the
Employee Plans comply in all material respects with all applicable
requirements of ERISA, the Code and other Applicable Laws; neither the Bank
nor any of its Subsidiaries has engaged in a "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) with respect to
any Employee Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject the Bank to a tax or penalty
imposed by either Section 4975 or 4976 of the Code or Section 502 of ERISA;
and all contributions required to be made under the terms of any Employee Plan
have been timely made or have been reflected on the balance sheets contained
or incorporated by reference in the Reports; (ii) no liability to the Pension
Benefit Guaranty Corporation (the "PBGC") (except for payment of premiums) has
been incurred, and no condition exists that presents a material risk to the
Bank or any ERISA Affiliate (as defined below) of incurring such a liability,
with respect to any Employee Plan which is subject to Title IV of ERISA
("Pension Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a)(15) of ERISA) currently or formerly maintained by the Bank or
any entity (an "ERISA Affiliate") which is considered one employer with the
Bank under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate Plan"); and no proceedings have been instituted to terminate any
Pension Plan or ERISA Affiliate Plan; (iii) no Pension Plan or ERISA Affiliate
Plan had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA (whether or not waived)) as of the last day of the end of the most
recent plan year ending prior to the date hereof; the fair market value of the
assets of each Pension Plan and ERISA Affiliate Plan exceeds the present value
of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA)
under such Pension Plan or ERISA Affiliate Plan as of the end of the most
recent plan year with respect to the respective Pension Plan or ERISA
Affiliate Plan ending prior to the date hereof, calculated on the basis of the
actuarial assumptions used in the most recent actuarial valuation for such
Pension Plan or ERISA Affiliate Plan prior to the date hereof, and there has
been no material change in the financial condition of any such Pension Plan or
ERISA Affiliate Plan since the last day of the most recent plan year; and no
notice of a "reportable event" (as defined in Section 4043 of ERISA) for which
the 30-day reporting requirement has not been waived has been required to be
filed for any Pension Plan or ERISA Affiliate Plan within the 12-month period
ending on the date hereof; (iv) neither the Bank nor any ERISA Affiliate has
provided or is required to provide security to any Pension Plan or to any
ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code; (v) neither
the Bank nor any ERISA Affiliate has contributed to any "multiemployer plan",
as defined in Section 3(37) of ERISA, on or after September 26, 1980; (vi)
each Employee Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), and which is intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the
Internal Revenue Service deeming such plan to be so qualified (a "Qualified
Plan"); and no condition exists that is likely to result in revocation of any
such favorable determination letter; (vii) all Employee Plans covering current
or former non-U.S. employees comply in all material respects with applicable
local law, and there are no material unfunded liabilities with respect to any
Employee Plan which covers such employees; (viii) there is no pending or
threatened material litigation, administrative action or proceeding relating
to any Employee Plan (other than benefit claims made in the ordinary course);
(ix) there has been no announcement or commitment by the Bank or any
Subsidiary to create an additional Employee Plan, or to amend an Employee Plan
except for amendments required by Applicable Law; (x) the Bank and its
Subsidiaries do not have any obligations for retiree health and life benefits
under any Employee Plan except as set forth in Schedule 3.2(o), and there are
no such Employee Plans that cannot be amended or terminated without incurring
any liability thereunder; (xi) except as set forth in Schedule 3.2(o), neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated
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herein will automatically accelerate, or give the Bank or any Subsidiary the
right to accelerate, the time of payment or vesting, or increase the amount,
of compensation due to any employee; (xii) except as specifically identified
in Schedule 3.2(o), and subject to the conditions, limitations and assumptions
specified therein, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will result in any
payment or series of payments by the Bank or any Subsidiary of the Bank to any
person which is an "excess parachute payment" (as defined in Section 280G of
the Code) under any Employee Plan, increase or secure (by way of a trust or
other vehicle) any benefits or compensation payable under any Employee Plan,
or accelerate the time of payment or vesting of any such benefit or
compensation, and (xiii) with respect to each Employee Plan, the Bank has
supplied to BPC a true and correct copy, if applicable, of (A) the two most
recent annual reports on the applicable form of the Form 5500 series filed
with the Internal Revenue Service (the "IRS"), (B) such Employee Plan,
including all amendments thereto, (C) each trust agreement and insurance
contract relating to such Employee Plan, including all amendments thereto and
the most recent financial statements thereof, (D) the most recent summary plan
description for such Employee Plan, including all amendments thereto, if the
Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial
report or valuation if such Employee Plan is a Pension Plan, (F) the most
recent determination letter issued by the IRS if such Employee Plan is a
Qualified Plan and (G) the most recent financial statements and auditor's
report relating to each Employee Plan, if applicable.
(p) Title to Assets. The Bank and each of its Subsidiaries have good and
marketable title to their respective material properties and assets (including
any intellectual property asset such as, without limitation, any trademark,
service mark, trade name or copyright) other than (i) as reflected in the Bank
Reports and (ii) property as to which it is the lessee. The furniture,
fixtures and equipment and the leasehold improvements of the Bank are in
adequate working condition, normal wear and tear excepted, for the conduct of
the business currently conducted by the Bank.
(q) Compliance with Laws. Except as set forth in Schedule 3.2(q) and the
other schedules to this Agreement, the Bank and each of its Subsidiaries:
(i) holds and has at all times held all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it
to carry on its business as it is presently conducted, except where the
failure to hold or make any such permit, license, certificate of authority,
order, approval, filing, application or registration, as applicable,
individually or in the aggregate, would not have or be reasonably likely to
have a Material Adverse Effect on the Bank; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect, and, to the knowledge of the Bank, no suspension or cancellation of
any of them is threatened; and
(ii) is in compliance, in the conduct of its business, with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to
the employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, the Americans With
Disabilities Act, all other applicable fair lending laws or other laws
relating to discrimination and the Bank Secrecy Act, except where the
failure to be in compliance with any of the foregoing would not,
individually or in the aggregate, have or be reasonably likely to have a
Material Adverse Effect on the Bank.
(r) Fees. Other than financial advisory services performed by Hovde
Financial, Inc. and Smith & Crowley, Inc. for which the Bank assumes the sole
responsibility for payment, neither the Bank nor any of its Subsidiaries, nor
any of their respective officers, directors, employees or agents, has employed
any broker or finder or incurred any liability for any financial advisory
fees, brokerage fees, commissions, or finder's fees, and no broker or finder
has acted directly or indirectly for the Bank, its directors or any Subsidiary
of the Bank, in connection with this Agreement or the transactions
contemplated hereby.
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(s) Environmental Matters.
(i) Except as set forth in Schedule 3.2.(s), with respect to the Bank and
each of its Subsidiaries:
(A) Each of the Bank and its Subsidiaries and the Participation
Facilities (as defined below), to the extent of the Bank's or any of
its Subsidiaries' participation in the management of such Participation
Facility, are, and have been, in substantial compliance with all
Environmental Laws (as defined below);
(B) There is no suit, claim, action, demand, executive or
administrative order, directive or proceeding pending or threatened,
before any court, governmental agency or board or other forum against
the Bank or any of its Subsidiaries or any Participation Facility
relating to the Bank's or any of its Subsidiaries' participation in the
management of such Participation Facility (y) for alleged noncompliance
with, or liability under, any Environmental Law or (z) relating to the
presence of or release into the environment of any Hazardous Material
(as defined below), whether or not occurring at or on a site owned,
leased or operated by it or any of its Subsidiaries;
(C) The properties currently or formerly owned or operated by the
Bank or any of its Subsidiaries and the Participation Facilities
(including, without limitation, soil, groundwater or surface water on
or under the properties, and buildings thereon) are not and were not
contaminated with any Hazardous Material (as defined below) that would
reasonably be expected to give rise to a Material Adverse Effect on the
Bank;
(D) Neither the Bank nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or
request for information from any Federal, state, local or foreign
Governmental Entity or any third party indicating that it may be in
violation of, or liable under, any Environmental Law.
(ii) The following definitions apply for purposes of this Section 3.2(s):
(x) "Participation Facility" means any facility in which the applicable
party (or a Subsidiary of it) participates in the management (including all
property held as trustee or in any other fiduciary capacity) and, where
required by the context, includes the owner or operator of such property;
(y) "Environmental Law" means (i) any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, directive, executive or administrative order,
judgment, decree, injunction, requirement or agreement with any
Governmental Entity, (A) relating to the protection, preservation or
restoration of the environment (which includes, without limitation, air,
water vapor, surface water, groundwater, drinking water supply, structures,
soil, surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, or (B) relating to the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of, Hazardous Materials, in each case as amended. The term
"Environmental Law" includes, without limitation, the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Disposal Amendments thereto), the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide
and Rodenticide Act, the Federal Occupational Safety and Health Act of
1970, the Federal Hazardous Materials Transportation Act and also includes,
without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material; and (z)
"Hazardous Material" means any substance (i) in any concentration which is
or could be detrimental to human health or safety or to the environment, or
(ii) currently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under
any Environmental Law, whether by type or by quantity, including any
substance containing any such substance as a component. Hazardous Material
includes, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance, oil or petroleum or any derivative or by-product
thereof, radon,
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radioactive material, asbestos, asbestos-containing material, urea
formaldehyde foam insulation, lead and polychlorinated biphenyl.
(t) Classified Loans. The Bank has identified to BPC in writing prior to the
date hereof all non-residential loans, leases, advances, credit enhancements,
other extensions of credit, commitments and interest bearing assets of the
Bank and its Subsidiaries with a current contractual balance in excess of
$50,000 (with respect to commercial loans and multi-family loans) that, as of
May 15, 1997 have been criticized or classified by it or any bank examiner as
"Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets",
"Concerned Loans" or words of similar import. The valuation reserves for all
Other Real Estate Owned of the Bank are adequate in the aggregate in relation
to the assets in question in accordance with GAAP and are in accordance with
the standards set by the OTS for savings associations as provided in
Applicable Law, as such standards may be amended from time to time, and the
Bank's policies and procedures existing as of January 1, 1997. The Bank's
allowance for possible credit losses is adequate in the aggregate in relation
to the outstanding loans, leases and other extensions of credit of the Bank
and is in accordance with the safety and soundness standards administered by,
and the practices and procedures of, the OTS and FDIC as such standards,
practices and procedures may be amended from time to time. From January 1,
1997 to the date hereof, the Bank has made loan loss reserves of not less than
$50,000 per month.
(u) Material Interests of Certain Persons. Except as set forth in Schedule
3.2(u), no officer or director of the Bank or any Subsidiary of the Bank, or
any "associate" (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of any such officer or
director, has any material interest in any material contract or property
(whether real or personal, tangible or intangible) used in or pertaining to
the business of the Bank or any of its Subsidiaries.
(v) Insurance. Schedule 3.2(v) contains an accurate and complete description
of all policies of general liability, theft, life, fire, workers'
compensation, health, directors' and officers', and other forms of insurance
owned or held by the Bank (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder involving more than
$50,000 of which the Bank has knowledge). Except as set forth in Schedule
3.2(v), the Bank and its Subsidiaries are presently insured, and since
December 31, 1994 have been insured, for reasonable amounts with financially
sound and reputable insurance companies, against such risks as companies
engaged in a similar business would, in accordance with prudent banking
practice, customarily be insured. All of the insurance policies and bonds
maintained by the Bank and its Subsidiaries are in full force and effect, the
Bank and its Subsidiaries are not in default thereunder and all material
claims thereunder have been filed in due and timely fashion. Since December
31, 1994, no claim by the Bank or any of its Subsidiaries on or in respect of
an insurance policy or bond has been declined or refused by the relevant
insurer or insurers where the declination or refusal of such claim would
reasonably be expected to have a Material Adverse Effect on the Bank. Between
the date hereof and the Effective Time, the Bank and its Subsidiaries will use
commercially reasonable efforts to maintain the levels of insurance coverage
in effect on the date hereof.
(w) Books and Records. The books and records of the Bank and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
all applicable legal and accounting requirements.
(x) Corporate Documents. The Bank has delivered to BPC true and complete
copies of (i) its Charter and By-laws and (ii) the charter, by-laws or other
similar governing documents of each of its Subsidiaries, as each of them is in
effect on the date hereof.
(y) Board Action. The Boards of Directors of the Bank (at meetings duly
called and held) have by the requisite vote of all directors present (i)
determined that the Merger is advisable and (ii) approved this Agreement, the
Merger and the transactions contemplated hereby, and at its respective
meeting, the Board of Directors of the Bank has further determined that the
Merger is in the best interests of the Bank and its Stockholders and has
directed that, subject to the provisions of Applicable Law, this Agreement be
submitted for consideration by the Bank's Stockholders at a meeting of such
Stockholders.
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(z) Indemnification. Except as set forth in Schedule 3.2 (z), neither the
Bank nor any of its Subsidiaries is a party to any indemnification agreement
with any of its present or future directors, officers, employees, agents or
other persons who serve or served in any other capacity with any other
enterprise at the request of the Bank (a "Covered Person"), and to the best
knowledge of the Bank, there are no claims for which any Covered Person would
be entitled to indemnification if such provisions were deemed to be in effect.
(aa) Loans. Except as set forth in Schedule 3.2(aa), each loan, other than
any commercial or other loan the principal amount of which does not exceed
$25,000, reflected as an asset on the consolidated statement of financial
condition of the Bank and its Subsidiaries as of March 31, 1997 (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true and genuine, except where the failure of any such loan to be so
evidenced, either individually or in the aggregate, would not have or be
reasonably likely to have a Material Adverse Effect on the Bank and (ii) is
the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, and no such indebtedness is subject
to any defenses which may have been or may be asserted, except for (y)
defenses arising from applicable bankruptcy, insolvency, moratorium or other
laws of general applicability relating to or affecting creditors' rights and
to general equity principles and (z) defenses, if asserted and upheld, that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Bank. Except as set forth in Schedule 3.2(aa), all such loans and
extensions of credit that have been made by the Bank and that are subject to
Section 11 of HOLA comply therewith. Schedule 3.2(aa) includes (i) a listing
of all such loans referred to in the first sentence of this Section 3.2(aa)
the principal of which is past due or will become due within six months or
less of June 30, 1997 and (ii) a listing of each loan, commitment or other
borrowing arrangement with any director, executive officer or ten percent
stockholder of the Bank or any of its Subsidiaries, or any person, corporation
or enterprise controlling, controlled by or under common control with any of
the foregoing. The Bank has good title and is sole owner of record of all
loans or any participation interest therein shown as an asset on the books of
the Bank as of the date of this Agreement free of any lien, encumbrance or
claim by any other person, except for loans securing borrowings in ordinary
course (including borrowings with the FHLBSF) or loans subject to repurchase
obligations as set forth herein. Except as disclosed on Schedule 3.2(aa), all
loans in a principal amount in excess of $25,000 reflected as assets in the
Bank's Financial Statements as March 31, 1997 that are secured by an interest
in real property are secured by a perfected first lien. All loans with a
principal balance in excess of $25,000 as of March 31, 1997 which are either
unsecured or secured by property other than 1-4 family residences are listed
on Schedule 3.2(aa), which indicates, for each such loan, the loan number, the
borrower's name and the unpaid balance as of March 31, 1997. Except as
disclosed on Schedule 3.2(aa), no loan, all or any part of which is an asset
of the Bank was, as of March 31, 1997, more than 30 days past due. Except as
disclosed on Schedule 3.2(aa), each outstanding loan or commitment to extend
credit was solicited and originated and is administered in all material
respects in accordance with the relevant loan documents, the Bank's then
applicable underwriting standards and in material compliance with all
applicable requirements of federal, state and local laws and regulations.
Except as disclosed on Schedule 3.2(aa), none of the agreements pursuant to
which the Bank has sold loans or pools of loans or participations in loans or
pools of loans contain any obligation to repurchase such loans or interest
therein solely on account of a payment default by the obligor on any such
loan. Schedule 3.2(aa) sets forth, as of March 31, 1997, as to each
participation purchase, the total loan balance, the percentage of interest
purchased, the identity of the seller and an indication of whether or not
there are any put-backs rights or indemnifications and whether the percentage
of interest purchased by the Bank is superior to the percentage of interest
retained by the seller; provided, however, that as to 1-4 family residential
loans, such information is provided by loan package sold instead of by
individual loans. All loans which are assets of the Bank has been classified
in all material respects in accordance with the Bank's loan classification
policy, a copy of which has been provided to Acquirer.
(bb) Derivatives Contracts; Structured Notes; Etc. Except as set forth in
Schedule 3.2 (bb) neither the Bank nor any of its Subsidiaries is a party to
or has agreed to enter into an exchange traded or over-the-counter equity,
interest rate, foreign exchange or other swap, forward, future, option, cap,
floor or collar or any other contract that is not included on the balance
sheet and is a derivative contract (including various combinations thereof)
(each a "Derivatives Contract") or owns securities that (1) are referred to
generically as "structured notes," "high risk mortgage derivatives," "capped
floating rate notes" or "capped floating rate mortgage
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<PAGE>
derivatives" or (2) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into
in the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidance, and listed (as of the date hereof) on
Schedule 3.2 (bb) or disclosed in the Bank Reports filed on or prior to the
date hereof. All of such Derivative Contracts or other instruments are legal,
valid and binding obligations of the Bank or one of its Subsidiaries
enforceable in accordance with their terms (except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally), and are in full force and effect.
The Bank and each of its Subsidiaries have duly performed in all material
respects all of their material obligations thereunder to the extent that such
obligations to perform have accrued; and, to the Bank's knowledge, there are
no breaches, violations or defaults or allegations or assertions of such by
any party thereunder which would have or would reasonably be expected to have
a Material Adverse Effect on the Bank.
(cc) Related Party Transactions. Except for matters arising in the ordinary
course of business or as set forth in Schedule 3.2 (cc), including
compensation, lending and deposit relationships offered on the same terms as
those offered to the Bank's general retail customers in the case of employees,
and compensation and deposit relationships offered on the same terms as those
offered to the Bank's general retail customers in the case of past and present
executive officers and directors, (a) no employee, executive officer or
director of the Bank, or any of its Stockholders, any family relative of any
of the foregoing, or any business or entity controlled by any of the foregoing
or in which any of the foregoing has a material financial stake (excluding
publicly traded companies in which the foregoing cumulatively hold less than a
5% equity interest) (collectively, "Related Parties"), is indebted to the
Bank, (b) the Bank is not indebted (or committed to make loans or extend or
guarantee credit) to any Related Party, (c) the Bank has not engaged in any
transaction with any Related Party since the beginning of the two most
recently completed fiscal years of the Bank prior to the date hereof. To the
knowledge of the Bank, Schedule 3.2 (cc) sets forth a complete and correct
list of all businesses and entities constituting Related Parties with which
the Bank either has a business relationship or competes. Any transaction with
a Related Party contemplated by this Section 3.2(cc) complies in all material
respects with the Bank's Conflict of Interest Policy and Applicable Law.
(dd) Securities Owned by Bank.
(i) Schedule 3.2(dd) contains a true, correct and complete list of all
securities owned by the Bank of record or beneficially as June 13, 1997
(except securities held in any fiduciary or agency capacity), including,
without limitation, securities issued by the United States or any
instrumentality thereof, or any state or political subdivision thereof.
(ii) The Bank has good title to all securities held by it (except
securities sold under repurchase agreements or held in any fiduciary or
agency capacity), free and clear of any Encumbrance except to the extent
such securities are pledged in the ordinary course of business consistent
with prudent banking practice to secure obligations of the Bank. Such
securities are valued on the books of the Bank in accordance with GAAP.
(ee) Securities Exchange Act of 1934. Neither the Bank nor any of its
Subsidiaries is subject to the reporting requirements of Section 13 or Section
15(d) of Exchange Act, nor any of the rules or regulations promulgated
thereunder.
(ff) Proxy Statement/Prospectus. The information that the Bank and any of
its Subsidiaries provides in writing to BPC for the specific purpose of
inclusion in connection with the proxy statement/prospectus to be prepared in
connection with the Bank's special meeting of Stockholders and any amendment
or supplement thereto (the "Proxy Statement/Prospectus"), at the date of
mailing to the Stockholders and the date of the meeting of the Stockholders to
be held in connection with the Merger, will be in compliance with all
applicable rules and regulations of the Securities and Exchange Commission
("SEC"), the OTS and other Applicable Law and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
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stated or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(gg) Release from Liability. The Bank has provided BPC and Acquirer a true
and correct copy of a general release from liability executed by Mr. Daniel E.
Wolfus. The Bank is not aware of any defense to the enforceability of such
release.
(hh) Community Reinvestment Act. The Bank received a rating of "needs to
improve" in its most recent examination or interim review with respect to the
Community Reinvestment Act.
Section 3.3. Representations and Warranties of BPC and Acquirer. BPC and
Acquirer represent and warrant to the Bank that:
(a) Recitals True. The facts set forth in the Recitals of this Agreement
with respect to BPC and Acquirer are true and correct in all material
respects.
(b) Corporate Qualification. BPC is in good standing in its jurisdiction of
organization and as a foreign corporation in each jurisdiction where the
properties owned, leased or operated or the business conducted by it requires
such qualification. Acquirer is a Federal Savings Bank duly organized, validly
existing and in good standing under the laws of the United States of America.
Each of BPC and Acquirer has the requisite corporate power and authority
(including all federal, state, local and foreign government authorizations) to
carry on its respective businesses as they are now being conducted and to own
its respective properties and assets. The deposit accounts of Acquirer are
insured by the FDIC through the SAIF to the fullest extent permitted by law,
and all premiums and assessments required to be paid in connection therewith
have been paid when due by the Acquirer.
(c) Capitalization. BPC is authorized to issue 78,500,000 shares of BPC
Common Stock, of which 18,245,265 shares were outstanding, no shares were held
as treasury stock and 849,200 shares were available for grant as of May 1,
1997, and 10,000,000 shares of preferred stock, par value $.01 per share, of
which no shares are outstanding. All of the outstanding shares of BPC Common
Stock are, and all shares to be issued pursuant to this Agreement will be,
duly authorized, validly issued, fully paid and nonassessable, and are, or
will be when issued, free of preemptive rights.
(d) Corporate Authority.
(i) BPC has the requisite corporate power and authority to execute and
deliver this Agreement and, subject to the receipt of all required
regulatory approvals, consents or nonobjections, as the case may be, to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action of
BPC. This Agreement has been duly and validly executed and delivered by BPC
and (assuming due authorization, execution and delivery by the Bank) this
Agreement constitutes a valid and binding agreement of BPC, enforceable
against it in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(ii) Acquirer has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to the receipt of all required
regulatory approvals, consents or nonobjections, as the case may be, to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action of
Acquirer and BPC. This Agreement has been duly and validly executed and
delivered by Acquirer and (assuming due authorization, execution and
delivery by the Bank) this Agreement constitutes a valid and binding
agreement of Acquirer, enforceable against it in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
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(e) No Violations. The execution, delivery and performance of this Agreement
by each of BPC and Acquirer do not, and the consummation of the transactions
contemplated hereby by BPC and Acquirer will not, constitute (i) a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of BPC, Acquirer or any other Subsidiary of BPC, or to which BPC,
Acquirer or any other of BPC's Subsidiaries (or any of their respective
properties) is subject, or enable any person to enjoin the Merger, or the
other transactions contemplated hereby, (ii) a breach or violation of, or a
default under, the certificate of incorporation, charter or by-laws or similar
organizational documents of BPC, Acquirer or any of BPC's other Subsidiaries
or (iii) a material breach or violation of, or a material default under (or an
event which with due notice or lapse of time or both would constitute a
material default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of BPC, Acquirer or any of BPC's other Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which BPC,
Acquirer or any of BPC's other Subsidiaries is a party, or to which any of
their respective properties or assets may be bound or affected.
(f) Consents and Approvals. Except for (A) the filing of an application with
the OTS and approval of such application, (B) the filing with the Department
of Justice, the FDIC, the Federal Reserve Bank and the Comptroller of the
Currency of the OTS application, and (C) the filing of the Articles of
Combination, no consents or approvals of or filings or registrations with any
Governmental Entity or with any third party are necessary in connection with
the execution and delivery by BPC and Acquirer of this Agreement and the
consummation by BPC and Acquirer of the Merger and the other transactions
contemplated hereby, and BPC knows of no reason why the Requisite Regulatory
Approvals (as defined in Section 5.1(b)) should not be obtained.
(g) Board Action. Each of the boards of directors of BPC and Acquirer, by
the requisite vote, has (i) determined that the Merger is advisable and in the
best interests of BPC, Acquirer and their respective stockholders and (ii)
approved this Agreement and the Merger and the transactions contemplated
hereby.
(h) Financial Statements and Reports. BPC has timely filed all required
forms, reports, statements and documents with the SEC, all of which have
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. BPC has delivered or made available to
the Bank true and complete copies of (i) BPC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, (ii) its proxy statement relating to
BPC's annual stockholders meeting held April 30, 1997, (iii) its shelf
registration statement on Form S-4 (the "Registration Statement"), declared
effective by the SEC on June 20, 1997, (iv) all other forms, reports,
statements and documents filed by BPC with the SEC since January 1, 1996, and
(v) all reports, statements and other information provided by BPC to its
shareholders since January 1, 1996 (collectively, the "BPC Reports"). As of
their respective dates, the BPC Reports did 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 therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of BPC included or incorporated by reference in the BPC
Reports were prepared in accordance with GAAP applied on a consistent basis
(except as otherwise stated in such financial statements or, in the case of
audited statements, the related report thereon of independent certified public
accounts), and present fairly the financial position and results of
operations, cash flows and of changes in stockholders' equity of BPC and its
consolidated subsidiaries as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to normal
year-end audit adjustments, none of which either singly or in the aggregate
are or will be material, and except that the unaudited interim financial
statements do not contain all of the disclosures required by GAAP. BPC is and
has been subject to the reporting requirements of the Exchange Act and has
timely filed with the SEC all periodic reports required to be filed by it
pursuant thereto and all reports required to be filed under Sections 13, 14 or
15(d) of the Exchange Act since January 1, 1996.
(i) Absence of Certain Changes or Events. Except as disclosed on Schedule
3.3(i) or any other Schedule delivered pursuant to this Agreement, since
December 31, 1996, (A) BPC and Acquirer have conducted their
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respective businesses only in the ordinary and usual course of such businesses
consistent with prudent banking practice, and (B) there has not been any
change in the assets, liabilities, financial condition, properties, business,
or results of operations of BPC or Acquirer as a whole, or any occurrence,
development or event of any nature (including without limitation any
earthquake or other act of God), which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect on BPC
or Acquirer.
(j) Absence of Regulatory Actions. Except as set forth in Schedule 3.3(j),
neither BPC or Acquirer 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, Government Regulators nor has it been
advised by any Government Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
(k) Compliance with Laws. Except as set forth in Schedule 3.3(k), BPC,
Acquirer and each of their Subsidiaries:
(i) holds and has at all times held all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it
to carry on its business as it is presently conducted, except where the
failure to hold or make any such permit, license, certificate of authority,
order, approval, filing, application or registration, as applicable,
individually or in the aggregate, would not have or be reasonably likely to
have a Material Adverse Effect on BPC or Acquirer; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and, to the knowledge of BPC or Acquirer, no suspension or
cancellation of any of them is threatened; and
(ii) is in compliance, in the conduct of its business, with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to
the employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, the Americans With
Disabilities Act, all other applicable fair lending laws or other laws
relating to discrimination and the Bank Secrecy Act, except where the
failure to be in compliance with any of the foregoing would not,
individually or in the aggregate, have or be reasonably likely to have a
Material Adverse Effect on BPC or Acquirer.
(l) Community Reinvestment Act. Acquirer received a rating of "satisfactory"
in its most recent examination or interim review with respect to the Community
Reinvestment Act. Acquirer has not been advised of any supervisory concerns
regarding Acquirer's compliance with the Community Reinvestment Act.
(m) Proxy Statement/Prospectus. The information that BPC, Acquirer and any
of their Subsidiaries provides in writing to the Bank for the specific purpose
of inclusion in the Proxy Statement/Prospectus, at the date of mailing to the
Stockholders and the date of the meeting of the Stockholders to be held in
connection with the Merger, will be in compliance with all relevant rules and
regulations of the SEC and other Applicable Law and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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ARTICLE IV.
COVENANTS
Section 4.1. Acquisition Proposals. (a) The Bank agrees that neither it nor
any of its Subsidiaries shall authorize or permit any of its officers,
directors, employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
any of its Subsidiaries) to directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal
offer (including, without limitation, any proposal, tender offer or exchange
offer to Stockholders of the Bank) with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant
portion of the assets, deposits or any equity securities of, the Bank or any
of its Subsidiaries (any such proposal or offer being hereinafter referred to
as an "Acquisition Proposal") or, except to the extent legally required for
the discharge by the Bank's board of directors of its fiduciary duties as
advised by such board's counsel with respect to an unsolicited offer from a
third party, engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any person relating to
an Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal. The Bank will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties (other than BPC or Acquirer) conducted heretofore with
respect to any of the foregoing. The Bank will take the necessary steps to
inform promptly the appropriate individuals or entities referred to in the
first sentence hereof of the obligations undertaken in this Section 4.1. The
Bank agrees that it will notify BPC and Acquirer immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with the Bank or any of its Subsidiaries, and the Bank
shall promptly thereafter provide the details of any such communication to BPC
and Acquirer in writing. The Bank also agrees that it promptly shall request
each other person (other than BPC and Acquirer) that has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring
the Bank or any of its Subsidiaries to return all confidential information
heretofore furnished to such person by or on behalf of the Bank or any of its
Subsidiaries and enforce any such confidentiality agreements.
(b) Notwithstanding the foregoing, in the event that the Bank receives a
bona fide proposal relating to the possible acquisition of the Bank (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise)
or any material portion of its capital stock or assets by any person other
than BPC and Acquirer, which proposal is, in the reasonable good faith
judgment of the Board of Directors of the Bank, financially more favorable to
the Stockholders of the Bank than the terms of the Merger (a "Superior
Proposal"), nothing contained in this Agreement shall prevent the Board of
Directors of the Bank from providing information to the party making the
Superior Proposal, communicating the Superior Proposal to the Stockholders of
the Bank or making a recommendation in favor of the Superior Proposal if the
Board of Directors of the Bank determines in good faith, after consultation
with legal counsel, that such action or actions are required by reason of the
fiduciary duties of the members of the Board of Directors of the Bank to the
Stockholders of the Bank under Applicable Law. The Bank shall immediately
notify BPC and Acquirer, however, of each proposal it may so receive to afford
BPC and Acquirer the opportunity to counter with a proposal that is equal to
or better than any Superior Proposal that the Bank may receive. Should the
Bank accept a Superior Proposal to the detriment of the interests of BPC and
Acquirer hereunder, BPC and Acquirer would suffer direct and substantial
damages, which damages cannot be determined with reasonable certainty.
Therefore, the Bank shall pay to BPC and Acquirer the amount of $500,000 as
liquidated damages (which amount will, in part, reimburse BPC and Acquirer for
their expenses incurred in connection with the Merger). The parties
acknowledge that actual damages are uncertain and difficult to predict under
the circumstances and intend this provision to comprise all monetary damages
payable to BPC by the Bank in the event of a breach of this Agreement pursuant
to Section 4.1. Such an amount is reasonable under all the circumstances given
the other acquisition opportunities available to BPC and Acquirer which they
are foregoing to effect the Merger. Such payment shall be the sole obligation
of the Bank to BPC and Acquirer in connection with such an event. It is
specifically agreed that the amount to be paid pursuant to this Section 4.1
represents liquidated damages and not a penalty. Nothing in this Section 4.1
shall limit BPC's and/or Acquirer's rights to seek equitable or injunctive
relief in enforcing this Agreement.
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Section 4.2. Certain Policies of the Bank. At the request of BPC, after the
date on which all required stockholder and federal depository institution
regulatory approvals are received and prior to the Effective Time, the Bank
shall (i) to the extent consistent with GAAP and regulatory accounting
principles and requirements, in each case as applied to financial institutions
and not objected to by the Bank's independent certified public accountants,
modify its loan, litigation and real estate valuation policies and practices
(including modifying its loan classifications and levels of reserves and
establishing specific reserves on loans and REO properties) and its other
accounting methods or periods so as to be consistent with those of Acquirer
and in compliance with the Acquirer's Accelerated Asset Resolution Program
("AARP"); provided, however, that any such reserve adjustment will not be
considered in the determination of a "Material Adverse Change" as defined in
Section 5.2(b), (ii) pay or accrue certain expenses, (iii) dispose of certain
assets, and (iv) take any other action as BPC or Acquirer may reasonably
request in order to facilitate and effect the transfer of contractual and
other rights to Acquirer and the integration of the businesses and operations
of the Bank and Acquirer; provided, however, that the Bank shall not be
required to take such action unless (A) BPC and Acquirer agree in writing that
all conditions to BPC's and Acquirer's obligations to consummate the Merger
set forth in Article V hereto (other than the expiration of the 30-day
statutory waiting period following the approval of the OTS) have been
satisfied or waived, (B) the Bank shall have received a written, irrevocable
waiver by the each of BPC and Acquirer of its rights to terminate this
Agreement and (C) all of the conditions to the Bank's obligation to consummate
the Merger (other than the statutory waiting period described above) shall
have been satisfied. The Bank's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue or breached in
any respect for any purpose as a consequence of any modifications or changes
undertaken solely on account of this Section 4.2. Any action taken pursuant to
this Section 4.2 shall not be considered for purposes of the Price Adjustment
or in the determination of a Material Adverse Change as defined in Section
5.2(b) herein. Nothing contained herein shall be deemed to relieve the Bank of
its obligation to deliver the documents referred to in Section 5.2 hereof on
the Effective Date.
Section 4.3. Labor and Employment Matters. Acquirer shall have the right,
but not the obligation, to seek to employ, in its discretion, as officers and
employees of Acquirer immediately following the Effective Date all persons who
are officers and employees of the Bank immediately before the Effective Date.
All employees of the Bank who will become employees of Acquirer at the
Effective Time shall be entitled to participate in stock plans, bonus plans
and all other benefit plans of Acquirer on the same basis as other similarly
situated employees of Acquirer. Subject to the policies and procedures of
Acquirer in place at the Effective Time, each of these employees will be
credited for eligibility, participation, vesting and accrual purposes, with
such employee's respective years of past service with the Bank (or other prior
service so credited by the Bank) as though they had been employees of Acquirer
(provided that no more than 480 hours of sick leave may be carried over into
Acquirer's sick leave program).
Section 4.4. Access and Information. Upon reasonable notice and subject to
Applicable Laws relating to the exchange of information, the Bank shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of BPC and Acquirer access,
during normal business hours during the time period from the date of this
Agreement to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, the Bank shall, and shall cause its
Subsidiaries to, make available to BPC and Acquirer (i) a copy of each report,
schedule 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 the Bank is not permitted
to disclose under Applicable Law), and (ii) all other information concerning
its business, properties and personnel as BPC and Acquirer may reasonably
request. Neither the Bank 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 the Bank's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulations, 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. BPC and Acquirer will hold all
such information in confidence in accordance with the provisions of the
Confidentiality Agreement, dated May 7,
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1997, between BPC, Acquirer and the Bank (the "Confidentiality Agreement"). No
investigation by BPC, Acquirer or their representatives shall affect the
representations, warranties, covenants or agreements of the Bank set forth
herein.
Section 4.5. Regulatory Matters. (a) The parties hereto shall cooperate with
each other and use their reasonable efforts to promptly prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and governmental authorities
which are necessary or advisable to consummate the transactions contemplated
by this Agreement and to comply with the terms and conditions of all such
permits, consents, approvals and authorizations. The Bank, BPC and Acquirer
shall have the right to review in advance, and to the extent practicable each
will consult the other on, in each case subject to Applicable Laws relating to
the exchange of information, all the information relating to the Bank or BPC
and Acquirer, as the case may be, and any of their respective Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any governmental authority in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The
parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and governmental authorities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other apprised of the status of matters relating to completion of the
transactions contemplated herein.
(b) BPC, Acquirer and the Bank shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement/Prospectus or any other
statement, filing, notice or application made by or on behalf of BPC, Acquirer
or the Bank or any of their respective Subsidiaries to any governmental
authority in connection with the Merger and the other transactions
contemplated by this Agreement.
(c) The Bank shall promptly furnish BPC and Acquirer, and BPC and Acquirer
shall promptly furnish the Bank with copies of written communications received
by the Bank or BPC and Acquirer, respectively, or any of their respective
Subsidiaries, affiliates or associates (as such terms are defined in Rule
12b-2 under the Exchange Act as in effect on the date of this Agreement) from,
or delivered by any of the foregoing to, any governmental authority in respect
of the transactions contemplated hereby. The parties hereto and their
Subsidiaries shall not be required to provide access to or disclose
information where such access or disclosure would jeopardize the attorney-
client privilege of any party or any Subsidiary or would contravene any law,
rule, regulation, order, judgment, decree or binding agreement entered into
prior to the date hereof. The parties will use all reasonable efforts to make
appropriate substitute disclosure arrangements under the circumstances in
which the restrictions of the preceding sentence apply.
Section 4.6. Right to Access and Information. Upon reasonable request by the
Bank, BPC and Acquirer shall (i) make its Chief Financial Officer and
Controller available to discuss with the Bank and its representatives BPC and
Acquirer's ongoing diligence and review of the Bank's operations and (ii)
provide the Bank with written information which is similar to the written
information that the Bank reviewed in connection with this Agreement.
Section 4.7. Actions. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable efforts to take
promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
Applicable Laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
using efforts to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable governmental entities,
effecting all necessary registrations, applications and filings (including,
without limitation, filings under any applicable state securities laws) and
obtaining any required contractual consents and regulatory approvals.
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Section 4.8. Publicity. The initial press release announcing this Agreement
shall be a joint press release, and thereafter, subject to Applicable Law, the
Bank shall obtain the consent of BPC or Acquirer prior to issuing any press
releases or otherwise making any public statements, with respect to the Bank,
BPC or Acquirer or the transactions contemplated hereby.
Section 4.9. Proxy Statement/Prospectus. The Bank, BPC and Acquirer shall
promptly prepare the Proxy Statement/Prospectus, and the Bank shall promptly
mail the Proxy Statement/Prospectus to all holders of record (as of the
applicable record date) of shares of Bank Common Stock.
Section 4.10. Stockholders' Meeting. The Bank shall take all action
necessary, in accordance with Applicable Law and its Charter and By-laws, to
convene a meeting or obtain written consent of the holders of Bank Common
Stock as promptly as practicable for the purpose of considering and taking
action required by this Agreement. Except to the extent legally required for
the discharge by the board of directors of its fiduciary duties as advised by
such board's counsel, the board of directors of the Bank shall recommend that
the holders of the Bank Common Stock vote in favor of and approve the Merger
and adopt this Agreement.
Section 4.11. Notification of Certain Matters. The Bank shall give prompt
notice to BPC of: (a) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received by it or any of its Subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of operations of
the Bank and its Subsidiaries taken as a whole to which the Bank or any such
Subsidiary is a party or is subject; and (b) any Material Adverse Effect on
the financial condition, properties, business or results of operations of the
Bank and its Subsidiaries taken as a whole or the occurrence of any event
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in any such change. Each of the Bank, BPC and
Acquirer shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated
by this Agreement. BPC shall promptly give the Bank a copy of any filings BPC
makes with the SEC under the Exchange Act.
Section 4.12. Advice of Changes. Each party shall promptly advise the other
of any change or event which such party believes would or would be reasonably
likely to cause or constitute a material breach of any of its representations,
warranties or covenants contained herein. From time to time prior to the
Effective Time (and on the date prior to the Effective Date), the Bank will
promptly supplement or amend the Schedules delivered to BPC in connection with
the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to
be set forth or described in such Schedules or which is necessary to correct
any information in such Schedules which has been rendered inaccurate thereby.
No supplement or amendment to such Schedules shall have any effect for the
purpose of determining satisfaction of the conditions set forth in Section
5.2(a), hereof, or the compliance by the Bank with the covenants and
agreements made by it herein.
Section 4.13 Current Information. During the period from the date of this
Agreement to the Effective Time, the Bank will make available one or more of
its designated representatives to confer on a regular and frequent basis (not
less than weekly) with representatives of BPC and to report the general status
of the ongoing operations of the Bank and its Subsidiaries. The Bank will
promptly notify BPC of any material change in the normal course of business or
in the operation of the properties of the Bank or any of its Subsidiaries and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the
credible threat of significant litigation involving the Bank or any of its
Subsidiaries, and will keep BPC fully informed of such events. Subject to the
requirements of the law of attorney-client privilege, the Bank will deliver to
BPC and Acquirer materials prepared for Board of Directors meetings of the
Bank at least two days prior to such Board meetings.
Section 4.14. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, or to vest the Surviving Bank with full title
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to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the Merger, the proper officers and directors of each party
to this Agreement and their respective Subsidiaries shall take all such
necessary action as may be reasonably requested by BPC or Acquirer.
Section 4.15. Loans. The Bank and its Subsidiaries shall, promptly after the
end of any quarter following the date of this Agreement through the date of
the Merger, inform BPC of any commercial or multifamily loan of the Bank or
any of its Subsidiaries with a current contractual balance amount in excess of
$100,000, that becomes classified or criticized or of any non-residential loan
disclosed to BPC the categorization of which shall have changed, and also
shall provide BPC with a quarterly schedule or report indicating, by category,
the aggregate amounts of all loans of the Bank or its Subsidiaries so
classified or criticized.
Section 4.16. Actions Contrary to Tax Free Treatment. BPC, Acquirer and the
Bank will not, from the date hereof through and after consummation of the
Merger, knowingly take any action inconsistent with the qualification of the
Merger as a tax-free reorganization. Following the Effective Date, Acquirer
intends to continue the historic business of the Bank or use a significant
portion of the historic business assets of the Bank in a business.
Section 4.17. Notification of Pending OTS, State Regulator or FDIC
Exams. Within five (5) business days of receiving notification thereof, the
Bank shall notify Acquirer and BPC of any examination reviews with respect to
the Bank that are to be conducted by the OTS, State Regulator or the FDIC or
by any other governmental authority under any Applicable Law, and shall report
to Acquirer on a regular basis (subject to Applicable Law) on the preliminary
and final results of any such examination review. The Bank shall request the
consent of each governmental authority conducting any such examination to the
release of such results to BPC and Acquirer and shall use reasonable efforts
to secure such release.
Section 4.18. Transferability of BPC Common Stock. The BPC Stock
Consideration to be issued in the Merger will be issued under an effective
shelf registration statement filed under the Securities Act (the "Registration
Statement"), and, subject to the provisions of Rule 144 and Rule 145
promulgated under the Securities Act, will be freely transferable.
Section 4.19. No Manipulation of BPC Common Stock. Neither BPC, Acquirer nor
the Bank shall sell, purchase, or dispose of BPC Common Stock or any
derivative securities relating thereto having the purpose or effect of
influencing the price of BPC Common Stock prior to the Effective Date. Neither
BPC, Acquirer nor the Bank shall take any other action having the purpose or
effect of influencing the price of BPC Common Stock, unless such party has a
good faith business purpose therein.
Section 4.20. Termination of Employees. On or before the Effective Date, the
Bank will provide designated employees with notices of termination effective
no later than the Effective Date, in accordance with a termination plan
submitted by Acquirer to the Bank. The Bank shall book all costs associated
with the termination of employees in connection with the Merger on its June
30, 1997 financial statements.
Section 4.21. Indemnification Agreements. Than Bank shall not enter into any
indemnification agreements after the date hereof.
Section 4.22. Financial Statements. The Bank shall use its best efforts to
produce, as promptly as possible after June 30, 1997, its unaudited internal
report setting forth its financial results for the six months ended June 30,
1997.
Section 4.23. Insurance. BPC, Acquirer and the Bank shall cooperate with
each other and use their commercially reasonable efforts in seeking to obtain
adequate employee fidelity bonds, general business liability insurance,
employee benefit liability insurance and directors' and officers' insurance
coverage, including, but not limited to, "tail" coverage for a period of three
(3) years, for the Bank and any of its Subsidiaries and each of their
respective directors and officers. The Bank shall purchase such insurance
coverage if available and if the cost of such insurance coverage is not in
excess of $200,000; provided, that, if such coverage is in excess of
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$200,000, BPC may, in its sole discretion, agree to such cost and the Bank
shall pay $200,000 and BPC shall pay any amount in excess of $200,000. The
Bank shall only be required to include in the Price Adjustment the lesser of
the aggregate cost for all such insurance coverage referred to in this Section
4.23 and $200,000.
ARTICLE V.
CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to Each Party's Obligations. The respective
obligations of BPC, Acquirer and the Bank to effect the Merger shall be
subject to the satisfaction prior to the Effective Time of the following
conditions:
(a) This Agreement and the Merger shall have been approved by the
requisite vote of the Stockholders of the Bank in accordance with
Applicable Law.
(b) All regulatory approvals, consents and waivers required to consummate
the transactions contemplated by this Agreement (including, without
limitation, the Merger) shall have been obtained and shall remain in full
force and effect, and all applicable statutory waiting periods in respect
thereof shall have expired (all such approvals and the expirations of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(c) No party hereto shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger, or any other transaction contemplated by
this Agreement, and no litigation or proceeding shall be pending against
BPC, Acquirer or the Bank or any of their Subsidiaries seeking to prevent
consummation of the transactions contemplated hereby.
(d) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated, interpreted, applied or enforced by any
Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger, or any other transaction contemplated by this
Agreement.
(e) No stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued
and no proceedings shall have been initiated or threatened by the SEC.
(f) The BPC Common Stock Consideration shares shall have been approved
for listing by NASDAQ.
(g) The parties shall have received the opinion of Deloitte & Touche LLP
to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and such opinion shall not have been withdrawn or modified in any
material respect.
Section 5.2. Conditions to the Obligations of BPC and Acquirer. The
obligations of BPC and Acquirer to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) The representations and warranties of the Bank set forth in Section
3.2 of this Agreement shall be true and correct in all material respects as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date and except to
the extent modified by actions taken in compliance with this Agreement) as
of the Effective Date as though made on and as of the Effective Date. BPC
and Acquirer shall have received a certificate signed on behalf of the Bank
by the Chief Executive Officer and the Chief Financial Officer of the Bank,
dated the Effective Date, to the foregoing effect.
(b) The Bank shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Date, and BPC and Acquirer shall have received a
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certificate signed on behalf of the Bank by the Chief Executive Officer and
the Chief Financial Officer of the Bank, dated the Effective Date, to the
foregoing effect. The Bank shall deliver to Acquirer and BPC an unaudited
financial statement balance sheet for the six months ended June 30, 1997
that shall not reflect a "Material Adverse Change" (as defined below). For
these purposes, a "Material Adverse Change" shall occur if (i) there is an
outflow of Bank deposits at June 30, 1997, as compared to the audited
balance sheet of the Bank as of December 31, 1996, as adjusted pursuant to
Schedule 5.2(b) hereto, in excess of $10,000,000 and/or (ii) the Adjusted
Net Book Value of the Bank at June 30, 1997 is equal to or less than $3.537
million. Material Adverse Change does not include any actions taken by the
Bank pursuant to Section 4.2 that it was not otherwise obligated to take.
(c) BPC and Acquirer shall have received an opinion, dated the Effective
Date, from Manatt, Phelps & Phillips, LLP, counsel to the Bank, covering
the matters set forth on Annex 1 and containing in each case, such
customary assumptions, qualifications and limitations as are reasonably
acceptable to BPC and Acquirer. As to any matter in such opinions which
involves matters of fact, such counsel may rely upon the certificates of
officers and directors of the Bank and of public officials (as to matters
of fact), reasonably acceptable to BPC and Acquirer, provided a copy of
each such reliance certificate shall be attached as an exhibit to the
opinion of such counsel.
(d) No Requisite Regulatory Approval shall have imposed any condition or
requirement that is or would become applicable to BPC or Acquirer which BPC
or Acquirer, in its discretion, determines would be burdensome upon BPC or
Acquirer (a "Burdensome Condition") and all such Requisite Regulatory
Approvals shall be in form and substance satisfactory to BPC and Acquirer.
For purposes of this Agreement, "Burdensome Condition" shall include
without limitation: (i) any requirement that BPC or Acquirer execute any
form of guarantee, capital maintenance or similar agreement, or undertake
any similar obligation, by reason of or with respect to the Merger; (ii)
the continuation after the Effective Time or application to the Surviving
Bank of any PCA restriction, capital restoration plan or PCA or other
regulatory order, directive or restriction by reason of the Merger; and
(iii) the continuation after the Effective Time or application to the
Surviving Bank of the C&D. The C&D and any PCA order, directive or other
regulatory restriction, and all enforcement proceedings, applicable to the
Bank shall have been terminated by the OTS, or the FDIC as applicable, as
of the Effective Time and shall have no further force or effect.
(e) BPC and Acquirer shall be satisfied that the Bank Stock Plan and the
Kellogg Option have been canceled and are no longer in force or effect.
(f) BPC and Acquirer shall be satisfied that the general release from
liabilities executed by Mr. Daniel E. Wolfus and previously delivered to
BPC and Acquirer is in effect and enforceable.
Section 5.3. Conditions to the Obligation of the Bank. The obligation of the
Bank to effect the Merger shall be subject to the satisfaction or waiver prior
to the Effective Time of the following additional conditions:
(a) The representations and warranties of BPC and Acquirer set forth in
this Agreement shall be true and correct in all material respects as of the
date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Effective Date as though
made on and as of the Effective Date. The Bank shall have received
certificates signed on behalf of BPC and Acquirer by the Chief Executive
Officer and the Chief Financial Officer of BPC and Acquirer, respectively,
dated the Effective Date, to the foregoing effect.
(b) BPC and Acquirer shall have performed, in all material respects, each
of its covenants and agreements contained in this Agreement. The Bank shall
have received a certificate signed on behalf of BPC and Acquirer by the
Chief Executive Officer and the Chief Financial Officer of BPC and
Acquirer, respectively, dated the Effective Date, to the foregoing effect.
(c) The Bank shall have received an opinion, dated the Effective Date,
from Gibson, Dunn & Crutcher LLP, counsel to BPC and Acquirer, covering the
matters set forth on Annex 2 and containing in each case
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such customary assumptions, qualifications and limitations as are
reasonably acceptable to the Bank. As to any matter in such opinions which
involves matters of fact, such counsel may rely upon the certificates of
officers and directors of BPC or Acquirer and of public officials (as to
matters of fact), reasonably acceptable to the Bank, provided a copy of
each such reliance certificate shall be attached as an exhibit to the
opinion of such counsel.
(d) The Bank shall have obtained an updated fairness opinion of Smith &
Crowley within five (5) days prior to the mailing of the Proxy
Statement/Prospectus to the Stockholders confirming that the consideration
to be paid to the Stockholders in the Merger is fair from a financial point
of view to the Stockholders.
(e) There shall not have occurred any event that has had or would be
reasonably likely to have a Material Adverse Effect on BPC or Acquirer
since March 31, 1997.
ARTICLE VI.
TERMINATION
Section 6.1. Termination. This Agreement may be terminated, and the Merger
abandoned, prior to the Effective Date, either before or after its approval by
the Stockholders of the Bank:
(a) by the mutual consent of BPC, Acquirer and the Bank in writing, if
the board of directors of each so determines by vote of a majority of the
members of its entire board;
(b) by BPC, Acquirer or the Bank by written notice to the other party if
either (i) any request or application for a Requisite Regulatory Approval
shall have been denied or (ii) any Governmental Entity of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the transactions contemplated by this
Agreement;
(c) by BPC, Acquirer or the Bank, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event that
the Merger is not consummated by September 30, 1997 unless the failure to
so consummate by such time is due to the breach of any material
representation, warranty or covenant contained in this Agreement by the
party seeking to terminate;
(d) by BPC, Acquirer or the Bank, if any approval of the Stockholders of
the Bank required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of such Stockholders or at any adjournment or postponement
thereof;
(e) by BPC, Acquirer or the Bank (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty days following written notice to the party committing such breach,
or which breach, by its nature, cannot be cured prior to the Effective
Time, unless such breach is waived by the non-breaching party; provided,
however, that neither party shall have the right to terminate this
Agreement pursuant to this Section 6.1(e) unless the breach of
representation or warranty, together with all other such breaches, would
entitle the party receiving such representation not to consummate the
transactions contemplated hereby pursuant to Section 5.2(a) (in the case of
a breach of representation or warranty by the Bank) or Section 5.3(a) (in
the case of a breach of representation or warranty by BPC or Acquirer);
(f) by BPC, Acquirer or the Bank (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements set forth in this Agreement on
the part of the other party, which breach shall not have been cured or is
incapable of being cured within thirty days following receipt by the
breaching party of written notice of such breach from the other party
hereto;
(g) by BPC or Acquirer, if Section 5.2(b) herein is not satisfied and by
the Bank, if Section 5.3(e) is not satisfied; or
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(h) by the Bank, if Market Value Per BPC Share shall be less than eight
($8) dollars per share.
Section 6.2. Effect of Termination.
(a) In the event of the termination of this Agreement as specified in
Section 6.1 hereof by either BPC, Acquirer or the Bank, as provided above,
this Agreement shall thereafter become void and there shall be no liability
on the part of any party hereto or their respective officers or directors;
notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damage arising
out of its willful breach of any provisions of this Agreement, except that
the Bank shall only be liable to BPC or Acquirer for any such willful
breach to the extent provided in Section 6.2(b).
(b) In the event of the termination of this Agreement by BPC or Acquirer,
where such termination is the result of a willful breach by the Bank of any
of its obligations hereunder or the failure by the Bank to obtain the
requisite vote of its Stockholders to approve the Merger, then the Bank
shall pay to BPC, as liquidated damages, the sum of $500,000. The parties
acknowledge that actual damages are uncertain and difficult to predict
under the circumstances and intend this provision to comprise all monetary
damages payable to BPC by the Bank in the event of a willful breach of this
Agreement. Such an amount is reasonable under all the circumstances given
the other acquisition opportunities available to BPC and Acquirer which
they are foregoing to effect the Merger. Such payment shall be the sole
obligation of the Bank to BPC and Acquirer in connection with such an
event. It is specifically agreed that the amount to be paid pursuant to
this Section 6.2 represents liquidated damages and not a penalty. Nothing
in this Section 6.2 shall limit BPC's and/or Acquirer's rights to seek
equitable or injunctive relief in enforcing this Agreement.
(c) Notwithstanding any other provision herein, the next to the last
sentence of Sections 4.4, 6.2, 9.2 and Section 9.6, in its entirety, shall
survive any termination of this Agreement.
ARTICLE VII.
INTENTIONALLY OMITTED
ARTICLE VIII.
EFFECTIVE DATE AND EFFECTIVE TIME
Section 8.1. Effective Date and Effective Time. On such date as BPC and
Acquirer select, which shall be within five (5) business days after the last
to occur of the expiration of all applicable waiting periods in connection
with the Requisite Regulatory Approvals and the satisfaction or waiver of all
other conditions to the consummation of this Agreement (other than those
conditions relating to the receipt of officer's certificates, attorneys'
opinions or accountants' letters), or on such earlier or later date as may be
agreed in writing by the parties, the Articles of Combination shall be
executed in accordance with all appropriate legal requirements and shall be
filed as required by law, and the Merger provided for herein shall become
effective upon the date and time specified in the endorsement of the Articles
of Combination by the OTS. The date of such endorsement, which shall not be
later than the Closing Date, is herein called the "Effective Date". The
"Effective Time" of the Merger shall be the time specified in such
endorsement.
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<PAGE>
ARTICLE IX.
OTHER MATTERS
Section 9.1. Interpretation. When a reference is made in this Agreement to
Sections or Annexes, such reference shall be to a Section of, or Annex to,
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for ease of reference only and shall not
affect the meaning or interpretation of this Agreement. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall
be deemed followed by the words "without limitation". Any singular term in
this Agreement shall be deemed to include the plural, and any plural term the
singular.
Section 9.2. Waiver. Prior to the Effective Time, any provision of this
Agreement may be: (i) waived by the party benefited by the provision; or (ii)
amended or modified at any time by an agreement in writing between the parties
hereto approved by their respective boards of directors, except that, after
the vote by the Stockholders of the Bank, no amendment may be made that would
contravene any provision of HOLA or Applicable Law.
Section 9.3. Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
Section 9.4. Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of California without
regard to the conflict of law principles thereof. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of
California and the Federal courts of the United States of America located in
the State of California solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred
to in this Agreement and in respect of the transactions contemplated herein,
and hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a California State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the
person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 9.6 or in such other manner as
may be permitted by law, shall be valid and sufficient service thereof.
Section 9.5. Expenses. Without limiting or affecting the remedies available
to the parties hereunder, each party hereto will bear all expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby.
The expenses of printing and mailing the Proxy Statement/Prospectus will be
shared equally by BPC and the Bank.
Section 9.6. Notices. All notices, requests, acknowledgments and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
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<PAGE>
If to the Bank, to:
Hancock Savings Bank, FSB
3550 Wilshire Boulevard
Los Angeles, California 90010
(213) 383-2200
(213) 383-1193 (Fax)
Attention: Kathleen Kellogg
President and Chief Executive Officer
With copies to:
William T. Quicksilver, Esq.
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-4000
(310) 312-4224 (Fax)
If to BPC or Acquirer, to:
Fidelity Federal Bank, A Federal Savings Bank
4565 Colorado Boulevard
Los Angeles, CA 90039
(818) 549-3194
(818) 549-3525 (Fax)
Attention: Bill Sanders
Chief Financial Officer
With a copy to:
Godfrey B. Evans, Esq.
General Counsel
Bank Plus Corporation
4565 Colorado Boulevard
Los Angeles, CA 90039
(818) 549-3330
(818) 549-3559 (Fax)
and
Dhiya El-Saden, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
(213) 229-7196
(213) 229-6196 (Fax)
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<PAGE>
Section 9.7. Entire Agreement; Binding Agreement; Third Parties. This
Agreement, together with all agreements referred to herein, including the
Confidentiality Agreement, represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes
any and all other oral or written agreements heretofore made. All terms and
provisions of the Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Except as to Sections 1.3 and 1.4 which are intended to benefit the
Stockholders, nothing in this Agreement is intended to confer upon any other
person (including, without limitation, employees of the Bank) any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 9.8. Assignment. This Agreement may not be assigned by any party
hereto without the written consent of the other parties.
Section 9.9. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
Section 9.10. Construction of Agreement. No party hereto, nor its respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions of this Agreement, and all provisions of this
Agreement shall be construed in accordance with their fair meaning, and not
strictly for or against any party hereto.
Section 9.11. Survival. All representations and warranties shall be deemed
to be conditions of this Agreement and shall not survive the Effective Time.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
BANK PLUS CORPORATION,
a Delaware corporation
By: /s/ Richard M. Greenwood
__________________________________
Name: Richard M. Greenwood
Title: Chief Executive Officer
and President
FIDELITY FEDERAL BANK,
A Federal Savings Bank
By: /s/ James E. Stutz
__________________________________
Name: James E. Stutz
Title: President
HANCOCK SAVINGS BANK,
a Federal Savings Bank
By: /s/ Kathleen L. Kellogg
__________________________________
Name: Kathleen L. Kellogg
Title: Chief Executive Officer
and President
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<PAGE>
ANNEX 1
MATTERS TO BE COVERED IN OPINION OF
MANATT, PHELPS & PHILLIPS, LLP
[SUBJECT TO STANDARD EXCEPTIONS AND QUALIFICATIONS]
(a) The Bank is an existing federal savings bank, organized under the Home
Owners' Loan Act of 1933, as amended, in good standing under the laws of the
United States of America and a member in good standing of the Federal Home
Loan Bank (the "FHLB") System. The deposit accounts of the Bank are insured by
the Federal Deposit Insurance Corporation (the "FDIC") through the Savings
Association Insurance Fund (the "SAIF") to the fullest extent permitted by
law.
(b) To the best of such counsel's knowledge, there are no outstanding
options, calls or commitments relating to shares of capital stock of the Bank
or any of its Subsidiaries or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any person any
right (including, without limitation, preemptive rights) to subscribe for or
acquire from it, any shares of capital stock of the Bank or any of its
Subsidiaries; provided, however, that such counsel has assumed, without
independent investigation, that, in the case of each agreement entered into by
a holder of options or warrants to purchase shares of Bank Common Stock which
agreement provides for the termination of such option or warrant, such
agreement is a valid agreement of such holder, binding on and enforceable
against such holder in accordance with its terms, and that the Bank will
comply with all of its obligations under each such agreement that call for any
action by the Bank on or following the date of this opinion.
(c) The execution and delivery of the Agreement by the Bank and the
consummation by the Bank of the transactions provided for therein have been
duly authorized by all requisite corporate action on the part of the Bank. The
Bank has the corporate power and authority to execute and deliver the
Agreement and to consummate the transactions contemplated thereby.
(d) The Agreement has been executed and delivered by the Bank and is a valid
and binding obligation of the Bank and the Bank, enforceable against the Bank
in accordance with its terms, except as enforcement thereof may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
including without limitation, statutory or other laws regarding fraudulent or
preferential transfers, now or hereafter in effect relating to or affecting
creditors' rights generally, and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
(e) The execution, delivery and performance by the Bank of the Agreement and
the consummation by the Bank of the transactions contemplated thereby will not
result in or constitute a violation of or a default under (i) the Charter or
By-Laws or similar organizational documents of the Bank or any of its
Subsidiaries, or (ii) any judgment, decree or order to which the Bank or any
of its Subsidiaries is subject, or any note, bond, indenture, loan agreement
or other agreement or instrument to which the Bank or any of its Subsidiaries
is a party, in each case in this subsection (ii), of which such counsel has
knowledge and which the Bank has advised such counsel in connection with this
transaction is material to the business or financial condition of the Bank and
its Subsidiaries taken as a whole.
(f) Under the laws of the United States of America applicable to the Bank by
reason of the Bank being a federal savings bank, no consent or approval of, or
other action by or filing with, any court or administrative or governmental
body which has not been obtained, taken or made is required on the part of the
Bank for the Bank to execute and deliver the Agreement and to consummate the
transactions provided for therein, other than any such consent, approval,
action or filing (i) the absence of which is not expected by such counsel,
based upon such counsel's knowledge of the relevant facts, to have any
material adverse effect on the Bank or the Surviving Bank or to deprive BPC of
any material benefit under the Agreement or (ii) which can be readily obtained
without significant delay or expense to BPC, without loss to BPC of any
material benefit under the Agreement and without any material adverse effect
on BPC, the Bank or the Surviving Bank during the period such consent,
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<PAGE>
approval, action or filing was not obtained or effected. The foregoing opinion
relates only to consents, approvals, actions and filings required under (i)
laws which are specifically referred to in this opinion, (ii) laws which, in
such counsel's experience, are normally applicable to transactions of the type
provided for in the Agreement, and (iii) court orders and judgments disclosed
to such counsel by the Bank in connection with this opinion.
(g) The Proxy Statement/Prospectus, insofar as it constituted a proxy
statement for the special meeting of the Bank's stockholders (the "Special
Meeting"), as of the date thereof, appeared on its face to be appropriately
responsive in all material respects to the requirements of the rules and
regulations of the OTS expressly applicable to the Bank except that such
counsel need express no opinion as to (i) the financial statements, schedules
and other financial, numerical and statistical data included in the Proxy
Statement/Prospectus, (ii) the exhibits to any document incorporated by
reference into the Proxy Statement/Prospectus or (iii) information relating to
BPC, the Acquirer or any of their Subsidiaries which was included in the Proxy
Statement/Prospectus, and such counsel need not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Proxy Statement/Prospectus or any documents included therein.
(h) Assuming due authorization of the Merger by BPC and Acquirer, upon the
filing of the Articles of Combination with the OTS and endorsement by the OTS
of the Articles of Combination in accordance with the Agreement, the Merger
will be effective in accordance with the federal banking laws.
In connection with the Merger, such counsel participated in conferences with
certain officers and other representatives of the Bank at which the contents
of the Proxy Statement/Prospectus and related matters were discussed and
although such counsel is not passing upon and do not assume any responsibility
for the accuracy, fairness or completeness of the statements contained in the
Proxy Statement/Prospectus or any information on which they purport to be
based and made no independent check or verification thereof, on the basis of
the foregoing, no facts have come to the attention of the lawyers within such
counsel's firm responsible for the transaction which would lead such counsel
to believe that, as to the investment decision made by the Bank's
stockholders, the Proxy Statement/Prospectus as of the date on which it was
mailed to the Stockholders of the Bank and on the date of the Special Meeting
contemplated thereby, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that such counsel need express no belief
with respect to (i) the financial statements, schedules and other financial,
numerical and statistical data included in or incorporated by reference into
the Proxy Statement/Prospectus, (ii) the exhibits thereto and the exhibits to
any document incorporated by reference into the Proxy Statement/Prospectus,
(iii) the documents incorporated by reference therein or (iv) any information
relating to BPC, Acquirer or any of BPC's other Subsidiaries contained
therein.
Whenever such counsel's opinion with respect to the existence or
nonexistence of facts is qualified by the phrase "to such counsel's
knowledge," or any similar phrase implying a limitation on the basis of
knowledge, such phrase means only that the individual attorneys in such firm
who devoted substantive attention to the transactions contemplated by the
Agreement do not have actual knowledge that the facts as stated herein are
untrue. Unless otherwise expressly stated herein, such persons have not
undertaken any investigation to determine the existence or nonexistence of
such facts, and no inference as to the extent of their knowledge should be
drawn from the fact of their representation of the Bank or any of its
Subsidiaries in this or any other instance.
Such counsel need express no opinion as to the laws of any jurisdiction
other than the federal laws of the United States of America concerning federal
savings banks and the Laws of the State of California.
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ANNEX 2
MATTERS TO BE COVERED IN OPINION OF GIBSON, DUNN & CRUTCHER LLP
[SUBJECT TO STANDARD EXCEPTIONS AND QUALIFICATIONS]
(a) BPC has been organized and is existing and in good standing as a
corporation under the laws of the State of Delaware.
(b) Acquirer is an existing federal savings bank, organized under the Home
Owners' Loan Act of 1933, as amended, and in good standing under the laws of
the United States of America and a member in good standing of the Federal Home
Loan Bank (the "FHLB") System. The deposit accounts of Acquirer are insured by
the Federal Deposit Insurance Corporation (the "FDIC") through the Savings
Association Insurance Fund (the "SAIF") to the fullest extent permitted by
law.
(c) All of the outstanding shares of BPC Common Stock are, and all shares to
be issued pursuant to the Agreement will be, duly authorized, validly issued,
fully paid and nonassessable, and are, or will be when issued, free of
preemptive rights.
(d) The execution and delivery of the Agreement by each of BPC and Acquirer
and the consummation by each of BPC and Acquirer of the transactions provided
for therein have been duly authorized by all requisite corporate action on the
part of each of BPC and Acquirer.
(e) Each of BPC and Acquirer has the corporate power and authority to
execute and deliver the Agreement and to consummate the transactions
contemplated thereby.
(f) The Agreement has been executed and delivered by each of BPC and
Acquirer and is a valid and binding obligation of each of BPC and Acquirer,
enforceable against each of BPC and Acquirer in accordance with its terms,
except as enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws including without limitation,
statutory or other laws regarding fraudulent or preferential transfers, now or
hereafter in effect relating to or affecting creditors' rights generally, and
(ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(g) No consent or approval of, or other action by or filing with, any court
or administrative or governmental body that has not been obtained, taken or
made is required under the laws of the United States of America or the laws of
the State of Delaware or any court order or judgment specifically applicable
to BPC or Acquirer and actually known to such counsel, for BPC and Acquirer to
execute and deliver the Agreement and to consummate the transactions provided
for therein, other than any such consent, approval, action or filing (i) that
may be required as a result of your involvement in the transactions
contemplated by the Agreement because of any other facts specifically
pertaining to you, (ii) the absence of which is not expected by such counsel,
based upon such counsel's actual knowledge of the relevant facts, to have any
material adverse effect on BPC or Acquirer, the Bank or the Surviving Bank or
to deprive you of any material benefit under the Agreement, or (iii) that can
be readily obtained without significant delay or expense to BPC or Acquirer,
without loss to BPC or Acquirer of any material benefit under the Agreement
and without any material adverse effect on BPC or Acquirer during the period
such consent, approval, action or filing was not obtained or effected. The
foregoing opinion relates only to consents, approvals, actions and filings
required under (i) laws which are specifically referred to in this opinion,
(ii) laws that, in such counsel's experience, are normally applicable to
transactions of the type provided for in the Agreement, and (iii) court orders
and judgments disclosed to such counsel by BPC or Acquirer in connection with
this opinion.
(h) The execution, delivery and performance by BPC and Acquirer of, and the
consummation by BPC and Acquirer of the transactions contemplated by the
Agreement will not result in or constitute a violation of or a default under
(i) the Certificate of Incorporation or By-Laws or similar organizational
documents of BPC, Acquirer or any of their Subsidiaries, or (ii) any judgment,
decree or order to which BPC, Acquirer or any of
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their Subsidiaries is subject, or any note, bond, indenture, loan agreement or
other agreement or instrument to which BPC, Acquirer or their Subsidiaries is
a party, in each case in this subsection (ii), which is set forth on the
attached list as one of such documents which is material to the business or
financial condition of BPC, Acquirer and their Subsidiaries taken as a whole.
(i) Assuming due authorization of the Merger by the Bank, upon the filing of
the Articles of Combination with the OTS and endorsement by the OTS of the
Articles of Combination in accordance with the Agreement, the Merger will be
effective in accordance with the federal banking laws.
(j) The Proxy Statement/Prospectus, insofar as it constituted a prospectus
for the special meeting of the Bank's stockholders (the "Special Meeting"), as
of the date thereof, appeared on its face to be appropriately responsive in
all material respects to the requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, expressly
applicable to BPC except that such counsel need express no opinion as to (i)
the financial statements, schedules and other financial, numerical and
statistical data included in the Proxy Statement/Prospectus, (ii) the exhibits
to any document incorporated by reference into the Proxy Statement/Prospectus
or (iii) information relating to the Bank which was included in the Proxy
Statement/Prospectus, and such counsel need not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Proxy Statement/Prospectus or any documents included therein.
In connection with the Merger, such counsel participated in conferences with
certain officers and other representatives of BPC and Acquirer at which the
contents of the Proxy Statement/Prospectus and related matters were discussed
and although such counsel need not passing upon and does not assume any
responsibility for the accuracy, fairness or completeness of the statements
contained in the Proxy Statement/Prospectus or any information on which they
purport to be based and made no independent check or verification thereof, on
the basis of the foregoing, no facts have come to the attention of the lawyers
within such counsel's firm responsible for the transaction which would lead
such counsel to believe that the Proxy Statement/Prospectus as of the date on
which it was mailed to the Stockholders of the Bank and on the date of the
Special Meeting contemplated thereby, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that such
counsel need express no belief with respect to (i) the financial statements,
schedules and other financial, numerical and statistical data included in or
incorporated by reference into the Proxy Statement/Prospectus, (ii) the
exhibits thereto and the exhibits to any document incorporated by reference
into the Proxy Statement/Prospectus, (iii) the documents incorporated by
reference therein or (iv) any information relating to the Bank or any of the
Bank's Subsidiaries contained therein.
Whenever such counsel's opinion with respect to the existence or
nonexistence of facts is qualified by the phrase "to such counsel's
knowledge," or any similar phrase implying a limitation on the basis of
knowledge, such phrase means only that the individual attorneys in such firm
who devoted substantive attention to the transactions contemplated by the
Agreement do not have actual knowledge that the facts as stated herein are
untrue. Unless otherwise expressly stated herein, such persons have not
undertaken any investigation to determine the existence or nonexistence of
such facts, and no inference as to the extent of their knowledge should be
drawn from the fact of their representation of BPC and Acquirer or any of its
Subsidiaries in this or any other instance.
Such counsel need express no opinion as to the laws of any jurisdiction
other than the federal laws of the United States of America concerning federal
savings banks, the General Corporation Law of the State of Delaware and the
Laws of the State of California.
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ANNEX B
SECTION 552.14--DISSENTERS' 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 (S) 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 (S) 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 the
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 associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of
the effective date 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 (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 therefor 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
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(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 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 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 purpose nor be entitled to the
payment of dividends or other distributions on the stock (except dividends or
other distribution payable 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.
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ANNEX C
FAIRNESS OPINION OF SMITH & CROWLEY
[LETTERHEAD OF SMITH & CROWLEY INC.]
June 30, 1997
Board of Directors
Hancock Savings Bank, F.S.B.
3550 Wilshire Blvd., Suite 700
Los Angeles, CA 90010
Members of the Board:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, $6.40 par value per share (the "Shares"),
of Hancock Savings Bank, F.S.B. (the "Bank") of the purchase price of
approximately $9.00, payable in common stock offered by Bank Plus Corporation
to be received for each Share (the "Purchase Price"), subject to specified
Price Adjustment factors, pursuant to the merger (the "Merger") contemplated
by the Agreement and Plan of Merger dated as of June 25, 1997, between Bank
Plus Corporation ("BPC") and the Bank (the "Agreement").
Smith & Crowley Inc. ("SCI") is an investment banking firm specializing in
commercial banks, savings and loan associations, savings banks, and other
financial intermediaries, and, as part of its investment banking activities,
is called upon to advise clients in mergers, acquisitions, valuations, and
business activities involving financial institutions. SCI has had no prior
business relationship with either the Bank or BPC or its subsidiaries. In its
capacity as advisor to the Board of Directors of the Bank for purposes of
evaluating the fairness of the proposed Agreement, SCI will receive a fee of
$20,000.
You have asked for our opinion as to whether the Consideration to be
received by the stockholders of the Bank pursuant to the Merger is fair to
such stockholders of the Bank from a financial point of view, as of the date
hereof.
In connection with our opinion, we have, among other things:
(i) reviewed certain publicly available financial and other data with
respect to the Bank and BPC, including the annual audited consolidated
financial statements for 1992 through 1996, unaudited interim periods to
March 31, 1997, and certain other relevant financial and operating data
relating to the Bank and BPC made available to us from published sources
and from the internal records of and/or communications with the Bank and
BPC; although BPC's publicly-available information appears thorough, our
access to non-public internal information sources was substantially
restricted by its management;
(ii) reviewed the form of the Merger Agreement and made inquiries
regarding and discussed the Merger, the Merger Agreement and other matters
related thereto with the Bank's management and counsel;
(iii) compared the Bank and BPC from a financial point of view with
certain other companies and groups of companies in the thrift and banking
industry that we deemed to be relevant;
(iv) considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the thrift industry,
which we deemed to be comparable, in whole or in part, to the Merger;
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(v) reviewed and discussed with representatives of the management of the
Bank certain information of a business and financial nature regarding the
Bank, furnished to us by them, including legal matters, credit quality
data, financial forecasts and related assumptions of the Bank;
(vi) reviewed and discussed with representatives of the management of BPC
certain primarily publicly-available information of a business and
financial nature regarding BPC, furnished to us by them concerning the
holding company and its principal affiliates and subsidiaries, including
current financial condition, credit quality data, and general business
plans;
(vii) reviewed the price history, trading volume and valuation of BPC
common stock and that of the Bank as well;
(viii) met with certain officers and advisors of the Bank and BPC to
discuss the foregoing, as well as other matters we believe relevant to our
analysis; and
(ix) considered such other information, financial data and analyses, and
economic and market criteria and performed such other analyses and
examinations as we have deemed appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. We are not experts in the evaluation of loan and
lease portfolios for the purposes of assessing the adequacy of the allowances
for losses with respect thereto and have assumed, with your consent, that such
allowances for each of the Bank and BPC are in the aggregate adequate to cover
all such losses. In addition, we have not reviewed the individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Bank or BPC or any of their subsidiaries and we have not
been furnished with any such evaluation or appraisal.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant; it is our opinion that as of the date hereof the Purchase
Price pursuant to the Agreement is fair from a financial point of view to
holders of the Shares.
Respectfully submitted,
SMITH & CROWLEY INC.
By:
/s/ Claude B. Hutchison, Jr.
----------------------------------
Claude B. Hutchison, Jr.
Managing Director
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ANNEX D
KELLOGG STOCK OPTION AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN OFFERED PURSUANT TO AN
OFFERING CIRCULAR FILED WITH AND DECLARED EFFECTIVE BY THE OFFICE OF THRIFT
SUPERVISION, BUT ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
OFFERING CIRCULAR REQUIREMENTS PURSUANT TO 12 C.F.R. (S) (S) 563G.3 AND
563G.4. DUE CARE SHOULD BE TAKEN TO ENSURE THAT THE SELLER OF THE SECURITIES
IS NOT AN UNDERWRITER WITHIN THE MEANING OF 12 C.F.R. (S) 563G.1(A)(14).
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Option Agreement") is made and entered
into as of March 25, 1997 (the "Date of Grant") by and between Hancock Savings
Bank, F.S.B. (the "Company"), and Kathleen L. Kellogg ("Optionee").
The Board of Directors of the Company (the "Board") has authorized the grant
to Optionee of an option to purchase shares of the Company's Common Stock (the
"Common Stock"), upon the terms and subject to the conditions set forth in
this Option Agreement.
The Company and Optionee agree as follows:
1. Grant of Option.
The Company hereby grants to Optionee the right and option (the "Option"),
upon the terms and subject to the conditions set forth in this Option
Agreement, to purchase all or any portion of 50,000 shares of the Common Stock
(the "Shares") for $7.46 per share (the "Exercise Price"). However, if the
Company issues and sells shares of its Common Stock on or prior to December
31, 1997 at a price less than $7.46 per share of Common Stock (other than upon
the exercise of options pursuant to the Company's 1993 Incentive Stock Option
Plan), the Exercise Price shall be adjusted to an amount equal to the proforma
net tangible book value per share of the Company, as of the date of such
issuance and sale. The proforma net tangible book value per share shall be
based upon the financial condition of the Bank as of the last day of the
calendar month immediately preceding such issuance and sale, as set forth on
the balance sheet of Company prepared in the ordinary course of its business
in accordance with generally accepted accounting principles, applied
consistently with prior periods, adjusted as if said issuance and sale had
occurred on the last day of such month.
2. Term of Option.
The Option shall terminate and expire five years after the Date of Grant
(the "Expiration Date"), unless sooner terminated as provided herein.
3. Exercise Period.
(a) Subject to the provisions of Sections 3(b), 5 and 6(b) of this Option
Agreement, the Option shall become exercisable ("vest") as follows: 25% of
the Shares under this Option shall vest on March 1, 1998; 25% of the Shares
under this Option shall vest on March 1, 1999; 25% of the Shares under this
Option shall vest on March 1, 2000; and the remaining Shares under this
Option shall vest on March 1, 2001. The vesting shall be cumulative; i.e.,
the Option may be exercised, as to any or all Shares covered by a portion
of the Option, at any time or times after the vesting for that portion of
the Option first occurs and until expiration or termination of the Option.
Notwithstanding the foregoing, the Option shall vest in full upon the
occurrence of a Change of Control of the Company (as defined in the
Employment Agreement between the Company and the Optionee).
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(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until (i) any then-applicable requirements of all federal, state and local
laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel; and (ii) the issuance of
shares upon exercise of this Option have been approved by the Shareholders
as required by Section 5 of the Federal Stock Charter of the Company.
4. Exercise of Option.
There is no obligation to exercise the Option, in whole or in part. The
Option may be exercised, in whole or in part, only by delivery to the Company
of:
(a) written notice of exercise in form and substance identical to Exhibit
"A" attached to this Option Agreement stating the number of Shares then
being purchased (the "Purchased Shares");
(b) payment of the Exercise Price of the Purchased Shares, either (1) in
cash, or (2) with the consent of the Board (excluding the Optionee), which
may be withheld in its absolute discretion, by (i) delivery to the Company
of other shares of Common Stock with an aggregate Fair Market Value equal
to the total Exercise Price of the Purchased Shares, or (ii) in any other
form of legal consideration that may be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in a form
provided by the Company.
Following receipt of the notice and payment referred to above, the Company
shall issue and deliver to Optionee a stock certificate or stock certificates
evidencing the Purchased Shares; provided, however, that the Company shall not
be obligated to issue a fraction or fractions of a share of its Common Stock,
and may pay to Optionee, in cash or by check, the Fair Market Value of any
fraction or fractions of a share exercised by Optionee. "Fair Market Value"
shall be determined as follows: (1) if the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable; (2) if the
Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National
Market) or is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a share of Common Stock
shall be the mean between the bid and asked prices for the Common Stock on the
last market trading day prior to the day of determination, as reported in the
Wall Street Journal or such other source as the Board deems reliable; and
(3) in the absence of an established market for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board (excluding the
Optionee).
5. Termination of Services.
(a) If Optionee shall cease to be an officer and employee of the Company
for any reason other than death or permanent disability (a "Terminating
Event"), Optionee shall have the right, subject to the provisions of
Section 5(c) below, to exercise the Option at any time following such
Terminating Event until the earlier to occur of (1) 90 days following the
date of such Terminating Event and (2) the Expiration Date. The Option may
be exercised following a Terminating Event only to the extent exercisable
as of the date of the Terminating Event. To the extent unexercised at the
end of the period referred to above, the Option shall terminate. The Board
(excluding the Optionee), in its sole and absolute discretion, shall
determine whether or not authorized leaves of absence shall constitute a
Termination Event for purposes of this Option Agreement.
(b) If, by reason of death or permanent disability (a "Special
Terminating Event"), Optionee shall cease to be an officer and employee the
Company, then Optionee, Optionee's guardian, executors or administrators or
any person or persons acquiring the Option directly from Optionee by
bequest or
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inheritance, shall have the right to exercise the Option at any time
following such Special Terminating Event until the earlier to occur of (1)
one year following the date of such Special Terminating Event and (2) the
Expiration Date. The Option may be exercised following a Special
Terminating Event only to the extent exercisable at the date of the Special
Terminating Event. To the extent unexercised at the end of the period
referred to above, the Option shall terminate. For purposes of this Option
Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986. Optionee
shall not be considered permanently disabled unless she furnishes proof of
such disability in such form and manner, and at such times, as the Board
may from time to time require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company, Optionee shall have the right to exercise the Option, with respect
to all shares vested as of the date of such Terminating Event, at any time
following such Terminating Event until the earlier to occur of (1) 30 days
following the date of such Terminating Event and (2) the Expiration Date.
For purposes of this Option Agreement, "for cause" shall have the meaning
set forth in 12 C.F.R. Section 563.39(b).
6. Adjustments upon Recapitalization.
(a) Subject to the provisions of Section 6(b), if any change is made in
the Common Stock, without receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company) the Option will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to
the Option. Such adjustments shall be made by the Board (excluding the
Optionee), the determination of which shall be final, binding and
conclusive. The conversion of any convertible securities of the Company
shall not be treated as a "transaction not involving the receipt of
consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation and in
which the shareholders of the Company receive in exchange for their shares
of Common Stock consideration other than common stock of the surviving
corporation or its parent corporation; or (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board (excluding the
Optionee) and to the extent permitted by applicable law, the Option shall
(i) terminate upon such event and may be exercised prior thereto without
regard to the vesting provisions or (ii) continue in full force and effect
and, if applicable, the surviving corporation or an affiliate of such
surviving corporation shall assume the Option and/or shall substitute a
similar option in place of the Option; provided, however, that
notwithstanding the foregoing, the Option shall terminate and expire, and
not be exercisable if, on or prior to December 31, 1997, Quaker City
Bancorp acquires Control (as defined in the Employment Agreement between
the Company and Optionee) of the Company. In the event of a merger or
consolidation in which the Company is not the surviving corporation and in
which the shareholders of the Company receive common stock of the surviving
corporation or its parent corporation in exchange for their shares of
Common Stock, the Company shall cause the surviving corporation or an
affiliate of such surviving corporation to assume the Option and/or to
substitute a similar option in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board
(excluding the Optionee), and its determination shall be final, binding and
conclusive.
(d) The provisions of this Section 6 are intended to be exclusive, and
Optionee shall have no other rights upon the occurrence of any of the
events described in this Section 6.
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(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to
merge, consolidate, dissolve or liquidate, or to sell or transfer all or
any part of its business or assets.
7. Investment Intent.
Optionee represents that she is acquiring the Option, and will acquire the
Shares, for the purpose of investment and not with a view to offer for sale in
connection with to the distribution of Option or Shares.
8. Legend on Stock Certificates.
The Option and the Shares (collectively, the "Securities") are being issued
in a transaction exempt from the offering circular requirements under 12
C.F.R. Part 563g pursuant to the exemption provided by 12 C.F.R. (S) 563g.3(d)
(the non-public offering exemption). Accordingly the Securities shall be
subject to the limitations on resale required by that exemption. Optionee
acknowledges that the certificates for the Shares will bear the legend set
forth at the beginning of the Option Agreement.
Optionee agrees that all certificates representing the Purchased Shares will
be subject to such stock transfer orders and other restrictions (if any) as
the Company may deem advisable under the rules, regulations and other
requirements of the Office of Thrift Supervision, any stock exchange upon
which the Common Stock is then listed and any applicable federal or state
securities laws, and the Company may cause a legend or legends to be put on
such certificates to make appropriate reference to such restrictions.
9. No Rights as Shareholder.
Optionee shall have no rights as a shareholder with respect to the Shares
until the date of the issuance to Optionee of a stock certificate or stock
certificates evidencing such Shares. Except as may be provided in Section 6 of
this Option Agreement, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued.
10. Modification.
The Board (excluding the Optionee) may modify, extend or renew the Option or
accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of
Optionee, would alter or impair any rights of the Optionee under the Option.
11. Withholding.
(a) The Company shall be entitled to require as a condition of delivery
of any Purchased Shares upon exercise of any Option that the Optionee agree
to remit, at the time of such delivery or at such later date as the Company
may determine, an amount sufficient to satisfy all federal, state and local
withholding tax requirements relating thereto, and Optionee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the
Board, Optionee may elect to satisfy her obligations under Section 11(a)
above by (1) directing the Company to withhold a portion of the Shares
otherwise deliverable (or to tender back to the Company a portion of the
Shares issued where the Optionee (a "Section 16(b) Recipient") is required
to report the ownership of the Shares pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "Withholding Right")); or (2) tendering
other shares of the Common Stock of the Company which are
D-4
<PAGE>
already owned by Optionee which in all cases have a Fair Market Value (as
determined in accordance with the provisions of Section 4 hereof) on the
date as of which the amount of tax to be withheld is determined (the "Tax
Date") equal to the amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional
procedures and conditions set forth in this Option Agreement or otherwise
adopted by the Board:
(1) the Optionee must deliver to the Company a written notice of
election (the "Election") and specify whether all or a stated
percentage of the applicable taxes will be paid in accordance with
Section 11(b) above and whether the amount so paid shall be made in
accordance with the "flat" withholding rates for supplemental wages or
as determined in accordance with Optionee's form W-4 (or comparable
state or local form);
(2) unless disapproved by the Board (excluding the Optionee) as
provided in subsection (3) below, the Election once made will be
irrevocable; and
(3) no Election is valid unless the Board approves such Election, and
such Election may be disapproved by the Board, in its sole discretion,
with or without cause or reason therefor; provided, if the Board has
not approved or disapproved the Election on or prior to the Tax Date,
the Election will be deemed approved.
12. General Provisions.
(a) Further Assurances. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to
be reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) Notices. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Hancock Savings Bank, F.S.B.
3550 Wilshire Blvd., Suite 700
Los Angeles, California 90010-2423
Attn: Chairman of the Board
(2) If to Optionee, to the address set forth in the records of the
Company,
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
(c) Transfer of Rights under this Option Agreement. The Company may at
any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration; provided that the assignee agrees in writing to assume all
of the obligations of the Company hereunder.
(d) Option Non-Transferable. Optionee may not sell, transfer, assign or
otherwise dispose of the Option except by will or the laws of descent and
distribution, and the Option may be exercised during the lifetime of
Optionee only by Optionee or by his or her guardian or legal
representative.
D-5
<PAGE>
(e) Successors and Assigns. Except to the extent specifically limited by
the terms and provisions of this Option Agreement, this Option Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, assigns, heirs and personal representatives.
(f) Governing Law. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.
(g) Miscellaneous. Titles and captions contained in this Option Agreement
are inserted for convenience of reference only and do not constitute a part
of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant
hereto or interest herein shall be assignable by any of the parties hereto
without the prior written consent of the other party hereto.
Hancock Savings Bank, F.S.B., and Optionee each hereby agrees to be bound by
all of the terms and conditions of this Stock Option Agreement.
HANCOCK SAVINGS BANK, F.S.B.
By: /s/ Michael Noel
___________________________________
Its: Chairman of the Board
___________________________________
OPTIONEE
/s/ Kathleen L. Kellogg
_____________________________________
Kathleen L. Kellogg
_____________________________________
(Please print your name exactly as
you wish it to appear on any stock
certificates issued to you upon
exercise of the Option)
D-6
<PAGE>
ANNEX E
BANK PLUS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS AMENDED
[The Annual Report on Form 10-K for the year ended December 31, 1997, as
amended, previously filed with the SEC, is to be mailed to the stockholders of
Hancock as an annex to the Proxy Statement/Prospectus]
K-1
<PAGE>
ANNEX F
BANK PLUS FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
[The Quarterly Report Form 10-Q for the quarter ended March 31, 1997
previously filed with the SEC, is to be mailed to the stockholders of Hancock
as an annex to the Proxy Statement/Prospectus]
Q-1
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 30, 1997
PROSPECTUS
BANK PLUS CORPORATION
7,594,937 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
This Prospectus relates to 7,594,937 shares (the "Shares") of the common
stock, par value $.01 per share (the "Common Stock"), of Bank Plus Corporation
("BPC" or, together with its subsidiaries, the "Company"), that may be issued
from time to time in connection with future business combinations, acquisitions
and mergers. In general, the terms of such combinations, acquisitions and
mergers will be determined by direct negotiations between representatives of
the Company and the owners or principal executives of the companies or other
entities to be so combined, acquired or merged or the assets of which are to be
acquired, and the factors taken into account will include, among other things,
the established quality of management, earning power, cash flow, growth
potential, facilities and locations of the companies or other entities to be
acquired or merged, and the market value of the Common Stock.
The Common Stock is listed on the Nasdaq National Market under the symbol
"BPLS." The last reported sales price per share of the Common Stock, as quoted
on the Nasdaq National Market on June 27, 1997 was $10.625 per share.
------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. POTENTIAL
INVESTORS ARE URGED TO READ AND CAREFULLY CONSIDER THE MATTERS SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE NOT SAVINGS OR
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, BANK INSURANCE FUND, SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
------------
The date of this Prospectus is July , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
SUMMARY.................................................................... 3
SELECTED FINANCIAL DATA OF THE COMPANY..................................... 4
RISK FACTORS............................................................... 6
MARKET PRICES AND DIVIDENDS................................................ 12
SECURITIES COVERED BY THIS PROSPECTUS...................................... 12
LEGAL OPINION.............................................................. 13
EXPERTS.................................................................... 13
</TABLE>
i
<PAGE>
AVAILABLE INFORMATION
Bank Plus is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations
thereunder, and in accordance therewith file reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by
Bank Plus should be available for inspection and copying at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549 and at the regional offices of the Commission located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at Seven World Trade Center, New York, New York 10048. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
prescribed fees. In addition, such reports, proxy statements and other
information should be available for inspection at the Commission's Web site,
available at http://www.sec.gov.
Bank Plus became the holding company of Fidelity pursuant to a
reorganization effected in May of 1996; until that time, such reports, proxy
statements and other information were filed by Fidelity with the Office of
Thrift Supervision (the "OTS"). Reports, proxy statements and other
information filed by Fidelity should be available for inspection and copying
at the public reference facilities maintained by the OTS at the Office of
Public Information, Office of Thrift Supervision, 1700 G Street, N.W.,
Washington, D.C. 20552, and also can be obtained by written request from such
office at prescribed rates. In addition, Bank Plus' common stock is listed on
The Nasdaq National Market, and accordingly such reports, proxy statements and
other information concerning Bank Plus and Fidelity also should be available
for inspection and copying at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Bank Plus has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations thereunder, a
Registration Statement on Form S-4 (as it may be amended, the "Registration
Statement"), with respect to the Shares covered by this Prospectus. This
Prospectus does not contain all of the information contained in the
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission and to which reference is
hereby made. Any statements contained herein or in any document incorporated
by reference herein concerning the provisions of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or other document, each such statement being qualified
in its entirety by such reference. The Registration Statement (and exhibits
thereto) should be available for inspection at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore or hereafter filed with the Commission
under the Exchange Act are incorporated by reference in this Prospectus:
(1) Bank Plus' Annual Report on Form 10-K for the year ended December 31,
1996;
(2) Bank Plus' Annual Report on Form 10-K/A for the year ended December
31, 1996;
(3) Bank Plus' Quarterly Report on Form 10-Q for the quarter ended March
31, 1997;
(4) the Registration Statement on Form 8-B/A filed May 10, 1996.
All documents filed by Bank Plus pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
filing of a post-effective amendment which indicates that all Shares offered
hereby have been sold or which deregisters all such shares then remaining
unsold shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained
1
<PAGE>
herein, or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
NEIL OSBORNE, BANK PLUS CORPORATION, 4565 COLORADO BOULEVARD, LOS ANGELES,
CALIFORNIA 90039, (818) 549-3116. BANK PLUS WILL PROVIDE WITHOUT CHARGE TO ANY
PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF
SUCH PERSON TO THE ADDRESS OR TELEPHONE NUMBER LISTED ABOVE, A COPY OF ANY OR
ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED THEREIN BY
REFERENCE).
----------------
2
<PAGE>
SUMMARY
The following information is not intended to constitute a complete
description of the Company and is qualified in its entirety by, and should be
read in conjunction with, the detailed information, consolidated financial
statements and notes thereto included or incorporated by reference in this
Prospectus. Certain capitalized terms used in this Prospectus Summary are
defined elsewhere herein. Unless the context otherwise requires, all references
to the "Company" refer to Bank Plus Corporation, a Delaware corporation ("Bank
Plus"), and its consolidated subsidiaries, which include Fidelity and Gateway
Investment Services, Inc. ("Gateway"), and all references to "Fidelity" or the
"Bank" refer to Fidelity Federal Bank, A Federal Savings Bank, and its
subsidiaries, and, with respect to the period between August 3, 1994 and May 6,
1996, include Gateway which was a wholly-owned subsidiary of Citadel Holding
Corporation ("Citadel") from November 1, 1992 through August 3, 1994, a direct
wholly-owned subsidiary of Fidelity from August 4, 1994 to May 16, 1996 and a
direct wholly-owned subsidiary of Bank Plus since May 16, 1996.
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Prospectus,
including without limitation statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the continuing impact of California's economic recession on
collateral values and the ability of certain borrowers to repay their
obligations to Fidelity; the potential risk of loss associated with the Bank's
high level of nonperforming assets and other assets with increased risk;
changes in or amendments to regulatory authorities' capital requirements or
other regulations applicable to Fidelity; fluctuations in interest rates;
increased levels of competition for loans and deposits; and other factors
referred to under "Risk Factors" and elsewhere in this Prospectus and the
documents incorporated by reference herein. GIVEN THESE UNCERTAINTIES,
POTENTIAL INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-
LOOKING STATEMENTS. The Company disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements included or incorporated by reference herein to
reflect future events or developments.
THE COMPANY
Bank Plus was formed on March 14, 1996 to be the holding company of Fidelity
and Gateway. In May 1996, Fidelity completed a reorganization pursuant to which
all of the outstanding common stock of Fidelity was converted on a one-for-one
basis into all of the outstanding common stock of Bank Plus (the
"Reorganization"). Bank Plus' principal operating subsidiaries are Fidelity and
Gateway, which prior to the reorganization was a subsidiary of the Bank. Bank
Plus currently has no significant business or operations other than serving as
the holding company for Fidelity and Gateway. The principal executive offices
of Bank Plus, Fidelity and Gateway are located at 4565 Colorado Boulevard, Los
Angeles, California 90039, (818) 549-3116.
THE BANK
Fidelity offers a broad range of consumer financial services, including
demand and term deposits and loans to consumers, through 33 full-service
branches, all of which are located in Southern California, principally in Los
Angeles and Orange counties. At this time, the Bank primarily provides
residential mortgages and consumer loans, which the Bank does not underwrite or
fund, by referral to certain established providers of mortgage and consumer
loan products with which the Bank has negotiated strategic alliances.
3
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The table below sets forth certain historical financial data regarding the
Company.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........... $3,294,647 $3,279,564 $3,330,290 $3,299,444 $3,709,838 $4,389,781 $4,695,518
Total loans, net....... 2,642,217 2,878,311 2,691,931 2,935,116 3,288,303 3,712,051 3,990,449
Deposits............... 2,516,991 2,579,062 2,495,933 2,600,869 2,697,272 3,368,664 3,459,648
FHLB advances.......... 387,151 232,700 449,851 292,700 332,700 326,400 581,400
Other borrowings....... 140,000 209,900 140,000 150,000 500,000 407,830 327,000
Preferred stock issued
by consolidated
subsidiary............ 51,750 -- 51,750 -- -- -- --
Subordinated notes..... -- -- -- -- -- 60,000 60,000
Stockholders' equity... 161,993 227,539 161,657 229,043 156,547 182,284 220,171
Stockholders' equity
per common
share(1)(2)........... 8.88 12.47 8.86 9.72(3) 24.11 173.51 209.57
Common shares
outstanding(1)(2)..... 18,245,265 18,242,465 18,245,265 18,242,465 6,492,465 1,050,561 1,050,561
OPERATING DATA:
Interest income........ $ 58,707 $ 60,052 $ 237,913 $ 246,477 $ 241,465 $ 289,331 $ 370,715
Interest expense....... 38,350 38,214 152,623 174,836 155,828 188,494 240,124
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.... 20,357 21,838 85,290 71,641 85,637 100,837 130,591
Provision for estimated
loan losses........... 4,251 3,905 15,610 69,724(4) 65,559 65,100 51,180
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
estimated loan losses. 16,106 17,933 69,680 1,917 20,078 35,737 79,411
Gains (losses) on loan
sales, net............ 7 -- 22 522 (3,963) 194 1,117
Gains on securities and
trading activities,
net................... 1,221 (83) 1,336 4,098 1,130 1,304 --
Gains on sales of
servicing............. -- -- -- 4,604 -- -- --
Fee income from sale of
uninsured investment
products(5)........... 1,513 1,199 4,456 4,117 3,419 -- 2,606
Loans, retail banking
and other fees........ 1,258 1,604 5,339 6,866 9,040 8,660 12,291
Real estate operations,
net................... (2,301) (2,455) (8,907) (9,145) (17,419) (48,843) (22,261)
SAIF special
assessment............ -- -- (18,000) -- -- -- --
1994 restructuring and
recapitalization
charges, net.......... -- -- -- -- (65,394) -- --
Operating expense other
than SAIF special
assessment and 1994
restructuring and
recapitalization
charges............... (14,336) (16,627) (64,451) (81,954) (91,859) (98,732) (75,044)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Loss) before income
taxes and minority
interest in
subsidiary............ 3,468 1,571 (10,525) (68,975) (144,968) (101,680) (1,880)
Income tax (benefit)
expense............... (2,300) 40 (1,093) 4 (16,524) (35,793) (2,167)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings
before minority
interest in
subsidiary............ 5,768 1,531 (9,432) (68,979) (128,444) (65,887) 287
Minority interest in
subsidiary (dividends
on subsidiary
preferred stock)...... (1,553) -- (4,657) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings.... 4,215 1,531 (14,089) (68,979) (128,444) (65,887) 287
Preferred stock
dividends............. -- 1,553 (1,553) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) earnings
available for common
stockholders.......... $ 4,215 $ (22) $ (15,642) $ (68,979) $ (128,444) $ (65,887) $ 287
========== ========== ========== ========== ========== ========== ==========
Net (loss) earnings per
common share(1)(2).... $ 0.23 $ -- $ (0.86) $ (8.84) $ (39.08) $ (62.72) $ 0.27
========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares
outstanding(1)(2)..... 18,245,265 18,242,465 18,242,887 7,807,201 3,286,960 1,050,561 1,050,561
========== ========== ========== ========== ========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31,
-------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING
RATIOS:
(Loss) return on
average assets........ 0.51 % 0.19 % (0.42)% (1.92)% (3.17)% (1.43)% 0.01%
(Loss) return on
average equity........ 10.40 % 2.69 %(6) (7.01)%(6) (42.31)% (83.00)% (29.99)% 0.13%
Average equity divided
by average assets..... 4.87 % 6.96 % 6.71 % 4.54 % 3.82 % 4.77 % 4.57%
Ending equity divided
by ending assets...... 4.92 % 6.94 % 4.85 % 6.94 % 4.22 % 4.15 % 4.69%
Operating expense to
average assets(7)..... 1.72 % 2.04 % 1.94 % 2.28 % 2.27 % 2.14 % 1.52%
Efficiency ratio(8).... 61.97 % 67.71 % 67.77 % 89.81 % 97.58 % 79.66 % 45.38%
Interest rate spread
for the period........ 2.13 % 2.35 % 2.31 % 1.89 % 2.24 % 2.31 % 2.66%
Net yield on interest-
earning assets........ 2.44 % 2.68 % 2.63 % 2.05 % 2.22 % 2.31 % 2.80%
ASSET QUALITY DATA:
NPAs(9)................ $ 63,353 $ 63,644 $ 60,788 $ 71,431 $ 85,729 $235,621 $234,405
NPAs to total assets... 1.92 % 1.94 % 1.83 % 2.16 % 2.31 % 5.37 % 4.99%
Nonaccruing loans...... $ 39,713 $ 40,111 $ 36,125 $ 51,910 $ 71,614 $ 93,475 $112,041
Nonaccruing loans to
total loans, net...... 1.50 % 1.39 % 1.34 % 1.77 % 2.18 % 2.52 % 2.83%
Classified assets...... $144,863 $288,902 $174,096 $219,077 $141,536 $372,502 $353,738
Classified assets to
total assets.......... 4.40 % 8.81 % 5.23 % 6.64 % 3.82 % 8.49 % 7.53%
REGULATORY CAPITAL
RATIOS:
Tangible capital
ratio................. 6.46 % 6.95 % 6.28 % 6.91 % 4.28 % 4.10 % 4.27%
Core capital ratio..... 6.47 % 6.96 % 6.29 % 6.92 % 4.29 % 4.15 % 4.35%
Risk-based capital
ratio................. 12.29 % 12.49 % 11.85 % 12.43 % 8.28 % 9.32 % 9.76%
OTHER DATA:
Sales of investment
products(5)........... $ 38,405 $ 30,359 $118,061 $ 89,824 $112,430 $ 96,253 $ 77,078
Real estate loans
funded................ $ 6,488 $ 250 $ 13,859 $ 19,396 $521,580 $422,355 $435,690
Average interest rate
on new loans.......... 8.00 % 10.00 % 8.41 % 9.61 % 5.85 % 6.75 % 7.77%
Loans sold, net(10).... $ (3,044) $ (1,753) $ (2,069) $ 390 $273,272 $115,003 $204,435
Number of:
Real estate loan
accounts (in
thousands).......... 10 11 11 12 14 16 18
Deposit accounts (in
thousands).......... 192 205 194 207 216 241 233
Retail branch
offices(11)......... 33 33 33 33 33 42 43
</TABLE>
- -------
(1) For the periods prior to August 4, 1994, Fidelity's one share owned by
Citadel, its former holding company and sole stockholder, has been
retroactively reclassified into 1,050,561 shares of Class A Common Stock.
(2) On February 9, 1996, the Bank's stockholders approved a one-for-four
reverse stock split (the "Reverse Stock Split"). All per share data and
weighted average common shares outstanding have been retroactively
adjusted to reflect this change.
(3) Calculation excludes $51.8 million of preferred stock issued by
consolidated subsidiary.
(4) In 1995, the Bank recorded a $45 million loan portfolio charge in
connection with its adoption of an Accelerated Asset Resolution Plan (the
"Accelerated Asset Resolution Plan").
(5) Includes 100% of Gateway investment product sales.
(6) Net of dividends on preferred stock of subsidiary of $1.6 million.
(7) Excludes the impact of the Savings Association Insurance Fund ("SAIF")
special assessment and the net 1994 restructuring and recapitalization
charges (the "1994 Restructuring and Recapitalization").
(8) The efficiency ratio is computed by dividing total operating expense by
net interest income and noninterest income, excluding infrequent items,
provisions for estimated loan and real estate losses, direct costs of real
estate operations and gains/losses on the sale of securities.
(9) Nonperforming assets ("NPAs") include nonaccruing loans and foreclosed
real estate, net of special valuation allowances ("SVAs"), writedowns and
real estate owned ("REO") general valuation allowance ("GVA"), if any.
(10) Excludes loans sold in certain bulk sales consummated in 1994 (the "Bulk
Sales"), and is net of repurchases.
(11) All retail branch offices are located in Southern California.
5
<PAGE>
RISK FACTORS
The Shares offered hereby involve a high degree of risk. In considering
whether to invest in the Shares, investors are urged to read and carefully
consider the matters set forth below, as well as the other information
contained herein.
RISK OF CONTINUING LOSSES
Beginning in late 1991, the impact of the economic recession and substantial
declines in real estate values in Southern California began to adversely
affect collateral values and the ability of certain borrowers to repay their
obligations to the Bank. This led to high levels of NPAs and net chargeoffs in
1991, which adversely affected the Bank's asset quality and results of
operations. The foregoing factors contributed to a net loss of $65.9 million
($62.72 per share), a net loss of $128.4 million ($39.08 per share) and a net
loss of $69.0 million ($8.84 per share) for the years ended December 31, 1993,
1994 and 1995, respectively. The Bank's losses during these periods were
primarily due to significant increases in the provision for loan and real
estate losses, lower net interest income due primarily to high levels of NPAs,
decreased fee income due primarily to shrinkage of the Bank's deposit base,
and increased operating and other expenses relating to managing the Bank's
problem asset portfolio and the write-off of certain intangible assets.
For the year ended December 31, 1996, the Company reported a net loss before
minority interest in subsidiary of $9.4 million (after giving effect to the
Savings Association Insurance Fund ("SAIF") special assessment of $18.0
million). Earnings during 1996 were positively affected by, among other
things, a reduced provision for estimated loan losses of $15.6 million
compared to provisions of $69.7 million (including the effect of a $45 million
loan portfolio charge taken in connection with the Bank's adoption of the
Accelerated Asset Resolution Plan (the "Accelerated Asset Resolution Plan")),
$65.6 million and $65.1 million during 1995, 1994 and 1993, respectively. The
lower provision during 1996 is attributable to, among other things, lower
levels of NPAs and classified assets in 1996 compared to prior years and the
effect of the Accelerated Asset Resolution Plan and the $45.0 million reserve
taken in connection therewith in 1995. No assurance can be given that economic
conditions that may affect the Bank's market area or other circumstances will
not require an increased provision which could have an adverse effect on the
Company's financial condition and results of operations. See "--Adequacy of
Allowance for Loan and Real Estate Losses."
HIGH LEVELS OF NONPERFORMING ASSETS AND OTHER ASSETS WITH INCREASED RISK
Due to significant decreases in rental rates and property values, loans
originated during the years 1987 through 1991 (which included the peak years
of Southern California real estate values in recent periods) are characterized
by generally higher loan to value ratios and lower debt coverage ratios. The
levels of the Bank's NPAs between 1989 and 1994 increased as economic
conditions worsened and contributed to substantial declines in real estate
values. Subsequent to the 1994 Recapitalization and Restructuring, the levels
of NPAs decreased substantially and remained at such lower levels during 1995
and 1996. As of March 31, 1997, 62% of the outstanding gross loan portfolio
was originated between 1987 and 1991. Of the loan and REO chargeoffs for the
three months ended March 31, 1997, 81% were associated with loans originated
in such period. High levels of NPAs were exacerbated as a result of the Bank's
concentration of loans secured by multifamily properties in geographic areas
that suffered particularly significant declines in rental rates and real
estate values and the impact of the Northridge earthquake. See "--Dependence
on Real Estate and High Concentration of Multifamily Residential Loans."
Levels of NPAs may remain at current levels or may increase in the future as
problem loans are worked out and in some instances properties are taken into
REO. The real estate market in Southern California and the overall economy in
the areas where the Bank operates are likely to continue to have a significant
effect on the quality of the Company's assets in the future.
6
<PAGE>
ADEQUACY OF ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
The Company's results of operations have been adversely affected in recent
years by significant loan and real estate loss provisions taken in light of
significant charge-offs against the Bank's allowance for estimated loan and
REO losses and high levels of NPAs and increased levels of REO, particularly
with respect to the Bank's loans on multifamily properties of 5 units or more.
The amount of the Bank's allowance for loan losses represents management's
estimate of the amount of loan losses likely to be incurred by the Bank, based
upon various assumptions as to economic and other conditions. As such, the
allowance for loan losses does not represent the amount of such losses that
could be incurred under adverse conditions that management does not consider
to be the most likely to arise. In addition, management's classification of
assets and evaluation of the adequacy of the allowance for loan losses is an
ongoing process. Consequently, there can be no assurance that material
additions to the Bank's allowance for loan losses will not be required in the
future, thereby adversely affecting earnings and the Bank's ability to
maintain or build capital. While management believes that the current
allowance is adequate to absorb the known and inherent risks in the loan
portfolio, no assurances can be given that the allowance is adequate or that
economic conditions which may adversely affect the Bank's market area or other
circumstances will not result in future loan or REO losses, which may not be
covered completely by the current allowance or may require an increased
provision which could have an adverse effect on the Bank's financial condition
and results of operations. Significant additional loan and real estate loss
provisions may negatively impact the Bank's future results of operations and
levels of regulatory capital.
ECONOMIC CONDITIONS IN FIDELITY'S MARKET AREA
The performance of the Bank's multifamily and commercial loan portfolios has
been adversely affected by Southern California economic conditions. These
portfolios are particularly susceptible to the potential for further declines
in the Southern California economy, such as increasing vacancy rates,
declining rents, increasing interest rates, declining debt coverage ratios and
declining market values for multifamily and commercial properties. In
addition, the possibility that investors may abandon properties or seek
bankruptcy protection with respect to properties experiencing negative cash
flow, particularly where such properties are not cross-collateralized by other
performing assets, can also adversely affect the multifamily loan portfolio.
California has been hit particularly hard by adverse economic conditions and
Southern California has experienced the brunt of the economic downturn in the
state. Although certain economic indicators suggest that the Southern
California economy is beginning to improve, many factors key to recovery may
be impacted adversely by the Federal Reserve Board's interest rate policy as
well as other factors. Consequently, rents and real estate values may not
stabilize, which may affect future delinquency and foreclosure levels and may
adversely impact the Company's asset quality, earning performance and capital
levels.
7
<PAGE>
DEPENDENCE ON REAL ESTATE AND HIGH CONCENTRATION OF MULTIFAMILY RESIDENTIAL
LOANS
At March 31, 1997, substantially all of the Bank's loan portfolio was
secured by real estate, and the Company had $23.6 million of net REO. In light
of the economic recession in Southern California and the impact it has had and
may have on the Southern California real estate market, the Bank's real estate
dependence and high concentration of multifamily loans on properties of 5 or
more units (approximately 62% of the Bank's mortgage loan portfolio) increases
the risk of loss in the Bank's loan portfolio.
Prior to the 1994 Restructuring and Recapitalization, the Bank experienced
high delinquency rates in its multifamily portfolio of 5 or more units
reflecting, among other things, (i) high vacancy rates, (ii) low apartment
rental rates, (iii) a greater willingness of borrowers to abandon such
properties or seek bankruptcy protection, particularly where such properties
are experiencing negative cash flow and the loans are not cross-collateralized
by other performing properties, and (iv) the substantial decreases in the
market value of multifamily properties experienced in recent periods
(resulting, in many cases, in appraised values less than the outstanding loan
balances).
Multifamily lending on properties of 5 or more units typically involves
larger loans to a single obligor and is generally viewed as exposing the
lender to a greater risk of loss than single family and multifamily (2 to
4 units) lending. The liquidation value of multifamily properties may be
adversely affected by risks generally incident to interests in real property,
which include: changes or continued weakness in general or local economic
conditions and/or specific industry segments, declines in real estate values,
declines in rental, room or occupancy rates, increases in interest rates, real
estate and personal property tax rates and other operating expenses (including
energy costs), the availability of refinancing, changes in governmental rules,
regulations and fiscal policies, including rent control ordinances and
environmental legislation, and other factors beyond the control of the
borrower or the lender.
CAPITAL REQUIREMENTS
The minimum capital requirements applicable to savings associations, such as
the Bank, were significantly increased by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"). Under FIRREA, as implemented
to date by the Office of Thrift Supervision (the "OTS"), thrifts are required
to maintain ratios of tangible capital to adjusted total assets (as defined in
the regulations) of at least 1.5%, core capital to adjusted total assets (as
defined in the regulations) of at least 3% and total capital to risk-weighted
assets (as defined in the regulations) of at least 8%.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, required the OTS to implement a system
providing for regulatory sanctions against institutions that are not
adequately capitalized. The severity of the sanctions increases to the extent
that an institution's capital continues to decline. Under the Prompt
Corrective Action ("PCA") Regulations, an institution is adequately
capitalized (and, therefore, not undercapitalized) if (1) its ratio of core
capital to adjusted total assets (as defined in the regulations) is at least
4%, (2) its ratio of core capital to risk-weighted assets (as defined in the
regulations) is at least 4% and (3) its ratio of total capital to risk-
weighted assets (as defined in the regulations) is at least 8%. An institution
is treated as well capitalized if its core capital to adjusted total assets
ratio is at least 5%, its core capital to risk-weighted assets ratio is at
least 6%, and its total capital to risk-weighted assets is at least 10% and no
OTS order or directive requiring higher capital ratios is then in effect.
At March 31, 1997, the Bank met the requirements to be deemed well
capitalized for regulatory purposes. However, there can be no assurance that
the Bank will remain well capitalized in the future.
The OTS also has the authority to establish, for individual thrifts, an
individual minimum capital requirement ("IMCR") in excess of the standard
requirement upon a determination by the OTS that such an IMCR is necessary or
appropriate in light of such thrift's particular circumstances. For example,
the OTS may determine that an IMCR is appropriate if, among other things, the
OTS believes that an institution (i) has a high
8
<PAGE>
degree of exposure to interest rate risk or credit risk, (ii) has a high
degree of exposure to concentration of credit risk or risks arising from
nontraditional activities or fails to adequately monitor and control the risks
presented by concentration of credit and nontraditional activities, (iii) may
be adversely affected by the operation or condition of its holding company,
(iv) has a portfolio reflecting weak credit quality or a significant
likelihood of financial loss or (v) has inadequate underwriting standards or
procedures. If the OTS determines that an IMCR should be imposed on an
institution, the institution has an opportunity to submit a response to the
OTS, but may have no opportunity for judicial review of an IMCR. If an
institution fails to meet either the standard minimum capital requirements or
any IMCR that may be imposed on it, it will become subject to a number of
regulatory sanctions. Although the Bank is not currently subject to an IMCR,
there can be no assurance that the Bank will not be subject to an IMCR in the
future.
The Bank's failure to meet its regulatory capital requirements would provide
grounds for one or more of the following actions, depending on the severity of
the violation: a requirement that the Bank file a capital restoration plan, a
requirement that the Bank take additional actions to comply with the capital
restoration plan, the issuance of a cease and desist order, the issuance of a
capital directive, the imposition of civil money penalties on the Bank and
certain affiliated parties, the imposition of such operating restrictions as
the OTS deems appropriate at the time, such other actions by the OTS as it may
be authorized or required to take under applicable statutes and regulations
and, under certain circumstances, the appointment of a conservator or receiver
for the Bank.
FLUCTUATIONS IN INTEREST RATES
Prevailing economic conditions, particularly changes in market interest
rates, as well as governmental policies and regulations concerning, among
other things, monetary and fiscal affairs, significantly affect interest rates
and a savings institution's net interest income. The results of operations of
the Company depend to a large extent on net interest income, which is the
difference between interest the Company receives from its loans, securities
and other interest-earning assets and the interest expense the Company pays on
its deposits and other interest-bearing liabilities. The Company is subject to
risk from fluctuations in interest rates to the extent its interest-bearing
liabilities mature or reprice at different times or on a different basis than
its interest-earning assets. Generally speaking, maturing liabilities, such as
deposits, may be replaced only with new liabilities paying interest rates
prevailing at the time of maturity, which may possibly be higher than the
rates applicable to the liabilities they replaced. Similarly, rates paid on
liabilities which reprice or adjust are adjusted based on interest rates
prevailing at the time of the repricing or adjustment. "Gap," generally
speaking, represents the estimated difference between the amount of interest-
earning assets and interest-bearing liabilities repricing during future
periods as adjusted for interest-rate swaps and other financial instruments as
applicable, and based on certain assumptions. One method the Company uses to
measure its exposure to interest rate fluctuations is by calculating its one-
year Gap, which is the ratio of (i) the difference between interest-sensitive
assets and those liabilities that mature or reprice within 12 months to (ii)
total assets. Analysis of the Gap provides only a static view of the Bank's
interest rate sensitivity at a specific point in time. The actual impact of
interest rate movements on the Company's net interest income may differ from
that implied by any Gap measurement. The Company's maturity and repricing
mismatch between interest rate sensitive assets and liabilities due within one
year was a positive 18.99% at March 31, 1997, compared to a negative one-year
Gap of 2.84% at December 31, 1996 and a positive one-year Gap of 7.06% at
December 31, 1995. With a positive one-year Gap, the Company would anticipate
a rising net interest rate margin over the near term in a rising rate
environment. Conversely, in a falling interest rate environment, the Company
would anticipate that net interest margin would be adversely affected.
At March 31, 1997, approximately 93.5% of the Company's total loan portfolio
consisted of loans which mature or reprice in accordance with the Federal Home
Loan Bank Eleventh District Cost of Funds Index within one year, compared with
approximately 92.6% at December 31, 1996, approximately 92.4% at December 31,
1995 and approximately 90.6% at December 31, 1994. During the latter part of
1995 and early 1996, the Company benefited from the fact that decreases in the
interest rates accruing on the Company's adjustable rate mortgage ("ARM")
loans lagged the decreases in interest rates accruing on its deposits. During
the rising
9
<PAGE>
interest rate environment experienced in early 1995 and the latter part of
1996, however, the Company's net interest margin was reduced. If interest
rates were to increase again, the Company's net interest income may suffer
further as a result.
SIGNIFICANT REGULATION
The financial institutions industry is subject to significant regulation,
which has materially affected the industry in the past and will likely do so
in the future. Such regulations, which affect Fidelity and Bank Plus on a
daily basis, may be changed at any time, and the interpretation of the
relevant law and regulations is also subject to change by the authorities who
examine the Bank and interpret those laws and regulations. There can be no
assurance that any present or future changes in the laws or regulations or in
their interpretation will not materially and adversely affect the Company.
LEGAL PROCEEDINGS
The Bank was named as a defendant in a purported class action lawsuit
alleging violations of federal securities laws in connection with the offering
of common stock by the Bank in 1994 as part of the Bank's 1994 Restructuring
and Recapitalization. The suit was filed by Harbor Finance Partners ("Harbor")
in an alleged class action complaint in the United States District Court-
Central District of California on July 28, 1995 and originally named as
defendants the Bank, Citadel, Richard M. Greenwood (the Bank's chief executive
officer and Citadel's former chief executive officer), J.P. Morgan Securities,
Inc. and Deloitte & Touche LLP. The suit alleged that false or misleading
information was provided by the defendants in connection with the Bank's 1994
Restructuring and Recapitalization and stock offering and that the defendants
knew and failed to disclose negative information concerning the Bank. A motion
to dismiss the original complaint was filed by the Bank, and was granted
without opposition. Thereafter, Harbor filed an amended complaint that did not
include J.P. Morgan Securities, Inc. and Deloitte & Touche LLP as defendants
and that contained some factual and legal contentions which were different
from those set forth originally. On May 21, 1996, the court granted the Bank's
and Greenwood's motion to dismiss the first amended complaint, but granted
leave to amend. Following the filing of a second amended complaint, the Bank
and Greenwood filed a motion to dismiss. At a hearing on July 22, 1996, the
court ruled that the case should be dismissed with prejudice and a formal
order to that effect was submitted to the court for execution. Harbor lodged
certain objections to the proposed order, including objections that the state
law claims in the second amended complaint should not be dismissed with
prejudice. The court's order of dismissal was entered on August 5, 1996 and
provided that all claims asserted in the second amended complaint under
federal law were dismissed with prejudice and those under state law were
dismissed without prejudice to their renewal in state court pursuant to 28
U.S.C. (S) 1367(b)(3). Harbor has filed a notice of appeal to the order of
dismissal. The briefing in the appeal is now concluded and the appeal awaits
hearing and disposition. On August 30, 1996, Harbor filed an alleged class
action complaint in state court containing allegations similar to those raised
in the federal court action as well as claims for unfair business practices to
which the Bank and Greenwood filed demurrers seeking to have the case
dismissed for failure to state a legally sufficient claim. These demurrers
were sustained without leave to amend on March 13, 1997 a judgment of
dismissal has been entered in the trial court. The plaintiff has 60 days from
notice of the entry of judgment to file an appeal.
In addition, the Bank is a defendant in several individual and purported
class actions brought by several borrowers which raise claims with respect to
the manner in which the Bank serviced certain adjustable rate mortgages which
were originated during the period 1983 through 1988. The actions have been
filed between July 1, 1992 and February of 1995. In one case the Bank won a
summary judgment in Federal District Court. This judgment was appealed. On
July 25, 1996, the Ninth Circuit Court of Appeals filed its opinion which
affirmed in part, reversed in part and remanded back to the Federal District
Court for further hearing. In three Los Angeles Superior Court cases,
judgments in favor of the Bank were recently entered. Plaintiff has appealed
in all three cases. Two other cases are pending in the Los Angeles Superior
Court. The plaintiffs' principal claim is that the Bank selected an
inappropriate review date to consult the index upon which the rate adjustment
is
10
<PAGE>
based that was one or two months earlier than what was required under the
terms of the notes. In a declining interest rate environment, the lag effect
of an earlier review period defers the benefit to the borrower of such
decline, and the reverse would be true in a rising interest rate environment.
The Bank strongly disputes these contentions and is vigorously defending these
suits. The legal responsibility and financial exposure of these claims
presently cannot be reasonably ascertained and, accordingly, there is a risk
that the final outcome of one or more of these actions could result in the
payment of monetary damages that could be material in relation to the
financial condition or results of operations of the Bank. The Bank does not
believe the likelihood of such a result is probable and has not established
any specific litigation reserves with respect to such lawsuits.
Although there can be no assurance, the Company's management and its counsel
believe that none of the foregoing lawsuits or claims will have a material
adverse effect on the financial condition or business of the Company.
COMPETITION
The Company faces substantial competition for loans and deposits throughout
its market areas. The Company competes on a daily basis with commercial banks,
other savings institutions, thrift and loans, credit unions, finance
companies, retail investment brokerage houses, mortgage banks, money market
and mutual funds and other investment alternatives and other financial
intermediaries, many of which have substantially greater resources, experience
and capital than the Company. The Company faces competition throughout its
market area from local institutions, which have a large presence in the
Company's market areas, as well as from out-of-state financial institutions
which have offices in the Company's market areas. Many of these other
institutions offer services which the Company does not offer, including trust
services. Furthermore, banks with a larger capital base and financial firms
not subject to the restrictions imposed by banking regulation have larger
lending limits and can therefore serve the needs of larger customers.
11
<PAGE>
MARKET PRICES AND DIVIDENDS
COMMON STOCK
Effective March 14, 1996, the Bank's Class A Common Stock was listed and
quoted on The Nasdaq National Market. Commencing May 5, 1996, the Common Stock
was listed and quoted on The Nasdaq National Market replacing the Bank's Class
A Common Stock. During 1995 and part of 1994, the Class A Common Stock of the
Bank was traded over the counter and quoted on the Over the Counter Bulletin
Board (the "OTCBB").
The following table sets forth the high and low daily closing sales prices
of the Common Stock on The Nasdaq National Market commencing May 5, 1996, the
high and low daily closing sales prices of the Bank's Class A Common Stock on
The Nasdaq National Market between March 14, 1996 and May, 1996 and the high
and low bid price of the Bank's Class A Common Stock on the OTCBB between May
5, 1995 and May 5, 1996 for each of the following quarters:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997(1)
Second quarter (through June 27, 1997)...................... $11.50 $ 9.63
First quarter............................................... 13.75 10.38
1996(1)
Fourth quarter.............................................. $11.75 $10.63
Third quarter............................................... 10.63 8.75
Second quarter.............................................. 9.50 8.63
First quarter............................................... 9.75 8.50
1995(1)(2)
Fourth quarter.............................................. $ 9.25 $ 5.50
Third quarter............................................... 11.50 6.00
Second quarter.............................................. 18.00 11.00
First quarter............................................... 20.00 16.00
</TABLE>
- --------
(1) Closing sale prices reflect the one-for-four reverse stock split approved
by stockholders of the Bank on February 9, 1996.
(2) Prior to May 5, 1995, the Bank's Class A Common Stock was not quoted on
the OTCBB and bid prices were provided by J.P. Morgan Securities, Inc.
The number of holders of record of the Common Stock on June 20, 1997 was
553.
Bank Plus has paid no dividends on the Common Stock since its formation in
May 1996. Prior thereto, the Bank had not paid dividends on its Class A Common
Stock since August 1994. Bank Plus currently has no plans to pay dividends on
the Common Stock.
SECURITIES COVERED BY THIS PROSPECTUS
The Shares of the Common Stock covered by this Prospectus consist of
7,594,937 shares which may be issued or delivered from time to time in
connection with future business combinations, mergers and/or acquisitions. The
consideration for such combinations, acquisitions and mergers may consist of
cash, assumption of liabilities, evidences of debt, Common Stock or a
combination thereof. In general, the terms of such combinations, acquisitions
and mergers will be determined by direct negotiations between representatives
of the Company and the owners or principal executives of the companies or
other entities to be so combined, acquired or merged or the assets of which
are to be acquired, and the factors taken into account will include, among
other things, the established quality of management, earning power, cash flow,
growth potential, facilities and locations of the companies or other entities
to be acquired or merged, and the market value of the Common Stock. It is
anticipated that the shares of the Common Stock issued or delivered in
connection therewith will be valued at a price reasonably related to the
market value of the Common Stock either at the time the terms of the
combination, acquisition or merger are tentatively agreed upon, or at or about
the time or times such shares are issued or delivered.
12
<PAGE>
Persons who directly or indirectly control, are controlled by, or are under
common control with, companies or other entities which are acquired by or
merged or combined with the Company may be deemed to be engaged in a
distribution of securities, and therefore underwriters of securities within
the meaning of Section 2(11) of the Securities Act, if such persons offer or
sell any Shares covered by this Prospectus other than in accordance with the
provisions of paragraph (d) of Rule 145 under the Securities Act or pursuant
to an effective registration statement. Rule 145(d) provides that such persons
will not be deemed to be underwriters if (a) among other things, (i) the
Company has complied with certain reporting requirements of the Exchange Act,
(ii) the amounts of such shares sold fall within certain volume limitations,
(iii) such shares are sold only in brokers' transactions within the meaning of
Section 4(4) of the Securities Act or in a manner otherwise permitted by Rule
144 under the Securities Act, (iv) such persons do not solicit or arrange for
the solicitation of orders to buy such shares in anticipation of or in
connection with the sale thereof, and (v) such persons do not make any
payments in connection with the offer or sale thereof to any persons other
than the brokers executing the orders to sell such shares; (b) such persons
are not affiliates of the Company and have been the beneficial owners of the
Shares for at least two years, and the Company has complied with certain
reporting requirements of the Exchange Act; or (c) such persons are not, and
have not been for at least three months, affiliates of the Company and have
been the beneficial owners of the Shares for at least three years.
LEGAL OPINION
The validity of the Shares offered hereby will be passed upon by Gibson,
Dunn & Crutcher LLP, Los Angeles, California, counsel to Bank Plus.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from the Company's Annual Report
on Form 10-K and Form 10-K/A for the year ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "DGCL") authorizes corporations to
limit or eliminate the personal liability of directors to the corporation and
its stockholders for monetary damages in connection with the breach of a
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitation authorized by the DGCL, directors could be accountable
to corporations and their stockholders for monetary damages for conduct that
does not satisfy such duty of care. Although the DGCL does not change a
director's duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Registrant's
certificate of incorporation limits the liability of directors to the
Registrant or its stockholders to the fullest extent permitted by the DGCL as
in effect from time to time. Specifically, directors of the Registrant will
not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholder, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision does not affect a director's responsibilities under
certain other laws such as the federal securities laws or state or federal
environmental laws.
The bylaws of the Registrant provide that the Registrant shall indemnify its
officers, directors and employees to the fullest extent permitted by the DGCL.
The Registrant believes that indemnification under its bylaws covers at least
negligence and gross negligence on the part of the indemnified parties.
The Registrant has entered into indemnification agreements with its
directors and officers which provide for broad indemnification, except where
the "reviewing party" has determined that the indemnitee would not be entitled
to be indemnified under applicable law. The "reviewing party" is defined as
the majority vote of the directors of Registrant not subject to the particular
claim or, if none, independent legal counsel selected by the indemnitee and
approved by the Registrant. No payments may be made under these
indemnification agreements in connection with claims made against a director
or officer for which payment is made under an insurance policy or for which
such person is otherwise indemnified.
Under an insurance policy currently maintained by the Registrant, the
directors and officers of the Registrant are insured, within the limits and
subject to the limitations of the policy, against certain expenses in
connection with the defense of certain claims, actions, suits or proceedings,
and certain liabilities which may be imposed as a result of such claims,
actions, suits or proceedings which may be brought against them by reason of
being or having been such directors or officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of March 27, 1996, among
Fidelity, Bank Plus and Fidelity Interim Bank (incorporated by reference
to Exhibit 2.1 to the Form 8-B of Bank Plus filed with the Commission on
April 22, 1996 (the "Form 8-B")).
2.2* Agreement and Plan of Merger dated June 25, 1997 by and among Bank Plus
Fidelity and Hancock (set forth as Annex A to the Prospectus covering
the Common Stock to be issued in connection with the proposed
acquisition of Hancock Savings Bank, a FSB).
4.1 Certificate of Incorporation of Bank Plus Corporation (incorporated by
reference to Exhibit 3.1 to the Form 8-B).
4.2 By-laws of Bank Plus Corporation (incorporated by reference to Exhibit
3.2 to the Form 8-B).
4.3+ Form of certificate representing Common Stock of Bank Plus Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
5.1+ Opinion of Gibson, Dunn & Crutcher LLP regarding the validity of the
securities being registered.
8.1* Form of opinion of Deloitte & Touche LLP regarding certain federal
income tax matters with respect to the Merger.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Smith & Crowley, Inc.
23.4* Consent of Deloitte & Touche LLP.
23.5+ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
24.1+ Powers of Attorney (set forth on the signature pages to this Post-
Effective Amendment No. 1 to Registration Statement).
99.1* Proxy card of Hancock for the Meeting.
</TABLE>
- --------
* Filed herewith.
+ Previously filed.
(b) Not applicable.
(c) Not applicable.
ITEM 22. UNDERTAKING.
The undersigned Registrant hereby undertakes:
(a)(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.
(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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 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
II-2
<PAGE>
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(d) 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.
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 provisions referred to in Item 20, 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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Post-Effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on this 30th day of June, 1997.
BANK PLUS CORPORATION
*
By: _________________________________
Richard M. Greenwood
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive June 30, 1997
____________________________________ Officer and Director
Richard M. Greenwood (principal executive
officer)
* Executive Vice President and June 30, 1997
__________________________________ Chief Financial Officer
William L. Sanders (principal financial
officer)
* Senior Vice President and June 30, 1997
__________________________________ Controller (principal
Richard M. Villa accounting officer)
* Director June 30, 1997
____________________________________
Norman Barker, Jr.
* Director June 30, 1997
____________________________________
Waldo H. Burnside
* Director June 30, 1997
____________________________________
George Gibbs, Jr.
* Director June 30, 1997
____________________________________
Lilly V. Lee
* Director June 30, 1997
____________________________________
Gordon V. Smith
* Director June 30, 1997
____________________________________
Mark Sullivan III
/s/ Godfrey B. Evans
*By ________________________________
Godfrey B. Evans
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of March 27, 1996,
among Fidelity, Bank Plus and Fidelity Interim Bank (incorporated by
reference to Exhibit 2.1 to the Form 8-B of Bank Plus filed with the
Commission on April 22, 1996 (the "Form 8-B")).
2.2* Agreement and Plan of Merger dated June 25, 1997 by and among Bank
Plus Fidelity and Hancock (set forth as Annex A to the Prospectus
covering the Common Stock to be issued in connection with the proposed
acquisition of Hancock Savings Bank, a FSB).
4.1 Certificate of Incorporation of Bank Plus Corporation (incorporated by
reference to Exhibit 3.1 to the Form 8-B).
4.2 By-laws of Bank Plus Corporation (incorporated by reference to Exhibit
3.2 to the Form 8-B).
4.3+ Form of certificate representing Common Stock of Bank Plus
Corporation.
5.1+ Opinion of Gibson, Dunn & Crutcher LLP regarding the validity of the
securities being registered.
8.1* Form of opinion of Deloitte & Touche LLP regarding certain federal
income tax matters with respect to the Merger.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Smith & Crowley, Inc.
23.4* Consent of Deloitte & Touche LLP.
23.5+ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
24.1+ Powers of Attorney.
99.1* Proxy card of Hancock for the Meeting.
</TABLE>
- --------
* Filed herewith.
+ Previously filed.
<PAGE>
EXHIBIT 8.1
FORM OF TAX OPINION
[LETTERHEAD OF DELOITTE & TOUCHE]
DRAFT
______________, 1997
Mr. William L. Sanders
Executive Vice President and Chief Financial Officer
Bank Plus Corporation
Fidelity Federal Bank, FSB
P.O. Box 1631
Glendale, California 91209-1631
Ms. Kathleen Kellogg
President and Chief Executive Officer
Hancock Savings Bank, FSB
3550 Wilshire Boulevard, Suite 700
Los Angeles, California 90010
THE FOLLOWING IS A DRAFT OPINION. NO OPINION CAN BE RENDERED UNTIL THE STEPS IN
THE TRANSACTION ARE FINALIZED AND WE HAVE REVIEWED THE RELEVANT FINAL
DOCUMENTATION.
RE: Federal Income Tax Treatment of the Merger of Hancock Savings Bank, FSB
-----------------------------------------------------------------------
into Fidelity Federal Bank, FSB
-------------------------------
Dear Mr. Sanders and Ms. Kellogg:
This is in response to your request for our tax opinion on the federal income
tax consequences of the proposed merger of Hancock Savings Bank, a Federal
Savings Bank ("Bank") into Fidelity Federal Bank, a Federal Savings Bank
("Acquirer"), a wholly-owned subsidiary of Bank Plus Corporation, a Delaware
corporation ( "BPC").
The conclusions set forth herein are based on our understanding of the
transaction as described in the Agreement and Plan of Merger by and among BPC,
Acquirer and Bank dated June 25, 1997 (the "Plan"), letters of representation
from each of you dated __________, 1997,
<PAGE>
June 25, 1997 DRAFT
-----
Page 2
the Form H-(e)(3) to be filed with the Office of Thrift Supervision by BPC and
Acquirer as certified by BPC and Acquirer on June 23, 1997, a draft of the Proxy
Statement/Prospectus on Form S-4 dated July 1, 1997 (collectively hereinafter
the "Documents"), the facts and representations set forth below, and the current
provisions of the Code/1/, applicable Treasury Regulations, judicial decisions
and administrative rulings and practice.
BACKGROUND
- ----------
Bank is a federal savings bank organized under the laws of the United States.
Bank currently has one authorized class of common stock, of which approximately
1,302,862 shares will be outstanding on the date of the proposed merger. Bank
has one subsidiary, Hancock Service Corporation. The shares of common stock of
Bank are not publicly traded. Bank has one authorized class of preferred stock,
of which no shares have been or will be issued prior to the proposed merger.
Bank currently has outstanding options to acquire common stock of Bank which
will be canceled in connection with the proposed merger.
Acquirer is a federal savings bank organized under the laws of the United
States. All of the shares of the capital stock of Acquirer are owned by BPC and
will be owned by BPC as of the date of the proposed merger. Acquirer files a
consolidated federal income tax return with BPC.
BPC is a Delaware corporation. BPC currently has one authorized class of common
stock, of which approximately 18,245,265 shares will be outstanding as of the
date of the proposed merger. The shares of common stock of BPC are publicly
traded on the NASDAQ National Market. BPC has one authorized class of preferred
stock, of which no shares have been or will be issued prior to the proposed
merger.
At December 31, 1996 Bank was not in compliance with certain provisions of a
supervisory agreement (the "Agreement") entered into with the Office of Thrift
Supervision ("OTS") in October of 1994. At December 31, 1996 Bank was also not
in compliance with minimum regulatory capital requirements prescribed by the
OTS.
During March of 1997, Bank entered into a Cease and Desist Order (the "Order")
from the OTS. The Order replaces the Agreement and requires that Bank raise
additional capital by June 30, 1997.
- --------------------------
/1/ All references herein to Sections or Code are to the Internal Revenue Code
of 1986, as amended.
<PAGE>
June 25, 1997 DRAFT
-----
Page 3
On May 2, 1997, due to Bank's continued undercapitalization, Bank received a
new directive from the OTS requiring Bank to submit an acceptable capital
restoration plan to the OTS within 45 days of May 2, 1997.
The boards of directors of BPC and Bank believe that the acquisition will
benefit both businesses. The acquisition of Bank increases Acquirer's retail
deposit base in markets which Acquirer currently serves. The additional customer
base will present opportunities for enhanced sales at Acquirer's branches. The
transaction will enable Bank to satisfy the various regulatory orders to which
it is subject. Accordingly, the following transaction is being undertaken to
accomplish these purposes.
PROPOSED TRANSACTION
- --------------------
Bank will merge with and into Acquirer pursuant to the provisions of the Home
Owners' Loan Act of 1933, as amended ("HOLA").
The terms of the proposed merger are set forth in the Plan. On the effective
date, by virtue of the merger, all shares of common stock of Bank issued and
outstanding at the effective date and time of the merger (other than shares as
to which dissenters' rights are perfected and any shares of common stock of Bank
that are owned by Bank or any direct or indirect wholly-owned subsidiary of
Bank) will be converted into the right to receive a number of shares of common
stock of BPC determined by an exchange ratio set forth in the Plan.
In general, the exchange ratio will determine the number of shares of common
stock of BPC to be issued by dividing (i) the sum of $12,012,000 plus or minus
4.25% of changes in the aggregate amount of the deposits of Bank for a pre-
closing period, and plus or minus certain adjustments to the net book value of
Bank, including certain expenses associated with the merger and related
transactions, by (ii) the average price of a share of BPC common stock on the
NASDAQ for the 20 day period ending two full days prior to the date of the
merger.
No fractional shares will be issued in the merger, and in lieu thereof cash will
be paid in an amount equal to the fair market value of the fractional share of
BPC common stock that would otherwise have been issued.
Dissenters who perfect their rights will be paid cash by BPC and will not
receive any shares of BPC common stock.
<PAGE>
June 25, 1997 DRAFT
-----
Page 4
REPRESENTATIONS OF BPC
- -----------------------
We have relied on the following representations of fact on behalf of BPC in
connection with the proposed merger of Bank into Acquirer:
(a) The merger of Bank into Acquirer will qualify as a merger under Federal
law pursuant to the provisions of HOLA.
(b) The fair market value of the common stock of BPC to be received by each
holder of Bank common stock in the reorganization will be approximately
equal to the fair market value of Bank common stock surrendered in the
exchange.
(c) Prior to the transaction, BPC will be in control of Acquirer within the
meaning of Section 368(c) because BPC will own at least 80 percent of the
Acquirer voting stock and at least 80 percent of each class of non-voting
stock of Acquirer.
(d) Following the transaction, Acquirer has no plan or intention to issue
additional shares of its stock that would result in BPC losing control of
Acquirer within the meaning of Section 368(c) by reducing BPC's ownership
of Acquirer stock below 80 percent of the Acquirer voting stock and at
least 80 percent of each other class of stock of Acquirer.
(e) BPC has no plan or intention to reacquire any of its stock issued in the
transaction.
(f) BPC has no plan or intention to liquidate Acquirer, to merge Acquirer with
and into another corporation, to sell or otherwise dispose of the stock of
Acquirer, or to cause Acquirer to sell or otherwise dispose of any of the
assets of Bank acquired in the transaction, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by Acquirer.
(g) Following the transaction, Acquirer will continue to conduct the historic
business of Bank or use a significant portion of Bank's business assets in
a business.
(h) BPC and Acquirer and the BPC shareholders will each pay their own expenses,
if any, incurred in connection with the transaction.
(i) There is no intercorporate indebtedness existing between BPC and Bank or
between Acquirer and Bank.
<PAGE>
June 25, 1997 DRAFT
-----
Page 5
(j) BPC is not an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv). The term investment company in this context
means a corporation 50 percent or more of the value whose total assets are
stock and securities and 80 percent or more of the value of whose total
assets are assets held for investment. In making the 50 percent and 80
percent determinations under the preceding sentence, stock and securities
in any subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the subsidiary's
assets.
(k) No stock of Acquirer will be issued in the transaction.
(l) The payment of cash in lieu of fractional shares of BPC common stock is
solely for the purpose of avoiding the expense and inconvenience to BPC of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration to be paid in the transaction
to Bank shareholders, instead of issuing fractional shares of BPC common
stock, will not exceed 1 percent of the total consideration to be given in
the transaction to Bank shareholders in exchange for their shares of Bank
common stock. The fractional share interests of each Bank shareholder will
be aggregated, and no Bank shareholder will receive cash in an amount equal
to or greater than the value of one full share of BPC common stock.
REPRESENTATIONS OF BANK
- -----------------------
We have relied on the following representations of fact on behalf of Bank in
connection with the proposed merger of the Bank into Acquirer:
(a) The merger of Bank into Acquirer will qualify as a merger under Federal law
pursuant to the provisions of HOLA.
(b) The fair market value of the common stock of BPC to be received by each
holder of Bank common stock in the reorganization will be approximately
equal to the fair market value of the Bank common stock surrendered in the
exchange.
(c) There is no plan or intention by the shareholders of Bank who own 1% or
more of the Bank common stock, and to the best of the knowledge of the
management of Bank, there is no plan or intention on the part of the
remaining shareholders of Bank, to sell, exchange or otherwise dispose of a
number of shares of BPC common stock received in the transaction that will
reduce Bank shareholders' ownership of BPC common stock in the
<PAGE>
June 25, 1997 DRAFT
-----
Page 6
aggregate to a number of shares having a value, as of the date of the
transaction, of less than 50% of the value of all the formerly outstanding
stock of Bank as of the same date. For purposes of this representation,
shares of Bank common stock exchanged, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of BPC common stock will be
treated as outstanding Bank common stock on the date of the transaction.
Moreover, shares of Bank common stock and shares of BPC common stock held
by Bank shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the transaction and as part of the transaction will be
considered in making this representation.
(d) Acquirer will acquire at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets held
by Bank immediately prior to the transaction. For purposes of this
representation, amounts paid by Bank to shareholders who receive cash or
other property, Bank assets used to pay its reorganization expenses, and
all redemptions and distributions (except for regular, normal, dividends)
made by Bank immediately preceding the transfer, will be included as assets
of Bank held immediately prior to the transaction.
(e) The liabilities of Bank to be assumed by Acquirer and the liabilities to
which the transferred assets of Bank are subject were incurred by Bank in
the ordinary course of its business.
(f) Bank and Bank shareholders will each pay their own expenses, if any,
incurred in connection with the transaction.
(g) There is no intercorporate indebtedness existing between BPC and Bank or
between Acquirer and Bank.
(h) Bank is not an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv). The term investment company in this context
means a corporation 50 percent or more of the value whose total assets are
stock and securities and 80 percent or more of the value of whose total
assets are assets held for investment. In making the 50 percent and 80
percent determinations under the preceding sentence, stock and securities
in any subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the subsidiary's
assets.
(i) Bank is not under the jurisdiction of a court in a Title 11, or similar
case within the meaning of Section 368(a)(3)(A).
<PAGE>
June 25, 1997 DRAFT
-----
Page 7
(j) The fair market value of the assets of Bank transferred to Acquirer will
exceed the sum of liabilities to be assumed by Acquirer, plus the amount of
liabilities, if any, to which the transferred assets are subject.
(k) None of the compensation received by any shareholder-employees of Bank will
be separate consideration for, or allocable to, any of their shares of Bank
common stock; none of the shares of BPC common stock received by any Bank
shareholder-employees will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any Bank
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
OPINION
- -------
Based on the facts contained herein and the Documents, it is our opinion that
the federal income tax consequences of the proposed merger of Bank into
Acquirer will be as follows:
1. The merger of Bank with and into Acquirer will constitute a reorganization
within the meaning of Section 368(a)(1)(A) , by reason of the application of
Section 368(a)(2)(D). Each of BPC, Acquirer and Bank will be treated as a party
to the reorganization. Section 368(b).
2. No gain or loss will be recognized to Bank on the transfer of its assets to
Acquirer in the reorganization. Sections 361(a), 361(b)(1)(A) and 357(a).
3. No gain or loss will be recognized by either BPC or Acquirer on the issuance
of BPC common stock in the reorganization. Regulation Section 1.1032-2(b)/2/.
3. All references herein to Regulations are to the Income Tax Regulations issued
by the Department of the Treasury.
4. No gain or loss will be recognized by those shareholders of Bank who receive
solely BPC common stock (including fractional shares which they otherwise would
be entitled to receive) in exchange for their common stock of Bank pursuant to
the reorganization. Section 354(a)(1).
- -------------------------
/2/ All references herein to Regulations are to the Income Tax Regulations
issued by the Department of the Treasury.
<PAGE>
June 25, 1997 DRAFT
-----
Page 8
5. The basis of BPC common stock (including fractional shares which they
otherwise would be entitled to receive) received by holders of Bank common
stock in the reorganization will be the same as the basis of their Bank common
stock surrendered in the exchange. Section 358(a)(1).
6. The holding period of the BPC common stock (including fractional shares
which they otherwise would be entitled to receive) received by holders of Bank
common stock will include the period during which the common stock of Bank
surrendered in exchange were held, provided that Bank common stock was held as a
capital asset on the date of the reorganization. Section 1223(1).
7. Cash received by a shareholder of Bank otherwise entitled to receive a
fractional share of BPC common stock in exchange for Bank common stock will be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by BPC. 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). This receipt of cash will result in gain or loss
measured by the difference between the basis of such fractional share interest
and the cash received. Such gain or loss will be capital gain or loss to the
former Bank shareholder, provided the Bank stock was a capital asset in such
former shareholder's hands. Rev. Rul. 66-365, 1966-1 C.B. 116 and Rev. Rul 77-
41, 1977-2 C.B. 574.
LAW AND ANALYSIS
- ----------------
Section 368(a)(2)(D) provides that the acquisition by one corporation, in
exchange for stock of a corporation (referred to in this subparagraph as
"controlling corporation") which is in control of the acquiring corporation, of
substantially all of the properties of another corporation shall not disqualify
a transaction under Section 368(a)(1)(A) if:
(i) no stock of the acquiring corporation is used in the transaction; and
(ii) in the case of a transaction under Section 368(a)(1)(A), such transaction
would have qualified under Section 368a)(1)(A) had the merger been into the
controlling corporation.
Regulation Section 1.368-2(b)(1) provides that in order to qualify as a
reorganization under Section 368(a)(1)(A) the transaction must be a merger or
consolidation effected pursuant to the corporation laws of the United States or
a State or Territory or the District of Columbia.
<PAGE>
June 25, 1997 DRAFT
-----
Page 9
It has been represented that Bank, a federal savings bank, will merge with and
into Acquirer, also a Federal Savings Bank, under the provisions of the HOLA.
Thus, the merger will be completed under United States Federal law.
At the time of this transaction, BPC will own 100% of the issued and outstanding
stock of Acquirer, and thus will be in control of Acquirer within the meaning of
Section 368(c).
Revenue Procedure 77-37, 1977-2 C.B. 568, provides that the term "substantially
all" means at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by the corporation
immediately prior to the transfer." For this purpose, amounts paid by a target
corporation to shareholders who receive cash or other property, target
corporation assets used to pay its reorganization expenses, and all redemptions
and distributions (except for regular, normal, dividends) made by a target
corporation immediately preceding the transfer will be included as assets of the
target corporation held immediately prior to the transaction. It has been
represented that Acquirer will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross assets
held by Bank immediately prior to the transaction, after any payments by Bank
described in the preceding sentence. Thus, the substantially all requirement of
section 368(a)(2)(D) will be met.
Additionally, no stock of Acquirer will be used in the transaction, thus, the
requirement in Section 368(a)(2)(D)(i) will be met.
In addition, in order for this transaction to qualify as a reorganization,
Section 368(a)(2)(D)(ii) provides that the merger of Bank directly into BPC must
be a transaction that would have qualified under Section 368(a)(1)(A).
Regulation Section 1.368-2(b)(2) provides that the foregoing test of whether the
transaction would have qualified under Section 368(a)(1)(A) if the merger had
been into the controlling corporation means that the general requirements of a
reorganization under Section 368(a)(1)(A) (such as business purpose, continuity
of business enterprise, and continuity of interest) must be met in addition to
the special requirements of Section 368(a)(2)(D). Under this test, it is not
relevant whether the merger into the controlling corporation could have been
effected pursuant to State or Federal corporation law. As discussed below, the
business purpose, continuity of business enterprise and continuity of interest
will be met, therefore the requirement of Section 368(a)(2)(D) will be met.
Additional requirements for reorganization treatment, other than the
requirements set forth in the statute, are described in the Regulations
promulgated under Section 368. Regulation Section 1.368-1(b) notes that the
reorganization provisions except from the general rule of taxability certain
specifically described exchanges incident to such readjustments of corporate
<PAGE>
June 25, 1997 DRAFT
-----
Page 10
structures made in one of the particular ways specified in the Code as are
required by business exigencies and which affect only a readjustment of a
continuing interest in property under modified corporate form. Requisite to a
reorganization are a continuity of business enterprise and a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization.
Under Regulation Section 1.368-1(b), the continuity of interest doctrine
requires that in a reorganization there must be a continuity of interest therein
on the part of those persons who, directly or indirectly, were the owners of the
enterprise prior to the reorganization. Revenue Procedure 77-37 provides that
the "continuity of interest" requirement of Regulation Section 1.368-1(b) is
satisfied if the former shareholders of the acquired corporation own, as a
result of the transaction, stock in the acquiring corporation having a value
equal to at least 50% of the value of the formerly outstanding stock of the
acquired corporation as of the same date. It is not necessary that each
shareholder of the acquired corporation receive in the exchange stock of the
acquiring corporation, which is equal in value to at least 50% of the value of
his former stock interest in the acquired corporation, so long as one or more of
the shareholders of the acquired corporation have a continuing interest through
stock ownership in the acquiring corporation which is, in the aggregate, equal
in value to at least 50% of the value of all of the formerly outstanding stock
of the acquired corporation. Sales, redemptions, and other redemptions, and
other dispositions of stock occurring prior or subsequent to the exchange which
are part of the plan of reorganization will be considered in determining whether
there is a 50% continuing interest through stock ownership as if the effective
date of the reorganization.
It has been represented that there is no plan or intention by the shareholders
of Bank who own 1% or more of Bank common stock, and to the best of the
knowledge of the management of Bank, there is no plan or intention on the part
of the remaining shareholders of Bank to sell, exchange or otherwise dispose of
a number of shares of BPC common stock received in the transaction that will
reduce the former Bank shareholders' ownership of the BPC Common stock to a
number of shares having a value, as of the date of the transaction, of less than
50% of the value of all the formerly outstanding stock of Bank as of the same
date. For purposes of this representation, shares of Bank common stock
exchanged for cash or other property, surrendered by dissenters, or exchanged
for cash in lieu of fractional shares of BPC common stock will be treated as
outstanding Bank common stock on the date of the transaction. Moreover, shares
of Bank common stock and shares of BPC common stock held by shareholders of Bank
and otherwise sold, redeemed or disposed of prior or subsequent to the
transaction and as part of the transaction were to be considered in making this
representation. Accordingly the continuity of interest requirement will be met.
<PAGE>
June 25, 1997 DRAFT
-----
Page 11
Regulation Section 1.368-1(d) provides that continuity of business enterprise in
a reorganization transaction requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic assets in a business. It has
been represented that following the transaction Acquirer will continue its
historic businesses of Bank or use of a significant portion of its historic
business assets its businesses, thus, the continuity of business enterprise
requirement will be met.
In order to qualify as a reorganization described in Section 368, there must be
a genuine business purpose for this transaction. The Boards of Directors of BPC
and Bank have determined that it is in the best interests of their respective
businesses that Acquirer acquire the assets and business of Bank, as previously
discussed. Therefore, this requirement will be met.
Based on the above law and analysis, in our opinion the merger of Bank with and
into Acquirer and the exchange of Bank common stock by Bank shareholders for BPC
common stock will qualify as a reorganization described in Sections 368(a)(1)(A)
and 368(a)(2)(D).
Section 368(b)(2) provides that the term "a party to a reorganization" includes
both corporations, in the case of a reorganization resulting from the
acquisition by one corporation of stock or properties of another. In the case
of a reorganization qualifying under Section 368(a)(1)(A) by reason of Section
368(a)(2)(D), the term "a party to reorganization" includes the controlling
corporation referred to in Section 368(a)(2)(D). Thus, BPC, Acquirer and Bank
will each be a party to the reorganization.
Section 361(a) provides that no gain or loss shall be recognized to a
corporation if such corporation is a party to a reorganization and exchanges
property in pursuance of the plan of reorganization, solely for stock or
securities in another corporation a party to the reorganization. Because
Acquirer and Bank will each be a party to a reorganization and the exchange will
be solely for BPC common stock, no gain or loss will be recognized to Bank on
the transfer of its assets to Acquirer in exchange for BPC common stock.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt of money or other property in exchange for stock of
such corporation. In a transaction to which Section 1032(a) applies, the
corporation receiving property exchanges its own stock for such property rather
than the stock of its parent corporation. Regulation Section 1032-2(b) provides
that in the case of a forward triangular merger such as this, stock of a
corporation controlling an acquiring corporation provided by the controlling
corporation to the acquiring corporation, or directly to the target corporation
or its shareholders on behalf of the acquiring
<PAGE>
June 25, 1997 DRAFT
-----
Page 12
corporation, pursuant to the plan of reorganization is treated as a disposition
by the controlling corporation of shares of its own stock for the target
corporation's assets or stock, as applicable. In the case at hand, Bank will
merge with and into Acquirer in exchange for BPC common stock. Accordingly, no
gain or loss will be recognized to BPC or Acquirer upon the issuance of BPC
common stock in the merger.
Section 354(a)(1) provides that no gain or loss shall be recognized if stock or
securities in a corporation a party to a reorganization are exchanged solely for
stock or securities in such corporation or in another corporation a party to the
reorganization. Because Acquirer, Bank and BPC should be parties to a
reorganization, no gain or loss will be recognized by those Bank shareholders
who receive solely BPC common stock (including fractional shares which they
otherwise would be entitled to receive) in exchange for their Bank common
stock.
Section 358(a)(1) provides that in the case of an exchange to which Section 354
applies, the basis of the property to be received without the recognition of
gain or loss shall be the same as that of the property exchanged, decreased by
(i) the fair market value of any other property (except money) received by the
taxpayer, (ii) the amount of money received by the taxpayer, and (iii) the
amount of loss to the taxpayer which was recognized on such exchange, and
increased by (i) the amount which was treated as a dividend, and (ii) the amount
of gain to the taxpayer which was recognized in such exchange (not including any
portion of such gain which was treated as a dividend). Accordingly, the basis
of the BPC common stock to be received by those Bank shareholders who receive
solely BPC common stock (including fractional shares which they otherwise would
be entitled to receive) will be the same as the basis of Bank common stock
surrendered in the exchange.
Section 1223(1) provides that in determining the period for which the taxpayer
has held property received in an exchange, there shall be included the period
for which the taxpayer held the property exchanged if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis (in
whole or in part) in its hands as the property exchanged. The property
exchanged at the time of such exchange must be a capital asset as defined in
Section 1221 or property described in Section 1231. Because the BPC common
stock to be received by Bank shareholders will have the same basis as the Bank
common stock exchanged, the holding period of the BPC common stock will include
the period for which the Bank common stock was held, provided that such stock
was a capital asset on the date of the exchange.
Revenue Ruling 66-365 provides that cash received by a shareholder as part of a
plan of reorganization under Section 368(a)(1)(A), which is attributable to
fractional shares of stock of
<PAGE>
June 25, 1997 DRAFT
-----
Page 13
the acquiring corporation, will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by the acquirer.
Under Section 302(a), such cash payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed provided the
redemption is not essentially equivalent to a dividend.
Revenue Procedure 77-41 provides that the Internal Revenue Service will issue an
advance ruling under Section 302(a) that cash to be distributed to shareholders
in lieu of fractional share interests arising in corporate reorganizations will
be treated as having been received in part or in full payment in exchange for
the stock redeemed if the cash distribution is undertaken solely for the purpose
of saving the corporation the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained for
consideration. The purpose of the transaction giving rise to the fractional
share interest, the maximum amount of cash that may be received by any one
shareholder, and the percentage of the total consideration that will be cash are
among the factors that will be considered in determining whether a ruling is to
be issued.
It has been represented that the payment of cash in lieu of fractional shares of
BPC common stock is solely for the purpose of avoiding the expense and
inconvenience to BPC of issuing fractional shares add does not represent
separately bargained for consideration. The total cash consideration that will
be paid in the transaction to the Bank shareholders instead of issuing
fractional shares of BPC common stock will not exceed 1% of the total
consideration that will be issued in the transaction to Bank shareholders in
exchange for their shares of Bank common stock. The fractional share interests
of each Bank shareholder will be aggregated, and, except for dissenting
shareholders no Bank shareholder will receive cash in an amount equal to or
greater than the value of one full share of BPC common stock.
Accordingly, cash received by a shareholder of Bank otherwise entitled to
receive a fractional share of BPC common stock in exchange for Bank common stock
will be treated as if the fractional shares were distributed as part of the
exchange and then were redeemed by BPC. 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). The receipt of cash will result in gain
or loss measured by the difference between the shareholder's basis of such
fractional share interest exchanged and the cash received. Such gain or loss
should be capital gain or loss to a Bank shareholder, provided that the Bank
shareholder's common stock was a capital asset in the shareholder's hands.
This opinion is based solely upon the representations, Documents, information,
and facts that we have included or referenced in this opinion letter; our
assumption (without independent
<PAGE>
June 25, 1997 DRAFT
-----
Page 14
verification) that all of the representations and all of the originals, copies,
and signatures of Documents reviewed by us are accurate, true, and authentic;
our assumption (without independent verification) that there will be timely
execution and delivery of and performance as required by the representations and
Documents; the understanding that only the specific Federal income tax issues
and tax consequences opined upon herein are covered by this tax opinion, and no
other federal, state, or local taxes of any kind; and the law, regulations,
cases, rulings, and other tax authority (including without limitation the Code,
applicable Treasury Regulations, judicial decisions, and administrative rulings
and practice) in effect as of the date of this letter.
If there are any significant changes of the foregoing tax authorities (for which
we shall have no responsibility to advise you), such changes may result in our
opinion being rendered invalid or necessitate (upon your request) a
reconsideration of the opinion; your understanding that this opinion is not
binding on the IRS or the courts and should not be considered a representation,
warranty, or guarantee that the IRS or the courts will concur with our opinion;
and your understanding that this opinion letter is solely for your information
and benefit, is limited to the described transaction, and may not be relied
upon, distributed, disclosed, made available to, or copied by anyone, without
prior written consent except by reference in the Application/Information Filing
H-(e)3 filing with the Office of Thrift Supervision by Bank Plus Corporation and
in a proxy solicitation and prospectus to the shareholders of Bank.
If we can be of further assistance in connection with this matter, please
contact us.
Very truly yours,
Deloitte & Touche LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-27975 of Bank Plus Corporation on Form S-4 of our report
dated April 17, 1997 (except Note 2, which is dated May 2, 1997), on the
consolidated financial statements of Hancock Savings Bank, FSB and subsidiary
(which report expresses an unqualified opinion and includes explanatory
paragraphs referring to regulatory matters and the uncertainty about Hancock's
ability to continue as a going concern) appearing in the Proxy
Statement/Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Proxy Statement
Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 30, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-27975 of Bank Plus Corporation on Form S-4 of our report
dated February 7, 1997, which is included in Amendment No. 1 to the Annual
Report on Form 10-K/A of Bank Plus Corporation for the year ended December 31,
1996, and to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus, which is part of such registration statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 30, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF FINANCIAL ADVISOR
We hereby consent to use in this Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 (this "Registration Statement") of Bank Plus
Corporation of our letter to the Board of Directors of Hancock Savings Bank,
F.S.B., included as Appendix C to the Prospectus/Proxy Statement that is a part
of this Registration Statement, and to the references to such letter and to our
firm in such Prospectus/Proxy Statement under the captions "Summary," "The
Merger -- Background," "--Reasons for the Merger; Recommendation of the Board of
Directors" and "--Opinion of Financial Advisor to Hancock." In giving such
consent, we do not thereby admit that we come within the category of persons who
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
SMITH & CROWLEY INC.
By: /s/ Claude B. Hutchinson, Jr.
--------------------------------
Name: Claude B. Hutchinson, Jr.
------------------------------
Title: Managing Director
-----------------------------
Layfayette, California
June 30, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Post Effective Amendment No. 1 to
Registration Statement No. 333-27975 (the "Registration Statement") of Bank
Plus Corporation on Form S-4 of the form of our opinion to Hancock Savings
Bank, F.S.B., Bank Plus Corporation, a Delaware corporation, and Fidelity
Federal Bank, A Federal Savings Bank, included as Exhibit 8.1 to the
Registration Statement, and to the references to such form of opinion and to
our firm in the Proxy Statement/Prospectus that is a part of the Registration
Statement under the captions "Summary" and "PROPOSAL 1--APPROVAL OF THE
MERGER--Certain Federal Income Tax Consequences."
Deloitte & Touche LLP
Los Angeles, California
June 30, 1997
<PAGE>
EXHIBIT 99.1
REVOCABLE PROXY
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
HANCOCK SAVINGS BANK, F.S.B.
JULY , 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Kathleen L. Kellogg, Richard
L. Stever and Ezunial Burts, and each of them, with full power of
substitution, the true and lawful attorneys and proxies of the undersigned,
for and in the name, place and stead of the undersigned, to act for the
undersigned and to vote all of the undersigned's shares of common stock, $6.40
par value per share (the "Common Stock"), of Hancock Savings Bank, F.S.B.
("Hancock"), at the Special Meeting in lieu of Annual Meeting of Stockholders
of Hancock (the "Meeting"), to be held on July , 1997, at 8:00 a.m., at the
office of Hancock located at 157 North Larchmont, Los Angeles, California
90004, and at any and all adjournments or postponements thereof, upon the
proposals described in the Proxy Statement/Prospectus for the Meeting as
indicated on the reverse side hereof.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorneys and
proxies lawfully may do by virtue hereof.
It is understood that this proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Special Meeting in lieu of Annual Meeting of Stockholders to the undersigned.
The proxies and attorneys intend to vote the shares represented by this proxy
on such additional matters, if any, as determined by the Board of Directors.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" APPROVAL OF THE AGREEMENT AND PLAN OF MERGER,
"FOR" EACH OF THE NOMINEES LISTED FOR DIRECTOR AND "FOR" APPROVAL OF THE
KELLOGG OPTION.
(continued and to be signed on the other side)
FOLD AND DETACH HERE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOLLOWING
PROPOSALS:
Please mark
your votes [X]
as indicated
in this example
PROPOSAL 1. Proposal to approve an Agreement and Plan of Merger, dated as of
June 25, 1997, by and among Bank Plus Corporation ("Bank Plus"), Fidelity
Federal Bank, FSB ("Fidelity"), and Hancock, pursuant to which (a) Hancock
would merge with and into Fidelity, with Fidelity being the surviving bank,
and (b) each outstanding share of Hancock Common Stock (except for shares held
by Hancock stockholders properly exercising dissenters' rights) would be
converted into the right to receive such number of shares of common stock,
$0.01 par value per share, of Bank Plus, as determined under the formula
described in the Proxy Statement/Prospectus.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL 2. ELECTION OF DIRECTORS
VOTE FOR VOTE WITHHELD
(a) Nominee: Ezunial Burts
[ ] [ ]
VOTE FOR VOTE WITHHELD
(b) Nominee: Eric D. Hovde
[ ] [ ]
VOTE FOR VOTE WITHHELD
(c) Nominee: Kathleen L. Kellogg
[ ] [ ]
PROPOSAL 3. Proposal to approve the Kellogg Option.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please check here if this is a new address [_]
Please check here if you plan to attend the Meeting [_]
Please check your mailing address on the mailing envelope used to mail this
material to you. If it is inaccurate, please include your correct address
below:
- -------------------------------------------------------------------------------
(Address)
- -------------------------------------------------------------------------------
(City, State, Zip Code)
Dated: __________________________________________________________________, 1997
Please date this Proxy and sign exactly as your name appears on your stock
certificate. If signing as a fiduciary, please give your full title.
- -------------------------------------------------------------------------------
Signature of Stockholder
- -------------------------------------------------------------------------------
Signature of Stockholder (if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
FOLD AND DETACH HERE
