[Letterhead of SBT Bankshares, Inc.]
April 30, 1998
Shareholders of SBT Bankshares, Inc.
Dear Shareholder:
A Special Meeting of the shareholders of SBT Bankshares, Inc. ("the
Company") has been called for 9:00 a.m., Colorado time, on May 29, 1998, at the
Company's offices at 111 South Tejon Street, Colorado Springs, Colorado. The
accompanying proxy statement/prospectus is being furnished to all holders of the
Company's Common Stock.
The purpose of the Special Meeting is to consider and vote upon an
Agreement and Plan of Reorganization dated December 19, 1997 among the Company,
State Bank and Trust of Colorado Springs (the "Bank"), Zions Bancorporation
("Zions"), Val Cor Bancorporation, Inc. ("Val Cor"), a subsidiary of Zions, and
Valley National Bank of Cortez, which has since merged into a wholly-owned
subsidiary of Val Cor named Bank Colorado, National Association ("Bank
Colorado"), which includes an Agreement of Merger between the Company and Val
Cor and an Agreement of Consolidation between the Bank and Bank Colorado
(collectively, the "Plan of Reorganization"). If the Plan of Reorganization is
approved, and all conditions are met, the Plan of Reorganization will result in
the merger of the Company into Val Cor, with Val Cor being the surviving
corporation and the consolidation of the Bank and Bank Colorado to form a new
national banking association. Bank Colorado intends to change its name to
Vectra Bank Colorado, National Association prior to the Special Meeting.
Upon consummation of the Plan of Reorganization, each holder of Company
Common Stock will receive shares of Zions Common Stock in exchange for each
share of Company Common Stock. The terms and conditions of the Plan of
Reorganization are summarized in the accompanying Proxy Statement/Prospectus.
See "Plan of Reorganization" in the Proxy Statement/Prospectus. Holders of
Company Common Stock who do not wish to participate in the Reorganization are
entitled to assert dissenters' rights under Colorado law. See "Plan of
Reorganization--Rights of Dissenting Shareholders" for further information.
At the Effective Date (as defined), the shares of Company Common Stock
will be canceled and immediately converted into the right for holders of Company
Common Stock to receive, in exchange for each share of Company Common Stock,
that number of shares of Zions Common Stock calculated by dividing the product
of the Consideration Number (as defined) and the Collar Factor (as defined) by
the sum of the number of shares of Company Common Stock issued and outstanding
as of the Effective Date of the Reorganization and the Option Equivalent Number
(as defined). The amounts represented by some of these and other defined terms
are variable and will not be known with precision until the Effective Date of
the Reorganization. As a result, the precise number of shares of Zions Common
Stock to be exchanged for each share of Company Common Stock cannot be
determined until the Effective Date.
On April 27, 1998, the closing price of Zions Common Stock was $48.0625
per share. On that date there were 78,592 shares of Company Common Stock issued
and outstanding. Assuming that the Reorganization had been consummated as of
April 27, 1998, that the Average Closing Price (as defined) of Zions Common
Stock had been $48.0625 per share on that date, that the Consideration Number
had been 619,900, and that the Collar Factor had been 0.957, shareholders of the
Company under such circumstances would have received 6.359 shares of Zions
Common Stock for each share of Company Common Stock, or an equivalent value of
$305.64 per share of Company Common Stock.
<PAGE>
Shareholders of SBT Bankshares, Inc.
April 30, 1998
Page 2
On April 27, 1998, options to purchase a total of 16,250 shares of Company
Common Stock at an average exercise price of $29.23 per share were outstanding,
held by eight persons, each of whom was an executive officer or director of the
Company. At the Effective Date of the Reorganization, these Company stock
options will automatically be converted into options to purchase shares of Zions
Common Stock. Assuming that the Effective Date of the Reorganization had been
April 27, 1998, that the Average Closing Price of Zions Common Stock had been
$48.0625 on that date, that the Consideration Number had been 619,900, and that
the Collar Factor had been 0.957, these options to purchase Zions Common Stock
would have covered a total of 103,333.75 shares of Zions Common Stock at an
average exercise price of $4.60. Based on these assumptions, these options had
on that date an aggregate value (the difference between the market price of
Zions Common Stock on that date and the exercise price) of $4,491,143.10 to the
option holders. Counsel for Zions has questioned whether these options were
granted in violation of the preemptive rights provisions of the Company's
Articles of Incorporation. On advice of counsel, the Board of Directors of the
Company is of the opinion that these options were legitimately granted. A
condition to closing the Holding Company Merger imposed by Zions is that all
shareholders of the Company must waive any preemptive rights they might have to
be offered, subscribe to, or acquire shares, options, and other interests and
rights of or in the Company. By waiving their preemptive rights, Company
shareholders who were not granted Company stock options will, in addition to
waiving their rights to have been offered Company stock options at the time such
options were granted to the executive officers and directors of the Company and
to acquire shares of Company Common Stock at the time of exercise of any stock
options, give up financial benefits they might otherwise have in the options.
Their waiver of such rights will, however, satisfy a condition to closing
without which Zions in its discretion may decline to proceed with the
Reorganization. See "Plan of Reorganization--Waiver of Preemptive Rights." A
form of Waiver accompanies this letter and should be executed and returned in
the enclosed, self-addressed envelope as soon as possible.
The accompanying Proxy Statement/Prospectus details the terms of the
proposed Plan of Reorganization and provides information concerning the Company,
the Bank, Zions, Val Cor and Bank Colorado as well as the Plan of
Reorganization. The Proxy Statement/Prospectus contains important information
necessary for the shareholders to make a decision about how to vote at the
Special Meeting. Please read it carefully.
The affirmative vote of eighty percent (80%) of the issued and outstanding
shares of the Company's Common Stock is required for approval of the Plan of
Reorganization. Failure to vote will have the same effect as a vote against the
Reorganization. Consequently, please mark, sign, date and return the enclosed
proxy as soon as possible.
Any holder of Company Common Stock may attend the Special Meeting and vote
in person if he or she desires, even if he or she has already submitted a proxy.
Consummation of the Plan of Reorganization is subject to approval by
federal and state bank regulatory agencies, all of which approvals have been
received, and to certain other conditions, including the maintenance of the
Company's financial condition. If approved, the Plan of Reorganization will most
likely be consummated sometime in the second quarter of 1998.
The Board of Directors has unanimously approved the Plan of Reorganization
and determined that the Reorganization is in the best interests of the Company,
its shareholders, employees and the community it serves. The Board of Directors
unanimously recommends that the shareholders vote to approve the Plan of
Reorganization.
Instructions describing the procedure to be followed to receive shares of
Zions Common Stock are not included with the accompanying Proxy
Statement/Prospectus. If the Plan of Reorganization is approved by the
<PAGE>
Shareholders of SBT Bankshares, Inc.
April 30, 1998
Page 3
shareholders, on or shortly after the effective date of the Plan of
Reorganization, Zions will send you instructions describing the procedure to be
followed to exchange your SBT Bankshares, Inc. stock certificate for the
Reorganization consideration.
Please do not send your certificates to the Company prior to receiving
these instructions.
Sincerely,
------------------------
John G. Jackson
President
<PAGE>
SBT BANKSHARES, INC.
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
A Special Meeting of shareholders of SBT Bankshares, Inc. (the "Company")
will be held at 9:00 a.m., Colorado time, on May 29, 1998, at the Company's
offices at 111 South Tejon Street, Colorado Springs, Colorado, to consider and
vote upon an Agreement and Plan of Reorganization dated as of December 19, 1997
among the Company, State Bank and Trust of Colorado Springs (the "Bank"), Zions
Bancorporation ("Zions"), Val Cor Bancorporation, Inc. ("Val Cor"), a subsidiary
of Zions, and Valley National Bank of Cortez, which has since merged into a
wholly-owned subsidiary of Val Cor named Bank Colorado, National Association
("Bank Colorado"), an Agreement of Merger between the Company and Val Cor and an
Agreement of Consolidation between Bank Colorado and the Bank (collectively, the
"Plan of Reorganization"), and the transactions contemplated thereby. The Plan
of Reorganization provides for the merger of the Company into Val Cor, with Val
Cor being the surviving corporation and for the consolidation of the Bank and
Bank Colorado to form a new national banking association (the aforementioned
merger and consolidation being referred to herein collectively as the
"Reorganization"). Bank Colorado intends to change its name to Vectra Bank
Colorado, National Association prior to the Special Meeting.
Upon the consummation of the Plan of Reorganization, each holder of shares
of Company Common Stock will receive shares of Zions Common Stock in exchange
for each share of Company Common Stock held as of the effective date of the Plan
of Reorganization. The terms and conditions of the Reorganization are set forth
in the accompanying Proxy Statement/Prospectus.
The Board of Directors has set April 30, 1998, as the record date for
determining shareholders entitled to notice of and to vote at the Special
Meeting.
Holders of Company Common Stock are entitled to assert dissenters' rights
under Colorado law.
By order of the Board of Directors
Dated: April 30, 1998.
-------------------------------
John G. Jackson
President
Please mark, sign and return the enclosed proxy in the envelope provided.
<PAGE>
SBT BANKSHARES, INC.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1998
AND
ZIONS BANCORPORATION
PROSPECTUS
UP TO 625,000 SHARES OF
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the shareholders of
SBT Bankshares, Inc., a Colorado corporation ("the Company"), in connection with
the solicitation of proxies by its Board of Directors for use at a Special
Meeting of Shareholders of the Company to be held on May 29, 1998 (the "Special
Meeting") and at any adjournments or postponements thereof. This Proxy
Statement/Prospectus and accompanying notice of special meeting and form of
proxy ("Proxy") are first being mailed on or about April 30, 1998 to the
shareholders of the Company of record as of April 30, 1998 (the "Record Date").
At the Special Meeting, the holders of each outstanding share of Company
common stock, par value $5.00 per share (the "Company Common Stock"), will
consider and vote upon a proposal to approve and adopt the Agreement and Plan of
Reorganization dated as of December 19, 1997, among the Company, State Bank and
Trust of Colorado Springs, the Company's wholly-owned subsidiary, a banking
corporation organized under the laws of the State of Colorado (the "Bank"),
Zions Bancorporation, a Utah corporation ("Zions"), Zions' wholly-owned
subsidiary, Val Cor Bancorporation, Inc., a Colorado corporation ("Val Cor"),
and Val Cor's subsidiary, Valley National Bank of Cortez, which has since merged
into a wholly-owned subsidiary of Val Cor named Bank Colorado, National
Association, a national banking association organized under the laws of the
United States ("Bank Colorado"), an accompanying Agreement of Merger between the
Company and Val Cor, and an accompanying Agreement of Consolidation between the
Bank and Bank Colorado (collectively the "Plan of Reorganization"), and the
transactions contemplated by the Plan of Reorganization. Pursuant to the Plan of
Reorganization, the Company will merge with and into Val Cor with Val Cor being
the surviving corporation (the "Holding Company Merger") and the Bank and Bank
Colorado will consolidate to form a new national banking association (the
"Consolidated Association"; the consolidation of the Bank and Bank Colorado into
the Consolidated Association hereinafter referred to as the "Bank
Consolidation"; collectively the Holding Company Merger and the Bank
Consolidation hereinafter referred to as the "Reorganization").
Upon consummation of the Reorganization, the holders of each outstanding
share of Company Common Stock will receive, in exchange for each share of
Company Common Stock, shares of Zions common stock, no par value ("Zions Common
Stock"). At the Effective Date of the Reorganization, the shares of Company
Common Stock will be canceled and immediately converted into the right for
holders of Company Common Stock to receive, in exchange for each share of
Company Common Stock, that number of shares of Zions Common Stock calculated by
dividing the product of the Consideration Number and the Collar Factor by the
sum of the number of shares of Company Common Stock issued and outstanding as of
the Effective Date of the Reorganization and the Option Equivalent Number. The
amounts represented by some of these and other defined terms are variable and
will not be known with precision until the Effective Date of the Reorganization.
As a result, the precise number of shares of Zions Common Stock to be exchanged
for each share of Company Common Stock cannot be determined until the Effective
Date. See "Summary--Certain Definitions" below for the definition of "Collar
Factor," "Consideration Number," "Effective Date," and "Option Equivalent
Number."
<PAGE>
On April 27, 1998, the closing price of Zions Common Stock was $48.0625
per share. On that date there were 78,592 shares of Company Common Stock issued
and outstanding and 16,250 stock options had been granted and were outstanding.
Assuming that the Reorganization had been consummated as of April 27, 1998, that
the Average Closing Price of Zions Common Stock had been $48.0625 on that date,
that the Consideration Number had been 619,900, and that the Collar Factor had
been 0.957, shareholders of the Company under such circumstances would have
received 6.359 shares of Zions Common Stock for each share of Company Common
Stock, or an equivalent value of $305.64 per share of Company Common Stock.
On April 27, 1998, options to purchase a total of 16,250 shares of Company
Common Stock at an average exercise price of $29.23 per share were granted and
outstanding, held by eight persons, each of whom was an executive officer or
director of the Company. At the Effective Date of the Reorganization, these
Company stock options will automatically be converted into options to purchase
shares of Zions Common Stock. Assuming that the Effective Date of the
Reorganization had been April 27, 1998, that the Average Closing Price of Zions
Common Stock had been $48.0625 on that date, that the Consideration Number had
been 619,900, and that the Collar Factor had been 0.957, these options to
purchase Zions Common Stock would have covered a total of 103,333.75 shares of
Zions Common Stock at an average exercise price of $4.60. Based on these
assumptions, these options had on that date an aggregate value (the difference
between the market price of Zions Common Stock on that date and the exercise
price) of $4,491,143.10 to the option holders. The options to purchase Company
Common Stock may have been granted in violation of the preemptive rights
provisions of the Company's Articles of Incorporation. A condition to closing
the Holding Company Merger is that all shareholders of the Company must waive
any preemptive rights they might have to be offered, subscribe to, or acquire
shares, options, and other interests and rights of or in the Company. By waiving
their preemptive rights, Company shareholders who were not granted Company stock
options will, in addition to waiving their rights to have been offered Company
stock options at the time such options were granted to the executive officers
and directors of the Company and to acquire shares of Company Common Stock at
the time of exercise of any stock options, give up financial benefits they might
otherwise have in the options. Their waiver of such rights will, however,
satisfy a condition to closing without which Zions in its discretion may decline
to proceed with the Reorganization. See "Plan of Reorganization--Waiver of
Preemptive Rights."
The Zions Common Stock to be distributed to Company shareholders will be
registered with the Securities and Exchange Commission and for all shareholders,
other than shareholders who are affiliates of the Company or who become
affiliates of Zions, will be immediately tradable. See "Plan of Reorganization--
Restrictions on Resales by Company Affiliates." Zions has filed this Proxy
Statement/Prospectus with the Securities and Exchange Commission as part of a
Registration Statement under the Securities Act of 1933, as amended, with
respect to the shares of Zions Common Stock which may be issued in the
Reorganization to the shareholders of the Company. This Proxy
Statement/Prospectus also constitutes the prospectus of Zions filed as part of
the Registration Statement.
--------------------
FOR THE ACTION OF THE SHAREHOLDERS TO BE EFFECTIVE, HOLDERS OF EIGHTY
PERCENT (80%) OF THE ISSUED AND OUTSTANDING SHARES OF COMPANY COMMON STOCK MUST
VOTE IN FAVOR OF THE REORGANIZATION. ALL REGULATORY APPROVALS HAVE BEEN
OBTAINED.
--------------------
THE SHARES OF ZIONS COMMON STOCK TO BE ISSUED IN THE REORGANIZATION 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.
- 2 -
<PAGE>
THE SHARES OF ZIONS COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus, and, if given
or made, any such information or representation should not be relied upon as
having been authorized by Zions or the Company. This Proxy Statement/Prospectus
does not constitute an offer or solicitation by any person in any state in which
such offer or solicitation is not authorized by the laws thereof or in which the
person making such offer or solicitation is not qualified to make the same.
Neither the delivery of this Proxy Statement/Prospectus at any time nor the
distribution of Zions Common Stock hereunder shall imply that the information
contained herein is correct as of any time subsequent to its date.
The information contained in this Proxy Statement/Prospectus with respect
to Zions has been supplied by Zions. The information contained in this Proxy
Statement/Prospectus with respect to the Company has been supplied by the
Company. Neither Zions nor the Company warrants the accuracy or completeness of
information relating to the other.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts, but
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, that are based upon numerous assumptions
about future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. Zions' ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the existence of demand for and acceptance of Zions' products
and services, regulatory approvals and developments, economic conditions, the
impact of competition and pricing, results of financing efforts and other
factors affecting Zions' business that are beyond Zions' control. Factors that
could cause future results to vary from current management expectations include,
but are not limited to, general economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the federal government, changes in tax
policies, rates and regulations of federal and local tax authorities, changes in
interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of Zions' loan and investment portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting Zions' operations, markets,
products, services and prices.
The date of this Proxy Statement/Prospectus is April 29, 1998.
- 3 -
<PAGE>
AVAILABLE INFORMATION
Zions has filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933 (the "Securities Act") a Registration Statement
on Form S-4 (the "Registration Statement") covering the shares of Zions Common
Stock issuable in the Reorganization. As permitted by the rules and regulations
of the SEC, this Proxy Statement/Prospectus omits certain information, exhibits
and undertakings contained in the Registration Statement. The statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document filed as an exhibit to the Registration Statement are of
necessity brief descriptions and are not necessarily complete. Each such
statement is qualified in its entirety by reference to the copy of such contract
or document filed as an exhibit to the Registration Statement. The Registration
Statement and the exhibits thereto can be inspected at the public reference
facilities of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.,
and copies of such material can be obtained at prescribed rates by mail
addressed to the SEC, Public Reference Section, Washington, D.C. 20549.
Zions is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C.; and at the following regional offices of the SEC: 7 World
Trade Center, Suite 1300, New York, NY 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates by mail addressed to the SEC,
Public Reference Section, Washington, D.C. 20549. Zions Common Stock is quoted
on the NASDAQ National Market (hereinafter, the "NASDAQ-NMS"), and such reports,
proxy statements and other information can also be inspected at the offices of
NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. The SEC maintains a Web
site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the SEC
(http://www.sec.gov).
This Proxy Statement/Prospectus incorporates by reference certain
documents relating to Zions which are not presented herein or delivered
herewith, including the Plan of Reorganization (as described herein). See
"Information Concerning Zions--Zions Documents Incorporated by Reference."
Copies of such documents are available upon request and without charge to any
person to whom this Proxy Statement/Prospectus has been delivered. Requests for
the Plan of Reorganization or Zions documents should be directed to Zions
Bancorporation, One South Main, Suite 1380, Salt Lake City, Utah 84111,
Attention: Dale M. Gibbons, Executive Vice President, (telephone: 801/524-4787).
In order to ensure timely delivery of the Plan of Reorganization or Zions
documents, any request should be made not later than May 21, 1998.
- 4 -
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY......................................................................1
The Parties............................................................1
The Special Meeting; Purpose...........................................2
Record Date; Voting Rights.............................................2
Voting and Revocation of Proxies.......................................2
Quorum; Vote Required for Approval.....................................3
Proposed Reorganization................................................3
Certain Definitions....................................................4
Reasons for the Reorganization.........................................6
Board of Directors Recommendation......................................6
Interests of Certain Persons in the Transaction........................7
Finder's Fee...........................................................7
Tax Consequences.......................................................7
Dissenters' Rights.....................................................7
Conditions; Regulatory Approval........................................7
Amendment; Termination.................................................8
Effective Date of the Reorganization...................................8
Accounting Treatment...................................................8
Comparison of Shareholders' Rights.....................................8
"Anti-Takeover" Provisions.............................................8
Exchange of Certificates...............................................9
Waiver of Preemptive Rights............................................9
Trading Markets; Pre-Announcement Prices...............................9
Selected Financial Information.........................................9
Comparative Per Share Data............................................10
Unaudited Pro Forma Combined Financial Information....................11
Recent Developments...................................................11
PLAN OF REORGANIZATION......................................................13
The Reorganization....................................................13
Background of and Reasons for the Reorganization......................14
Voting Agreements.....................................................16
Waiver of Preemptive Rights...........................................16
Required Vote; Management Recommendation..............................17
No Opinion of a Financial Advisor.....................................17
Conversion of Company Shares..........................................18
Federal Income Tax Consequences of the Reorganization.................19
Rights of Dissenting Shareholders.....................................20
Interests of Certain Persons in the Transaction.......................22
Inconsistent Activities...............................................23
Conduct of Business Pending the Reorganization........................23
Conditions to the Reorganization......................................24
Representations and Warranties........................................25
Amendment and Waiver..................................................26
Authorized Termination and Damages for Breach.........................26
Restrictions on Resales by Company Affiliates.........................27
Expenses..............................................................27
Government Approvals..................................................27
Effective Date of the Reorganization..................................28
Accounting Treatment..................................................28
Relationship Between Zions and the Company............................28
Unaudited Pro Forma Combined Financial Information....................28
SUPERVISION AND REGULATION..................................................29
Zions ................................................................29
Regulatory Capital Requirements.......................................30
Other Regulatory and Supervisory Issues...............................33
Deposit Insurance and Other Assessments...............................34
Interstate Banking....................................................35
MONETARY POLICY.............................................................36
- i -
<PAGE>
INFORMATION CONCERNING ZIONS BANCORPORATION.................................36
Selected Financial Data...............................................36
Stock Prices and Dividends on Zions Common Stock......................39
Principal Holders of Zions Common Stock...............................39
Zions Documents Incorporated By Reference.............................41
INFORMATION CONCERNING THE COMPANY AND THE BANK.............................41
General...............................................................41
The Bank..............................................................41
Lending...............................................................42
Loans ................................................................42
Non-Performing Assets.................................................43
Non-Performing Loans..................................................44
Other Real Estate Owned...............................................45
Analysis of Allowance for Loan Losses.................................45
Investment Securities.................................................46
Investment Portfolio..................................................47
Deposits..............................................................47
Table Showing Deposits................................................47
Return on Company Equity and Assets...................................48
Property..............................................................48
Competition...........................................................49
Legal Proceedings.....................................................49
Employees.............................................................49
Regulatory Matters....................................................49
Selected Financial Data...............................................49
Stock Prices and Dividends on Company Common Stock....................51
Certain Transactions of the Company...................................51
Stockholdings of Directors, Officers and Certain Others...............51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF SBT BANKSHARES, INC..........................52
General...............................................................52
Net Interest Income...................................................53
Results of Operations.................................................56
Interest and Fee Income...............................................56
Interest Expense......................................................56
Net Interest Income...................................................56
Non-Interest Income...................................................57
Non-Interest Expense..................................................57
Allowance for Loan Losses.............................................57
Income Taxes..........................................................57
Liquidity and Sources of Funds........................................57
Capital Resources.....................................................58
Effects of Inflation and Changing Prices..............................58
New Accounting Principles.............................................58
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF ZIONS AND THE COMPANY...........59
General...............................................................59
Anti-takeover Matters.................................................59
Shareholder Rights Plan...............................................61
Board of Directors....................................................61
Special Shareholders' Meetings........................................63
Amendment of Articles and Bylaws......................................63
Dissenters' Rights....................................................63
Preemptive Rights.....................................................64
Preferred Stock.......................................................64
Dividend Rights.......................................................64
Liquidation Rights....................................................65
Miscellaneous.........................................................65
LEGAL OPINIONS..............................................................65
EXPERTS.....................................................................65
OTHER MATTERS...............................................................65
SBT FINANCIAL STATEMENTS....................................................67
Appendix A - Opinion of McKenna & Cuneo, L.L.P. as to Tax Matters
Appendix B - Rights of Dissenters under ss.ss. 7-113-101 to 701-113-302 of
the Colorado Business Corporation Act
- ii -
<PAGE>
SUMMARY
The following is a brief summary of certain information which may also be
contained elsewhere in this Proxy Statement/Prospectus. This summary is provided
for convenience and should not be considered complete. It is qualified in its
entirety by the more detailed information contained in this Proxy
Statement/Prospectus and in the Appendices hereto.
The Parties
Zions Bancorporation ("Zions") is a multi-bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"), and organized under the laws of Utah, engaged primarily in the
commercial banking business through its banking subsidiaries. Zions' principal
executive offices are at One South Main, Suite 1380, Salt Lake City, Utah 84111
(telephone: 801/524-4787). Zions is the second largest bank holding company
headquartered in Utah.
In 1997, Zions achieved a significant expansion of commercial banking
operations in Utah, Nevada, and Arizona, and expanded its franchise by adding
banking operations in Colorado, New Mexico, Idaho and California. Its principal
subsidiaries are banking subsidiaries which include Zions First National Bank,
the second largest commercial banking organization in the state of Utah; Nevada
State Bank, the fifth largest commercial bank in Nevada; and National Bank of
Arizona, the fifth largest commercial bank in Arizona. Acquisitions consisted of
Aspen Bancshares and its affiliate banks with branches in Colorado and New
Mexico; Tri-State Bank in Idaho, which was merged into Zions First National
Bank; 31 Wells Fargo branches in Utah, Idaho, Arizona and Nevada; Sun State Bank
in Nevada which was merged into Nevada State Bank; Grossmont Bank in San Diego,
California; and the public finance firms of Howarth & Associates in Nevada and
Kelling, Northcross and Nobriga, Inc. in California.
On December 29, 1997, Zions and FP Bancorp, Inc. ("FP Bancorp"), the
holding company of First Pacific National Bank ("First Pacific"), announced that
a definitive agreement had been signed under which FP Bancorp will merge with
and into Zions, and First Pacific with and into Grossmont Bank, in exchange for
common shares of Zions. As of September 30, 1997, First Pacific had assets of
$359 million. The merger is subject to approval by banking regulators and the
shareholders of FP Bancorp. This acquisition is pending. On January 6, 1998,
Zions acquired Vectra Banking Corporation ("Vectra"), the parent company of
Vectra Bank which has 9 offices in the Denver metropolitan area. In the
transaction, Vectra merged with and into Zions in exchange for common shares of
Zions. As of December 31, 1997, Vectra had assets of $701 million. On January
23, 1998, Zions wholly-owned subsidiary, Val Cor, and Sky Valley Bank
Corporation ("Sky Valley"), parent company of The First National Bank in Alamosa
("FNBA"), completed their merger whereby Sky Valley merged with and into Val
Cor. As of September 30, 1997, Sky Valley had assets of approximately $122
million and FNBA had three offices in Alamosa, Center, and Saguache, Colorado.
On February 27, 1998, Val Cor and Tri-State Finance Corporation ("Tri-State"),
the parent of Tri-State Bank, completed their merger whereby Tri-State merged
with and into Val Cor and Tri-State Bank, with offices in Denver and Boulder,
Colorado, merged with and into Bank Colorado. As of September 30, 1997,
Tri-State had assets of approximately $124 million. On March 25, 1998, Zions and
Sumitomo Bank of California ("Sumitomo") entered into a definitive agreement
whereby Sumitomo will merge with a subsidiary of Zions. Zions will pay
approximately $546 million in cash for Sumitomo. Sumitomo is currently
California's sixth largest bank, with assets of approximately $5.1 billion as of
December 31, 1997, and with 47 branches. Zions will combine its present
Grossmont Bank subsidiary with Sumitomo and First Pacific when these
acquisitions have been completed. See "Summary--Recent Developments," below.
As of December 31, 1997 Zions had total consolidated assets of $9.5 billion,
deposits of $6.9 billion, and shareholders' equity of $655 million. See
"Information Concerning Zions Bancorporation."
<PAGE>
Val Cor Bancorporation, Inc. ("Val Cor"), a Colorado corporation, is a
bank holding company registered under the Bank Holding Company Act. Zions
acquired Val Cor in May 1997. Val Cor's principal asset consists of its 100%
ownership interest in the common stock of Bank Colorado.
Bank Colorado, National Association ("Bank Colorado") is a national
banking association with its primary market areas located in Denver, Boulder,
Montezuma, Alamosa, and Saguache Counties, Colorado. Bank Colorado is the result
of the merger of Valley National Bank of Cortez, The First National Bank in
Alamosa, and Tri-State Bank. Bank Colorado offers traditional banking services
through offices in Denver, Boulder, Alamosa, Center, Cortez, Delores, and
Saguache, Colorado. At January 31, 1998, Bank Colorado had total assets of $213
million, total deposits of $175 million, and shareholders' equity of $32
million. Bank Colorado's main office is located at 616 East Speer Boulevard,
Denver, Colorado 80203, and its telephone number is 303/782-7440. Bank Colorado
intends to change its name to Vectra Bank Colorado, National Association prior
to the Special Meeting.
SBT Bankshares, Inc. (the "Company"), a Colorado corporation, is a bank
holding company registered under the Bank Holding Company Act whose sole
activity is the ownership and operation of State Bank and Trust of Colorado
Springs (the "Bank"). The Company has a 50% ownership interest in SBT Mortgage,
LLC and no other affiliated companies or subsidiaries. The Company's principal
asset consists of its 100% ownership interest in the Bank. The Company's main
office is located on the premises of the Bank at 111 South Tejon Street,
Colorado Springs, Colorado 80903, and its telephone number at that address is
719/577-9100. As of December 31, 1997, the Company had total consolidated
assets of $87 million and shareholders' equity of $4.8 million.
State Bank and Trust of Colorado Springs (the "Bank") is a bank organized
under the laws of Colorado and has operated at its current location in Colorado
Springs since its organization in 1984. The Bank's main office is located at 111
South Tejon Street, Colorado Springs, Colorado 80903, and its telephone number
at that address is 719/577-9100.
The Special Meeting; Purpose
The Special Meeting of Shareholders of the Company (the "Special Meeting")
will be held at 9:00 a.m., local time, on May 29, 1998 and at any
postponements or adjournments thereof at the offices of the Company, 111 South
Tejon Street, Colorado Springs, Colorado.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Plan of Reorganization and the Reorganization.
Record Date; Voting Rights
The Board of Directors of the Company has fixed the close of business on
April 30, 1998 as the record date for determining the shareholders of the
Company entitled to notice of and to vote at the Special Meeting or any
postponements or adjournments thereof. At that date, 78,592 shares of Common
Stock, $5.00 par value, of the Company (the "Company Common Stock") were
outstanding, held by 25 shareholders of record. Each such share of Company
Common Stock entitles its holder of record at the close of business on the
record date to one vote on each matter properly submitted to the shareholders
for action at the Special Meeting. See "Plan of Reorganization--Required Vote;
Management Recommendation."
Voting and Revocation of Proxies
All properly executed Proxies not theretofore revoked will be voted at the
Special Meeting or any postponements or adjournments thereof in accordance with
the instructions thereon. Company Proxies which have been properly executed but
which contain no voting instructions will be voted in favor of approval of the
Plan of Reorganization. As to any other matter brought before the Special
Meeting and submitted to a shareholder vote, Proxies will be voted in accordance
with the judgment of the proxyholders named thereon.
- 2 -
<PAGE>
A shareholder who has executed and returned a Proxy may revoke it at any
time before it is voted by filing with the Secretary of the Company written
notice of such revocation or a later dated and properly executed Proxy or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not, of itself, constitute a revocation of a Proxy.
Quorum; Vote Required for Approval
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares of Company Common Stock and entitled to vote at
the Special Meeting is necessary to constitue a quorum at the Special Meeting.
Approval of the Plan of Reorganization requires the affirmative vote of eighty
percent (80%) of the outstanding shares of Company Common Stock entitled to
vote. A failure to vote, an abstention, or a failure by a broker to vote shares
held in street name will have the same legal effect as a vote against approval
of the Plan of Reorganization. See "Plan of Reorganization--Required Vote;
Management Recommendation."
As of April 30, 1998, ten individuals beneficially owned an aggregate of
63,654 shares or approximately 80.1% of the outstanding Company Common Stock. As
an inducement to Zions to enter into the Plan of Reorganization, these various
shareholders of the Company, and one affiliated entity, have entered into
agreements with Zions under which they have agreed, in their capacity as
shareholders, to vote their shares in favor of the Reorganization. Some of these
shareholders are officers and directors of the Company; all of the Company's
directors and executive officers have so agreed. See "Plan of Reorganization--
Voting Agreements; Information Concerning the Company and the Bank--
Stockholdings of Directors, Officers and Certain Others." Such a vote will be
sufficient to approve the Plan of Reorganization and the Reorganization. If each
of these shareholders votes his, her, or its shares in favor of the Plan of
Reorganization and the Reorganization as each has agreed, the Plan of
Reorganization and the Reorganization will be approved by the Company's
shareholders, notwithstanding the vote of other shareholders of the Company.
Proposed Reorganization
At the Special Meeting, the holders of Company Common Stock will be asked
to consider and approve the Plan of Reorganization. The Plan of Reorganization
provides for the merger of the Company into Val Cor, whereby Val Cor will be the
surviving corporation, and for the consolidation of the Bank and Bank Colorado
to form a new national banking association. See "Plan of Reorganization."
Upon consummation of the Reorganization, the holders of each outstanding
share of Company Common Stock will receive, in exchange for each share of
Company Common Stock, shares of Zions Common Stock. At the Effective Date of the
Reorganization, the shares of Company Common Stock will be canceled and
immediately converted into the right for holders of Company Common Stock to
receive, in exchange for each share of Company Common Stock, that number of
shares of Zions Common Stock calculated by dividing the product of the
Consideration Number and the Collar Factor by the sum of the number of shares of
Company Common Stock issued and outstanding as of the Effective Date of the
Reorganization and the Option Equivalent Number. See "Certain Definitions,"
below. Zions will not issue fractional shares of its common stock in the
Reorganization. In lieu of fractional shares of Zions Common Stock, if any, each
shareholder of the Company who is entitled to a fractional share of Zions Common
Stock (after aggregating all shares of Zions Common Stock to which such
shareholder is entitled) will receive an amount of cash equal to the product of
such fraction times $40.00.
- 3 -
<PAGE>
On April 27, 1998, the closing price of Zions Common Stock was $48.0625
per share and there were 78,592 shares of Company Common Stock issued and
outstanding and 16,250 options granted and outstanding. Assuming that the
Reorganization had been consummated as of April 27, 1998, that the Average
Closing Price of Zions Common Stock had been $48.0625, that the Consideration
Number had been 619,900, and that the Collar Factor had been 0.957, shareholders
of the Company under such circumstances would have received 6.359 shares of
Zions Common Stock for each share of Company Common Stock, or an equivalent
value of $305.64 per share of Company Common Stock.
The Company has granted options to purchase a total of 16,250 shares of
Company Common Stock. These options may have been granted in violation of the
preemptive rights provisions of the Company's Articles of Incorporation. See
"Plan of Reorganization--Waiver of Preemptive Rights," below.
Certain Definitions
In connection with the description of the Reorganization in this Proxy
Statement/Prospectus, shareholders of the Company should be aware of the
following terms. The following definitions may not be complete. For a complete
definition of each term, please refer to the Plan of Reorganization.
"Average Closing Price" means the average (rounded to the nearest penny)
of the last reported sale price or, if no such reported sale takes place, the
mean (unrounded) of the closing bid and asked prices of Zions Common Stock in
the over-the-counter market as such prices are reported by the automated
quotation system of the National Association of Securities Dealers, Inc., or in
the absence thereof by such other source upon which Zions and the Company shall
mutually agree, for each of the fifteen trading days ending on the fifth trading
day before the Effective Date.
"Bank Consolidation" means the consolidation of the Bank and Bank Colorado
into the Consolidated Association.
"Collar Factor" is determined as follows: if the Average Closing Price is:
(A) less than $34.00, the Collar Factor shall be a fraction the numerator
of which is $34.00 and the denominator of which is the Average Closing Price;
(B) more than $46.00, the Collar Factor shall be a fraction the numerator
of which is $46.00 and the denominator of which is the Average Closing Price;
and
(C) not less than $34.00 and not more than $46.00, the Collar Factor shall
be One.
"Consideration Number" means 625,000, except that if the total
shareholders equity of the Company at December 31, 1997, shall be less than
$5,000,000, then the "Consideration Number" shall be the difference between
625,000 and the number calculated by dividing the difference between $5,000,000
and the total shareholders equity of the Company at December 31, 1997, by
$40.00; in determining total shareholders equity of the Company at December 31,
1997, the expense, through the Effective Date, net of taxes, of the investment
bankers, consultants, brokers and finders who will have rendered services to the
Company or the Bank through the Effective Date shall be recognized as an expense
of the Company during the period between October 1, 1997 and December 31, 1997.
"Consolidated Association" means the new national banking association
resulting from the consolidation of the Bank and Bank Colorado.
- 4 -
<PAGE>
"Effective Date" means the date which is the latest of (a) the day upon
which the shareholders of the Company approve, ratify, and confirm the Holding
Company Merger; (b) the day upon which the shareholder of the Bank approves,
ratifies, and confirms the Bank Consolidation; (c) the first to occur of (i) the
date thirty days following the date of the order of the Board of Governors of
the Federal Reserve System or the Federal Reserve Bank of San Francisco acting
pursuant to authority delegated to it by the Board of Governors of the Federal
Reserve System (collectively, the "Board of Governors") approving the Holding
Company Merger; or (ii) if, pursuant to section 321(a) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Riegle Act"), the Board
of Governors shall have prescribed a shorter period of time with the concurrence
of the Attorney General of the United States, the date on which such shorter
period of time shall elapse; or (iii) the date ten days following the date on
which the Board of Governors indicates its waiver of jurisdiction over the
Holding Company Merger; (d) the first to occur of (1) the date thirty days
following the date of the order of the Office of the Comptroller of the Currency
(the "Comptroller") approving the Bank Consolidation, or (2) if, pursuant to
section 321(b) of the Riegle Act, the Comptroller shall have prescribed a
shorter period of time with the concurrence of the Attorney General of the
United States, the date on which such shorter period of time shall elapse; (e)
if such an order shall be required by law, the date ten days following the date
of the order of the Commissioner of Financial Institutions of the State of Utah
(the "Commissioner") approving the transactions contemplated by the Plan of
Reorganization; (f) if such an order shall be required by law, the date ten days
following the date of the order of the Colorado State Banking Board (the "State
Banking Board") approving the transactions contemplated by the Plan of
Reorganization; (g) the date upon which any other material order, approval, or
consent of a federal or state regulator of financial institutions or financial
institution holding companies authorizing consummation of the transactions
contemplated by the Plan of Reorganization is obtained or any waiting period
mandated by such order, approval, or consent has run; (h) ten days after any
stay of the approvals of the Board of Governors, the Comptroller, the
Commissioner, or the State Banking Board of the transactions contemplated by the
Plan of Reorganization, or any injunction against closing of such transactions
is lifted, discharged, or dismissed; or (i) such other date as shall be mutually
agreed upon by Zions and the Company.
"Holding Company Merger" means the merger of the Company with and into Val
Cor, with Val Cor being the surviving corporation.
"Option Equivalent Number," a number which is designed to represent a
hypothetical number of heretofore-unissued shares of Company Common Stock equal
in value to the value inherent in the options to purchase Company Common Stock
that are outstanding and unexercised at the Effective Date, means the number
reached by summing the following values as calculated for each option to
purchase one share of Company Common Stock which is outstanding and unexercised
at the Effective Date: (A) the difference between the Value-Per-Share Factor and
the exercise price of that option (or, if a greater number, zero) divided by (B)
the Value-Per-Share factor.
"Value-Per-Share Factor," a number which is designed to represent the
hypothetical value in dollars and cents that would be received by a holder of
one share of Company Common Stock in the Reorganization assuming that all
options to purchase Company Common Stock were exercised prior to the Effective
Date and assuming that the contributions to capital of the Company accompanying
such exercises had been agreed by the parties to increase dollar-for-dollar the
amount of consideration to be received by holders of Company Common Stock, means
a number of dollars and cents calculated by means of the following equation:
V + (O x P)
-----------
O + S
- 5 -
<PAGE>
- --where: (A) V equals the product of the Consideration Number, the Collar
Factor, and the Average Closing Price; (B) O equals the number of shares of
Company Common Stock that are subject to a stock option (whether vested or
unvested) to be purchased, which option is outstanding and unexercised at the
Effective Date; (C) P equals the per-share average of the exercise prices of all
stock options (whether vested or unvested) to purchase shares of Company Common
Stock, which options are outstanding and unexercised at the Effective Date; and
(D) S equals the number of shares of Company Common Stock that shall be issued
and outstanding at the Effective Date.
Reasons for the Reorganization
Management and the directors of the Company believe that it is in the best
interest of the Company and its shareholders for the Company to merge with a
larger financial institution in a tax-free reorganization (with respect to the
receipt by the Company shareholders of shares of Zions Common Stock). Management
and the directors of the Company believe that the proposed merger with Zions in
an exchange whereby the Company shareholders will receive Zions Common Stock in
exchange for their Company Common Stock provides the Company's shareholders with
a liquid investment with what management believes is the best available monetary
value based upon Zions' offer as compared to transactions involving bank holding
companies and banks comparable to the Company and the Bank as well as increased
liquidity for their investment, prospects for greater yield of their investment
through possibly increased dividends and potential for growth in their
investment due to the prospects for Zions generally. In addition, management and
the directors of the Company believe the combined institution will be more
competitive in the Company's market area due to Zions' greater resources. See
"Plan of Reorganization--Background of and Reasons for the Reorganization" for a
description of the factors considered by the Company's board of directors in
determining to recommend the Reorganization to shareholders for their approval.
The Company's board of directors believes that the merger with Zions will
realize substantial value for the Company's shareholders and provides them the
option of realizing a significant return on their original investment and
continuing to participate in the development of banking in Colorado by holding
the Zions Common Stock they will receive in the Reorganization.
For Zions, the Reorganization will provide the opportunity to expand its
Colorado franchise into the Colorado Springs market, wherein Zions has not
previously had a presence. As a result of the Reorganization, Zions will broaden
its geographical base in the Colorado market and thereby diversify its banking
operations. The combination of the different skills, resources and services
offered by the Company and Zions, together with the additional skills and
resources available in the broader Zions organization, should make the resulting
banking group better able to compete more effectively in its markets with other
full-service financial institutions. See "Plan of Reorganization--Background of
and Reasons for the Reorganization."
Board of Directors Recommendation
The Board of Directors of the Company unanimously believes that the
Reorganization is in the best interests of the Company, its shareholders, and
customers of the Company and the Bank and recommends that the shareholders of
the Company vote "FOR" approval of the Plan of Reorganization and the
Reorganization. See "Plan of Reorganization--Background of and Reasons for the
Reorganization."
SHAREHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
- 6 -
<PAGE>
Interests of Certain Persons in the Transaction
The Plan of Reorganization provides that, following the Reorganization,
John G. Jackson, currently Chairman, President and Chief Executive Officer of
the Bank, will become an executive officer of Consolidated Association. Mr.
Jackson will enter into an Employment Agreement with Consolidated Association
effective as of the Effective Date. The Company's Board of Directors was aware
of these interests when it considered and approved the Plan of Reorganization
and the Reorganization. See "Plan of Reorganization--Interests of Certain
Persons in the Transaction."
Finder's Fee
In its effort to find a merger partner, the Company retained an
unaffiliated company as a finder. If the Reorganization is effected, the Company
will pay the finder a fee of $200,000 at closing. See "Plan of Reorganization--
Finder's Fee," below.
Tax Consequences
The Company will receive an opinion from McKenna & Cuneo, L.L.P., legal
counsel to the Company (the "McKenna Opinion"), that, based upon the facts,
representations, and assumptions set forth or referred to in such opinion, the
Holding Company Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a result, the Company shareholders who
receive Zions Common Stock in the Reorganization will recognize no gain or loss
upon the exchange of their shares of Company Common Stock for Zions Common Stock
in the Holding Company Merger (except with respect to cash received by such
shareholders in lieu of fractional shares and cash received by persons who
perfect their dissenters' rights). For further discussion, see "Plan of
Reorganization--Federal Income Tax Consequences of the Reorganization." A copy
of the McKenna Opinion is attached as Appendix A to this Proxy
Statement/Prospectus.
Dissenters' Rights
Under Colorado law, shareholders of the Company will be entitled to
dissenters' rights. The Colorado Business Corporation Act (ss.ss. 7-113-101 et
seq.) permits a shareholder to dissent to a merger and to receive cash equal to
the fair value for such shares in accordance with procedures established by
Colorado law. Company shareholders will be entitled under Colorado law to
exercise their dissenters' rights with respect to the Plan of Reorganization.
Since exercise and preservation of dissenters' rights are conditioned on strict
observance of the applicable section of the Colorado Business Corporation Act,
each Company shareholder who might exercise dissenters' rights should consult
and strictly observe the statute, a copy of which is attached as Appendix B to
this Proxy Statement/Prospectus. Failure to follow the statutory provisions
precisely may result in loss of such shareholder's dissenters' rights under
Colorado law. See "Plan of Reorganization--Rights of Dissenting Shareholders"
and Appendix B to this Proxy Statement/Prospectus, where the statutory
provisions are set forth.
Conditions; Regulatory Approval
Consummation of the Reorganization is subject to satisfaction of a number
of conditions, including (i) obtaining requisite approval from the Company's
shareholders, (ii) obtaining regulatory approvals from the Board of Governors,
the Comptroller, the Commissioner, and the State Banking Board, (iii) the
receipt of an opinion of counsel with respect to certain tax aspects of the
Reorganization, (iv) the absence of any material adverse change with respect to
the business and operations of the Company, (v) a determination by Zions'
independent auditors that the Reorganization will be treated for accounting
purposes as a pooling of interests, and (vi) the satisfaction of other customary
closing conditions. See "Plan of Reorganization--Conditions to the
Reorganization." All regulatory approvals have been obtained.
- 7 -
<PAGE>
Amendment; Termination
Notwithstanding prior shareholder approval, the Plan of Reorganization may
be amended at any time prior to the Effective Date of the Reorganization in any
respect that would not prejudice the economic interests of the Company
shareholders.
The Plan of Reorganization may be terminated and abandoned at any time
prior to the Effective Date, notwithstanding approval of the shareholders, as
follows: (i) by mutual consent of the parties to the Plan of Reorganization;
(ii) unilaterally, by Zions if any of the representations and warranties of the
Company or the Bank set forth in the Plan of Reorganization was materially
incorrect when made or in the event of a material breach or material failure by
the Company or the Bank of any covenant or agreement of the Company or the Bank
contained in the Plan of Reorganization which has not been, or cannot be, cured
within thirty days after written notice has been given; (iii) unilaterally, by
the Company if any of the representations and warranties of Zions, Val Cor or
Bank Colorado set forth in the Plan of Reorganization was materially incorrect
when made or in the event of a material breach or material failure by Zions, Val
Cor or Bank Colorado of any covenant or agreement of Zions, Val Cor or Bank
Colorado contained in the Plan of Reorganization which has not been, or cannot
be, cured within thirty days after written notice has been given; (iv) by either
Zions or the Company if the board of directors of either has determined in good
faith that the Holding Company Merger has become inadvisable or impracticable by
reason of federal or state litigation to restrain or invalidate the
Reorganization; or (v) by either party on or after July 31, 1998, if the
Effective Date has not occurred on or before that date.
Effective Date of the Reorganization
It is presently anticipated that if the Plan of Reorganization is approved
by the shareholders of the Company, the Reorganization will become effective in
the second quarter of 1998. However, there can be no assurance that all
conditions necessary to the consummation of the Reorganization will be satisfied
or, if satisfied, that they will be satisfied in time to permit the
Reorganization to become effective at the anticipated time. See "Plan of
Reorganization--Effective Date of the Reorganization."
Accounting Treatment
It is intended that the Reorganization will be treated for accounting
purposes as a "pooling of interests" in accordance with ABP Opinion No. 16.
Receipt of a determination by Zions' independent auditors that the
Reorganization should be treated as a pooling of interests is a condition of
closing of the Reorganization. See "Plan of Reorganization--Accounting
Treatment."
Comparison of Shareholders' Rights
See "Comparison of Zions Common Stock and Company Common Stock" for a
summary of the material differences between the rights of holders of shares of
Company Common Stock and holders of shares of Zions Common Stock.
"Anti-Takeover" Provisions
The Articles of Incorporation and Bylaws of Zions contain provisions which
may be considered to be anti-takeover in nature, including staggered terms of
office for directors, absence of cumulative voting and special shareholder vote
requirements for certain types of extraordinary corporate transactions.
- 8 -
<PAGE>
Additionally, Zions has adopted a shareholders' rights plan which will have the
effect of encouraging entities interested in acquiring Zions to negotiate any
such transactions with Zions' management and of deterring or discouraging
unfriendly takeovers by making any such takeover substantially more expensive to
the entity sponsoring the unfriendly takeover. The Company's Articles of
Incorporation and Bylaws do not contain any similar provision. See "Comparison
of the Rights of Shareholders of Zions and the Company."
Exchange of Certificates
Instructions on how to effect the exchange of Company Common Stock
certificates for Zions Common Stock certificates and cash in lieu of any
fractional shares of Zions Common Stock will be sent, as promptly as practicable
after the Reorganization becomes effective, to each shareholder of record of the
Company. Shareholders should not send in stock certificates until they receive
written instructions to do so.
Waiver of Preemptive Rights
Over recent years the Company has granted stock options to officers and
directors to allow them to purchase additional shares of Company Common Stock.
At the present time, 16,250 stock options are outstanding. These stock options
may have been granted in violation of preemptive rights provisions set forth in
the Company's articles of incorporation. An express condition to closing of the
Holding Company Merger is that all the shareholders of the Company who did not
have an opportunity to exercise their preemptive right to acquire company stock
options must agree to waive any preemptive right they might have to be offered,
subscribe to, or acquire shares, options, and other interests and rights of or
in the Company. See "Plan of Reorganization--Waiver of Preemptive Rights."
Trading Markets; Pre-Announcement Prices
The outstanding shares of Zions Common Stock currently are traded on the
Nasdaq National Market ("NASDAQ-NMS") under the symbol "ZION." The shares of
Zions Common Stock to be issued in the Reorganization will be listed on NASDAQ-
NMS, subject to official notice of issuance. The closing sale price for Zions
Common Stock on the NASDAQ-NMS on December 19, 1997, the last trading day prior
to the first public announcement of the Reorganization, was $43.00. See
"Information Concerning Zions Bancorporation--Stock Prices and Dividends."
The outstanding shares of Company Common Stock are not listed or traded on
any market or stock exchange. Such shares when traded are traded infrequently in
privately-negotiated transactions. The Company has no reliable information as to
the prices at which the shares have traded. See "Information Concerning the
Company and the Bank--Stock Prices and Dividends on Company Common Stock."
Selected Financial Information
The following table sets forth certain historical financial information
for Zions and the Company. With respect to pro forma combined financial
information for Zions giving effect to the Reorganization using the pooling of
interests method of accounting, see "Plan of Reorganization--Unaudited Pro Forma
Combined Financial Information." This information is based on the respective
historical financial statements of Zions incorporated herein by reference and of
the Company which are included in this Proxy Statement/Prospectus and should be
read in conjunction with such statements and information and the related notes.
The information presented for the Company is derived from unaudited financial
information which is included herein. Such information has not been audited
because it would be impractical to do so.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Zions
Earnings
Net interest income........... $ 351,799 $ 289,166 $ 233,547 $ 198,606 $ 174,657
Provision for loan losses..... 6,175 4,640 3,000 2,181 2,993
Net income.................... 122,362 107,423 82,385 63,827 58,205
Per Share
Net income (diluted) ......... $ 1.89 $ 1.68 $ 1.37 $ 1.09 $ 1.02
Cash Dividends................ .4700 .4250 .3525 .2900 .2450
Statement of Condition at Period
End
Assets........................ $9,521,770 $7,116,413 $6,095,515 $4,934,095 $4,801,054
Deposits...................... 6,854,462 5,119,692 4,511,184 3,705,976 3,432,289
Long-term debt................ 258,566 251,620 56,229 58,182 59,587
Shareholders' equity.......... 655,460 554,610 469,678 365,770 312,592
Company (unaudited)(1)
Earnings
Net interest income........... $ 4,484 $ 3,657 $ 2,913 $ 2,339 $ 1,601
Provision for loan losses..... 120 90 60 24 (94)
Net income.................. 1,289 1,153 849 562 598
Per Share
Net income ................... $ 16.40 $ 13.63 $ 9.16 $ 5.94 $ 4.67
Cash Dividends................ -- -- -- -- --
Statement of Condition at Period
End
Assets........................ $ 86,177 $ 74,772 $ 52,209 $ 47,267 $ 37,138
Deposits...................... 77,974 66,983 46,080 42,617 30,747
Long-term debt................ 500 1,175 1,150 1,200 --
Shareholders' equity.......... 4,811 3,898 3,051 2,047 2,321
</TABLE>
- ----------
(1) The information presented for 1993 is for the Bank only. The Company
was incorporated and became a bank holding company in 1994.
Comparative Per Share Data
The following table sets forth for the periods indicated historical net
income, book values and dividends per share for Zions Common Stock and Company
Common Stock. The following data are based on the respective historical
financial statements of Zions incorporated herein by reference and of the
Company included herein and should be read in conjunction with such financial
statements and such information and the related notes to each. The information
presented for the Company is derived from unaudited financial information.
Year Ended
December 31,
------------------------------------
1997 1996 1995
---- ---- ----
Net Income Per Common Share
Zions........................... $ 1.89 $ 1.68 $ 1.37
Company......................... 16.40 13.63 9.16
Book Value Per Common Share
Zions........................... $10.25 $ 8.72 $ 7.46
Company......................... 63.86 46.19 32.91
Cash Dividends Declared Per Common
Share
Zions (1)...................... $.4700 $.4250 $.3525
Company........................ -- -- --
- ----------
(1) While Zions is not obligated to pay cash dividends, the Board of Directors
presently intends to continue its policy of paying quarterly cash
dividends. Future dividends will depend, in part, upon the earnings and
financial condition of Zions.
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<PAGE>
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information reflects
the application of the pooling of interests method of accounting. The following
tables, which show comparative historical per common share data for Zions and
the Company (separately and pro forma combined) and equivalent pro forma per
share data for the Company, should be read in conjunction with the financial
information of Zions as incorporated herein by reference to other documents and
of the Company as included herein. The historical information presented for the
Company is derived from unaudited financial information. The pro forma data in
the table, presented as of and for each of the years in the three year period
ended December 31, 1997, are presented for comparative and illustrative purposes
only and are not necessarily indicative of the combined financial position or
results of operations in the future or what the combined financial position or
results of operations would have been had the Reorganization been consummated
during the period or as of the date for which the information in the table is
presented.
<TABLE>
<CAPTION>
Historical Pro Forma
------------------- --------------------------------
Zions and
Company Company
Pro-Forma Equivalent
Per Common Share Zions Company Combined(4) Pro-Forma(5)
- ---------------- ----- ------- ----------- ------------
<S> <C> <C> <C> <C>
NET INCOME(diluted)(1)
For the years ended
December 31, 1997 $1.89 $16.40 $ 1.90 $12.08
December 31, 1996 1.68 13.63 1.69 10.75
December 31, 1995 1.37 9.16 1.37 8.71
CASH DIVIDENDS(2)
For the years ended
December 31, 1997 $.4700 $ -- $.4700 $ 2.99
December 31, 1996 .4250 -- .4250 2.70
December 31, 1995 .3525 -- .3525 2.24
BOOK VALUE:(3)
As of December 31, 1997 $10.25 $63.86 $10.24 $65.12
As of December 31, 1996 8.72 46.19 8.73 55.51
As of December 31, 1995 7.46 32.91 7.47 47.50
</TABLE>
- ----------------------
(1) Net income per share is based on weighted average common and common
equivalent shares outstanding.
(2) Pro forma cash dividends per share represent historical cash dividends
of Zions.
(3) Book value per common share is based on total period-end shareholders'
equity.
(4) Pro-forma combined net income per share represents historical net income
of Zions and the Company computed using historical weighted average
common and common equivalent shares of Zions adjusted by computed common
and common equivalent shares to be issued in the transaction. Pro-forma
combined book value per share represents historical total shareholders'
equity of Zions and the Company computed using Zions' historical common
shares outstanding adjusted by computed common shares to be issued in
the transaction.
(5) Pro forma equivalent amounts are computed by multiplying the pro forma
combined amounts by an assumed exchange ratio of 6.359 shares of Zions
Common Stock for each share of Company Common Stock.
Recent Developments
On December 29, 1997, Zions and FP Bancorp, Inc.("FP Bancorp"), the parent
company of First Pacific National Bank ("First Pacific") announced that a
definitive agreement had been signed under which FP Bancorp will merge with and
- 11 -
<PAGE>
into Zions, with FP Bancorp shareholders receiving common shares of Zions. First
Pacific has approximately $359 million in assets in eight offices in San Diego
and Riverside Counties in California. The merger is subject to the approval of
FP Bancorp shareholders and banking regulators and is expected to close in the
second quarter of 1998. The merger is structured to be tax-free and is intended
to be accounted for as a pooling-of-interests. The agreement provides for the
exchange of each common share of FP Bancorp for 0.627 of a share of Zions Common
Stock. Based upon Zions' stock price of $43.50 per share as of December 29,
1997, the transaction is valued at approximately $90 million. Zions will incur
approximately $2 million in after-tax, merger-related charges in the second
quarter of 1998 in conjunction with this transaction.
On January 23, 1998, Zions and Sky Valley Bank Corp.("Sky Valley"), the
parent company of The First National Bank in Alamosa ("FNBA"), completed their
reorganization pursuant to which Sky Valley merged with Val Cor, and Val Cor's
wholly-owned subsidiary Bank Colorado (formerly known as Valley National Bank of
Cortez) merged with Sky Valley's wholly-owned subsidiary, FNBA, which was the
surviving corporation and which upon consummation of its merger with Bank
Colorado adopted the name Bank Colorado, National Association. Sky Valley
shareholders received 572,836 shares of Zions Common Stock. Sky Valley had
approximately $120 million in assets at September 30, 1997 and FNBA had three
offices in southern Colorado. The merger was structured as a tax-free
reorganization and has been accounted for as a pooling-of-interests.
Zions and Routt County National Bank Corporation ("Routt County"), the
holding company of First National Bank of Colorado ("FNBC"), announced on
January 22, 1998 that a definitive agreement had been signed under which Routt
County will merge with and into Val Cor in exchange for an estimated 650,000
shares of Zions Common Stock. The merger is structured to be tax-free and is
intended to be accounted for as a pooling-of-interests. The merger is subject to
the approval of banking regulators and the shareholders of Routt County. FNBC
operates through two banking offices in Steamboat Springs, Colorado. At December
31, 1997, Routt County had assets of $93 million. The transaction is expected to
close in the second quarter of 1998.
On March 25, 1998, Zions and Sumitomo Bank of California ("Sumitomo")
entered into a definitive agreement whereby Sumitomo will merge with a
subsidiary of Zions. Zions will pay approximately $546 million in cash for
Sumitomo. Sumitomo is currently California's sixth largest bank, with assets of
approximately $5.1 billion as of December 31, 1997, and with 47 branches. Zions
will combine its present Grossmont Bank subsidiary with Sumitomo and First
Pacific when these acquisitions have been completed. The combined subsidiary,
with California assets of over $6 billion and 71 banking offices in California,
will rank as the fifth largest commercial bank in the state. The merger is
subject to the approval of Sumitomo shareholders and banking regulators and is
expected to close in the third quarter of 1998. Zions expects to finance the
purchase with existing resources as well as the issuance of securities in the
capital markets. The acquisition will be accounted for as a purchase. Zions
expects to name Robert Sarver, currently chairman of Grossmont and a director of
Zions, as chief executive officer of the combined company. In order to provide
an appropriate incentive to Mr. Sarver to expand Zions' California franchise,
Zions has agreed to sell him a portion of Sumitomo at Zions' cost basis. When
Sumitomo is combined with Grossmont Bank and First Pacific, he will control 5%
of the combined company at a purchase price of approximately $34 million. Zions
will retain the exclusive right to repurchase this ownership interest.
- 12 -
<PAGE>
PLAN OF REORGANIZATION
This section of the Proxy Statement/Prospectus describes certain important
aspects of the Plan of Reorganization. The following description does not
purport to be complete and is qualified in its entirety by reference to the Plan
of Reorganization. The Plan of Reorganization has been filed with the SEC as an
exhibit to the Registration Statement. The Plan of Reorganization is
incorporated into this Proxy Statement/Prospectus by reference to such filing
and is available upon request to Dale M. Gibbons, Executive Vice President,
Zions Bancorporation. See "Available Information."
The Reorganization
The Plan of Reorganization provides for the merger of the Company into Val
Cor, with Val Cor being the surviving corporation (the "Holding Company
Merger"), and for the consolidation of the Bank with Bank Colorado (the
successor in interest to Valley National Bank of Cortez) to form a new national
banking association which will adopt and operate under the name Bank Colorado,
National Association (the "Consolidated Association"; the consolidation of the
Bank and Valley into the Consolidated Association hereinafter referred to as the
"Bank Consolidation"). Val Cor is a bank holding company incorporated in
Colorado. Val Cor is a wholly-owned subsidiary of Zions.
Val Cor, a Colorado corporation, is a bank holding company registered
under the Bank Holding Company Act. Val Cor's principal asset consists of its
ownership interest in its wholly-owned subsidiary, Bank Colorado, which operates
a commercial banking business in Colorado through seven offices.
Bank Colorado is a national banking association. Bank Colorado is the
result of the merger of Valley National Bank of Cortez, with operations
primarily in Montezuma County, Colorado, The First National Bank in Alamosa,
with operations in Alamosa and Saguache Counties, Colorado, and Tri-State Bank,
with offices in Denver and Boulder, Colorado. Bank Colorado offers traditional
banking services to customers through its seven branch offices located in
Denver, Boulder, Alamosa, Center, Cortez, Dolores, and Saguache, Colorado. As of
February 28, 1998, Bank Colorado had assets of $348.3 million.
The Company is a bank holding company incorporated in Colorado. The
Company operates through its wholly-owned subsidiary, State Bank and Trust of
Colorado Springs (the "Bank"). The Bank operates a commercial banking business
through three offices/branches in Colorado Springs, Colorado. The Company owns a
50% interest in SBT Mortgage, LLC.
Upon consummation of the Reorganization, the holders of each outstanding
share of Company Common Stock participating in the Reorganization will receive,
in exchange for each share of Company Common Stock, their pro rata share of the
merger consideration, consisting of shares of Zions Common Stock and cash in
exchange for any fractional shares. The shares of Company Common Stock will be
canceled and immediately converted into the right for holders of Company Common
Stock to receive, in exchange for each share of Company Common Stock, that
number of shares of Zions Common Stock calculated by dividing the product of the
Consideration Number and Collar Factor by the sum of the number of shares of
Company Common Stock issued and outstanding as of the Effective Date of the
Reorganization and the Option Equivalent Number. The amounts represented by some
of these and other defined terms are variable and will not be known with
precision until the Effective Date of the Reorganization. As a result, the
precise number of shares of Zions Common Stock to be exchanged for each share of
Company Common Stock cannot be determined until the Effective Date.
On April 27, 1998, the closing price of Zions Common Stock was $48.0625
per share. On that date there were issued and outstanding 78,592 shares of
Company Common Stock. Assuming that the Reorganization had been consummated as
of April 27, 1998, that the Average Closing Price of Zions Common Stock had
been $48.0625
- 13 -
<PAGE>
per share on that date, that the Consideration Number had been 619,900, and
that the Collar Factor had been 0.957, shareholders of the Company under
such circumstances would have received 6.359 shares of Zions Common Stock for
each share of Company Common Stock, or an equivalent value of $305.64 per
share of Company Common Stock.
On April 27, 1998, options to purchase a total of 16,250 shares of Company
Common Stock at an average exercise price of $29.23 per share were granted and
outstanding, held by eight persons, each of whom was an executive officer or
director of the Company. At the Effective Date of the Reorganization, these
Company stock options will automatically be converted into options to purchase
shares of Zions Common Stock. Assuming that the Effective Date of the
Reorganization had been April 27, 1998, that the Average Closing Price of Zions
Common Stock had been $48.0625 on that date, that the Consideration Number had
been 619,900, and that the Collar Factor had been 0.957, these options to
purchase Zions Common Stock would have covered a total of 103,333.75 shares of
Zions Common Stock at an average exercise price of $4.60. Based on these
assumptions, these options had on that date an aggregate value (the difference
between the market price of Zions Common Stock and the exercise price) of
$4,491,143.10 to the option holders. The options to purchase Company Common
Stock may have been granted in violation of the preemptive rights provisions of
the Company's Articles of Incorporation. A condition to closing the Holding
Company Merger is that all shareholders of the Company must waive any preemptive
rights they might have to be offered, subscribe to, or acquire shares, options,
and other interests and rights of or in the Company. By waiving their preemptive
rights, Company shareholders who were not granted Company stock options will, in
addition to waiving their rights to have been offered Company stock options at
the time such options were granted to the executive officers and directors of
the Company, and to acquire shares of Company Common Stock at the time of
exercise of any stock options, give up financial benefits they might otherwise
have in the options. Their waiver of such rights will, however, satisfy a
condition to closing without which Zions in its discretion may decline to
proceed with the Reorganization. See "Plan of Reorganization--Waiver of
Preemptive Rights."
Background of and Reasons for the Reorganization
The Company. In mid 1997 John Jackson was contacted by Mr. Alan Noyes of
Professional Bank Consultants, Inc. with a request to present the Bank to three
holding companies which he felt were interested in purchasing a similar
institution in the Colorado Springs area. Mr. Noyes was given permission and
over the next sixty days he made contact with Mr. Dale Gibbons, Executive Vice
President of Zions. Additional information was requested by Mr. Gibbons through
Mr. Noyes, which included call reports and current financial data. At a meeting
of the Colorado Bankers Association Government Affairs Committee on October 1,
Mr. Jackson discussed with Gary Judd of Vectra Bank his recently announced
merger with Zions. The following day, the two again discussed Zions in greater
detail and it was agreed that Mr. Judd would arrange for a meeting with Harris
Simmons, President and Chief Executive Officer of Zions, at a later date. At
this time Mr. Jackson called Mr. Noyes, told him that the Bank would be talking
to Zions directly and they agreed that should a transaction transpire that his
full compensation would be $200,000 payable in cash upon closing.
On October 22, 1997, Messrs. Jackson, Scott Pursley, Judd and Simmons met
in Colorado Springs to discuss generally the philosophy of Zions and how the
Bank might fit into Zions' Colorado plans. Mr. Simmons explained Zions'
acquisition strategies and indicated that Mr. Jackson would be asked to sign an
employment agreement to remain with the Bank if an agreement could be reached.
At the conclusion of that meeting, Mr. Jackson and Mr. Pursley agreed to discuss
the conversation with the entire board at a retreat which was to take place in
Phoenix the first week of November. The Company Board was informed at the
regular October meeting that discussions had begun with an entity; however, no
mention as to its identity was made prior to the Phoenix retreat. At the retreat
Zions'
- 14 -
<PAGE>
financial information was presented to the board members and a lengthy
discussion was held regarding a sale. At the conclusion of the two day meeting
it was agreed that if a minimum price, that the Board set, was offered that
negotiations should proceed. The board felt, as did management, that Zions was a
high performance, high character and high quality organization which had
historically exhibited strong loyalty to customers and staff, especially when
compared to other regional and super regional organizations which had approached
the Bank in the past. The board agreed that Mr. Jackson should meet again with
Mr. Simmons and this meeting was arranged for November 8, 1997. The meeting
occurred with Mr. Simmons and Mr. Gibbons making an offer very near the minimum
price set by the board. Over the next two weeks a series of phone calls was made
between the parties, where it was agreed, that the price would be determined by
year end capital of the Bank. At the November board meeting the transaction was
approved and direction was given to proceed with the definitive agreement, which
was then signed on December 19, 1997.
The Reasons of the Company's Board of Directors for the Reorganization.
The Company's Board believes that the Reorganization is fair to, and in the best
interests of, the Company and its shareholders. Accordingly, the Board
unanimously approved the Plan of Reorganization and recommends that the Company
shareholders vote FOR the approval and adoption of the Plan of Reorganization.
In reaching its determination that the Reorganization is fair to, and in
the best interests of, the Company and its shareholders, the Board considered a
number of factors including, without limitation, the following:
o the current condition and growth prospects of the Company and the
Bank, their historical results of operations and their prospective
results of operations were the Company to remain independent;
o the economic, business and competitive climate for banking and
financial institutions in Colorado, with special consideration given
to recent transactions that have increased the competitive
environment in the financial services and banking industry,
including the adoption by Congress of interstate branch banking;
o the monetary value of the stock offered to the Company shareholders
by Zions (i) in absolute terms, and (ii) as compared to recent
mergers and acquisitions involving other banking and financial
institutions in Colorado;
o the potential market value, liquidity and dividend yield of Company
Common Stock if the Company were to remain independent;
o the historically greater liquidity and dividend yield represented by
the Zions Common Stock to be received in the Reorganization;
o the greater financial and management resources and customer product
offerings of Zions which could increase the competitiveness of the
combined institution in the Company's market area and its ability to
serve the depositors, customers and communities currently served by
the Company;
o the historical results of operations and financial condition of
Zions and the future prospects for Zions, including anticipated
benefits of the Reorganization;
o the future growth prospects of Zions following the Reorganization;
and
o the fact that the Reorganization will be a tax-free reorganization
to the Company shareholders for federal income tax purposes with
respect to shareholders of the Company who receive shares of Zions
Common Stock in the Reorganization (but not with respect to any cash
received in the Reorganization).
- 15 -
<PAGE>
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE PLAN OF REORGANIZATION AND THE REORGANIZATION.
Zions. For Zions, the Reorganization will provide the opportunity to
continue its recent expansion. In acquiring the Company, Zions will be expanding
its presence into the Colorado Springs, Colorado market. Zions does not
currently have any offices in the Colorado Springs area. The expansion will be
evidenced by Zions' both broadening its geographical base in Colorado by
establishing a presence in this market. Additionally, the Zions' expansion in
the Colorado Springs, Colorado region will allow Zions further to diversify its
banking operations.
The acquisition by Zions of the Company will bring together the different
skills and resources of the two organizations and, together with the additional
skills and resources available in the broader Zions organization, will result in
the ability to make a wider spectrum of banking services available to consumers,
businesses and professionals in the Company's geographic area.
Voting Agreements
All of the directors and executive officers of the Company have agreed to
support the Plan of Reorganization and to recommend its adoption by the other
shareholders of the Company.
In connection with the Plan of Reorganization, eleven shareholders of the
Company, including their affiliated entities, whose common share holdings of
63,654 shares aggregate approximately 80.1% of the outstanding Company Common
Stock as of April ___, 1998, have entered into agreements with Zions under which
they have agreed, in their capacity as shareholders, to vote their shares in
favor of the Plan of Reorganization. Various of such shareholders are officers
and directors of the Company. Such vote will be sufficient to approve the Plan
of Reorganization and the Reorganization. If these individuals vote their shares
of Company Common Stock in accordance with the requirements of the voting
agreements, approval of the Plan of Reorganization and the Reorganization by the
Company shareholders is assured, notwithstanding the vote of other Company
shareholders.
The voting agreements are applicable to the shareholders only in their
capacities as shareholders and, as to those shareholders who also serve on the
Board of Directors, do not legally affect the exercise of their responsibilities
as members of the Board of Directors of the Company. The shareholder-directors
also agreed in their capacity as directors, until the earlier of consummation of
the Reorganization or termination of the Plan of Reorganization, to refrain from
soliciting or, subject to their fiduciary duties to shareholders, negotiating or
accepting any offer of merger, consolidation, or acquisition of any of the
shares or all or substantially all of the assets of the Company or any of its
subsidiaries.
The form of the voting agreements has been filed with the SEC as an
exhibit to the Registration Statement and is incorporated herein by reference.
The foregoing summary of the agreements is qualified in its entirety by
reference to such filing.
Waiver of Preemptive Rights
The Company's Articles of Incorporation provide that the holders of shares
of Company Common Stock shall have the preemptive right to subscribe to and
acquire on a proportional basis additional shares of common stock or for options
- 16 -
<PAGE>
to purchase common stock. Between 1994 and 1996 the Company granted various
stock options to executive officers and directors of the Company of which a
total of 16,250 stock options to eight executive officers and directors of the
Company remain outstanding at an average exercise price of $29.23 per share.
These options may have been granted in violation of the preemptive rights
provisions of the Company's Articles of Incorporation referred to above. Upon
consummation of the Reorganization, any outstanding stock option will
automatically be converted into an option to purchase, on the same terms as the
option to purchase Company Common Stock, that number of shares of Zions Common
Stock equal to the number of shares of Company Common Stock which such option
holder would be entitled to receive under the Plan of Reorganization had the
option holder exercised his options prior to the Reorganization. The exercise
price of such options would likewise be adjusted. In accordance with the formula
established by the Plan of Reorganization, were the Reorganization to be
consummated on April 27, 1998, the holders of the outstanding Company options
would be able to purchase a total of 103,333.75 shares of Zions Common Stock at
an average exercise price of $4.60 per share. On April 27, 1998, the closing
sales price of Zions Common stock on the NASDAQ-NMS was $48.0625 per share. An
express condition of closing of the Reorganization as set forth in the Plan of
Reorganization is that the holders of all of the outstanding options to acquire
shares of Company Common Stock have executed documents waiving all preemptive
rights granted to them under the articles of incorporation of the Company and
the Colorado Revised Statutes to be offered, to subscribe to, or to acquire
shares of common stock, rights, warrants, privileges, and options to purchase or
receive common stock, securities and obligations of any kind convertible into
common stock, or any other equity interest or right to an equity interest in the
Company, now or hereafter authorized.
Required Vote; Management Recommendation
Approval of the Plan of Reorganization and the Reorganization requires the
affirmative vote of the holders of eighty percent (80%) of the outstanding
shares of Company Common Stock entitled to vote at the Special Meeting. Because
approval requires the affirmative votes of eighty percent (80%) of all
outstanding shares of Company Common Stock, a failure to vote, an abstention, or
a broker's failure to vote shares held in street name will have the same legal
effect as a vote against approval of the Plan of Reorganization and the
Reorganization. See "Voting Agreements" immediately above for a discussion of
the ownership of Company Common Stock by various officers, directors, and
shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS THAT THE COMPANY SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF
REORGANIZATION AND THE REORGANIZATION.
The Board of Directors of Zions has approved the Plan of Reorganization.
In addition, Zions, as the sole shareholder of Val Cor, has approved the merger
of Val Cor with the Company (the "Holding Company Merger"). Under the Utah
Business Corporation Act no approval of the Plan of Reorganization by the
shareholders of Zions is required.
No Opinion of a Financial Advisor
The Company's Board of Directors has not retained an independent financial
advisor to evaluate the Merger Consideration offered to the Company's
shareholders by Zions. However, management and the directors of the Company
believe that the Merger Consideration to be paid pursuant to the Plan of
Reorganization is fair to the shareholders of the Company from a financial point
of view. See "Plan of Reorganization--Background of and Reasons for the
Reorganization."
- 17 -
<PAGE>
Finder's Fee
On October 2, 1997, the Company entered into an agreement with Professional
Bank Consultants, Inc. ("PBCI") of Colorado Springs, Colorado. PBCI is not
affiliated with the Company. Pursuant to the agreement, PBCI would identify and
contact financial institutions which might be potential merger partners with the
Company. See "Plan of Reorganization--Background of and Reasons for the
Reorganization--The Company" for additional information regarding PBCI's
activities. For its services respecting the Reorganization, the Company will pay
PBCI a fee of $200,000 at the Effective Date.
Conversion of Company Shares
Under the Plan of Reorganization, holders of shares of Company Common
Stock will receive shares of Zions Common Stock. Upon consummation of the
Reorganization, the shares of Company Common Stock will be canceled and
immediately converted into the right for holders of Company Common Stock to
receive, in exchange for each share of Company Common Stock, that number of
shares of Zions Common Stock calculated by dividing the product of the
Consideration Number and the Collar Factor by the sum of the number of shares of
Company Common Stock issued and outstanding as of the Effective Date of the
Reorganization and the Option Equivalent Number. See "Summary--Certain
Definitions," above.
On April 27, 1998, the closing price of Zions Common Stock was $48.0625
per share. On that date there were 78,592 issued and outstanding shares of
Company Common Stock. Assuming that the Reorganization had been consummated as
of April 27, 1998, that the Average Closing Price of Zions Common Stock had been
$48.0625 per share on that date, that the Consideration Number had been 619,900,
and that the Collar Factor had been 0.957, shareholders of the Company under
such circumstances would have received 6.359 shares of Zions Common Stock for
each share of Company Common Stock, or an equivalent value of $305.64 per share
of Company Common Stock.
Exchange of Stock Certificates. Zions First National Bank, a national
banking association with its head office located in Salt Lake City, Utah and a
subsidiary of Zions ("Zions Bank"), is the exchange agent designated by the
parties in the Plan of Reorganization (the "Exchange Agent"), and as Exchange
Agent will, promptly after the Effective Date, mail to each holder of one or
more stock certificates formerly representing shares of Company Common Stock
except to such holders who shall have waived the notice of exchange, a notice
specifying the Effective Date and notifying such holder to surrender his or her
certificate or certificates to Zions Bank for exchange. Such notice will be
mailed to holders by regular mail at their addresses on the records of the
Company. Company shareholders should not send in their certificates until they
receive such written instructions. However, certificates should be surrendered
promptly after instructions to do so are received.
Any dividends declared on Zions Common Stock after the Effective Date of
the Reorganization will apply to all whole shares of Zions Common Stock into
which shares of Company Common Stock will have been converted in the
Reorganization. However, no former Company shareholder will be entitled to
receive any such dividend until such shareholder's Company Common Stock
certificates have been surrendered for exchange as provided in the letter of
transmittal sent by the Exchange Agent. Upon such surrender, the shareholder
will be entitled to receive all such dividends payable on the whole shares of
Zions Common Stock represented by the surrendered certificate(s) (without
interest thereon and less the amount of taxes, if any, which may have in fact
been imposed or paid thereon).
Payment for Fractional Shares. No fractional shares of Zions Common Stock
will be issued in connection with the Reorganization. Instead, each Company
shareholder who surrenders for exchange Company Common Stock certificates
- 18 -
<PAGE>
representing a fraction of a share of Zions Common Stock will receive, in
addition to a certificate for the whole shares of Zions Common Stock represented
by the surrendered certificates, cash in an amount equal to the product of such
fraction times $40.00. Such fractional share interest will not include the right
to vote or to receive dividends or any interest thereon.
Unexchanged Certificates. On the Effective Date of the Reorganization, the
stock transfer books of the Company will be closed, and no further transfers of
Company Common Stock will be made or recognized. Certificates for Company Common
Stock not surrendered for exchange will entitle the holder to receive, upon
surrender as provided in the letter of transmittal, a certificate for whole
shares of Zions Common Stock, plus payment of any amount for a fractional share
or dividends to which such holder is entitled as outlined above, and without any
interest thereon.
Federal Income Tax Consequences of the Reorganization
The following discussion is a summary of the material federal income tax
consequences of the merger of the Company with and into Val Cor (herein, the
"Merger") to the Company and to the existing shareholders of the Company, but
does not purport to be a complete analysis of all the potential tax effects of
the Merger. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to change
at any time by legislative, judicial, or administrative action. Any such change
may be applied retroactively. No information is provided herein with respect to
foreign, state or local tax laws, estate and gift tax considerations, or tax
consequences for foreign shareholders. Shareholders of the Company are urged to
consult their own tax advisors as to specific tax consequences to them of the
Merger.
The Company will receive an opinion from McKenna & Cuneo, L.L.P., legal
counsel to the Company (the "McKenna Opinion") that, based upon the facts and
representations set forth or referred to in such opinion, the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. No ruling will be requested from the IRS with
respect to the federal income tax consequences of the Merger. An opinion of
counsel only represents counsel's best judgment and is not binding on the IRS or
the courts. Accordingly, no assurance can be given that the IRS will agree with
counsel's conclusions, that the IRS will not challenge the tax treatment of the
Merger, or that such a challenge, if made, will not be successful.
Based upon the facts and representations which will be set forth or
referred to in the McKenna Opinion, such opinion will provide, among other
things, that the Company will not recognize gain or loss for federal income tax
purposes upon the Merger and that the shareholders of the Company will have the
following federal income tax consequences upon the Merger: (i) no gain or loss
will be recognized by a shareholder of the Company upon the receipt of Zions
Common Stock solely in exchange for his or her Company Common Stock; (ii) the
aggregate basis of the Zions Common Stock received by a shareholder of the
Company pursuant to the Merger (including any fractional share interest to which
that shareholder would otherwise be entitled) will be the same as the aggregate
basis of the Company Common Stock exchanged therefor; (iii) the holding period
of the Zions Common Stock received by a shareholder of the Company pursuant to
the Merger (including any fractional share interest to which that shareholder
would otherwise be entitled) will include the holding period of the Company
Common Stock exchanged therefor, provided the Company Common Stock is held as a
capital asset by the shareholder on the Effective Date; (iv) cash received by a
shareholder of the Company in lieu of a fractional share of Zions Common Stock
will be treated as received in exchange for that fractional share, and the
shareholder will recognize gain or loss equal to the difference between the cash
received and the shareholder's basis in that fractional share, and that gain or
loss will be capital gain or loss if the fractional share would have been a
capital asset in the hands of the shareholder;
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and (v) cash received by a shareholder of the Company who has perfected
dissenters' rights under the provisions of sections 7-113-101 et seq. of the
Colorado Business Corporation Act as to his or her Company Common Stock will be
treated as a distribution in redemption of such shares, subject to the
provisions and limitations of Section 302 of the Code.
The foregoing is intended only as a summary of certain federal income tax
consequences of the Merger under existing law and regulations, as presently
interpreted by judicial decisions and administrative rulings, all of which are
subject to change without notice, and any such change might be retroactively
applied to the Merger. Among other things, the summary does not address state
income tax consequences, local taxes, or the federal or state income tax
considerations that may affect the treatment of a shareholder who acquired his
Company Common Stock pursuant to an employee stock option or other special
circumstances. Accordingly, it is recommended that Company shareholders consult
their own tax advisors for specific advice concerning their own tax situations,
potential changes in the applicable tax law and all federal, state and local tax
matters in connection with the Reorganization.
A copy of the McKenna Opinion to be rendered as to the material federal
income tax consequences relating to the Reorganization is attached and set forth
in Appendix A of this Proxy Statement/Prospectus.
Rights of Dissenting Shareholders
A holder of shares of Company Common Stock is entitled to exercise the
rights of a dissenting shareholder under the Colorado Business Corporation Act,
ss.ss. 7-113-101 et seq., to object to the Plan of Reorganization and make
written demand that Val Cor pay in cash the fair value of the shares of Company
Common Stock held as determined in accordance with such statutory provisions.
The following summary does not purport to be a complete statement of the
provisions of Colorado law and is qualified in its entirety by reference to such
statutory provisions, which are set forth in full as Appendix B to this Proxy
Statement/Prospectus.
Colorado law requires that holders of Company Common Stock follow certain
prescribed procedures in the exercise of their statutory right to dissent in
connection with the Reorganization. The failure by a shareholder to follow such
procedures on a timely basis and in the precise manner required by Colorado law
may result in a loss of that shareholder's dissenters' rights.
Overview. Holders of Company Common Stock have the right under the Colorado
Business Corporation Act to dissent from the Reorganization and obtain payment
of the fair value of their shares. Fair value means the value of the shares
immediately before the Effective Date, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
exclusion would be inequitable. If Val Cor and a shareholder who has exercised
his or her right to dissent (a "Dissenting Shareholder") are not able to agree
on a fair value, Val Cor must petition a court in El Paso County, Colorado for a
determination of fair value.
Procedure for Dissenting. A shareholder wishing to dissent from the
Reorganization must deliver to the Company, before the vote is taken at the
Special Meeting, written notice of his or her intent to demand payment for his
or her shares if the Reorganization is consummated. The written notice should be
sent to the Company at 111 South Tejon Street, Colorado Springs, Colorado 80903
long enough before the vote is taken at the Special Meeting so that the Company
receives it before the Special Meeting. A shareholder wishing to dissent must
also not vote in favor of the Reorganization. If a shareholder's written notice
of intent to demand payment is not received by the Company before the Special
Meeting, or if the shareholder votes in favor of the Reorganization, such
shareholder will not have the right to dissent and will be required to
participate in the Reorganization. A vote by a shareholder at the Special
Meeting against the Plan of Reorganization will not constitute notice under
Colorado law of an intent to exercise appraisal rights.
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Within 10 days after the Effective Date, Val Cor will deliver to each
Dissenting Shareholder a written notice instructing the Dissenting Shareholder
to demand payment and send his or her Company Common Stock certificates to Val
Cor. The notice will include a form for demanding payment and will show the
deadline for submitting the payment demand form and the Company Common Stock
certificates. The form will also show the date that the Reorganization was first
announced to the news media or the shareholders, and the Dissenting Shareholder
will be required to state whether or not he or she acquired his or her shares
before that date.
The Dissenting Shareholder must then properly complete and sign the payment
demand form, and submit it to Val Cor along with his or her Company Common Stock
certificates by the deadline shown in the notice from Val Cor. If the payment
demand form and the Company Common Stock certificates are not submitted by the
deadline, the shareholder will no longer be a Dissenting Shareholder and will
not be entitled to receive payment of the fair value of his or her shares under
the dissenters' rights provisions of Colorado law. Such a shareholder will be
required to participate in the Reorganization. The payment demand form and
Company Common Stock certificates should be sent to Val Cor at 350 W. Montezuma,
Cortez, Colorado 81321.
Payment for Shares. Within 30 days after receiving a Dissenting
Shareholder's payment demand form and Company Common Stock certificates, Val Cor
will pay such Dissenting Shareholder Val Cor's estimate of the fair value of the
Company Common Stock for which certificates were submitted, plus accrued
interest. Accompanying the payment will be financial information for the Company
as of the end of its most recent fiscal year, as well as the latest available
interim financial information. Also accompanying the payment will be a statement
of Val Cor's estimate of the fair value of the shares, an explanation of how the
interest was calculated, a statement of the Dissenting Shareholder's rights if
such shareholder is dissatisfied with Val Cor's payment, and a copy of the
relevant Colorado statute.
If a Dissenting Shareholder estimates the fair value of his or her shares
and the amount of accrued interest to be higher than the amount paid by Val Cor,
the Dissenting Shareholder may send a notice to Val Cor demanding payment of the
difference between the Dissenting Shareholder's estimate and the amount paid by
Val Cor. The Dissenting Shareholder may reject Val Cor's offer to pay fair value
and demand payment of the Dissenting Shareholder's estimate of the fair value of
his or her shares and accrued interest. If a Dissenting Shareholder does not
send a notice demanding payment within 30 days after Val Cor has made its
payment or offer, the Dissenting Shareholder will not have the right to receive
any amount in excess of the fair value plus interest already paid or offered by
Val Cor.
Court Proceeding to Determine Fair Value. If a demand for payment remains
unsettled for 60 days following Val Cor's receipt of the demand, Val Cor may
petition a court in El Paso County to determine the fair value of the shares and
accrued interest. Court costs will be paid by Val Cor unless the court finds
that one or more Dissenting Shareholders acted arbitrarily, vexatiously or not
in good faith in demanding payment, in which case some or all court costs may be
allocated to such Dissenting Shareholder or Shareholders. Attorneys' and
experts' fees may be assessed against Val Cor if the court finds that Val Cor
did not comply with the applicable statute or acted arbitrarily, vexatiously or
not in good faith, or such fees may be assessed against one or more Dissenting
Shareholders if the same acted arbitrarily, vexatiously or not in good faith.
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Holders of Company Common Stock considering seeking appraisal by exercising
their dissenters' rights should be aware that the fair value of their Company
Common Stock determined pursuant to Colorado law could be more than, the same
as, or less than their pro rata share of the Merger Consideration that they are
entitled to receive pursuant to the Plan of Reorganization if they do not seek
appraisal of their Company Common Stock.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES
TO BE FOLLOWED BY HOLDERS OF COMPANY COMMON STOCK DESIRING TO EXERCISE APPRAISAL
RIGHTS AND, IN VIEW OF THE FACT THAT EXERCISE OF SUCH RIGHTS REQUIRES STRICT
ADHERENCE TO THE RELEVANT PROVISIONS OF THE COLORADO BUSINESS CORPORATION ACT,
EACH SHAREHOLDER WHO MAY DESIRE TO EXERCISE APPRAISAL RIGHTS IS ADVISED
INDIVIDUALLY TO CONSULT THE LAW (AS SET FORTH IN APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS) AND COMPLY WITH THE PROVISIONS THEREOF.
HOLDERS OF COMPANY COMMON STOCK WISHING TO EXERCISE DISSENTERS' RIGHTS ARE
ADVISED TO CONSULT THEIR OWN COUNSEL TO ENSURE THAT THEY FULLY AND PROPERLY
COMPLY WITH THE REQUIREMENTS OF COLORADO LAW.
Interests of Certain Persons in the Transaction
The Plan of Reorganization provides that after the Reorganization becomes
effective, John G. Jackson, currently chairman, president and chief executive
officer of the Company and the Bank, will become an executive officer of
Consolidated Association. Mr. Jackson will enter into an employment agreement
with Consolidated Association effective as of the Effective Date. The Board of
Directors of the Company was aware of these interests when it considered and
approved the Plan of Reorganization. The terms of the agreement will continue
until the third anniversary of the commencement of the agreement. The agreement
provides that Mr. Jackson will receive cash compensation not less than the sum
of the aggregate annualized salary paid to Mr. Jackson by the Bank as of
September 30, 1997 and the annual bonus awarded to Mr. Jackson by the Bank with
respect to 1997. Mr. Jackson will be eligible to be considered for cash
compensation increases, upon review, and will be entitled to other benefits
normally afforded executive employees, including employee benefit plan
participation, retirement and life insurance policies, and consideration for
periodic raises, based upon performance and responsibility.
The employment agreement provides for severance benefits for Mr. Jackson
upon the termination of his employment agreement for reasons other than his
death or disability or "for cause" (as defined in his employment agreement). In
the event of termination for reasons other than set forth in the preceding
sentence, Mr. Jackson will receive cash compensation (as defined in the
employment agreement) payable at the rate established in his employment
agreement for the year in which termination occurs, payable until the third
anniversary of the commencement of the agreement. Mr. Jackson will also receive
such rights as he will have accrued as of the termination date of his employment
under the terms of any plans or arrangements in which he participates,
reimbursement for expenses accrued as of such termination date, and the cash
equivalent of paid annual leave and sick leave accrued as of such termination
date.
Under his employment agreement, Mr. Jackson has agreed that he will not
during the term of his employment by Consolidated Association and continuing for
two years after the date of termination of his employment pursuant to the
employment agreement (i) engage in the banking business other than on behalf of
Consolidated Association or its affiliates within the prescribed market area of
El Paso County, Colorado; (ii) directly or indirectly own, manage, operate,
control, be employed by, or provide management or consulting services in any
capacity to any firm, corporation, or other entity (other than Consolidated
Association or its affiliates) engaged in the banking business in such market
area, or (iii) directly or indirectly solicit or otherwise intentionally cause
any employee, officer, or member of the respective Boards of Directors of
Consolidated Association or any of its affiliates or any of their affiliates to
engage in any action prohibited under (i) or (ii) above.
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Inconsistent Activities
The Company has agreed in the Plan of Reorganization that unless and until
the Holding Company Merger has been consummated or the Plan of Reorganization
has been terminated in accordance with its terms, neither the Company nor the
Bank will (i) solicit or encourage any inquiries or proposals by any third
person to acquire more than 1% of the Company Common Stock or any capital stock
of the Bank or any significant portion of the Company's or the Bank's assets
(whether by tender offer, merger, purchase of assets or otherwise), (ii) afford
any third party which may be considering any such transaction access to its
properties, books or records except as required by law, (iii) enter into any
discussions, negotiations, agreement or understanding with respect to any such
transaction or (iv) authorize or permit any of its directors, officers,
employees or agents to do any of the foregoing. If the Company or the Bank
becomes aware of any offer or proposed offer to acquire any of its shares or any
significant portion of its assets or of any other matter which could adversely
affect the Plan of Reorganization, the Holding Company Merger, or the Bank
Consolidation, the Company and the Bank are required to give immediate notice
thereof to Zions and to keep Zions informed of the matter.
Conduct of Business Pending the Reorganization
The Plan of Reorganization contains covenants, representations and
warranties by the Company and the Bank as to matters which are typical in
transactions similar to the Reorganization.
Prior to the Effective Date, the Company and the Bank have each agreed
that neither will without Zions' prior written consent: (i) declare or pay cash
dividends or property dividends with the exception of customary periodic cash
dividends paid by the Company or the Bank in a manner consistent with past
practice;(ii) declare or distribute any stock dividend, authorize any stock
split, authorize, issue or make any distribution of its capital stock or other
securities except for the issuance of Company Common Stock already subscribed
for or upon exercise of existing stock options, or grant any options to acquire
such securities; (iii) except as contemplated by the Plan of Reorganization,
merge into, consolidate with or sell its assets to any other person, or enter
into any other transaction or agree to effect any other transaction not in the
ordinary course of its business or engage in any discussions concerning such a
possible transaction; (iv) convert the charter or form of entity of the Bank to
any other charter or form of entity; (v) make any direct or indirect redemption,
purchase or other acquisition of any of its capital stock; (vi) incur any
liability or obligation, make any commitment or disbursement, acquire or dispose
of any property or asset, make any agreement or engage in any transaction,
except in the ordinary course of its business; (vii) subject any of its
properties or assets to any lien, claim, charge, option or encumbrance, except
in the ordinary course of its business; (viii) institute or agree to any
increase in the compensation of any employee, except for ordinary increases in
accordance with past practices not to exceed (when aggregated with all other
such increases) 4.5% per annum of the aggregate payroll as of October 1, 1997;
(ix) create or modify any pension or profit-sharing plan, bonus, deferred
compensation, death benefit or retirement plan, or the level of benefits under
any such plan, or increase or decrease any severance or termination pay benefit
or any other fringe benefit; (x) enter into any employment or personal services
contract with any person or firm, except to directly facilitate the
Reorganization; nor (xi) purchase any loans or loan-participation interests
from, or participate in any loan originated by, any person other than the
Company or the Bank.
The Company and the Bank have also agreed to carry on their businesses and
manage their assets and property diligently in the same manner as they have
previously done and to use their best efforts to preserve their business
organization. Pending completion of the Reorganization or termination of the
Plan of Reorganization, the Company and the Bank have agreed to provide Zions
with certain information and reports and access to other information.
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Conditions to the Reorganization
The obligations of the Company, the Bank, Zions, Val Cor and Bank Colorado
to consummate the Reorganization are subject to, among other things, the
satisfaction of the following conditions: (i) the parties shall have received
all orders, consents and approvals from all requisite governmental authorities
for the completion of the Reorganization; (ii) certain litigation, as specified
in the Plan of Reorganization, shall not have been instituted or threatened;
(iii) Zions shall have determined to its satisfaction that the Reorganization
contemplated by the Plan of Reorganization will be treated for accounting
purposes as a "pooling of interests" in accordance with APB Opinion No. 16; (iv)
the registration statement to be filed by Zions pursuant to the Securities Act
in connection with the registration of the shares of Zions Common Stock to be
used as consideration in connection with the Reorganization shall have become
effective under the Securities Act, and Zions shall have received all required
state securities laws permits and other required authorizations or confirmations
of the availability of exemption from registration requirements necessary to
issue Zions Common Stock in the Reorganization, and neither the registration
statement nor any such required permit, authorization or confirmation shall be
subject to a stop-order or threatened stop-order by the SEC or any state
securities authority; and (v) there shall be no adverse legislation or
government regulation which would make the transaction contemplated impossible.
The obligations of Zions, Val Cor and Bank Colorado to consummate the
Reorganization are subject to satisfaction or waiver of certain additional
conditions, including: (i) the shareholders of the Company and the Bank shall
have authorized the Holding Company Merger and Bank Consolidation, respectively;
(ii) all representations and warranties made by the Company and the Bank in the
Plan of Reorganization shall be true and correct in all material respects on the
Effective Date and the Company and the Bank shall have performed all of their
respective obligations under the Plan of Reorganization on or prior to the
Effective Date; (iii) McKenna & Cuneo, L.L.P., legal counsel to the Company,
shall have rendered a legal opinion to Zions in form and substance as set forth
in the Plan of Reorganization; (iv) Zions shall have received a favorable
opinion from litigation counsel for the Company and the Bank substantially in
form and substance as set forth in the Plan of Reorganization; (v) the Company
shall have delivered to Zions all regulatory authorizations entitling the Bank
to operate its branches; (vi) during the period from September 30, 1997 to the
Effective Date, there shall have been no material adverse change in the
financial position or results of operations of the Company or the Bank nor shall
the Company or the Bank have sustained any material loss or damage to its
properties which materially affects its ability to conduct its business; (vii)
on and as of the Effective Date the consolidated net worth of the Company as
determined in accordance with generally accepted accounting principles shall not
be less than the sum of (a) $4,499,551, and (b) the aggregate contributions to
capital caused by the payments accompanying the exercise of any stock options on
or after September 30, 1997; (viii) on and as of the Effective Date, the
aggregate reserve for loan losses of the Bank as determined in accordance with
generally accepted accounting principles shall not be less than $587,397; (ix)
the CRA rating of the Bank shall be no lower than "satisfactory"; (x) Mr.
Jackson shall have entered into an employment agreement with Consolidated
Association in the form set forth in the Plan of Reorganization; (xi) Duane,
Morris & Heckscher LLP, legal counsel to Zions, shall have rendered a legal
opinion to Zions that the reorganization contemplated by the Plan of
Reorganization shall be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986; (xii) at each of the time of the effectiveness of the Registration
Statement, but prior to the mailing of the proxy materials, and
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the Effective Date, Zions shall have received a comfort letter from the chief
financial officer of the Company, in form and substance acceptable to Zions,
covering matters pertaining to the Company's and the Bank's latest available
financial statements and to the financial data and statistical data included in
the Registration Statement; (xiii) the holders of all of the outstanding shares
of Company Common Stock shall have executed and delivered to Zions such
documents, in form and substance satisfactory to Zions, waiving all preemptive
rights granted to them under the Company's articles of incorporation and the
Colorado Revised Statutes to be offered, to subscribe to, or to acquire any
equity interest or right to an equity interest in the Company, now or hereafter
authorized; (xiv) Bank Colorado shall have received an executed consent from the
landlord of the Bank's head office facility to the assignment and assumption by
the Bank of the lease of such facility, in form and substance acceptable to Bank
Colorado; and (xv) NationsBank, N.A. shall have delivered to the Company and the
Bank, in form and substance reasonably acceptable to Zions, its written consent
to the transactions contemplated by the Plan of Reorganization, the assumption
or discharge by Val Cor of the loan that is the subject of that certain loan
agreement dated as of April 15, 1997, between NationsBank, N.A., the Company,
and the Bank, and the release of the shares of the stock of the Bank which
secure such loan.
The obligations of the Company and the Bank to consummate the
Reorganization are subject to the satisfaction or waiver of certain additional
conditions, including: (i) the shareholders of Bank Colorado shall have
authorized the Bank Consolidation; (ii) all representations and warranties made
by Zions, Val Cor and Bank Colorado in the Plan of Reorganization shall be true
and correct in all material respects on the Effective Date and Zions, Val Cor
and Bank Colorado shall have performed all of their respective obligations under
the Plan of Reorganization on or prior to the Effective Date; (iii) receipt of a
legal opinion of Duane, Morris & Heckscher LLP, legal counsel to Zions, in form
and substance as set forth in the Plan of Reorganization; (iv) during the period
from September 30, 1997 to the Effective Date, there shall not have been any
material adverse change in the financial position or results of operations of
Zions nor shall Zions have sustained any material loss or damage to its
properties which materially affects its ability to conduct its business; (v)
Zions Common Stock shall be quoted on NASDAQ or shall be listed on a national
securities exchange; and (vi) receipt of a legal opinion of McKenna & Cuneo,
L.L.P., legal counsel to the Company, that the reorganization contemplated by
the Plan of Reorganization shall be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986.
Representations and Warranties
The representations and warranties of Zions, Val Cor, Bank Colorado, the
Company and the Bank contained in the Plan of Reorganization relate, among other
things, to the organization and good standing of the parties; the capitalization
of the parties; the authorization by the parties of the Plan of Reorganization
and the absence of conflict with laws or other agreements; the accuracy and
completeness of the financial statements and other information furnished to the
other party; the absence of material adverse changes since September 30, 1997
with respect to Zions, the Company and the Bank; the absence of undisclosed
liabilities; and compliance with laws. The Company has additionally warranted
that there has been since September 30, 1997 no material deterioration in the
quality of its consolidated loan portfolio and no material increase in the
consolidated level of its nonperforming assets or non-accrual loans or in the
level of its consolidated provision for credit losses or its consolidated
reserve for possible credit losses. The Company has also warranted that its
consolidated reserve for possible credit losses is adequate to absorb reasonably
anticipated losses in the consolidated loan and lease portfolios of the Company
in view of the size and character of such portfolios, current economic
conditions, and other factors.
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Zions and the Company have additionally warranted that there are no facts
known to them respectively which reasonably might materially adversely affect
their respective business, assets, liabilities, financial condition, results of
operations or prospects which have not been disclosed in their respective
financial statements or a certificate delivered to the other party.
Amendment and Waiver
Notwithstanding prior approval by the shareholders of the Company, the
Plan of Reorganization may be amended in any respect by written agreement
between the parties, except that after such shareholder approval no amendment
may prejudice the economic interests of the shareholders of the Company unless
shareholder approval of the amendment is procured. Zions or the Company may
also, at any time prior to the Effective Date, waive any condition or term of
the Plan of Reorganization provided that any such waiver must be in writing
signed by the party entitled to the benefit thereof and will be permitted only
if it will not have a materially adverse effect on the benefits intended under
the Plan of Reorganization to its shareholders.
Authorized Termination and Damages for Breach
The Plan of Reorganization may be terminated and abandoned at any time
prior to the Effective Date, notwithstanding approval of the shareholders of the
Company, as follows: (i) by mutual consent of the parties to the Plan of
Reorganization; (ii) unilaterally, by Zions if any of the representations and
warranties by the Company or the Bank was materially incorrect when made or in
the event of a material breach or material failure by the Company or the Bank of
any covenant or agreement of the Company or the Bank which has not been, or
cannot be, cured within thirty days after written notice has been given; (iii)
unilaterally, by the Company if any of the representations and warranties of
Zions, Val Cor or Bank Colorado was materially incorrect when made or in the
event of a material breach or material failure by Zions, Val Cor or Bank
Colorado of any covenant or agreement of Zions, Val Cor or Bank Colorado
contained in the Plan of Reorganization which has not been, or cannot be, cured
within thirty days after written notice has been given; (iv) by either the
Company or Zions if the Holding Company Merger has become inadvisable or
impracticable by reason of federal or state litigation to restrain or invalidate
the transactions contemplated by the Plan of Reorganization; or (v) by any party
on or after July 31, 1998, if the Effective Date has not occurred on or before
that date.
If either party terminates the Plan of Reorganization because any of the
representations and warranties of a party was materially incorrect when made, or
because of a material breach or material failure by a party of a covenant or
agreement made under the Plan of Reorganization, then such party whose
representations and warranties were materially incorrect or who materially
breached or failed to perform its covenant or agreement shall be liable to the
other party or parties to the Plan of Reorganization not affiliated with it in
the amount of the actual, reasonable out-of-pocket expenses, not to exceed
$500,000. In addition, the Company shall be liable (and the Company and the Bank
shall be jointly and severally liable in the event that the Bank or its board of
directors shall have participated in the Trigger Event, as defined below) to
Zions in the amount of $1 million if a Trigger Event should occur. The Plan of
Reorganization defines "Trigger Event" as any of the following: (a) the
respective board of directors of the Company or the Bank shall have authorized
the execution of an agreement with any person other than Zions or an affiliate
of Zions (a "Third Party") pursuant to which such Third Party will acquire,
merge or consolidate with, or acquire all or substantially all of the assets of,
the Company or the Bank, or engage in a substantially similar transaction; (b)
the respective board of directors of the Company or the Bank shall have
supported an offer or proposal by any Third Party to acquire, merge or
consolidate with the Company or the Bank, or acquire all or substantially all of
the assets of the Company or the Bank (or to engage in a substantially similar
transaction); (c)
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unless such recommendation is required, in the reasonable opinion of independent
corporate counsel to the Company, for the board of directors of the Company to
discharge its fiduciary duties, the respective board of directors of the Company
or the Bank shall have recommended to the shareholders of the Company that they
not approve this Agreement; or (d) the shareholders of the Company, at the
meeting of shareholders called to vote on this Agreement, fail to approve this
Agreement by the vote required by applicable law and the articles of
incorporation of the Company and, within six months thereafter, the respective
board of directors of the Company or the Bank shall have either authorized the
execution of an agreement with a Third Party pursuant to which such Third Party
will acquire, merge or consolidate with, or acquire all or substantially all of
the assets of, the Company or the Bank, or engage in a substantially similar
transaction.
Restrictions on Resales by Company Affiliates
The shares of Zions Common Stock issuable in the Reorganization have been
registered under the Securities Act, and such shares will generally be freely
tradable by Company shareholders who receive Zions shares as a result of the
Reorganization. However, the registration does not cover resales by Company
shareholders who may be deemed to control, be controlled by, or be under common
control with the Company or Zions and who therefore may be deemed "affiliates"
of the Company or Zions as that term is defined in Rule 144 under the Securities
Act. Such affiliates are not permitted to sell their shares of Zions Common
Stock acquired in the Reorganization except pursuant to (i) an effective
registration statement under the Securities Act covering the shares to be sold;
(ii) the conditions contemplated by Rules 144 and 145 under the Securities Act;
or (iii) another applicable exemption from the registration requirements of the
Securities Act. Additionally, such Company affiliates will not be permitted to
sell any shares of Company Common Stock or Zions Common Stock during the 30 day
period preceding the Effective Date, nor will they be permitted to sell any
shares of Zions Common Stock following the Effective Date until such time as
financial results covering at least 30 days of post-Holding Company Merger
combined operations shall have been published by Zions. Management of the
Company will notify those persons who it believes may be such affiliates.
Expenses
Each party to the Plan of Reorganization will pay its own expenses,
including those of its own counsel, accountants, and tax advisors, incurred in
connection with the Plan of Reorganization. The Company will pay the cost of
printing and delivering this Proxy Statement/Prospectus and other material to
the Company shareholders. The Company will pay the finder's fee referred to
above under "Finder's Fee." Zions will pay the costs attributable to registering
its stock issuable pursuant to this Proxy Statement/Prospectus under federal and
state securities laws. Zions will also pay the cost of procuring the regulatory
approvals, orders, and waivers described in the Plan of Reorganization.
Government Approvals
Applications for approval (or requests for waiver of application
requirements) of the Reorganization must be made to, and approvals and consents
must be obtained from, appropriate federal, Utah, and Colorado regulators,
including the Board of Governors, the Comptroller, the Commissioner, and the
State Banking Board. Submissions have been made to each of these regulatory
authorities. Federal law prohibits consummation of the Reorganization until
thirty days after the approvals of the federal regulators have been obtained,
except that this period may be shortened with the concurrence of the Attorney
General of the United States. All regulatory approvals have been obtained.
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Effective Date of the Reorganization
It is presently anticipated that if the Plan of Reorganization is approved
by the shareholders of the Company, the Reorganization will become effective in
the second quarter of 1998. However, as noted above, consummation of the
Reorganization is subject to the satisfaction of a number of conditions, some of
which cannot be waived. There can be no assurance that all conditions to the
Reorganization will be satisfied or, if satisfied, that they will be satisfied
in time to permit the Reorganization to become effective in the second quarter
of 1998. In addition, as also noted above, Zions and the Company retain the
power to abandon the Reorganization or to extend the time for performance of
conditions or obligations necessary to its consummation, notwithstanding prior
shareholder approval.
Accounting Treatment
The Reorganization will be treated for accounting purposes as a "pooling
of interests" in accordance with ABP Opinion No. 16. A condition to consummation
of the Plan of Reorganization is that Zions shall have received a letter to the
above effect from KPMG Peat Marwick, LLP, certified public accountants. This
method of accounting views the Reorganization as a uniting of the separate
ownership interests through an exchange of shares. As such, the pro forma
financial information represents the combined historical financial data of Zions
and the Company, subject only to certain adjustments described in the notes to
the data presented.
Relationship Between Zions and the Company
Neither Zions nor the Company is aware of any material relationship
between Zions, its directors or officers or their affiliates, and the Company,
its directors or executive officers or their affiliates, except as contemplated
by the Plan of Reorganization or as described herein. On April 15, 1997, the
Company and the Bank entered into a loan agreement with NationsBank, N.A. in the
principal amount of $500,000. This loan is secured by shares of common stock of
the Bank. It is possible that Zions or Val Cor will repay the loan prior to
closing and thereby become the creditor of the Company and the Bank upon
assumption of the loan.
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information reflects
the application of the pooling of interests method of accounting. The following
tables, which show comparative historical per common share data for Zions and
the Company (separately and pro-forma combined) and equivalent pro-forma per
share data for the Company, should be read in conjunction with the financial
information included herein or incorporated herein by reference to other
documents. The historical information presented for the Company is derived from
unaudited financial information. The pro-forma data in the table, presented as
of and for each of the years in the three year period ended December 31, 1997,
are presented for comparative and illustrative purposes only and are not
necessarily indicative of the combined financial position or results of
operations in the future or what the combined financial position or results of
operations would have been had the Reorganization been consummated during the
periods or as of the dates for which the information in the table is presented.
- 28 -
<PAGE>
<TABLE>
<CAPTION>
Historical Pro Forma
------------------- --------------------------------
Zions and
Company Company
Pro-Forma Equivalent
Per Common Share Zions Company Combined(4) Pro-Forma(5)
- ---------------- ----- ------- ----------- ------------
<S> <C> <C> <C>
NET INCOME(diluted)(1)
For the years ended
December 31, 1997 $ 1.89 $16.40 $ 1.90 $12.08
December 31, 1996 1.68 13.63 1.69 10.75
December 31, 1995 1.37 9.16 1.37 8.71
CASH DIVIDENDS(2)
For the years ended
December 31, 1997 $.4700 $ -- $.4700 $ 2.99
December 31, 1996 .4250 -- .4250 2.70
December 31, 1995 .3525 -- .3525 2.24
BOOK VALUE:(3)
As of December 31, 1997 $10.25 $63.86 $10.24 $65.12
As of December 31, 1996 8.72 46.19 8.73 55.51
As of December 31, 1995 7.46 32.91 7.47 47.50
</TABLE>
- ----------
(1) Net income per share is based on weighted average common and common
equivalent shares outstanding.
(2) Pro forma cash dividends per share represent historical cash dividends
of Zions.
(3) Book value per common share is based on total period-end shareholders'
equity.
(4) Pro forma combined net income per share represents historical net income
of Zions and the Company computed using historical weighted average
common and common equivalent shares of Zions adjusted by computed common
and common equivalent shares to be issued in the transaction. Pro forma
combined book value per share represents historical total shareholders'
equity of Zions and the Company computed using Zions' historical common
shares outstanding adjusted by computed common shares to be issued in
the transaction.
(5) Pro forma equivalent amounts are computed by multiplying the pro forma
combined amounts by an assumed exchange ratio of 6.359 shares of Zions
Common Stock for each share of Company Common Stock.
SUPERVISION AND REGULATION
The information contained in this section summarizes portions of the
applicable laws and regulations relating to the supervision and regulation of
Zions and its subsidiaries. These summaries do not purport to be complete, and
they are qualified in their entirety by reference to the particular statutes and
regulations described.
Zions
Zions is a bank holding company within the meaning of the Bank Holding
Company Act and is registered as such with the Board of Governors. Under the
current terms of that Act, Zions' activities, and those of companies which it
controls or in which it holds more than 5% of the voting stock, are limited to
banking or managing or controlling banks or furnishing services to or performing
services for its subsidiaries, or any other activity which the Board of
Governors determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the Board of Governors is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
- 29 -
<PAGE>
Bank holding companies, such as Zions, are required to obtain prior
approval of the Board of Governors to engage in any new activity or to acquire
more than 5% of any class of voting stock of any company. Pursuant to the
Riegle-Neal Interstate Branching and Efficiency Act of 1994, as amended
("Riegle-Neal Act"), subject to approval by the Board of Governors, bank
holding companies are authorized to acquire either control of, or substantial
assets of, a bank located outside the bank holding company's home state. These
acquisitions are subject to limitations, the most significant of which include
adequate capitalization and management of the acquiring bank holding company,
existence of the acquired bank for up to five years before purchase where
required under state law, existence of state laws that condition acquisitions on
institutions making assets available to a "state-sponsored housing entity," and
limitations on control by the acquiring bank holding company of not more than
10% of the total amount of deposits in insured depository institutions in the
United States or not more than 30% of the deposits in insured depository
institutions within that state. States may impose more stringent deposit
concentration limits, so long as those limits apply to all bank holding
companies equally. The Riegle-Neal Act reaffirms the right of states to
segregate and tax separately incorporated subsidiaries of a bank or bank holding
company. The Riegle-Neal Act also affects interstate branching and mergers. See
"Interstate Banking" below.
The Board of Governors is authorized to adopt regulations affecting
various aspects of bank holding companies. Pursuant to the general supervisory
authority of the Bank Holding Company Act and directives set forth in the
International Lending Supervision Act of 1983, the Board of Governors has
adopted capital adequacy guidelines prescribing both risk-based capital and
leverage ratios.
Regulatory Capital Requirements
Risk-Based Capital Guidelines. The Board of Governors has established
risk-based capital guidelines for bank holding companies. The guidelines define
Tier 1 Capital and Total Capital. Tier 1 Capital consists of common and
qualifying preferred shareholders' equity and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and 50% (and in some cases
up to 100%) of investment in unconsolidated subsidiaries. Total Capital consists
of Tier 1 Capital plus qualifying mandatory convertible debt, perpetual debt,
certain hybrid capital instruments, certain preferred stock not qualifying as
Tier 1 Capital, subordinated and other qualifying term debt up to specified
limits, and a portion of the allowance for credit losses, less investments in
unconsolidated subsidiaries and in other designated subsidiaries or other
associated companies at the discretion of the Board of Governors, certain
intangible assets, a portion of limited-life capital instruments approaching
maturity and reciprocal holdings of banking organizations' capital instruments.
The Tier 1 component must constitute at least 50% of qualifying Total Capital.
Risk-based capital ratios are calculated with reference to risk-weighted
assets, which include both on-balance sheet and off-balance sheet exposures. The
risk-based capital framework contains four risk weight categories for bank
holding company assets--0%, 20%, 50% and 100%. Zero percent risk-weighted
assets include, generally, cash and balances due from federal reserve banks and
obligations unconditionally guaranteed by the U.S. government or its agencies.
Twenty percent risk-weighted assets include, generally, claims on U.S. banks and
obligations guaranteed by U.S. government sponsored agencies as well as general
obligations of states or other political subdivisions of the United States.
Fifty percent risk-weighted assets include, generally, loans fully secured by
first liens on one-to-four family residential properties, subject to certain
conditions. All assets not included in the foregoing categories are assigned to
the 100% risk-weighted category, including loans to commercial and other
borrowers. As of year-end 1992, the minimum required ratio for qualifying Total
Capital became 8%, of which at least 4% must consist of Tier 1 Capital. At
December 31, 1997, Zions' Tier 1 and Total Capital ratios were 11.74% and
13.75%, respectively.
- 30 -
<PAGE>
The current risk-based capital ratio analysis establishes minimum
supervisory guidelines and standards. It does not evaluate all factors affecting
an organization's financial condition. Factors which are not evaluated include
(i) overall interest rate exposure; (ii) quality and level of earnings; (iii)
investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain
risks arising from nontraditional activities; and (vii) management's overall
ability to monitor and control other financial and operating risks, including
the risks presented by concentrations of credit and nontraditional activities.
The capital adequacy assessment of federal bank regulators will, however,
continue to include analyses of the foregoing considerations and in particular,
the level and severity of problem and classified assets. Market risk of a
banking organization--risk of loss stemming from movements in market prices--
is not evaluated under the current risk-based capital ratio analysis (and is
therefore analyzed by the bank regulators through a general assessment of an
organization's capital adequacy) unless trading activities constitute 10 percent
or $1 billion or more of the assets of such organization. Such an organization
(unless exempted by the banking regulators) and certain other banking
organizations designated by the banking regulators must include in its
risk-based capital ratio analysis charges for, and hold capital against, general
market risk of all positions held in its trading account and of foreign exchange
and commodity positions wherever located, as well as against specific risk of
debt and equity positions located in its trading account. Currently, Zions does
not calculate a risk-based capital charge for its market risk.
The following table presents Zions' regulatory capital position at
December 31, 1997 under the risk-based capital guidelines.
Risk-Based Capital
(Dollars in thousands)
Percent
of Risk-
Adjusted
Amount Assets
------ ------
Tier 1 Capital............................. $ 660,446 11.74%
Minimum Requirement........................ 224,975 4.00
---------- -------
Excess................................... $ 435,471 7.74%
========== =======
Total Capital.............................. $ 773,245 13.75%
Minimum Requirement........................ 449,950 8.00
---------- -------
Excess................................... $ 323,295 5.75%
========== =======
Risk-Adjusted Assets,
net of goodwill, excess deferred
tax assets and excess allowance.......... $5,624,373 100.00%
========== =======
Minimum Leverage Ratio. The Board of Governors has adopted capital standards and
leverage capital guidelines that include a minimum leverage ratio of 3% Tier 1
Capital to total assets (the "leverage ratio"). The leverage ratio is used in
tandem with a risk-based ratio of 8% that took effect at the end of 1992. At
December 31, 1997, Zions' leverage ratio was 6.75%.
The Board of Governors has emphasized that the leverage ratio constitutes
a minimum requirement for well-run banking organizations having well-diversified
risk, including no undue interest rate exposure, excellent asset quality, high
liquidity, good earnings, and a composite rating of 1 under the Interagency Bank
Rating System. Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not exhibit the characteristics
of a strong, well-run banking organization described above, will be required to
maintain strong capital positions substantially above the minimum supervisory
- 31 -
<PAGE>
levels without significant reliance on intangible assets. Furthermore, the Board
of Governors has indicated that it will consider a "tangible Tier I Capital
Leverage Ratio" (deducting all intangibles) and other indices of capital
strength in evaluating proposals for expansion or new activities.
The following table presents Zions' leverage ratio at December 31, 1997. A
leverage ratio of 3% will be the minimum required for the most highly rated
banking organizations, and according to the Board of Governors, other banking
organizations would be expected to maintain capital at higher levels.
(Dollars in thousands)
Percent
of Average
Assets, Net
Amount of Goodwill
------ -----------
Tier 1 Capital............................. $ 660,446 6.75%
Minimum Requirement........................ 293,537 3.00
---------- --------
Excess..................................... $ 366,909 3.75%
========== =========
Average Assets, net of goodwill and
deferred tax assets...................... $9,784,570 100.00%
========== =========
Other Issues and Developments Relating to Regulatory Capital. Pursuant to
such authority and directives set forth in the International Lending Supervision
Act of 1983, the Comptroller, the FDIC and the Board of Governors have issued
regulations establishing the capital requirements for banks under federal law.
The regulations, which apply to Zions' banking subsidiaries, establish minimum
risk-based and leverage ratios which are substantially similar to those
applicable to Zions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the federal banking regulators to take "prompt corrective
action" in respect of banks that do not meet minimum capital requirements and
imposes certain restrictions upon banks which meet minimum capital requirements
but are not "well capitalized" for purposes of FDICIA. FDICIA establishes five
capital tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Implementing regulations adopted by the federal banking agencies define the
capital categories for banks which will determine the necessity for prompt
corrective action by the federal banking agencies. A bank may be placed in a
capitalization category that is lower than is indicated by its capital position
if it receives an unsatisfactory examination rating with respect to certain
matters, except that it may not be categorized as critically undercapitalized
unless actually indicated by its capital position.
Failure to meet capital guidelines could subject a bank to a variety of
restrictions and enforcement remedies. All insured banks are generally
prohibited from making any capital distributions and from paying management fees
to persons having control of the bank where such payments would cause the bank
to be undercapitalized. Holding companies of critically undercapitalized,
significantly undercapitalized and certain undercapitalized banks are required
to obtain the approval of the Board of Governors before paying capital
distributions to their shareholders. Moreover, a bank that is not well
capitalized is generally subject to various restrictions on "pass through"
insurance coverage for certain of its accounts and is generally prohibited from
accepting brokered deposits and offering interest rates on any deposits
significantly higher than the prevailing rate in its normal market area or
nationally (depending upon where the deposits are solicited). Such banks and
their holding companies are also required to obtain regulatory approval prior to
their retention of senior executive officers.
- 32 -
<PAGE>
Banks which are classified undercapitalized, significantly
undercapitalized or critically undercapitalized are required to submit capital
restoration plans satisfactory to their federal banking regulator and guaranteed
within stated limits by companies having control of such banks (i.e., to the
extent of the lesser of five percent of the institution's total assets at the
time it became undercapitalized or the amount necessary to bring the institution
into compliance with all applicable capital standards as of the time the
institution fails to comply with its capital restoration plan, until the
institution is adequately capitalized on average during each of four consecutive
calendar quarters), and are subject to regulatory monitoring and various
restrictions on their operations and activities, including those upon asset
growth, acquisitions, branching and entry into new lines of business and may be
required to divest themselves of or liquidate subsidiaries under certain
circumstances. Holding companies of such institutions may be required to divest
themselves of such institutions or divest themselves of or liquidate
nondepository affiliates under certain circumstances. Critically
undercapitalized institutions are also prohibited from making payments of
principal and interest on debt subordinated to the claims of general creditors
as well as to the mandatory appointment of a conservator or receiver within 90
days of becoming critically undercapitalized unless periodic determinations are
made by the appropriate federal banking agency, with the concurrence of the
FDIC, that forbearance from such action would better protect the affected
deposit insurance fund. Unless appropriate findings and certifications are made
by the appropriate federal banking agency with the concurrence of the FDIC, a
critically undercapitalized institution must be placed in receivership if it
remains critically undercapitalized on average during the calendar quarter
beginning 270 days after the date it became critically undercapitalized.
Other Regulatory and Supervisory Issues
Pursuant to FDICIA, the federal banking agencies have adopted regulations
or guidelines prescribing standards for safety and soundness of insured banks
and in some instances their holding companies, including standards relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings, as well as other
operational and managerial standards deemed appropriate by the agencies. Upon a
determination by a federal banking agency that an insured bank has failed to
satisfy any such standard, the bank will be required to file an acceptable plan
to correct the deficiency. If the bank fails to submit or implement an
acceptable plan, the federal banking agency may, and in some instances must,
issue an order requiring the institution to correct the deficiency, restrict its
asset growth or increase its ratio of tangible equity to assets, or impose other
operating restrictions.
FDICIA also contains provisions which, among other things, restrict
investments and activities as principal by state nonmember banks to those for
which national banks are eligible, impose limitations on deposit account balance
determinations for the purpose of the calculation of interest, and require the
federal banking regulators to prescribe, implement or modify standards for
extensions of credit secured by liens on interests in real estate or made for
the purpose of financing construction of a building or other improvements to
real estate, loans to bank insiders, regulatory accounting and reports, internal
control reports, independent audits, exposure on interbank liabilities,
contractual arrangements under which institutions receive goods, products or
services, deposit account-related disclosures and advertising as well as to
impose restrictions on federal reserve discount window advances for certain
institutions and to require that insured depository institutions generally be
examined on-site by federal or state personnel at least once every 12 months.
In connection with an institutional failure or FDIC rescue of a financial
institution, the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") grants to the FDIC the right, in many situations, to charge its
actual or anticipated losses against commonly controlled depository institution
affiliates of the failed or rescued institution (although not against a bank
holding company itself).
- 33 -
<PAGE>
The nature of the banking and financial services industry, as well as
banking regulation, may be further affected by various legislative and
regulatory measures currently under consideration. The most important of such
measures include legislation designed to permit increased affiliations between
commercial and financial firms (including securities firms) and
federally-insured banks, reduce regulatory burdens on financial institutions and
eliminate or revise the features of the specialized savings association charter.
It is impossible to predict whether or in what form these proposals may be
adopted in the future and, if adopted, what the effect of their adoption will be
on Zions or its subsidiaries.
Deposit Insurance and Other Assessments
Insured banks (including the bank subsidiaries of Zions) are required to
make quarterly deposit insurance assessment payments to the Bank Insurance Fund
(the "BIF"), and most savings associations to the Savings Association Insurance
Fund (the "SAIF"), under a risk-based assessment system established by the FDIC.
(In addition, certain banks must also pay deposit insurance assessments to the
SAIF and certain savings associations, to the BIF alone or to both funds.) Under
this system, each institution's insurance assessment rate is determined by the
risk assessment classification into which it has been placed by the FDIC. The
FDIC places each insured institution in one of nine risk assessment
classifications based upon its level of capital and supervisory evaluations by
its regulators: "well capitalized," "adequately capitalized" or "less than
adequately capitalized" institutions, with each category of institution divided
into subcategories of institutions which are either "healthy," of "supervisory
concern" or of "substantial supervisory concern." Those institutions deemed
weakest by the FDIC are subject to the highest assessment rates; those deemed
strongest are subject to the lowest assessment rates. The FDIC establishes
semi-annual assessment rates with the objective of enabling the affected
insurance fund to achieve or maintain a statutorily-mandated target reserve
ratio of 1.25% of insured deposits. In establishing assessment rates, the FDIC
Board of Directors is required to consider (i) expected operating expenses, case
resolution expenditures and income of the FDIC; (ii) the effect of assessments
upon members' earnings and capital; and (iii) any other factors deemed
appropriate by it.
Until June 30, 1998, both BIF- and SAIF-assessable deposits will be
subject to an assessment schedule providing for an assessment range of 0% to
.27% (with intermediate rates of .03%, .10%, .17% and .24%, depending upon an
institution's supervisory risk group). Both BIF and SAIF assessment rates are
subject to semi-annual adjustment by the FDIC Board of Directors within a range
of up to five basis points without public comment. The FDIC Board of Directors
also possesses authority to impose special assessments from time to time.
In addition to the payment of deposit insurance assessments, depository
institutions are required to make quarterly assessment payments to the FDIC on
both their BIF and SAIF assessable deposits which will be paid to the Financing
Corporation, established by the Federal Housing Finance Board pursuant to
FIRREA, to enable it to pay interest and certain other expenses on bonds which
it issued to facilitate the resolution of failed savings associations. Pursuant
to the Federal Home Loan Bank Act, the Financing Corporation, with the approval
of the FDIC Board of Directors, establishes assessment rates based upon
estimates of (i) expected operating expenses, case resolution expenditures and
income of the Financing Corporation; (ii) the effect of assessments upon
members' earnings and capital; and (iii) any other factors deemed appropriate by
it. Additionally, the Financing Corporation is required to assess BIF-assessable
deposits at a rate one-fifth the rate applicable to SAIF-assessable deposits
until the first to
- 34 -
<PAGE>
occur of the merger of the BIF and SAIF funds or January 1, 2000. Assessment
rates for the first semi-annual period of 1998 have been set at 1.256 basis
points annually for the first quarter and 1.211 basis points for the second
quarter for BIF-assessable deposits and 6.28 and 6.22 basis points annually,
respectively, for SAIF-assessable deposits.
Interstate Banking
Existing laws and various regulatory developments have allowed financial
institutions to conduct significant activities on an interstate basis for a
number of years. During recent years, a number of financial institutions have
expanded their out-of-state activities and various states and the Congress have
enacted legislation intended to allow certain interstate banking combinations.
The Riegle-Neal Act dramatically affects interstate banking activities. As
discussed previously, the Riegle-Neal Act allows the Board of Governors to
approve the acquisition by a bank holding company of control or substantial
assets of a bank located outside the bank holding company's home state. Since
June 1, 1997, and earlier where permitted by applicable state law, an insured
bank has been authorized to apply to the appropriate federal agency for
permission to merge with an out-of-state bank and convert the branch offices of
the out-of-state bank to those of its own or, alternatively, convert its branch
offices to those of the out-of-state bank, unless its home state or the home
state of the out-of-state bank had adopted qualifying legislation barring this
form of interstate expansion by June 1, 1997.
Interstate mergers authorized by the Riegle-Neal Act are subject to
conditions and requirements, the most significant of which include adequate
capitalization and management of the acquiring bank or bank holding company,
existence of the acquired bank for up to five years before purchase where
required under state law, and limitations on control by the acquiring bank
holding company of not more than 10% of the total amount of deposits in insured
depository institutions in the United States and not more than 30% of the
deposits in insured depository institutions within that state. States may impose
more stringent deposit concentration limits, so long as those limits apply to
all bank holding companies equally. Additional requirements placed on mergers
include conformity with state law branching requirements and compliance with
"host state" merger filing requirements to the extent that those requirements do
not discriminate against out-of-state banks or out-of-state bank holding
companies.
The Riegle-Neal Act also permits banks to establish and operate a "de novo
branch" in any state that expressly permits all out-of-state banks to establish
de novo branches in such state, if the law applies equally to all banks. (A "de
novo branch" is a branch office of a national bank or state bank that is
originally established as a branch and does not become a branch as a result of
an acquisition, conversion, merger, or consolidation.) Utilization of this
authority is conditioned upon satisfaction of most of the conditions applicable
to interstate mergers under the Riegle-Neal Act, including adequate
capitalization and management of the branching institution, satisfaction with
certain filing and notice requirements imposed under state law and receipt of
federal regulatory approvals.
Pursuant to FIRREA, bank holding companies may acquire savings
associations (including savings and loan associations and federal savings banks)
without geographic restriction under the Bank Holding Company Act.
Bank holding companies whose home state is Utah are authorized to acquire
control of depository institutions and depository institution holding companies
located in other states. Colorado law authorizes an out-of-state bank holding
company, with the prior approval of the Division, to acquire a Colorado bank
holding company whose operations are principally conducted within the state
- 35 -
<PAGE>
irrespective of the number of years the depository institution subsidiaries of
the Colorado bank holding company have been in operation provided that at the
time of acquisition the out-of-state bank holding company will not control more
than 25 percent of the aggregate deposits made in federally-insured banks,
savings and loan associations, federal savings banks, industrial banks, bank
holding companies, thrift holding companies and industrial bank holding
companies located in the state and certain other requirements are satisfied.
MONETARY POLICY
The earnings of Zions and the Company are directly affected by the
monetary and fiscal policies of the federal government and governmental
agencies. The Board of Governors has broad powers to expand and constrict the
supply of money and credit and to regulate the reserves which its member banks
must maintain based on deposits. These broad powers are used to influence the
growth of bank loans, investments and deposits, and may affect the interest
rates which will prevail in the market for loans and investments and deposits.
Governmental and Federal Reserve Board monetary policies have had a significant
effect on the operating results of commercial banks in the past and are expected
to do so in the future. The future impact of such policies and practices on the
growth or profitability of Zions and the Company cannot be predicted.
INFORMATION CONCERNING ZIONS BANCORPORATION
Selected Financial Data
The following unaudited table of selected financial data should be read in
conjunction with the related notes included herein and Zions' consolidated
financial statements and the related notes thereto incorporated by reference
herein. The per share information presented reflects Zions' May 9, 1997 stock
split. See "Zions Documents Incorporated by Reference."
- 36 -
<PAGE>
ZIONS BANCORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
As of, and for the
Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Taxable-equivalent net interest income $ 358,676 $ 296,372 $ 238,880 $ 203,313 $ 178,636
Net interest income 351,799 289,166 233,547 198,606 174,657
Noninterest income 143,167 114,270 88,811 73,202 79,880
Provision for loan losses 6,175 4,640 3,000 2,181 2,993
Noninterest expenses (1) 301,218 235,272 195,186 174,900 167,750
Income taxes 65,211 56,101 41,787 30,900 27,248
Income before cumulative effect of changes
in accounting principles 122,362 107,423 82,385 63,827 56,546
Cumulative effect of changes in
accounting principles (2) - - - - 1,659
Net income 122,362 107,423 82,385 63,827 58,205
COMMON STOCK DATA Earnings per common share:
Income before cumulative effect of
changes in accounting principles - diluted $ 1.89 $ 1.68 $ 1.37 $ 1.09 $ .99
Net income - basic 1.92 1.70 1.39 1.11 1.03
Net income - diluted 1.89 1.68 1.37 1.09 1.02
Dividends declared per share .4700 .4250 .3525 .2900 .2450
Dividend payout ratio (%) 23.20% 23.27% 24.95% 27.06% 21.81%
Book value per share at year end 10.25 8.72 7.46 6.28 5.50
Market to book value at year end (%) 442.73% 298.17% 268.90% 142.83% 168.18%
Average common shares outstanding 63,868,000 63,194,000 59,435,000 57,754,000 56,636,000
Weighted average common and common
equivalent shares outstanding during the year 64,629,000 63,787,000 60,013,000 58,404,000 57,120,000
Common shares outstanding at year end 63,962,100 63,468,480 62,773,280 58,238,208 56,805,468
AVERAGE BALANCE SHEET DATA
Money market investments $ 1,490,77 $ 923,670 $ 945,842 $ 869,709 $ 788,694
Securities 2,575,295 1,977,875 1,665,500 1,545,704 1,209,165
Loan and leases, net 4,341,674 3,432,347 2,662,753 2,574,995 2,222,182
Total interest-earning assets 8,407,741 6,333,892 5,274,095 4,990,408 4,220,041
Total assets 9,214,155 6,914,213 5,779,025 5,456,613 4,643,918
Interest-bearing deposits 4,410,491 3,653,420 3,095,714 2,744,976 2,449,275
Total deposits 5,783,370 4,731,889 3,963,702 3,583,094 3,178,926
FHLB advances and other borrowings over one year 136,381 87,700 96,305 118,607 111,974
Long-term debt 257,779 55,187 57,506 59,493 75,623
Total interest-bearing liabilities 7,067,324 5,208,318 4,397,582 4,197,865 3,556,746
Shareholders' equity 615,535 512,739 407,498 339,181 286,331
YEAR END BALANCE SHEET DATA
Money market investments $ 814,088 $ 613,429 $ 687,251 $ 403,446 $ 597,680
Securities 2,712,094 1,983,643 1,694,669 1,663,433 1,258,939
Loans and leases, net 4,871,650 3,837,149 3,068,057 2,391,278 2,486,346
Allowance for loan losses 80,481 76,803 73,437 67,018 68,461
Total assets 9,521,770 7,116,413 6,095,515 4,934,095 4,801,054
Total deposits 6,854,462 5,119,692 4,511,184 3,705,976 3,432,289
FHLB advances and other borrowings over one year 210,681 81,875 95,817 101,571 152,109
Long-term debt 258,566 251,620 56,229 58,182 59,587
Shareholders' equity 655,460 554,610 469,678 365,770 312,592
</TABLE>
- 37 -
<PAGE>
<TABLE>
<CAPTION>
As of, and for the
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans $ 11,907 $ 12,704 $ 10,875 $ 13,635 $ 23,364
Restructured loans 691 857 249 567 4,006
Other real estate owned and other
nonperforming assets 3,371 138 1,609 4,741 3,267
Total nonperforming assets 15,969 13,699 12,733 18,943 30,637
Accruing loans past due 90 days or more 9,944 3,563 5,309 3,041 10,821
SELECTED RATIOS
Net interest margin (3) 4.27% 4.68% 4.53% 4.07% 4.23%
Return on average assets 1.33% 1.55% 1.43% 1.17% 1.25%
Return on average common equity 19.88% 20.95% 20.22% 18.82% 20.33%
Ratio of average common equity to average assets 6.68% 7.42% 7.05% 6.22% 6.17%
Tier I risk-based capital - year end 11.74% 14.16% 11.33% 11.81% 10.85%
Total risk-based capital - year end 13.75% 17.52% 14.03% 14.96% 14.12%
Leverage ratio - year end 6.75% 8.70% 6.33% 6.24% 5.44%
Ratio of nonperforming assets to total
assets - year end .17% .19% .21% .38% .64%
Ratio of nonperforming assets to net loans and
leases and other real estate owned and
other nonperforming assets at year end .33% .36% .41% .79% 1.23%
Ratio of net charge-offs (recoveries) to average
loans and leases .19% .11% .10% .19% (.23)%
Ratio of allowance for loan losses to net loans
and leases outstanding at year end 1.65% 2.00% 2.39% 2.80% 2.75%
Ratio of allowance for loan losses to
nonperforming loans at year end 638.84% 566.35% 660.17% 471.89% 250.13%
</TABLE>
(1) Noninterest expenses for the year ended December 31, 1993 included a
one-time expense of $6,022,000 in the first quarter of 1993, related to the
early extinguishment of debt which was necessitated by the decision in
March 1993 to notify holders of floating rate notes totaling $37,450,000
and industrial revenue bonds totaling $4,720,000 that the debt would be
redeemed during the second quarter of 1993. The expense consisted of
marking to market an interest rate exchange agreement entered into several
years earlier in conjunction with the issuance of the floating rate notes
and writing off deferred costs associated with the notes and bonds. Early
redemption of the bonds and notes in the second quarter of 1993 allowed
Zions Bancorporation to avail itself of lower cost funding.
(2) Cumulative effect of changes in accounting principles for the year ended
December 31, 1993 resulted from the cumulative effect of changes in
accounting principles in the first quarter of 1993, arising from the
adoption as of January 1, 1993, of Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income
Taxes." The election of immediate recognition of the cumulative effect
(transition obligation) of such change in accounting method for
postretirement benefit other than pensions of SFAS No. 106 decreased pretax
and after-tax net income by $5,760,000 and $3,631,000, respectively. In
addition to the $2,129,000 deferred tax benefit resulting from the adoption
of SFAS No. 106 the election to apply SFAS No. 109 prospectively and not
restate prior years resulted in net deferred tax benefits of $5,290,000 for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of other assets and liabilities.
(3) Net interest margin represents net interest income on a taxable-equivalent
basis as a percentage of average earning assets.
- 38 -
<PAGE>
Stock Prices and Dividends on Zions Common Stock
Zions Common Stock is traded in the over-the-counter market under the
symbol "ZION" and is listed in the NASDAQ-NMS. The following table has been
adjusted to reflect Zions' May 9, 1997 stock split and sets forth the high and
low daily sales prices for Zions Common Stock for the periods indicated, in each
case as reported by NASDAQ, and the cash dividends per share declared on Zions
Common Stock for such periods.
Cash
Dividends
High Low Declared
---- --- --------
1996
First Quarter............................ $ 19.81 $ 16.69 $ .1025
Second Quarter .......................... 19.75 17.00 .1025
Third Quarter............................ 22.44 18.00 .11
Fourth Quarter........................... 26.00 21.69 .11
-----
$ .425
======
1997
First Quarter............................ $ 33.25 $ 25.69 $ .11
Second Quarter........................... 37.63 28.38 .12
Third Quarter............................ 41.13 34.69 .12
Fourth Quarter .......................... 46.00 37.63 .12
-----
$ .47
=====
1998
First Quarter............................ $ 55.69 $ 39.56 $ .12
Second Quarter (through April 27, 1998).. 53.13 48.06 --
On December 19, 1997, the last NASDAQ-NMS trading day prior to the public
announcement of the Reorganization, the closing sale price for the Zions Common
Stock was $43.00. On April 27, 1998, the last trading date before this Proxy
Statement/Prospectus was sent to the printers, the closing sale price for the
Zions Common Stock was $48.0625. On April 27, 1998, there were 69,138,844 shares
of Zions Common Stock outstanding, held by approximately 5,438 shareholders of
record.
While Zions is not obligated to pay cash dividends, Zions' Board of
Directors presently intends to continue the policy of paying quarterly cash
dividends. Future dividends will depend, in part, upon the earnings and
financial condition of Zions.
Principal Holders of Zions Common Stock
The following table sets forth as of February 27, 1998, the record and
beneficial ownership of Zions Common Stock by the principal common shareholders
of Zions.
No. of % of
Name and Address Type of Ownership Shares Class
- ---------------- ----------------- ------ -----
Roy W. Simmons Record and Beneficial 2,279,815 3.30%
One South Main Beneficial(1) 1,991,376 2.88%
--------- ----
Salt Lake City, Utah 84111 4,271,191 6.18%
Zions First National Bank Record(2) 4,581,741 6.60%
One South Main
Salt Lake City, Utah 84111
- 39 -
<PAGE>
- ----------
(1) Represents Roy W. Simmons' ownership interest in 1,991,376 shares held by
a company in which Mr. Simmons serves as a director.
(2) These shares are owned of record as of February 27, 1998, by Zions First
National Bank, a subsidiary of Zions, in its capacity as fiduciary for
various trust and advisory accounts. Of the shares shown, Zions First
National Bank has sole voting power with respect to a total of 3,296,197
shares (4.7% of the class) it holds as trustee for the Zions
Bancorporation Employee Stock Savings Plan, the Zions Bancorporation
Employee Investment Savings Plan, and the Zions Bancorporation Profit
Sharing Plan. Zions First National Bank also acts as trustee for the
Zions Bancorporation Dividend Reinvestment Plan, which holds 1,007,804
shares (1.4% of the class) and the Zions Bancorporation PAYSOP Plan, which
holds 277,740 shares (.4% of the class) as to which Zions First National
Bank does not have or share voting power.
Set forth below is the beneficial ownership, as of February 27, 1998, of
Zions' common stock by each of Zions' directors, and all directors and officers
as a group.
No. of Shares % of
Directors Beneficially Owned Class
- --------- ------------------ -----
Jerry C. Atkin 9,800 * (1)
Grant R. Caldwell 7,000 * (1)
R.D. Cash(3) 27,000 * (1)
Richard H. Madsen 197,622 * (1)
Roger B. Porter(3) 3,000 * (1)
Robert G. Sarver(3) 818,124 1.18
Harris H. Simmons 2,498,662(2) 3.62
L. E. Simmons(3) 2,296,229(2) 3.33
Roy W. Simmons(3) 4,271,191(2) 6.19
I. J. Wagner(3) 285,000(2) * (1)
All directors and officers
as a group (31 persons) 7,945,288 11.44
- ----------
(1) Immaterial percentage of ownership.
(2) Totals include 1,991,376 shares attributed to each individual through
serving as a director in a company holding such shares in Zions. Of such
1,991,376 shares attributed to Harris H. Simmons, Mr. Simmons holds an
option to acquire 186,792 shares, all of which are vested and presently
exercisable.
(3) These individuals also own phantom stock through the Company's Deferred
Compensation Plan for Directors which are not included in the above
totals. The amount of phantom stock held as of December 31, 1997 was as
follows: Mr. Cash, 24,134 shares; Mr. Porter, 8,313 shares; Mr. Sarver,
3,545 shares; Mr. L.E. Simmons, 5,193 shares; Mr. Roy Simmons, 20,137
shares; and Mr. Wagner, 2,891 shares.
- 40 -
<PAGE>
Zions Documents Incorporated By Reference
The following documents previously filed by Zions with the SEC pursuant to
the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus:
1. Zions' Annual Report on Form 10-K for the year ended December 31,
1997 ("Zions Form 10-K");
2. Zions' Current Reports on Form 8-K filed by Zions on February 6,
1998 and April 15, 1998;
3. The description of Zions Common Stock which is contained in Zions'
registration statement on Form 10, and any amendment or report filed
for the purpose of updating such description.
4. The description of the Zions' Rights Plan contained in Zions'
registration statement on Form 8-A Registration Statement dated
October 10, 1996, and any amendment or report filed for the purpose
of updating such description.
The Company shareholders who wish to obtain copies of any Zions document
incorporated by reference herein may do so by following the instructions under
the section titled "Available Information" in the initial pages of this Proxy
Statement/Prospectus.
All documents filed by Zions with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the Effective Date shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
INFORMATION CONCERNING THE COMPANY AND THE BANK
General
The Company was formed in 1994 and registered as a bank holding company in
that year under the Bank Holding Company Act. It immediately acquired 100%
ownership of the Bank and has operated as a one-bank holding company since that
time. Late in 1997 a new subsidiary was formed, SBT Mortgage, LLC with the
Company owning 50% and the other 50% being owned by an unaffiliated outside
party. The Company at this time has no investments other than its 100% ownership
of the Bank, in addition to its 50% interest in SBT Mortgage. The Company is
owned by approximately 20 individuals, the majority of whom are in the Colorado
Springs area.
The Bank
State Bank and Trust of Colorado Springs was organized as a Federal
Reserve member, state chartered commercial bank in November 1984. Its original
focus was to serve the retail and consumer needs of the downtown Colorado
Springs market
- 41 -
<PAGE>
with a secondary focus on providing for the banking needs of the commercial or
business market place. In April of 1988, new management and ownership became
involved, bringing new capital and a new philosophy. Citizens National Bank, a
small commercial bank located one block from the Bank, was closed by the FDIC at
or about that time and its deposits and consumer loans were purchased by the
Bank. This transaction created a commercial bank of approximately $22 million in
total assets. The philosophy of the Bank then changed, fairly dramatically, to
one of a wholesale or commercial bank, concentrating primarily on small
businesses. That market has proven to be successful for the Bank with growth of
approximately 21% annually in total assets over the last five years, leading to
a year-end total asset figure of approximately $87 million for 1997.
Profitability has also been strong with average return on assets from the last
five years, being approximately 1.8% and return on equity in excess of 30%.
While the Bank continues to concentrate primarily on its small business
market, it has begun to expand its product line to include some consumer and
retail products and services, which are felt to be necessary to continue the
rate of growth experienced over the last five years. The Bank is regulated by
its federal regulator, the Federal Reserve, and its state regulator, the
Colorado State Banking Board. Its deposits are also insured by the FDIC.
Lending
The Bank follows a uniform credit policy with its loans, which sets forth
underwriting and loan administration criteria, including levels of loan
commitments, loan types, credit criteria, concentration limits, loan limits,
loan administration, loan review and grading, and related matters. The Bank
monitors asset quality, utilizing internal and external loan review programs.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount and extent of other banking
relationships maintained with customers. Pricing is further subject to
competitive pressures, money market rates, availability of funds, and government
regulation.
Loan growth, averaging over 25% for the last five years, has been very
strong in the Bank. Due to the Bank's primary market of small business,
commercial real estate is the dominant type of loan that is made by the bank.
Historically, the loan portfolio of the Bank has been comprised of approximately
70% real estate oriented loans with 20% being more traditional commercial loans
and 10% consumer or retail. The Bank has maintained a relatively conservative
loan to deposit ratio, only recently in 1997 exceeding 70%.
Asset quality continues to be strong, with non-performing assets
representing 0.4% of total loans, as of year-end 1997 and less than that in the
three previous years. Loan losses have been insignificant over the last five
years, with the provision for loan losses increasing only to allow for the rapid
growth in the total amount of loans outstanding. The ratio of allowance for loan
losses to total loans outstanding has averaged approximately 1.35 over the last
five years. The ratio of the allowance for loan losses to non-performing assets
has averaged 700% over the same period.
With the Bank's geographic expansion to the east side of Colorado Springs,
by virtue of its new branch, it is likely that the concentration in real estate
will be reduced significantly over the coming years due to more retail and
consumer activity. Aggressive competition in both the real estate and commercial
loan markets is also driving the Bank to encourage more retail borrowing, which
historically carries a more attractive price.
- 42 -
<PAGE>
Loans
The following tables sets forth the classification of loans of the Bank by
major category at the dates indicated.
December 31,
Loan Portfolio 1997 1996
------- -----
(In thousands)
Commercial and industrial $12,781 $10,883
Real Estate
Construction mortgage 7,037 4,746
Commercial 30,356 22,174
Installment 3,402 1,637
------- -------
Total loans 53,576 39,440
Less allowance for loan and lease losses 615 497
------- -------
Net loans $52,961 $38,943
======= =======
The Bank's focus has been in the small business arena, which translates
into primarily commercial loans. The Bank has never been an active consumer or
retail lender; however, the loans shown in this category are typically a result
of accommodations to its commercial customers. The commercial loans are
primarily related to real estate and have the purchase of real estate as the
primary purpose for the loan. In addition, other commercial loans include
collateral such as accounts receivable, inventory, and other fixed assets.
The real estate loan category consists primarily of improved real estate
loans; however, from time to time acquisition and development loans have been
granted by the Bank, which typically represents raw ground which is then
developed into finished lots and sold to builders. The Bank has historically not
been active in the origination of first mortgage loans for single family houses;
however, its 50% owned subsidiary, SBT Mortgage, which began operation in the
fourth quarter of 1997, is currently involved in first mortgages.
Installment loans represent the smallest percentage in categories of
loans. These loans have included automobile purchases, second mortgages, credit
cards and other personal purposes. The Bank has not been active in granting
student loans. Although the Bank's loan portfolio is focused on loans to
commercial business, it has a great degree of diversification within that
business and industry category. Many different industries are represented in the
commercial loan portfolio with no heavy concentration in any one group. The vast
majority of real estate loans granted have been floating rate credits with
maturities of five years and paying on an amortization schedule of fifteen to
twenty years. Rates typically have been between 1-2% over prime and the
frequency of rate change has typically been annual.
The Bank makes primarily commercial real estate and consumer loans to
businesses and individuals in Colorado, with the vast majority in El Paso
County.
Non-Performing Assets
The following table sets forth information concerning the Bank's
non-performing assets as of the dates indicated.
- 43 -
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Non-performing loans:
Loans 90 days or more delinquent, still accruing $ 0 $ 0
Non-accrual loans 306 45
Trouble debt restructuring 0 0
Total nonperforming loans 306 45
Other real estate owned 0 0
Other assets acquired by foreclosure 0 0
Allowance for loan losses 615 497
Ratio of non-performing assets to total assets 0.36% 0.06%
Ratio of non-performing loans to total loans 0.57% 0.11%
Ratio of allowance for loan losses to total loans 1.15% 1.26%
Ratio of allowance for loan losses to total non-performing loans 175% 1104%
</TABLE>
The Bank knows of no material loans that are now current where there are
serious doubts as to the ability of the borrower to comply with present loan
repayment terms.
Non-Performing Loans
Non-performing loans consist of loans 90 days or more delinquent and still
accruing interest, non-accrual loans and troubled debt restructurings. All loans
listed in this category, as of both dates listed, December 31, 1996 and December
31, 1997 are considered collectable or well secured and in the process of
collection.
Non-accrual loans are loans on which the accrual of interest has been
discontinued, when in the opinion of the Bank management a reasonable doubt
exists as to the full and timely collection of interest or principal, regardless
of the delinquency status of the loan, the accrual of interest income is
discontinued and all interest previously accrued but not collected is reversed
against current period interest income. While the loan is on non-accrual status,
interest income is recognized only upon receipt and then only if in the judgment
of management, future collection of principal is probable. Loans 90 days or more
delinquent are changed to non-accrual status unless the loan is in the process
of collection and management determines that full collection of principal and
accrued interest is probable. Interest accruals are resumed on non-accrual loans
only when in the judgment of the Bank management the loans are estimated to be
fully collectable as to principle and interest.
Troubled debt restructurings are loans that have been renegotiated to
provide a reduction or a deferral of interest or principal balance because of a
deterioration in the financial position of the borrower.
Additional interest income on non-accrual loans that would have been
recognized in 1996 and 1997 had the loans been current in accordance with their
original terms was not material.
- 44 -
<PAGE>
Other Real Estate Owned
Other real estate owned includes property acquired through foreclosure
proceedings or under deed in lieu of foreclosure arrangements with delinquent
borrowers. The Bank had no other real estate owned as of either reporting date.
Analysis of Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings
in the form of provision for loan losses. Charge-offs or recoveries are charged
or credited directly to this allowance. In general, the amount charged to
earnings each year by the Bank is based on the Bank management's judgment which
takes into consideration a number of factors, including: (a) the Bank's loss
experience in relation to outstanding loans and the existing level of the
allowance, (b) a continuing review of problem loans, related uncollected
interest, and overall portfolio quality, (c) regular examinations and appraisals
of loan portfolios conducted by the Bank's internal and external auditors and
state and federal supervisory authorities, and (d) current economic conditions.
The following table sets forth the historic relationship between the
Bank's loan charge-offs and recoveries and allowance for loan losses as of the
dates indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance of allowance for loan loss at beginning of period $ 497 $ 418
Charge-offs:
Commercial and industrial 0 0
Real Estate:
Construction mortgage 3 0
Commercial 0 7
Installment 3 5
-------- --------
Total charge-offs 3 12
Recoveries:
Commercial and industrial 0 0
Real Estate:
Construction mortgage 0 0
Commercial 1 1
Installment 0 0
-------- --------
Total recoveries 1 1
Net (charge-offs) recoveries 2 11
Provision for loan losses charged to operations 120 90
-------- --------
Balance of allowance for loan losses at end of period $ 615 $ 497
======== ========
Ratio of net charge-offs (recoveries) to average loans 0.0045% 0.0319%
Average loans outstanding during this period 44,861 34,476
</TABLE>
- 45 -
<PAGE>
Investment Securities
The following table sets forth the amortized cost and market value of the
Bank's investment securities by class of security as of the dates indicated.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------- -----------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
US Treasury $ 0 $ 0 $ 0 $ 0
US Agencies 717 825 511 514
Mortgage backed 2,447 2,497 1,737 1,760
States and political subdivisions 4,488 4,565 4,264 4,313
Other 321 321 117 118
------ ------ ------- -------
Total securities held to maturity $7,973 $8,208 $ 6,629 $ 6,705
====== ====== ======= =======
Securities available for sale:
US Treasury $ 748 $ 750 $ 4,048 $ 4,062
US Agencies 6,719 6,715 14,069 14,053
Mortgage backed 1,395 1,396 709 714
States and political subdivisions 0 0 100 100
Other 0 0 231 231
------ ------ ------- -------
Total securities available for sale $8,862 $8,861 $19,157 $19,160
====== ====== ======= =======
</TABLE>
The following table sets forth the carrying values, maturities and
weighted average yields of the Bank's securities portfolio at December 31, 1997.
<TABLE>
<CAPTION>
Due in one Due after one year Due after five years
year or less through five years through ten years
------------ ------------------ -------------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity: (Dollars in thousands)
U.S. Treasury $ - 0.00% $ - 0.00% $ - 0.00%
U.S. government agencies - 0.00% - 0.00% 506 7.64%
Mortgage backed securities - 0.00% 39 8.66% 54 8.32%
State and political subdivisions 756 4.40% 2,586 4.80% 695 4.83%
Other securities 321 5.00% - 0.00% - 0.00%
------ ----- ------ ----- ------ -----
Total $1,077 4.88% $2,625 4.85% $1,255 6.11%
====== ===== ====== ===== ====== =====
Securities available for sale:
U.S. Treasury $ 500 6.37% $ 248 5.79% $ - 0.00%
U.S. government agencies 2,114 5.70% 3,591 6.51% 534 6.40%
Mortgage backed securities - 0.00% - 0.00% - 0.00%
State and political subdivisions - 0.00% - 0.00% - 0.00%
------ ----- ------ ----- ------ -----
Total $2,614 5.82% $3,839 6.46% $ 534 6.40%
====== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Due After
Ten Years Total
--------- -----
Amount Yield Amount Yield
------ ----- ------ -----
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury $ - 0.00% $ - 0.00%
U.S. government agencies 211 8.00% 717 7.74%
Mortgage backed securities 2,354 7.73% 2,447 7.76%
State and political subdivisions 451 5.05% 4,488 4.77%
Other securities - 0.00% 321 6.00%
------ ----- ------ -----
Total $3,016 7.35% $7,973 5.98%
====== ===== ====== =====
Securities available for sale:
U.S. Treasury $ - 0.00% $ 748 6.15%
U.S. government agencies 480 7.18% 6,719 6.29%
Mortgage backed securities 1,395 6.62% 1,395 6.62%
State and political subdivisions - 0.00% - 0.00%
------ ----- ------ -----
Total $1,875 6.77% $8,862 6.32%
====== ===== ====== =====
</TABLE>
- 46 -
<PAGE>
Investment Portfolio
The Banks' philosophy as to its investment portfolio has been quite
conservative with only direct US Treasury issues, US Agency and general
obligation bonds of municipalities being purchased for the portfolio. Revenue
bonds of state and city municipalities have also been purchased in the past,
however, in small amounts and infrequently. The primary objective of the
investment portfolio is to provide secondary liquidity for the Bank with
secondary objectives being maximizing a return on the invested capital as well
as providing capital needed for pledging purposes. Safety of principal is
paramount and therefore very little credit risk has ever been accepted. Interest
rate risk is also considered critical to the management of the portfolio with a
target range always maintained for the weighted average risk duration of not
less than two years and not greater than five years. Investments are not
actively traded; however, some gains and losses have been experienced in the
portfolio when either bonds are sold for liquidity purposes or opportunities are
perceived to increase yield at no significant additional risk. No credit loss
has been experienced by the Bank in the bond portfolio since 1988.
Deposits
The Bank's deposit base reflects its strong bias towards commercial
business. The very high percentage of non-interest bearing demand deposits, when
compared to industry standards is due largely to small business checking
accounts. While non-interest-bearing demand deposits have historically averaged
between 30-35% at the Bank, its peer group is more typically less than 15%. The
Bank also maintains a very high percentage of money market deposit accounts in
relation to its peer group, again due to large accounts maintained by its
business customers. Due to its ability to attract the type of deposits mentioned
above, the Bank's reliance on large time deposits has been negligible. The
structure of the Bank's deposit base has greatly enhanced profitability through
reducing its cost of funds and increasing net interest margin. The Bank relies
on public monies infrequently and only in times of tight liquidity due to
seasonal deposit fluctuations. No broker deposits have ever been purchased by
the Bank.
The following table presents the average balances of the Bank for each
major category of deposits and the weighted average interest rate paid for
interest bearing deposits for the periods indicated.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Average Weighted Average Weighted
Balance Avg. Rate Balance Avg. Rate
------- --------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
New and money market accounts $32,827 3.05% $26,834 2.99%
Savings 2,392 2.73% 2,523 2.90%
Time certificates under $100,000 3,379 5.00% 3,235 4.98%
Time certificates over $100,000 3,370 5.10% 2,367 5.12%
------- ---- ------- ----
Total interest bearing deposits $41,968 3.37% $34,959 3.27%
Non-interest bearing demand deposits 25,059 0.00% 20,058 0.00%
------- ---- ------- ----
Total deposits $67,027 2.11% $55,017 2.06%
======= ==== ======= ====
</TABLE>
The following table sets forth the amount and maturity of certificates of
deposit with balances of more than $100,000 as of December 31, 1996 and December
31, 1997.
- 47 -
<PAGE>
December 31, 1997 December 31, 1996
----------------- -----------------
(In thousands)
Under 3 months $ 609 $ 662
3 to 6 months 2,345 1,272
6 to 12 months 489 -
Over 12 months 112 946
------ ------
Total $3,555 $2,880
====== ======
Return on Company Equity and Assets
The following table sets forth return on the Company's average assets and
equity and various other ratios for the periods indicated.
December 31, December 31,
1997 1996
---- ----
Return on assets(1) 1.71% 1.88%
Return on equity(2) 33.11% 35.17%
Equity to assets ratio(3) 5.15% 5.33%
Dividend payout ratio(4) -- --
- ------------------------------------------------------------------------------
(1) Net income divided by average total assets
(2) Net income divided by average stockholder's equity
(3) Average total equity divided by average total assets
(4) Dividends paid per share divided by net income per share; no dividends were
paid in the indicated periods.
Property
The Bank has operated in its main office at 111 South Tejon, in Colorado
Springs since its inception in 1984. The facility is leased and approximates
10,000 square feet. Space is in an office building known as Plaza of the
Rockies, which is an eight story, class A, office building, which was completed
just prior to the Bank's opening in 1984. The building is located on the corner
of Colorado Avenue and Tejon Street in the downtown business district of
Colorado Springs and is one of the highest traffic corners in the downtown
market.
In 1988 the Bank leased land one block east of its main facility at 111
South Nevada Avenue to build a drive up banking facility. This facility is
approximately 3,000 square feet and has five drive up lanes, as well as a walk
up window and an ATM. The lease on the main facility was amended in 1996 and
extended for twelve years expiring in 2008. The drive up facilities lease
expires in the year 2000; however, two five-year options are available,
extending the ultimate maturity of the lease to the year 2010.
In January 1998, the Bank opened its first branch at the corner of Powers
Avenue and Palmer Park, on the east side of Colorado Springs. This facility is
new construction, totals 6,000 square feet including the basement, and is owned
by the Bank. It also has four drive up lanes, including a drive up ATM. The
branch is operated as a full service branch, offering all products and services
currently offered at the main facility.
- 48 -
<PAGE>
Competition
The Bank is currently the largest locally owned commercial bank in El Paso
County. Primary competition is provided by out of state, super regional banks,
such as Norwest, Key Bank, Bank One and US Bancorp. In addition, there are five
smaller independent banks remaining in the market as well as a large number of
credit unions. Ent Federal Credit Union is the largest of the local credit
unions and is a federally chartered occupational based credit union which has
grown to total assets of over $1 billion at the end of 1997.
Primary competition to the Bank comes also from various non-bank entities,
such as The Money Store, due to the wholesale banking client being sought.
Deposit competition comes also from a multitude of financial service firms
including brokers, insurance companies, mutual funds, and others.
The Bank's success in generating the growth it has enjoyed has been
primarily the result of identifying its market niche and maintaining that focus
while utilizing its customer base as a referral source.
Legal Proceedings
No legal proceedings exist at this time with either Company or the Bank,
with the exception of two relatively small collection actions, which involve
loans of less than $100,000. No losses are anticipated from these actions.
Employees
The Bank currently employs 46 people in all three locations. Structurally
these represent nine officers, four supervisors and 33 employees. No formal
training is provided due to the relatively small size of the organization and
therefore experienced people are generally hired to fill vacancies. Senior
Officers are all well experienced, with four senior lenders each having over
twenty years of experience as well as the two senior operations officers who
have over 25 years of banking experience a piece. None of the employees are
covered by a collective bargaining agreement and management of the Bank and the
Company believes that their relationships with their employees is good.
Regulatory Matters
As a registered bank holding company, under the Bank Holding Company Act,
the Company is subject to the regulations and supervision of the Board of
Governors. The Bank Holding Company Act requires the Company to file reports
with the Board of Governors and provide any additional information requested
thereby.
The Bank is a banking corporation organized under the laws of the state of
Colorado. The Bank is a member of the Federal Reserve System and its deposits
are insured by the FDIC, up to a maximum of $100,000 per account. The Bank is
subject to regulation, supervision, and regular examination by the Federal
Reserve as well as the Colorado State Banking Board and the FDIC.
Selected Financial Data
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements and the related notes and with
the management of the Company's discussion and analysis of financial condition
and results of operations, which are included in this Proxy
Statement/Prospectus. The following financial information presented for the
1997, 1996, 1995, 1994 and 1993 periods is unaudited. Such information has not
been audited because it would be impractical to do so.
- 49 -
<PAGE>
SBT BANKSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Summary
Net interest income $ 4,484 $ 3,657 $ 2,913 $ 2,339 $ 1,601
Provisions for loan losses 120 90 60 24 94
Non-interest income 667 479 410 431 726
Non-interest expense 3,136 2,439 2,060 1,945 1,572
Income taxes 606 454 354 239 251
Net income 1,289 1,153 849 562 598
Common Stock Data
Earnings per common share $16.40 $13.63 $ 9.16 $ 5.94 $ 4.67
Dividends paid per share -- -- -- -- --
Book value per share at period
End 63.86 46.19 32.91 20.40 20.09
Weighted average common Shares
outstanding during the period XX XX XX XX XX
Average Balance Sheet Data
Securities $20,865 $17,044 $14,741 $14,901 $ 9,450
Loans and leases, net 44,305 34,027 25,458 20,526 16,289
Total interest-earning assets 67,179 55,711 42,637 38,205 29,477
Total assets 75,603 61,477 47,019 42,613 32,485
Interest-bearing deposits 41,968 34,959 26,989 25,369 19,688
Total deposits 67,027 55,017 41,203 38,213 28,193
Long-term debt -- -- -- -- --
Shareholders' equity 3,893 3,278 2,445 2,316 2,022
End of Period Balance Sheet Data
Securities $16,836 $25,790 $14,268 $17,502 $13,728
Loans and leases, net 52,973 38,943 28,347 22,507 19,444
Allowance for loan losses 615 497 418 315 254
Total assets 86,177 74,772 52,209 47,267 37,138
Total deposits 77,974 66,983 46,080 42,617 30,747
Long-term debt -- -- -- -- --
Shareholders' equity 4,811 3,898 3,051 2,647 2,321
Non-performing assets:
Non-accrual loans and loans past
due 90 days or more $ 306 $ 45 $ 16 $ 31 $ 115
Other real estate owned -- -- 9 29 208
Total non-performing assets 306 45 25 60 323
Selected Ratios
Net interest margin 6.67% 6.56% 6.82% 6.12% 5.43%
Return on average assets 1.71% 1.88% 1.81% 1.32% 1.87%
Return on average equity 33.11% 35.17% 34.72% 24.31% 29.53%
Ratio of ending equity to ending
assets 5.58% 5.21% 5.84% 1.33% 6.25%
Ratio of nonperforming assets to
total assets 0.36% 0.06% 0.05% 0.13% 0.87%
Ratio of allowance for loan losses
to loans and leases 1.18% 1.29% 1.47% 1.40% 1.31%
outstanding at period end
Ratio of allowance for loan losses
to nonperforming loans 201% 1,104% 1,672% 525% 79%
</TABLE>
- ----------
* 1993 is Bank only; Company was formed in 1994.
- 50 -
<PAGE>
Stock Prices and Dividends on Company Common Stock
No established trading market for the Company's Common Stock exists. Over
the years, little trading in the Common Stock has occurred. Reliable information
concerning the prices at which the Company's Common Stock has traded in private,
negotiated transactions is not publicly available or generally known to the
Company. On occasion, the Company has become aware of the trading price of its
stock in private transactions. Information concerning those trading prices has
been omitted based on the Company's belief that such prices are not necessarily
representative of the market price for the Company's Common Stock during any
particular period. Since December 19, 1997, the date the Plan of Reorganization
was publicly announced, there have been no trades in the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock.
As of April 30, 1998, there were 25 holders of record of the Company's
Common Stock.
Certain Transactions of the Company
John G. Jackson, Chairman, President and Chief Executive Officer of the
Company and the Bank will serve as an executive officer of Consolidated
Association pursuant to an employment agreement to be executed at Closing. See
"Plan of Reorganization--Interests of Certain Persons in the Transaction" for
information concerning the employment agreement, a covenant not to compete and
other matters relating to Mr. Jackson and the transaction.
The Bank has had banking transactions in the ordinary course of its
business with directors, officers, principal shareholders and their associates
on the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with unaffiliated
parties. To the extent that such transactions consisted of extensions of credit,
they did not, in the opinion of management, involve more than a normal risk of
collectibility or present other unfavorable features. As of December 31, 1997,
the Company's directors, executive officers, employees and their affiliates were
indebted to the Bank in the aggregate amount of $266,000, none of which such
loans were delinquent.
Stockholdings of Directors, Officers and Certain Others
On April 30, 1998, there were 78,592 shares of Company Common Stock
outstanding held of record by 25 shareholders. Only shareholders of record as of
April 30, 1998, will be entitled to vote at the Special Meeting and each share
is entitled to one vote. As of April 30, 1998, the Company's Directors owned
approximately 50.05% of the outstanding shares of Company Common Stock. Each
director has agreed to vote his or her shares in favor of the Plan of
Reorganization and the Reorganization.
The following table sets forth as of April 30, 1998, the beneficial
ownership of the Company's Common Stock (i) by each person known by the Company
to own beneficially more than 5% of the outstanding shares of such common stock,
(ii) by each current director of the Company, (iii) by each executive officer of
the Company, and (iv) by all directors and executive officers of the Company as
a group. Except as set forth in the notes to the table, each of the persons
named below, to the Company's knowledge, has sole voting and investment power
over the shares stated as beneficially owned.(1)
- 51 -
<PAGE>
Name and Title (and address of 5% Number of Shares Percent of Company
- --------------------------------- ---------------- ------------------
Beneficial Owners) Common Stock
- ------------------ ------------
Thomas E. Berg, Director.................. 1,500 1.19%
Buck Blessing, Director................... 1,000 1.27%
Leonard L. Buresh
1202 E. High Point Lane
Colorado Springs, CO 80904........... 7,300 9.29%
Robert A. Cadigan, Executive Officer
27 Tanglewood Drive
Colorado Springs, CO 80906........... 12,685 16.14%
Craig D. Engelage
2225 Yankton Place
Colorado Springs, CO 80919........... 5,325 6.78%
Hal Hollister
5420 Fiesta Lane
Colorado Springs, CO 80918........... 5,000 6.36%
John G. Jackson, Chairman, President
and Chief Executive Officer
315 W. Cheyenne Road
Colorado Springs, CO 80906........... 12,050 15.33%
James Kalhorn(2)
5820 Old Ranch Road
Colorado Springs, CI 80908........... 5,789 7.37%
Randy R. Kilgore, Director................ 2,686 3.42%
Gary L. Markle, Director.................. 3,000 3.82%
Scott E. Pursley, Director
250 Chatham Drive
Colorado Springs, CO 80806........... 6,417 8.16%
All directors and officers as a group
(7 persons)................................ 39,338 50.05%
- ----------
(1) Beneficial ownership includes shares over which the indicated beneficial
owner (alone or, in the case of shares held jointly with his or her
spouse, together with his or her spouse) has the right to exercise voting
and/or investment powers.
(2) James Kalhorn is the custodian for Ashton J. Kalhorn and Simone N.
Kalhorn.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
SBT BANKSHARES, INC.
The following analysis of the Company's financial condition and the
results of operations for the years ended December 31, 1997, 1996, and 1995
should be read in conjunction with the unaudited Consolidated Financial
Statements of the Company and notes thereto, and information presented elsewhere
herein. Average balance sheet data is based on average daily balances
outstanding for the period.
General
The Company's consolidated financial statements show its financial
condition and information on a consolidated basis. The Company has two operating
units. The primary operation is the Bank; however, SBT Mortgage, LLC that is
owned 50% by Company is also included in the consolidated statements. The
differences between the Company's financial condition and results of operation
and those of the Bank have historically consisted solely of the short-term notes
payable of the Company.
- 52 -
<PAGE>
Net Interest Income
For most financial institutions the primary component of earnings is net
interest income. Net interest income is the difference between interest income
principally from loan and investment securities portfolios and interest expense,
principally on customer deposits and borrowings. Changes in net interest income
result from changes in volume, spread, and margin. Volume refers to the average
dollar level of interest earning assets and interest bearing liabilities. Spread
refers to the difference between the average yield on interest earning assets
and the average cost of interest bearing liabilities. Margin refers to net
interest income divided by average interest earning assets and is influenced by
the level and relative mix of interest earning assets and interest earning
liabilities. During the fiscal years ended December 31, 1997, 1996, and 1995,
average interest earning assets were $67.2 million, $55.7 million and $32.6
million respectively. During the same periods, net interest margin was 6.7%,
6.56%, and 6.83% respectively.
The following table sets forth for the periods indicated average balances
of assets and liabilities as well as the total dollar amounts of interest income
from interest earning assets and interest expense on interest bearing
liabilities, resultant yields or costs, net interest income, net interest
spread, and net interest margin.
- 53 -
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------- -------------------------------
(Dollars in thousands)
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Securities - Taxable............................... $16,390 $1,068 6.52% $12,810 $ 797 6.22%
Securities - Nontaxable............................ 4,191 200 4.77% 4,005 192 4.79%
Federal Funds Sold................................. 2,009 112 5.57% 4,658 249 5.35%
Other investments.................................. 284 20 7.04% 229 22 9.61%
Loans.............................................. 44,861 4,745 10.58% 34,476 3,727 10.81%
Less allowance for loan losses..................... (556) (449)
Less unrealized loss on securities
available for sale............................... 0 (18)
------- ------ ------ ------- ------ ------
Total interest-earning assets...................... 67,179 6,145 9.15% 55,711 4,987 8.95%
Noninterest earning assets......................... 8,425 5,748
Total Assets....................................... 75,603 6,145 8.13% 61,477 4,987 8.11%
LIABILITIES
Interest-bearing DDA............................... 11,391 181 1.59% 10,803 189 1.75%
MMDA............................................... 21,436 821 3.82% 16,031 599 3.74%
Savings............................................ 2,392 65 2.72% 2,523 73 2.89%
Time Deposits $100,000 & over...................... 3,370 178 5.28% 2,367 119 5.02%
Other time deposits................................ 3,379 171 5,06% 3,235 162 5.01%
------- ----- ----- ------- ----- -----
Total Interest-bearing deposits.................... 41,968 1,416 3.37% 34,959 1,142 3.27%
Notes Payable...................................... 941 80 8.50% 1,153 98 8.5%
Other Borrowings................................... 3,314 165 4.98% 1,879 90 4.79%
Total interest-bearing liabilities................. 46,223 1,661 3.59% 37,991 1,330 3.5%
Non-interest bearing DDA........................... 25,059 0 0% 20,058 0 0%
------- ------ ------ ------- ------ -----
Total Deposits and Interest-Bearing Liabilities.... $71,282 $1,661 2.33% $58,249 $1,330 2.28%
Net Interest Income................................ 4,484 3,657
Interest Rate Spread............................... 5.56% 5.45%
Net Interest Rate Margin .......................... 6.67% 6.56%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
Average Average
Balance Interest Rate
------- -------- ----
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Securities - Taxable............................... $11,727 $ 746 6.31%
Securities - Nontaxable............................ 2,806 133 4.74%
Federal Funds Sold................................. 2,520 149 5.91%
Other investments.................................. 208 13 6.25%
Loans.............................................. 25,803 2,900 11.23%
Less allowance for loan losses..................... (345)
Less unrealized loss on securities
available for sale............................... (82)
-------- ------ ------
Total interest-earning assets...................... 42,637 3,935 9.23%
Noninterest earning assets......................... 4,264
Total Assets....................................... 46,901 3,935 8.39%
LIABILITIES
Interest-bearing DDA............................... 9,418 177 1.88%
MMDA............................................... 11,055 371 3.36%
Savings............................................ 2,312 66 2.85%
Time Deposits $100,000 & over...................... 1,412 77 5.45%
Other time deposits................................ 2,748 119 4.33%
-------- ----- ------
Total Interest-bearing deposits.................... 26,945 810 3.01%
Notes Payable...................................... 1,270 112 8.82%
Other Borrowings................................... 1,878 100 5.32%
Total interest-bearing liabilities................. 30,093 1,022 3.40%
Non-interest bearing DDA........................... 14,214 0 0%
-------- ------ ------
Total Deposits and Interest-Bearing Liabilities.... $44,307 $1,022 2.31%
Net Interest Income................................ 2,913
Interest Rate Spread............................... 5.83%
Net Interest Rate Margin .......................... 6.83%
</TABLE>
- 54 -
<PAGE>
The following table illustrates the changes in the net interest income due
to changes in volume and changes in interest rate. Changes attributable to the
combined effect of volume and interest rate have been allocated proportionately
to the change due to volume and the change due to interest rate.
<TABLE>
<CAPTION>
December 31, December 31,
1997 over 1996 1996 over 1995
-------------- --------------
(Dollars in thousands)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Securities- Taxable........................... $ 233 $38 $ 271 $ 67 $ 10 $ 57
Securities-Nontaxable......................... 9 1 8 57 2 59
Federal Funds Sold............................ 146 9 137 114 14 100
Other investments............................. 6 8 2 2 7 9
Loans......................................... 1,113 95 1,018 938 111 827
------ --- ------ ------ ---- ------
Total interest income......................... 1,215 57 1,158 1,178 126 1,052
Interest-bearing liabilities
Interest-bearing DDA.......................... 9 17 8 24 12 12
MMDA.......................................... 209 13 222 186 42 228
Savings accounts.............................. 4 4 8 6 1 7
Time deposits $100,000 and over............... 53 6 59 48 6 42
Other time deposits........................... 7 2 9 24 19 43
------ --- ------ ------ ---- ------
Total deposit interest expenses............... 274 0 274 288 44 332
Notes payable................................. 18 0 18 10 4 14
Other borrowings.............................. 72 3 75 0 10 10
Total interest-bearing liability expense...... 328 3 331 278 30 308
------ --- ------ ------ ---- ------
Net interest income........................... $ 887 $60 $ 827 $ 900 $156 $ 744
</TABLE>
- 55-
<PAGE>
Results of Operations
Years ended December 31, 1997, December 31, 1996, and December 31, 1995
Overview. Net interest income increased $827,000 in 1997 over 1996; this
followed an increase in 1996 of $744,000 over 1995. Interest income grew at an
annual rate of 23% in 1997 versus a 27% increase experienced in 1996. Over the
same period, interest expense increased at 25% for 1997 and 30% in 1996.
Non-interest income continued to grow in 1997, at the rate of 39%, compared to a
17% increase the previous year. Non-interest expenses grew somewhat less in
1997, at 29% following an 18% increase the previous year. Income tax expense for
the three-year period totaled $606,000 in 1997, $454,000 in 1996 and $354,000 in
1995. The respective percentages of income before tax were 32%, 28%, and 29%.
The resulting return on average assets and return on average equity after all of
the above factors were considered, were 1.71%, and 33.11% for 1997, 1.88 and
35.17% for 1996, and 1.81% and 34.72% for 1995.
Interest and Fee Income
Interest income increased from $4,987,000 in 1996 to $6,145,000 in 1997 or
an increase of $1,158,000 or 23%. Interest income increased $1,052,000 between
1995 and 1996, which represented a 27% increase. Interest income on loans made
up the vast majority of the growth in interest income in 1997 with a 27%
increase representing $1,018,000. In 1996 the growth rate was somewhat smaller
at 22% or $827,000. Interest income on securities, fed funds sold, and other
investments increased in 1997 by 11% from $1,260,000 in 1996 to $1,400,000 in
1997. In 1996 interest income increased $219,000 or 21% over interest income in
1995. The increase in interest income from loans was primarily the result of
larger volume. Interest rates remain relatively stable during 1997 and most of
1996. The same was true for securities, in that the vast majority of the
increase in income was the result of volume. Interest income from fed funds and
other overnight investments declined as a percent of this category due to a
smaller volume within their group.
Interest Expense
Interest expense in 1997 increased by $331,000 over 1996, which had grown
$308,000 over 1995. The respective percentage increases over these two periods
were 25% and 30% growth rates. Interest expense on deposits were again the large
majority of the growth, with $275,000 of the increase in 1997 and $330,000 in
1996 represented by deposits. The difference between the increase in interest
paid on deposits and the overall increase in interest expense represents
additional interest paid on borrowed funds. The majority of this interest
expense was due to higher volume in the repurchase agreement category. Also
included in the category is the interest expense on notes payable, which
actually declined in 1997 by $18,000 due to a smaller debt level.
Net Interest Income
Net interest income increased $827,000 in 1997 versus an increase in 1996
of $744,000. The increase in 1997 represented a 23% move versus a 25% move
between 1995 and 1996. The increase in both years reflects generally the
increasing volume of earning assets, primarily represented by loans. Average
loans outstanding increased by $10,278,000 or 30% in 1997 versus $8,569,000 or
34% in 1996. Securities grew also 22% in 1997 and 16% in 1996; however, such
growth was from a much smaller base and did not impact the net interest income
nearly as significantly as the growth in loans. Both interest rate spread and
net interest margin increased in 1997 over 1996 with 1997 showing a spread of
5.56% versus a 5.45% spread in 1996 and a 5.83% spread in 1995. Net interest
margin or the net interest income divided by average interest earning assets,
also increased in 1997 to 6.67% versus a 6.56% in 1996 and a 6.83% in 1995. The
higher spread and margin rates for 1995 are reflective of an overall lower cost
- 56 -
<PAGE>
of deposits than has been experienced since that time and also a slightly higher
average rate of return on interest-earning assets. Understanding the differences
brought about by the change in asset and deposit mix as well as interest rates
over the last three years, it is still apparent that the majority of increase in
dollars of net interest income are the result of growth in the asset and more
particularly the loan category.
Non-Interest Income
Non-interest income increased by 39% in 1997 from $479,000 in 1996 to
$667,000; this follows a 17% increase in 1996 over 1995. The largest factor in
the increase in 1997 was an increase in fees received from the sale of
non-deposit products, including investments and account receivable financing. In
addition, $36,000 was recognized in 1997 as income from a gain on the sale of
investment securities.
Non-Interest Expense
Non-interest expense grew somewhat more slowly than non-interest income in
1997, showing a growth of $697,000 or 29% growth over 1996 figures of $379,000
which represented 18% growth over 1995. The largest factors affecting the growth
in 1997 was a $223,000 increase in personnel expense, a $101,000 increase in
occupancy and fixed asset expense, and a $307,000 increase in the
miscellaneous/other expense category which includes telephone, data processing,
supplies and various other miscellaneous expenses. Much of the increase in this
category can be attributed to a new telephone system and a new computer network
within the Bank as well as construction expenses recognized during the
construction phase of the Bank's first branch, which subsequently opened in
January 1998. Over 60% of the increase in non-interest expenses between 1995 and
1996 was the result of increased personnel cost, primarily, the result of
additional personnel and increased benefit cost.
Allowance for Loan Losses
The Bank's allowance for loan losses in 1997 was $120,000, 33% higher than
in 1996, when it was $90,000; the allowance in 1995 was $60,000. These increases
have been reflective of a rapidly increasing loan portfolio as opposed to
deterioration in the loan quality. The amounts contributed through the provision
to the reserve for loan loss show up in the year end reserves which totaled
$615,000 at the end of 1997, a $118,000 increase over the $497,000 figure at the
end of 1996. The reserve totaled $418,000 at the end of 1995. The funds held in
the reserve for loan loss reflect a more than adequate coverage for
non-performing loans, ranging from 1,672% coverage at the end of 1995 to over
200% coverage at the end of 1997.
Income Taxes
Income taxes totaled $606,000 in 1997, representing 32% of income before
taxes. In 1996 the total was $454,000 or 28% and $354,000 or 29% in 1995. The
principal reason for the increased percentage of income being paid in taxes is
the result of a reduction in the percentage of municipal securities which the
Bank held in its investment portfolio.
Liquidity and Sources of Funds
The Company's primary sources of funds are customer deposits, sales and
maturities of investment securities, loan repayments and an increase on
borrowings of notes payable. These funds are used to make loans, to acquire
investment securities and other assets, to fund fixed asset purchases, and fund
other operations of the Company. During 1997 deposits increased by $10,991,000,
reflecting an annual growth rate of 16%. Growth rate of deposits was 45% in
calendar year 1996, growing from $46,080,000 at the end of 1995 to $66,983,000
- 57 -
<PAGE>
at the end of 1996. Increases in both years were the result of several factors,
including a strong local and national economy, the addition of senior managers
from other local institutions who were successful at retaining their clients,
and the level of acceptance in the market of the Bank's small business
orientation. Notes payable increased between year-end 1995 and 1996 by $25,000
but then decreased by $675,000 by year end 1997.
Management anticipates that the Company will continue to rely primarily on
customer deposits, sale of investment securities, loan payoffs, as well as
earnings to provide liquidity that will in turn be used to extend new loans and
to invest in other securities. The Company's strong history of a high percentage
of core deposits has consistently provided a strong source of liquidity and is
anticipated to continue. Brokered funds have never been utilized for liquidity
purposes and their use is not anticipated. Short-term liquidity needs have been
met through the purchase of fed funds, Federal Home Loan Bank borrowings or
Federal Reserve window debt. Periods of borrowing have been infrequent and
typically seasonal in nature, primarily in the first quarter of the year.
Capital Resources
The Company's total stockholders equity increased to $4,811,000 as of the
end of 1997 from $3,898,000 at the end of 1996, for an increase of $913,000 or
23%. An increase of 28% was realized in 1996 when capital increased by $847,000
over year-end 1995. The capital increases in both time periods were the result
of the earnings of the Bank less debt service of the Company. The ratio of
ending equity to ending total assets of the Company was 5.58% in 1997 versus
5.21% in 1996. Dividends have never been paid to stockholders of the Company.
The Company and the Bank currently exceed applicable regulatory capital
requirements. Federal Reserve Board guidelines call for a 4% Tier 1 capital to
risk-weighted asset ratio, 8% total capital to risk-weighted asset ratio, and a
5% leverage ratio. The following table sets forth the Bank's capital ratios at
December 31, 1997.
Tier 1 Capital $ 5,452,000
Total Capital $ 6,067,000
Risk Weighted Assets $59,986,000
Tier 1 Capital to Risk-Weighted Assets 9.1%
Total Capital to Risk-Weighted Assets 10.1%
Leverage Ratio 6.3%
Effects of Inflation and Changing Prices
The primary effect of inflation on the Company's operation would be the
effect it has on operating costs as well as the potential for increasing
interest rates. Increasing inflation has historically increased interest rates,
which in previous high interest rate environments has resulted in higher margins
for the Company. Light to moderate inflation would be likely to result in
increased earnings for the Bank while extreme inflation and the impact it has on
operating costs would be less beneficial to operations. An indirect result of
inflation could be faster growth of assets in the bank and a larger demand put
on capital.
New Accounting Principles
No significant change is currently anticipated in accounting principles
which would have any material impact on financial statements of either the
Company or the Bank.
- 58 -
<PAGE>
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
OF ZIONS AND THE COMPANY
General
Upon consummation of the Reorganization, shareholders of the Company, a
Colorado corporation, will become shareholders of Zions, a Utah corporation.
Thus, the Utah Revised Business Corporation Act and Zions' Articles of
Incorporation ("Articles") and Bylaws will govern the rights of the Company
shareholders who become Zions shareholders. In addition, since the Articles and
Bylaws of Zions and the Company are not the same, the Reorganization will result
in certain differences in the rights of the holders of Company Common Stock.
Following is a summary of certain significant differences.
General. Zions' Articles have authorized Zions to issue a total of
103,000,000 shares of capital stock, divided into two classes: 100,000,000
shares of common stock, without par value ("Zions Common Stock"), and 3,000,000
shares of preferred stock, without par value. Zions' Board of Directors has
proposed that Zions shareholders consider and vote on a proposal at the Zions
annual meeting of shareholders to be held on April 24, 1998 to amend Zions'
Articles to increase the number of authorized shares of Zions Common Stock from
100,000,000 to 200,000,000. The Company's Articles of Incorporation have
authorized the Company to issue 200,000 shares of Common Stock, with par value
of $5.00 per share ("Company Common Stock"). Each holder of Company Common Stock
is entitled to one vote for each share held on all matters submitted to the
shareholders for a vote. Holders of a majority of the voting power of the
Company constitute a quorum for the transaction of business. Each holder of
Zions Common Stock is generally entitled to one vote for each share held of
record on all matters submitted to a shareholder vote, and holders of a majority
of the outstanding shares of Zions Common Stock constitute a quorum for the
transaction of business.
Cumulative Voting. Zions shareholders do not have cumulative voting rights
in the election of directors. The holders of Company Common Stock have
cumulative voting rights in the election of directors. The absence of cumulative
voting means that a nominee for director must receive the votes of a plurality
of the shares voted in order to be elected. Possession of cumulative voting
rights means that in the election of directors a shareholder will have total
votes equal to his or her number of shares multiplied by the number of directors
being elected and the shareholder will have the right to cast all of his or her
votes for one candidate or distribute his or her votes among two or more of the
candidates for director in whatever proportion the shareholder determines. If
there are more candidates for election than director slots available to be
filled, those persons receiving the most votes will be elected as directors.
Anti-takeover Matters
Utah and Colorado Law. Utah's only anti-takeover statute is the Control
Shares Acquisitions Act, which is discussed below. Colorado law, on the other
hand, does not include any anti-takeover statutes.
Utah law provides that the voting rights to be accorded Control Shares (as
defined below) of a Utah corporation that has (i) one hundred or more
shareholders, (ii) its principal place of business, its principal office, or
substantial assets in Utah, and (iii) either (a) more than 10% of its
shareholders reside in Utah, (b) more than 10% of its shares owned by Utah
residents, or (c) 10,000 shareholders residing in Utah, must be approved by a
majority of each class of voting securities of the corporation, excluding those
shares held by interested persons, before the Control Shares will be granted any
voting rights.
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"Control Shares" are defined under Utah law to be shares acquired by a
person, either directly or indirectly, that when added to all other shares of
the issuing corporation owned by such a person, would entitle such person to
exercise, either directly or indirectly, voting power of 20% or more of all
voting power of the corporation's voting securities. Such provisions do not
apply to shares acquired pursuant to, among other things, an agreement or plan
of merger or share exchange effected in compliance with the relevant provisions
of Utah's Revised Business Corporation Act and to which the corporation is a
party or an acquisition of shares previously approved by the board of directors
of the corporation.
In addition, unless otherwise provided in a corporation's articles of
incorporation or bylaws, in the event Control Shares acquired in a control share
acquisition are accorded full voting rights and the acquiring person has
acquired Control Shares with a majority or more of all voting power, all
shareholders of the issuing public corporation will have dissenters' rights.
Special Votes for Certain Transactions. The Articles of Zions contain
provisions requiring special shareholder votes to approve certain types of
transactions. In the absence of these provisions, either the transactions would
require approval by a majority of the shares voted at a meeting or no
shareholder vote would be required.
Zions' Articles require that certain "business transactions" between Zions
or a subsidiary and a "related person" be approved by the affirmative votes of
the holders of not less than 80 percent of the voting power of all outstanding
voting stock of Zions. A "related person" is generally defined by Zions'
Articles to mean a person, corporation, partnership, or group acting in concert
that beneficially owns 10 percent or more of the voting power of Zions'
outstanding voting stock.
The "business transactions" with a "related person" which are subject to
Zions' special vote requirements include (1) a merger or consolidation involving
Zions or a subsidiary of Zions with a related person; (2) the sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of either Zions or a subsidiary of Zions to, with or for the benefit of a
related person; (3) the issuance, sale, exchange or other disposition by Zions
or a subsidiary of Zions to a related person of securities of Zions or a
subsidiary of Zions having an aggregate fair market value of $5 million or more;
(4) any liquidation, spinoff, splitoff, splitup, or dissolution of Zions by or
on behalf of a related person; (5) any recapitalization or reclassification of
the securities of Zions or other transaction that would have the effect of
increasing the voting power of a related person or reducing the number of shares
of each class of voting securities outstanding; and (6) any agreement, contract,
or other arrangement providing for any of the transactions set forth above.
Zions' special shareholder vote requirements for business transactions
with related persons do not apply to any transaction approved by a majority of
the continuing directors, or if various specified conditions are met. A
continuing director is any member of the Zions Board who is not a related person
or an interested shareholder or an affiliate or associate of a related person
and who (1) was a director on February 21, 1986 or (2) became a director
subsequent to that date and whose election or nomination for election by Zions'
shareholders was approved by a majority of the continuing directors then on the
Board.
The Company's Articles contain a similar special shareholder voting
provision whereby the affirmative vote of 80 percent of all votes entitled to be
cast shall be required to approve and authorize the following acts of the
Company: (1) amendment of the Articles of Incorporation; (2) a merger or
consolidation of the Company; (3) the sale, lease, exchange or other transfer of
all, or substantially all, of the property and assets of the Company; and (4)
the voluntary or involuntary liquidation, dissolution or winding up of or
revocation of any such proceedings relating to the Company.
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Shareholder Rights Plan
The Board of Directors of Zions in September 1996 adopted a Shareholder
Protection Rights Plan and declared a dividend of one Right on each outstanding
share of Zions Common Stock. The Rights Plan was not adopted in response to any
specific effort to acquire control of Zions. Rather, it was adopted to deter
abusive takeover tactics that can be used to deprive shareholders of the full
value of their investment.
Until it is announced that a person or group has acquired 10 percent or
more of Zions Common Stock (an "Acquiring Person") or commenced a tender offer
that will result in such person or group owning 10 percent or more of Zions
Common Stock, the Rights will be evidenced by the Common Stock certificates,
will automatically trade with the Common Stock and will not be exercisable.
Thereafter, separate Rights certificates will be distributed and each Right will
entitle its holder to purchase Participating Preferred Stock having economic and
voting terms similar to those of Zions Common Stock for an exercise price of
$90.00.
Upon announcement that any person or group has become an Acquiring Person,
then 10 days thereafter (or such earlier or later date as the Board may decide)
(the "Flip-in Date") each Right (other than Rights beneficially owned by any
Acquiring Person or transferees thereof, which Rights become void) will entitle
its holder to purchase, for the exercise price, a number of shares of Zions
Common Stock or Participating Preferred Stock having a market value of twice the
exercise price.
Also, if after an Acquiring Person controls Zions' Board of Directors
Zions is involved in a merger or sells more than 50 percent of its assets or
earning power (or has entered an agreement to do any of the foregoing) and, in
the case of a merger, the Acquiring Person will receive different treatment than
all other shareholders or the person with whom the merger occurs is the
Acquiring Person or a person affiliated or associated with the Acquiring Person,
each Right will entitle its holder to purchase, for the exercise price, a number
of shares of common stock of the Acquiring Person having a market value of twice
the exercise price. If any person or group acquires between 10 percent and 50
percent of the Zions Common Stock, Zions' Board of Directors may, at its option,
exchange one share of Zions Common Stock for each Right.
The Rights may be redeemed by the Board of Directors for $0.01 per Right
prior to the Flip-in Date.
The Company has no shareholder rights plan.
Board of Directors
Director Liability and Indemnification. Zions' Articles contain a
"director liability" provision. The provision generally shields a director from
monetary damages to Zions or its shareholders for a breach of fiduciary duty as
a director other than (i) a breach of a director's duty of loyalty, (ii) acts or
omissions not taken in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) authorizing the unlawful payment of dividends,
and (iv) transactions in which a director receives an improper benefit.
The Company's Articles contain a similar director liability provision. The
Company's Articles further provide that personal liability of a director of the
Company shall be eliminated to the greatest extent possible under the law.
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The Company's Bylaws provide that the Company may indemnify a director or
officer against expenses incurred in any proceeding to which he may be a party
by reason of his being or having been a director or officer of the Company,
except as limited or prohibited by Section 18 of the Federal Deposit Insurance
Act.
By resolutions dated December 18, 1997, the boards of directors of the
Company and the Bank, respectively, provided that the Company and the Bank, to
the fullest extent permitted by applicable law, shall indemnify its respective
then current officers and directors against all loss and expense which any of
such persons may suffer or incur by reason of any action or omission by such
person acting in the capacity of an officer or director of the Company or the
Bank, respectively. The resolutions provide that the obligations arising from
such respective resolutions are contractual in nature and that such obligations
may not be altered, revoked, rescinded, or terminated without the consent of
such officer or director.
Classified Board. Zions' Articles divide the Board of Directors into three
classes, each consisting of one-third (or as near as may be) of the whole number
of directors. Utah law requires that each class contain as equal a number of
directors as possible. One class of directors is elected at each annual meeting
of shareholders, and each class serves for a term of three years.
The number of directors which constitute Zions' full Board of Directors
may be increased or decreased only by amendment of the Bylaws, which requires
the affirmative vote of two-thirds of the total number of directors constituting
the entire Board, or by the shareholders of Zions at a regular or special
meeting by the affirmative vote of two-thirds of the outstanding and issued
shares entitled by statute to vote. Except as otherwise required by law,
vacancies on Zions' Board of Directors, including vacancies resulting from an
increase in the size of the Board, may be filled by the affirmative vote of a
majority of the remaining directors even though less than a quorum of the Board
of Directors. Zions' directors elected by the Board to fill vacancies serve for
the full remainder of the term of the class to which they have been elected. Any
directorship filled by reason of an increase in the number of directors may be
filled for a term of office continuing only until the next election of directors
by the shareholders.
The Company's Articles provide for a similar classified Board of
Directors, whereby the Board of Directors is divided into three classes, as
nearly equal in number as possible. One class of directors is elected at each
annual meeting of shareholders, and each class serves for a term of three years,
so that the term of office of one class of directors shall expire in each year.
The number of directors which constitute the Company's full Board of Directors
may be not less than five nor more than ten. Vacancies on the Company's Board of
Directors, including vacancies resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled by a majority vote of the remaining directors, though
less than a quorum. A director elected by the Board to fill a vacancy serves for
a term expiring at the next annual meeting of shareholders, at which time a
successor director shall be elected.
Removal of Directors. Zions' Articles provide that any director (or the
entire Board of Directors) may be removed from office by shareholder vote only
if such removal is approved by the holders of two-thirds of the issued and
outstanding shares then entitled to vote at an election of directors.
The Company's Articles provide that the shareholders may remove directors
at a meeting called for the express purpose of removing directors, by an 80%
vote of the outstanding shares entitled to vote at an election of directors,
only for cause.
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Special Shareholders' Meetings
Utah law provides that special meetings of a corporation's shareholders
may be called by the Board of Directors or such other persons authorized by the
bylaws to call a special meeting or by the holders of at least 10 percent of all
the votes entitled to be cast on any issue proposed to be considered at the
special meeting. Under Zions' Bylaws, special meetings may be called by the
President or by the Board of Directors.
The Company's Bylaws permit special meetings to be called at any time by
the President or by the Board of Directors and shall be called by the President
or Secretary upon the request of the holders of not less than 51 percent of the
outstanding shares entitled to vote on the subject matter for which the meeting
is called.
Amendment of Articles and Bylaws
Zions' Articles require the affirmative votes of the holders of two-thirds
of all outstanding voting stock of Zions to approve certain amendments to Zions'
Articles, except that to repeal or amend the provisions in the Articles
regarding business transactions with related persons requires the affirmative
vote of 80% of the issued and outstanding stock entitled to vote. Zions' Bylaws
may be amended by an affirmative vote of two-thirds of the total number of
directors constituting the entire Board or by the affirmative vote of two-thirds
of the issued and outstanding shares entitled to vote.
The Company's Articles provide that the Articles may be amended by the
affirmative vote of 80% of all votes entitled to be cast on the matter. The
Company's Bylaws may be amended by the affirmative vote of a majority of a
quorum of the members of the Board of Directors at any regular or special
meeting.
Dissenters' Rights
Zions is incorporated under the laws of Utah. Utah law provides for
dissenters' rights in a variety of transactions including: (i) consummation of
any plan of merger to which a corporation is a party (other than mergers or
consolidations not requiring a shareholder vote); (ii) consummation of certain
sales, leases, exchanges or other dispositions of all or substantially all of
the assets of a corporation; and (iii) consummation of certain share exchanges.
However, shareholders of a Utah business corporation are not entitled to
dissenters' rights in any of the transactions mentioned above if their stock is
either listed on a national securities exchange or on the NASDAQ-NMS or held of
record by 2,000 or more shareholders. The aforementioned provisions do not apply
if the shareholder will receive for his shares anything except (a) shares of the
corporation surviving the consummation of the plan of merger or share exchange,
(b) shares of a corporation whose shares are listed on a national securities
exchange or the NASDAQ-NMS or held of record by not less than 2,000 holders, or
(c) cash in lieu of fractional shares. Zions Common Stock currently is listed
for trading in the NASDAQ-NMS and has more than 2,000 shareholders of record.
The Company is incorporated under Colorado law. Colorado law provides for
dissenters' rights to any shareholder of a Colorado corporation in the event of
any of the following corporate actions: (i) consummation of a merger to which
the corporation is a party if approval by the shareholders is required for the
merger;(ii) consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired; (iii) consummation of
a disposition of all or substantially all of the property of the corporation for
which a shareholder vote is required; (iv) consummation of a disposition of all
or substantially all of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to such disposition; or (v) in the event of any corporate action
to the extent provided by the bylaws or a board resolution. Colorado law
regarding dissenters' rights contains the same provisions as Utah law described
in the third sentence of the previous paragraph. See "Plan of Reorganization--
Rights of Dissenting Shareholders" for a more detailed discussion of dissenters'
rights under Colorado law.
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Preemptive Rights
Holders of Zions Common Stock do not have the preemptive right to purchase
unissued or treasury shares of Zions Common Stock or any other securities of
Zions in the event of an issuance of Zions Common Stock or such other
securities.
The Company's Articles provide that holders of Company Common Stock have
the preemptive right to acquire on a proportionate basis additional shares of
Company Common Stock or rights, privileges, warrants or options to purchase
Company Common Stock, or for securities or obligations of any kind convertible
into Company Common Stock, now or hereafter authorized.
Preferred Stock
Zions' Articles authorize Zions to issue up to 3,000,000 shares of Zions
preferred stock, no par value.
The authorized shares of preferred stock are issuable in one or more
series on the terms set by the resolution or resolutions of the Board of
Directors of Zions providing for the issuance thereof. Each series of preferred
stock would have such dividend rate, which might or might not be cumulative,
such voting rights, which might be general or special, and such liquidation
preferences, redemption and sinking funds provisions, conversion rights or other
rights and preferences, if any, as the Board of Directors may determine. Except
for such rights as may be granted to the holders of any series of preferred
stock in the resolution establishing such series or as required by law, all of
the voting and other rights of the shareholders of Zions belong exclusively to
the holders of common stock.
Zions has reserved 160,000 shares of Participating Preferred Stock for
issuance upon exercise of the Rights under Zions' Shareholder Rights Plan.
The Company's Articles authorize the Company to issue up to 200,000 shares
of preferred stock upon such terms as the Board of Directors may authorize. The
authorized shares of preferred stock are issuable in one or more series on the
terms set by the Board of Directors of the Company. The Board of Directors may
determine the designations, preferences, limitations and relative rights of the
preferred stock and any series thereof. No shares of preferred stock are issued
and outstanding.
Dividend Rights
Utah law generally allows a corporation, subject to restrictions in its
articles of incorporation, to declare and pay dividends in cash or property, but
only if the corporation is solvent and payment would not render the corporation
insolvent. Zions' Articles place no further restrictions on distributions. Thus,
the holders of Zions Common Stock are entitled to dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
However, if Zions preferred stock is issued, the Board of Directors of Zions may
grant preferential dividend rights to the holders of such stock which would
prohibit payment of dividends on Zions Common Stock unless and until specified
dividends on the preferred stock have been paid.
Colorado law generally allows a corporation to make distributions to its
shareholders in cash, property or its own shares. However, no distribution may
be made if, after giving it effect: (i) the corporation would not be able to pay
its debts as they become due in the usual course of business; or (ii) except as
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otherwise specifically allowed by the corporation's articles of incorporation,
the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Neither the Company's Articles nor Bylaws contain
any other specific allowance. Thus, holders of Company Common Stock are entitled
to distributions when, as and if declared by the Board of Directors out of funds
legally available therefor.
Liquidation Rights
Upon liquidation, dissolution or winding up of Zions, whether voluntary or
involuntary, the holders of Zions Common Stock are entitled to share ratably in
the assets of the corporation available for distribution after all liabilities
of the corporation have been satisfied. However, if preferred stock is issued by
Zions, the Board of Directors may grant preferential liquidation rights to the
holders of such stock which would entitle them to be paid out of the assets of
Zions available for distribution before any distribution is made to the holders
of Zions Common Stock.
Upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Company Common Stock are entitled to
share ratably in the assets of the corporation available for distribution after
all liabilities of the corporation have been satisfied.
Miscellaneous
There are no sinking fund provisions, conversion rights, or redemption
provisions applicable to Zions Common Stock or to Company Common Stock. Holders
of fully paid shares of Zions Common Stock and Company Common Stock are not
subject to any liability for further calls or assessments.
LEGAL OPINIONS
An opinion with respect to certain legal matters in connection with the
Reorganization will be rendered by Duane, Morris & Heckscher LLP, Washington,
D.C., as counsel for Zions, and by McKenna & Cuneo, L.L.P., Denver, Colorado, as
counsel for the Company.
EXPERTS
The consolidated financial statements of Zions as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, incorporated by reference herein have been incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick, LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of such firm as experts in auditing and accounting.
The balance sheets at December 31, 1997 and 1996 and the related
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1997, 1996 and 1995 for Sumitomo Bank of California
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report (dated January 16, 1998) with respect thereto, and
have been incorporated by reference herein in reliance upon the report of said
firm, and upon the authority of such firm as experts in accounting and auditing.
OTHER MATTERS
In addition to solicitation by mail, directors, officers and employees of
the Company may solicit Proxies from the shareholders of the Company in person
or by telephone or otherwise for no additional compensation. The Company will
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pay all expenses in connection with the printing and solicitation of Proxies for
the Special Meeting. Zions will pay for all costs attributable to registering
the Zions Common Stock under applicable federal and state law. See "Plan of
Reorganization--Expenses."
The Company's principal accountants are not expected to be present at the
Special Meeting.
The management of the Company does not know of any other matters intended
to be presented for shareholder action at the Special Meeting. If any other
matter does properly come before the Special Meeting and is put to a shareholder
vote, the proxies solicited hereby will be voted in accordance with the judgment
of the proxyholders named thereon.
By Order of the Board of Directors
April 30, 1998 --------------------------------------
John G. Jackson, President
SBT Bankshares, Inc.
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SBT FINANCIAL STATEMENTS
The following financial statements have not been audited; to audit such
statements would be impractical.
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SBT Bankshares, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 9,071 $ 5,854 $ 3,365 $ 3,117 $ 1,913
Fed funds sold 4,600 2,500 4,800 2,600 1,000
Investment Securities
Held to maturity 7,664 6,634 4,704 4,899 5,211
Available for sale 9,172 19,157 9,564 12,603 8,517
Loans 53,834 39,634 28,969 23,020 19,909
Less:
Unearned income & fees 246 194 204 198 211
Allowance for loan losses 615 497 418 315 254
------- ------- ------- ------- -------
Net loans 52,973 38,943 28,347 22,507 19,444
Premises and equipment 1,720 897 903 901 501
Other real estate owned 0 0 9 29 208
Other assets 977 787 517 611 344
------- ------- ------- ------- -------
Total assets $86,177 $74,772 $52,209 $47,267 $37,138
======= ======= ======= ======== =======
Liabilities and stockholder's equity
Deposits:
Noninterest-bearing $34,356 $24,658 $18,677 $14,389 $ 8,166
Interest-bearing
Savings & money market 36,668 36,083 23,011 25,000 19,471
Time:
Under $100,000 3,400 3,361 3,166 2,315 2,607
Over $100,000 3,550 2,881 1,226 913 503
------- ------- ------- -------- -------
Total deposits 77,974 66,983 46,080 42,617 30,747
Security repurchase agreements 2,474 2,590 1,219 1,062 3,752
Accrued liabilities 418 126 209 104 318
FHLB advances 0 0 500 0 0
Notes payable 500 1,175 1,150 1,200 0
Shareholder's equity:
Common stock 1,312 1,252 1,274 1,136 1,566
Retained earnings 3,484 2,644 1,766 1,374 772
Unrealized gains (losses) 15 2 11 (226) (17)
------- ------- ------- ------- ------
Total equity 4,811 3,898 3,051 2,284 2,321
Total liabilities and equity $86,177 $74,772 $52,209 $47,267 $37,138
======= ======= ======= ======== =======
</TABLE>
*1993 is Bank only, Holding Company formed in 1994.
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SBT Bankshares, Inc.
Consolidated Statement of Income
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993*
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $4,745 $3,727 $2,900 $2,133 $1,603
Interest on over night funds 112 257 154 113 97
Interest on securities 1,288 1,003 881 821 474
------ ------ ------- ------- ------
Total interest income 6,145 4,987 3,935 3,067 2,174
Interest expense:
Interest on savings and transaction 1,067 861 615 524 392
Interest on time deposits 349 281 196 113 120
Interest on borrowed funds 245 189 211 91 45
------ ------ ------- ------- ------
Total interest expense 1,661 1,330 1,022 728 557
------ ------ ------- ------- ------
Net interest income 4,484 3,657 2,913 2,339 1,617
Provision for loan losses 120 90 60 24 (94)
------ ------ ------- ------- --------
Net interest income after provision 4,364 3,567 2,853 2,315 1,711
Non-interest income:
Service charges on deposits 225 233 223 213 231
Other service charges and fees 264 89 66 54 43
Investment securities gain (loss), net 60 24 (4) (110) (19)
Other income 118 133 125 165 455
------ ------ ------- ------- ------
Total non-interest income 667 479 410 322 710
Non-interest expense:
Salaries and benefits 1,372 1,149 919 761 673
Occupancy, net 400 337 312 281 245
Furniture and equipment 190 152 110 129 113
OREO Expense 0 1 2 1 14
Legal and professional 114 42 74 77 62
Supplies 43 62 54 45 44
Postage 38 35 30 25 23
Advertising 27 21 3 8 23
FDIC Premiums 7 2 47 72 60
Other expenses 945 638 509 436 312
------ ------ ------- ------- ------
Total non-interest expense 3,136 2,439 2,060 1,837 1,569
Income before taxes 1,895 1,607 1,203 800 850
Income taxes 606 454 354 238 252
------ ------ ------- ------- ------
Net income $1,289 $1,153 $ 849 $ 562 $ 598
====== ====== ======= ======= ======
</TABLE>
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APPENDIX A
McKenna & Cuneo, L.L.P
Attorneys at Law
444 South Flower Street
Los Angeles, CA 90071-2901
213-688-1000 o Fax: 213-243-6330
April 22, 1998
SBT Bankshares, Inc.
111 S. Telon
P. O. Box 2077
Colorado Springs, CO 80901
Ladies and Gentlemen:
We have served as counsel for SBT Bankshares, Inc., a Colorado
corporation (the "Company") in connection with the Agreement and Plan of
Reorganization dated as of December 19, 1997 (the "Agreement and Plan") among
the Company, its wholly-owned subsidiary State Bank and Trust of Colorado
Springs, a Colorado banking corporation (the "Bank"), Zions Bancorporation, a
Utah corporation ("Zions"), Val Cor Bancorporation, Inc., a Colorado corporation
("Val Cor"), and Valley National Bank of Cortez ("Valley"), and the transactions
contemplated thereby which are more particularly described in the Company's
Proxy Statement/Prospectus to which this letter is attached as an appendix (the
"Proxy Statement"). Unless specifically defined herein, each capitalized term
used herein shall have the meaning given it in the Agreement and Plan.
1. Documents Examined
For the purpose of rendering this opinion, we have examined copies of
the following documents:
(a) The Agreement and Plan;
(b) The Proxy Statement; and
(c) The Agreement of Merger between the Company and Valcor and
the Agreement of Consolidation between the Bank and Valley (collectively
the "Merger Documents"), together with the attachments thereto, all in
the form attached to the Agreement and Plan.
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SBT Bankshares, Inc.
April 22, 1998
Page 2
We have also examined sections 7-113-101 et seq. of the Colorado
Business Corporation Act, applicable provisions of the Internal Revenue Code of
1986, as amended, (the "Code"), Treasury Regulations thereunder, Internal
Revenue Service rulings and judicial decisions now in effect as we have deemed
necessary for the purpose of rendering the opinions set forth herein.
2. Assumptions and Limitations
In our examination, we have assumed, without independent verification,
(i) the genuineness of all signatures on all documents and instruments examined
by us; (ii) the legal capacity of all natural persons who have signed such
documents and instruments; (iii) the authenticity of all documents submitted to
us as originals and the conformity with originals of all documents submitted to
us as conformed, certified or photostatic copies; (iv) the factual accuracy of
all certificates submitted to us and each of the representations and warranties
as to matters of fact made in the Agreement and Plan by each of the parties
thereto; (v) that there are no other agreements or understandings among the
parties to the Agreement and Plan, written or oral, and there is no usage of
trade or course of prior dealing among the parties thereto that would, in any
case, define, supplement, alter or qualify the terms of Agreement and Plan; and
(vi) the due filing of the Merger Documents with state agencies in accordance
with applicable state law.
The opinions set forth below summarize the federal income tax
consequences of the Merger under existing law and regulations, as presently
interpreted by judicial decision and administrative rulings, all of which are
subject to change without notice, and any such change might be retroactively
applied to the Merger. The opinion does not address state income tax
consequences, local taxes, estate taxes, gift taxes, or the federal or state
income tax considerations that may affect the treatment of a foreign shareholder
or a shareholder who acquired his or her Company Common Stock pursuant to an
employee stock option or other special circumstances.
3. Opinions
On the basis of the foregoing, and in reliance thereon, we are of the
opinion 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 further
that:
(a) The Company will not recognize gain or loss for federal income tax
purposes upon the Merger;
(b) No gain or loss will be recognized by a shareholder of the Company
upon the receipt of Zions Common Stock solely in exchange for his or her Company
Common Stock;
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<PAGE>
SBT Bankshares, Inc.
April 22, 1998
Page 3
(c) The aggregate basis of the Zions Common Stock received by a
shareholder of the Company pursuant to the Merger (including any fractional
share interest to which that shareholder would otherwise be entitled) will be
the same as the aggregate basis of the Company Common Stock exchanged therefor;
(d) The holding period of the Zions Common Stock received by a
shareholder of the Company pursuant to the Merger (including any fractional
share interest to which that shareholder would otherwise be entitled) will
include the holding period of the Company Common Stock exchanged therefor,
provided the Company Common Stock is held as a capital asset by the shareholder
on the Effective Date;
(e) Cash received by a shareholder of the Company in lieu of a
fractional share of Zions Common Stock will be treated as received in exchange
for that fractional share, and the shareholder will recognize gain or loss equal
to the difference between the cash received and the shareholder's basis in that
fractional share, which gain or loss will be capital gain or loss if the
fractional share would have been a capital asset in the hands of the
shareholder; and
(f) Cash received by a shareholder of the Company who has perfected
dissenters' rights under the provisions of sections 7-113-101 et seq. of the
Colorado Business Corporation Act as to his or her Company Common Stock will be
treated as a distribution in redemption of such shares, subject to the
provisions and limitations of Section 302 of the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Federal
Income Tax Consequences of the Reorganization" in the Proxy Statement/Prospectus
forming a part of the Registration Statement.
Very truly yours,
/s/ McKENNA & CUNEO, L.L.P.
McKENNA & CUNEO, L.L.P.
DML/mi
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<PAGE>
APPENDIX B
COLORADO BUSINESS CORPORATION ACT
Rights of Dissenting Owners
7-113-101 DEFINITIONS.--For purposes of this article:
1. "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
4. "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
7. "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 RIGHT TO DISSENT.--1. A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
if:
(I) Approval by the shareholders of that corporation is required for the
merger by section 7-111-103 or 7-111-104 or by the articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102(2).
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1.3. A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended or on
the national market system of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
1.8. The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the National Association of
Securities Dealers Automated Quotation System, or will be held of record by more
than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
2.
2.5. A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
3. A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
4. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive written notice which states such dissent and
the name, address, and federal taxpayer identification number, if any, of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a record shareholder under this subsection (1) are determined as if
the shares as to which the record shareholder dissents and the other shares of
the record shareholder were registered in the names of different shareholders.
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<PAGE>
2. A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
3. The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
7-113-201 NOTICE OF DISSENTERS' RIGHTS.--1. If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202(1).
2. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(2).
7-113-202 NOTICE OF INTENT TO DEMAND PAYMENT.--1. If a proposed corporate
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting and if notice of dissenters' rights has been
given to such shareholder in connection with the action pursuant to section
7-113-201(1), a shareholder who wishes to assert dissenters' rights shall:
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<PAGE>
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
2. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2) a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
3. A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203 DISSENTERS' NOTICE.--1. If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
2. The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required by subsection (1) of this section
is given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 PROCEDURE TO DEMAND PAYMENT.--1. A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly completed, or
may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
2. A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
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<PAGE>
3. Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
4. A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205 UNCERTIFICATED SHARES.--1. Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
2. In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206 PAYMENT.--1. Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under section
7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the fair
value of the dissenter's shares, plus accrued interest.
2. The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet as of
the end of a fiscal year ending not more than sixteen months before the date of
payment, an income statement for that year, and, if the corporation customarily
provides such statements to shareholders, a statement of changes in
shareholders' equity for that year and a statement of cash flow for that year,
which balance sheet and statements shall have been audited if the corporation
customarily provides audited financial statements to shareholders, as well as
the latest available financial statements, if any, for the interim or full-year
period, which financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
7-113-207 FAILURE TO TAKE ACTION.--1. If the effective date of the
corporate action creating dissenters' rights under section 7-113-102 does not
occur within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
2. If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
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<PAGE>
7-113-208 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.--1. The corporation may, in or with
the dissenters' notice given pursuant to section 7-113-203, state the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action creating dissenters' rights under section 7-113-102
and state that the dissenter shall certify in writing, in or with the
dissenter's payment demand under section 7-113-204, whether or not the dissenter
(or the person on whose behalf dissenters' rights are asserted) acquired
beneficial ownership of the shares before that date. With respect to any
dissenter who does not so certify in writing, in or with the payment demand,
that the dissenter or the person on whose behalf the dissenter asserts
dissenters' rights acquired beneficial ownership of the shares before such date,
the corporation may, in lieu of making the payment provided in section
7-113-206, offer to make such payment if the dissenter agrees to accept it in
full satisfaction of the demand.
2. An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
7-113-209 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.--
1. A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand; or
(c) The corporation does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207(1).
2. A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
7-113-301 COURT ACTION.--1. If a demand for payment under section
7-113-209 remains unresolved, the corporation may, within sixty days after
receiving the payment demand, commence a proceeding and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay to
each dissenter whose demand remains unresolved the amount demanded.
2. The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
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<PAGE>
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
5. Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302 COURT COSTS AND COUNSEL FEES.--1. The court in an appraisal
proceeding commenced under Section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 7-113-209.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this article; or
(b) Against either the corporation or one of more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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PROXY
SPECIAL MEETING OF SHAREHOLDERS
OF SBT BANKSHARES, INC.
May 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John G. Jackson and Scott E. Pursley,
either one acting alone, with full power of substitution in each, as proxy[ies]
on behalf of the undersigned to vote as designated below on behalf of the
undersigned as a holder of the Common Stock of SBT Bankshares, Inc. ("Company
Common Stock") all shares of Company Common Stock that the undersigned held of
record on April 30, 1998, which the undersigned is entitled to vote, at the
special meeting of shareholders of SBT Bankshares, Inc. (the "Company") to be
held on May 29, 1998, or at any postponement or adjournment thereof, for the
purpose of considering and acting on the proposal to approve the Agreement and
Plan of Reorganization dated December 19, 1997, among the Company, State Bank
and Trust of Colorado Springs (the "Bank"), Zions Bancorporation ("Zions"), Val
Cor Bancorporation, Inc. ("Val Cor"), a subsidiary of Zions, and Valley National
Bank of Cortez, which has since merged into a wholly-owned subsidiary of Val Cor
named Bank Colorado, National Association ("Bank Colorado"), and an Agreement of
Merger between the Company and Val Cor (the "Plan of Reorganization"), whereby
the Company will merge into Val Cor, with Val Cor being the surviving
corporation (the "Reorganization"). Bank Colorado intends to change its name to
Vectra Bank Colorado, National Association prior to the Special Meeting. The
terms and conditions of the Plan of Reorganization are set forth in the
accompanying Proxy Statement/Prospectus. Approval of the Plan of Reorganization
requires the affirmative vote of eighty percent of the outstanding shares of the
Company Common Stock.
The Directors recommend a vote FOR Proposal 1.
1. Approval of the Plan of Reorganization and the Reorganization.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The Proxy, in his discretion, is authorized to vote on such other
business as may properly come before the meeting.
<PAGE>
When properly completed, this proxy will be voted in the manner directed
herein by the undersigned. If no direction is given, this proxy will be voted
FOR the approval of the Plan of Reorganization and the Reorganization.
(Each person whose name is on the Company Common Stock
certificate should sign below in the same manner in
which such person's name appears. If signing as a
fiduciary, give title.)
---------------------------
Signature
---------------------------
Printed Name
Dated:
---------------------
Please date, sign,
and return promptly
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