================================================================================
As filed with the Securities and Exchange Commission on __________, 1998
Registration No. 333-___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------
ZIONS BANCORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Utah 6712 87-0227400
---- ---- ----------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
One South Main, Suite 1380
Salt Lake City, Utah 84111
(801) 524-4787
-------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
Harris H. Simmons
President and Chief Executive Officer
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
(801) 524-4787
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies to:
Brian D. Alprin, Esq. Kenneth E. Roberts, Esq.
Laurence S. Lese, Esq. Gordon E. Crim, Esq.
Duane, Morris & Heckscher LLP Foster Pepper & Shefelman LLP
1667 K Street, N.W., Suite 700 101 S.W. Main Street, 15th Floor
Washington, D.C. 20006-1608 Portland, Oregon 97204-3223
(202) 776-7800 (503) 221-0607
Approximate date of commencement of the proposed sale of the securities to the
public: The date of mailing the Proxy Statement/Prospectus contained herein.
<PAGE>
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
Proposed Proposed
maximum maximum
Title of securities to be Amount to be offering price per aggregate Amount of
registered registered share offering price(1) registration fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 2,020,791
Shares NA $22,279,000 $6,573
========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) on the basis of the book value
of the outstanding shares of Common Stock, $2.50 par value, of The Commerce
Bancorporation on June 30, 1998 (the latest practicable date prior to
filing the registration statement) of $22,279,000, such stock to be
canceled upon effectiveness of the Reorganization described herein.
-------------------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
THE COMMERCE BANCORPORATION
Proxy Statement
For
Special Meeting of Shareholders
To be Held on ________, 1998
and
ZIONS BANCORPORATION
Prospectus
Up to 2,020,791 Shares of
Common Stock
The Commerce Bancorporation, a Washington corporation (the "Company"),
is furnishing this Proxy Statement/Prospectus to its shareholders 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 ___, 1998 (the "Special
Meeting") and at any adjournments or postponements thereof. The Company has
first mailed this Proxy Statement/Prospectus and accompanying notice of special
meeting and form of proxy ("Proxy") on or about ____, 1998 to its shareholders
of record as of __________, 1998 (the "Record Date").
At the Special Meeting, the holders of each outstanding share of
Company common stock, $2.50 par value ("Company Common Stock") will consider and
vote upon a proposal to approve and adopt the Agreement and Plan of
Reorganization (the "Plan of Reorganization"), dated as of May 13, 1998, between
the Company and Zions Bancorporation, a Utah corporation ("Zions"), and the
transactions contemplated by the Plan of Reorganization. If the Company's
shareholders approve the Plan of Reorganization, the Company will merge with and
into Zions, which shall be the surviving corporation (the "Reorganization").
Upon consummation of the Reorganization, the shareholders of the
Company will receive, in exchange for each share of Company Common Stock, that
number of shares of Zions common stock, no par value ("Zions Common Stock")
calculated by dividing $30.70 by the Average Closing Price (as defined). On
______, 1998, the closing price of Zions Common Stock on the Nasdaq Stock Market
was $_____ per share. Assuming that the Reorganization had been consummated as
of that date, Zions would have issued approximately of a share of its common
stock for each share of Company Common Stock, or an equivalent market value of
$30.70 per share of Company Common Stock.
------------------
For the action of the shareholders to be effective, holders of
two-thirds of the issued and outstanding shares of Company Common Stock must
vote in favor of the Reorganization. All regulatory approvals have [not yet]
been obtained.
------------------
Neither the Securities and Exchange Commission Nor Any State Securities
Commission Has Approved or Disapproved the Shares of Zions Common Stock to Be
Issued in the Reorganization or Determined If this Proxy Statement/ Prospectus
Is Truthful or Complete. Any Representation to the Contrary Is a Criminal
Offense.
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.
The date of this Proxy Statement/Prospectus is ___________, 1998.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY.....................................................................1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION.................11
WHERE YOU CAN FIND MORE INFORMATION........................................11
ZIONS DOCUMENTS INCORPORATED BY REFERENCE..................................13
THE SPECIAL MEETING........................................................14
Date, Time and Place..............................................14
Matters to be Considered at the Special Meeting...................14
Record Date; Voting Rights........................................14
Quorum; Vote Required for Approval................................14
Voting and Revocation of Proxies..................................15
Solicitation of Proxies...........................................15
Security Ownership of Certain Beneficial Owners and Management....15
PLAN OF REORGANIZATION.....................................................15
The Reorganization................................................16
Certain Definitions...............................................16
Background of and Reasons for the Reorganization..................17
Voting Agreements.................................................20
Required Vote; Management Recommendation..........................21
Opinion of Financial Advisor......................................21
Conversion of Company Shares......................................27
Company Stock Options.............................................28
Federal Income Tax Consequences of the Reorganization.............28
Rights of Dissenting Shareholders.................................29
Interests of Certain Persons in the Transaction...................31
Inconsistent Activities...........................................33
Conduct of Business Pending the Reorganization....................33
Conditions to the Reorganization..................................34
Representations and Warranties....................................35
Amendment and Waiver..............................................36
Authorized Termination and Damages for Breach.....................36
Restrictions on Resales by Company Affiliates.....................37
Expenses .........................................................37
Government Approvals..............................................37
Effective Date of the Reorganization..............................38
- i -
<PAGE>
Accounting Treatment..............................................38
Relationship Between Zions and the Company........................38
SUPERVISION AND REGULATION.................................................38
Zions.............................................................39
Regulatory Capital Requirements...................................39
Other Regulatory and Supervisory Issues...........................43
Deposit Insurance and Other Assessments...........................44
Interstate Banking................................................45
MONETARY POLICY............................................................46
INFORMATION CONCERNING ZIONS BANCORPORATION................................47
Selected Financial Data...........................................47
Stock Prices and Dividends on Zions Common Stock..................49
INFORMATION ABOUT THE COMMERCE BANCORPORATION..............................50
The Company.......................................................50
The Bank .........................................................51
Business Strategy.................................................51
Products and Services.............................................51
Competition.......................................................52
Employees.........................................................53
Properties........................................................53
Legal Proceedings.................................................53
Supervision and Regulation........................................54
Summary Financial Data............................................58
Stock Prices and Dividends on Company Common Stock................59
Certain Transactions of the Company...............................60
Stockholdings of Directors, Officers and Certain Others...........60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................62
Financial Highlights..............................................62
Net Interest Income...............................................62
Provision for Loan Losses.........................................63
Non-Interest Income...............................................63
Non-Interest Expense..............................................63
Income Taxes......................................................64
Investment Portfolio..............................................64
Loans.............................................................67
Allowance for Loan Losses.........................................67
Deposits .........................................................67
- ii -
<PAGE>
Asset-Liability Management/Interest Rate Sensitivity..............67
Liquidity.........................................................69
Capital Resources.................................................70
Year 2000 Planning................................................70
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF ZIONS AND THE
COMPANY...........................................................70
General .........................................................70
Anti-takeover Matters.............................................71
Shareholder Rights Plan...........................................74
Board of Directors................................................75
Special Shareholders' Meetings....................................77
Amendment of Articles and Bylaws..................................77
Dissenters' Rights................................................78
Preemptive Rights.................................................79
Dividend Rights...................................................79
Liquidation Rights................................................79
Miscellaneous.....................................................80
LEGAL OPINIONS.............................................................80
EXPERTS....................................................................80
OTHER MATTERS..............................................................81
Appendix A - Agreement and Plan of Reorganization between The Commerce
Bancorporation and Zions Bancorporation
Appendix B - Rights of Dissenters underss ss.ss. 23B.13.010 to 23B.13.310 of the
Washington Business Corporation Act
Appendix C - Fairness Opinion of Keefe, Bruyette & Woods, Inc.
- iii -
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the Reorganization fully and for a more complete
description of the legal terms of the Reorganization, you should read carefully
this entire document, including the Appendices and the documents we have
referred you to. A copy of the Plan of Reorganization is attached as Appendix A
to this Proxy Statement/Prospectus. See "Where You Can Find More Information."
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 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. Additionally, Zions has significant banking
operations in Colorado through its subsidiaries, Val Cor Bancorporation, Inc.,
which operates through its subsidiary Vectra Bank Colorado, National
Association, the [FIFTH] largest commercial bank in Colorado, Pitkin County Bank
and Trust Co., and Centennial Savings Bank, F.S.B.; and in California through
its subsidiary Grossmont Bank. Upon completion of the pending acquisition of
Sumitomo Bank of California, these two California banks will combine to form
California Bank and Trust, which will be the fifth largest commercial bank in
California. See "Recent Developments" below. Acquisitions during 1997 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; and during 1998 consisted
of Vectra Banking Corporation and its banking subsidiary, Vectra Bank, located
in Denver, Colorado; Sky Valley Bank Corp. and its banking subsidiary. The First
National Bank in Alamosa, with offices in Alamosa, Center, and Saguache,
Colorado; and Tri-State Finance Corporation and its banking subsidiary,
Tri-State Bank, in Denver. As of March 31, 1998, Zions had total consolidated
assets of $10.6 billion, deposits of $7.8 billion, and shareholders' equity of
$724 million. See "Information Concerning Zions Bancorporation." Zions'
principal executive offices are at One South Main, Suite 1380, Salt Lake City,
Utah 84111 (telephone: 801/524- 4787).
The Commerce Bancorporation (the "Company") was organized in 1987 under
Washington law for the purpose of becoming a bank holding company for The
Commerce Bank
<PAGE>
of Washington, N.A. (the "Bank"), a national banking association that commenced
operations in 1988. The Company conducts its business through its sole
subsidiary, the Bank, and has no separate operations or facilities. The Company
maintains its executive offices at the office of the Bank at 601 Union St.,
Suite 3600, Seattle, Washington, and its telephone number is 206/292- 3900.
The Commerce Bank of Washington, N.A., organized in 1988 under federal
law as a national banking association, is a commercial bank serving the greater
Seattle, Washington, metropolitan area and communities throughout the Puget
Sound region. The Bank operates from asingle office at 601 Union St., Suite
3600, Seattle, Washington. As of March 31, 1998, the Bank had total assets of
approximately $330.2 million and total deposits of $245.3 million.
The Special Meeting; Purpose
The Special Meeting of Shareholders of the Company (the "Special
Meeting") will be held at _____ a.m., local time, on____________, 1998 at
______________________. The purpose of the Special Meeting is to consider and
vote upon a proposal to approve the Plan of . The Reorganization and to transact
such other business as may properly come before the Special Meeting.
Record Date; Voting Rights
The 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 of the Special Meeting is the close of business on _________, 1998.
Each outstanding share of Company Common Stock entitles its holder of record 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."
Vote Required for Approval
The Approval of the Plan of Reorganization requires the affirmative
vote of a two-thirds of the outstanding shares of Company Common Stock entitled
to vote at the Special Meeting. See "Plan of Reorganization--Required Vote;
Management Recommendation."
Dissenters' Rights
Under Washington law, shareholders of the Company are entitled to
dissent from the Reorganization and to receive cash equal to the fair value for
such shares in accordance with procedures established by Washington law. Since
exercise and preservation of dissenters' rights are conditioned on strict
observance of the applicable section of Washington law, each Company shareholder
who chooses to exercise dissenters' rights should consult and strictly observe
the procedures set forth in 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
- 2 -
<PAGE>
such shareholder's dissenters' rights under Washington law. See "Plan of
Reorganization--Rights of Dissenting Shareholders," and Appendix B to this Proxy
Statement/Prospectus.
Security Ownership of Certain Beneficial Owners and Management
As of _____________, 1998, directors, executive officers, and other
affiliates of the Company beneficially owned _____ shares, or _____% of the
outstanding shares of Company Common Stock. These persons, in their capacity as
shareholders, have agreed with Zions to vote their shares in favor of the Plan
of Reorganization.
Opinion of Company's Financial Advisor
The Company has received an opinion from its independent financial
advisor which states that the merger consideration to be paid pursuant to the
Plan of Reorganization is fair to the Company shareholders from a financial
point of view. A copy of the opinion of the independent financial advisor is
attached as Appendix C to this Proxy Statement/Prospectus. See "Plan of
Reorganization--Opinion of Financial Advisor" and Appendix C.
Proposed Reorganization
At the Special Meeting, the Company will ask each of the holders of
Company Common Stock to consider and approve the Plan of Reorganization. The
Plan of Reorganization provides for the merger of the Company into Zions,
whereby Zions will be the surviving corporation. After the Reorganization, the
Bank will be a wholly-owned subsidiary of Zions. See "Plan of Reorganization." A
copy of the Plan of Reorganization is attached as Appendix A to this Proxy
Statement/Prospectus.
Reorganization Consideration
Upon consummation of the Reorganization, Zions will issue shares of its
Common Stock to the Company's shareholders. Under the terms of the Plan of
Reorganization, each shareholder of the Company will be entitled to receive, in
exchange for each share of Company Common Stock, that number of shares of Zions
Common Stock calculated by dividing $30.70 by the Average Closing Price (as
defined). On _________, 1998, the closing price of Zions Common Stock on the
Nasdaq National Market System ("Nasdaq NMS") was $______ per share. If the
Reorganization had been consummated on that date and the Average Closing Price
had been $______, Company shareholders would have been entitled to receive
approximately _____ of a share of Zions Common Stock for each share of Company
Common Stock, or an equivalent market value of $30.70 per share of Company
Common Stock. Because the Average Closing Price represents a variable amount,
the parties are unable to determine the Exchange Ratio (as defined) and the
number of shares of Zions Common Stock that shareholders of the Company will
receive for each share of Company Common Stock until the Effective Date. Only at
the Effective Date of the Reorganization will these amounts be determined and
known.
- 3 -
<PAGE>
Zions will not issue fractional shares of its common stock in the
Reorganization. Instead, 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 the Average Closing Price. Such
fractional share will not include the right to vote or to receive dividends or
any interest on such share. See "Plan of Reorganization" below.
Reasons for the Reorganization
Management and the Board of Directors of the Company believe that it is
in the best interests of the Company and its shareholders for the Company to
merge with Zions. In considering the Plan of Reorganization, the Board
determined that the Zions offer would maximize value for the Company's
shareholders, while providing a favorable structure for the transaction in which
the Company's shareholders will receive liquid securities without triggering tax
consequences (except for shareholders receiving cash in the Reorganization).
Further, the Board believes that the Zions transaction will result in positive
effects for the employees of the Company and the Bank, the customers of the
Bank, and the communities in which the Bank operates. 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 Plan of Reorganization to the Company's
shareholders for their approval.
For Zions, the Reorganization will provide an opportunity to further
broaden its franchise through its expansion into the State of Washington, where
Zions has not previously had a presence. Zions proposes to broaden its
geographical base and 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, will make the resulting banking group 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
the employees and customers of the Bank, and recommends that the shareholders of
the Company vote "FOR" approval of the Plan of 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.
- 4 -
<PAGE>
Interests of Certain Persons in the Transaction
The Plan of Reorganization provides that, following the Reorganization,
James C. Hawkanson, currently chief executive officer of the Bank, will serve as
chief executive officer of the Bank or any depository institution which is
successor-in-interest to the Bank. Mr. Hawkanson will enter into three-year
employment agreement with Zions effective as of the Effective Date. In addition,
in recognition of Mr. Hawkanson's contributions to the success of the Company
and the successful negotiation of the Plan of Reorganization, the Company's
Board granted Mr. Hawkanson a cash bonus of $180,000 effective upon closing of
the Reorganization. Robert R. Richards, the Company's president and chief
executive officer, will also receive $180,000 cash bonus upon closing, and will
be entitled to forgiveness of indebtedness of $75,757 relating to the
Company's employee stock loan program. See "Plan of Reorganization--Interests of
Certain Persons in the Transaction."
Company Stock Options
Currently, members of senior management of the Company and the Bank
hold stock options to purchase an aggregate of 239,614 shares of Company Common
Stock. At the Effective Date, each stock option to purchase Company Common Stock
not exercised prior to the Effective Date will automatically be converted into
an option to acquire shares of Zions Common Stock. See "Plan of
Reorganization--Company Stock Options," below.
Tax Consequences
The parties to the Reorganization intend that the Reorganization will
be treated for federal income tax purposes as a tax-free reorganization. In a
tax-free reorganization, Company shareholders will recognize no gain or loss
upon the exchange of their shares of Company Common Stock for Zions Common Stock
(except with respect to cash received by such shareholders in lieu of fractional
shares). See "Plan of Reorganization--Federal Income Tax Consequences of the
Reorganization."
Conditions to the Reorganization; Regulatory Approval
Consummation of the Reorganization is subject to satisfaction of a
number of conditions, including (i) obtaining requisite approval from the
Company shareholders, (ii) obtaining all requisite regulatory approvals from the
Board of Governors, the Commissioner of Financial Institutions of the State of
Utah (the "Commissioner"), and the Washington Department of Financial
Institutions (the "Department"), (iii) receiving 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 operations and financial condition
of the Company or Zions, (v) a concurrence that no act or conduct by the Company
or its affiliates will prevent the Reorganization from being treated for
accounting purposes as a pooling of interests, and (vi) satisfaction of other
customary closing conditions. All regulatory approvals have [not yet] been
obtained. See "Plan of Reorganization--Conditions to the Reorganization;
Government Approvals."
- 5 -
<PAGE>
Effective Date of the Reorganization
If the shareholders of the Company approve the Plan of Reorganization,
the parties expect that the Reorganization will become effective in the third
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
The parties expect the Reorganization to qualify as a "pooling of
interests" in accordance with APB Opinion No. 16, which means that the companies
will be treated for accounting purposes as if they had always been combined. As
a condition of closing, the Plan of Reorganization requires receipt of a
concurrence of the Company's determination that the Reorganization should be
treated as a pooling of interests. See "Plan of Reorganization--Accounting
Treatment."
Summary Financial Information
The following table sets forth certain unaudited 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 "Unaudited Pro Forma Combined
Financial Information," below. This information is based on the respective
historical financial statements of Zions incorporated into this Proxy
Statement/Prospectus by reference and of the Company which are included in this
Proxy Statement/Prospectus. Shareholders of the Company should read the
financial statements and the related notes with respect to Zions and the
Company.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Zions
Earnings
Net interest income............ $107,943 $ 82,898 $ 351,799 $ 289,166 $ 233,547 $ 198,606 $174,657
Provision for loan losses...... 3,256 1,835 6,175 4,640 3,000 2,181 2,993
Net income..................... 36,441 30,585 122,362 107,423 82,385 63,827 58,205
Per Share
Net income (basic)............. $ 0.53 $ 0.46 $ 1.92 $ 1.70 $ 1.39 $ 1.11 $ 1.03
Net income (diluted) .......... 0.52 0.45 1.89 1.68 1.37 1.09 1.02
Cash Dividends................. 0.12 0.11 0.47 0.425 0.3525 0.29 0.245
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Condition at
Period End
Assets........................ $10,611,585 $8,508,537 $9,521,770 $7,116,413 $6,095,515 $4,934,095 $4,801,054
Deposits...................... 7,799,027 5,728,585 6,854,462 5,119,692 4,511,184 3,705,976 3,432,289
Long-term debt................ 276,387 258,704 258,566 251,620 56,229 58,182 59,587
Shareholders' equity.......... 723,814 591,581 655,460 554,610 469,678 365,770 312,592
Company
Earnings
Net interest income........... $ 3,425 $ 2,839 $ 12,596 $ 10,106 $ 8,900 $ 7,155 $ 5,410
Provision for loan losses..... 29 75 300 270 332 144 140
Net income.................... 1,288 917 4,458 3,342 2,464 1,948 1,307
Per Share
Net income (basic)............ $ 0.54 $ 0.38 $ 1.86 $ 1.44 $ 1.09 $ 0.91 $ 0.61
Net income (diluted).......... 0.45 0.33 1.63 1.26 0.95 0.86 0.58
Cash Dividends................ 0.30 0.25 0.25 -- -- -- --
Statement of Condition at
Period End
Assets........................ $ 330,118 $ 244,221 $ 298,478 $ 237,517 $ 182,129 $ 152,590 $ 125,341
Deposits...................... 245,310 192,308 235,771 185,740 144,823 130,213 110,088
Long-term debt................ -- -- -- -- --
Shareholders' equity.......... 24,482 20,173 23,890 20,300 18,297 13,749 11,863
</TABLE>
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 by reference in this Proxy
Statement/Prospectus and of the Company included in this document. Shareholders
of the Company should read the following information in conjunction with such
financial statements and such information and the related notes to each.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income Per Common Share (diluted)
Zions.......................................... $ 0.52 $0.45 $ 1.89 $ 1.68 $ 1.37
Company........................................ 0.45 .33 1.63 1.26 0.92
Book Value Per Common Share
Zions.......................................... $ 10.48 $8.75 $10.25 $ 8.72 $ 7.46
Company ....................................... 10.21 8.32 9.99 8.45 7.79
Cash Dividends Declared Per Common Share
Zions (1)...................................... $ 0.12 $0.11 $ 0.47 $0.425 $0.3525
Company ....................................... 0.30 0.25 0.25 -- --
</TABLE>
- ----------------
(1) While Zions is not obligated to pay cash dividends, the Board of Directors
presently intends to continue its policy of paying quarterly dividends.
Future dividends will depend, in part, upon the earnings and financial
condition of Zions.
- 7 -
<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.
Shareholders of the Company should read 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, in conjunction with the financial information of Zions as
incorporated in this document by reference and of the Company as included in
this document. 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, and as of and for
the three months ended March 31, 1998, are presented for comparative and
illustrative purposes only. These data 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 three months ended:
March 31, 1998 $ 0.52 $ 0.45 $ $
For the years ended:
December 31, 1997 1.89 1.63
December 31, 1996 1.68 1.26
December 31, 1995 1.37 0.95
Cash dividends(2)
For the three months ended:
March 31, 1998 $ 0.12 $ 0.30 $ $
For the years ended:
December 31, 1997 0.4700 0.25 .4700
December 31, 1996 0.4250 -- .4250
December 31, 1995 0.3525 -- .3525
</TABLE>
- 8 -
<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> <C>
Book value:(3)
As of:
March 31, 1998 $10.48 $10.21 $ $
December 31, 1997 10.25 9.99
December 31, 1996 8.72 8.45
December 31, 1995 7.46 7.79
</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 imputed 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 imputed common shares to be issued in the transaction.
(5) Pro forma equivalent amounts are computed by multiplying the pro forma
combined amounts by the assumed Exchange Ratio of ______ of a share of
Zions Common Stock for each share of Company Common Stock, which would have
been the applicable Exchange Ratio had the Reorganization occurred on
_______, 1998. The actual Exchange Ratio will not be known until the
Effective Date.
Recent Developments
On May 26, 1998, Zions and FP Bancorp, Inc. ("FP Bancorp"), the parent
company of nown until the First Pacific National Bank ("First Pacific")
completed their merger, whereby FP Bancorp nown until the merged with and into
Zions. FP Bancorp shareholders received 1,956,240 shares of Zions nown until the
Common Stock at closing. First Pacific had approximately $359 million in assets
in eight offices nown until the in San Diego and Riverside Counties, California.
On June 19, 1998, First Pacific merged with nown until the and into Grossmont
Bank, with Grossmont being the surviving banking corporation.
Zions and SBT Bankshares, Inc. ("SBT"), the holding company of State
Bank and Trust nown until the of Colorado Springs ("SBTCS"), completed their
merger on May 29, 1998. SBT merged with nown until the and into Val Cor
Bancorporation, Inc. ("Val Cor"), a wholly-owned subsidiary of Zions in nown
until the exchange for 546,403 shares of Zions Common Stock. SBTCS and Vectra
Bank Colorado, nown until the National Association, a wholly-owned subsidiary of
Val Cor, consolidated to form a new nown until the national banking association
named Vectra Bank Colorado, National Association ("Vectra nown until the Bank").
SBTCS operated through two banking offices in Colorado Springs, Colorado. At
nown until the December 31, 1997, SBT had assets of $86 million. The merger was
accounted for as a pooling-of-interests.
On May 29, 1998, Zions and Routt County National Bank Corporation
("Routt"), the nown until the holding company of First National Bank of Colorado
("FNBC"), completed their merger, nown until the whereby Routt merged with and
into Val Cor and FNBC merged with and into Vectra Bank. At nown until the
closing, Zions issued 650,000 shares of its Common Stock to the former
shareholders of Routt. FNBC operated through two banking offices in Steamboat
Springs, Colorado. At December 31, 1997, Routt had assets of $93 million. The
merger was accounted for as a pooling-of-interests.
- 9 -
<PAGE>
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 Sumitomo with Grossmont Bank upon completion of the Sumitomo
acquisition. 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 and will be named California Bank and Trust. 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 through a combination of existing resources, the sale of a minority
interest in Sumitomo, and the proceeds from the issuance of shares of Zions
Common Stock. 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 California Bank and Trust. 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
California Bank and Trust at a purchase price of approximately $34 million.
Zions will retain the exclusive right to repurchase this ownership interest.
In recent months Zions has entered into agreements to acquire
additional bank holding companies and banks. Zions expects that each of these
transactions will be accounted for as a pooling of interests, and expects each
transaction to close during the third quarter of 1998. Each of the following
transactions is conditioned upon shareholder approval, federal and state
regulatory approval, and other conditions of closing:
On May 8, 1998, Zions, Val Cor, and Vectra Bank (as
successor-in-interest to Bank Colorado, National Association ("BCNA")) entered
into an agreement with Kersey Bancorp, Inc., aColorado corporation ("Kersey")
and its wholly-owned subsidiary, Independent Bank, a commercial bank organized
under Colorado law ("Independent"). Upon completion of this transaction, Kersey
will merge with and into Val Cor with Val Cor being the surviving corporation,
and Independent will merge with and into Vectra Bank, with Vectra Bank being the
surviving national banking association. As of March 31, 1998, Kersey had
consolidated assets of approximately $144.3 million, consolidated deposits of
approximately $133.2 million, loans of approximately $112.3 million, and
shareholders' equity of approximately $8.8 million. Independent conducts its
commercial banking operations through seven offices in Larimer, Logan, Morgan,
and Weld Counties, Colorado. Zions will issue up to 684,466 shares of its Common
Stock to the Kersey shareholders upon completion of the transaction.
On May 14, 1998, Zions, Val Cor, and Vectra Bank (successor-in-interest
to BCNA) entered into an agreement with Mountain Financial Holding Company, a
Colorado corporation ("Mountain") and its wholly-owned subsidiary Mountain
National Bank, a commercial bank organized under the laws of the United States
("Mountain Bank"). Upon completion of this transaction, Mountain will merge with
and into Val Cor with Val Cor being the surviving corporation, and Mountain Bank
will merge with and into Vectra Bank, with Vectra Bank being the surviving
national banking association. Mountain Bank conducts a commercial banking
business through one office in Woodland Park, Teller County, Colorado. As of
March 31, 1998, Mountain had consolidated assets of approximately $86.7 million,
consolidated deposits of approximately $77.7 million, loans of approximately
$53.0 million, and shareholders' equity of approximately $8.5 million. Upon
completion of this transaction, Zions will issue to the shareholders of Mountain
608,000 shares of its Common Stock.
- 10 -
<PAGE>
On June 3, 1998, Zions, Val Cor, and Vectra Bank entered into an
agreement with Eagle Holding Company, a Colorado corporation ("Eagle"), and its
wholly-owned subsidiary Eagle Bank, a Colorado-chartered commercial bank ("Eagle
Bank"). Upon completion of this transaction, Eagle will merger with and into Val
Cor with Val Cor being the surviving corporation, and Eagle Bank will merge with
and into Vectra Bank with Vectra Bank being the surviving national banking
association. Eagle Bank conducts a commercial banking business through one
office in Broomfield, Boulder County, Colorado. As of March 31, 1998, Eagle had
consolidated assets of approximately $40.8 million, consolidated deposits of
approximately $37.5 million, loans of approximately $27.5 million, and
shareholders' equity of approximately $2.9 million. Upon completion of this
transaction, Zions will issue to the shareholders of Eagle up to 230,000 shares
of its Common Stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Historical facts do not support certain statements contained herein.
These statements constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Numerous assumptions
about future conditions which Zions relied upon 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.
WHERE YOU CAN FIND MORE INFORMATION
This Proxy Statement/Prospectus constitutes the prospectus portion of a
registration statement (the "Registration Statement") that Zions has filed with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933 (the "Securities Act") covering the shares of Zions Common Stock issuable
in the Reorganization. As permitted by the rules and
- 11 -
<PAGE>
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. You
can inspect the Registration Statement and the exhibits thereto at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. You can obtain copies of such material 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"). Zions files annual, quarterly, and
current reports, proxy statements and other information with the SEC. You can
inspect and copy such reports, proxy statements and other information at the
public reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., and at the regional offices of the SEC at 7 World Trade
Center, Suite 1300, New York, NY 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. You can also obtain copies of
such material at prescribed rates by mail addressed to the SEC, Public Reference
Section, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 800/SEC-0330. Zions
Common Stock is quoted on the Nasdaq National Market System (hereinafter, the
"Nasdaq NMS"). You can inspect such reports, proxy statements and other
information 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 at http://www.sec.gov.
No person is authorized to give any information or to make any
representation that is different from what is 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 to
sell securities or a solicitation of an offer to purchase securities 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
shall imply that the information contained in this Proxy Statement/Prospectus is
correct as of any time subsequent to its date.
Zions has supplied the information contained in this Proxy
Statement/Prospectus with respect to itself. The Company has supplied the
information contained in this Proxy Statement/Prospectus with respect to itself.
Neither Zions nor the Company warrants the accuracy or completeness of
information relating to the other.
- 12 -
<PAGE>
This Proxy Statement/Prospectus incorporates by reference certain
documents relating to Zions which are not presented in this document or
delivered with this document. 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 the Company has delivered
a copy of this Proxy Statement/Prospectus. You can direct requests for Zions
documents 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 Zions documents, you should
make any request not later than , 1998.
ZIONS DOCUMENTS INCORPORATED BY REFERENCE
SEC regulations allow Zions to "incorporate by reference" information
into this Proxy Statement/Prospectus, which means that Zions can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Proxy Statement/Prospectus, except for any information
superseded by information in this Proxy Statement/Prospectus. Zions incorporates
by reference in this Proxy Statement/Prospectus the following documents that it
previously filed with the SEC pursuant to the Exchange Act: (a) Zions' Annual
Report on Form 10-K for the year ended December 31, 1997; (b) Zions' Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998; (c) Zions' Current
Reports on Form 8-K filed by Zions on February 6, 1998, April 3, 1998, April 15,
1998, and May 3, 1998, as amended on May 27, 1998; (d) 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; and
(e) the description of the Zions Rights Plan contained in Zions' registration
statement on Form 8-A dated October 10, 1996, and any amendment or report filed
for the purpose of updating such description.
Any Company shareholder who wishes to obtain copies of any Zions
document incorporated by reference in this document may do so by following the
instructions under the section titled "Where You can Find More Information"
above.
Zions further incorporates by reference in this Proxy
Statement/Prospectus all documents filed by it 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. Such incorporated
documents shall be deemed a part of this document from the date of filing of
such documents. Any statement contained in this document or in a document
incorporated or deemed to be incorporated by reference in this document shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained in this document
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this document 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.
- 13 -
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Board of Directors of the Company is furnishing this Proxy
Statement/Prospectus to the shareholders of the Company in connection with the
Board's solicitation of proxies for use at the Company's Special Meeting of
Shareholders to be held on , 1998 at , Seattle, Washington, at [time],
local time, or at any adjournments or postponements thereof.
Matters to be Considered at the Special Meeting
The purposes of the Special Meeting are (1) to consider and vote upon a
proposal by the Board of Directors to approve the Plan of Reorganization and the
transactions contemplated thereby and (2) to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements of
the Special Meeting.
The Board of Directors of the Company unanimously approved the Plan of
Reorganization and recommends that the shareholders of the Company vote FOR
approval of the Plan of Reorganization.
Record Date; Voting Rights
Shareholders of the Company, as reflected on the Company's stock
transfer records as of the close of business on , 1998 (the "Record Date"),
are entitled to notice of and to vote at the Special Meeting or any
postponements or adjournments of the Special Meeting. On the Record Date,
shares of Company Common Stock were outstanding, held by shareholders of
record. Each such share of Company Common Stock entitles its holder 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."
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 is necessary to constitute
a quorum at the Special Meeting. Approval of the Plan of Reorganization requires
the affirmative vote of two-thirds of the outstanding shares of Company Common
Stock entitled to vote at the Special Meeting. A failure to vote, an abstention,
or a broker non-vote of 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."
- 14 -
<PAGE>
Voting and Revocation of Proxies
Shareholders may vote at the Special Meeting either in person or by
proxy. All properly executed Proxies not revoked prior to the Special Meeting
will be voted at the Special Meeting or any postponements or adjournments of the
Special Meeting in accordance with the instructions on the Proxy. Properly
executed Proxies 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.
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.
Solicitation of Proxies
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 pay all expenses in connection with the printing and solicitation of
Proxies for the Special Meeting.
Security Ownership of Certain Beneficial Owners and Management
As of ______, 1998, the directors and executive officers of the
Company, together with their affiliated entities, beneficially owned _____
shares, or approximately ____% of the outstanding shares of Company Common
Stock. As an inducement to Zions to enter into the Plan of Reorganization, these
directors and executive officers of the Company entered into agreements with
Zions under which they agreed, in their capacity as shareholders, to vote their
shares in favor of the Plan of Reorganization. See "Plan of
Reorganization--Voting Agreements" and "Information Concerning the Company and
the Bank--Stockholdings of Directors, Officers and Certain Others."
PLAN OF REORGANIZATION
This section of the Proxy Statement/Prospectus describes certain
important aspects of the Plan of Reorganization. The following description is
not complete and is qualified in its entirety by reference to the Plan of
Reorganization, which is attached as Appendix A to this Proxy
Statement/Prospectus. Certain exhibits to the Plan of Reorganization have been
filed with the SEC as an exhibit to the Registration Statement. Such exhibits to
the Plan of Reorganization are incorporated into this Proxy Statement/Prospectus
by reference to such filing and are available upon request to Dale M. Gibbons,
Executive Vice President, Zions Bancorporation. See "Where You Can Find More
Information" and Appendix A to this Proxy Statement/Prospectus.
- 15 -
<PAGE>
The Reorganization
The Plan of Reorganization provides for the merger of the Company into
Zions, with Zions being the surviving corporation (the "Reorganization"). The
Company's wholly-owned subsidiary, The Commerce Bank of Washington, National
Association (the "Bank") will become a wholly-owned subsidiary of Zions upon
completion of the Reorganization.
Upon consummation of the Reorganization, Zions will issue shares of its
Common Stock to the Company's shareholders. At the Effective Date of the
Reorganization, each outstanding share of Company Common Stock will be canceled
and immediately converted into the right to receive that number of shares of
Zions Common Stock calculated by dividing $30.70 by the Average Closing Price,
as defined. Zions will not issue fractional shares of its Common Stock in the
Reorganization. Instead, 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 the Average Closing Price. Such
fractional share interest will not include the right to vote or to receive
dividends or any interest on such fractional interest.
On _________, 1998, the closing price of Zions Common Stock on Nasdaq
NMS was $_____ per share. If the Reorganization had been consummated on that
date, Zions would have issued to the shareholders of the Company approximately
_____ of a share of Zions Common Stock for each share of Company Common Stock,
or an equivalent market value of $30.70 per share of Company Common Stock.
Because the Average Closing Price represents a variable amount, the parties are
unable to determine the precise Exchange Ratio and the precise number of shares
of Zions Common Stock that the shareholders of the Company will receive in
exchange for each share of Company Common Stock until the Effective Date. Only
at the Effective Date will these amounts be determined and known.
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 of each Daily Sales Price
over the twenty consecutive trading days ending on and including the trading day
immediately preceding the Effective Date.
"Daily Sales Price" means, for any trading day, 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 Nasdaq National Market, or in the
absence thereof by such other source upon which Zions and the Company shall
mutually agree.
- 16 -
<PAGE>
"Effective Date" shall be the date specified in the articles of merger
to be filed with the Secretary of State of Utah to effectuate the Reorganization
and shall be the date which is the latest of (a) the day upon which the
shareholders of the Company approve, ratify, and confirm the Reorganization; (b)
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 Reorganization; 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; (c) 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; (d) if
such an order shall be required by law, the date ten days following the date of
the order of the Washington Department of Financial Institutions (the
"Department") approving the transactions contemplated by the Plan of
Reorganization; (e) 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; (f) ten days after any
stay of the approvals of the Board of Governors, the Commissioner, or the
Department of the transactions contemplated by the Plan of Reorganization, or
any injunction against closing of such transactions is lifted, discharged, or
dismissed; or (g) such other date as shall be mutually agreed upon by Zions and
the Company.
"Exchange Ratio" means that number of shares of Zions Common Stock
issuable for each share of Company Common Stock held of record by such Company
shareholder calculated by dividing $30.70 by the Average Closing Price.
Background of and Reasons for the Reorganization
Since its founding in 1988, the Bank has experienced rapid growth in
assets and earnings. During these ten years, it has pursued a strategy of
providing its clients with a full range of banking products either through
direct delivery of specific products or through strategic partnerships with
providers of specific products. As the client base of the Bank has grown, the
Bank has reassessed its decision to pass product sale opportunities on to
partners and forego the revenue opportunities of delivering certain products
from the Bank.
Commencing in July 1997 and extending over a period of monthly meetings
to February 1998, the Executive Committee of the Company's Board of Directors
conducted its periodic long range planning process during which a review of the
strategies relative to product delivery and bank revenue enhancement was a key
component. The Executive Committee determined that, in order to enhance the
financial performance of the Bank and to realize more revenue opportunity from
each client relationship, the Bank should broaden the product line that it
delivers directly to its clients and depend less on strategic relationships
through which the Bank receives less or no
- 17 -
<PAGE>
fee income for the business it refers. The Executive Committee then reviewed the
financial implications of building the internal capabilities necessary to
deliver several high priority products and determined that, rather than build
the product capability de novo, merging with a larger bank already offering
these products would be a less risky and more responsive method of meeting the
client demand and Bank earnings enhancement objectives. The Executive Committee
also considered (1) the Company shareholders' interests in increasing the
liquidity of their shares in the Company, (2) the high current acquisition
valuations on community banks, and (3) the interest in the Seattle market from
outside banks. Based on these considerations, the Executive Committee directed
Company management to explore merging with a larger bank who could meet product
and valuation expectations.
At the February 24, 1998 meeting the Executive Committee authorized
management to retain Keefe, Bruyette & Woods, Inc. ("Keefe Bruyette"), an
investment banking firm headquartered in New York and specializing in commercial
banks and thrifts. During early March 1998, Keefe Bruyette and Company
management identified twelve major commercial banks which (1) would meet the
product capability expectations and cultural compatibility with the Bank, (2)
were committed to a strategy of expansion through acquisition, and (3) were
thought to have an interest in establishing or enhancing a presence in the
western United States and the Seattle market. This list of banks was approved by
the Executive Committee on March 17, 1998, and Keefe Bruyette was authorized to
contact each of the banks and share confidential Company information if interest
were indicated. Zions was one such bank that was contacted and an initial
meeting was arranged for April 1, 1998 at which time James Hawkanson, Chief
Executive Officer of the Bank, and a representative of Keefe Bruyette visited
with Harris Simmons, Chief Executive Officer, and Dale Gibbons, Chief Financial
Officer, of Zions in Salt Lake City. During this meeting Zions expressed
interest in further discussions and in presenting a preliminary merger proposal
to the Company. In mid-April, Mr. Hawkanson also visited with the Chief
Executive Officers of Zion's subsidiary banks in Las Vegas, San Diego, and
Phoenix to determine their operating philosophy and product capabilities. On
April 14, 1998, Keefe Bruyette received from Zions a preliminary proposal
offering either a fixed price (variable exchange ratio) or a fixed exchange
ratio (variable price). At a meeting of the Company's Executive Committee on
April 16, 1998, Mr. Hawkanson reported on his visits to Zions and the subsidiary
banks, and Keefe Bruyette reported on Zion's preliminary proposal to the
Company. The Executive Committee approved further negotiations with Zions. On
April 20, 1998, Mr. Hawkanson, David C. Wyman, Chairman of the Company's
Executive Committee, and a representative of Keefe Bruyette met in Salt Lake
City with Mr. Simmons and Mr. Gibbons of Zions to review the preliminary
proposal and seek improved terms from Zions. On April 21, 1998, the Company
received a proposal letter from Zions again offering the Company a fixed price
or a fixed exchange ratio. On April 22, the Company held its regular quarterly
Board meeting at which the Board approved management signing the proposal letter
to merge the Company with Zions subject to a slight improvement in the offering
price. At that same meeting the Board chose the fixed price proposal over the
fixed exchange proposal offered by Zions. Subsequent to the Board meeting, Zions
increased the offer price to $30.70 per share and Company management signed the
merger proposal letter subject to mutual due diligence. Zions conducted its due
diligence in Seattle May 2-4. At a special meeting of the Executive Committee on
May 11, the Executive Committee reviewed and approved a draft of a definitive
Plan of Reorganization. At a special meeting of the Company board on May 13,
1998, the Board approved the Plan of Reorganization.
- 18 -
<PAGE>
The Company Board believes that the Reorganization is fair to, and in
the best interests of, the Company and its shareholders. Accordingly, the Board
of Directors of the Company 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 of
Directors of the Company 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 and the Bank to remain
independent;
o the economic, business and competitive climate for banking and
financial institutions in the Seattle market, 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, (ii) as compared to the value of
other merger and acquisition pricing reported by investment banking
organizations, and (iii) as compared to recent mergers and
acquisitions involving other banking and financial institutions in
Washington;
o the potential market value, liquidity and dividend yield of the
Company Common Stock if the Company were to remain independent;
o the historically greater liquidity 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'smarket area and its ability to
serve the depositors, customers and communities currently served by
the Company and the Bank;
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
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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 Companywho receive shares of Zions
Common Stock in the Reorganization (but not with respect to any cash
received in the Reorganization).
The Board of Directors of the Company unanimously recommends that
shareholders vote for approval and adoption of the Plan of Reorganization.
Zions. For Zions, the Reorganization will provide the opportunity to
continue its recent expansion. In acquiring the Company, Zions will be
initiating its presence in the Pacific Northwest and the State of Washington,
broadening its geographical base. Additionally, the Zions' expansion into the
Pacific Northwest and the State of Washington, will allow Zions further to
diversify its banking operations. Further, the Reorganization will enhance
Zions' competitive position in the Western United States as the financial
services industry continues to consolidate.
The acquisition by Zions of the Company will bring together the
different skills and resources of the two organizations and 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 of the Company have agreed with Zions to support
the Plan of Reorganization, to recommend its adoption by the other shareholders
of the Company, and to vote their shares of Company Common Stock in favor of the
Plan of Reorganization. As of June 30, 1998, these eighteen individuals
beneficially owned approximately 26.1% of the outstanding shares of Company
Common Stock.
The voting agreements are applicable to the directors only in their
capacities as shareholders and do not legally affect the exercise of their
responsibilities as members of the Board of Directors of the Company. The
directors also agreed in their capacity as directors, subject to their fiduciary
duties to shareholders, until the Effective Date of the Reorganization or the
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 the Bank.
The form of the voting agreements has been filed with the SEC as an
exhibit to the Registration Statement and is incorporated into this document by
reference. The foregoing summary of the agreements is qualified in its entirety
by reference to such filing.
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Required Vote; Management Recommendation
Approval of the Plan of Reorganization and the Reorganization requires
the affirmative vote of the holders of two-thirds of the outstanding shares of
Company Common Stock entitled to vote at the Special Meeting. Because approval
requires the affirmative vote of two-thirds of all outstanding shares of Company
Common Stock, a failure to vote, an abstention, or a broker non-vote of 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 urges each shareholder to
complete, sign and return a Proxy to ensure that his or her shares are
represented at the Special Meeting.
The Board of Directors of Zions has approved the Plan of
Reorganization. Under the Utah Business Corporation Act no approval of the Plan
of Reorganization by the shareholders of Zions is required.
Opinion of Financial Advisor
The Company's Board of Directors has retained Keefe Bruyette, an
independent financial advisor, to evaluate the Reorganizaiton consideration
offered to the Company's shareholders by Zions.
On May 13, 1998, at a meeting of the Company's Board held to evaluate
the proposed Reorganization, Keefe Bruyette delivered an oral opinion to the
effect that, as of such date, the consideration was fair to the shareholders of
the Company from a financial point of view. Keefe Bruyette has delivered to the
Company's Board its updated written opinion dated the date of this Proxy
Statement/Prospectus to the effect that as of such date the consideration is
fair, from a financial point of view, to the holders of the Company's common
stock. In connection with its opinion dated the date of this Prospectus/Proxy
Statement, Keefe Bruyette updated certain analyses performed in connection with
its opinion and reviewed the assumptions on which such analyses were based and
the factors considered in connection therewith.
Keefe Bruyette's opinion is addressed to the Company's Board and does
not constitute a recommendation as to how any shareholder of the Company should
vote with respect to the Plan of Reorganization. No limitations were imposed by
the Company's Board upon Keefe Bruyette with respect to the investigations made
or procedures followed by Keefe Bruyette in rendering its opinions.
The full text of the opinion of Keefe Bruyette, which sets forth a
description of the procedures followed, assumptions made, matters considered and
limits on the review undertaken, is attached to this Proxy Statement/Prospectus
as Appendix C and is incorporated herein by reference. Shareholders are urged to
read the opinion in its entirety. The following summary of the opinion is
qualified in its entirety by reference to the full text of the opinion.
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In rendering its opinion, Keefe Bruyette (i) reviewed, among other
things, the Plan of Reorganization, Annual Reports to stockholders and Audited
Financial Statements of the Company and Annual Reports to stockholders and
Annual Report on Form 10-K of Zions for the four years ended December 31, 1997,
certain interim reports of the Company and certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Zions and certain internal
financial analyses and forecasts for the Company prepared by management; (ii)
held discussions with members of senior management of the Company and Zions
regarding past and current business operations, regulatory relationships,
financial condition and future prospects of the respective companies; (iii)
compared certain financial and stock market information for Zions with similar
information for certain other companies the securities of which are publicly
traded; (iv) reviewed the financial terms of certain recent business
combinations in the banking industry; and (v) performed such other studies and
analyses as it considered appropriate.
In conducting its review and arriving at its opinion, Keefe Bruyette
relied upon and assumed the accuracy and completeness of all of the financial
and other information provided to it or publicly available, and Keefe Bruyette
did not attempt to verify such information independently. Keefe Bruyette relied
upon the management of the Company as to the reasonableness and achievability of
the financial and operating forecasts and projections (and assumptions and bases
therefor) provided to Keefe Bruyette and assumed that such forecasts and
projections reflect the best available estimates and judgments of such
management and that such forecasts and projections will be realized in the
amounts and in the time periods estimated by such management. Keefe Bruyette
also assumed, without independent verification, that the aggregate allowances
for loan losses for the Company and Zions are adequate to cover such losses. In
rendering its opinion, Keefe Bruyette did not make or obtain any evaluations or
appraisals of the property of the Company or Zions, nor did Keefe Bruyette
examine any individual credit files.
The following is a summary of the material financial analyses employed
by Keefe Bruyette in connection with providing its oral opinion of May 13, 1998
and does not purport to be a complete description of all analyses employed by
Keefe Bruyette.
(a) Analysis of the Zions Offer. Keefe Bruyette calculated multiples
that were based on the fixed per share purchase price of $30.70, equivalent to
.599 shares of Zions based upon the last reported sale price of $51.25 per share
for the Zions Common Stock on May 12, 1998 and 3,197,374 fully diluted shares
outstanding. The Company's March 31, 1998 shareholders' equity (book value) was
$24,481,939 and diluted earnings per share for the year ended December 31, 1997
and the trailing four quarters ended March 31, 1998 were $1.63 and $1.74,
respectively. Based on this data, the price to book value multiple was 4.01
times, and the price to the 1997 and March 31, 1998 trailing four quarters
earnings per share was 18.83 and 17.64 times, respectively.
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(b) Analysis of Selected Merger Transactions. Keefe Bruyette reviewed
certain financial data related to 25 bank acquisitions in the United States
announced from February 5, 1997 to April 17,1998, where the seller had total
assets between $250 million and $400 million (the"Nationwide Bank Acquisitions")
and 13 bank acquisitions in the western region of the United States announced
from February 7, 1997 to April 20, 1998 (the "Western Bank Transactions"). The
Nationwide Bank Acquisitions analyzed were Western Bancorp/Bank of Los Angeles;
U.S. Bancorp/Northwest Bancshares, Inc.; Norwest Corporation/MidAmerica
Bancshares, Inc.; Norwest Corporation/The Bank of New Mexico Holding Company;
Union Planters Corporation/Transflorida Bank; Mid-State Bank/BSM Bancorp; Fulton
Financial Corporation/Ambassador Bank of the Commonwealth; Union Planters
Corporation/CB&T Inc.; Zions Bancorporation/FP Bancorp, Inc.; Wachovia
Corporation/Ameribank Bancshares, Inc.; FBOP Corporation, Inc./P.N.B. Financial
Corp.; Hibernia Corporation/Firstshares of Texas, Inc.; Compass Bancshares,
Inc./Fidelity Resources; Regions Financial Corporation/First United
Bancorporation; U.S. Bancorp/Zappco, Inc.; SIS Bancorp, Inc./Glastonbury Bank
and Trust Company; Private Investor - Dr. Shi H. Huang/Chinese American Bank;
First United Bancshares, Inc./Citizens National Bancshares; Citizens Financial
Group, Inc./BNH Bancshares, Inc.; Triangle Bancorp/Bank of Mecklenburg; Simmons
First National Corporation/First Banks of Arkansas in Russellville and in
Searcy; First Security Corp/American Bancorp of Nevada; Century South Banks,
Inc./Bank Corp of Georgia; Regions Financial Corporation/New Iberia Bancorp and
First Commercial Corporation/First Central Corporation acquisitions.
The Western Bank Acquisitions analyzed were InterWest Bancorp
Inc./Kittitas Valley Bancorp; InterWest Bancorp/Pioneer Bancorp, Inc.; InterWest
Bancorp/Pacific Northwest Bank; West Coast Bancorp/Centennial Holdings, Ltd.;
Hibernia Corporation/Firstshares of Texas, Inc.; Compass Bancshares,
Inc./Fidelity Resources Company; InterWest Bancorp/Puget Sound Bancorp, Inc.;
Columbia Banking System, Inc./Cascade Bancorp; Mellon Bank/1st Business Corp.;
Pacific Century Financial Corporation/CU Bancorp and Cascade Financial
Corporation/AmFirst Bancorp acquisitions.
For the Nationwide Bank Acquisitions, Keefe Bruyette calculated an
average multiple of price to the targets' earnings (trailing four quarters) as
19.12 times compared to a multiple of 17.64 times trailing four quarters
earnings per share associated with the Reorganization, and an average price to
the targets' fully diluted book value of 243% compared to a price of 401% of
book associated with the Reorganization.
For the Western Bank Transactions, Keefe Bruyette calculated an average
multiple of price to the targets' earnings (trailing four quarters) of 21.75
times compared to a multiple of 17.64 times trailing four quarters earnings per
share associated with the Reorganization, and an average price to the targets'
fully diluted book value of 289% compared to a price of 401% of book associated
with the Reorganization.
No company or transaction used as a comparison in the above analysis is
identical to the Company, Zions or the Reorganization. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
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(c) Selected Peer Group Analysis. Keefe Bruyette compared Zions'
financial performance and market performance based on various financial measures
of earnings performance, operating efficiency, capital adequacy and asset
quality and various measures of market performance, including market/book
values, price to earnings and dividend yields to those of a group of comparable
holding companies. For purposes of such analysis, the financial information used
by Keefe Bruyette was as of and for the quarter ended March 31, 1998 and the
market price information was as of May 12, 1998. The companies in the peer group
were nationwide banks which had total assets ranging from approximately $10
billion to $20 billion and included Firstar Corporation, Marshall & Ilsley,
AmSouth Bancorporation, First Security Corporation, Pacific Century Financial
Corporation, First Tennessee National Corporation, First Empire State
Corporation, Old Kent Financial Corporation, Compass Bancshares, Inc., Hibernia
Corporation, Star Banc Corporation, First American Corporation, Associated
Banc-Corp, Commerce Bancshares, Inc. and TCF Financial Corporation.
Keefe Bruyette's analysis showed the following comparisons concerning
Zions' financial performance: its return on equity on an annualized basis was
20.56% compared with an average of 16.84% for the peer group; its return on
assets on an annualized basis was 1.33% compared withan average of 1.39% for the
group; its net interest margin on an annualized basis was 4.44% compared with an
average of 4.23%; its efficiency ratio on an annualized basis was 59.39%
compared with an average of 58.13%; its equity to assets ratio was 6.82%
compared to an average of 7.12%; its ratio of nonperforming assets to total
loans and other real estate owned was 0.38% compared to an average of 0.56%; and
its ratio of loan loss reserve to nonperforming loans was 510% compared to an
average of 388%.
Keefe Bruyette's analysis further showed the following concerning Zions
Bancorporation's market performance: Zions' price to earnings multiple based on
1998 and 1999 estimated earnings was 23.30 and 19.34 times, respectively,
compared to an average for the group of 18.88 and 16.80 times; Zions' price to
book value multiple was 4.89 times compared to a group average of 3.20 times;
and Zions' dividend yield was .94% compared to an average for the group of
1.88%. For purposes of the above calculations, all earnings estimates were based
upon the published estimates of Keefe Bruyette's equity research department.
(d) Contribution Analysis. Keefe Bruyette analyzed the relative
contribution of each of Zions and the Company to the pro forma balance sheet and
market capitalization of the combined entity, including assets, common equity,
market capitalization, deposits and loans. Keefe Bruyette compared the relative
contribution of such balance sheet with the estimated pro forma ownership of
2.4% for the Company stockholders based on a fixed price of $30.70. The
contribution showed that the Company would contribute approximately 2.3% of the
combined assets, 2.7% of the combined common equity, 2.2% of the combined
deposits, 1.8% of the combined loans and 2.4% of the pro forma market
capitalization.
(f) Present Value Analysis. Keefe Bruyette used a dividend discount
analysis to estimate a range of present values per share that would accrue to a
holder of a share of the Company Common Stock assuming the Company were to
remain independent and the
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<PAGE>
shareholder held the stock through the year 2003 and then sold it at the end of
year 2003. The analysis was based on several assumptions, including 3.197
million shares outstanding and fully diluted earnings per share of $1.63 in 1998
and $1.87 in 1999 and 15% earnings per share growth rate thereafter. A 16%
dividend growth rate was assumed for the Company through the year 2003. There
were two different scenarios used in determining a terminal value in 2003. In
one case a market multiple of 15.6x 2003 earnings per share was assumed and in
another scenario an acquisition multiple of 18.0x 2003 earnings per share was
assumed. The terminal valuation and the estimated dividends were discounted at a
rate of 11%, producing a present value of $29.24 and $33.37, respectively, based
on market and acquisition multiples. Keefe Bruyette also presented a table
showing the foregoing analysis on a stand-alone basis with a range of discount
rates from 10% to 15% and a range of market multiples of 13x to 18x 2003
earnings per share, resulting in a range of present values for a share of the
Company Common Stock of $20.03 to $35.19. These values were determined by adding
(i) the present value of the estimated future dividend stream that the Company
could generate over the period beginning 1998 and ending in 2003, and (ii) the
present value of the terminal value of the Company Common Stock.
Keefe Bruyette also estimated a range of present values per share that
would accrue to a holder of .599 shares of Zions Common Stock assuming the
Reorganization were to occur and assuming the shareholder held the stock through
the year 2003 and then sold it at the end of 2003. This analysis was based on
several assumptions, including Zions' 1998 earnings per share of $2.20, 1999
earnings per share of $2.65 and a 16% earnings per share growth rate thereafter.
A 10% dividend growth rate was assumed for Zions pro forma through the year
2003. There were two different scenarios used in determining a terminal value in
2003. In one case a market multiple of 23.3x 2003 earnings per share was assumed
and in another scenario an acquisition multiple value of 30x 2003 earnings per
share was assumed. The terminal valuation and the estimated dividends were
discounted at a rate of 11%. The result of this analysis was a present value of
$37.47 and $47.77 respectively based on market and acquisition multiples. These
values were determined by adding (i) the present value of the estimated future
dividend stream from .599 shares of Zions Bancorporation beginning 1998 and
ending in 2003 and (ii) the present value of the terminal value of .599 shares
of Zions Bancorporation stock.
Keefe Bruyette stated that the present value analysis is a widely-used
valuation methodology but noted that it relies on numerous assumptions,
including asset and earnings growth rates, dividend payout rates, terminal
values and discount rates. The analysis did not purport to be indicative of the
actual values or expected values of the Company Common Stock.
(g) Other Analysis. Keefe Bruyette also reviewed Zions' five year
financial highlights, operating segment financial information, loan composition,
deposit composition, historical stock price performance relative to the S&P 500
and the Keefe Bank Index, the pro forma earnings per share and book value
projections for 1998 to 2002 pro forma for the merger of the Company with Zions.
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<PAGE>
The summary contained herein provides a description of the material
analyses prepared by Keefe Bruyette in connection with the rendering of its
opinion. The summary set forth above does not purport to be a complete
description of the analyses performed by Keefe Bruyette in connection with the
rendering of its opinion. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Keefe
Bruyette believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses without
considering all analyses, or selecting part of the above summary, without
considering all factors and analyses, would create an incomplete view of the
processes underlying the analyses set forth in Keefe Bruyette's presentations
and opinion. The ranges of valuations resulting from any particular analysis
described above should not be taken to be Keefe Bruyette's view of the actual
value of the Company and Zions. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given greater weight than any other analyses.
In performing its analyses, Keefe Bruyette made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company and
Zions. The analyses performed by Keefe Bruyette are not necessarily indicative
of actual values or actual future results which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Keefe Bruyette's analysis of the fairness, from a financial
point of view, of the consideration in the Reorganization. These analyses were
provided to the Company's Board in connection with the delivery of Keefe
Bruyette's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company actually might be sold or the prices at which any
securities may trade at the present time or at any time in the future. In
addition, as described above, Keefe Bruyette's opinion, along with its
presentation to the Company's Board, was just one of many factors taken into
consideration by the Company's Board in unanimously approving the Plan of
Reorganization.
Keefe Bruyette as part of its investment banking business, is
continually engaged in the valuation of banking businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. As
specialists in the securities of banking companies, Keefe Bruyette has
experience in, and knowledge of, the valuation of banking enterprises. In the
ordinary course of its business as a broker-dealer, Keefe Bruyette may, from
time to time, purchase securities from, and sell securities to Zions and as a
market maker in securities Keefe Bruyette may from time to time have a long or
short position in, and buy or sell, debt or equity securities of Zions for Keefe
Bruyette's own account and for the accounts of its customers.
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The Company has agreed to pay Keefe Bruyette a cash fee ("Cash Fee") of
.80% of the market value at closing of the aggregate consideration (price per
share times the fully-diluted shares outstanding) offered in the Reorganization
plus an incentive fee ("Incentive Fee"). The Incentive Fee shall consist of an
additional 1% of the amount by which the market value exceeds $80 million but is
less than or equal to $90 million plus 2 % of the amount by which the market
value exceeds $90 million. The initial formula for the Incentive Fee shall be
effective to December 31, 1998, after which it will be subject to renegotiation.
The Cash Fee will be payable inthree parts with 30% payable with the first to be
executed of an agreement in principle or a definitive agreement contemplating
the consummation of a Transaction, 30% payable upon the mailing of a proxy to
the Company shareholders, and 40% payable at the time of closing of the
Transaction. The Incentive Fee will be payable at closing.
In addition to any fees payable to Keefe Bruyette pursuant to the
foregoing, and regardless of whether any transaction is proposed or consummated,
the Company agrees, from time to time upon request, to reimburse Keefe Bruyette
for all reasonable out-of-pocket expenses and disbursements, including fees and
reasonable expenses of counsel, incurred in connection with this retention.
Conversion of Company Shares
Under the Plan of Reorganization, Company shareholders will receive
shares of Zions Common Stock. As a result of the Reorganization, each share of
Company Common Stock will be canceled and immediately converted into the right
to receive that number of shares of Zions Common Stock calculated by dividing
$30.70 by the Average Closing Price. Because the Average Closing Price
represents a variable amount, the parties are unable to determine the precise
Exchange Ratio until the Effective Date.
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"). Zions Bank, 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 those holders who have waived the notice of exchange, a notice
specifying the Effective Date and notifying the holder to surrender his or her
certificate or certificates to Zions Bank for exchange. The 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 written instructions from the Exchange Agent. However, Company
shareholders should surrender their certificates promptly after receiving
instructions to do so.
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 dividends until he or she has surrendered his orher Company Common
Stock certificates for exchange as provided in the letter of transmittal sent by
the Exchange Agent. Upon surrender, the shareholder will be entitled to receive
all dividends payable on the whole shares of Zions Common Stock represented by
the surrendered certificate(s) (without interest and less the amount of taxes,
if any, which may have been imposed or paid on such shares).
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Payment for Fractional Shares. Zions will not issue any fractional
shares of its Common Stock in connection with the Reorganization. Instead, each
Company shareholder who surrenders for exchange Company Common Stock
certificates 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 the fraction times the Average Closing Price. Shareholders will have
no further rights as shareholders with respect to fractional shares.
Unexchanged Certificates. On the Effective Date of the Reorganization,
the Company will close its stock transfer books, and the Company will permit or
recognize no further transfers of its Common Stock. 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 on such shares.
Company Stock Options
Certain employees of the Company and the Bank currently hold stock
options, vested and unvested, to purchase an aggregate of 401,241 shares of
Company Common Stock. At the Effective Date, each outstanding and unexercised
Company stock option, whether vested or unvested, will automatically be
converted into an option (a "Replacement Option") to acquire, on the same terms
and conditions as were applicable under the terms of such Company options and
any Company option plan under which such Company options were issued, a number
of shares of Zions Common Stock equal to (a) the number of shares of Company
Common Stock subject to such Company option as of the Effective Date multiplied
by (b) the Exchange Ratio, at an exercise price per share equal to (x) the
aggregate exercise price under such Company option for all of the shares of
Company Common Stock subject to such Company option at the Effective Date
divided by (y) the number of shares of Zions Common Stock subject to such
Replacement Option. Upon consummation of the Reorganization on the Effective
Date, Zions will assume the Company's stock option plans.
Federal Income Tax Consequences of the Reorganization
The following discussion is a summary of the material federal income
tax consequences of the Reorganization 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 Reorganization. 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 or estate and gift tax considerations. Shareholders of the
Company are urged to consult their own tax advisors as to specific tax
consequences to them of the Reorganization.
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The Reorganization is intended to qualify as a tax-free reorganization
under Section 368(a) of the Code. Accordingly, the Company will not recognize
gain or loss for federal income tax purposes upon completion of the
Reorganization. Shareholders of the Company will have the following federal
income tax consequences upon the Reorganization: (i) no gain or loss will be
recognized upon the receipt of Zions Common Stock, except to the extent of cash,
if any, is received in lieu of fractional shares of Zions Common Stock; (ii) the
tax basis of the Zions Common Stock (including any fractional share interest)
to be received in the Reorganization will be equal to the tax basis of the
shares of Company Common Stock exchanged therefor; (iii) the holding period of
the Zions Common Stock to be received in the Reorganization will include the
holding period of the Company Common Stock surrendered in exchange therefor,
provided that the shares of Company Common Stock are held as capital assets at
the Effective Date; (iv) if any cash is received in lieu of a fractional share
of Zions Common Stock, gain (or loss) will be recognized in an amount equal to
the difference between the cash received and the shareholder's basis in that
shares and that gain or loss will be capital gain or loss if the fractional
shares would have been a capital asset in the hands of the shareholder; and (v)
cash received by a dissenter who has perfected dissenters' rights under the
relevant provision of the Washington 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 of Section 302 of the Code.
The Company will receive an opinion from Foster Pepper & Shefelman
PLLC, legal counsel to the Company, as to the tax consequences of the
Reorganization. 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.
Rights of Dissenting Shareholders
Under Washington law, shareholders of the Company are entitled to
dissent from the proposed Reorganization and receive the fair value of their
shares in cash if the Reorganization is consummated and if certain statutory
procedures are followed. A copy of the relevant statute is attached as Appendix
B to this Proxy Statement/Prospectus.
Procedure for Dissenting. A shareholder wishing to assert dissenters'
rights and obtain payment must deliver to the Company, before the vote is taken
at the Special Meeting, written notice of the shareholder's intent to demand
payment for the shareholder's shares if the Reorganization is consummated and
must not vote in favor of the Reorganization. The written notice should be sent
to the Company at 601 Union Street, Suite 3600, Seattle, Washington, 98111-2333.
A vote against the Reorganization will not constitute notice under Washington
law of intent to exercise dissenters' rights. A shareholder who does not satisfy
the notice and voting requirements is not entitled to payment for the
shareholder's shares under Washington law.
Washington 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
Washington law may result in a loss of that shareholder's dissenters' rights.
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If the Reorganization is approved at the Special Meeting, the Company
will deliver a written notice ("Dissenters' Notice") to each dissenting
shareholder who satisfied the requirements discussed above. The Dissenters'
Notice will be sent within ten days after the effective date of the
Reorganization and will include the following:
o a copy of the Washington Business Corporation Act Chapter 23B.13;
o a form for demanding payment;
o instructions on completing and sending the payment demand form;
o a date (between 30 and 60 days after the Dissenters' Notice is
delivered) by which time the Company must receive the payment
demand;
o instructions as to where and when certificates for shares must be
deposited; and
o information concerning to what extent transfer of the shares will be
restricted after the payment demand is received.
A dissenting shareholder who receives a Dissenters' Notice must demand
payment, deposit his or her certificates in accordance with the terms of the
Dissenters' Notice, and certify whether the dissenting shareholder acquired
ownership of the shares before the date set forth in the Dissenters' Notice. A
shareholder who does not demand payment and complete all related requirements
according to the instructions in the Dissenters' Notice and by the deadline set
forth in the Dissenters' Notice, is not entitled to payment for his or her
shares under the Washington Business Corporation Act.
Payment for Shares. Within 30 days of the later of the effective date
of the Reorganization or the date the payment demand is received from a
dissenting shareholder, the Company will pay such dissenting shareholder the
amount the Company determines to be the fair value of the dissenting
shareholder's shares plus accrued interest. The payment will include financial
information about the Company, an explanation of how the Company determined fair
value and how it calculated interest, a copy of R.C.W. Chapter 23B.13, and a
statement concerning the shareholder's rights if the shareholder is dissatisfied
with the amount of the payment.
If a dissenting shareholder believes that the amount paid by the
Company is less than the fair value of the dissenting shareholder's shares or
that the accrued interest was not computed correctly, such dissenting
shareholder may notify the Company in writing of his or her own calculation of
the fair value of his or her shares and the accrued interest. Any amount
received from the Company as payment for the dissenting shareholder's shares
must be subtracted from the dissenting shareholder's estimate. This demand must
be made within 30 days after the Company made or offered payment for the
dissenting shareholder's shares. If the Company fails to make payment within 60
days after the date set for demanding payment, a dissenting shareholder may
submit his or her own calculation of fair value and accrued interest.
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Court Proceeding to Determine Fair Value. If a demand for payment
remains unsettled, the Company may commence a proceeding within 60 days after
receiving the payment demand and petition in the Superior Court of King County,
Washington, to determine the fair value of the dissenter's shares and accrued
interest. If the Company does not commence such an action within the 60-day
period, it must pay each dissenter whose demand remains unsettled the amount
demanded. The costs of the proceedings, including the reasonable compensation
and expenses of the appraisers' and attorneys' fees, will be assessed against
the Company. The court may assess the costs of the proceedings against all or
some of the dissenters if the court finds that the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment in excess of the Company's
offer.
Company shareholders considering seeking appraisal by exercising their
dissenters' rights should be aware that the fair value of their Company Common
Stock determined pursuant to the Washington Business Corporation Act 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 dissenters' rights.
The foregoing is not a complete statement of the procedures to be
followed by Company shareholders desiring to exercise dissenters' rights. The
exercise of such rights requires strict adherence to the relevant provisions of
the Washington Business Corporation Act. Therefore, 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.
Company shareholders wishing to exercise dissenters' rights are advised
to consult their own counsel to ensure that they fully and properly comply with
the requirements of Washington law.
Interests of Certain Persons in the Transaction
The Plan of Reorganization provides that after the Reorganization
becomes effective, James C. Hawkanson, currently president and chief executive
officer of the Bank, will serve as chief executive officer of the Bank and as a
member of the executive committee of Zions. Mr. Hawkanson will enter into an
employment agreement with Zions 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. Hawkanson will receive an annual salary not less than his
current salary and 1997 bonus, assuming he performs competently. Mr. Hawkanson
will be eligible to be considered for salary increases, upon review, and will be
entitled to other benefits normally afforded executive employees, including
employee benefit plan participation, retirement and life insurance policies.
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<PAGE>
The employment agreement provides for severance benefits for Mr.
Hawkanson upon the termination of his employment agreement for reasons other
than completion of the employment term, his resignation, except if for "good
reason," or "for cause." In the event of termination for reasons other than set
forth in the preceding sentence, Mr. Hawkanson would receive his salary 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. Hawkanson would 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. Hawkanson has agreed that, during
the term of his employment and until the second anniversary of the date of
termination of his employment by Zions pursuant to the employment agreement, he
will not (i) engage in the banking business other than on behalf of Zions or the
Bank or their affiliates within the market area of King, Kitsap, Pierce, and
Snohomish Counties, Washington; (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 Zions or
the Bank or their 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 the
Bank or any of its affiliates to engage in any action prohibited under (i) or
(ii) above.
Robert Richards, the Company's Chief Executive Officer and the Bank's
Chief Operating Officer, as a participant in the Company's employee stock loan
program, incurred indebtedness to the Company to cover certain taxes payable in
connection with a grant by the Company in 1995 of shares of Company stock. The
note executed by Mr. Richards in November 1995 provides for forgiveness of the
outstanding indebtedness in equal semi-monthly installments over a period of
five years from the date of the note, or in its entirety upon a change of
control of the Company. Mr. Richards is currently indebted to the Company under
the program in the amount of approximately $78,000, which indebtedness will be
forgiven upon consummation of the Reorganization. Upon consummation of the
Reorganization, Mr. Richards' employment by the Company will be terminated, and
Mr. Richards will be entitled to receive supplemental retirement benefits under
an Executive Deferred Compensation Agreement effective as of January 1996, as if
Mr. Richards had retired as of the Effective Date of the Reorganization with
credit for twenty years of service.
The current senior executive officers of the Company will receive cash
bonuses aggregating $600,000 upon closing of the Reorganization. Of that amount,
Messrs. Hawkanson and Richards will each receive a bonus of $180,000. These
bonuses were granted by the Board of Directors in consideration of their
respective contributions to the success of the Company and the successful
negotiation of the Plan of Reorganization.
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Inconsistent Activities
The Company has agreed that, until the Reorganization 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 or the
Reorganization, 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 (a) customary cash
dividends paid by the Company or the Bank to holders of its Common Stock at such
intervals and in such amounts as are in every case consistent with the amounts
and intervals characteristic of that payer; (ii) declare or distribute any stock
dividend, authorize any stock split, or authorize, issue or make any
distribution of its capital stock or other securities except for the issuance of
Company Common Stock upon exercise of existing stock options or warrants, 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, except if the board of
directors of the Company, based upon the advice of its counsel, Foster Pepper &
Shefelman LLP, determines in good faith that such action is required for the
board of directors to comply with its fiduciary duties to stockholders imposed
by law; (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 January 1, 1998; (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.
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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.
Conditions to the Reorganization
The obligations of the parties to consummate the Reorganization
require, 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 restraining, enjoining, or prohibiting the
Reorganization, as more fully specified in the Plan of Reorganization, shall not
have been instituted or threatened; (iii) 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; (iv) the
Company and Zions shall have received a written opinion from tax counsel that
the Reorganization shall qualify as a tax free reorganization under the Code and
the regulations and rulings promulgated thereunder; and (v) there shall be no
adverse legislation or governmental regulation which would make the contemplated
transaction impossible.
The obligations of Zions to consummate the Reorganization are subject
to satisfaction or waiver of certain additional conditions, including: (i) the
shareholders of the Company shall have authorized the Reorganization; (ii) all
representations and warranties made by the Company in the Plan of Reorganization
shall be true and correct in all material respects on the Effective Date andthe
Company shall have performed all of its obligations under the Plan of
Reorganization on or prior to the Effective Date; (iii) Foster Pepper &
Shefelman LLP, 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)
litigation counsel for the Company shall have issued to Zions a favorable
opinion 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
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<PAGE>
operate its banking office; (vi) during the period from March 31, 1998 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) $21,913,000 and (b) the aggregate contributions to
capital caused by the payments accompanying the exercise ofany stock options on
or after March 31, 1998; (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 $2,400,000; (ix) the CRA
rating of the Bank shall be no lower than "satisfactory"; (x) Mr. Hawkanson
shall have entered into an employment agreement with Zions in the form set forth
in the Plan of Reorganization; (xi) the Company shall have received concurrence
of its determination that no act of, or set of circumstances attributable tothe
conduct of, the Company, the Bank, or any of the officers, directors,
shareholders, or agents of either the Company or the Bank prevents the
Reorganization from qualifying for "pooling of interest" accounting treatment;
and (xii) Zions shall have received a written agreement from each affiliate of
the Company, which letter is consistent with ss. 7.7 of the Plan of
Reorganization.
The obligations of the Company to consummate the Reorganization are
subject to the satisfaction or waiver of certain additional conditions,
including: (i) all representations and warranties made by Zions in the Plan of
Reorganization shall be true and correct in all material respects on the
Effective Date and Zions shall have performed all of its obligations under the
Plan of Reorganization on or prior to the Effective Date; (ii) the Company shall
have received legal opinion of Duane, Morris & Heckscher LLP, legal counsel to
Zions, in form and substance as set forth in the Plan of Reorganization; (iii)
during the period from March 31, 1998 to the Effective Date, there shall be no
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; and
(iv) Zions Common Stock shall be quoted on the Nasdaq NMS or shall be listed on
a national securities exchange.
Representations and Warranties
The representations and warranties of the parties 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 to which the respective parties are subject; the accuracy
and completeness of the financial statements and other information furnished to
the other party; the absence of material adverse changes in the condition,
assets, properties, or business since March 31, 1998 with respect to Zions, the
Company and the Bank; the absence of undisclosed material liabilities; and
compliance with laws. The Company has additionally warranted that since March
31, 1998, there has been 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. 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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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, unless the term or condition is required by law,
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 was materially incorrect when made or in the event of
a material breach or material failure by the Company of any covenant or
agreement of the Company 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 was materially incorrect when
made or in the event of a material breach or material failure by Zions of any
covenant or agreement of Zions contained in the Plan of Reorganization which has
not been, or cannot be, cured within thirty days after written notice has been
given or if the board of directors of the Company, based upon the advice of its
counsel, Foster Pepper & Shefelman LLP determines in good faith that such
termination is required for the Board of Directors to comply with its fiduciary
duties to its shareholders imposed by law by reason of an Alternative Proposal
(as defined in the Plan of Reorganization) to acquire the Company being made;
(iv) by either the Company or Zions if the Reorganization 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 January 31, 1999 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 $750,000. If
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<PAGE>
the Plan of Reorganization is terminated because of an Alternative Proposal, the
Company shall be liable to Zions in the amount of $2,000,000.
Restrictions on Resales by Company Affiliates
In general, Company shareholders who receive Zions shares as a result
of the Reorganization will be able to sell such shares freely and without
restriction. However, directors, executive officers, and 10% shareholders of the
Company, who generally are considered "affiliates" of the Company, are subject
to restrictions on the sales of shares received in the Reorganization. Those
shareholders will not be 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; (ii) the provisions of Rules 144 and 145
under the Securities Act; or (iii) an exemption from the registration
requirements of the Securities Act.
Additionally, to ensure the Reorganization may be accounted for as a
pooling of interests, 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-Reorganization combined operations are
published by Zions. The management of the Company will notify those persons who
it believes may be deemed to be affiliates subject to the foregoing
restrictions. The Plan of Reorganization requires the Company to use its best
efforts to have each affiliate of the Company sign an agreement to limit that
affiliate's ability to effect any such sales. Zions may place restrictive
legends on certificates representing Zions Common Stock issued in the
Reorganization to all persons who are deemed affiliates under Rule 145.
Appropriate stop transfer instructions may be given to the transfer agent for
such certificates.
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. Zions will pay the costs attributable to registering
its stock issuable pursuant to this Proxy Statement/Prospectus under federal and
state securities laws.
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 Washington regulators,
including the Board of Governors, the Commissioner, and the Department.
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 [NOT YET] been obtained.
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Effective Date of the Reorganization
If the Plan of Reorganization is approved by the shareholders of the
Company, the parties expect that the Reorganization will become effective in the
[THIRD] quarter of 1998. However, as noted above, consummation of the
Reorganization is subject to the satisfaction of a number of conditions, some of
which the parties cannot waive. 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
[THIRD] 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 parties expect the Reorganization to be treated for accounting
purposes as a "pooling of interests" in accordance with APB Opinion No. 16. The
Plan of Reorganization requires, as a condition of closing, that the Company
shall have received concurrence to its determination that no act or set of
circumstances attributable to the conduct of the Company, the Bank, or any of
the officers, directors, shareholders, or agents of the Company or the Bank
prevents the Reorganization from qualifying for pooling of interests accounting
treatment. 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.
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.
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<PAGE>
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.
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
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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 March 31, 1998, Zions' Tier 1 and Total Capital ratios were
11.73% and 13.62%, respectively.
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.
- 40 -
<PAGE>
The following table presents Zions' regulatory capital position at
March 31, 1998 under the risk-based capital guidelines.
Risk-Based Capital
(Dollars in thousands)
Percent
of Risk-
Adjusted
Amount Assets
------ ------
Tier 1 Capital............................. $ 739,427 11.73%
Minimum Requirement........................ 252,629 4.00
----------- ------
Excess................................... $ 486,798 7.73%
========== ======
Total Capital.............................. $ 858,374 13.62%
Minimum Requirement........................ 505,258 8.00
----------- ------
Excess................................... $ 353,116 5.62%
========== ======
Risk-Adjusted Assets,
net of goodwill, excess deferred
tax assets and excess allowance.......... $6,315,727 100.00%
========== ======
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
March 31, 1998, Zions' leverage ratio was 6.89%.
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 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 March 31, 1998. 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.
- 41 -
<PAGE>
(Dollars in thousands)
Percent
of Average
Assets, Net
Amount of Goodwill
------ -----------
Tier 1 Capital............................. $ 739,427 6.89%
Minimum Requirement........................ 321,985 3.00
----------- ------
Excess..................................... $ 417,442 3.89%
=========== ======
Average Assets, net of goodwill and
deferred tax assets...................... $10,732,823 100.00%
=========== ======
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, as
amended ("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"
- 42 -
<PAGE>
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 hiring of senior executive officers.
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.
- 43 -
<PAGE>
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).
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
- 44 -
<PAGE>
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.
At June 30, 1998, both BIF- and SAIF-assessable deposits were 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 occur of the merger of the BIF and SAIF funds or January 1,
2000. At June 30, 1998, assessment rates were set at 1.22 basis points annually
for BIF-assessable deposits and 6.10 basis points annually 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.
- 45 -
<PAGE>
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
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
- 46 -
<PAGE>
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, which are incorporated by
reference in this Proxy Statement/Prospectus. See "Zions Documents Incorporated
by Reference."
- 47 -
<PAGE>
ZIONS BANCORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share and ratio data)
As of, and for the Three
Months Ended March 31,
-----------------------------
1998 1997
---- ----
EARNINGS SUMMARY
Taxable-equivalent net interest income $ 110,812 $ 84,643
Net interest income 107,943 82,898
Noninterest income 43,794 34,136
Provision for loan losses 3,256 1,835
Noninterest expenses (1) 95,414 68,176
Income taxes 16,626 16,438
Income before cumulative effect of changes
in accounting principles 36,441 30,585
Cumulative effect of changes in
accounting principles (2) -- --
Net income 36,441 30,585
COMMON STOCK DATA
Earnings per common share:
Income before cumulative effect of
changes in accounting principles
- diluted $ .52 $ .45
Net income - basic .53 .46
Net income - diluted .52 .45
Dividends declared per share .12 .11
Dividend payout ratio (%) 22.75% 20.89%
Book value per share at period end 10.48 8.75
Market to book value at period end (%)
Average common shares outstanding 69,102,000 66,334,000
Weighted average common and common
equivalent shares outstanding
during the period 70,159,000 68,025,000
Common shares outstanding at period end 69,075,665 67,641,324
AVERAGE BALANCE SHEET DATA
Money market investments $ 1,589,899 $ 1,574,842
Securities 2,948,283 2,313,412
Loan and leases, net 5,433,927 4,248,672
Total interest-earning assets 9,972,109 8,136,926
Total assets 10,944,611 8,811,521
Interest-bearing deposits 5,686,951 4,173,813
Total deposits 9,799,027 5,470,654
FHLB advances and other borrowings over
one year 155,287 71,520
Long-term debt 277,934 255,024
Total interest-bearing liabilities 8,233,290 6,803,097
Shareholders' equity 709,097 597,689
PERIOD END BALANCE SHEET DATA
Money market investments $ 1,154,038 $ 1,046,568
Securities 2,622,465 2,276,470
Loans and leases, net 5,649,602 4,450,448
Allowance for loan losses 91,857 81,113
Total assets 10,611,585 8,508,537
Total deposits 7,799,027 5,728,585
FHLB advances and other borrowings over
one year 121,421 69,530
Long-term debt 276,387 258,704
Shareholders' equity 723,814 591,581
<PAGE>
<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 .47 .425 .3525 .29 .245
Dividend payout ratio (%) 23.20% 23.27% 24.95% 27.06% 21.81%
Book value per share at period end 10.25 8.72 7.46 6.28 5.50
Market to book value at period 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 period 64,629,000 63,787,000 60,013,000 58,404,000 57,120,000
Common shares outstanding at period end 63,962,100 63,468,480 62,773,280 58,238,208 56,805,468
AVERAGE BALANCE SHEET DATA
Money market investments $ 1,490,772 $ 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
PERIOD 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>
- 48 -
<PAGE>
As of, and for the Three
Months Ended March 31,
---------------------------
1998 1997
---- ----
Nonperforming assets:
Nonaccrual loans $ 16,807 $ 13,851
Restructured loans 1,222 1,608
Other real estate owned and other
nonperforming assets 2,377 2,524
Total nonperforming assets 20,406 17,983
Accruing loans past due 90 days or more 11,714 5,638
SELECTED RATIOS
Net interest margin (3) 4.51% 4.22%
Return on average assets 1.35% 1.41%
Return on average common equity 20.84% 20.75%
Ratio of average common equity to average assets 6.48% 6.78%
Tier I risk-based capital - period end 11.73% 13.95%
Total risk-based capital - period end 13.62% 16.52%
Leverage ratio - period end 6.89% 8.09%
Ratio of nonperforming assets to total
assets - period end .19% .21%
Ratio of nonperforming assets to net loans and
leases and other real estate owned and
other nonperforming assets at period end .36% .40%
Ratio of net charge-offs (recoveries) to average
loans and leases .05% .17%
Ratio of allowance for loan losses to net loans
and leases outstanding at period end 1.63% 1.82%
Ratio of allowance for loan losses to
nonperforming loans at period end 509.50% 524.70%
<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 - period end 11.74% 14.16% 11.33% 11.81% 10.85%
Total risk-based capital - period end 13.75% 17.52% 14.03% 14.96% 14.12%
Leverage ratio - period end 6.75% 8.70% 6.33% 6.24% 5.44%
Ratio of nonperforming assets to total
assets - period 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 period 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 period end 1.65% 2.00% 2.39% 2.80% 2.75%
Ratio of allowance for loan losses to
nonperforming loans at period 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 $5,290,000 for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
other assets and liabilities.
(3) Net interest margin represents net interest income on a taxable-equivalent
basis as a percentage of average earning assets.
- 49 -
<PAGE>
Stock Prices and Dividends on Zions Common Stock
Zions Common Stock is traded on the Nasdaq NMS under the symbol "ZION."
The following table provides the high and low daily sales prices for Zions
Common Stock for the periods indicated, in each case as reported by the Nasdaq
Stock Market and the cash dividends per share declared on Zions Common Stock for
such periods.
Cash
Dividends
High Low Declared
---- --- --------
1996
First Quarter....................................$ 19.81 $ 16.69 $ .1025
Second Quarter................................... 19.75 17.00 .1025
Third Quarter.................................... 22.44 18.00 .11
Fourth Quarter................................... 26.00 21.94 .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................................... 53.13 48.06 .14
Third Quarter (through ___________, 1998)........ XX XX XX
On May 13, 1998, the last trading date prior to the public announcement
of the Reorganization, the closing sale price for the Zions Common Stock was
$_________. On , 1998, the last trading date before the date of this Proxy
Statement/Prospectus, the closing sale price for the Zions Common Stock was
$_________. On _____________, 1998, there were approximately [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.
INFORMATION ABOUT THE COMMERCE BANCORPORATION
The Company
The Commerce Bancorporation (the "Company") was organized in 1987 under
Washington law for the purpose of becoming a bank holding company for The
Commerce Bank of Washington, N.A. (the "Bank"), a national banking association
that commenced operations in 1988. The Company conducts its business through its
sole subsidiary, the Bank, and has no separate operations or facilities. The
Company maintains its executive offices at the office of the Bank, its sole
operating subsidiary, at 601 Union St., Suite 3600, Seattle, Washington.
- 50 -
<PAGE>
The Bank
The Commerce Bank of Washington, N.A., organized in 1988 under federal
law as a national banking association, is a commercial bank serving the greater
Seattle, Washington, metropolitan area and communities throughout the Puget
Sound region. The Bank operates from a single office at 601 Union St., Suite
3600, Seattle, Washington. As of March 31, 1998, the Bank had total assets of
approximately $330.2 million and total deposits of $245.3 million.
Business Strategy
The Bank's business strategy has been to develop banking relationships
with commercial borrowers, their principals and key employees, and market its
products and services to prospective customers who are able to maintain large
deposits and utilize the Bank's cash management services. Unlike many commercial
banks of similar size that seek to serve a specific community with a full
spectrum of financial services, the Bank has not emphasized retail deposit
development and personal lending. Instead, the Bank has targeted what it
believes is an under-served but more profitable segment of the financial
services market, industrial businesses and professional firms with annual
revenues of between $2 million and $100 million. Generally, these customers have
significant borrowing needs, but have established businesses and stronger
financial condition than smaller, younger companies. The Bank believes that
customers in this segment of the market pose a low level of credit risk and are
able to utilize several banking products and services, providing the Bank with
opportunities to realize additional fee income and maintain or strengthen
customer loyalty. In addition, these customers generally maintain significant
amounts of funds in non-interest-bearing deposit accounts for operational needs,
lowering the Bank's dependence on interest-bearing deposits. Consequently, the
Bank is able to benefit from a relatively low cost of funds and realize strong
net interest margins and return on equity. Further, while the Bank's return on
average assets for the year ended December 31, 1997 was 1.75%, and its return on
average equity for the year ended December 31, 1997, was 20.9%, the loan loss
experience was only 0.01% of average loans. As of December 31, 1997, total
assets had grown to $298 million compared to $38 million at December 31, 1989,
the first full year of operations. At the same time, net interest margins have
exceeded 5% while maintaining a significant portion of the Bank's assets in
liquid, but lower yielding investment securities. The Bank believes its rapid
asset growth and strong net interest margins are primarily attributable to the
Bank's focus on giving superior customer service generating referrals of new
customers from existing customers.
Products and Services
The Bank offers a full array of financial products to meet the banking
needs of its market area and targeted customers. To ensure the ongoing viability
Sof its product offerings, the Bank regularly examines the desirability and
profitability of existing and potential new products.
- 51 -
<PAGE>
Deposit Products. The Bank offers a traditional array of deposit products,
including non-interest checking accounts, interest-bearing checking and savings
accounts, money market accounts and certificates of deposit. These accounts earn
interest at rates established by management based on competitive market factors
and management's desire to increase certain types or maturities of deposit
liabilities.
Investment Services. The Bank provides a variety of investment products and
services, including cash management services for those business and professional
clients, certificates of deposit, mutual funds, retirement plans, corporate
equity and debt securities, and U.S. Government securities.
Commercial Loans. The Company offers specialized loans for its business and
commercial customers, including equipment and inventory financing, real estate
construction loans and SBA loans for qualified businesses. Commercial lending is
the primary focus of the Company's lending activities and a significant portion
of the Company's loan portfolio consists of commercial loans. For regulatory
reporting purposes, a substantial portion of the Company's commercial loans are
designated as real estate loans, because the loans are secured by mortgages and
trust deeds on real property, even though the loans may be made for purposes of
financing commercial activities, such as accounts receivable, equipment
purchases and leasing. To accommodate the personal financial needs of principals
and key employees of its commercial loan customers, the Bank offers real estate
financing and consumer loans. These loans, however, constitute only a small
portion (8%) of the loan portfolio.
Competition
The geographic area of King County, Washington, and the Seattle
metropolitan area is highly competitive with respect to both deposits and loans.
The Bank competes principally with other commercial banks and thrift
institutions, and, to a lesser extent, credit unions, mortgage companies, and
other non-bank financial institutions. Certain of these financial institutions
have the advantages of offering their customers statewide banking facilities and
higher lending capabilities as a result of greater financial resources. In
addition, competition from outside the traditional banking system from
investment banking firms, mortgage companies, insurance companies, commercial
and consumer finance companies, and related industries offering investment
products and commercial, real estate and consumer loans has widened the
competition for deposits and loans. The Bank believes that by eschewing a
retail-oriented branch banking system, focusing on lending to mid-size
businesses and professional firms, and providing financial services to the
principals of such businesses and firms, the Bank is able to limit its overhead
expenses and achieve high net interest margins and return on equity.
The Bank's traditional competition for deposits comes from commercial
banks, savings and loan associations, credit unions, and money market funds,
many of which have more locations or offer higher rates of interest than the
Bank. Competition for funds also comes from issuers of corporate and
governmental securities, insurance companies, mutual funds, and other financial
intermediaries. The Bank competes for deposits by offering a variety of deposit
- 52 -
<PAGE>
accounts at rates generally competitive with similar financial institutions in
the area and has introduced various new accounts when authorized by regulatory
authorities. The Bank's principal competitive advantage with respect to the
larger statewide financial institutions has been its focus on commercial
borrowers that appreciate the personal service of a small bank, and do not need
the broad spectrum of products and services offered by consumer-oriented
institutions.
In competing for deposits, the Bank is subject to certain limitations not
applicable to non-bank competitors. Legislation enacted in the 1980s authorized
banks to offer deposit instruments with rates competitive with money market
funds, but subject to restrictions not applicable to those funds. Legislation
has also made non-bank financial institutions more effective competitors.
Savings and loan associations and credit unions are permitted to offer checking
accounts and to make commercial loans.
The Bank's competition for loans comes primarily from the same financial
institutions with which the Bank competes for deposits. The Bank competes for
loan originations primarily through the level of interest rates and loan fees
charged, the variety of commercial and mortgage loan products, and the
efficiency and quality of services provided to borrowers. Factors that affect
loan competition include the availability of lendable funds, local and national
economic conditions, current interest rate levels, and loan demand.
Employees
As of March 31, 1998, the Company had a total of 47 full-time equivalent
employees. None of the employees are subject to a collective bargaining
agreement. The Company considers its relationship with its employees to be good.
Properties
The Company maintains its executive offices at the office of the Bank, its
sole operating subsidiary, at 601 Union St., Suite 3600, Seattle, Washington.
The office is leased at an annual rate of $294,960 under a lease agreement that
will expire in 2003, and provides for two five-year renewal options.
Legal Proceedings
The Bank from time to time has pending routine litigation relating to the
collection of secured and unsecured indebtedness resulting from its business of
furnishing financial services, including providing credit. In some cases, such
litigation involves claims or counterclaims against the Bank. There is currently
no litigation pending or threatened, which, if determined adversely to the Bank,
would have a material adverse condition on the business or financial condition
of the Bank.
- 53 -
<PAGE>
Supervision and Regulation
As more fully discussed in the following pages, banks and bank holding
companies are subject to a comprehensive regulatory scheme to ensure the safety
and soundness and proper management of financial institutions.
General
The Company and the Bank are extensively regulated under federal and state
law. These laws and regulations are intended to protect depositors, not
shareholders. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory or regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Company and the Bank. The operations of the Company may be affected by
legislative changes and by the policies of various regulatory authorities. The
Company cannot accurately predict the nature or the extent of the effects on its
business and earnings those fiscal or monetary policies, or new federal or state
legislation may have in the future.
Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended ("BHCA"), and as such, is subject to
regulation, supervision and examination by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). The Company is required to file annual
reports with the Federal Reserve and to provide the Federal Reserve such
additional information as the Federal Reserve may require.
The BHCA requires every bank holding company to obtain the prior approval
of the Federal Reserve before (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii) acquiring
all or substantially all of the assets of another bank or bank holding company;
or (iii) merging or consolidating with another bank holding company. The Federal
Reserve will not approve any acquisition, merger or consolidation that would
have a substantial anti-competitive result, unless the anti-competitive effects
of the proposed transaction are clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The Federal
Reserve also considers capital adequacy and other financial and managerial
factors in reviewing acquisitions or mergers.
With certain exceptions, the BHCA also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve regulation or order,
- 54 -
<PAGE>
have been identified as activities closely related to the business of banking or
of managing or controlling banks. In making this determination, the Federal
Reserve considers whether the performance of such activities by a bank holding
company can be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency in resources, which
can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, on investments in their securities and
on the use of their securities as collateral for loans to any borrower. Further,
under the Federal Reserve Act and certain regulations of the Federal Reserve, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tying arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services.
Federal Banking Regulation
The Bank, as a national bank with deposits insured by the FDIC, is subject
to the supervision and regulation of the Office of the Comptroller of the
Currency ("OCC"). This agency may prohibit the Bank from engaging in what it
believes constitute unsafe or unsound banking practices.
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve or the relevant supervisory agency, such as the OCC, evaluates the
record of the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. The Bank's current CRA rating is "Satisfactory."
Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and follow credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not covered above and who are not employees, and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Banks are also subject to certain lending limits and restrictions on overdrafts
to such persons. A violation of these restrictions may result in the assessment
of substantial civil monetary penalties on the affected bank or any officer,
director, employee, agent or other person participating in the conduct of the
affairs of that bank, the imposition of a cease and desist order, and other
regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
each federal banking agency has prescribed, by regulation, non-capital safety
and soundness standards for institutions under its authority. These standards
- 55 -
<PAGE>
cover internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, such other operational and managerial standards
as the agency determines to be appropriate, and standards for asset quality,
earnings liquidity and capital adequacy. An institution that fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management believes that the Bank meets all the standards, and therefore does
not believe that these regulatory standards materially affect the Bank's
business operations.
Deposit Insurance
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF"), administered by the FDIC. The
Bank is required to pay semiannual deposit insurance premium assessments to the
FDIC.
The FDICIA included provisions to reform the Federal deposit insurance
system, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.
Pursuant to the FDICIA, the FDIC implemented a transitional risk based insurance
premium system on January 1, 1993. Generally, under this system, banks are
assessed insurance premiums according to how much risk they are deemed to
present to BIF. Banks with higher levels of capital and a low degree of
supervisory concern are assessed lower premiums than banks with lower levels of
capital or involving a higher degree of supervisory concern. The premium range
is from $0.00, for the highest-rated institutions (subject to a statutory
minimum assessment of $2,000) to $0.27 per $100 of domestic deposits. The Bank
has a current FDIC premium rate of $0.00 per $100 of domestic deposits.
Dividends
The principal source of the Company's cash revenues is dividends received
from the Bank. Under the OCC regulatory, the Bank is subject to restrictions on
the payment of cash dividends to its shareholders. A bank may not pay cash
dividends if that payment would reduce the amount of its capital below that
necessary to meet minimum applicable regulatory capital requirements. In
addition, the amount of the dividend may not be greater than its net unreserved
retained earnings, after first deducting (i) to the extent not already charged
against earnings or reflected in a reserve, all bad debts, which are debts on
which interest is unpaid and past due at least six months; (ii) all other assets
charged off as required by the OCC examiner; and (iii) all accrued expenses,
interest and taxes of the bank. The Bank has been paying regular dividends to
shareholders, although no assurances can be given that dividends will continue
to be paid. See "Market Price of and Dividends on Common Stock."
- 56 -
<PAGE>
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends that would
constitute an unsafe or unsound banking practice. The Company and the Bank are
not currently subject to any regulatory restrictions on their dividends other
than those noted above.
Capital Adequacy
The federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The OCC and Federal Reserve have adopted risk-based capital guidelines for
banks and bank holding companies. The risk-based capital guidelines are designed
to make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk- weighted assets and off-balance sheet items. The
guidelines are minimums, and the Federal Reserve has noted that bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimum. The current guidelines require all bank holding companies
and federally regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier 1 capital.
The Federal Reserve also has implemented a leverage ratio, which is Tier 1
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to place a constraint on the maximum degree to which a bank holding
company may leverage its equity capital base. The Federal Reserve requires a
minimum leverage ratio of 3%. However, for all but the most highly rated bank
holding companies and for bank holding companies seeking to expand, the Federal
Reserve expects an additional cushion of at least 1% to 2%.
The FDICIA created a statutory framework of supervisory actions indexed to
the capital level of the individual institution. Under regulations adopted by
the OCC, an institution is assigned to one of five capital categories depending
on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions which are
deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions. The
Bank does not believe that these regulations have any material effect on its
operations.
- 57 -
<PAGE>
Effects of Government Monetary Policy
The earnings and growth of the Bank are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on the Company or
the Bank cannot be predicted with certainty.
Changing Regulatory Structure of the Banking Industry
The laws and regulations affecting banks and bank holding companies are
currently undergoing significant changes. Bills are now pending or expected to
be introduced in the United States Congress that contain proposals for altering
the structure, regulation, and competitive relationships of the nation's
financial institutions. If enacted into law, these bills could have the effect
of increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills would reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, alter the extent to which banks will be
permitted to engage in securities activities, and realign the structure and
jurisdiction of various financial institution regulatory agencies. Whether or in
what form any such legislation may be adopted or the extent to which the
business of the Company or the Bank might be affected thereby cannot be
predicted with certainty.
Summary Financial Data
The following table sets forth certain information concerning the Company's
consolidated financial condition, operating results, and key operating ratios at
the dates and for the periods indicated. This information does not purport to be
complete, and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the Consolidated
Financial Statements of the Company and Notes thereto included in this
Prospectus/Proxy Statement.
- 58 -
<PAGE>
<TABLE>
<CAPTION>
Three months Years ended December 31,
ended --------------------------------
Dollars in thousands except per share data March 31, 1998 1997 1996
-------------- ---- ----
<S> <C> <C> <C>
Balance Sheet Data
Investment securities and
Fed funds sold $ 106,772 $ 125,184 $ 84,816
Loans receivable, net 150,965 151,397 130,016
Total assets 330,188 298,478 237,517
Total deposits 245,310 235,771 185,740
Shareholders' equity 24,482 23,890 20,300
Income Statement Data
Interest income $ 5,419 $ 19,465 $ 15,543
Interest expense 1,994 6,869 5,437
-------- -------- ---------
Net interest income 3,425 12,596 10,106
Provision for loan losses 29 300 270
Non-interest income 245 1,303 1,233
Non-interest expense 1,762 7,059 6,182
Income before Income Taxes 1,879 6,540 4,887
Income Taxes 591 2,082 1,545
---------- --------- ---------
Net income $ 1,288 $ 4,458 $ 3,342
========== ========== ==========
Per Share Data
Basic earnings per share $ 0.54 $ 1.86 $ 1.44
Diluted earnings per share 0.45 1.63 1.26
Dividends per share 0.30 0.25 --
Selected Ratios
Return on average equity 21.39%* 20.90% 17.76%
Return on average assets 1.74%* 1.75% 1.69%
Net interest margin 4.93%* 5.26% 5.37%
Net charge-offs to average loans 0.00% 0.01% 0.00%
Loan loss reserve to total loans 1.59% 1.54% 1.58%
Shareholders' equity to total assets 7.41% 8.00% 8.55%
</TABLE>
- -----------
* Three month data presented on an annualized basis.
Stock Prices and Dividends on Company Common Stock
There is no established trading market for the Company Common Stock. Over
the years, little trading in the Company Common Stock has occurred. Reliable
information concerning the prices at which the Company 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
- 59 -
<PAGE>
prices has been omitted based on the Company's belief that such prices are not
necessarily representative of a fair market price for the Company Common Stock
during any particular period. Since May 13, 1998, the date the Plan of
Reorganization was executed and publicly announced, there have been no trades in
the Company's Common Stock.
The following table sets forth the per share cash dividends declared and
paid by the Company during each of the last three years.
1995................................................ $0.00
1996................................................ $0.00
1997................................................ $0.25
1998 (to date)...................................... $0.30
As of June 30, 1998 there were approximately 200 holders of record of
the Company Common Stock.
Certain Transactions of the Company
James C. Hawkanson, president and chief executive officer of the Bank,
will continue to serve as chief executive officer of the Bank pursuant to an
employment agreement to be executed at Closing. Certain executive officers of
the Company will receive cash bonuses on the Effective Date. See "Plan of
Reorganization--Interests of Certain Persons in the Transaction" for
information concerning the employment agreement, cash bonuses, and other matters
relating to Mr. Hawkanson, the Company's executive officers, 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 substantially 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 June 30, 1998, the Company's directors and executive officers and their
related parties were indebted to the Bank in the aggregate amount of $6,051,218,
none of which loans were delinquent.
Stockholdings of Directors, Officers and Certain Others
The following table sets forth certain information, as of June 30,
1998, with respect to (i) each shareholder known by the Company to be the
beneficial owner of more than 5% of any class of voting securities of the
Company, (ii) each director and (iii) all directors and executive officers as a
group. Except as noted below, each person has sole voting and investment power
with respect to the shares shown. The percentages are based on 2,793,883 shares
- 60 -
<PAGE>
of Common Stock outstanding as of June 30, 1998 plus that number of shares of
Common Stock subject to options exercisable within 60 days held by each
individual or group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name of Beneficial Owner (1) Beneficial Ownership of Class
- ---------------------------- -------------------- --------
<S> <C> <C>
Graham S. Anderson, Director.............................. 43,023 1.5%
Stanley H. Barer, Director................................ 30,975 1.1%
Christopher T. Bayley, Director........................... 51,676 1.8%
Carl G. Behnke, Director.................................. 30,901 1.1%
William E. Boeing, Jr. ................................... 145,800 5.2%
William D. Bradford, Director............................. 841 *
Richard C. Clotfelter, Director........................... 50,660 1.8%
Kirby L. Cramer, Director................................. 32,070 1.1%
Michael D. Garvey, Director............................... 73,028 2.6%
Herbert M. Gould III, Director............................ 31,236 1.1%
James C. Hawkanson, Director; Managing Director;
Chief Operating Officer; Secretary; Treasurer........ 136,433 (2) 4.8%
John A. Hilton, Jr., Director............................. 100 *
Garfield R. Jeffers, Director............................. 30,748 1.1%
Laurie McDonald Jonsson, Director......................... 33,956 1.2%
Patrick W. Kuo, Director.................................. 20,616 *
William Rademaker, Jr., Director.......................... 35,710 1.3%
Robert R. Richards, Director; Managing
Director; Chief Executive Officer; President......... 144,267 5.2%
Faye Sarkowsky, Director.................................. 2,593 *
David C. Wyman, Director.................................. 82,255 (3) 2.9%
All directors and executive officers
as a group (19 persons).............................. 889,688 (4) 31.3%
</TABLE>
- -----------------
* Less than 1% of outstanding shares of Common Stock.
(1) All such persons can be reached c/o the Company at Two Union Square,
601 Union Street, Suite 3600, Seattle, Washington, 98101.
(2) Includes 26,622 shares subject to acquisition upon the exercise of vested
stock options.
(3) Includes 20,000 shares held of record by Mr. Wyman's wife.
(4) In addition to the ownership described in footnotes (2) and (3) above,
includes 18,514 shares subject to acquisition upon the exercise of vested
stock options by executive officers.
- 61 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following includes a discussion of certain significant business
trends and uncertainties as well as other forward-looking statements and is
intended to be read in conjunction with and is qualified in its entirety by
reference to the Company's consolidated financial statements and accompanying
notes included elsewhere in this Proxy Statement/Prospectus.
Financial Highlights
For the three months ended March 31, 1998, the Company recorded income
of $1,288,000, an increase of 40.4% from net income of $917,000 for the
comparable period in 1997. Total consolidated assets at March 31, 1998 were
$330,188,000 compared to $244,221,000 at March 31, 1998.
For the year ended December 31, 1997, the Company recorded net income
of $4,458,000 or $1.63 per diluted share, up 33.4% over net income of $3,342,000
or $1.26 per diluted share in 1996. At December 31, 1997, total assets were
$298,478,000, a 25.7% increase over total assets of $237,517,000 at December 31,
1996. In 1997, return on average assets was 1.75% and return on average equity
was 20.9%.
Earnings growth has been primarily attributable to the growth in
earning assets and an increase in the Company's net interest margins as a result
of growth in its loan portfolio. Contributing to the increases in net income
were changes in the mix of interest-bearing deposits, increases in
non-interest-bearing deposits and increases in non-interest income. The growth
of average assets, deposits and loans during the last three years has been
significant. These increases reflect the results of expanded business
development activities, marketing programs and a favorable economic climate in
the Company's market area.
Net Interest Income
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loans and investment securities, and interest expense,
principally on customer deposits. Changes in net interest income result from
changes in "volume," "spread" and "margin." Volume refers to the dollar level of
interest-earning assets and interest-bearing liabilities. Spread refers to the
difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total interest-earning assets and is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities.
Net interest income before provision of loan loss for the three months
ended March 31, 1998 was $3,425,000, up 20.6% from the $2,839,000 in net
interest income reported for the comparable period in 1997.
- 62 -
<PAGE>
Net interest income before provision for loan loss for the year ended
December 31, 1997 was $12,596,000, an increase of $2,490,000 or 24.6% compared
to net interest income of $10,106,000 in 1996. These results were attributable
to particularly strong growth of the deposit base, and the Company's ability to
attract a mix of deposits at favorable rates. Deposits increased by $50,000,000
and were redeployed in the loan portfolio (which increased by $21,382,000 and
the investment portfolio (which increased by $40,368,000). The net interest
margin for 1997 was 5.26%, compared to 5.37% in 1996. There was little change in
the yield on loans in 1997 or 1996 due to relatively stable interest rates
during the periods.
Provision for Loan Losses
The provision expense is management's estimate of the amount necessary
to maintain an allowance for loan losses at a level that is considered adequate
based on the risk of future losses inherent in the loan portfolio. Management
monitors the adequacy of the allowance based on a potential loss rate assigned
to each risk rating and the Company's historic loan loss percentage. Management
believes the allowance has been maintained at an adequate level. The loan loss
provision for the three-month periods ended March 31, 1998 and 1997 were $29,000
and $75,000, respectively, and for the years ended December 31, 1997 and 1996,
the provision was $300,000 and $270,000, respectively. The Company's ratio of
the allowance for loan losses to total loans was 1.59% at March 31, 1998
compared to 1.54% at December 31, 1997, and 1.58% at December 31, 1996.
Other Income
Total other income for the three months ended March 31, 1998 was
$245,000 compared to $357,000 for the comparable period in 1997, primarily as a
result of lower corporate finance fees which tend to vary considerably from
quarter to quarter. For the years ended December 31, 1997 and 1996, other income
was $1,303,000 and $1,233,000, respectively. The primary source of other income
is fees and commissions generated by the Company's corporate finance activities.
In 1996 these fees amounted to 58% of total fees and in 1997 they were 50% of
total fees.
Other Expense
Other operating expenses consist principally of employees' salaries and
benefits, occupancy costs and other operating expense. A measure of the
Company's ability to contain other expenses is the efficiency ratio. This
statistic is derived by dividing total other expenses by the total of net
interest income (tax equivalent basis) and other income. As of December 31,
1997, the ratio was 50% compared to 54% at the end of 1996. Management continues
to place emphasis on closely monitoring and controlling other expenses.
Salary and wage expense of $4,266,000 in 1997 represented an increase
of 12.6% from the $3,789,000 reported in 1996.
- 63 -
<PAGE>
Occupancy expense consists of depreciation on equipment, premises lease
payments, maintenance and repair expenses, utilities and related expenses. The
Company's occupancy expense in 1997 was $550,000 as compared to $494,000 in
1996. The increase in 1997 as compared to 1996 was the result of the increases
in depreciation on leasehold improvements and equipment.
Other operating expenses, which consist primarily of state business and
occupation taxes, stationary and supplies, telephone expense, courier service
and postage, has increased from $1,899,000 in 1996 to $2,242,000 in 1997, an
increase of 18%. This is a result of growth in every area of non-interest
expense as a direct result of the rapid deposit growth the Company experienced
in 1997.
Income Taxes
The provision for income taxes amounted to $2,082,000 and $1,545,000
for 1997 and 1996, respectively. Income tax expense attributable to income from
operations differed from the amounts computed by applying the U.S. Federal
income tax rate of 34% to pretax income from operations as a result of the
following:
1997 1996
---------- ----------
Computed "expected" tax expense $2,224,000 $1,662,000
Increase (reduction) in income taxes resulting
from:
Interest income on tax exempt securities (151,000) (101,000)
Other, net 9,000 (16,000)
---------- ----------
Total $2,082,000 $1,545,000
========== ==========
Investment Portfolio
Investment securities held at December 31, 1997 totaled $85,857,000
compared to $70,411,000 at December 31, 1996. The increase in the investment
portfolio in 1997 occurred as deposit growth exceeded loan demand.
The Company follows a financial accounting principle requiring the
identification of investment securities as held-to-maturity or
available-for-sale. Securities designated as held-to- maturity are those that
the Company has the intent and ability to hold until they mature or are called,
rather than those that management may sell if liquidity requirements dictate or
alternative investment opportunities arise. The mix of available-for-sale and
held-to-maturity investment securities is considered in the context of the
Company's overall asset-liability policy and reflects management's assessment of
the relative liquidity of the Company. At December 31, 1997, the investment
portfolio consisted of 69% available-for-sale securities and 31%
held-to-maturity, compared to 67% available-for-sale securities and 33%
held-to-maturity investments at December 31, 1996.
- 64 -
<PAGE>
At December 31, 1997, the Company's investment securities
available-for-sale had total net unrealized gains of $633,000 as compared to net
unrealized losses of $193,000 at December 31, 1996. Unrealized gains and losses
reflect changes in market conditions and do not represent the amount of actual
profits or losses the Company may ultimately realize. The Company recognizes
actual gains and losses at the time investment securities are sold or redeemed.
Amortized costs and fair values of investment securities classified as
available-for-sale at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Gross unrealized Gross unrealized
cost gains losses Fair value
----------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
1997
----
U.S. Treasury $ 5,945,000 $ 95,000 $ 0 $ 6,040,000
U.S. Government and agency
securities 51,070,000 538,000 (38,000) 51,570,000
Tax-exempt municipals 539,000 3,000 - 542,000
Other (primarily corporate notes) 1,033,000 36,000 - 1,069,000
----------- -------- ---------- -----------
$58,587,000 $672,000 $ (38,000) $59,221,000
=========== ======== ========== ===========
1996
----
U.S. Treasury $ 5,654,000 $ 29,000 $ (21,000) $ 5,662,000
U.S. Government and agency
securities 39,371,000 104,000 (303,000) 39,172,000
Tax-exempt municipals 691,000 2,000 - 693,000
Other (primarily corporate notes) 1,436,000 7,000 (12,000) 1,431,000
----------- -------- ---------- -----------
$47,152,000 $142,000 $(336,000) $46,958,000
=========== ======== ========== ===========
</TABLE>
The amortized cost and fair value of investment securities classified
as available-for-sale at December 31, 1997 by contractual maturity are shown
below. Expected maturities will differ from contractual maturity because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized
cost Fair value
---- ----------
Due in one year or less $ 1,290,000 $ 1,300,000
Due in one to five years 43,525,000 43,905,000
Due in five to ten years 13,772,000 14,015,000
----------- -----------
$58,587,000 $59,222,000
=========== ===========
During 1997, the Company sold available for sale investment securities
for aggregate proceeds of $6,040,000 resulting in gross realized gains of $605
and gross realized losses of $20,498.
- 65 -
<PAGE>
During 1996, the Company sold available for sale investment securities
for aggregate proceeds of $526,000 resulting in gross realized gains of $310.
There were no realized losses in 1996.
Held-To-Maturity
Amortized costs and fair values of investment securities classified as
held-to-maturity at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Amortized
cost Gross Gross
(carrying unrealized unrealized
1997 value) gains losses Fair value
---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,004,000 $ 46,000 $ (1,000) $ 4,048,000
U.S. Government and agency securities 11,251,000 151,000 (20,000) 11,382,000
Tax-exempt municipals 10,056,000 270,000 - 10,326,000
Other (primarily corporate notes) 1,326,000 4,000 (2,000) 1,328,000
------------ ----------- ----------- -----------
$ 26,637,000 $ 471,000 $ (24,000) $27,084,000
============ =========== =========== ===========
<CAPTION>
Amortized
cost Gross Gross
(carrying unrealized unrealized
1996 value) gains losses Fair value
---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,524,000 $ 37,000 $ (6,000) $ 3,555,000
U.S. Government and agency securities 11,267,000 92,000 (67,000) 11,292,000
Tax-exempt municipals 7,812,000 169,000 (6,000) 7,975,000
Other (primarily corporate notes) 849,000 7,000 - 856,000
------------ ----------- ----------- -----------
$ 23,452,000 $ 305,000 $ (79,000) $23,678,000
============ =========== =========== ===========
</TABLE>
The amortized cost and fair value of investment securities classified
as held-to-maturity at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturity because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized cost ` Fair value
-------------- -----------
Due in zero to one year $ 4,504,000 $ 4,520,000
Due in one to five years 19,112,000 19,485,000
Due in five to ten years 3,021,000 3,079,000
----------- -----------
$26,637,000 $27,084,000
=========== ===========
As of December 31, 1997, $57,700,000 of investment securities were
pledged to secure repurchase agreements, bankruptcy funds, public deposits, and
as treasury tax and loan collateral.
- 66 -
<PAGE>
Loans
Outstanding loans, totaled $153,844,000 at December 31, 1997,
representing an increase of 16.4% or $21,639,000 over the December 31, 1996
totals of $132,205,000. Outstanding loans at March 31, 1998 were $150,965,000.
The increase in commercial and individual loans in 1996 and 1997 reflects the
emphasis of the Company on these loan products.
The following table presents the composition of the Company's loan
portfolio at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Commercial - secured by real estate $ 41,546,000 $ 33,904,000
Commercial - secured by other assets 95,208,000 86,612,000
Personal lines of credit, installment and credit card (unsecured) 17,090,000 11,689,000
------------ ------------
Total loans 153,844,000 132,205,000
Less:
Allowance for loan losses 2,368,000 2,086,000
Net deferred loan fees 79,000 103,000
------------ ------------
Loans, net $151,397,000 $130,016,000
============ ============
</TABLE>
Allowance for Loan Losses
The allowance is maintained at a level that is considered adequate
based on the risk of future losses inherent in the loan portfolio. Management
monitors the adequacy of the allowance based on a potential loss rate assigned
to each risk rating and by the Company's historic loan loss rate. At March 31,
1998, the allowance for loan losses of $2,399,000 was 1.59% of total loans and
is considered sufficient to absorb losses on loans that may become
uncollectible. This allowance is reviewed on a regular basis by management to
determine adequacy in light of current charge-offs, classified loan status and
loan growth rate.
Deposits
Interest-bearing deposits consist of NOW, money market and time
certificate accounts. By their nature, interest-bearing account balances will
tend to grow or decline as the Company reacts to changes in competitor pricing
and interest payment strategies. At December 31, 1997, total interest-bearing
deposit accounts of $161,606,000 reflected an increase of $33,474,000 or 26.1%
over the balance at year end 1996. During 1997, there was significant growth in
interest-bearing demand deposits and time deposits as a result of the Company's
strategy to focus on delivery of deposit products to the business market with a
high degree of customer service support.
Asset-Liability Management/Interest Rate Sensitivity
Asset and liability management is an integral part of managing a
banking institution's primary source of income, net interest income. The Company
manages the balance between rate-sensitive assets and rate-sensitive liabilities
- 67 -
<PAGE>
being re-priced in any given period with the objective of stabilizing net
interest income during periods of fluctuating interest rates. The Company
considers its rate-sensitive assets to be those that either contain a provision
to adjust the interest rate periodically or mature within one year. These assets
include certain loans and investment securities and interest-bearing deposits in
other banks. Rate-sensitive liabilities are those that are considered sensitive
to periodic interest rate changes within one year and include maturing time
certificates, certain savings deposits and interest-bearing demand deposits. The
difference between the aggregate amount of assets and liabilities that re-price
within various time frames is called the "gap." Generally, if re-pricing assets
exceed re-pricing liabilities in a time period, the Company would be deemed to
be asset-sensitive. If re-pricing liabilities exceed re-pricing assets in a time
period, the Company would be deemed to be liability-sensitive. Generally, the
Company seeks to maintain a balanced position where there is no significant
asset or liability sensitivity within a one-year period to ensure net interest
margin stability in times of volatile interest rates. This is accomplished
through maintaining a significant level of loans, investment securities and
deposits available for re-pricing within one year.
The following table sets forth the estimated interest rate sensitivity
of the Company's balance sheet as of December 31, 1997.
REPRICING OF INTEREST RATES AND YIELDS ON ASSETS AND LIABILITIES
On December 31, 1997
<TABLE>
<CAPTION>
(amounts in thousands) 0-3 months 4-12 months 1-5 years Over 5 yrs Total
---------- ----------- --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal Funds Sold $ 39,327 $ - $ - $ - $ 39,327
Investment Securities 240 5,564 63,017 17,036 85,857
Loans 148,630 738 2,029 - 151,397
------- ----- ------ ------ -------
Total Interest-earning Assets $ 188,197 $ 6,302 $ 65,046 $ 17,036 $ 276,581
Cash and Due-From 16,679 - - 16,679
All Other Assets - - - 5,218 5,218
------- ----- ------ ------ -------
Total Assets $ 204,876 $ 6,302 $ 65,046 $ 22,254 $ 298,478
Interest-earning assets to total assets 92.66%
Interest-Bearing Liabilities:
Interest-bearing demand accounts $ 30,963 $ - $ - $ - $ 30,963
Money Market Accounts 87,204 - - - 87,204
Savings Accounts 160 - - - 160
Time Deposits 37,932 5,347 - - 43,279
Repurchase Agreements 36,566 - - - 36,566
------- ----- ------ ------ -------
Total Interest-bearing Liabilities $ 192,825 $ 5,347 $ - $ - $ 198,172
Non-interest Bearing Demand accounts 74,165 - - 74,165
All Other Liabilities - - - 2,251 2,251
Equity - - - 23,890 23,890
------- ----- ------ ------ -------
Total Liabilities and Equity $ 266,990 $ 5,347 $ - $ 26,141 $ 298,478
Interest-bearing liab. to total liabilities 66.39%
Interest Sensitivity Gap $ (4,628) $ 955 $ 65,046 $ 17,036 $ 78,409
Cumulative Interest Sensitivity Gap, $ (4,628) $ (3,673) $ 61,373 $ 78,409
Cumulative Interest Sensitivity Gap,
as a percentage of total assets (1.55%) (1.23%) 20.56% 26.27%
</TABLE>
- 68 -
<PAGE>
According to the traditional banking industry static gap table set
forth above, the Company was liability-sensitive with a negative cumulative
one-year gap of $3,673,000 or 1.23% of total assets at December 31, 1997. In
general, based upon the Company's mix of deposits, loans and investments,
increases in interest rates would be expected to result in an increase in the
Company's net interest margin, and decreases in interest rates would be expected
to result in a decrease in the Company's net interest margin.
The interest rate gaps reported in the above table arise when assets
are funded with liabilities having different re-pricing intervals. Since these
gaps are actively managed and change daily as adjustments are made in interest
rate views and market outlook, positions at the end of any period may not be
reflective of the Company's interest rate sensitivity in subsequent periods.
Active management dictates that longer-term economic views are balanced against
prospects for short-term interest rate changes in all re-pricing intervals. For
purposes of the analysis above, re-pricing of fixed-rate instruments is based
upon the contractual maturity of the applicable instruments. Actual payment
patterns may differ from contractual payment patterns. The change in net
interest income may not always follow the general expectations of an asset-
sensitive or liability-sensitive balance sheet during periods of changing
interest rates, because interest rates earned or paid may change by differing
increments and at different time intervals for each type of interest-sensitive
asset and liability. As a result of these factors, at any given time the Company
may be more sensitive or less sensitive to changes in interest rates than
indicated in the above table. Greater sensitivity would have a more adverse
effect on net interest margin if market interest rates were to decrease and a
more favorable effect if rates were to increase.
Liquidity
Liquidity enables the Company to meet the withdrawals of its depositors
and the borrowing needs of its loan customers. The Company maintains its
liquidity position through the maintenance of cash resources and a stable core
deposit base. Short-term deposits have continued to grow during 1997 and the
excess funds, when available, are maintained in overnight sales to correspondent
banks in the form of Fed Funds Sold or as an investment in diversified money
market mutual funds. The Company's primary source of funds is consumer and
commercial deposits. This is a significant factor to the Company's long-term
liquidity structure since these funds are not subject to significant movements
as a result of changing interest rates and other economic factors. A further
source of liquidity is the Company's ability to borrow funds on an overnight or
long-term basis.
- 69 -
<PAGE>
Capital Resources
In 1989, banking regulators adopted risk-based capital guidelines under
which one of four risk weights is applied to balance sheet assets, each with
different capital requirements based on the credit risk of the asset. The
Company is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At December 31, 1997, the Company was
required to have Tier 1 and Total Capital ratios of 4.0% and 8.0%, respectively.
The Company's actual ratios at that date were 12.34% and 13.59%, respectively.
Management seeks to attain a level of capital consistent with
appropriate business risk and an ongoing need for financial flexibility.
Adequacy of capital depends on the assessment of a number of factors such as
stability of earnings, asset quality, liquidity, and economic conditions. The
primary capital-to-asset leverage ratio was 8.46% at December 31, 1997. With a
strong equity-to-assets ratio, the Company enjoys greater financial flexibility
and less dependence upon its deposit base to support loan and investment
activities.
Year 2000 Planning
The Company is actively addressing the possibility that certain of its
software applications may not respond accurately to changes in the recording of
dates and periods of time as a result of the upcoming change in the century. In
1997, the Company appointed a technology committee to evaluate computer systems
that may be affected by the millennium change. Although the work of the
committee has not been completed, management does not expect any material
difficulties. The Company has budgeted $10,000 to complete the evaluation and
implementation of any required changes. The Company expects that it will be able
to meet the compliance requirements of federal banking regulators related to
Year 2000 and that it will not incur any extraordinary expenses in addressing
such requirements.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
OF ZIONS AND THE COMPANY
General
Upon consummation of the Reorganization, shareholders of the Company, a
Washington 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.
- 70 -
<PAGE>
Authorized Capital
Zions' Articles authorized a total of 203,000,000 shares of capital
stock, divided into two classes: 200,000,000 shares of common stock, without par
value ("Zions Common Stock"), and 3,000,000 shares of preferred stock, without
par value. 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.
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 of Incorporation authorized 15,000,000 shares of
common stock, with par value of $2.50 per share ("Company Common Stock"), and
2,500,000 shares of preferred stock, with a par value of $0.01 per share, which
may be issued in one or more series as may be determined from time to time by
the Board of Directors ("Company Preferred 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.
The authorized shares of preferred stock are issuable in one or more
series on the terms set by resolution of the Board of Directors of the Company.
All shares of any one series of preferred stock have the same relative rights
and preferences. There may be variation as to the preferences, rights, and
restrictions of different series of preferred stock as established by the Board
of Directors, including provisions governing the distribution rate; the
redemption price, terms and conditions; the amount payable upon shares for
distributions of any kind; sinking fund provisions; conversion rights; and
voting rights. No shares of preferred stock are issued and outstanding.
Anti-takeover Matters
Utah and Washington Law. Utah's only anti-takeover statute is the
Control Shares Acquisitions Act, which is discussed below. Washington's
anti-takeover law regulates Significant Business Transactions (as defined and
discussed below).
- 71 -
<PAGE>
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.
"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.
Washington's Significant Business Transaction statute, Washington
Business Corporation Act Chapter 23B.19, regulates hostile or unfriendly
attempts to gain control of or otherwise influence certain corporations.
The Washington statute defines "Acquiring Person," with certain
exceptions, as a person or group of persons, other than the Target Corporation
or a subsidiary of the Target Corporation, who beneficially owns ten percent or
more of the outstanding voting shares of the target corporation. The exceptions
to the Acquiring Person definition are not applicable to the Zions/Company
Reorganization.
The definition, in the Washington statute, of "Significant Business
Transaction" includes, among others, the following:
o merger or consolidation with, disposition of assets to or with
or issuance or redemption of stock to or from, the Acquiring
Person;
o termination of five percent or more of the employees of the
target corporation employed in Washington as a result of the
Acquiring Person's acquisition of 10% or more of the shares;
or
o allowing the Acquiring Person to receive any disproportionate
benefit as a shareholder
- 72 -
<PAGE>
"Target Corporation" is defined in the statute as a domestic
corporation organized under the Washington Business Corporation Act with its
principal executive offices in Washington and either a majority or at least one
thousand employees resident in Washington, and certain foreign corporations.
The Washington statute prohibits a Target Corporation, with certain
exceptions, from engaging in Significant Business Transactions with an Acquiring
Person for a period of five years after the Acquiring Person acquired 10% or
more of the voting securities of the Target Corporation, unless the transaction
or acquisition of shares is approved by a majority of the members of the target
corporation's board of directors prior to the date of the acquisition.
If a majority of the members of the board of directors of the Target
Corporation do not approve the Significant Business Transaction with an
Acquiring Person prior to the Acquiring Person's acquisition of at least 10% of
the voting securities of the Target Corporation, such transaction shall be void
and the Target Corporation's certificate of incorporation and certificate of
authority to transact business in Washington shall be revoked.
Special Votes for Certain Transactions. Zions' Articles 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.
- 73 -
<PAGE>
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 do not contain any provisions requiring a
special shareholder vote to approve such related party transactions referred to
above. The Company's Bylaws provide that holders of a majority of the issued and
outstanding shares of Company Common Stock must approve matters other than
election of directors at each meeting of shareholders, unless the Washington
Business Corporation Act requires a greater number of affirmative votes.
Therefore, were a related party transaction to occur, approval of such a
transaction would require the affirmative vote of a majority of the votes cast
at the shareholder's meeting.
Under the Washington Business Corporation Act, a merger or share
exchange of a corporation must be approved by the affirmative vote of two-thirds
of the shareholders entitled to vote, unless another proportion is specified in
the Articles of Incorporation. The Company's Articles do not contain such a
provision.
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.
- 74 -
<PAGE>
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 provide that the personal liability of a
director for monetary damages for breach of fiduciary duty as a director is
limited to the full extent provided by Washington law.
The Company's Articles provide that the personal liability of a
director for monetary damages to the Company or its shareholders for conduct as
a director is limited to the full extent provided by Washington law.
The Company's Bylaws provide that the Company shall, subject to certain
exceptions, indemnify and hold harmless current or former directors of the
Company against any liability arising from or in connection with service for or
at the request of the Company. The Company is not obligated to indemnify a
director in the following situations:
o acts of a director that are finally adjudged to be intentional
misconduct or a knowing violation of law;
o conduct of a director finally adjudged to be in violation of
Section 23B.08.310 of the Washington Business Corporation Act;
- 75 -
<PAGE>
o for any transaction with respect to which it was finally
adjudged that such director personally received a benefit in
money, property, or services to which a director was not
legally entitled; or
o if the Company is otherwise prohibited by applicable law from
paying such indemnification.
The right to indemnification includes the right to be paid by the
Company the expenses incurred in defending any proceeding in advance of its
final disposition. The indemnitee also has the right to bring a suit against the
Company to recover the unpaid amount of the claim if the Company does not pay
within 60 days after a written claim is received by the Company, or within 20
days for an advancement of expenses. The indemnitee is presumed to be entitled
to indemnification upon submission of a written claim and thereafter the Company
has the burden of proof to overcome such presumption. The procedures set forth
in the Company's Bylaws are in lieu of the procedures required by Section
23B.08.550 of the Washington Business Corporation Act.
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 and Bylaws also provide for a classified Board
of Directors, with provisions similar to those of Zions. The Company's Articles
and Bylaws provide for a board of directors of between nine and thirty persons,
as specified by resolution of the Board. The number of directors may be changed
from time to time by amendment of the Bylaws, which may be effected by the Board
or by the shareholders. Any vacancy occurring on the Company's Board may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board or by the shareholders.
Cumulative Voting. Neither Zions nor the Company's shareholders 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.
- 76 -
<PAGE>
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 Bylaws provide that the shareholders may remove
directors, with or without cause, at a meeting called for the express purpose of
removing directors, by the holders of shares entitled to vote at an election of
directors, if the number of votes cast to remove the director exceeds the number
of votes cast not to remove the director.
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 of shareholders to be
called for any purpose or purposes by the Chairman of the Board, the President
or the Board of Directors, and shall be called at the request of not less than
25 percent of all outstanding shares of the Company entitled to vote on any
issue proposed to be considered at a special meeting.
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 may be amended by the Company's shareholders at
any annual or special meeting of the shareholders by the affirmative vote of
two-thirds of the outstanding shares entitled to be cast at the meeting. The
Company's Bylaws may be amended by the Board or by the shareholders by a
majority vote.
- 77 -
<PAGE>
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.
See "Plan or Reorganization--Rights of Dissenting Shareholders" for a more
detailed discussion of dissenters' rights under Washington law.
The Company is incorporated under Washington law. Washington law
provides dissenters' rights to any shareholder of a Washington corporation in
connection with the following corporate actions:
o consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger or
the corporation is a subsidiary that is merged with its parent
corporation;
o consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired if the shareholder is entitled to vote on the plan;
o consummation of certain sales or exchanges if all, or
substantially all of the assets of a corporation if the
shareholder is entitled to vote on the sale or exchange;
o an amendment to the articles of incorporation of the
corporation that materially reduces the number of shares owned
by the shareholder to a fraction of a share if the fractional
share so created is to be acquired for cash; and
o any corporation action taken pursuant to a shareholder vote to
the extent the articles of incorporation, the bylaws, or a
resolution of the board of directors of the corporation
provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
- 78 -
<PAGE>
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.
Holders of Company Common Stock do not have the preemptive right to
acquire additional shares of Company Common Stock.
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.
Washington 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 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 the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. The Company's Articles do not 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.
- 79 -
<PAGE>
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 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 Foster Pepper & Shefelman LLP, Portland,
Oregon, 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, have been incorporated by reference in this Registration Statement and
Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference in this
Registration Statement and Proxy Statement/Prospectus, and upon the authority of
such firm as experts in auditing and accounting.
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the two-year period ended December
31, 1997, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere 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 in this Proxy Statement/Prospectus in
reliance upon the report of said firm, and upon the authority of such firm as
experts in accounting and auditing.
The fairness opinion, attached hereto as Appendix C, was prepared by
Keefe, Bruyette & Woods, Inc., New York, New York, an investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, private placements, and valuations for corporate and
other purposes.
- 80 -
<PAGE>
OTHER MATTERS
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 on such Proxies.
- 81 -
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMGPeat Marwick LLP............................................................................ F-2
Consolidated Balance Sheets at March 31, 1998 (unaudited), December 31, 1997 and 1996..................... F-3
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) and
the years ended December 31, 1997 and 1996........................................................... F-4
Consolidated Statements of Shareholders' Equity for the three months ended March 31, 1998 (unaudited)
and the years ended December 31, 1997 and 1996....................................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and
the years ended December 31, 1997 and 1996........................................................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
<PAGE>
[KPMG Peat Marwick LLP LOGO]
3100 Two Union Square
601 Union Street
Seattle, WA 98101-2327
Independent Auditors' Report
The Board of Directors
The Commerce Bancorporation:
We have audited the accompanying consolidated balance sheets of The Commerce
Bancorporation and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Commerce
Bancorporation and subsidiary as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
January 23, 1998
F-2
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
March 31, ----------------------------
Assets 1998 1997 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 21,496,671 $ 16,679,110 $ 18,354,126
Federal funds sold 58,106,734 39,327,157 14,405,226
------------ ------------ ------------
Total cash and cash equivalents 79,603,405 56,006,267 32,759,352
Investment securities available for sale 69,076,558 59,220,592 46,958,566
Investment securities held to maturity 27,588,908 26,636,667 23,452,002
Loans receivable, less allowance for loan losses of $2,399,374
in 1998, $2,368,488 in 1997 and $2,086,250 in 1996 148,566,002 151,397,258 130,015,593
Equipment and leasehold improvements, net 701,410 691,077 540,350
Interest receivable and other assets 4,651,901 4,525,816 3,791,279
------------ ------------ ------------
$330,188,184 $298,477,677 $237,517,142
============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Demand $ 71,587,766 $ 74,164,894 $ 57,608,639
Interest-bearing demand 40,018,881 30,963,313 19,910,024
Money market accounts 84,591,830 87,203,790 74,553,403
Certificates of deposit 49,111,647 43,438,873 33,668,076
------------ ------------ ------------
Total deposits 245,310,124 235,770,870 185,740,142
Retail repurchase agreements 58,385,750 36,565,838 29,738,754
Accrued interest and other liabilities 2,010,372 2,251,256 1,737,969
------------ ------------ ------------
Total liabilities 305,706,246 274,587,964 217,216,865
------------ ------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value per share. Authorized
2,500,000 shares; issued and outstanding none -- -- --
Common stock, $2.50 par value per share. Authorized
15,000,000 shares; issued and outstanding 2,396,809 shares
in 1998, 2,390,942 shares in 1997 and 2,401,321 shares in 1996 5,992,023 5,977,355 6,003,303
Additional paid-in capital 4,906,431 4,850,108 5,627,047
Retained earnings 13,214,638 12,644,155 8,797,803
Accumulated comprehensive income, net of deferred taxes of
$190,012 in 1998, $215,381 in 1997 and $65,875 in 1996 368,846 418,095 (127,876)
------------ ------------ ------------
Total shareholders' equity 24,481,938 23,889,713 20,300,277
------------ ------------ ------------
$330,188,184 $298,477,677 $237,517,142
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended
March 31 Year ended December 31
------------------------- ---------------------------
1998 1997 1997 1996
---------- --------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $3,550,094 3,115,904 13,494,581 11,616,482
Investment securities available for sale 1,154,704 732,546 3,542,562 2,175,713
Investment securities held to maturity 259,754 343,856 1,435,001 989,148
Federal funds sold and interest-earning deposits 453,947 145,872 993,170 761,276
---------- --------- ---------- ----------
Total interest income 5,418,499 4,338,178 19,465,314 15,542,619
---------- --------- ---------- ----------
Interest expense:
Deposits 1,404,414 1,141,512 5,096,934 4,488,104
Securities sold under repurchase agreements 589,252 358,079 1,772,010 948,866
---------- --------- ---------- ----------
Total interest expense 1,993,666 1,499,591 6,868,944 5,436,970
---------- --------- ---------- ----------
Net interest income before provision for
loan losses 3,424,833 2,838,587 12,596,370 10,105,649
Provision for loan losses 29,000 75,000 300,000 269,722
---------- --------- ---------- ----------
Net interest income after provision for
loan losses 3,395,833 2,763,587 12,296,370 9,835,927
---------- --------- ---------- ----------
Other income:
Corporate finance fees 69,104 122,020 647,028 726,117
Service charges 121,196 106,832 624,313 452,967
Gain (loss) on sale of securities 28,477 -- (19,893) 310
Other 26,172 26,389 51,219 53,902
---------- --------- ---------- ----------
Total other income 244,949 255,241 1,302,667 1,233,296
---------- --------- ---------- ----------
Other expense:
Salaries and employee benefits 1,094,564 1,054,401 4,266,153 3,788,989
Occupancy 151,950 126,614 550,259 494,201
Other operating expense 515,500 515,125 2,242,441 1,899,171
---------- --------- ---------- ----------
Total other expense 1,762,014 1,696,140 7,058,853 6,182,361
---------- --------- ---------- ----------
Income before income taxes 1,878,768 1,322,688 6,540,184 4,886,862
Income taxes 591,000 405,634 2,081,947 1,544,546
---------- --------- ---------- ----------
Net income $1,287,768 917,054 4,458,237 3,342,316
========== ========= ========== ==========
Earnings per share:
Basic $ 0.54 0.38 1.86 1.44
Diluted 0.45 0.33 1.63 1.26
========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common stock Accumulated
------------------------- Additional comprehensive
Par paid-in Retained income (loss),
Shares value capital earnings net of tax Total
---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 2,349,551 $5,873,878 6,837,022 5,455,487 130,367 18,296,754
Net income -- -- -- 3,342,316 -- 3,342,316
Proceeds from issuance of
director stock and exercise of
common stock options,
including tax benefit of
$645,503 353,038 882,595 1,549,891 -- -- 2,432,486
Repurchase of common stocks
and common stock warrants (301,268) (753,170) (2,759,866) -- -- (3,513,036)
Change in net unrealized gain
(loss) on available for sale
investment securities, net of
deferred taxes -- -- -- -- (258,243) (258,243)
----------- ---------- ---------- ---------- -------- ----------
Balances at December 31, 1996 2,401,321 6,003,303 5,627,047 8,797,803 (127,876) 20,300,277
Net income -- -- -- 4,458,237 -- 4,458,237
Proceeds from issuance of
director stock and exercise of
common stock options,
including tax benefit of
$241,415 99,745 249,363 611,758 -- -- 861,121
Repurchase of common stocks (110,124) (275,311) (1,388,697) -- -- (1,664,008)
Dividends, $0.25 per share -- -- -- (611,885) -- (611,885)
Change in net unrealized gain
(loss) on available for sale
investment securities, net of
deferred taxes -- -- -- -- 545,971 545,971
----------- ---------- ---------- ---------- -------- ----------
Balances at December 31, 1997 2,390,942 5,977,355 4,850,108 12,644,155 418,095 23,889,713
Net income (unaudited) -- -- -- 1,287,768 -- 1,287,768
Proceeds from issuance of
director stock and exercise of
common stock options
(unaudited) 5,867 14,668 56,323 -- -- 70,991
Dividends, $0.30 per share -- -- -- (717,285) -- (717,285)
Change in net unrealized gain
(loss) on available for sale
investment securities, net of
deferred taxes (unaudited) -- -- -- -- (49,249) (49,249)
----------- ---------- ---------- ---------- -------- ----------
Balances at March 31, 1998
(unaudited) 2,396,809 $5,992,023 4,906,431 13,214,638 368,846 24,481,938
=========== ========== ========== ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
March 31 Year ended December 31
----------------------- ----------------------------
1998 1997 1997 1996
------------ ------ ------- -------
(unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 1,287,768 917,054 4,458,237 3,342,316
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 48,288 37,761 190,105 194,438
Amortization of discounts and premiums 5,331 40,240 103,490 149,721
Amortization of deferred loan fees (55,328) (58,022) (408,396) (355,054)
Realized loss (gain) on sale of available for sale
investment securities, net (28,477) -- 19,893 (310)
Provision for loan losses 29,000 75,000 300,000 269,722
Deferred Federal income tax benefit -- -- (207,774) (199,143)
Decrease (increase) in interest receivable and
other assets (100,414) 16,239 (808,021) (954,049)
Increase (decrease) in accrued interest and other
liabilities (240,884) (48,695) 754,702 1,062,061
------------- ----------- ------------- -------------
Net cash provided by operating activities 945,284 979,577 4,402,236 3,509,702
------------- ----------- ------------- -------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment
securities available for sale 5,300,000 1,150,000 10,130,000 12,050,000
Proceeds from maturities of investment securities
held to maturity 240,000 -- -- --
Proceeds from sales of investment securities
available for sale 3,519,974 -- 6,040,359 526,412
Purchases of investment securities held to maturity (1,208,181) -- (3,274,934) (11,182,569)
Purchases of investment securities available for sale (18,711,774) (2,487,015) (27,638,270) (34,627,820)
Loan originations, net of principal repayments received 2,857,584 (4,189,025) (21,273,269) (16,545,646)
Capital expenditures (58,621) (11,987) (340,832) (140,282)
------------- ----------- ------------- -------------
Net cash used in investing activities (8,061,018) (5,538,027) (36,356,946) (49,919,905)
------------- ----------- ------------- -------------
Cash flows from financing activities:
Increase in deposits, net 9,539,254 6,567,867 50,030,728 40,916,837
Increase in retail repurchase agreements, net 21,819,912 413,963 6,827,084 12,050,774
Proceeds from issuance of common stock 70,991 391,342 619,706 1,786,983
Repurchases of common stock and common stock
warrants -- (533,767) (1,664,008) (3,513,036)
Dividends paid (717,285) (611,885) (611,885) --
------------- ----------- ------------- -------------
Net cash provided by financing activities 30,712,872 6,227,520 55,201,625 51,241,558
------------- ----------- ------------- -------------
Net increase in cash and cash equivalents 23,597,138 1,669,070 23,246,915 4,831,355
Cash and cash equivalents at beginning of year 56,006,267 32,759,352 32,759,352 27,927,997
------------- ----------- ------------- -------------
Cash and cash equivalents at end of year $ 79,603,405 34,428,422 56,006,267 32,759,352
============ ========== ========== ==========
Supplemental disclosure of cash flow information cash paid
during the year for:
Interest $ 2,064,687 1,534,328 6,851,493 5,366,666
Income taxes -- -- 1,916,176 1,058,471
============ ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and 1997 and December 31, 1997 and 1996
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
The Commerce Bancorporation (Company) was organized as a Washington
corporation on August 6, 1987. The Company's principal activity is
the ownership and operation of The Commerce Bank of Washington,
National Association (Bank). The Bank, which commenced operations
on July 1, 1988 engages in a general commercial banking business
focusing on serving the banking needs of businesses and
professional firms with annual sales of $2 million to $100 million
in the Puget Sound region of Washington, and the principals and key
employees of such businesses and firms.
As a bank holding company, the Company's profitability will depend
primarily upon the Bank's operations.
(b) Principles of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of the
Company consolidated with the Bank. All significant intercompany
transactions have been eliminated.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimations and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
(c) Securities
Investment securities classified as available-for-sale are carried
at fair value with unrealized gains and losses, net of tax, being
recorded as a separate component of shareholders' equity.
Investment securities classified as held to maturity are carried at
amortized cost.
Premiums or discounts are amortized or accreted into interest
income using the interest method. Gains and losses on securities
are determined using the specific identification method.
(d) Loans and Allowance for Loan Losses
Loans are stated at the principal amounts outstanding. Interest
income is calculated using the simple interest method and is
accrued as earned. Loan fees and certain direct costs, which
represent an adjustment to the interest yield, are deferred and
recognized as interest income over the life of the related loan or
commitment.
F-7
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management determines that the
collectibility of the principal is unlikely. The allowance is an
amount that management estimates will be adequate to absorb
possible losses on existing loans that may become uncollectible.
Management considers such factors as changes in the nature and
volume of the loan portfolio, average loan transaction size,
overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrowers' ability
to pay. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the
periods they become known. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to
them at the time of their examination.
Loans are considered impaired when management believes, after
considering economic and business conditions and collection
efforts, that it is probable that the Company will be unable to
collect all amounts due according to the original contractual terms
of the loan agreement. The accrued and unpaid interest related to
impaired loans is reversed and charged against interest income.
Future interest income on impaired loans is recognized on a cash
basis.
(e) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets of three to seven years. Leasehold improvements are
amortized using the straight-line method over the shorter of the
estimated useful lives of the improvements or the terms of the
related leases.
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on the deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-8
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(g) Earnings Per Share
Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, establishes a new standard for reporting
earnings per share (EPS) and requires companies with complex
capital structures to present both basic and diluted EPS on the
face of the statement of operations. SFAS No. 128 became effective
for periods ending after December 15, 1997. The Company adopted
SFAS No. 128 and has restated previously reported amounts. Both
basic and diluted EPS are calculated based on net income of
$4,458,237 and $3,342,316 for the years ended December 31, 1997 and
1996, respectively.
The following is a reconciliation of the number of shares
(denominator) used in the EPS calculations.
<TABLE>
<CAPTION>
For the year ended
December 31, 1997
-----------------------------------
Weighted average Per share
shares amount
----------------- ---------
<S> <C> <C>
Basic EPS 2,396,021 $1.86
Effect of Dilutive Securities
Options 97,935
Warrants 240,407
---------
Diluted EPS 2,734,363 $1.63
========= =====
<CAPTION>
For the year ended
December 31, 1996
-----------------------------------
Weighted average Per share
shares amount
----------------- ---------
<S> <C> <C>
Basic EPS 2,321,551 $1.44
Effect of Dilutive Securities
Options 118,140
Warrants 207,854
---------
Diluted EPS 2,647,545 $1.26
========= =====
</TABLE>
F-9
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(h) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
(i) Reclassification
Certain amounts in the consolidated financial statements for prior
years have been reclassified to conform to the current consolidated
financial statement presentation.
(2) Investment Securities
(a) Available-For-Sale
Amortized costs and fair values of investment securities classified
as available-for-sale at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized
1997 cost gains losses Fair value
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,945,491 94,967 (459) 6,039,999
U.S. Government and agency
securities 51,069,822 537,720 (37,365) 51,570,177
Tax-exempt municipals 538,948 2,969 -- 541,917
Other (primarily corporate
notes) 1,032,853 35,646 -- 1,068,499
-------------- --------- --------- -------------
$ 58,587,114 671,302 (37,824) 59,220,592
============== ========= ========= =============
1996
U.S. Treasury $ 5,653,656 29,124 (20,502) 5,662,278
U.S. Government and agency
securities 39,371,148 103,637 (303,055) 39,171,730
Tax-exempt municipals 691,586 1,675 -- 693,261
Other (primarily corporate
notes) 1,435,927 7,275 (11,905) 1,431,297
-------------- --------- --------- -------------
$ 47,152,317 141,711 (335,462) 46,958,566
============== ========= ========= =============
</TABLE>
F-10
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
The amortized cost and fair value of investment securities
classified as available-for-sale at December 31, 1997 by
contractual maturity are shown below. Expected maturities will
differ from contractual maturity because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
Amortized
cost Fair value
----------- -----------
Due in one year or less $ 1,290,365 1,300,325
Due in one to five years 43,524,857 43,904,909
Due in five to ten years 13,771,892 14,015,358
----------- ----------
$58,587,114 59,220,592
=========== ==========
During 1997, the Company sold available for sale investment
securities for aggregate proceeds of $6,040,359 resulting in gross
realized gains of $605 and gross realized losses of $20,498.
During 1996, the Company sold available for sale investment
securities for aggregate proceeds of $526,412 resulting in gross
realized gains of $310. There were no realized losses in 1996.
(b) Held-To-Maturity
Amortized costs and fair values of investment securities classified
as held-to-maturity at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized cost unrealized unrealized
1997 (carrying value) gains losses Fair value
----------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,003,945 45,832 (1,496) 4,048,281
U.S. Government and agency
securities 11,250,983 151,207 (19,974) 11,382,216
Tax-exempt municipals 10,055,896 269,783 -- 10,325,679
Other (primarily corporate
notes) 1,325,843 4,478 (2,351) 1,327,970
----------- --------- ------- ----------
$26,636,667 471,300 (23,821) 27,084,146
=========== ========= ======= ==========
</TABLE>
F-11
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
<TABLE>
<CAPTION>
Gross Gross
Amortized cost unrealized unrealized
1996 (carrying value) gains losses Fair value
----------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,523,728 37,667 (6,082) 3,555,313
U.S. Government and agency
securities 11,267,059 91,674 (66,995) 11,291,738
Tax-exempt municipals 7,812,281 168,752 (6,295) 7,974,738
Other (primarily corporate
notes) 848,934 7,173 -- 856,107
----------- ------- ------- ----------
$23,452,002 305,266 (79,372) 23,677,896
=========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of investment securities
classified as held-to-maturity at December 31, 1997, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturity because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized
cost Fair value
------------- -----------
Due in zero to one year $ 4,503,333 4,519,950
Due in one to five years 19,112,300 19,485,461
Due in five to ten years 3,021,034 3,078,735
----------- ----------
$26,636,667 27,084,146
=========== ==========
As of December 31, 1997, $57,700,000 of investment securities were
pledged to secure repurchase agreements, bankruptcy funds, public
deposits, and as treasury tax and loan collateral.
F-12
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(3) Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial - secured by real estate $ 41,546,369 33,903,833
Commercial - secured by other assets 95,207,869 86,611,599
Personal lines of credit, installment and credit card (unsecured) 17,090,156 11,689,696
------------ -----------
Total loans 153,844,394 132,205,128
Less:
Allowance for loan losses 2,368,488 2,086,250
Net deferred loan fees 78,648 103,285
------------ -----------
Loans, net $151,397,258 130,015,593
============ ===========
</TABLE>
Impaired loans on which the accrual of interest has been discontinued
amounted to $0 and $154,500 at December 31, 1997 and 1996, respectively.
(4) Allowance for Loan Losses
The following is a summary of the changes in the allowance for loan
losses:
December 31
-----------------------
1997 1996
---------- ----------
Balance at beginning of year $2,086,250 1,814,278
Charge-offs (17,762) --
Recovery -- 2,250
Provision for loan losses 300,000 269,722
---------- ----------
Balance at end of year $2,368,488 2,086,250
========== ==========
F-13
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements consisted of the following at
December 31:
1997 1996
---- ----
Equipment $1,438,363 1,180,121
Leasehold improvements and other 216,013 133,423
---------- ---------
1,654,376 1,313,544
Less accumulated depreciation
and amortization 963,299 773,194
---------- ---------
Equipment and leasehold improvements,
net $ 691,077 540,350
========== =========
The Bank leases its headquarters under an agreement which will expire in
2003 and includes two options to extend the lease for periods of five
years. The total minimum rental commitment at December 31, 1997 under the
Company's noncancelable operating lease is as follows:
1998 $ 294,960
1999 294,960
2000 294,960
2001 294,960
2002 294,960
Thereafter 221,220
----------
Total $1,696,020
==========
Total rental expense amounted to $289,708 and $262,319 in 1997 and 1996,
respectively.
(6) Deposits
Included in certificates of deposit were individual deposits of $100,000
or more totaling $37,983,986 and $30,253,640 at December 31, 1997 and
1996, respectively. Interest expense related to these deposits was
$1,458,553 and $1,237,178 for the years ended December 31, 1997 and 1996,
respectively.
The maturities of all deposit accounts at December 31, 1997 and 1996 were
less than one year.
F-14
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(7) Income Taxes
Income tax expense (benefit) consists of:
1997 1996
---------- ----------
Current $2,289,721 1,743,689
Deferred (207,774) (199,143)
---------- ----------
Net provision $2,081,947 1,544,546
========== ==========
Income tax expense attributable to income from operations differed from
the amounts computed by applying the U.S. Federal income tax rate of 34%
to pretax income from operations as a result of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Computed "expected" tax expense $2,223,663 1,661,533
Increase (reduction) in income taxes resulting from:
Interest income on tax exempt securities (151,378) (101,308)
Other, net 9,662 (15,679)
---------- ----------
Total $2,081,947 1,544,546
========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 660,234 558,235
Accrued vacation 40,800 32,587
Unrealized losses on available for sale debt securities -- 65,875
Deferred compensation 141,374 85,224
Plant and equipment, principally due to differences in depreciation
12,474 --
Other 13,759 2,040
---------- --------
Total gross deferred tax assets 868,641 743,961
Deferred tax liabilities - plant and equipment, principally due to
differences in depreciation -- (17,218)
Unrealized gain on available for sale debt securities (215,381) --
---------- --------
Net deferred tax asset $ 653,260 726,743
========== ========
</TABLE>
F-15
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
Based on an analysis of the Company's tax position, management believes
the net deferred tax asset can be recovered through taxes previously
paid. Consequently, no valuation allowance for deferred tax assets was
deemed necessary.
(8) Commitments and Contingencies
At December 31, 1997 and 1996, the Bank had $7,669,702 and $3,624,553,
respectively, outstanding in standby letters of credit. Standby letters
of credit represent guarantees of the obligations of the Bank's
customers. Should the Bank's customer fail to perform, the Bank would be
required to extend funds sufficient to meet its borrower's obligation up
to the committed amount. Once exercised, the standby letter of credit is
accounted for as a loan to the Bank's customer. The Bank grants standby
letters of credit using the same underwriting standards and under the
same terms as a loan obligation.
In the normal course of business, the Bank enters into commitments to
extend credit to its customers that are not presented in the accompanying
consolidated financial statements. At December 31, 1997 and 1996, such
commitments totaled $88,991,000 and $78,642,000, respectively. Loan
commitments represent agreements to lend to a customer as long as there
is no violation of the lending criteria or the term of the loan. Almost
all of the loan commitments are for loans where the interest rate is
indexed to the prime rate and reprice annually. These commitments have
fixed expiration dates or other termination clauses and may require the
payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amount does not necessarily represent
the future cash needs of the Bank.
Collateral held for both loan commitments and standby letters of credit
can vary but may include marketable securities, primary and secondary
residences, income producing commercial properties, accounts receivable,
inventory and property, plant and equipment. The maximum accounting loss
the Bank would incur from either the loan commitment or standby letter of
credit were the customer not to perform, and any collateral taken proved
to be without value, would be the face amount of the commitment or
standby letter of credit. The Bank does not anticipate any material
losses as a result of these commitments.
The Bank is required to maintain average balances with the Federal
Reserve Bank (FRB) in a noninterest-bearing account. The balance in this
account at December 31, 1997 was $2,976,514 and the Bank was in
compliance with FRB requirements.
F-16
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(9) Loans and Deposits of Directors
The Bank has as customers some of the Company's directors and their
associated businesses. All loans made to these parties were made in the
ordinary course of the Bank's business and on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons. These loans at
time of origination do not involve more than the normal risk of
collectibility nor do they present other unfavorable features.
The following summarizes loans and deposits of directors and
director-affiliated companies as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Commercial loans $4,500,799 6,773,547
Deposits:
Demand, interest-bearing demand and money market 3,393,336 4,499,341
Certificates of deposit 773,600 141,747
</TABLE>
(10) Retail Repurchase Agreements
Retail repurchase agreements are offered as investments for bank
customers. Securities sold under retail repurchase agreements specify the
sale and later repurchase of certain U.S. Treasury and/or U.S. Government
or agencies securities at an agreed upon interest rate. At all times, the
securities sold were under the control of the Bank. At December 31, the
Company sold securities as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
<S> <C> <C>
Par amount $36,565,838 $29,738,754
Repurchase dates January 24, 1998 to January 29, 1997 to
April 11, 1998 June 18, 1997
Interest rates 3.00% - 5.35% 3.00% - 5.15%
Maximum amount outstanding at any month-end 53,427,914 29,858,732
Average outstanding balance during the year 39,199,026 21,092,764
</TABLE>
F-17
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(11) Stock Options and Warrants
(a) Stock Options
1987 Stock Option Plan
The 1987 plan is a nonqualified plan, and each nonqualified option
carries an exercise price equal to market value at date of grant,
for a term of ten years and one week from the date of its grant.
These options generally vest at a rate of 20% per year from the
date of issue. No options were granted in 1996 and 1997. No future
options will be granted under the plan. The weighted average
remaining contractual life for the options outstanding under the
1987 plan as of December 31, 1997 and 1996 was 5.5 and 4.1 years,
respectively.
1995 Incentive Compensation Plan
The 1995 plan is an omnibus plan, under which nonqualified and
qualified stock options, shares of stock, or stock appreciation
rights can be granted. No incentive stock options were granted
during 1996. During 1997, 125,000 incentive stock options were
granted under the plan at a price of $11.65 per share. The options
vest at a rate of 20% per year from the date of grant. Each
qualified or nonqualified option carries an exercise price equal to
fair value at the date of grant, for a term of ten years from date
of grant. However, exercise of options issued under this plan prior
to 1996 are limited to a nominal amount of $100,000 per employee
per year. The weighted average remaining contractual life for the
options outstanding under the 1995 plan as of December 31, 1997 and
1996 was 8.4 and 8.8 years, respectively. On January 28, 1998,
125,000 incentive stock options were granted under the plan at a
price of $16.00 per share.
Options Exercisable:
<TABLE>
<CAPTION>
1987 Stock Option Plan 1995 Incentive Plan
-------------------------------------- ---------------------------------
Options Weighted average Options Weighted average
exercisable exercise price exercisable exercise price
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
December 31, 1996 93,882 $ 5.43 43,244 $ 9.25
December 31, 1997 6,047 6.13 43,244 9.25
</TABLE>
F-18
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
Options Outstanding:
<TABLE>
<CAPTION>
1987 Stock Option Plan 1995 Incentive Plan
------------------------------------------- -----------------------------------------
Shares Weighted Share Weighted
under Price average under Price average
option range price option range price
----------- ------------ --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 476,900 $5.00 - 9.25 5.21 170,266 $ 9.25 9.25
Exercised (353,038) 5.00 - 6.00 5.06 -- -- --
Lapsed (8,520) 5.00 - 6.00 6.00 -- -- --
-------- -------
December 31, 1996 115,342 5.00 - 9.25 5.59 170,266 9.25 9.25
Granted -- - - 121,750 11.65 11.65
Exercised (99,745) 5.00 - 6.00 5.44 -- -- --
Lapsed (2,500) 9.25 9.25 -- -- --
-------- -------
December 31, 1997 13,097 $6.00 - 9.25 6.06 292,016 $9.25 - 11.65 10.25
======== =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for these plans. Accordingly,
no compensation cost has been recognized. Had the compensation cost
for the Company's stock-based compensation plans been determined
consistent with Financial Accounting Standards Board Statement No.
123, the Company's pro forma net income for 1997 and 1996 would
have been $4,286,972 and $3,217,173, respectively. Pro forma net
income reflects only options granted since January 1, 1995.
The fair value for options granted under the 1995 plan in 1997 was
$1.89 per option on the date of grant using the minimum value
method with the following assumptions: a risk-free interest rate of
6.56%, a 2% dividend yield, and an expected life of nine years.
(b) Stock Warrants
The Bank has also issued 426,664 stock warrants to the organizers
of the Company, on the basis of two warrants for each three shares
of common stock purchased. Each warrant carries an exercise price
of $5.00 per share which became exercisable upon issuance and
expire July 1998. In May 1996, the Company repurchased 36,212
warrants and at December 31, 1997 and 1996, there were 370,452
warrants outstanding.
(12) Employee Stock Grant
In November 1995, the Company granted 75,259 shares of common stock to
employees as compensation, and originated $427,377 in loans to employees
to cover the resulting taxes. These loans will be forgiven ratably over
five years, contingent upon the employee's continued employment.
F-19
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
Outstanding balance of loans to employees amounted to $260,412 and
$346,448 at December 31, 1997 and 1996, respectively.
(13) Employee Benefit Plans
(a) Defined Benefit Plan
Effective January 1, 1992, the Company adopted the Commerce
Bancorporation Defined Benefit Pension Plan (Plan), a
noncontributory, defined benefit pension plan. The purpose of the
Plan is to provide benefits for eligible employees and their
beneficiaries. Employees age 21 or over are eligible to participate
in the Plan after completing one year of service. The Company's
actuarial cost method is the projected unit credit method. Benefits
are based on years of service and the highest average level of
compensation based on monthly compensation averaged over five
consecutive plan years from the date of employment to the date of
termination, including periods prior to the effective date of the
Plan. Contributions are made by the Company based on actuarial
computations of the amount sufficient to meet the minimum funding
requirements under the Employee Retirement Income Security Act of
1974.
The following shows the amounts included in the Company's consolidated
balance sheets at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ (794,102) (552,040)
Nonvested (53,405) (62,822)
----------- ---------
Accumulated benefit obligation $ (847,507) (614,862)
=========== =========
Plan assets at fair value, primarily mutual funds $ 993,712 710,428
Projected benefit obligation for participants' service
rendered to date (1,184,259) (885,731)
----------- ---------
Projected benefit obligation in excess of
plan assets (190,547) (175,303)
Unrecognized prior service cost 144,542 152,150
Unrecognized net loss 27,715 16,555
----------- ---------
Pension liability $ (18,290) (6,598)
=========== =========
</TABLE>
F-20
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
Assumptions used to compute the projected benefit obligations were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate 7.00% 7.50%
Rate of increase in compensation level 3.00 3.00
Long-term rate of return on plan assets 8.00 8.00
</TABLE>
The following is a summary of the components of the net periodic
pension cost:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service cost - benefits earned during the year $ 139,727 127,088
Interest cost on projected benefit obligation 66,430 52,256
Actual return on plan assets (146,977) (80,732)
Amortization of unrecognized prior service cost 7,608 7,608
Net asset gain during the period deferred for later
recognition 85,086 36,354
--------- -------
Net periodic pension cost $ 151,874 142,574
========= =========
</TABLE>
(b) 401(k) Plan
Employees age 18 or over are eligible to participate in the
Commerce Bancorporation Profit Sharing Plan. The plan is
administered by the Company to provide several tax deferred
investment opportunities for qualified employees. Employees may
contribute to the plan up to certain prescribed limits specified by
the Internal Revenue Service. The Company provides a matching equal
to the lower of 50% of employee contributions or 3% of the
employee's base salary. Contributions are placed in various
investment funds at the option of the participant. Employer
contributions for the plan were $72,590 and $62,761 in 1997 and
1996, respectively.
(c) Post-Employment Benefits
The Company also has post-employment agreements with certain key
officers to provide supplemental retirement benefits. For the years
ended December 31, 1997 and 1996, the pre-tax cost to the Company
related to these agreements was $165,149 and $250,658,
respectively.
F-21
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(14) Fair Value of Financial Instruments
The fair value of financial instruments that are short-term or reprice
frequently and that have little or no risk are considered to have a fair
value equal to book value. Assets that are included in this category
include cash and due from banks, and Federal funds sold and
interest-bearing deposits. Liabilities included in this category include
deposits with no contractual maturity such as demand accounts and money
market accounts; and certificates of deposits and retail repurchase
agreements which reprice frequently.
The fair value of investment securities is based upon quoted market
prices.
Loans receivable consist primarily of rate indexed commercial loans and
lines of credit. The fair value of loans receivable is estimated by
discounting the estimated future cash flows of loans, sorted by type and
security, by the weighted average rate of such loans, adjusted for credit
risk.
The fair value of off-balance sheet commitments to extend credit is
considered equal to its notional amount. The uncertainty involving the
attempt to determine the likelihood as well as the timing of a commitment
being drawn upon would not result in what the Company believes to be a
meaningful estimate of fair value that would differ materially from the
national value of the commitment.
The fair value estimates presented in the following table are based upon
market conditions at a specific point in time. The estimates do not
reflect values that could result from a sale of the Company's entire
holdings of a particular financial instrument. There are no liquid
markets for a portion of the Company's financial instruments and the fair
value is based upon subjective estimates that cannot be determined with
precision. Changes in these estimates or market conditions could
significantly change the fair value presentation. In addition, the tax
impact of the realization of unrecognized gains and losses has not been
factored into the fair values.
The table below presents the book value amount of the Company's financial
instruments and their corresponding fair values at December 31, 1997
(dollars in thousands):
Financial assets Book value Fair value
----------- -----------
Cash on hand and due from banks $ 16,679 16,679
Federal funds sold and interest-bearing
deposits 39,327 39,327
Investment securities 85,860 86,305
Loans receivable 151,397 153,935
Financial liabilities
Demand and money market accounts $192,332 192,332
Certificates of deposit 43,439 43,449
-------- --------
Total deposits $235,771 235,781
======== ========
Retail repurchase agreements $ 36,566 36,566
======== ========
F-22
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(15) Parent Company Only Financial Statements
The condensed financial statements of the Company only as of and for the
years ended December 31, 1997 and 1996 are presented below and should be
read in conjunction with the consolidated financial statements and the
notes thereto:
<TABLE>
<CAPTION>
December 31
--------------------------
Statements of Financial Condition 1997 1996
---- ----
<S> <C> <C>
Assets:
Cash in banks $ 431,754 240,529
Loans to employees of Company's subsidiary 260,412 346,448
Equity in net assets of the Company's subsidiary 23,197,547 19,713,300
----------- ----------
Total assets $23,889,713 20,300,277
=========== ==========
Total stockholder's equity $23,889,713 20,300,277
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
Statements of Income 1997 1996
---- ----
<S> <C> <C>
Operating expenses $ (39,012) (20,673)
Equity in undistributed income of the Company's subsidiary
4,497,249 3,362,989
---------- ---------
Net income $4,458,237 3,342,316
========== =========
</TABLE>
F-23
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
Statements of Cash Flows 1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,458,237 3,342,316
Adjustment to reconcile net income to net cash used in
operating activities - equity in undistributed earnings of
the Company's subsidiary (4,497,249) (3,362,989)
----------- ----------
Cash used in operating activities (39,012) (20,673)
----------- ----------
Cash flows from investing activities:
Dividends from subsidiary 1,800,390 2,170,503
Loans to subsidiary's employees - net of principal repayments
86,036 (346,448)
----------- ----------
Cash provided by investing activities 1,886,426 1,824,055
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 619,706 1,786,983
Purchases of common stock and common stock warrants (1,664,008) (3,513,036)
Dividends (611,887) --
----------- ----------
Cash used in financing activities (1,656,189) (1,726,053)
----------- ----------
Increase in cash 191,225 77,329
Cash at beginning of year 240,529 163,200
----------- ----------
Cash at end of year $ 431,754 240,529
============= ==========
</TABLE>
(16) Capital Requirements
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Bank's consolidated financial
statements and capacity to pay dividends. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
F-24
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of total
and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets
(as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of October 31, 1996, the most recent notification from Office of the
Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. Pursuant to
minimum capital requirements of the Federal Deposit Insurance
Corporation, the Bank is required to maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
<TABLE>
<CAPTION>
To be well capitalized
For capital adequacy under prompt corrective
Actual purposes action provisions
---------------------------- ----------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ----------- -------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets) $25,088,000 13.59% $14,773,000 8.0% $18,467,000 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 22,779,000 12.34% 7,387,000 4.0% 11,080,000 6.0%
Tier 1 Capital (to
Average Assets) 22,779,000 8.46% 10,772,000 4.0% 13,465,000 5.0%
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets) $21,116,000 13.36% $12,642,000 8.0% $15,803,000 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 19,139,000 12.11% 6,321,000 4.0% 9,482,000 6.0%
Tier 1 Capital (to
Average Assets) 19,139,000 8.63% 8,872,000 4.0% 11,090,000 5.0%
</TABLE>
F-25
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(17) Subsequent Event - Dividend Payable
On January 28, 1998, the Company declared a dividend payable to
stockholders of record as of January 31, 1998 in the amount of 30 cents
($.30) per share.
(18) Notes to Unaudited Consolidated Financial Statements as of March 31, 1998
(a) Interim Financial Data
The unaudited interim consolidated financial statements have been
prepared on the same basis as the audited financial statements and,
in the opinion of management, include all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly
the financial information set forth therein in accordance with
generally accepted accounting principles. The Company's interim
results may be subject to fluctuations. As a result, the Company
believes the results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future
period.
(b) Earnings Per Share
Both basic and diluted EPS are calculated based on net income of
$1,287,768 and $917,054 for the three months ended March 31, 1998
and 1997, respectively. The following is a reconciliation of the
number of shares (denominator) used in the EPS calculations:
For the three months ended
March 31, 1998
-----------------------------
Weighted average Per share
shares amount
---------------- ---------
Basic EPS 2,394,172 $0.54
Effect of Dilutive Securities
Options 173,717
Warrants 281,186
---------
Diluted EPS 2,849,075 $0.45
========= =====
F-26
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
For the three months ended
March 31, 1997
-----------------------------
Weighted average Per share
shares amount
----------------- ---------
Basic EPS 2,429,737 $0.38
Effect of Dilutive Securities
Options 118,782
Warrants 246,968
---------
Diluted EPS 2,795,487 $0.33
========= =====
(c) Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
March 31,
1998
-------------
<S> <C>
Commercial - secured by real estate $ 44,474,611
Commercial - secured by other assets 92,201,566
Personal lines of credit, installment and credit card (unsecured) 14,353,712
------------
Total loans 151,029,889
Less:
Allowance for loan losses 2,399,374
Net deferred loan fees 64,513
------------
Loans, net $148,566,002
============
</TABLE>
There were no impaired loans on which the accrual of interest has
been discontinued at March 31, 1998.
F-27
<PAGE>
THE COMMERCE BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(Information as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 is unaudited)
(d) Allowance for Loan Losses
The following is a summary of the changes in the allowance for loan
losses:
March 31
------------------------
1998 1997
---------- ----------
Balance at beginning of year $2,368,488 2,086,250
Charge-offs -- --
Recovery 1,886 --
Provision for loan losses 29,000 75,000
---------- ----------
Balance at end of year $2,399,374 2,161,250
========== ==========
(e) Comprehensive Income
Effective January 1, 1998, the Company implemented Statement of
Financial Accounting Standards No. 130, Reporting comprehensive
Income. Comprehensive income for the three months ended March 31,
1998 and 1997 was $1,238,519 and $525,503, respectively.
(f) Subsequent Events
(i) Merger With Zions Bancorporation (Zions)
In May 1998, the Company entered into a merger agreement,
subject to regulatory and shareholder approval, with Zions
whereby shares of the Company's common stock will be
exchanged for shares of Zions common stock, to approximate a
purchase price of $30.70 per share. Under the terms of the
agreement, the Company will merge with and into Zions and
Zions will be the surviving corporation. Expenses incurred
in May and June 1998, as a result of the merger, for legal
and advisory fees and amounts owing under incentive and
retirement plans totaled approximately $2.2 million, net of
taxes.
(ii) Shareholder Value Long-Term Incentive Plan (Shareholder
Value Plan)
In May 1998, the Board of Directors determined that certain
targets in the Shareholder Value Plan had been met and
approved payments to participants totaling approximately
$3.6 million, net of taxes.
(iii) Exercise of Stock Warrants
Subsequent to year-end, the 370,452 stock warrants
outstanding at December 31, 1997 were exercised prior to
their expiration date of June 30, 1998.
F-28
<PAGE>
APPENDIX A
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION made as of the 13th day of
May, 1998, among ZIONS BANCORPORATION ("Zions Bancorp"), a Utah corporation
having its principal office in Salt Lake City, Utah, and THE COMMERCE
BANCORPORATION (the "Company"), a Washington corporation having its principal
office in Seattle, Washington
W I T N E S S E T H T H A T :
WHEREAS, the Company is a bank holding company and the sole shareholder
of The Commerce Bank of Washington, National Association, a national banking
association having its head office in Seattle, Washington (the "Bank");
WHEREAS, Zions Bancorp is a bank holding company;
WHEREAS, Zions Bancorp desires to affiliate with the Company through
the merger of the Company with and into Zions Bancorp, with Zions Bancorp to be
the surviving corporation (the "Merger");
WHEREAS, the Board of Directors of the Company has determined that it
would be in the best interests of the Company, its shareholders, its customers
and those of the Bank and the areas served by the Company and the Bank to become
affiliated with Zions Bancorp through the Merger;
WHEREAS, the respective Boards of Directors of Zions Bancorp and the
Company have agreed to cause the Merger pursuant to the provisions of section
16-10a-1101 et seq. of the Utah Business Corporation Act and section 23B.11.010
et seq. of the Washington Business Corporation Act; and
WHEREAS, the parties intend that the Merger to qualify as a tax-free
reorganization under section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");
NOW, THEREFORE, in consideration of these premises and the mutual
agreements hereinafter set forth, the parties agree as follows:
1. Combination.
1.1. Form of Combination. Zions Bancorp and the Company will execute a
merger agreement (the "Merger Agreement") substantially in the form of Exhibit I
annexed hereto. Subject to the provisions of the Merger Agreement, the Company
will be merged with and into Zions Bancorp (the "Merger") with Zions Bancorp as
the surviving corporation. The shares of common stock, $2.50 par value, of the
Company (the "Company Common Stock") shall be canceled and immediately converted
into the right to receive, subject to the terms, conditions, and limitations set
forth herein, such consideration as is provided in section 1.2 hereof.
<PAGE>
1.2. Consideration for Merger. Subject to the terms, conditions, and
limitations set forth herein, and upon surrender of his, her or its certificate
or certificates representing such shares, each holder of shares of Company
Common Stock shall be entitled to receive, in exchange for each share of Company
Common Stock held of record by such stockholder as of the Effective Date (as
defined in Section 2 hereof), that number of shares (the "Exchange Ratio") of
the common stock of Zions Bancorp, no par value (the "Zions Bancorp Stock")
(together with the number of rights issued pursuant to the Shareholders'
Protection Rights Plan of Zions Bancorp associated therewith) calculated by
dividing $30.70 by the average of each Daily Sales Price over the twenty
consecutive trading days ending on and including the trading day immediately
preceding the Effective Date (the "Average Closing Price"). As used in the
previous sentence, "Daily Sales Price" means, for any trading day, 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 Bancorp Stock in the
over-the-counter market as such prices are reported by the Nasdaq National
Market, or in the absence thereof by such other source upon which Zions Bancorp
and the Company shall mutually agree.
1.3. No Fractional Shares; Dissenters' Rights.
(a) Zions Bancorp will not issue fractional shares of its
stock. In lieu of fractional shares of Zions Bancorp Stock, if any, each
shareholder of the Company who is entitled to a fractional share of Zions
Bancorp Stock shall receive an amount of cash equal to the product of such
fraction times the Average Closing Price. Such fractional share interest shall
not include the right to vote or to receive dividends or any interest thereon.
(b) Notwithstanding anything to the contrary herein, each
share of Company Common Stock held by a shareholder of the Company who has
timely and properly exercised his, her or its dissenters' rights in accordance
with the applicable laws of the State of Washington dealing with appraisal
rights (the "Appraisal Laws"), and whose holder, as of the Effective Date, has
not effectively withdrawn or lost his, her or its dissenters' rights under the
Appraisal Laws, shall not be converted into or represent a right to receive
Zions Bancorp Stock, but the holder thereof shall be entitled only to such
rights as are granted by the Appraisal Laws. Each holder of such shares who
becomes entitled to payment for his, her or its Company Common Stock pursuant to
the provisions of the Appraisal Laws shall receive payment therefor from Zions
Bancorp in accordance with the Appraisal Laws.
1.4. Dividends; Interest. No shareholder of the Company will be
entitled to receive dividends on his, her or its Zions Bancorp Stock until he,
she or it exchanges his, her or its certificates representing Company Common
Stock for Zions Bancorp Stock. Any dividends declared on Zions Bancorp Stock to
holders of record on or after the Effective Date shall, with respect to stock to
be delivered pursuant to this Agreement to shareholders of the Company who
have not exchanged their certificates representing Company Common Stock for
Zions Bancorp Stock, be paid to the Exchange Agent (as designated in Section 1.5
of this Agreement) and, upon receipt from a former shareholder of the Company of
certificates representing shares of Company Common Stock, the Exchange Agent
shall forward to such former shareholder of the Company (i) certificates
representing his, her or its shares of Zions Bancorp Stock, (ii) dividends
declared thereon subsequent to the Effective Date (without interest) and (iii)
the cash value of any fractional shares determined in accordance with Section
1.3 hereof.
- 2 -
<PAGE>
1.5. Designation of Exchange Agent.
(a) The parties of this Agreement hereby designate Zions First
National Bank, a national banking association with its head office located in
Salt Lake City, Utah ("Zions Bank") as Exchange Agent to effect the exchanges
contemplated hereby.
(b) Zions Bancorp will, promptly after the Effective Date,
issue and deliver to Zions Bank the share certificates representing shares of
Zions Bancorp Stock and the cash to be paid to holders of Company Common Stock
in accordance with this Agreement.
1.6. Notice of Exchange. Promptly after the Effective Date, Zions Bank
shall mail to each holder of one or more certificates formerly representing
Company Common Stock except to such holders as shall have waived the notice
required by this Section 1.6, a notice specifying the Effective Date and
notifying such holder to surrender his, her or its certificate or certificates
to Zions Bank for exchange. Such notice shall be mailed to holders by regular
mail at their addresses on the records of the Company.
1.7. Treatment of Stock Options. At the Effective Date, each stock
option to purchase Company Common Stock not exercised prior to the Effective
Date (each, a "Converted Option"), whether vested or unvested, shall
automatically be converted into an option (a "Replacement Option") to acquire,
on the same terms and conditions as were applicable under the terms of such
Converted Option and any option plan under which such Converted Option was
issued (or as near thereto as is practicable), a number of shares of Zions
Bancorp Stock equal to (rounded down to the nearest whole number of shares) (a)
the number of shares of Company Common Stock subject to such Converted Option as
of the Effective Date multiplied by (b) the Exchange Ratio, at an exercise price
per share (rounded down to the nearest whole cent) equal to (x) the aggregate
exercise price under such Converted Option for all of the shares of Common Stock
subject to such Converted Option at the Effective Date divided by (y) the number
of shares of Zions Bancorp Stock subject to such Replacement Option.
Notwithstanding the foregoing, each Converted Option which is intended to be an
"incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code. At or
prior to the Effective Date, the Company shall take all action, if any,
necessary with respect to any Converted Options or stock plans under which
Converted Options have been issued to permit the replacement of the Converted
Options with Replacement Options as contemplated by this section 1.7. At the
Effective Time, Zions Bancorp shall assume such stock plans; provided, that such
assumption shall only be in respect of the Replacement Options and that Zions
Bancorp shall have no obligation with respect to any awards under such plans
other than the Replacement Options and shall have no obligation to make any
additional grants or awards under such assumed plans.
- 3 -
<PAGE>
1.8. Voting Agreements. Simultaneously herewith, each shareholder of
the Company who is listed on Schedule 1.8 annexed hereto shall each enter into
an agreement with Zions Bancorp, substantially in form and substance as that set
forth as Exhibit II attached hereto, in which he or she agrees to vote all
shares of Company Common Stock which may be voted, or whose vote may be
directed, by him or her, in favor of the transactions contemplated by this
Agreement at the meeting of shareholders at which such transaction shall be
considered.
1.9. Employee Benefits. If any employee of the Company or of the Bank
becomes a participant in any employment benefit plan, practice, or policy of
Zions Bancorp, such employee shall be given credit under such plan, practice, or
policy for all service prior to the Effective Date with the Company or the Bank
for purposes of eligibility and vesting, but not for benefit accrual purposes,
for which such service is taken into account or recognized, provided that there
be no duplication of such benefits as are provided under any employee benefit
plans, practices, or policies of the Company or the Bank that continue in effect
following the Effective Date.
2. Effective Date.
The Effective Date shall be the date specified in the Articles of
Merger to be filed with the Secretary of State of the State of Utah pursuant to
section 16-10a-1105 of the Utah Business Corporation Act to effectuate the
Merger, which date shall be the latest of:
2.1. Shareholder Approval. The day upon which the shareholders of the
Company approve, ratify, and confirm the Merger; or
2.2. Federal Reserve Approval. The first to occur of (a) 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 Merger, or
(b) 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
2.3. Utah Commissioner Approval. 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 this Agreement; or
2.4. Washington Department of Financial Institutions Approval. If such
an order shall be required by law, the date ten days following the date of the
order of the Washington Department of Financial Institutions (the "Department")
approving the transactions contemplated by this Agreement; or
- 4 -
<PAGE>
2.5. Other Regulatory Approvals. 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 this Agree ment is obtained or any waiting
period mandated by such order, approval, or consent has run; or
2.6. Expiration of Stays. Ten days after any stay of the approvals of
any of the Board of Governors, the Commissioner, or the Department of the
transactions contemplated by this Agreement or any injunction against closing of
said transactions is lifted, discharged, or dismissed; or
2.7. Mutual Agreement. Such other date as shall be mutually agreed to
by Zions Bancorp and the Company.
3. Conditions Precedent to Performance of Obligations of the Parties.
The obligations of Zions Bancorp and the Company to consummate the
Merger shall be subject to the conditions that on or before the Effective Date:
3.1. Regulatory Approvals. Orders, consents, and approvals, in form and
substance reasonably satisfactory to Zions Bancorp and the Company, shall have
been entered by the requisite governmental authorities, granting the authority
necessary for consummation of the transactions contemplated by this Agreement
and the operation by Zions Bancorp of the business of the Company and the
business of the Bank, pursuant to the provisions of applicable law; and all
other requirements prescribed by law or by the rules and regulations of any
other regulatory authority having jurisdiction over such transactions shall have
been satisfied.
3.2. Absence of Litigation. No action, suit, or proceeding shall have
been instituted or shall have been threatened before any court or other
governmental body or by any public authority to restrain, enjoin, or prohibit
the Merger, or which would reasonably be expected to restrict materially the
operation of the business of the Company or that of the Bank or the exercise of
any rights with respect thereto or to subject either of the parties hereto or
any of their subsidiaries, directors, or officers to any liability, fine,
forfeiture, divestiture, or penalty on the ground that the transactions
contemplated hereby, the parties hereto, or their subsidiaries, directors, or
officers have breached or will breach any applicable law or regulation or have
otherwise acted improperly in connection with the transactions contemplated
hereby and with respect to which the parties hereto have been advised by counsel
that, in the opinion of such counsel, such action, suit, or proceeding raises
substantial questions of law or fact which could reasonably be decided
materially adversely to either party hereto or its subsidiaries, directors, or
officers.
- 5 -
<PAGE>
3.3. Registration Statement.
(a) Effectiveness. The registration statement to be filed by
Zions Bancorp with the Securities and Exchange Commission (the "SEC") pursuant
to the Securities Act of 1933 (the "Securities Act") in connection with the
registration of the shares of Zions Bancorp Stock to be used as consideration in
connection with the Merger (the "Registration Statement") shall have become
effective under that Act, and Zions Bancorp shall have received all required
state securities laws or "blue sky" permits and other required authorizations or
confirmations of the availability of exemptions from registration requirements
necessary to issue Zions Bancorp Stock in the Merger.
(b) Absence of Stop-Order. 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.
3.4. Federal Income Taxation. Zions Bancorp and the Company shall have
received a written opinion of Foster Pepper & Shefelman PLLC, or of Duane,
Morris & Heckscher LLP, or of another firm mutually agreeable to Zions Bancorp
and the Company, applying existing law, that the Merger shall qualify as a
reorganization under section 368(a)(1) of the Code and the regulations and
rulings promulgated thereunder. In rendering such opinion, counsel may require
and rely upon representations contained in certificates of officers of Zions
Bancorp, the Company, and others.
3.5. Adverse Legislation. Subsequent to the date of this Agreement no
legislation shall have been enacted and no regulation or other governmental
requirement shall have been adopted or imposed that renders or will render
consummation of any of the material transactions contemplated by this Agreement
impossible.
4. Conditions Precedent to Performance of the Obligations of Zions Bancorp.
The obligations of Zions Bancorp hereunder are subject to the
satisfaction, on or prior to the Effective Date, of all the following
conditions, compliance with which or the occurrence of which may be waived in
whole or in part by Zions Bancorp in writing unless not so permitted by law:
4.1. Approval by Shareholders of the Company. The shareholders of the
Company, acting pursuant to a proxy statement in form and substance satisfactory
to Zions Bancorp and its counsel, shall have authorized, ratified, and confirmed
the Merger by not less than the requisite percentage of the outstanding voting
stock of each class of the Company, in accordance with the applicable laws of
the State of Washington.
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4.2. Representations and Warranties; Performance of Obligations. All
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Effective Date with the
same effect as if such representations and warranties had been made or given at
and as of such date, except that representations and warranties of the Company
contained in this Agreement which specifically relate to an earlier date shall
be true and correct in all material respects as of such earlier date. All
covenants and obligations to be performed or met by the Company on or prior to
the Effective Date shall have been so performed or met. On the Effective Date,
the president and chief executive officer and the chief financial officer of the
Company shall deliver to Zions Bancorp a certificate to that effect. The
delivery of such certificates shall in no way diminish the warranties,
representations, covenants, and obligations of the Company made in this
Agreement.
4.3. Opinion of Company Counsel. Zions Bancorp shall have received a
favorable opinion from Foster Pepper & Shefelman LLP, dated the Effective Date,
substantially in form and substance as that set forth as Exhibit III attached
hereto.
4.4. Opinion of Company Litigation Counsel. Zions Bancorp shall have
received a favorable opinion from legal counsel handling litigation matters for
the Company and the Bank, dated the Effective Date, substantially in form and
substance as that set forth as Exhibit IV attached hereto.
4.5. Delivery of Authorizations. The Company shall have delivered to
Zions Bancorp originals or certified copies of all of the regulatory
authorizations entitling the Bank to operate its banking office, together with a
certification by the chief executive officer and the chief financial officer of
the Bank dated the Effective Date, certifying that such authorizations have not
been revoked or threatened to be revoked and are in full force and effect.
4.6. No Adverse Developments.
(a) During the period from March 31, 1998 to the Effective
Date, (i) there shall not have been any material adverse change in the financial
position or results of operations of the Company or the Bank taken as a whole,
nor shall the Company or the Bank have sustained any material loss or damage to
its properties, whether or not insured, which materially affects its ability to
conduct its business; and (ii) none of the events described in clauses (a)
through (f) of Section 6.16 of this Agreement shall have occurred, and each of
the practices and conditions described in clauses (x) through (z) of that
section shall have been maintained.
(b) As of the Effective Date, the capital structure of the
Company and the capital structure of the Bank shall be as stated in section 6.9,
subject to any exercise or conversion of options and warrants that are set forth
in that section.
(c) As of the Effective Date, other than liabilities incurred
in the ordinary course of business subsequent to March 31, 1998, there shall be
no liabilities of the Company or the Bank which are material to the Company on a
consolidated basis which were not reflected on the consolidated statement of
condition of the Company as of March 31, 1998.
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<PAGE>
(d) No adverse action shall have been instituted or threatened
by any govern mental authority, or referred by a governmental authority to
another governmental authority, for the enforcement or assessment of penalties
for the violation of any laws of regulations relating to equal credit
opportunity, fair housing, or fair lending.
(e) Zions Bancorp shall have received a certificate dated the
Effective Date, signed by the president and the chief financial officer of the
Company, certifying to the matters set forth in paragraphs (a), (b), (c), and
(d) of this section 4.6. The delivery of such officers' certificate shall in no
way diminish the warranties and representations of the Company made in this
Agreement.
4.7. Consolidated Net Worth. 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) $21,913,000
and (b) the aggregate contributions to capital caused by the payments
accompanying the exercise of any stock options or warrants on or after March 31,
1998.
4.8. Loan Loss Reserve. 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 $2,400,000.
4.9. CRA Rating. The CRA rating of the Bank shall be no lower than
"satisfactory."
4.10. Employment Agreement. James C. Hawkanson shall have entered into
an employment agreement with Zions Bancorp substantially in form and substance
as that set forth as Exhibit V attached hereto.
4.11. Accounting Treatment. The Company shall have received letters
from KPMG Peat Marwick LLP ("KPMG"), its independent auditing firm, dated the
date of or shortly prior to each of the mailing date of the proxy materials to
the shareholders of the Company, and the Effective Date, a copy of each of which
letters shall have been provided by the Company to Zions Bancorp promptly after
receipt thereof, stating the opinion of KPMG that no act of, or set of circum
stances attributable to the conduct of, the Company, the Bank, or any of the
officers, directors, shareholders or agents of either the Company or the Bank
prevents the reorganization contem plated by this Agreement from qualifying for
pooling-of-interest accounting treatment.
4.12. Consolidated Audit. The audit of the consolidated accounts of the
Company and the Bank by KPMG as of December 31, 1997 and for the year then ended
shall have been completed, and no material adverse change to the financial
condition of the Company shall have been revealed, nor shall any material
adjustments to the financial accounts of the Company or the Bank have been
recorded, as a result thereof.
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<PAGE>
4.13. Affiliates' Agreements. Zions Bancorp shall, not later than
thirty days prior to the Effective Date, have received a written agreement from
each "affiliate" of the Company (as that term is used in section 7.7 of this
Agreement) reasonably acceptable to Zions and consistent with section 7.7 of
this Agreement.
5. Conditions Precedent to Performance of Obligations of the Company.
The obligations of the Company hereunder are subject to the
satisfaction, on or prior to the Effective Date, of all the following
conditions, compliance with which or the occurrence of which may be waived in
whole or in part by the Company in writing unless not so permitted by law:
5.1. Representations and Warranties; Performance of Obligations. All
representations and warranties of Zions Bancorp contained in this Agreement
shall be true and correct in all material respects as of the Effective Date with
the same effect as if such representations and warranties had been made or given
at and as of such date, except that representations and warranties of Zions
Bancorp contained in this Agreement which specifically relate to an earlier date
shall be true and correct in all material respects as of such earlier date. All
covenants and obligations to be performed or met by Zions Bancorp on or prior to
the Effective Date shall have been so performed or met. On the Effective Date,
either the President or an Executive Vice President of Zions Bancorp shall
deliver to the Company a certificate to that effect. The delivery of such
officer's certificate shall in no way diminish the warranties, representations,
covenants, and obligations of Zions Bancorp made in this Agreement.
5.2. Opinion of Zions Bancorp Counsel. The Company shall have received
a favorable opinion of Duane, Morris & Heckscher LLP, dated the Effective Date,
substantially in form and substance as that set forth as Exhibit VI attached
hereto.
5.3. No Adverse Developments. During the period from March 31, 1998 to
the Effective Date, there shall not have been any material adverse change in the
financial position or results of operations of Zions Bancorp and its
subsidiaries, taken as a whole, nor shall Zions Bancorp and its subsidiaries,
taken as a whole, have sustained any material loss or damage to their
properties, whether or not insured, which materially affects their ability to
conduct their business; and the Company shall have received a certificate dated
the Effective Date signed by either the President of Zions Bancorp or an
Executive Vice President of Zions Bancorp to the foregoing effect. The delivery
of such officer's certificate shall in no way diminish the warranties and
representations of Zions Bancorp made in this Agreement.
5.4. Status of Zions Bancorp Stock. Zions Bancorp Stock shall be listed
on the Nasdaq National Market (or else shall become listed on another national
securities exchange).
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<PAGE>
6. Representations and Warranties of the Company.
The Company represents and warrants to Zions Bancorp as follows:
6.1. Organization, Powers, and Qualification. Each of the Company and
the Bank is a corporation which is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own and operate its properties and
assets, to lease properties used in its business, and to carry on its business
as now conducted. Each of the Company and the Bank owns or possesses in the
operation of its business all franchises, licenses, permits, branch
certificates, consents, approvals, waivers, and other authorizations,
governmental or otherwise, which are necessary for it to conduct its business as
now conducted, except for those where the failure of such ownership or
possession would not adversely affect the operation and properties of the
Company or the Bank in any material respect. Each of the Company and the Bank is
duly qualified and licensed to do business and is in good standing in every
jurisdiction with respect to which the failure to be so qualified or licensed
could result in material liability or adversely affect the operation and
properties of the Company or the Bank in any material respect.
6.2. Execution and Performance of Agreement. Each of the Company and
the Bank has all requisite corporate power and authority to execute and deliver
this Agreement and to perform its respective terms.
6.3. Absence of Violations. Except as set forth on Schedule 6.3 hereof:
(a) neither the Company nor the Bank is in violation of its
respective charter documents or bylaws, nor of any applicable federal, state, or
local law or ordinance nor any order, rule, or regulation of any federal, state,
local, or other governmental agency or body, in any material respect, or in
default with respect to any order, writ, injunction, or decree of any court, or
in default under any order, license, regulation, or demand of any governmental
agency, any of which violations or defaults could reasonably be expected to have
a materially adverse effect on its business, properties, liabilities, financial
position, results of operations, or prospects; and neither the Company nor the
Bank has received any claim or notice of violation with respect thereto;
(b) neither the Company nor the Bank nor any member of the
management of either of them is a party to any assistance agreement, supervisory
agreement, memorandum of understanding, consent order, cease and desist order or
condition of any regulatory order or decree with or by the Board of Governors,
the Federal Reserve Bank of San Francisco, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation (the "FDIC"), any other
banking or securities authority of the United States or the State of Washington,
or any other regulatory agency that relates to the conduct of the business of
the Company or the Bank or their assets; and except as previously disclosed to
Zions Bancorp in writing, no such agreement, memorandum, order, condition, or
decree is pending or threatened;
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<PAGE>
(c) each of the Company and the Bank has established policies
and procedures to provide reasonable assurance of compliance in a safe and sound
manner with the federal banking, credit, housing, consumer protection, and civil
rights laws and with all other laws applicable to the operations of the Company
and the Bank and the regulations adopted under each of those laws, so that
transactions be executed and assets be maintained in accordance with such laws
and regulations; and the policies and practices of each of the Company and the
Bank with respect to all such laws and regulations reasonably limit
noncompliance and detect and report noncompliance to its management; and
(d) the Bank has established a CRA policy which provides for
(i) goals and objectives consistent with CRA; (ii) a methodology for
self-assessment by the board of directors of the Bank; (iii) ongoing CRA
training of all personnel of the Bank, including the members of its board of
directors; and (iv) procedures whereby all significant CRA-related activity is
documented; and the Bank has officially designated a CRA officer responsible for
the CRA program of the Bank.
6.4. Compliance with Agreements. Neither the Company nor the Bank is in
violation of any material term of any material security agreement, mortgage,
indenture, or any other contract, agreement, instrument, lease, or certificate.
The capital ratios of each of the Company and the Bank comply fully with all
terms of all currently outstanding supervisory and regulatory requirements and
with the conditions of all regulatory orders and decrees.
6.5. Binding Obligations; Due Authorization. Subject to the approval of
its shareholders, this Agreement constitutes valid, legal, and binding
obligations of the Company, enforceable against it in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar law, or by general principles of equity. The execution,
delivery, and performance of this Agreement and the transactions contemplated
thereby have been duly and validly authorized by the board of directors of the
Company. Subject to approval by its shareholders of this Agreement, no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or the carrying out of the transactions contemplated hereby.
6.6. Absence of Default. None of the execution or the delivery of this
Agreement, the consummation of the transactions contemplated thereby, or the
compliance with or fulfillment of the terms thereof will conflict with, or
result in a breach of any of the terms, conditions, or provisions of, or
constitute a default under the organizational documents or bylaws of the Company
or the Bank. Such execution, consummation, or fulfillment will not (a) conflict
with, or result in a material breach of the terms, conditions, or provisions of,
or constitute a material violation, conflict, or default under, or, except as
set forth on Schedule 6.6 hereof, give rise to any right of termination,
cancellation, or acceleration with respect to, or result in the creation of any
lien, charge, or encumbrance upon, any property or assets of the Company or the
Bank pursuant to any material agreement or instrument under which the Company or
the Bank is obligated or by which any of its properties or assets may be bound,
including without limitation any material lease, contract, mortgage, promissory
note, deed of trust, loan, credit arrangement, or other commitment or
arrangement of the Company or the Bank in respect of which it is an obligor; (b)
if the Merger is approved by the Board of Governors under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and if the Merger is approved
by the Commissioner and the Department, violate any law, statute, rule, or
regulation of any government or agency to which the Company or the Bank is
subject and which is material to its operations; or (c) violate any judgment,
order, writ, injunction, decree, or ruling to which the Company or the Bank or
any of its properties or assets is subject or bound. None of the execution or
delivery of this Agreement, the consummation of the transactions contemplated
thereby, or the compliance with or fulfillment of the terms thereof will require
any authorization, consent, approval, or exemption by any person which has not
been obtained, or any notice or filing which has not been given or done, other
than approval of the transactions contemplated by this Agreement by the Board of
Governors, the Commissioner, and the Department.
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<PAGE>
6.7. Compliance with BHC Act.
(a) The Company is registered as a bank holding company under
the BHC Act. All of the activities and investments of the Company conform to the
requirements applicable generally to bank holding companies under the BHC Act
and the regulations of the Board of Governors adopted thereunder.
(b) No corporation or other entity, other than the Company, is
registered or is required to be registered as a bank holding company under the
BHC Act by virtue of its control over the Bank or over any company that directly
or indirectly has control over the Bank.
6.8. Subsidiaries.
(a) Other than the Bank, which is a direct, wholly-owned
subsidiary of the Company, the Company does not have any direct or indirect
subsidiaries and does not directly or indirectly own, control, or hold with the
power to vote any shares of the capital stock of any company (except shares held
by the Bank for the account of others in a fiduciary or custodial capacity in
the ordinary course of its business). There are no outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, or agreements
calling for or requiring the issuance, transfer, sale, or other disposition of
any shares of the capital stock of the Bank, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of the Bank. There are no other direct or indirect subsidiaries
of the Company which are required to be consolidated or accounted for on the
equity method in the consolidated financial statements of the Company or the
financial statements of the Bank prepared in accordance with generally accepted
accounting principles.
(b) Except as specified in the previous subsection, neither
the Company nor the Bank has a direct or indirect equity or ownership interest
which represents 5 percent or more of the aggregate equity or ownership interest
of any entity (including, without limitation, corpora tions, partnerships, and
joint ventures).
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<PAGE>
6.9. Capital Structure.
(a) The authorized capital stock of the Company consists of
2,500,000 shares of preferred stock, none of which are issued or outstanding,
and 15,000,000 shares of Company Common Stock, of which, as of the date of this
Agreement, 2,396,809 shares have been duly issued and are validly outstanding,
fully paid, and held by approximately 200 shareholders of record. The
aforementioned shares of Company Common Stock are the only voting securities of
the Company authorized, issued, or outstanding as of the date of this Agreement;
and except as set forth on Schedule 6.9 hereof, no subscriptions, warrants,
options, rights, convertible securi ties, or similar arrangements or commitments
in respect of securities of the Company are authorized, issued, or outstanding
which would enable the holder thereof to purchase or otherwise acquire shares of
any class of capital stock of the Company. No shares of Company Common Stock are
held by the Company as treasury shares. None of the Company Common Stock is
subject to any restrictions upon the transfer thereof under the terms of the
corporate charter or bylaws of the Company.
(b) Schedule 6.9 hereof lists all options to purchase Company
securities currently outstanding and, for each such option, the date of
issuance, date of exercisability, exercise price, type of security for which
exercisable, date of expiration, and whether such option is an incentive or a
non-qualified stock option under the Code. Schedule 6.9 hereof further lists all
shares of Company Common Stock reserved for issuance pursuant to stock option
plans, agreements, or arrangements but not yet issued and all options upon
shares of Company Common Stock designated or made available for grant but not
yet granted.
(c) The authorized capital stock of the Bank consists of
3,000,000 shares of common stock, $2.50 par value (the "Bank Common Stock"), of
which, as of the date of this Agreement, 1,775,000 shares have been duly issued
and are validly outstanding, fully paid, and all of which are held of record and
beneficially by the Company. The aforementioned shares of Bank Common Stock are
the only voting securities of the Bank authorized, issued, or outstanding as of
such date; and no subscriptions, warrants, options, rights, convertible
securities, or similar arrangements or commitments in respect of securities of
the Bank are authorized, issued, or outstanding which would enable the holder
thereof to purchase or otherwise acquire shares of any class of capital stock of
the Bank. None of the Bank Common Stock is subject to any restrictions upon the
transfer thereof under the terms of the corporate charter or bylaws of the Bank.
(d) None of the shares of Company Common Stock or Bank Common
Stock has been issued in violation of the preemptive rights of any shareholder.
(e) As of the date hereof, to the best of the knowledge of the
Company, and except for this Agreement, there are no shareholder agreements, or
other agreements, under standings, or commitments relating to the right of any
holder or beneficial owner of more than 1 percent of the issued and outstanding
shares of any class of the capital stock of either the Company or the Bank to
vote or to dispose of his or its shares of capital stock of that entity.
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<PAGE>
6.10. Articles of Incorporation, Bylaws, and Minute Books. The copies
of the articles of incorporation and all amendments thereto and of the bylaws,
as amended, of the Company and the Bank that have been provided to Zions Bancorp
and certified by the Company as complete and true copies are true, correct, and
complete copies thereof. The minute books of the Company and the Bank which have
been made available to Zions Bancorp for its continuing inspection until the
Effective Date contain accurate minutes of all meetings and accurate consents in
lieu of meetings of the board of directors (and any committee thereof) and of
the shareholders of the Company and the Bank since their respective inceptions.
These minute books accurately reflect all transactions referred to in such
minutes and consents in lieu of meetings and disclose all material corporate
actions of the shareholders and boards of directors of the Company and the Bank
and all committees thereof. Except as reflected in such minute books, there are
no minutes of meetings or consents in lieu of meetings of the board of directors
(or any committee thereof) or of shareholders of the Company or the Bank.
6.11. Books and Records. The books and records of each of the Company
and the Bank fairly reflect the transactions to which it is a party or by which
its properties are subject or bound. Such books and records have been properly
kept and maintained and are in compliance in all material respects with all
applicable legal and accounting requirements. Each of the Company and the Bank
follows generally accepted accounting principles applied on a consistent basis
in the preparation and maintenance of its books of account and financial
statements, including but not limited to the application of the accrual method
of accounting for interest income on loans, leases, discounts, and investments,
interest expense on deposits and all other liabilities, and all other items of
income and expense. The Company and the Bank have made all accruals in amounts
which fairly report income and expense in the proper periods in accordance with
generally accepted accounting principles. Each of the Company and the Bank has
filed all material reports and returns required by any law or regulation to be
filed by it.
6.12. Regulatory Approvals and Filings, Contracts, Commitments, etc.
The Company has made or will, no later than ten business days after the date
hereof, make available to Zions Bancorp or grant to Zions Bancorp continuing
access until the Effective Date to originals or copies of the following
documents relating to the Company and the Bank:
(a) All regulatory approvals received since January 1, 1992,
of the Company and the Bank relating to all bank and nonbank acquisitions or the
establishment of de novo operations;
(b) All employment contracts, retention contracts, deferred
compensation, non-competition, bonus, stock option, profit-sharing, pension,
retirement, consultation after retirement, incentive, insurance arrangements or
plans (including medical, disability, group life or other insurance plans), and
any other remuneration or fringe benefit arrangements applicable to employees,
officers, or directors of the Company or the Bank, accompanied by any
agreements, including trust agreements, embodying such contracts, plans, or
arrangements, and all employee manuals and memoranda relating to employment and
benefit policies and practices of any nature whatsoever (whether or not
distributed to employees or any of them), and any actuarial reports and audits
relating to such plans;
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<PAGE>
(c) All material contracts, agreements, leases, mortgages, and
commitments, except those entered into in the ordinary course of business, to
which the Company or the Bank is a party or may be bound; or, if any of the same
be oral, true, accurate, and complete written summaries of all such oral
contracts, agreements, leases, mortgages, and commitments;
(d) All material contracts, agreements, leases, mortgages, and
commitments, whether or not entered into in the ordinary course of business, to
which the Company or the Bank is a party or may be bound and which require the
consent or approval of third parties to the execution and delivery of this
Agreement or to the consummation or performance of any of the transactions
contemplated thereby, or, if any of the same be oral, true, accurate, and
complete written summaries of all such oral contracts, agreements, leases,
mortgages, and commitments;
(e) All deeds, leases, contracts, agreements, mortgages, and
commitments, whether or not entered into in the ordinary course of business, to
which the Company or the Bank is a party or may be bound and which relate to
land, buildings, fixtures, or other real property upon or within which the
Company or the Bank operates its businesses or is authorized to operate its
businesses, or with respect to which the Company or the Bank has any application
pending for authorization to operate its businesses;
(f) Any pending application, including any documents or
materials related thereto, which has been filed by the Company or the Bank with
any federal or state regulatory agency with respect to the establishment of a
new office or the acquisition or establishment of any additional banking or
nonbanking subsidiary; and
(g) All federal, state, and local tax returns, including any
amended returns, filed by the Company or the Bank for the years 1991 through
1997, a copy of the most recent audit examination of each of the Company and the
Bank by the Internal Revenue Service ("IRS"), and a copy of all correspondence
or other documents with respect to any examination that has not yet been
resolved, a copy of the most recent state or local tax agency examination, if
any, of each of the Company and the Bank, and a copy of all correspondence or
other documents with respect to any examination that has not yet been resolved,
and all tax rulings, closing agreements, settlement agreements, or similar
documents with respect to the Company or the Bank received from or entered into
with the IRS or any other taxing authority since January 1, 1988 or that would
have continuing effect after the Effective Date.
6.13. Financial Statements. The Company has furnished to Zions Bancorp
its consolidated statement of condition as of each of December 31, 1995,
December 31, 1996, and December 31, 1997, and its related consolidated statement
of income, consolidated statement of changes in financial position, and
consolidated statement of changes in stockholders' equity for each of the
periods then ended, and the notes thereto, and its consolidated statement of
condition as of March 31, 1998 and its related consolidated statement of income
(collectively, the "Company Financial Statements"). All of the Company Financial
Statements, including the related notes, (a) were prepared in accordance with
generally accepted accounting principles applied in all material respects, and
(b) are in accordance with the books and records of the Company and the Bank
which have been maintained in accordance with generally accepted accounting
principles or the requirements of financial institution regulatory authorities,
as the case may be, and (c) fairly reflect the consolidated financial position
of the Company as of such dates, and the consolidated results of operations of
the Company for the periods ended on such dates, and do not fail to disclose any
material extraordinary or out-of-period items, and (d) reflect, in accordance
with generally accepted accounting principles applied in all material respects,
adequate provision for, or reserves against, the possible loan losses of the
Company as of such dates.
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<PAGE>
6.14. Call Reports; Bank Holding Company Reports.
(a) The Bank has made available to Zions Bancorp its
Consolidated Reports of Condition and Consolidated Reports of Income for the
calendar quarters dated March 31, 1995 and thereafter. All of such Consolidated
Reports of Condition and Consolidated Reports of Income, including the related
schedules and memorandum items, were prepared in accordance with generally
accepted accounting principles applied in all material respects or, to the
extent different from generally accepted accounting principles, accounting
principles mandated by the applicable instructions to such Consolidated Reports
of Condition or Consolidated Reports of Income.
(b) No adjustments are required to be made to the equity
capital account of the Bank as reported on any of the Consolidated Reports of
Condition referred to in Subsection 6.14(a) hereof, in any material amount, in
order to conform such equity capital account to equity capital as would be
determined in accordance with generally accepted accounting principles as of
such date.
(c) The Company has furnished to Zions Bancorp (i) its annual
report on Form FR Y-6 as filed with the Board of Governors as of December 31,
1997, and (ii) its quarterly report on Form FR Y-9LP as filed with the Board of
Governors as of March 31, 1998.
6.15. Absence of Undisclosed Liabilities. At March 31, 1998, neither
the Company nor the Bank had any obligation or liability of any nature (whether
absolute, accrued, contingent, or otherwise, and whether due or to become due)
which was material, or which when combined with all similar obligations or
liabilities would have been material, to the Company, except (a) as disclosed in
the Company Financial Statements, or (b) as set forth on Schedule 6.15 hereof,
or (c) for unfunded loan commitments made by the Company or the Bank in the
ordinary course of their business consistent with past practice. The amounts set
up as current liabilities for taxes in the Company Financial Statements are
sufficient for the payment of all taxes (including, without limitation, federal,
state, local, and foreign excise, franchise, property, payroll, income, capital
stock, and sales and use taxes and any interest, penalties, or additions to tax
with respect thereto ("Tax" or "Taxes")) accrued in accordance with generally
accepted accounting principles and unpaid at March 31, 1998. Since March 31,
1998, neither the Company nor the Bank has incurred or paid any obligation or
liability that would be material (on a consolidated basis) to the Company,
except (x) for obligations incurred or paid in connection with transactions by
it in the ordinary course of its business consistent with past practices, or (y)
as set forth on Schedule 6.15 hereof, or (z) as expressly contemplated herein.
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<PAGE>
6.16. Absence of Certain Developments. Since March 31, 1998, except as
set forth on Schedule 6.16 hereof, there has been (a) no material adverse change
in the condition, financial or otherwise, or to the assets, properties,
liabilities, or businesses of the Company and the Bank, (b) no material
deterioration in the quality of the consolidated loan portfolio of the Company,
and no increase in the consolidated level of nonperforming assets or non-accrual
loans at the Company which are reasonably likely to result in a material loss,
or in the level of its consolidated provision for credit losses or its
consolidated reserve for possible credit losses; (c) except as set forth on
Schedule 6.16 hereof, no declaration, setting aside, or payment by the Company
or the Bank of any regular dividend, special dividend, or other distribution
with respect to any class of capital stock of the Company or the Bank, other
than customary cash dividends paid by the Company or the Bank whose amounts have
not exceeded past practice and the intervals between which dividends have not
been more frequent than past practice; (d) no repurchase by the Company of any
of its capital stock; (e) no material loss, destruction, or damage to any
material property of the Company or the Bank, which loss, destruction, or damage
is not covered by insurance; and (f) no material acquisition or disposition of
any asset, nor any material contract outside the ordinary course of business
entered into by the Company or the Bank nor any substantial amendment or
termination of any material contract outside the ordinary course of business to
which the Company or the Bank is a party, nor any other transaction by the
Company or the Bank involving an amount in excess of $50,000 other than for fair
value in the ordinary course of its business. Since March 31, 1998, except as
set forth on Schedule 6.16 hereof, (x) each of the Company and the Bank has
conducted its business only in the ordinary course of such business and
consistent with past practice; (y) the Company, on a consolidated basis, has
maintained the quality of its loan portfolio and that of each of its major
components at approxi mately the same level as existed at March 31, 1998; and
(z) the Company, on a consolidated basis, has administered its investment
portfolio pursuant to essentially the same policies and procedures as existed
during 1996 and 1997, and has taken no action to lengthen the average maturity
of the investment portfolio, or of any significant category thereof, to any
material extent.
6.17. Reserve for Possible Credit Losses. The Company's 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 pertinent factors. Management periodically reevaluates the adequacy of
such reserve based on portfolio performance, current economic conditions, and
other factors.
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6.18. Tax Matters.
(a) Except as set forth on Schedule 6.18 hereof, all Tax
returns and reports required to be filed by or on behalf of the Company or the
Bank have been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed, or
requests for extensions have been timely filed, granted, and have not expired
for periods ending on or before December 31, 1996, and all returns filed are
complete and accurate and properly reflect its Taxes for the periods covered
thereby. All Taxes shown or required to be shown on filed returns have been
paid. As of the date hereof, there is no audit examination, deficiency, or
refund litigation or tax claim or any notice of assessment or proposed
assessment by the IRS or any other taxing authority, or any other matter in
controversy with respect to any Taxes that might result in a determination
adverse to the Company or the Bank, except as reserved against in the Company
Financial Statements. All Taxes due with respect to completed and settled
examinations or concluded litigation have been properly accrued or paid.
(b) Neither the Company nor the Bank has executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due that is currently in effect.
(c) To the extent any Taxes are due from, but have not yet
been paid by, the Company or the Bank for the period or periods beginning
January 1, 1997 or thereafter through and including the Effective Date, adequate
provision on an estimated basis has been made for the payment of such taxes by
establishment of appropriate tax liability accounts on the monthly financial
statements of the Company.
(d) Except as set forth on Schedule 6.18 hereof, deferred
Taxes of the Company and the Bank have been provided for in accordance with
generally accepted accounting principles as in effect on the date of this
Agreement.
(e) The deductions of the Bank for bad debts taken and the
reserve of the Bank for loan losses for federal income tax purposes at December
31, 1996, were not greater than the maximum amount permitted under the
provisions of section 585 of the Code.
(f) Other than liens arising under the laws of the State of
Washington with respect to taxes assessed and not yet due and payable, there are
no tax liens on any of the proper ties or assets of the Company or the Bank.
(g) The Company and the Bank (A) have timely filed all
information returns or reports required to be filed with respect to Taxes,
including but not limited to those required by sections 6041, 6041A, 6042, 6045,
6049, 6050H, and 6050J of the Code, (B) have properly and timely provided to all
persons, other than taxing authorities, all information reports or other
documents (for example, Form 1099s, Form W-2s, and so forth) required to be
provided to such persons under applicable law, and (C) have exercised due
diligence in obtaining certified taxpayer identification numbers as required
under applicable law.
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<PAGE>
(h) The taxable year end of the Company for federal income tax
purposes is, and since the inception of the Company has continuously been,
December 31.
(i) The Company and the Bank have in all material respects
satisfied all federal, state, local, and foreign withholding tax requirements
including but not limited to income, social security, and employment tax
withholding.
(j) Neither the Company nor the Bank (A) is, or has been, a
member of a group filing a consolidated, combined, or unitary tax return, other
than a group the common parent of which is or was the Company, or (B) has any
liability for the Taxes of any person (other than the Company and the Bank)
under Treas. Reg. Sec. 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
6.19. Consolidated Net Worth. The consolidated net worth of the Company
on the date of this Agreement, as determined in accordance with generally
accepted accounting principles, is not less than $20,220,000.
6.20. Examinations. To the extent consistent with law, the Company has
heretofore disclosed to Zions Bancorp relevant information contained in the most
recent safety-and- soundness, compliance, Community Reinvestment Act, and other
Reports of Examination with respect to the Company issued by the Board of
Governors and the most recent safety-and- soundness, compliance, Community
Reinvestment Act, and other Reports of Examination with respect to the Bank
issued by the Comptroller of the Currency. Such information so disclosed
consists of all material information with respect to the financial, operational,
and legal condition of the entity under examination which is included in such
reports, and does not omit or will not omit any information necessary to make
the information disclosed not misleading.
6.21. Reports. Since January 1, 1995, each of the Company and the Bank
has effected all registrations and filed all reports and statements, together
with any amendments required to be made with respect thereto, which it was
required to effect or file with (a) the Board of Governors, (b) the Federal
Reserve Bank of San Francisco, (c) the Comptroller of the Currency, (d) the
FDIC, (e) the United States Department of the Treasury, (f) the Department, and
(g) any other governmental or regulatory authority or agency having jurisdiction
over its operations. Each of such registrations, reports, and documents,
including the financial statements, exhibits, and schedules thereto, does not
contain any statement which, at the time and in the light of the circumstances
under which it was made, is false or misleading with respect to any material
fact or which omits to state any material fact necessary in order to make the
statements contained therein not false or misleading.
6.22. FIRA Compliance and Other Transactions with Affiliates. Except as
set forth on Schedule 6.22 hereof, (a) none of the officers, directors, or
beneficial holders of 5 percent or more of the common stock of the Company or
the Bank and no person "controlled" (as that term is defined in the Financial
Institutions Regulatory and Interest Rate Control Act of 1978) by the Company or
the Bank (collectively, "Insiders") has any ongoing material transaction with
the Company or the Bank on the date of this Agreement; (b) no Insider has any
ownership interest in any business, corporate or otherwise, which is a party to,
or in any property which is the subject of, business arrangements or
relationships of any kind with the Company or the Bank not in the ordinary
course of business; and (c) all other extensions of credit by the Company or the
Bank to any Insider have heretofore been disclosed in writing by the Company to
Zions Bancorp.
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6.23. SEC Registered Securities. No equity or debt securities of the
Company or the Bank are registered or required to be registered under the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
6.24. Legal Proceedings. Except as disclosed in the Company Financial
Statements or as set forth on Schedule 6.24 hereof, there is no claim, action,
suit, arbitration, investigation, or other proceeding pending before any court,
governmental agency, authority or commission, arbitrator, or "impartial
mediator" (of which the Company or the Bank has been served with process or
otherwise been given notice) or, to the best of the knowledge of the Company,
threatened or contemplated against or affecting it or its property, assets,
interests, or rights, or any basis therefor of which notice has been given,
which, if adversely determined, would have a material adverse effect (financial
or otherwise) on the business, operating results, or financial condition of the
Company or which otherwise could prevent, hinder, or delay consummation of the
transactions contemplated by this Agreement.
6.25. Absence of Governmental Proceedings. Except as set forth on
Schedule 6.25 hereof, neither the Company nor the Bank is a party defendant or
respondent to any pending legal, equitable, or other proceeding commenced by any
governmental agency and, to the best of the knowledge of the Company, no such
proceeding is threatened.
6.26. Federal Deposit Insurance.
(a) The deposits held by the Bank are insured within statutory
limits by the Bank Insurance Fund of the FDIC pursuant to the provisions of the
Federal Deposit Insurance Act, as amended (12 U.S.C. ss. 1811 et seq.), and the
Bank has paid all assessments and filed all related reports and statements
required under the Federal Deposit Insurance Act.
(b) The Bank is a member of and pays insurance assessments to
the Bank Insurance Fund of the FDIC ("BIF"), and its deposits are insured by the
BIF. None of the deposits of the Bank are insured by the Savings Association
Insurance Fund of the FDIC ("SAIF"), and the Bank pays no insurance assessments
to the SAIF.
6.27. Other Insurance. Each of the Company and the Bank carries
insurance with reputable insurers, including blanket bond coverage, in such
amounts as in the judgment of its management are reasonable to cover such risks
as are customary in relation to the character and location of its properties and
the nature of its businesses. All such policies of insurance are set forth on
Schedule 6.27 hereof, are in full force and effect, and no notice of
cancellation has been received. All premiums to date have been paid in full.
Neither the Company nor the Bank is in default with respect to any such policy
which is material to it.
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6.28. Labor Matters. Neither the Company nor the Bank is a party to or
bound by any collective bargaining contracts with respect to any employees of
the Company or the Bank. Since their respective inceptions, there has not been,
nor to the best of the knowledge of the Company was there or is there
threatened, any strike, slowdown, picketing, or work stoppage by any union or
other group of employees against the Company or the Bank or any of its premises,
or any other labor trouble or other occurrence, event, or condition of a similar
character. As of the date hereof, the Company is not aware of any attempts to
organize a collective bargaining unit to represent any of the employee groups of
the Company or the Bank.
6.29. Employee Benefit Plans.
(a) Schedule 6.29 hereto contains a list or brief descriptions
of all pension, retirement, stock purchase, stock bonus, stock ownership, stock
option, performance share, stock appreciation right, phantom stock, savings, or
profit-sharing plans, any employment, deferred compensation, consultant, bonus,
or collective bargaining agreement, or group insurance contract or any other
incentive, welfare, life insurance, death or survivor's benefit, health
insurance, sickness, disability, medical, surgical, hospital, severance, layoff
or vacation plans, contracts, and arrangements or employee benefit plans or
agreements sponsored, maintained, or contributed to by the Company or the Bank
for the employees or former employees of the Company or the Bank. The Company
has previously made available and will continue to make available to Zions
Bancorp for its continuing review until the Effective Date true, complete, and
accurate copies of all plans and arrangements listed on Schedule 6.29, together
with (i) the most recent actuarial and financial report prepared with respect to
any such plans which constitute "qualified plans" under section 401(a) of the
Code, and (ii) the most recent annual reports, if any, filed with any government
agency and all IRS rulings and determination letters and any open requests for
such rulings and letters that pertain to any such plan.
(b) Except for liabilities to the Pension Benefit Guaranty
Corporation ("PBGC") pursuant to section 4007 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), all of which have been fully paid,
and except for liabilities to the IRS under section 4971 of the Code, all of
which have been fully paid, neither the Company nor the Bank will, as of the
Effective Date, have any liability with respect to any pension plan qualified
under section 401 of the Code. Except as set forth on Schedule 6.29 hereof,
neither the Company nor the Bank sponsors or maintains any defined benefit plan
or has ever sponsored or maintained any defined benefit plan.
(c) All "employee benefit plans," as defined in section 3(3)
of ERISA, that cover one or more employees employed by the Company or the Bank
(each individually a "Plan" and collectively the "Plans"), will, as of the
Effective Date, comply in all material respects with ERISA and, where applicable
for tax-qualified or tax-favored treatment, with the Code. As of the Effective
Date, neither the Company nor the Bank will have any material liability under
any Plan which is not reflected on the Company Financial Statements as of March
31, 1998 (other than such normally unrecorded liabilities under the Plans for
sick leave, holiday, education, bonus, vacation, incentive compensation, and
anniversary awards, provided that such liabilities are not in any event
material). As of the Effective Date, none of the Plans, the Company, the Bank,
nor any trustee or administrator of the Plans will have engaged in a "prohibited
transaction" with respect to the Plans within the meaning of section 406 of
ERISA or, where applicable, section 4975 of the Code for which no exemption is
applicable, nor will there have been any "reportable events" within section 4043
of ERISA for which the thirty-day notice therefor has not been waived. As of the
Effective Date, neither the Company nor the Bank will have incurred any
liability under section 4201 of ERISA for a complete or partial withdrawal from
a multi-employer plan.
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<PAGE>
(d) No action, claim, or demand of any kind has been brought
or threatened by any potential claimant or representative of such a claimant
under any plan, contract, or arrangement referred to in Subsection (a) of this
section, where the Company or the Bank may be either (i) liable directly on such
action, claim, or demand; or (ii) obligated to indemnify any person, group of
persons, or entity with respect to such action, claim, or demand which is not
fully covered by insurance maintained with reputable, responsible financial
insurers or by a self-insured plan.
6.30. Employee Relations. As of the date hereof, each of the Company
and the Bank is, to the best of the knowledge of the Company, in compliance in
all material respects with all federal and state laws, regulations, and orders
respecting employment and employment practices (including Title VII of the Civil
Rights Act of 1964), terms and conditions of employment, and wages and hours;
and neither the Company nor the Bank is engaged in any unfair labor practice. As
of the date hereof, except as set forth on Schedule 6.30 hereof, no dispute
exists between the Company or the Bank and any of its employee groups regarding
any employee organization, wages, hours, or conditions of employment which would
materially interfere with the business or operations of the Company or the Bank.
6.31. Fiduciary Activities. Except with respect to fiduciary and
custodial activities for individual retirement accounts within the meaning of
section 408 of the Code ("IRAs"), the Bank does not act, and since its inception
has not acted, in a fiduciary or custodial capacity or otherwise conducted trust
activities. The Bank is exempt from registration under the federal Investment
Advisers Act of 1940, as amended. Since January 1, 1995, the Bank has conducted,
and currently is conducting, all fiduciary and custodial activities for IRAs in
all material respects in accordance with all applicable law.
6.32. Environmental Liability.
(a) Except as set forth on Schedule 6.32 hereof, neither the
Company nor the Bank is in material violation of any judgment, decree, order,
law, license, rule or regulation pertaining to environmental matters, including
those arising under the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, the
Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic
Substances Control Act or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment ("Environmental
Laws").
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<PAGE>
(b) Except as set forth on Schedule 6.32 hereof, neither the
Company, the Bank, nor, to the best of the knowledge of the Company, any
borrower of the Company or of the Bank has received notice that it has been
identified by the United States Environmental Protec tion Agency as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B, nor has the Company or
the Bank or, to the best of the knowledge of the Company, any borrower of the
Company or of the Bank received any notification that any hazardous waste, as
defined by 42 U.S.C. ss. 6903(5), any hazardous substances, as defined by 42
U.S.C. ss. 9601(14), any "pollutant or contaminant," as defined by 42 U.S.C. ss.
9601(33), or any toxic substance, hazardous materials, oil, or other chemicals
or substances regulated by any Environmental Laws ("Hazardous Substances") that
it has disposed of has been found at any site at which a federal or state agency
is conducting a remedial investigation or other action pursuant to any
Environmental Law.
(c) No portion of any real property at any time owned or
leased by the Company or the Bank (collectively, the "Company Real Estate") has
been used by the Company or the Bank for the handling, processing, storage or
disposal of Hazardous Substances in a manner which violates any Environmental
Laws and, to the best of the knowledge of the Company, no underground tank or
other underground storage receptacle for Hazardous Substances is located on any
of the Company Real Estate. In the course of its activities, neither the Company
nor the Bank has generated or is generating any hazardous waste on any of the
Company Real Estate in a manner which violates any Environmental Laws. There has
been no past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing or
dumping (collectively, a "Release") of Hazardous Substances by the Company or
the Bank on, upon, or into any of the Company Real Estate. In addition, to the
best of the knowledge of the Company and the Bank, except as set forth on
Schedule 6.32 hereof, there have been no such Releases on, upon, or into any
real property in the vicinity of any of the Company Real Estate that, through
soil or groundwater contamination, may be located on any of such Company Real
Estate.
(d) With respect to any real property at any time held as
collateral for any outstanding loan by the Company or the Bank (collectively,
the "Collateral Real Estate"), except as set forth on Schedule 6.32 hereof,
neither the Company nor the Bank has since January 1, 1988 received notice from
any borrower thereof or third party, and the Company has no knowledge, that such
borrower has generated or is generating any hazardous waste on any of the
Collateral Real Estate in a manner which violates any Environmental Laws or that
there has been any Release of Hazardous Substances by such borrower on, upon, or
into any of the Collateral Real Estate, or that there has been any Release on,
upon, or into any real property in the vicinity of any of the Collateral Real
Estate that, through soil or groundwater contamination, may be located on any of
such Collateral Real Estate.
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(e) As used in this Section 6.32, each of the terms "Company"
and "Bank" includes the applicable entity and any partnership or joint venture
in which it has an interest.
6.33. Intangible Property. To the best of the knowledge of the Company,
each of the Company and the Bank owns or possesses the right, free of the claims
of any third party, to use all material trademarks, service marks, trade names,
copyrights, patents, and licenses currently used by it in the conduct of its
business. To the best of the knowledge of the Company, no material product or
service offered and no material trademark, service mark, or similar right used
by the Company or the Bank infringes any rights of any other person, and, as of
the date hereof, neither the Company nor the Bank has received any written or
oral notice of any claim of such infringement.
6.34. Real and Personal Property. Except for property and assets
disposed of in the ordinary course of business, each of the Company and the Bank
possesses good and marketable title to and owns, free and clear of any mortgage,
pledge, lien, charge, or other encumbrance or other third party interest of any
nature whatsoever which would materially interfere with the business or
operations of either the Company or the Bank, its real and personal property and
other assets, including without limitation those properties and assets reflected
in the Company Financial Statements as of March 31, 1998, or acquired by the
Company or the Bank subsequent to the date thereof. The leases pursuant to which
the Company and the Bank lease real or personal property are valid and effective
in accordance with their respective terms; and there is not, under any such
lease, any material existing default or any event which, with the giving of
notice or lapse of time or otherwise, would constitute a material default. The
real and personal property leased by either the Company or the Bank is free from
any adverse claim which would materially interfere with its business or
operation taken as a whole. The material properties and equipment owned or
leased by the Company and the Bank are in normal operating condition, free from
any known defects, except such minor defects as do not materially interfere with
the continued use thereof in the conduct of its normal operations.
6.35. Loans, Leases, and Discounts.
(a) To the best of the knowledge of the Company, each loan,
lease, and discount reflected as an asset of the Company in the Company
Financial Statements as of March 31, 1998, or acquired since that date, is the
legal, valid, and binding obligation of the obligor named therein, enforceable
in accordance with its terms; and no loan, lease, or discount having an unpaid
balance (principal and accrued interest) in excess of $50,000 is subject to any
asserted defense, offset, or counterclaim known to the Company.
(b) Except as set forth on Schedule 6.35 hereof, neither the
Company nor the Bank holds any loans or loan-participation interests purchased
from, or participates in any loans originated by, any person other than the
Company or the Bank.
6.36. Material Contracts. Neither the Company nor the Bank nor any of
the assets, businesses, or operations of either of them is as of the date hereof
a party to, or is bound or affected by, or receives benefits under any material
agreement, arrangement, or commitment not cancelable by it without penalty,
other than (a) the agreements set forth on Schedule 6.36 hereof, and (b)
agreements, arrangements, or commitments entered into in the ordinary course of
its business consistent with past practice, or, if there has been no past
practice, consistent with prudent banking practices.
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6.37. Employment and Severance Arrangements. Schedule 6.37 hereof sets
forth
(a) all employment contracts granted by the Company or the
Bank to any of its officers, directors, shareholders, consultants, or other
management officials and any officer, director, shareholder, consultant, or
management official of any affiliate providing for increased or accelerated
compensation in the event of a change of control with respect to the Company or
the Bank or any other event affecting the ownership, control, or management of
the Company or the Bank; and
(b) all employment and severance contracts, agreements, and
arrangements between the Company or the Bank and any officer, director,
consultant, or other management official of any of them.
6.38. Material Contract Defaults. All contracts, agreements, leases,
mortgages, or commitments referred to in Section 6.12(c) hereof are valid and in
full force and effect on the date hereof. As of the date of this Agreement and
as of the Effective Date, neither the Company nor the Bank is or will be in
default in any material respect under any material contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to which
it is a party or by which its assets, business, or operations may be bound or
affected or under which it or its assets, business, or operations receive
benefits; and there has not occurred any event that with the lapse of time or
the giving of notice or both would constitute such a default.
6.39. Capital Expenditures. Except as set forth on Schedule 6.39
hereof, neither the Company nor the Bank has any outstanding commitments in the
nature of capital expenditures which in the aggregate exceed $50,000.
6.40. Repurchase Agreements. With respect to all agreements pursuant to
which the Company or the Bank has purchased securities subject to an agreement
to resell, it has a valid, perfected first lien or security interest in the
securities securing the agreement, and the value of the collateral securing each
such agreement equals or exceeds the amount of the debt secured by such
collateral under such agreement.
6.41. Internal Controls. Each of the Company and the Bank maintains
internal controls to provide reasonable assurance to its board of directors and
officers that its assets are safeguard ed, its records and reports are prepared
in compliance with all applicable legal and accounting requirements and with its
internal policies and practices, and applicable federal, state, and local laws
and regulations are complied with. These controls extend to the preparation of
its financial statements to provide reasonable assurance that the statements are
presented fairly in conformity with generally accepted accounting principles or,
in the case of the Bank and to the extent different from generally accepted
accounting principles, accounting principles mandated by the Comptroller of the
Currency. The controls contain self-monitoring mechanisms, and appropriate
actions are taken on significant deficiencies as they are identified.
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6.42. Dividends. Neither the Company nor the Bank has paid any dividend
to its shareholders which caused its regulatory capital to be less than the
amount then required by applicable law, or which exceeded any other limitation
on the payment of dividends imposed by law, agreement, or regulatory policy.
6.43. Brokers and Advisers. Except as set forth on Schedule 6.43
hereof, (a) there are no claims for brokerage commissions, finder's fees, or
similar compensation arising out of or due to any act of the Company or the Bank
in connection with the transactions contemplated by this Agreement or based upon
any agreement or arrangement made by or on behalf of the Company or the Bank,
and (b) neither the Company nor the Bank has entered into any agreement or under
standing with any party relating to financial advisory services provided or to
be provided with respect to the transactions contemplated by this Agreement.
6.44. Interest Rate Risk Management Instruments.
(a) Schedule 6.44 contains a true, correct, and complete list
of all interest-rate swaps, caps, floors, and options agreements and other
interest-rate risk management arrange ments to which the Company or the Bank is
a party or by which any of its properties or assets may be bound.
(b) All interest rate swaps, caps, floors, and option
agreements and other interest rate risk management arrangements to which the
Company or the Bank is a party or by which any of its properties or assets may
be bound were entered into in the ordinary course of its business and, to the
best of the knowledge of the Company, in accordance with prudent banking
practice and applicable rules, regulations, and regulatory policies and with
counterparties believed to be financially responsible at the time and are legal,
valid, and binding obligations enforceable in accordance with their terms
(except as may be limited by bankruptcy, insolvency, moratorium, reorganization,
or similar laws affecting the rights of creditors generally and the availability
of equitable remedies), and are in full force and effect. The Company and the
Bank have duly performed in all material respects of all of their respective
obligations thereunder to the extent that such obligations to perform have
accrued; and to the best of the knowledge of the Company, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
6.45. Disclosure. No representation or warranty hereunder and no
certificate, statement, or other document delivered by the Company or the Bank
hereunder or in connection with this Agreement or any of the transactions
contemplated thereunder contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading. Copies of all documents referred to in this Agreement, unless
prepared solely by Zions Bancorp or solely by Zions Bancorp and third parties
hereto, are true, correct, and complete copies thereof and include all
amendments, supplements, and modifications thereto and all waivers thereunder.
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6.46. Regulatory and Other Approvals. As of the date hereof, except as
set forth on Schedule 6.46 hereof, the Company is not aware of any reason why
all material consents and approvals shall not be procured from all regulatory
agencies having jurisdiction over the transactions contemplated by this
Agreement, as shall be necessary for (a) consummation of the transactions
contemplated by this Agreement, and (b) the continuation after the Effective
Date of the business of the Company and the Bank as such business is carried on
immediately prior to the Effective Date, free of any conditions or requirements
which, in the reasonable opinion of the Company, could have a material adverse
effect upon the business, operations, activities, earnings, or prospects of the
Company. As of the date hereof, the Company is not aware of any reason why all
material consents and approvals shall not be procured from all other persons and
entities whose consent or approval shall be necessary for (y) consummation of
the transactions contemplated by this Agreement, or (z) the continuation after
the Effective Date of the business of the Company and the Bank as such business
is carried on immediately prior to the Effective Date.
7. Covenants of the Company and the Bank.
The Company hereby covenants and agrees as follows:
7.1. Rights of Access. In addition and not in limitation of any other
rights of access provided to Zions Bancorp herein, until the Effective Date the
Company and the Bank will give to Zions Bancorp and to its representatives,
including its certified public accountants, KPMG, full access during normal
business hours to all of the property, documents, contracts, books, and records
of the Company and the Bank, and such information with respect to their business
affairs and properties as Zions Bancorp from time to time may reasonably
request.
7.2. Corporate Records, Contracts, etc.
(a) The Company and the Bank will make available to Zions
Bancorp copies of their respective articles of incorporation and bylaws, and
will make available their respective minute books, all of which shall be
certified to be complete and true copies.
(b) The Company and the Bank will make available a copy of
each contract or agreement to which the Company or the Bank is a party and which
requires one or more payments by the Company or the Bank in excess of $50,000 in
the aggregate to which the Company or the Bank is a party, including but not
limited to data processing contracts, service contracts, contracts to purchase
or lease real property or equipment, guaranties, employment contracts, and
insurance contracts pertaining to fire, accident, indemnity, fidelity, health,
life, hospitalization, or other employee benefits.
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(c) The Company and the Bank will furnish to Zions Bancorp the
following information with respect to properties owned by the Company and the
Bank: (i) a brief description and location of each parcel of real property owned
by the Company or the Bank, (ii) a brief description of real property covered by
lease or other rental arrangements to which the Company or the Bank is a party,
including a copy of the relevant leases; and (iii) a brief description of
personal property with a value in excess of $50,000 covered by lease or other
rental arrangements to which the Company or the Bank is a party, including a
copy of the relevant leases.
7.3. Monthly and Quarterly Financial Statements; Minutes of Meetings
and Other Materials.
(a) The Company and the Bank will continue to prepare all of
the monthly and quarterly financial statements and financial reports to
regulatory authorities for the months and quarterly periods ending between
January 1, 1998 and the Effective Date which it customarily prepared during the
period between January 1, 1995 and March 31, 1998 and shall promptly provide
Zions Bancorp with copies of all such financial statements and reports. Such
financial statements and reports shall be verified by the chief financial
officer of the reporting entity. All of such financial statements and reports,
including the related notes, schedules, and memorandum items, will have been
prepared in accordance with generally accepted accounting principles applied in
all material respects (except that Consolidated Reports of Condition and
Consolidated Reports of Income required to be filed by the Bank under federal
law may be prepared in accordance with the official instructions applicable
thereto at the time of filing).
(b) The Company and the Bank shall promptly provide Zions
Bancorp with (i) copies of all of its periodic reports to directors and to
shareholders, whether or not such reports were prepared or distributed in
connection with a meeting of the board of directors or a meeting of the
shareholders, prepared or distributed between the date of this Agreement and the
Effective Date, and (ii) complete copies of all minutes of meetings of its board
of directors and shareholders which meetings take place between the date of this
Agreement and the Effective Date, certified by the secretary or cashier or an
assistant secretary or assistant cashier of the Company or the Bank, as the case
may be.
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7.4. Extraordinary Transactions. Without the prior written consent of
Zions Bancorp, neither the Company nor the Bank will, on or after the date of
this Agreement: (a) declare or pay any cash dividends or property dividends with
respect to any class of its capital stock, with the exception of customary
periodic cash dividends paid by the Company or the Bank to holders of its common
stock at such intervals and in such amounts as are in every case consistent with
the amounts and intervals characteristic of that payer, or by the Bank to the
Company to fund any expenditures permitted by this Agreement; (b) declare or
distribute any stock dividend, authorize a stock split, or authorize, issue or
make any distribution of its capital stock or any other securities (except for
issuances of Company Common Stock upon exercise of stock options or warrants
outstanding on the date of this Agreement), or grant any options to acquire such
additional securities; (c) either (i) merge into, consolidate with, or sell its
assets to any other corporation or person, or enter into any other transaction
or agree to effect any other transaction not in the ordinary course of its
business except as explicitly contemplated herein, or (ii) engage in any
discussions concerning such a possible transaction except as explicitly
contemplated herein or if the board of directors of the Company, based upon the
advice of Foster Pepper & Shefelman LLP, determines in good faith that such
action is required for the board of directors to comply with its fiduciary
duties to stockholders imposed by law; (d) convert the charter or form of entity
of the Bank from that in existence on the date of this Agreement to any other
charter or form of entity; (e) make any direct or indirect redemption, purchase,
or other acquisition of any of its capital stock; (f) except in the ordinary
course of its business or to accomplish the transactions contemplated by this
Agreement, incur any liability or obligation, make any commitment or
disbursement, acquire or dispose of any property or asset, make any contract or
agreement, pay or become obligated to pay any legal, accounting, or
miscellaneous other expense, or engage in any transaction; (g) other than in the
ordinary course of business, subject any of its properties or assets to any
lien, claim, charge, option, or encumbrance; (h) except for increases in the
ordinary course of business in accordance with past practices, which together
with all other compensation rate increases do not exceed 4.5 percent per annum
of the aggregate payroll as of January 1, 1998, increase the rate of
compensation of any employee or enter into any agreement to increase the rate of
compensation of any employee; (i) 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, nor increase or decrease any severance or
termination pay benefit or any other fringe benefit; (j) enter into any
employment or personal services contract with any person or firm, including
without limitation any contract, agreement, or arrangement described in Section
6.37(a) hereof, except directly to facilitate the transactions contemplated by
this Agreement; nor (k) purchase any loans or loan-participation interests from,
or participate in any loans originated by, any person other than the Company or
the Bank. It is specifically agreed, however, that prior to the Effective Date
the Company may make the payments anticipated by its Shareholder Value Long Term
Incentive Plan.
7.5. Preservation of Business. Each of the Company and the Bank will
(a) carry on its business and manage its assets and properties diligently and
substantially in the same manner as heretofore; (b) maintain the ratio of its
loans to its deposits, or the variance in that ratio over time, substantially as
maintained heretofore; (c) manage its investment portfolio in substantially the
same manner and pursuant to substantially the same investment policies as in
1996 and 1997, and will take no action to lengthen the average maturity of its
investment portfolio, or of any significant category thereof, to any material
extent; (d) continue in effect its present insurance coverage on all properties,
assets, business, and personnel; (e) use its best efforts to preserve its
business organization intact; except as otherwise consented to by Zions Bancorp,
to keep available its present employees; and to preserve its present
relationships with customers and others having business dealings with it; (f)
not do anything and not fail to do anything which will cause a breach of or
default in any contract, agreement, commitment, or obligation to which it is a
party or by which it may be bound; and (g) not amend its articles of
incorporation or bylaws.
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7.6. Comfort Letter. At the time of the effectiveness of the
Registration Statement, but prior to the mailing of the proxy materials, and at
the Effective Date, the Company shall furnish Zions Bancorp with a letter from
KPMG, its independent auditors, in form and substance acceptable to Zions
Bancorp, stating that (a) they are independent accountants with respect to the
Company within the meaning of the 1933 Act and the published rules and
regulations thereunder, (b) in their opinion the consolidated financial
statements of the Company included in the Registration Statement and examined by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder,
and (c) a reading of the Company's audited consolidated financial statements and
the latest available unaudited consolidated financial statements of the Company
and unaudited financial statements of the Bank and inquiries of certain
officials of the Company and the Bank responsible for financial and accounting
matters as to transactions and events since the date of the most recent
consolidated statement of condition included in their most recent audit report
with respect to the Company did not cause them to believe that (i) the Company's
audited consolidated financial statements and such latest available unaudited
consolidated financial statements are not stated on a basis consistent with that
followed in the Company's audited consolidated financial statements; or (ii)
except as disclosed in the letter, at a specified date not more than five
business days prior to the date of such letter, there was any change in the
Company's capital stock or any change in consolidated long-term debt or any
decrease in the consolidated net assets of the Company as compared with the
respective amounts shown in the most recent Company audited consolidated
financial statements. The letter shall also cover such other matters pertaining
to the Company's and the Bank's financial data and statistical informa tion
included in the Registration Statement as may reasonably be requested by Zions
Bancorp.
7.7. Affiliates' Agreements. The Company will furnish to Zions Bancorp
a list of all persons known to the Company who at the date of the Company's
special meeting of share holders to vote upon the transactions contemplated by
this Agreement may be deemed to be "affiliates" of the Company within the
meaning of Rule 145 under the 1933 Act and for purposes of qualifying the Merger
for "pooling of interests" accounting treatment. The Company will use its best
efforts to cause each such "affiliate" of the Company to deliver to Zions
Bancorp not later than thirty days prior to the Effective Date a written
agreement providing that such person will not sell, pledge, transfer, or
otherwise dispose of (a) the shares of Company Common Stock beneficially owned
by such person, or the shares of Zions Bancorp Stock to be received by such
person in the Merger (the "Company Merger Shares") or any other shares of Zions
Bancorp Stock held by such person during the period commencing thirty days prior
to the Effective Date and ending at such time as financial results covering at
least thirty days of post-Holding Company Merger combined operations have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies or (b) the Company Merger Shares except in
compliance with the applicable provisions of the 1933 Act and the rules and
regulations thereunder.
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7.8. Inconsistent Activities.
(a) Subject to subsection (b) of this section 7.8, unless and
until the Merger has been consummated or this Agreement has been terminated in
accordance with its terms, neither the Company nor the Bank will (a) solicit or
encourage, directly or indirectly, any inquiries or proposals (each an
"Alternative Proposal") to acquire more than 1 percent of the Company Common
Stock or any capital stock of the Bank or any significant portion the assets of
either of them (whether by tender offer, merger, purchase of assets, or other
transactions of any type) (each an "Alternative Transaction"); (b) afford any
third party which may be considering an Alternative Proposal or Alternative
Transaction access to its properties, books or records except as required by
mandatory provisions of law; (c) enter into any discussions or negotiations for,
or enter into any agreement or understanding which provides for, any Alternative
Transaction, or (d) authorize or permit any of its directors, officers,
employees or agents to do or permit any of the foregoing. If the Company or the
Bank becomes aware of any Alternative Proposal or of any other matter which
could adversely affect this Agreement or the Merger, the Company and the Bank
shall immediately give notice thereof to Zions Bancorp.
(b) Nothing contained in subsection (a) of this section 7.8
shall prohibit the board of directors of the Company from furnishing information
to or entering into discussions or negotiations with any person that makes an
unsolicited bona fide Alternative Proposal if, and only to the extent that, (i)
the board of directors of the Company, based upon the advice of Foster Pepper &
Shefelman LLP, determines in good faith that such action is required for the
board of directors to comply with its fiduciary duties to stockholders imposed
by law, (ii) prior to furnishing such information to, or entering into
discussions or negotiations with, such person, the Company provides written
notice to Zions Bancorp to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person, and (iii) the
Company keeps Zions Bancorp informed of the status and all material information
with respect to any such discussions or negotiations.
(c) Nothing in subsection (b) of this section 7.8 shall (i)
permit the Company to terminate this Agreement (except as specifically provided
in section 10.1 or 10.2 of this Agreement), (ii) permit the Company or the Bank
to enter into any agreement with respect to an Alternative Transaction for as
long as this Agreement remains in effect (it being agreed that for as long as
this Agreement remains in effect, the Company and the Bank shall not enter into
any agreement with any person that provides for, or in any way facilitates, an
Alternative Transaction (other than a confidentiality agreement in customary
form)), or (iii) affect any other obligation of the Company or the Bank under
this Agreement.
8. Representations and Warranties of Zions Bancorp.
Zions Bancorp represents and warrants to the Company as follows:
8.1. Organization, Powers, and Qualification. Zions Bancorp is a
corporation which is duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own and operate its properties and assets, to
lease properties used in its business, and to carry on its business as now
conducted. Zions Bancorp owns or possesses in the operation of its business all
franchises, licenses, permits, branch certificates, consents, approvals,
waivers, and other authorizations, governmental or otherwise, which are
necessary for it to conduct its business as now conducted, except for those
where the failure of such ownership or possession would not adversely affect its
operation and properties in any material respect. Zions Bancorp is duly
qualified and licensed to do business and is in good standing in every
jurisdiction in which such qualification or license is required or with respect
to which the failure to be so qualified or licensed could result in material
liability or adversely affect its operation and properties in any material
respect.
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<PAGE>
8.2. Execution and Performance of Agreement. Zions Bancorp has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its respective terms.
8.3. Binding Obligations; Due Authorization. This Agreement constitutes
the valid, legal, and binding obligations of Zions Bancorp enforceable against
it in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar law, or by general
principles of equity. The execution, delivery, and performance of this Agreement
and the transactions contemplated thereby have been duly and validly authorized
by the board of directors of Zions Bancorp. No other corporate proceedings on
its part are necessary to authorize this Agreement or the carrying out of the
transactions contemplated hereby.
8.4. Absence of Default. None of the execution or the delivery of this
Agreement, the consummation of the transactions contemplated hereby, or the
compliance with or fulfillment of the terms hereof will conflict with, or result
in a breach of any of the terms, conditions, or provisions of, or constitute a
default under the organizational documents or bylaws of Zions Bancorp. None of
such execution, consummation, or fulfillment will (a) conflict with, or result
in a material breach of the terms, conditions, or provisions of, or constitute a
material violation, conflict, or default under, or give rise to any right of
termination, cancellation, or acceleration with respect to, or result in the
creation of any lien, charge, or encumbrance upon, any of the property or assets
of Zions Bancorp pursuant to any material agreement or instrument under which it
is obligated or by which any of its properties or assets may be bound, including
without limitation any material lease, contract, mortgage, promissory note, deed
of trust, loan, credit arrangement or other commitment or arrangement of it in
respect of which it is an obligor, or (b) if the Merger is approved by the Board
of Governors under the BHC, and if the Merger is approved by the Commissioner
and the Department, violate any law, statute, rule, or regulation of any
government or agency to which Zions Bancorp is subject and which is material to
its operations, or (c) violate any judgment, order, writ, injunction, decree, or
ruling to which it or any of its properties or assets is subject or bound. None
of the execution or delivery of this Agreement, the consummation of the
transactions contemplated thereby, or the compliance with or fulfillment of the
terms thereof will require any authorization, consent, approval, or exemption by
any person which has not been obtained, or any notice or filing which has not
been given or done, other than approval of the transactions contemplated by this
Agreement by the Board of Governors, the Commissioner, and the Department.
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8.5. Brokers and Advisers.
(a) There are no claims for brokerage commissions, finder's
fees, or similar compensation arising out of or due to any act of Zions Bancorp
in connection with the trans actions contemplated by this Agreement or based
upon any agreement or arrangement made by or on behalf of any of them.
(b) Zions Bancorp has not entered into any agreement or
understanding with any party relating to financial advisory services provided or
to be provided with respect to the transactions contemplated by this Agreement.
8.6. Books and Records. The books and records of Zions Bancorp fairly
reflect the transactions to which it is a party or by which its properties are
subject or bound. Such books and records have been properly kept and maintained
and are in compliance in all material respects with all applicable legal and
accounting requirements. Zions Bancorp follows generally accepted accounting
principles applied on a consistent basis in the preparation and maintenance of
its books of account and financial statements, including but not limited to the
application of the accrual method of accounting for interest income on loans,
leases, discounts, and invest ments, interest expense on deposits and all other
liabilities, and all other items of income and expense. Zions Bancorp has made
all accruals in amounts which accurately report income and expense in the proper
periods in accordance with generally accepted accounting principles. Zions
Bancorp has filed all material reports and returns required by any law or
regulation to be filed by it.
8.7. Financial Statements. Zions Bancorp has furnished to the Company
its consolidated statement of condition as of each of December 31, 1995,
December 31, 1996, December 31, 1997, and March 31, 1998, and its related
consolidated statement of income, consolidated state ment of changes in
financial position, and consolidated statement of changes in stockholders'
equity for each of the periods then ended, and the notes thereto, each as filed
with the SEC (collectively, the "Zions Bancorp Financial Statements"). Each of
the consolidated balance sheets included in the Zions Bancorp Financial
Statements complied as to form in all material respects with applicable
accounting requirements (including accounting requirements of financial
institution regulatory authorities) and the published rules and regulations of
the SEC with respect thereto, fairly presented the consolidated financial
position of Zions Bancorp and its subsidiaries as of its date, and each of the
consolidated statements of income, of stockholders' equity, and of cash flows
included in the Zions Bancorp Financial Statements fairly presented the results
of operations, stockholders' equity, and cash flows of Zions Bancorp and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each case in
accordance with generally accepted accounting principles, consistently applied,
and the accounting requirements of financial institution regulatory authorities,
during the periods involved, except as may be noted therein.
8.8. Absence of Certain Developments. Since March 31, 1998, there has
been (a) no material adverse change in the condition, financial or otherwise,
assets, properties, liabilities, or businesses of Zions Bancorp, and (b) no
material deterioration in the quality of the loan portfolio of Zions Bancorp or
of any major component thereof, and no material increase in the level of
nonperforming assets or nonaccrual loans at Zions Bancorp or in the level of its
provision for credit losses or its reserve for possible credit losses.
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8.9. Disclosure. No representation or warranty hereunder and no
certificate, statement, or other document delivered by Zions Bancorp hereunder
or in connection with this Agreement or any of the transactions contemplated
thereunder contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they were made, not misleading. Copies of
all documents referred to in this Agreement, unless prepared solely by the
Company and the Bank or solely by the Company and the Bank and third parties
hereto, are true, correct, and complete copies thereof and include all
amendments, supplements, and modifications thereto and all waivers thereunder.
9. Closing.
9.1. Place and Time of Closing. Closing shall take place at the offices
of Zions Bancorp, One South Main, Suite 1380, Salt Lake City, Utah, or such
other place as the parties choose, commencing at 10:00 a.m., local time, on the
Effective Date, provided that all conditions precedent to the obligations of the
parties hereto to close have then been met or waived.
9.2. Events To Take Place at Closing. At the Closing, the following
actions will be taken:
(a) Such certificates and other documents as are required by
this Agreement to be executed and delivered on or prior to the Effective Date
and have not been so executed and delivered, and such other certificates and
documents as are mutually deemed by the parties to be otherwise desirable for
the effectuation of the Closing, will be so executed and delivered; and then
(b) the Merger and the issuance of shares incident thereto
shall be effected; provided, however, that the administrative and ministerial
aspects of the issuance of shares incident to the Merger will be settled as soon
thereafter as shall be reasonable under the circumstances.
10. Termination, Damages for Breach, Waiver, and Amendment.
10.1. Termination by Reason of Lapse of Time. This Agreement may be
terminated by any party on or after January 31, 1999, by instrument duly
authorized and executed and delivered to the other parties, unless the Effective
Date shall have occurred on or before such date.
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10.2. Grounds for Termination. This Agreement may be terminated by
written notice of termination at any time before the Effective Date (whether
before or after action by shareholders of the Company):
(a) by mutual consent of the parties hereto;
(b) by Zions Bancorp, upon written notice to the Company given
at any time (i) if any of the representations and warranties of the Company
contained in Section 6 hereof was materially incorrect when made, or (ii) in the
event of a material breach or material failure by the Company of any covenant or
agreement of the Company contained in this Agreement which has not been, or
cannot be, cured within thirty days after written notice of such breach or
failure is given to the Company;
(c) by the Company, upon written notice to Zions Bancorp given
at any time (i) if any of the representations and warranties of Zions Bancorp
contained in Section 8 hereof was materially incorrect when made, or (ii) in the
event of a material breach or material failure by Zions Bancorp of any covenant
or agreement of Zions Bancorp contained in this Agreement which has not been, or
cannot be, cured within thirty days after written notice of such breach or
failure is given to Zions Bancorp, or (iii) if the board of directors of the
Company, based upon the advice of Foster Pepper & Shefelman LLP, determines in
good faith that such termination is required for the board of directors to
comply with its fiduciary duties to stockholders imposed by law by reason of an
Alternative Proposal being made; provided that the Company shall notify Zions
Bancorp promptly of its intention to terminate this Agreement or enter into a
definitive agreement with respect to any Alternative Proposal, but in no event
shall such notice be given less than 48 hours prior to the public announcement
of the Company's termination of this Agreement; or
(d) by either Zions Bancorp or the Company upon written notice
given to the other if the board of directors of either Zions Bancorp or the
Company shall have determined in its sole judgment made in good faith, after due
consideration and consultation with counsel, that the Merger has become
inadvisable or impracticable by reason of the institution of litigation by the
federal government or the government of the State of Washington or the State of
Utah to restrain or invalidate the transactions contemplated by this Agreement.
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10.3. Effect of Termination. In the event of the termination and
abandonment hereof pursuant to the provisions of Section 10.1 or Section 10.2,
this Agreement shall become void and have no force or effect, without any
liability on the part of Zions Bancorp, the Company, or their respective
directors or officers or shareholders, in respect of this Agreement.
Notwithstanding the foregoing, (a) as provided in Section 11.4 of this
Agreement, the confidentiality agreement contained in that section shall survive
such termination; (b) if such termination is a result of any of the
representations and warranties of a party being materially incorrect when made
or a result of the material breach or material failure by a party of a covenant
or agreement hereunder, such party whose representations and warranties were
materially incorrect or who materially breached or failed to perform its
covenant or agreement shall be liable in the amount of $750,000 to the other
party or parties hereto that are not affiliated with it; and (c) if
(i) such termination is pursuant to section 10.2(c) (iii) of
this Agreement, or if
(ii) this Agreement is terminated for any reason specified in
section 10.2(b)(ii) of this Agreement and a definitive agreement with respect to
an Alternative Proposal is executed by the Company or the Bank within one year
after such termination,
then in either case, the Company shall be liable to Zions Bancorp in the amount
of $2,000,000, which amount will be payable to Zions Bancorp in immediately
available funds within two business days after such amount becomes due. The
Company acknowledges that the agreements contained in subsection (c) of this
section 10.3 are an integral part of the transactions contem plated in this
Agreement and that, without these agreements, Zions Bancorp would not enter into
this Agreement.
10.4. Waiver of Terms or Conditions. Any of the terms or conditions of
this Agreement may be waived at any time prior to the Effective Date by the
party which is, or whose shareholders are, entitled to the benefit thereof, by
action taken by that party (if an individual) or by the board of directors of
such party (if a corporation), or by its chairman, or by its president; provided
that such waiver shall be in writing and shall be taken only if, in the judgment
of the party, board of directors, or officer taking such action, such waiver
will not have a materially adverse effect on the benefits intended hereunder to
it or to the shareholders of its or his corporation; and the other parties
hereto may rely on the delivery of such a waiver as conclusive evidence of such
judgment and the validity of the waiver.
10.5. Amendment.
(a) Anything herein or elsewhere to the contrary
notwithstanding, to the extent permitted by law, this Agreement and the exhibits
hereto may be amended, supplemented, or interpreted at any time prior to the
Effective Date by written instrument duly authorized and executed by each of the
parties hereto; provided, however, that this Agreement may not be amended after
the action by shareholders of the Company in any respect that would prejudice
the economic interests of such Company shareholders, or any of them, except as
specifically provided herein or by like action of such shareholders.
(b) If Zions Bancorp and the Company should mutually determine
(following receipt of advice of legal or other counsel) that it has become
inadvisable or inexpedient to effectuate the transactions contemplated by this
Agreement through means of a sequence of mergers such as is contemplated herein,
then the parties hereto agree to effect such change in the form of transaction
as described especially in Sections 1.1 and 9.2 of this Agreement by written
instrument in amendment of this Agreement.
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11. General Provisions.
11.1. Allocation of Costs and Expenses. Except as provided in this
Section, each party hereto shall pay its own fees and expenses, including
without limitation the fees and expenses of its own counsel and its own
accountants and tax advisers, incurred in connection with this Agreement and the
transactions contemplated thereby. For purposes of this Section, (i) the cost of
printing and delivering the proxy statement and other material to be transmitted
to share holders of the Company shall be deemed to be incurred on behalf of the
Company, (ii) the cost of registering under federal and state securities laws
the stock of Zions Bancorp to be received by the shareholders of the Company
shall be deemed to be incurred on behalf of Zions Bancorp, and (iii) the cost of
procuring the tax opinion referred to in section 3.4 of this Agreement shall be
deemed to be incurred on behalf of the Company.
11.2. Mutual Cooperation.
(a) Subject to the terms and conditions herein provided, each
party shall use its best efforts, and shall cooperate fully with the other
party, in expeditiously carrying out the provisions of this Agreement and in
expeditiously making all filings and obtaining all necessary governmental
approvals, and as soon as practicable shall execute and deliver, or cause to be
executed and delivered, such governmental notifications and additional documents
and instru ments and do or cause to be done all additional things necessary,
proper, or advisable under applicable law to consummate and make effective on
the earliest practicable date (and, if practicable, prior to September 1, 1998)
the transactions contemplated hereby.
(b) Prior to the Effective Date, the parties shall cooperate,
and shall make all reasonable efforts to cause their respective data processing
service providers to cooperate, to complete all reasonable steps for an orderly
transfer of all applicable data tapes and processing information, and to
facilitate an electronic and systematic conversion of all applicable data
regarding the Bank to Zions Bancorp's own system of electronic data processing
by the next business day following the Effective Date. Each party shall bear its
own costs associated with the transfer of tapes and information and the
conversion of data. Prior to the Effective Date, the Bank will provide all test
tapes and reports necessary to complete the transfer and will provide a test
tape and deconversion reports within fifteen days of the date of this Agreement,
a prelimi nary tape and set of deconversion reports six weeks prior to the
Effective Date, and an updated preliminary tape and set of deconversion reports
no more than two weeks prior to the Effective Date. The Bank shall also arrange
the delivery to Zions Bancorp at the main office of Zions Bancorp (or at such
other location as has been designated in writing by Zions Bancorp no later than
five business days before the Effective Date) no later than 6:00 a.m. Mountain
time on the day immediately following the Effective Date, two duplicate final
data processing conversion file packages and deconversion reports in an industry
standard format.
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11.3. Form of Public Disclosures. Zions Bancorp and the Company shall
mutually agree in advance upon the form and substance of all public disclosures
concerning this Agreement and the transactions contemplated hereby.
11.4. Confidentiality. Zions Bancorp, the Company, and their respective
subsidiaries shall use all information that each obtains from the other pursuant
to this Agreement solely for the effectuation of the transactions contemplated
by this Agreement or for other purposes consistent with the intent of this
Agreement. Neither Zions Bancorp, the Company, nor their respective subsidiaries
shall use any of such information for any other purpose, including, without
limitation, the competitive detriment of any other party. Zions Bancorp and the
Company shall maintain as strictly confidential all information each of them
learns from the other and shall, at any time, upon the request of the other,
return promptly to it all documentation provided by it or made available to
third parties. Each of the parties may disclose such informa tion to its
respective affiliates, counsel, accountants, tax advisers, and consultants. The
confiden tiality agreement contained in this Section 11.4 shall remain operative
and in full force and effect, and shall survive the termination of this
Agreement.
11.5. Claims of Brokers.
(a) The Company shall indemnify, defend, and hold Zions
Bancorp harmless for, from, and against any claim, suit, liability, fees, or
expenses (including, without limitation, attorneys' fees and costs of court)
arising out of any claim for brokerage commissions, finder's fees, or similar
compensation arising out of or due to any of its or his acts in connection with
the transactions contemplated by this Agreement or based upon any agreement or
arrangement made by it or him or on its or his behalf with respect to Zions
Bancorp.
(b) Zions Bancorp shall indemnify, defend, and hold the
Company harmless for, from, and against any claim, suit, liability, fees, or
expenses (including, without limitation, attorneys' fees and costs of court)
arising out of any claim for brokerage commissions, finder's fees, or similar
compensation arising out of or due to any of its acts in connection with any of
the transactions contemplated by this Agreement or based upon any agreement or
arrangement made by it or on its behalf with respect to the Company.
11.6. Information for Applications and Registration Statement.
(a) Each party represents and warrants that all information
concerning it which is included in any statement and application (including the
Registration Statement) made to any governmental agency in connection with the
transactions contemplated by this Agreement shall not, with respect to such
party, omit any material fact required to be stated therein or necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading. The party so representing and warranting will indemnify, defend,
and hold harmless the other, each of its directors and officers, each
underwriter and each person, if any, who controls the other within the meaning
of the Securities Act, for, from and against any and all losses, claims, suits,
damages, expenses, or liabilities to which any of them may become
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subject under applicable laws (including, but not limited to, the Securities Act
and the Exchange Act) and rules and regulations thereunder and will reimburse
them for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any actions whether or not resulting in
liability, insofar as such losses, claims, damages, expenses, liabilities, or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any such application or statement or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing by the representing and warranting party expressly for use therein.
Each party agrees at any time upon the request of the other to furnish to the
other a written letter or statement confirming the accuracy of the information
contained in any proxy statement, registration statement, report, or other
application or statement, and confirming that the information contained in such
document was furnished expressly for use therein or, if such is not the case,
indicating the inaccuracies contained in such document or draft or indicating
the information not furnished expressly for use therein. The indemnity agreement
contained in this Section 11.6(a) shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any of the other
parties, and shall survive the termination of this Agreement or the consummation
of the transactions contemplated thereby.
(b) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement contained in Section 11.6(a) of
this Agreement is for any reason held by a court of competent jurisdiction to be
unenforceable as to any or every party, then the parties in such circumstances
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses incurred in connection
with, and any amounts paid in settlement of, any action, suit or proceeding or
any claims asserted) to which any party may be subject in such proportion as the
court of law determines based on the relative fault of the parties.
11.7. Standard of Materiality.
(a) For purposes of Sections 4, 6, and 7 of this Agreement,
the terms "material" and "materially," when used with reference to items
normally expressed in dollars, shall be deemed to refer to amounts individually
and in the aggregate in excess of 3 percent of the shareholders' equity of the
Company as of March 31, 1998, as determined in accordance with generally
accepted accounting principles.
(b) For purposes of Sections 5 and 8 of this Agreement, the
terms "material" and "materially," when used with reference to items normally
expressed in dollars, shall be deemed to refer to amounts individually and in
the aggregate in excess of 3 percent of the shareholders' equity of Zions
Bancorp as of March 31, 1998, as determined in accordance with generally
accepted accounting principles.
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(c) For other purposes and, notwithstanding subsections (a)
and (b) of this section 11.7, when used anywhere in this Agreement with explicit
reference to any of the federal securities laws or to the Registration
Statement, the terms "material" and "materially" shall be construed and
understood in accordance with standards of materiality as judicially determined
under the federal securities laws.
11.8. Covenants of Zions Bancorp.
(a) From the date hereof to the Effective Date, Zions Bancorp
shall, contemporaneously with the filing with the SEC of any periodic or current
report pursuant to section 13 of the Exchange Act, deliver a copy of such report
to the Company.
(b) Following the Effective Date Zions Bancorp will take no
action to abrogate or diminish any right accorded under the articles of
incorporation or by-laws of the Company or the Bank as they existed immediately
prior to the Effective Date to any person who, on or prior to the Effective
Date, was a director or officer of the Company or the Bank to indemnification
from or against losses, expenses, claims, demands, damages, liabilities,
judgments, fines, penalties, costs, expenses (including without limitation
reasonable attorneys fees) and amounts paid in settlement pertaining to or
incurred in connection with any threatened or actual action, suit, claim, or
proceeding (whether civil, criminal, administrative, arbitration, or
investigative) arising out of events, matters, actions, or omissions occurring
on or prior to the Effective Date. To the extent not provided by the foregoing,
following the Effective Date and to the extent permitted by law, all rights to
such indemnification accorded under the articles of incorporation and by-laws of
the Company or the Bank to any person who, on or prior to the Effective Date,
was a director or officer of the Company or the Bank shall survive the Effective
Date and, following the Merger, to the extent permitted by law, Zions Bancorp
will honor such obligations in accordance with their terms with respect to
events, acts, or omissions occurring prior to the Effective Date.
11.9. Adjustments for Certain Events. Anything in this Agreement to the
contrary notwithstanding, all prices per share, share amounts, and per-share
amounts referred to in this Agreement shall be appropriately adjusted to account
for stock dividends, split-ups, mergers, recapitalizations, combinations,
conversions, exchanges of shares or the like, but not for normal and recurring
cash dividends declared or paid in a manner consistent with the established
practice of the payer.
11.10. Stock Repurchases. The Company acknowledges that from time to
time Zions Bancorp repurchases shares of its common stock in the open market in
accordance with market conditions. Nothing in this Agreement shall be construed
to abridge the right of Zions Bancorp to continue to do so in compliance with
Exchange Act rules and regulations and pursuant to advice of independent
securities counsel for Zions Bancorp.
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11.11. Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed to constitute an original, but such
counterparts together shall be deemed to be one and the same instrument and to
become effective when one or more counter parts have been signed by each of the
parties hereto. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for the other counterpart.
11.12. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to their commitments to one
another and their undertakings vis-a-vis one another on the subject matter
hereof. Any previous agreements or understandings among the parties regarding
the subject matter hereof are merged into and superseded by this Agreement.
Nothing in this Agreement express or implied is intended or shall be construed
to confer upon or to give any person, other than Zions Bancorp, the Company, and
their respective shareholders, any rights or remedies under or by reason of this
Agreement.
11.13. Survival of Representations, Warranties, and Covenants. The
respective represen tations, warranties, and covenants of each party to this
Agreement are hereby declared by the other parties to have been relied on by
such other parties and shall survive the Effective Date. Each party shall be
deemed to have relied upon each and every representation and warranty of the
other parties regardless of any investigation heretofore or hereafter made by or
on behalf of such party.
11.14. Section Headings. The section and subsection headings herein
have been inserted for convenience of reference only and shall in no way modify
or restrict any of the terms or provisions hereof. Any reference to a "person"
herein shall include an individual, firm, corporation, partnership, trust,
government or political subdivision or agency or instrumentality thereof,
association, unincorporated organization, or any other entity.
11.15. Notices. All notices, consents, waivers, or other communications
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by
confirmed facsimile transmission, express courier, or sent by registered or
certified mail, return receipt requested, postage prepaid. All communications
shall be addressed or directed to the appropriate address or facsimile number of
each party as follows:
If to Zions Bancorp:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
fax: 801-524-2129
Attention: Mr. Harris H. Simmons
President and Chief Executive Officer
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With a required copy to:
Brian D. Alprin, Esq.
Duane, Morris & Heckscher LLP
1667 K Street, N.W., Suite 700
Washington, D.C. 20006
fax: 202-776-7801
If to the Company or the Bank:
The Commerce Bancorporation
601 Union Street, Suite 3600
Seattle, Washington 98101-3000
fax: 206-346-2392
Attention: James C. Hawkanson
Secretary
With a required copy to:
Kenneth E. Roberts, Esq.
Foster Pepper & Shefelman LLP
101 S.W. Main Street, 15th Floor
Portland, Oregon 97204
fax: 1-800-601-9234
All such notices shall be deemed to have been given on the date
delivered, confirmed, or mailed in the manner provided above.
11.16. Choice of Law and Venue. This Agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of Utah,
without giving effect to the principles of conflict of law thereof. The parties
hereby designate Salt Lake County, Utah to be the proper jurisdiction and venue
for any suit or action arising out of this Agreement. Each of the parties
consents to personal jurisdiction in such venue for such a proceeding and agrees
that it may be served with process in any action with respect to this Agreement
or the transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent, if any, for service of process in
the state of Utah. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
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11.17. Knowledge of a Party. References in this Agreement to the
knowledge of a party shall mean the knowledge possessed by any of such parties
or the present executive officers of such party including, without limitation,
information which is or has been in the books and records of such party.
11.18. Binding Agreement. This Agreement shall be binding upon the
parties and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ZIONS BANCORPORATION
Attest: __________________________ By: _____________________________________
Jennifer R. Jolley Dale M. Gibbons
Assistant Secretary Executive Vice President
and Secretary
THE COMMERCE BANCORPORATION
Attest: __________________________ By: _____________________________________
Robert R. Richards
President and Chief Executive Officer
Attest: __________________________ By: _____________________________________
James C. Hawkanson
Secretary
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__________________
)
State of Utah )
) ss.
County of Salt Lake )
________________________)
On this thirteenth day of May, 1998, before me personally appeared Dale
M. Gibbons, to me known to be the Executive Vice President and Secretary of
Zions Bancorporation, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument
and that the seal affixed is the corporate seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official
seal the day and year first above written.
_______________________________
Notary Public
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_______________________
)
State of Washington )
) ss.
County of King )
_______________________)
On this thirteenth day of May, 1998, before me personally appeared
Robert R. Richards and James C. Hawkanson, to me known to be the President and
Chief Executive Officer and the Secretary, respectively, of The Commerce
Bancorporation, and each of whom acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument
and that the seal affixed is the corporate seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official
seal the day and year first above written.
_______________________________
Notary Public
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The undersigned members of the Board of Directors of The Commerce
Bancorporation (the "Company"), acknowledging that Zions Bancorporation ("Zions
Bancorp") has relied upon the action heretofore taken by the board of directors
in entering into the Agreement, and has required the same as a prerequisite to
Zions Bancorp's execution of the Agreement, do individually and as a group
agree, subject to their fiduciary duties to shareholders, to support the
Agreement and to recommend its adoption by the other shareholders of the
Company.
The undersigned do hereby, individually and as a group, until the
Effective Date or termination of the Agreement, further agree 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 The Commerce
Bank of Washington, National Association.
_____________________ ______________________ ______________________
_____________________ ______________________ ______________________
_____________________ ______________________ ______________________
_____________________ ______________________ ______________________
_____________________ ______________________ ______________________
_____________________ ______________________ ______________________
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SCHEDULE 1.8
Graham S. Anderson
Stanley H. Barer
Christopher T. Bayley
Carl G. Behnke
William D. Bradford
Richard C. Clotfelter
Kirby L. Cramer
Michael D. Garvey
Herbert M. (Budd) Gould, III
James C. Hawkanson
John A. Hilton, Jr.
Garfield R. Jeffers
Patrick W. Kuo
Laurie McDonald Jonsson
William Rademaker, Jr.
Robert R. Richards
Faye Sarkowsky
David C. Wyman
<PAGE>
APPENDIX B
WASHINGTON BUSINESS CORPORATION ACT
Rights of Dissenting Owners
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS.--As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "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 unless exclusion would be inequitable.
(4) "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 a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 RIGHT TO DISSENT.--(1) A shareholder is entitled to dissent
from, 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 (i) if share holder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;
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(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT OF NOMINEES AND BENEFICIAL OWNERS.--(1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
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(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the ben eficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation 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 does so with respect to all shares of
which such share holder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 NOTICE OF DISSENTERS' RIGHTS.--(1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, the meeting notice must state that shareholders are
or may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW
23B.13.020 is taken without a vote of shareholders, the corporation, within ten
days after the effective date of such corporate action, shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT.--(1) If proposed
corporate action creating dissenters' rights under RCW 23B.13.020 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights must (a) deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand payment for the
shareholder's shares if the proposed action is effected, and (b) not vote such
shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this sec tion is not entitled to payment for the shareholder's shares
under this chapter.
23B.13.220 DISSENTERS' NOTICE.--(1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
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(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT.--(1) A shareholder sent a
dissenters' notice described in RCW 23B.13.220 must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance with
the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share cer tificates under subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter.
23B.13.240 SHARE RESTRICTIONS.--(1) The corporation may restrict the
trans fer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250 PAYMENT--(1) Except as provided in RCW 23B.13.270, within
thirty days of the later of the effective date of the proposed corporate action,
or the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation estimates
to be the fair value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) 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, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
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(b) An explanation of how the corporation estimated 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 RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION.--(1) If the corporation does not
effect the proposed action within sixty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release any transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270 AFTER-ACQUIRED SHARES.--(1) A corporation may elect to
withhold payment required by RCW 23B.13.250 from a dissenter unless the
dissenter was the beneficial owner of the shares before the date set forth in
the dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
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(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300 COURT ACTION.--(1) If a demand for payment under RCW
23B.13.280 remains unsettled, the corporation shall commence a proceeding within
sixty days after receiving the payment demand 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 each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall continence the proceeding in the superior
court of the county where a corporation's principal office, or, if none in this
state, its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled, parties to the proceeding as in
an action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) 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
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to
judgment (a) for the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest,
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exceeds the amount paid by the corporation, or (b) for the fair value, plus
accrued interest, of the dissenter's after-acquired shares for which the
corporation elected to withhold payment under RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES.--(l) The court in a proceed
ing commenced under RCW 23B.13.300 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 the 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 RCW
23B.13.280.
(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 or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280;
(b) Against either the corporation or a dissenter, 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 Chapter 23B.13 RCW.
(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 these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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APPENDIX C
FAIRNESS OPINION OF KEEFE, BRUYETTE & WOODS, INC.
_______________, 1998
Board of Directors
The Commerce Bancorporation
Two Union Square
Suite 3600
601 Union Street
Seattle, WA 98101
Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the common stockholders of The
Commerce Bancorporation ("the Company") of the consideration to be received by
such stockholders in the proposed reorganization (the "Reorganization") between
the Company and Zions Bancorporation ("Zions"), pursuant to the Agreement and
Plan of Reorganization (the "Plan of Reorganization") dated as of May 13, 1998
between the Company and Zions. Under the terms of the Plan of Reorganization,
stockholders of the Company will receive $30.70 of Zions' common stock for each
of their shares of common stock, par value $2.50 per share of the Company (the
"Consideration"). It is our understanding that the Reorganization will be
accounted for as a pooling accounting transaction under generally accepted
accounting practices.
Keefe, Bruyette & Woods, Inc. as part of its investment banking
business, is continually engaged in the valuation of banking businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. As specialists in the securities of banking companies, we have
experience in, and knowledge of, the valuation of banking enterprises. In the
ordinary course of our business as a broker-dealer, we may, from time to time,
purchase securities from, and sell securities to Zions and as a market maker in
securities we may from time to time have a long or short position in, and buy or
sell, debt or equity securities of Zions for our own account and for the
accounts of our customers. We have acted exclusively for the Board of Directors
of the Company in rendering this fairness opinion and will receive a fee from
the Company for our services.
In rendering our opinion, we have (i) reviewed, among other things, the
Plan of Reorganization, Audited Financial Statements of the Company and Annual
Reports to stockholders and Annual Report on Form 10-K of Zions for the four
years ended December 31, 1997, certain
<PAGE>
interim reports of the Company and certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of Zions and certain internal financial analyses
and forecasts for the Company prepared by management; (ii) held discussions with
members of senior management of the Company and Zions regarding past and current
business operations, regulatory relationships, financial condition and future
prospects of the respective companies; (iii) compared certain financial and
stock market information for Zions with similar information for certain other
companies the securities of which are publicly traded; (iv) reviewed the
financial terms of certain recent business combinations in the banking industry;
and (v) performed such other studies and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independently verifying any of such information. We have
relied upon the management of the Company as to the reasonableness and
achievability of the financial and operating forecasts and projections (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts and projections reflect the best currently available estimates and
judgments of the Company and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by such
management. We have also assumed, without independent verification, that the
aggregate allowances for loan losses for the Company and Zions are adequate to
cover such losses. In rendering our opinion, we have not made or obtained any
evaluations or appraisals of the property of the Company or Zions, nor have we
examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of the
Company and Zions; (ii) the assets and liabilities of the Company and Zions; and
(iii) the nature and terms of certain other merger transactions involving thrift
and bank holding companies. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration is fair, from a financial point of view, to
the common stockholders of the Company.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Utah law provides for indemnification of directors and officers as
follows:
16-10a-902 AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in Subsection (4), a corporation may indemnify
an individual made a party to a proceeding because he is or was a director,
against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed
to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
(2) A director's conduct with respect to any employee benefit plan for
a purpose he reasonably believed to be in or not opposed to the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving
action in his official capacity, in which proceeding he was adjudged
liable on the basis that he derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
II-2
<PAGE>
16-10a-903 MANDATORY INDEMNIFICATION OF DIRECTORS.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise, in the
defense of any proceeding, or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
16-10a-907 INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
Unless a corporation's articles of incorporation provide otherwise:
(1) an officer of the corporation is entitled to mandatory
indemnification under Section 16-10a-903, and is entitled to apply for
court-ordered indemnification under Section 16- 10a-905, in each case to the
same extent as a director;
(2) the corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(3) a corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
articles of incorporation, bylaws, general or specific action of its board of
directors, or contract.
16-10a-908 INSURANCE.
A corporation may purchase and maintain liability insurance on behalf
of a person who is or was a director, officer, employee, fiduciary, or agent of
the corporation, or who, while serving as a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another foreign or domestic corporation or other person, or of an
employee benefit plan, against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee,
fiduciary, or agent, whether or not the corporation would have power to
indemnify him against the same liability under Sections 16-10a-902, 16-10a-903,
or 16-10a- 907. Insurance may be procured from any insurance company designated
by the board of directors, whether the insurance company is formed under the
laws of this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity or any
other interest through stock ownership or otherwise.
16-10a-909 LIMITATIONS OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or advance
for expenses to, directors that is contained in its articles of incorporation or
bylaws, in a resolution of its
II-3
<PAGE>
shareholders or board of directors, or in a contract (except an insurance
policy) or otherwise, is valid only if and to the extent the provision is not
inconsistent with this part. If the articles of incorporation limit
indemnification or advance of expenses, indemnification and advance of expenses
are valid only to the extent not inconsistent with the articles of
incorporation.
(2) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with the director's appearance as
a witness in a proceeding at a time when the director has not been made a named
defendant or respondent to the proceeding.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. An Exhibit Index, containing a list of all exhibits filed
with this Registration Statement, is included beginning on page II-7.
(b) Financial Statement Schedules. Not applicable.
(c) Report, Opinion or Appraisal. Not applicable.
Item 22. Undertakings.
The undersigned registrant hereby undertakes as follows:
(1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(2) to deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
(3) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-4
<PAGE>
(4) that every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933, as amended, and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) to respond to requests for information that is incorporated by
reference into the Proxy Statement/Prospectus pursuant to Items 4, 10(b), 11 or
13 of Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
Effective Date of the registration statement through the date of responding to
the request.
(7) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(8) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
II-5
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(9) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(10) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, Utah,
on the 16th day of July, 1998.
Zions Bancorporation
By: /s/ Harris H. Simmons
-----------------------------
Harris H. Simmons, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Harris H. Simmons, Roy W. Simmons, and
Dale M. Gibbons, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Harris H. Simmons
- --------------------- President, Chief Executive July 16, 1998
Harris H. Simmons Officer and Director
/s/ Dale M. Gibbons
- --------------------- Executive Vice President July 16, 1998
Dale M. Gibbons and Chief Financial Officer
/s/ Nolan X. Bellon
- --------------------- Senior Vice President July 16, 1998
Nolan X. Bellon and Controller
II-7
<PAGE>
/s/ Roy W. Simmons
- --------------------- Chairman and Director July 16, 1998
Roy W. Simmons
/s/ Jerry C. Atkin
- --------------------- Director July 16, 1998
Jerry C. Atkin
/s/ R. D. Cash
- --------------------- Director July 16, 1998
R. D. Cash
/s/ L. E. Simmons
- --------------------- Director July 16, 1998
L. E. Simmons
/s/ Grant R. Caldwell
- --------------------- Director July 16, 1998
Grant R. Caldwell
/s/ I. J. Wagner
- --------------------- Director July 16, 1998
I. J. Wagner
/s/ Roger B. Porter
- --------------------- Director July 16, 1998
Roger B. Porter
/s/ Richard H. Madsen
- --------------------- Director July 16, 1998
Richard H. Madsen
/s/ Robert G. Sarver
- --------------------- Director July 16, 1998
Robert G. Sarver
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Page Number
in Sequential
Exhibit Numbering
No. Description and Method of Filing System
- ------- ------------------------------- ------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of May 13, 1998
between Zions Bancorporation and The Commerce Bancorporation
(filed herewith as Appendix A to the Proxy
Statement/Prospectus; Exhibits I, II, and V are filed
herewith)
3.1 Restated Articles of Incorporation of Zions Bancorporation *
dated November 8, 1993, and filed with the Department of
Business Regulation, Division of Corporations of the State of
Utah on November 9, 1993 (incorporated by reference to Exhibit
3.1 to the Registrant's Form S-4 Registration Statement, File
No. 33-51145, filed on November 22, 1993)
3.2 Restated Bylaws of Zions Bancorporation, dated November 8, *
1993 (incorporated by reference to Exhibit 3.2 to the
Registrant's Form S-4 Registration Statement, File
No. 33-51145, filed November 22, 1993)
3.3 Articles of Amendment to the Restated Articles of *
Incorporation of Zions Bancorporation dated April 30, 1997 and
filed with the Department of Business Regulation, Division of
Corporations of the State of Utah on May 2, 1997 (incorporated
by reference to Exhibit 3.1 of Zions Bancorporation's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, File No. 0-2610)
4 Shareholder Protection Rights Agreement, dated as of September *
27, 1996, between Zions Bancorporation and Zions First
National Bank as Rights Agent (incorporated by reference to
Exhibit 1 to the Registrant's Form 8-K, filed October 12,
1996)
5 Opinion of Duane, Morris & Heckscher LLP regarding the
legality of the shares of Common Stock being registered (filed
herewith)
II-9
<PAGE>
8 Opinion of Foster Pepper & Shefelman PLLC regarding tax *
matters (filed herewith)
10.1 Amended and Restated Zions Bancorporation Pension Plan *
(incorporated by reference to Exhibit 10.1 of Zions
Bancorporation's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-2610) *
10.2 Amendment to Zions Bancorporation Pension Plan effective *
December 1, 1994 (incorporated by reference to Exhibit 10.2 of
Zions Bancorporation's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 0-2610) *
10.3 Zions Utah Bancorporation Supplemental Retirement Plan Form *
(incorporated by reference to Exhibit 19.4 of Zions Utah
Bancorporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1985, File No. 0-2610) *
10.4 Zions Utah Bancorporation Key Employee Incentive Stock *
Option Plan approved by the shareholders of the Company on
April 28, 1982 (incorporated by reference to Exhibit 10.1 of
Zions Bancorporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, File No. 0-2610) *
10.5 Amendment No. 1 to Zions Bancorporation Key Employee Incentive *
Stock Option Plan approved by the shareholders of the Company
on April 27, 1990 (incorporated by reference to Exhibit 10.2
of Zions Bancorporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, File No. 0- 2610)
10.6 Amendment No. 2 to Zions Bancorporation Key Employee Incentive *
Stock Option Plan approved by the shareholders of the Company
of April 28, 1995 (incorporated by reference to Exhibit 10.3
of Zions Bancorporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, File No. 0- 2610) *
10.7 Zions Bancorporation Deferred Compensation Plan for Directors, *
as amended May 1, 1991 (incorporated by reference to Exhibit
19 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1991, File No. 0-2610) *
II-10
<PAGE>
10.8 Zions Bancorporation Senior Management Value Sharing Plan, *
Award Period 1993-1996 (incorporated by reference to Exhibit
10.8 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 0-2610) *
10.9 Zions Bancorporation Senior Management Value Sharing Plan, *
Award Period 1994-1997 (incorporated by reference to exhibit
10.9 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1994, File No. 0-2610)
10.10 Zions Bancorporation Senior Management Value Sharing Plan *
Award Period 1995-1998 (incorporated by reference to Exhibit
10.14 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-2610)
10.11 Zions Bancorporation Senior Management Value Sharing Plan *
Award Period 1996-1999 (incorporated by reference to Exhibit
10.16 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1996, File No. 0-2610)
10.12 Zions Bancorporation Executive Management Pension Plan *
(incorporated by reference to Exhibit 10.10 of Zions
Bancorporation's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-2610)
10.13 Employment Agreement between Zions Bancorporation and Mr. John *
Gisi (incorporated by reference to Exhibit 10.13 of Zions
Bancorporation's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-2610)
10.14 Zions Bancorporation Non-Employee Directors Stock Option Plan *
approved by the shareholders of the Company on April 26, 1996
(incorporated by reference to Exhibit 10 of Zions
Bancorporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, File No. 0-2610)
10.15 Form of Employment Agreement between Pitkin County Bank & *
Trust Company and Charles B. Israel (incorporated
II-11
<PAGE>
by reference to Exhibits 10.16 to the Registrant's Form S-4
Registration Statement, File No. 333-23839, filed on March 24,
1997)
10.16 Zions Bancorporation Pension Plan amended and restated *
effective April 1, 1997 (incorporated by reference to Exhibit
10 of Zions Bancorporation's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File No. 0-2610)
10.17 Form of Employment Agreement between The First National Bank *
in Alamosa and David E. Broyles (incorporated by reference to
Exhibit 10.17 to the Registrant's Form S-4 Registration
Statement, File No. 333-41821, filed on December 10, 1997) *
10.18 Form of Employment Agreement between Valley National Bank of *
Cortez and Richard C. Tucker (incorporated by reference to
Exhibit 10.21 to the Registrant's Form S-4 Registration
Statement, File No. 333-43405, filed on December 29, 1997) *
10.19 Form of Employment Agreement between Bank Colorado, National *
Association and James A. Simon (incorporated by reference to
Exhibit 10.21 to the Registrant's Form S-4 Registration
Statement, File No. 333-50733, filed on April 22, 1998) *
10.20 Form of Employment Agreement between Bank Colorado, National *
Association and John G. Jackson (incorporated by reference to
Exhibit 10.24 to the Registrant's Form S-4 Registration
Statement, File No. 333-50823, filed on April 23, 1998) *
10.21 Form of Employment Agreement between Zions Bancorporation and
James C. Hawkanson (filed as Exhibit V to the Agreement and
Plan of Reorganization, incorporated by reference as Exhibit
2.1 above)
II-12
<PAGE>
21 List of subsidiaries of Zions Bancorporation (incorporated by *
reference to Exhibit 21 of Zions Bancorporation's Annual
Report on Form 10-K for the year ended December 31, 1997, File
No. 0-2610)
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants for Zions Bancorporation (filed herewith)
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants for The Commerce Bancorporation (filed herewith)
23.3 Consent of Arthur Andersen LLP, independent certified public
accountants for Sumitomo Bank of California (filed herewith)
23.4 Consent of Duane, Morris & Heckscher LLP (contained in their
opinion filed as Exhibit 5)
23.5 Consent of Foster Pepper & Shefelman PLLC (contained in their
opinion filed as Exhibit 8)
23.6 Consent of Keefe, Bruyette & Woods, Inc. (filed herewith)
24.1 Power of Attorney (set forth on Page II-5 of the Registration
Statement)
99.1 Preliminary copy of letter to shareholders of The Commerce
Bancorporation (filed herewith)
99.2 Preliminary copy of Notice of Special Meeting of Shareholders
of The Commerce Bancorporation (filed herewith)
99.3 Preliminary copy of form of proxy for use by shareholders
of The Commerce Bancorporation (filed herewith)
99.4 Form of Voting Agreement between Zions Bancorporation and
various shareholders of The Commerce Bancorporation (filed
herewith as part of Agreement and Plan of Reorgani zation,
filed as Exhibit 2.1)
</TABLE>
* incorporated by reference
II-13
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
EXHIBIT I
HOLDING COMPANY MERGER AGREEMENT
<PAGE>
AGREEMENT OF MERGER
This Agreement of Merger is made and entered into as of [ ], 1998,
_______________________________ between ZIONS BANCORPORATION ("Zions Bancorp"),
a corporation organized under the laws of the State of Utah, and THE COMMERCE
BANCORPORATION (the "Company"), a corporation organized under the laws of the
State of Washington. Zions Bancorp and the Company are hereinafter sometimes
individually called a "Constituent Corporation" and collectively called the
"Constituent Corporations."
RECITALS
Zions Bancorp is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah. As of [_____________ ], 1998,
the authorized capital stock of Zions Bancorp consisted of [______] shares of
Common Stock, no par value, of which [_________] shares were issued and
outstanding; no shares of capital stock were held in its treasury on such date.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington. As of [_____________]
1998, the authorized capital stock of the Company consisted of 2,500,000 shares
of preferred stock, $0.01 par value, of which no shares were outstanding, and
15,000,000 shares of Company Common Stock, $2.50 par value (the "Company Common
Stock"), of which [___________] shares were issued and outstanding; no shares of
capital stock were held in its treasury on such date.
Zions Bancorp and the Company have entered into an Agreement and Plan
of Reorgani zation, dated May 13, 1998 (the "Plan of Reorganization"), setting
forth certain representations, warranties, and agreements in connection with the
transactions therein and herein contemplated, which contemplates the merger of
the Company with and into Zions Bancorp (the "Merger") in accordance with this
Agreement of Merger (the "Agreement").
The Boards of Directors of each of Zions Bancorp and the Company deem
the Merger advisable and in the best interests of each corporation and its
stockholders. The Boards of Directors of each of Zions Bancorp and the Company,
by resolutions duly adopted, have approved the Plan of Reorganization. The
Boards of Directors of each of Zions Bancorp and the Company, by resolutions
duly adopted, have approved this Agreement. The Boards of Directors of the
Company have directed that this Agreement, and authorization for the
transactions contemplated hereby, be submitted to stockholders of the Company
respectively for approval. Pursuant to section 16-10a-1103 of the Utah Business
Corporation Act, approval by the shareholders of Zions Bancorp is not required.
At the Effective Date (as defined in Section 1.1 below) shares of
Company Common Stock shall be converted into the right to receive shares of the
common stock of Zions Bancorp (the "Zions Bancorp Stock"), as provided herein.
<PAGE>
In consideration of the premises and the mutual covenants and
agreements herein contained and subject to the terms and conditions of the
Agreement, the parties hereto hereby covenant and agree as follows:
ARTICLE I
1.1. Merger of the Company into Zions Bancorp. The Company shall be
merged with and into Zions Bancorp on the date and at the time to be specified
in the Articles of Merger to be filed with the Secretary of State of the State
of Utah pursuant to section 16-10a-1105 of the Utah Business Corporation Act and
with the Secretary of State of the State of Washington pursuant to section
23B.11.070 of the Washington Business Corporation Act (such date and time being
referred to herein as the "Effective Date").
1.2. Effect of the Merger. At the Effective Date:
(a) The Company and Zions Bancorp shall be a single
corporation, which shall be Zions Bancorp. Zions Bancorp is hereby designated as
the surviving corporation in the Merger and is hereinafter sometimes called the
"Surviving Corporation."
(b) The separate existence of the Company shall cease.
(c) The Surviving Corporation shall have all the rights,
privileges, immuni ties, and powers and shall assume and be subject to all the
duties and liabilities of a corporation organized under the Utah Business
Corporation Act.
(d) The Surviving Corporation shall thereupon and thereafter
possess all of the rights, privileges, immunities, and franchises, of a public
as well as of a private nature, of each of the Constituent Corporations; and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares and all other choses in action, and all and
every other interest of and belonging to or due to each of the Constituent
Corporations shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate, or any interest therein, vested in either of the Consti tuent
Corporations shall not revert or be in any way impaired by reason of the Merger.
(e) The Surviving Corporation shall thenceforth be responsible
and liable for all the liabilities and obligations of each of the Constituent
Corporations; and any claim existing or action or proceeding pending by or
against either of the Constituent Corporations may be prosecuted as if the
Merger had not taken place, or the Surviving Corporation may be substituted in
its place. The Surviving Corporation expressly assumes and agrees to perform all
of the Company's liabilities and obligations. Neither the rights of creditors
nor any liens upon the property of either Constituent Corporation shall be
impaired by the Merger.
- 2 -
<PAGE>
(f) The Articles of Incorporation of Zions Bancorp as they
exist immediately prior to the Effective Date shall be the Articles of
Incorporation of the Surviving Corporation until later amended pursuant to Utah
law.
(g) At the Effective Date and until surrendered for exchange
and payment, each outstanding stock certificate which, prior to the Effective
Date, represented shares of Company Common Stock shall, without further action,
cease to be an issued and existing share and shall be converted into a right to
receive from Zions Bancorp, and shall for all purposes represent the right to
receive, upon surrender of the certificate formerly representing such shares,
the number of shares of Zions Bancorp Stock specified in Article III; provided
that, with respect to any matters relating to stock certificates representing
Company Common Stock, Zions Bancorp may rely conclusively upon the record of
stockholders maintained by the Company containing the names and addresses of the
holders of record of the Company's Common Stock at the Effective Date.
1.3. Acts to Carry Out This Merger Plan.
(a) The Company and its proper officers and directors shall
and will do all such acts and things as may be necessary or proper to vest,
perfect, or confirm title to such property or rights in Zions Bancorp and
otherwise to carry out the purposes of this Agreement.
(b) If, at any time after the Effective Date, Zions Bancorp
shall consider or be advised that any further assignments or assurances in law
or any other acts are necessary or desirable to (i) vest, perfect, or confirm,
of record or otherwise, in Zions Bancorp its right, title, or interest in or
under any of the rights, properties, or assets of the Company acquired or to be
acquired by Zions Bancorp as a result of, or in connection with, the Merger, or
(ii) otherwise carry out the purposes of this Agreement, the Company and its
proper officers and directors shall be deemed to have granted to Zions Bancorp
an irrevocable power of attorney to execute and deliver all such proper deeds,
assignments, and assurances in law and to do all acts necessary or proper to
vest, perfect, or confirm title to and possession of such rights, properties, or
assets in Zions Bancorp and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of Zions Bancorp are fully
authorized in the name of the Company or otherwise to take any and all such
action.
ARTICLE II
2.1. Capitalization. The authorized shares of capital stock of Zions
Bancorp as of the Effective Date shall be [______________] shares of Common
Stock, no par value.
2.2. By-Laws. The By-Laws of Zions Bancorp as they exist immediately
prior to the Effective Date shall be the By-Laws of Zions Bancorp until later
amended pursuant to Utah law.
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<PAGE>
ARTICLE III
3.1. Manner of Converting Shares. Subject to the terms, conditions, and
limitations set forth herein, upon surrender of his, her or its certificate or
certificates, each holder of shares of Company Common Stock shall be entitled to
receive, in exchange for each share of Company Common Stock held of record by
such stockholder as of the Effective Date, that number of shares (the "Exchange
Ratio") of the common stock of Zions Bancorp, no par value (the "Zions Bancorp
Stock") (together with the number of rights issued pursuant to the Shareholders'
Protection Rights Plan of Zions Bancorp associated therewith) calculated by
dividing $30.70 by the average of each Daily Sales Price over the twenty
consecutive trading days ending on and including the trading day immediately
preceding the Effective Date (the "Average Closing Price"). As used in the
previous sentence, "Daily Sales Price" means, for any trading day, 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 Bancorp 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 Bancorp and the Company
shall mutually agree.
3.2. No Fractional Shares; Dissenters' Rights.
(a) Zions Bancorp will not issue fractional shares of its
stock. In lieu of fractional shares of Zions Bancorp Stock, if any, each
shareholder of the Company who is entitled to a fractional share of Zions
Bancorp Stock shall receive an amount of cash equal to the product of such
fraction times the Average Closing Price. Such fractional share interest shall
not include the right to vote or to receive dividends or any interest thereon.
(b) Notwithstanding anything to the contrary herein, each
share of Company Common Stock held by a shareholder of the Company who has
timely and properly exercised his, her or its dissenters' rights in accordance
with the applicable laws of the State of Washington dealing with appraisal
rights (the "Appraisal Laws"), and whose holder, as of the Effective Date, has
not effectively withdrawn or lost his, her or its dissenters' rights under the
Appraisal Laws, shall not be converted into or represent a right to receive
Zions Bancorp Stock, but the holder thereof shall be entitled only to such
rights as are granted by the Appraisal Laws. Each holder of such shares who
becomes entitled to payment for his, her or its Company Common Stock pursuant to
the provisions of the Appraisal Laws shall receive payment therefor from Zions
Bancorp in accordance with the Appraisal Laws.
3.3. Dividends; Interest. No shareholder of the Company will be
entitled to receive dividends on his, her or its Zions Bancorp Stock until he,
she or it exchanges his, her or its certificates representing Company Common
Stock for Zions Bancorp Stock. Any dividends declared on Zions Bancorp Stock to
holders of record on or after the Effective Date shall, with respect to stock to
be delivered pursuant to this Agreement to shareholders of the Company who have
not exchanged their certificates representing Company Common Stock for Zions
Bancorp Stock, be paid to the Exchange Agent (as designated in Section 3.4 of
this Agreement) and, upon
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<PAGE>
receipt from a former shareholder of the Company of certificates representing
shares of Company Common Stock, the Exchange Agent shall forward to such former
shareholder of the Company (i) certificates representing his, her or its shares
of Zions Bancorp Stock, (ii) dividends declared thereon subsequent to the
Effective Date (without interest) and (iii) the cash value of any fractional
shares determined in accordance with Section 3.2 hereof.
3.4. Designation of Exchange Agent.
(a) The parties of this Agreement hereby designate Zions First
National Bank, a national banking association with its head office located in
Salt Lake City, Utah ("Zions Bank") as Exchange Agent to effect the exchanges
contemplated hereby.
(b) Zions Bancorp will, promptly after the Effective Date,
issue and deliver to Zions Bank the share certificates representing shares of
Zions Bancorp Stock and the cash to be paid to holders of Company Common Stock
in accordance with this Agreement.
3.5. Notice of Exchange. Promptly after the Effective Date, Zions Bank
shall mail to each holder of one or more certificates formerly representing
Company Common Stock except to such holders as shall have waived the notice
required by this Section 3.5, a notice specifying the Effective Date and
notifying such holder to surrender his, her or its certificate or certificates
to Zions Bank for exchange. Such notice shall be mailed to holders by regular
mail at their addresses on the records of the Company.
3.6. Treatment of Stock Options. At the Effective Date, each stock
option to purchase Company Common Stock not exercised prior to the Effective
Date (each, a "Converted Option"), whether vested or unvested, shall
automatically be converted into an option (a "Replacement Option") to acquire,
on the same terms and conditions as were applicable under the terms of such
Converted Option and any option plan under which such Converted Option was
issued (or as near thereto as is practicable), a number of shares of Zions
Bancorp Stock equal to (rounded down to the nearest whole number of shares) (a)
the number of shares of Company Common Stock subject to such Converted Option as
of the Effective Date multiplied by (b) the Exchange Ratio, at an exercise price
per share (rounded down to the nearest whole cent) equal to (x) the aggregate
exercise price under such Converted Option for all of the shares of Common Stock
subject to such Converted Option at the Effective Date divided by (y) the number
of shares of Zions Bancorp Stock subject to such Replacement Option.
Notwithstanding the foregoing, each Converted Option which is intended to be an
"incentive stock option" (as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code")) shall be adjusted in accordance with the
requirements of Section 424 of the Code. At or prior to the Effective Date, the
Company shall take all action, if any, necessary with respect to any Converted
Options or stock plans under which Converted Options have been issued to permit
the replacement of the Converted Options with Replacement Options as
contemplated by this section 3.6. At the Effective Time, Zions Bancorp shall
assume such stock plans; provided, that such assumption shall only be in respect
of the Replacement Options and that Zions Bancorp shall have no
- 5 -
<PAGE>
obligation with respect to any awards under such plans other than the
Replacement Options and shall have no obligation to make any additional grants
or awards under such assumed plans.
ARTICLE IV
4.1. Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed to constitute an original, but such
counterparts together shall be deemed to be one and the same instrument and to
become effective when one or more counterparts have been signed by each of the
parties hereto. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for the other counterpart.
4.2. Section Headings. The section and subsection headings herein have
been inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. Any reference to a "person"
herein shall include an individual, firm, corpora tion, partnership, trust,
government or political subdivision or agency or instrumentality thereof,
association, unincorporated organization, or any other entity.
4.3. Choice of Law and Venue. This Agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of Utah,
without giving effect to the principles of conflict of law thereof. The parties
hereby designate Salt Lake County, Utah to be the proper jurisdiction and venue
for any suit or action arising out of this Agreement. Each of the parties
consents to personal jurisdiction in such venue for such a proceeding and agrees
that it may be served with process in any action with respect to this Agreement
or the transactions contem plated thereby by certified or registered mail,
return receipt requested, or to its registered agent, if any, for service of
process in the State of Utah. Each of the parties irrevocably and uncondi
tionally waives and agrees, to the fullest extent permitted by law, not to plead
any objection that it may now or hereafter have to the laying of venue or the
convenience of the forum of any action or claim with respect to this Agreement
or the transactions contemplated thereby brought in the courts aforesaid.
4.4. Binding Agreement. This Agreement shall be binding upon the
parties and their respective successors and assigns.
4.5. Amendment. Anything herein or elsewhere to the contrary
notwithstanding, to the extent permitted by law, this Agreement may be amended,
supplemented, or interpreted at any time prior to the Effective Date by written
instrument duly authorized and executed by each of the parties hereto, provided
that this Agreement may not be amended after the action by shareholders of the
Company in any respect that would prejudice the economic interests of such
Company shareholders, or any of them, except as specifically provided herein or
by like action of such shareholders.
4.6. Termination. This Agreement shall terminate and be abandoned upon
(i) termina tion of the Plan of Reorganization or (ii) the mutual consent of
Zions Bancorp and the Company
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<PAGE>
at any time prior to the Effective Date, and there shall be no liability on the
part of either of the parties hereto (or any of their respective officers or
directors) except to the extent provided in the Plan of Reorganization.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ZIONS BANCORPORATION
Attest: By:
------------------ ---------------------------
Jennifer R. Jolley Dale M. Gibbons
Assistant Secretary Executive Vice President
and Secretary
THE COMMERCE BANCORPORATION
Attest: By:
------------------ ---------------------------
Robert R. Richards
President and Chief Executive Officer
Attest: By:
------------------ ---------------------------
James C. Hawkanson
Secretary
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<PAGE>
- --------------------------------
)
State of Utah )
) ss.
County of Salt Lake )
)
- --------------------------------
On this [_____________] day of [___________], 1998, before me
personally appeared Dale M. Gibbons, to me known to be the Executive Vice
President and Secretary of Zions Bancorpora tion, and acknowledged said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that he was
authorized to execute said instrument and that the seal affixed is the corporate
seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official
seal the day and year first above written.
--------------------------
Notary Public
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<PAGE>
- --------------------------------
)
State of Washington )
) ss.
County of King )
)
- --------------------------------
On this [_____________] day of [_______] 1998, before me personally
appeared Robert R. Richards and James C. Hawkanson, to me known to be the
President and Chief Executive Officer and the Secretary, respectively, of The
Commerce Bancorporation, and each of whom acknowledged said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that he was authorized to execute said
instrument and that the seal affixed is the corporate seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official
seal the day and year first above written.
--------------------------
Notary Public
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<PAGE>
EXHIBIT II
VOTING AGREEMENT
<PAGE>
May 13, 1998
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Mesdames and Gentlemen:
The undersigned understands that Zions Bancorporation ("Zions Bancorp")
is about to enter into an Agreement and Plan of Reorganization with The Commerce
Bancorporation (the "Company") (the "Agreement"). The Agreement provides for the
merger of the Company with and into Zions Bancorp (the "Merger") and the
conversion of outstanding shares of Company Stock into Zions Bancorp Common
Stock and cash in lieu of fractional shares in accordance with the formula
therein set forth.
In order to induce Zions Bancorp to enter into the Agreement, and
intending to be legally bound hereby, the undersigned, subject to the conditions
hereinafter stated, represents, warrants, and agrees that at the Company
Shareholders' Meeting contemplated by Section 4.1 of the Agreement and Plan of
Reorganization (the "Meeting"), and any adjournment thereof, the under signed
will, in person or by proxy, vote or cause to be voted in favor of the Agreement
and the Merger the shares of Company Common Stock beneficially owned by the
undersigned individu ally or, to the extent of the undersigned's proportionate
voting interest, jointly with other persons, as well as, to the extent of the
undersigned's proportionate voting interest, any other shares of Company Common
Stock over which the undersigned may hereafter acquire beneficial ownership in
such capacities (collectively, the "Shares"). Subject to the final paragraph of
this agreement, the undersigned further agrees that he or she will use his or
her best efforts to cause any other shares of Company Common Stock over which he
or she has or shares voting power to be voted in favor of the Agreement and the
Merger.
The undersigned further represents, warrants, and agrees that beginning
upon the authorization and execution of the Agreement by the Company until the
earlier of (i) the consummation of the Merger or (ii) the termination of the
Agreement in accordance with its terms, the undersigned will not, directly or
indirectly:
(a) vote any of the Shares, or cause or permit any of the Shares to be
voted, in favor of any other sale of control, merger, consolidation, plan of
liquidation, sale of assets, reclassification, or other transaction involving
the Company or any of its subsidiaries which would have the effect of assisting
or facilitating the acquisition of control by any person other than Zions
Bancorp or an affiliate thereof over the Company or any substantial portion of
<PAGE>
Zions Bancorporation
May 13, 1998
Page 2
its assets or assisting or facilitating the acquisition of control by any
personits other than Zions Bancorp or an affiliate, or the Company or a
wholly-owned subsidiary of the Company, of any subsidiary of the Company or any
substantial portion of its assets. As used herein, the term "control" means (1)
the ability to direct the voting of 10 percent or more of the outstanding voting
securities of a person having ordinary voting power in the election of directors
or in the election of any other body having similar functions or (2) the ability
to direct the management and policies of a person, whether through ownership of
securities, through any contract, arrangement, or understanding or otherwise.
(b) voluntarily sell or otherwise transfer any of the Shares, or cause
or permit any of the Shares to be sold or otherwise transferred (i) pursuant to
any tender offer, exchange offer, or similar proposal made by any person other
than Zions Bancorp or an affiliate thereof, (ii) to any person seeking to obtain
control (as the term "control" is defined in paragraph (a), above) of the
Company, any of its subsidiaries or any substantial portion of the assets of the
Company or any subsidiary thereof or to any other person (other than Zions
Bancorp or an affiliate thereof) under circumstances where such sale or transfer
may reasonably be expected to assist a person seeking to obtain such control,
(iii) for the purpose of avoiding the obligations of the undersigned under this
agreement, or (iv) to any transferee unless such transferee expressly agrees in
writing to be bound by the terms of this agreement in all events.
It is understood and agreed that this agreement relates solely to the
capacity of the undersigned as a shareholder or other beneficial owner of the
Shares and does not prohibit the undersigned, if a member of the Board of
Directors of the Company or a member of the Board of Directors of The Commerce
Bank of Washington, National Association, from acting, in his or her capacity as
a director, as the undersigned may determine to be appropriate in light of the
obligations of the undersigned as a director. It is further understood and
agreed that the term "Shares" shall not include any securities beneficially
owned by the undersigned as a trustee or fiduciary for another (unless such
other person is affiliated with the undersigned or is bound by an agreement with
Zions Bancorp substantially similar to this agreement), and that this agreement
is not in any way intended to affect the exercise by the undersigned of the
under signed's fiduciary responsibility in respect of any such securities.
Very truly yours,
--------------------------------
<PAGE>
Zions Bancorporation
May 13, 1998
Page 3
Accepted and Agreed to:
ZIONS BANCORPORATION
By:
--------------------------------
Title:
-----------------------------
<PAGE>
Zions Bancorporation
May 13, 1998
Page 4
Name of Shareholder:
Shares of Common Stock of The Commerce Bancorporation
Beneficially Owned
As of May 13, 1998
Name(s) of Number of
Record Owner(s) Beneficial Ownership 1/ Shares
- --------------- ----------------------- ---------
- --------
1/ For purposes of this Agreement, shares are beneficially owned by the
shareholder named above if held in any capacity other than a fiduciary capacity
(other than a revocable living trust and other than a fiduciary capacity on
behalf of a person who is affiliated with the share holder or is bound by an
agreement with Zions Bancorp substantially similar to this agreement) and if the
shareholder named above has the power (alone or, in the case of shares held
jointly with his or her spouse, together with his or her spouse) to direct the
voting of such shares.
<PAGE>
EXHIBIT V
EMPLOYMENT AGREEMENT
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this
[_______________] day of [__________], 1998, by and between James C. Hawkanson
("Executive") and ZIONS BANCORPORATION, a Utah corporation having its principal
office in Salt Lake City, Utah ("Zions Bancorp")
W I T N E S S E T H T H A T :
WHEREAS, the Agreement and Plan of Reorganization (the "Plan") dated as
of May 13, 1998 by and between Zions Bancorporation and The Commerce
Bancorporation, a Washington corporation having its principal office in Seattle,
Washington (the Company"), provides that the Company will be merged with and
into Zions Bancorp (the "Merger");
WHEREAS, Executive is the chief executive officer of The Commerce Bank
of Washington, National Association, a national banking association which is a
wholly-owned subsidiary of the Company (the "Bank");
WHEREAS, Zions Bancorp desires to secure the employment of Executive
upon consummation of the Merger;
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein; and
WHEREAS, to assist in achieving the objectives of the transactions
described in the Plan, section 4.10 of the Plan contemplates that Executive will
enter into an employment agreement as a condition to the consummation of the
transactions described therein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agree ments hereinafter set forth, the parties agree as follows:
1. Employment; Responsibilities and Duties.
(a) Zions Bancorp hereby agrees to employ Executive, and Executive
hereby agrees to serve as chief executive officer of the Bank and of any
depository institution which is successor-in-interest thereto ("the Bank"
hereafter to include any depository institution which is successor-in-interest
thereto) and as a member of the executive Committee of Zions Bancorp during the
Term of Employment. Executive shall have such duties, responsibilities, and
authority as shall be set forth in the bylaws of the Bank on the date of this
Agreement or as may otherwise be determined by Zions Bancorp or by the Bank.
(b) Executive shall devote his full working time and best efforts to
the performance of his responsibilities and duties hereunder and to the
retention of the customer relationships to which the Bank has been a party prior
to the date of this Agreement. During the Term of Employment, Executive shall
not, without the prior written consent of the Board of Directors of
<PAGE>
the Bank, render services as an employee, independent contractor, or otherwise,
whether or not compensated, to any person or entity other than the Bank or its
affiliates; provided that Executive may, where involvement in such activities
does not individually or in the aggregate significantly interfere with the
performance by Executive of his duties or violate the provisions of section 4
hereof, (i) render services to charitable organizations, (ii) manage his
personal investments, and (iii) with the prior permission of the Board of
Directors of Zions Bancorp, hold such other directorships or part-time academic
appointments or have such other business affiliations as would otherwise be
prohibited under this section 1.
2. Term of Employment.
(a) The term of this Agreement ("Term of Employment") shall be the
period com mencing on the date hereof (the "Commencement Date") and continuing
until the Termination Date, which shall mean the earliest to occur of:
(i) the third anniversary of the Commencement Date, unless the
Term of Employment shall be extended by mutual written agreement of Executive
and Zions Bancorp;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
(iv) the discharge of Executive by Zions Bancorp "for cause,"
which shall mean one or more of the following:
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of Zions Bancorp or the Bank, or with
respect to any of its affiliates for which Executive is assigned material
responsibilities or duties;
(B) the conviction of Executive of a felony (after
the earlier of the expiration of any applicable appeal period without perfection
of an appeal by Executive or the denial of any appeal as to which no further
appeal or review is available to Executive) whether or not committed in the
course of his employment by Zions Bancorp;
(C) Executive's willful neglect, failure, or refusal
to carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which Zions Bancorp believes that Executive has not substantially performed his
duties and Executive has not resumed substantial performance of his duties on a
continuous basis within fourteen days of receiving such demand; or
- 2 -
<PAGE>
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to Zions Bancorp or the
Bank or any of its affiliates for which Executive is assigned material
responsibilities or duties; or
(v) Executive's resignation from his position as chief
executive officer of the Bank other than for "Good Reason," as hereinafter
defined; or
(vi) the termination of Executive's employment by Zions
Bancorp "without cause," which shall be for any reason other than those set
forth in subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any
time, upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
For purposes of this Section 2(a), no act or failure to act will be deemed
"willful" unless done, or omitted, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best interest
of Zions Bancorp or the Bank.
"Good Reason" shall mean the occurrence of one or more of the following events,
without Executive's express written consent: (i) reassignment of Executive to a
position other than as chief executive officer of the Bank and member of the
Executive Committee of Zions Bancorp other than for "Cause"; (ii) beginning on
the Commencement Date and for twelve months thereafter, a decrease in the amount
of Executive's total cash compensation from the amount established in Section
3(a) hereof; (iii) beginning on the date that is twelve months from the
Commencement Date, a decrease of more than 1 percent in Executive's opportunity
for cash compensation from the amount established in Section 3(a) hereof; (iv) a
relocation of Executive's job to a location which is both outside the Seattle
metropolitan area and more than thirty miles from the current main office of the
Bank; or (v) Executive's loss of eligibility for welfare benefit plans.
(b) In the event that the Term of Employment shall be terminated for
any reason other than that set forth in section 2(a)(vi) or 2(a)(vii) hereof,
Executive shall be entitled to receive, upon the occurrence of any such event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(e)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(c) hereof.
- 3 -
<PAGE>
(c) In the event that the Term of Employment shall be terminated for
the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be
entitled to receive:
(i) for the period commencing on the date immediately
following the Termi nation Date and ending upon and including the third
anniversary of the Commencement Date, cash compensation payable at the rate
established pursuant to section 3(a)(i) hereof, in a manner consistent with the
normal payroll practices of the Bank with respect to executive personnel as
presently in effect or as they may be modified by the Bank from time to time;
and
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(e)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(c) hereof.
3. Compensation. For the services to be performed by Executive for the
Bank under this Agreement, Executive shall be compensated in the following
manner:
(a) Cash Compensation.
(i) During the Term of Employment the Bank shall pay Executive
cash compensation which shall not be less than the cash compensation paid to
Executive by the Bank as of May 13, 1998, together with the cash bonus paid to
Executive for the year ended December 31, 1997 assuming Executive performs
competently. Salary shall be payable in accordance with the normal payroll
practices of the Bank with respect to executive personnel as presently in effect
or as they may be modified by the Bank from time to time.
(ii) During the Term of Employment Executive shall be eligible
to be considered for salary increases, upon review, in accordance with the
compensation policies of Zions Bancorp with respect to executive personnel as
presently in effect or as they may be modified by Zions Bancorp from time to
time.
(b) Employee Benefit Plans or Arrangements. During the Term of
Employment, Executive shall be entitled to participate in all employee benefit
plans of Zions Bancorp, as presently in effect or as they may be modified by
Zions Bancorp from time to time, under such terms as may be applicable to
officers of Executive's rank employed by Zions Bancorp or its affiliates,
including, without limitation, plans providing retirement benefits, medical
insurance, life insurance, disability insurance, and accidental death or
dismemberment insurance. Executive's eligibility, but not vesting (other than
for plans of the Company or the Bank which are not terminated), for such
benefits shall include Executive's prior service with the Company and the Bank.
(c) Supplemental Executive Retirement Plan. Zions Bancorp shall assume
and continue in effect the Executive Deferred Compensation Agreement between
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<PAGE>
Executive and the Bank dated August 15, 1997, and, in return therefor, Executive
renounces entitlement to benefits under any supplemental executive retirement
plan to which he would otherwise be entitled as an exeuctive of Zions Bancorp or
an affiliate of Zions Bancorp.
(d) Vacation and Sick Leave. During the Term of Employment, Executive
shall be entitled to paid annual vacation periods and sick leave in accordance
with the policies of Zions Bancorp as in effect as of the Commencement Date or
as may be modified by Zions Bancorp from time to time as may be applicable to
officers of Executive's rank employed by Zions Bancorp or its affiliates, but in
no event less than that provided to Executive by the Bank at December 31, 1997.
(e) Withholding. All compensation to be paid to Executive hereunder
shall be subject to required withholding and other taxes.
(f) Expenses. During the Term of Employment, Executive shall be
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of Zions Bancorp as are in effect as of the Commencement Date and
as may be modified by Zions Bancorp from time to time, under such terms as may
be applicable to officers of Executive's rank employed by Zions Bancorp or its
affiliates.
4. Confidential Business Information; Non-Competition.
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of Zions Bancorp and its affiliates and the like
are deemed by Zions Bancorp to be and are in fact confidential business
information of Zions Bancorp or its affiliates or are en trusted to third
parties. Such confidential information includes but is not limited to
procedures, methods, sales relationships developed while in the service of Zions
Bancorp or its affiliates, knowledge of customers and their requirements,
marketing plans, marketing information, studies, forecasts, and surveys,
competitive analyses, mailing and marketing lists, new business proposals, lists
of vendors, consultants, and other persons who render service or provide
material to Zions Bancorp or the Bank or their affiliates, and compositions,
ideas, plans, and methods belonging to or related to the affairs of Zions
Bancorp or the Bank or their affiliates. In this regard, Zions Bancorp asserts
proprietary rights in all of its business information and that of its affiliates
except for such information as is clearly in the public domain. Notwithstanding
the foregoing, information that would be generally known or available to persons
skilled in Executive's fields shall be considered to be "clearly in the public
domain" for the purposes of the preceding sentence. Executive agrees that he
will not disclose or divulge to any third party, except as may be required by
his duties hereunder, by law, regulation, or order of a court or government
authority, or as directed by Zions Bancorp, nor shall he use to the detriment of
Zions Bancorp or its affiliates or use in any business or on behalf of any
business competitive with or substantially similar to any business of Zions
Bancorp or the Bank or their affiliates, any confidential business information
obtained during the course of his employment by the Bank.
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<PAGE>
The foregoing shall not be construed as restricting Executive from disclosing
such information to the employees of Zions Bancorp or the Bank or their
affiliates.
(b) Executive hereby agrees that from the Commencement Date until the
second anniversary of the Termination Date, Executive will not (i) engage in the
banking business other than on behalf of Zions Bancorp or the Bank or their
affiliates within the Market Area (as hereinafter defined), (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 Zions Bancorp or the Bank or their affiliates) engaged in the
banking business in the Market Area, or (iii) directly or indirectly solicit or
otherwise intentionally cause any person known to Executive to be an employee,
officer, or member of the respective Boards of Directors of the Bank or any of
its affiliates to engage in any action prohibited under (i) or (ii) of this
section 4(b); provided that the ownership by Executive as an investor of not
more than five percent of the outstanding shares of stock of any corporation, or
the shares of any investment company as defined in section 3 of the Investment
Company Act of 1940, as amended, shall not in itself constitute a violation of
Executive's obligations under this section 4(b).
(c) Executive acknowledges and agrees that irreparable injury will
result to Zions Bancorp in the event of a breach of any of the provisions of
this section 4 (the "Designated Provisions") and that Zions Bancorp will have no
adequate remedy at law with respect thereto. Accordingly, in the event of a
material breach of any Designated Provision, and in addition to any other legal
or equitable remedy Zions Bancorp or the Bank may have, Zions Bancorp shall be
entitled to the entry of a preliminary and permanent injunction (including,
without limitation, specific performance) by a court of competent jurisdiction
in Salt Lake County, Utah, King County, Washington, or elsewhere, to restrain
the violation or breach thereof by Executive, and Executive submits to the
jurisdiction of such court in any such action.
(d) It is the desire and intent of the parties that the provisions of
this section 4 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each juris diction in which enforcement is
sought. Accordingly, if any particular provision of this section 4 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, should any court determine that the provisions of this section 4 shall
be unenforceable with respect to scope, duration, or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions similar
hereto or other provisions so as to provide to Zions Bancorp, to the fullest
extent permitted by applicable law, the benefits intended by this section 4.
(e) As used herein, "Market Area" shall mean the Washington counties of
King, Kitsap, Pierce, and Snohomish.
5. Life Insurance. In light of the unusual abilities and experience of
Executive, Zions Bancorp in its discretion may apply for and procure as owner
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<PAGE>
and for its own benefit insurance on the life of Executive, in such amount and
in such form as Zions Bancorp may choose. Zions Bancorp shall make all payments
for such insurance and shall receive all benefits from it. Executive shall have
no interest whatsoever in any such policy or policies but, at the request of
Zions Bancorp, shall submit to medical examinations and supply such information
and execute such documents as may reasonably be required by the insurance
company or companies to which Zions Bancorp has applied for insurance.
6. Representations and Warranties.
(a) Executive represents and warrants to Zions Bancorp that his
execution, delivery, and performance of this Agreement will not result in or
constitute a breach of or conflict with any term, covenant, condition, or
provision of any commitment, contract, or other agreement or instrument,
including, without limitation, any other employment agreement, to which
Executive is or has been a party.
(b) Executive shall indemnify, defend, and hold harmless Zions Bancorp
for, from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which Zions Bancorp has
incurred or to which Zions Bancorp may become subject, insofar as such losses,
claims, suits, damages, expenses, liabilities, costs, or fees arise out of or
are based upon any failure of any representation or warranty of Executive in
section 6(a) hereof to be true and correct when made.
7. Notices. All notices, consents, waivers, or other communications
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to the
appropriate address of each party as follows:
If to Zions Bancorp:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Attention: Mr. Harris H. Simmons
President and Chief Executive Officer
With a required copy to:
Brian D. Alprin, Esq.
Duane, Morris & Heckscher LLP
1667 K Street, N.W., Suite 700
Washington, D.C. 20006
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<PAGE>
If to Executive:
Mr. James C. Hawkanson
5011 88th Avenue SE
Mercer Island, Washington 98040
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. Assignment. Neither party may assign this Agreement or any rights or
obliga tions hereunder without the consent of the other party.
9. Governing Law. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Utah, without giving effect
to the principles of conflict of law thereof. The parties hereby designate Salt
Lake County, Utah and King County, Washington to be proper jurisdictions and
venues for any suit or action arising out of this Agree ment. Each of the
parties consents to personal jurisdiction in each of such venues for such a
proceeding and agrees that he or it may be served with process in any action
with respect to this Agreement or the transactions contemplated thereby by
certified or registered mail, return receipt requested, at the address provided
in section 7, or in the case of Zions Bancorp to its registered agent, if any,
for service of process in the state of Utah or Washington. Each of the parties
irrevocably and unconditionally waives and agrees, to the fullest extent
permitted by law, not to plead any objection that it may now or hereafter have
to the laying of venue or the convenience of the forum of any action or claim
with respect to this Agreement or the transactions contemplated thereby brought
in the courts aforesaid.
10. Entire Agreement. This Agreement constitutes the entire
understanding among Zions Bancorp, the Bank and Executive relating to the
subject matter hereof. Any previous agreements or understandings between the
parties hereto or between Executive and the Bank or any of its affiliates
regarding the subject matter hereof, including without limitation the terms and
conditions of employment, compensation, benefits, retirement, competition
following employment, and the like, are merged into and superseded by this
Agreement. Neither this Agreement nor any provisions hereof can be modified,
changed, discharged, or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge, or termination is sought.
11. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal, or unenforceable for any reason
whatsoever:
(a) the validity, legality, and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
section of this Agreement contain ing any such provision held to be invalid,
illegal, or unenforceable) shall not in any way be affected or impaired thereby;
and
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<PAGE>
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement
containing any such provisions held to be invalid, illegal, or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal, or unenforceable.
12. Arbitration. Subject to the right of each party to seek specific
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration, then
any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
District of Washington. In the event of any arbitration, each party shall have a
reasonable right to conduct discovery to the same extent permitted by the
Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
Any provision in this Agreement to the contrary notwithstanding, this section
shall be governed by the Federal Arbitration Act and the parties have entered
into this Agreement pursuant to such Act.
13. Costs of Litigation. In the event litigation is commenced to
enforce any of the provisions hereof, or to obtain declaratory relief in
connection with any of the provisions hereof, the prevailing party shall be
entitled to recover reasonable attorney's fees. In the event this Agreement is
asserted in any litigation as a defense to any liability, claim, demand, action,
cause of action, or right asserted in such litigation, the party prevailing on
the issue of that defense shall be entitled to recovery of reasonable attorney's
fees.
14. Affiliation. A company will be deemed to be "affiliated" with Zions
Bancorp or the Bank according to the definition of "Affiliate" set forth in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
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<PAGE>
15. Headings. The section and subsection headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto executed or caused this
Agreement to be executed as of the day and year first above written.
ZIONS BANCORPORATION
Attest: By:
------------------- ------------------------
Jennifer R. Jolley Dale M. Gibbons
Assistant Secretary Executive Vice President
and Secretary
JAMES C. HAWKANSON
Witness:
------------------- ----------------------
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EXHIBIT 5
Duane, Morris & Heckscher LLP
1667 K Street, N.W., Suite 700
Washington, D.C. 20006-1608
(202) 776-7800
July 17, 1998
Zions Bancorporation
Suite 1380
One South Main
Salt Lake City, Utah 84111
Gentlemen:
We have acted as counsel to Zions Bancorporation ("Zions") in
connection with the Agreement and Plan of Reorganization dated as of May 13,
1998, between The Commerce Bancorporation (the "Company") and Zions and a
related Agreement of Merger between the Company and Zions (collectively, the
"Plan of Reorganization"), whereby the Company will be merged into Zions, with
Zions being the surviving corporation (the "Reorganization"). Upon consummation
of the Reorganization, the holders of the outstanding shares of Company Common
Stock will receive in the aggregate up to 2,020,791 shares (the "Shares") of
Zions Common Stock, no par value ("Zions Common Stock"). Upon the effective date
of the Reorganization, the shares of Company Common Stock will be canceled and
immediately converted into the right of 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 $30.70 by the Average
Closing Price (as defined in the Plan of Reorganization).
We are also acting as counsel to Zions in connection with the
Registration Statement on Form S-4 (the "Registration Statement") to be filed by
Zions with the Securities and Exchange Commission for the purpose of registering
under the Securities Act of 1933, as amended, the Shares into which outstanding
Company Common Stock will be converted upon effectiveness of the Reorganization.
This opinion is being furnished for the purpose of being filed as an exhibit to
the Registration Statement.
In connection with this opinion, we have examined, among other things:
(1) an executed copy of the Plan of Reorganization;
. (2) a copy certified to our satisfaction of the Restated Articles of
Incorporation of Zions as in effect on the date hereof;
(3) copies certified to our satisfaction of resolutions adopted by
the Board of Directors of Zions on April 24, 1998, including
resolutions approving the Plan of Reorganization and the issuance
of the Shares; and
<PAGE>
Zions Bancorporation
July 17, 1998
Page 2
(4) such other documents, corporate proceedings, and statutes as we
considered necessary to enable us to furnish this opinion.
We have assumed for the purpose of this opinion that:
(1) the Plan of Reorganization has been duly and validly authorized,
executed, and delivered by the Company and such authorization
remains fully effective and has not been revised, superseded or
rescinded as of the date of this opinion; and
(2) the Reorganization will be consummated in accordance with the
terms of the Plan of Reorganization; and
(3) all documents which must be submitted and filed with government
authorities to effectuate the Reorganization will be so submitted
and filed and all government approvals required by ss. 3.1 of the
Plan of Reorganization shall have been obtained.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons, and the conformity to the originals of all documents submitted to us as
copies. We have assumed that the certifications and representations dated
earlier than the date hereof on which we have expressed reliance herein continue
to remain accurate, insofar as material to our opinions, from such earlier date
through the date hereof.
Based upon the foregoing, we are of the opinion that the Shares to be
issued by Zions as described in the Registration Statement, when and to the
extent issued in accordance with the Plan of Reorganization, will be legally
issued, fully paid and nonassessable.
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 "Legal
Opinions" in the Proxy Statement/Prospectus forming a part of the Registration
Statement.
Very truly yours,
/s/ DUANE, MORRIS & HECKSCHER LLP
EXHIBIT 8
[Letterhead of Foster Pepper & Shefelman PLLC]
[LOGO]
July 14, 1998
The Commerce Bancorporation
601 Union Street, Suite 3600
Seattle, WA 98101-3000
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, UT 84111
Re: Merger Pursuant to Agreement and Plan of Reorganization Among
Zions Bancorporation and The Commerce Bancorporation
Ladies and Gentlemen:
We have acted as counsel to The Commerce Bancorporation, a Washington
corporation ("Company"), in connection with the proposed merger (the "Merger")
of Company with and into Zions Bancorporation, a Utah corporation ("Zions"),
pursuant to the terms of the Agreement and Plan of Reorganization dated as of
May 13, 1998 by and among Zions and Company (the "Merger Agreement"). This
opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Merger
Agreement. Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Merger Agreement and the exhibits thereto or
in the letters delivered to Foster Pepper & Shefelman LLP by Zions and Company
containing certain representations of Zions and Company relevant to the opinion
(the "Representations Letters"). All section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended
(the "Code").
You have requested our opinion regarding certain federal income tax
consequences of the Merger. In our capacity as counsel to Company in the Merger,
and for purposes of rendering this opinion, we have examined and relied upon the
Registration Statement, the Merger Agreement and the exhibits thereto,
Affiliate's Agreements, the Representation Letters, and such other documents as
we considered relevant for purposes of this opinion. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
<PAGE>
July 14, 1998
Page 2
accuracy of all documents submitted to us as copies and the authenticity of the
originals of such copies, the genuineness of signatures, and the legal capacity
of signatures.
We have assumed that all parties to the Merger Agreement and to any
other documents examined by us have acted, and will act, in accordance with the
terms of such Merger Agreement and documents and that the Merger will be
consummated at the Effective Date pursuant to the terms and conditions set forth
in the Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Date will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated or proposed thereunder (the
"Regulations"), current published administrative positions of the Internal
Revenue Service ("Rulings"), and existing judicial authorities. New developments
in the Regulations, Rulings, judicial authorities or legislative changes
occurring after the Effective Date may have an adverse impact upon the opinions
expressed herein. Nevertheless, we undertake no responsibility to advise you of
any developments after the Effective Date in the application or interpretation
of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
Internal Revenue Service ("IRS") or any court. Thus, no assurances can be given
that a position taken in reliance on our opinion will not be challenged by the
IRS or rejected by a court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use,
excise or other tax consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of Company that are subject to special tax rules, such as dealers
in securities, banks, insurance companies, tax-exempt organizations and
non-United States persons, and we express no opinion regarding the tax
<PAGE>
July 14, 1998
Page 3
consequences of the Merger arising in connection with the ownership of options
or warrants for Company stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code and Zions and Company will be parties to such
reorganization within the meaning of Section 368(b);
2. No gain or loss will be recognized by Zions or Company as a result
of the Merger;
3. No gain or loss will be recognized by the shareholders of Company
upon the exchange of Company stock solely for shares of Zions stock in the
Merger, except to the extent that cash, if any, is received in lieu of
fractional shares of Zion stock;
4. Cash received by the shareholders of Company in lieu of fractional
shares of Zions stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Zions; such a 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 (Rev. Rul. 66-365,
1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574);
5. The tax basis of the shares of Zions stock received (including the
fractional share interests) by the shareholders of Company in the Merger will be
equal to the tax basis of the shares of Company stock exchanged therefor in the
Merger;
6. The holding period for the shares of Zions stock received by the
shareholders of Company will include the holding period for the shares of
Company stock exchanged therefor in the Merger, provided that the shares of
Company stock are held as capital assets at the Effective Date; and
7. Cash received by a shareholder of Company who has perfected
dissenters' rights under the relevant provisions of Washington Business
Corporation Act as to his or her Company Stock will be treated as a distribution
in redemption of such shares, subject to the provisions and limitations of
Section 302 of the Code.
No opinion is expressed as to any other consequences of the Merger
except as specifically set forth herein, and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein.
<PAGE>
July 14, 1998
Page 4
This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement and may be relied upon by Zions
Bancorporation and The Commerce Bancorporation and its shareholders. It may not
be relied upon for any other purpose or by any other person or entity, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in the
Registration Statement in connection with references to this opinion and the tax
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
FOSTER PEPPER & SHEFELMAN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors REVISED
Zions Bancorporation:
We consent to the use of our report dated January 26, 1998 with respect to the
consolidated financial statements of Zions Bancorporation as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997 incorporated herein by reference, and to the reference to our firm
under the heading "Experts" in the Registration Statement and Proxy Statement/
Prospectus.
/s/ KPMG PEAT MARWICK LLP
Salt Lake City, Utah
July 16, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Commerce Bancorporation:
We consent to the use of our report, dated January 23, 1998, with respect to the
consolidated financial statements of The Commerce Bancorporation and subsidiary
as of December 31, 1997 and 1996, and for each of the years in the two-year
period ended December 31, 1997 included in Zions Bancorporation registration
statement Form S-4 and to the reference to our firm under the heading "Experts"
in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
July 13, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this S-4 Registration Statement of Zions Bancorporation of our
report dated January 16, 1998 on Sumitomo Bank of California's 1997 financial
statements included in Zions Bancorporation's previously filed Form 8-K (filed
April 15, 1998) and to all references to our firm included in this Registration
Statement.
/s/ Arthur Andersen LLP
San Francisco, California
July 16, 1998
EXHIBIT 23.6
CONSENT OF KEEFE, BRUYETTE & WOODS, INC.
We hereby consent to the use in this Registration Statement on Form
S-4 of our letter to the Board of Directors of The Commerce Bancorporation
included as Appendix C to the Prospectus/Joint Proxy Statement forming a part
of this Registration Statement on Form S-4 and to all references to our firm
in such Prospectus/Joint Proxy Statement. In giving such consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Keefe, Bruyette & Woods, Inc.
July 16, 1998
New York, New York
EXHIBIT 99.1
[THE COMMERCE BANCORPORATION LETTERHEAD]
____________, 1998
Shareholders of The Commerce Bancorporation
Dear Shareholder:
The Board of Directors of The Commerce Bancorporation (the "Company")
has called a Special Meeting of the shareholders of the Company for ______ a.m.,
Seattle time, on _____________, 1998, located at _____________________, Seattle,
Washington. The Board is furnishing the accompanying Proxy Statement/Prospectus
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 May 13, 1998 between the Company and
Zions Bancorporation ("Zions") and an Agreement of Merger between the Company
and Zions (collectively, the "Plan of Reorganization"), and the transactions
contemplated hereby. If the Company's shareholders approve the Plan of
Reorganization, and all other conditions are met, the Plan of Reorganization
will result in the merger of the Company into Zions, with Zions being the
surviving corporation (the "Reorganization").
The Board of Directors has unanimously approved the Plan of
Reorganization and determined that the Reorganization is fair to and 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.
At the Effective Date (as defined), the shares of Company Common Stock
will be canceled and immediately converted into the right for Company
shareholders to receive, in exchange for each share of Company Common Stock,
that number of shares of Zions Common Stock calculated by dividing $30.70 by the
Average Closing Price, as defined in the Plan of Reorganization.
On _____________, 1998, the closing price of Zions Common Stock was
$_______ per share. If the Reorganization had been consummated on that date,
shareholders of the Company would have received approximately _____ shares of
Zions Common Stock for each share of Company Common Stock, or an equivalent
market value of $30.70 per share of Company Common Stock. Because the Average
Closing Price represents a variable amount, the precise number of shares of
Zions Common Stock that the shareholders of the Company will receive will not be
known until the Effective Date.
<PAGE>
Shareholders of The Commerce Bancorporation
__________________, 1998
Page 8
The accompanying Proxy Statement/Prospectus details the terms of the
proposed Plan of Reorganization and provides information concerning the Company
and Zions 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.
It is important that your shares be represented and voted at the
Special Meeting regardless of the number of shares you own and whether or not
you intend to attend the Special Meeting. The affirmative vote of a two-thirds
of the issued and outstanding shares of the Company's Common Stock is required
to approve the Plan of Reorganization. Your vote is very important. 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 [NOT
YET] been received, and to certain other conditions, including maintenance of
the Company's financial condition. If approved, the Plan of Reorganization will
most likely be consummated sometime in the third quarter of 1998.
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
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 The Commerce Bancorporation stock certificate for the
Reorganization consideration. Please do not send your certificates to the
Company prior to receiving these instructions.
Sincerely,
Robert R. Richards
President and Chief Executive Officer
EXHIBIT 99.2
THE COMMERCE BANCORPORATION
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
A Special Meeting of shareholders of The Commerce Bancorporation (the
"Company") will be held at __:00 a.m., Seattle time, on _______________, 1998,
at _______________ located at ________ , Seattle, Washington, for the following
purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
dated as of May 13, 1998 between the Company and Zions
Bancorporation ("Zions") and an Agreement of Merger between the
Company and Zions (collectively, the "Plan of Reorganization"),
and the transactions contemplated thereby. The Plan of
Reorganization provides for the merger of the Company into Zions,
with Zions being the surviving corporation (the "Reorganization")
as more fully described in the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors has set ______________, 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 and to receive the fair value of their shares in cash if they comply with
certain provisions under Washington law. A shareholder wishing to dissent must
give written notice to the Company before the vote on the proposal is taken at
the Special Meeting of the shareholders' intent to demand payment if the
Reorganization is consummated. Further, the shareholder must not vote in favor
of the proposed Reorganization. A copy of the applicable statute is attached to
the Proxy Statement/ Prospectus. Shareholders desiring to exercise dissenters'
rights must comply strictly with the statutory provisions.
By order of the Board of Directors
Dated: ________________, 1998.
____________________________________
Robert R. Richards
President and Chief Executive Officer
Please mark, sign and return the enclosed proxy in the envelope
provided.
EXHIBIT 99.3
REVOCABLE PROXY
SPECIAL MEETING OF SHAREHOLDERS
OF THE COMMERCE BANCORPORATION
_________________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _________________ and ________________,
and either of them, as proxies of the undersigned with full power of
substitution to vote as designated below all shares of Common Stock of The
Commerce Bancorporation (the "Company") that the undersigned held of record on
_____________, 1998, at the special meeting of shareholders of the Company to be
held on ______________, 1998, or at any postponement or adjournment thereof with
respect to the following:
1. A proposal to approve the Agreement and Plan of Reorganization dated
May 13, 1998, between the Company and Zions Bancorporation ("Zions") and an
Agreement of Merger between the Company and Zions (collectively, the "Plan of
Reorganization"), whereby the Company will merge into Zions, with Zions being
the surviving corporation (the "Reorganization").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Other matters. The Proxyholder, in his discretion, is authorized to
vote on such other business as may properly come before the Special Meeting and
any adjournments thereof.
The shares represented by this Proxy will be voted as specified above,
but if no specification is made, this Proxy will be voted for approval of the
Plan of Reorganization.
Dated: __________________, 1998 ___________________________
Signature
___________________________
[label] Printed Name
Please date and sign exactly as
your name appears on your stock
certificate(s) (which should be the
same as the name on the address
label on the envelope in which this
Proxy was sent to you), including
designation as executor, trustee,
etc., if applicable. A corporation
must sign its name by the president
or other authorized officer. All
co-owners must sign.
