As filed with the Securities and Exchange Commission on August 10, 1999
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)
Utah 6712 87-0227400
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification
number)
----------------------------
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)
------------------------
DALE M. GIBBONS
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)
------------------------
With copies to:
STANLEY F. FARRAR STEPHEN KLEIN
Sullivan & Cromwell Graham & Dunn
1888 Century Park East, 21st Floor 1420 Fifth Avenue, 33rd Floor
Los Angeles, California 90067 Seattle, WA 98101-2390
(310) 712-6600 (206) 624-8300
------------------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================== ======================== =================== ======================== ======================
Proposed Proposed
Amount to be maximum maximum
Title of securities to be registered offering price per aggregate Amount of
registered share(3) offering price(3) registration fee(4)
- ------------------------------------ ------------------------ ------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
Common Stock, no par value(1) 5,710,504(2) Shares $30.375 $306,081,798 $85,090.74
==================================== ======================== =================== ======================== ======================
</TABLE>
(1) Includes associated preferred share purchase rights.
(2) Represents the estimated maximum number of shares of Common Stock, no par
value ("Zions Common Stock"), of Zions Bancorporation ("Zions") that are
issuable in exchange for shares of Common Stock, par value $0.01 per
share ("Pioneer Common Stock"), of Pioneer Bancorporation ("Pioneer")
upon consummation of the merger (the "Merger") of Pioneer with and into
Zions.
(3) Pursuant to Rule 457(f)(1) and 457(c), the registration fee is based on
the average of the high and low sales prices of the Pioneer Common Stock
as reported on the Over-the-Counter Bulletin Board on August 6, 1999 and
computed based on the estimated maximum number of shares of Pioneer
Common Stock (10,076,767) that may be converted into the shares of Zions
Common Stock to be registered.
(4) Pursuant to Rule 457(b), the amount of the registration fee has been
reduced by $60,881.44 the amount paid to the Securities and Exchange
Commission on July 16, 1999 with respect to this transaction. The
difference of $24,209.30 is paid herewith.
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 becomes effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
PROSPECTUS OF
PROXY STATEMENT OF ZIONS BANCORPORATION
PIONEER BANCORPORATION COMMON STOCK
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Pioneer Stockholders:
The board of directors of Pioneer Bancorporation has called a special
meeting of stockholders for September 15, 1999, at which you will be asked to
consider and to vote upon the approval of a merger agreement providing for a
merger of Pioneer with and into Zions Bancorporation.
In the Zions/Pioneer merger, each of your shares of Pioneer common stock
will be converted into the right to receive between 0.4636 and 0.5667 of a share
of Zions common stock, depending on the average closing stock price of Zions
measured over a period near the closing and subject to adjustment as described
in the accompanying proxy statement/prospectus.
The Zions/Pioneer merger is intended to be tax-free to Pioneer
stockholders, except for taxes due on cash received for fractional shares.
Your vote is very important. We cannot complete the Zions/Pioneer merger
unless holders of 80% of the outstanding shares of Pioneer common stock approve
the merger agreement at the special meeting.
Since the date of the Zions/Pioneer merger agreement, Zions and First
Security Corporation have entered into a merger agreement. In the Zions/First
Security merger and related transactions, each share of Zions common stock will
be converted into one share of First Security common stock and, immediately
prior to the Zions/First Security merger, each share of First Security will be
converted into 0.442 of a share of First Security common stock.
If the Zions/First Security merger is completed, you will become a
stockholder of First Security. Thus, the Zions/First Security merger, if it is
completed, will have a significant effect on Pioneer stockholders. Because
Pioneer stockholders will vote on the Zions/Pioneer merger but not on the
Zions/First Security merger, the accompanying proxy statement/prospectus
contains considerable information about First Security and about the Zions/First
Security merger.
The Pioneer board of directors believes that the Zions/Pioneer merger is in
the best interests of Pioneer and its stockholders and strongly encourages you
to vote "FOR" the merger proposal.
Whether or not you plan to attend the special meeting, please take the time
to complete and mail the enclosed proxy card. If you sign, date and mail your
proxy card without indicating how you want to vote, your proxy will be voted in
favor of the merger agreement. If you fail to return your proxy card, the effect
will be the same as a vote against the Zions/Pioneer merger agreement.
Sincerely,
/s/ Louis J. Capurro /s/ William E. Martin
Louis J. Capurro William E. Martin
Chairman of the Board President and Chief
Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Zions common stock to be issued under
this proxy statement/prospectus or determined if this proxy statement/prospectus
is accurate or adequate. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
------------------
The date of this proxy statement/prospectus is August 11, 1999, and it
is being mailed or otherwise delivered to Pioneer stockholders on or about such
date.
<PAGE>
Pioneer Bancorporation
10 State Street
Reno, Nevada 89501
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 15, 1999
To the Stockholders of Pioneer Bancorporation:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
Pioneer Bancorporation will be held at The Airport Plaza Hotel, 1981 Terminal
Way, Reno, Nevada at 11:00 a.m. on Wednesday, September 15, 1999, for the
following purposes:
1. Agreement and Plan of Merger. To consider and vote upon a proposal
to approve the Agreement and Plan of Merger dated as of May 7, 1999, as amended
July 16, 1999, by and among Zions Bancorporation, Pioneer Bancorporation and
Pioneer Citizens Bank of Nevada, a copy of which is set forth in Appendix A to
the accompanying proxy statement/prospectus, pursuant to which Pioneer will
merge into Zions and each outstanding share of Pioneer common stock will be
converted into the right to receive a portion of a share of Zions common stock,
all on and subject to the terms and conditions contained in such merger
agreement.
2. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
Only stockholders of record at the close of business on July 26, 1999
are entitled to receive notice of and to vote at the special meeting or any
adjournments or postponements thereof. Approval of the merger requires that
holders of 80% of the outstanding shares of Pioneer common stock vote in favor
of the merger agreement at the special meeting. The directors and executive
officers of Pioneer, who are entitled to vote approximately 21% of the
outstanding shares of Pioneer common stock, have agreed to vote their shares in
favor of the merger agreement.
Pioneer's board of directors unanimously recommends that stockholders
vote "FOR" approval of the merger agreement.
To ensure that your vote will be counted, please complete, date and
sign the enclosed proxy and return it promptly in the enclosed postage-paid
envelope, whether or not you currently plan to attend the special meeting. You
may revoke your proxy in the manner described in the accompanying proxy
statement/prospectus at any time before it is voted at the special meeting.
Stockholders of Pioneer are entitled to exercise dissenters' rights and
to receive cash in an amount equal to the fair value of their shares of Pioneer
common stock as of May 7, 1999, in lieu of receiving Zions common stock in the
merger. In order to do so, stockholders must comply with procedures specified by
Nevada law. See "The Merger--Dissenters' Rights" in the accompanying proxy
statement/prospectus. The complete text of Chapter 92A of the Nevada Revised
Statutes, which relates to dissenters' rights, is set forth as Appendix C to the
proxy statement/prospectus.
By Order of the Board of Directors,
/s/Shelle Grim-Brooks
Shelle Grim-Brooks, Secretary
Reno, Nevada
August 11, 1999
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
----------------------
Approval of the merger requires that holders of 80% of the outstanding
shares of Pioneer common stock vote in favor of the merger agreement. Please
sign and date your proxy and return it as soon as possible, whether or not you
plan to attend the special meeting.
- --------------------------------------------------------------------------------
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Zions from documents that are not included in or
delivered with this document. You can obtain documents incorporated by reference
in this proxy statement/prospectus (other than certain exhibits to those
documents) by requesting them in writing or by telephone from Zions at the
following address:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Attention: Dale M. Gibbons
Telephone: (801) 524-4787
You will not be charged for any of these documents that you request. If
you would like to request documents, please do so by September 8, 1999 in order
to receive them before the special meeting.
See "Where You Can Find More Information" on page 105.
<PAGE>
TABLE OF CONTENTS
Page
REFERENCES TO ADDITIONAL INFORMATION
CERTAIN QUESTIONS AND ANSWERS ABOUT THE ZIONS/PIONEER MERGER.................1
SUMMARY......................................................................2
Comparison of Unaudited Per Share Data.............................10
Selected Financial Data of Zions ..................................12
Selected Financial Data of Pioneer ................................13
Unaudited Pro Forma Zions/First Security Financial Data............14
FORWARD-LOOKING STATEMENTS..................................................16
SPECIAL MEETING
General ..........................................................17
Record Date........................................................17
Solicitation and Revocability of Proxies...........................17
Vote Required......................................................18
Recommendation of Board of Directors...............................18
THE MERGER..................................................................19
General ..........................................................19
Consideration to be Received in the Zions/Pioneer Merger...........19
Background of the Zions/Pioneer Merger.............................20
Reasons of Pioneer for the Zions/Pioneer Merger and Recommendation
of the Pioneer Board......................................21
Opinion of Pioneer Financial Advisor...............................23
Effective Time.....................................................30
Distribution of Zions Certificates.................................30
Fractional Shares..................................................31
Federal Income Tax Considerations of the Zions/Pioneer Merger .....31
Management and Operations After the Zions/Pioneer Merger...........33
Post-Merger Compensation and Benefits..............................33
Treatment of Outstanding Options...................................33
Interests of Certain Persons in the Zions/Pioneer Merger...........34
Conditions to Completion...........................................35
Regulatory Approvals...............................................36
Amendment, Waiver and Termination..................................38
Conduct of Business Pending the Zions/Pioneer Merger...............39
Expenses and Fees..................................................41
Accounting Treatment...............................................41
Stock Exchange Listing of Zions Common Stock.......................41
Resales of Zions Common Stock......................................41
Stock Option Agreement.............................................41
Stockholder Agreements.............................................44
Dissenters' Rights.................................................44
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................47
THE ZIONS/FIRST SECURITY MERGER.............................................58
General ..........................................................58
First Security.....................................................59
Governance of First Security After the Zions/First Security Merger
.........................................................58
DESCRIPTION OF ZIONS CAPITAL STOCK..........................................61
Authorized Capital Stock...........................................61
Voting Rights......................................................61
The Zions Board....................................................62
Shareholder Rights Plan............................................63
Shareholder Meetings...............................................63
Amendment of Zions Articles and By-laws............................63
Miscellaneous......................................................64
CERTAIN DIFFERENCES IN THE RIGHTS OF ZIONS
SHAREHOLDERS, PIONEER STOCKHOLDERS
AND NEW FIRST SECURITY STOCKHOLDERS................................65
COMPARATIVE MARKET PRICES AND DIVIDENDS.....................................74
Zions ..........................................................74
Pioneer ..........................................................74
PIONEER BANCORPORATION
Business ..........................................................75
Pioneer Selected Financial Data....................................77
Pioneer Management's Discussion and Analysis of
Financial Condition and Results of Operations...................78
RESULTS OF OPERATIONS
EXPERTS....................................................................105
VALIDITY OF ZIONS COMMON STOCK.............................................105
OTHER MATTERS..............................................................105
WHERE YOU CAN FIND MORE INFORMATION........................................105
<PAGE>
APPENDICES:
Appendix A - Agreement and Plan of Merger, dated as of May 7, 1999, as amended
July 16, 1999, by and among Zions Bancorporation, Pioneer
Bancorporation and Pioneer Citizens Bank of Nevada
Appendix B - Stock Option Agreement, dated as of May 10, 1999, by and between
Zions Bancorporation and Pioneer Bancorporation
Appendix C - Dissenters' Rights: Chapter 92A of the Nevada Revised Statutes
Appendix D - Opinion of Banc of America Securities LLC
<PAGE>
CERTAIN QUESTIONS AND ANSWERS ABOUT THE ZIONS/PIONEER MERGER
Q: What do I need to do now?
A: Just indicate on your proxy card how you want your shares to be voted,
then sign and mail it in the enclosed prepaid return envelope marked
"Proxy" as soon as possible, so that your shares may be represented and
voted at the special meeting to be held on September 15, 1999.
Your vote is very important. Holders of eighty percent (80%) of the
outstanding shares of Pioneer common stock must vote in favor of the
merger agreement at the special meeting in order for the Zions/Pioneer
merger to take place, and therefore you should return your signed proxy
card as soon as possible.
The Pioneer board of directors unanimously recommends voting "FOR" the
proposed Zions/Pioneer merger.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: No. Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the directions provided by your
broker. Without instructions, your shares will not be voted on the
merger proposal.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. There are three ways for you to revoke your proxy and change your
vote. First, you may send a written notice to the person to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card. Third, you may
vote in person at the special meeting. If you have instructed a broker
to vote your shares, you must follow directions received from your
broker to change your vote.
Q: Should I send in my stock certificates now?
A: No. After the Zions/Pioneer merger is completed, Zions will send you
written instructions for exchanging your stock certificates for the
consideration to be received.
Q: When do you expect to merge?
A: We are working towards completing the Zions/Pioneer merger as quickly
as possible. In addition to the approval of the Pioneer stockholders,
we must also obtain certain regulatory approvals. We expect to complete
the Zions/Pioneer merger in the fourth quarter of 1999.
Q: Whom should I call with questions or to obtain additional copies of
this proxy statement/prospectus?
A: If you have more questions about the merger, you should contact:
Georgeson Shareholder Communications
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
212-440-9800
All Others Call Toll-Free:
800-223-2064
1
<PAGE>
SUMMARY
This brief summary highlights selected information from the proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to read carefully the entire proxy
statement/prospectus and the other documents to which we refer to fully
understand the merger. See "Where You Can Find More Information" on page 105.
Each item in this summary refers to the page where that subject is discussed in
more detail, if applicable. The merger agreement is attached as Appendix A to
this proxy statement/prospectus. We encourage you to read the merger agreement
because it is the legal document that governs the Zions/Pioneer merger.
Please note that Zions and First Security Corporation have entered into
a separate merger agreement since the date of the Zions/Pioneer merger
agreement. If Pioneer stockholders approve the Zions/Pioneer merger and the
Zions/First Security merger is completed, Pioneer stockholders will eventually
become stockholders of First Security Corporation.
Merger Consideration Will Be a Portion of a Share of Zions Common Stock, Subject
to Adjustment (see page 19)
When the Zions/Pioneer merger is complete, each share of Pioneer common
stock will be converted into the right to receive a portion of a share of Zions
common stock, and Pioneer stockholders will become shareholders of Zions.
The exact conversion ratio to be used in calculating the portion of a share
of Zions common stock that a Pioneer stockholder will receive for each share of
Pioneer common stock that he or she owns cannot be determined now, as it will
vary depending on the average closing price of Zions common stock over a 15-day
period shortly prior to closing. We refer to this price as the average closing
stock price.
IF THE AVERAGE CLOSING STOCK PRICE IS:
o Greater than $77.00, each share of Pioneer common stock will be converted
into the right to receive 0.4636 of a share of Zions common stock.
o Greater than or equal to $63.00 but less than or equal to $77.00, each
share of Pioneer common stock will be converted into the right to receive a
portion of a share of Zions common stock calculated by dividing $35.70 by
the average closing stock price.
o Greater than or equal to $56.00 but less than $63.00, each share of Pioneer
common stock will be converted into the right to receive 0.5667 of a share
of Zions common stock.
o Less than $56.00, Pioneer will have the right to terminate the merger
agreement, subject to Zions' right (but not its obligation) to complete the
merger by converting each share of Pioneer common stock into the right to
receive a portion of a share of Zions common stock calculated by dividing
$31.73 by the average closing stock price.
As an example, assuming that the average closing stock price was $57.7583
(the average closing stock price for the 15 trading days ending on August 9,
1999, the latest practicable date prior to the mailing of this proxy
statement/prospectus), each share of Pioneer common stock would be converted
into the right to receive 0.5667 of a share of Zions common stock. The various
conversion ratios that will apply, depending on the average closing stock price,
are described at "The Merger--Consideration to be Received in the Merger," and a
more detailed example of how the conversion ratio will work is also provided in
that section. Zions will not issue fractional shares of Zions common stock in
the
2
<PAGE>
Zions/Pioneer merger, but will instead pay cash for each fractional share
that results from applying the appropriate conversion ratio to the shares of
Pioneer common stock. This cash payment is described at "The Merger--Fractional
Shares."
Tax Treatment (see page 31)
We expect that for U.S. federal income tax purposes, you generally will not
recognize any gain or loss upon the conversion of your shares of Pioneer common
stock into shares of Zions common stock. You will, however, recognize income or
gain to the extent your shares of Pioneer common stock are converted into cash
in lieu of fractional shares of Zions common stock.
We have conditioned the Zions/Pioneer merger on our receipt of legal
opinions that the Zions/Pioneer merger will be treated as a reorganization for
federal income tax purposes.
This tax treatment may not apply to certain Pioneer stockholders, including
stockholders who are non-U.S. persons. You should consult your own tax advisor
for a full understanding of the merger's tax consequences in your particular
circumstances.
Financial Advisor Says Consideration Fair to Pioneer Stockholders (see page 23)
Banc of America Securities LLC, formerly known as NationsBanc Montgomery
Securities LLC, has acted as financial advisor to Pioneer in connection with the
Zions/Pioneer merger and has rendered an opinion dated August 9, 1999 to the
Pioneer board of directors that, as of such date, the consideration to be
received by Pioneer stockholders is fair, from a financial point of view. A copy
of the opinion delivered by Banc of America Securities is attached to this
document as Appendix D and a description of its analysis is contained in this
prospectus/proxy statement. You should read the opinion completely to understand
the assumptions made, matters considered and limitations of the review
undertaken by Banc of America Securities in providing this opinion.
Special Meeting to Be Held on September 15, 1999 (see page 17)
The special meeting of Pioneer stock-holders will be held at 11:00 a.m. on
September 15, 1999, at The Airport Plaza Hotel, 1981 Terminal Way, Reno, Nevada.
At the special meeting, Pioneer stockholders will be asked to vote to approve
the merger agreement that provides for the merger of Pioneer into Zions.
If there are insufficient votes at the time of the special meeting to
approve the merger agreement, the meeting may be adjourned in order to permit
further solicitation of proxies.
Pioneer Board Unanimously Recommends Stockholder Approval (see page 18)
Pioneer's board of directors has approved the Zions/Pioneer merger
agreement. The Pioneer board of directors believes that the Zions/Pioneer merger
is in your best interests and recommends that Pioneer stockholders vote "FOR"
approval of the merger agreement.
Record Date Set at July 26, 1999;
Eighty Percent Vote of Outstanding Shares Required (see pages 17 & 18)
You can vote at the special meeting if you owned Pioneer common stock at
the close of business on July 26, 1999. As of that date, there were 9,550,029
shares of Pioneer common stock entitled to be voted at the special meeting.
Approval of the merger agreement requires that holders of 80% of the outstanding
shares of Pioneer common stock vote in favor of the merger proposal.
Certain Shareholders Have Agreed to Vote in Favor of Merger (see page 44)
The directors and executive officers of Pioneer, who are entitled to vote
approximately 21% of Pioneer's outstanding common stock, have entered into
stockholder agreements with
3
<PAGE>
Zions. The stockholder agreements provide that these stockholders will vote
their shares of Pioneer common stock in favor of the merger proposal.
The directors and executive officers entered into the stockholder
agreements in order to induce Zions to enter into the merger agreement. The
stockholder agreements could discourage other companies from trying to acquire
Pioneer.
Dissenters' Rights (see page 44)
Holders of Pioneer common stock may be entitled to dissenters' rights under
Chapter 92A of the Nevada Revised Statutes. Chapter 92A of the NRS is attached
to this proxy statement/prospectus as Appendix C. Stockholders who do not vote
in favor of the merger proposal and who comply with the provisions of Chapter
92A of the NRS have the right to require the purchase of their shares of Pioneer
common stock held by them for cash at the fair value of those shares on the day
before the Zions/Pioneer merger was first publicly announced, or May 7, 1999.
Under Chapter 92A of the NRS, the fair market value of those shares will exclude
any appreciation or depreciation that results from the Zions/Pioneer merger
unless that exclusion would be inequitable. If you choose to exercise
dissenters' rights with respect to your shares of Pioneer common stock, your
failure to comply strictly with the provisions of Chapter 92A of the NRS may
result in a waiver or forfeiture of those dissenters' rights.
Information Regarding Zions and Pioneer
Zions Bancorporation
One South Main
Salt Lake City, Utah 84111
Zions is a Utah corporation. It is the parent holding company for Nevada
State Bank, the bank with which Pioneer Citizens Bank of Nevada will merge at
the closing of the Zions/Pioneer merger. Zions is also the parent holding
company for Zions First National Bank, headquartered in Salt Lake City, Utah,
and several other subsidiaries that engage in banking or banking-related
services. Through its banking subsidiaries, Zions operated 339 branches in the
states of Arizona, California, Colorado, Idaho, Nevada, New Mexico, Utah and
Washington as of March 31, 1999. At that date, Zions had consolidated assets of
$17.1 billion, deposits of $13.2 billion and shareholders' equity of $1.1
billion.
Pioneer Bancorporation
10 State Street
Reno, Nevada 89501
Pioneer is a Nevada corporation. Its principal subsidiary is Pioneer
Citizens Bank of Nevada, a Nevada state-chartered bank which has served small
and medium-sized businesses, professionals, merchants and individuals in and
around Reno and Las Vegas, Nevada since 1965. Pioneer Citizens Bank of Nevada
offers a full range of commercial banking services, including the acceptance of
demand, savings and time deposits, and the making of commercial real estate
(including real estate construction), Small Business Administration, personal,
home improvement, automobile and other installment and term loans. At March 31,
1999, Pioneer had consolidated assets of approximately $1.1 billion, deposits of
$940.9 million and stockholders' equity of $69.5 million.
Zions to Continue As Surviving Corporation (see page 19)
Zions will be the surviving corporation immediately following the
Zions/Pioneer merger. The directors and officers of Zions in office before the
merger will initially serve as the directors and officers of Zions after the
Zions/Pioneer merger.
Bank Merger to Occur Simultaneously With Closing (see page 19)
Simultaneously with the completion of the merger of Pioneer with Zions,
Pioneer Citizens Bank of Nevada will be merged with Nevada State Bank. Nevada
State Bank will be the surviving corporation in the bank merger. The bank merger
cannot be completed until
4
<PAGE>
the regulatory approvals described below are received.
Zions To Merge With First Security (see page 58)
Since the date of the Pioneer merger agreement, Zions and First Security
Corporation have entered into a merger agreement as a result of which Zions will
merge with and into First Security. In the Zions/First Security merger and
related transactions, each share of Zions common stock will be converted into
one share of First Security common stock and, immediately prior to the First
Security merger, each share of First Security common stock will be converted
into 0.442 of a share of First Security common stock.
First Security is the nation's oldest multistate bank holding company and
is the parent corporation for First Security Bank, N.A. and several other
banking subsidiaries and subsidiaries that engage in banking-related services.
Through its subsidiaries, First Security operated 324 branches in the states of
California, Idaho, Nevada, New Mexico, Oregon, Utah and Wyoming as of March 31,
1999. At that date, First Security had consolidated assets of $22.0 billion,
deposits of $12.6 billion and stockholders' equity of $1.7 billion.
Effect of Zions/First Security Merger. If both the Zions/First Security
merger and the Zions/Pioneer merger are completed, each share of Pioneer common
stock ultimately would be converted into between 0.4636 and 0.5667 of a share of
First Security common stock, depending on the average closing stock price of
Zions measured over a period near the closing and subject to the adjustments
previously described. If the Zions/First Security merger is completed prior to
the Zions/Pioneer merger, First Security will assume the rights and obligations
of Zions under the Pioneer merger agreement. If, however, the Zions/Pioneer
merger is completed prior to the Zions/First Security merger, the shares of
Pioneer common stock will first be converted into shares of Zions common stock
at an exchange ratio between 0.4636 and 0.5667 and then into shares of First
Security common stock on a one share-for-one share basis. Finally, if the
Zions/First Security merger is not completed after the Zions/Pioneer merger, the
shares of Zions common stock received by Pioneer stockholders in the
Zions/Pioneer merger will remain as such.
We currently expect that the Zions/First Security merger, if it closes,
will close after the Zions/Pioneer merger. If all conditions to the completion
of the Zions/First Security merger are met, Pioneer stockholders would become
stockholders of First Security. However, you will not be entitled to vote on the
merger of Zions with First Security because you will not be shareholders of
Zions on the record date for the special meeting of shareholders of Zions.
Therefore, when voting on the merger agreement and deciding whether to exercise
dissenters' rights with respect to the Zions/Pioneer merger, you must consider
the possibility that you will become stockholders of First Security.
Conditions That Must Be Satisfied for the Zions/First Security Merger to
Occur. The Zions/First Security merger is subject to various conditions,
including:
o approval of the First Security merger agreement by the First Security
stockholders and the Zions shareholders;
o receipt of all governmental and other consents and approvals that are
necessary to permit completion of the Zions/First Security merger; and
o other usual conditions.
Zions cannot guarantee when or if the merger with First Security will be
completed.
Zions To Acquire Regency Bancorp
Regency Bancorp has entered into a separate merger agreement with Zions.
Regency Bancorp is the holding company for Regency Bank, a California
state-chartered bank headquartered in Fresno, California. In the Zions/Regency
merger, each share of Regency common stock will be converted into the right
5
<PAGE>
to receive 0.3233 of a share of Zions common stock, although that exchange
ratio is subject to adjustment in certain circumstances. Based upon the issuance
of 0.3233 of a share of Zions common stock which is what the Zions/Regency
exchange ratio would be on August 9, 1999 (the latest practicable date prior to
the mailing of this proxy statement/prospectus), Zions anticipates issuing up to
approximately 1,000,000 shares of Zions common stock in the Regency merger. The
Zions/Regency merger is subject to various conditions, including:
o approval of the Regency merger agreement by the Regency shareholders;
o receipt of all governmental and other consents and approvals that are
necessary to permit completion of the merger; and
o other usual conditions.
Zions cannot guarantee when or if the merger with Regency will be completed.
Zions to Use Pooling-of-Interests Accounting Treatment (see page 41)
Zions anticipates accounting for the merger as a pooling-of-interests for
financial reporting purposes. Zions has conditioned the merger on receipt of the
opinion of its independent auditors that the merger will qualify for
pooling-of-interests accounting treatment.
Monetary Benefits to Management in the Zions/Pioneer Merger (see page 34)
The directors and executive officers of Pioneer have interests in the
Zions/Pioneer merger in addition to their interests as stockholders of Pioneer
generally. These interests include:
o Some officers have previously entered into severance agreements and salary
continuation agreements with Pioneer pursuant to which each may receive
one or more payments as a result of the Zions/Pioneer merger.
o The chief executive officer of Pioneer has entered into an employment
agreement with Zions and Nevada State Bank, effective upon the completion
of the Zions/Pioneer merger. Following the Zions/Pioneer merger, Zions
will indemnify and provide liability insurance to the officers and
directors of Pioneer.
The Pioneer board of directors was aware of these interests and took them into
account in approving the Zions/Pioneer merger agreement.
Conditions That Must be Satisfied for the Zions/Pioneer Merger to Occur
(see page 35)
Completion of the Zions/Pioneer merger is subject to various conditions,
including:
o approval of the merger agreement by the Pioneer stockholders;
o receipt of all governmental and other consents and approvals that are
necessary to permit completion of the Zions/Pioneer merger; and
o other usual conditions.
Certain of these conditions to the merger may be waived by Zions or Pioneer, as
applicable.
Regulatory Approvals We Must Obtain for the Zions/Pioneer Merger (see page 36)
We cannot complete the Zions/Pioneer merger unless it is approved by the
Board of Governors of the Federal Reserve System. Zions has submitted a request
for waiver to the Federal Reserve regarding the Zions/Pioneer merger. In
addition, we are not required to complete the Zions/Pioneer merger unless the
merger of Pioneer Citizens Bank of Nevada into Nevada State Bank is approved by
the Federal Deposit Insurance Corporation. Nevada State Bank has filed an
application with the Federal Deposit Insurance Corporation seeking its approval.
The bank merger cannot be completed unless it is also approved by the Nevada
Department of Business and Industry,
6
<PAGE>
Financial Institutions Division. Nevada State Bank has filed an application with
the Nevada Department of Business and Industry, Financial Institutions Division
seeking approval of the bank merger.
Although we do not know of any reason why we cannot obtain these regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them.
Zions/Pioneer Merger Expected to Occur in Fourth Quarter of 1999
The Zions/Pioneer merger will occur shortly after all of the conditions to
its completion have been satisfied. We currently anticipate that the
Zions/Pioneer merger will occur in the third quarter of 1999.
Termination of the Merger Agreement (see page 38).
Pioneer and Zions can agree to abandon the Zions/Pioneer merger, and
terminate the merger agreement, at any time prior to the time the merger is
completed, even if Pioneer's stockholders have approved the merger agreement.
Also, either Pioneer or Zions can decide, without the consent of the other, to
abandon the merger if any of the following occurs:
o The other party breaches a provision contained in the merger agreement and
does not (or cannot) correct the breach within 30 days.
o The Zions/Pioneer merger has not been completed by December 31, 1999.
o Any regulatory authority denies an approval we need to complete the
Zions/Pioneer merger or issues any order preventing the Zions/Pioneer
merger.
o Pioneer's stockholders do not approve the merger agreement.
In addition, Zions may abandon the Zions/Pioneer merger if Pioneer's board of
directors fails to make or withdraws its recommendation to Pioneer stockholders
to approve the Zions/Pioneer merger agreement or modifies its recommendation in
any way adverse to Zions or if Pioneer breaks its agreements not to initiate or
negotiate an alternative transaction. Pioneer will have the right to terminate
the Zions/Pioneer merger if the average closing stock price of Zions common
stock measured over a period near the closing is less than $56.00. In that
event, Zions will have the right to prevent a termination of the Zions/Pioneer
merger agreement by increasing the exchange ratio to an amount determined by
dividing $31.73 by the average closing stock price.
Stock Option Agreement (see page 41)
In connection with the Zions/Pioneer merger agreement, Pioneer granted to
Zions an option to purchase shares of Pioneer common stock under certain
circumstances. Under the option, Zions may purchase up to 19.9% of the
outstanding shares of Pioneer common stock at a price of $28.50 per share.
Zions cannot exercise this option unless certain events occur. These events
can generally be described as business combinations or acquisition transactions
relating to Pioneer and certain related events (other than the Zions/Pioneer
merger we are proposing in this proxy statement/ prospectus). We do not know of
any event that has occurred as of the date of this proxy statement/prospectus
that would allow Zions to exercise this option.
Pioneer agreed to grant the option to Zions in order to induce Zions to
enter into the Zions/Pioneer merger agreement. The option could have the effect
of discouraging other companies from trying to acquire Pioneer.
The option agreement is attached to this document as Appendix B.
Share Information and Market Prices (see page 74)
Zions common stock is quoted on the Nasdaq National Market under the symbol
"ZION." Pioneer common stock is quoted on the Over-the-Counter Bulletin Board
under the
7
<PAGE>
symbol "PNCZ." The following table sets forth the last sale prices of Zions
common stock, Pioneer common stock, and the equivalent price per share for each
on May 7, 1999, the last trading day before we announced the Zions/Pioneer
merger, and on August 9, 1999, the latest practicable date prior to the mailing
of this proxy statement/prospectus.
8
<PAGE>
Zions Pioneer
Common Common
Stock Stock
------ -------
May 7, 1999 $64.50 $31.00
August 9, 1999 $55.375 $30.00
Equivalent Price Per
Share of Pioneer Common Stock
----------------------------------------
Giving Effect to
Giving Effect to Zions/Pioneer and
Zions/Pioneer Zions/First Security
Merger(a) Merger(b)
---------------- --------------------
May 7, 1999 $17.57 $17.57
August 9,
1999 $17.00 $17.00
(a) Computed by multiplying the last sales price of a share of Zions common
stock on the relevant date by an assumed exchange ratio of 0.5667, which is
what the exchange ratio would be if the closing of the Zions/Pioneer merger
were to have occurred on August 9, 1999.
(b) Computed based on the one share-for-one share exchange contemplated by the
Zions/First Security merger.
The market prices of Zions and Pioneer common stock will fluctuate prior to the
merger. You should obtain current market quotations for Zions common stock and
Pioneer common stock.
9
<PAGE>
Comparison of Unaudited Per Share Data
The following table shows information about our per share net income, cash
dividends and book value, and similar information after giving effect to the
Zions/Pioneer merger, which we refer to as "pro forma" information, and assuming
exchange ratios of 0.4636 and 0.5667. In presenting the pro forma information
for certain time periods, we assumed that we merged as of the beginning of the
period presented. The pro forma information gives effect to the merger under the
pooling-of-interests method of accounting in accordance with generally accepted
accounting principles. The pro forma equivalent per share data is derived by
multiplying the pro forma comparative per share amounts by the assumed exchange
ratios mentioned above.
We expect that we will incur merger and integration charges. The pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not reflect these expenses
and, accordingly, does not attempt to predict or suggest future results. It also
does not necessarily reflect what the historical results of the combined company
would have been had our companies been combined.
The information in the following table should be read together with the
historical financial information that Zions has presented in its prior filings
with the Securities and Exchange Commission or that is included in this proxy
statement/prospectus. Zions incorporates material with respect to Zions into
this document by reference to those other filings. See "Where You Can Find More
Information" on page 105.
10
<PAGE>
<TABLE>
<CAPTION>
Historical
----------
Zions Pioneer Pro Forma Combined Equivalent Pro Forma
----- ------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net income - basic:
Three months ended March 31, 1999 ........... $ 0.62 $ 0.34 $ 0.63(1) $ 0.62(2) $ 0.29(1) $ 0.35(2)
Year ended December 31, 1998 ................ 1.93 1.40 1.99 1.97 0.92 1.12
Year ended December 31, 1997 ................ 1.88 1.24 1.93 1.91 0.89 1.08
Year ended December 31, 1996 ................ 1.69 0.87 1.70 1.68 0.79 0.95
Net income - diluted
Three months ended March 31, 1999 ........... $ 0.61 $ 0.34 $ 0.62(1) $ 0.61(2) $ 0.29(1) $ 0.35(2)
Year ended December 31, 1998 ................ 1.91 1.39 1.97 1.94 0.91 1.10
Year ended December 31, 1997 ................ 1.84 1.20 1.87 1.85 0.87 1.05
Year ended December 31, 1996 ................ 1.66 0.84 1.66 1.64 0.77 0.93
Cash dividends per share of common stock:
Three months ended March 31, 1999 ........... $ 0.14 - $ 0.14(1) $ 0.14(2) $ 0.06(1) $ 0.08(2)
Year ended December 31, 1998 ................ 0.54 - 0.54 0.54 0.25 0.31
Year ended December 31, 1997 ................ 0.47 - 0.47 0.47 0.22 0.27
Year ended December 31, 1996 ................ 0.425 - 0.425 0.425 0.20 0.24
Book value per share of common stock (period end):
Three months ended March 31, 1999 ........... $13.43 $ 7.27 $13.55(1) $13.39(2) $ 6.28(1) $ 7.59(2)
Year ended December 31, 1998 ................ 12.89 7.08 13.02 12.86 6.04 7.29
Year ended December 31, 1997 ................ 10.40 5.83 10.52 10.39 4.88 5.89
Year ended December 31, 1996 ................ 9.04 4.48 9.08 8.96 4.21 5.08
(1) Assumes an exchange ratio of 0.4636, which is what the exchange ratio would be if the average closing stock price were greater
than $77.00.
(2) Assumes an exchange ratio of 0.5667, which is what the exchange ratio would be if the average closing stock price were greater
than or equal to $56.00 but less than $63.00 and is what the exchange ratio would be if the closing of the merger were held on
August 9, 1999.
</TABLE>
11
<PAGE>
Selected Financial Data of Zions
The following table presents selected historical financial data of
Zions derived from Zions' previously filed financial statements. The interim
financial information has been derived from unaudited financial statements of
Zions. Zions believes that these financial statements include all adjustments of
a normal, recurring nature and all disclosures that are necessary for a fair
statement of the results for the unaudited interim periods. Results for the
interim periods do not necessarily indicate results which may be expected for
any other interim or annual period.
The information in the following table should be read together with the
historical financial information that Zions has presented in its prior filings
with the SEC. Zions has incorporated this material into this proxy
statement/prospectus by reference to those other filings. See "Where You Can
Find More Information" on page 105.
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, At or For the Year Ended December 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
Consolidated Statements of Income
<S> <C> <C> <C> <C> <C> <C> <C>
Data:
Interest income ............... $ 300,703 $ 214,456 $ 976,044 $ 779,531 $ 594,740 $ 504,345 $ 405,219
Interest expense .............. 133,825 97,833 432,281 367,000 257,015 231,854 172,514
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income ........ 166,878 116,623 543,763 412,531 337,725 272,491 232,705
Provision for loan losses ..... 4,231 3,555 12,179 7,758 6,526 4,727 3,119
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after .. 162,647
provision for loan losses 113,068 531,584 404,773 331,199 267,764 229,586
Non interest income ........... 63,343 44,806 200,713 146,374 122,007 95,771 79,030
Non interest expense .......... 148,748 100,757 514,057 344,629 273,124 229,654 207,191
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes .... 77,242 57,117 218,240 206,518 180,082 133,881 101,425
Income taxes .................. 26,927 18,121 70,862 72,218 59,664 43,818 32,643
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income before minority
interest ............... 50,315 38,996 147,378 134,300 120,418 90,063 68,782
Minority interest ............. 1,464 -- 531 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income .................... $ 48,851 $ 38,996 $ 146,847 $ 134,300 $ 120,418 $ 90,063 $ 68,782
=========== =========== =========== =========== =========== =========== ===========
Earnings per common share:
Basic ...................... $ 0.62 $ 0.54 $ 1.93 $ 1.88 $ 1.69 $ 1.38 $ 1.10
Diluted .................... $ 0.61 $ 0.52 $ 1.91 $ 1.84 $ 1.66 $ 1.36 $ 1.08
Shares on which earnings per
common share were based:
Basic ...................... 78,771 72,673 75,868 70,535 70,389 64,713 62,069
Diluted .................... 80,010 74,308 76,988 72,813 72,158 65,960 63,109
Cash dividends paid per commo
share ..................... $ 0.14 $ 0.12 $ 0.54 $ 0.47 $ 0.425 $ 0.3525 $ 0.29
Consolidated Balance Sheets Data:
Total assets .................. $17,084,951 $11,303,986 $16,648,921 $10,869,204 $ 8,224,326 $ 6,904,198 $ 5,713,717
Loans ......................... 10,906,273 6,034,838 10,633,492 5,668,902 4,503,153 3,533,366 2,791,396
Deposits ...................... 13,204,776 8,374,323 13,321,163 7,956,234 6,009,304 5,148,756 4,250,800
Total shareholders' equity .... 1,059,686 778,267 1,013,656 742,052 641,323 534,993 412,932
</TABLE>
12
<PAGE>
Selected Financial Data of Pioneer
The following table presents selected historical financial data of
Pioneer derived from Pioneer's financial statements. The interim financial
information has been derived from unaudited financial statements of Pioneer
included in this proxy statement/prospectus. Pioneer believes that these
financial statements include all adjustments of a normal, recurring nature and
all disclosures that are necessary for a fair statement of the results for the
unaudited interim periods. Results for the interim periods do not necessarily
indicate results which may be expected for any other interim or annual period.
The information in the following table should be read together with the
historical financial information that Pioneer has included in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, At or For the Fiscal Year Ended December 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
Consolidated Statements of Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Data:
Total interest income .............. $ 18,613 $ 15,978 $ 68,866 $ 55,624 $ 42,364 $ 36,738 $ 26,762
Total interest expense ............. 7,480 6,601 28,745 21,694 15,844 13,010 7,282
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income ............. 11,133 9,377 40,121 33,930 26,520 23,728 19,480
Provision for loan losses .......... 510 360 2,125 1,300 1,015 1,155 990
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interes income after
provision for loan losses .... 10,623 9,017 37,996 32,630 25,505 22,573 18,490
Gain (loss) on sale of
securities ........................ 24 11 2,016 111 10 36 (18)
Total other income ................. 2,113 1,805 8,235 7,475 5,381 4,414 3,673
Total other expense ................ 8,428 6,591 30,002 23,716 19,332 16,738 13,589
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxes ............. 4,332 4,242 18,245 16,500 11,564 10,285 8,556
Income taxes ....................... 1,087 1,200 4,954 4,956 3,480 3,282 2,726
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ...................... $ 3,245 $ 3,042 $ 13,291 $ 11,544 $ 8,084 $ 7,003 $ 5,830
========== ========== ========== ========== ========== ========== ==========
Net income per share:*
Basic ........................... $ 0.34 $ 0.32 $ 1.40 $ 1.24 $ 0.87 $ 0.75 $ 0.63
Diluted ......................... $ 0.34 $ 0.32 $ 1.39 $ 1.20 $ 0.84 $ 0.73 $ 0.60
Average weighted common
shares outstanding:*
Basic ........................... 9,548 9,445 9,495 9,337 9,317 9,315 9,315
Diluted ......................... 9,568 9,493 9,528 9,582 9,658 9,651 9,637
Cash dividends paid
per common share ................ -- -- -- -- -- -- --
Consolidated Balance Sheets Data:
Total assets ....................... $1,075,524 $ 905,697 $1,031,257 $ 851,261 $ 631,137 $ 499,456 $ 416,353
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loans .......................... 610,598 457,030 576,105 434,548 351,896 286,706 221,690
Deposits ........................... 940,902 778,512 899,747 739,778 563,477 432,575 382,253
Shareholders' equity ............... 69,449 57,413 67,554 54,057 40,997 33,002 24,985
</TABLE>
* Earnings per share are computed on the basis of the weighted average number of
shares outstanding plus the common stock equivalents which would arise from
the exercise of stock options. Weighted shares outstanding are adjusted
retroactively for the effect of stock splits and dividends.
13
<PAGE>
Unaudited Pro Forma Zions/First Security Financial Data
The following table presents summary financial data for Zions and First
Security after giving effect to the Zions/First Security merger, which we refer
to as "pro forma" information. The pro forma financial data gives effect to the
Zions/First Security merger under the pooling-of-interests accounting method in
accordance with generally accepted accounting principles. In presenting the pro
forma information for certain time periods, Zions assumed that Zions and First
Security had been merged throughout those periods. Net income per share amounts
and weighted average shares have been adjusted to reflect the conversion of each
outstanding share of First Security common stock into 0.442 of a share of the
combined company common stock to take place immediately prior to the completion
of the Zions/First Security merger. The pro forma combined statement of income
data for the year ended December 31, 1998 includes results of operations for The
Sumitomo Bank of California for the nine months ended September 30, 1998, after
giving effect to certain pro forma adjustments. Zions acquired Sumitomo in a
transaction accounted for as a purchase on October 1, 1998.
Zions expects that it will incur reorganization and restructuring
expenses as a result of combining Zions and First Security. The unaudited pro
forma statements of income do not reflect any anticipated reorganization and
restructuring expenses resulting from the Zions/First Security merger. Zions
also anticipates that the Zions/First Security merger will provide the combined
company with certain financial benefits that include reduced operating expenses
and opportunities to earn more revenue. However, Zions does not reflect any of
these anticipated cost savings or benefits in the pro forma information.
Finally, the pro forma financial information does not reflect any divestitures
of branches or deposits that may be required in connection with the merger.
Therefore, the pro forma information, while helpful in illustrating the
financial characteristics of the combined company under one set of assumptions,
does not attempt to predict or suggest future results. The pro forma information
also does not attempt to show how the combined company would actually have
performed had the companies been combined throughout these periods. All
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of results of the unaudited historical interim periods have been
included.
Zions bases the information in the following tables on the historical
financial information of Zions and First Security that Zions and First Security
have presented in their prior filings with the SEC. When you read the summary
financial information provided in the following tables, you should also read the
historical financial information and the more detailed financial information we
provide in this proxy statement/prospectus, which you can find beginning at page
47, as well as the historical financial information in the other documents to
which we refer. See "Where You Can Find More Information" on page 105. The
information in the following table does not give effect to the Zions/Pioneer
merger, the Zions/Regency merger or merger transactions that First Security
expects to complete prior to the completion of the Zions/Pioneer merger or has
recently completed, none of which are material to the pro forma financial
information set forth below.
14
<PAGE>
<TABLE>
<CAPTION>
At or For the
Three Months For the Year Ended December 31,
Ended --------------------------------------
March 31, 1999 1998 1997 1996
----------- ----------- ----------- -----------
(In millions, except share and per share data)
<S> <C> <C> <C> <C>
Pro forma Combined Statements of
Income Data:
Interest income ................ $ 670.5 $ 2,652.4 $ 1,992.9 $ 1,634.1
Interest expense ............... 321.1 1,273.3 954.4 742.3
----------- ----------- ----------- -----------
Net interest income ......... 349.4 1,379.1 1,038.5 891.8
Provision for loan losses ...... 21.1 90.1 71.2 47.8
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses ... 328.3 1,289.0 967.3 844.0
Non interest income ............ 200.5 735.9 519.6 440.3
Non interest expense ........... 354.9 1,427.9 949.6 816.2
----------- ----------- ----------- -----------
Income before income taxes ..... 173.9 597.0 537.3 468.1
Income taxes ................... 58.7 206.4 187.7 163.2
----------- ----------- ----------- -----------
Net income before minority
interest .................... 115.2 390.6 349.6 304.9
Minority interest .............. 1.4 1.1 -- --
----------- ----------- ----------- -----------
Net income ..................... $ 113.8 $ 389.5 $ 349.6 $ 304.9
=========== =========== =========== ===========
Earnings per common share:
Basic ....................... $ 0.70 $ 2.42 $ 2.30 $ 2.03
Diluted ..................... $ 0.69 $ 2.36 $ 2.23 $ 1.97
Shares on which earnings per
common share were based:
(in thousands)
Basic ....................... 161,967 159,978 151,078 149,839
Diluted ..................... 165,487 163,868 156,229 153,921
Pro forma Combined Balance Sheet Data:
Total assets ................... $ 39,044
Loans .......................... 24,067
Deposits ....................... 25,779
Long-term borrowings ........... 3,210
Total shareholders' equity ..... 2,575
</TABLE>
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of Zions, Pioneer and First Security. These statements may be made
directly in this document or may be incorporated in this document by reference
to other documents and may include statements regarding the projected
performance of Zions and First Security for the period following the completion
of the Zions/First Security merger. You can find many of these statements by
looking for words such as "believes," "expects," "anticipates," "estimates" or
similar words or expressions. These forward-looking statements involve
substantial risks and uncertainties. Some of the factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, but are not limited to, the following possibilities:
o the timing of the completion of the proposed Zions/Pioneer and
Zions/First Security mergers and new operations being delayed
or such activities being prohibited;
o increases in competitive pressure among financial
institutions;
o general economic conditions, either nationally or locally in
areas in which Zions, First Security and Pioneer conduct their
operations or conditions in securities markets may be less
favorable than we currently anticipate;
o combining the businesses of Zions and First Security and/or
Zions and Pioneer may cost more than we expect or require
greater than expected divestitures of branches or deposits as
a result of the Zions/First Security merger;
o expected cost savings from the Zions/First Security merger or
the Zions/Pioneer merger may not be fully realized or realized
within the expected time frame;
o legislation or regulatory changes which adversely affect the
ability of the combined company resulting from one or both of
the mergers to conduct, or the accounting for, business
combinations and new operations;
o the transition to the year 2000 may have an adverse impact on
Zions, First Security, Pioneer or the banking industry in
general;
o integrating the businesses of Zions and First Security and/or
Zions and Pioneer and retaining key personnel may be more
difficult than we expect;
o our revenues after either or both of the mergers may be lower
than we expect;
o we may lose more business or customers after the merger than
we expect, or our operating costs may be higher than we
expect; or
o changes in the interest rate environment may reduce interest
margins.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
statements. Pioneer stockholders are cautioned not to place undue reliance on
such statements, which speak only as of the date of this proxy
statement/prospectus or the date of any document incorporated by reference.
All subsequent written and oral forward-looking statements attributable
to Zions or Pioneer or any person acting on their behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this
section. Neither Pioneer nor Zions undertakes any obligation to release publicly
any revisions of such forward-looking statements to reflect events or
circumstances after the date of this proxy statement/prospectus or to reflect
the occurrence of unanticipated events.
16
<PAGE>
SPECIAL MEETING
General
The board of directors of Pioneer is providing this proxy
statement/prospectus to the holders of Pioneer common stock for the solicitation
of proxies for use at the special meeting of Pioneer stockholders and at any
adjournments or postponements of that meeting. The special meeting is scheduled
to be held at The Airport Plaza Hotel, Reno, Nevada at 11:00 a.m. on Wednesday,
September 15, 1999. The purpose of the special meeting is to consider and vote
on the approval of the merger agreement.
As described below under "Vote Required," approval of the merger
agreement requires the affirmative vote of holders of at least 80% of the
outstanding shares of Pioneer common stock. If there are not sufficient votes
represented at the special meeting, either in person or by proxy, to approve the
merger agreement (notwithstanding that a quorum may be present at such meeting),
the persons appointed as proxies on the form accompanying this document are
authorized to vote to approve the adjournment or postponement of the special
meeting in order to permit further solicitation of proxies by Pioneer, unless
the proxy appointing them instructs them to vote against approval of the merger
agreement.
Zions is also providing this proxy statement/prospectus to Pioneer
stockholders as a prospectus for the offer and sale by Zions of shares of Zions
common stock to Pioneer stockholders in connection with the merger of Pioneer
into Zions.
Record Date
The Pioneer board has fixed the close of business on July 26, 1999, as
the record date for determining which Pioneer stockholders are entitled to
receive notice of and to vote at the special meeting. As of the record date,
there were issued and outstanding 9,550,029 shares of Pioneer common stock.
Only holders of record of Pioneer common stock as of the record date are
entitled to notice of and to vote at the special meeting.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares is necessary to constitute a quorum at
the special meeting. Abstentions and broker non-votes (as described below) will
be counted solely for the purpose of determining whether a quorum is present.
Under the applicable rules of the National Association of Securities Dealers,
Inc., brokers or members who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to vote
those shares with respect to the approval of the principal terms of the
Zions/Pioneer merger agreement in the absence of specific instructions from such
customers. We refer to these as broker non-votes. Abstentions and broker
non-votes will not be deemed to be cast either "FOR" or "AGAINST" the merger
agreement. However, because the merger requires the affirmative vote of the
holders of at least 80% of the outstanding shares of common stock of Pioneer,
abstentions and broker non-votes have the same effect as a vote "AGAINST" the
Zions/Pioneer merger.
Solicitation and Revocability of Proxies
Proxies in the form accompanying this document are being solicited by the
Pioneer board. Because the merger must be approved by the holders of 80% of the
outstanding shares of Pioneer common stock, Pioneer has engaged Georgeson
Shareholder Communications to assist it in soliciting proxies so that the
required vote can be obtained. Neither Zions nor Pioneer will pay any fees or
commissions to any broker or dealer or any person other than a fee of $7,500 to
Georgeson Shareholder Communications for soliciting Pioneer stockholders
pursuant to the merger. Upon request, Pioneer will reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding materials to their customers. Shares
represented by properly executed proxies, if such proxies are received in time
and are not revoked, will be voted in accordance with the instructions indicated
on the proxies. Except for broker non-votes, if no instructions are indicated,
such proxies will be voted "FOR" approval of the Zions/Pioneer merger agreement
and, as determined by a majority of
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the Pioneer board, as to any other matter that may come before the special
meeting. These other matters may include, among other things, a motion to
adjourn or postpone the special meeting to another time and/or place, for the
purpose of soliciting additional proxies or otherwise. No proxy with
instructions to vote against the proposal to approve the Zions/Pioneer merger
agreement, however, will be voted in favor of any adjournment or postponement of
the special meeting.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the special meeting by:
o giving written notice of revocation to the Secretary of
Pioneer,
o properly submitting a duly executed proxy bearing a later
date, or
o voting in person at the special meeting.
All written notices of revocation and other communications with respect to the
revocation of proxies should be addressed to Pioneer Bancorporation, 10 State
Street, Reno, Nevada 89501, Attention: Shelle Grim-Brooks, Secretary. A
stockholder whose shares are held in street name should follow the instructions
of his or her broker regarding revocation of proxies. A proxy appointment will
not be revoked by the death or incapacity of the stockholder executing the proxy
unless, before the shares are voted, notice of such death or incapacity is filed
with the acting Secretary of Pioneer or other person responsible for tabulating
votes on behalf of Pioneer.
Vote Required
Approval of the merger agreement requires the affirmative vote at the
special meeting of holders of 80% of the outstanding shares of Pioneer common
stock.
As of the record date, Zions held no shares of Pioneer common stock and
none of Zions' directors or executive officers or their affiliates held any
shares of Pioneer common stock. The directors and executive officers of Pioneer
are entitled to vote approximately 21% of the outstanding shares of Pioneer
common stock. As an inducement to Zions to enter into the Zions/Pioneer merger
agreement, these directors and executive officers have already agreed to vote
their shares in favor of the merger proposal.
Pioneer stockholders will not be able to vote directly on the
Zions/First Security merger if the Zions/Pioneer and Zions/First Security
mergers are completed on their expected time tables. For that reason, when
voting on the merger agreement and deciding whether to exercise dissenters'
rights with respect to the Zions/Pioneer merger, you must consider the
possibility that you may become stockholders of First Security.
Recommendation of Board of Directors
The Pioneer board of directors has unanimously approved the
Zions/Pioneer merger agreement and has determined that the Zions/Pioneer merger
is in the best interests of Pioneer and its stockholders. The Pioneer board,
therefore, recommends that stockholders of Pioneer vote "FOR" approval of the
merger proposal. Please see "The Merger--Reasons of Pioneer for the
Zions/Pioneer Merger and Recommendation of the Pioneer Board."
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THE MERGER
The following information describes certain information pertaining to
the Zions/Pioneer merger. This description is not complete and is qualified in
its entirety by reference to the Appendices attached to this proxy
statement/prospectus, which are incorporated herein by reference. We urge you to
read the Appendices in their entirety.
General
The Zions/Pioneer merger agreement provides for a transaction in which
Pioneer will merge into Zions. Zions will be the surviving corporation of the
Zions/Pioneer merger. Upon the effectiveness of the Zions/Pioneer merger, each
share of issued and outstanding Pioneer common stock will cease to be
outstanding and (excluding any shares held by Pioneer or Zions or their
subsidiaries and excluding shares with respect to which dissenters' rights are
asserted) will be converted into the right to receive a fraction of a share of
Zions common stock. Thus, following the Zions/Pioneer merger, Pioneer
stockholders will become shareholders of Zions. However, if the Zions/First
Security merger is also completed, Pioneer stockholders will become stockholders
of First Security, rather than shareholders of Zions, or will become First
Security stockholders shortly after becoming shareholders of Zions. For an
explanation of the Zions/First Security merger and the relationship between the
Zions/First Security merger and the Zions/Pioneer merger, see "The Zions/First
Security Merger."
The Zions/Pioneer merger agreement provides that Zions may change the
way it combines with Pioneer, provided that it cannot alter the consideration to
be received by Pioneer stockholders, adversely affect the tax treatment for
Pioneer stockholders or materially impede or delay the Zions/Pioneer merger.
Zions and Pioneer expect to merge Pioneer Citizens Bank of Nevada with
Nevada State Bank on or about the time they complete the Zions/Pioneer merger.
Consideration to be Received in the Zions/Pioneer Merger
When the Zions/Pioneer merger is complete, each share of Pioneer common
stock will be converted into the right to receive a portion of a share of Zions
common stock. The exact ratio for the conversion of Pioneer common stock into
Zions common stock will depend on the "average closing stock price," or the
average of the closing price per share of Zions common stock over a 15 day
averaging period shortly prior to the closing of the Zions/Pioneer merger. The
differing conversion ratios are generally designed to preserve certain values to
Pioneer stockholders, based on the trading price of Zions commons stock within
specified ranges. These ranges are described below, and an example of how the
conversion ratio would work is provided.
IF THE AVERAGE CLOSING STOCK PRICE IS:
o Greater than $77.00, each share of Pioneer common stock will be
converted into the right to receive 0.4636 of a share of Zions common
stock.
o Greater than or equal to $63.00 but less than or equal to $77.00, each
share of Pioneer common stock will be converted into the right to
receive a portion of a share of Zions common stock calculated by
dividing $35.70 by the average closing stock price.
o Greater than or equal to $56.00 but less than $63.00, each share of
Pioneer common stock will be converted into the right to receive 0.5667
of a share of Zions common stock.
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o Less than $56.00, Pioneer will have the right to terminate the
Zions/Pioneer merger agreement, subject to Zions' right (but not its
obligation) to complete the Zions/Pioneer merger by converting each
share of Pioneer common stock into the right to receive a portion of a
share of Zions common stock calculated by dividing $31.73 by the
average closing stock price.
The adjustments to the conversion ratio described above generally
protect a stockholder of Pioneer from having to shoulder the full effect of a
significant decrease in the value of Zions common stock prior to the closing of
the Zions/Pioneer merger, but also have the effect of partially limiting the
benefits to a stockholder of Pioneer from a significant increase in the value of
Zions common stock prior to the closing.
EXAMPLE OF MERGER CONVERSION RATIO
Pioneer stockholder Jones owns 1,000 shares of Pioneer common stock.
Assuming for purposes of illustration only that the average closing stock price
is $57.7583 (which was the average closing stock price for the 15 trading days
ending on August 9, 1999), then upon the closing of the merger, stockholder
Jones would be entitled to receive 566.7 shares of Zions common stock (1,000
shares times a conversion ratio of 0.5667).
As described below under "--Fractional Shares," Zions will not issue
fractional shares of Zions common stock in the merger, but will instead pay cash
for such fractional shares. Stockholder Jones will receive 566 shares of Zions
common stock, and will receive $40.43 cash in payment for the fractional share.
The amount of this cash payment also assumes, for illustration purposes only,
that the average closing stock price for Zions for purposes of calculating the
cash payment for fractional shares, which is calculated using a slightly
different period of time, is also $57.7583. See "--Fractional Shares."
Background of the Zions/Pioneer Merger
In 1992, the board of directors of Pioneer Citizens Bank of Nevada
adopted a Merger, Acquisition and Takeover Policy, which was adopted by the
holding company upon its formation in 1993. In 1999, the board of directors also
adopted a Merger and Acquisition Disclosure Policy. The policies provide
guidance and procedures for the board of directors when expressions of interest
are received with respect to any possible acquisition of Pioneer. In addition to
these policies, Pioneer's articles of incorporation set standards for the board
of directors in considering tender or other acquisition offers.
Over the years, Pioneer's management and board of directors have
received informal inquiries with regard to possible business combinations. The
board of directors and management considered these inquiries, consistent with
the policies adopted by Pioneer, and sought the advice of legal counsel,
investment bankers and accountants. As part of their annual planning sessions,
Pioneer's management and board of directors have regularly invited Banc of
America Securities to make presentations regarding the general outlook for the
banking industry as well as merger and acquisition trends. In early 1999,
Pioneer engaged Banc of America Securities to perform general investment banking
services, including advising it on strategic alternatives.
Several events have occurred that led the board of directors to more
actively consider merger or acquisition opportunities, including (1) the receipt
of informal inquiries from potential acquirors; (2) the high multiples being
received in other comparable acquisition transactions; (3) the pending proposed
change in accounting standards that would eliminate the use of
pooling-of-interests accounting for business combinations and the potential
downward impact on merger premiums which such change may cause; (4) the current
and prospective economic and competitive environment; and (5) the increased
visibility of Pioneer upon surpassing $1 billion in assets.
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At its regular monthly meeting held on March 17, 1999, the board of
directors met with Banc of America Securities, legal counsel and independent
accounting representatives to discuss and review its obligations and possible
actions with regard to these events. After appropriate and thorough discussion,
the board of directors agreed to retain an investment banker specifically to act
as financial advisor to Pioneer in a possible merger combination. In early April
1999, the board of directors solicited proposals from investment bankers and
selected Banc of America Securities to represent and advise the board of
directors.
At a special meeting of the board of directors on April 6, 1999, Banc
of America Securities made a presentation that included, among other things, a
review of the potential valuation of Pioneer and a review of potential
acquirors. Banc of America Securities was authorized to contact a limited group
of potential acquirors, beginning first with Zions, in order to determine their
level of interest. Serious interest was expressed by two of the parties
contacted. A special meeting of the board of directors was held on April 13,
1999 to update the board with respect to Banc of America Securities'
discussions, and at the regularly scheduled board meeting on April 21, 1999,
Banc of America Securities was in attendance to present its analysis and discuss
with the board of directors the structure and value of the transactions proposed
by the two potential acquirors. Based on that evaluation, Banc of America
Securities was instructed to proceed with the negotiation of a definitive
agreement with Zions and a due diligence review of Pioneer was conducted by
representatives of Zions during the week of April 26, 1999. Another special
meeting of the board of directors followed on May 4, 1999 to review key aspects
of the transaction structure.
On May 7, 1999, the board of directors carefully considered the nature,
value and liquidity of the shares of Zions common stock to be received by
Pioneer's stockholders in the proposed Zions/Pioneer merger. Banc of America
Securities rendered its opinion regarding the fairness of the consideration to
be received by Pioneer stockholders, from a financial point of view. The board
of directors, along with its legal counsel, Graham & Dunn PC, reviewed the
Zions/Pioneer merger agreement and considered the potential benefits of the
proposed merger to Pioneer and its stockholders, taking into account the
financial and valuation analyses of the Zions/Pioneer merger, and the terms of
the Zions/Pioneer merger agreement. At this meeting, the board of directors
unanimously determined that the proposed transaction was fair to and in the best
interest of Pioneer and its stockholders, and recommended the Zions/Pioneer
merger agreement be submitted to Pioneer's stockholders for approval.
Reasons of Pioneer for the Zions/Pioneer
Merger and Recommendation of the Pioneer Board
In reaching its determination to approve and adopt the merger
agreement, the board of directors of Pioneer consulted with Pioneer's
management, its legal counsel and financial advisors, and considered a number of
factors, including, without limitation, the following:
o The current and prospective economic and competitive
environment facing the financial services industry generally,
including the continued rapid consolidation in the industry,
the increased importance of operational scale and financial
resources in maintaining efficiency and remaining competitive
over the long term and the ability to capitalize on
technological developments that significantly impact industry
competition.
o The pending proposed change in accounting standards which is
expected to disallow the use of pooling-of-interests
accounting in business combinations in the future and the
potential downward impact on merger premiums which such change
may cause.
o The fact that the Zions/Pioneer merger will reduce Pioneer's
reliance on the Nevada economy and the continuation of the
rapid growth of such economy, as experienced over the last
several years, and allow Pioneer stockholders, as shareholders
of the
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combined corporation, to share in the potential growth and
increased diversification of an eight-state bank holding
company.
o The Pioneer board of directors' knowledge and review, based in
part on presentations by its financial advisor and Pioneer's
management, of (1) the business, operations, financial
conditions and earnings of Zions on an historical and
prospective basis and of the combined company on a pro forma
basis, and (2) the historical stock price performance of Zions
common stock and Zions' substantially greater market
capitalization and liquidity relative to that of Pioneer.
o The presentations of Banc of America Securities to Pioneer's
board of directors on April 6, 1999, April 21, 1999 and May 7,
1999 and the opinion of Banc of America Securities dated May
7, 1999 that, as of such date, the consideration to be
received pursuant to the Zions/Pioneer merger agreement was
fair to Pioneer's stockholders, from a financial point of
view.
o The terms of the Zions/Pioneer merger agreement, including a
provision permitting Pioneer to terminate the merger agreement
if Zions' average closing stock price is less than $56.00 per
share and Zions does not increase the exchange ratio to
provide consideration equal to $31.73 per share of Pioneer
common stock, thereby limiting the risk to Pioneer's
stockholders of possible significant declines in the trading
price of Zions common stock.
o An attractive premium for the holders of Pioneer's common
stock based on a price to diluted earnings per share multiple
for the 12 months ended March 31, 1999 of 25x, and a price to
book value multiple of 5x, which is among the highest price to
book value multiples offered in a commercial bank transaction.
o An attractive premium over the market price of Pioneer's
common stock, equal to a 41.7% premium over the trading price
of Pioneer's common stock based on the trading price 30 days
prior to the public announcement of the Zions/Pioneer merger.
o The probability that Pioneer's stockholders, who have not
historically received cash dividends on Pioneer's common
stock, will receive dividend income with respect to the shares
of Zions common stock.
o The general impact that the Zions/Pioneer merger could be
expected to have on the constituencies served by Pioneer,
including its customers, employees and communities. In this
regard, the Pioneer board of directors noted that the combined
company could be expected to offer a more extensive range of
financial products and services to Pioneer's existing
customers and could provide its customers with the added
convenience of access to Zions' various locations.
o The expectation that the Zions/Pioneer merger will be tax-free
for federal income tax purposes to Pioneer and Pioneer's
stockholders.
o The common business philosophy and compatibility of the
management and staff of Pioneer and Zions.
The foregoing discussion of the information and factors considered by
Pioneer's board of directors is not intended to be exhaustive, but is believed
to include the material factors considered by the board of directors. In
reaching its determination to approve and recommend the Zions/Pioneer
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merger agreement, Pioneer's board of directors did not assign any relative or
specific weights to the factors considered, and individual directors may have
given differing weights to different factors.
For the reasons set forth above, Pioneer's board of directors has
unanimously approved the Zions/Pioneer merger agreement as advisable and in the
best interests of Pioneer and its stockholders and recommends that the
stockholders of Pioneer vote "FOR" the approval of the Zions/Pioneer merger
agreement.
Opinion of Pioneer Financial Advisor
Pursuant to an engagement letter dated February 23, 1999, Pioneer
engaged Banc of America Securities LLC, formerly known as NationsBanc Montgomery
Securities LLC, to perform general investment banking services, including
advising it on strategic alternatives. Subsequently, Pioneer engaged Banc of
America Securities specifically to identify opportunities for maximizing
stockholder value, including a potential sale of Pioneer. As part of its
engagement, Banc of America Securities agreed to render to Pioneer's board of
directors an opinion with respect to the fairness from a financial point of view
of the consideration to be received by holders of Pioneer common stock in a
potential sale of Pioneer.
Banc of America Securities is a nationally recognized investment
banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and their securities in connection with
merger transactions and other types of acquisitions, negotiated underwritings,
private placements and valuations for corporate and other purposes. Pioneer
selected Banc of America Securities to render the opinion on the basis of its
experience and expertise and its reputation in the banking and investment
communities.
At a meeting of Pioneer's board of directors on May 7, 1999, Banc of
America Securities delivered its oral opinion that the consideration to be
received by the stockholders of Pioneer pursuant to the Zions/Pioneer merger was
fair to such stockholders from a financial point of view, as of the date of such
opinion. No limitations were imposed by the Pioneer board of directors with
respect to the investigations made or procedures followed in rendering its
opinion. Banc of America Securities' oral opinion was subsequently confirmed in
writing as of such date.
On August 9, 1999, Banc of America Securities delivered its written
opinion that the consideration to be received by the stockholders of Pioneer
pursuant to the Zions/Pioneer merger was fair to such stockholders from a
financial point of view, as of the date of such opinion. No limitation was
imposed by the Pioneer board of directors with respect to the investigations
made or procedures followed in rendering its opinion.
The full text of Banc of America Securities' written opinion to
Pioneer's board of directors, dated August 9, 1999, which sets forth the
assumptions made, matters considered and limitations of the review by Banc of
America Securities, is attached hereto as Appendix D. The following summary of
Banc of America Securities' opinion is qualified by reference to the full text
of the opinion. Banc of America Securities' opinion is directed to the Pioneer
board of directors and does not constitute a recommendation to any stockholder
as to how such stockholder should vote with respect to the Zions/Pioneer merger.
Banc of America Securities' opinion addresses only the fairness from a financial
point of view of the consideration to be received by holders of Pioneer's common
stock and does not address the relative merits of the Zions/Pioneer merger or
any alternatives to the Zions/Pioneer merger, the underlying decision of the
Pioneer board of directors to proceed with or effect the Zions/Pioneer merger,
or any other aspect of the Zions/Pioneer merger. The opinion was issued prior to
the announcement of the Zions/First Security merger and does not address the
effect of that merger. In furnishing its opinion, Banc of America Securities did
not admit that it is an expert within the meaning of the term "expert" as used
in the Securities Act of 1933, nor did it admit that its opinion constitutes a
report or valuation within the meaning of the Securities Act of 1933, and
statements to such effect are included in the Banc of America Securities
opinion.
In connection with its August 9, 1999 opinion, Banc of America
Securities:
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o reviewed publicly available financial and other data with
respect to Pioneer and Zions, including the consolidated
financial statements for the fiscal years ended December 31,
1996, 1997 and 1998, and, to the extent available, interim
periods to June 30, 1999;
o reviewed other financial and operating data relating to
Pioneer and Zions made available to it from published sources
and from the internal records of Pioneer and Zions;
o reviewed the financial terms and conditions of the
Zions/Pioneer merger agreement;
o reviewed publicly available information concerning the trading
of, and the trading market for, Pioneer common stock and Zions
common stock;
o compared Pioneer and Zions from a financial point of view with
other companies in the banking industry which it deemed to be
relevant;
o considered the financial terms, to the extent publicly
available, of selected recent business combinations of
companies in the banking industry which it deemed to be
comparable, in whole or in part, to the Zions/Pioneer merger;
o conducted discussions with representatives of the senior
management of Pioneer and Zions concerning their respective
businesses and prospects;
o reviewed and discussed with representatives of management of
Pioneer and Zions, information furnished to it by Pioneer and
Zions, including, in the case of Pioneer, financial forecasts
and related assumptions and, in the case of Zions, third-party
research analysts' estimates regarding Zions with which Zions
management indicated they did not disagree; and
o made inquiries regarding and discussed the Zions/Pioneer
merger and the Zions/Pioneer merger agreement and other
matters related thereto with Pioneer's counsel.
In connection with its review, Banc of America Securities did not
assume any obligation independently to verify the information listed above and
relied on its being accurate and complete in all material respects. With respect
to the financial forecasts for Pioneer provided to Banc of America Securities by
Pioneer's management, and with respect to the third-party analyst estimates
regarding Zions, upon the advice of their respective managements and with the
consent of Pioneer's management, Banc of America Securities assumed for purposes
of its opinion that the forecasts and analyst estimates were reasonably prepared
on bases reflecting the best currently available estimates and judgments as to
the future financial performance of Pioneer and Zions, and that they provided a
reasonable basis upon which Banc of America Securities could form its opinion.
Banc of America Securities assumed that there were no material changes in
Pioneer's or Zions' assets, financial condition, results of operations, business
or prospects since the respective dates of their latest financial statements
made available to Banc of America Securities. On June 6, 1999, subsequent to the
execution of the Zions/Pioneer merger agreement, Zions announced that it had
entered into an Agreement and Plan of Merger with First Security Corporation.
The Zions/First Security merger is subject to regulatory approval, shareholder
approvals and other conditions and has not yet been consummated. The Zions/
Pioneer merger is expected to close prior to the proposed Zions/First Security
merger and the Zions/Pioneer merger is independent of the Zions/First Security
merger. Therefore, with Pioneer's consent, Banc of America Securities conducted
its analyses and provided its opinion without taking into consideration or
giving effect to the Zions/First Security merger. Banc of America Securities
relied on advice of counsel to Pioneer as to all
24
<PAGE>
legal matters with respect to Pioneer, the Zions/Pioneer merger and the
Zions/Pioneer merger agreement. Banc of America Securities assumed that the
Zions/Pioneer merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act, the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations.
In addition, Banc of America Securities did not assume responsibility
for reviewing any individual credit files, or making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of Pioneer or Zions, nor was Banc of America Securities furnished
with any such appraisals. Banc of America Securities is not an expert in the
evaluation of loan portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and assumed, with Pioneer's consent,
that such allowances for each of Pioneer and Zions were in the aggregate
adequate to cover potential losses. Pioneer informed Banc of America Securities,
and Banc of America Securities assumed, that the Zions/Pioneer merger will be
recorded as a pooling of interests under generally accepted accounting
principles. Finally, Banc of America Securities' opinion was based on both
information made available to Banc of America Securities and economic, monetary,
market and other conditions as of the date of the opinion without giving effect
to the announced but not yet consummated merger of Zions and First Security.
Set forth below is a brief summary of the information presented by Banc
of America Securities to Pioneer's board of directors on May 7, 1999 in
connection with its opinion. Some of the summaries of financial analyses
performed by Banc of America Securities include information presented in tabular
format. In order to fully understand the financial analyses performed by Banc of
America Securities, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analysis performed by Banc of America
Securities.
Discounted Cash Flow Analysis: In performing a discounted cash flow
analysis, Banc of America Securities utilized Pioneer's management estimates of
future net income and assumed that in each of the years 1999-2003, any tangible
equity in excess of 6.5% of tangible assets generated through earnings would be
distributed as dividends to stockholders of Pioneer. The estimated net income in
the year 2003 was multiplied by an earnings multiple ranging from 16.0x to 18.0x
to generate a terminal value representing the potential value of Pioneer in
2003. The cash distributions and the terminal value were discounted back to the
present using a 15.0% to 17.5% discount rate. This analysis indicated that the
present value of Pioneer's future stock price plus cash distributions ranged
from $28.54 to $35.00 per share. The $35.42 offer (based on Zions' closing price
on May 6, 1999) from Zions exceeded the range of values implied by this
analysis. Discounted cash flow analysis is a widely-used valuation methodology
but it relies on numerous assumptions, including asset and earnings growth
rates, terminal values and discount rates. The analysis is not necessarily
reflective of the actual values of Pioneer common stock.
Comparable Public Company Analysis: Banc of America Securities
compared selected balance sheet data, profitability measures and market
statistics for Pioneer to:
(1) a comparison group of 12 publicly traded banks in the western
United States with assets between $500 million and $2.7
billion: Central Coast Bancorp, Centennial Bancorp, Columbia
Banking System, CVB Financial, Frontier Financial, Greater Bay
Bancorp, Glacier Bancorp, Mid-State Bancshares, Pacific
Capital Bancorp, TriCo Bancshares, VIB Corp, and West Coast
Bancorp, and
(2) a comparison group consisting of six publicly traded banks in
the western United States with assets between $500 million and
$2.7 billion that recorded a return on average assets in
excess of 1.3% in 1996, 1997 and 1998: Central Coast Bancorp,
Centennial
25
<PAGE>
Bancorp, CVB Financial, Frontier Financial, Glacier Bancorp,
and Mid-State Bancshares.
The multiples that were analyzed were price to book value, price to tangible
book value, price to latest 12 months earnings per share, price to 1999
estimated earnings per share, price to deposits and the ratio of the premium
(i.e., stock price in excess of tangible book value) to core deposits. A summary
of the median multiples in the analysis is as follows:
<TABLE>
<CAPTION>
Price to Latest Price to
Price to Price to Twelve Months 1999 Estimated
Book Tangible Earnings Per Earnings Per Price to Premium to
Company Categories Value Book Value Share Share Deposits Core Deposits
- ------------------------------ -------- ---------- --------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Western Banks with Asset 2.3x 2.1x 17.8x 15.2x 23.6% 15.1%
Size Greater than
$500 Million and Less than
$2.7 Billion
Western Banks with Asset 2.5x 2.6x 17.3x 16.1x 31.5% 26.7%
Size Greater than
$500 Million and Less than
$2.7 Billion and that
Recorded a Return on
Average Assets in Excess of
1.3% in Calendar Years
1996, 1997 and 1998
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The medians of these multiples were then multiplied by Pioneer's current values.
This analysis indicated a reference range for Pioneer's current common stock
price from $15.33 to $31.04 per share. The $35.42 offer from Zions exceeded the
range of values implied by this analysis.
Analysis of Selected Merger Transactions: Banc of America Securities
reviewed the consideration paid in selected categories of recent bank
transactions. Specifically, Banc of America Securities reviewed selected bank
transactions from January 1, 1998 to May 6, 1999 consisting of:
(1) national mergers involving sellers with assets greater than
$500 million and less than $1.5 billion,
(2) national mergers involving sellers with assets greater than
$500 million and less than $1.5 billion that recorded a return
on average assets greater than 1.3%, and
(3) mergers involving sellers with assets greater than $500
million and less than $1.5 billion in the west and southwest
United States.
The multiples paid to Pioneer in this transaction are equal to or higher than
multiples paid in these transactions. For each transaction, Banc of America
Securities analyzed data illustrating purchase price to book value, purchase
price to tangible book value, purchase price to latest twelve months earnings
per share, purchase price to deposits, the ratio of the premium (i.e., purchase
price in excess of tangible book value) to core deposits and the premium paid
relative to the seller's stock price 30 days prior to announcement.
A summary of the median multiples in the analysis is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Price to Latest Premium
Price to Price to Twelve Months Premium to Price
Book Tangible Earnings Per Price to to Core 30 Days
Transaction Categories Value Book Value Share Deposits Deposits Prior
- ----------------------------------- -------- ---------- --------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From January 1, 1998 to May 6, 1999 2.9x 3.1x 25.2 34.9% 25.0% 26.8%
National Mergers with Seller Asset
Size Greater than $500 Million and
Less than $1.5 Billion
From January 1, 1998 to May 6, 1999 3.3x 3.3x 21.3x 37.2% 29.6% 22.0%
National Mergers with Seller Asset
Size Greater than $500 Million and
Less than $1.5 Billion and Seller
Return on Average Assets > 1.3%
From January 1, 1998 to May 6, 1999 3.0x 3.3x 25.4x 34.7% 27.3% 32.0%
National Mergers with Seller Asset
Size Greater than $500 Million in the
West and Southwest United States
</TABLE>
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<PAGE>
In comparison, multiples paid to Pioneer in the Zions/Pioneer merger are as
follows:
Price to Latest Premium
Price to Price to Twelve Months Premium to Price
Book Tangible Earnings Price to to Core 30 Days
Value Book Value Per Share Deposits Deposits Prior
-------- ---------- --------------- -------- -------- ---------
5.0x 5.0x 25.1x 36.5% 33.3% 41.7%
Contribution Analysis: Banc of America Securities analyzed the
contribution of each of Pioneer and Zions to assets, loans, deposits, tangible
equity, latest 12 months net interest income and latest 12 months net income of
the pro forma combined companies for the period ending March 31, 1999 and to
projected net income and cash net income of the pro forma combined companies for
the calendar year ending December 31, 1999. This analysis indicated that based
on pro forma combined balance sheets for Pioneer and Zions at March 31, 1999,
Pioneer would have contributed approximately 5.9% of the assets, 5.4% of the
loans, 6.7% of the deposits, 7.9% of the tangible equity, 6.5% of the latest 12
months net interest income and 6.8% of the latest 12 months net income. The pro
forma projected income statement for the period ending December 31, 1999 showed
that Pioneer would contribute approximately 6.6% and 6.3% of the estimated
calendar year 1999 net income and cash net income, respectively. The median of
these measures of Pioneer's contribution was 6.6%. On a pro forma basis, Pioneer
stockholders would own approximately 6.4% of the combined company.
Pro Forma Projected Earnings Dilution Analysis: Using earnings
estimates and projected growth rates for Pioneer provided by its management and,
in the case of Zions, by third-party research analysts, Banc of America
Securities compared projected reported earnings per share and estimated cash
earnings per share of Zions' common stock on a stand-alone basis to the
projected reported earnings per share and cash earnings per share of the common
stock for the pro forma combined company for the calendar years ending December
31, 1999 and 2000. Banc of America Securities noted that the Zions/Pioneer
merger would result in projected accretion of 0.2% to Zions' reported earnings
per share in each of calendar years 1999 and 2000, and dilution of (0.2%) and
(0.1%) to Zions' estimated cash earnings per share in calendar years 1999 and
2000, respectively.
These estimates were used for purposes of this analysis only and are
not necessarily indicative of expected results or plans of Zions, Pioneer or the
combined company. Additionally, this analysis did not incorporate any
anticipated cost savings or revenue enhancements that could result from the
Zions/Pioneer merger.
Pro Forma Book Value/Tangible Book Value Dilution Analysis: Using data
for the period ending March 31, 1999 and an assumed exchange ratio of 0.5667 of
a share of Zions common stock for each share of Pioneer common stock, Banc of
America Securities compared the book value and the tangible book value of Zions
on a stand-alone basis to the pro forma book value and tangible book value for
the combined company. This analysis showed that the Zions/Pioneer merger would
be dilutive to Zions' book value by (0.4%) and accretive to Zions' tangible book
value by 1.6%.
Pickup Analysis: Banc of America Securities applied an assumed exchange
ratio of 0.5667 of a share of Zions common stock for each share of Pioneer
common stock to the combined company's pro forma annualized cash dividend per
share, projected reported earnings per share and projected cash earnings per
share in calendar years 1999 and 2000, book value per share and tangible book
value per share. The resulting values were then compared to Pioneer's figures on
a stand-alone basis. The pickup analysis indicated the following:
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<PAGE>
<TABLE>
<CAPTION>
Pioneer Zions Pro
Stand-Alone Forma
Value Value(1) Pickup
----------- ------------ ------
<S> <C> <C> <C>
Annualized Cash Dividend Per Share ..................... $ 0.00 $ 0.31 NM
Estimated Calendar Year 1999 Reported Earnings Per Share $ 1.59 $ 1.54 (3.1%)
Estimated Calendar Year 1999 Cash Earnings Per Share ... $ 1.59 $ 1.62 2.3%
Estimated Calendar Year 2000 Reported Earnings Per Share $ 1.85 $ 1.79 (3.2%)
Estimated Calendar Year 2000 Cash Earnings Per Share ... $ 1.85 $ 1.87 1.4%
Book Value Per Share ................................... $ 7.15 $ 7.58 6.1%
Tangible Book Value Per Share .......................... $ 7.15 $ 5.80 (18.8%)
</TABLE>
(1) Adjusted to reflect an exchange ratio of 0.5667.
Earnings Growth Analysis: Using a range of terminal multiples of 15.0x
to 19.0x earnings and a 15% discount rate, Banc of America Securities determined
that Pioneer would have to achieve average annual earnings growth rates of
approximately 24% to 31% through the year 2003 in order to obtain a present
value stock price equivalent to the offer. Pioneer's estimated average annual
earnings growth rate, as projected by management, is less than 24%.
While the foregoing summary describes all analyses and examinations
that Banc of America Securities considered to be material to its opinion, it is
not a comprehensive description of all analyses and examinations actually
conducted by Banc of America Securities. The preparation of a fairness opinion
is not susceptible to partial analysis or summary description. Banc of America
Securities believes that its analyses and the above summary must be considered
as a whole and that selecting a portion of its analyses or factors considered,
without considering all analyses and factors, would create an incomplete view of
the process underlying the analyses in its presentation to Pioneer's board of
directors. Banc of America Securities did not assign any specific weight to any
of the analyses described above. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given greater weight than any other analysis. Accordingly, the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Banc of America Securities' view of the actual value of Pioneer.
In performing its analyses, Banc of America Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Pioneer or
Zions. The analyses performed by Banc of America Securities 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 Banc of America Securities' analysis of the fairness
of the consideration to be received by the holders of Pioneer's common stock in
the Zions/Pioneer merger and were provided to Pioneer's board in connection with
the delivery of Banc of America Securities' opinion. The analyses do not purport
to be appraisals or to reflect the prices at which Pioneer might actually be
sold or the prices at which Pioneer's or Zions' securities may trade at the
present time or any time in the future. The forecasts used by Banc of America
Securities in certain of its analyses are based on numerous variables and
assumptions, which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those contemplated in such forecasts.
As described above under "The Merger--Reasons of Pioneer for the
Zions/Pioneer Merger and Recommendation of the Pioneer Board," Banc of America
Securities' opinion and presentation to Pioneer's board of directors were among
the many factors taken into consideration by Pioneer's board of directors in
making its determination to approve the Zions/Pioneer merger agreement, but
should not be viewed as determinative of Pioneer's board of directors' or
Pioneer's management's opinion with respect to the value of Pioneer.
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<PAGE>
Pursuant to the engagement letter, Pioneer paid Banc of America
Securities a fee of $350,000 upon the delivery of its written fairness opinion.
Based on the value of the transaction at the time of its announcement, Banc of
America Securities would receive an additional fee of approximately $3,000,000
upon the closing of the Zions/Pioneer merger. Accordingly, a significant portion
of Banc of America Securities' fee is contingent upon the closing of the
Zions/Pioneer merger. Pioneer has also agreed to reimburse Banc of America
Securities for its reasonable out-of-pocket expenses, including reasonable fees
and disbursements for Banc of America Securities' legal counsel and other
experts retained by Banc of America Securities. Pioneer has agreed to indemnify
Banc of America Securities, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
Effective Time
The Zions/Pioneer merger will be consummated if the Zions/Pioneer
merger agreement is approved by the Pioneer stockholders, Zions and Pioneer
obtain all required consents and approvals and all other conditions to the
Zions/Pioneer merger are either satisfied or waived. The Zions/Pioneer merger
will become effective on the date and at the time that articles of merger are
filed with the Utah Division of Corporations and Commercial Code and the Nevada
Secretary of State, or such later date or time as may be indicated in such
documents. Zions and Pioneer have generally agreed to cause the Zions/Pioneer
merger to occur within 10 days after the last of the conditions to the
consummation of the merger have been satisfied or waived (or, at Zions'
election, on the last business day of the month in which such tenth day occurs,
or on any other date as Zions and Pioneer agree in writing). Zions and Pioneer
each has the right to terminate the Zions/Pioneer merger agreement if the
Zions/Pioneer merger is not completed by December 31, 1999. See "The
Merger--Amendment, Waiver and Termination."
Distribution of Zions Certificates
After the completion of the Zions/Pioneer merger, Zions will send
transmittal materials to each Pioneer stockholder for use in exchanging his or
her certificates representing shares of Pioneer common stock for shares of Zions
common stock and cash in lieu of fractional shares. The exchange agent will
deliver certificates for Zions common stock and/or a check for any fractional
share interests or dividends or distributions once it receives the certificates
representing a holder's shares of Pioneer common stock. No party will be liable
to any stockholder for any property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Zions will not pay any dividends or other distributions with respect to
Zions common stock with a record date occurring after the completion of the
Zions/Pioneer merger to any former Pioneer stockholder who has not exchanged his
or her certificates representing Pioneer common stock. After exchanging his or
her certificates for Zions stock certificates, all paid dividends and other
distributions and, if applicable, a check for the amount to be paid for any
fractional shares will be delivered to such stockholder, in each case without
interest. In addition, no former Pioneer stockholder will be eligible to vote
the shares of Zions common stock he or she is entitled to receive, if any, until
he or she has exchanged his or her certificates representing Pioneer common
stock for Zions common stock.
After the completion of the Zions/Pioneer merger, there will be no
transfers of shares of Pioneer common stock on Pioneer's stock transfer books.
If certificates representing shares of Pioneer common stock are presented for
transfer after the completion of the Zions/Pioneer merger, the exchange agent or
Zions will cancel and exchange them for certificates representing shares of
Zions common stock and a check for the amount to be paid for fractional shares
of Zions common stock, if any.
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<PAGE>
Fractional Shares
Zions will not issue any fractional shares of Zions common stock.
Instead, a Pioneer stockholder who would otherwise have received a fraction of a
share of Zions common stock will receive cash (without interest). The amount of
cash received will be determined by multiplying the fraction of Zions common
stock the stockholder would have been entitled to receive by the average of the
closing prices of Zions common stock, as reported on the Nasdaq National Market,
for the 15 Nasdaq trading days immediately preceding the completion of the
Zions/Pioneer merger. Holders will not be entitled to dividends, voting rights
or any other rights as a shareholder with respect to any fractional shares.
Federal Income Tax Considerations of the Zions/Pioneer Merger
The following section describes the material U.S. federal income tax
consequences to holders of Pioneer common stock who hold Pioneer common stock as
a capital asset within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"), and is the opinion of Sullivan & Cromwell,
counsel to Zions, and is based on the opinion of Graham & Dunn PC, counsel to
Pioneer. This section does not apply to particular classes of taxpayers, such
as:
o financial institutions,
o insurance companies,
o tax-exempt organizations,
o dealers in securities or currencies,
o traders in securities that elect to use a mark to market
method of accounting,
o persons that hold Pioneer common stock as part of a straddle,
hedge or conversion transaction,
o persons who are not citizens or residents of the United
States, and
o stockholders who acquired their shares of Pioneer common stock
through the exercise of an employee stock option or otherwise
as compensation.
The following represents general information only and is based upon the
Code, its legislative history, existing and proposed regulations thereunder and
published rulings and decisions, all as currently in effect as of the date
hereof, and all of which are subject to change, possibly with retroactive
effect. Tax considerations under state, local and foreign laws are not addressed
in this proxy statement/prospectus. All stockholders should consult with their
own tax advisors as to the tax consequences of the Zions/Pioneer merger in their
particular circumstances, including the applicability and effect of the
alternative minimum tax and any state, local or foreign income and other tax
laws and of changes in those tax laws.
Tax Consequences of the Zions/Pioneer Merger Generally. It is a
condition to the Zions/Pioneer merger that Zions receive an opinion of its
counsel, Sullivan & Cromwell, that:
o the Zions/Pioneer merger will be treated for federal income
tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and
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<PAGE>
o each of Zions and Pioneer will be a party to that
reorganization within the meaning of Section 368(b) of the
Code.
It is also a condition to the Zions/Pioneer merger that Pioneer receive an
opinion of Graham & Dunn PC that:
o the Zions/Pioneer merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section
368(a) of the Code,
o each of Zions and Pioneer will be a party to that
reorganization within the meaning of Section 368(b) of the
Code, and
o no gain or loss will be recognized by stockholders of Pioneer
who receive shares of Zions common stock in exchange for
shares of Pioneer common stock, except with respect to cash
received in lieu of fractional share interests.
In rendering these opinions, counsel may require and rely upon representations
contained in letters to be received from Pioneer and Zions. Neither of these tax
opinions will be binding on the Internal Revenue Service, but neither Zions nor
Pioneer intends to request any ruling from the Internal Revenue Service as to
the U.S. federal income tax consequences of the Zions/Pioneer merger.
Based on the above assumptions and qualifications and certain
representations of Zions and Pioneer, for U.S. federal income tax purposes:
o the Zions/Pioneer merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section
368(a) of the Code,
o each of Zions and Pioneer will be a party to that
reorganization within the meaning of Section 368(b) of the
Code,
o no gain or loss will be recognized by stockholders of Pioneer
who receive shares of Zions common stock in exchange for
shares of Pioneer common stock, except with respect to cash
received in lieu of fractional share interests,
o the holding period of Zions common stock exchanged for shares
of Pioneer common stock will include the holding period of the
Pioneer common stock for which it is exchanged, assuming the
shares of Pioneer common stock are capital assets in the hands
of the holder thereof at the closing of the merger, and
o the basis of the Zions common stock received in the
Zions/Pioneer merger will be the same as the basis of the
Pioneer common stock for which it is exchanged, less any basis
attributable to fractional shares for which cash is received.
Cash Received in Lieu of a Fractional Share of Zions Common Stock. A
stockholder of Pioneer who receives cash in lieu of a fractional share of Zions
common stock will be treated as having received the fractional share pursuant to
the Zions/Pioneer merger and then as having exchanged the fractional share for
cash in a redemption by Zions subject to Section 302 of the Code. As a result, a
Pioneer stockholder will generally recognize gain or loss equal to the
difference between the amount of cash received and the portion of the basis of
the shares of Zions common stock allocable to his or her fractional interest.
This gain or loss will generally be capital gain or loss, and will be long-term
capital gain or loss if, as of the date of the exchange, the holding period for
such shares is greater than one year. Long-term capital gain of a non-corporate
holder is generally subject to tax at a maximum federal tax rate of 20%.
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<PAGE>
Dissenters' Rights. Pioneer stockholders who exercise their dissenters'
rights and who receive cash in exchange for their shares of Pioneer common stock
will be treated as having received that payment in redemption of their shares.
In general, the holder will recognize capital gain or loss measured by the
difference between the amount of cash received and the holder's adjusted tax
basis for the shares. If, however, the holder owns, either actually or
constructively, any Pioneer common stock that is exchanged in the Zions/Pioneer
merger for Zions common stock, the payment for dissenting shares to the holder
could, in certain circumstances, be treated as dividend income. In general,
under the constructive ownership rules of the Code, a holder may be considered
to own stock that is owned, and in some cases constructively owned, by certain
related individuals or entities, as well as stock that the holder (or related
individuals or entities) has the right to acquire by exercising an option or
converting a convertible security. Each holder who contemplates exercising
dissenters' rights should consult his or her own tax advisor as to the
possibility that any payment to such holder will be treated as dividend income.
Backup Withholding and Information Reporting. Payments of cash to a
holder surrendering shares of Pioneer common stock will be subject to
information reporting and backup withholding (whether or not the holder also
receives Zions common stock) at a rate of 31% of the cash payable to the holder,
unless the holder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. Any amounts withheld from payments to a holder under
the backup withholding rules will be allowed as a refund or credit against the
holder's U.S. federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
Management and Operations After the Zions/Pioneer Merger
Zions will be the surviving corporation resulting from the
Zions/Pioneer merger. Except as contemplated by the pending Zions/First Security
merger, it will continue to be governed by the laws of the State of Utah and
will operate in accordance with its articles of incorporation and by-laws as in
effect immediately prior to the completion of the Zions/Pioneer merger.
Except as contemplated by the pending Zions/First Security merger, the
directors and officers of Zions before the Zions/Pioneer merger will continue to
be the directors and officers of Zions after the Zions/Pioneer merger.
See "The Zions/First Security Merger" for a discussion of the
contemplated management and operations of the combined company following the
Zions/First Security merger.
Post-Merger Compensation and Benefits
The merger agreement provides that after the completion of the
Zions/Pioneer merger, Zions will provide employees of Pioneer and its
subsidiaries who become employees of Zions and any of its subsidiaries with
employee benefit plans which are no less favorable in the aggregate than those
provided to similarly situated employees of Zions. To the extent Pioneer
credited an employee with service under a comparable plan, the merger agreement
provides that those retained employees will receive credit for their service
with Pioneer or any of its subsidiaries prior to the completion of the
Zions/Pioneer merger for the purpose of determining eligibility to participate
and vesting, but not for the purpose of benefit accrual, under Zions' employee
benefit plans.
Treatment of Outstanding Options
At the completion of the Zions/Pioneer merger, each outstanding option
to acquire shares of Pioneer common stock, whether vested or unvested, will be
converted into an option to acquire shares
33
<PAGE>
of Zions common stock on the same terms and conditions as were applicable under
Pioneer's stock plan. Each previously outstanding option to acquire shares of
Pioneer common stock will be converted into an option to acquire the number of
shares of Zions common stock equal to the number of shares of Pioneer common
stock subject to the option multiplied by the applicable exchange ratio. The
exercise price applicable to the options to acquire Zions common stock will be
set by dividing a holder's aggregate exercise price for the shares of Pioneer
common stock which were purchasable pursuant to the previously outstanding
Pioneer options by the number of full shares of Zions common stock subject to
the holder's new option to purchase Zions common stock.
Interests of Certain Persons in the Zions/Pioneer Merger
Some members of both Pioneer's management and the Pioneer board have
interests in the Zions/Pioneer merger in addition to their interests as Pioneer
stockholders. The Pioneer board was aware of these interests and considered
them, among other matters, in approving the Zions/Pioneer merger agreement.
William E. Martin, A.G. Henry, Jerry R. Martin and Edward T. Plunkett
have executive severance agreements with Pioneer that provide for payments by
Pioneer in the event of a change in control. Generally, a change of control
refers to either any merger or consolidation involving Pioneer in which Pioneer
is not the surviving entity or a sale of all or substantially all of the assets
of Pioneer. The merger with Zions referred to herein will constitute a change of
control.
Under Mr. William E. Martin's agreement, in the event of a change of
control of Pioneer, Mr. William E. Martin is entitled to a payment equal to 36
times the sum of his regular monthly salary and one twelfth of his most recently
paid bonus. The payment to Mr. William E. Martin is to be made upon the
completion of the Zions/Pioneer merger.
Under Mr. Henry's, Mr. Plunkett's and Mr. Jerry R. Martin's agreements,
each is entitled to payments equal to between 24 and 30 times the sum of their
regularly monthly salaries and one twelfth of their most recent paid bonus. The
payments to Messrs. Henry and Plunkett and Mr. Jerry R. Martin are to be made
upon the completion of the Zions/Pioneer merger.
The maximum amount payable to Messrs. William Martin, Jerry R. Martin,
Henry and Plunkett under these agreements is $1,800,000, $445,100, $645,200 and
$445,100, respectively. Payments to Messrs. William E. Martin, Jerry R. Martin,
Henry and Plunkett will be reduced to the extent that such payments considered
alone or with other payments they may receive from Pioneer would constitute
"parachute payments" under the Internal Revenue Code.
In addition, Mr. William E. Martin, Zions and Nevada State Bank have
entered into an employment agreement, pursuant to which Mr. Martin will serve as
President and Chief Executive Officer of Nevada State Bank following the
completion of the Zions/Pioneer merger. Mr. Martin will serve in such roles for
one year or until such time as Nevada State Bank is merged with First Security
Bank of Nevada, the Nevada subsidiary of First Security, at which time Mr.
Martin will be entitled to receive severance compensation in an amount equal to
$275,000 prorated over the remaining term of his agreement plus an amount equal
to the average of the bonuses paid to him in the past two fiscal years.
Following completion of the merger of Nevada State Bank with First
Security Bank of Nevada, Mr. Martin will serve as a director and Chairman of the
Board of the resulting bank and will receive $20,000 per month in connection
with those responsibilities for the first year following completion of the
Zions/First Security merger. Under the employment agreement, Mr. William E.
Martin is also subject to certain non-competition requirements.
Certain officers of Pioneer Citizens Bank of Nevada each have salary
continuation agreements with Pioneer Citizens Bank of Nevada that provide for
payments by Pioneer in the event of a change in control of Pioneer. Each
agreement varies in its terms based on the position held by such officer and
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<PAGE>
how long after the change in control such officer leaves Pioneer Citizens Bank
of Nevada. Each officer subject to such agreement will receive between 6 and 24
times their monthly salary. The maximum amount payable to any officer subject to
such agreement is $233,280. The aggregate payment due to such officers if each
officer received the maximum possible payment would be $5,226,832.
Leo V. Seevers has a consulting agreement with Pioneer Citizens Bank of
Nevada which provides that Mr. Seevers will receive $360,000 payable in 36
monthly installments. The consulting agreement accelerates the payments due to
Mr. Seevers on a change of control and provides that Mr. Seevers will receive
the unpaid balance upon the completion of the Zions/Pioneer merger.
The Zions/Pioneer merger agreement provides that, for a period of four
years after the date that the Zions/Pioneer merger is completed, Zions will
indemnify the directors and officers of Pioneer and its subsidiaries against
certain liabilities to the fullest extent permitted under Nevada law, Pioneer's
articles of incorporation and Pioneer's by-laws as of the date of the merger
agreement. Furthermore, Zions agreed in the Zions/Pioneer merger agreement to
use its reasonable best efforts to provide, for a period of four years, subject
to certain limitations, directors' and officers' liability insurance coverage
for persons who were covered by such insurance maintained by Pioneer on the date
of the Zions/Pioneer merger agreement.
Conditions to Completion
The obligations of Pioneer and Zions to consummate the Zions/Pioneer
merger are subject to the satisfaction or written waiver prior to the completion
of the Zions/Pioneer merger of the following conditions:
o the Zions/Pioneer merger agreement and the Zions/Pioneer merger
are approved by the stockholders of Pioneer;
o the required regulatory approvals described below under
"--Regulatory Approvals" are received, without any conditions,
restrictions or requirements that the Zions Board reasonably
determines would (1) following the completion of the Zions/Pioneer
merger, have a material adverse effect on Zions or (2) impose upon
Zions any materially burdensome terms or conditions;
o no court or regulatory authority has taken any action prohibiting
the consummation of the Zions/Pioneer merger; and
o the Registration Statement of which this proxy
statement/prospectus constitutes a part is declared effective by
the SEC and is not subject to a stop order or any threatened stop
order.
The obligations of Pioneer to consummate the Zions/Pioneer merger are
also subject to the satisfaction or waiver prior to the completion of the
Zions/Pioneer merger of the following conditions:
o the representations and warranties of Zions are true and correct
upon the completion of the Zions/Pioneer merger other than any
inaccuracies that would not be reasonably likely, individually or
in the aggregate, to have a material adverse effect on the
financial position, results of operations or business of Zions,
Zions has performed in all material respects all of the
obligations required to be performed by it pursuant to the
Zions/Pioneer merger agreement and Zions shall have delivered
certificates confirming satisfaction of the foregoing
requirements;
o Pioneer receives an opinion of Graham & Dunn PC as to the tax
matters described above under "--Federal Income Tax Considerations
of the Zions/Pioneer Merger";
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<PAGE>
o Pioneer receives a "comfort" letter from Zions' independent public
accountants, in accordance with the Financial Accounting Standards
Board's Statement of Accounting Standards No. 72;
o the shares of Zions common stock issuable in the merger are
approved for quotation on the Nasdaq National Market; and
o Banc of America Securities delivers to Pioneer an opinion dated as
of a date within 5 days of the date of the mailing of this proxy
statement/prospectus to the effect that as of the date of the
opinion the consideration to be received by the Pioneer
stockholders in the merger is fair to the Pioneer stockholders
from a financial point of view.
The obligations of Zions to consummate the Zions/Pioneer merger are
also subject to the satisfaction or waiver prior to the completion of the
Zions/Pioneer merger of the following conditions:
o the representations and warranties of Pioneer and Pioneer Citizens
Bank of Nevada are true and correct as of the completion of the
Zions/Pioneer merger other than any inaccuracies that would not be
reasonably likely, individually or in the aggregate, to have a
material adverse effect on the financial position, results of
operations or business of Pioneer Bancorporation, Pioneer
Bancorporation and Pioneer Citizens Bank of Nevada have performed
in all material respects all of the obligations required to be
performed by them pursuant to the Zions/Pioneer merger agreement
and Pioneer Bancorporation and Pioneer Citizens Bank of Nevada
shall have delivered certificates confirming satisfaction of the
foregoing requirements.
o Zions receives an opinion of Sullivan & Cromwell as to the tax
matters described above under "--Federal Income Tax Considerations
of the Zions/Pioneer Merger";
o Zions receives a "comfort" letter from Pioneer's independent
public accountants, in accordance with the Financial Accounting
Standards Board's Statement of Accounting Standards No. 72;
o Zions receives a letter from KPMG LLP, Zions' independent public
accountants, dated the date of or shortly prior to the mailing
date of this proxy statement/prospectus and the date the
Zions/Pioneer merger is completed, stating its opinion that the
Zions/Pioneer merger should qualify for pooling-of-interests
accounting treatment;
o William Martin enters into an employment agreement with Zions;
o shares of Pioneer common stock with respect to what dissenter's
rights are exercised comprise less than 10% of the outstanding
capital stock of Pioneer.
No assurances can be provided as to when or if all of the conditions to
the Zions/Pioneer merger can or will be satisfied or waived by the appropriate
party. As of the date of this proxy statement/prospectus, the parties have no
reason to believe that any of these conditions will not be satisfied.
Regulatory Approvals
Federal Authorities. The merger of Pioneer into Zions is subject to
prior notice to the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under Section 3 of the Bank Holding Company Act of 1956 (the
"BHCA"). The BHCA requires the Federal Reserve, when considering a transaction
like the Zions/Pioneer merger, to take into consideration the financial and
managerial
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resources (including the competence, experience and integrity of the officers,
directors and principal shareholders) and future prospects of the institutions
and the convenience and needs of the communities to be served. In addition,
under the Community Reinvestment Act of 1977, the Federal Reserve must take into
account the record of performance of the acquiring institution in meeting the
credit needs of the entire community, including low- and moderate-income
neighborhoods, served by the institution.
The BHCA also prohibits the Federal Reserve from approving a merger if
it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States, or if its effect would be substantially to lessen
competition or to tend to create a monopoly, or if it would in any other manner
result in a restraint of trade, unless the Federal Reserve finds that the
anticompetitive effects of the merger are clearly outweighed in the public
interest by the probable effect of the merger in meeting the convenience and
needs of the communities to be served.
However, where, as here, the acquisition of control of a bank holding
company is completed simultaneously with a merger of the bank subsidiaries of
such bank holding companies, the Federal Reserve may waive the prior approval of
the bank holding company acquisition. Zions submitted a request for a waiver of
prior approval with the Federal Reserve Bank of San Francisco on August 9, 1999.
The merger of Pioneer Citizens Bank of Nevada into Nevada State Bank is
subject to the prior approval of the FDIC under Section 18(c) of the Bank Merger
Act. The Bank Merger Act requires the FDIC to consider with respect to the bank
merger substantially the same factors as the Federal Reserve considers with
respect to the merger of Zions and Pioneer under the BHCA as described above.
The FDIC will be prohibited from approving the bank merger if it would result in
a monopoly or be in furtherance of any combination or conspiracy to monopolize
or attempt to monopolize the business of banking in any part of the United
States, or if its effect would be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner result in a restraint
of trade, unless the FDIC finds that the anticompetitive effects of the merger
are clearly outweighed in the public interest by the probable effect of the bank
merger in meeting the convenience and needs of the communities to be served.
Nevada State Bank submitted an application for prior approval of the bank merger
with the FDIC on August 9, 1999.
State Authorities. The bank merger is also subject to receipt of
approval of the Nevada Department of Business and Industry, Financial
Institutions Division. Nevada State Bank submitted an application for prior
approval of the bank merger with the Nevada Department of Business and Industry,
Financial Institutions Division on August 9, 1999.
Status of Regulatory Approvals and Other Information. Zions and Pioneer
or their subsidiaries have filed all applications and notices and taken other
appropriate action with respect to any necessary approvals or other action of
any governmental authority of which they have knowledge. The merger agreement
provides that the obligation of each of Zions and Pioneer to consummate the
Zions/Pioneer merger is conditioned upon (1) the receipt of all requisite
regulatory approvals, including the approvals
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of the FDIC and, to the extent necessary, other authorities, (2) the termination
or expiration of all statutory or regulatory waiting periods and (3) no such
approvals containing conditions, restrictions or requirements that the Zions
board reasonably determines would (a) after the completion of the merger, have a
material adverse effect on Zions or (b) impose upon Zions any materially
burdensome terms or conditions.
The Zions/Pioneer merger cannot proceed in the absence of the necessary
regulatory approvals. There can be no assurance that these regulatory approvals
will be obtained or as to the dates of such approvals. There can also be no
assurance that these approvals will not contain a condition, restriction or
requirement that fails to satisfy the conditions set forth in the Zions/Pioneer
merger agreement.
See "--Effective Time," "--Conditions to Completion" and "--Amendment,
Waiver and Termination."
Amendment, Waiver and Termination
Prior to the completion of the merger, provisions of the Zions/Pioneer
merger agreement may be waived by the party benefitted by such provision or may
be amended or modified, by written agreement between Zions and Pioneer. However,
after the special meeting the merger agreement may not be amended if it would
violate the Nevada Revised Statutes (the "NRS").
The Zions/Pioneer merger agreement may be terminated, and the
Zions/Pioneer merger abandoned, at any time prior to the completion of the
Zions/Pioneer merger by mutual consent of Pioneer and Zions. In addition, the
Zions/Pioneer merger agreement may be terminated, and the Zions/Pioneer merger
abandoned, prior to the completion of the Zions/Pioneer merger by either Zions
or Pioneer if:
o the other party breaches (a) a representation or warranty
contained in the Zions/Pioneer merger agreement, or (b) a covenant
or other agreement contained in the Zions/Pioneer merger
agreement, which is reasonably likely, individually or in the
aggregate, to have a material adverse effect on the breaching
party, and in either case (a) or (b), which cannot be or has not
been cured within 30 days after giving written notice to the
breaching party;
o the Zions/Pioneer merger is not completed by December 31, 1999;
o the approval of a governmental authority required for consummation
of the Zions/Pioneer merger and the other transactions
contemplated by the Zions/Pioneer merger agreement is denied by
final, nonappealable action of such authority; or
o the Pioneer stockholders fail to approve the Zions/Pioneer merger
agreement at the special meeting.
In addition, Zions may terminate the Zions/Pioneer merger agreement if
Pioneer's board withdraws its recommendation to approve the Zions/Pioneer merger
agreement or modifies in a manner adverse to Zions in any respect such
recommendation. Zions may also terminate the Zions/Pioneer merger agreement if
Pioneer violates provisions of the Zions/Pioneer merger agreement that, in
general terms, prohibit Pioneer from soliciting, encouraging, participating in
discussions or negotiations with respect to, or providing any information to any
person in connection with, an alternative proposal to acquire Pioneer. Finally,
Pioneer may terminate the Zions/Pioneer merger agreement if the average closing
stock price is less than $56.00. In that event, Zions may prevent Pioneer from
terminating the Zions/Pioneer merger agreement by increasing the exchange ratio
to a fraction equal to $31.73 divided by the average closing stock price.
As described above, if the average closing price of Zions common stock
is less than $56.00, the Pioneer board of directors may elect to terminate the
Zions/Pioneer merger agreement, provided that such terminate shall not become
effective if Zions elects to increase the exchange ratio as described above.
In determining whether to elect to terminate the Zions/Pioneer merger agreement
in these circumstances, the Pioneer board of directors will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances
existing at the time, including, without limitation, the market for financial
institution stocks in general, the relative value of Zions common stock in the
market and the advice of its financial advisor and legal counsel. By approving
the Zions/Pioneer merger agreement, shareholders of Pioneer would be permitting
Pioneer's board of directors to determine, in the exercise of its fiduciary
duties, to proceed with the merger even though the average closing price was
less than $56.00.
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Pioneer will be required to pay to Zions a termination fee of $10
million if the Zions/Pioneer merger agreement is terminated for any of the
following reasons:
o Pioneer breaches a representation or warranty contained in the
Zions/Pioneer merger agreement or a covenant or other agreement
contained in the Zions/Pioneer merger agreement, which is not
cured or curable as described above, or the Pioneer stockholders
fail to approve the merger agreement, and prior to the event that
permits Zions to terminate the agreement there is publicly
announced an alternative proposal to acquire Pioneer;
o Pioneer withdraws its recommendation to approve the Zions/Pioneer
merger agreement or modifies in a manner adverse to Zions in any
respect such recommendation; or
o Pioneer violates the agreements described above not to solicit,
encourage, discuss, negotiate or provide information with respect
to an alternative acquisition.
Conduct of Business Pending the Zions/Pioneer Merger
The following is a general summary of the agreements Pioneer and Zions
have regarding actions prior to the Zions/Pioneer merger. We urge you to read
the Zions/Pioneer merger agreement, which is attached to this proxy
statement/prospectus as Appendix A, for a more complete description of these
agreements.
Pioneer. Pioneer has agreed that it will operate its business and the
businesses of its subsidiaries in the ordinary course through the completion of
the Zions/Pioneer merger. In addition, it has agreed not to engage in the
activities listed below.
o Issue any additional shares of Pioneer common stock or any rights
to acquire Pioneer common stock except pursuant to already
existing rights to acquire Pioneer common stock.
o Make any distributions with respect to Pioneer common stock or
change its capital structure.
o Repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of Pioneer common stock.
o Enter into or amend any employment-related agreements, grant any
salary or wage increase or increase any employee benefits, except
in the ordinary course of business, as required by law, to satisfy
contracts previously disclosed to Zions prior to the date of the
Zions/Pioneer merger agreement or as awards to newly hired and/or
promoted employees consistent with past practice.
o Enter into or amend (except as may be required by law or
contemplated by the Zions/Pioneer merger agreement or to satisfy
obligations previously disclosed to Zions and existing on the date
of the Zions/Pioneer merger agreement) any employee-related
benefit plan or take any action to accelerate the vesting or
exercisability of stock options, restricted stock or other
benefits payable under any employee-related benefit plans.
o Sell, encumber or otherwise dispose of any material amount of its
assets, business or properties, except in the ordinary course of
business.
o Acquire any material assets, business, deposits or properties of
any other entity, except in the ordinary course of business.
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o Make any capital expenditures, other than those in the ordinary
course of business in amounts not exceeding $100,000 individually
or $300,000 in the aggregate.
o Amend Pioneer's articles of incorporation or by-laws or the
articles of incorporation or by-laws (or similar governing
documents) of any of Pioneer's subsidiaries.
o Make any change in its accounting principles, practices or
methods, other than as may be required by generally accepted
accounting principles or applicable banking regulations.
o Enter into, terminate, amend or modify any material contract,
except in the ordinary course of business.
o Settle any material claim, action or proceeding, except in the
ordinary course of business.
o Take any action which is reasonably likely to prevent or impede
the Zions/Pioneer merger from qualifying for pooling-of-interests
accounting treatment or as a reorganization under Section 368 of
the Code or knowingly take any action that would interfere with
the merger agreement.
o Except as required by law, change or fail to follow its interest
rate risk management and hedging policies, procedures or
practices; or fail to use commercially reasonable means to avoid
materially increasing its exposure to interest rate risk.
o Borrow money, other than in the ordinary course of business.
o Agree or commit to do any of the foregoing.
Pioneer has also agreed that it will not (and it will not ask anyone
to) initiate or solicit any inquiries or any offer relating to a merger,
consolidation, sale of assets or similar transaction involving Pioneer or its
subsidiaries or a tender offer or exchange offer for or offer to acquire 15% or
more of the outstanding shares of Pioneer common stock. We refer to this
proposal as an "acquisition proposal". In addition, Pioneer will not negotiate
or provide any confidential information or data to, or have any discussions
with, any person relating to an acquisition proposal, or otherwise facilitate an
acquisition proposal. However, the Pioneer board may take such actions if, among
other things, the Pioneer board believes in good faith based on such matters as
it deems relevant, including the advice of its financial advisor, that the
acquisition proposal constitutes a Superior Proposal, as described above, and
receives a written opinion of counsel to the effect that taking such action is
required to satisfy the fiduciary duties of the Pioneer board.
Zions. Zions has agreed that it will not engage in any of the
activities listed below:
o take any action that would adversely affect or delay the ability
of Zions or Pioneer to timely comply with their agreements in the
Zions/Pioneer merger agreement;
o take any action that is reasonably likely to have a material
adverse effect on Zions; and
o take any action which is reasonably likely to prevent or impede
the Zions/Pioneer merger from qualifying for pooling of-interests
accounting treatment or as a reorganization under Section 368 of
the Code or knowingly take any action that would interfere with
the Zions/Pioneer merger agreement.
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Expenses and Fees
Each party will be responsible for all expenses incurred by it in
connection with the negotiation and consummation of the transactions
contemplated by the Zions/Pioneer merger agreement.
Accounting Treatment
Zions will account for the Zions/Pioneer merger as a pooling of
interests in accordance with generally accepted accounting principles. Under the
pooling-of-interests accounting method, the previously recorded assets and
liabilities of Zions and Pioneer would be carried forward to Zions at their
recorded amounts. In addition, in Zions' financial reporting following the
completion of the Zions/Pioneer merger, its income and expenses would include
income and expenses of Zions and Pioneer for the entire fiscal year in which the
Zions/Pioneer merger occurs and the reported results of the separate
corporations for prior periods would be combined and restated as the results of
Zions.
Stock Exchange Listing of Zions Common Stock
Zions has agreed to use its reasonable best efforts to list, prior to
the completion of the Zions/Pioneer merger, on the Nasdaq National Market,
subject to official notice of issuance, the shares of Zions common stock to be
issued to the holders of Pioneer common stock in the Zions/Pioneer merger.
Resales of Zions Common Stock
The shares of Zions common stock to be issued in the Zions/Pioneer
merger will be freely transferable under the Securities Act, except for shares
issued to any shareholder who may be deemed to be an "affiliate" (generally
including, without limitation, directors, executive officers and beneficial
owners of 10% or more of any class of capital stock) of Pioneer for purposes of
Rule 145 under the Securities Act as of the date of the special meeting.
Affiliates may not sell their shares of Zions common stock acquired in the
Zions/Pioneer merger except pursuant to an effective registration statement
under the Securities Act or other applicable exemption from the registration
requirements of the Securities Act.
Pioneer has agreed in the Zions/Pioneer merger agreement to use its
reasonable best efforts to cause each person who may be deemed to be an
"affiliate" of Pioneer to execute and deliver to Zions an agreement pursuant to
which such person will agree, among other things, not to offer to sell, transfer
or otherwise dispose of any of the shares of Zions common stock distributed to
them pursuant to the Zions/Pioneer merger except in compliance with Rule 145
under the Securities Act, or in a transaction that, in the opinion of counsel
reasonably satisfactory to Zions, is otherwise exempt from the registration
requirements of the Securities Act, or in an offering registered under the
Securities Act. Zions may place restrictive legends on certificates representing
Zions common stock issued to all persons who are deemed to be "affiliates" of
Pioneer under Rule 145. This proxy statement/prospectus does not cover resales
of Zions common stock received by any person who may be deemed to be an
affiliate of Pioneer.
Stock Option Agreement
As an inducement to Zion's entering into the Zions/Pioneer merger
agreement, Pioneer and Zions entered into a stock option agreement, dated as of
May 10, 1999. The following description of the stock option agreement is
qualified in its entirety by reference to the text of the stock option
agreement. For a more complete description, we urge you to read the text of the
stock option agreement, which is attached hereto as Appendix B, in its entirety.
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Pursuant to the stock option agreement, Pioneer granted Zions an option
to purchase up to 19.9% of the outstanding shares of Pioneer common stock on May
10, 1999. Although the number of shares Zions may purchase is subject to
adjustment in certain cases (described below), it will never exceed 19.9% of the
number of shares of Pioneer common stock outstanding immediately before exercise
of the option. The exercise price of the option is $28.50 per share, and is also
subject to adjustment in certain cases. We refer to such exercise price, as
adjusted, as the "Option Price".
Zions can exercise the option if a "Purchase Event" occurs prior to the
occurrence of an "Exercise Termination Event," as these terms are defined below.
The purchase of any shares of Pioneer common stock pursuant to the option is
subject to compliance with applicable law, including the prior approval of the
Federal Reserve. The stock option agreement defines the term "Exercise
Termination Event" to mean the earliest to occur of:
o the effective time of the Zions/Pioneer merger;
o 12 months after the first occurrence of a Purchase Event;
o 18 months after the termination of the Zions/Pioneer merger
agreement following the occurrence of a Preliminary Purchase Event
(which we define below);
o termination of the Zions/Pioneer merger agreement in accordance
with its terms, if it occurs prior to the occurrence of a
Purchaser Event or a Preliminary Purchase Event; provided that
this would not include a termination by Zions if Pioneer willfully
breaches, and does not timely cure any breach of, a
representation, warranty, covenant or other agreement contained in
the Zions/Pioneer merger agreement and the breach would be
reasonably likely to result in a material adverse effect (as
defined in the Zions/Pioneer merger agreement), if Pioneer board
fails to make its recommendation or withdraws or adversely
modifies its recommendation to the Pioneer stockholders or if
Pioneer violates the provisions of the Zions/Pioneer merger
agreement that prohibit Pioneer, subject to certain limitations,
from seeking or acting on any acquisition proposal from a third
party; or
o the passage of 18 months (subject to extension in order to obtain
required regulatory approvals) after termination of the
Zions/Pioneer merger agreement if the termination follows the
occurrence of a Preliminary Event.
The stock option agreement generally defines the term "Preliminary
Purchase Event" to mean any of the following events or transactions:
o Pioneer or any of its subsidiaries enters into an agreement to
engage in an "Acquisition Transaction" (as defined below) with a
third party or the Pioneer board recommends that the stockholders
of Pioneer approve or accept any Acquisition Transaction, other
than the Zions/Pioneer merger;
o a third party acquires beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding
shares of Pioneer common stock;
o a third party has made a bona fide proposal to Pioneer or its
stockholders to engage in an Acquisition Transaction and such
proposal has been publicly announced;
o a third party has filed with the SEC a registration statement or
tender offer materials with respect to a potential exchange offer
or tender offer that would constitute an Acquisition Transaction;
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o Pioneer breaches any covenant or obligation contained in the
Zions/Pioneer merger agreement after a third party has made an
Acquisition Proposal, and following such breach Zions is entitled
to terminate the Zions/Pioneer merger agreement;
o the stockholders of Pioneer voted but failed to approve the
Zions/Pioneer merger agreement at the special meeting or the
special meeting has been canceled or otherwise not held in
violation of the Zions/Pioneer merger agreement and prior to the
stockholder vote or cancellation a third party has announced an
Acquisition Transaction;
o a third party files an application with the Federal Reserve or
another governmental authority for approval to engage in an
Acquisition Transaction; or
o the Pioneer board withdraws or adversely modifies its
recommendation that the stockholders of Pioneer approve the merger
agreement, or Pioneer and any of its subsidiaries authorizes,
recommends or proposes an agreement to engage in an Acquisition
Transaction with a third party.
As used in the stock option agreement, the term "Acquisition
Transaction" means:
o a merger or consolidation or any similar transaction, involving
Pioneer or any of its subsidiaries (other than certain mergers
involving only Pioneer and its subsidiaries);
o a purchase, lease or other acquisition of all or substantially all
or substantially all of the assets of or an assumption of all or
substantially all the deposits of Pioneer or any of its
subsidiaries; or
o a purchase or other acquisition of securities representing 10% or
more of the voting power of the outstanding common stock of
Pioneer or any of its subsidiaries.
The stock option agreement generally defines the term "Purchase Event"
to mean any of the following events or transactions:
o the acquisition by a third party of beneficial ownership of 25% or
more of the then outstanding Pioneer common stock; or
o Pioneer or any of its subsidiaries enters into an agreement to
engage in an Acquisition Transaction with a third party or the
Pioneer board recommends that the stockholders of Pioneer approve
or accept any Acquisition Transaction, other than the
Zions/Pioneer merger; if, however, such Acquisition Proposal is an
acquisition of securities of Pioneer, the acquisition must be of
securities representing 25% (and not just 10%) of the voting power
of Pioneer or any of its subsidiaries.
Zions' right to exercise the option and certain other rights under the
stock option agreement are subject to extension in order to obtain required
regulatory approvals and comply with applicable regulatory waiting periods and
to avoid liability under Section 16(b) of the Exchange Act. The Option Price and
the number of shares issuable under the option are subject to adjustment in the
event of specified changes in the capital stock of Pioneer and in other events.
Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, Zions will have certain registration rights with
respect to the shares of Pioneer common stock issued or issuable pursuant to the
option.
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The stock option agreement also provides that upon the occurrence of a
Purchase Event that occurs prior to an Exercise Termination Event, upon request,
Pioneer shall be obligated to repurchase the option and all or any part of the
shares issuable under the option. The repurchase of the option shall be at a
price per share equal to the amount by which the market/offer price (as defined
in the stock option agreement) exceeds the Option Price (as adjusted). A
repurchase of any shares issuable under the option shall be at a price per share
equal to the market/offer price.
If prior to an Exercise Termination Event, Pioneer enters into
transactions in which it is not the surviving corporation or Pioneer sells all
or substantially all of its or its subsidiaries' assets, the option will be
converted into or exchangeable for an option (the "Substitute Option"), at
Zions' election, of either:
(1) (A) the continuing or surviving person of a consolidation or
merger with Pioneer, (B) Pioneer in a merger in which Pioneer is
the acquiring person, or (C) the transferee of all or
substantially all of the assets of Pioneer or any of its
subsidiaries, or
(2) any person that controls any such entity.
The Substitute Option must have the same terms and conditions as the option.
However, if the terms of the Substitute Option cannot, for legal reasons, be the
same as those of the option, the terms of the Substitute Option must be as
similar as possible and in no event less advantageous to Zions.
Arrangements such as the stock option agreement are customarily entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be consummated in accordance
with their terms, and to compensate the person granted the option for the
efforts undertaken and the expenses and losses incurred by it if the transaction
is not completed. The stock option agreement may have the effect of discouraging
offers by third parties to acquire Pioneer prior to the Zions/Pioneer merger,
even if such persons were prepared to offer to pay consideration to Pioneer
stockholders that has a higher current market price than the shares of Zions
common stock to be received by such holders pursuant to the Zions/Pioneer merger
agreement.
To the best knowledge of each of Zions and Pioneer, no event giving
rise to the right to exercise the option has occurred as of the date of this
proxy statement/prospectus.
Stockholder Agreements
As a condition and an inducement to Zions' entering into the
Zions/Pioneer merger agreement, the directors and executive officers of Pioneer,
who are entitled to vote approximately 21% of the outstanding shares of Pioneer
common stock, have entered into stockholder agreements with Zions. Under the
stockholder agreements, the directors and executive officers have agreed to vote
their shares in favor of approval of the Zions/Pioneer merger agreement. These
persons have also agreed not to sell or otherwise transfer any Pioneer shares
owned by them.
Dissenters' Rights
In connection with the Zions/Pioneer merger, the Pioneer stockholders
may be entitled to dissenters' rights under Chapter 92A of the NRS, attached
hereto as Appendix C. The description of dissenters' rights contained in this
proxy statement/prospectus is qualified in its entirety by reference to Chapter
92A of the NRS. In order for a stockholder to exercise dissenters' rights, a
notice of such stockholder's intention to exercise his or her dissenters' rights
as provided in the NRS must be received by Pioneer on or before the date of the
special meeting. In addition, such stockholder must vote against the approval of
the merger agreement and comply with the other procedures required by the NRS,
as more fully described below. Failure to send such notice, to vote against the
Zions/Pioneer merger
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agreement or to follow such other procedures will result in a waiver of such
stockholder's dissenters' rights.
The consummation of the plan of merger of Pioneer into Zion's is a
corporate action that requires approval by Pioneer stockholders; therefore,
Pioneer stockholders are entitled to dissent from the planned Zions/Pioneer
merger. Furthermore, because the Pioneer common stock is neither listed on a
national securities exchange nor the Nasdaq National Market, nor held by at
least 2,000 shareholders of record, the dissenters' rights are not otherwise
limited.
Pioneer stockholders wishing to exercise dissenters' rights must follow
the procedure set forth in Chapter 92A of the NRS. Dissenting stockholders must
deliver to Pioneer, before the vote is taken, written notice of their intent to
demand payment for their shares if the proposed action is effectuated, and must
not vote in favor of the proposed Zions/Pioneer merger.
Any demands, notices, certificates or other documents delivered to
Pioneer prior to the completion of the Zions/Pioneer merger may be sent to
Shelle Grim-Brooks, Secretary, Pioneer Bancorporation, 10 State Street, Reno,
Nevada 89501. After such time, they may be sent to Dale M. Gibbons, Secretary,
Zions Bancorporation, One South Main, Suite 1380, Salt Lake City, Utah 84111.
If no instructions are indicated on proxies received by Pioneer, such
proxies will be voted for the proposal to approve the Zions/Pioneer merger
agreement at the special meeting. Those Pioneer stockholders who return their
proxies without instructions, resulting in a vote for the approval of the merger
agreement, will not be entitled to dissenters' rights.
If Pioneer stockholders approve the Zions/Pioneer merger, Pioneer will
deliver a written dissenter's notice within 10 days after the date of such
approval to all stockholders who satisfied the requirements to assert those
rights. The notice must describe the procedure to be followed if the
stockholders desire to exercise their dissenters' rights, accompanied by a copy
of NRS 92A.300 to 92A.500, and set a date by which the demand for payment must
be received. To perfect their dissenters' rights, the stockholders must demand
payment and deposit the certificates in accordance with the terms in the notice.
Upon receipt of stockholders' demands for payment, Pioneer must pay the
dissenters the amount Pioneer estimates to be the fair value of the shares, plus
accrued interest. The payment must be accompanied by certain financial
statements of Pioneer, a statement of Pioneer's estimate of the fair value of
the shares, an explanation of how the interest was calculated, a statement of
the dissenters' rights to demand payment of their estimate of the fair value of
the shares and a copy of NRS 92A.300 to 92A.500.
If Pioneer and the dissenters do not agree on the fair value of the
dissenting shares, Pioneer must commence a proceeding within 60 days after
receiving the demand and petition the court to determine the fair value of the
shares and accrued interest.
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Failure to take any necessary step will result in a termination or
waiver of the rights of the holder under Chapter 92A of the NRS. A person having
a beneficial interest in Pioneer common stock that is held of record in the name
of another person, such as a trustee or nominee, must act promptly to cause the
record holder to follow the requirements of Chapter 92A of the NRS in a timely
manner if such person elects to demand payment of the fair market value of such
shares.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as
of March 31, 1999 combines the historical consolidated balance sheets of Zions
and First Security as if the Zions/First Security merger had been effective on
March 31, 1999, after giving effect to certain adjustments described in the
attached Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Statements of Income for the three
months ended March 31, 1999 and the years ended December 31, 1998, 1997 and 1996
present the combined results of operations of Zions and First Security as if the
Zions/First Security merger had been effective at the beginning of each period
presented, after giving effect to certain adjustments described in the attached
Notes to Unaudited Pro Forma Condensed Combined Financial Statements. Zions'
historical financial statements are incorporated by reference in its Annual
Report on Form 10-K for the year ended December 31, 1998 and its Form 10-Q for
the three months ended March 31, 1999. First Security's historical financial
statements are incorporated by reference in its Annual Report on Form 10-K for
the year ended December 31, 1998 and its Form 10-Q for the three months ended
March 31, 1999. The Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended December 31, 1998 also includes historical results of
operations for The Sumitomo Bank of California for the nine months ended
September 30, 1998, after giving effect to certain adjustments described in the
attached Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
Zions acquired The Sumitomo Bank of California on October 1, 1998 in a
transaction accounted for as a purchase. The Unaudited Pro Forma Condensed
Combined Financial Statements should be read in conjunction with the historical
financial statements of Zions and First Security.
The Unaudited Pro Forma Condensed Combined Financial Statements and
related notes reflect the application of the "pooling-of-interests" accounting
method. Under this method of accounting, the previously recorded assets and
liabilities of Zions and First Security are carried forward to the combined
company at their recorded amounts. In addition, in the combined company's
financial reporting following the completion of the Zions/First Security merger,
its income and expenses would include income and expenses of Zions and First
Security for the entire fiscal year in which the Zions/First Security merger
occurs and the reported results of the separate corporations for prior periods
would be combined and restated as the results of the combined company.
The Unaudited Pro Forma Condensed Combined Financial Statements and
related notes do not give effect to the Zions/Pioneer merger, the Zions/Regency
merger or merger transactions that First Security expects to complete prior to
the completion of the Zions/Pioneer merger or has recently completed, none of
which are material to the Unaudited Pro Forma Condensed Combined Financial
Statements and related notes.
Zions expects that it will incur reorganization and restructuring
expenses as a result of combining Zions and First Security. The Unaudited Pro
Forma Condensed Combined Statement of Income and related notes do not reflect
any anticipated reorganization and restructuring expenses resulting from the
Zions/First Security merger. Zions also anticipates that the Zions/First
Security merger will provide the combined company with certain financial
benefits that include reduced operating expenses and opportunities to earn more
revenue. However, Zions does not reflect any of these anticipated cost savings
or benefits in the Unaudited Pro Forma Condensed Combined Financial Statements
and related notes. Net income per share amounts and weighted average shares have
been adjusted to reflect the conversion of each outstanding share of First
Security common stock into 0.442 of a share of the combined company common stock
immediately prior to the completion of the Zions/First Security merger. Finally,
the Unaudited Pro Forma Condensed Combined Financial Statements do not reflect
the expected required divestiture of branches and deposits in connection with
the Zions/First Security merger. Therefore, the Unaudited Pro Forma Condensed
Combined Financial Statements and related notes, while helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions, do not attempt to predict or suggest future results. The
47
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Statements and related notes
also do not attempt to show how the combined company would actually have
performed had the companies been combined throughout these periods. All
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of results of the unaudited historical interim periods have been
included.
48
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Zions and
------------------------ First Security
First Pro Forma Pro Forma
Zions Security Adjustments Combined
---------- ---------- ---------- ----------
ASSETS (In millions)
<S> <C> <C> <C> <C>
Cash and due from banks .............................. $ 802 $ 1,059 $ 1,861
Money market investments ............................. 394 22 416
Investment securities:
Held to maturity, at cost ................... 3,060 -- 3,060
Available for sale, at market ............... 444 5,825 6,269
Trading ..................................... 221 397 618
Loans, net of unearned income ........................ 10,906 13,161 24,067
Allowance for loans losses ........................... 199 173 372
---------- ---------- ---------- ----------
Net loans ................................... 10,707 12,988 -- 23,695
Intangible assets .................................... 265 472 (169)(E) 568
Other assets ......................................... 1,192 1,196 169 (E) 2,557
---------- ---------- ---------- ----------
Total assets ................................ $ 17,085 $ 21,959 -- $ 39,044
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits ......................... $ 3,071 $ 2,490 $ 5,561
Interest-bearing deposits ............................ 10,134 10,084 20,218
---------- ---------- ---------- ----------
Total deposits .............................. 13,205 12,574 -- 25,779
Federal funds purchased and securities
sold under repurchase agreements ................ 1,189 3,938 5,127
Other short-term borrowings .......................... 646 298 944
Long-term debt ....................................... 504 2,706 3,210
Other liabilities .................................... 443 778 150 (D) 1,371
---------- ---------- ---------- ----------
Total liabilities ........................... 15,987 20,294 150 36,431
---------- ---------- ---------- ----------
Minority interest .................................... 38 -- 38
Shareholders' equity:
Preferred stock ............................. -- -- --
Common stock ................................ 328 239 (363)(A) 204
Surplus ..................................... -- 185 324 (B) 509
Accumulated other comprehensive income (loss) (1) 8 7
Retained earnings ........................... 733 1,272 (150)(D) 1,855
Common treasury stock, at cost .............. -- (39) 39 (C) --
---------- ---------- ---------- ----------
Total shareholders' equity .................. 1,060 1,665 (150) 2,575
---------- ---------- ---------- ----------
Total liabilities and shareholders' equity .. $ 17,085 $ 21,959 -- $ 39,044
========== ========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
49
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Zions and
------------------------ First Security
First Pro Forma Pro Forma
Zions Security Adjustments Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income: (In millions, except share and per share data)
Interest and fees on loans and leases ........................... $ 227.3 $ 282.4 $ 509.7
Interest on money market investments ............................ 14.1 2.2 16.3
Interest on securities .......................................... 59.3 85.2 144.5
---------- ---------- ---------- ----------
Total interest income ................................... 300.7 369.8 -- 670.5
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits ............................................ 95.3 98.1 193.4
Interest on borrowed funds ...................................... 38.5 89.2 127.7
---------- ---------- ---------- ----------
Total interest expense .................................. 133.8 187.3 -- 321.1
---------- ---------- ---------- ----------
Net interest income ..................................... 166.9 182.5 -- 349.4
Provision for loan losses ....................................... 4.2 16.9 21.1
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ............. 162.7 165.6 -- 328.3
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts ............................. 17.8 21.3 39.1
Other service charges, commissions and fees ..................... 15.3 36.0 51.3
Trust income .................................................... 3.0 7.8 10.8
Loan sales and servicing income ................................. 15.2 52.1 13.8(L) 81.1
Other ........................................................... 12.0 6.2 18.2
---------- ---------- ---------- ----------
Total noninterest income ................................ 63.3 123.4 13.8 200.5
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits .................................. 82.3 114.6 196.9
Occupancy, net .................................................. 11.5 11.1 22.6
Furniture and equipment ......................................... 10.0 17.1 27.1
Amortization of goodwill and core deposit
intangibles ............................................ 3.3 3.9 7.2
Other ........................................................... 41.6 45.7 13.8(L) 101.1
---------- ---------- ---------- ----------
Total noninterest expense ............................... 148.7 192.4 13.8 354.9
---------- ---------- ---------- ----------
Income before income taxes and minority interest ..................... 77.3 96.6 -- 173.9
Income taxes ......................................................... 27.0 31.7 58.7
---------- ---------- ---------- ----------
Net income before minority interest .................................. 50.3 64.9 -- 115.2
Minority interest .................................................... 1.4 -- 1.4
---------- ---------- ---------- ----------
Net income ........................................................... $ 48.9 $ 64.9 -- $ 113.8
========== ========== ========== ==========
Net income per share (basic) - See Note 3 ............................ $ 0.62 $ 0.78 $ 0.70
Net income per share (diluted) - See Note 3 .......................... $ 0.61 $ 0.76 $ 0.69
Weighted-average common and common-equivalent shares
outstanding during the period (in thousands) -See Note 3 ............. 80,010 85,484 165,487
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
50
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical
------------------ --------
Zions,
Sumitomo Zions and Sumitomo and
Nine Months Sumitomo First Security
Ended Pro Forma Pro Forma First Pro Forma Pro Forma
Zions 9/30/98 Adjustments Combined Security Adjustments Combined
------- --------- --------- -------- -------- ----------- ---------
(In millions, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases .... $ 681.2 $ 233.6 $ 0.7 (F) $ 915.5 $1,111.4 $ 2,026.9
Interest on money market ................. 88.5 18.1 (16.8)(G) 89.8 5.7 95.5
investments
Interest on securities .............. 206.4 20.0 226.4 303.6 530.0
Total interest income ........... 976.1 271.7 (16.1) 1,231.7 1,420.7 -- 2,652.4
Interest expense:
Interest on deposits ..................... 293.7 121.3 415.0 403.9 818.9
Interest on borrowed funds ............... 138.6 2.7 141.3 313.1 454.4
Total interest expense .......... 432.3 124.0 -- 556.3 717.0 -- 1,273.3
Net interest income ............. 543.8 147.7 (16.1) 675.4 703.7 -- 1,379.1
Provision for loan losses ................ 12.2 6.0 18.2 71.9 90.1
Net interest income after provision
for loan losses ...................... 531.6 141.7 (16.1) 657.2 631.8 -- 1,289.0
Noninterest income:
Service charges on deposit accounts ...... 58.2 3.8 62.0 90.8 152.8
Other service charges, commissions
and fees ............................. 54.7 7.0 61.7 120.0 181.7
Trust income ............................. 9.4 2.7 12.1 29.5 41.6
Loan sales and servicing income .......... 50.4 1.9 52.3 221.7 41.5(L) 315.5
Other .................................... 28.0 3.9 31.9 12.4 44.3
Total noninterest income ............. 200.7 19.3 -- 220.0 474.4 41.5 735.9
Noninterest expense:
Salaries and employees benefits .......... 249.6 66.6 316.2 386.7 702.9
Occupancy, net ........................... 30.1 12.5 0.1 (H) 42.7 39.1 81.8
Furniture and equipment .................. 36.2 5.7 41.9 48.2 100.1
Amortization of goodwill and core
deposit intangibles ................... 10.7 -- 3.2 (I) 13.9 11.7 25.6
Other .................................... 187.5 61.1 248.6 227.4 41.5(L) 517.5
Total noninterest expense ............ 514.1 145.9 3.3 663.3 723.1 41.4 1,427.9
Income before income taxes and minority
interest .............................. 218.2 15.1 (19.4) 213.9 383.1 597.0
Income taxes .................................. 70.9 5.4 (5.3)(J) 71.0 135.4 206.4
Net income before minority interest ........... 147.3 9.7 (14.1) 142.9 247.7 390.6
Minority interest ............................. 0.5 -- 0.6 (K) 1.1 -- 1.1
Net income .................................... $ 146.8 $ 9.7 $ (14.7) $ 141.8 $ 247.7 -- $ 389.5
Net income per share (basic) - See Note 3 ..... $ 1.93 $ 1.81 $ 2.99 $ 2.42
Net income per share (diluted) - See Note 3 ... $ 1.91 $ 1.79 $ 2.89 $ 2.36
Weighted-average common and common-
equivalent shares outstanding during the year
(in thousands) - See Note 3 ................... 76,988 78,198 85,677 163,868
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
51
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical
------------------------
Zions
and First
Security
Pro Forma Pro Forma
Zions First Security Adjustments Combined
----------- ----------- ---------- -----------
(In millions, except share and per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases .................. $ 500.5 $ 955.0 $ 1,455.5
Interest on money market investments ................... 85.5 4.3 89.8
Interest on securities ................................. 193.5 254.1 447.6
----------- ----------- ---------- -----------
Total interest income ......................... 779.5 1,213.4 -- 1,992.9
----------- ----------- ---------- -----------
Interest expense:
Interest on deposits ................................... 208.0 352.6 560.6
Interest on borrowed funds ............................. 159.0 234.8 393.8
----------- ----------- ---------- -----------
Total interest expense ........................ 367.0 587.4 -- 954.4
----------- ----------- ---------- -----------
Net interest income ........................... 412.5 626.0 1,038.5
Provision for loan losses .............................. 7.8 63.4 71.2
----------- ----------- ---------- -----------
Net interest income after provision for loan losses .... 404.7 562.6 -- 967.3
----------- ----------- ---------- -----------
Noninterest income:
Service charges on deposit accounts .................... 48.5 90.8 139.3
Other service charges, commissions and fees ............ 40.5 106.7 147.2
Trust income ........................................... 6.8 26.2 33.0
Loan sales and servicing income ........................ 40.4 119.3 16.1(L) 175.8
Other .................................................. 10.2 14.1 24.3
----------- ----------- ---------- -----------
Total noninterest income ...................... 146.4 357.1 16.1 519.6
----------- ----------- ---------- -----------
Noninterest expense:
Salaries and employee benefits ......................... 184.7 304.9 489.6
Occupancy, net ......................................... 18.9 36.7 55.6
Furniture and equipment ................................ 28.1 46.3 74.4
Amortization of goodwill and core deposit intangibles .. 6.7 7.5 14.2
Other .................................................. 106.2 193.5 16.1(L) 315.8
----------- ----------- ---------- -----------
Total noninterest expense ..................... 344.6 588.9 16.1 949.6
----------- ----------- ---------- -----------
Income before income taxes and minority interest ................ 206.5 330.8 537.3
Income taxes .................................................... 72.2 115.5 187.7
----------- ----------- ---------- -----------
Net income before minority interest ............................. 134.3 215.3 349.6
Minority interest ............................................... -- -- --
----------- ----------- ---------- -----------
Net income ...................................................... $ 134.3 $ 215.3 -- 349.6
=========== =========== ========== ===========
Net income per share (basic) - See Note 3 ....................... $ 1.88 $ 2.67 $ 2.30
Net income per share (diluted) - See Note 3 ..................... $ 1.84 $ 2.58 $ 2.23
Weighted-average common and common-equivalent shares
outstanding during the year (in thousands) - See Note 3 ......... 72,813 83,423 156,229
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
52
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical
------------------------
Zions
and First
Security
First Pro Forma Pro Forma
Zions Security Adjustments Combined
----------- ----------- ---------- -----------
(In millions, except shares and per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases ................... $ 395.3 $ 830.6 ss. $ 1,225.9
Interest on money market investments .................... 52.7 6.8 ss. 59.5
Interest on securities .................................. 146.7 202.0 ss. 348.7
Total interest income .......................... 594.7 1,039.4 -- 1,634.1
Interest expense:
Interest on deposits .................................... 168.9 326.8 ss. 495.7
Interest on borrowed funds .............................. 88.1 158.5 ss. 246.6
Total interest expense ......................... 257.0 485.3 -- 742.3
Net interest income ............................ 337.7 554.1 ss. 891.8
Provision for loan losses ............................... 6.5 41.3 ss. 47.8
Net interest income after provision for loan losses ..... 331.2 512.8 -- 844.0
Noninterest income:
Service charges on deposit accounts ..................... 39.5 83.9 ss. 123.4
Other service charges, commissions and fees ............. 30.5 92.0 ss. 122.5
Trust income ............................................ 5.2 23.1 ss. 28.3
Loan sales and servicing income ......................... 36.6 88.4 11.9(L) 136.9
Other .............................................. 10.2 19.0 ss. 29.2
Total noninterest income ........................... 122.0 306.4 11.9 440.3
Noninterest expense:
Salaries and employee benefits .............................. 150.4 277.7 ss. 428.1
Occupancy, net .............................................. 15.5 33.1 ss. 48.6
Furniture and equipment ..................................... 21.0 43.3 ss. 64.3
Amortization of goodwill and core deposit intangibles ....... 3.3 9.2 ss. 12.5
Other ....................................................... 82.9 167.9 11.9(L) 262.7
Total noninterest expense .......................... 273.1 531.2 11.9 816.2
Income before income taxes and minority interest ................. 180.1 288.0 ss. 468.1
Income taxes ..................................................... 59.7 103.5 ss. 163.2
Net income before minority interest .............................. 120.4 184.5 -- 304.9
Minority interest ................................................ -- -- ss. --
Net income ....................................................... $ 120.4 $ 184.5 -- $ 304.9
Net income per share (basic) - See Note 3 ........................ $ 1.69 $ 2.32 ss. $ 2.03
Net income per share (diluted) - See Note 3 ...................... $ 1.66 $ 2.26 ss. $ 1.97
Weighted average common and common-equivalent shares outstanding
during the year (in thousands) - See Note 3 ...................... 72,158 81,770 ss. 153,921
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
53
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
Note (1): Basis of Presentation
The Unaudited Pro Forma Condensed Combined Balance Sheet as of March
31, 1999 combines the historical consolidated balance sheets of Zions and First
Security as if the Zions/First Security merger had taken place on March 31,
1999. The Unaudited Pro Forma Condensed Combined Statements of Income for the
three months ended March 31, 1999, and each of the years ended December 31,
1998, 1997 and 1996, combine the historical statements of income for Zions and
First Security as if the Zions/First Security merger had been consummated at the
beginning of each period presented. On October 1, 1998, Zions acquired The
Sumitomo Bank of California in a transaction accounted for as a purchase. The
Unaudited Pro Forma Condensed Combined Statement of Income for the year ended
December 31, 1998 includes historical results of operations for The Sumitomo
Bank of California for the nine months ended September 30, 1998, after giving
effect to certain adjustments as described in Note 2.
The Unaudited Pro Forma Condensed Combined Financial Statements give
effect to the merger of Zions and First Security under the pooling-of-interests
accounting method. The Unaudited Pro Forma Condensed Combined Statements of
Income do not give effect to nonrecurring merger charges related to the
transaction or anticipated cost savings resulting from the centralization of
administrative functions, consolidation of data processing operations or
optimization of delivery systems. It is expected that the combined company will
incur a one-time pre-tax merger charge of approximately $210 million. Pre-tax
noninterest expense reductions expected are approximately $108 million annually
with approximately half the savings to be achieved in 2000 and the remainder in
2001.
Under the terms of the Zions/First Security merger agreement, Zions
will be merged with and into First Security with First Security as the surviving
corporation. On the effective date of the Zions/First Security merger, each
outstanding share of Zions common stock will be converted into one share of
common stock, par value $1.25 per share, of First Security. Immediately prior to
the effectiveness of the Zions/First Security merger, First Security will effect
a reverse stock split in which each outstanding share of common stock of First
Security will be reclassified and converted into 0.442 of a share of First
Security common stock. Each share of any treasury stock of First Security at the
Zions/First Security merger date will be canceled and retired.
Note (2): Description of Pro Forma Adjustments
The following pro forma adjustments were made to the March 31, 1999
Unaudited Pro Forma Condensed Combined Balance Sheet to reflect the merger of
Zions and First Security:
<TABLE>
<CAPTION>
(shares in thousands)
(dollar amounts in
millions)
<S> <C>
(A) Common Stock:
First Security common shares issued March 31, 1999 ....................... 191,425
Less: First Security shares owned by Zions .............................. (16)
Less: Treasury stock shares on March 31, 1999 ........................... (1,592)
---------
189,817
Times reverse stock split conversion rate ................................ 0.442
---------
First Security common shares outstanding after reverse stock split
and retirement of treasury shares .................................... 83,899
Zions common shares outstanding March 31, 1999 ........................... 78,903
---------
54
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS-(Continued)
(unaudited)
Total First Security common shares outstanding effected for the
Zions/First Security merger ........................................... 162,802
Times par value of First Security common stock ........................... 1.25
---------
Pro forma balance of First Security common stock, par value
$1.25 per share, after merger ......................................... $ 204
Combined Zions and First Security common stock amount prior
to pro forma adjustments .............................................. 567
---------
Pro forma adjustment to common stock ..................................... $ (363)
=========
(B) Surplus:
Pro forma adjustment to common stock ..................................... $ 363
Retirement of treasury stock ............................................. (39)
---------
Pro forma adjustment to surplus .......................................... $ 324
=========
(C) Common treasury stock:
Retirement of treasury stock ............................................. $ 39
=========
(D) Other liabilities and retained earnings:
Adjustment for estimated $210 million of pre-tax merger charges,
net of estimated tax benefit of $60 million on deductible charges...... $ 150
=========
(E) Intangible assets and other assets:
Reclassification of First Security loan servicing rights to
reflect the planned future combined classification .................... $ 169
</TABLE>
The following pro forma adjustments were made to the Unaudited Pro
Forma Condensed Combined Statements of Income:
Adjustments to the Unaudited Pro Forma Condensed Combined Statement of
Income for the year ended December 31, 1998 to reflect the acquisition
of The Sumitomo Bank of California by Zions.
(F) Interest and fees on loans and leases
The $0.7 million adjustment increasing interest and fees on loans
represents the interest income for the nine months ended September 30,
1998 from a $14.9 million loan made by Zions to Robert G. Sarver, a
director of Zions and the chief executive officer of California Bank &
Trust, a subsidiary of Zions. The loan was made to finance a portion of
a 5% equity investment made by Mr. Sarver in California Bank & Trust in
connection with the acquisition of The Sumitomo Bank of California.
55
<PAGE>
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS-(Continued)
(unaudited)
(G) Interest on money market investments
The $16.8 million adjustment reducing interest income on money
market investments represents the decrease in interest for the nine
months ended September 30, 1998 as the result of reducing approximately
$397 million of money market investments to obtain part of the cash
consideration paid by Zions for The Sumitomo Bank of California.
(H) Occupancy, net
The $0.1 million increase in occupancy, net represents depreciation
expense for the nine months ended September 30, 1998 on approximately
$6.3 million of excess purchase price allocated to premises and
equipment in The Sumitomo Bank of California acquisition.
(I) Amortization of goodwill and core deposit intangibles
The $3.2 million adjustment increasing amortization of goodwill
represents the amortization expense for the nine months ended September
30, 1998 on approximately $107 million of goodwill recorded in The
Sumitomo Bank of California purchase. The amortization is calculated
using the straight line method over a life of 25 years.
(J) Income taxes
The $5.3 million adjustment reducing income taxes represents the
income tax provision reduction resulting from the previous adjustments
affecting taxable earnings.
(K) Minority interest
The $0.6 million adjustment increasing minority interest represents
the 5% California Bank & Trust minority shareholders' interest in
adjusted earnings of California Bank & Trust including The Sumitomo
Bank of California for the nine months ended September 30, 1998.
Adjustments to the Unaudited Pro Forma Condensed Combined Statements of
Income to reclassify First Security amortization of loan servicing
rights to reflect the planned future combined classification.
(L) Loan sales and servicing income and other noninterest expense
Three months ended March 31, 1999 $13.8
Year ended December 31, 1998 41.5
Year ended December 31, 1997 16.1
Year ended December 31, 1996 11.9
Note (3): Earnings per Share
In connection with the purchase of The Sumitomo Bank of California,
Zions completed a stock offering in June 1998 and issued 2,760,000 shares of
common stock. Weighted average shares used in the
56
<PAGE>
calculation of basic and fully diluted earnings per share for the year ended
December 31, 1998 have been increased by 1,210,000 shares to include the shares
as if they were issued on January 1, 1998.
Weighted-average shares used in the calculation of pro forma combined
and First Security historical basic and diluted net income per share for all
periods presented have been determined by adjusting average shares for the
reverse stock split to be effected by First Security immediately prior to the
effectiveness of the Zions/First Security merger. Weighted-average common and
common-equivalent shares of First Security have been adjusted to reflect the
conversion of each outstanding share of First Security into 0.442 shares of new
First Security common stock.
57
<PAGE>
THE ZIONS/FIRST SECURITY MERGER
The following information describes certain information pertaining to
the Zions/First Security merger. This description is not complete and is
qualified in its entirety by reference to the more detailed information
contained in Zions' Current Report on Form 8-K filed on June 7, 1999 and to the
First Security merger agreement and stock option agreement filed as exhibits to
Zions' Schedule 13D dated June 16, 1999. The Form 8-K and the Zions/First
Security merger agreement and stock option agreement are incorporated herein by
reference.
General
On June 6, 1999, Zions and First Security entered into a merger
agreement as a result of which Zions will merge with and into Zions/First
Security. In the Zions/First Security merger and related transactions, each
shareholder of Zions common stock will receive one share of First Security
common stock in exchange for each share of Zions common stock which they own. In
addition, Zions and First Security have agreed that, immediately prior to the
First Security merger, First Security will change its common stock in what is
legally known as a "reclassification." This reclassification will reduce the
number of shares of common stock that are held by First Security stockholders.
In the reclassification, First Security stockholders will receive 0.442 of a
share of First Security common stock for each share of First Security common
stock they own.
If both the Zions/First Security merger and the Zions/Pioneer merger
are completed, each share of Pioneer common stock ultimately would be converted
into between 0.4636 and 0.5667 of a share of First Security common stock,
depending on the Zions average stock price measured over a period near the
closing and subject to the same adjustments described above. If the Zions/First
Security merger were completed prior to the Zions/Pioneer merger, First Security
would assume the rights and obligations of Zions under the Zions/Pioneer merger
agreement. If, however, the Zions/Pioneer merger is completed prior to the
Zions/First Security merger, the shares of Pioneer common stock would first be
converted into between 0.4636 and 0.5667 of a share of Zions common stock and
then into shares of First Security common stock on a one share-for-one share
basis. Finally, if the Zions/First Security merger is not completed after the
Zions/Pioneer merger, the shares of Zions common stock received by Pioneer
stockholders in the Zions/Pioneer merger will remain as such.
We currently expect that the Zions/First Security merger, if it closes,
will close after the Zions/Pioneer merger. If all conditions to the completion
of the Zions/First Security merger are met, Pioneer stockholders would
ultimately become stockholders of First Security. However, they would not be
entitled to vote on the merger of Zions with First Security because they would
not be shareholders of Zions on the record date for the special meeting of
shareholders of Zions. Therefore, when voting on the Zions/Pioneer merger
agreement and deciding whether to exercise dissenters' rights with respect to
the Zions/Pioneer merger, you must consider the possibility that you will become
stockholders of First Security.
The Zions/First Security merger is subject to various conditions,
including:
o approval of the First Security merger agreement by the First
Security stockholders and the Zions shareholders;
o receipt of all governmental and other consents and approvals that
are necessary to permit completion of the Zions/First Security
merger; and
o other usual conditions.
Zions cannot guarantee when or if the merger with First Security will be
completed.
First Security
First Security is the nation's oldest multistate bank holding company
and is the parent corporation for First Security Bank, N.A. and several other
banking subsidiaries and subsidiaries that engage in banking-related services.
Like Zions, First Security is headquartered in Salt Lake City, Utah. Through its
subsidiaries, First Security operated 324 branches in the states of California,
Idaho, Nevada, New Mexico, Oregon, Utah and Wyoming as of March 31, 1999. At
that date, First Security had consolidated assets of $22.0 billion, deposits of
$12.6 billion and stockholders' equity of $1.7 billion.
58
<PAGE>
Through its subsidiaries, First Security provides commercial and
agricultural loans, consumer banking, trust services, capital markets advice and
municipal underwriting services, treasury management, investment management,
data processing, leasing and securities brokerage services. First Security
common stock is quoted on the Nasdaq National Market System, and First Security
files regular reports with the SEC. First Security has paid dividends regularly
on its common stock since 1928. First Security's principal subsidiaries are
First Security Bank, N.A., the largest bank in Utah with branches in Idaho,
Oregon and Wyoming; First Security Bank of New Mexico, N.A., the third largest
bank in New Mexico and the second largest bank in the Albuquerque market; and
First Security Van Kasper, Inc., a registered investment advisor and broker
dealer. First Security also owns banks in Nevada, California and southern New
Mexico. First Security's executive offices are located at 79 South Main Street,
Salt Lake City, Utah 84111 and its telephone number is (801) 246-6000.
Governance of First Security After the Zions/First Security Merger
In the Zions/First Security merger agreement, the parties agreed to
various arrangements for First Security following completion of the Zions/First
Security merger, the terms of some of which are set forth in Exhibit B to the
Zions/First Security merger agreement and some of which have been incorporated
into the form of First Security amended and restated certificate of
incorporation and the form of First Security amended and restated by-laws. As
part of the transactions related to the Zions/First Security merger, First
Security will amend and restate its certificate of incorporation and by-laws in
accordance with those forms immediately prior to the Zions/First Security
merger. In the following discussion, references to the First Security
certificate are to the First Security certificate of incorporation as so amended
and restated and references to the First Security by-laws are to the First
Security by-laws as so amended and restated.
Board of Directors
The amended and restated First Security certificate provides that until
the annual meeting of stockholders in the year 2000, the number of directors of
the First Security board of directors will be 22, consisting of 11 members
designated by Zions pursuant to the Zions/First Security merger agreement and 11
members designated by First Security pursuant to the Zions/First Security merger
agreement. Commencing with the annual meeting of stockholders in the year 2000,
the number of directors will be 18, consisting of an even number of directors
originally designated by Zions and First Security, respectively, under the
Zions/First Security merger agreement. Commencing with the annual meeting of
stockholders in the year 2001, the number of directors will be 16, consisting of
an even number of directors originally designated by Zions and First Security,
respectively, under the Zions/First Security merger agreement. The First
Security certificate provides that if any director originally appointed by Zions
or First Security is unable to serve as a director for any reason, the
nominating committee of the First Security board of directors will nominate a
replacement.
The First Security certificate provides that the directors of First
Security will be divided into three classes. The first class will initially
consist of 10 directors, the second class, seven, and the third class, five. At
and after the annual meeting of stockholders in the year 2000 when the number of
directors is reduced to 18, the first class will consist of six directors, and
the other two classes will remain unchanged. Finally, at and after the annual
meeting of stockholders in the year 2001 when the number of directors is reduced
to 16, the first class will consist of six directors, the second class, five,
and the third class five. The Zions/First Security merger agreement provides
that Zions will initially have the right to designate five directors to the
first class, three directors to the second class and three directors to the
third class and First Security will initially have the right to designate five
directors to the first class, four directors to the second class and two
directors to the third class.
Set forth below is a table of the persons expected to serve as senior
executive officers of First Security immediately following the Zions/First
Security merger:
Name Title
---- -----
Spencer F. Eccles........................... Chairman of the Board, Co-Chief
Executive Officer and
Co-Chairman of the Executive
Committee of the Board of
Directors
59
<PAGE>
Harris H. Simmons........................... Co-Chief Executive Officer,
President, Chief Operating
Officer, Co-Chairman of the
Executive Committee of the
Board of Directors and President
of the combined
company's principal banking
subsidiary
Morgan J. Evans............................. Senior Executive Vice President
Dale M. Gibbons............................. Executive Vice President and
Chief Financial Officer
A. Scott Anderson........................... Executive Vice President
Danne L. Buchanan........................... Executive Vice President
Michael P. Caughlin......................... Executive Vice President
David R. Golden............................. Executive Vice President
Brad D. Hardy............................... Executive Vice President
W. David Hemingway.......................... Executive Vice President
Mark D. Howell.............................. Executive Vice President
J. Patrick McMurray......................... Executive Vice President
L. Scott Nelson............................. Executive Vice President
Robert G. Sarver............................ Executive Vice President
Scott C. Ulbrich............................ Executive Vice President
Nominating Committee
Pursuant to the First Security by-laws, the First Security board of
directors will designate a nominating committee, which will have all the powers
and authority of the board of directors in respect of the nomination of persons
to be recommended to the stockholders for election to the board of directors.
Until the annual meeting of stockholders in the year 2002, the nominating
committee will consist of two directors, one initially designated by Zions
pursuant to the Zions/First Security merger agreement and one initially
designated by First Security pursuant to the Zions/First Security merger
agreement. In the event that either the Zions designee or the First Security
designee cannot serve on the nominating committee for any reason, then Harris H.
Simmons, as the Zions-appointed Co-Chief Executive Officer and Spencer F. Eccles
as the First Security Co-Chief Executive Officer will mutually select a
replacement. If the Co-Chief Executive Officers cannot agree upon a replacement,
then the replacement member of the nominating committee will be (1) a director
initially appointed by Zions pursuant to the Zions/First Security merger
agreement, if the director to be replaced was appointed by Zions pursuant to the
Zions/First Security merger agreement, or (ii) a director initially appointed by
First Security pursuant to the Zions/First Security merger agreement, if the
director to be replaced was appointed by First Security pursuant to the
Zions/First Security merger agreement. The replacement will be selected by the
remaining members of the board of directors initially nominated by Zions or
First Security, respectively, pursuant to the Zions/First Security merger
agreement.
Executive Committee
Pursuant to the First Security by-laws, the First Security board of
directors will also designate an executive committee, consisting of six
directors including both Harris H. Simmons, the current Zions Chief Executive
Officer, and Spencer F. Eccles, the current First Security Chief Executive
Officer, each of whom will be the Co-Chairman of the executive committee. The
four remaining members of the executive committee will be comprised of an equal
number of directors appointed to the board by Zions pursuant to the Zions/First
Security merger agreement and by First Security pursuant to the Zions/First
Security merger agreement. Each of the Zions Chief Executive Officer and the
First Security Chief Executive Officer will be a Chairman or a Co-Chairman of
the executive committee for so long as he serves as a Chief Executive Officer or
a Co-Chief Executive Officer of First Security. In addition, the First Security
Chief
60
<PAGE>
Executive Officer will continue to serve as a member of the executive committee
after he ceases to serve as Co-Chief Executive Officer at his discretion for so
long as he is a director of First Security.
Pursuant to the First Security by-laws, until the annual meeting of
stockholders in the year 2002, any vacancy in the executive committee resulting
from the removal, resignation, death or disability of a member who was appointed
by Zions pursuant to the Zions/First Security merger agreement will be filled by
the Zions Chief Executive Officer or by the affirmative vote of a majority of
the continuing directors appointed by Zions pursuant to the Zions/First Security
merger agreement, and any vacancy in the executive committee resulting from the
removal, resignation, death or disability of a member who was appointed by First
Security pursuant to the Zions/First Security merger agreement will be filled by
the First Security Chief Executive Officer or by the affirmative vote of a
majority of the continuing directors appointed by First Security pursuant to the
Zions/First Security merger agreement.
The executive committee, when the board of directors is not in session,
will have and may exercise all the powers and authority of the board of
directors except to the extent, if any, that such authority may be limited by
the resolution appointing the members of the executive committee, except to the
extent any such powers and authority have been delegated to any other committee
of the board of directors, or reserved by the board of directors to itself, and
except that the executive committee will not have the authority of the board of
directors in reference to amending the certificate of incorporation, adopting a
plan of merger or consolidation, recommending to the stockholders the sale,
lease or other disposition of all or substantially all the property and assets
of First Security otherwise than in the usual and regular course of its business
or amending the First Security by-laws.
Amendment of Corporate Governance Arrangements
In order to amend the provisions of the First Security certificate and
the First Security by-laws that incorporate the governance arrangements
described above and to take certain other actions, the First Security
certificate and the First Security by-laws require the affirmative vote of (1)
two-thirds of the directors of First Security and (2) the holders of not less
than two-thirds of the voting power of all outstanding shares of capital stock
of First Security entitled to vote generally in the election of directors,
considered for these purposes as a single class.
DESCRIPTION OF ZIONS CAPITAL STOCK
The following summary of certain provisions of the Amended and Restated
Certificate of Incorporation of Zions and Zions' by-laws and of the Rights
Agreement (as defined below) is not intended to be complete and is qualified in
its entirety by reference to such documents, each of which is an exhibit to the
Registration Statement filed with the SEC of which this proxy
statement/prospectus is a part. See "Where You Can Find More Information" on
page 105.
Authorized Capital Stock
The authorized capital stock of Zions consists of 200,000,000 shares of
common stock, and 3,000,000 shares of preferred stock (the "Preferred Stock").
As of March 31, 1999, there were 78,903,072 shares of Zions common stock and no
shares of Preferred Stock issued and outstanding and Zions had approximately
6,130 holders of record of its common stock.
The authorized shares of preferred stock are issuable in one or more
series on the terms set by resolution or resolutions of the board of directors
of Zions. Each series of preferred stock may 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 of Zions 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 Zions
common stock.
Voting Rights
General
The holders of Zions common stock are generally entitled to one vote
for each share held of record on all matters submitted to a shareholder vote.
The holders of Zions common stock do not have cumulative voting rights.
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<PAGE>
Special Votes for Specified Transactions
Zions' restated articles of incorporation, which we refer to as the
Zions articles, contain provisions requiring special shareholder votes to
approve specified transactions. In the absence of these provisions, under Utah
corporate law either the transactions would require approval by a majority of
the shares voted at a meeting or no shareholder vote would be required.
The 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% of the voting power of all outstanding
voting stock of Zions. A "related person" means, in general, a person,
corporation, partnership or group acting in concert that beneficially owns 10%
or more of the voting power of Zions' outstanding voting stock.
The business transactions with a related person subject to such special
vote requirements include:
o a merger or consolidation involving Zions or a subsidiary of Zions
with a related person;
o 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;
o 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;
o any liquidation, spin-off, split-off, split-up or dissolution of
Zions by or on behalf of a related person;
o 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
o any agreement, contract, or other arrangement providing for any of
the transactions set forth above.
The Zions Board
Director Liability
The Zions articles provide that a director will not be liable to Zions
or its shareholders for monetary damages for a breach of fiduciary duty as a
director other than:
o a breach of a director's duty of loyalty;
o acts or omissions not taken in good faith or which involve
intentional misconduct or a knowing violation of law;
o the authorization of the unlawful payment of dividends; and
o transactions in which a director receives an improper benefit.
Classified Board
The Zions articles provide that the board of directors of Zions shall
have three classes, each consisting of one-third (or as near as may be) of the
whole number of the board of directors of Zions. 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 constitutes the full board of directors
of Zions may be increased or decreased, so long as a minimum of three directors
is maintained, only by amendment of the by-laws, which requires the affirmative
vote of two-thirds of the total number of directors constituting the entire
board of directors of Zions, or by the shareholders of Zions by the affirmative
vote of the holders of two-thirds of the outstanding and issued shares entitled
by
62
<PAGE>
statute to vote at a regular or special meeting. Except as otherwise required by
law, vacancies on the board of directors of Zions, including vacancies resulting
from an increase in the size of the board of directors of Zions, 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 of Zions. The directors newly
elected by the board of directors of Zions 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.
Removal of Directors
The Zions articles provide that any director (or the entire board of
directors of Zions) 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.
Shareholder Rights Plan
In September 1996, the board of directors of Zions adopted a
shareholder protection rights plan, dated September 21, 1996, with Zions First
National Bank, as rights agent, 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.
Under the rights plan, until it is announced that a person or group has
acquired 10% or more of the Zions common stock (an "Acquiring Person") or
commences a tender offer that will result in such person or group owning 10% or
more of the Zions common stock, the rights will be evidenced by the Zions common
stock certificates, will automatically trade with the Zions common stock and
will not be exercisable. Thereafter, separate rights certificates will be
distributed and each right will entitle its holder to purchase one hundredth of
one participating preferred stock having economic and voting terms similar to
those of one share 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 of
directors of Zions may decide) (the "Flip-in Date") each right (other than
rights beneficially owned by any Acquiring Person or transferees thereof, which
rights become void) will entitle its holder to purchase for the exercise price,
a number of shares of Zions common stock or participating preferred stock having
a market value of twice the exercise price.
Also, if after an Acquiring Person controls the board of directors of
Zions, Zions is involved in a merger or sells more than 50% 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% and 50% of the
common stock, the board of directors of Zions may, at its option, exchange one
share of Zions common stock for each right.
The rights may be redeemed by the board of directors of Zions for $0.01
per right prior to the Flip-in Date.
Shareholder 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
by-laws to call a special meeting or by the holders of at least 10% of all the
votes entitled to be cast on any issue proposed to be considered at the special
meeting. Under Zions by-laws, special meetings may be called by the president or
by the board of directors of Zions.
Amendment of Zions Articles and By-laws
The Zions articles require the affirmative votes of the holders of
two-thirds of all outstanding voting stock of Zions to approve any amendment to
the Zions articles, except that to repeal or amend the provisions in the Zions
articles regarding business transactions set forth under "--Voting
Rights--Special Votes for Specified Transactions" above requires the affirmative
vote of 80% of the issued and outstanding stock entitled to vote. Zions' by-laws
may be
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<PAGE>
amended by an affirmative vote of two-thirds of the total number of directors
constituting the entire board of directors of Zions or by the affirmative vote
of two-thirds of the issued and outstanding shares entitled to vote.
Miscellaneous
There are no preemptive rights, sinking fund provisions, conversion
rights or redemption provisions applicable to the Zions common stock. Holders of
fully paid shares of Zions common stock are not subject to any liability for
further calls or assessments.
Zions First National Bank is the transfer agent and registrar for the
Zions common stock.
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<PAGE>
CERTAIN DIFFERENCES IN THE RIGHTS OF ZIONS
SHAREHOLDERS, PIONEER STOCKHOLDERS
AND NEW FIRST SECURITY STOCKHOLDERS
At the completion of the Zions/Pioneer merger, Pioneer stockholders who
receive Zions common stock automatically will become shareholders of Zions, and
their rights as shareholders will be determined by Zions' articles, Zions'
by-laws and the Utah Revised Business Corporation Act, or the URBCA, instead of
by Pioneer's articles of incorporation, Pioneer's by-laws and the NRS. If both
the Zions/Pioneer merger and the Zions/First Security merger are completed,
stockholders of Pioneer common stock ultimately will become stockholders of
First Security and their rights as stockholders will be determined by the First
Security certificate and the First Security by-laws, in each case as
contemplated to be amended and restated pursuant to the Zions/First Security
merger agreement, and by the Delaware General Corporation Law (the "DGCL"). The
following is a summary of the material differences in the rights of shareholders
of Zions, Pioneer and First Security following the Zions/First Security merger.
The information concerning First Security will only be applicable to Pioneer
stockholders if the Zions/First Security merger is consummated. This summary is
necessarily general and does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the URBCA, the NRS, the DGCL and the
articles of incorporation and by-laws of each corporation, as well as Zions'
Rights Agreement and First Security's stockholder rights plan.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
CAPITAL STOCK
- -----------------------------------------------------------------------------------------------------------------
Authorized Capital
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
15,000,000 common shares 200,000,000 common shares 425,000,000 common shares
authorized, $0.01 par value. authorized, no par value. authorized, par value $1.25 per
share.
- -----------------------------------------------------------------------------------------------------------------
No shares of preferred stock 3,000,000 shares of preferred 10,000,000 shares of preferred stock
authorized. stock authorized with no par authorized with no par value.
value.
- -----------------------------------------------------------------------------------------------------------------
As of June 16, 1999, As of June 4, 1999, Based on the number of shares of
9,550,029 shares of Pioneer 79,017,788 shares of Zions Zions and First Security common
were issued and outstanding. were issued and outstanding. stock outstanding as of March 31, 1999,
1999, approximately 163,512,922 shares of
the combined company would be issued and
outstanding after the Zions/First Security
merger.
- -----------------------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS
- -----------------------------------------------------------------------------------------------------------------
Classification
- -----------------------------------------------------------------------------------------------------------------
Directors are divided into Directors are divided into Directors are divided into three
three classes as nearly equal three classes as nearly equal classes. Following the initial two
in number as possible. Each in number as possible. Each annual meetings of stockholders,
class is elected for a term of class is elected for a term of each class is elected for a term of
three years. three years. three years. For a description of the
classes prior to such time, see "The
Zions/First Security Merger."
- -----------------------------------------------------------------------------------------------------------------
65
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Number of Directors
- -----------------------------------------------------------------------------------------------------------------
As fixed from time to time by No fewer than three and no Immediately following completion
a resolution duly adopted by a more than 15, as fixed by the of the Zions/First Security merger,
vote of a majority of the board of directors. Currently fixed by the First Security certificate
shares entitled to vote fixed at 11. at 22. Commencing with the
represented at a duly held stockholder meeting in 2000, there
meeting at which a quorum is will be 18. Commencing with the
present, or by the board of stockholder meeting in 2001, there
directors, no fewer than 5 and will be 16. After the annual
no more than 15 and currently stockholder meeting in the year
fixed at 11. 2002, the number of directs will be
one or more as fixed from time to
time by the board of directors.
- -----------------------------------------------------------------------------------------------------------------
Removal
- -----------------------------------------------------------------------------------------------------------------
Pioneer's by-laws provide that Any director may be removed Under the First Security certificate,
a director may be removed at any time, but only by the directors may be removed only for
from office by the affirmative affirmative vote of the holders cause (defined as a felony conviction
vote of 75% of the of at least two-thirds of the or adjudication that a director is
stockholders entitled to vote. issued and outstanding shares liable for gross negligence or
of capital stock then entitled misconduct in the performance of his
to vote at an election of or her duties to the combined
directors. In addition, a company) and in that event only by
majority of the board of the holders of a majority of the
directors may remove a shares then entitled to vote at an
director if such removal is election of directors.
directed by a federal banking
agency.
- -----------------------------------------------------------------------------------------------------------------
Vacancies and Newly Created Directorships
- -----------------------------------------------------------------------------------------------------------------
Filled by a vote of the Filled by a majority of the Prior to the annual meeting of
majority of the directors remaining directors. stockholders in the year 2002, any
remaining in office, whether vacancy created by the resignation,
or not a quorum, or by the removal, death or disability of a
sole remaining director, and director will be filled by the Co-
any director chosen to fill a Chief Executive Officer designated
vacancy will hold office for a by the same party (Zions or First
term expiring at the next Security) in the Zions/First Security
annual meeting or at a special merger or, in his absence, by a
meeting of stockholders. majority of the continuing directors
appointed by that party. After the
annual meeting of stockholders in the year
2002, a majority of the remaining directors
may fill vacancies.
- -----------------------------------------------------------------------------------------------------------------
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<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Executive Committee
- -----------------------------------------------------------------------------------------------------------------
The by-laws provide for the Under the by-laws, the Pursuant to the by-laws, the
appointment of an executive executive committee consists combined company will have an
committee and such other of three members of the board executive committee which, among
committees as determined of directors and shall have and other things, will have all the powers
necessary by the board. may, when the board of and authority of the board of
directors is not in session, directors when it is not in session,
exercise all of the authority of except that such authority may be
the board of directors except limited in certain circumstances. See
that such authority may be "The Zions/First Security Merger"
limited in certain for a description of the initial
circumstances. composition of the executive
committee.
- -----------------------------------------------------------------------------------------------------------------
Special Meetings of the Board
- -----------------------------------------------------------------------------------------------------------------
May be called by or at the May be called by or at the May be called by the president or by
request of the president or any request of the president or by a majority of the board of directors.
two directors. a majority of the board of
directors.
- -----------------------------------------------------------------------------------------------------------------
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<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Director Liability
- -----------------------------------------------------------------------------------------------------------------
Pioneer's by-laws permit the Under the Zions articles, no Under the First Security certificate,
corporation to indemnify each liability for monetary no liability for monetary damages
of its agents to the maximum damages for breach of for breach of fiduciary duty except
extent permitted by the NRS. fiduciary duty except: 1) for to the extent that such exemption
Pioneer's Articles further state any breach of the director's from liability or limitation is not
that the liability of the duty of loyalty; 2) for permitted under the DGCL.
directors for monetary knowing violation of law; or
damages shall be eliminated 3) for any transaction from
to the fullest extent which the director derived
permissible under the Nevada improper personal benefit.
law. Pioneer is organized
under the laws of Nevada.
Under the NRS, a corporation
has the power to indemnify a
director who was or is a party
or is threatened to be made a
party to any proceeding (other
than an action by or in the
right of the corporation to
procure a judgment in its
favor) against expenses,
judgments, fines, settlements,
and other amounts actually
and reasonably incurred in
connection with the
proceeding if that person
acted in good faith and in a
manner the person reasonably
believed to be in the best
interests of the corporation
and, in the case of a criminal
proceeding, had no reasonable
cause to believe the conduct
of the person was unlawful.
The corporation may also
indemnify a director in an
action by or in the right of the
corporation to procure a
judgment in its favor against
expenses actually and
reasonably incurred by that
person in connection with the
defense or settlement of the
action if the person acted in
good faith, and in a manner
the person believed to be in
the best interests of the
corporation and its
stockholders, except that no
indemnification shall be made
under this subdivision with
respect to any claim, issue or
matter as to which the person
shall have been adjudged to
be liable to the corporation in
the performance of that
person's duty to the
corporation and its
stockholders, unless and only
to the extent that the court in
which the proceeding is or
was pending shall determine
upon application that, in view
of all the circumstances of the
case, the person is fairly and
reasonably entitled to
indemnity for expenses and
then only to the extent that the
court shall determine.
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<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Shareholder Action by Written Consent
- -----------------------------------------------------------------------------------------------------------------
Pioneer's by-laws provide that Permitted if written consents Action by written
any action which, under any to taking an action without a stockholders not permitted under the
provisions of the NRS, may meeting are given by holders certificate.
be taken at a meeting of the of shares having not less than
stockholders, may be taken by the minimum number of
the stockholders without a shares required to take such
meeting if a consent in action at a meeting.
writing, setting forth the
action so taken, is signed by
all the holders of the
outstanding shares entitled to
vote thereon.
- -----------------------------------------------------------------------------------------------------------------
Special Meeting of Shareholders
- -----------------------------------------------------------------------------------------------------------------
Special meetings of Special meetings of Special meetings of stockholders
stockholders may be called by shareholders may be called by may be called at any time by the
the board of directors, the the president or by the board board of directors.
chairman of the board, by the of directors, unless otherwise
president or by one or more prescribed by statute.
stockholders holding not less
that 50% of the outstanding
shares entitled to vote.
- -----------------------------------------------------------------------------------------------------------------
Voting Rights and Requirements
- -----------------------------------------------------------------------------------------------------------------
Stockholders are entitled to Under Utah law, unless Elections for the board of directors
one vote for each share held otherwise provided in the are decided by a plurality of the
on all matters submitted to a articles of incorporation votes cast. In all other matters,
vote. Pioneer's articles (1) directors are elected by a unless otherwise provided by law or
require the affirmative vote of plurality of the votes cast by by the certificate of incorporation or
80% of the outstanding shares the shares entitled to vote and the by-laws, the affirmative vote of
to approve significant (2) shareholders do not have a the holders of a majority of the
business combinations. right to cumulate their votes. shares cast shall be the act of the
Shareholders are entitled to stockholders. Shareholders are
one vote for each share on entitled to one vote for share on
record for all matters. record for all matters.
- -----------------------------------------------------------------------------------------------------------------
Shareholder Proposals and Nominations of Directors
- -----------------------------------------------------------------------------------------------------------------
No provisions. Notice of any shareholder Stockholder nominations of directors
nominations of directors and and proposals must be delivered to
proposals shall be delivered to the secretary of the combined
the secretary of the company at its principal executive
corporation at its principal office not less than 90 nor more than
office not less than 120 days 120 days prior to the date of the
prior to the date of the meeting. However, if the date of the
meeting. annual meeting is first publicly
announced or disclosed less than 100 days
prior to the date of meeting, such advance
notice shall be given not more than 10 days
after such date is first so announced.
69
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Dividend Rights
- -----------------------------------------------------------------------------------------------------------------
Under the NRS, a corporation Under Utah law, a corporation Under the DGCL, the directors of
may not make a distribution to is generally permitted, subject every corporation, subject to any
its stockholders unless either to restriction in its articles of restrictions contained in its
of two tests is met. First, a incorporation, to declare and certificate of incorporation, may
corporation may not make a pay dividends in cash or declare and pay dividends upon the
distribution if the corporation property, but only if the shares of its capital stock either
or the subsidiary making the corporation is solvent and 1) out of its surplus or 2) in case
distribution is, or as a result payment would not render the there is no surplus, out of its net
thereof would be, likely to be corporation insolvent. The profits for the fiscal year in which
unable to meet its liabilities as Zions Articles place no further the dividend is declared and/or the
they mature. Second, a restrictions on distributions. preceding fiscal year. If the capital
corporation may not make a If Zions preferred stock is of the corporation shall have been
distribution if the issued, the Zions board may diminished to an amount less than
corporation's total assets grant preferential dividend the aggregate amount of the capital
would be less than the sum of rights to the holders of such stock, the directors shall not pay any
its total liabilities plus the stock. dividends out of such net profits
amount that would be needed, until the deficiency in the amount of
if the corporation were to be capital shall have been repaired.
dissolved at the time of
distribution, to satisfy the
preferential rights upon
dissolution of stockholders
whose preferential rights are
superior to those receiving the
distribution.
- -----------------------------------------------------------------------------------------------------------------
Liquidation Rights
- -----------------------------------------------------------------------------------------------------------------
The rights of the holders of Upon liquidation, dissolution Upon liquidation, dissolution or
Pioneer Common Stock in the or winding up, whether winding up of the combined
event of a liquidation are voluntary or involuntary, the company, the holders of Series A
substantially similar to those holders of common stock are preferred shares of First Security are
applicable to Zions' entitled to share ratably in the entitled to receive out of the assets
shareholders. Under the NRS, assets of the corporation $52.50 per share, if the liquidation is
upon dissolution or available for distribution after involuntary, and the applicable
liquidation by the court, after all liabilities of the redemption value (as specified in the
all known liabilities and corporation have been certificate) if the liquidation is
obligations of the corporation satisfied. voluntary. In addition to such
have been satisfied, any amount, the holders will also receive
remaining assets or proceeds a further amount equal to unpaid
would be distributed among accumulated dividends before any
its stockholders according to distributions are made to the
their respective rights and common stockholders. The assets
preferences. remaining after such distribution
shall be paid to the common
stockholders.
- -----------------------------------------------------------------------------------------------------------------
70
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Amendment of Articles of Incorporation
- -----------------------------------------------------------------------------------------------------------------
Under the NRS, Pioneer's Under Zion's articles of Under the Articles of Incorporation
articles may be amended by a incorporation, an affirmative of the combined company, Article
majority affirmative vote of vote of two-thirds of the SEVENTH (classification and
all stockholder votes cast. outstanding and issued shares number of directors, term of office
entitled by statute to vote shall and removal of directors) may not be
be required to amend, alter, amended, modified or repealed
change or repeal Articles IX except by the affirmative vote of
(number of directors, (1) two-thirds of the directors of the
classification and removal of combined company and (2) the
directors), X (director holders of not less than two-thirds of
meetings quorum, authority of the voting power of all outstanding
the board) and XVI shares of capital stock entitled to
(amendment of Articles) or vote in the election of directors.
any other provision in the Article EIGHTH (restrictions on
Articles that would restrict, certain business transactions with
limit or alter the power or significant stockholders) may not be
authority of the board of amended, nor may it be repealed in
directors or any other officer whole or in part, until authorized by
or agent of the corporation; the favorable vote of not less than
would vest any powers of the 80% of all of the votes entitled to
corporation in any other vote in elections of directors unless
officer or agent other than the there is no Related Person, in which
board of directors, or officers case Article EIGHTH may be
and agents appointed by the amended or repealed by the
board of directors; would favorable vote of not less than such
require the approval of any number of votes as shall be required
shareholders in order for the by law.
board of directors or any
officer or agent to take any
action; or would change the
number of directors, the
quorum requirements for any
meeting of the board of
directors, the vote by which it
must act in connection with
any matter, the manner of
calling or conducting
meetings of directors, or the
place of such meetings.
- -----------------------------------------------------------------------------------------------------------------
71
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Amendment of By-laws
- -----------------------------------------------------------------------------------------------------------------
Pioneer's by-laws provide that Zions' by-laws proved that The combined company's by-laws
the current by-laws may be the by-laws may be altered, provide that the by-laws may be
amended or repealed by the amended or repealed and new amended or repealed, and new by-
affirmative vote of a majority by-laws may be adopted by an laws adopted, by the board of
of the board of directors, affirmative vote of two-thirds directors, but the stockholders
subject to repeal or change by of the total number of entitled to vote may adopt additional
action of a majority of the directors constituting the by-laws and may amend or repeal
stockholders. entire board. Further, the any by-law whether or not adopted
shareholders may also amend by the board of directors. However,
the by-laws provided an various sections of the by-laws
affirmative vote of two-thirds (those pertaining to: special
of the outstanding and issued stockholders' meetings; powers,
shares entitled by statue to number and qualifications of
vote shall be required under directors; election, term of office,
certain circumstances. resignation, removal and vacancies
of directors; special director committees; executive
and nominating committees; officers and
election of officers; term of office, resignation,
removal and vacancies of officers; and amendment
of by-laws) may not be amended except upon the
affirmative vote of (1) two-thirds of the
directors of the combined company and (2)
the holders of not less than two-thirds of the
voting power of all outstanding shares of capital
stock of the combined company entitled to vote
generally in the election of directors.
- -----------------------------------------------------------------------------------------------------------------
72
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
First Security After the
Pioneer Zions Zions/First Security Merger
- -----------------------------------------------------------------------------------------------------------------
Shareholder Rights Plans
- -----------------------------------------------------------------------------------------------------------------
Pioneer does not have a rights As discussed under First Security's current stockholder
plan. "Description of Zions Capital rights plan will survive the
Stock-Shareholder Rights Zions/First Security merger. This
Plan," each share of Zions plan, which expires on August 28,
common stock has attached to 1999, will be replaced by a new
it one right issued pursuant to stockholders rights plan, which will
the Zions rights plan. expire on October 27, 2008. The
current and replacement plans have essentially
identical terms as follows. Each stockholder has one
right in respect to each share of common stock owned to
purchase from First Security one one-thousandth
of a share of a class of junior preferred stock at
an exercise price of $100.00 ($85.00 for the
replacement plan) only after a person or group
acquires 15% or more of First Security's common
stock. The plans also provide that, upon the
occurrence of certain specified events, the holders
of the rights will be entitled to acquire additional
equity interests in First Security having a market
value of two times the exercise price of $100.00
($85.00 for the replacement plan).
- -----------------------------------------------------------------------------------------------------------------
Limitation on Business Transactions
- -----------------------------------------------------------------------------------------------------------------
Pioneer's Articles contain Except under certain Except under certain circumstances,
provisions requiring approval circumstances, business business transactions (defined as,
by the affirmative vote of the transactions (defined as, among other things, mergers or
holders of at least eighty among other things, mergers consolidations of the corporation,
percent of the outstanding or consolidations of the sale of more than 20% of the
shares of common stock of corporation, sale of a corporate assets or any
Pioneer in order to substantial part of the recapitalization or reclassification of
consummate a significant corporate assets or any securities of the corporation) are not
business combination which recapitalization or permitted with a related person
involves Pioneer. reclassification of securities of (defined as any person or entity
the corporation) are not which owns 10% of the votes of the
permitted with a related outstanding shares of stock of the
person (defined as any person corporation) except upon the
or entity which owns 10% of affirmative vote of 80% of all the
the votes of the outstanding shares of stock entitled to vote in
shares of stock of the elections of directors.
corporation) or any interest
except upon the affirmative
vote of the holders of not less
than 80% of the voting power
of the voting stock.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Zions
Zions common stock is quoted on the Nasdaq National Market under the
symbol "ZION." The following table sets forth, for the indicated periods, the
high and low sale prices for Zions common stock as reported on the Nasdaq
National Market, and the cash dividends declared per share of Zions common
stock.
Cash Dividends
Price Range Declared Per
High Low Share
------- ------- -------------
1997:
First ......................... $ 34.88 $ 25.44 $0.1100
Second ........................ 37.69 28.25 0.1200
Third ......................... 41.63 34.25 0.1200
Fourth ........................ 46.00 36.88 0.1200
1998:
First ......................... $ 55.50 $ 38.50 $0.1200
Second ........................ 55.25 47.00 0.1400
Third ......................... 58.13 37.88 0.1400
Fourth ........................ 62.50 37.88 0.1400
1999:
First ......................... $ 68.50 $ 56.38 $0.1400
Second ........................ 75.88 54.00 0.2900
Third (through August 9, 1999).. 64.63 53.75 --
On May 7, 1999, the last trading day before public announcement of the
merger, the last sales price per share of Zions common stock on the Nasdaq
National Market was $64.50. Past price performance is not necessarily indicative
of likely future price performance. Holders of Zions common stock are urged to
obtain current market quotations for shares of Zions common stock.
The holders of Zions common stock are entitled to receive dividends
when and if declared by the Zions board out of funds legally available therefor.
The Zions board periodically considers the payment of dividends on Zions common
stock, taking into account Zions' financial condition, Zions' future prospects,
economic conditions, industry practices and other factors, including
restrictions on the payment of dividends.
Pioneer
Pioneer common stock is quoted on the Over the Counter Bulletin Board
under the symbol "PNCZ." The following table sets forth for the indicated
periods the high and low sale prices for Pioneer common stock as reported on the
Over the Counter Bulletin Board. Pioneer does not pay cash dividends.
74
<PAGE>
Price Range(1)
---------------
High Low
------ ------
1997:
First ......................... $13.53 $11.77
Second ........................ 16.81 12.95
Third ......................... 18.59 15.85
Fourth ........................ 25.90 17.56
1998:
First ......................... $27.87 $21.82
Second ........................ 26.05 21.82
Third ......................... 23.18 20.91
Fourth ........................ 23.64 19.32
1999:
First ......................... $25.45 $20.91
Second ........................ 34.00 23.00
Third (through August 9, 1999). 32.50 29.875
(1) This table reflects the range of high and low bid prices for Pioneer
Common Stock during the indicated periods. Prices for 1998 have been
adjusted to reflect a three-for-two stock split that was effective July
29, 1998 and the 10% stock dividends paid in 1997, 1998 and April 1999.
The quotations merely reflect the prices at which the transactions were
proposed, and do not necessarily represent actual transactions. Prices
do not include retail markup, markdown or commissions.
PIONEER BANCORPORATION
Business
Pioneer is a bank holding company registered under the BHCA. Pioneer
was formed on June 2, 1993 under the laws of the State of Nevada in connection
with a holding company reorganization of Pioneer Citizens Bank of Nevada that
was approved by the stockholders on September 15, 1993 and became effective on
October 31, 1993. At March 31, 1999, Pioneer had 558 stockholders of record
owning 8,682,042 shares of Pioneer's common stock.
Pioneer Citizens Bank of Nevada, a wholly owned subsidiary of Pioneer,
was opened in 1965 and is regulated by the Nevada Department of Business &
Industry, Financial Institutions Division (the "Division") and by the FDIC, its
primary federal regulator and the insurer of its deposits.
Primary Market Area
Pioneer conducts its banking business through its main office in Reno
and 14 branches located throughout Nevada in the cities of Reno (three
branches), Las Vegas (six branches), Carson City (two branches), Henderson (two
branches) and Sparks (one branch). Pioneer focuses its banking and other
services on individuals, professionals and small to medium-sized businesses
throughout its market area. At March 31, 1999, Pioneer had total consolidated
assets of $1.07 billion.
Competition
In the very competitive Reno and Las Vegas areas, Pioneer competes with
a number of international banking groups, out-of-state banking companies,
state-wide banking organizations, several local community banks, savings banks,
savings and loans and credit unions throughout its market area. Pioneer's
principal market area is divided into three separate regions based upon
population and the presence of banking offices. In the northern part of Nevada,
the delineated communities are Washoe County and Carson City. These communities
include the cities of Reno, Sparks,
75
<PAGE>
Carson City, and Incline Village. To the south, Pioneer Citizens Bank of Nevada
has delineated Clark County, including the cities of Las Vegas, North Las Vegas,
Henderson, Boulder City and Summerlin. Pioneer is Nevada's sixth largest
commercial bank and the state's largest independent community bank.
Services Provided
Lending Activities. Pioneer Citizens Bank of Nevada offers and
encourages applications for a variety of secured and unsecured loans to help
meet the needs of its communities, dependent upon Pioneer Citizens Bank of
Nevada's financial condition and size, legal impediments, local economic
conditions and consistency with safe and sound operating practices. While
specific credit programs may vary from time to time, based on the bank's
policies and market conditions, every effort is made to encourage applications
for the following credit services throughout its communities.
Consumer Loans. A variety of consumer loans are offered by Pioneer
Citizens Bank of Nevada including personal loans, motor vehicle loans, boat
loans, recreational vehicle loans, home improvement loans, home equity loans,
open-end credit lines, both secured and unsecured and overdraft protection
credit lines. Pioneer Citizens Bank of Nevada credit cards are also offered in
affiliation with MBNA America Bank, N.A.
In 1998, Pioneer Citizens Bank of Nevada implemented a consumer
phone-in lending service, available 24 hours a day and 7 days a week. Callers
may apply over the phone for almost any type of consumer loan offered, or may
simply call for information or credit rates.
Real Estate Loans. Pioneer Citizens Bank of Nevada offers home
improvement loans and home equity loans and credit lines. Loans for
construction, rehabilitation or repurchase of commercial, industrial and
residential development projects are also available through Pioneer Citizens
Bank of Nevada.
Business Loans. A wide range of loans and open-end credit arrangements
are offered by Pioneer Citizens Bank of Nevada to businesses of every size from
small sole proprietorships to large corporate entities, with purposes ranging
from working capital and inventory acquisition to equipment purchases and
business expansion. Pioneer Citizens Bank of Nevada also offers commercial
leasing and participates in the Small Business Administration (SBA) financing
programs.
Agricultural Loans. Pioneer Citizens Bank of Nevada offers loans for
agricultural and ranching purposes. These include expansion loans, short-term
working capital loans, equipment loans and cattle or livestock loans.
Pioneer Citizens Bank of Nevada evaluates each type of lending activity
detailed above to determine the level of credit, market, and economic risk on
each individual credit in relation to its overall credit portfolio. Some
examples of this include recession, interest rate movement, and fraud. These
risks are involved in all segments of lending and vary according to the
borrower's relationship with Pioneer Citizens Bank of Nevada and the economic
factors on a local, regional, national and to some extent, international level.
In order to help mitigate these risks, the board has approved specific
lending policies and procedures for Pioneer Citizens Bank of Nevada and is
responsible for the implementation of these policies. The lending policies and
procedures include guidelines for loan term, loan-to-value ratios, collateral
appraisals and interest rates. The loan policies also vest varying levels of
loan authority in management, Pioneer Citizens Bank of Nevada's loan committee,
and the board of directors. In addition, the Pioneer Citizens Bank of Nevada's
audit function provides secondary loan review to maintain credit standards.
These procedures, in combination with experienced credit personnel, have created
a strong credit culture as evidenced by the Pioneer Citizens Bank of Nevada's
low level of loan losses in comparison to industry averages over the last five
years.
Pioneer Citizens Bank of Nevada also continues to improve the level of
risk management systems to measure and manage all types of risk within its loan
portfolio. This provides greater understanding of industry, product and area
concentration risk to establish loan policy and target markets for loan
development.
Management of Pioneer Citizens Bank of Nevada monitors lending
activities through weekly loan committee meetings, monthly reporting and
periodic loan reviews by external auditors. Pioneer Citizens Bank of Nevada uses
these strong internal systems in combination with involvement in local and
national organization, continuing education, and
76
<PAGE>
seminars to understand and anticipate future economic risks, which Pioneer
Citizens Bank of Nevada views as the single greatest factor in determining risk
management policy.
Deposit Services. Pioneer Citizens Bank of Nevada offers the full range
of deposit services that are typically available in most banks and savings and
loan associations, including checking accounts, savings, money market accounts
and various types of certificates of deposit. The transaction accounts and
certificates of deposit are tailored to Pioneer Citizens Bank of Nevada's
primary market area at rates competitive with those offered in the area. All
deposit accounts are insured by the FDIC to the maximum amount permitted by law.
Investment Services. Pioneer Citizens Bank of Nevada provides
alternative investment services through a third party vendor, including
annuities, securities, mutual funds and discount brokerage services to its
customers. Pioneer Citizens Bank of Nevada offers these products in a manner
consistent with the principles of prudent and safe banking and in compliance
with applicable laws, rules, regulations and regulatory guidelines. Pioneer
Citizens Bank of Nevada also offers investment services to its trust department
customers.
Other Services. These services include automated teller machines
(ATMs), ATM access cards, point-of-sale (POS) debit card (Master Card's Master
Money(TM)), check guarantee cards, safe deposit boxes, merchant credit card
services, travelers cheques, savings bonds, direct deposit, night deposit, cash
management services, trust services, and investment services.
Pioneer Citizens Bank of Nevada offers "Bank-By-Phone," a service which
allows retail customers 24-hour access to deposit and loan account information,
and a customer service center for account inquiries. Pioneer Citizens Bank of
Nevada is a member of the "Star" and "Plus" ATM networks.
PIONEER SELECTED FINANCIAL DATA
The following year-end financial data of Pioneer are derived from
Pioneer's historical audited financial statements. The interim financial
information has been derived from unaudited financial statements of Pioneer.
Pioneer believes that these financial statements include all adjustments of a
normal, recurring nature and all disclosures that are necessary for a fair
statement of the results for the unaudited interim periods. Results for the
interim periods do not necessarily indicate which may be expected for any
interim or annual period. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related footnotes
contained elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, At or For the Fiscal Year Ended December 31,
----------------------- --------------------------------------------------------------
(unaudited) (unaudited)
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
Consolidated Statements of
Earnings Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income .............. $ 18,613 $ 15,978 $ 68,866 $ 55,624 $ 42,364 $ 36,738 $ 26,762
Total interest expense ............. 7,480 6,601 28,745 21,694 15,844 13,010 7,282
Net interest income ................ 11,133 9,377 40,121 33,930 26,520 23,728 19,480
Provision for loan losses .......... 510 360 2,125 1,300 1,015 1,155 990
Net interest income after
provision for loan losses ... 10,623 9,017 37,996 32,630 25,505 22,573 18,490
Gain (loss) on sale of securities .. 24 11 2,016 111 10 36 (18)
Total other income ................. 2,113 1,805 8,235 7,475 5,381 4,414 3,673
Total other expense ................ 8,428 6,591 30,002 23,716 19,332 16,738 13,589
Income before taxes ............ 4,332 4,242 18,245 16,500 11,564 10,285 8,556
Income taxes ....................... 1,087 1,200 4,954 4,956 3,480 3,282 2,726
Net income ..................... $ 3,245 $ 3,042 $ 13,291 $ 11,544 $ 8,084 $ 7,003 $ 5,830
77
<PAGE>
Net income per share
Basic .......................... $ 0.34 $ 0.32 $ 1.40 $ 1.24 $ 0.87 $ 0.75 $ 0.63
Diluted ........................ 0.34 0.32 1.39 1.20 0.84 0.73 0.60
Average weighted common
shares outstanding*
Basic .......................... 9,548 9,445 9,495 9,337 9,317 9,315 9,315
Diluted ........................ 9,568 9,493 9,528 9,582 9,658 9,651 9,637
Consolidated Balance Sheet Data
(at period end):
Total assets ......................... $1,075,524 $ 905,697 $1,031,257 $ 851,261 $ 631,137 $ 499,456 $ 416,353
Net loans ............................ 610,598 457,030 576,105 434,548 351,896 286,706 221,690
Deposits ............................. 940,902 778,512 899,747 739,778 563,477 432,575 382,253
Shareholders' equity ................. 69,449 57,413 67,554 54,057 40,997 33,002 24,985
Number of branches ................... 13 11 13 11 10 9 8
</TABLE>
- ------------------------------------
* Earnings per share are computed on the basis of the weighted average number of
shares outstanding plus the common stock equivalents which would arise from
the exercise of stock options. Weighted shares outstanding are adjusted
retroactively for the effect of stock splits and dividends.
Years ended December 31,
------------------------
KEY FINANCIAL RATIOS 1998 1997 1996
------ ------ ------
Return on average assets ....... 1.46% 1.57% 1.47%
Return on average equity ....... 22.28% 24.38% 22.05%
Average equity to average assets 6.55% 6.44% 6.67%
PIONEER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements made in this report that state the intentions, beliefs,
expectations or predictions of the future by Pioneer or its management are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Pioneer's actual results could differ materially
from those projected in such forward-looking statements.
Three Months Ended March 31, 1999 and 1998
Overview
Total assets grew 4% from December 31, 1998 to March 31, 1999. Total
net loans and total deposits grew 6% and 5%, respectively, during the first
quarter of 1999. The real estate loan category accounted for the majority of the
loan growth in the quarter, while time deposits generated the largest amount of
deposit growth. Cash and cash equivalent balances increased 22% from December
31, 1998 to March 31, 1999 due to the large build up in the fed funds sold
category that was driven primarily by substantial increases in commercial
customer account balances in anticipation of the April tax payment date. The
first quarter 1999 net 5% decrease in the premises and equipment category is due
to the sale and leaseback of the Eastgate (Henderson) branch facility built in
1998. The net deferred tax asset category increase of 33% during the first
quarter of 1999 was caused by the recognition of the tax effect
78
<PAGE>
of the substantial decrease in the available for sale securities unrealized gain
as of December 31, 1998 to an unrealized loss at March 31, 1999.
For the three months ended March 31, 1999 average total assets of
Pioneer were $1.038 billion, a 21% increase over the $856 million average asset
total for the three months ended March 31, 1998. Average total net loans,
investment securities, and interest-bearing liabilities grew 33%, 20% and 23%
respectively during the three month period ended March 31, 1999 compared to the
three months ended March 31, 1998. The growth can be attributed to expansion of
Pioneer Citizens Bank of Nevada's branch system from 10 to 13 as well as
expansion of the two major commercial and real estate lending centers in Las
Vegas and Reno.
Pioneer's net income for the three months ended March 31, 1999
increased 7% over the three month period ended March 31, 1998. As Pioneer
Citizens Bank of Nevada aggressively opened new branch facilities, increased
staffing levels, and responded to the competitive loan rate environment, net
income growth trended under the double digit increases that have been
experienced in the past. As the loan portfolio has grown substantially, the
provision for loan and lease losses has been increased accordingly. For the
three month period ended March 31, 1999 this provision increased 42% over the
same period in 1998.
The following tables summarize, by loan category and portfolio
percentages, transactions in the allowance for loan losses and the allocation of
the allowance for the indicated periods:
Allocation of the Allowance for Loan Losses and Non-Accrual Loans Detail
(dollars in thousands)
March 31, 1999
----------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............. 23.9% $ 148,440 $ 1,708 $ 314
Real Estate ............ 68.9% 427,175 4,923 47
Agricultural ........... 0.1% 557 7 --
Installment ............ 5.2% 32,477 372 12
State and Municipal .... 1.4% 8,864 100 --
Leases ................. 0.5% 2,786 35 --
----------- ----------- ----------- -----------
100.0% $ 620,299 $ 7,145 $ 373
=========== =========== =========== ===========
December 31, 1998
----------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............. 25.9% $ 151,691 $ 1,816 $ 684
Real Estate ............ 66.9% 391,587 4,688 98
Agricultural ........... 0.1% 462 5 --
Installment ............ 5.5% 32,211 386 12
State and Municipal .... 1.4% 8,380 100 --
Leases ................. 0.2% 714 9 --
----------- ----------- ----------- -----------
100.0% $ 585,045 $ 7,004 $ 794
=========== =========== =========== ===========
March 31, 1998
----------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............. 26.5% $ 123,293 $ 1,606 $ 1,570
Real Estate ............ 65.6% 305,014 3,975 --
Agricultural ........... -- -- -- --
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<PAGE>
Installment ............ 6.9% 31,926 418 20
State and Municipal .... 1.0% 4,758 60 --
Leases ................. -- -- -- --
----------- ----------- ----------- -----------
100.0% $ 464,991 $ 6,059 $ 1,590
=========== =========== =========== ===========
Analysis of the Allowance For Loan Losses
(dollars in thousands)
For the Three
Months Ended
March 31,
1999 1998
------ ------
BEGINNING BALANCE .............. $7,004 $5,773
CHARGE-OFFS
Commercial .................. 266 50
Real Estate ................. -- --
Installment Loans ........... 127 41
------ ------
Total Charge-offs ...... 393 91
RECOVERIES ..................... 24 17
------ ------
NET CHARGE-OFFS ................ 369 74
PROVISION ...................... 510 360
------ ------
ENDING BALANCE ................. $7,145 $6,059
====== ======
Ratio of net charge-offs to
average loans outstanding ...... 0.25% 0.07%
Net Interest Income
The following table provides information on net interest income for the periods
indicated, setting forth average balances of interest-earning assets and
interest-bearing liabilities, the interest income earned and interest expense
recorded thereon and the resulting average yield-cost ratios:
Average Balance sheets and Analysis of Net Interest Earnings
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended: 3/31/99
Average Int
Balance Income/Expense Yield
---------- ---------- ----------
<S> <C> <C> <C> <C>
Loans, net (1) ............................ $ 590,428 $ 13,544 9.30%
Securities (2) ............................ 305,774 4,381 5.81%
Federal Funds Sold ........................ 58,894 688 4.74%
---------- ---------- ----------
Total Earning Assets ................... $ 955,096 $ 18,613 7.90%
Cash and Due Banks ........................ 49,388
Bank Premises and Equipment, net .......... 18,192
Other Assets .............................. 15,666
----------
Total Assets ........................... $1,038,342
==========
80
<PAGE>
Time Deposits of $100,000 or more ......... $ 123,385 $ 1,572 5.17%
Other Interest-Bearing Deposits ........... 583,106 5,286 3.68%
Repurchase Agreements ..................... 56,773 622 4.44%
---------- ---------- ----------
Total Interest-Bearing Liabilities ..... $ 763,264 $ 7,480 3.97%
Noninterest-Bearing Deposits .............. 204,106
Other Liabilities ......................... 3,061
Shareholders' Equity ...................... 67,911
----------
Total Liabilities and Shareholders'
Equity ................................. $1,038,342
==========
----------
Net Interest Income ....................... $ 11,133
==========
Net Yield on Interest Earning Assets ...... 4.73%
For the three months ended: 3/31/98
Average Int
Balance Income/Expense Yield
---------- ---------- ----------
Loans, net (1) ............................ $ 443,369 $ 11,163 10.21%
Securities (2) ............................ 254,586 3,604 5.74%
Federal Funds Sold ........................ 88,622 1,211 5.54%
---------- ---------- ----------
Total Earning Assets ................... $ 786,577 $ 15,978 8.24%
Cash and Due Banks ........................ 45,119
Bank Premises and Equipment, net .......... 11,467
Other Assets .............................. 12,581
----------
Total Assets ........................... $ 855,744
==========
Time Deposits of $100,000 or more ......... $ 48,723 $ 647 5.39%
Other Interest-Bearing Deposits ........... 514,352 5,245 4.14%
Repurchase Agreements ..................... 55,984 709 5.14%
---------- ---------- ----------
Total Interest-Bearing Liabilities ..... $ 619,059 $ 6,601 4.32%
Noninterest-Bearing Deposits .............. 177,490
Other Liabilities ......................... 3,304
Shareholders' Equity ...................... 55,891
----------
Total Liabilities and Shareholders'
Equity ................................. $ 855,744
==========
----------
Net Interest Income ....................... $ 9,377
==========
Net Yield on Interest- Earning Assets ..... 4.83%
(1) Non-accrual loans are included in the average balance, but interest on
such loans is not recognized in the interest income.
(2) Municipal interest income is not tax equivalized.
</TABLE>
The following rate/volume analysis depicts the increase (decrease) in
net interest income attributable to interest rate fluctuations (change in rate
multiplied by prior period average balance) and volume fluctuations (change in
average balance multiplied by prior period rate) when compared to the preceding
year.
81
<PAGE>
Changes Due to Volume and Rate
(dollars in thousands)
For the three months ended 3/31/99 vs. 3/31/98
Changes due to
Volume Rate Total
------- ------- -------
Loans, net ......................... $ 3,442 $(1,060) $ 2,382
Securities ......................... 733 43 776
Federal Funds Sold ................. (365) (158) (523)
------- ------- -------
Total ........................... $ 3,810 $(1,175) $ 2,635
Time Deposits of $100,000 or more .. $ 952 $ (27) $ 925
Other Interest-Bearing Deposits .... 658 (617) 41
Repurchase Agreements .............. 10 (97) (87)
------- ------- -------
Total ........................... $ 1,620 $ (741) $ 879
------- ------- -------
Net Interest Income ................ $ 2,190 $ (434) $ 1,756
======= ======= =======
NOTE - The change in interest not due solely to volume or rate has been
allocated in proportion to the absolute dollar amounts of the change in each.
For the three month period ended March 31, 1999, net interest income
increased 19% from the same period in 1998. Interest income and interest expense
increased 16% and 13%, respectively, for the three months ended March 31, 1999
compared to the three months ended March 31, 1998. Pioneer Citizens Bank of
Nevada's net interest margin at March 31 for the years 1999 and 1998 was 4.73%
and 4.83%, respectively. The 10 basis point decrease in the net interest margin
can be primarily attributed to the substantial decrease in the yield received on
the loan portfolio. On a tax equivalent basis, the net interest margin was 4.98%
and 5.04% at March 31 for the years 1999 and 1998, respectively. The unfavorable
rate variance in the loan and federal funds sold categories have been more than
offset by the favorable volume increases in the loan and securities categories.
In addition, the decrease in deposit rates has been a favorable development,
which partially offset the unfavorable earning asset rate variance. Management
believes that competition between banks and other financial services companies
will continue to keep loan rates down while deposit rates will probably not
decrease from current levels due to this same competitive environment.
Non-Interest Income
The following table details dollar amount and percentage changes of
certain categories of non-interest income for the periods indicated:
82
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
(dollars in thousands)
For three months ended: 3/31/99 3/31/98
Percent Percent
% of Change % of Change
Amount Total Prev. Year Amount Total Prev. Year
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts ....... $ 847 39.6% 10.9% 764 42.0% 7.5%
Merchant Credit Card Income ............... 549 25.7% 17.3% 468 25.8% 7.1%
Trust Department Income ................... 408 19.1% 14.3% 357 19.7% 10.9%
Gain on Sale of Securities Available for
Sale ................................. 24 1.1% 118.2% 11 0.6% --
ATM Network Fees Earned ................... 93 4.4% 45.3% 64 3.5% 20.8%
Other Income .............................. 216 10.1% 42.1% 152 8.4% 14.3%
--------- --------- --------- --------- --------- ---------
$ 2,137 100.0% 17.7% $ 1,816 100.0% 9.7%
</TABLE>
Service charges on deposits continue to be a focal point of
non-interest income growth from period to period as this category continues to
be approximately 40% of the total. Fee increases contemplated in late 1998 and
instituted in late first quarter 1999 have contributed to the increase in period
to period growth rate of service charges from 7.5% to almost 11%. It is
anticipated that service charge income will continue to grow as the full effect
of the fee adjustments are realized on into 1999. Merchant credit card and trust
department income both experienced double digit increases from the 1998 first
quarter period due to increased volume within the business categories over the
previous year. Higher period to period ATM usage has also been a favorable
development and has increased the contribution of this category to the total.
Non-Interest Expense
The following table details dollar amount and percentage changes of
certain categories of non-interest expense for the periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
(dollars in thousands)
For three months ended: 3/31/99 3/31/98
Percent Percent
% of Change % of Change
Amount Total Prev. Year Amount Total Prev. Year
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Salaries and Employee Benefits ............ $ 3,975 47.2% 26.4% $ 3,144 47.7% 25.2%
Occupancy and Equipment ................... 1,847 21.9% 55.3% 1,189 18.1% 35.4%
Merchant Credit Card Expense .............. 489 5.8% 22.9% 398 6.0% 2.6%
Marketing/Advertising ..................... 209 2.5% 50.4% 139 2.1% 17.8%
Other Expense ............................. 1,908 22.6% 10.9% 1,721 26.1% 18.7%
--------- --------- --------- --------- --------- ---------
$ 8,428 100.0% 27.9% $ 6,591 100.0% 23.3%
</TABLE>
As Pioneer has grown and expanded the branch network and product
offerings, the salaries and benefit category continues to be the largest
non-interest expense category with over 47% of the total. However, occupancy and
expense has had the highest growth rates for period to period comparisons due to
facilities expansion and branch construction. Marketing and advertising expense
increased substantially as management of the Bank chose to focus on more
extensive campaigns in the high growth Las Vegas area.
Pioneer experienced a 300 basis point decrease in its effective federal
income tax rate from the 28% rate at March 31, 1998. This decrease in effective
tax rate is due to the substantial 49% increase to tax-exempt income booked
during the three months ended March 31, 1999 versus the same period ended March
31, 1998.
83
<PAGE>
Fiscal Years Ended 1998, 1997 and 1996
Overview
For 1998, Pioneer realized record annual earnings of $13,291,000 and
$1.39 per share (diluted) on an after-tax basis. This is a 15% increase in net
earnings over 1997's $11,544,000 and $1.20 per share (diluted). These results
represent the ninth consecutive year of increased earnings. Return on equity and
return on assets, common measures of bank performance, totaled 22.28% and 1.46%,
respectively, compared to 24.38% and 1.57% in 1997. Pioneer paid a 10% stock
dividend in March 1999 and in February 1998 and declared a three-for-two stock
split in July 1998. All per share data computations are calculated after giving
retroactive effect to stock dividends and stock splits.
Total assets reached $1,031,257,000, a 21% increase from $851,261,000
in 1997. Total loans also experienced record growth to $576,105,000 from the
$434,548,000 level at the end of 1997. Total deposits grew from $739,778,000 to
$899,747,000 at December 31, 1998. These amounted to 33% and 22% growth rates,
respectively. Performance at Pioneer over the past three years has largely been
the result of a continued commitment to an aggressive branch expansion plan and
high levels of customer services in terms of suitable branch staffing levels,
local decision making authority, competitive pricing and face-to-face business
development efforts.
Net income for 1998 included after-tax net gains of $1,310,000 on sales
of $60,914,000 par value available-for-sale securities.
Pioneer's net interest margin at December 31, 1998 was 4.72%, as
compared to 5.13% at December 31, 1997 and 5.44% at December 31, 1996. On a tax
equivalent basis, the net interest margin was 4.92% at December 31, 1998, 5.28%
at December 31, 1997 and 5.57% at December 31, 1996.
In the past year, Pioneer opened two new Las Vegas/Henderson area
branches and completed the transition from a temporary facility to the permanent
building at another Las Vegas location. Initial plans for 1999 include two
additional branch locations, one in the Reno/Sparks area and one in the Las
Vegas area. Also, conversion of Pioneer's North Carson City ATM/night drop
facility into a full service branch is planned for 1999. Pioneer management
continues to believe that strategically locating branches in high growth areas
within southern and northern Nevada is a desirable way of fueling the future
growth prospects of Pioneer.
Balance Sheet Analysis
Average earning assets as a percentage of average total assets was 92% for
1998, as compared to 90% for 1997. Earning assets grew 21% to $939,287,000 at
December 31, 1998. Interest-bearing liabilities grew 24% to $735,410,000 at
December 31, 1998.
Loans
The loan portfolio continues to be the largest component of earning
assets and the 33% growth in 1998 of that component has resulted in a favorable
increase in earnings for Pioneer. However, competition for loan business has
been keen with non-bank and traditional bank competitors willing to lend at
substantially lower rates than were offered just last year. If loan yields
continue to be driven down by this intense competition, Pioneer's future
earnings could be adversely effected. Pioneer Citizens Bank of Nevada will
continue to be an aggressive force in its lending markets while actively
managing portfolio with safety and soundness as important objectives.
84
<PAGE>
Pioneer Citizens Bank of Nevada started a leasing program in 1998 to
serve both the northern and southern regions. It is management's intention to
favorably increase the overall yield of the loan portfolio with this program.
Pioneer Citizens Bank of Nevada has also increased its presence in the
tax-exempt loan market as evidenced by the 371% growth in the state and
municipal obligations category.
In 1997, the total loan portfolio increased 23% with real estate loans
contributing the highest growth, 28%, in the portfolio from 1996. Interim
construction and land development lending grew 46% as it continued to be a very
important growth area for Pioneer Citizens Bank of Nevada's real estate
portfolio. The real estate portfolio has been 60 plus percent of the total
portfolio for the last five years while incurring very low charge-off totals
over that period.
Classification of Loans
Pioneer Citizens Bank of Nevada is required under applicable law and
regulations to review their loans on a regular basis and to classify them as
"satisfactory," "special mention," "substandard," "doubtful" or "loss." A loan
which possesses no apparent weakness or deficiency is designated "satisfactory."
A loan which possesses weaknesses or deficiencies deserving close attention is
designated as "special mention." A loan is generally classified at "substandard"
if it possesses a well-defined weakness and the Bank will probably sustain some
loss if the weaknesses or deficiencies are not corrected. A loan is classified
as "doubtful" if a probable loss of principal and/or interest exists but the
amount of the loss, if any, is subject to the outcome of future events which are
undeterminable at the time of classification. If a loan is classified as "loss,"
Pioneer Citizens Bank of Nevada either establishes a specific valuation
allowance equal to the amount classified as loss or charges off such amount.
Non-accrual loans are those which have become delinquent for more than
90 days. Placement of loans on non-accrual status does not necessarily mean that
the outstanding loan principal will not be collected but rather than timely
collection of principal and interest is in question. When a loan is placed on
non-accrual status, interest accrued but not received is reversed. The amount of
interest income which would have been recorded in fiscal 1998, 1997, 1996, 1995
and 1994 on non-accrual loans was $42,000, $40,000, $29,000, $38,000 and $0,
respectively. A non-accrual loan may be restored to accrual status when
principal and interest payments are brought current or when brought to 90 days
or less delinquent and continuing payment of principal and interest is expected.
The Allowance for Loan Losses
The allowance for loan losses is based upon management's assessment of
various factors including, but not limited to, current and future economic
trends, historical loan losses, delinquencies, underlying collateral values, as
well as current and potential risks identified in the loan portfolio.
The following tables summarize, by loan category and portfolio
percentages, transactions in the allowance for loan losses and the allocation of
the allowance for the last five years.
85
<PAGE>
Allocation of the Allowance for Loan Losses
and Non-Accrual Loans Detail
(dollars in thousands)
December 31, 1998
---------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............ 25.9% $ 151,691 $ 1,816 $ 684
Real Estate ........... 66.9 391,587 4,688 98
Agricultural .......... 0.1 462 5 --
Installment ........... 5.5 32,211 386 12
State and Municipal ... 1.4 8,380 100 --
Leases ................ 0.2 714 9 --
----------- ----------- ----------- -----------
100.0% $ 585,045 $ 7,004 $ 794
=========== =========== =========== ===========
December 31, 1997
---------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............ 26.9% $ 118,862 $ 1,553 $ 793
Real Estate ........... 65.5 289,590 3,783 127
Agricultural .......... -- 70 1 --
Installment ........... 7.2 31,647 413 --
State and Municipal ... 0.4 1,781 23 --
Leases ................ -- -- -- --
100.0% $ 441,950 $ 5,773 $ 920
=========== =========== =========== ===========
December 31, 1996
---------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............ 29.6% $ 106,089 $ 1,458 $ 162
Real Estate ........... 63.1 226,018 3,106 1,309
Agricultural .......... -- -- -- --
Installment ........... 6.9 24,633 338 66
State and Municipal ... 0.4 1,512 21 --
Leases ................ -- -- -- --
----------- ----------- ----------- -----------
100.0% $ 358,252 $ 4,923 $ 1,537
=========== =========== =========== ===========
December 31, 1995
---------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............ 31.6% $ 92,169 $ 1,267 $ --
Real Estate ........... 60.2 175,787 2,416 1,652
Agricultural .......... -- -- -- --
Installment ........... 8.0 23,331 320 --
State and Municipal ... 0.2 512 7 --
Leases ................ -- -- -- --
----------- ----------- ----------- -----------
100.0% $ 291,799 $ 4,010 $ 1,652
=========== =========== =========== ===========
86
<PAGE>
December 31, 1994
---------------------------------------------------
Percent of
Loans to Non-Accrual
Total Loans Gross Loans Allowance Loans
----------- ----------- ----------- -----------
Commercial ............ 26.9% $ 60,798 $ 820 $ --
Real Estate ........... 64.9 146,544 1,977 --
Agricultural .......... 0.2 354 5 --
Installment ........... 7.8 17,631 238 --
State and Municipal ... 0.2 530 7 --
Leases ................ -- -- -- --
----------- ----------- ----------- -----------
100.0% $ 225,857 $ 3,047 $ --
=========== =========== =========== ===========
ANALYSIS OF THE ALLOWANCE For the Years Ended December 31,
FOR LOAN LOSSES ------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
------ ------ ------ ------ ------
BEGINNING BALANCE ............. $5,773 $4,923 $4,010 $3,047 $2,509
CHARGE-OFFS
Commercial .................. 619 406 96 167 395
Real Estate ................. -- -- -- 54 --
Installment Loans ........... 366 128 114 29 168
------ ------ ------ ------ ------
Total Charge-offs ........ 985 534 210 250 563
RECOVERIES .................... 91 84 108 58 111
------ ------ ------ ------ ------
NET CHARGE-OFFS ............... 894 450 102 192 452
PROVISION ..................... 2,125 1,300 1,015 1,155 990
------ ------ ------ ------ ------
ENDING BALANCE ................ $7,004 $5,773 $4,923 $4,010 $3,047
====== ====== ====== ====== ======
Ratio of net charge-offs to
average loans outstanding ..... 0.18% 0.12% 0.03% 0.07% 0.21%
87
<PAGE>
The following table details loan repricing information for fixed
and variable rate loans.
Maturity and Repricing for the Bank's
Loan Portfolio at December 31, 1998
(in thousands)
LOAN REPRICING Fixed Variable Total
Rate Rate Loans
--------- --------- ---------
0-90 days ............................... $ 11,120 $ 236,145 $ 247,265
91-365 days ............................. 18,958 9,783 28,741
1 year-5 years .......................... 95,741 84,271 180,012
5 years or more ......................... 120,602 6,489 127,091
--------- --------- ---------
$ 246,421 $ 336,688 $ 583,109
Loans on which the accrual of interest
has been discounted ..................... -- -- --
--------- --------- ---------
$ 246,421 $ 336,688 $ 583,109
Allowance for Loan Losses ............... -- -- $ (7,004)
--------- --------- ---------
$ 246,421 $ 336,688 $ 576,105
Investments
The investment portfolio is the second largest earning asset category
and is comprised mostly of securities categorized as available-for-sale.
The carrying value of the available-for-sale securities portfolio grew
28% to $269,476,000 at December 31, 1998 from $211,004,000 at December 31, 1997.
The carrying value of the held-to-maturity securities portfolio grew 13% to
$46,102,000 from $40,861,000. Pioneer continues to invest more excess funds into
the available-for-sale portfolio so as to have more flexibility in managing the
investment portfolio assets. In 1998, Pioneer Citizens Bank of Nevada began to
shift more investment dollars to U.S. agency debentures from direct U.S.
government notes and bonds due to the more favorable yield levels of the agency
securities. A large part of the U.S. Agency securities growth for 1998 came in
the category of high quality mortgage-backed securities and collateralized
mortgage obligations. These investments have extended slightly the duration of
the total investment portfolio, however, Pioneer Citizens Bank of Nevada
received more favorable yields. Both the available-for-sale portfolio as well as
the held-to-maturity portfolio have average durations of approximately 60
months.
Pioneer also substantially increased its overall investment in
municipal securities during 1998. The combined (available-for-sale and
held-to-maturity) tax-exempt municipal portfolio grew 68% during 1998. Pioneer
has experienced a favorable decrease in its effective tax rate due to the growth
in tax-exempt holdings. Management does not anticipate reaching an amount in
total tax-exempt investments that would warrant alternative minimum tax
treatment.
The average federal funds balance for 1998 was only 8% over that of
1997's average, which was in turn 142% more than 1996 average balance.
In 1997, Pioneer Citizens Bank of Nevada began to shift more investment
dollars into the U.S. agency market. Higher yields for fairly equal risk and
increased use as collateral for public funds pledging and repurchase agreement
transactions, were reasons for the high growth in U.S. agency investment.
Tax-exempt municipal bond investments grew substantially also as Pioneer
Citizens Bank of Nevada continued to lower its effective tax rate.
88
<PAGE>
The following table displays investment securities balances and
repricing information for the portfolio.
<TABLE>
<CAPTION>
Investment Portfolio Detail
(carrying value dollars in thousands)
as of December 31,
Percentage Percentage
Change Change
1998 Previous Year 1997 Previous Year 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasuries ............... $ 52,962 (56.7%) $ 122,347 18.3% $ 103,410
U.S. Agencies ................. 164,219 131.9% 70,801 150.3% 28,287
State, County, and Municipal .. 98,397 67.6% 58,717 83.1% 32,065
------------ ------------ ------------ ------------ ------------
Total ......................... $ 315,578 25.3% $ 251,865 53.8% $ 163,762
============ ============ ============ ============ ============
As of December 31, 1998
Maturing Within One One to Five to
(in thousands) Year Five Years Ten Years Over Ten Years Total
------------ ------------ ------------ ------------ ------------
U.S. Treasuries ............... $ 32,410 $ 20,552 $ -- $ -- $ 52,962
U.S. Agencies ................. 7,299 44,697 33,102 79,121 164,219
State, County, and Municipal .. 2,144 16,911 58,625 20,717 98,397
------------ ------------ ------------ ------------ ------------
Total ......................... $ 41,853 $ 82,160 $ 91,727 $ 99,838 $ 315,578
============ ============ ============ ============ ============
</TABLE>
Deposits
Pioneer Citizens Bank of Nevada continues to gather most of its deposit
base from small business sources. The retail base continues to grow with new and
improved product offerings, however, management recognizes that customer
service, not a vast retail branch network, is going to be the key to Pioneer
Citizens Bank of Nevada's retail growth. In 1998, Pioneer Citizens Bank of
Nevada experienced some changes in the typical sources of deposit growth as well
as the ever increasing competition for deposit dollars. While interest-bearing
deposits grew 26% over 1997, the certificates of deposit portion of that total
grew by 108%. In previous years, much of Pioneer Citizens Bank of Nevada's
growth has been in money market and tiered interest accounts. Money market
account balances actually decreased 9% due to a large municipal entity closing
an account relationship in June. Pioneer Citizens Bank of Nevada planned for
this eventuality by carrying a larger than normal federal funds position in the
first months of 1998. Including the closure of the municipal account, money
market balances would have grown approximately 10%.
Like many community banks, more competition for deposits is coming from
mutual funds, high yield money market accounts and other non-bank investment
opportunities. Pioneer Citizens Bank of Nevada has responded by remaining very
competitive in the traditional deposit products as well as offering repurchase
agreements and a commercial sweep product to business customers.
As evidence of the trend toward more interest-bearing deposits at
Pioneer Citizens Bank of Nevada, average noninterest-bearing deposits decreased
as a percentage of average total interest-bearing liabilities in 1998 to 29%
from 31% and 32% for the years 1997 and 1996, respectively.
Total deposits grew 31% in 1997 with noninterest-bearing balances growing
28% and interest-bearing deposits growing 33% over 1996 balances. Money market
accounts (personal, business and public) grew to $277 million at December 31,
1997 from $211 million at December 31, 1996. In
89
<PAGE>
1997, customers enjoyed increased access to their deposits through Pioneer
Citizens Bank of Nevada's introduction of a debit card product and a 24-hour
automated bank-by-phone line.
The following table details repricing information for Pioneer Citizens
Bank of Nevada's time deposits.
<TABLE>
<CAPTION>
Time Deposit Maturities at December 31, 1998
(in thousands)
TIME DEPOSIT MATURITIES Under $100,000 $100,000 or more Total Time Deposits
------------------ ------------------ ------------------
<S> <C> <C> <C>
0-90 days ................. $ 21,167 $ 41,099 $ 62,266
91-180 days ............... 19,423 20,210 39,633
181-365 days .............. 40,925 35,552 76,477
Over 1 year ............... 17,583 12,289 29,872
------------------ ------------------ ------------------
$ 99,098 $ 109,150 $ 208,248
</TABLE>
Borrowing
As part of Pioneer's funds management and liquidity plan, Pioneer
Citizens Bank of Nevada has arranged to have short-term and long-term borrowing
facilities available. The short-term and overnight facilities are federal funds
purchasing lines as reciprocal arrangements to the federal funds selling
agreements in place with various correspondent banks. These borrowings are
generally unsecured. For long-term funding needs, the Bank has credit available
of $10.9 million immediately and up to 30% of assets with additional collateral
through the Federal Home Loan Bank of San Francisco. At December 31, 1998,
Pioneer Citizens Bank of Nevada did not have term borrowings outstanding.
Capital
Pioneer continues to exceed the regulatory capital levels for a
"well-capitalized" bank. As total assets have grown at a substantial rate, the
capital generation effect of nine years of record net earnings has been the
primary reason that capital ratios have remained above the "well-capitalized"
level.
Because of Pioneer's growth and expansion, management and the board
have chosen not to pay cash dividends to shareholders, however, annual 10% or
20% stock dividends have been declared the rule for the past nine years.
90
<PAGE>
The following table sets forth Pioneer's actual capital ratios for
1998, 1997 and 1996 as well as the quantitative measures established by
regulatory authorities.
<TABLE>
<CAPTION>
CAPITAL ADEQUACY To Be Well
(dollars in thousands) Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total Capital
(to Risk Weighted Assets) $73,533 10.5% $55,954 8.0% $69,954 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 66,529 9.5% 28,000 4.0% 42,000 6.0%
Tier 1 Capital
(to Average Assets) 66,529 7.2% 37,000 4.0% 46,250 5.0%
December 31, 1997
Total Capital
(to Risk Weighted Assets) $58,369 10.9% $42,723 8.0% $53,423 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 52,596 9.9% 21,350 4.0% 32,050 6.0%
Tier 1 Capital
(to Average Assets) 52,596 7.2% 29,450 4.0% 36,800 5.0%
December 31, 1996
Total Capital
(to Risk Weighted Assets) $45,574 10.9% $33,416 8.0% $41,770 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 40,651 9.7% 16,708 4.0% 25,062 6.0%
Tier 1 Capital
(to Average Assets) 40,651 7.4% 21,883 4.0% 27,354 5.0%
</TABLE>
Liquidity
Daily liquidity management seeks to ensure that Pioneer's cash and cash
equivalents (cash and due from banks and fed funds sold) position is adequate to
meet any deposit withdrawals as well as loan funding needs. Pioneer is funded
predominantly by core small business and retail deposits, which are stable and
add to the liquidity management of Pioneer Citizens Bank of Nevada.
In the short-term, securities with the available-for-sale
classification are a secondary source of liquidity. The carrying value of
securities maturing in one year or less at December 31, 1998 totaled $41.9
million.
For longer term liquidity needs, management continues to use a maturity
laddering strategy in the investment portfolio as well as having access to
short-term securities via the available-for-sale classification. Additional
funding sources were outlined under the "--Borrowing" caption above.
Pioneer Citizens Bank of Nevada's liquidity ratio at December 31, 1998
was 38.4% as compared to 40.4% at December 31, 1997.
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<PAGE>
Results of Operations
Net Interest Income
The following table provides information on net interest income for the
past three years, setting forth average balances of interest-earning assets and
interest-bearing liabilities, the interest income earned and interest expense
recorded thereon and the resulting average yield-cost ratios.
Average Balance Sheets and Analysis of Net Interest Earnings
(dollars in thousands)
<TABLE>
<CAPTION>
Average Int Income/
For the Year Ended December 31, 1998 Balance Expense Yield
------------ ---------- ----------
<S> <C> <C> <C>
Loans, net (1) $ 504,067 $ 49,588 9.84%
Securities (2) 274,496 15,483 5.64%
Federal Funds Sold 70,721 3,795 5.37%
------------ ---------- ----------
Total Earning Assets $ 849,284 $ 68,866 8.11%
Cash and Due Banks 47,688
Bank Premises and Equipment, net 15,081
Other Assets 12,251
------------
Total Assets $ 924,304
============
Time Deposits of $100,000 or more $ 71,370 $ 3,886 5.44%
Other Interest-Bearing Deposits 530,568 21,651 4.08%
Repurchase Agreements 64,936 3,208 4.94%
------------ ---------- ----------
Total Interest-Bearing Liabilities $ 666,874 $ 28,745 4.31%
Noninterest-Bearing Deposits 193,168
Other Liabilities 3,513
Shareholders' Equity 60,749
Total Liabilities and Shareholders' Equity $ 924,304
============
Net Interest Income $ 40,121
Net Yield on Interest-Earning Assets ========== 4.72%
Average Int Income/
For the Year Ended December 31, 1997 Balance Expense Yield
------------ ---------- ----------
Loans, net (1) $ 385,378 $ 39,909 10.36%
Securities (2) 210,564 12,228 5.81%
Federal Funds Sold 65,279 3,487 5.34%
------------ ---------- ----------
Total Earning Assets $ 661,221 $ 55,624 8.41%
Cash and Due Banks 51,931
Bank Premises and Equipment, net 12,244
Other Assets 10,594
------------
Total Assets $ 735,990
============
Time Deposits of $100,000 or more $ 31,809 $ 1,674 5.26%
Other Interest-Bearing Deposits 455,032 18,207 4.00%
Repurchase Agreements 34,391 1,813 5.27%
------------ ---------- ----------
Total Interest-Bearing Liabilities $ 521,232 $ 21,694 4.16%
Noninterest-Bearing Deposits 163,437
Other Liabilities 4,916
92
<PAGE>
Average Int Income/
Balance Expense Yield
------------ ---------- ----------
Shareholders' Equity 46,405
------------
Total Liabilities and Shareholders' Equity $ 735,990
Net Interest Income $ 33,930
Net Yield on Interest-Earning Assets ---------- 5.13%
Average Int Income/
For the Year Ended December 31, 1996 Balance Expense Yield
------------ ---------- ----------
Loans, net (1) $ 307,349 $ 32,225 10.48%
Securities (2) 152,751 8,624 5.65%
Federal Funds Sold 26,970 1,515 5.62%
------------ ---------- ----------
Total Earning Assets $ 487,070 $ 42,364 8.70%
Cash and Due Banks 40,944
Bank Premises and Equipment, net 10,896
Other Assets 8,137
------------
Total Assets $ 547,047
============
Time Deposits of $100,000 or more $ 37,647 $ 2,000 5.31%
Other Interest-Bearing Deposits 326,857 12,738 3.90%
Repurchase Agreements 19,438 1,106 5.69%
------------ ---------- ----------
Total Interest-Bearing Liabilities $ 383,942 $ 15,844 4.13%
Noninterest-Bearing Deposits 122,869
Other Liabilities 4,470
Shareholders' Equity 35,766
------------
Total Liabilities and Shareholders' Equity $ 547,047
Net Interest Income ============ $ 26,520
Net Yield on Interest-Earning Assets ========== 5.44%
- ---------------------------
(1) Non-accrual loans are included in the average balance, but interest on such loans is not
recognized in the interest income
(2) Municipal interest income is not tax equalized.
</TABLE>
93
<PAGE>
The following rate/volume analysis depicts the increase (decrease) in
net interest income attributable to interest rate fluctuations (change in rate
multiplied by prior period average balance) and volume fluctuations (change in
average balance multiplied by prior period rate) when compared to the preceding
year.
Changes Due to Volume and Rates
(in thousands)
1998 vs 1997
Changes due to
Volume Rate Total
---------- ---------- ----------
Loans, net ............................. $ 11,762 $ (2,083) $ 9,679
Securities ............................. 3,615 (360) 3,255
Federal Funds Sold ..................... 292 16 308
---------- ---------- ----------
Total ......................... $ 15,669 $ (2,427) $ 13,242
Time Deposits of $100,000 or more ...... $ 2,152 $ 60 $ 2,212
Other Interest-Bearing Deposits ........ 3,076 368 3,444
Repurchase Agreements .................. 1,516 (121) 1,395
---------- ---------- ----------
Total ......................... $ 6,744 $ 307 $ 7,051
---------- ---------- ----------
Net Interest Income .................... $ 8,925 $ (2,734) $ 6,191
========== ========== ==========
1997 vs 1996
Changes due to
Volume Rate Total
---------- ---------- ----------
Loans, net ............................. $ 8,086 $ (402) $ 7,684
Securities ............................. 3,350 254 3,604
Federal Funds Sold ..................... 2,050 (78) 1,972
---------- ---------- ----------
Total ......................... $ 13,486 $ (226) $ 13,260
Time Deposits of $100,000 or more ...... $ (307) $ (19) $ (326)
Other Interest-Bearing Deposits ........ 5,121 348 5,469
Repurchase Agreements .................. 793 (86) 707
---------- ---------- ----------
Total ......................... $ 5,607 $ 243 $ 5,850
---------- ---------- ----------
Net Interest Income .................... $ 7,879 $ (469) $ 7,410
========== ========== ==========
Note: The change in interest not due solely to volume or rate has been
allocated in proportion to the absolute dollar amounts of the change in each.
Pioneer Citizens Bank of Nevada's net interest income increased $6.2
million in 1998 versus 1997. The net interest income increase attributable to
volume increases was a favorable $8.9 million over 1997. However,
interest-earning assets were subject to downward rate pressure during 1998 due
to three decreases in the U.S. prime rate as well as extensive competition for
loans. These factors, coupled with a competitive environment for deposit
dollars, created a $2.7 million decrease in net interest income attributable to
rate variances.
The net yield on interest-earning assets (net interest margin)
decreased 41 basis points in 1998 versus 1997. The cost of interest-bearing
liabilities increased 15 basis points, again reflecting the increased
competition for deposit dollars and the substantial growth in time deposit and
repurchase agreement balances over 1997 levels. The cost of $100,000 and over
time deposits increased 18 basis points in the face of rate decreases during
1998, however, the loan yield drop of 52 basis points was the
94
<PAGE>
most drastic rate change from 1997. As Pioneer Citizens Bank of Nevada has grown
and expanded its customer base, there are more opportunities to underwrite
larger, more competitively priced loans that exist in the current market. The
three prime rate decreases during 1998 directly affected Pioneer Citizens Bank
of Nevada's variable rate loan portfolio which was 58% of the portfolio at
December 31, 1998. The investment securities portfolio experienced a decrease in
yield of 17 basis points while the yield on fed funds sold actually increased
slightly due to the availability of more competitive conduits for federal funds
sales.
In 1997, Pioneer Citizens Bank of Nevada's net interest income
increased $7.4 million over 1996. The net interest income increase attributable
to 1997 volume increases was a favorable $7.9 million. Sixty percent of the
volume related interest income increase was attributable to the loan portfolio,
as the Bank grew this portfolio average balance by 25% in 1997. The fairly small
negative rate variance of $0.5 million between 1997 and 1996 was caused by a
mixture of positive and negative rate variances within both, interest-earning
asset categories and interest-bearing liabilities.
The net yield on interest-earning assets decreased 31 basis points in
1997. From 1996 to 1997, the yield on loans decreased due in large part to
increasing competition among local banks while investment securities yields
increased slightly as maturities were slightly extended as Pioneer Citizens Bank
of Nevada prepared for anticipated decreases in general interest rates. In 1997,
Pioneer Citizens Bank of Nevada increased money market and tiered interest
account rates to remain competitive in the deposit market, however, the cost of
time deposits decreased due to favorable repricing of maturities at lower rates.
Other Income
The following table details dollar amount percentage changes of certain
categories of other income for the three years ended December 31, 1998.
<TABLE>
<CAPTION>
Percent Percent
OTHER INCOME 1998 % Change 1997 % Change 1996 %
(dollars in thousands) Amount of Total Prev. Yr. Amount of Total Prev. Yr. Amount of Total
------- ------- ----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts .. $ 3,232 31.5% 6.0% $ 3,050 40.2% 24.7% $ 2,446 45.4%
Merchant Credit Card Income .......... 1,988 19.4% 8.6% 1,831 24.1% 24.6% 1,469 27.2%
Trust Department Income .............. 1,554 15.2% 17.9% 1,318 17.4% 87.7% 702 13.0%
Gain on Sale of Securities
Held- to-Maturity ................. -- -- -- -- -- (100.0)% 10 0.2%
Gain on Sale of Securities
Available-for-Sale ................ 2,016 19.7% 1,716.2% 111 1.5% -- -- --
ATM Network Fees Earned .............. 276 2.7% 16.9% 236 3.1% 15.1% 205 3.8%
Other Income ......................... 1,185 11.5% 13.9% 1,040 13.7% 86.0% 559 10.4%
------- ------- ----- ------- ------- ----- ------- -------
$10,251 100.0% 35.1% $ 7,586 100.0% 40.7% $ 5,391 100.0%
</TABLE>
Service charges on deposit accounts continue to be the major
non-interest income category. Other categories such as merchant credit card
income and trust department income are growing, however, in 1998 the large
realized gain in the available-for-sale securities portfolio caused that
category to be the second biggest contributor last year. Pioneer's management's
decision to realize some of the gains within the available-for-sale portfolio
was made on the premise that Pioneer Citizens Bank of Nevada could replace the
yields of the securities to be sold with slight extension in duration. Also,
this presented an opportunity to reinvest some of the proceeds into various low
risk mortgage-backed securities and collateralized mortgage obligations.
In 1998, an outside consulting group was hired to assist management in
identifying ways to enhance the contributions of current non-interest income
sources, specifically service charges on deposit accounts. As another ongoing
process, Pioneer Citizens Bank of Nevada continues to explore other possible
non-interest income sources such as insurance sales and additional trust
products.
In 1997, trust department income increased 88% from 1996 as
consolidations at competitor banks benefitted Pioneer and its continued
commitment toward providing trust services to our
95
<PAGE>
communities. Service charges on deposits also increased favorably due to the
growth in deposits both in balance and numbers.
Other Expense
The following table details dollar amount and percentage changes of
certain categories of other expense for the three years ended December 31, 1998.
<TABLE>
<CAPTION>
Percent Percent
OTHER EXPENSE 1998 % Change 1997 % Change 1996 %
(dollars in thousands) Amount of Total Prev. Yr. Amount of Total Prev. Yr. Amount of Total
------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and Employee Benefits . $13,939 46.5% 25.6% $11,100 46.8% 21.9% $ 9,108 47.1%
Occupancy and Equipment ........ 5,966 19.9% 35.7% 4,396 18.5% 32.4% 3,320 17.2%
Merchant Credit Card Expense ... 1,718 5.7% 9.7% 1,566 6.6% 8.9% 1,438 7.4%
Other Expense .................. 8,379 27.9% 25.9% 6,654 28.1% 21.7% 5,466 28.3%
------- -------- ------- ------- ------- ------- ------- -------
$30,002 100.0% 26.5% $23,716 100.0% 22.7% $19,332 100.0%
</TABLE>
Similar to 1997 and 1996, salaries and employee benefits continued to
be the majority of the non-interest expense category. As Pioneer has grown in
total assets, number of branches and product offerings, the number of full-time
equivalent employees at Pioneer Citizens Bank of Nevada has also grown from 193
at the beginning of 1996 to 307 at December 31, 1998. In 1998, Pioneer Citizens
Bank of Nevada opened three branches in the Las Vegas/Henderson area and a
Central Vault facility in Las Vegas. Also various departments such as Marketing,
Support Services (data center) and Leasing and Lending Centers, and Business
Development have added staff in response to the increased volume of business and
the growth opportunities. Pioneer's assets per full-time equivalent employee
ratio is $3.3 million, compared to a peer ratio of $2.6 million, as published in
the FDIC's Peer Analysis for Commercial Banks with deposits between $330 million
and $1 billion as of September 30, 1998.
Consistent with Pioneer's growth strategy, occupancy and equipment
expense grew significantly in 1998. The major 1998 capital budget items and the
expenditures for each are as follows: three Las Vegas/Henderson area branches
($6.1 million), relocation of the data center to a new Reno location ($0.4
million), completion of the Central Vault facility in Las Vegas ($1.7 million),
expansion of the Sparks branch ($0.7 million), and upgrade and enhancement of
the Bank's computer network ($0.3 million).
A large expense item within the other expense category is public
relations/advertising expense. This expense category totaled $1.2 million for
1998, a 62% increase over the $0.75 million expenses in 1997.
Cost management has always been a high priority item for management and
the board. The outside consulting group hired in 1998 was also asked to assist
management in analyzing and adjusting various branch and department processes so
as to achieve additional cost savings. The resulting recommendations were
implemented, or are in the process of implementation, and are already beginning
to improve net earnings. No employee terminations or other restructuring costs
are planned as a result of implementation of either the consulting group's
recommendations or other processing changes.
For 1997, growth in salaries and employee benefits as well as occupancy
and equipment expense was related to the substantial growth that Pioneer
Citizens Bank of Nevada experienced throughout the system. New branches, more
branch personnel and department support staff, increases in the number of loan
and deposit accounts and the transactions processed within those relationships
all added to the 23% increase in other expense from 1996. Major capital budget
projects and expenditures for 1997 included the following items: initial phases
of Las Vegas branch expansion ($0.5 million), new Reno main offices ($2.3
million), mainframe/software upgrades ($0.3 million) and northern branch remodel
($0.3 million). Public relations/advertising expense in 1997 increased 15% over
the $0.65 million expenses in 1996.
96
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Management
The largest component of Pioneer's earnings is net interest income,
which can fluctuate widely when interest rate movements occur. Pioneer Citizens
Bank of Nevada's management is responsible for minimizing Pioneer's exposure to
interest rate risk. This is accomplished by developing objectives and strategies
such as establishing benchmarks which attempt to limit the change in pretax net
interest income, or benchmark ranges which limit the level of asset or liability
sensitivity with a given time period. The ongoing management of Pioneer's
interest rate sensitivity limits interest rate risk by controlling the mix and
maturity of assets and liabilities. A monthly exercise which involves simulating
the effects of various immediate interest rate shifts (100 to 200 basis points
up or down) on the most current balance sheet and income statement, enables
management to review Pioneer Citizens Bank of Nevada's interest rate risk
position. This includes evaluating alternative sources and uses of funds as well
as discussing any changes in external factors. Methods used to achieve and
maintain Pioneer Citizens Bank of Nevada's rate sensitive position objectives
include the sale or purchase/funding of various asset classes as well as
adjusting loan and/or deposit product pricing. Pioneer does not currently use,
or anticipate using, derivative instruments such as floors, caps or other
interest rates swap type instruments to protect Pioneer Citizens Bank of Nevada
from significant movements in interest rates. However, the majority of variable
loans on balance sheet of Pioneer Citizens Bank of Nevada do have cap or floor
arrangements within the rate terms.
Pioneer views any asset or liability which matures or is subject to
repricing within one year to be interest sensitive even though an analysis is
performed for all other time intervals as well. The difference between interest
sensitive assets and interest sensitive liabilities for a defined period of time
is known as the interest sensitivity "gap", and may be either positive or
negative. When the gap is positive, interest sensitive assets reprice quicker
than interest sensitive liabilities. When negative, the reverse occurs.
Non-interest assets and liabilities have been positioned based on management's
evaluation of the general sensitivity of these balances to migrate into rate
sensitive products. This analysis provides a general measure of interest rate
risk but does not address complexities such as prepayment risk, basis risk and
Pioneer Citizens Bank of Nevada's customer response to interest rate changes.
Currently, Pioneer's one year interest sensitive gap is positive. This means, if
interest rates were to change and affect assets and liabilities equally, rising
rates would increase Pioneer Citizens Bank of Nevada's net interest income.
The reverse is true when rates fall.
The following table displays Pioneer Citizens Bank of Nevada's balance
sheet based on the repricing schedule of 3 months, 3 months to 1 year, 1 year to
5 years and over 5 years. The table does not fully reflect possible high levels
of loan prepayments or time deposit early withdrawals with the periods.
97
<PAGE>
Asset/Liability Maturity Repricing Schedule
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
ASSET/LIABILITY After Three
MATURITY REPRICING Months bu After One
SCHEDULE Within Within But Within After Five
Three Months One Year Five Years Years Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Loans:
Fixed ................................ $ 11,120 $ 18,958 $ 95,741 $ 120,602 $ 246,421
Variable (2) ......................... 236,145 9,783 84,271 6,489 336,688
Securities ........................... 23,595 18,258 82,160 191,565 315,578
Federal Funds Sold ..................... 47,500 -- -- -- 47,500
--------- --------- --------- --------- ---------
Total Earning Assets ................. $ 318,360 $ 46,999 $ 262,172 $ 318,656 $ 946,187
Allowance for Loan Losses .............. -- -- -- (7,004) (7,004)
--------- --------- --------- --------- ---------
Total Earning Assets ................. $ 318,360 $ 46,999 $ 262,172 $ 311,652 $ 939,183
========= ========= ========= ========= =========
Interest Bearing Demand (1) ............ $ 369,772 $ -- $ -- $ -- $ 369,772
Savings (1) ............................ 97,279 -- -- -- 97,279
Time ................................... 62,267 116,109 29,768 104 208,248
--------- --------- --------- --------- ---------
Total Deposits ....................... $ 529,318 $ 116,109 $ 29,768 $ 104 $ 675,299
Repurchase Agreements .................. 60,111 -- -- -- 60,111
--------- --------- --------- --------- ---------
Total Interest Bearing Liabilities ... $ 589,429 $ 116,109 $ 29,768 $ 104 $ 735,410
========= ========= ========= ========= =========
Net Interest Rate Sensitivity Gap ...... $(271,069) $ (69,110) $ 232,404 $ 311,548 $ 203,773
Cumulative Gap ......................... $(271,069) $(340,179) $(107,775) $ 203,773 $ 203,773
</TABLE>
(1) Includes deposits with no stated maturity.
(2) The majority of variable rate loans use Prime Rates as the index. An
immaterial amount of other variable rate loans using the five year constant
maturity treasury index. The remaining earning asset categories are fixed
rate in nature.
98
<PAGE>
The following table displays expected maturity information and
corresponding interest rates for all interest-sensitive assets and liabilities
as well as the fair value of each category at December 31, 1998.
<TABLE>
<CAPTION>
Expected Maturity Date at December 31, 1998
(Dollars in thousands)
Fair
1999 2000-01 2002-03 Thereafter Total Value
-------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Commercial and Industrial $106,480 $ 13,993 $ 20,850 $ 10,368 $151,691 $152,118
Average interest rate 8.87% 8.43% 8.73% 8.91% 8.82%
Construction and Development 85,270 2,548 1,038 4,910 93,766 92,865
Average interest rate 9.04% 7.93% 8.70% 8.82% 9.00%
Insured or Guaranteed Residential 46 -- -- -- 46 47
Average interest rate 10.14% -- -- -- 10.14%
Conventional and Non-Farm, Non-Residential 62,575 16,339 115,512 103,349 297,775 299,280
Average interest rate 8.69% 9.22% 8.50% 8.31% 8.50%
Agricultural Loans 441 -- 21 -- 462 464
Average interest rate 9.74% -- 9.13% -- 9.71%
Loans to Individuals for Personal Expenditures 21,588 4,920 4,104 1,599 32,211 32,452
Average interest rate 9.57% 9.59% 8.94% 9.66% 9.50%
State and Municipal Obligations -- -- 271 8,109 8,380 8,196
Average interest rate -- -- 4.29% 6.65% 4.94%
Leases 398 59 257 -- 714 727
Average interest rate 8.13% 12.79% 10.24% -- 9.24%
Federal funds sold 47,500 -- -- -- 47,500 47,500
Average interest rate 4.74% -- -- -- 4.74%
Securities 41,853 51,321 30,839 191,565 315,578 317,111
Average interest rate 6.01% 5.95% 5.40% 5.54% 5.63%
-------- --------- --------- --------- -------- --------
Total Interest-Sensitive Assets $366,151 $ 89,180 $172,892 $319,900 $948,123 $950,760
======== ========= ======== ======== ======== ========
Interest-sensitive liabilities:
Deposits:
Savings(1) $44,049 $37,937 $ 4,830 $10,463 $97,279 $97,425
Average interest rate 2.37% 2.37% 2.37% 2.37% 2.37%
Money Market & NOW(1) 88,487 146,370 51,489 83,426 369,772 369,772
Average interest rate 3.03% 3.03% 3.03% 3.03% 3.03%
Time certificates 178,376 28,127 1,641 104 208,248 209,120
Average interest rate 5.26% 5.57% 5.25% 6.00% 5.30%
Repurchase Agreements 60,111 -- -- -- 60,111 60,111
Average interest rate 4.40% -- -- -- 4.40%
-------- --------- --------- --------- -------- --------
Total Interest-Sensitive Liabilities $371,023 $212,434 $ 57,960 $ 93,993 $735,410 $736,428
======== ======== ========= ======== ======== ========
</TABLE>
(1) Expected maturity based on historical life of accounts.
- ------------------------
99
<PAGE>
Year 2000 Disclosure - Pioneer and Pioneer Citizens Bank of Nevada's
State of Readiness
Technical Issues
The Year 2000 ("Y2K") issue is the result of the inability of computers
to distinguish "00" as 2000. Computer programs that were written with only a
two-digit year may not function accurately or at all when the date changes from
1999 to 2000. Year 2000 issue will potentially affect anything that contains an
embedded microchip.
The major impact created by the two-digit year in computer programs
involves finding the numerous date routines, correcting them, testing the
changes and placing the program back into production. Estimates have these date
representations occurring about once every five lines of code on average. The
major cost of remediation for most companies falls into the area of identifying,
fixing and testing the two-digit dates and reinstalling the programs into
production.
Pioneer Citizens Bank of Nevada does not run core mission critical
systems that rely on two-digit code for the year. The Information Technology
Incorporated (ITI) system that Pioneer Citizens Bank of Nevada relies on
utilizes a single proprietary date routine for all of their programs. This date
routine was developed in the 1980's as part of the original system design and
has proven its accuracy over the course of the past 13 years that Pioneer
Citizens Bank of Nevada has run the ITI system. The major cost element of fixing
the two-digit date was averted by running the ITI system.
Pioneer Citizens Bank of Nevada has tested the ITI system it uses
twice: once at its disaster recovery site on the ITI equipment and once on
Pioneer Citizens Bank of Nevada's own mainframe computer in Reno. The results of
both tests were identical, and no date-related problems occurred. The system was
tested through the end of the Year 2000 to insure it was able to determine the
correct number of days occurring in the Year 2000 which will be 366 due to leap
year.
Another advantage to the ITI system is that it currently runs in more
than 1,300 locations in the United States supporting more than 3,500 banks.
Under the Federal Financial Institutions Examination Council ("FFIEC")
guidelines, the system must be tested in each bank. This will make the ITI
system one of the most Y2K - tested systems in the country.
Given the design of the system, its long history of positive
performance, the intense level of Y2K testing and Pioneer Citizens Bank of
Nevada's own years of experience in using the system, Pioneer Citizens Bank of
Nevada's confidence level is high that it will perform as designed.
Project Management. Pioneer Citizens Bank of Nevada initiated a Year
2000 Project early in 1997 to address these issues. Pioneer Citizens Bank of
Nevada's Year 2000 Project Plan has been set up following the FFIEC recommended
five-phase format: Awareness; Assessment; Renovation; Validation;
Implementation. In addition to the recommended five phases, Pioneer Citizens
Bank of Nevada's plan has been expanded to include Audit, Budget, Contingency
Plans and year-end plans.
Awareness
The awareness phase of Pioneer Citizens Bank of Nevada's project has
taken on much greater importance than originally envisioned. The primary reason
is that Pioneer feels very strongly about informing its stockholders, customers
and business partners of its progress toward Year 2000 compliance and about the
Year 2000's potential impact on them.
Pioneer Citizens Bank of Nevada's Y2K communication efforts have
reached all stockholders, customers, and staff. All information has been placed
in the branches for both customers and the general public. Year 2000
presentations have been made by members of Pioneer Citizens Bank of Nevada's Y2K
Team to more than 600 business people in various Reno and Las Vegas civic clubs
in an effort to raise awareness of the potential Y2K risks. Pioneer participated
in a televised program dealing with Y2K issues that had more than a million
viewers in five states.
100
<PAGE>
Awareness Phase Status. The awareness phase of Pioneer Citizens Bank of
Nevada's Y2K Plan continues to be the most active phase. The continuing need to
communicate the potential Y2K impact will last through the end of 1999. Pioneer
will continue to communicate the status of Pioneer Citizens Bank of Nevada's Y2K
efforts and the steps Pioneer is taking to insure the safety and accuracy of
customer funds and records.
Assessment
As of March 1, 1999, more than 94% of the dollar amount of Pioneer
Citizens Bank of Nevada's loan portfolio has been Y2K - risk assessed by Pioneer
Citizens Bank of Nevada lenders. The review was designed to identify borrowers
that may experience potential disruptions as a result of a failure of their
systems, external systems or suppliers that in turn could impact cash flow and
affect their financial strength. Only 11 loans in four relationships involving
$3.1 million were rated as Y2K high-risk. These four relationships plus the
loans rated medium-risk are being monitored on a quarterly basis by the lenders
per Pioneer Citizens Bank of Nevada policy. Those customers have also been
advised to seek professional Y2K assistance.
Pioneer Citizens Bank of Nevada added to its loan criteria the
requirement to evaluate the applicant's Y2K compliance rating as another
consideration in determining the final decision on the loan application. A high
Y2K risk rating may not disqualify the applicant in itself. If the applicant has
a Y2K project plan, the plan is on schedule and the risk factors have been
addressed to the satisfaction of Pioneer Citizens Bank of Nevada, the Y2K risk
may not disqualify the application.
Pioneer Citizens Bank of Nevada trust department has completed
assessment of the Y2K risk associated with their fiduciary services. Outside
providers of investment advice have been required to follow the SEC's directives
dealing with the soundness of companies they recommend for investment of trust
funds. In addition to Y2K checking of the new assets being added to the trust
portfolios, the trust officers have reviewed the existing assets in the account
to determine if they may be a Y2K risk to the client.
Pioneer Citizens Bank of Nevada's investment portfolio has been
reviewed for insurance coverage and maturity dates. The money derived from the
maturing of some bonds may become part of the total cash plan for Pioneer
Citizens Bank of Nevada. A contingency plan for cash has been developed and
addresses the level of cash Pioneer Citizens Bank of Nevada will retain over the
Century Date Change (CDC) weekend.
Assessment Phase Status. The initial assessment of loans, trust
accounts, investments and large funds providers as well as Pioneer's Information
Systems and environmental systems have been completed with positive results. The
main activity for the balance of the year will be monitoring the existing
accounts and reviewing the new ones.
Renovation
Pioneer Citizens Bank of Nevada's automatic teller machines (ATM), Bank
By Phone (VRU) Systems and Trust Systems were successfully converted to the Y2K
compliant version of their respective software. The trust accounting system was
upgraded to the Y2K compliant version in August 1998 and continues to run in
Pioneer Citizens Bank of Nevada's production environment. The Y2K update to
Pioneer Citizens Bank of Nevada's LAN/WAN personal computer Network Operating
System and the installation of new computer chips in Pioneer Citizens Bank of
Nevada's teller station computers were completed in the first quarter of 1999.
This change will enable the teller station hardware to continue to process
customer transactions into the next century without replacing the entire
computer.
Renovation Phase Status. The renovation phase of Pioneer Citizens Bank
of Nevada's project has been completed for Y2K purposes. All new programs will
be subjected to the full range of Y2K testing prior to final acceptance and
installation in our production environment.
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Validation
Testing of Pioneer's mission critical core mainframe computer software
was completed in June 1998. Following extensive and exhaustive review of the
output data by Pioneer's technical staff, internal audit and the users of the
systems, the data was determined to be accurate in all aspects. All non-critical
software has been tested and determined to be accurate in all respects.
The Unisys mainframe computer in Reno was successfully tested for the
Year 2000 rollover date and the leap year date as was the Unisys DP500 data
capture system in Las Vegas.
All Y2K and Leap Year tests have been successfully completed in
conjunction with the Federal Reserve Bank, including tests on the following
applications: wire transfers, Automated Clearing House (ACH) payments, bond
processing and Treasury Taxes and Loans (TT&L) tax payment system.
Validation Phase Status. All Y2K validation efforts have been
completed with positive results. Testing will continue in a maintenance mode.
Implementation
The implementation effort at Pioneer Citizens Bank of Nevada involved
upgrades to several applications and in the case of the trust application
required Pioneer Citizens Bank of Nevada to upgrade its hardware to obtain the
best results from the system. The other upgrades were completed earlier than
projected because of Y2K but were planned for later change as a matter of normal
operational planning. All applications running in a production mode are the most
current Y2K version of the software.
Implementation Phase Status. The implementation phase of Pioneer
Citizens Bank of Nevada's Y2K project is considered to be in an ongoing
maintenance mode. All new systems installed in Pioneer Citizens Bank of Nevada
are being validated as Y2K compliant prior to their implementation.
Non-Technical Issues
The Year 2000 also gives rise to non-technical issues that have the
potential to create problems. Pioneer's environmental systems have been reviewed
and determined to be Y2K ready. Only limited changes were required with minimal
expense incurred. Pioneer's mission critical equipment such as vault doors and
security systems have been evaluated and are considered to be Y2K ready.
Pioneer has received a written response from all mission critical
vendors indicating that they are aware of the Year 2000 potential risks and have
a plan in place to address their issues. None of Pioneer's identified mission
critical vendors have indicated that they are not, or believe that they will not
timely be, Year 2000 compliant. Pioneer will continue to monitor these vendors
and request periodic updates on their progress. Contingency plans have been
developed to address the potential loss of services and/or products from these
vendors. Most of Pioneer's mission critical vendors automatically update Pioneer
quarterly as to their status, and if such updates are not received from any
vendor, Pioneer promptly contacts such vendors in writing, requesting a written
status update.
None of the written assurances that Pioneer has received from mission
critical vendors are significantly qualified, limited or subject to conditions
that cause Pioneer to question the value of such assurances. Aside from certain
evidentiary exclusions or higher evidentiary requirements that may apply in
state and federal legal actions regarding vendor assurances if they are
determined by a court to constitute Y2K readiness disclosures or Year 2000
statements under the federal Year 2000 Information and Readiness Disclosure Act
of 1998, Pioneer Citizens Bank of Nevada is not aware of any limitations on its
legal remedies against vendors that ultimately prove not to be Y2K compliant
despite assurances to the contrary.
Pioneer Citizens Bank of Nevada has successfully tested the Y2K
compliance of all of its mission critical software vendors' products in use by
Pioneer Citizens Bank of Nevada. A written
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<PAGE>
request has been sent to Pioneer's mission critical software vendors asking if
they have had a third party review of their software. A request has been made to
Pioneer's mission critical vendors for copies of their financial reports
including the annual report, 10-K, 10-Q and quarterly reports to shareholders.
Some information was obtained from the respective vendor web sites. An analysis
of this information was performed by a lending analyst from the loan department
which indicated that the companies in question were in acceptable financial
condition. Many of Pioneer Citizens Bank of Nevada's mission critical vendors
have been audited by the Office of the Comptroller of the Currency ("OCC") for
Y2K compliance. The FDIC, in cooperation with the OCC, has provided Pioneer with
an audit report of their findings to help is evaluate the conditions of these
companies.
Aside from the compliance testing described above regarding vendors of
mission critical software products, Pioneer has not tested, and has no current
plans to independently test, the Y2K compliance of its mission critical vendors
generally.
Pioneer Citizens Bank of Nevada has not established specific dates
after which it would terminate its relations with any mission critical vendor
that has not provided adequate assurance of its Y2K compliance. The reason for
not setting a date is that Pioneer has established good communications with all
mission critical vendors, and has no current concerns about their Y2K
compliance. If this situation changes with any such vendors, Pioneer would
reconsider its position which may result in termination of such relationship.
Any such termination decision would be made on a case-by-case basis, based on
all information then available to Pioneer Citizens Bank of Nevada after careful
scrutiny of the nature of the vendor's Y2K issues, the services provided by such
vendor, the nature and quality of alternative vendors and other matters.
Contingency and Year End Plans
Contingency and year-end plans have been completed for all areas of
Pioneer Citizens Bank of Nevada. Both plans are considered to be "living
documents" and will be refined and updated to reflect changes and conditions
that evolve or develop as time passes. A successful bank-wide walkthrough test
of the plans was conducted on April 17, 1999.
The walkthrough test successfully addressed the objectives of the
exercise from several directions. The plans themselves were well thought out and
complete, the process Pioneer designed for handling the issues worked as
expected, the information provided to the senior managers was satisfactory in
both content and volume and the problems Pioneer designed to test the plans were
addressed. Some issues surfaced during the course of the test that were
evaluated and incorporated into the plans where appropriate. Some of the issues
were related to communications, physical location of various staff at the CDC
time, customer service, disaster supplies and extra security equipment.
Pioneer Citizens Bank of Nevada has concluded, based on its review of
information available to it, that it cannot now accurately assess the most
reasonably likely worst case scenario in which Pioneer Citizens Bank of Nevada
could find itself as a result of Y2K issues. Indeed, the scope of the Y2K
situation is the subject of worldwide speculation, and there is no clear picture
of the most reasonably likely worst case scenario, from any source. Management
believes that the "living document" approach described above, and the regular
attention to evolving Y2K issues and challenges that is necessary for this
approach, to be the optimal way to approach the possible worst case scenarios at
this point in time. As noted above, Pioneer Citizens Bank of Nevada has in place
contingency and year-end plans, which outline the steps to be taken to minimize
the effect on customers and losses to the bank in the event that unforseen
circumstances beyond Pioneer Citizens Bank of Nevada's control adversely affect
our ability to provide financial services to customers.
Audit
McGladrey & Pullen, LLP, a public accounting firm specializing in Year
2000 audits, has completed a review of Pioneer Citizens Bank of Nevada's Year
2000 project and provided Pioneer Citizens Bank of Nevada with a report of their
findings. The report indicated that Pioneer's plan
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<PAGE>
addressed the Y2K issues as expected and was following the FFIEC guidelines.
Overall, Pioneer Citizens Bank of Nevada is on schedule with its Year 2000
planning activities and does not have any significant problems related to its
Year 2000 compliance efforts.
The FDIC has conducted three onsite examinations of Pioneer Citizens
Bank of Nevada's Y2K project since August of 1997. Although the audit results
and conclusions may not be revealed, Pioneer Citizens Bank of Nevada considers
the Y2K project on schedule or ahead of schedule. Results of Pioneer's testing
have been positive and Pioneer is running the most current version of its
production software without Y2K problems. Pioneer is currently testing its
contingency plans and year-end plans and expects they will prove capable of
addressing any problems that develop when the CDC arrives.
Summary
Each of Pioneer and Pioneer Citizens Bank of Nevada continue to meet
their Y2K plan milestones and move toward their goal of becoming Year 2000
compliant. Each of Pioneer and Pioneer Citizens Bank of Nevada remain firm in
their commitment to provide the needed resources to address the Year 2000 issues
and continue to serve their customers into the next century.
Estimated Costs to Address Year 2000 Issues
The total financial effect that the Year 2000 issues may have on
Pioneer Citizens Bank of Nevada cannot be predicted with any certainty at this
time. The single largest Y2K expense involves the identification and
modification of date routines in software. Because Pioneer Citizens Bank of
Nevada utilized software acquired from a third party and has no source code or
programmers to work on the code, the major Y2K expense has been avoided.
Pioneer's total budget for 1998 was $500,000 and its actual expenditures were
less than half this amount. The budget was set at $350,000 for 1999 and $270,000
for 2000 bringing the total Y2K budget through the Year 2000 to $1.12 million.
Pioneer Citizens Bank of Nevada does not consider this level of expenditure to
be material and is not expected to have a material impact on earnings. The
year-to-date 1999 direct cost attributable to Y2K efforts through May 31, 1999
was $105,000.
Risks Related to Year 2000 Issues
The Year 2000 poses certain risks to Pioneer Citizens Bank of Nevada
and its operations. Like the operations of many other companies, Pioneer
Citizens Bank of Nevada's operations can be adversely affected by the Year 2000
triggered failures of other companies upon whom it depends for the functioning
of its automated systems and other services. Accordingly, Pioneer Citizens Bank
of Nevada's operations could be materially affected if the operations of
mission-critical third party service providers are adversely affected. Pioneer
Citizens Bank of Nevada has identified all of its mission-critical vendors and
set up a process to carry out ongoing monitoring of their Year 2000 compliance
efforts.
Forward Looking Statements and Year 2000 Readiness Disclosure
The discussion above regarding the century date change for the Year
2000 includes certain "forward looking statements" concerning the future
operations of Pioneer Citizens Bank of Nevada. Pioneer Citizens Bank of Nevada
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 ("PSLRA") as they apply to forward
looking statements. This statement is for the express purpose of availing
Pioneer Citizens Bank of Nevada of the protections of such safe harbor with
respect to all "forward looking statements." The ability of Pioneer's management
to predict results of the effect of future plans is inherently uncertain, and
subject to factors that may cause results to differ materially from those
projected. Factors that could affect the actual results include Pioneer Citizens
Bank of Nevada's success in identifying all the Y2K risks within Pioneer
Citizens Bank of Nevada, the uncertainty associated with the impact of the
century change on our customers, vendors and third-party service providers and
the economy in general.
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EXPERTS
The consolidated financial statements of Zions as of December 31, 1998
and 1997 and for each of the years in the three-year period ended December 31,
1998, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of First Security as of December
31, 1998 and 1997 and for each of the years in the three-year period ended
December 31, 1998, incorporated by reference in this proxy statement/prospectus
from First Security's Annual Report on Form 10-K for the year ended December 31,
1998, have been audited by Deloitte & Touche LLP, independent auditors as stated
in their report which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
VALIDITY OF ZIONS COMMON STOCK
The validity of the shares of Zions common stock being offered hereby
will be passed upon for Zions by Sullivan & Cromwell, Los Angeles, California.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Pioneer board
knows of no matters that will be presented for consideration at the special
meeting other than as described in this proxy statement/prospectus. However, if
any other matter shall come before the special meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed proxy will be deemed
to confer authority to the individuals named as authorized therein to vote the
shares represented by such proxy as to any such matters that fall within the
purposes set forth in the notice of special meeting as determined by a majority
of the Pioneer board; provided, however, that no proxy that is voted against the
proposal to approve the principal terms of the merger agreement will be voted in
favor of any adjournment or postponement.
WHERE YOU CAN FIND MORE INFORMATION
Zions has filed with the SEC a Registration Statement under the
Securities Act that registers the distribution to Pioneer stockholders of the
shares of Zions common stock to be issued in connection with the merger. The
Registration Statement, including the attached exhibits and schedules, contains
additional relevant information about Zions and Zions common stock. The rules
and regulations of the SEC allow us to omit certain information included in the
Registration Statement from this proxy statement/prospectus.
In addition, Zions, First Security and Pioneer file reports, proxy
statements and other information with the SEC under the Exchange Act. You may
read and copy this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information
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<PAGE>
about issuers, like Zions, First and Security and Pioneer who file
electronically with the SEC. The address of the site is http://www.sec.gov.
Pioneer has only recently become subject to the reporting requirements
of the Exchange Act. It has filed a Registration Statement on Form 10, which was
effective on June 28, 1999. That document, as amended, can be obtained or
reviewed as described above.
You should also be able to inspect reports, proxy statements and other
information about Zions, First Security and Pioneer at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows Zions to "incorporate by reference" information into
this proxy statement/prospectus. This 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 considered to be a part of
this proxy statement/prospectus, except for any information that is superseded
by information that is included directly in this document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Zions previously filed with the SEC. They contain important
information about the companies and their financial condition.
Zions SEC Filings Period
- ----------------- ------
Annual Report on Form 10-K..................... Year ended December 31, 1998
Quarterly Report on Form 10-Q.................. Quarter ended March 31, 1999
Current Report on Form 8-K..................... June 7, 1999
The descriptions of Zions common stock and rights set forth in Zions'
Registration Statements on Form 10 and Form 8-A filed pursuant to Section 12 of
the Exchange Act, including any amendment or report filed with the SEC for the
purpose of updating such descriptions.
Zions incorporates by reference the audited consolidated balance sheets
of First Security as of December 31, 1998 and 1997 and the audited consolidated
statement, of income, stockholders' equity and cash flows for the years ended
December 31, 1998, 1997 and 1996 and the related notes from First Security's
Annual Report on Form 10-K for the year ended December 31, 1998, and the
unaudited interim consolidated financial statements and the related notes as of
and for the three months ended March 31, 1999 of First Security from First
Security's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
Zions incorporates by reference additional documents that it may file
with the SEC between the date of this proxy statement/prospectus and the date of
the special meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
Zions has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Zions, as well as all
pro forma financial information, and Pioneer has supplied all information
relating to Pioneer.
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Documents incorporated by reference are available from Zions without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. You can obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
Zions at the following address:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Attention: Dale M. Gibbons
Telephone: (801) 524-4787
If you would like to request documents, please do so by September 8,
1999 to receive them before the special meeting. If you request any incorporated
documents from Zions, Zions will mail them to you by first class mail, or
another equally prompt means, within one business day after it receives your
request.
Neither Zions nor Pioneer has authorized anyone to give any information
or make any representation about the merger or our companies that is different
from, or in addition to, that contained in this proxy statement/prospectus or in
any of the materials that have been incorporated into this document. Therefore,
if anyone does give you information of this sort, you should not rely on it. If
you are in a jurisdiction where offers to exchange or sell, or solicitations of
offers to exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditor's Report....................................................................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997....................................................F-3
Consolidated Statements of Earnings for the years ended December 31, 1998, 1997 and 1996........................F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996...........................................................................F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996......................F-9
Notes to Consolidated Financial Statements.....................................................................F-11
Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and December 31, 1998.............................F-32
Consolidated Statements of Earnings for the three months ended March 31, 1999
and 1998 (Unaudited)......................................................................................F-33
Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Income for the
three months ended March 31, 1999 (Unaudited).............................................................F-34
Consolidated Statements of Cash Flows for the three months ended March 31, 1999
and 1998 (Unaudited)......................................................................................F-35
Notes to Consolidated Financial Statements (Unaudited).........................................................F-36
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
Pioneer Bancorporation:
We have audited the accompanying consolidated balance sheets of Pioneer
Bancorporation and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 Pioneer
Bancorporation and subsidiary as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Los Angeles, California
January 15, 1999, except for Notes 13 and 22
of the Notes to Consolidated Financial Statements
which are as of May 7, 1999.
F-2
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Balance Sheets
As of December 31, 1998 and 1997
- ----------------------------------------------------------------------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Assets:
Cash and Cash Equivalents:
Cash and Due from Banks ............................ $ 58,208,000 $ 57,467,000
Federal Funds Sold ................................. 47,500,000 83,500,000
Total Cash and Cash Equivalents ............... 105,708,000 140,967,000
Securities Held to Maturity, Fair Value of ............. ,000 40,861,000
$47,627,000 and $41,870,000
as of December 31, 1998 and 1997,
respectively .................................. 46,102
Securities Available for Sale .......................... 269,476,000 211,004,000
Loans (less allowance for credit losses of $7,004,000 .. 434,548,000
and $5,773,000
as of December 31, 1998 and 1997, respectively) .... 576,105,000
Premises and Equipment, Net ............................ 18,049,000 10,886,000
Interest Receivable .................................... 7,258,000 6,408,000
Deferred Tax Asset, Net ................................ 2,098,000 1,092,000
Other Assets ........................................... 6,461,000 5,495,000
-------------- --------------
Total Assets ........................................... $1,031,257,000 $ 851,261,000
-------------- --------------
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Demand:
Noninterest Bearing ....................... $ 224,448,000 $ 201,956,000
Interest Bearing .......................... 118,748,000 94,049,000
Savings ....................................... 97,279,000 66,352,000
Money Market .................................. 251,024,000 277,413,000
Time - under $100,000 ......................... 99,098,000 59,104,000
Time - $100,000 and over ...................... 109,150,000 40,904,000
Total Deposits ............................ 899,747,000 739,778,000
Securities Sold Under Repurchase Agreements ........ 60,111,000 53,728,000
Other Liabilities .................................. 3,845,000 3,698,000
-------------- --------------
Total Liabilities ...................................... $ 963,703,000 $ 797,204,000
-------------- --------------
F-3
<PAGE>
Shareholders' Equity
Common Stock, $.01 par value,
authorized 15,000,000 shares; issued and
outstanding
9,547,266 shares in 1998 and 9,273,770
shares in 1997 ................................. $ 9,600 $ 51,000
Paid-In Surplus ......................................... 65,282,000 21,973,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available
for Sale, Net
of Tax effect of $482,000 and $687,000
respectively ................................... 1,025,000 1,460,000
Retained Earnings ........................................... 1,151,000 30,573,000
-------------- --------------
Total Shareholders' Equity .................................. 67,554,000 54,057,000
Total Liabilities and Shareholders' Equity .................. $1,031,257,000 $ 851,261,000
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Statements of Earnings
Years ended December 31, 1998, 1997 and
1996 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans ................ $49,588,000 $39,909,000 $32,225,000
Interest on Federal Funds Sold ............ 3,795,000 3,487,000 1,515,000
Interest on Securities:
Taxable ............................... 11,904,000 10,168,000 7,284,000
Exempt from Federal Income Taxes .......... 3,579,000 2,060,000 1,340,000
----------- ----------- -----------
Total Interest Income ..................... $68,866,000 $55,624,000 $42,364,000
----------- ----------- -----------
Interest Expense:
Interest on Deposits ...................... 25,537,000 19,881,000 14,738,000
Interest on Federal Funds and
Repurchase Agreements ..................... 3,208,000 1,813,000 1,106,000
----------- ----------- -----------
Total Interest Expense .................... $28,745,000 $21,694,000 $15,844,000
----------- ----------- -----------
Net Interest Income: ........................... 40,121,000 33,930,000 26,520,000
Provision for Credit Losses ............... 2,125,000 1,300,000 1,015,000
----------- ----------- -----------
Net Interest Income after Provision for
Credit Losses ............................. $37,996,000 $32,630,000 $25,505,000
----------- ----------- -----------
Other Income:
Service Charges on Deposit Accounts ....... 3,232,000 3,050,000 2,446,000
Merchant Credit Card Income ............... 1,988,000 1,831,000 1,469,000
Trust Department Income ................... 1,554,000 1,318,000 702,000
Gain on Sale of Securities Held to ........ -- -- 10,000
Maturity
Gain on Sale of Securities Available for .. 2,016,000 111,000 --
Sale
ATM Network Fees Earned ................... 276,000 236,000 205,000
Other Income .............................. 1,185,000 1,040,000 559,000
----------- ----------- -----------
Total Other Income ........................ $10,251,000 $ 7,586,000 $ 5,391,000
----------- ----------- -----------
Other Expenses:
Salaries and Employee Benefits ............ 13,939,000 11,100,000 9,108,000
Occupancy Expense ......................... 5,966,000 4,396,000 3,320,000
Merchant Credit Card Expense .............. 1,718,000 1,566,000 1,438,000
Other Expense ............................. 8,379,000 6,654,000 5,466,000
Total Other Expenses ...................... $30,002,000 $23,716,000 $19,332,000
----------- ----------- -----------
F-5
<PAGE>
1998 Consolidated Statements of Earnings
Years ended December 31, 1998, 1997 and
1996 1998 1997 1996
----------- ----------- -----------
Income before Income Taxes: .................... 18,245,000 16,500,000 11,564,000
Income Taxes .............................. 4,954,000 4,956,000 3,480,000
----------- ----------- -----------
Net Income ................................ $13,291,000 $11,544,000 $ 8,084,000
----------- ----------- -----------
Net Income per Common Share:
Basic Net Income Per Share ................ $ 1.40 $ 1.24 $ 0.87
----------- ----------- -----------
Diluted Net Income Per Share .............. $ 1.39 $ 1.20 $ 0.84
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income Years ended December 31, 1998, 1997 and 1996.
Accumulated
Other Total
Common Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Equity
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
Balance: ................... 2,539,302 $ 25,000 $ 9,946,000 $ 22,397,000 $ 634,000 $ 33,002,000
--------- ------------ ------------ ------------ ------------ ------------
Stock Split Effected in
the form of a Dividend ..... 507,823 5,000 (9,000) -- -- (4,000)
Common Stock Issuance ...... 9,297 (a) 219,000 -- -- 219,000
Comprehensive Income:
Net Income ............. -- -- -- 8,084,000 -- 8,084,000
Net unrealized change
in Securities Available
for Sale, net of tax
effect of ($142,000) ..... -- -- -- -- (302,000) (302,000)
Total Comprehensive Income ...... 7,782,000
Three-for-Two Stock Split ....... 1,525,663 15,000 (17,000) -- -- (2,000)
December 31, 1996
Balance: ................... 4,582,085 $ 45,000 $ 10,139,000 $ 30,481,000 $ 332,000 $ 40,997,000
--------- ------------ ------------ ------------ ------------ ------------
Stock Dividend ............. 458,067 5,000 11,442,000 (11,452,000) -- (5,000)
Common Stock Issuance ...... 7,778 (a) 242,000 -- -- 242,000
Comprehensive Income:
Net Income ............... -- -- -- 11,544,000 -- 11,544,000
Net unrealized
change in
Securities
Available for
Sale, net of tax
effect of $530,000 ... -- -- -- -- 1,128,000 1,128,000
Total Comprehensive
Income ..................... 12,672,000
Exercise of Stock
Options .................... 61,585 1,000 150,000 -- -- 151,000
December 31, 1997
Balance: ................... 5,109,515 $ 51,000 $ 21,973,000 $ 30,573,000 $ 1,460,000 $ 54,057,000
--------- ------------ ------------ ------------ ------------ ------------
Stock Dividend ............. 525,207 5,000 20,995,000 (21,009,000) -- (9,000)
Common Stock Issuance ...... 9,520 (a) 302,000 -- -- 302,000
Comprehensive Income:
Net Income ............... -- -- -- 13,291,000 -- 13,291,000
Net unrealized change
in Securities
Available for
Sale, net of tax
effect of $205,000 ... -- -- -- -- (435,000) (435,000)
Total Comprehensive
Income ..................... 12,856,000
F-7
<PAGE>
Accumulated
Other Total
Common Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Equity
--------- ------------ ------------ ------------ ------------ ------------
Three-for-Two
Stock Split ................ 2,891,339 29,000 (32,000) -- -- (3,000)
Exercise of
Stock Options .............. 143,698 2,000 349,000 -- -- 351,000
Stock Dividend (b) ......... 867,987 9,000 21,695,000 (21,704,000) -- --
December 31, 1998
Balance: ................... 9,547,266 $ 96,000 $ 65,282,000 $ 1,151,000 $ 1,025,000 $ 67,554,000
--------- ------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
(a) Amount is less than $1,000.
(b) Declared in March 1999. See Note 22.
F-8
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income .............................................. $ 13,291,000 $ 11,544,000 $ 8,084,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ....................... 2,301,000 1,716,000 1,296,000
Amortization, Accretion of Premiums and
Discounts .................................................... 512,000 662,000 798,000
on Investments
Provision for Credit Losses ......................... 2,125,000 1,300,000 1,015,000
Deferred Income taxes ............................... (782,000) (332,000) (290,000)
Gain on Sale of Premises and Equipment .............. (380,000) (324,000) (2,000)
Gain on Sale of Securities Held to Maturity ......... -- -- (10,000)
Gain on Sale of Securities Available for Sale ....... (2,016,000) (111,000) --
Increase in Interest Receivable ..................... (850,000) (1,576,000) (838,000)
(Increase) Decrease in Other Assets ................. (966,000) (1,454,000) 245,000
Increase in Unamortized Loan Origination Fees ....... 307,000 196,000 350,000
Increase (Decrease) in Other Liabilities ............ 147,000 476,000 152,000
Total Adjustments ............................... 398,000 553,000 2,716,000
------------- ------------- -------------
Net Cash Provided by Operating Activities ........... $ 13,689,000 $ 12,097,000 $ 10,800,000
------------- ------------- -------------
Cash Flows from Investing Activities:
Proceeds from Maturities and Calls of:
Held to Maturity Securities ..................... $ 4,945,000 $ 50,292,000 $ 20,446,000
Available for Sale Securities ................... 25,535,000 18,750,000 25,700,000
Proceeds from Sales of Available for Sale ........... 60,914,000 12,893,000 --
Securities
Purchase of Securities Held to Maturity ............. (10,317,000) (58,111,000) --
Purchase of Securities Available for Sale ........... (143,945,000) (110,816,00) (94,350,000)
Net Increase in Loans ............................... (144,080,000) (84,232,000) (66,663,000)
Proceeds from Sale of Premises and Equipment ........ 2,675,000 4,941,000 2,000
Acquisition of Premises and Equipment ............... (11,759,000) (5,127,000) (3,370,000)
Loan Recoveries ..................................... 91,000 84,000 108,000
------------- ------------- -------------
Net Cash Used in Investing Activities ............... $(215,941,000) $(171,326,000) $(118,127,000)
------------- ------------- -------------
Cash Flows from Financing Activities:
Net Increase (Decrease) from Federal Funds .......... -- $ (2,970,000) $ 220,000
Purchased
Net Increase in Demand Deposits and Savings
Accounts ............................................ 51,729,000 151,119,000 146,391,000
Net Increase (Decrease) in Certificates of Deposit .. 108,240,000 25,182,000 (15,490,000)
Net Increase (Decrease) in Securities Sold under
Repurchase Agreements ............................... 6,383,000 33,257,000 (8,053,000)
Proceeds from Sale of Stock ......................... 302,000 242,000 219,000
Proceeds from Exercise of Options ................... 351,000 151,000 --
Cash Paid for Fractional Shares at Dividend
and Split ........................................... (12,000) (5,000) (6,000)
------------- ------------- -------------
Net Cash Provided by Financing Activities ....... $ 166,993,000 $ 206,976,000 $ 123,281,000
------------- ------------- -------------
F-9
<PAGE>
Net Increase (Decrease) in Cash and Cash
Equivalents: ........................................ $ (35,259,000) $ 47,747,000 $ 15,954,000
Cash and Cash Equivalents Beginning of Year ..... 140,967,000 93,220,000 77,266,000
------------- ------------- -------------
Cash and Cash Equivalents End of Year ............... $ 105,708,000 $ 140,967,000 $ 93,220,000
Supplemental Disclosure of Cash Flow Information:
Interest Paid During the Year ....................... $ 28,580,000 $ 21,569,000 $ 15,875,000
Income Taxes Paid During the Year ................... $ 6,000,000 $ 5,750,000 $ 4,075,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
1998 Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and Reporting Policies
The significant accounting and reporting policies of Pioneer Bancorporation
("the Company") and its wholly-owned subsidiary Pioneer Citizens Bank of Nevada
("PCBN") are summarized below. These policies conform with generally accepted
accounting principles and with general practice within the banking industry.
Certain reclassifications have been made to prior years' consolidated financial
statements to conform with current year presentation. All material intercompany
balances and transactions have been eliminated.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and PCBN. PCBN is a state chartered commercial bank serving the
communities of Reno, Sparks, Carson City, Las Vegas, Summerlin and Henderson.
PCBN became a wholly-owned subsidiary of the Company on October 31, 1993.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated balance sheets and the
consolidated results from operations for the periods presented. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
material change in the near term relate to the allowance for credit losses.
While management believes that these allowances are currently adequate, future
additions may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as part of their examination process, periodically
review the allowances for credit losses. Such agencies may require the Company
to recognize additions to these allowances based on their judgements about
information available to them at the time of their examination.
(b) Securities Held to Maturity
Securities held to maturity are carried at cost, adjusted for amortization
of premiums and accretion of discounts, computed using the interest method. The
Company determines the classification of securities at the time of their
purchase. The Company classifies securities as held to maturity when it has the
positive intent and ability to hold such securities to maturity. The Company
considers its asset/liability strategies, liquidity needs and other factors in
determining its ability and intent to hold securities to maturity.
(c) Securities Available for Sale
The Company has designated certain securities as available for sale at the
time of their purchase. The Company determines which securities are available
for sale by evaluating whether such securities would be sold in response to
liquidity needs, asset/liability management and other factors. Amortization of
premiums and accretion of discounts are computed using the interest method. The
cost of securities sold is determined using the specific identification method.
Unrealized gains and losses, net of tax, on securities available for sale are
reported as a separate component of other comprehensive income until realized.
Declines in the fair value of individual securities held to maturity or
available for sale below their cost that are other than temporary would result
in write-downs of the individual securities to their fair value. The related
write-downs would be included in net income as realized losses.
F-11
<PAGE>
(d) Allowance for Credit Losses
The allowance for credit losses is maintained at a level believed by
management to be adequate to provide for potential loan losses based on
management's evaluation of the loan portfolio, prevailing and anticipated
economic conditions, and the Company's previous loan loss experience. The
allowance is based on estimates and ultimate losses may vary from current
estimates. The allowance is increased by provisions charged to operations and
reduced by loans charged off, net of recoveries. In addition, regulatory
examiners may require the Company to recognize additions to the allowance based
upon information available to them at the time of their examination.
The Company evaluates loans for impairment on a periodic basis. A loan is
considered impaired when, based on current information of events, it is probable
that a creditor will be unable to collect all amounts due (i.e. principal and
interest) according to the contractual terms of the loan agreement. The
measurement of impairment may be based upon (i) the present value of the
expected future cash flows of the impaired loan discounted at the loans original
effective interest rate, (ii) the observable market price of the impaired loan,
or (iii) the fair value of the collateral of a collateral dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording of valuation allowance with a
corresponding charge to the provision for credit losses.
The Company stratifies its loan portfolio by size and treats smaller
performing loans with an outstanding balance less than $250,000 as a homogenous
portfolio. For loans in excess of $250,000, the Company conducts a periodic
review of each loan in order to test for impairment. Cash payments received on
loans considered impaired are applied to principal amounts due first until fully
recovered and then to any forgone interest.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation for consolidated financial statement purposes is
computed on the straight-line method over the estimated useful lives. Leasehold
improvements are amortized over the economic life of the improvement or lease
term, whichever is shorter.
The estimated useful lives of premises and equipment are as follows:
Building and Improvements: 10 to 39 years
Furniture, Fixtures and Equipment: 3 to 10 years
As events or circumstances warrant, the Company assesses the recoverability
of its premises and equipment by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(f) Other Real Estate Owned
Other real estate owned, if any, would include foreclosed properties held
for sale and would be recorded at estimated fair value less costs to sell.
(g) Interest Income on Loans
F-12
<PAGE>
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due.
Upon such discontinuance, all unpaid accrued interest is reversed. Cash
collections on nonaccrual loans are generally applied as a reduction to the
recorded investment of the loan. Loans are returned to accrual status only after
all past due amounts have been received and the borrower has demonstrated
sustained performance.
(h) Loan Origination Fees and Costs
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield on the related loan on a level
yield basis.
(i) Net Income per Share
The Company reports both basic and diluted net income per share. Basic net
income per share is determined by dividing net income by the average number of
shares of common stock outstanding, while diluted net income per share is
determined by dividing the average number of shares of common stock outstanding
adjusted for the dilutive effect of common stock equivalents. The net income per
share data for 1997 and 1996 has been restated to give retroactive recognition
to the stock dividend and the stock split declared in 1998 (see Notes 11 and
22).
(j) Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of non-taxable income such as interest on
state and municipal securities and loans) and deferred taxes on temporary
differences between the amount of taxable income and pretax financial income and
between the tax basis of assets and liabilities and their reported amounts in
the consolidated financial statements. Deferred tax assets and liabilities are
included in the consolidated financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Deferred tax assets are recognized subject to
management's judgement that realization is more likely than not.
(k) Repurchase Agreements
Securities sold under agreement to repurchase generally mature within one
to four days from the transaction date. At December 31, 1998 one transaction was
individually over 10% of shareholders' equity. This agreement was with a
customer of the Bank.
(l) Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and Federal Funds sold. Generally,
Federal Funds are purchased and sold for one-day periods.
(m) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to
F-13
<PAGE>
Employees, and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted
certain provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(n) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the consolidated
statements of changes in shareholders' equity and comprehensive income. The
Statement requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
2. Cash and Due From Banks
The Company was required to maintain cash balances of $4,177,000 and
$4,746,000 at December 31, 1998 and 1997, respectively, to cover services
provided by correspondent banks. Federal Reserve Board regulations require that
PCBN maintain certain reserve balances on deposit with the Federal Reserve Bank.
Cash balances maintained to meet reserve requirements are not available for use
by PCBN or the Company. The Federal Reserve required balances were $2,400,000
and $920,000 at December 31, 1998 and 1997, respectively.
F-14
<PAGE>
3. Securities Held to Maturity
The carrying values and estimated values of securities held to maturity at
December 31, 1998 and 1997 are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998:
U.S. Treasuries ............ $ -- $ -- $ -- $ --
State, County and Municipal. 46,102,000 1,582,000 57,000 47,627,000
----------- ----------- ----------- -----------
Total ...................... $46,102,000 $ 1,582,000 $ 57,000 $47,627,000
----------- ----------- ----------- -----------
1997:
U.S. Treasuries ............ $ 4,006,000 $ -- $ -- $ 4,006,000
State, County and Municipal. 36,855,000 1,059,000 50,000 37,864,000
----------- ----------- ----------- -----------
Total ...................... $40,861,000 $ 1,059,000 $ 50,000 $41,870,000
----------- ----------- ----------- -----------
</TABLE>
The carrying values and estimated fair values of securities held to maturity at
December 31, 1998, by contractual maturity, are shown below.
- --------------------------------------------------------------------------------
Carrying Fair
Value Value
Maturing Within:
One Year $ 1,836,000 $ 1,846,000
One to Five Years 10,403,000 10,608,000
Five to Ten Years 28,497,000 29,799,000
Over Ten Years 5,366,000 5,374,000
Total $46,102,000 $47,627,000
Securities carried at approximately $0 and $4,006,000 at December 31,
1998 and 1997, respectively, were pledged to secure various state and
local government and trust deposits as required or permitted by law.
F-15
<PAGE>
4. Securities Available for Sale
The amortized cost and estimated fair values of securities available for sale at
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1998:
U.S. Treasuries ............ $ 52,121,000 $ 841,000 $ -- $ 52,962,000
U.S. Agencies .............. 164,450,000 801,000 1,032,000 164,219,000
State, County and Municipal. 51,392,000 947,000 44,000 52,295,000
------------ ------------ ------------ ------------
Total ...................... $267,963,000 $ 2,589,000 $ 1,076,000 $269,476,000
------------ ------------ ------------ ------------
1997:
U.S. Treasuries ............ $116,880,000 $ 1,494,000 $ 33,000 $118,341,000
U.S. Agencies .............. 70,404,000 557,000 160,000 70,801,000
State, County and Municipal. 21,569,000 296,000 3,000 21,862,000
------------ ------------ ------------ ------------
Total ...................... $208,853,000 $ 2,347,000 $ 196,000 211,004,000
------------ ------------ ------------ ------------
</TABLE>
The amortized cost and estimated fair values of securities available for sale at
December 31, 1998, by contractual maturity, are shown below:
Amortized Fair
Cost Value
------------ ------------
Maturing Within:
One Year $ 39,712,000 $ 40,017,000
One to Five Years 70,591,000 71,757,000
Five to Ten Years 62,531,000 63,230,000
Over Ten Years 95,129,000 94,472,000
------------ ------------
Total $267,963,000 $269,476,000
------------ ------------
Securities with fair value of approximately $31,700,000 and
$67,637,000 at December 31, 1998 and 1997, respectively, were pledged
to secure various state and local government and trust deposits as
required or permitted by law. Proceeds from the sales of available for
sale securities during 1998, 1997 and 1996 were approximately
$60,914,000, $12,893,000 and $0, respectively. Gross gains (losses) of
$2,020,000 and $(4,000) in 1998, $115,000 and ($4,000) in 1997, and no
gains (losses) in 1996 were realized on those sales.
During 1998, $596,000 of unrealized gains arose during the year and
are included in comprehensive income ($387,000, net of tax), and
$1,265,000 of previously unrealized gains ($822,000, net of tax) were
realized in earnings.
F-16
<PAGE>
5. Loans and Leases
The following is a summary of loans by major category at
December 31, 1998, and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commercial and Industrial .......................... $151,691,000 $118,862,000
Real Estate Loans:
Construction and Land Development .............. 93,766,000 85,479,000
Insured or Guaranteed Residential .............. 46,000 46,000
Conventional and Non-Farm, Non-Residential ..... 297,775,000 204,065,000
Agricultural Loans ................................. 462,000 70,000
Loans to Individuals for Personal Expenditures ..... 32,211,000 31,647,000
State and Municipal Obligations .................... 8,380,000 1,781,000
Leases ............................................. 714,000 --
Subtotal ........................................... 585,045,000 441,950,000
Less: Allowance for Credit Losses .................. 7,004,000 5,773,000
Unamortized Loan Origination Fees, Net of
Direct Costs .......................... 1,936,000 1,629,000
------------ ------------
Loans Net ............................................... $576,105,000 $434,548,000
------------ ------------
</TABLE>
As of December 31, 1998 and 1997 the Company had no impaired loans for
which a specific allowance had been established. Nonaccrual and impaired loans
amounted to $794,000 and $920,000, respectively, as of December 31, 1998 and
1997. The average recorded investment in impaired loans was $1,555,000 and
$473,000, respectively for the years ended December 31, 1998 and 1997. As the
Company places all impaired loans on nonaccrual status, no interest income was
recognized on impaired loans during the years ended December 31, 1998 and 1997.
The amount of interest income that would have been recorded on nonaccrual loans
was approximately $42,000, $40,000 and $29,000 for 1998, 1997 and 1996,
respectively.
6. Allowance for Credit Losses
Changes in the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year ............ $ 5,773,000 $ 4,923,000 $ 4,010,000
Loans Charged Off ....................... (985,000) (534,000) (210,000)
Recoveries of Loans Previously Charged Off 91,000 84,000 108,000
Net Loans Charged Off ................... (894,000) (450,000) (102,000)
Provision for Credit Losses ............. 2,125,000 1,300,000 1,015,000
----------- ----------- -----------
Balance at End of Year .................. $ 7,004,000 $ 5,773,000 $ 4,923,000
----------- ----------- -----------
</TABLE>
F-17
<PAGE>
7. Premises and Equipment, Net
Major classifications of premises and equipment at December 31,
1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land ............................................. $ 1,122,000 $ 1,206,000
Buildings ........................................ 2,310,000 1,239,000
Leasehold Improvements ........................... 11,204,000 6,700,000
Furniture and Equipment .......................... 11,662,000 7,756,000
Subtotal ......................................... 26,298,000 16,901,000
Less: Accumulated Depreciation and Amortization .. 8,249,000 6,015,000
----------- -----------
Premises and Equipment, Net ...................... $18,049,000 $10,886,000
----------- -----------
</TABLE>
8. Deposits
At December 31, 1998 and 1997, the Company had time deposits of $100,000 or
more of $109,150,000 and $40,904,000, respectively. Interest paid on time
deposits of $100,000 or more for 1998, 1997 and 1996 was $3,886,000, $1,674,000
and $2,000,000, respectively.
Scheduled maturities of certificates of deposit at December 31, 1998 are
summarized as follows:
1999 $ 178,376,000
2000 27,044,000
2001 1,083,000
2002 1,640,000
2003 1,000
2004 and Beyond 104,000
------------
Total $208,248,000
------------
9. Repurchase Agreements
The following table sets forth information with respect to
securities sold under agreements to repurchase:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, end of year ............................ $60,111,000 $53,728,000 $20,471,000
Weighted average interest rate, end of year ..... 4.43% 4.98% 4.91%
Average amount outstanding, during the year ..... $64,936,000 $34,391,000 $19,438,000
Weighted average interest rate, for the year .... 4.86% 5.00% 4.91%
Maximum amount outstanding at any month-end ..... $84,930,000 $53,728,000 $20,771,000
</TABLE>
Securities subject to repurchase agreements are retained by PCBN's
custodian under written agreements that recognize the customers' interests in
the securities. Interest expense associated with securities sold under
repurchase agreements totaled $3,155,000, $1,720,000 and $955,000 for 1998, 1997
and 1996, respectively.
F-18
<PAGE>
10. Income Taxes
Federal Income Tax Expense consists of:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current Income Taxes ............................................. $ 5,736,000 $ 5,288,000 $ 3,770,000
Deferred Income Taxes ............................................ (782,000) (332,000) (290,000)
----------- ----------- -----------
Total ............................................................ $ 4,954,000 $ 4,956,000 $ 3,480,000
----------- ----------- -----------
The reasons for the variation of the effective income tax rate from the
statutory federal tax rate are as follows:
Tax Expense at Statutory Rate .................................... $ 6,386,000 $ 5,775,000 $ 3,932,000
Tax Effect of Tax Exempt Interest Income ......................... (1,199,000) (655,000) (414,000)
Tax Other, Net ................................................... (233,000) (164,000) (38,000)
----------- ----------- -----------
Total ............................................................ $ 4,954,000 $ 4,956,000 $ 3,480,000
----------- ----------- -----------
</TABLE>
(As restated to reflect the actual 1997 Federal Income Tax Return as filed)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for Credit Losses ........................ $2,386,000 $1,837,000
Deferred Compensation .............................. 584,000 504,000
Other .............................................. 4,000 --
---------- ----------
Total Gross Deferred Tax Assets ......................... $2,974,000 $2,341,000
---------- ----------
Less: Valuation Allowance ............................... -- --
---------- ----------
Net Deferred Tax Assets ........................ $2,974,000 $2,341,000
---------- ----------
Deferred Tax Liabilities:
Plant and Equipment ................................ $ 99,000 $ 210,000
Deferred Loan Fees ................................. 13,000 13,000
Discount Accretion on Securities ................... -- 105,000
Unrealized Gain on Securities Available for Sale ... 529,000 753,000
Other .............................................. 235,000 168,000
---------- ----------
Total Gross Deferred Tax Liabilities ............... $ 876,000 $1,249,000
---------- ----------
Net Deferred Tax Assets ............................ $2,098,000 $1,092,000
---------- ----------
</TABLE>
F-19
<PAGE>
A Summary of the change in the deferred tax asset (liability) for the years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred Tax Asset, Net Beginning of Year ......................... $ 1,092,000 $ 1,294,000
Change in the Tax Effect related to Unrealized (Gain) Loss on AFS
Securities ........................................................ 224,000 (534,000)
Current Year Deferred Income Taxes ................................ 782,000 332,000
----------- -----------
Deferred Tax Asset, Net End of Year ............................... $ 2,098,000 $ 1,092,000
----------- -----------
</TABLE>
The current federal tax receivable of $1,154,000 and receivable of $780,000
at December 31, 1998 and 1997 respectively, is included in other assets in
the consolidated balance sheets. In assessing the realizability of deferred
tax assets, the Company considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the ability
to carryback losses and the generation of future taxable income during the
periods in which those temporary differences become deductible. The Company
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on the level of historical taxable income and projections
for future taxable income over the periods which deferred tax assets are
deductible, management believes that it is more likely than not that the
Company will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income over the
periods which deferred tax assets are deductible are reduced.
11. Common Stock
On July 15, 1998, the Board of Directors declared a three-for-two stock
split to shareholders of record as of July 27, 1998. All pertinent share and per
share information for 1998, 1997 and 1996 including stock option activity has
been retroactively restated to reflect this split.
On January 21, 1998, the Board of Directors declared a 10% stock dividend
to shareholders of record as of February 2, 1998. All pertinent share and per
share information for 1998, 1997 and 1996 including qualified stock option
activity has been retroactively restated to reflect this dividend.
On January 15, 1997, the Board of Directors declared a 10% stock dividend
to shareholders of record as of January 31, 1997. All pertinent share and per
share information for 1997 and 1996 including qualified stock option activity
has been retroactively restated to reflect this split.
On April 17, 1996, the Board of Directors declared a three-for-two stock
split to shareholders of record as of April 30, 1996. All pertinent share and
per share information for 1996 including qualified stock option activity has
been retroactively restated to reflect this split.
On January 17, 1996, the Board of Directors declared a one-for-five stock
split effected in the form of a dividend to shareholders of record as of January
31, 1996. All pertinent share and per share information for 1996 including
qualified stock option activity has been retroactively restated to reflect this
split.
In 1990, the Board of Directors approved the issuance of qualified stock
options which provide for the grant of qualified stock options to certain key
employees. The price per share at which shares may be acquired upon exercise of
qualified options is determined by the Board of Directors at the time of the
grant.
F-20
<PAGE>
The qualified options are exercisable over a vesting period until employee
termination as set forth in the respective stock option agreements.
In 1998, the shareholders of the Company approved an amendment to a
non-qualified stock option plan dated 1991. Under this plan and amendment,
options may be granted by the Board of Directors to key employees or directors
of the Company or PCBN. The price per share at which shares may be acquired upon
exercise of non-qualified options is determined by the Board of Directors at the
time of the grant. The non-qualified options are exercisable over a vesting
period of 5-years until employee termination or option expiration as set forth
in the respective stock option agreements.
F-21
<PAGE>
A summary of changes in outstanding options is as follows:
1998 1997 1996
------- ------- -------
Outstanding
January 1 ..... 143,698 205,283 205,283
Options granted ....... 446,250 -- --
Options exercised ..... (143,698) (61,585) --
------- ------- -------
Outstanding,
December 31 ... 446,250 143,698 205,283
Information regarding stock option activity and prices of the shares is as
follows:
Weighted
Option Average
Number of Price Range Option Price
Shares* Per Share* Per Share*
------- ------------- ---------
Shares under option at:
December 31, 1998 446,250 $29.33-$25.00 $26.58
December 31, 1997 ......... 143,698 2.44 2.44
December 31, 1996 ......... 205,283 2.44 2.44
Options exercisable at:
December 31, 1998 ......... -- -- --
December 31, 1997 ......... 143,698 2.44 2.44
December 31, 1996 ......... 205,283 2.44 2.44
Options exercised in year ended:
December 31, 1998 ......... 143,698 2.44 2.44
December 31, 1997 ......... 61,585 2.44 2.44
December 31, 1996 ......... -- -- --
- ------------------
*Adjusted for stock dividends declared in 1996, 1997 and 1998 as well as 3-for-2
stock splits in 1996 and 1998.
F-22
<PAGE>
The Company applies APB 25 in accounting for the stock option plan and,
accordingly, no compensation cost has been recognized in the Consolidated
Financial Statements for the fair value of stock options granted. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options granted in 1998 under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated in the table
below for the year ended December 31, 1998:
(In Thousands except per share data)
- --------------------------------------------------------------------------------
Net Income:
As reported ....................... $ 13,291
Pro Forma ......................... 13,074
Basic net income per share:
As reported ....................... $ 1.40
Pro Forma ......................... 1.38
Diluted net income per share:
As reported ....................... $ 1.39
Pro forma ......................... 1.37
The fair value of each option granted was estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted average
assumptions for the years presented:
(In Thousands except per share data)
- --------------------------------------------------------------------------------
Dividend yield ......................... 0%
Expected life of option (years):
Officers .......................... 5
Directors ......................... 5
Stock price volatility:
Officers .......................... 27%
Directors ......................... 27%
The risk-free interest rates used in the Black-Scholes option-pricing model were
equal to comparable U.S. Treasury rates at each respective grant date. A 5-year
rate of 5.22% was used for valuing both the officers' options and the directors'
options based upon respective terms of the options. The weighted average fair
value at the date of grant for options granted during 1998 was $9.03 per option.
12. Related Party Transactions
At December 31, 1998, 1997 and 1996, officers and directors of the Company
or companies with which they are affiliated were indebted to the Company in the
approximate aggregate amounts of $5,215,000, $4,556,000 and $5,428,000,
respectively. Such loans were made on substantially the same terms, including
interest rates and collateral as those prevailing at the time for comparable
transactions with other persons who were not executive officers or directors and
did not involve more than the normal risk of collectibility or present other
unfavorable features. It is the policy of the Company to have the Board of
Directors approve executive officer/director loans in advance of their funding.
F-23
<PAGE>
13. Net Income per Share
The following is a summary of the calculation of basic and diluted net
income per share for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Income .................................. $13,291,000 $11,544,000 $ 8,084,000
Basic Net Income Per Share
Weighted Average Shares ..................... 9,495,419 9,337,301 9,317,468
Outstanding
Net Income per Share ................... $ 1.40 $ 1.24 $ 0.87
----------- ----------- -----------
Dilutive Net Income Per Share
Weighted Average Shares Outstanding .... 9,495,419 9,337,301 9,317,468
Effect of Dilutive Stock Options ....... 32,367 244,282 340,178
----------- ----------- -----------
9,527,786 9,581,583 9,657,646
Net Income per Share ................... $ 1.39 $ 1.20 $ 0.84
----------- ----------- -----------
</TABLE>
Per share amounts have been retroactively restated to reflect the stock
dividends and stock splits described in Notes 11 and 22.
14. Transfers from Retained Earnings to Paid-in Surplus
The Nevada Revised Statutes require that amounts be transferred from PCBN's
retained earnings to paid-in surplus before distribution of dividends to
shareholders from retained earnings. Such transfers are required only when net
income is generated in the previous fiscal year.
15. Employee Benefit Plans
Effective August 1, 1987, the Company adopted a 401(k) Savings Plan (the
"Savings Plan"). The Savings Plan is a single-employer defined contribution plan
covering substantially all full-time employees of the Company. Employees may
contribute from 1% to 15% of their annual compensation. The Company's
discretionary contribution was 50% of the contributions made by the employees in
1998, 1997 and 1996. The Company's discretionary contributions were $201,816,
$157,698 and $127,708 in 1998, 1997 and 1996, respectively.
Effective April 15, 1992, the Company adopted a supplemental executive
compensation plan to provide an unfunded incentive compensation arrangement for
certain management, directors and highly compensated employees of the Company.
Participants may elect to defer up to 100% of their annual compensation, as
defined. Upon reaching normal retirement age or date of disability, if earlier,
both as defined, participants are paid in a lump sum or in quarterly
installments over a term of up to 15 years. No contributions were made by
eligible participants in 1998, 1997 and 1996.
16. Future Minimum Rental Payments
Certain bank facilities are leased under various operating leases. Future
minimum rental payments required under operating leases that have initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1998 are as follows:
F-24
<PAGE>
Year ending December 31:
1999 $ 2,606,000
2000 2,620,000
2001 2,684,000
2002 2,738,000
2003 2,769,000
Thereafter 3,246,000
--------------
Total $ 16,663,000
--------------
Rent expense was $2,029,000, $1,453,000 and $949,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
17. Commitments and Contingencies
In the normal course of business, there are outstanding various commitments
and contingent liabilities which are not reflected in the consolidated financial
statements, consisting of undisbursed loan commitments, unused lines of credit
and letters of credit of $182,457,000 and $150,172,000, respectively, at
December 31, 1998 and 1997. The Company's exposure to credit loss is limited to
amounts funded or drawn. At December 31, 1998 no losses are anticipated as a
result of these commitments.
Loan commitments are typically contingent upon the borrower meeting certain
financial and other covenants, and such commitments typically have fixed
expiration dates and require payment of a fee. As many of these commitments are
expected to expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements. The Company evaluates each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt
securities, equity securities or business assets.
Letters of credit are conditional commitments written by the Company to
guarantee the performance of a customer to a third party. These guarantees are
issued primarily relating to purchases of goods by the Company's commercial
customers, and such guarantees are typically short-term. Credit risk is similar
to that involved in extending loan commitments to customers, and the Company,
accordingly, uses evaluation and collateral requirements similar to those for
loan commitments.
The Company is involved both as plaintiff and defendant in litigation in
the ordinary course of its operations. Based on advice of legal counsel,
management does not anticipate that the final outcome of current or anticipated
litigation will have a materially adverse effect on the Company's operations or
financial condition.
The Bank has a Trust Department which acts as Trustee for certain assets.
At December 31, 1998 discretionary assets totaled $104,351,000 and
non-discretionary assets totaled $316,139,000.
18. Financial Instrument Disclosures
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
F-25
<PAGE>
(a) Cash and Due from Banks and Federal Funds Sold/Purchased
The carrying amount is a reasonable estimate of fair value.
(b) Securities held to Maturity and Securities Available for Sale
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of long-term investments, except certain state and
municipal securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair value of
certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair value
estimates are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.
(c) Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
Loans which are either maturing or subject to repricing in the short term
are valued for fair value purposes by using the carrying amount for such loans.
For other loans fair value is estimated by discounting scheduled cash flows
through estimated maturity using estimated market discount rates that reflect
the credit and interest rate risk inherent in the loan.
(d) Deposit Liabilities
Under FAS 107, the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, and NOW accounts and money market
and checking accounts, is equal to the amount payable on demand. The fair value
of certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
(e) Repurchase Agreements
The carrying amounts of borrowings under repurchase agreements approximate
the fair value.
(f) Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and the fair value of
letters of credit are estimated based on fees currently charged for similar
agreements. As recorded, deferred income arising from these unrecognized
financial instruments is insignificant to the consolidated financial statements.
Estimated fair value is not presented herein.
(g) Fair Value Disclosures
The estimated fair market value of Pioneer Bancorporation financial
instruments at December 31, 1998 and 1997 are summarized as follows:
F-26
<PAGE>
<TABLE>
<CAPTION>
1998 1998 1997 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents ......... $105,708,00 $105,708,000 $140,967,00 $140,967,000
0 0
Securities:
Available for Sale ............ 269,476,000 269,476,000 211,004,000 211,004,000
Held to Maturity .............. 46,102,000 47,635,000 40,861,000 41,870,000
Loans Net ......................... 576,105,000 586,149,000 434,548,000 435,362,000
----------- ------------ ----------- ------------
Financial Liabilities:
Deposits:
Noninterest-bearing ........... $224,448,00 $224,448,000 $201,956,00 $201,956,000
0 0
Interest-bearing .............. 118,748,000 118,748,000 93,500,000 93,500,000
Savings ....................... 97,279,000 97,425,000 66,352,000 66,500,000
Money Market .................. 251,024,000 251,024,000 278,022,000 278,022,000
Certificates of Deposit ........... 208,248,000 209,120,000 99,948,000 100,048,000
Securities Sold under Repurchase
Agreements ........................ 60,111,000 60,111,000 53,728,000 53,728,000
----------- ------------ ----------- ------------
</TABLE>
(h) Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgements
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision. Changes
in assumptions could significantly effect the estimates.
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, premises and equipment are not considered
financial assets. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in these estimates.
19. Risks Associated with Financial Instruments
Credit Risk
Credit risk of a financial instrument is the possibility that a loss may
result from the failure of another party to perform in accordance with the terms
of the contract. The most significant credit risk associated with the Company's
financial instruments is concentrated in its loans receivable. Additionally, the
Company is subject to credit risk on certain off-balance sheet financial
instruments. The Company utilizes a loan monitoring system to
F-27
<PAGE>
evaluate the level of credit risk on its loan portfolio and utilizes a similar
process for Company standby letters of credit.
Market Risk
Market risk of a financial instrument is the possibility that future
changes in market prices may reduce the value of a financial instrument or
increase the contractual obligations of the Company. The Company's market risk
is concentrated in its portfolios of securities available-for-sale and loans
receivable. The Company's securities available-for-sale are traded in active
markets. The values of these securities are susceptible to fluctuations in the
general market. When a borrower fails to meet the contractual requirements of
his loan agreement, the Company is subject to the market risk of the collateral
securing the loan.
Interest Rate Risk
Financial instruments are subject to interest rate risk to the extent that
they reprice on a frequency, degree or basis that varies from market repricing.
The Company is subject to interest rate risk to the degree that its interest
earning assets reprice on a different frequency or schedule than its
interest-bearing liabilities. The Company closely monitors the pricing
sensitivity of its financial instruments and utilizes asset/liability techniques
to mitigate the impact of interest rate risk.
Concentrations of Credit Risk
The Company's lending activities are conducted in the state of Nevada. The
Company currently focuses on the origination of commercial and real estate
loans. The largest concentration of the Company's loan portfolio is located in
the Washoe, Carson and Clark County areas of Nevada. The ability of the
Company's borrowers to repay their commitments is contingent on several factors,
including the economic conditions in the borrower's geographic region, primarily
Nevada, market interest rates and upon the individual financial condition of the
borrower.
20. Regulatory Matters
The Company is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by the banking regulators. At December 31,
1998, the Company was required to have minimum Tier 1 and total risk-based
capital ratios of 4.0% and 8.0%, respectively. The Company's actual risk-based
capital ratios at that date were 9.5% and 10.5%, respectively.
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 PCBN's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, PCBN must
meet specific capital guidelines that involve quantitative measures of PCBN's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. PCBN's capital amounts and classification are
also subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require PCBN to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that PCBN
meets all capital adequacy requirements to which it is subject.
F-28
<PAGE>
As of December 31, 1998, the most recent notification from the FDIC
categorized PCBN as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, PCBN must maintain
minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth
in the table. There are no conditions or events since the notification that
management believes have changed the institution's category.
PCBN's actual capital amounts and ratios are also presented in the table.
No amounts were deducted from capital for interest-rate risk.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------------ ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $73,533,000 10.5% >=$55,954,000 >=8.0% >=$69,954,000 >=10.0%
Tier 1 Capital
(to Risk Weighted Assets) $66,529,000 9.5% >=$28,000,000 >=4.0% >=$42,000,000 >=6.0%
Tier 1 Capital
(to Average Assets) $66,529,000 7.2% >=$37,000,000 >=4.0% >=$46,250,000 >=5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $58,369,000 10.9% >=$42,723,000 >=8.0% >=$53,423,000 >=10.0%
Tier 1 Capital
(to Risk Weighted Assets) $52,596,000 9.9% >=$21,350,000 >=4.0% >=$32,050,000 >=6.0%
Tier 1 Capital
(to Average Assets) $52,596,000 7.2% >=$29,450,000 >=4.0% >=$36,800,000 >=5.0%
</TABLE>
PCBN, as a Nevada corporation, is limited in making distribution to its
stockholders, the Company, to the lesser of the retained earnings of the Bank or
the net income of the Bank for its last three fiscal years, less the amount of
any distributions during such period.
21.Pioneer Bancorporation (Parent Company Only)
<TABLE>
<CAPTION>
(Condensed Balance Sheet at December 31,) 1998 1997
----------- -----------
<S> <C> <C>
Assets:
Cash and Non-Interest Bearing Due From Subsidiary ............... $ 3,000 $ --
Investment Bearing Due From Subsidiary .......................... 1,107,000 608,000
Investment In Subsidiary ........................................ 66,400,000 53,437,000
F-29
<PAGE>
Other Assets .................................................... 64,000 12,000
----------- -----------
Total Assets ................................................. $67,574,000 $54,057,000
----------- -----------
Liabilities and Shareholders' Equity:
Other Liabilities ............................................... $ 20,000 $ --
----------- -----------
Total Liabilities ............................................ $ 20,000 $ --
----------- -----------
Shareholders Equity:
Common Stock, $0.1 par value, 15,000,000
shares authorized; 9,547,266 and 9,273,770 issued and
outstanding in 1998 and 1997, respectively .............. $ 96,000 $ 51,000
Paid-In Surplus ................................................. 65,282,000 21,973,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available for Sale .... 1,025,000 1,460,000
Retained Earnings ............................................... 1,151,000 30,573,000
----------- -----------
Total Shareholders' Equity ...................................... $67,554,000 $54,057,000
----------- -----------
Total Liabilities and Shareholders' Equity ...................... $67,574,000 $54,057,000
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
(Condensed Statement of Income for the year ended
December 31,) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Investment Bearing Due From Subsidiary ........ $ 43,000 $ 16,000 $ 5,000
------------ ------------ ------------
Total Income .................................. $ 43,000 $ 16,000 $ 5,000
------------ ------------ ------------
Expense:
Salaries and Benefits ......................... $ 55,000 $ 0 $ 0
Other Expense ................................. $ 145,000 $ 92,000 $ 32,000
------------ ------------ ------------
Total Expense ................................. $ 200,000 $ 92,000 $ 32,000
------------ ------------ ------------
Profit (Loss) before Income Taxes: ............... $ (157,000) $ (76,000) $ (27,000)
Applicable Tax Benefit ........................... (50,000) (24,000) (9,000)
------------ ------------ ------------
Income before Equity in Undistributed Income of
Subsidiary ....................................... $ (107,000) $ (52,000) $ (18,000)
------------ ------------ ------------
Equity in Undistributed Income of Subsidiary ..... $ 13,398,000 $ 11,596,000 $ 8,102,000
------------ ------------ ------------
Net Income .................................... $ 13,291,100 $ 11,544,000 $ 8,084,000
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
(Condensed Statement of Cash Flows for the year ended
December 31,) 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows with Operating Activities:
Net Income ........................................ $ 13,291,000 $ 11,544,000 $ 8,084,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Undistributed Income of Subsidiary ........... $(13,398,000) $(11,596,000) $ (8,102,000)
F-30
<PAGE>
(Increase) Decrease in Other Assets ........... $ (52,000) $ 11,000 $ 13,000
Increase (Decrease) in Other Liabilities ..... $ 20,000 $ (7,000) $ 0
------------ ------------ ------------
Total Adjustments ............................ $(13,430,000) $(11,592,000) $ (8,089,000)
------------ ------------ ------------
Net Cash Used in Operating Activities ............. $ (139,000) $ (48,000) $ (5,000)
------------ ------------ ------------
Cash Flows From Investing Activities:
Net Cash Used in Investing Activities ............. $ 0 $ 0 $ 0
------------ ------------ ------------
Cash Flows from Financing Activities:
Dividend from Subsidiary ..................... $ -- $- $ 50,000
Proceeds from Sale of Stock .................. $ 302,000 $ 242,000 $ 219,000
Proceeds from Exercise of Options ............ $ 351,000 $ 151,000 $ --
Cash Paid for Fractional Shares at Dividend
and Split ............................................ (12,000) (5,000) (6,000)
------------ ------------ ------------
Net Cash Provided by Financing Activities ......... $ 641,000 $ 388,000 $ 263,000
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents ......... $ 502,000 $ 340,000 $ 258,000
Cash and Cash Equivalents, Beginning of Year ...... $ 608,000 $ 268,000 $ 10,000
------------ ------------ ------------
Cash and Cash Equivalents, End of Year ............ $ 1,110,000 $ 608,000 $ 268,000
------------ ------------ ------------
</TABLE>
22.Subsequent Events
On March 17, 1999, the Board of Directors of Pioneer Bancorporation
declared a 10% stock dividend to the shareholders of record March 29, 1999. The
retroactive effect of this dividend, which is reflected in the consolidated
financial statements, thereby increases the number of shares outstanding at
December 31, 1998 and increases paid-in-surplus while decreasing retained
earnings for the fair value of stock issued. Earnings per share data has been
restated to reflect such dividend.
On May 7, 1999, Pioneer Bancorporation announced that a definitive
agreement has been signed under which Pioneer will merge with Zions
Bancorporation. Pioneer's principal subsidiary, Pioneer Citizens Bank of Nevada,
will merge into Zion's subsidiary, Nevada State Bank. The agreement is subject
to regulatory and other approvals and is expected to close in the third quarter
of 1999. The merger is structured to be tax-free and is intended to be accounted
for as a pooling of interests.
F-31
<PAGE>
PIONEER BANCORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Assets:
Cash and Cash Equivalents:
Cash and Due from Banks .......................................... $ 49,576,000 $ 58,208,000
Federal Funds Sold ............................................... 79,250,000 47,500,000
Total Cash and Cash Equivalents ............................. 128,826,000 105,708,000
Securities Held to Maturity .......................................... 45,139,000 46,102,000
Securities Available for Sale ........................................ 258,618,000 269,476,000
Loans (less allowance for credit losses of $7,145,000 and $7,004,000,
respectively) ........................................................ 610,598,000 576,105,000
Premises and Equipment, Net .......................................... 17,167,000 18,049,000
Interest Receivable .................................................. 7,177,000 7,258,000
Deferred Tax Asset, Net .............................................. 2,791,000 2,098,000
Other Assets ......................................................... 5,208,000 6,461,000
-------------- --------------
Total Assets ......................................................... $1,075,524,000 $1,031,257,000
-------------- --------------
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Demand:
Non-interest Bearing .................................... $ 216,107,000 $ 224,448,000
Interest Bearing ........................................ 119,946,000 118,748,000
Savings ..................................................... 100,402,000 97,279,000
Money Market ................................................ 264,662,000 251,024,000
Time - under $100,000 ....................................... 110,249,000 99,098,000
Time - $100,000 and over .................................... 129,536,000 109,150,000
Total Deposits .......................................... 940,902,000 899,747,000
Securities Sold Under Repurchase Agreement ....................... 61,893,000 60,111,000
Other Liabilities ................................................ 3,280,000 3,645,000
-------------- --------------
Total Liabilities .................................................... $1,006,075,000 $ 963,703,000
-------------- --------------
Shareholders' Equity:
Common Stock, $.01 par value,
authorized 15,000,000 shares; issued and outstanding
9,550,029 and 9,547,266 respectively ........................ $ 96,000 $ 96,000
Paid-In Surplus .................................................. 65,349,000 65,282,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available for Sale,
Net of Tax effect of $(211,000) and $482,000 respectively ... (392,000) 1,025,000
Retained Earnings ................................................ 4,396,000 1,151,000
-------------- --------------
Total Shareholders' Equity ........................................... 69,449,000 67,554,000
-------------- --------------
Total Liabilities and Shareholders' Equity ........................... $1,075,524,000 $1,031,257,000
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-32
<PAGE>
PIONEER BANCORPORATION
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months
ended March 31,
------------------------------
1999 1998
Unaudited Unaudited
------------- -------------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans ........................................... $ 13,544,000 $ 11,163,000
Interest on Federal Funds Sold ....................................... 688,000 1,211,000
Interest on Securities:
Taxable .......................................................... 3,296,000 2,876,000
Exempt from Federal Income Taxes ................................. 1,085,000 728,000
------------- -------------
Total Interest Income ................................................ $ 18,613,000 $ 15,978,000
------------- -------------
Interest Expense:
Interest on Deposits ................................................. 6,858,000 5,892,000
Interest on Federal Funds and Repurchase Agreements .................. 622,000 709,000
------------- -------------
Total Interest Expense ............................................... $ 7,480,000 $ 6,601,000
------------- -------------
Net Interest Income: ................................................. 11,133,000 9,377,000
Provision for Credit Losses .......................................... 510,000 360,000
------------- -------------
Net Interest Income after Provision for Credit Losses ................ $ 10,623,000 $ 9,017,000
------------- -------------
Other Income:
Service Charges on Deposit Accounts .................................. 847,000 764,000
Merchant Credit Card Income .......................................... 549,000 468,000
Trust Department Income .............................................. 408,000 357,000
Gain on Sale of Securities Available for Sale ........................ 24,000 11,000
ATM Network Fees Earned .............................................. 93,000 64,000
Other Income ......................................................... 216,000 152,000
------------- -------------
Total Other Income ................................................... $ 2,137,000 $ 1,816,000
------------- -------------
Other Expenses:
Salaries and Employee Benefits ....................................... 3,975,000 3,144,000
Occupancy Expense .................................................... 1,847,000 1,189,000
Merchant Credit Card Expense ......................................... 489,000 398,000
Other Expense ........................................................ 2,117,000 1,860,000
------------- -------------
Total Other Expenses ................................................. $ 8,428,000 $ 6,591,000
------------- -------------
Income before Income Taxes: .......................................... 4,332,000 4,242,000
Income Taxes ......................................................... 1,087,000 1,200,000
------------- -------------
Net Income ........................................................... $ 3,245,000 $ 3,042,000
------------- -------------
Net Income per Common Share:
Basic Net Income Per Share ........................................... $ 0.34 $ 0.32
------------- -------------
Diluted Net Income Per Share ......................................... $ 0.34 $ 0.32
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-33
<PAGE>
PIONEER BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
Quarter ended March 31, 1999
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Equity
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Balance: ............................. 9,547,266 $ 96,000 $ 65,282,000 $ 1,151,000 $ 1,025,000 $ 67,554,000
--------- ------------ ------------ ------------ ------------ ------------
Stock Dividend ....................... -- -- -- -- -- 0
Common Stock Issuance ................ 2,763 (a) 67,000 -- --
Comprehensive Income:
Net Income ....................... -- -- -- 3,245,000 -- 3,245,000
Net unrealized change
in Securities Available
for Sale, net of tax
effect of $763,000 .......... -- -- -- -- (1,417,000) (1,417,000)
Total Comprehensive Income .. 1,828,000
March 31, 1999
Balance: ............................. 9,550,029 $ 96,000 $ 65,349,000 $ 4,396,000 $ (392,000) $ 69,449,000
--------- ------------ ------------ ------------ ------------ ------------
</TABLE>
(a) Amount is less than $1,000.
See accompanying notes to consolidated financial statements (unaudited).
F-34
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
ended March 31,
------------------------------
1999 1998
Unaudited Unaudited
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ........................................................... $ 3,245,000 $ 3,042,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization .................................... 716,000 493,000
Amortization, Accretion of Premiums, Discounts on Investments .... (169,000) 1,140,000
Provision for Credit Losses ...................................... 510,000 360,000
Deferred Income Taxes ............................................ 70,000 (358,000)
Gain on Sale of Premises and Equipment ........................... (18,000) --
Gain on Sale of Securities Available for Sale .................... (24,000) (11,000)
(Increase) Decrease in Interest Receivable ....................... 81,000 (292,000)
(Increase) Decrease in Other Assets .............................. 838,000 1,254,000
Increase in Unamortized Loan Origination Fees .................... 570,000 307,000
Increase (Decrease) in Other Liabilities ......................... (565,000) (13,000)
Total Adjustments ....................................... 2,009,000 2,880,000
------------- -------------
Net Cash Provided by Operating Activities ........................ $ 5,254,000 $ 5,922,000
------------- -------------
Cash Flows from Investing Activities:
Proceeds from Maturities and Calls of:
Held to Maturity Securities ...................................... $ 925,000 $ 4,000,000
Available for Sale Securities .................................... 20,323,000 2,350,000
Proceeds from Sales of Available for Sale Securities ................. 1,016,000 4,000,000
Purchase of Securities Held to Maturity .............................. -- (3,545,000)
Purchase of Securities Available for Sale ............................ (12,430,000) (16,889,000)
Net Increase in Loans ................................................ (35,597,000) (23,156,000)
Proceeds from Sale of Premises and Equipment ......................... 2,539,000 --
Acquisition of Premises and Equipment ................................ (1,940,000) (1,556,000)
Loan Recoveries ...................................................... 24,000 17,000
------------- -------------
Net Cash Used in Investing Activities ................................ $ (25,140,000) $ (34,789,000)
------------- -------------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits and Savings Accounts ................. $ 9,618,000 $ 12,835,000
Net Increase in Certificates of Deposit .............................. 31,537,000 25,899,000
Net Increase in Securities Sold under Repurchase Agreements .......... 1,782,000 12,359,000
Proceeds from Sale of Stock .......................................... 67,000 76,000
Proceeds from Exercise of Options .................................... -- 352,000
Cash Paid for Fractional Shares at Dividend and Split ................ -- (8,000)
------------- -------------
Net Cash Provided by Financing Activities ........................ $ 43,004,000 $ 51,513,000
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents: ..................... $ 23,118,000 $ 22,646,000
Cash and Cash Equivalents Beginning of Year ...................... 105,708,000 140,967,000
------------- -------------
Cash and Cash Equivalents End of Quarter ............................. $ 128,826,000 $ 163,613,000
------------- -------------
Supplemental Disclosure of Cash Flow Information:
Interest Paid During the Quarter ..................................... $ 7,368,000 $ 6,530,000
Income Taxes Paid During the Quarter ................................. $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and with the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999. The
accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in the
Company's Annual Report on Form 10 for the year ended December 31, 1998. The
preparation of financial statements in conformity with GAAP also requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results could
differ from those estimates.
2. NET INCOME PER SHARE
The following is a summary of the calculation of basic and diluted net
income per share for the quarters ended March 31, 1999 and 1998:
1999 1998
---------- ----------
Net Income ................................... $3,245,000 $3,042,000
Basic Net Income Per Share
Weighted Average
Shares Outstanding .................. 9,548,135 9,444,735
Net Income Per Share ................ $ 0.34 $ 0.32
---------- ----------
Diluted Net Income Per Share
Weighted Average
Shares Outstanding .................. 9,548,135 9,444,735
Effect of Dilutive Stock Options .... 19,408 48,183
---------- ----------
9,567,543 9,492,918
Net Income Per Share ................ $ 0.34 $ 0.32
---------- ----------
Per share amounts have been retroactively adjusted for the effect of
stock splits and dividends.
F-36
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of May 7, 1999,
as amended July 16, 1999,
by and among
Zions Bancorporation,
Pioneer Bancorporation
and
Pioneer Citizens Bank of Nevada
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS.............................................................A-4
ARTICLE I
Certain Definitions
1.01 Certain Definitions.............................................A-4
ARTICLE II
The Merger
2.01 The Merger.......................................................A-9
2.02 Effective Date and Effective Time...............................A-10
2.03 Plan of Merger..................................................A-10
ARTICLE III
Consideration; Exchange Procedures
3.01 Merger Consideration............................................A-10
3.02 Rights as Shareholders; Stock Transfers.........................A-10
3.03 Fractional Shares...............................................A-11
3.04 Exchange Procedures.............................................A-11
3.05 Anti-Dilution Provisions........................................A-12
3.06 Options.........................................................A-12
3.07Dissenters' Rights...............................................A-12
ARTICLE IV
Actions Pending Acquisition
4.01 Forebearances of Company........................................A-13
4.02 Forebearances of Zions..........................................A-15
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules............................................A-15
5.02 Standard........................................................A-15
5.03 Representations and Warranties of Company and Company Bank......A-15
5.04 Representations and Warranties of Zions.........................A-23
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts.........................................A-24
6.02 Shareholder Approval............................................A-24
6.03 Registration Statements.........................................A-25
A-2
<PAGE>
6.04 Press Releases..................................................A-25
6.05 Access; Information.............................................A-25
6.06 Acquisition Proposals...........................................A-26
6.07 Affiliate Agreements............................................A-27
6.08 Takeover Laws...................................................A-27
6.09 Certain Policies................................................A-27
6.10 NASDAQ Listing..................................................A-27
6.11 Regulatory Applications.........................................A-27
6.12 Indemnification; Director and Officers' Insurance...............A-28
6.13 Benefit Plans...................................................A-28
6.14 Accountants' Letters............................................A-29
6.15 Notification of Certain Matters.................................A-29
6.16 Shareholder Agreements..........................................A-29
6.17 Bank Merger.....................................................A-29
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger......A-30
7.02 Conditions to Obligation of Company.............................A-30
7.03 Conditions to Obligation of Zions...............................A-31
ARTICLE VIII
Termination
8.01 Termination.....................................................A-32
8.02 Effect of Termination and Abandonment...........................A-33
ARTICLE IX
Miscellaneous
9.01 Survival........................................................A-33
9.02 Waiver; Amendment...............................................A-33
9.03 Counterparts....................................................A-33
9.04 Governing Law; Waiver of Jury Trial.............................A-34
9.05 Expenses........................................................A-34
9.06 Notices.........................................................A-34
9.07 Entire Understanding; No Third Party Beneficiaries..............A-35
9.08 Interpretation; Effect..........................................A-35
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of Agreement of Bank Merger
EXHIBIT C Form of Affiliate Agreement
EXHIBForm of Shareholder Agreement
EXHIBForm of Employment Agreement
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 7, 1999 (this
"Agreement"), by and among PIONEER BANCORPORATION ("Company"), PIONEER CITIZENS
BANK OF NEVADA (the "Company Bank") and ZIONS BANCORPORATION ("Zions").
RECITALS
A. Pioneer Bancorporation. Company is a Nevada corporation, having its
principal place of business in Reno, Nevada.
B. Zions Bancorporation. Zions is a Utah corporation, having its principal
place of business in Salt Lake City, Utah.
C. Pioneer Citizens Bank of Nevada. Company Bank is a Nevada
state-chartered non- member bank and is a wholly-owned subsidiary of Company.
D. Intentions of the Parties. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 as
amended (the "Code").
E. Board Action. The respective Boards of Directors of each of Zions,
Company and Company Bank have determined that it is in the best interests of
their respective companies and their shareholders to consummate the strategic
business combination transaction provided for herein.
F. Stock Option Agreement. As an inducement to the willingness of Zions to
consummate the transactions contemplated by this Agreement, Company will enter
into the Stock Option Agreement, substantially in the form of Exhibit A hereto
(the "Stock Option Agreement") pursuant to which Company will grant to Zions an
option to acquire up to 19.9% of the outstanding shares of Company Common Stock.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
Certain Definitions
1.01 Certain Definitions. The following terms are used in this
Agreement with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer for 15% or
more of the Company Common Stock, proposal for a merger, consolidation or
other business combination involving Company or any of its Subsidiaries or
any proposal or offer to acquire 15% or more of the Company Common Stock,
or a substantial portion of the assets or deposits of, Company or any of
its Subsidiaries, other than the transactions contemplated by this
Agreement.
"Affiliates" of or a Person "Affiliated" with a specific Person is a
Person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
A-4
<PAGE>
"Agreement of Bank Merger" means the Agreement of Bank Merger to be
entered into between NSB and the Company Bank substantially in the form of
Exhibit B hereto, but subject to any changes that may be necessary to
conform to any requirements of any Governmental Authority having authority
over the Bank Merger.
"Bank Merger" means the merger of Company Bank with and into NSB.
"Benefit Plans" has the meaning set forth in Section 5.03(m).
"Business Combination" has the meaning set forth in Section 3.05.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
or any other day which is not a day on which banking institutions in Utah
or Nevada are authorized or obligated by law or executive order to close.
"Code" has the meaning set forth in the recitals.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Affiliate" has the meaning set forth in Section 6.07(a).
"Company Articles" means the Articles of Incorporation of Company, as
amended through the date hereof.
"Company Bank" means Pioneer Citizens Bank of Nevada, a Nevada
state-chartered non-member bank and a wholly-owned subsidiary of Company.
"Company Board" means the Board of Directors of Company.
"Company By-Laws" means the By-laws of Company, as amended through the
date hereof.
"Company Common Stock" means the common stock, par value $0.01 per
share, of Company.
"Company Meeting" has the meaning set forth in Section 6.02.
"Company Representatives" has the meaning set forth in Section 6.06.
"Company Stock Option" has the meaning set forth in Section 3.06.
"Company Stock Plan" means Company's Nonqualified Stock Option Plan, as
amended.
"Corporation Division" has the meaning set forth in Section 2.01(b).
"Costs" has the meaning set forth in Section 6.12(a).
"Determination Date" means the third (3rd) Business Day prior to the
Effective Date.
"Dissenters' Shares" means shares held by a shareholder with respect to
which such shareholder, in accordance with the NRS, delivers a written
notice to Company prior to the Company Meeting of such shareholder's
intention to demand payment for such shares.
A-5
<PAGE>
"Dissenting Shareholder" means a shareholder who holds Dissenters'
Shares.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided
for in Section 2.02.
"Effective Time of the Bank Merger" means the date and time the Nevada
Department specifies for the Bank Merger.
"Employees" has the meaning set forth in Section 5.03(m).
"Environmental Law" has the meaning set forth in Section 5.03(o).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"NRS" means the Nevada Revised Statutes.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Hazardous Substance" has the meaning set forth in Section 5.03(o).
"Indemnified Party" has the meaning set forth in Section 6.12(a).
"Insurance Policy" has the meaning set forth in Section 5.03(s).
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance.
"Material Adverse Effect" means, with respect to Zions or Company, any
effect that (i) is material and adverse to the financial position, results
of operations or business of Zions and its Subsidiaries taken as a whole or
Company
A-6
<PAGE>
and its Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Zions or Company to perform its
obligations under this Agreement or the Agreement of Bank Merger or
otherwise materially threaten or materially impede the consummation of the
Merger, the Bank Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws
affecting financial institutions generally or interpretations thereof by
courts or governmental authorities, (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to
banks and their holding companies generally, (c) any modifications or
changes to valuation policies and practices in connection with the Merger
or restructuring charges taken in connection with the Merger, in each case
in accordance with generally accepted accounting principles, (d) changes
agreed to in writing by Zions and Company and (e) changes resulting from
general economic conditions throughout the United States affecting banks
and their holding companies.
"Material Contract" has the meaning set forth in Section 5.03(k).
"Maximum Amount" has the meaning set forth in Section 6.12(c).
"Merger" has the meaning set forth in Section 2.01.
"Merger Consideration" has the meaning set forth in Section 2.01.
"Multiemployer Plans" has the meaning set forth in Section 5.03(m).
"NASDAQ" means The Nasdaq Stock Market, Inc.'s National Market.
"Nevada Department" means the Nevada Department of Business and
Industry, Financial Institutions Division.
"Nevada Secretary" means the Secretary of State of Nevada.
"New Certificate" has the meaning set forth in Section 3.04.
"NSB" means Nevada State Bank, a Subsidiary of Zions.
"Old Certificate" has the meaning set forth in Section 3.04.
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Pension Plan" has the meaning set forth in Section 5.03(m).
"Plans" has the meaning set forth in Section 5.03(m).
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03.
"Registration Statement" has the meaning set forth in Section 6.03.
A-7
<PAGE>
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
"Regulatory Documents" has the meaning set forth in Section 5.03(g).
"Replacement Option" has the meaning set forth in Section 3.06.
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
rules and regulations thereunder.
"Stock Option Agreement" has the meaning set forth in the recitals.
"Shareholder Agreements" has the meaning set forth in Section 6.16.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" means any bona fide Acquisition Proposal to effect
a merger, consolidation or sale of all or substantially all of the assets
or capital stock of Company which is on terms which the Company Board
determines by a majority vote of its directors in their good faith judgment
(based on the written opinion, with only customary qualifications, of a
financial advisor of nationally recognized reputation that the
consideration provided in such Acquisition Proposal likely exceeds the
value of the consideration provided for in the Merger), after taking into
account all relevant factors, including any conditions to such Acquisition
Proposal, the timing of the closing thereof, the risk of nonconsummation,
the ability of the Person making the Acquisition Proposal to finance the
transaction contemplated thereby and any required governmental or other
consents, filings and approvals, to be more favorable to the shareholders
of Company than the Merger (or any revised proposal made by Zions).
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Takeover Laws" has the meaning set forth in Section 5.03(t).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, customs
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
A-8
<PAGE>
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of Company Common Stock held by
Company or any of its Subsidiaries or by Zions or any of its Subsidiaries,
in each case other than in a fiduciary (including custodial or agency)
capacity or as a result of debts previously contracted in good faith.
"UBCA" means the Utah Business Corporation Act.
"Zions" has the meaning set forth in the preamble to this Agreement.
"Zions Board" means the Board of Directors of Zions.
"Zions Closing Average" means the average of the last sales price per
share for Zions Common Stock for the fifteen (15) consecutive NASDAQ
trading day period ending on the third (3rd) Business Day prior to the
Effective Date; provided, however, that in the event of a Change in Control
that is consummated prior to the Effective Date, the Zions Closing Average
shall be determined with respect to the securities issued in exchange for
the shares of Zions Common Stock outstanding immediately prior to such
Change in Control, taking into consideration any applicable exchange or
conversion ratios.
"Zions Common Stock" means the common stock, no par value per share, of
Zions together with any rights attached thereto under or by virtue of the
Shareholder Protection Rights Agreement, dated September 27, 1996, between
Zions and Zions First National Bank, as rights agent.
"Zions Preferred Stock" means the preferred stock, no par value per
share, of Zions.
ARTICLE II
The Merger
2.01 The Merger. (a) Subject to the terms and conditions of this
Agreement, in accordance with the applicable provisions of the NRS and the UBCA
at the Effective Time, Company shall merge with and into Zions (the "Merger"),
the separate corporate existence of Company shall cease and Zions shall survive
and continue to exist as a Utah corporation (Zions, as the surviving corporation
in the Merger, sometimes being referred to herein as the "Surviving
Corporation"). Zions may at any time prior to the Effective Time change the
method of effecting the combination with Company (including, without limitation,
the provisions of this Article II) if and to the extent it deems such change to
be necessary, appropriate or desirable; provided, however, that no such change
shall (i) alter or change the amount or kind of consideration to be issued to
holders of Company Common Stock as provided for in this Agreement (the "Merger
Consideration"), (ii) adversely affect the tax treatment of Company's
shareholders as a result of receiving the Merger Consideration or (iii)
materially impede or delay consummation of the transactions contemplated by this
Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth
in Article VII, the Merger shall become effective upon the occurrence of the
filing in the office of the Utah Division of Corporation and Commercial Code
(the "Corporation Division") of articles of merger in accordance with Section
16-10a-1105 of the UBCA and the filing in the office of the Nevada Secretary of
articles of merger in accordance with Sections 92A.190 and 92A.200 of the NRS or
A-9
<PAGE>
such later date and time as may be set forth in such articles and such
agreement. The Merger shall have the effects prescribed in the UBCA and the NRS.
(c) Articles of Incorporation and By-Laws. The articles of
incorporation and by-laws of Zions immediately after the Merger shall be those
of Zions as in effect immediately prior to the Effective Time.
(d) Directors and Officers of the Surviving Corporation. The directors
and officers of Zions immediately after the Merger shall be the directors and
officers of Zions immediately prior to the Effective Time, until such time as
their successors shall be duly elected and qualified.
2.02 Effective Date and Effective Time. On such date as Zions selects
(and promptly provides notice thereof to Company), which shall be within ten
(10) days after the last to occur of the expiration of all applicable waiting
periods in connection with approvals of Governmental Authorities and the receipt
of all approvals of Governmental Authorities and all conditions to the
consummation of the Merger are satisfied or waived (or, at the election of
Zions, with the approval of Company (which approval shall not unreasonably be
withheld), on the last business day of the month in which such tenth day occurs
or, if such tenth day occurs on one of the last five (5) business days of such
month, on the last business day of the succeeding month), or on such earlier or
later date as may be agreed in writing by the parties, articles of merger shall
be executed in accordance with all appropriate legal requirements and shall be
filed as required by law, and the Merger provided for herein shall become
effective upon such filing or on such date as may be specified in such articles
of merger. The date of such filing or such later effective date is herein called
the "Effective Date". The "Effective Time" of the Merger shall be the time of
such filing or as set forth in such articles of merger.
2.03 Plan of Merger. At the request of Zions, Zions and Company shall
enter into a separate agreement of merger or articles of merger reflecting the
terms hereof for purposes of any filing requirement of the NRS or the UBCA.
ARTICLE III
Consideration; Exchange Procedures and Dissenters' Shares
3.01 Merger Consideration. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person:
(a) Outstanding Company Common Stock. Each share, excluding Treasury
Stock and Dissenters' Shares, of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall become and be converted into the
right to receive a fraction of a share of Zions Common Stock calculated by
dividing (i) $35.70 by (ii) the Zions Closing Average, with the result rounded
down to the nearest ten thousandth (the "Exchange Ratio"); provided, however,
that (y) if the Zions Closing Average is greater than $77.00, the Exchange Ratio
shall be 0.4636, and (z) if the Zions Closing Average is less than $63.00, the
Exchange Ratio shall be 0.5667. The Exchange Ratio shall be subject to further
adjustment as set forth in Section 3.05 and Section 8.01(g).
(b) Outstanding Zions Common Stock. Each share of Zions Common Stock
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of Company Common Stock held as
Treasury Stock immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
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3.02 Rights as Shareholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
shareholders of Company, other than to receive any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time, and the consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the stock
transfer books of Company or the Surviving Corporation of shares of Company
Common Stock.
3.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Zions Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Zions shall pay to each holder of Company Common Stock who would otherwise be
entitled to a fractional share of Zions Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the average of the last
sale prices of Zions Common Stock, as reported on NASDAQ (as reported in The
Wall Street Journal or, if not reported therein, in another authoritative
source), for the fifteen (15) consecutive NASDAQ trading days immediately
preceding the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective Time, Zions
shall deposit, or shall cause to be deposited, with such bank or trust company
as Zions shall elect, subject (except in the case of a Subsidiary of Zions) to
the approval of Company, which approval may not be unreasonably withheld (which
may include a Subsidiary of Zions) (in such capacity, the "Exchange Agent"), for
the benefit of the holders of certificates formerly representing shares of
Company Common Stock ("Old Certificates"), for exchange in accordance with this
Article III, certificates representing the shares of Zions Common Stock ("New
Certificates") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with a record date occurring after
the Effective Date with respect thereto (without any interest on any such cash,
dividends or distributions), being hereinafter referred to as the "Exchange
Fund") to be paid pursuant to this Article III in exchange for outstanding
shares of Company Common Stock.
(b) As soon as practicable after the Effective Date, and in any event
no later than five (5) Business Days after the Effective Date, Zions shall send
or cause to be sent to each former holder of record of shares of Company Common
Stock immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III. Zions shall use its reasonable best efforts to cause the
New Certificates into which shares of a shareholder's Company Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be sent to the applicable former holder of record within
five (5) Business Days of, and shall cause such items to be delivered to such
former holder following, delivery to the Exchange Agent of Old Certificates
representing such shares of Company Common Stock (or an affidavit of lost
certificate and, if required by the Exchange Agent, indemnity reasonably
satisfactory to Zions and the Exchange Agent, if any of such certificates are
lost, stolen or destroyed) owned by such shareholder. No interest will be paid
on any such cash to be paid in lieu of fractional share interests or in respect
of dividends or distributions which any such person shall be entitled to receive
pursuant to this Article III upon such delivery. In the event of a transfer of
ownership of any shares of Company Common Stock not registered in the transfer
records of Company, the exchange described in this Section 3.04(b) may
nonetheless be effected and a check for the cash to be paid in lieu of
fractional shares may be issued to the transferee if the Old Certificate
representing such Company Common Stock is presented to the Exchange Agent,
accompanied by documents sufficient, in the discretion of Zions and the Exchange
Agent, (i) to evidence and effect such transfer but for the provisions of
Section 3.02 hereof and (ii) to evidence that all applicable stock transfer
taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration
therefor is not claimed prior to the date on which such consideration would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed consideration shall, to the extent permitted by abandoned property
and any other applicable law, become the
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property of the Surviving Corporation (and to the extent not in its possession
shall be paid over to the Surviving Corporation), free and clear of all claims
or interest of any person previously entitled to such claims. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be liable
to any former holder of Company Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(d) At the election of Zions, no dividends or other distributions with
respect to Zions Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of Company Common Stock converted in the Merger into the
right to receive shares of such Zions Common Stock until the holder thereof
shall be entitled to receive New Certificates in exchange therefor in accordance
with the procedures set forth in this Section 3.04, and no such shares of
Company Common Stock shall be eligible to vote until the holder of Old
Certificates is entitled to receive New Certificates in accordance with the
procedures set forth in this Section 3.04. After becoming so entitled in
accordance with this Section 3.04, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Zions Common Stock such holder had the right to receive upon surrender of the
Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Company for one year after the Effective Time shall be returned
by the Exchange Agent to Zions. Any shareholders of Company who have not
theretofore complied with this Article III shall thereafter look only to Zions
for payment of the shares of Zions Common Stock, cash in lieu of any fractional
shares and unpaid dividends and distributions on Zions Common Stock deliverable
in respect of each share of Company Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
3.05 Anti-Dilution Provisions. In the event Zions changes (or
establishes a record date for changing) the number of shares of Zions Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Zions Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted.
Subject to Section 2.01(a), if, between the date hereof and the Effective Time,
Zions shall consolidate with or into any other corporation (a "Business
Combination") and the terms thereof shall provide that Zions Common Stock shall
be converted into or exchanged for the shares of any other corporation or
entity, then provision shall be made as part of the terms of such Business
Combination so that shareholders of Company who would be entitled to receive
shares of Zions Common Stock pursuant to this Agreement shall be entitled to
receive, in lieu of each share of Zions Common Stock issuable to such
shareholders as provided herein, the same kind and amount of securities or
assets as shall be distributable upon such Business Combination with respect to
one share of Zions Common Stock.
3.06 Options. At the Effective Time, each outstanding option to
purchase shares of Company Common Stock under the Company Stock Plan (each, a
"Company Stock Option"), whether vested or unvested, shall be converted into an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option, the number of shares of Zions Common Stock equal to
(a) the number of shares of Company Common Stock subject to the Company Stock
Option, multiplied by (b) the Exchange Ratio (such product rounded down to the
nearest whole number) (a "Replacement Option"), at an exercise price per share
(rounded down to the nearest whole cent) equal to (y) the aggregate exercise
price for the shares of Company Common Stock which were purchasable pursuant to
such Company Stock Option divided by (z) the number of full shares of Zions
Common Stock subject to such Replacement Option in accordance with the
foregoing. Notwithstanding the foregoing, each Company Stock 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 Time, Company shall take all action, if
any, necessary with respect
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to the Company Stock Plan to permit the replacement of the outstanding Company
Stock Options by Zions pursuant to this Section. At the Effective Time, Zions
shall assume the Company Stock Plans; provided, that such assumption shall be
only in respect of the Replacement Options and that Zions shall have no
obligation with respect to any awards under the Company Stock Plans other than
the Replacement Options and shall have no obligation to make any additional
grants or awards under such assumed Company Stock Plans. After the Effective
Time, Zions shall file a registration statement on Form S-8 with respect to the
shares of Zions Common Stock issuable in connection with the Replacement
Options.
3.07 Dissenters' Rights. Any Dissenting Shareholder who shall be
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in Chapter 92A of the NRS, shall not be entitled to the Merger
Consideration in respect thereof unless and until such Dissenting Shareholder
shall have failed to perfect or shall have effectively withdrawn or lost such
Dissenting Shareholder's right to dissent from the Merger under the NRS, and
shall be entitled to receive only the payment provided for by Chapter 92A of the
NRS with respect to such Dissenters' Shares. If any Dissenting Shareholder shall
fail to perfect or shall have effectively withdrawn or lost such right to
dissent, the Dissenters' Shares held by such Dissenting Shareholder shall
thereupon be treated as though such Dissenters' Shares had been converted into
the right to receive the Merger Consideration pursuant to Section 3.01 hereof.
ARTICLE
Actions Pending Acquisition
4.01 Forebearances of Company. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Zions, Company will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Company and its
Subsidiaries other than in the ordinary and usual course consistent with past
practice or fail to use reasonable best efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business associates,
take any action that would adversely affect or delay the ability of Company,
Zions or any of their Subsidiaries to perform any of their obligations on a
timely basis under this Agreement and the Agreement of Bank Merger, or take any
action that is reasonably likely to have a Material Adverse Effect with respect
to Company.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Company Common Stock or any Rights, (ii) enter into any agreement with respect
to the foregoing or (iii) permit any additional shares of Company Common Stock
to become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights, except as provided in paragraph
(d) below.
(c) Dividends, Etc. (a) Make, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any distribution on any shares
of Company Common Stock or (b) directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its capital
stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Company or any of its
Subsidiaries, or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are required
by applicable law, (iii) to satisfy Previously
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Disclosed contractual obligations existing as of the date hereof or (iv) for
grants of awards (including (A) severance arrangements and (B) stock options not
to exceed 1,000 with respect to any individual employee or 10,000 in the
aggregate) to newly hired employees or in connection with promotions of existing
employees, in each case consistent with past practice.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i) as
may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer or employee of
Company or any of its Subsidiaries, or take any action to accelerate the vesting
or exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder.
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business
consistent with past practice and in a transaction that is not material to the
Company and its Subsidiaries, taken as a whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other than
by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or properties of
any other entity except in the ordinary course of business consistent with past
practice and in a transaction that is not material to Company and its
Subsidiaries, taken as a whole.
(h) Capital Expenditures. Except as Previously Disclosed, make any
capital expenditures, other than capital expenditures in the ordinary course of
business consistent with past practice in amounts and not exceeding $100,000
individually or $300,000 in the aggregate.
(i) Governing Documents. Amend the Company Articles, Company By-Laws or
the articles of incorporation or by-laws (or similar governing documents) of any
of Company's Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles or applicable banking regulation.
(k) Contracts. Enter into or terminate any Material Contract or amend
or modify in any material respect any of its existing Material Contracts.
(l) Claims. Settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not material
to Company and its Subsidiaries, taken as a whole.
(m) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling of interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368 of the Code; or (b) knowingly take any action
that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
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(n) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(o) Indebtedness. Incur any indebtedness for borrowed money other than
in the ordinary course of business consistent with past practice.
(p) Commitments. Agree or commit to do any of the foregoing.
4.02 Forebearances of Zions. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Company, Zions will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Take any action that would adversely affect or
delay the ability of Company or Zions to perform any of their obligations on a
timely basis under this Agreement, or take any action that is reasonably likely
to have a Material Adverse Effect with respect to Zions.
(b) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling of interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368 of the Code; or (b) knowingly take any action
that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules. On or prior to the date hereof, Company and
Company Bank have delivered to Zions a schedule (the "Disclosure Schedule")
setting forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more representations or
warranties contained in Section 5.03; provided, that (a) no such item is
required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence would not be reasonably likely to
result in the related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect with respect to
the disclosing party.
5.02 Standard. No representation or warranty of Company and Company
Bank, on the one hand, or Zions, on the other, contained in Section 5.03 or 5.04
shall be deemed untrue and no party hereto shall be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact, event
or circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
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representation or warranty contained in Section 5.03 or 5.04 has had or is
reasonably likely to have a Material Adverse Effect with respect to Company or
Zions, as the case may be.
5.03 Representations and Warranties of Company and Company Bank.
Subject to Sections 5.01 and 5.02 and except as Previously Disclosed in a
paragraph of the Disclosure Schedule corresponding to the relevant paragraph
below, Company and Company Bank hereby represent and warrant jointly and
severally to Zions:
(a) Organization, Standing and Authority. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Company is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to be
so qualified.
(b) Company Common Stock. As of the date hereof, the authorized capital
stock of Company consists solely of 15,000,000 shares of Company Common Stock,
of which no more than 9,750,000 shares were outstanding as of the date hereof.
As of the date hereof, no shares of Company Common Stock were held in treasury
by Company or otherwise owned by Company or its Subsidiaries. The outstanding
shares of Company Common Stock have been duly authorized and are validly issued
and outstanding, fully paid and nonassessable, and subject to no preemptive
rights (and were not issued in violation of any preemptive rights). As of the
date hereof, there are no shares of Company Common Stock authorized and reserved
for issuance, Company does not have any Rights issued or outstanding with
respect to Company Common Stock, and Company does not have any commitment to
authorize, issue or sell any Company Common Stock or Rights, except pursuant to
this Agreement or pursuant to Company Stock Options or other Rights set forth in
paragraph 5.03(b) of the Disclosure Schedule. The number of shares of Company
Common Stock which are issuable and reserved for issuance upon exercise of
Company Stock Options as of the date hereof are Previously Disclosed in
Company's Disclosure Schedule.
(c) Subsidiaries. Company has Previously Disclosed in paragraph 5.03(c)
of the Disclosure Schedule a list of all of its Subsidiaries together with the
jurisdiction of organization of each such Subsidiary, Company owns, directly or
indirectly, all the issued and outstanding equity securities of each of its
Subsidiaries, no equity securities of any of its Subsidiaries are or may become
required to be issued (other than to Company or its wholly-owned Subsidiaries)
by reason of any Right or otherwise, there are no contracts, commitments,
understandings or arrangements by which any of such Subsidiaries is or may be
bound to sell or otherwise transfer any equity securities of any such
Subsidiaries (other than to Company or its wholly-owned Subsidiaries), there are
no contracts, commitments, understandings, or arrangements relating to its
rights to vote or to dispose of such securities and all the equity securities of
each Subsidiary held by Company or its Subsidiaries have been duly authorized
and are validly issued and outstanding, fully paid and nonassessable and are
owned by Company or its Subsidiaries free and clear of any Liens.
(i) Company does not own beneficially, directly or indirectly,
any equity securities or similar interests of any Person, or any
interest in a partnership or joint venture of any kind, other than its
Subsidiaries.
(ii) Each of Company's Subsidiaries has been duly organized
and is validly existing in good standing under the laws of the
jurisdiction of its organization, and is duly qualified to do business
and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified.
(d) Corporate Power. Each of Company and each of its Subsidiaries has
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Company has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Stock Option
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Agreement and to consummate the transactions contemplated hereby and thereby.
Company Bank has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the Agreement of Bank Merger
and to consummate the transactions contemplated hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval of the agreement of merger set forth in this
Agreement by the holders of eighty percent (80%) of the outstanding shares of
Company Common Stock entitled to vote thereon (which is the only shareholder
vote required thereon), this Agreement and the Stock Option Agreement and the
transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of Company and the Company Board on or prior to the
date hereof. Each of this Agreement and the Stock Option Agreement is a valid
and legally binding obligation of Company, enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles). Each of this Agreement and the Agreement of Bank Merger and
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action of Company Bank and its board of directors on or
prior to the date hereof. Each of this Agreement, and upon execution and
delivery of the Agreement of Bank Merger, the Agreement of Bank Merger, is or
will be, as the case may be, the valid and legally binding obligation of Company
Bank, enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles). The Company Board
has received the written opinion of NationsBanc Montgomery Securities LLC to the
effect that, as of the date of the meeting of the Company Board at which the
Merger was approved, the consideration to be received by the holders of Company
Common Stock in the Merger is fair to the holders of Company Common Stock from a
financial point of view.
(f) Regulatory Approvals; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by Company or any of its Subsidiaries
in connection with the execution, delivery or performance by Company or Company
Bank of this Agreement and the Agreement of Bank Merger or to consummate the
Merger or the Bank Merger except for (A) the filing of applications and notices,
as applicable, with the federal and state banking authorities; (B) filings with
the SEC and state securities authorities and the approval of this Agreement by
the shareholders of Company; and (C) the filing of articles of merger with the
Corporation Division pursuant to the UBCA and articles of merger with the Nevada
Secretary pursuant to the NRS. As of the date hereof, Company has no knowledge
of any reason why the approvals set forth in Section 7.01(b) will not be
received without the imposition of a condition, restriction or requirement of
the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred
to in the preceding paragraph, and the expiration of related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and Agreement
of Bank Merger and the consummation of the transactions contemplated
hereby and thereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of Company or of any
of its Subsidiaries or to which Company or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation
of, or a default under, the Company Articles or the Company By-Laws or
the articles of incorporation or by-laws of Company Bank, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
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(g) Financial Reports and Regulatory Documents; Material Adverse
Effect. Since December 31, 1996, each of Company and each of its Subsidiaries
has effected or filed all reports, registrations, proxy statements or other
statements that it was required to file with the Federal Reserve, the Nevada
Department or any other Governmental Authority having jurisdiction over its
operations (collectively, the "Regulatory Documents"). Each of the balance
sheets contained in any such Regulatory Document or any such regulatory document
to be filed (including the related notes and schedules thereto) fairly presents,
or will fairly present, in all material respects, the financial position of
Company and its Subsidiaries as of its date, and each of the statements of
income and changes in shareholders' equity and cash flows or equivalent
statements in such Regulatory Documents or any such regulatory document to be
filed (including any related notes and schedules thereto) fairly presents, or
will fairly present, in all material respects, the results of operations,
changes in shareholders' equity and changes in cash flows, as the case may be,
of Company and its Subsidiaries for the periods to which they relate, in each
case in accordance with generally accepted accounting principles consistently
applied during the periods involved, except in each case as may be noted
therein, subject to normal year-end audit adjustments in the case of unaudited
statements.
(i) Since December 31, 1998, Company and its Subsidiaries have
not incurred any liability other than in the ordinary course of
business consistent with past practice.
(ii) Since December 31, 1998, (A) Company and its Subsidiaries
have conducted their respective businesses in the ordinary and usual
course consistent with past practice (excluding the incurrence of
expenses related to this Agreement and the transactions contemplated
hereby) and (B) no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and
events (described in any paragraph of Section 5.03 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to
Company.
(h) Litigation. No litigation, claim or other proceeding before any
court or governmental agency is pending against Company or any of its
Subsidiaries and, to Company's knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) Regulatory Matters. (i) Neither Company nor any of its Subsidiaries
or any of their properties is a party to or is subject to any written order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory letter
from, any federal or state governmental agency or authority charged with the
supervision or regulation of financial institutions or issuers of securities or
engaged in the insurance of deposits (including, without limitation, the Nevada
Department and the Federal Reserve) or the supervision or regulation of it or
any of its Subsidiaries (collectively, the "Regulatory Authorities").
(ii) Neither Company nor any of its Subsidiaries has been
advised by any Regulatory Authority that such Regulatory Authority is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such written order,
decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(j) Compliance with Laws. Company and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting
such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act,
the Home Mortgage Disclosure Act and all other applicable fair lending
laws and other laws relating to discriminatory business practices;
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(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to own or lease their properties and to conduct their businesses
as presently conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to
Company's knowledge, no suspension or cancellation of any of them is
threatened; and
(iii) has received, since December 31, 1998, no notification
or communication from any Governmental Authority (A) asserting that
Company or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to Company's knowledge, do any grounds
for any of the foregoing exist).
(k) Material Contracts; Defaults. Paragraph 5.03(k) of the Disclosure
Schedule sets forth a list of (i) any employment agreement to which Company or
any of its Subsidiaries is a party that provides for a base salary in excess of
$50,000 annually and which is not terminable by Company or a Subsidiary by
notice of not more than 60 days; (ii) any contract, agreement, instrument,
commitment, understanding or other arrangement with an executive officer or
other key employee of Company or any of its Subsidiaries the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Company or any of its Subsidiaries of the
nature contemplated by this Agreement; (iii) any contract, agreement or
instrument containing covenants that limit the ability of Company or any of its
Subsidiaries to compete in any line of business or with any Person or that
involve any restriction on the geographic area in which, or method by which,
Company (including any successor thereof) or any of its Subsidiaries may carry
on its business; (iv) any contract, agreement, instrument, commitment,
understanding or other arrangement of Company or any of its Subsidiaries which
has an aggregate future liability to any Person in excess of $50,000 annually or
$200,000 in the aggregate and is not terminable by the Company or a Subsidiary
by notice of not more than 60 days for a cost of less than $50,000; or (v) any
other agreement, contract, commitment, instrument, understanding or arrangement
to which the Company or any Subsidiary is a party or by or to which it or any of
its assets, properties or business is bound or subject which is material to
Company and its Subsidiaries, taken as a whole (each, a "Material Contract").
Neither Company nor any of its Subsidiaries is in default under any such
Material Contract, 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.
(l) No Brokers. No action has been taken by Company that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions contemplated
by this Agreement, excluding a Previously Disclosed fee to be paid to
NationsBanc Montgomery Securities LLC.
(m) Employee Benefit Plans.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of Company
and its subsidiaries (the "Employees") and current or former directors
of Company, including, but not limited to, "employee benefit plans"
within the meaning of Section 3(3) of ERISA, and deferred compensation,
stock option, stock purchase, stock appreciation rights, stock based,
incentive and bonus plans (the "Benefit Plans"), are Previously
Disclosed in the Disclosure Schedule. True and complete copies of all
Benefit Plans, including, but not limited to, any trust instruments and
insurance contracts forming a part of any Benefit Plans, and all
amendments thereto have been provided or made available to Zions.
(ii) All employee benefit plans, other than "multiemployer
plans" within the meaning of Section 3(37) of ERISA, covering Employees
(the "Plans"), to the extent subject to ERISA, are in substantial
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compliance with ERISA. Neither Company nor any of its Subsidiaries is a
party to any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan"), which is intended to be
qualified under Section 401(a) of the Code. There is no material
pending or, to the knowledge of Company, threatened litigation relating
to the Plans. Neither Company nor any of its Subsidiaries has engaged
in a transaction with respect to any Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject
Company or any Subsidiary to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(iii) No liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer
with Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"). Neither Company, any of its Subsidiaries nor an
ERISA Affiliate has contributed to a "multiemployer plan", within the
meaning of Section 3(37) of ERISA, at any time on or after September
26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Pension Plan or
by any ERISA Affiliate within the 12-month period ending on the date
hereof or will be required to be filed in connection with the
transactions contemplated by this Plan.
(iv) All contributions required to be made under the terms of
any Plan have been timely made or have been reflected on the
consolidated financial statements of Company included in the Regulatory
Documents. Neither any Pension Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
Company nor any of its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan,
as of the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the
Plan's most recent actuarial valuation), did not exceed the then
current value of the assets of such Plan, and there has been no
material change in the financial condition of such Plan since the last
day of the most recent plan year.
(vi) Except as Previously Disclosed, neither Company nor any
of its Subsidiaries has any obligations for retiree health and life
benefits under any Benefit Plan. Company or its Subsidiaries may amend
or terminate any such Benefit Plan at any time without incurring any
liability thereunder.
(vii) Except as Previously Disclosed, the consummation of the
transactions contemplated by this Agreement and the Agreement of Bank
Merger will not (x) entitle any employees of Company or any of its
Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation
pursuant to, any of the Benefit Plans or (z) result in any breach or
violation of, or a default under, any of the Benefit Plans. Without
limiting the foregoing, as a result of the consummation of the
transactions contemplated by this Agreement and the Agreement of Bank
Merger, none of Zions, Company, or any of its Subsidiaries will be
obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual"
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as those terms are defined in Section 280G of the Code, without regard
to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.
(n) Labor Matters. Neither Company nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
Company or any of its Subsidiaries the subject of a proceeding asserting that it
or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Company or any
such Subsidiary to bargain with any labor organization as to wages or conditions
of employment, nor is there any strike or other labor dispute involving it or
any of its Subsidiaries pending or, to Company's knowledge, threatened, nor to
the knowledge of Company is there any activity involving its or any of its
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(o) Environmental Matters. To the best knowledge of Company, neither
the conduct nor operation of Company or its Subsidiaries nor any condition of
any property presently or previously owned, leased or operated by any of them
(including, without limitation, in a fiduciary or agency capacity), violates or
violated Environmental Laws and no condition has existed or event has occurred
with respect to any of them or any such property that, with notice or the
passage of time, or both, is reasonably likely to result in liability under
Environmental Laws. To the knowledge of Company, no property on which Company or
any of its Subsidiaries holds a Lien violates or violated Environmental Laws and
no condition has existed or event has occurred with respect to any such property
that, with notice or the passage of time, or both, is reasonably likely to
result in liability under Environmental Laws. Neither Company nor any of its
Subsidiaries has received any notice from any person or entity that Company or
its Subsidiaries or the operation or condition of any property ever owned,
leased, operated, or held as collateral or in a fiduciary capacity by any of
them are or were in violation of or otherwise are alleged to have liability
under any Environmental Law, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on, beneath, or originating from, any such property.
As used herein, the term "Environmental Law" means any
federal, state or local law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to:
(A) the protection or restoration of the environment, health, safety,
or natural resources, (B) the handling, use, presence, disposal,
release or threatened release of any Hazardous Substance or (C) noise,
odor, wetlands, indoor air, pollution, contamination or any injury or
threat of injury to persons or property in connection with any
Hazardous Substance. As used herein, the term "Hazardous Substance"
means any substance in any concentration that is: (A) listed,
classified or regulated pursuant to any Environmental Law; (B) any
petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (C) any other substance which is or
may be the subject of regulatory action by any Governmental Authority
in connection with any Environmental Law.
(p) Tax Matters. (i) (A) All Tax Returns that are required to be filed
(taking into account any extensions of time within which to file) by or with
respect to Company and its Subsidiaries have been duly and timely filed, and all
such Tax Returns are complete and accurate in all material respects, (B) all
Taxes shown to be due on the Tax Returns referred to in clause (A) have been
paid in full, (C) all Taxes that Company or any of its Subsidiaries is obligated
to withhold from amounts owing to any employee, creditor or third party have
been paid over to the proper Governmental Authority in a timely manner, to the
extent due and payable, (D) the Tax Returns referred to in clause (A) have been
examined by the Internal Revenue Service or the appropriate Tax authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (E) all deficiencies asserted or assessments
made as a result of such examinations have been paid in full, (F) no issues that
have been raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (A) are currently
pending,
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and (G) no extensions or waivers of statutes of limitation have been given by or
requested with respect to any Taxes of Company or its Subsidiaries. Company has
made available to Zions true and correct copies of the United States federal
income Tax Returns filed by Company and its Subsidiaries for each of the three
most recent fiscal years ended on or before December 31, 1998. Neither Company
nor any of its Subsidiaries has any liability with respect to Taxes that accrued
on or before the end of the most recent period covered by Company's Regulatory
Documents filed prior to the date hereof in excess of the amounts accrued with
respect thereto that are reflected in the financial statements included in
Company's Regulatory Documents filed on or prior to the date hereof. Neither
Company nor any of its Subsidiaries is a party to any Tax allocation or sharing
agreement, is or has been a member of an affiliated group filing consolidated or
combined Tax returns (other than a group the common parent of which is or was
Company) or otherwise has any liability for the Taxes of any person (other than
Company and its Subsidiaries). As of the date hereof, neither Company nor any of
its Subsidiaries has any reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code. No Liens for Taxes exist with respect to any
of the assets or properties of Company or its Subsidiaries, except for statutory
Liens for Taxes not yet due and payable or that are being contested in good
faith and reserved for in accordance with United States generally accepted
accounting principles. Neither of Company nor any of its Subsidiaries has been a
party to any distribution occurring during the last three (3) years in which the
parties to such distribution treated the distribution as one to which Section
355 of the Code applied.
(ii) No Tax is required to be withheld pursuant to Section
1445 of the Code as a result of the transfer contemplated by this
Agreement.
(q) Risk Management Instruments. All interest rate swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Company's own account, or for
the account of one or more of Company's Subsidiaries (all of which are listed on
Company's Disclosure Schedule), if any, were entered into in accordance with
prudent business practices and all applicable laws, rules, regulations and
regulatory policies and with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of Company or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and are in full force and effect. Neither
Company nor its Subsidiaries, nor to Company's knowledge, any other party
thereto, is in breach of any of its obligations under any such agreement or
arrangement.
(r) Books and Records. The books and records of Company and its
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the financial position
of Company and its Subsidiaries.
(s) Insurance. Paragraph 5.03(s) of the Disclosure Schedules sets forth
a list of all insurance policies, binders, or bonds maintained by Company or its
Subsidiaries ("Insurance Policies"). Company and its Subsidiaries are insured
with reputable insurers against such risks and in such amounts as the management
of Company reasonably has determined to be prudent in accordance with industry
practices. All the Insurance Policies are in full force and effect; Company and
its Subsidiaries are not in material default thereunder; and all claims
thereunder for which a basis is known, or reasonably should be known, by Company
have been filed in due and timely fashion.
(t) Takeover Laws. Company has taken all action required to be taken by
it in order to exempt this Agreement and the Stock Option Agreement, and the
transactions contemplated hereby and thereby from, and this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby are exempt
from, the
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requirements of any "control share", "business combination" or other
antitakeover laws and regulations of any state (collectively, "Takeover Laws"),
including, without limitation, the State of Nevada.
(u) Accounting Treatment. As of the date hereof, to Company's
knowledge, there is no reason why the Merger will fail to qualify for "pooling
of interests" accounting treatment.
(v) Year 2000. To the knowledge of Company, the mission critical
computer software and hardware operated by Company and/or any of its
Subsidiaries is currently capable of providing, or is being adapted to provide,
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with substantially the same functionality as such mission critical
software records, stores, processes and presents such calendar dates falling on
or before December 31, 1999. To the knowledge of Company, the costs of
adaptations referred to in this clause will not have a Material Adverse Effect
with respect to Company. Neither Company nor any of its Subsidiaries has
received, and does not reasonably expect to receive, any deficiency notice from
any federal or Nevada banking authority with respect to the Year 2000 readiness
of its mission critical computer software and hardware. Company has Previously
Disclosed to Zions a complete and accurate copy of its and its Subsidiaries'
plan, including an estimate of anticipated associated costs, for addressing the
issues set forth in all Federal Financial Institutions Examination Council
Interagency Statements relating to Year 2000 compliance as such issues affect
Company and/or its Subsidiaries. Between the date of this Agreement and the
Effective Time, Company and Company Bank shall use commercially reasonable and
practicable efforts to implement such plan.
5.04 Representations and Warranties of Zions. Subject to Section 5.02,
Zions hereby represents and warrants to Company as follows:
(a) Organization, Standing and Authority. Zions is duly organized,
validly existing and in good standing under the laws of the State of Utah. Zions
is duly qualified to do business and is in good standing in the states of the
United States and foreign jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified. Zions has in effect all federal, state, local, and foreign
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now conducted.
(b) Zions Capital Stock. As of the date hereof, the authorized capital
stock of Zions consists solely of 200,000,000 shares of Zions Common Stock, of
which no more than 80,000,000 shares were outstanding as of the date hereof and
3,000,000 shares of Zions Preferred Stock, of which no shares were outstanding
as of the date hereof.
(c) Corporate Power. Zions and each of its Significant Subsidiaries has
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Zions has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
(d) Corporate Authority. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action of
Zions and the Zions Board. This Agreement is a valid and legally binding
agreement of Zions enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
(e) Regulatory Approvals; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by Zions or any of its Subsidiaries in
connection with the execution, delivery or performance by Zions of this
Agreement or to consummate the Merger except
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for (A) the filing of applications and notices, as applicable, with the federal
and state banking authorities; (B) approval of the listing on the NASDAQ of
Zions Common Stock to be issued in the Merger; (C) the filing and declaration of
effectiveness of the Registration Statement; (D) the filing of articles of
merger with the Corporation Division pursuant to the UBCA and articles of merger
with the Nevada Secretary pursuant to the NRS; (E) such filings as are required
to be made or approvals as are required to be obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of Zions
Common Stock in the Merger; and (F) receipt of the approvals set forth in
Section 7.01(b). As of the date hereof, Zions has no knowledge of any reason why
the approvals set forth in Section 7.01(b) will not be received without the
imposition of a condition, restriction or requirement of the type described in
Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred
to in the preceding paragraph and expiration of the related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of Zions or of any of its Subsidiaries or to which Zions or
any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing
documents) of Zions or any of its Subsidiaries, or (C) require any
consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument.
(f) Financial Reports and Regulatory Documents; Material Adverse
Effect. (i) Zions' Annual Reports on Form 10-K for the fiscal years ended
December 31, 1998, 1997 and 1996, and all other reports, registration
statements, definitive proxy statements or information statements filed or to be
filed by it or any of its Significant Subsidiaries subsequent to December 31,
1996 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act or under the securities regulations of the SEC, in the form filed
or to be filed with the SEC as of the date filed, (A) complied or will comply in
all material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and each of the balance sheets contained in or incorporated by reference into
any such regulatory document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of Zions and its
Subsidiaries as of its date, and each of the statements of income and changes in
shareholders' equity and cash flows or equivalent statements in such regulatory
documents (including any related notes and schedules thereto) fairly presents,
or will fairly present, the results of operations, changes in shareholders'
equity and changes in cash flows, as the case may be, of Zions and its
Subsidiaries for the periods to which they relate, in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, subject to normal
year-end audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1998, no event has occurred or
circumstance arisen that, individually or taken together with all other
facts, circumstances and events (described in any paragraph of Section
5.04 or otherwise), is reasonably likely to have a Material Adverse
Effect with respect to Zions.
(g) No Brokers. No action has been taken by Zions that would give rise
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement or the Agreement of Bank Merger.
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(h) Accounting Treatment; Tax Matters. As of the date hereof, Zions has
no knowledge of any reason why the Merger will fail to qualify for "pooling of
interests" accounting treatment. As of the date hereof, neither Zions nor any of
its Subsidiaries has any reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code.
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each of Company, Company Bank and Zions agrees to use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
each of the Merger and the Bank Merger as promptly as practicable and otherwise
to enable consummation of the transactions contemplated hereby and shall
cooperate fully with the other party hereto to that end.
6.02 Shareholder Approval. Company agrees to take, in accordance with
applicable law and the Company Articles and the Company By-Laws, all action
necessary to convene an appropriate meeting of its shareholders to consider and
vote upon the approval and adoption of this Agreement and any other matters
required to be approved by Company's shareholders for consummation of the Merger
(including any adjournment or postponement, the "Company Meeting"), in each case
as promptly as reasonably practicable after the Registration Statement is
declared effective. Except to the extent otherwise permitted pursuant to Section
6.06, the Company Board shall recommend at the Company Meeting that all such
matters be approved by its shareholders and Company shall not cancel the Company
Meeting and shall take all reasonable action to solicit such approval by its
shareholders.
6.03 Registration Statements. Zions agrees to prepare a registration
statement on Form S-4 or other applicable form (the "Registration Statement") to
be filed by Zions with the SEC in connection with the issuance of Zions Common
Stock in the Merger (including the proxy statement and prospectus and other
proxy solicitation materials of Company constituting a part thereof (the "Proxy
Statement") and all related documents). Company agrees to cooperate, and to
cause its Subsidiaries to cooperate, with Zions, its counsel and its
accountants, in preparation of the Registration Statement and the Proxy
Statement. If at the time the Registration Statement is to be filed with the
SEC, Company is required to file reports under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act or under the securities regulations of the SEC, then Company
shall file the Proxy Statement in preliminary form with the SEC as soon as
reasonably practicable. Zions agrees to file the Registration Statement with the
SEC as soon as reasonably practicable or, if applicable, as soon as reasonably
practicable after any SEC comments with respect to the preliminary Proxy
Statement are resolved. Each of Company and Zions agrees to use all reasonable
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as reasonably practicable after filing thereof. Zions
also agrees to use all reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. Company agrees to furnish to Zions
all information concerning Company, its Subsidiaries, officers, directors and
shareholders as may be reasonably requested in connection with the foregoing.
(a) Each of Company, Company Bank and Zions agrees, as to itself and
its Subsidiaries, that the information supplied or to be supplied by it for
inclusion or incorporation by reference in the Registration Statement will not,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Proxy Statement and any amendment or
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supplement thereto will not, at the date of mailing to shareholders and at the
time of the Company Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of Company, Company Bank and Zions further agrees
that if it shall become aware prior to the Effective Date of any information
furnished by it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not false or misleading, promptly to
inform the other party thereof and to take the necessary steps to correct the
Proxy Statement.
(b) Zions agrees to advise Company, promptly after Zions receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of Zions Common Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information.
6.04 Press Releases. Each of Company, Company Bank and Zions agrees
that it will not, without the prior approval of the other party, issue any press
release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by applicable law
or regulation or NASDAQ rules (provided that the issuing party shall
nevertheless provide the other party with notice of, and the opportunity to
review, any such press release or written statement).
6.05 Access; Information. Each of Company, Company Bank and Zions
agrees that upon reasonable notice and subject to applicable laws relating to
the exchange of information, each party shall afford the other party and the
other party's officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours throughout the period
prior to the Effective Time to its books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and to such other information as the requesting party may reasonably
request and, during such period, the providing party shall furnish promptly to
the requesting party (i) a copy of each material report, schedule and other
document filed by it pursuant to the requirements of federal or state securities
or banking laws, and (ii) all other information concerning the business,
properties and personnel of it as the requesting party may reasonably request.
(a) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this Section
6.05 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party will keep confidential, and will cause
its representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.05 (as well as any other information obtained prior
to the date hereof in connection with the entering into of this Agreement)
unless such information (i) was already known to such party, (ii) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (iii) is disclosed with the prior written
approval of the providing party or (iv) is or becomes readily ascertainable from
publicly available sources. In the event that this Agreement is terminated or
the transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or extracts
thereof containing information and data as to the other party to be returned to
the other party. No investigation by either party of the business and affairs of
the other party shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to either
party's obligation to consummate the transactions contemplated by this
Agreement.
6.06 Acquisition Proposals.
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(a) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Company shall not,
nor shall it permit any of its Affiliates or Subsidiaries to, nor shall it
authorize or permit any of its respective officers, directors, employees,
representatives or agents (collectively, the "Company Representatives") directly
or indirectly, to (i) solicit, facilitate, initiate or encourage, or take any
action to solicit, facilitate, initiate or encourage, any inquiries or the
making of any proposal or offer that constitutes an Acquisition Proposal or (ii)
participate or engage in discussions or negotiations with, or provide any
information to, any Person concerning an Acquisition Proposal or which might
reasonably be expected to result in an Acquisition Proposal. Company shall
immediately cease and cause to be terminated and shall cause all Company
Representatives to terminate all existing discussions or negotiations with any
Person conducted heretofore with respect to, or that could reasonably be
expected to lead to, an Acquisition Proposal. Company shall promptly notify all
Company Representatives of its obligations under this Section 6.06.
(b) [Reserved]
(c) Except as set forth in the following sentence, neither the Company
Board nor any committee thereof shall (i) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal other than the Merger and the
Bank Merger, (ii) withdraw or modify or propose to withdraw or modify in a
manner adverse to Zions its approval or recommendation of the Merger, this
Agreement or the transactions contemplated hereby, (iii) enter, or cause any
Subsidiary to enter, into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Acquisition
Proposal, or (iv) resolve or announce its intention to do any of the foregoing.
The immediately preceding sentence notwithstanding, in the event that prior to
the Company Meeting the Company Board receives a Superior Proposal, the Company
Board may (A) approve or recommend, or propose to approve or recommend, such
Superior Proposal, (B) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Zions its recommendation of the Merger, this Agreement or
the transactions contemplated hereby or (C) resolve or announce its intention to
do any the actions set forth in the preceding clauses (A) and (B), if (x) the
Company Board receives a written opinion of outside counsel to the effect that,
and based on such advice of outside counsel the Company Board determines by a
majority vote of directors in their good faith judgment that, taking such action
is required to satisfy the fiduciary duties of such directors and (y) Company
furnishes Zions two (2) Business Days' prior written notice of the taking of
such action (which notice shall include a description of the material terms and
conditions of the Superior Proposal and identify the person making the same).
(d) In addition to the other obligations of Company set forth in this
Section 6.06, Company shall immediately advise Zions orally and in writing of
any request for information with respect to any Acquisition Proposal, or any
inquiry with respect to or which could result in an Acquisition Proposal, the
material terms and conditions of such request, Acquisition Proposal or inquiry,
and the identity of the person making the same. Company shall inform Zions on a
prompt and current basis of the status and content of any discussions regarding
any Acquisition Proposal with a third party and as promptly as practicable of
any change in the price, structure or form of the consideration or material
terms of and conditions regarding any Acquisition Proposal or of any other
developments or circumstances which could reasonably be expected to culminate in
the taking of any of the actions referred to in Section 6.06(c).
6.07 Affiliate Agreements. Not later than the 15th day prior to the
mailing of the Proxy Statement, Company shall deliver to Zions a schedule of
each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the Company Meeting, deemed to be an "affiliate" of
Company (each, a "Company Affiliate") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135.
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(b) Company shall use its reasonable best efforts to cause each person
who may be deemed to be a Company Affiliate to execute and deliver to Zions on
or before the date of mailing of the Proxy Statement an agreement in the form
attached hereto as Exhibit C.
6.08 Takeover Laws. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement and the Stock Option
Agreement to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement and the
Stock Option Agreement from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect.
6.09 Certain Policies. After all conditions to the consummation of the
Merger set forth in Article VII have been satisfied or waived, Company and
Company Bank shall, consistent with generally accepted accounting principles and
on a basis mutually satisfactory to them and Zions, modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) so as to be applied on a basis that is
consistent with that of Zions.
6.10 NASDAQ Listing. Zions agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NASDAQ, subject to official notice of
issuance, the shares of Zions Common Stock to be issued to the holders of
Company Common Stock in the Merger.
6.11 Regulatory Applications. Zions, Company and Company Bank and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Zions, Company and Company Bank shall use their reasonable
best efforts to make all required bank regulatory filings, including the
appropriate filing with the Federal Reserve, within 30 days after the date
hereof. Each of Zions, Company and Company Bank shall have the right to review
in advance, and to the extent practicable each will consult with the other, in
each case subject to applicable laws relating to the exchange of information,
with respect to all material written information submitted to any third party or
any Governmental Authority in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties hereto
agrees to act reasonably and as promptly as reasonably practicable. Each party
hereto agrees that it will consult with the other party hereto with respect to
the obtaining of all material permits, consents, approvals and authorizations of
all third parties and Governmental Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other party appraised of the status of material matters relating to
completion of the transactions contemplated hereby.
(a) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.12 Indemnification; Director and Officers' Insurance. From and after
the Effective Time through the fourth anniversary of the Effective Date, Zions
agrees to indemnify and hold harmless each present and former director and
officer of Company or any Subsidiary of Company determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) (but excluding
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any Costs arising out of any violation or alleged violation of the Exchange Act
or the rules and regulations thereunder with respect to insider trading),
whether asserted, claimed or arising prior to, at or after the Effective Time,
to the extent to which such Indemnified Parties were entitled under Nevada law
and the Company Articles or the Company By-Laws in effect on the date hereof,
and Zions shall also advance expenses as incurred to the extent permitted under
Nevada law and the Company Articles and the Company By-Laws.
(a) For a period of four (4) years after the Effective Time, Zions
shall use its reasonable best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Company (provided that Zions may substitute therefor policies of comparable
coverage with respect to claims arising from facts or events which occurred
before the Effective Time); provided, however, that in no event shall Zions be
obligated to expend, in order to maintain or provide insurance coverage pursuant
to this Section 6.12(b), any amount per annum in excess of 150% of the amount of
the annual premiums paid as of the date hereof by Company for such insurance
(the "Maximum Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, Zions
shall use all reasonable efforts to maintain the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to the
Maximum Amount. Notwithstanding the foregoing, prior to the Effective Time,
Zions may request Company to, and Company shall, purchase insurance coverage, on
such terms and conditions as shall be acceptable to Zions, extending for a
period of two (2) years Company's directors' and officers' liability insurance
coverage in effect as of the date hereof (covering past or future claims with
respect to periods before the Effective Time) and such coverage shall satisfy
Zions' obligations under this subsection (b).
6.13 Benefit Plans. Zions shall, from and after the Effective Time, (i)
honor in accordance with their terms all employment agreements set forth in
paragraph 6.13 of the Disclosure Schedule and (ii) provide employees of Company
who remain as employees of Zions with employee benefit plans no less favorable
in the aggregate than those provided to similarly situated employees of Zions
(including the medical and health benefits available to other similarly situated
employees of Zions and coverage of any pre-existing health or medical conditions
covered by Company benefit plans). If any employee of Company or any Subsidiary
of Company becomes a participant in any employee benefit plan of the Surviving
Corporation, such employee shall be given credit under such plan for all service
prior to the Effective Date with Company or such Subsidiary of Company for
purposes of eligibility and vesting, but not for benefit accrual purposes, to
the same extent such service is taken into account or recognized under the
applicable employee benefit plan of Company or its Subsidiaries (it being
understood that the respective employees of Company and any of its Subsidiaries
shall be entitled to use each such employee's vacation and sick leave
entitlement, solely to the extent such leave entitlement has accrued as of the
Effective Date). Company shall take all action necessary to terminate its
existing 401(k) plan on or before the Effective Date. Nothing contained herein
shall in any way limit or restrict the ability of Zions or any of its
Subsidiaries following the Effective Time to modify, amend or terminate any
benefit plan, in accordance with the terms of such benefit plans, or to
terminate the employment of any employee.
6.14 Accountants' Letters. Each of Company and Zions shall use its
reasonable best efforts to cause to be delivered to the other party a letter of
their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, in form and substance
customary for "comfort" letters delivered by independent accountants in
accordance with Statement of Accounting Standards No. 72.
6.15 Notification of Certain Matters. Each of Company and Zions shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a material breach of
any of its representations, warranties, covenants or agreements contained
herein.
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6.16 Shareholder Agreements. The directors and certain officers and
shareholders of Company, in their capacities as shareholders, in exchange for
good and valuable consideration, have executed and delivered to Zions
shareholder agreements substantially in the form of Exhibit D hereto (the
"Shareholder Agreements"), committing such persons, among other things, (i) to
vote their shares of Company Common Stock in favor of the Agreement at the
Company Meeting, (ii) to certain representations concerning the ownership of
Company Common Stock and Zions Common Stock to be received in the Merger and
(iii) certain other matters.
6.17 Bank Merger. The Company and the Company Bank shall, at the
request of Zions (i) take all necessary corporate and other action, to adopt and
approve the Bank Merger; (ii) execute, deliver and, where appropriate, file any
and all documents necessary or desirable to permit the Bank Merger immediately
following consummation of the Merger; and (iii) take and cause to be taken any
other action to permit the consummation of any transactions contemplated in
connection with the Bank Merger. Neither the Company nor the Company Bank shall
take any action that would prevent performance of the Agreement of Bank Merger
or any other transactions contemplated in connection with the Bank Merger,
except as otherwise permitted by the terms of this Agreement. Zions and NSB may
at any time prior to the Effective Time of the Bank Merger change the method of
effecting the combination of NSB with the Company Bank (including, without
limitation, this Section 6.17) if and to the extent it deems such change to be
necessary, appropriate or desirable; provided, however, that no such change
shall (i) alter or change the amount or kind of Merger Consideration to be
issued to the holders of the Company Stock as provided for in this Agreement,
(ii) adversely affect the tax treatment of the Company's shareholders as a
result of receiving the Merger Consideration or (iii) materially impeded or
delay consummation of the transactions contemplated by this Agreement.
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Zions and Company to consummate the Merger is
subject to the fulfillment or written waiver by Zions and Company prior to the
Effective Time of each of the following conditions:
(a) Shareholder Approvals. This Agreement and the Merger shall
have been duly adopted by the requisite vote of the shareholders of Company.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the Merger, the Bank Merger and the other transactions contemplated
hereby shall have been obtained and shall remain in full force and effect and
all statutory waiting periods in respect thereof shall have expired and no such
approvals shall contain any conditions, restrictions or requirements which the
Zions Board reasonably determines (i) would, following the Effective Time, have
a Material Adverse Effect with respect to the Surviving Corporation or (ii)
would be materially burdensome.
(c) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
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7.02 Conditions to Obligation of Company. The obligation of Company to
consummate the Merger is also subject to the fulfillment or written waiver by
Company prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Zions set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the date of this Agreement and as
of the Effective Time as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak only as of the
date of this Agreement or some other date shall be true and correct as of such
date), and Company shall have received a certificate, dated the Effective Date,
signed on behalf of Zions by an executive officer of Zions to such effect.
(b) Performance of Obligations of Zions. Zions shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Company shall have received a
certificate, dated the Effective Date, signed on behalf of Zions by an executive
officer of Zions to such effect.
(c) Opinion of Company's Counsel. Company shall have received an
opinion of Graham & Dunn PC, dated the Effective Date, to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion,
(i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) each of
Zions and Company will be a party to that reorganization within the meaning of
Section 368(b) of the Code and (iii) no gain or loss will be recognized by
shareholders of Company who receive shares of Zions Common Stock in exchange for
shares of Company Common Stock, except with respect to cash received in lieu of
fractional share interests. In rendering its opinion, Graham & Dunn PC may
require and rely upon representations contained in letters from Company, Zions
and shareholders of Company.
(d) Accountants' Letters. Company shall have received the letters
referred to in Section 6.14 from Zions' independent auditors.
(e) Listing. The shares of Zions Common Stock to be issued in the
Merger shall have been approved for listing on the NASDAQ, subject to official
notice of issuance.
(f) Fairness Opinion. Prior to the mailing of the Proxy Statement to
the shareholders of Company, Company shall have received an opinion of
NationsBanc Montgomery Securities LLC, dated as of a date within five (5) days
of the date that the Proxy Statement is mailed to Company shareholders, to the
effect that, as of such date, the consideration to be received by the holders of
Company Common Stock in the Merger is fair to the holders of Company Common
Stock from a financial point of view.
7.03 Conditions to Obligation of Zions. The obligation of Zions to
consummate the Merger is also subject to the fulfillment or written waiver by
Zions prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Company and Company Bank set forth in this Agreement (subject to the standard
set forth in Section 5.02) shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on and as of the Effective
Time (except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and correct as
of such date) and Zions shall have received a certificate, dated the Effective
Date, signed on behalf of Company by an executive officer of Company and on
behalf of Company Bank by on executive officer of Company Bank to such effect.
(b) Performance of Obligations of Company and Company Bank. Each of
Company and Company Bank shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or
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prior to the Effective Time, and Zions shall have received a certificate, dated
the Effective Date, signed on behalf of Company by an executive officer of
Company and on behalf of Company Bank by an executive officer of Company Bank to
such effect.
(c) Opinion of Zions' Counsel. Zions shall have received an opinion of
Sullivan & Cromwell, special counsel to Zions, dated the Effective Date, to the
effect that, on the basis of facts, representations and assumptions set forth in
such opinion, (i) the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and (ii) each
of Zions and Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code. In rendering its opinion, Sullivan & Cromwell may
require and rely upon representations contained in letters from Company, Zions
and shareholders of Company.
(d) Accountants' Letters. Zions shall have received the letters
referred to in Section 6.14 from Company's independent auditors.
(e) Accounting Treatment. Zions shall have received from KPMG LLP,
Zions' independent auditors, letters, dated the date of or shortly prior to each
of the mailing date of the Proxy Statement and the Effective Date, stating its
opinion that the Merger shall qualify for pooling-of-interests accounting
treatment.
(f) Employment Agreement. William Martin shall have executed and
delivered to Zions or its designee a counterpart to the form of employment
agreement attached hereto as Exhibit E.
(g) Dissenters' Shares. Dissenters' Shares shall comprise less
than 10% of the outstanding capital stock of Company.
ARTICLE VIII
Termination
8.01 Termination. This Agreement may be terminated, and the Merger may
be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Zions and Company, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by Zions or
Company, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by Company or
Company Bank, on the one hand, or Zions, on the other, of any representation or
warranty contained herein (subject to the standard set forth in Section 5.02),
which breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach; or (ii) a breach by
Company or Company Bank, on the one hand, or Zions, on the other, of any of the
covenants or agreements contained herein, which breach cannot be or has not been
cured within 30 days after the giving of written notice to the breaching party
of such breach, provided that such breach (whether under (i) or (ii)) would be
reasonably likely, individually or in the aggregate with other breaches, to
result in a Material Adverse Effect with respect to the breaching party.
(c) Delay. At any time prior to the Effective Time, by Zions or
Company, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
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December 31, 1999, except to the extent that the failure of the Merger then to
be consummated arises out of or results from the knowing action or inaction of
the party seeking to terminate pursuant to this Section 8.01(c).
(d) No Approval. By Company or Zions, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such Governmental Authority or
(ii) the shareholder approval required by Section 7.01(a) herein is not obtained
at the Company Meeting.
(e) Failure to Recommend, Etc. At any time prior to the Company
Meeting, by Zions if the Company Board shall have failed to make its
recommendation referred to in Section 6.02, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect to
the interests of Zions.
(f) By Zions. By Zions, by written notice to Company, if Company takes,
causes to be taken or allows to be taken any action that would be prohibited
under Section 6.06 hereof.
(g) By Company. By Company, if the Company Board determines by a vote
of a majority of the members of the entire Company Board if the Zions Closing
Average is less than $56.00. If Company elects to exercise its termination right
pursuant to the immediately preceding sentence, it shall give written notice to
Zions no later than the end of the first Business Day following the
Determination Date. Prior to the Effective Date, Zions shall have the option of
adjusting the Exchange Ratio to equal the quotient obtained by dividing (i)
$31.73 by (ii) the Zions Closing Average. If Zions makes an election
contemplated by the preceding sentence, it shall give prompt written notice of
such election and the revised Exchange Ratio, whereupon no termination shall
have occurred pursuant to this Section 8.01(g) and this Agreement shall remain
in effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to the "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant
to this Section 8.01(g).
8.02 Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, subject to the provisions of Section 8.02(b) and Section 8.02(c),
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 9.01 and (ii) that
termination will not relieve a breaching party from liability for any breach of
this Agreement prior to such termination.
(b) If this Agreement shall be terminated (i) by Zions pursuant to
Section 8.01(b) or 8.01(d)(ii) (and, at the time of the occurrence of the
circumstance permitting termination pursuant to such Section, there shall exist
an Acquisition Proposal with respect to Company or any of its Subsidiaries,
which, in the event of a termination pursuant to Section 8.01(d)(ii) shall have
been publicly announced prior to the time of the Company Meeting) or Section
8.01(e) or Section 8.01(f) or (ii) by Company pursuant to Section 8.01(d)(ii)
(and, at the time of the occurrence of the circumstance permitting termination
pursuant to such Section, there shall exist an Acquisition Proposal with respect
to Company or any of its Subsidiaries that shall have been publicly announced
prior to the time of the Company Meeting), then Company shall promptly pay to
Zions a termination fee equal to $10 million, which (except in the case of
termination pursuant to Section 8.01(f), in which case such amount shall offset
any damages to Zions to the extent of payment) the parties agree shall represent
liquidated and exclusive damages recoverable by Zions relating to the actions
resulting in termination. Notwithstanding the foregoing, Zions shall not be
entitled to any termination fee hereunder if Zions has exercised all or any part
of the Option (as defined in the Stock Option Agreement).
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(c) Company and Zions agree that the agreements contained in paragraph
(b) above are an integral part of the transactions contemplated by this
Agreement, that without such agreements Zions would not have entered into this
Agreement, and that such amount constitute reasonable liquidated damages and
reasonable compensation to Zions for the loss sustained thereby and not a
penalty. If Company fails to pay Zions the amount due under paragraph (b) within
three (3) Business Days of such termination, Company shall pay the costs and
expenses (including legal fees and expenses) incurred by Zions in connection
with any action, including the filing of any lawsuit, taken to collect payment
of such amount, together with interest on the amount of any such unpaid amount
at the publicly announced prime rate of Zions First National Bank from the date
of such termination.
ARTICLE IX
Miscellaneous
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.12 and 6.13 and this Article IX which shall survive the Effective
Time) or the termination of this Agreement if this Agreement is terminated prior
to the Effective Time (other than Sections 6.05(b), 8.02, and this Article IX
which shall survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the Company Meeting, this Agreement may not be amended if it would violate the
NRS or reduce the consideration to be received by Company shareholders in the
Merger.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the State of Utah
applicable to contracts made and to be performed entirely within such State
(except to the extent that mandatory provisions of Federal law are applicable).
Each of the parties hereto hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or related to this Agreement or
the transactions contemplated hereby. Venue for any action between the parties
to this Agreement shall be a court of competent jurisdiction in the City of Salt
Lake City, Utah.
9.05 Expenses. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby.
9.06 Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
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If to Company, to:
Pioneer Bancorporation
750 East Warm Springs Road, Suite 400
Las Vegas, Nevada 89119
Attention: William E. Martin
Facsimile: (702) 914-4567
With a copy to:
Graham & Dunn PC
1420 Fifth Avenue, 33rd Floor
Seattle, Washington 98101-2390
Attention: Stephen M. Klein
Facsimile: (206) 340-9599
If to Zions, to:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Attention: Dale M. Gibbons
Facsimile: (801) 524-2129
With a copy to:
Sullivan & Cromwell
1888 Century Park East
Los Angeles, CA 90067
Attention: Stanley F. Farrar
Facsimile: (310) 712-8800
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement
(together with all Exhibits hereto, the Disclosure Schedule delivered in
connection herewith and the Confidentiality Agreement, dated April 23, 1999 by
and between Zions and Company) represents the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
thereby and this Agreement supersedes any and all other oral or written
agreements heretofore made. Nothing in this Agreement expressed or implied, is
intended to confer upon any person, other than the parties hereto or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
9.08 Interpretation; Effect. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require Company, Company Bank, Zions or any of their respective
Subsidiaries,
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affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
PIONEER BANCORPORATION
By: /s/William E. Martin
---------------------------
Name: William E. Martin
Title: President and Chief
Executive Officer
PIONEER CITIZENS BANK OF NEVADA
By: /s/William E. Martin
---------------------------
Name: William E. Martin
Title: President and Chief
Executive Officer
ZIONS BANCORPORATION
By: /s/Harris H. Simmons
---------------------------
Name: Harris H. Simmons
Title: President and Chief
Executive Officer
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 10, 1999 (this "Agreement"),
between Zions Bancorporation, a Utah corporation ("Grantee"), and Pioneer
Bancorporation, a Nevada corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are entering into an Agreement and Plan of
Merger dated as of the date hereof (the "Plan"), which is being executed by the
parties simultaneously with the execution of this Agreement; and
WHEREAS, as a condition and inducement to Grantee's entering into the
Plan and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties hereto
agree as follows:
SECTION 48. GRANT OF OPTION. (a) Subject to the terms and conditions of
this Agreement, Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 19.9% of
the outstanding shares of Common Stock on the date hereof fully paid and
nonassessable shares of Common Stock, no par value per share ("Common Stock"),
of Issuer at a price per share equal to $28.50 (the "Initial Price"); provided,
however, that in the event Issuer issues or agrees to issue (other than pursuant
to options and warrants to issue Common Stock outstanding as of the date hereof)
any shares of Common Stock at a price less than the Initial Price (as adjusted
pursuant to Section 5(b)), such price shall be equal to such lesser price (such
price, as adjusted as hereinafter provided, the "Option Price"); and, provided
further, however, that in no event shall the number of shares of Common Stock
for which the Option is exercisable exceed 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. The number of shares of Common Stock
that may be received upon the exercise of the Option and the Option Price are
subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that after such issuance such number together with any
shares of Common Stock previously issued pursuant hereto equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section l(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to issue shares in breach of any provision of the Plan.
SECTION 49. EXERCISE OF OPTION.
(a) Timing of Exercise, Termination. Provided that (i) Grantee shall
not be in material breach of the agreements or covenants contained in this
Agreement or the Plan and (ii) no preliminary or permanent injunction or other
order against delivery of shares covered by the Option issued by any court of
competent jurisdiction in the United States shall be in effect, Grantee may
exercise the Option, in whole or part, at any time and from time to time
following the occurrence of a Purchase Event (as defined below); provided that
the Option shall terminate and be of no further force and effect upon the
earliest to occur of:
(i) the time immediately prior to the Effective Time;
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(ii) 12 months after the first occurrence of a Purchase
Event;
(iii) 18 months after the termination of the Plan following
the occurrence of a Preliminary Purchase Event (as defined below);
(iv) termination of the Plan in accordance with the terms
thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event (other than a termination of the Plan by Grantee
pursuant to Section 8.01(b)(i) or (ii) thereof or by Grantee and Issuer
pursuant to Section 8.01(a) thereof if Grantee shall at that time have
been entitled to terminate the Plan pursuant to Section 8.01(b)(i) or
(ii) thereof (provided that the breach of Issuer giving rise to such
termination or such right to terminate was willful) or by Grantee
pursuant to Section 8.01(e) or Section 8.01(f)) thereof, or
(v) 18 months after the termination of the Plan by Grantee
pursuant to Section 8.01(b)(i) or (ii) thereof or by Grantee and Issuer
pursuant to Section 8.01(a) thereof if Grantee shall at that time have
been entitled to terminate the Plan pursuant to Section 8.01(b)(i) or
(ii) thereof (provided that the breach of Issuer giving rise to such
termination or such right to terminate was willful) or by Grantee
pursuant to Section 8.01(e) or Section 8.01(f) thereof.
The events described in clauses (i) - (v) in the preceding sentence are
hereinafter collectively referred to as an "Exercise Termination Event."
Anything herein to the contrary notwithstanding, any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law. The
rights set forth in Section 7 hereof shall terminate when the right to exercise
the Option terminates (other than as a result of a complete exercise of the
Option) as set forth herein.
(b) Preliminary Purchase Event. The term "Preliminary Purchase
Event" shall mean any of the following events or transactions occurring after
the date hereof:
(i) Issuer or any of its subsidiaries (each, an "Issuer
Subsidiary") shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any Person (the term
"Person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934 (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction with any Person other than Grantee or any Grantee
Subsidiary. For purposes of this Agreement, "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Issuer or any Issuer Subsidiary, (y) a purchase, lease or
other acquisition of all or substantially all of the assets of or
assumption of all or substantially all the deposits of Issuer or any
Issuer Subsidiary or (z) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or
any Issuer Subsidiary, provided that the term "Acquisition Transaction"
does not include any internal merger or consolidation involving only
Issuer and/or Issuer Subsidiaries;
(ii) Any Person (other than Grantee or any Grantee Subsidiary
or any Issuer Subsidiary acting in a fiduciary capacity in the ordinary
course of business) shall have acquired Beneficial Ownership or the
right to acquire Beneficial Ownership, of shares of Common Stock (the
term "Beneficial Ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder) such that, upon the
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consummation of such acquisition, such Person would have Beneficial
Ownership, in the aggregate, of 10% or more of the then outstanding
shares of Common Stock;
(iii) Any Person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders, by
public announcement or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition Transaction
(including, without limitation, any situation in which any Person other
than Grantee or any Grantee Subsidiary shall have commenced (as such
term is defined in Rule 14d-2 under the Exchange Act) or shall have
filed a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to, a tender offer or
exchange offer to purchase any shares of Common Stock such that, upon
consummation of such offer, such Person would own or control 10% or
more of the then outstanding shares of Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively));
(iv) After a proposal is made by a third party to Issuer or
its shareholders to engage in an Acquisition Transaction, or such third
party states its intention to make such a proposal if the Plan
terminates and/or the Option expires, Issuer shall have breached any
covenant or obligation contained in the Plan and such breach would
entitle Grantee to terminate the Plan (without regard to the cure
period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms
of the Plan);
(v) (A) The holders of Common Stock shall not have approved
the Plan by the requisite vote at the meeting of such shareholders held
for the purpose of voting on the Plan or (B) such meeting shall not
have been held or shall have been canceled prior to termination of the
Plan after it shall have been publicly announced that any Person (other
than Grantee or any Grantee Subsidiary) shall have (x) made, or
disclosed an intention to make, a bona fide proposal to engage in an
Acquisition Transaction, (y) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer or (z) filed an application (or given a notice) with,
whether in draft of final form, the Board of Governors of the Federal
Reserve System (the "Federal Reserve") or any other governmental
authority or regulatory or administrative agency or commission (each, a
"Governmental Authority"), for approval to engage in an Acquisition
Transaction;
(vi) Any Person (other than Grantee or any Grantee
Subsidiary), other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the Federal Reserve or other Governmental
Authority for approval to engage in an Acquisition Transaction; or
(vii) The Issuer's Board of Directors shall have withdrawn or
modified (or publicly announced its intention to withdraw or modify) in
any manner adverse in any respect to Grantee its recommendation that
the shareholders of Issuer approve the transactions contemplated by the
Plan, or Issuer or any Issuer Subsidiary shall have authorized,
recommended, proposed (or publicly announced its intention to
authorize, recommend or propose) an agreement to engage in an
Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary.
(c) Purchase Event. The term "Purchase Event" shall mean
either of the following events or transactions occurring after the date hereof:
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(i) The acquisition by any Person other than Grantee or any
Grantee Subsidiary of Beneficial Ownership of shares of Common Stock,
such that, upon the consummation of such acquisition, such Person would
have Beneficial Ownership, in the aggregate, of 25% or more of the then
outstanding shares of Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described
in Section 2(b)(i) hereof except that the percentage referred to in
clause (z) shall be 25%.
(d) Notice by Issuer. Issuer shall notify Grantee promptly in writing
of the occurrence of any Preliminary Purchase Event or Purchase Event; provided,
however, that the giving of such notice by Issuer shall not be a condition to
the right of Grantee to exercise the Option.
(e) Notice of Exercise. In the event that Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
"Option Notice" and the date of which being hereinafter referred to as the
"Notice Date") specifying (i) the total number of shares of Common Stock it will
purchase pursuant to such exercise, (ii) the aggregate purchase price as
provided herein, (iii) a date for the closing (that shall not be less than three
(3) Business Days nor more than thirty (30) Business Days) from the Notice Date
(the "Closing Date") and (iv) a place at which the closing of such purchase
shall take place (subject to Issuer's approval which shall not be unreasonably
withheld); provided, that, if prior notification to or approval of the Federal
Reserve or any other Governmental Authority is required in connection with such
purchase (each, a "Notification" or an "Approval," as the case may be), (a)
Grantee shall promptly file, or cause to be filed, the required notice or
application for approval ("Notice/Application"), (b) Grantee shall expeditiously
process, or cause to be expeditiously processed, the Notice/Application and (c)
for the purpose of determining the Closing Date pursuant to clause (iii) of this
sentence, the period of time that otherwise would run from the Notice Date shall
instead run from the later of (x) in connection with any Notification, the date
on which any required notification periods have expired or been terminated and
(y) in connection with any Approval, the date on which such approval has been
obtained and any requisite waiting period or periods shall have expired;
provided further that the Option Notice must be made, and the Notice Date must
be, no later than the date on which the Exercise Termination Event occurs. For
purposes of Section 2(a) hereof, any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto. On or prior to the Closing Date,
Grantee shall have the right to revoke its exercise of the Option in the event
that the transaction constituting a Purchase Event that gives rise to such right
to exercise shall not have been consummated.
(f) Payments. At the closing referred to in Section 2(e) hereof,
Grantee shall present and surrender this Agreement and pay to Issuer the
aggregate Option Price for the shares of Common Stock specified in the Option
Notice in immediately available funds by wire transfer to a bank account
designated by Issuer; provided, however, that failure or refusal of Issuer to
designate such a bank account shall not preclude Grantee from exercising the
Option.
(g) Delivery of Common Stock. At such closing, simultaneously with the
delivery of immediately available funds and surrender of this Agreement as
provided in Section 2(f) hereof, (i) Issuer shall deliver to Grantee a
certificate or certificates representing the number of shares of Common Stock
specified in the Option Notice and, if the Option should be exercised in part
only, a new Option evidencing the rights of Grantee thereof to purchase the
balance of the shares of Common Stock purchasable hereunder and (ii) Grantee
shall deliver to Issuer a letter reasonably satisfactory to both Grantee and
Issuer by which Grantee makes agreements customary in the issuance of privately
placed securities with respect to the sale, transfer or other disposition by it
of such
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common stock, including, without limitation, agreements not to transfer such
shares in violation of this Agreement or applicable federal or state securities
laws.
(h) Common Stock Certificates. Certificates for Common Stock delivered
at a closing hereunder shall be endorsed with a restrictive legend substantially
as follows:
The transfer of the shares represented by this certificate is subject
to resale restrictions arising under the Securities Act of 1933, as
amended, and to certain provisions of an agreement between Zions
Bancorporation and Pioneer Bancorporation ("Issuer") dated as of May
__, 1999. A copy of such agreement is on file at the principal office
of Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the Securities and Exchange
Commission (the "SEC"), or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Holder of Record. Upon the giving by Grantee to Issuer of an Option
Notice and the tender of the applicable purchase price in immediately available
funds on the Closing Date, Grantee shall be deemed to be the holder of record of
the number of shares of Common Stock specified in the Option Notice,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then
actually be delivered to Grantee. Issuer shall pay all expenses and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of Grantee.
SECTION 50. ISSUER'S COVENANTS.
(a) Available Shares. The Issuer agrees that it shall at all times
until the termination of this Agreement have reserved for issuance upon the
exercise of the Option that number of authorized and reserved shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, all of which shares will, upon issuance
pursuant hereto, be duly authorized, validly issued, fully paid, nonassessable,
and delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights.
(b) Compliance. The Issuer agrees that it will not, by amendment of its
articles of incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer.
(c) Certain Actions, Applications and Arrangements. Issuer shall
promptly take all action as may from time to time be required (including (i)
complying with all premerger notification, reporting and waiting
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period requirements specified in 15 U.S.C. ss. 18a and regulations promulgated
thereunder and (ii) in the event, under the Bank Holding Company Act of 1956, as
amended ("BHC Act"), or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the Federal Reserve or to
any other Governmental Authority is necessary before the Option may be
exercised, cooperating with Grantee in preparing such applications or notices
and providing such information to each such Governmental Authority as it may
require) in order to permit Grantee to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto, and to protect the
rights of Grantee against dilution.
SECTION 51. EXCHANGE OF OPTION. This Agreement and the Option granted
hereby are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any agreements and related options for which this
Agreement and the Option granted hereby may be exchanged. Upon receipt by Issuer
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
SECTION 52. ADJUSTMENTS. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment from
time to time as follows:
(a) In the event of any change in the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of shares of
Common Stock purchasable upon exercise hereof shall be appropriately adjusted
and proper provision shall be made so that, in the event that any additional
shares of Common Stock are to be issued or otherwise to become outstanding as a
result of any such change (other than pursuant to an exercise of the Option),
the number of shares of Common Stock that remain subject to the Option shall be
increased so that, after such issuance and together with shares of Common Stock
previously issued pursuant to the exercise of the Option (as adjusted on account
of any of the foregoing changes in the Common Stock), it represents the same
proportion of the number of shares of Common Stock then issued and outstanding
as such proportion before the applicable event described in this Section 5(a).
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
SECTION 53. REGISTRATION RIGHTS. Upon the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, Issuer shall, at
the request of Grantee (whether on its own behalf or on behalf of any subsequent
holder of the Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto), promptly prepare, file and keep current a registration
statement under the Securities Act covering any shares issued and issuable
pursuant to the Option and shall use its best efforts to cause such registration
statement to become effective and remain current in order to permit the sale or
other disposition of
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any shares of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. The Issuer will use its best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of one hundred and eighty (180) days from the day such
registration statement first becomes effective. Grantee shall have the right to
demand two (2) such registrations at the Issuer's expense. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in the process of registration with
respect to an underwritten public offering of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering, the
offering or inclusion of the Option Shares would interfere materially with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction, the number of Option Shares to be included in such offering
for the account of Grantee shall constitute at least thirty-three and one third
percent (33 1/3%) of the total number of shares of Common Stock held by Grantee
and Issuer covered in such registration statement; provided further, however,
that if such reduction occurs, then Issuer shall file a registration statement
for the balance as promptly as practicable thereafter as to which no reduction
shall thereafter occur. In addition, if the Issuer proposes to register its
Common Stock or any other securities on a form that would permit the
registration of the Shares for public sale under the Securities Act (whether
proposed to be offered for sale by the Issuer or any other Person) it will give
prompt written notice to Grantee of its intention to do so, specifying the
relevant terms of such proposal, including the proposed maximum offering price
thereof. Upon the written notice of Grantee (whether on its own behalf or on
behalf of any subsequent holder of the Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto) delivered to the Issuer within
twenty (20) Business Days after the giving of any such notice, which request
shall specify the number of Shares desired to be disposed by Grantee, the Issuer
will use its best efforts to effect, in connection with its proposed
registration, the registration under the Securities Act of the Shares set forth
in such request. Grantee shall be entitled to two (2) such registrations at the
Issuer's expense. Grantee shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. In
connection with any such registration, Issuer and Grantee shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. If requested by Grantee
in connection with such registration, Issuer and Grantee shall become a party to
any underwriting agreement relating to the sale of such shares, but only to the
extent of obligating themselves in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements.
(b) In the event that Grantee requests Issuer to file a registration
statement following the failure to obtain any approval required to exercise the
Option as described in Section 9 hereof, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to such
registration statement shall occur substantially simultaneously with the
exercise of the Option.
(c) Except where applicable state law prohibits such payments, Issuer
will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to this Section 6 (including the related
offerings and sales by holders of Option Shares) and all other qualifications,
notification or exemptions pursuant to this Section 6.
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(d) In connection with any registration under this Section 6, Issuer
hereby indemnifies the Grantee, and each officer, director and controlling
person of Grantee, and each underwriter thereof, including each person, if any
who controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Grantee, or by such underwriter, as the case may be, for all
such expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement, that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to Issuer by such holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 6(d). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interests of the indemnified party. No
indemnifying party shall be liable for the fees and expenses of more than one
separate counsel for all indemnified parties or for any settlement entered into
without its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 6(d) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the indemnifying
party, in lieu of indemnifying such party otherwise entitled to be indemnified,
shall contribute to the amount paid or payable by such party to be indemnified
as a result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of Issuer, the
Grantee and the underwriters in connection with the statements or omissions
which resulted in such expenses, losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the Grantee be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the
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offering. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any Grantee to indemnify shall be several and not joint with other
holders of Option Shares.
SECTION 54. OPTION REPURCHASE. (a) Upon the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, (i) at the
request (the date of such request being the "Request Date") of Grantee,
delivered within thirty (30) days of the Purchase Event (or such later period as
may be provided pursuant to Section 9 hereof), Issuer shall repurchase the
Option from Grantee at a price (the "Option Repurchase Price") equal to (x) the
amount by which (A) the market/offer price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which the Option may then
be exercised and (ii) at the request (the date of such request being the
"Request Date") of the owner of Option Shares from time to time (the "Owner"),
delivered within thirty (30) days of a Purchase Event (or such later period as
may be provided pursuant to Section 9 hereof), Issuer shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to (x) the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender offer or exchange offer therefor has been made after the date
hereof and on or prior to the Request Date, (ii) the price per share of Common
Stock paid or to be paid by any third party pursuant to an agreement with Issuer
(whether by way of a merger, consolidation or otherwise), (iii) the highest last
sales price for shares of Common Stock within the 90-day period ending on the
Request Date as reported on NASDAQ (as reported in The Wall Street Journal or,
if not reported therein, in another mutually agreed upon authoritative source)
or (iv) in the event of a sale of all or substantially all of Issuer's assets,
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a nationally-recognized
independent investment banking firm mutually selected by Grantee or the Owner,
as the case may be, on the one hand, and Issuer, on the other hand, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally-recognized independent investment
banking firm mutually selected by Grantee or Owner, as the case may be, on the
one hand, and Issuer, on the other hand, whose determination shall be conclusive
and binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and/or any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the Option
and/or the Option Shares in accordance with the provisions of this Section 7. As
immediately as practicable, and in any event within five (5) Business Days after
the surrender of the Option and/or certificates representing Option Shares and
the receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to Grantee the Option Repurchase Price or to the Owner the
Option Share Repurchase Price or the portion thereof that Issuer is not then
prohibited from so delivering under applicable law and regulation or as a
consequence of administrative policy.
(c) Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish any repurchase contemplated by
this Section 7. Nonetheless, to the extent that Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify Grantee and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to Grantee and/or the Owner, as appropriate,
the portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering, within
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five (5) Business Days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to Section 7(b) is prohibited under applicable law
or regulation, or as a consequence of administrative policy, from delivering to
Grantee and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full Grantee or Owner may revoke
its notice of repurchase of the Option or the Option Shares either in whole or
in part whereupon, in the case of a revocation in part, Issuer shall promptly
(i) deliver to Grantee and/or the Owner, as appropriate, that portion of the
Option Purchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering after taking into account any such revocation and
(ii) deliver, as appropriate, either (A) to Grantee, a new Agreement evidencing
the right of Grantee to purchase that number of shares of Common Stock equal to
the number of shares of Common Stock purchasable immediately prior to the
delivery of the notice of repurchase less the number of shares of Common Stock
covered by the portion of the Option repurchased or (B) to the Owner, a
certificate for the number of Option Shares covered by the revocation.
(d) Issuer shall not enter into any agreement with any party (other
than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless the
other party thereto assumes all the obligations of Issuer pursuant to this
Section 7 in the event that a Grantee or Owner elects, in its sole discretion,
to require such other party to perform such obligations.
SECTION 55. SUBSTITUTE OPTION.
(a) Grant of Substitute Option. In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate or
merge with any Person, other than Grantee or a Grantee Subsidiary, and shall not
be the continuing or surviving corporation of such consolidation or merger, (ii)
to permit any Person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other Person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than fifty percent (50%) of the
outstanding shares and share equivalents of the merged company or (iii) to sell
or otherwise transfer all or substantially all of its or any Issuer Subsidiary's
assets to any Person, other than Grantee or a Grantee Subsidiary, then, and in
each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of such transaction
and upon the terms and conditions set forth herein, be converted into, or
exchanged for, an option (the "Substitute Option"), at the election of Grantee,
of either (x) the Acquiring Corporation (as defined below) or (y) any Person
that controls the Acquiring Corporation (the Acquiring Corporation and any such
controlling Person being hereinafter referred to as the "Substitute Option
Issuer").
(b) Exercise of Substitute Option. The Substitute Option shall be
exercisable for such number of shares of the Substitute Common Stock (as is
hereinafter defined) as is equal to the market/offer price (as defined in
Section 7 hereof), multiplied by the number of shares of the Common Stock for
which the Option was theretofore exercisable, divided by the Average Price (as
is hereinafter defined). The exercise price of the Substitute Option per share
of the Substitute Common Stock (the "Substitute Purchase Price") shall then be
equal to the product of the Option Price multiplied by a fraction in which the
numerator is the number of shares of Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares for which
the Substitute Option is exercisable.
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(c) Terms of Substitute Option. The Substitute Option shall otherwise
have the same terms as the Option, provided, however, that if the terms of the
Substitute Option cannot, for legal reasons, be the same as the Option, such
terms shall be as similar as possible and in no event less advantageous to
Grantee.
(d) Substitute Option Definitions. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving Person, and (iii) the transferee of all or any
substantial part of the Issuer's assets (or the assets of any Issuer
Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option; and
(iii) "Average Price" shall mean the average closing price of
a share of the Substitute Common Stock for the one (1) year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided, however, that if such closing price is not ascertainable due
to an absence of a public market for the Substitute Common Stock,
"Average Price" shall mean the higher of (i) the price per share of
Substitute Common Stock paid or to be paid by any third party pursuant
to an agreement with the issuer of the Substitute Common Stock and (ii)
the book value per share, calculated in accordance with generally
accepted accounting principles, of the Substitute Common Stock
immediately prior to exercise of the Substitute Option; provided,
further, that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by Issuer, the Person merging into Issuer or by any company
which controls or is controlled by such merging Person, as Grantee may
elect.
(e) Cap on Substitute Option. In no event, pursuant to any of the
foregoing paragraphs, shall the Substitute Option be exercisable for more than
that proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of the Issuer which Grantee had the
right to acquire immediately prior to the issuance of the Substitute Option. In
the event that the Substitute Option would be exercisable for more than the
proportion of the outstanding Substitute Common Stock referred to in the
immediately preceding paragraph but for this clause (e), the Substitute Option
Issuer shall make a cash payment to Grantee equal to the excess of (i) the value
of the Substitute Option without giving effect to the limitation in this clause
(e) over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Grantee and reasonably
acceptable to the Acquiring Corporation.
SECTION 56. EXTENSION OF EXERCISE RIGHT. Notwithstanding Sections 2, 6
and 7 and 11 hereof, if Grantee has given the notice referred to in one or
more of such Sections, the exercise of the rights specified in any such Section
shall be extended (a) if the exercise of such rights requires obtaining
regulatory approvals (including any required waiting periods) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and (b) to the extent necessary to avoid liability under Section 16(b) of the
Exchange Act by reason of such exercise; provided, however, that in no event
shall any closing date occur more than six (6) months after the related Notice
Date, and, if the closing date shall not have occurred within such period due to
the failure to obtain any required approval by the Federal Reserve or any other
Governmental Authority despite the best efforts of Issuer or the Substitute
Option Issuer, as the case may be, to obtain such approvals, the
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exercise of the Option shall be deemed to have been rescinded as of the related
Notice Date. In the event (a) Grantee receives official notice that an approval
of the Federal Reserve or any other Governmental Authority required for the
purchase and sale of the Option Shares will not be issued or granted or (b) a
closing date has not occurred within six (6) months after the related Notice
Date due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the resale of the Option
Shares pursuant to a registration statement as provided in Section 6.
SECTION 57. ISSUER'S REPRESENTATIONS AND WARRANTIES. Issuer hereby
represents and warrants to Grantee as follows:
(a) Corporate Authority. Issuer has full corporate power and authority
to execute and deliver this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly authorized, executed and delivered by
the Issuer.
(b) Availability of Shares. Issuer has taken all necessary corporate
action to authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, non-assessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(c) No Violations. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its articles of incorporation or by-laws,
or the comparable governing instruments of any of the Issuer Subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of the Issuer Subsidiaries (with or without the giving of notice, the lapse
of time or both) or under any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which it or any of the Issuer Subsidiaries is subject, that would, in any case
give any other person the ability to prevent or enjoin Issuer's performance
under this Agreement in any material respect.
SECTION 58. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee hereby
represents and warrants to issuer as follows:
(a) Corporate Authority. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly
authorized, executed and delivered by Grantee.
(b) Investment Intent. The Option is not being, and any shares of
Common Stock or other securities acquired by Grantee upon exercise of the Option
will not be, acquired with a view to the public distribution
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thereof and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act.
SECTION 59. ASSIGNMENT. Neither of the parties hereto may assign any of
its rights or delegate any of its obligations under this Agreement or the
Option created hereunder to any other Person without the express written consent
of the other party, except that Grantee may assign this Agreement to a wholly
owned subsidiary of Grantee and Grantee may assign its rights hereunder in whole
or in part after the occurrence of a Preliminary Purchase Event; provided,
however, that until the date at which the Federal Reserve has approved an
application by Grantee under the BHC Act to acquire the shares of Common Stock
subject to the Option, other than to a wholly owned subsidiary of Grantee,
Grantee may not assign its rights under the Option except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of two percent (2%) of the voting
shares of Issuer, (iii) an assignment to a single party (e.g., a broker or
investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf or (iv) any other manner approved by the
Federal Reserve and, in each case, in compliance with all applicable federal or
state securities laws. The term "Grantee" as used in this Agreement shall also
be deemed to refer to Grantee's permitted assigns. Any attempted assignment
prohibited by this Section 12 is void and without effect.
SECTION 60. FILINGS AND CONSENTS. Each of Grantee and Issuer will use
its reasonable efforts to make all filings with, and to obtain consents of, all
third parties and Governmental Authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation,
making application if necessary, for listing of the shares of Common Stock
issuable hereunder on any exchange or quotation system and applying to the
Federal Reserve under the BHC Act and to state banking authorities for approval
to acquire the shares issuable hereunder.
SECTION 61. REMEDIES. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties shall hereto be enforceable by
either party hereto through injunctive or other equitable relief. Both parties
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
SECTION 62. SEVERABILITY. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
SECTION 63. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in Person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Plan. Either party may change the address to which
such notices or other communications may be sent by giving written notice
thereof in accordance with this Section 16.
SECTION 64. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement and shall be effective at the time
of execution.
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SECTION 65. EXPENSES. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
SECTION 66. ENTIRE AGREEMENT. Except as otherwise expressly provided
herein or in the Plan or in the other documents or instruments referred to
herein or therein, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
SECTION 67. DEFINITIONS. Capitalized terms used in this Agreement and
not defined herein but defined in the Plan shall have the meanings assigned
thereto in the Plan.
SECTION 68. EFFECT ON PLAN. Nothing contained in this Agreement shall
be deemed to authorize Issuer or Grantee to breach any provision of the Plan.
SECTION 69. SELECTIONS. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection shall
be made by a majority in interest of such Grantees.
SECTION 70. FURTHER ASSURANCES. In the event of any exercise of the
option by Grantee, Issuer and such Grantee shall execute and deliver all
other documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
SECTION 71. VOTING. Except to the extent Grantee exercises the Option,
Grantee shall have no rights to vote or receive dividends or have any other
rights as a shareholder with respect to shares of Common Stock covered hereby.
SECTION 72. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
SECTION 73. WAIVER AND AMENDMENT. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision, provided such waiver is set forth in writing and signed by such
party. No modification, amendment or supplement to this Agreement shall be
effective unless set forth in writing and signed by both parties hereto.
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IN WITNESS WHEREOF, each of the parties has caused this Stock
Option Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
ZIONS BANCORPORATION
By: /s/Harris H. Simmons
------------------------
Name: Harris H. Simmons
Title: President and Chief
Executive Officer
PIONEER BANCORPORATION
By: /s/William E. Martin
------------------------
Name: William E. Martin
Title: President and Chief
Executive Officer
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APPENDIX C
Rights of Dissenting Owners
92A.300 DEFINITIONS. -- As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. -- "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
92A.310 "CORPORATE ACTION" DEFINED. -- "Corporate action" means the
action of a domestic corporation.
92A.315 "DISSENTER" DEFINED. --"Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
92A.320 "FAIR VALUE" DEFINED. -- "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
92A.325 "STOCKHOLDER" DEFINED. -- "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
92A.330 "STOCKHOLDER OF RECORD" DEFINED. -- "Stockholder of record"
means the person in whose name shares are registered in the records of a
domestic corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee's certificate on file with the domestic corporation.
92A.335 "SUBJECT CORPORATION" DEFINED. -- "Subject corporation" means
the domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
92A.340 COMPUTATION OF INTEREST. -- Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.-
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
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92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED LIABILITY
COMPANY. -- The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT
CORPORATION. -- 1. Except as otherwise provided in subsection 2 and unless
otherwise provided in the articles or by-laws, any member of any constituent
domestic nonprofit corporation who voted against the merger may, without prior
notice, but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or
by-laws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
Chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1.
92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE
ACTIONS AND TO OBTAIN PAYMENT FOR SHARES. -- 1. Except as otherwise provided in
NRS 92A.370 to 92A.390, a stockholder is entitled to dissent from, and obtain
payment of the fair value of his shares in the event of any of the following
corporate actions:
(a) Consummation of a plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger, or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180. (b) Consummation of a plan of exchange to
which the domestic corporation is a party as the
corporation whose subject owner's interests will be acquired, if he is entitled
to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the
stockholders to the event that the articles of incorporation, by-laws or a
resolution of the board of directors provides that voting or nonvoting
stockholders are entitled to dissent and obtain payment for
their shares.
2. A stockholder who is entitled to dissent and obtain payment under
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN
CLASSES OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
- -- 1 . There is no right of dissent with respect to a plan of merger or exchange
in favor of stockholders of any class or series which, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc., or held by at least
2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or (b) The holders of the class or series are
required under the plan of merger or exchange to accept for
the shares anything except:
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(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by at least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS 92A.130.
92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER. -- 1.
A stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to
shares held on his behalf only if:
(a) He submits to the subject corporation the written consent of
the stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT. -- 1.
If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under
NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those
sections.
2. If the corporate action creating dissenters' rights is taken by
written consent of the stockholders or without a vote of the
stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was
taken and send them the dissenter's notice described in NRS 92A.430.
92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES. -- 1. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, a stockholder who wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1
is not entitled to payment for his shares under this chapter.
92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS. -- 1. If a proposed corporate action creating dissenters'
rights is authorized at a stockholders' meeting, the subject corporation shall
deliver a written dissenter's notice to all stockholders who satisfied the
requirements to assert those rights.
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<PAGE>
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER. -- 1. A stockholder to whom a dissenter's notice is sent
must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice. 2. The stockholder who demands payment and deposits his
certificates, if any, before the proposed
corporate action is taken retains all other rights of a stockholder until those
rights are canceled or modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER. -- 1. The subject
corporation may restrict the transfer of shares not represented by a certificate
from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS. -- 1. Except as
otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for
payment, the subject corporation shall pay each dissenter who complied with NRS
92A.440 the amount the subject corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the subject corporation under
this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
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(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and (e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE. -- 1. A subject corporation may elect to withhold payment
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenter's notice as the date of the first announcement
to the news media or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE. -- 1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate, less
any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS 92A.470
and demand payment of the fair value of his shares and interest due, if he
believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to
NRS 92A.470 is less than the fair value of his shares or that the interest due
is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares.
92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER. -- 1. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within 60
days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. 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 jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to
a judgment:
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(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES. -- 1. The court in a proceeding to determine fair value shall
determine all of the costs of the proceeding, including the reasonable
compensation and expenses of any appraisers appointed by the court. The court
shall assess the costs against the subject corporation, except that the court
may assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject 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 NRS 92A.300 to 92A.500, inclusive.
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 subject corporation,
the court may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
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APPENDIX D
[LETTERHEAD OF BANC OF AMERICA SECURITIES LLC]
August 9, 1999
Board of Directors
Pioneer Bancorporation
10 State Street
Reno, NV 89501
Members of the Board:
We understand that Pioneer Bancorporation, a Nevada corporation
("Pioneer"), and Zions Bancorporation, a Utah corporation ("Zions"), have
entered into an Agreement and Plan of Merger dated May 7, 1999, as may be
amended by the draft Amendment to the Agreement and Plan of Merger dated July
16, 1999 (together, the "Merger Agreement"), pursuant to which Pioneer will be
merged with and into Zions, which will be the surviving entity (the "Merger").
Pursuant to the Merger, as more fully described in the Merger Agreement and as
further described to us by management of Pioneer, we understand that each
outstanding share of the common stock, $0.01 par value per share ("Pioneer
Common Stock"), of Pioneer will be converted into a fraction of common stock, no
par value per share ("Zions Common Stock"), of Zions calculated by dividing (i)
$35.70 by (ii) the average of the last sales price per share for Zions Common
Stock for the fifteen consecutive trading day period ending on the third
business day prior to the Effective Date ("Zions Closing Average"), with the
result rounded down to the nearest ten thousandth (the "Exchange Ratio");
provided, however, that (x) if the Zions Closing Average is greater than $77.00,
the Exchange Ratio shall be 0.4636, and (y) if the Zions Closing Average is less
than $63.00, the Exchange Ratio shall be 0.5667, subject to potential adjustment
in certain circumstances if the Zions Closing Average is less than $56.00 (the
"Consideration"). Any term not defined herein shall have the meaning set forth
in the Merger Agreement. The terms and conditions of the Merger are set forth in
more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of Pioneer pursuant to the
Merger is fair to such stockholders from a financial point of view, as of the
date hereof.
D-1
<PAGE>
Pioneer Bancorporation
August 9, 1999
Page 2
In connection with our opinion, we have, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Pioneer and Zions, including the consolidated financial statements for the
fiscal years ended December 31, 1996, 1997 and 1998, and, to the extent
available, interim periods to June 30, 1999 and certain other relevant financial
and operating data relating to Pioneer and Zions made available to us from
published sources and from the internal records of Pioneer and Zions; (ii)
reviewed the financial terms and conditions of the Merger Agreement; (iii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, Pioneer Common Stock and Zions Common Stock; (iv)
compared certain financial data of Pioneer and Zions with those of certain other
companies in the banking industry which we deemed to be relevant; (v) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of companies in the banking industry which we deemed to be
comparable, in whole or in part, to the Merger; (vi) conducted discussions with
representatives of the senior management of Pioneer and Zions concerning their
respective businesses and prospects; (vii) reviewed and discussed with
representatives of management of Pioneer and Zions, certain information
furnished to us by Pioneer and Zions, including, in the case of Pioneer,
financial forecasts and related assumptions and, in the case of Zions, certain
third-party research analysts' estimates regarding Zions with which Zions
management indicated they did not disagree; (viii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related thereto
with Pioneer's counsel; and (ix) performed such other analyses and examinations
as we have deemed appropriate.
In connection with our review, and with your consent, we have not
assumed any obligation independently to verify the foregoing information and
have relied on its being accurate and complete in all material respects. With
respect to the financial forecasts for Pioneer provided to us by its management,
and with respect to the third-party analyst estimates regarding Zions, upon the
advice of the respective managements and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments at the time of
preparation as to the future financial performance of Pioneer and Zions, and
that they provide a reasonable basis upon which we can form our opinion. We have
relied upon assurances of the management of Pioneer and Zions, respectively,
that there have been no material changes in Pioneer's or Zions' assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to us. We
have also relied on advice of counsel to Pioneer as to all legal matters with
respect to Pioneer, the Merger and the Merger Agreement. As you are aware, and
at your direction, we only solicited indications of interest from a
D-2
<PAGE>
Pioneer Bancorporation
August 9, 1999
Page 3
limited list of third parties. We have assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933 (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations. In addition, we have not assumed responsibility for reviewing
any individual credit files, or making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Pioneer or Zions, nor have we been furnished with any such
appraisals. We are not experts in the evaluation of loan portfolios for purposes
of assessing the adequacy of the allowances for losses with respect thereto and
have assumed, with your consent, that such allowances for each of Pioneer and
Zions are in the aggregate adequate to cover such losses. You have informed us,
and we have assumed, that the Merger will be recorded as a pooling of interests
under generally accepted accounting principles. Our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. We recognize that on
June 6, 1999, subsequent to the execution of the Merger Agreement, Zions
announced that it had entered into an Agreement and Plan of Merger with First
Security Corporation (the "First Security Merger"). The First Security Merger is
subject to regulatory approval, shareholder approvals and other conditions and
has not yet been consummated. We understand that as presently contemplated, the
Merger will occur prior to the proposed First Security Merger and the Merger is
independent of the First Security Merger. Therefore, with your consent, we have
conducted our analyses and provide this opinion without taking into
consideration or giving effect to the First Security Merger.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further material revisions thereto, and without waiver by Pioneer of
any of the conditions to its obligations thereunder. We have also assumed that
in the course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, will be imposed that could
have a meaningful effect on the contemplated benefits of the Merger.
We have acted as the financial advisor to Pioneer in connection with
the Merger and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, we actively trade the equity
securities of Zions for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders of
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<PAGE>
Pioneer Bancorporation
August 9, 1999
Page 4
Pioneer pursuant to the Merger is fair to such stockholders from a financial
point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Pioneer in its
consideration of the Merger and is not a recommendation to any stockholder as to
how such stockholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to the
stockholders and does not address the relative merits of the Merger and any
alternatives to the Merger, Pioneer's underlying decision to proceed with or
effect the Merger, or any other aspect of the Merger. This opinion may not be
used or referred to by Pioneer, or quoted or disclosed to any person in any
manner, without our prior written consent, which consent is hereby given to the
inclusion of this opinion in any proxy statement, prospectus or registration
statement filed with the Securities and Exchange Commission in connection with
the Merger. In furnishing this opinion, we do not admit that we are experts
within the meaning of the term "experts" as used in the Securities Act and the
rules and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
/s/BANC OF AMERICA SECURITIES LLC
D-4
<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-l0a-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.
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.
II-1
<PAGE>
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 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
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.
II-2
<PAGE>
(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) 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.
(3) that every prospectus (i) that is filed pursuant to
paragraph (2) 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.
(4) 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.
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<PAGE>
(5) 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.
(6) 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.
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<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 9th day of August, 1999.
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 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.
Signature Capacity Date
- --------- -------- ----
/s/Harris H. Simmons President, Chief Executive June 18, 1999
- -------------------- Officer and Director
Harris H. Simmons
/s/Dale M. Gibbons Executive Vice President June 18, 1999
- -------------------- Chief Financial Officer
Dale M. Gibbons
/s/Nolan X. Bellon Controller June 18, 1999
- --------------------
Nolan X. Bellon
/s/Roy W. Simmons Chairman and Director June 18, 1999
- --------------------
Roy W. Simmons
/s/Jerry C. Atkin Director June 18, 1999
- --------------------
Jerry C. Atkin
II-5
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/s/R.D. Cash Director June 18, 1999
- --------------------
R.D. Cash
/s/L.E. Simmons Director June 18, 1999
- --------------------
L.E. Simmons
/s/Grant R. Caldwell Director June 18, 1999
- --------------------
Grant R. Caldwell
/s/I.J. Wagner Director June 18, 1999
- --------------------
I.J. Wagner
/s/Roger B. Porter Director June 18, 1999
- --------------------
Roger B. Porter
/s/Richard H. Madsen Director June 18, 1999
- --------------------
Richard H. Madsen
/s/Robert G. Sarver Director June 18, 1999
- --------------------
Robert G. Sarver
/s/Shelley Thomas Director June 18, 1999
- --------------------
Shelley Thomas
II-6
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
2.1 Agreement and Plan of Merger, dated as of May 7, 1999 as amended
July 16, 1999, by and among Zions Bancorporation, Pioneer
Bancorporation and Pioneer Citizens Bank of Nevada (included as
Appendix A to the Proxy Statement-Prospectus and incorporated by
reference herein)
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 Amendment to the Restated Bylaws of Zions Bancorporation, dated
September 18, 1998 (incorporated by reference to Exhibit 3 to Zions
Bancorporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, File No. 0-02610)
3.4 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 Jun 30, 1997, File No. 0-2610)
3.5 Articles of Amendment to the Restated Articles of Incorporation of
Zions Bancorporation dated April 24, 1998 and filed with the Utah
Division of Corporations and Commercial Code on April 27, 1998
(incorporated by reference to Exhibit 3 of Zions Bancorporation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
File No. 0-02610)
4.1 Shareholder Protection Rights Agreement, dated as of September 27,
1996, between Zions Bancorporation and Zions First National Bank
(incorporated by reference to Exhibit 4 to the Registrant's Form 8-K,
filed October 12, 1996)
II-7
<PAGE>
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
5.1 Opinion of Sullivan & Cromwell regarding the
validity of the shares of Common Stock being
registered (filed herewith)
5.2 Opinion of Callister, Nebeker & McCullough, a Professional
Corporation, regarding the validity of the shares of Zions Common
Stock being registered (filed herewith)
8.1 Opinion of Sullivan & Cromwell regarding tax matters (filed
herewith)
8.2 Opinion of Graham & Dunn P.C. regarding tax matters (filed herewith)
23.1 Consent of KPMG LLP, independent certified public accountants for
Zions Bancorporation (filed herewith)
23.2 Consent of KPMG LLP, independent certified public accountants for
Pioneer Bancorporation (filed herewith)
23.3 Consent of Sullivan & Cromwell (contained in their opinions filed as
Exhibits 5.1 and 8.1)
23.4 Consent of Callister, Nebeker & McCullough, a
Professional Corporation (contained in their
opinion filed as Exhibit 5.2)
23.5 Consent of Graham & Dunn P.C. contained in their opinion filed as
Exhibit 8.2)
23.6 Consent of Deloitte & Touche, LLP
23.7 Consent of Banc of America Securities LLC
24.1 Power of Attorney (set forth on Page II-5 of the Registration
Statement)
99.1 Stock Option Agreement, dated as of May 10, 1999, between Zions
Bancorporation and Pioneer Bancorporation (included as Appendix B
to the Proxy Statement-Prospectus and incorporated by reference
herein)
99.2 Form of Proxy of Pioneer Bancorporation (filed herewith)
II-8
[LETTERHEAD OF SULLIVAN & CROMWELL]
August 9, 1999
Zions Bancorporation,
One South Main, Suite 1380,
Salt Lake City, Utah 84111.
Dear Sirs:
In connection with the registration under the Securities Act
of 1933 (the "Act") of 5,710,504 shares (the "Securities") of Common Stock,
without par value, of Zions Bancorporation, a Utah corporation (the "Company"),
we, as your counsel, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion. Upon the basis of such examina
tion, we advise you that, in our opinion, when the registration statement
relating to the Securities (the "Registration Statement") has become effective
under the Act, the terms of the sale of the Securities have been duly
established in conformity with the Company's articles of
<PAGE>
Zions Bancorporation -2-
incorporation, and the Securities have been duly issued as contemplated by the
Registration Statement and the merger of Pioneer Bancorporation, a Nevada
corporation, with and into the Company has been consummated, the Securities will
be validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the Federal laws of the
United States and the laws of the State of Utah, and we are expressing no
opinion as to the effect of the laws of any other jurisdiction. With respect to
all matters of Utah law, we have relied upon the opinion, dated August 9, 1999,
of Callister Nebeker & McCullough, a Professional Corporation, and our opinion
is subject to the same assump tions, qualifications and limitations with respect
to such matters as are contained in such opinion of Callister Nebeker &
McCullough, a Professional Corporation.
Also, we have relied as to certain matters on information
obtained from public officials, officers of the Company and other sources
believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the heading
"Validity of Zions Common
<PAGE>
Zions Bancorporation -3-
Stock" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/Sullivan & Cromwell
[LETTERHEAD OF CALLISTER NEBEKER & McCULLOUGH]
9 August 1999
VIA FEDERAL EXPRESS
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Ladies and Gentlemen:
We have acted as special Utah counsel to Zions Bancorporation, a Utah
corporation (the "Company"), in providing this opinion with respect to the
registration under the Securities Act of 1933 (the"Act") of 5,710,504 shares
(the "Shares") of the Company's common stock, no par value. This opinion is
being delivered to you pursuant to your request.
In connection with this representation, we have examined the original,
or copies identified to our satisfaction, of such minutes, agreements, corporate
records and filings and other documents necessary to or appropriate for our
opinion contained in this letter (the "Transaction Documents"). In our
examination of the Transaction Documents, we have assumed the genuineness of all
signatures which existed on those documents and have assumed the authenticity
and regularity of each of the Transaction Documents submitted to us. We have
also relied as to certain matters of fact upon representations made to us by
public officials, officers and agents of the Company, and other sources we
believe to be responsible.
Based upon and in reliance on the foregoing, it is our opinion that
the Shares will be, when issued in accordance with the Transaction Documents
including the registration statement relating to the Shares (the "Registration
Statement"), duly and validly issued and fully paid and nonassessable under the
Utah Revised Business Corporation Act.
<PAGE>
Zions Bancorporation
9 August 1999
Page 2
Although we have reviewed the Transaction Documents, and have made such
inquiries as we deem appropriate under the circumstances, we have not verified
independently the existence or absence of all of the facts set forth in each
such Transaction Document.
Our opinion, as set forth herein, is subject to the following further
qualifications:
(A) This opinion speaks only as of its date and you understand that
this firm has no obligation to advise you of any changes of law or fact that
occur after the date of this opinion, even if the change may affect the legal
analysis, a legal conclusion or any informational confirmation in this opinion.
(B) Members of our firm are admitted to the Bar in the State of Utah.
This opinion is limited to the laws of the State of Utah (excluding the
securities laws of the State of Utah), and we have not been asked to address nor
have we addressed or expressed an opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinion
is rendered only with respect to Utah laws and the rules, regulations and orders
thereunder that are currently in effect.
We consent to Sullivan & Cromwell's relying as to matters of Utah law
upon this opinion in connection with the opinion to be rendered by them in
conjunction with the registration statement. We also hereby consent to the
filing of this opinion as an exhibit to the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
This opinion is furnished to you solely for your benefit in connection
with the closing of the transactions contemplated by the Registration Statement,
may not be relied upon by any other person, and its not to be used, circulated,
quoted or otherwise referred to for any other purpose without our express prior
written permission.
Very truly yours,
/s/CALLLISTER NEBEKER & McCULLOUGH
A Professional Corporation
August 9, 1999
Zions Bancorporation,
One South Main, Suite 1380
Salt Lake City, Utah 84111.
Ladies and Gentlemen:
We have acted as counsel to Zions Bancorporation, a Utah
corporation ("Zions"), in connection with the planned merger of Pioneer
Bancorporation, a Nevada Corporation ("Pioneer") with and into Zions, pursuant
to the Agreement and Plan of Merger, dated as of May 7, 1999, by and among
Zions, Pioneer and Pioneer Citizens Bank of Nevada (the "Agreement"). We render
this opinion to you, in part, in connection with the registration of the Zions
Common Stock to be issued in connection with the Merger. All capitalized terms
used and not otherwise defined herein shall have the meanings provided in the
Agreement.
For purposes of this opinion, we have reviewed the Agreement
and such other documents and matters of law and fact as we have considered
necessary or appropriate, and we have assumed, with your consent, the following:
(i) The Merger will be completed in the manner set forth in
the Agreement and the Proxy Statement/Prospectus of Zions and Pioneer
(the "Proxy/Prospectus").
(ii) The representations contained in the letters of
representation from Zions to us and Graham & Dunn PC, counsel
to Pioneer, dated August 9, 1999, and from Pioneer to us and
Graham & Dunn PC, dated August 6, 1999, will be true
and complete at the Effective Time.
<PAGE>
On the basis of the foregoing, and our consideration of such
other matters of fact and law as we have deemed necessary or appropriate, it is
our opinion, under presently applicable federal income tax law, that:
(1) The Merger will be treated for federal income tax purposes
as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
(2) Each of Zions and Pioneer will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
This opinion is limited to the federal income tax laws of the
United States and does not purport to discuss the consequences or effectiveness
of the Merger under any other laws.
We also hereby confirm to you that the discussions set forth
under the heading "THE MERGER Federal Income Tax Considerations of the
Zions/Pioneer Merger" in the Proxy/Prospectus which form a part of the
Registration Statement of Zions to which this opinion is filed as an exhibit is
our opinion, subject to the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the heading "THE
MERGER - Federal Income Tax Considerations of the Zions/Pioneer Merger" in the
Proxy/Prospectus. In giving such consent, we do not
<PAGE>
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/Sullivan & Cromwell
[Letterhead of Graham & Dunn]
August 9, 1999
Pioneer Bancorporation
10 State Street
Reno, NV 89501
Re: Holding Company Merger/Tax Consequences
Ladies and Gentlemen:
This letter responds to your request for our opinion as to certain of
the federal income tax consequences of the proposed merger ("Merger") of Pioneer
Bancorporation ("Pioneer") into Zions
Bancorporation ("Zions").
We have acted as legal counsel to Pioneer in connection with the
Merger. For the purpose of rendering this opinion, we have examined and relied
upon originals, certified copies, or copies otherwise identified to our
satisfaction as being true copies of the originals of the following documents,
including all exhibits and schedules attached to them:
a. The Agreement and Plan of Merger, dated as of May 7, 1999, as
amended as of July 16, 1999, by and among Zions, Pioneer, and
Pioneer Citizens Bank of Nevada
("Merger Agreement")
b. Form S-4 Registration Statement of Zions filed with the Securities
and Exchange Commission on August 9, 1999 ("Registration
Statement");
c. The Proxy Statement of Pioneer (included as
part of the Registration Statement)
("Proxy Statement");
d. The factual representations set forth in letters of representation
from Zions and Pioneer, dated August 9, 1999 and August 6, 1999,
respectively ("Representation
Letters"); and
e. Such other documents, instruments, records and information
pertaining to the Merger as we have deemed necessary for rendering
our opinion.
We have assumed, without independent investigation or review, the
accuracy and completeness of the facts and representations and warranties
contained in those documents or otherwise made known to us, that the Merger will
be effected in accordance with the terms of the
<PAGE>
Pioneer Bancorporation
August 9, 1999
Page 2
Merger Agreement, and that the representations contained in the
Representation Letters will be true and complete at the effective date of the
Merger.
In connection with the Merger and pursuant to the Merger Agreement,
each share of Pioneer voting common stock will be exchanged for shares of Zions
voting common stock, based on the exchange rate established in the Merger
Agreement. No fractional shares will be issued; cash will be paid in lieu of
fractional share interests. Pioneer shareholders who perfect their dissenters'
rights under state law will be paid the cash value of their Pioneer shares. Such
payments will be made by Pioneer without reimbursement by Zions. Treasury shares
held by Pioneer immediately prior to the consummation of the Merger will be
canceled and retired without consideration. Upon the consummation of the Merger,
Zions will continue the historic business of Pioneer.
Based upon our review of the facts described above and our analysis of
the law, and subject to the qualifications and limitations set forth herein, and
the completion of the transactions described in the manner contemplated, it is
our opinion that:
1. The merger of Pioneer into Zions for cash and for Zions voting
common stock, as described above, will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code, as amended (the "Code"). Pioneer and Zions
will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized by Pioneer shareholders upon
the receipt of Zions voting common stock in exchange for their
shares of Pioneer stock, except with respect to cash received in
lieu of fractional share interests, pursuant to Section 354(a)(1)
of the Code.
3. The basis of the shares of Zions voting common stock received by
Pioneer shareholders will be the same as the basis of the Pioneer
stock surrendered in exchange therefor, less any basis
attributable to fractional shares for which cash is received,
pursuant to Section 358(a)(1) of the Code.
4. The holding period of the shares of Zions voting common stock
received by Pioneer shareholders will include the holding period
during which the Pioneer stock surrendered in exchange therefor
was held, provided that the shares of Pioneer stock were held as
a capital asset in the hands of the exchanging shareholders on
the date of the exchange, pursuant to Section 1223(1) of the
Code.
5. Where cash is received by any shareholder of Pioneer in exchange
for the surrender of such shareholder's Pioneer stock, the cash
will be treated as received by the
<PAGE>
Pioneer Bancorporation
August 9, 1999
Page 3
shareholder as a distributio in redemption of his or her
Pioneer stock, subject to the provisions and limitations of
Section 302 of the Code.
Our opinion represents only our best legal judgment as to the probable
federal income tax consequences of the transaction described, based upon
existing law. Our opinion is not intended to be a conclusive statement as to all
of the tax consequences of the transaction and is expressly limited to the
matters addressed. Further, our opinion is not binding upon the Internal Revenue
Service (the "IRS") or any court and has no official status of any kind, and no
private ruling regarding the matters discussed has been or will be requested
from the IRS. The IRS has ruled in a number of private rulings that transactions
substantially identical to the Merger result in tax consequences consistent with
those described in this opinion. Although such rulings do not constitute
authority on which we can rely in expressing our opinion, such rulings generally
do reflect the position of the IRS. Each shareholder, however, is urged to
consult with his or her own tax advisor with respect to their individual tax
situation. Our opinion is intended solely for the benefit of the shareholders of
Pioneer, and may not be relied upon for any other purpose or by any other person
or entity or made available to any other person or entity without our prior
written consent.
We also hereby confirm to you that the discussions set forth under the
heading "THE MERGER Federal Income Tax Considerations of the Zions/Pioneer
Merger" in the Proxy Statement which form a part of the Registration Statement
of Zions to which this opinion is filed as an exhibit is our opinion, subject to
the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "THE MERGER
- - Federal Income Tax Considerations of the Zions/Pioneer Merger" in the Proxy
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
Very truly yours,
GRAHAM & DUNN
/s/ Graham & Dunn
smk/aef
[Letterhead of KPMG LLP]
Consent of Independent Certified Public Accountants
The Board of Directors
Zions Bancorporation:
We consent to the use of our report dated January 26, 1999, with respect to the
consolidated financial statements of Zions Bancorporation as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998 incorporated herein by reference, and to the reference to our firm
under the heading "Experts" in the proxy statement/prospectus.
/s/KPMG LLP
August 9, 1999
Salt Lake City, Utah
[Letterhead of KPMG LLP]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Pioneer Bancorporation:
We consent to the inclusion in the Registration Statement on Form S-4 of Zions
Bancoporation of our report dated January 15, 1999, except for Notes 13 and 22
of notes to the consolidated financial statements which are as of May 7, 1999,
relating to the consolidated balance sheets of Pioneer Bancorporation and
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of earnings, changes in shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report is included herein, and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG LLP
Los Angeles, California
August 9, 1999
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Zions Bancororporation on Form S-4 of our report dated February 24, 1999,
appearing in the Annual Report on Form 10-K of First Security Corporation for
the year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus/Proxy, which is part of this Registration Statement.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
August 6, 1999
[Letterhead of Banc of America Securities LLC]
Board of Directors
Pioneer Bancorporation
10 State Street
Reno, NV 89501
Members of the Board:
We hereby consent to the inclusion of our opinion letter dated August
9, 1999 to the Board of Directors of Pioneer Bancorporation (the "Company")
regarding the merger of the Company with and into Zions Bancorporation in Zions
Bancorporation's Registration Statement on Form S-4 (the "Registration
Statement") and to the references therein to our firm and to our opinion under
the headings Summary and The Merger. In giving the foregoing consent, we do not
admit (i) that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of the 1933, as amended (the "Securities
Act"), or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, and (ii) that we are experts with respect to any part of
the Registration Statement within the meaning of the term "experts" as used in
the Securities Act and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/BANC OF AMERICA SECURITIES LLC
BANC OF AMERICA SECURITIES LLC
REVOCABLE PROXY OF PIONEER BANCORPORATION
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
September 15, 1999
- --------------------------------------------------------------------------------
The undersigned hereby appoints LOUIS J. CAPURRO and SHELLE K.
GRIM-BROOKS, and each of them (with full power to act alone) as proxies, with
full power of substitution, and hereby authorizes them to represent and to vote,
as designated below, all the shares of common stock, $0.01 par value, of Pioneer
Bancorporation ("Pioneer") held of record by the undersigned on July 26, 1999,
at the Special Meeting of Shareholders to be held at The Airport Plaza Hotel,
1981 Terminal Way, Reno, Nevada on September 15, 1999, at 11:00 a.m.,
local time, and at any and all adjournments of such Meeting, as follows:
- --------------------------------------------------------------------------------
1. A proposal to approve the Agreement and Plan of Merger FOR AGAINST ABSTAIN
dated as of May 7, 1999, as amended July 16, 1999, by [ ] [ ] [ ]
and among Pioneer Bancorporation, Pioneer Citizens
Bank of Nevada, and Zions Bancorporation and the merger
described therein of Pioneer Bancorporation with and into
Zions Bancorporation.
2. Whatever other business may properly be brought before
the Special Meeting or any adjournment.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" the above proposal.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING. HOWEVER, IF ANY OTHER MATTERS ARE
PROPERLY PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF MANAGEMENT. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO
VOTE WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
HOWEVER, PROXIES INSTRUCTED TO VOTE AGAINST THE PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF MERGER WILL NOT BE VOTED FOR A PROPOSAL TO APPROVE
ADJOURNMENTS OR POSTPONEMENTS OF THE SPECIAL MEETING IN THE EVENT THAT THERE ARE
NOT SUFFICIENT SHARES PRESENT IN PERSON OR BY PROXY AT THE SPECIAL MEETING TO
APPROVE THE AGREEMENT AND PLAN OF MERGER.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof, and after notifying the Secretary of Pioneer
prior to the time of voting at the Special Meeting of your decision to terminate
this proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from Pioneer prior to the execution
of this proxy of Notice of the Meeting and the Prospectus/Proxy Statement.
(Sign on reverse side)
<PAGE>
----------------------------------------
PRINT NAME OF SHAREHOLDER(S)
(As it appears on Stock Certificate)
- ------------------------------ ------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Dated:________________________
Please sign exactly as your name appears on this proxy form. When signing
as attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder must sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS FORM OF PROXY, TO PIONEER IN THE
ENCLOSED, POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
