<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 2000
REGISTRATION NO. 333-96209
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PREMIERWEST BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Oregon 6720 93-1282171
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(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1455 East McAndrews Road, Medford, Oregon 97504
(541) 618-5970
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
John L. Anhorn
President and Chief Executive Officer
PremierWest Bancorp
1455 East McAndrews Road
Medford, Oregon 97504
(541) 618-5970
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
Francis X. Grady, Esq. F. Scott Farleigh, Esq.
Grady & Associates Farleigh, Wada & Witt, P.C.
20950 Center Ridge Road, Suite 100 Bank of America Financial Center, Suite 600
Rocky River, Ohio 44116-4307 121 SW Morrison Street
(440) 356-7255 Portland, Oregon 97204
(503) 228-6044
Approximate Date of Proposed Sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: o
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
UNITED BANCORP
555 S.E. KANE STREET
ROSEBURG, OREGON 97470
(503) 440-2624
-------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 27, 2000
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Notice is hereby given that a Special Meeting of Shareholders of United
Bancorp will be held at Douglas National Bank, 555 S.E. Kane Street, Roseburg,
Oregon on Thursday, April 27, 2000, at 7:00 p.m. local time.
A proxy card and a Proxy Statement for the United Bancorp Special
Meeting are enclosed. The purpose of the Special Meeting is:
1. To consider and vote upon the Agreement and Plan of Merger and
Share Exchange dated as of October 7, 1999, as amended, by and
among United Bancorp, Douglas National Bank, Bank of Southern
Oregon and PremierWest Bancorp, pursuant to Section 60.487 of
the Oregon Revised Statutes; and
2. To transact such other business as may properly come before
the United Bancorp Special Meeting or any adjournments or
postponements thereof.
Any action may be taken on the foregoing proposals at the Special
Meeting on the date specified, or on any date or dates to which the Special
Meeting may be adjourned or postponed. Shareholders of United Bancorp at the
close of business on March 15, 2000 are entitled to receive notice of and to
vote at the Special Meeting.
You are requested to complete and sign the enclosed proxy, which is
solicited by the Board of Directors, and to return the proxy promptly in the
postage-paid return envelope provided. Please sign your name on the proxy
exactly as indicated thereon. FAILURE TO VOTE IN PERSON OR BY PROXY IS
EQUIVALENT TO A VOTE AGAINST THE MERGER PROPOSAL BEING SUBMITTED TO SHAREHOLDERS
FOR THEIR CONSIDERATION AT THE UNITED BANCORP SPECIAL MEETING.
THE BOARD OF DIRECTORS OF UNITED BANCORP RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND SHARE
EXCHANGE. PLEASE DO NOT SEND YOUR UNITED BANCORP STOCK CERTIFICATES AT THIS
TIME.
By Order of the Board of Directors
Peter Nilsen
Secretary
Roseburg, Oregon
April 5, 2000
================================================================================
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE UNITED BANCORP THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED, PREPAID ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE.
================================================================================
<PAGE> 3
BANK OF SOUTHERN OREGON
1455 EAST MCANDREWS ROAD
MEDFORD, OREGON 97504
(541) 618-5970
-------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 5, 2000
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Notice is hereby given that the Annual Meeting of Shareholders of Bank
of Southern Oregon will be held at the Rogue Valley Country Club, 2660 Hillcrest
Road, Medford, Oregon on Friday, May 5, 2000, at 10:00 a.m. local time.
A proxy and a Proxy Statement for the Bank of Southern Oregon Annual
Meeting are enclosed. The purpose of the Annual Meeting is:
1. To consider and vote upon adoption and approval of the
Agreement and Plan of Merger and Share Exchange dated as of
October 7, 1999, as amended, by and among Bank of Southern
Oregon, PremierWest Bancorp, United Bancorp and Douglas
National Bank, and the transactions contemplated thereby;
2. If the first proposal is not approved, to consider and vote
upon reorganization of Bank of Southern Oregon into the
holding company form of ownership under the terms set forth
in the Agreement and Plan of Merger and Share Exchange;
3. To consider and vote upon election of 8 persons to serve as
directors until the 2001 Annual Meeting of Shareholders or
until their successors are elected and qualified;
4. To consider and vote upon ratification of the Board of
Directors' appointment of Symonds, Evans & Larson, P.C. as
independent auditors of Bank of Southern Oregon for the fiscal
year ending December 31, 2000; and
5. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof.
Any action may be taken on the foregoing proposals at the Annual
Meeting on the date specified, or on any date or dates to which the Annual
Meeting may be adjourned or postponed. Shareholders of Bank of Southern Oregon
at the close of business on March 17, 2000 are entitled to receive notice of and
to vote at the Bank of Southern Oregon Annual Meeting.
You are requested to complete and sign the enclosed proxy and to return
the proxy promptly in the postage-paid return envelope provided. Please sign
your name on the proxy exactly as indicated thereon. FAILURE TO VOTE IN PERSON
OR BY PROXY IS EQUIVALENT TO A VOTE AGAINST THE HOLDING COMPANY REORGANIZATION
AND MERGER PROPOSALS BEING SUBMITTED TO SHAREHOLDERS FOR THEIR CONSIDERATION AT
THE BANK OF SOUTHERN OREGON ANNUAL MEETING.
THE BOARD OF DIRECTORS OF BANK OF SOUTHERN OREGON RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND SHARE
EXCHANGE AND FOR APPROVAL OF THE HOLDING COMPANY REORGANIZATION.
By Order of the Board of Directors
Richard R. Hieb
Executive Vice President, Chief Operating
Officer and Secretary
Medford, Oregon
APRIL 5, 2000
================================================================================
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE BANK OF SOUTHERN OREGON THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED, PREPAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
================================================================================
<PAGE> 4
BANK OF SOUTHERN OREGON UNITED BANCORP
MAY 5, 2000 ANNUAL MEETING APRIL 27, 2000 SPECIAL MEETING
Bank of Southern Oregon shareholders United Bancorp shareholders will
will vote on the holding company vote on the merger of United
reorganization of the bank and the Bancorp into PremierWest Bancorp.
merger of United Bancorp into the new If approved, United Bancorp
holding company -- PremierWest Bancorp. shareholders will exchange their
If approved, Bank of Southern Oregon shares for PremierWest Bancorp
shareholders will exchange their shares common stock. THIS WILL BE A
for PremierWest Bancorp common stock. TAX-FREE TRANSACTION.
THIS WILL BE A TAX- FREE TRANSACTION.
We cannot complete these transactions unless the shareholders of United
Bancorp and the shareholders of Bank of Southern Oregon vote to approve
the transactions. Until these transactions are completed, the value of
PremierWest Bancorp common stock will fluctuate as the value of Bank of
Southern Oregon common stock and the value of United Bancorp common
stock fluctuate. Therefore, when you vote you will not know the value
of the shares you will receive.
The holding company reorganization and merger transactions will occur
under an Agreement and Plan of Merger and Share Exchange dated October 7, 1999,
as amended December 14, 1999. The agreement is included as Appendix A to this
prospectus/joint proxy statement. As a result of the transactions:
- - PremierWest Bancorp will acquire all of the common stock of Bank of
Southern Oregon by a direct share exchange with shareholders of Bank of
Southern Oregon;
- - United Bancorp will merge into PremierWest Bancorp;
- - United Bancorp's banking subsidiary -- Douglas National Bank -- will
merge into Bank of Southern Oregon, which will then change its name to
"PremierWest Bank";
- - UNITED BANCORP SHAREHOLDERS WILL RECEIVE 1.971 SHARES OF PREMIERWEST
BANCORP COMMON STOCK IN THE MERGER FOR EACH SHARE OF UNITED BANCORP
COMMON STOCK. United Bancorp common stock is quoted on the OTC Bulletin
Board under the symbol "UBNN." The average of the bid and asked prices
on March 30, 2000 was $9.38 per share; and
- - BANK OF SOUTHERN OREGON SHAREHOLDERS WILL RECEIVE ONE SHARE OF
PREMIERWEST BANCORP COMMON STOCK IN EXCHANGE FOR EACH SHARE OF BANK OF
SOUTHERN OREGON COMMON STOCK. Bank of Southern Oregon common stock is
quoted on the OTC Bulletin Board under the symbol "BSOR." The closing
price on March 30, 2000 was $6.75 per share.
This prospectus/joint proxy statement describes the shareholder
meetings, the transactions we will ask you to vote on and other
important matters. This document contains a proxy statement for each of
the shareholders' meetings. It also contains a prospectus for the
8,545,939 shares of PremierWest Bancorp to be issued in the holding
company reorganization and merger transactions.
PLEASE READ THIS ENTIRE DOCUMENT CAREFULLY. INVESTMENT IN PREMIERWEST
BANCORP COMMON STOCK INVOLVES RISK. PLEASE REFER TO "RISK FACTORS" BEGINNING ON
PAGE 15 FOR A DISCUSSION OF THESE RISKS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PREMIERWEST BANCORP COMMON
STOCK TO BE ISSUED OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK PREMIERWEST BANCORP IS
OFFERING BY THIS PROSPECTUS/JOINT PROXY STATEMENT ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT IS APRIL 5, 2000.
IT IS BEING MAILED TO UNITED BANCORP AND BANK OF SOUTHERN OREGON
SHAREHOLDERS ON OR ABOUT THAT DATE.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION.................................................................1
SUMMARY.....................................................................................................2
SELECTED FINANCIAL DATA....................................................................................11
RISK FACTORS...............................................................................................15
UNITED BANCORP SPECIAL MEETING.............................................................................18
Purpose of the Meeting............................................................................18
Record Date; Shares Outstanding and Entitled to Vote..............................................18
Vote Required.....................................................................................18
Voting; Solicitation and Revocation of Proxies....................................................19
Quorum; Broker Non-Votes..........................................................................19
THE MERGER AND HOLDING COMPANY REORGANIZATION..............................................................20
Bank of Southern Oregon's Reasons for the Transaction.............................................20
Opinion of Bank of Southern Oregon's Financial Advisor............................................21
Recommendation of Bank of Southern Oregon's Board of Directors....................................26
Recommendation of PremierWest Bancorp's Board of Directors........................................30
Background and Reasons for the Merger -- United Bancorp...........................................30
Opinion of United Bancorp's Financial Advisor.....................................................32
Recommendation of United Bancorp's Board of Directors.............................................36
TERMS OF THE TRANSACTION...................................................................................36
Holding Company Reorganization of Bank of Southern Oregon.........................................36
Merger of United Bancorp into PremierWest Bancorp and Merger of Douglas National Bank
into Bank of Southern Oregon.............................................................37
Conversion into and Exchange for PremierWest Bancorp Stock........................................37
Rights of Holders of Stock Certificates Until Surrender...........................................38
Lost Certificates.................................................................................38
No Fractional Shares of PremierWest Bancorp Common Stock Will be Issued...........................39
Conduct of Bank of South Oregon's Business Until Completion of the Transaction....................39
Conduct of United Bancorp's Business Until Completion of the Transaction..........................39
No Solicitation of Alternative Transactions.......................................................40
Conditions That Must be Satisfied or Waived.......................................................40
Waiver of Conditions, Amendment or Termination of the Agreement...................................41
Effective Time....................................................................................42
Interests of Directors and Officers in the Transaction that Differ From Your Interests............42
Price Range of Common Stock and Dividends.........................................................45
Federal Income Tax Consequences...................................................................46
Accounting Treatment of the Transaction...........................................................47
Resales of PremierWest Bancorp Common Stock.......................................................47
PremierWest Bancorp's Articles of Incorporation and Bylaws........................................49
RIGHTS OF DISSENTING SHAREHOLDERS..........................................................................49
Dissenters' Rights of United Bancorp Shareholders.................................................49
Dissenters' Rights of Bank of Southern Oregon Shareholders........................................51
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................52
BANK OF SOUTHERN OREGON ANNUAL MEETING.....................................................................58
Purpose of the Meeting............................................................................58
Record Date; Shares Outstanding and Entitled to Vote..............................................58
Vote Required.....................................................................................59
Voting and Revocation of Proxies..................................................................59
Quorum; Broker Non-Votes..........................................................................59
Voting Securities and Principal Holders Thereof...................................................60
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i
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Election of Directors...............................................................................61
Ratification of Independent Auditor.................................................................68
Expenses; Solicitation of Proxies...................................................................69
Other Matters.......................................................................................69
Section 16(a) Beneficial Ownership Reporting Compliance.............................................69
Shareholder Proposals...............................................................................70
BANK OF SOUTHERN OREGON'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................71
Results of Operations...............................................................................71
Net Interest Income.................................................................................72
Loan Loss Provision.................................................................................75
Noninterest Income..................................................................................75
Noninterest Expense.................................................................................76
Provision for Income Taxes..........................................................................76
Financial Condition.................................................................................76
Capital.............................................................................................77
Liquidity...........................................................................................77
Asset/Liability Management..........................................................................78
New Accounting Pronouncements.......................................................................80
Impact of Inflation and Changing Prices.............................................................81
BUSINESS OF PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON..................................................81
PremierWest Bancorp.................................................................................81
Bank of Southern Oregon.............................................................................81
Market Area.........................................................................................82
Competition.........................................................................................82
Lending.............................................................................................83
Nonperforming Loans.................................................................................87
Investments.........................................................................................92
Sources of Funds....................................................................................94
Properties..........................................................................................96
Legal Proceedings...................................................................................96
Personnel...........................................................................................96
UNITED BANCORP'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................97
Results of Operations...............................................................................98
Net Interest Income.................................................................................98
Average Balances, Interest Rates and Yields.........................................................99
Financial Condition, Loan Quality, Liquidity, and Capital..........................................100
Lending............................................................................................101
Asset and Liability Management.....................................................................104
Investment Activities..............................................................................104
Return on Equity and Assets........................................................................106
Deposits...........................................................................................106
Short Term Borrowings..............................................................................107
Quantitative and Qualitative Disclosures About Market Risk.........................................107
Year 2000 Issues...................................................................................108
Supervision and Regulation of United Bancorp.......................................................109
Supervision and Regulation of Douglas National Bank................................................110
Monetary Policies..................................................................................110
BUSINESS OF UNITED BANCORP..................................................................................110
The Company........................................................................................110
Competition........................................................................................111
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ii
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Properties.......................................................................................... 111
Legal Proceedings................................................................................... 112
Personnel........................................................................................... 112
Management of United Bancorp Who Will Serve as Directors or Executive Officers of
PremierWest Bancorp and PremierWest Bank................................................... 113
PRINCIPAL SHAREHOLDERS OF UNITED BANCORP..................................................................... 116
SUPERVISION AND REGULATION................................................................................... 118
Regulation of Bank Holding Companies................................................................ 119
Federal Deposit Insurance........................................................................... 121
Interstate Banking and Branching.................................................................... 121
Capital............................................................................................. 122
Limits on Dividends and Other Payments.............................................................. 124
Transactions with Affiliates........................................................................ 125
Community Reinvestment Act.......................................................................... 125
Federal Home Loan Banks............................................................................. 126
State Banking Regulation............................................................................ 126
Monetary Policy..................................................................................... 126
DESCRIPTION OF PREMIERWEST BANCORP CAPITAL STOCK AND COMPARATIVE RIGHTS OF
UNITED BANCORP AND BANK OF SOUTHERN OREGON SHAREHOLDERS.................................... 127
Changes in Control.................................................................................. 133
LEGAL MATTERS................................................................................................ 135
EXPERTS...................................................................................................... 135
WHERE YOU CAN FIND MORE INFORMATION.......................................................................... 135
FORWARD-LOOKING STATEMENTS................................................................................... 136
FINANCIAL STATEMENTS OF PREMIERWEST BANCORP.................................................................. F-1
FINANCIAL STATEMENTS OF BANK OF SOUTHERN OREGON.............................................................. F-6
FINANCIAL STATEMENTS OF UNITED BANCORP.......................................................................F-27
</TABLE>
APPENDICES
A. Agreement and Plan of Merger and Share Exchange dated as of October 7,
1999, as amended December 14, 1999
B. Fairness Opinion of Hoefer & Arnett, Incorporated
C. Fairness Opinion of Pacific Crest Securities Inc.
D. Oregon Dissenters' Rights Statutes
E. Shareholder Voting Agreement
F. Shareholder Voting Agreement of Gary L. Kjensrud
G. Articles of Incorporation of PremierWest Bancorp
H. Bylaws of PremierWest Bancorp
iii
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: WHAT DO I NEED TO DO NOW?
A: You should read this prospectus/joint proxy statement carefully. Then simply
indicate on your proxy how you want your shares to be voted. Then sign and date
the proxy and mail it in the accompanying prepaid return envelope. Please do
this as soon as possible so that your shares will be represented and voted at
the Bank of Southern Oregon or United Bancorp meeting.
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 not vote your shares unless you give voting
instructions. You should follow the directions provided by your broker. If you
do not give voting instructions to your broker, this will be the equivalent of
voting against the transactions being presented at the Bank of Southern Oregon
and United Bancorp meetings.
Q: MAY I CHANGE MY VOTE AFTER I RETURN A PROXY?
A: Yes. You may revoke a proxy previously given by following the directions for
revocation contained in this prospectus/joint proxy statement, so long as you
revoke the proxy before it is voted. See, "SUMMARY - RECORD DATE; VOTE
REQUIRED."
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Do not send your stock certificates now. PremierWest Bancorp's exchange
agent will send you written instructions for exchanging your certificates
promptly after the transactions are completed.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: We are working to complete these transactions as quickly as possible. Having
already received necessary bank regulatory approvals, we are seeking now to
obtain shareholder approvals. We hope to complete the transactions during the
second quarter of this year, but not later than June 30, 2000.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have additional questions or would like additional copies of this
document, you should contact:
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Neil Zick, Executive Vice President Richard R. Hieb, Executive Vice President,
UNITED BANCORP Chief Operating Officer and Secretary
555 S.E. Kane BANK OF SOUTHERN OREGON
P. O. Box 1007 OR P.O. Box 40
Roseburg, Oregon 97470 Medford, Oregon 97501-0003
(541) 440-2667 (541) 618-5970
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<PAGE> 9
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS
PROSPECTUS/JOINT PROXY STATEMENT. THE SUMMARY DOES NOT CONTAIN ALL OF
THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO READ
CAREFULLY THE ENTIRE PROSPECTUS/JOINT PROXY STATEMENT AND THE OTHER
DOCUMENTS TO WHICH THIS DOCUMENT REFERS. SEE "WHERE YOU CAN FIND MORE
INFORMATION."
YOU WILL RECEIVE PREMIERWEST BANCORP COMMON STOCK (SEE PAGE 37)
UNITED BANCORP SHAREHOLDERS. YOU WILL RECEIVE 1.971 SHARES OF
PREMIERWEST BANCORP COMMON STOCK FOR EACH SHARE OF UNITED BANCORP COMMON STOCK.
The 1.971 exchange ratio would be adjusted to account for changes by Bank of
Southern Oregon to the number of its outstanding shares of common stock, for
example a change due to a stock split or stock dividend. When the merger is
completed, persons who are United Bancorp shareholders will own approximately
43% of PremierWest Bancorp's stock.
You will have to surrender your United Bancorp common stock
certificates to receive new certificates representing common stock of
PremierWest Bancorp, but you should not surrender your certificates until you
receive written instructions. We will give written instructions for surrendering
certificates to you after we complete the transaction. PremierWest Bancorp will
not issue any fractional shares of common stock. If the calculation of merger
consideration to be received by any United Bancorp shareholder yields a
fractional share amount, that shareholder will receive cash in an amount
representing the value of that fractional share interest. For example, if you
own 100 shares of United Bancorp common stock, you will receive 197 shares of
PremierWest Bancorp common stock, plus a cash payment for the .10 fractional
interest.
BANK OF SOUTHERN OREGON SHAREHOLDERS. YOU WILL RECEIVE ONE SHARE OF
PREMIERWEST BANCORP COMMON STOCK FOR EACH SHARE OF BANK OF SOUTHERN OREGON
COMMON STOCK. In other words, you will have the same number of shares after the
transaction as you had before the transaction. When the merger is completed,
persons who are Bank of Southern Oregon shareholders will own approximately 57%
of PremierWest Bancorp's stock.
You will have to surrender your Bank of Southern Oregon common stock
certificates to receive new certificates representing common stock of
PremierWest Bancorp, but you should not surrender your certificates until you
receive written instructions. We will give written instructions for surrendering
certificates to you after we complete the transaction.
COMPARISON OF UNITED BANCORP AND BANK OF SOUTHERN OREGON STOCK (SEE PAGE 45)
Shares of Bank of Southern Oregon common stock trade on the OTC
Bulletin Board under the symbol "BSOR." On October 6, 1999, the trading day
before we executed the merger agreement, the closing price for Bank of Southern
Oregon common stock was $7.00 per share on the OTC Bulletin Board. United
Bancorp common stock also trades on the OTC Bulletin Board, under the symbol
"UBNN." On October 6, 1999 the closing price for United Bancorp common stock
was $7.63 per share on the OTC Bulletin Board. The average of the bid and asked
prices for United Bancorp common stock on March 30, 2000 was $9.38 per share,
and the closing price on that date for Bank of Southern Oregon common stock was
$6.75 per share. You should obtain current stock price quotations for Bank of
Southern Oregon and United Bancorp common stock.
United Bancorp has paid cash dividends in each of the last five years,
but Bank of Southern Oregon has not. PremierWest Bancorp does not expect to pay
cash dividends to shareholders in the immediate future, but it will consider
payment of cash dividends as economic and financial circumstances warrant.
Rather than paying cash dividends, the board and management of PremierWest
Bancorp may decide to use earnings to support growth or for other corporate
purposes.
2
<PAGE> 10
GENERALLY, THE TRANSACTIONS WILL NOT BE TAXABLE TO SHAREHOLDERS (SEE PAGE 46)
Conversion of your shares of United Bancorp common stock into shares of
PremierWest Bancorp common stock will not be a taxable event for federal income
tax purposes. Likewise, exchange of Bank of Southern Oregon shares for
PremierWest Bancorp shares also will not be a taxable event. The basis in your
United Bancorp or Bank of Southern Oregon shares and the holding period of those
shares will be carried over and become the basis and holding period of your
PremierWest Bancorp shares. Dissenting shareholders who receive cash instead of
PremierWest Bancorp shares will be subject to federal income tax.
DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE TRANSACTION TO YOU COULD
BE COMPLICATED. THE TAX CONSEQUENCES TO YOU DEPEND ON YOUR SPECIFIC
SITUATION AND ON VARIABLES NOT WITHIN OUR CONTROL. YOU SHOULD CONSULT
YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TRANSACTION'S TAX
CONSEQUENCES.
UNITED BANCORP AND BANK OF SOUTHERN OREGON BOARDS UNANIMOUSLY RECOMMEND
SHAREHOLDER APPROVAL (SEE PAGES 36 AND 26)
United Bancorp's board of directors believes that the merger is fair to
you and in your best interests. The board unanimously recommends that you vote
"FOR" the merger.
Bank of Southern Oregon's board of directors believes that the
transaction -- including the merger and the holding company reorganization -- is
fair and in your best interests. The board unanimously recommends that you vote
"FOR" the merger and the separate holding company reorganization.
OUR FINANCIAL ADVISORS HAVE ISSUED WRITTEN OPINIONS THAT THE TRANSACTIONS ARE
FAIR (SEE PAGES 32 AND 21)
United Bancorp. Hoefer & Arnett, Incorporated delivered its written
opinion to United Bancorp's board that the proposed merger of United Bancorp
into PremierWest Bancorp is fair from a financial point of view to the holders
of United Bancorp common stock. The Hoefer & Arnett opinion is attached to this
document as Appendix B. United Bancorp will pay Hoefer & Arnett a total fee of
approximately $20,000 in connection with delivery of Hoefer & Arnett's fairness
opinion.
Bank of Southern Oregon. Pacific Crest Securities Inc. delivered its
written opinion to Bank of Southern Oregon's board that the consideration to be
paid by PremierWest Bancorp to United Bancorp shareholders is fair from a
financial point of view to the holders of Bank of Southern Oregon common stock.
The Pacific Crest Securities Inc. opinion is attached to this document as
Appendix C.
If we complete the transaction, Bank of Southern Oregon will pay
Pacific Crest Securities a fee of $155,000, less $5,000 already paid. This fee
is in addition to charges incurred by PremierWest Bancorp in the transaction.
THE SHAREHOLDER MEETINGS WILL BE HELD AT THE END OF APRIL AND EARLY MAY (SEE
PAGES 18 AND 58)
United Bancorp Special Meeting. The United Bancorp special meeting will
be held on Thursday, April 27, 2000 at 7:00 p.m. (local time) at Douglas
National Bank, 555 S.E. Kane Street, Roseburg, Oregon. At the United Bancorp
meeting, shareholders will consider and vote upon the merger of United Bancorp
into PremierWest Bancorp.
Bank of Southern Oregon Annual Meeting. The Bank of Southern Oregon
annual meeting will be held on Friday, May 5, 2000 at 10:00 a.m. (local time)
at the Rogue Valley Country Club in Medford, Oregon.
3
<PAGE> 11
At the Bank of Southern Oregon meeting, shareholders will consider and
vote upon the merger and holding company reorganization transactions.
Shareholders will also vote separately on the holding company reorganization
alone if the merger agreement with United Bancorp is not approved. If the
shareholders approve the separate holding company reorganization proposal, Bank
of Southern Oregon may complete the holding company reorganization even if
shareholders do not approve the merger with United Bancorp. Although we believe
we can obtain shareholder approvals for the merger, Bank of Southern Oregon
believes it is prudent to seek shareholder approval of the holding company
reorganization proposal independent of the merger proposal, rather than having
to present another holding company reorganization proposal to shareholders at a
subsequent meeting if shareholders do not approve the United Bancorp merger.
Finally, shareholders of Bank of Southern Oregon will vote to elect 8
directors to serve until the 2001 annual meeting or until their successors are
elected and qualified, and to ratify the bank's selection of independent
auditors for the year ending December 31, 2000.
THE RECORD DATE FOR VOTING IS MARCH 15, 2000 FOR UNITED BANCORP SHAREHOLDERS AND
MARCH 17, 2000 FOR BANK OF SOUTHERN OREGON SHAREHOLDERS; YOU MAY REVOKE YOUR
PROXY; THE TRANSACTION REQUIRES A MAJORITY VOTE OF UNITED BANCORP SHAREHOLDERS
AND A TWO-THIRDS VOTE OF BANK OF SOUTHERN OREGON SHAREHOLDERS; DIRECTORS AND
OFFICERS INTEND TO VOTE IN FAVOR OF THE TRANSACTIONS (SEE PAGES 18 AND 58)
United Bancorp. You may vote at the United Bancorp meeting if you owned
United Bancorp common stock at the close of business on March 15, 2000. You may
cast one vote for each share of United Bancorp common stock you owned at that
time. To approve the merger, the holders of a majority of shares of United
Bancorp common stock issued and outstanding must vote in favor.
You may vote your shares in person by attending the meeting or by
mailing your proxy if you are unable or do not wish to attend. You may revoke a
proxy at any time before it is voted by
- attending the meeting and voting in person (but attendance will
not by itself constitute revocation),
- filing with the Secretary or Assistant Secretary of United Bancorp
another proxy card duly executed and bearing a later date, or
- giving to the Secretary or Assistant Secretary of United Bancorp
written notice of the proxy revocation at or before the meeting.
Directors and executive officers of United Bancorp, United Bancorp's
Employee Stock Ownership Plan and Trust and United Bancorp's former chief
executive officer entered into an agreement to vote in favor of the transaction.
Together, these holders and officers and employees of United Bancorp control the
power to vote approximately 50.4% of United Bancorp's shares.
Bank of Southern Oregon. You may vote at the Bank of Southern Oregon
meeting if you owned Bank of Southern Oregon common stock at the close of
business on March 17, 2000. You may cast one vote for each share of Bank of
Southern Oregon common stock you owned at that time. To approve the merger
proposal and the separate holding company reorganization proposal, the holders
of at least two thirds of the shares of Bank of Southern Oregon common stock
issued and outstanding must vote in favor.
You may vote your shares in person by attending the meeting or by
mailing your proxy if you are unable or do not wish to attend. You may revoke a
proxy at any time before it is voted by
- attending the meeting and voting in person (but attendance will
not by itself constitute revocation),
4
<PAGE> 12
- filing with the Secretary of Bank of Southern Oregon another proxy
duly executed and bearing a later date, or
- giving to the Secretary of Bank of Southern Oregon written notice
of the proxy revocation at or before the meeting.
Directors and executive officers of Bank of Southern Oregon have
indicated their intention to vote in favor of the transaction. Together, these
persons have the power to vote approximately 15% of the voting power of Bank of
Southern Oregon.
INFORMATION ABOUT UNITED BANCORP AND BANK OF SOUTHERN OREGON (SEE PAGES
97 AND 81)
UNITED BANCORP United Bancorp is a one-bank holding company
555 S.E. Kane Street registered under the Bank Holding Company Act of 1956
Roseburg, Oregon 97470 with the Board of Governors of the Federal Reserve
(503) 440-2624 System. United Bancorp is incorporated under Oregon
law. Its sole bank subsidiary is Douglas National
Bank. Douglas National Bank is a national bank, with
total assets of approximately $134 million as of
December 31, 1999. Douglas National Bank has seven
offices in Douglas County, Oregon and a new branch
office in Medford, Jackson County, Oregon. Douglas
National Bank conducts a general commercial banking
business. United Bancorp's other subsidiary is DNB
Mortgage Company, which began operations on March 1,
1999. DNB Mortgage Company acts as a mortgage broker
for residential first mortgage loans. Douglas
National Bank also has a subsidiary, Douglas National
Bank Insurance Agency, Inc., which offers and sells
insurance and securities products on an agency basis
to customers of the bank and others.
BANK OF SOUTHERN OREGON Bank of Southern Oregon is an Oregon-chartered
1455 East McAndrews Road commercial bank. It began operations in June 1990,
Medford, Oregon 97504 and has grown to total assets of approximately $161
(541) 618-5970 million as of December 31, 1999. Bank of Southern
Oregon engages in a general commercial banking
business in southern Oregon, principally in Jackson
County and, to a lesser extent, Josephine County.
Until the bank opened a third office in March 1999 --
a branch office in Central Point -- the bank had two
offices only, its main office and a branch office,
both in Medford. All offices of Bank of Southern
Oregon are in Jackson County.
COMBINED The deposits of Bank of Southern Oregon and Douglas
National Bank are and will remain insured by the
Federal Deposit Insurance Corporation. When the
transaction is complete, PremierWest Bancorp will
continue to conduct business through Bank of Southern
Oregon -- under the name PremierWest Bank -- with
total assets of approximately $297 million (based on
December 31, 1999 assets) and 11 offices in Jackson
and Douglas Counties.
WHY UNITED BANCORP AND BANK OF SOUTHERN OREGON ENTERED INTO THE MERGER AGREEMENT
(SEE PAGES 30 AND 20)
We can create a stronger and more diversified company together. Douglas
National Bank and Bank of Southern Oregon operate in distinct, but adjoining,
markets, although Douglas National Bank recently opened a branch office in
Medford in Bank of Southern Oregon's market. Both banks are community-oriented
institutions
5
<PAGE> 13
whose goal is to serve the banking needs of individuals and the commercial
banking needs of area professionals and small and mid-sized businesses.
Consolidation in the banking industry has produced ever-larger institutions
concentrated in the areas of highest growth, including Seattle, Portland,
California and elsewhere. We believe this creates opportunities for smaller,
locally oriented institutions in areas such as the southwest quadrant of Oregon,
where Douglas National Bank and Bank of Southern Oregon conduct business. Bank
of Southern Oregon is the largest community-oriented commercial bank
headquartered in Medford, which along with Portland and Eugene is among the
high-growth communities in Oregon.
As a result of the transaction, Bank of Southern Oregon will increase
substantially its profile in the southwest quadrant of Oregon, expanding for the
first time beyond three offices in Jackson County to a total of 11 offices in
Jackson and Douglas Counties. We expect that the transaction will enhance Bank
of Southern Oregon's position as a competitor in the financial services
business, which is rapidly changing and growing more competitive. At the same
time, PremierWest Bancorp expects to maintain a community-banking orientation,
placing the highest value on close relationships with customers. We believe the
combined companies will provide significant benefits to our shareholders and
customers alike.
THE MERGER AND THE HOLDING COMPANY REORGANIZATION (SEE PAGE 36)
The transaction overall will consist of three separate transactions
that will happen at about the same time. First, Bank of Southern Oregon will
become a subsidiary of PremierWest Bancorp when Bank of Southern Oregon
shareholders exchange their shares for PremierWest Bancorp shares. This exchange
happens automatically, but physical delivery of Bank of Southern Oregon
certificates occurs later. Second, United Bancorp will merge into PremierWest
Bancorp, and the stock of United Bancorp will automatically become PremierWest
Bancorp stock at the exchange ratio. Finally, Douglas National Bank will merge
into Bank of Southern Oregon.
PremierWest Bancorp expects to incur charges of approximately $645,000
as a result of the merger and holding company reorganization.
UNITED BANCORP SHAREHOLDERS AND BANK OF SOUTHERN OREGON SHAREHOLDERS HAVE
DISSENTERS' RIGHTS UNDER OREGON LAW (SEE PAGE 49)
You may exercise dissenters' rights under Oregon corporate law or, in
the case of Bank of Southern Oregon shareholders, Oregon bank law. The relevant
excerpts of the Oregon statutes are attached to this prospectus/proxy statement
for your information. You will lose your dissenters' rights if you do not follow
precisely the procedures established by those statutes.
THREE UNITED BANCORP DIRECTORS WILL SERVE ON PREMIERWEST BANCORP'S BOARD; BANK
OF SOUTHERN OREGON'S PRESIDENT AND CEO WILL BE PRESIDENT AND CEO OF PREMIERWEST
BANCORP (SEE PAGE 42)
PremierWest Bancorp's board of directors after the transaction will
initially consist of 8 persons, 3 selected by United Bancorp and 5 selected by
Bank of Southern Oregon. United Bancorp will also select 5 individuals for
PremierWest Bank's initial board (including the same 3 persons selected for the
holding company board).
Mr. John L. Anhorn will continue as President and Chief Executive
Officer of PremierWest Bancorp and Bank of Southern Oregon (PremierWest Bank)
after the transaction. Mr. Richard R. Hieb will continue as Executive Vice
President, Chief Operating Officer and Secretary of PremierWest Bancorp and
PremierWest Bank. Mr. M. Neil Zick serves as a director and Executive Vice
President of United Bancorp and President and Chief Executive Officer of Douglas
National Bank. After the transaction, he will serve as Executive Vice President
and Chief Administrative Officer of PremierWest Bancorp and PremierWest Bank.
6
<PAGE> 14
MEMBERS OF MANAGEMENT AND DIRECTORS HAVE FINANCIAL INTERESTS IN THE TRANSACTION
(SEE PAGE 42)
Some of United Bancorp's directors and officers have interests in the
transaction that differ from, or are in addition to, their interests as
shareholders of United Bancorp. Mr. Zick will serve as Executive Vice President
and Chief Administrative Officer of PremierWest Bancorp and PremierWest Bank
after the transaction under a written employment agreement. The employment
agreement will have a term of two years, commencing on the date in 2000 that the
merger occurs. The employment agreement provides for an annual base salary of
$140,000, and a payment of approximately $100,000 after termination of his
employment in exchange for Mr. Zick's covenant not to compete with PremierWest
Bancorp in Jackson and Douglas Counties for a period of two years. Other
officers of Douglas National Bank will also enter into employment agreements
with PremierWest Bancorp and PremierWest Bank.
Ms. Linda Ganim, United Bancorp's Treasurer and principal financial
officer, Mr. Zick and four other officers of Douglas National Bank entered into
Executive Retention Agreements with United Bancorp, which provide for severance
payments if their employment is terminated within 12 months after a change in
control of United Bancorp. The four other officers are: Rosemarie Baucom (Vice
President), Carol Parsons (Vice President), Larry Robbins (Executive Vice
President) and James Servoss (Senior Vice President). Mr. Zick, Ms. Ganim, Ms.
Baucom and Ms. Parsons will enter into an employment agreement with PremierWest
Bancorp and PremierWest Bank. Messrs. Robbins and Servoss will be employees at
will. Messrs. Robbins and Servoss may become eligible for payments under their
Executive Retention Agreements if their employment is terminated within one year
after the transaction between PremierWest Bancorp and United Bancorp is
completed.
Ms. Ganim will serve on a transitional basis only for approximately 30
days after the transaction is completed, which may be extended an additional 60
days. For 12 months after Ms. Ganim's employment is terminated, she will be
entitled to receive $8,500 monthly for her agreement not to compete with
PremierWest Bancorp.
United Bancorp directors who continue to serve as directors of
PremierWest Bancorp or PremierWest Bank will receive regular compensation as
established by those boards. Currently, each Bank of Southern Oregon director
receives monthly cash compensation of $1,000 (except that the Vice Chairman's
compensation is $1,300 monthly), and $150 for each board meeting other than the
regular monthly meeting. Directors of PremierWest Bancorp will not receive cash
compensation in addition to the compensation they receive as directors of Bank
of Southern Oregon (PremierWest Bank) after the transaction. Directors are also
eligible to be granted stock options under Bank of Southern Oregon's 1992
Combined Incentive and Non-Qualified Stock Option Plan, which will become
PremierWest Bancorp's stock option plan.
All options to acquire United Bancorp common stock will become options
to acquire PremierWest Bancorp common stock, and the options will be fully
vested and exercisable. United Bancorp directors, officers and employees will
hold options to acquire approximately 289,737 shares of PremierWest Bancorp,
with exercise prices ranging from $3.17 to $5.32 per share.
United Bancorp directors and officers will also have indemnification
and liability insurance coverage maintained by the combined company.
UNITED BANCORP HAS PROMISED NOT TO ENTER INTO OTHER MERGER NEGOTIATIONS (SEE
PAGE 40)
It is common for one company acquiring another to negotiate for an
agreement that prohibits the acquired company from entering into conflicting
merger discussions. Without such an agreement, the enormous amount of time,
effort and expense invested by the acquiring company in negotiations, execution
of a merger agreement, and obtaining regulatory and shareholder approvals could
be lost, along with the associated opportunity for growth, while the acquired
company could freely use the terms of an executed merger agreement as leverage
to secure a
7
<PAGE> 15
higher bid elsewhere. United Bancorp and Douglas National Bank have promised
PremierWest Bancorp and Bank of Southern Oregon that
- United Bancorp and Douglas National Bank will not solicit or
negotiate any proposals or offers from any person other than Bank
of Southern Oregon to acquire United Bancorp or Douglas National
Bank and
- United Bancorp's board will not withdraw or modify its
recommendation to United Bancorp shareholders in favor of the
transaction after United Bancorp receives an alternative
acquisition proposal.
However, United Bancorp's board may enter into negotiations over an
unsolicited proposal or withdraw its recommendation to shareholders if the board
determines that is necessary to carry out its responsibilities to shareholders.
Although United Bancorp may not actively solicit acquisition bids that compete
with the merger we are proposing, United Bancorp is not absolutely prohibited
from entertaining good faith offers made to it. But if the board accepts a
competing proposal on or before July 1, 2000, United Bancorp must pay to
PremierWest Bancorp cash in the amount of $2,000,000.
COMPLETION OF THE TRANSACTIONS REMAINS SUBJECT TO CONDITIONS, INCLUDING
SHAREHOLDER APPROVAL (SEE PAGE 40)
We expect to complete the merger and the holding company reorganization
in the second quarter. But we must satisfy conditions stated in the merger
agreement. These include:
- United Bancorp shareholders must first approve the merger;
- Bank of Southern Oregon shareholders also must first approve the
merger;
- we must obtain an opinion or opinions that the transaction
constitutes a "reorganization" within the meaning of the Internal
Revenue Code, and that no gain or loss will be recognized by United
Bancorp and Bank of Southern Oregon shareholders with respect to
the PremierWest Bancorp common stock received in exchange for their
shares of United Bancorp or Bank of Southern Oregon common stock.
The tax opinion will be subject to limitations. We recommend that
you read the more detailed description of tax consequences provided
in this document;
- we must obtain a letter from Bank of Southern Oregon's independent
auditors that the transaction will qualify for "pooling of
interests" accounting treatment;
- there must be no any injunction or legal restraint blocking the
transaction, or any proceedings by a government body trying to
block the transaction.
A party to the merger could choose to complete the transaction even
though a condition has not been satisfied, as long as the law allows it to do
so. We cannot be certain when, or even whether, the conditions to the
transaction will be satisfied or waived, or that the transaction will be
completed.
Another condition to completion of the transaction is approval of
federal and state regulatory authorities. On January 26, 2000 we obtained
approval from the Federal Reserve Bank of San Francisco for the merger with
United Bancorp and the holding company reorganization of Bank of Southern
Oregon. On March 1, 2000 we received approval from the Federal Deposit Insurance
Corporation for the merger of Douglas National Bank into Bank of Southern
Oregon, and on February 22, 2000 we received approval of the Oregon Department
of Consumer and Business Services -- Division of Finance and Corporate
Securities.
8
<PAGE> 16
WE MAY WAIVE CONDITIONS; WE ALSO MAY AMEND OR TERMINATE THE MERGER AGREEMENT
(SEE PAGE 41)
We may jointly amend the merger agreement, and each of us may waive our
right to require the other party to adhere to the terms and conditions of the
agreement. However, we may not do so without additional approval of United
Bancorp shareholders if the amendment or waiver
- reduces or changes the consideration that will be received by
United Bancorp shareholders
- changes a material term of PremierWest Bancorp's Articles of
Incorporation or
- changes the qualification of the transactions as a tax-free
reorganization under the Internal Revenue Code.
It is a condition to completion of the transactions that we receive an
opinion or opinions that the transactions constitutes a "reorganization" within
the meaning of the Internal Revenue Code, and that no gain or loss will be
recognized by United Bancorp or Bank of Southern Oregon shareholders with
respect to the PremierWest Bancorp common stock received in exchange for their
shares. The parties have received such an opinion, which they expect to be
updated and issued again at the time they complete the merger. The parties will
not waive this condition.
We can agree at any time to terminate the merger without completing the
transaction. Also, either of us can decide to terminate the agreement without
the consent of the other if:
- any government agency issues an order blocking the transaction;
- we do not complete the transaction by July 1, 2000, unless the
failure to complete the transaction by that time is due to a
violation of the agreement by the party seeking to terminate the
agreement; or
- one company commits a material breach of the agreement and does not
correct the breach promptly (as long as the company seeking to
terminate the agreement has not also committed a material breach of
the agreement).
Regardless of whether the transaction is completed, we will each pay
our own fees and expenses.
THE MERGER AGREEMENT OFFERS LIMITED PRICE PROTECTION IN CASE THE VALUE OF BANK
OF SOUTHERN OREGON STOCK CHANGES SIGNIFICANTLY (SEE PAGE 42)
United Bancorp and PremierWest Bancorp have the additional right to
terminate the merger if the price of Bank of Southern Oregon common stock just
before closing is less than $5.50 per share or more than $8.50 per share. For
this purpose, the price of Bank of Southern Oregon common stock will be the
average of the mean between the bid and asked prices of Bank of Southern Oregon
common stock on the OTC Bulletin Board over a period of 20 trading days on which
actual trades occur. The party exercising this termination right would have to
pay the other party $500,000.
This potential additional termination right creates some price
protection for United Bancorp shareholders. If the price of Bank of Southern
Oregon common stock declines to less than $5.50 per share, this termination
provision would give United Bancorp the opportunity to consider whether to
proceed with the transaction, even though the market value of the common stock
consideration shall have declined, or terminate the transaction altogether.
United Bancorp has not decided what it will do if the price declines to less
than $5.50 per share.
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<PAGE> 17
If the termination right arises, United Bancorp will consult with its
financial and legal advisors about the appropriate course of action, which might
be to
- complete the merger on its current terms even though the price has
declined,
- complete the merger if and only if United Bancorp shareholders
reaffirm their approval of the merger at another shareholders'
meeting, or
- terminate the merger.
United Bancorp will make its decision about what course of action to
take based on a variety of considerations, including the views of its advisors;
prevailing conditions in the market for bank stocks generally and Bank of
Southern Oregon stock in particular; any known factors that are contributing to
the decline in Bank of Southern Oregon's stock price; and prospects for
remaining independent or acquiring or being acquired by another company.
Pooling of interests accounting for mergers and acquisitions is not
expected to be available for use after the current year. We do not know what
impact that change in accounting rules will have. The alternative to pooling of
interests accounting is purchase accounting, which generally has been less
favored by acquiring companies because it ordinarily adds a substantial amount
of goodwill to the acquiring company's balance sheet. Amortization of goodwill
thereafter represents a continuing charge against the acquiring company's
income. The end of pooling accounting could significantly reduce merger and
acquisition activity of banks and bank holding companies, particularly among
small and mid-sized banks and holding companies. In contrast, large institutions
and holding companies might not be as affected by the end of pooling accounting,
because amortization of goodwill arising from acquisitions of smaller
institutions might not have the same percentage impact on a large institution's
income statement as it would on a smaller acquiror's income statement.
BANK OF SOUTHERN OREGON INTENDS TO FORM A HOLDING COMPANY EVEN IF IT CANNOT
COMPLETE THE MERGER WITH UNITED BANCORP (SEE PAGE 37)
Even if shareholders do not approve the merger with United Bancorp and
Douglas National Bank, Bank of Southern Oregon could proceed with a holding
company reorganization on terms identical to those in the merger agreement -- if
shareholders of Bank of Southern Oregon approve this alternative. This is why
Bank of Southern Oregon is asking its shareholders not only to approve the
merger agreement, but also to specifically approve the holding company
reorganization alone if the merger agreement is not approved. Bank of Southern
Oregon's board believes that the merger is in the best interests of
shareholders, and the board therefore recommends that shareholders vote in favor
of it. Nevertheless, the board would wish to proceed with a holding company
reorganization of Bank of Southern Oregon even if shareholders do not approve
the merger.
PREMIERWEST BANCORP WILL USE POOLING OF INTERESTS ACCOUNTING TREATMENT (SEE
PAGE 47)
We expect to account for the transaction using the "pooling of
interests" method of accounting. Using pooling of interests accounting, we will
add the consolidated assets, liabilities, shareholders' equity and income and
expenses of United Bancorp to those of PremierWest Bancorp at their recorded
book values. The holding company reorganization of Bank of Southern Oregon will
also be characterized as and treated essentially as a pooling of interests for
financial reporting purposes, with the consolidated assets, liabilities,
shareholders' equity and income and expenses of PremierWest Bancorp after the
holding company reorganization being substantially the same as those of Bank of
Southern Oregon immediately before the holding company reorganization.
10
<PAGE> 18
FORWARD-LOOKING STATEMENTS COULD PROVE TO BE INACCURATE (SEE PAGE 136)
We have each made forward-looking statements in this prospectus/joint
proxy statement. Forward-looking statements are subject to risks and
uncertainties. These forward-looking statements include information about future
results of our operations or the performance of PremierWest Bancorp and Bank of
Southern Oregon (PremierWest Bank) after the transaction is completed. When we
use words such as "believes," "expects," "anticipates," "estimates" or similar
expressions, we are making forward-looking statements. Many things could affect
the future financial results and performance of each of our companies and
PremierWest Bancorp after the transaction, which could cause those results or
performance to differ materially from those expressed in our forward-looking
statements.
SELECTED FINANCIAL DATA
The following tables show summarized historical financial data for each
of us and also show summary pro forma information reflecting the transaction.
The pro forma information reflects the "pooling of interests" method of
accounting.
We have not included pro forma financial data reflecting completion of
the holding company reorganization alone, apart from the mergers with United
Bancorp and Douglas National Bank. If for some reason the mergers with United
Bancorp and Douglas National Bank cannot be completed, but the holding company
reorganization of Bank of Southern Oregon can be, Bank of Southern Oregon would
proceed with the holding company reorganization alone. If that occurs, the pro
forma consolidated financial statements of PremierWest Bancorp as holding
company for Bank of Southern Oregon would be essentially the same as the
historical consolidated financial statements of Bank of Southern Oregon, except
for the line of credit obtained by PremierWest Bancorp for the purpose of
financing the transaction and the expenses of the transaction, as detailed
below.
We expect to incur acquisition and integration charges as a result of
the transaction. PremierWest Bancorp and Bank of Southern Oregon also anticipate
that the transactions will yield financial benefits that include reduced
operating expenses and the opportunity to earn more revenue. The pro forma
information, although helpful in illustrating the financial characteristics of
the resulting company under one set of assumptions, does not reflect these
expenses or benefits. Accordingly, the pro forma information does not attempt to
predict or suggest future results. It also does not necessarily reflect what the
historical results of PremierWest Bancorp or Bank of Southern Oregon would have
been had our companies been combined.
The summary financial information to follow is not a substitute for the
historical financial information and other detailed financial information we
provide elsewhere in this document. You should read the summary financial
information together with the historical financial information and other
detailed financial information we provide elsewhere in this document.
11
<PAGE> 19
UNAUDITED PRO FORMA SELECTED COMBINED FINANCIAL DATA
The following unaudited selected pro forma financial data combine Bank
of Southern Oregon's historical results with United Bancorp's historical
results, in each case as of or for the year ended December 31, 1999. See "WHERE
YOU CAN FIND MORE INFORMATION" and "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION AS OF OR
FOR THE
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1999
------------------------------
<S> <C>
SUMMARIZED INCOME STATEMENT DATA:
Net interest income................................ $ 12,732
Loan loss provision................................ 835
Noninterest income................................. 2,079
Noninterest expense................................ 11,541
Provision for income taxes......................... 707
-----------
Net income................................... $ 1,728
===========
PER SHARE DATA:
Basic net income................................... $ 0.21
Diluted net income................................. $ 0.21
Book value......................................... $ 3.36
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic.............................................. 8,127,000
Diluted............................................ 8,373,000
BALANCE SHEET DATA AT PERIOD END:
Total assets....................................... $ 296,652
Federal Home Loan Bank advances.................... $ 17,402
Total shareholders' equity......................... $ 28,224
</TABLE>
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<PAGE> 20
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
BANK OF SOUTHERN OREGON AND SUBSIDIARY
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND 1999 1998 1997 1996 1995
RATIOS) ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ............................... $ 12,116 $ 11,726 $ 11,260 $ 10,551 $ 9,277
Interest expense .............................. 4,831 4,917 4,287 4,367 3,850
---------- ---------- ---------- ---------- ----------
Net interest income ......................... 7,285 6,809 6,973 6,184 5,427
Loan loss provision ........................... 640 1,652 1,731 335 210
---------- ---------- ---------- ---------- ----------
Net interest income after loan loss provision . 6,645 5,157 5,242 5,849 5,217
Noninterest income ............................ 492 531 402 415 316
Noninterest expense ........................... 5,127 3,758 2,916 2,704 2,535
---------- ---------- ---------- ---------- ----------
Income before income taxes .................... 2,009 1,930 2,728 3,560 2,998
Provision for income taxes .................... 768 748 986 1,354 1,065
---------- ---------- ---------- ---------- ----------
Net income .................................. $ 1,241 $ 1,182 $ 1,742 $ 2,206 $ 1,933
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
At period end:
Investment securities ......................... $ 22,045 $ 5,432 $ 6,587 $ 8,936 $ 4,917
Loans, net .................................... $ 109,629 $ 96,773 $ 91,000 $ 85,233 $ 75,000
Total deposits ................................ $ 139,984 $ 126,630 $ 119,741 $ 108,406 $ 92,461
FHLB Seattle advances ......................... $ 5,245 $ 5,846 $ -- $ -- $ --
Total shareholders' equity .................... $ 14,757 $ 13,843 $ 12,226 $ 10,448 $ 8,216
Total assets .................................. $ 160,984 $ 146,850 $ 132,586 $ 119,668 $ 101,555
PER COMMON SHARE DATA: (1)
Basic net income .............................. $ 0.26 $ 0.25 $ 0.37 $ 1.41 $ 1.23
Diluted net income ............................ $ 0.25 $ 0.24 $ 0.36 $ 1.41 $ 1.23
Book value .................................... $ 3.05 $ 2.89 $ 2.60 $ 6.66 $ 5.27
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic ......................................... 4,816,000 4,748,000 4,698,000 1,566,000 1,559,000
Diluted ....................................... 4,965,000 4,986,000 4,896,000 1,569,000 1,576,000
SELECTED RATIOS:
Return on average total shareholders' equity .. 8.62% 8.64% 15.36% 23.64% 26.78%
Return on average total assets ................ 0.80% 0.84% 1.44% 1.99% 2.14%
Net interest spread ........................... 4.18% 4.43% 5.40% 5.12% 5.06%
Net interest margin ........................... 4.99% 5.14% 6.16% 5.94% 6.24%
Efficiency ratio (2) .......................... 65.9% 51.2% 39.6% 40.98% 44.14%
ASSET QUALITY RATIOS:
Reserve for loan losses to ending total loans . 2.13% 2.29% 1.17% 1.08% 0.98%
Nonperforming assets to ending total assets (3) 2.5% 3.4% 3.3% 0.47% 2.41%
Net loan charge-offs to average loans ......... 0.5% 0.5% 1.8% 0.17% 0.03%
CAPITAL RATIOS:
Average shareholders' equity to average assets 9.29% 9.77% 9.34% 8.44% 7.98%
Leverage ratio (4) ............................ 9.5% 9.90% 9.40% 10.60% 10.20%
Total risk-based capital ratio (4) ............ 13.1% 13.20% 13.00% 11.60% 11.20%
</TABLE>
------------------------
(1) Per share amounts are adjusted for 10% stock dividends declared
in 1995 and 1996, a 2-for-1 stock split in 1997 and a 3-for-1
stock split in 1998.
(2) Efficiency ratio is noninterest expense divided by the sum of net
interest income plus noninterest income minus nonrecurring items.
(3) Nonperforming assets consist of nonaccrual loans, loans
contractually past due 90 days or more and other real estate
owned.
(4) Computed in accordance with Federal Reserve Board and FDIC
guidelines.
13
<PAGE> 21
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
UNITED BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND 1999 1998 1997 1996 1995
RATIOS) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ..................................... $ 8,696 $ 8,294 $ 8,389 $ 7,411 $ 7,281
Interest expense .................................... 3,249 3,051 3,268 2,599 2,440
----------- ----------- ----------- ----------- -----------
Net interest income ............................... 5,447 5,243 5,121 4,812 4,841
Provision for credit losses ......................... 195 50 140 60 80
----------- ----------- ----------- ----------- -----------
Net interest income after provision for credit losses 5,252 5,193 4,981 4,752 4,761
Noninterest income .................................. 1,588 1,631 1,113 873 1,007
Noninterest expense ................................. 6,414 5,304 4,714 3,900 4,199
----------- ----------- ----------- ----------- -----------
Income before income taxes .......................... 426 1,520 1,380 1,725 1,569
Provision for income taxes (benefit) ................ (61) 466 376 270 426
----------- ----------- ----------- ----------- -----------
Net income ........................................ $ 487 $ 1,054 $ 1,004 $ 1,455 $ 1,143
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
At period end:
Total assets ........................................ $ 135,668 $ 117,949 $ 118,474 $ 105,424 $ 93,859
Loans, net .......................................... $ 61,791 $ 43,077 $ 42,948 $ 39,531 $ 39,509
Total deposits ...................................... $ 89,761 $ 87,556 $ 74,607 $ 68,340 $ 64,109
Short-term borrowings ............................... $ 28,600 $ 11,811 $ 19,881 $ 10,544 $ 13,113
Shareholders' equity ................................ $ 13,467 $ 14,291 $ 13,267 $ 12,152 $ 11,461
PER COMMON SHARE DATA: *
Basic net income .................................... $ 0.29 $ 0.65 $ 0.61 $ 0.92 $ 0.68
Diluted net income .................................. $ 0.28 $ 0.61 $ 0.60 $ 0.92 $ 0.68
Book value .......................................... $ 8.02 $ 8.77 $ 8.08 $ 7.63 $ 6.77
Cash dividends ...................................... $ 0.17 $ 0.15 $ 0.125 $ 0.11 $ 0.105
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic ............................................... 1,680,151 1,629,129 1,642,322 1,673,740 1,693,320
Diluted ............................................. 1,728,814 1,716,825 1,686,758 1,673,740 1,693,320
PERFORMANCE RATIOS:
Net interest margin (tax equivalent) ................ 5.04% 5.16% 5.03% 5.57% 5.54%
Efficiency ratio .................................... 91.17% 77.16% 75.62% 68.60% 71.80%
Return on average assets ............................ 0.39% 0.93% 0.90% 1.51% 1.16%
Return on average equity ............................ 3.52% 7.65% 7.90% 12.32% 10.91%
ASSET QUALITY RATIOS:
Nonperforming loans to total loans .................. 0.11% 0.59% 0.00% 0.45% 0.35%
Allowance for credit losses to total loans .......... 1.09% 1.27% 1.13% 1.28% 1.19%
Allowance for credit losses to nonperforming loans .. 984.06% 215.56% 0.00% 285.47% 344.93%
Nonperforming assets to total loans ................. 0.11% 0.59% 0.00% 0.45% 0.35%
OTHER DATA:
Number of banking offices ........................... 8 7 7 6 6
Number of full-time-equivalent employees ............ 85 68 60 61 67
</TABLE>
---------------------------
* Per share amounts are adjusted for the 4-for-1 stock split on
March 25, 1998.
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<PAGE> 22
RISK FACTORS
Investment in PremierWest Bancorp common stock involves risk.
Shareholders of United Bancorp and shareholders of Bank of Southern Oregon
should carefully consider these risk factors.
BANK OF SOUTHERN OREGON DOES NOT HAVE PREVIOUS ACQUISITION EXPERIENCE
Acquisitions involve a number of risks inherent in assessing the
values, strengths, weaknesses and profitability of acquisition candidates,
including adverse short-term effects of acquisitions on operating results;
diversion of management's attention; dependence on retaining key personnel; and
risks associated with unanticipated problems. In addition, an acquisition's
success will depend in part on PremierWest Bancorp's ability to integrate the
operations of the acquired institution or assets and capitalize on synergies to
achieve cost savings. Although directors and management of Bank of Southern
Oregon have experience with acquisitions at institutions with which they were
previously affiliated, this merger is the first merger undertaken by Bank of
Southern Oregon. Without experience integrating acquired companies, PremierWest
Bancorp therefore faces greater risk that costs of the merger will be more than
expected and that the benefits will be less than expected or harder to attain.
See, "THE MERGER AND HOLDING COMPANY REORGANIZATION - RECOMMENDATION OF BANK OF
SOUTHERN OREGON'S BOARD OF DIRECTORS" for a discussion of projected cost savings
and other matters that Bank of Southern Oregon's board considered when it
approved the United Bancorp merger.
From time to time Bank of Southern Oregon explores opportunities for
growth through acquisition, and PremierWest Bancorp can be expected to continue
doing so after the merger and holding company reorganization transactions are
completed. Management holds informal discussions about possible acquisitions of
other institutions with some frequency, as it believes management of many
institutions do. In the vast majority of cases, however, those discussions never
progress beyond the most preliminary, or exploratory, stages. Sometimes
preliminary discussions do progress beyond that point, but for one reason or
another they nevertheless do not progress to the point of negotiating terms of
an acquisition. Discussions of this sort have become routine among financial
institutions both large and small. Shareholders may generally assume that these
discussions are ongoing, but PremierWest Bancorp cautions shareholders not to
assume that acquisition discussions will actually lead to another acquisition
transaction, although that could occur.
SUCCESS IN THE BANKING INDUSTRY REQUIRES DISCIPLINED MANAGEMENT OF LENDING RISKS
The risk of nonpayment of loans is inherent in banking. Management of
Bank of Southern Oregon attempts to minimize credit exposure by carefully
monitoring the concentration of loans within specific industries, in addition to
managing risks of individual credits through loan application and approval
procedures. Senior management of Bank of Southern Oregon is making considerable
progress addressing credit-quality issues that existed at the bank when senior
management joined the bank in 1998. See, "BUSINESS OF BANK OF SOUTHERN OREGON -
LENDING."
CHANGING INTEREST RATES HAVE A DIRECT AND IMMEDIATE IMPACT ON FINANCIAL
INSTITUTIONS
The risk of nonpayment of loans -- or credit risk -- is not the only
lending risk. Lenders are also subject to interest rate risk. Fluctuating rates
of interest prevailing in the market generally affect a bank's net interest
income, which is the difference between interest earned from loans and
investments, on one hand, and interest paid on deposits and borrowings, on the
other. In the early 1990s, many banking organizations experienced historically
high interest rate spreads, meaning the difference between the interest rates
earned on loans and investments and the interest rates paid on deposits and
borrowings. More recently, however, interest rate spreads have generally
narrowed due to changing market conditions and competitive pricing pressures.
For instance, it has become increasingly difficult for depository institutions
to maintain deposit growth at the same rate as loan growth. Under these
circumstances, to maintain deposit growth an institution would have to offer
more attractive deposit terms, further narrowing the institution's interest rate
spread. PremierWest Bancorp and Bank of Southern Oregon
15
<PAGE> 23
cannot assure you that interest rate spreads will not narrow even more or that
higher interest rate spreads will return. See, "BANK OF SOUTHERN OREGON'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
BANK OF SOUTHERN OREGON OPERATES IN AN AREA THAT WAS HISTORICALLY DEPENDENT ON A
SINGLE INDUSTRY; THE SUCCESS OF THE BANK'S BUSINESS DEPENDS ON THE ECONOMIC
STABILITY OF THE LOCAL ECONOMY
Bank of Southern Oregon is exposed to the risk of a decline in the
local economy, including the risk of declining real estate values. Many of Bank
of Southern Oregon's loans are secured by real estate. Many of the bank's loans
are commercial loans and Small Business Administration loans to professionals
and small businesses in Bank of Southern Oregon's community. The bank's lending
operations are concentrated in Jackson and Josephine Counties, Oregon, and after
the transaction will be concentrated in Jackson, Josephine and Douglas Counties.
The local economy in Jackson, Josephine and Douglas Counties has been heavily
dependent on the timber industry. The timber industry is the dominant employer,
although it is less so in Medford, which has a more diversified economy.
Although Bank of Southern Oregon believes that economic conditions in Jackson,
Josephine and Douglas Counties have been generally favorable in recent years,
significant deterioration in economic conditions locally or on a wider scale
could adversely affect Bank of Southern Oregon and its business, including loan
demand, the ability of borrowers to repay outstanding loans and the value of
loan collateral. This in turn could result in increased levels of nonperforming
loans and charge-offs and increases in the provision for loan losses.
BANK OF SOUTHERN OREGON DOES NOT HAVE THE FINANCIAL AND OTHER RESOURCES THAT ITS
LARGER COMPETITORS HAVE; THIS COULD AFFECT BANK OF SOUTHERN OREGON'S ABILITY TO
COMPETE FOR LARGE COMMERCIAL LOAN ORIGINATIONS AND ITS ABILITY TO OFFER PRODUCTS
AND SERVICES ITS COMPETITORS PROVIDE TO CUSTOMERS.
Bank of Southern Oregon's competitors include larger institutions that
have substantially greater resources, which offer advantages such as the
ability to price services at lower, more attractive levels and the ability to
provide larger credit facilities than Bank of Southern Oregon can provide. In
addition, some of the competitors offer products and services that Bank of
Southern Oregon does not. Likewise, some of the competitors are not subject to
the same kind and amount of regulatory restrictions and supervision to which
Bank of Southern Oregon is subject. Because Bank of Southern Oregon is a
community bank that is smaller than some commercial lender in the market, Bank
of Southern Oregon is on occasion prevented from making commercial loans in
amounts other competitors can offer. Bank of Southern Oregon accommodates loan
volumes in excess of its lending limit from time to time through the sale of
loan participation to other banks.
Banking institutions operate in a highly competitive environment. Bank
of Southern Oregon competes with other commercial banks, credit unions, savings
institutions, finance companies, insurance companies, mortgage companies, mutual
funds and other financial service organizations. Competition among financial
institutions and other financial service organizations is increasing with the
continuing consolidation of the financial services industry. Additionally,
recent legislative and regulatory changes could increase competition even more.
For example, Congress' recent elimination of many restrictions on interstate
branching could increase competition from large banks headquartered outside of
southwestern Oregon. Congress' even more recent repeal of the Glass- Steagall
Act (which had separated the commercial and investment banking industries) and
elimination of the barriers between the banking and insurance industries might
make competition even more intense. See, "SUPERVISION AND REGULATION."
16
<PAGE> 24
BANK OF SOUTHERN OREGON COMMON STOCK IS THINLY TRADED AND IS THEREFORE MORE
SUSCEPTIBLE TO WIDE PRICE SWINGS
Bank of Southern Oregon is a community bank that commenced operations
only ten years ago. Its common stock is not traded or authorized for quotation
on any exchanges or on Nasdaq. However, quotations for Bank of Southern Oregon
common stock appear on the OTC Bulletin Board, an electronic, screen-based
market maintained by the National Association of Securities Dealers, Inc.'s
subsidiary, NASD Regulation, Inc. Thinly traded, illiquid stocks are more
susceptible to significant and sudden price changes than stocks that are widely
followed by the investment community and actively traded on an exchange or
Nasdaq. The closing price for Bank of Southern Oregon common stock on March 30,
2000 was $6.75 per share. We cannot assure you that the common stock of
PremierWest Bancorp will become more liquid or that its common stock will be
traded or authorized for quotation on any exchanges or on Nasdaq.
We give you no assurance about what the market price of Bank
of Southern Oregon common stock will be at the time you vote
on the merger, at the time the merger with United Bancorp is
completed or when the shares of PremierWest Bancorp are
actually issued. Until the merger is completed, the value of
PremierWest Bancorp common stock will fluctuate as the value
of Bank of Southern Oregon common stock and the value of
United Bancorp common stock fluctuate. Therefore, when you
vote you will not know the value of the shares you will
receive.
BANK OF SOUTHERN OREGON HAS NOT PAID CASH DIVIDENDS TO SHAREHOLDERS, AND DOES
NOT EXPECT TO PAY CASH DIVIDENDS IN THE IMMEDIATE FUTURE; FEDERAL AND STATE BANK
REGULATION CAN PLACE LIMITS ON A BANK OR BANK HOLDING COMPANY'S ABILITY TO PAY
CASH DIVIDENDS
PremierWest Bancorp does not expect to pay cash dividends to
shareholders in the immediate future, but it will consider payment of cash
dividends as economic and financial circumstances warrant. Bank holding
companies generally depend on dividends paid by bank subsidiaries for funds to
pay dividends on the holding company common stock. PremierWest Bancorp cannot
assure you that future earnings of PremierWest Bank will be sufficient to permit
PremierWest Bank to pay cash dividends to PremierWest Bancorp. State and federal
bank regulatory authorities can restrict a bank or bank holding company's power
to pay dividends in some circumstances. Even if dividends may legally be paid,
the amount and timing of dividends will be at the discretion of the board.
Rather than being paid in the form of cash dividends by the bank to the holding
company or thereafter by the holding company to its shareholders, the board and
management may decide to use earnings to support growth or for other corporate
purposes. See, "SUPERVISION AND REGULATION - LIMITS ON DIVIDENDS AND OTHER
PAYMENTS."
17
<PAGE> 25
THE BUSINESS OF BANKING IS CHANGING RAPIDLY WITH CHANGES IN TECHNOLOGY, WHICH
POSES FINANCIAL AND TECHNOLOGICAL CHALLENGES TO SMALL AND MID-SIZED INSTITUTIONS
With frequent introductions of new technology-driven products and
services, the banking industry is undergoing rapid technological changes. In
addition to enhancing customer service, the effective use of technology
increases efficiency and enables financial institutions to reduce costs.
Financial institutions' success is increasingly dependent upon use of technology
to provide products and services that satisfy customer demands and to create
additional operating efficiencies. Many of Bank of Southern Oregon's competitors
have substantially greater resources to invest in technological improvements,
which could enable them to perform various banking functions at lower costs than
Bank of Southern Oregon, or to provide products and services that Bank of
Southern Oregon is not able to provide economically. We cannot assure you that
we will be able to develop and implement new technology-driven products or
services or that we will be successful in marketing these products or services
to customers.
THE BANKING INDUSTRY IS HEAVILY REGULATED; THE COMPLIANCE BURDEN TO THE INDUSTRY
IS CONSIDERABLE; THE PRINCIPAL BENEFICIARY OF FEDERAL AND STATE REGULATION IS
THE PUBLIC AT LARGE AND DEPOSITORS, NOT SHAREHOLDERS
PremierWest Bancorp and PremierWest Bank will be subject to extensive
state and federal government supervision and regulation. Affecting many aspects
of the banking business, including permissible activities, lending, investments,
payment of dividends and numerous other matters, state and federal supervision
and regulation are intended principally to protect depositors, the public and
the deposit insurance funds administered by the FDIC. Protection of shareholders
is not a goal of banking regulation.
Applicable statutes, regulations, agency and court interpretations and
agency enforcement policies have undergone significant changes, some
retroactively applied, and could be subject to significant changes in the
future. Changes in applicable laws and regulatory policies could adversely
affect the banking industry generally or PremierWest Bancorp and PremierWest
Bank in particular. The burdens of federal and state banking regulation could
place banks in general at a competitive disadvantage compared to less regulated
competitors. See, "SUPERVISION AND REGULATION."
UNITED BANCORP SPECIAL MEETING
This prospectus/joint proxy statement is provided to United Bancorp
shareholders by United Bancorp's board to solicit proxies for use at the special
meeting of shareholders.
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/JOINT PROXY
STATEMENT RELATING TO PREMIERWEST BANCORP AND BANK OF
SOUTHERN OREGON HAS BEEN FURNISHED BY BANK OF SOUTHERN
OREGON, AND ALL INFORMATION RELATING TO UNITED BANCORP AND
DOUGLAS NATIONAL BANK HAS BEEN FURNISHED BY UNITED BANCORP.
THE PARTY FURNISHING INFORMATION IS RESPONSIBLE FOR ITS
ACCURACY.
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<PAGE> 26
PURPOSE OF THE MEETING
At the United Bancorp meeting, holders of United Bancorp common stock
will consider and vote upon the merger into PremierWest Bancorp. At the same
time the merger occurs, Bank of Southern Oregon will reorganize into the holding
company form of ownership, and PremierWest Bancorp will acquire all of the stock
of Bank of Southern Oregon in a direct share exchange. The merger proposal and
holding company reorganization proposal are discussed in this prospectus/joint
proxy statement under the caption, "THE MERGER AND HOLDING COMPANY
REORGANIZATION."
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The record date for the determination of holders of United Bancorp
common stock entitled to notice of and to vote at the meeting has been fixed by
United Bancorp's board as the close of business on March 15, 2000. As of the
March 15, 2000 record date, there were 1,871,334 shares of United Bancorp common
stock issued and outstanding. The United Bancorp common stock was held of record
on that date by approximately 263 shareholders. Holders of United Bancorp common
stock on the March 15 record date are entitled to one vote per share. All
holders of United Bancorp common stock are entitled to exercise dissenters'
rights on the proposal. See "RIGHTS OF DISSENTING SHAREHOLDERS."
VOTE REQUIRED
Approval of the merger requires the affirmative vote of the holders of
a majority of the outstanding shares of United Bancorp common stock. Some of
United Bancorp's shareholders entered into a shareholder voting agreement with
United Bancorp and Bank of Southern Oregon as an inducement for Bank of Southern
Oregon to enter into the merger agreement. The shareholder voting agreement
requires these shareholders to
- vote their United Bancorp common stock in favor of the transaction;
- vote against any other proposal involving a change in
control of United Bancorp or Douglas National Bank or
similar transaction (other than the transaction with Bank
of Southern Oregon and PremierWest Bancorp); and
- vote against any other transaction that is inconsistent
with the obligation of United Bancorp to consummate the
transaction.
The shareholders who executed the voting agreement include all of the
directors of United Bancorp and the United Bancorp Employee Stock Ownership Plan
and Trust. Gary Kjensrud, the former President of United Bancorp, remains the
largest shareholder. He also agreed to execute a voting agreement to
substantially the same effect as that executed by the directors and the United
Bancorp ESOP. Collectively, these shareholders and officers and employees of
United Bancorp exercise voting power over approximately 982,366 shares of United
Bancorp's issued and outstanding stock, or approximately 50.4% of the voting
power. See, "PRINCIPAL SHAREHOLDERS OF UNITED BANCORP." A copy of the voting
agreement in the form executed by directors and the United Bancorp ESOP is
included as Appendix E, and a copy in the form executed by United Bancorp's
former President is included as Appendix F.
VOTING; SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy card is solicited by United Bancorp's board and may
be used by shareholders to vote at the special meeting. United Bancorp requests
shareholders to complete, date and sign the accompanying proxy cards and
promptly return them in the accompanying postage-paid envelope. A shareholder
may revoke a proxy at any time before it is voted by
- attending the United Bancorp special meeting and voting
in person (but attendance will not by itself constitute
revocation),
19
<PAGE> 27
- filing with the Secretary or Assistant Secretary another proxy card
duly executed and bearing a later date, or
- giving to the Secretary or Assistant Secretary of United Bancorp
written notice of the proxy revocation at or before the meeting.
Please provide any written notice of revocation to Ms. Becky Carpenter,
Assistant Secretary of United Bancorp, 555 S.E. Kane Street, Roseburg, Oregon
97470.
Unless revoked, shares represented by proxy will be voted at the United
Bancorp meeting. Shares represented by valid proxies will be voted at the United
Bancorp meeting in accordance with the instructions noted. If no instructions
are given, proxies will be voted in favor of the merger.
In addition to solicitation by mail, directors, officers and employees
of United Bancorp or Douglas National Bank may solicit proxies from the
shareholders of United Bancorp personally or by telephone, telegram or other
forms of communication. However, they will not be specifically compensated for
those services. Brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward soliciting materials to beneficial owners and will
be reimbursed for their reasonable expenses incurred in sending proxy material
to beneficial owners.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the United
Bancorp special meeting is a majority of the shares of United Bancorp common
stock issued and outstanding on the March 15, 2000 record date, whether
represented in person or by proxy. Abstentions and broker non-votes will count
as present for purposes of determining whether there is a quorum at the meeting,
but will not be voted. Because approval of the merger requires the affirmative
vote of the holders of a majority of the outstanding shares of United Bancorp
common stock, abstentions and broker non-votes will be equivalent to votes
against the merger.
If a quorum is not present, or if fewer shares of United Bancorp common
stock than the number required therefor vote in favor of the merger, United
Bancorp may postpone or adjourn the meeting to solicit additional proxies or
votes. When United Bancorp reconvenes the meeting, all proxies will be voted in
the same manner as they would have been voted at the original convening of the
meeting, except for any proxies that have been effectively revoked or withdrawn.
THE MERGER AND HOLDING COMPANY REORGANIZATION
PROPOSAL TO PROPOSAL TO
APPROVE AND ADOPT THE AGREEMENT APPROVE THE HOLDING COMPANY
AND PLAN OF MERGER AND SHARE REORGANIZATION OF BANK OF SOUTHERN
EXCHANGE AND OREGON
(UNITED BANCORP AND BANK OF (BANK OF SOUTHERN OREGON ANNUAL
SOUTHERN OREGON SHAREHOLDER MEETING ONLY)
MEETINGS)
BANK OF SOUTHERN OREGON'S REASONS FOR THE TRANSACTION
Commercial banks dominating the banking market in Douglas and Jackson
Counties are branches of significantly larger institutions, the bulk of whose
deposit and lending business is in California or elsewhere. Bank of Southern
Oregon believes this creates both challenges and opportunities for a small,
community-based commercial bank such as Bank of Southern Oregon or Douglas
National Bank.
20
<PAGE> 28
Bank of Southern Oregon and Douglas National Bank face increasingly
intense competition from other institutions, including banks and other providers
of financial service. Competitive pressures exist not only in the terms on which
Bank of Southern Oregon and Douglas National Bank offer products and services,
competitive pressures also arise out of the increasing expectation on customers'
part that financial institutions will provide a full range of financial
services, including traditional deposit and lending services and non-traditional
products and services such as investment products, investment advice and
insurance. Customers' demand for the convenience of a single source of financial
products and services is increasingly accompanied by demand for the convenience
of electronic access to financial products and services, including on-line
banking. The large institutions with which community-based banks such as Bank of
Southern Oregon and Douglas National Bank compete have greater financial and
staff resources to address changing customer expectations.
Although Bank of Southern Oregon and Douglas National Bank believe they
can continue to compete with these larger institutions, they also believe that
their combined resources and market breadth will allow them to compete more
aggressively. Moreover, Bank of Southern Oregon and Douglas National Bank
believe that the enormous size of the dominant banking competitors and their
increasing reliance on technology create opportunities for community-based,
commercial banking institutions serving the banking needs of small and mid-sized
businesses, professionals and individuals on a personalized basis, particularly
outside of Portland and other high-growth urban areas.
Bank of Southern Oregon believes that significant commercial and
consumer borrowing potential exists in Douglas National Bank's market, and Bank
of Southern Oregon expects to pursue those credit needs aggressively. External
growth through acquisitions of other community banks or branch offices can
enhance Bank of Southern Oregon's existing branch network and allow the bank to
extend its community banking philosophy to other communities. Bank of Southern
Oregon believes that its community banking philosophy and the combined strengths
of Bank of Southern Oregon and Douglas National Bank will benefit shareholders
of Bank of Southern Oregon and United Bancorp alike, as well as customers and
potential customers in Douglas County who are underserved by large banks
headquartered in Portland or elsewhere. The merger and holding company
reorganization transaction will expand Bank of Southern Oregon's existing
banking operations in southwestern Oregon, enhancing the bank's market position
and creating opportunities to achieve operating efficiencies.
Bank of Southern Oregon expects to realize cost reductions from
corporate overhead and consolidation of banking operations by eliminating
duplicate data processing and combining legal, accounting and regulatory
functions. Overhead costs could be reduced further by combining marketing and
advertising programs. Although PremierWest Bancorp and Bank of Southern Oregon
believe that cost reductions are achievable, PremierWest Bancorp and Bank of
Southern Oregon cannot assure you that cost reductions will actually be
achieved; that cost reductions will be achieved within the time frame sought by
Bank of Southern Oregon; or that any cost savings that are achieved will not be
offset by declining revenues or other charges to earnings. If those cost
reductions are not achieved, or if they are not achieved within the expected
time frame, Bank of Southern Oregon's earnings after the transaction could be
lower than Bank of Southern Oregon anticipates.
OPINION OF BANK OF SOUTHERN OREGON'S FINANCIAL ADVISOR
Bank of Southern Oregon retained Pacific Crest Securities Inc. of
Portland, Oregon on September 2, 1999 to advise Bank of Southern Oregon as to
the fairness of the consideration to be paid to United Bancorp shareholders,
from a financial perspective. Bank of Southern Oregon's board received an
opinion from Pacific Crest that, based upon and subject to the various
considerations set forth in its written opinion, the consideration PremierWest
Bancorp will pay to United Bancorp shareholders is fair from a financial point
of view to the holders of Bank of Southern Oregon common stock as of that date.
In requesting Pacific Crest's opinion, no limitations were imposed by Bank of
Southern Oregon upon Pacific Crest with respect to the investigation made or
procedures followed by it in rendering its opinion. The full text of the Pacific
Crest opinion, which sets forth assumptions made, matters considered, and limits
on the review undertaken by Pacific Crest, is attached at Appendix C.
21
<PAGE> 29
Pacific Crest is an investment banking firm that performs financial
advisory services. As part of its investment banking business, Pacific Crest is
regularly engaged in reviewing the fairness of financial institution acquisition
transactions from a financial perspective and in the valuation of financial
institutions and other businesses and their securities in connection with
mergers, acquisitions and other transactions. Neither Pacific Crest nor any of
its affiliates has a material financial interest in Bank of Southern Oregon or
United Bancorp.
Pacific Crest will receive a fee contingent upon the completion of the
transaction for services rendered in connection with advising Bank of Southern
Oregon regarding the merger, including the fairness opinion and financial
advisory services provided to Bank of Southern Oregon, plus reimbursement of
out-of-pocket expenses. If we complete the transaction, Bank of Southern Oregon
will pay Pacific Crest Securities a fee of $155,000, less $5,000 already paid.
Pacific Crest's opinion is directed only to the fairness, from a
financial point of view, of the consideration PremierWest Bancorp will pay, and
does not constitute a recommendation to any holder of Bank of Southern Oregon
common stock as to how the shareholder should vote on the proposed transaction.
This summary of the Pacific Crest opinion is qualified in its entirety by
reference to the full text of the opinion.
United Bancorp shareholders and option holders will receive (or have
reserved for them upon exercise of options) approximately 3,978,136 shares of
PremierWest Bancorp common stock in the merger. Options to acquire United
Bancorp common stock will become options to acquire PremierWest Bancorp common
stock.
In rendering its opinion, Pacific Crest assumed, without independent
verification, the accuracy and completeness of the financial and other
information and relied upon the accuracy of the representations of the parties
contained in the merger agreement. Pacific Crest has not made any independent
evaluation or appraisal of any properties, assets or liabilities of United
Bancorp. In addition, Pacific Crest did not, and was not requested to, solicit
third party indications of interest in acquiring any or all of the assets of
United Bancorp.
In connection with its fairness opinion, Pacific Crest:
- reviewed publicly available financial and other data with respect
to Bank of Southern Oregon and United Bancorp, including the
consolidated financial statements for recent years, and other
relevant financial and operating data relating to Bank of Southern
Oregon and United Bancorp made available to Pacific Crest from
published sources and from the internal records of Bank of Southern
Oregon and United Bancorp;
- reviewed the merger agreement;
- reviewed historical market prices and trading volumes of Bank of
Southern Oregon and United Bancorp common stocks;
- considered estimated financial information of Bank of Southern
Oregon and United Bancorp provided by internal records of Bank of
Southern Oregon and United Bancorp, and the resulting projections
from combining the two entities;
- compared United Bancorp from a financial point of view with other
banks and bank holding companies that Pacific Crest deemed to be
relevant;
- considered the financial terms, to the extent publicly available,
of selected recent business combinations of banks and bank holding
companies that Pacific Crest deemed to be comparable, in whole or
in part, to the transaction;
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<PAGE> 30
- reviewed and discussed with United Bancorp management business and
financial information regarding United Bancorp, including current
and proposed operating markets, in addition to financial forecasts
and related assumptions; and
- performed other analyses and examinations that Pacific Crest deemed
appropriate.
Pacific Crest's opinion is necessarily based upon conditions as they
existed and can be evaluated on the date of its opinion and the information made
available to it through that date.
The material financial analyses performed by Pacific Crest are
summarized below. Pacific Crest believes that the analysis must be considered as
a whole and that selecting portions of the analysis and the factors considered,
without considering all factors and analysis, could create an incomplete view of
the analysis and the process underlying the fairness opinion. The preparation of
a fairness opinion is a complex process involving subjective judgements and is
not necessarily susceptible to partial analysis or summary description. In its
analyses, Pacific Crest made numerous assumptions about industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of Bank of Southern Oregon and United Bancorp. Estimates contained
in Pacific Crest's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than estimates.
Estimates of values of companies are not appraisals and do not necessarily
reflect the prices at which companies or their securities may actually be sold.
Except as described below, none of the financial analyses performed by Pacific
Crest was assigned a greater significance than any other.
The financial forecasts and projections of Bank of Southern Oregon and
United Bancorp prepared by Pacific Crest were based on projections provided by
the respective companies as well as Pacific Crest's own assessment of general
economic, market and financial conditions. The information was reviewed with
management of Bank of Southern Oregon. Bank of Southern Oregon does not publicly
disclose internal management financial forecasts and projections of the type
provided to Pacific Crest for its review of the proposed merger. The forecasts
and projections were not prepared for public disclosure. The forecasts,
projections, and possible operating cost savings prepared by Pacific Crest were
based on numerous variables and assumptions, which are inherently uncertain,
including factors related to general economic and market conditions.
Accordingly, actual results could vary significantly from the forecasts and
projections.
Market Analysis. Pacific Crest also considered population and
employment growth prospects for Douglas County, United Bancorp's and Douglas
National Bank's primary market area, using information obtained from the State
of Oregon Division of Economic Analysis, the Bureau of Labor Statistics and U.S.
Census Current Population reports. Pacific Crest assumed population growth in
Douglas County over the period from 2000 to 2020 to be 4.2%, compared to 6.1%
for the State of Oregon as a whole and 4.1% for the United States. These data
suggest, however, that employment growth rates will be below the state as a
whole and the United States. Employment in the period from 2000 to 2005 is
expected to increase by only 4.1% in Douglas County, compared to 7.5% for the
state and 7.0% for the United States. This analysis illustrates United Bancorp's
primary market, Douglas County, is projected to show growth in population and
employment, although not as robustly as the state and nation, during the period
of analysis. Pacific Crest believes the merger deserves neither a premium nor a
discounted valuation based upon the projected growth in United Bancorp's primary
market.
Comparable Company Analysis. Pacific Crest analyzed comparable publicly
traded companies to determine their valuation relative to book value, and
relative to earnings per share. For purposes of this analysis, Pacific Crest
considered Nasdaq National Market and Nasdaq SmallCap publicly traded bank
stocks with assets of less than $1 billion, but limited to banks located in
Washington, Oregon and Northern or Central California. The averages for these
comparable institutions were:
23
<PAGE> 31
COMPARABLE INSTITUTIONS
----------------------
Price to December 31, 1999 book value 1.86 x
Price to 1998 earnings .............. 12.3 x
Price to 1999 earnings .............. 11.1 x
Price to estimated 2000 earnings .... 9.5 x
To make these data useful in an acquisition context, Pacific Crest
applied an estimated control premium of 25% to the multiples of the comparable
companies, reflecting the increased value of owning majority control of the
stock. Applying the control premium to the comparable group yielded:
COMPARABLE
INSTITUTIONS WITH UNITED BANCORP
CONTROL PREMIUM MERGER
----------------- --------------
Price to December 31, 1999 book value 2.33 x 1.85 x
Price to 1998 earnings .............. 15.4 x 23.6 x
Price to 1999 earnings .............. 13.9 x 51.2 x
Price to estimated 2000 earnings .... 11.9 x 18.7 x
The companies considered in this analysis were:
Centennial Bancorp............ Eugene, Oregon
Cascade Bancorp............... Bend, Oregon
VRB Bancorp................... Rogue River, Oregon
Columbia Bancorp.............. The Dalles, Oregon
Umpqua Holdings, Inc.......... Roseburg, Oregon
United Security Bancorp....... Spokane, Washington
North Valley Bancorp.......... Redding, California
SJNB Financial Corporation.... San Jose, California
Redwood Empire Bancorp........ Santa Rosa, California
Civic Bancorp................. Oakland, California
BWC Financial Corp............ Walnut Creek, California
California Independent........ Yuba City, California
City Bank..................... Lynnwood, Washington
Comparable Transaction Analysis. To ensure that the merger and
acquisition transactions used in its analysis were comparable to the Bank of
Southern Oregon and United Bancorp merger, Pacific Crest selected transactions
announced since July 1997 that involved institutions in the States of Oregon and
Washington and in Northern California.
<TABLE>
<CAPTION>
COMPARABLE UNITED BANCORP
GROUP AVERAGE MERGER
------------- --------------
<S> <C> <C>
Price to current book value at announcement... 2.54 x 1.85 x
Price to annual net income at announcement.... 21.2 x 51.2 x
</TABLE>
24
<PAGE> 32
The transactions considered in the comparable transaction analysis were
as follows:
<TABLE>
<CAPTION>
TYPE/ACCOUNTING
TARGET COMPANY ACQUIRING COMPANY ANNOUNCED METHOD
- ----------------------------------- --------------------------------- ----------------- -----------------
<S> <C> <C> <C>
North Coast Bank American River Holdings March 2000 stock/pooling
Bank of Santa Clara Greater Bay Bancorp January 2000 stock/pooling
Silverdale State Bank AMB Financial Corp. December 1999 cash/purchase
Sacramento Commercial Belvedere Financial November 1999 cash/purchase
Six Rivers National Bank North Valley Bancorp October 1999 stock/pooling
Northwest Bancorp Interwest Bancorp June 1999 cash/purchase
Placer Savings Bank Belvedere Financial March 1999 stock/pooling
SierraWest Bancorp BancWest Corp. February 1999 stock/pooling
Bellingham Bancorp Horizon Financial January 1999 stock/pooling
Seaport Citizens Bank First Washington Bancorp December 1998 cash/purchase
Bank of the West United Security Bancorporation November 1998 stock/pooling
Washington Independent Bancshares Heritage Financial September 1998 stock/pooling
Valley Community Bank Columbia Bancorp July 1998 cash/purchase
Bank of Sumner Frontier Financial July 1998 stock/pooling
Roseville First National Bank Western Sierra Bancorp June 1998 stock/pooling
Lake Community Bank Western Sierra Bancorp June 1998 stock/pooling
Whatcom State Bank First Savings Bank of Washington June 1998 stock/pooling
Kittitas Valley Bancorp Interwest Bancorp April 1998 mixed/purchase
North Pacific Bancorp Heritage Financial April 1998 cash/purchase
Grant National Bank United Security Bancorporation March 1998 stock/pooling
Pioneer Bancorp Interwest Bancorp February 1998 stock/pooling
Pacific Northwest Bank Interwest Bancorp January 1998 stock/pooling
Towne Bancorp First Washington Bancorp November 1997 mixed/purchase
Centennial Holdings West Coast Bancorp October 1997 stock/pooling
Puget Sound Bancorp Interwest Bancorp September 1997 stock/pooling
Colonial Banking Company VRB Bancorp September 1997 cash/purchase
Community Bancorp United Security Bancorporation August 1997 cash/purchase
Cascade Bancorp Columbia Banking System July 1997 stock/pooling
Bank of Fife Columbia Banking System July 1997 stock/pooling
</TABLE>
The price to book value multiple resulting from the terms of the merger
is below the average of both acquisition-adjusted comparable companies and
comparable transactions. However, the price to earnings multiples are
significantly above the average of both the acquisition-adjusted comparable
companies and comparable transactions. This was expected due to the higher
expenses United Bancorp incurred in 1999 while it invested in expansion programs
such as expanded lending programs, opening of DNB Mortgage Company and the
opening of the Medford branch.
Contribution Analysis. Pacific Crest reviewed the historical
contributions Bank of Southern Oregon and United Bancorp would have made to the
combined company for the year ending December 31, 1999 on the basis of net
income, total assets, total loans, total deposits and stockholders' equity.
Pacific Crest then compared the results to the allocation of shares between Bank
of Southern Oregon shareholders and United Bancorp shareholders after the merger
to gauge the fairness of the stock allocation, based on the 1.971:1 exchange
ratio for United Bancorp shares and the 1:1 exchange ratio for Bank of Southern
Oregon shares.
BANK OF
12 MONTHS ENDED DECEMBER 31, 1999 UNITED BANCORP SOUTHERN OREGON
- --------------------------------------- ------------------ ----------------
Net income............................. 28.2 % 71.8 %
Total assets........................... 45.7 % 54.3 %
Total loans............................ 36.0 % 64.0 %
Total deposits......................... 39.1 % 60.9 %
Stockholders' equity................... 47.7 % 52.3 %
------------------ ----------------
Average................................ 39.3 % 60.7 %
Share Allocation....................... 42.5 % 57.5 %
25
<PAGE> 33
The actual share allocation is below contribution percentages of three
of the variables assessed, and above the share allocation percentage in two of
the variables assessed. In addition, it is not unusual for the surviving entity,
Bank of Southern Oregon in this case, to provide a higher percentage of shares
to the acquired company than the average of its contribution in consideration
for the acquiring entity retaining management control of the combined
operations. For these reasons, Pacific Crest believes the share exchange to be
appropriate.
Pro Forma Analysis. Pacific Crest analyzed Bank of Southern Oregon's
and United Bancorp's current and estimated income statements and balance sheets
to determine whether the merger would be accretive or dilutive to the existing
stockholders of Bank of Southern Oregon, based on earnings per share and book
value per share. Pacific Crest incorporated into this analysis estimated
continuing cost savings of $705,000, but it excluded the nonrecurring
merger-related expenses. The cost savings estimate was derived by Pacific Crest
from information made available to it by the companies. Pacific Crest also
assumed earnings of $1,333,000 for United Bancorp and $2,213,000 for Bank of
Southern Oregon on a stand-alone basis for the year ending December 31, 2000.
Pacific Crest estimates that the merger will provide approximately 5%
higher earnings per share for Bank of Southern Oregon shareholders in 2000,
based on the assumptions described. In addition, Pacific Crest estimates that
the merger will yield a book value per share to Bank of Southern Oregon
shareholders approximately 3% higher in 2000.
Net Present Value Analysis. Pacific Crest performed a net present value
analysis of the merger as well, based on estimated 2000 and 2001 cash-flow
figures derived by Pacific Crest from information made available to it by Bank
of Southern Oregon and United Bancorp. Pacific Crest then estimated cash flow
growth for the years 2002 through 2004 at 5% and 10%. Finally, Pacific Crest
reviewed the effect of various discount rates and terminal value growth rates on
the merger's net present value. The terminal growth rate is defined as the rate
at which cash flow in the year 2004 will grow in perpetuity. The discount rate
is the rate used to calculate net present value, representing the company's
weighted average cost of capital.
Pacific Crest believes 12% is an acceptable growth rate considering the
risk-return relationship most investors would demand for an investment of this
type. Pacific Crest also assumes that 3% - 4% terminal growth of cash flows is
reasonable in light of the long-term population and employment projections for
the market area. In all of these scenarios, the net present value of the
acquisition is positive, or in other words the amount of consideration given for
the anticipated cash flows received is fair.
(DOLLARS IN TERMINAL VALUE GROWTH RATE
THOUSANDS) 5% GROWTH 2002 - 2004
----------------------------------------------------------
DISCOUNT RATE 2% 3% 4% 5%
- --------------- ------------- -------------- ------------ -------------
10 % $ 9,052 $ 12,322 $ 16,682 $ 22,786
12 % $ 2,809 $ 4,669 $ 6,993 $ 9,981
14 % $ (1,222) $ (62) $ 1,331 $ 3,033
(DOLLARS IN TERMINAL VALUE GROWTH RATE
THOUSANDS) 10% GROWTH 2002 - 2004
----------------------------------------------------------
DISCOUNT RATE 2% 3% 4% 5%
- --------------- ------------- -------------- ------------ -------------
10 % $ 12,418 $ 16,102 $ 21,014 $ 27,890
12 % $ 5,362 $ 7,456 $ 10,075 $ 13,441
14 % $ 796 $ 2,103 $ 3,672 $ 5,589
26
<PAGE> 34
Although some of the analyses considered in isolation might not appear
to be favorable to shareholders of Bank of Southern Oregon, the conclusion
Pacific Crest derives from the sum of these analyses is that the proposed merger
is fair from a financial perspective to the shareholders of Bank of Southern
Oregon. Pacific Crest believes that the analyses must be considered as a whole,
and that selecting portions only could create an incomplete view of the analysis
as a whole and the process underlying the fairness opinion.
Pacific Crest has reviewed and consented to the inclusion of its
opinion and the preceding summary of its analysis in this prospectus/joint proxy
statement.
RECOMMENDATION OF BANK OF SOUTHERN OREGON'S BOARD OF DIRECTORS
Bank of Southern Oregon's board unanimously approved the merger and the
holding company reorganization. The board determined that the merger and holding
company reorganization are fair to and in the best interests of Bank of Southern
Oregon and its shareholders. BANK OF SOUTHERN OREGON'S BOARD THEREFORE
RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE MERGER AND IN FAVOR OF THE
HOLDING COMPANY REORGANIZATION.
The board consulted with executive management and financial and legal
advisors in its deliberations about the merger and holding company
reorganization. The board took a number of factors into account, but it did not
consider it practicable to and did not quantify or otherwise assign relative
weights to the factors the board used to reach its decision. Additionally,
individual directors did not necessarily all give the same weight to the various
factors considered by the board as a whole. The factors that led the board to
approve the merger and holding company reorganization included:
- - EXCHANGE RATIO. The board considered the relationship of the exchange
ratio to the current and historical market prices for Bank of Southern
Oregon stock and United Bancorp stock, and the contributions of each
company to the combined company's earnings, assets and capital. The
board noted with favor that Bank of Southern Oregon shareholders would
own a majority of the combined company's stock;
- - OPPORTUNITY FOR GROWTH. The board believed it to be in the best
interests of shareholders to seize the opportunity for growth into
Douglas National Bank's market, which is contiguous to Bank of Southern
Oregon's and which is a market very similar to that of the bank. The
board was aware that previous acquisition offers for United Bancorp had
been made, particularly in 1998, that United Bancorp's bank subsidiary
had recently entered the Medford market with a new branch, and that
other community-based holding company organizations in the region had
been growing rapidly. The board considered it likely that those other
organizations would eventually seek to acquire United Bancorp,
representing greater local competition at the level of
community-banking that is, in Bank of Southern Oregon's opinion,
management's competitive strength;
- - HOLDING COMPANY REORGANIZATION. The board considered it to be a
positive factor that the merger would allow Bank of Southern Oregon to
complete its long-planned reorganization into the holding company form
of ownership. The holding company reorganization was approved by
shareholders in May 1998, but was suspended to allow the new management
team to familiarize itself with the bank's operations and to address
more pressing operational matters. The board considers the holding
company reorganization to be a continuation of the bank's natural
evolution from a start-up, local community bank just ten years ago to a
regional institution with greater opportunity to take advantage of
diversified product and service offerings;
- - MANAGEMENT AND BOARD OF THE COMBINED COMPANY. The board considered
favorably that John L. Anhorn will continue as a Chief Executive
Officer of the combined company and its subsidiary bank, and that
Richard R. Hieb, Bank of Southern Oregon's Executive Vice President and
Chief Operating Officer, and Bruce R. McKee, the bank's Chief Financial
Officer, will continue in these roles with the combined
27
<PAGE> 35
company. Lastly, the board considered favorably the fact that its
designees for the combined company's board and for the board of the
subsidiary bank would represent a majority of directors;
- - PRESENTATION OF FINANCIAL ADVISOR AND FAIRNESS OPINION. The board
considered the financial presentation of Pacific Crest at the October
5, 1999 board meeting and the oral opinion of Pacific Crest rendered to
the board on that date that the ratio of one share of combined company
common stock for one share of Bank of Southern Oregon stock -- and
1.971 shares of combined company common stock for each share of United
Bancorp stock -- was fair from a financial point of view to the
shareholders of Bank of Southern Oregon;
- - FINANCIAL IMPACT. The board considered the anticipated financial impact
of the merger and holding company reorganization on the combined
company's financial performance and on shareholders, noting with favor
that the merger and holding company reorganization would allow the bank
to become a larger and stronger company, with prospects for a more
liquid and active market for its stock;
- - DUE DILIGENCE REVIEW. The board considered the results of the due
diligence investigations of United Bancorp conducted by Bank of
Southern Oregon management and its financial advisor, including
assessments of United Bancorp's credit policies, asset quality,
adequacy of loan loss reserves and interest rate risk;
- - FINANCIAL INFORMATION OF BANK OF SOUTHERN OREGON AND UNITED BANCORP.
The board took into account the historical and prospective business,
operations, financial condition, earnings and prospects of Bank of
Southern Oregon and United Bancorp;
- - TAX AND POOLING OF INTERESTS ACCOUNTING TREATMENT. The board took into
account the expectation that the merger and holding company
reorganization will generally be a tax-free transaction to the bank and
its shareholders, and the expectation that the combined company will
account for the merger and holding company reorganization as a pooling
of interests for financial reporting purposes;
- - SIZE AND COMPETITIVENESS OF COMBINED COMPANY. The board took into
account the continuing consolidation of and increasing competition in
the banking industry, and the competitive strength of banks with large
market shares in the west and nationally. The board considered it
likely that the combined company would have access to greater
financial, managerial and technological resources than either of Bank
of Southern Oregon or Douglas National Bank would have separately, and
that the combined companies would be able to compete more effectively
at a regional level; and
- - REGULATORY APPROVALS. The board discussed with legal counsel the
regulatory approval process involved in a holding company
reorganization and merger of holding companies, and what the probable
outcome of the bank regulatory applications would be. The board
concluded that necessary regulatory approvals could be obtained without
having to agree to conditions such as branch divestiture or
restrictions on future business or growth opportunities.
The board also considered potential cost savings and operating
efficiencies associated with the merger, as well as projected results of the
combined companies for the years 2000 and 2001. At the time the merger agreement
was entered into, annual cost savings were expected to be approximately $991,000
in 2000, represented by such factors as:
- - savings of approximately $160,000 through reduced data processing
costs, including software licenses and data processing contract charges
payable to third party data processing firms;
- - savings of approximately $320,000 by reduction of approximately nine
full-time equivalent positions in redundant "back office" operational
functions, such as correspondent banking, wire transfers and
28
<PAGE> 36
purchasing, Y2K-compliance staff, human resources, loan collection and
servicing, and internal audit and compliance staff;
- - reduction of approximately $250,000 in costs related to termination of
United Bancorp's employee stock ownership plan;
- - reduced board fees, accounting for savings of approximately $75,000;
and
- - savings of approximately $186,000 relating to advertising costs,
maintenance agreements, professional fees, training and insurance.
We believe savings in these categories of costs can still be achieved,
except for savings arising from termination of United Bancorp's ESOP (employee
stock ownership plan). The initial estimates of cost savings assumed that the
merger would occur in March 2000. Delays have occurred, and we expect now that
closing of the merger in May is more realistic. Because of these changed
circumstances since negotiation of the merger agreement, the cost-savings
estimates employed at the time and the projected data no longer represent
management and the board's expectations. Nevertheless, management and the board
believe that cost savings in the range of approximately $200,000 to $400,000 are
achievable in 2000 (excluding costs of the merger and holding company
reorganization), and in the range of approximately $600,000 to $800,000 in 2001.
The combined company was originally projected to have net income in
2000 of approximately $4 million, and $4.9 million in 2001, with a return on
average assets over the period of 1.44%, and a 14% return on average equity.
These projections also no longer reflect management and the board's
expectations. One of the important assumptions employed in the estimates of cost
savings and income was that United Bancorp's ESOP could be terminated. The
parties have since come to the conclusion that termination of that ESOP would
jeopardize pooling of interests accounting treatment for the merger and the
tax-free character of the transactions. The parties therefore waived the
provision of the merger agreement requiring that the ESOP be terminated.
Continuing costs of funding the ESOP's remaining payments on its loan will
affect earnings of the combined company, which is discussed in more detail in
"TERMS OF THE TRANSACTION - INTERESTS OF DIRECTORS AND OFFICERS IN THE
TRANSACTION THAT DIFFER FROM YOUR INTERESTS." We now expect to incur a charge
for the ESOP through 2002, consisting of $260,000 in 2000, $247,000 in 2001 and
$158,000 in 2002. After 2002, the ESOP's loan will have been paid in full. Other
changes in the assumptions on which the original projections were based include
the following
- - employment agreements were expected to be entered into with Douglas
National Bank's officers, which would have superseded their existing
retention agreements and the change-in-control payments that may be
made if their service terminates after the merger. Two officers of
Douglas National Bank elected not to enter into employment agreements
with Bank of Southern Oregon after the merger, and they may therefore
become entitled to severance under their existing retention agreements
with Douglas National Bank if their service is terminated within a year
after the merger;
- - costs of the merger and holding company transactions have been greater
than anticipated, including legal and accounting expenses; and
- - initial savings relating to data processing costs were reduced as a
result of needed system upgrades.
Management and the board now believe net income in the range of $3
million to $3.5 million in 2000 is more realistic, and in the range of $4.5
million to $4.8 million in 2001.
Management and the board's original assumptions of growth in total
assets are not materially changed, projecting total assets of approximately $330
million by the end of 2000, and $360 million by the end of 2001, and
shareholders' equity of approximately $30 million at the end of 2000 and $34
million at the end of 2001.
29
<PAGE> 37
Management and the board continue to believe that the resulting company
can capitalize on the opportunity for loan growth in Douglas National Bank's
market. Douglas National Bank's ratio of loans to deposits has been considerably
less than Bank of Southern Oregon's. Bank of Southern Oregon's loan to deposit
ratio was 76% at the end of 1998 and 78% at the end of 1999, compared to 49% at
the end of 1998 for Douglas National Bank, and 69% at the end of 1999.
Conversely, Douglas National Bank held a significantly higher percentage of its
assets in investment securities than did Bank of Southern Oregon. The dominant
asset of Bank of Southern Oregon is its loan portfolio, which represented 66% of
assets at the end of 1998 and 68% at the end of 1999. By contrast, investment
securities represented 48% of Douglas National Bank's assets at the end of 1998
and 45% at the of 1999, while its loan portfolio represented 37% at the end of
1998 and 46% at the end of 1999. Although investment securities tend to be more
liquid assets than loans, their return tends to be less. Management and the
board continue to believe that loan growth potential exists in Douglas County,
and they intend to capitalize on it. Although projected results are no longer
what management and the board anticipated at the time the merger agreement was
entered into, they remain optimistic that the merger will represent an
opportunity to take advantage of synergies from combining two small community
banks into a larger company with greater market breadth.
The projections discussed in this prospectus/joint proxy statement
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. They were prepared by Bank of Southern
Oregon solely for the purpose of evaluating the merger. Bank of Southern Oregon
does not make a practice of disclosing internal budgets, plans, estimates,
forecasts or projections of future revenues, earnings or other financial
information. The projected financial data are based upon a variety of estimates
and assumptions. The material estimates and assumptions are discussed above. The
estimates and assumptions involve judgments about a number of things, including
future economic, competitive, and financial market conditions and future
business decisions. These matters are inherently subject to significant
business, economic and competitive uncertainties, all of which are difficult to
predict and many of which are beyond the control of Bank of Southern Oregon.
Although Bank of Southern Oregon believes its estimates and assumptions are
reasonable, we cannot assure you that the projections will be accurate
predictions of cost savings and other results of the combined company. Actual
results may vary materially from those shown. Inclusion of forward-looking
information in this prospectus/joint proxy statement does not constitute a
representation by Bank of Southern Oregon or PremierWest Bancorp or any other
person that the indicated results will be achieved. Investors are cautioned not
to place undue reliance on that forward-looking information. See,
"FORWARD-LOOKING STATEMENTS."
This discussion of the information and factors considered by the board
of Bank of Southern Oregon is not intended to be exhaustive. It does, however,
constitute a summary of the material factors that the board considered.
RECOMMENDATION OF PREMIERWEST BANCORP'S BOARD OF DIRECTORS
Acting by written consent in mid-December 1999, PremierWest Bancorp's
board unanimously approved the merger and the holding company reorganization.
PremierWest Bancorp also became a party to the merger agreement at that time.
PremierWest Bancorp was incorporated after the merger agreement was executed,
and its board of directors was not constituted until mid-December. The directors
of PremierWest Bancorp consist solely of five individuals who are also directors
of Bank of Southern Oregon. PremierWest Bancorp is wholly owned by Bank of
Southern Oregon. It does not conduct any independent business activities. Its
activities have been limited to taking such actions as are necessary to complete
the merger and holding company reorganization. When the merger and holding
company reorganization are complete, PremierWest Bancorp will be owned by the
existing shareholders of United Bancorp and the existing shareholders of Bank of
Southern Oregon. The preceding discussion of Bank of Southern Oregon's board's
reasons for entering into the merger agreement and its reasons for recommending
approval to shareholders also represents the reasons PremierWest Bancorp's board
became a party to the merger agreement and the reasons that board recommends
approval of the merger and holding company reorganization.
30
<PAGE> 38
PREMIERWEST BANCORP'S BOARD RECOMMENDS THAT SHAREHOLDERS OF UNITED
BANCORP AND BANK OF SOUTHERN OREGON VOTE FOR THE MERGER AND HOLDING
COMPANY REORGANIZATION.
BACKGROUND AND REASONS FOR THE MERGER -- UNITED BANCORP
From time to time during the last two years, the directors of United
Bancorp engaged in discussions regarding mergers and acquisitions with other
financial institutions, taking into account the merger activity in Oregon and in
other states. In January 1998, United Bancorp received a letter of interest from
South Umpqua Bank, also headquartered in Douglas County and the closest
locally-owned competitor of United Bancorp. United Bancorp's board met with
representatives from South Umpqua to investigate the possibility of a business
combination. A formal offer from South Umpqua to acquire United Bancorp dated
February 17, 1998 followed those initial meetings. United Bancorp's board
carefully considered this merger offer. In connection with that offer, United
Bancorp engaged the services of Hoefer & Arnett Incorporated, an investment
banker, to assist in the review of the feasibility of the proposed transaction
and other alternatives. During this same period, United Bancorp's board received
other inquiries from financial institutions exploring merger possibilities,
including Cowlitz Bancorp.
In April of 1998, South Umpqua increased its bid for United Bancorp,
but United Bancorp's board continued to explore other alternatives which might
bring greater value to shareholders and preserve jobs in the community. On May
26, 1998, United Bancorp's board executed a letter of intent with Cowlitz
Bancorp. As soon as United Bancorp and Cowlitz announced that proposed
combination, South Umpqua increased its offer. Cowlitz Bancorp then terminated
its discussions with United Bancorp.
South Umpqua and United Bancorp executed a letter of intent dated June
12, 1998. Under the letter of intent, United Bancorp would have merged into
South Umpqua Bank in a stock-for-stock transaction, accounted for as a pooling
of interest. After several weeks of protracted negotiations, the parties were
unable to come to terms regarding a definitive agreement. When South Umpqua then
reduced its previous offer, United Bancorp ended the negotiations. It determined
that the company would remain independent, but with a focus on increasing
shareholder value.
During deliberations on the value of a business combination with South
Umpqua, Cowlitz, and other financial institutions, United Bancorp's board
obtained advice from Hoefer & Arnett and considered input from United Bancorp
shareholders which it received at the April 28, 1998 annual meeting of
shareholders and in written communications from its shareholders. The board
remained sensitive to enhancing liquidity for shareholders, preserving jobs in
the community, and offering a wider and more diversified product range to
individuals and professionals in Douglas and Jackson Counties. The board
considered the increasing trend for consolidation among financial institutions
in the nation and in Oregon. In view of the increased competition in both
deposit and lending activities and the inherent risks in remaining an
independent community bank, the board continued to evaluate other business
combinations. This continued evaluation of other business combinations led to
meetings with representatives of Bank of Southern Oregon and with other
financial institutions in July 1999.
United Bancorp representatives and Bank of Southern Oregon
representatives began definitive discussions in August 1999. United Bancorp's
board first discussed the proposed merger at its meeting on September 28, 1999.
During the course of the meeting, the board reviewed the terms of the proposed
merger. The board considered a number of factors in deciding to approve and
recommend the terms of the merger to its shareholders, including the following:
- Terms of the proposed transaction;
- The financial condition and results of operations of Bank of
Southern Oregon including its loan and investment portfolios,
loss reserves, and loan classifications;
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<PAGE> 39
- The financial condition, results of operation, and future
prospects of PremierWest Bank and PremierWest Bancorp;
- The value of the consideration to be received by the
shareholders of United Bancorp relative to the book value and
earnings per share of United Bancorp common stock;
- The competitive and regulatory environment for financial
institutions generally;
- Enhanced liquidity by shareholders of United Bancorp, who will
be able to exchange their shares for PremierWest Bancorp
common stock;
- The likelihood of receiving the necessary regulatory approval;
- The expectation that most employees of United Bancorp and
Douglas National Bank will retain their jobs in the community;
- The expectation that the merger and share exchange will be a
tax-free transaction (except for cash paid to United Bancorp
shareholders in lieu of fractional shares and except for those
who may perfect dissenters' rights) for federal income tax
purposes; and
- Projected cost savings without having to substantially reduce
the number of employees or the products and services offered
to achieve those cost savings.
The board next discussed the proposed merger at its meeting on October
6, 1999. At that meeting, the board again evaluated these factors. The board
reviewed in connection with its evaluation a preliminary fairness opinion from
Hoefer & Arnett stating that the transaction was fair for the United Bancorp
shareholders, including that the consideration to be received by the
shareholders was fair from a financial point of view, subject to an on- site
review and further due diligence. See "- OPINION OF UNITED BANCORP'S FINANCIAL
ADVISOR." The board also reviewed the merger agreement carefully at that
meeting. Legal counsel reviewed generally board fiduciary obligations and
answered questions regarding the legal implications of the merger agreement. The
board approved the merger agreement unanimously. United Bancorp entered into the
merger agreement on October 7, 1999.
On November 2, 1999, the board met again to discuss the proposed merger
and, in particular, the results of the due diligence investigation of Bank of
Southern Oregon. The board determined that the investigation did not discover
any information that was likely to have an adverse impact upon the success of
the proposed merger. The board determined that on the basis of the due
diligence, the Hoefer & Arnett fairness opinion, and the factors examined at the
board's meetings on September 28 and October 6, 1999, the merger continued to be
in the best interest of United Bancorp and its shareholders.
This discussion of the information and factors considered by United
Bancorp's board is not intended to be an exhaustive account of every factor
considered by the directors, but it does represent an account of the material
factors considered. The board did not assign any relative or specific weight to
the factors considered, and individual directors may have given different
weights to different factors.
OPINION OF UNITED BANCORP'S FINANCIAL ADVISOR
United's board retained Hoefer & Arnett on October 4, 1999 to render a
written opinion as investment bankers as to the fairness of the terms of the
proposed merger of United into newly formed PremierWest Bancorp from a financial
point of view. No limitations were imposed by United Bancorp's board on Hoefer &
Arnett with respect to the investigations made or procedures followed in
rendering the fairness opinion. United Bancorp will pay Hoefer & Arnett a total
fee of approximately $20,000 in connection with delivery of Hoefer & Arnett's
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<PAGE> 40
fairness opinion. Hoefer & Arnett had previously acted as financial consultant
to United Bancorp in 1998, for total fees of approximately $15,000.
A copy of Hoefer & Arnett's fairness opinion is attached as Appendix B
to this prospectus/joint proxy statement. The updated opinion attached as
Appendix B is substantially the same as the opinion originally delivered to the
board at the time it entered into the merger agreement. The opinion sets forth
assumptions made, matters considered and limits on the review undertaken by
Hoefer & Arnett. United shareholders are urged to read the fairness opinion in
its entirety. The following summary of the procedures and analysis performed,
and assumptions used by Hoefer & Arnett is qualified in its entirety by
reference to the text of the fairness opinion. The fairness opinion is directed
to United Bancorp's board only and is directed only to the financial terms of
the transaction. The opinion does not constitute a recommendation to any United
shareholder as to how the shareholder should vote at the United Bancorp meeting.
In arriving at its opinion, Hoefer & Arnett reviewed and analyzed,
among other things, the following
- the merger agreement;
- Annual Reports to Shareholders of Bank of Southern Oregon and
United Bancorp for the years ended December 31, 1997, December
31, 1998 and December 31, 1999;
- Quarterly FDIC Call reports of Bank of Southern Oregon and
Douglas National Bank for the quarters ended December 30,
1999, September 30, 1999, June 30, 1999, March 31, 1999 and
December 31, 1998;
- other publicly available financial and other information
concerning Bank of Southern Oregon and United Bancorp;
- the historical market prices and trading activity for the
common stock of Bank of Southern Oregon; and
- publicly available information concerning other banks and
holding companies, the trading markets for their securities
and the nature and terms of other merger transactions Hoefer &
Arnett believed relevant to its inquiry. Hoefer & Arnett held
discussions with senior management of Bank of Southern Oregon
and United Bancorp concerning their past and current
operations, financial condition and prospects, as well as the
results of regulatory examinations.
Hoefer & Arnett reviewed with senior management of Bank of Southern
Oregon earnings projections for 2000 through 2004 for Bank of Southern Oregon as
a stand-alone entity, assuming the merger does not occur. Hoefer & Arnett
reviewed with senior management of United Bancorp earnings projections for 2000
through 2004 for United Bancorp as a stand-alone entity, assuming the merger
does not occur, as well as projected operating cost savings expected to be
achieved in each of those years resulting from the merger. United Bancorp senior
management prepared the projections. The asset growth and earnings projections
used for each organization were as follows:
Bank of Southern Oregon United Bancorp
----------------------- --------------
Return on Return on
Year Asset Growth Average Assets Asset Growth Average Assets
- ---- ------------ -------------- ------------ --------------
2000.... 13.50% 1.11% 10.75% 0.93%
2001.... 12.00% 1.24% 10.00% 1.10%
2002.... 11.00% 1.27% 9.00% 1.10%
2003.... 10.00% 1.27% 8.00% 1.10%
2004.... 10.00% 1.27% 8.00% 1.10%
Pro forma financial projections for the years 2000 through 2004 for the combined
entity were derived by Hoefer & Arnett based partially upon the information
discussed above, as well as Hoefer & Arnett's assessment of general economic,
market and financial conditions. In some cases, combined pro forma financial
projections included operating cost savings derived by Hoefer & Arnett partially
based upon the projections discussed above to be realized in the merger.
In conducting its review and in arriving at its opinion, Hoefer &
Arnett relied upon and assumed the accuracy and completeness of the financial
and other information provided to it or publicly available, and did not attempt
to independently verify the same. Hoefer & Arnett relied upon the managements of
Bank of Southern Oregon and United Bancorp as to the reasonableness of the
financial and operating forecasts, projections and possible operating cost
savings (and the assumptions and bases therefor) provided to it, and Hoefer &
Arnett
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<PAGE> 41
assumed that the forecasts, projections and possible operating cost
savings reflect the best currently available estimates and judgments of the
applicable managements. Hoefer & Arnett also assumed, without independent
verification, that the aggregate allowances for loan losses for Bank of Southern
Oregon and United Bancorp are, or will be before consummation of the proposed
transaction, adequate to cover losses. Hoefer & Arnett did not make or obtain
any evaluations or appraisals of the properties of Bank of Southern Oregon or
United Bancorp, nor did it examine any individual loan credit files. For
purposes of its opinion, Hoefer & Arnett assumed that the merger will have the
tax, accounting and legal effects described in the merger agreement and relied,
as to legal matters, exclusively on counsel to United Bancorp, as to the
accuracy of the disclosures set forth in the merger agreement. Hoefer & Arnett's
opinion is limited to the fairness, from a financial point of view, to the
holders of shares of United's common stock of the terms of the proposed merger
of United into PremierWest Bancorp, and does not address United Bancorp's
underlying business decision to proceed with the merger.
Hoefer & Arnett considered financial and other factors as Hoefer &
Arnett deemed appropriate under the circumstances, including among others the
following:
- the historical and current financial position and results of
operations of Bank of Southern Oregon and United Bancorp and
its subsidiaries -- all as set forth in the financial
statements for Bank of Southern Oregon and United Bancorp --
including
<TABLE>
<CAPTION>
<S> <C>
- interest income and interest expense - internal capital generation
- net interest income and net interest margin - book value
- provision for loan losses - intangible assets
- non-interest income and non-interest expense - capitalization
- earnings - the amount and type of
- return on assets and return on shareholders' non-performing assets
equity - loans losses and the
- dividends reserve for loan losses
</TABLE>
- the assets and liabilities of Bank of Southern Oregon and of
United Bancorp, including the loan, investment and mortgage
portfolios, deposits, other liabilities, historical and
current liability sources and costs and liquidity
- the nature and terms of other merger transactions involving
banks and bank holding companies
- Hoefer & Arnett's assessment of general economic, market and
financial conditions and its experience in other transactions,
as well as its experience in securities valuation and its
knowledge of the banking industry generally.
Hoefer & Arnett's opinion is necessarily based upon conditions as they
existed and can be evaluated on the date of its opinion and the information made
available to it through that date.
The material financial analyses performed by Hoefer & Arnett are
summarized below. Hoefer & Arnett believes that the analysis must be considered
as a whole and that selecting portions of the analysis and the factors
considered, without considering all factors and analysis, could create an
incomplete view of the analysis and the process underlying the fairness opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgements and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Hoefer & Arnett made numerous assumptions about
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of Bank of Southern Oregon and United Bancorp.
Estimates contained in Hoefer & Arnett's analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than estimates. Estimates of values of companies are not appraisals and do not
necessarily reflect the prices at which companies or their securities may
actually be sold. Except as described
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<PAGE> 42
below, none of the financial analyses performed by Hoefer & Arnett was assigned
a greater significance than any other.
The financial forecasts and projections of Bank of Southern Oregon and
United Bancorp prepared by Hoefer & Arnett were based on projections provided by
the respective companies as well as Hoefer & Arnett's own assessment of general
economic, market and financial conditions. The information was reviewed with
management of United Bancorp. United Bancorp does not publicly disclose internal
management financial forecasts and projections of the type provided to Hoefer
&Arnett for its review of the proposed merger. The forecasts and projections
were not prepared for public disclosure. The forecasts, projections, and
possible operating cost savings prepared by Hoefer & Arnett were based on
numerous variables and assumptions, which are inherently uncertain, including
factors related to general economic and market conditions. Accordingly, actual
results could vary significantly from those set forth in forecasts and
projections.
Summary of Proposal. Hoefer & Arnett reviewed the terms of the proposed
transaction, including the exchange ratio and the aggregate transaction value. A
purchase price of $13.30 per share, or a total transaction value of
approximately $24.9 million, represents a price to stated book value at December
31, 1999 of 1.79, a price to 1999 earnings of 47.50 and a price to assets ratio
of 18.35%.
Comparable Transaction Analysis. Hoefer & Arnett reviewed information
relating to selected bank mergers announced between January 1, 1997 and March
13, 2000 in which the acquired banking organization was located in the states of
Oregon and Washington. These data were obtained from Sheshunoff Information
Services, Inc. On the basis of the comparable transactions, Hoefer & Arnett
calculated a range of purchase prices as a multiple of stated book value,
earnings and assets. The chart below shows the low, high and average for the
comparable transactions and the resulting price range for the United Bancorp
merger:
<TABLE>
<CAPTION>
PRICING MULTIPLES FOR COMPARABLE
TRANSACTIONS PER SHARE VALUE FOR UNITED
------------------------------------------- --------------------------------------------
LOW HIGH AVERAGE LOW HIGH AVERAGE
----------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Price/book value......... 1.11 x 4.77 x 2.61 x $ 8.25 $ 35.44 $ 19.39
Price/earnings........... 9.65 x 33.47 x 18.48 x $ 2.70 $ 9.37 $ 5.17
Price/assets............. 11.24 x 48.84 x 23.71 x $ 8.15 $ 35.41 $ 17.19
</TABLE>
The price to book value multiple and the price to assets ratio
resulting from the terms of the merger are both below the averages for
comparable transactions considered. The price to earning multiple is
significantly higher than the average price to earnings multiple for the
comparable transactions, however. Hoefer & Arnett expected this because United
Bancorp is well below average with respect to profitability when compared with
the average banking organization involved in the comparable transactions. The
average return on assets and return on equity for the comparable transactions
(1.48% and 16.33%, respectively) are much higher than that of United Bancorp
(0.38% and 3.51% respectively, based on 1999 earnings). Because of United
Bancorp's current profitability, Hoefer & Arnett expected lower price to book
and price to assets multiples.
Present Value Analysis. Hoefer & Arnett calculated the present value of
United Bancorp assuming that it remained independent. Based on projected
earnings for 2000 through 2004 -- and using a discount rate of 12%, an
acceptable discount rate considering the risk-return relationship most investors
would demand for an investment of this type as of the valuation date -- the
present value equaled $9.11 per share, which is below the transaction value of
$13.30 per share.
Discounted Cash Flow Analysis. Hoefer & Arnett performed a discounted
cash flow analysis to determine hypothetical present values for a share of
United Bancorp's common stock as a five-year investment. Under this analysis,
Hoefer & Arnett considered scenarios for the performance of United Bancorp's
stock using an asset growth rate ranging from 10.75% to 8% and a return on
average assets ranging from 0.93% to 1.10% and a multiple of 2.61 times book
value and 18.48 times earnings as the terminal value for the stock. A discount
rate of
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<PAGE> 43
12% was applied to these growth and terminal value scenarios. This discount
rate, growth rate and terminal value were chosen based upon what Hoefer & Arnett
considered to be appropriate taking into account United Bancorp's past and
present performance, the general level of inflation, rates of return for fixed
income and equity securities in the marketplace generally and for companies with
similar risk profiles, among other things. In the scenarios considered, the
present value of a share of United Bancorp's common stock was calculated to be
less than that of the Bank of Southern Oregon offer. Thus, Hoefer & Arnett's
discounted cash flow analysis indicated that United Bancorp shareholders would
be in a better financial position by receiving the consideration offered in the
merger, rather than continuing to hold United Bancorp stock.
Contribution Analysis. Hoefer & Arnett reviewed the relative
contributions to be made by United Bancorp and Bank of Southern Oregon to the
combined institution -- in terms of various balance sheet items, market
capitalization and net income. The balance sheet components analyzed included
total assets, total loans (net), total deposits and shareholders' equity as of
December 31, 1999. This analysis showed that, while United Bancorp shareholders
would own approximately 41.82% of the aggregate outstanding shares of the
combined institution based on the exchange ratio, United Bancorp was
contributing 45.73% of total assets, 35.70% of total loans (net of unearned
income), 39.07% of total deposits and 47.71% of shareholders' equity. Based on
1999 earnings and estimated 2000 earnings, United Bancorp's net income would
represent 28.18% of 1999 earnings and 41.09% of estimated earnings for the year
ending December 31, 2000.
Pro Forma Analysis. Hoefer & Arnett compared the changes in the amount
of earnings and book value attributable to one share of United Bancorp common
stock before the merger with the amounts attributable to the shares of
PremierWest Bancorp common stock for which shares of United Bancorp would be
exchanged in the merger.
The analysis used an exchange ratio of 1.971:1, and included pre-tax
merger savings of $250,000 in 2000 and $1,000,000 in the years 2001 through
2004. On an earnings per share basis, United Bancorp shareholders are projected
to experience appreciation ranging from 10.54% to 20.34%. On a book value per
share basis, United Bancorp shareholders are projected to experience dilution
from 7.55% in 2000, decreasing to 2.18% in 2002 and turning appreciative in
2003. Although the pro forma analysis shows dilution with respect to equity per
share, Hoefer & Arnett believes that the significant earnings per share
appreciation clearly outweighs the equity per share dilution.
Stock Trading History. Hoefer & Arnett analyzed historical trading
prices and volumes for Bank of Southern Oregon common stock on a monthly basis
from January 1, 1999 to March 13, 2000. The Bank of Southern Oregon common stock
price ranged from a low of $5.88 to a high of $9.50. The stock price to 1999
earnings per share ranged from a low of 23.50 to a high of 38.00, with an
average of 30.26. The stock price to book value ranged from a low of 1.93 to a
high of 3.11, with an average of 2.48. The average weekly volume of shares
traded was 8,752 shares.
Other Analysis. Hoefer & Arnett prepared an overview of historical
financial performance of both Bank of Southern Oregon and United Bancorp.
Hoefer & Arnett's opinion is based upon market, economic and other
relevant considerations as they existed and were evaluated as of the date of the
opinion. Events occurring after the date of issuance of the opinion -- including
changes affecting the securities markets, the results of operations or material
changes in the assets or liabilities of United Bancorp -- could materially
affect the assumptions used in preparing the opinion.
Hoefer & Arnett has reviewed and consented to the inclusion of its
opinion and the preceding summary of its analysis in this prospectus/joint proxy
statement.
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<PAGE> 44
RECOMMENDATION OF UNITED BANCORP'S BOARD OF DIRECTORS
United Bancorp's board unanimously approved the merger agreement and
the transactions contemplated thereby. The board unanimously determined that the
merger is fair to and in the best interests of United Bancorp and its
shareholders. THE BOARD THEREFORE RECOMMENDS A VOTE FOR THE MERGER.
TERMS OF THE TRANSACTION
THE MERGER AGREEMENT ATTACHED IS THE LEGAL DOCUMENT THAT GOVERNS THE
TRANSACTION. WE URGE YOU TO READ THE MERGER AGREEMENT.
The entire transaction will consist of three separate but essentially
simultaneous transactions: first, the holding company reorganization of Bank of
Southern Oregon; second, the merger of United Bancorp into the new holding
company; and third, the merger of Douglas National Bank into Bank of Southern
Oregon.
HOLDING COMPANY REORGANIZATION OF BANK OF SOUTHERN OREGON
HOLDING COMPANY REORGANIZATION AS PART OF THE ENTIRE TRANSACTION. If
the merger agreement is approved by shareholders, the holding company
reorganization will be accomplished by a direct share exchange between
PremierWest Bancorp and shareholders of Bank of Southern Oregon. Each
non-dissenting shareholder of Bank of Southern Oregon will receive one share of
PremierWest Bancorp common stock in exchange for each share of Bank of Southern
Oregon common stock. Bank of Southern Oregon will continue to conduct business
as a wholly owned subsidiary of PremierWest Bancorp. The shares of PremierWest
Bancorp acquired by Bank of Southern Oregon when it formed PremierWest Bancorp
will be cancelled.
ALTERNATIVE HOLDING COMPANY REORGANIZATION ALONE. The holding company
reorganization of Bank of Southern Oregon constitutes the first step in the
entire transaction. Approval of the merger agreement constitutes approval of the
transactions contemplated thereby, including the holding company reorganization.
However, Bank of Southern Oregon is also submitting separately for shareholder
approval a proposal to approve the holding company reorganization of Bank of
Southern Oregon alone. If approved, the holding company reorganization of Bank
of Southern Oregon could then be carried out even if the merger transaction is
not approved and carried out.
If the merger is approved and consummated, the holding company
reorganization will be accomplished as part of the merger of United Bancorp,
regardless of whether shareholders approve the separate holding company
reorganization proposal. Conversely, if shareholders approve the separate
holding company reorganization proposal, the holding company reorganization of
Bank of Southern Oregon will be consummated even if the merger with United
Bancorp is not.
If the merger with United Bancorp is not approved but the separate
holding company reorganization proposal is, the holding company reorganization
will be consummated on the same terms as those set forth in the merger
agreement. Specifically, the reorganization will be accomplished by a direct
share exchange between PremierWest Bancorp and shareholders of Bank of Southern
Oregon. Non-dissenting shareholders of Bank of Southern Oregon will receive one
share of PremierWest Bancorp common stock in exchange for each share of Bank of
Southern Oregon common stock. Shareholders are entitled to dissent from the
proposal to approve the merger and from the separate holding company
reorganization proposal. If the holding company reorganization is consummated
but the merger with United Bancorp is not, shareholders of Bank of Southern
Oregon will own 100% of PremierWest Bancorp's common stock, whereas they will
own approximately 57% of PremierWest Bancorp's common stock if the merger with
United Bancorp is consummated.
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<PAGE> 45
MERGER OF UNITED BANCORP INTO PREMIERWEST BANCORP AND MERGER OF DOUGLAS NATIONAL
BANK INTO BANK OF SOUTHERN OREGON
The merger transactions with United Bancorp and Douglas National Bank
must be approved by shareholders of United Bancorp and shareholders of Bank of
Southern Oregon. Necessary aprovals of the Federal Reserve Bank of San
Francisco, the Federal Deposit Insurance Corporation and the Oregon Department
of Consumer and Business Services -- Division of Finance and Corporate
Securities have already been received. If approved by shareholders, United
Bancorp will merge into PremierWest Bancorp. Shareholders of United Bancorp will
become shareholders of PremierWest Bancorp. Immediately thereafter, Douglas
National Bank will merge into Bank of Southern Oregon, and Bank of Southern
Oregon's name will change to "PremierWest Bank." PremierWest Bancorp and Bank of
Southern Oregon (PremierWest Bank) will be the surviving companies in these
mergers, and United Bancorp and Douglas National Bank will cease to exist.
However, the merger transactions will not occur unless the conditions to
consummation are either satisfied or waived. See, "- CONDITIONS THAT MUST BE
SATISFIED OR WAIVED."
CONVERSION INTO AND EXCHANGE FOR PREMIERWEST BANCORP STOCK
UNITED BANCORP SHAREHOLDERS. When the merger with United Bancorp is
completed, each share of United Bancorp common stock held by a non-dissenting
United Bancorp shareholder will automatically become the right to receive 1.971
shares of PremierWest Bancorp common stock.
BANK OF SOUTHERN OREGON SHAREHOLDERS. Each share of Bank of Southern
Oregon common stock held by a non-dissenting Bank of Southern Oregon shareholder
will automatically be exchanged for one share of PremierWest Bancorp common
stock, regardless of whether the holding company reorganization occurs as part
of the entire transaction or whether it occurs as an independent and separate
transaction.
CONVERSION AND EXCHANGE PROCEDURES. Bank of Southern Oregon has
designated U.S. Stock Transfer Corporation to act as Exchange Agent for
distribution of PremierWest Bancorp common stock to United Bancorp and Bank of
Southern Oregon shareholders. You will have to surrender your United Bancorp or
Bank of Southern Oregon stock certificates to the Exchange Agent to receive new
certificates representing PremierWest Bancorp common stock. This will not be
necessary until you receive written instructions after we complete the
transaction. PremierWest Bancorp will send you written instructions in the form
of a "LETTER OF TRANSMITTAL" after we complete the transaction.
The Letter of Transmittal will contain detailed instructions explaining
what you need to do to receive certificates for PremierWest Bancorp stock.
Please do not submit your United Bancorp or Bank of Southern Oregon stock
certificates until you receive the Letter of Transmittal. You will be required
to submit to the Exchange Agent a properly executed Letter of Transmittal along
with your United Bancorp or Bank of Southern Oregon stock certificate(s) to
obtain issuance of a new stock certificate evidencing the shares of PremierWest
Bancorp common stock to which you are entitled.
UNITED BANCORP AND BANK OF SOUTHERN OREGON STOCK CERTIFICATES SHOULD
NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL YOU HAVE RECEIVED THE
LETTER OF TRANSMITTAL. STOCK CERTIFICATES MUST NOT BE RETURNED WITH THE
ENCLOSED PROXY.
RIGHTS OF HOLDERS OF STOCK CERTIFICATES UNTIL SURRENDER
Once you surrender to the Exchange Agent a properly completed Letter of
Transmittal -- accompanied by your United Bancorp or Bank of Southern Oregon
stock certificates -- you will receive in exchange PremierWest Bancorp stock
certificate(s) representing the appropriate number of shares of PremierWest
Bancorp common stock to which you are entitled.
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<PAGE> 46
If a dividend or other distribution on PremierWest Bancorp common stock
is declared by PremierWest Bancorp with a record date after the date the
transactions become effective, you will not receive that dividend or
distribution until you surrender your United Bancorp or Bank of Southern Oregon
stock certificate(s). If your stock certificates are lost or destroyed, you must
submit documentation acceptable to the Exchange Agent instead of the lost or
destroyed certificates. Any dividends or distributions withheld from you
ultimately will be remitted to you when you deliver your United Bancorp or Bank
of Southern Oregon stock certificate(s) (or substitute documentation if your
certificates are lost or destroyed), but they will be remitted to you without
interest and less any taxes that may have been imposed. See " - LOST
CERTIFICATES." Holders of unsurrendered certificates will be entitled to vote at
any meeting of PremierWest Bancorp shareholders, regardless of whether the
holders have exchanged their certificates.
LOST CERTIFICATES
If you have lost or misplaced a certificate for shares of United
Bancorp common stock, contact Ms. Michelle Williams, Assistant Cashier, at
United Bancorp at (541) 440-2684, to begin the process of replacing the lost
certificate before the date the transaction becomes effective. If you have lost
or misplaced a certificate for shares of Bank of Southern Oregon common stock,
contact Bruce R. McKee, Vice President and Chief Financial Officer, at Bank of
Southern Oregon at (541) 618-5970, to begin the process of replacing the lost
certificate. Procedures you should follow if you are unable to deliver your
certificate(s) or warrant agreements will be explained in the Letter of
Transmittal, but you will find it easier to complete the exchange process if you
obtain a replacement certificate(s) before the transaction becomes effective.
NO FRACTIONAL SHARES OF PREMIERWEST BANCORP COMMON STOCK WILL BE ISSUED
No fractional shares of PremierWest Bancorp common stock will be
issued. If you would otherwise be entitled to a fraction of one whole share of
PremierWest Bancorp common stock, you will be paid the cash value (without
interest) of the fractional interest, which will be equal to the fraction
multiplied by the average price of Bank of Southern Oregon common stock over a
period of five trading days immediately before the date the transaction becomes
effective.
CONDUCT OF BANK OF SOUTHERN OREGON'S BUSINESS UNTIL COMPLETION OF THE
TRANSACTION
Bank of Southern Oregon has promised in the merger agreement that it
will conduct its business in the ordinary course and consistent with past
practice, and in a manner that does not delay completion of the transaction or
interfere with Bank of Southern Oregon's ability to consummate the transaction.
CONDUCT OF UNITED BANCORP'S BUSINESS UNTIL COMPLETION OF THE TRANSACTION
United Bancorp and Douglas National Bank have likewise promised in the
merger agreement to conduct business in the ordinary course, substantially
consistent with past practice. They have agreed to cause their directors' and
officers' liability insurance coverage to include coverage for claims arising
out of acts or events occurring before the date the transaction becomes
effective. In addition, the merger agreement restricts United Bancorp and
Douglas National Bank from taking the following actions before the transaction
becomes effective:
- United Bancorp has agreed not to declare or pay any cash
dividends or distributions before the transaction is
completed;
- United Bancorp has agreed to make no changes to its Articles
of Incorporation or Bylaws, and Douglas National Bank has
agreed to make no changes to its Articles of Association or
Bylaws;
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<PAGE> 47
- without first consulting with Bank of Southern Oregon, United
Bancorp and Douglas National Bank have agreed not to enter
into any loan or credit commitment with any person or entity
if the loan or commitment would exceed
- $250,000 as an unsecured loan or investment
- $500,000 as a residential, commercial or commercial
real estate loan, except that United Bancorp and Douglas
National Bank may honor contractual obligations in existence
on October 7, 1999;
- United Bancorp and Douglas National Bank may not enter into
any venture capital or similar investment, other than the
purchase of mortgage-backed securities (Freddie Mac, Fannie
Mae or Ginnie Mae);
- United Bancorp and Douglas National Bank may not sell, assign
or dispose of branch offices or other material properties or
assets to a third party, or purchase or acquire from a third
party branch offices or assets constituting another line of
business or other properties or assets outside of the ordinary
course of business;
- neither United Bancorp nor Douglas National Bank may enter
into any transaction, agreement or commitment outside the
ordinary course of business if the transaction, agreement or
commitment is material to United Bancorp, Douglas National
Bank and their subsidiaries, taken as a whole;
- except for issuance of stock upon exercise of options to
acquire United Bancorp common stock, and except for the
additional issuance to recently elected directors (at the
first anniversary of their service as director) of options to
acquire up to 32,000 shares of United Bancorp common stock,
neither United Bancorp nor Douglas National Bank may issue or
sell any capital stock or other securities;
- Neither United Bancorp nor Douglas National Bank may acquire
beneficial ownership of any class of equity securities of
any corporation; and
- Neither United Bancorp nor Douglas National Bank may adopt or
amend any employee bonus, deferred compensation, pension,
retirement, profit sharing, stock option, employee stock
ownership or other benefit plans; increase the compensation or
fringe benefits of any current or former director, officer or
employee (excepting increases up to 3% of annual
compensation); or pay any bonus, compensation or benefit
inconsistent with past practices. PremierWest Bancorp and Bank
of Southern Oregon have waived the provision of the merger
agreement requiring United Bancorp to terminate the ESOP
before the transaction becomes effective and distribute plan
assets to beneficiaries. See, " - INTERESTS OF DIRECTORS AND
OFFICERS IN THE TRANSACTION THAT DIFFER FROM YOUR INTERESTS."
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
United Bancorp and Douglas National Bank have promised Bank of Southern
Oregon that they will not solicit or negotiate any proposals or offers from any
person to acquire United Bancorp or Douglas National Bank, to acquire any
material amount of their assets or to acquire any of their equity securities.
However, they may negotiate with any person making an unsolicited proposal if:
(a) after consultation with United Bancorp's legal counsel and
financial advisor, United Bancorp's board decides that negotiation with
the third party is necessary to fulfill the board's fiduciary duties
and obligations to shareholders and other constituencies, and
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<PAGE> 48
(b) United Bancorp informs Bank of Southern Oregon in advance that
United Bancorp intends to furnish information to or enter into
discussions or negotiations with the third party.
In addition, United Bancorp's board may not withdraw or modify its
recommendation to shareholders after United Bancorp receives an alternative
proposal unless, after consultation with United Bancorp's legal counsel and
financial advisor, the board decides that withdrawal or modification of its
recommendation is necessary to fulfill the board's fiduciary duties and
obligations to shareholders and other constituencies. United Bancorp's board
recommends unanimously that United Bancorp shareholders vote to approve the
merger.
If the board accepts another proposal, United Bancorp must pay to
PremierWest Bancorp and Bank of Southern Oregon cash in the amount of
$2,000,000. This obligation would apply solely to a proposal accepted by United
Bancorp or Douglas National Bank on or before July 1, 2000.
CONDITIONS THAT MUST BE SATISFIED OR WAIVED
CONDITIONS FOR BOTH UNITED BANCORP AND BANK OF SOUTHERN OREGON. Our
obligation to consummate the transaction is subject to the fulfillment or waiver
of a number of conditions, including the following:
- the merger agreement must be approved by the necessary vote of
United Bancorp and Bank of Southern Oregon shareholders;
- no restraining order or injunction prohibiting the transaction
may be in effect;
- United Bancorp and Bank of Southern Oregon must obtain an
opinion stating that the transaction will constitute a
tax-free reorganization and that shareholders will therefore
not recognize gain or loss for their receipt of PremierWest
Bancorp common stock; and
- the independent auditors of Bank of Southern Oregon must
deliver a letter to PremierWest Bancorp and United Bancorp
confirming that the transaction qualifies for pooling of
interests accounting treatment.
CONDITIONS FOR BANK OF SOUTHERN OREGON. The obligation of Bank of
Southern Oregon to consummate the transaction is also subject to the fulfillment
or waiver of customary conditions, such as the following:
- there must not be any material adverse change in the financial
condition, results of operations or business of United Bancorp
or Douglas National Bank after October 7, 1999;
- the consideration payable to holders of fractional share
interests and to shareholders of United Bancorp or Bank of
Southern Oregon common stock who exercise dissenters' rights
must not equal or exceed 10% of the total consideration
payable by PremierWest Bancorp in the transaction; and
- there must be no litigation challenging or seeking to prevent
or delay the transaction or seeking to impose material
limitations on PremierWest Bancorp's or Bank of Southern
Oregon's ability to exercise full rights of ownership of the
assets or business of United Bancorp or Douglas National Bank.
CONDITIONS FOR UNITED BANCORP AND DOUGLAS NATIONAL BANK. The obligation
of United Bancorp and Douglas National Bank to consummate the transaction is
also subject to the fulfillment or waiver of customary conditions, including the
following:
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<PAGE> 49
- there must not be any material adverse change in the financial
condition, results of operations or business of Bank of
Southern Oregon; and
- there must be no litigation challenging or seeking to prevent
or delay the transaction.
WAIVER OF CONDITIONS, AMENDMENT OR TERMINATION OF THE AGREEMENT
WAIVER. Either United Bancorp or Bank of Southern Oregon may extend the
time for performance of the other party's obligations under the merger
agreement. Likewise, either of us may waive inaccuracies in the representations
or warranties of the other party contained in the agreement, waive compliance
with the conditions or covenants of the other party contained in the agreement,
or waive or modify performance of the obligations of the other party under the
agreement. However, the transaction cannot be completed unless the shareholders
of United Bancorp and Bank of Southern Oregon approve the merger by the
necessary vote.
AMENDMENT. We may amend the merger agreement either before or after the
shareholders of United Bancorp and Bank of Southern Oregon approve it. However,
an amendment after shareholder approval may not (a) alter the amount or change
the form of the consideration contemplated by the agreement or (b) alter or
change the qualification of the transaction as a tax-free reorganization. An
amendment of that kind would require another vote of United Bancorp
shareholders.
TERMINATION. We may terminate the merger at any time before it is
completed, whether before or after shareholder approval, under the following
circumstances:
- by mutual agreement of all parties to the agreement;
- by either of United Bancorp or Bank of Southern Oregon if the
transaction is not completed on or before July 1, 2000 (but
the party seeking to terminate the agreement may not do so if
it is in material breach of its obligations under the
agreement);
- by either of United Bancorp or Bank of Southern Oregon if the
other party is in material breach of any representation or
promise contained in the agreement, unless the breach is cured
within 30 days;
- by United Bancorp if it accepts a competing proposal and pays
Bank of Southern Oregon $2,000,000 (See, - "NO SOLICITATION OF
ALTERNATIVE TRANSACTIONS"); and
- by United Bancorp or Bank of Southern Oregon at any time
before the second full day immediately preceding the date on
which the transaction is to be consummated, if the Bank of
Southern Oregon closing stock price is less than $5.50 per
share or more than $8.50 per share. For this purpose, the
closing price for Bank of Southern Oregon common stock will be
the average of the mean between the bid and asked prices for
Bank of Southern Oregon common stock on the OTC Bulletin Board
over a period of 20 days on which actual trades occurred. The
20-day measurement period ends 7 days before the anticipated
closing date. The provision creates some price protection for
United Bancorp and Bank of Southern Oregon shareholders.
However, the party exercising its right to terminate the
transaction because of Bank of Southern Oregon's stock price
would have to pay the other party $500,000.
EXPENSES. Generally, each party to the merger is responsible for its
own transaction-related costs and expenses. However, if the agreement is
terminated by United Bancorp or by Bank of Southern Oregon because of the other
party's material breach of the terms of the agreement -- and if the terminating
party is not in material
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breach -- then the breaching party will be required to pay all costs and
expenses of the terminating party, including printing, mailing and related fees,
as well as fees for financial advisors, accountants and legal counsel.
EFFECTIVE TIME
When all conditions to completing the transaction have been satisfied
or waived, we will file Articles of Merger with the Secretary of State of the
State of Oregon and Articles of Share Exchange with the Oregon Division of
Finance and Corporate Securities, at which time the merger and holding company
reorganization transactions will become effective. We will complete the
transactions as promptly as practicable after the date all of the conditions are
satisfied or waived, or on another date as we may agree. PremierWest Bancorp and
Bank of Southern Oregon currently expect to complete the transaction by the end
of the second quarter of 2000.
INTERESTS OF DIRECTORS AND OFFICERS IN THE TRANSACTION THAT DIFFER FROM YOUR
INTERESTS
DIRECTORS AND OFFICERS OF PREMIERWEST BANCORP AND BANK OF SOUTHERN
OREGON. Mr. John L. Anhorn is the President and Chief Executive Officer of
PremierWest Bancorp and Bank of Southern Oregon. He will continue to serve as
President and Chief Executive Officer of PremierWest Bancorp and Bank of
Southern Oregon (PremierWest Bank) after the transaction. Similarly, Mr. Richard
R. Hieb will continue to serve as Executive Vice President, Chief Operating
Officer and Secretary, Mr. Bruce R. McKee will continue as Chief Financial
Officer and the other officers of Bank of Southern Oregon will continue to serve
in the same capacities. All directors of Bank of Southern Oregon elected at the
annual meeting will continue as directors after the transaction. Five of these
directors also serve as directors of PremierWest Bancorp, and they will continue
to serve as directors after the transaction. See, "BANK OF SOUTHERN OREGON
ANNUAL MEETING - ELECTION OF DIRECTORS."
DIRECTORS AND OFFICERS OF UNITED BANCORP AND DOUGLAS NATIONAL BANK. Mr.
M. Neil Zick is the Executive Vice President of United Bancorp and President and
Chief Executive Officer of Douglas National Bank. He will serve with PremierWest
Bancorp and PremierWest Bank as Executive Vice President and Chief
Administrative Officer after the transaction.
United Bancorp and Douglas National Bank may also designate 3
individuals to serve on PremierWest Bancorp's board after the transaction. These
3 individuals and 2 additional individuals designated by United Bancorp and
Douglas National Bank will also serve as directors of PremierWest Bank after the
transaction. United Bancorp and Douglas National Bank have designated Messrs.
Thomas Becker, Peter Martini and Rickar D. Watkins, each of whom is currently a
director of United Bancorp and Douglas National Bank, to serve as directors of
PremierWest Bancorp. These three individuals, together with Messrs. David A.
Emmett and Brian R. Pargeter, will also serve as directors of PremierWest Bank.
Messrs. Emmett and Pargeter are also directors of United Bancorp and Douglas
National Bank.
SEVERANCE AND EMPLOYMENT AGREEMENTS. Ms. Linda Ganim, United Bancorp's
Treasurer and principal financial officer, Mr. Zick and four other officers of
Douglas National Bank entered into Executive Retention Agreements with United
Bancorp, which provide for severance payments if their employment is terminated
within 12 months after a change in control of United Bancorp. The four other
officers are: Rosemarie Baucom (Vice President), Carol Parsons (Vice President),
Larry Robbins (Executive Vice President) and James Servoss (Senior Vice
President). Mr. Zick, Ms. Ganim, Ms. Baucom and Ms. Parsons will enter into an
employment agreement with PremierWest Bancorp and PremierWest Bank. Messrs.
Robbins and Servoss will be employees at will. Messrs. Robbins and Servoss may
become eligible for payments under their Executive Retention Agreements if their
employment is terminated within one year after the transaction between
PremierWest Bancorp and United Bancorp is completed.
Becoming effective on the date in 2000 that the transaction is
completed, Mr. Zick's employment agreement will have a term of two years, with
an annual base salary of $140,000. Mr. Zick's employment
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agreement with PremierWest Bancorp also provides for a payment of approximately
$100,000 after termination of his employment with PremierWest Bancorp in
exchange for his covenant not to compete with PremierWest Bancorp in Jackson and
Douglas Counties for a period of two years. Ms. Ganim will serve on a
transitional basis only for approximately 30 days after the transaction is
completed, which may be extended an additional 60 days. She is not expected to
serve as an officer of PremierWest Bancorp or PremierWest Bank. Also becoming
effective on the date in 2000 that the transaction is completed, Ms. Ganim's
employment agreement with PremierWest Bancorp includes a provision releasing
PremierWest Bancorp and its predecessors from any claim Ms. Ganim may have, as
well as a provision restricting her from competition with PremierWest Bancorp in
Douglas County for a period of 12 months. For 12 months after Ms. Ganim's
employment is terminated, she will be entitled to receive $8,500 monthly for her
agreement not to compete with PremierWest Bancorp.
Employees of Bank of Southern Oregon who do not have employment
agreements are and will remain "at will" employees. Employees of United Bancorp
or Douglas National Bank who become employees of PremierWest Bancorp or
PremierWest Bank will also be "at will" employees, except for the officers
identified above. Employees of United Bancorp and Douglas National Bank who
become employees of PremierWest Bancorp or PremierWest Bank will also be
eligible to participate in employee benefit plans on the same basis as existing
Bank of Southern Oregon employees. But prior service with United Bancorp or
Douglas National Bank generally will be credited for eligibility and vesting
purposes under the Bank of Southern Oregon plans. And former employees of United
Bancorp and Douglas National Bank who are participants in United Bancorp's
Employee Stock Ownership Plan will not be entitled to receive matching
contributions under Bank of Southern Oregon's 401(k) plan.
BANK OF SOUTHERN OREGON STOCK OPTIONS. PremierWest Bancorp will assume
the obligations of United Bancorp and Bank of Southern Oregon under their
separate stock option plans. Options to acquire Bank of Southern Oregon common
stock will become options to acquire a like number of shares of PremierWest
Bancorp common stock, exercisable at the same prices and on the same terms.
Options to acquire 324,000 shares of Bank of Southern Oregon common stock were
issued and outstanding as of February 1, 2000, with exercise prices ranging from
$0.81 per share to $8.25 per share. Of these options, approximately 132,784 were
exercisable on that date.
UNITED BANCORP STOCK OPTIONS. Options to acquire United Bancorp common
stock will also become options to acquire PremierWest Bancorp common stock, but
the number of shares acquirable will be increased by the 1.971 exchange ratio
and the exercise prices will be decreased by the 1.971 exchange ratio. Options
to acquire 196,000 shares of United Bancorp common stock were issued and
outstanding as of March 15, 2000, with exercise prices ranging from $6.25 per
share to $10.50 per share. All of these options will be fully exercisable at the
time of the merger with PremierWest Bancorp. The 196,000 figure representing
outstanding options includes incentive stock options granted in July 1999 that
United Bancorp officers have agreed to rescind.
Because stock options granted at or around the time a merger agreement
is executed can affect adversely the merging corporations' right to use pooling
of interests accounting, United Bancorp and four of its officers agreed in
January 2000 to rescind incentive stock option grants made to the officers in
July 1999. Rescission of the incentive stock options will become effective on
the date the transaction with PremierWest Bancorp closes. The options to be
rescinded represent the right to acquire 49,000 shares of United Bancorp common
stock. The officers affected (and the number of their rescinded stock options)
are: Rosemarie Baucom (options to acquire 12,000 shares); Linda Ganim (options
to acquire 15,000 shares); Carol Parsons (options to acquire 4,000 shares); and
Neil Zick (options to acquire 18,000 shares). United Bancorp directors, officers
and employees will therefore hold options to acquire approximately 289,737
shares of PremierWest Bancorp, with exercise prices ranging from $3.17 to $5.32
per share.
UNITED BANCORP EMPLOYEE STOCK OWNERSHIP PLAN. Before entering into the
merger agreement, United Bancorp was contemplating termination of its Employee
Stock Ownership Plan, which was created in 1987 and which acquired United
Bancorp common stock at that time, issuing a note to United Bancorp for the
purchase
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price. The ESOP held approximately 299,745 shares of United Bancorp common stock
on the March 15, 2000 record date, but the majority of those shares have been
allocated over the years to employees as their contributions to the ESOP
accumulated. Approximately 219,532 shares were allocated to employees' ESOP
accounts by the end of 1999, and those employees possessed voting and other
rights of ownership to those shares.
Consistent with the terms of the merger agreement, the ESOP was to be
terminated by United Bancorp before closing of the transaction. To preserve
pooling of interests accounting treatment for the transaction, PremierWest
Bancorp and Bank of Southern Oregon have waived the provisions of the merger
agreement requiring termination of the ESOP before closing. The parties now
expect that the ESOP will not be terminated before closing, and all shares
currently held by the ESOP will be converted to PremierWest Bancorp common stock
at the exchange ratio. Until the ESOP note is fully paid, PremierWest Bancorp
expects that contributions of approximately $260,000 will be made to the ESOP in
2000, $247,000 in 2001 and $158,000 for 2002. The outstanding balance of the
ESOP note as of February 1, 2000 was approximately $600,000. PremierWest Bancorp
may consider termination of the ESOP in the future. Whether PremierWest Bancorp
will take action to terminate the ESOP will depend on factors such as receipt of
expert tax, employee benefit plan and accounting advice concerning the tax and
accounting aspects of employee stock ownership plans and employee stock
ownership plan termination. PremierWest Bancorp believes that termination of the
ESOP after closing of the transaction would be contingent on -- among other
things -- receipt of a so-called "determination letter" from the Internal
Revenue Service concerning the tax consequences of ESOP termination to ESOP plan
participants. After the transaction is completed and they become employees of
Bank of Southern Oregon, employees of United Bancorp and Douglas National Bank
who are participants in United Bancorp's Employee Stock Ownership Plan will not
receive matching contributions under Bank of Southern Oregon's 401(k) plan.
Employees of Bank of Southern Oregon who are participants in Bank of Southern
Oregon's 401(k) retirement plan will continue to be participants in the 401(k)
plan and may receive discretionary matching contributions.
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
Director, officer and employee indemnification obligations of United Bancorp and
Douglas National Bank will be assumed by PremierWest Bancorp and PremierWest
Bank for the first two years after completion of the transaction or, if longer,
for the duration of any statute of limitations period. The indemnification
obligations include those under applicable law or under the governing documents
of United Bancorp and Douglas National Bank. For claims asserted within two
years after the transaction is completed, PremierWest Bancorp's and PremierWest
Bank's assumed indemnification obligation will continue until the matter is
resolved. Directors, officers and employees of United Bancorp or Douglas
National Bank who become directors, officers or employees of PremierWest Bancorp
or PremierWest Bank will also have indemnification rights relating to their
service with PremierWest Bancorp or PremierWest Bancorp, to the extent
indemnification rights are provided under applicable law or the governing
documents of PremierWest Bancorp or PremierWest Bank.
For up to three years after the transaction is completed, PremierWest
Bancorp and Bank of Southern Oregon (PremierWest Bank) have agreed to maintain
the insurance policies of United Bancorp and Douglas National Bank covering
directors' and officers' liability for claims arising from factors or events
that occurred before the transaction, provided the cost of the insurance does
not exceed 150% of United Bancorp's and Douglas National Bank's current costs.
Those who become directors or officers of PremierWest Bancorp or PremierWest
Bank will also be covered by PremierWest Bancorp's and PremierWest Bank's
directors' and officers' liability insurance coverage for factors or events that
occur after the transaction is completed. United Bancorp and Douglas National
Bank will ensure that their directors' and officers' liability insurance
coverage specifically includes coverage for liabilities under the securities
laws and liabilities arising out of the merger agreement.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
PRICE RANGE OF COMMON STOCK. Shares of Bank of Southern Oregon common
stock are traded on the OTC Bulletin Board under the symbol "BSOR." United
Bancorp common stock is also traded on the OTC Bulletin Board, under the symbol
"UBNN." The OTC Bulletin Board is an electronic, screen-based market maintained
by the National Association of Securities Dealers, Inc.'s subsidiary, NASD
Regulation, Inc. On October 6, 1999, the day before we entered into the merger
agreement, Bank of Southern Oregon common stock closed at $7.00 per share, and
United Bancorp common stock closed at $7.63 per share. These over-the-counter
market quotations and the data in the table to follow do not reflect retail
mark-up, mark-down or commissions and do not necessarily represent actual
transactions. The following table shows the high and low prices of Bank of
Southern Oregon common stock in 1998 and 1999, and the high and low prices for
United Bancorp common stock in 1998 and 1999, adjusted for stock splits.
<TABLE>
<CAPTION>
BANK OF SOUTHERN OREGON UNITED BANCORP
COMMON STOCK COMMON STOCK
----------------------------- ------------------------------
HIGH LOW HIGH LOW
----------- --------------- ------------- -------------
1998:
<S> <C> <C> <C> <C>
First Quarter...... $ 7.00 $ 6.67 $ 9.25 $ 8.50
Second Quarter..... $ 11.50 $ 7.88 $ 19.00 $ 10.25
Third Quarter...... $ 10.75 $ 8.63 $ 18.50 $ 8.50
Fourth Quarter..... $ 9.50 $ 7.50 $ 11.25 $ 9.00
1999:
First Quarter...... $ 8.75 $ 8.25 $ 10.63 $ 8.25
Second Quarter..... $ 8.25 $ 7.25 $ 9.13 $ 7.50
Third Quarter...... $ 7.38 $ 7.12 $ 8.38 $ 7.25
Fourth Quarter..... $ 8.00 $ 6.50 $ 11.13 $ 7.63
</TABLE>
Bank of Southern Oregon split its stock 3-for-1 in June 1998 and 2-for-1 in July
1997. United Bancorp split its stock 4-for-1 on March 25, 1998.
DIVIDENDS. Neither PremierWest Bancorp nor Bank of Southern Oregon has
paid any cash dividends or made other cash distributions to its shareholders,
and PremierWest Bancorp does not expect to declare or pay cash dividends or
other cash distributions for the foreseeable future. The ability of PremierWest
Bancorp and Bank of Southern Oregon to pay dividends to its shareholders is
subject to bank regulatory restrictions. See, "SUPERVISION AND REGULATION -
LIMITS ON DIVIDENDS AND OTHER PAYMENTS." United Bancorp has paid annual cash
dividends. See, "SUMMARY - SELECTED FINANCIAL DATA." United Bancorp has agreed
not to declare or pay any additional cash dividends or distributions on its
common stock.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences of the transaction to the existing shareholders of United
Bancorp and Bank of Southern Oregon. The following discussion is not a complete
analysis of all potential tax effects of the transaction to shareholders and to
United Bancorp and Bank of Southern Oregon. This summary is based upon current
law, which is subject to change.
TAX CONSEQUENCES TO DISSENTERS. If a shareholder dissents to the
transaction and receives cash in exchange for his shares, the cash will be
treated as having been received as a distribution in redemption of the shares,
subject to the provisions and limitations of Section 302 of the Internal Revenue
Code. The federal income tax consequences to a dissenting shareholder depend
upon whether the receipt of cash in redemption of the shares is treated as an
"exchange" or as a dividend under to Section 302 of the Code. If the redemption
is treated as an exchange under Section 302(a) of the Code, the dissenting
shareholder will recognize gain or loss measured by the difference between the
amount of cash received and the tax basis of the shares redeemed. This gain or
loss will be capital gain or loss if the shares were held as a capital asset at
the time of the redemption. The capital gain or loss will constitute long-term
capital gain or loss if the holding period for the shares exceeds 1 year at the
time of the
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redemption. If, on the other hand, the redemption is treated as a dividend under
Section 302(d) of the Code, the full amount of cash received will be treated as
ordinary income to the extent of the current or accumulated earnings and profits
per share of United Bancorp or Bank of Southern Oregon, as the case may be.
Under the tests of Section 302 of the Code, the redemption of a
dissenting shareholder's shares generally will be treated as a dividend unless
the redemption
- results in a "complete termination" of the shareholder's
direct or indirect stock interest under Section 302(b)(3) of
the Code,
- is "substantially disproportionate" with respect to the
shareholder under Section 302(b)(2) of the Code or
- is "not essentially equivalent to a dividend" with respect to
the shareholder under Section 302(b)(1) of the Code.
The characterization of the redemption of a dissenting shareholder's
shares as an exchange or a dividend is dependent upon the factual circumstances
of each shareholder, and may involve consideration of shares owned by persons
from whom ownership is attributed to the dissenting shareholder under the rules
of Section 318 of the Code. Dissenting shareholders are urged to consult their
tax advisors in this respect.
TAX CONSEQUENCES GENERALLY. We received an opinion of Farleigh, Wada &
Witt, United Bancorp's legal counsel, concerning the tax consequences of the
transaction. We included a copy of the opinion as an exhibit to the Form S-4
Registration Statement of which this prospectus/joint proxy statement forms a
part. In summary terms, the opinion concerning tax consequences states that,
assuming that the transaction is consummated in accordance with the merger
agreement:
(1) The merger and holding company reorganization will be treated for
federal income tax purposes as a tax-free reorganization;
(2) United Bancorp shareholders and Bank of Southern Oregon
shareholders will not recognize gain or loss as a result of the merger
or holding company reorganization;
(3) None of PremierWest Bancorp, Bank of Southern Oregon, United
Bancorp or Douglas National Bank will recognize gain or loss as a
result of the merger or holding company reorganization, despite their
participation in the transaction under state merger law; and
(4) Cash received by those United Bancorp shareholders or Bank of
Southern Oregon shareholders, if any, who exercise dissenters' rights
will be treated as a distribution in redemption of the shares
surrendered upon exercise of dissenters' rights, which may result in
realization by the dissenting shareholders of capital gain or loss or
ordinary income, depending upon each dissenting shareholder's
particular situation.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION UNDER THE INTERNAL REVENUE
CODE. IT DOES NOT DISCUSS THE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX
LAWS OR SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL
SITUATIONS. YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC TAX
CONSEQUENCES OF THE TRANSACTION TO YOU, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS AND TAX CONSEQUENCES OF
SUBSEQUENT SALES OF PREMIERWEST BANCORP COMMON STOCK.
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ACCOUNTING TREATMENT OF THE TRANSACTION
PremierWest Bancorp expects to account for the transaction as a
"pooling of interests," in accordance with generally accepted accounting
principles. Using pooling of interests accounting, the consolidated assets,
liabilities, shareholders' equity and income and expenses of United Bancorp will
be added to those of PremierWest Bancorp at their recorded book values. The
holding company reorganization of Bank of Southern Oregon will also be
characterized as and treated essentially as a pooling of interests for financial
reporting purposes, with the consolidated assets, liabilities, shareholders'
equity and income and expenses of PremierWest Bancorp after the holding company
reorganization being substantially the same as those of Bank of Southern Oregon
immediately before the holding company reorganization. See, "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
RESALES OF PREMIERWEST BANCORP COMMON STOCK
The PremierWest Bancorp common stock will be freely transferable,
except for shares issued to persons who are affiliates of United Bancorp,
PremierWest Bancorp or Bank of Southern Oregon. The term "affiliate" is defined
in Rule 144 of the Securities Act of 1933. A director or executive officer of a
company is commonly considered to be an affiliate, and an owner of more than 10%
of a company's shares can be considered an affiliate too. Affiliates of United
Bancorp or Bank of Southern Oregon may not sell, pledge, transfer or otherwise
dispose of the shares of PremierWest Bancorp common stock issued to them in
exchange for their shares of United Bancorp or Bank of Southern Oregon common
stock
- unless the requirements of Rule 145(d) are satisfied, or
- unless the sale, pledge, transfer, or disposition is otherwise
in compliance with the Securities Act of 1933 and the rules
and regulations thereunder.
Offers and sales of shares by affiliates of PremierWest Bancorp will be
subject to registration under the Securities Act of 1933, unless an exemption is
available, including the exemption provided by Rule 144.
Rule 145 under the Securities Act restricts the sale of PremierWest
Bancorp common stock received in the transaction by affiliates. During the first
year after the transaction is completed, affiliates of United Bancorp who do not
become affiliates of PremierWest Bancorp may resell the PremierWest Bancorp
common stock received by them if the following conditions of Rule 144 are
satisfied:
- CURRENT IN REPORTING OBLIGATION. PremierWest Bancorp must have
been in compliance with its reporting requirements under the
Securities Exchange Act of 1934 for the 12 months preceding
the proposed sale. The common stock of Bank of Southern Oregon
has been registered under the Securities Exchange Act of 1934
since the end of June 1999. PremierWest Bancorp's common stock
will be registered under the Securities Exchange Act of 1934
when the holding company reorganization is completed, and it
expects to continue reporting under the Securities Exchange
Act of 1934 for the foreseeable future;
- VOLUME LIMITATION. The number of shares that may be sold in
any 3-month period is limited to the greater of (1) 1% of
PremierWest Bancorp's shares outstanding or (2) the average
weekly trading volume during the 4 calendar weeks preceding
the sale; and
- MANNER OF SALE. The shares must be sold by a broker in a
routine open market transaction that does not involve the
solicitation of orders for purchase.
Shares of PremierWest Bancorp common stock sold by (1) an affiliate's
spouse or relative living in the affiliate's household, or (2) any trust or
estate in which the affiliate or person listed in clause (1) collectively owns
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10% or more of the beneficial interest or of which any of these persons serves
as trustee or executor, or (3) any corporation in which the affiliate or any
person specified in clause (1) beneficially owns at least 10% of an equity
interest, will be aggregated with the number of shares sold by the affiliate for
purposes of determining whether the volume limitations of Rule 144 are exceeded.
After one year from completion of the transaction, persons who were
affiliates of United Bancorp but who are not affiliates of PremierWest Bancorp
may resell their shares without regard to the volume limitation or manner of
sale requirement, provided PremierWest Bancorp has satisfied its reporting
requirements under the Securities Exchange Act of 1934 during the prior 12-month
period. If PremierWest Bancorp does not meet its reporting requirements, these
persons may not resell their shares of PremierWest Bancorp common stock until 2
years have elapsed from completion of the transaction. At that time, the shares
may be sold without any restriction.
Sales and other dispositions of PremierWest Bancorp common stock by any
affiliate of United Bancorp who becomes an affiliate of PremierWest Bancorp must
be made in compliance with the requirements of Rule 144 set forth above, but the
Rule 144 restrictions will no longer apply once the person has not been an
affiliate of PremierWest Bancorp for a period of at least 3 months and at least
2 years have elapsed since the transaction.
Even if the shares are sold, pledged or donated in compliance with Rule
145, the shares will remain subject to Rule 145 in the hands of the new holder
until the restrictive period applicable to the affiliate transferor has expired.
The merger agreement requires United Bancorp to use diligent efforts to
cause each director, executive officer and other person who is deemed by United
Bancorp to be an affiliate of United Bancorp to execute and deliver to
PremierWest Bancorp and Bank of Southern Oregon a written agreement intended to
ensure compliance with the Securities Act of 1933 and to ensure that the merger
will qualify for pooling of interests accounting treatment. Under these
agreements, affiliates of United Bancorp may not dispose of any shares received
in the transaction during the period beginning 30 days before the transaction
occurs and ending when financial results covering at least 30 days of
post-transaction operations of PremierWest Bancorp have been published.
This prospectus/joint proxy statement does not cover any reoffers or
resales of PremierWest Bancorp common stock received by affiliates.
PREMIERWEST BANCORP'S ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation of PremierWest Bancorp in effect
immediately before the transaction will be the Articles of Incorporation of
PremierWest Bancorp as the surviving corporation after the transaction. The
Bylaws of PremierWest Bancorp in effect immediately before the transaction will
be the Bylaws of PremierWest Bancorp after the transaction. Likewise, Bank of
Southern Oregon's Articles of Incorporation and Bylaws will not change, except
to reflect the change of its name to PremierWest Bank.
49
<PAGE> 57
RIGHTS OF DISSENTING SHAREHOLDERS
DISSENTERS' RIGHTS OF UNITED BANCORP SHAREHOLDERS
Holders of United Bancorp common stock are entitled to exercise
dissenters' rights under ss.60.551 through ss.60.594 of the Oregon Business
Corporation Act. A shareholder of United Bancorp will be entitled to relief as a
dissenting shareholder if and only if he or she complies strictly with all of
the procedural and other requirements of ss.60.551 through ss.60.594 of the
Oregon Business Corporation Act. A copy of ss.60.551 through ss.60.594 of the
Oregon Business Corporation Act is included in Appendix D. The following summary
does not purport to be a complete statement of the method of compliance with the
dissenters' rights provisions of the Oregon Business Corporation Act included in
Appendix D. The following summary is qualified in its entirety by reference to
the copy of ss.60.551 through ss.60.594 included in Appendix D.
NOTICE OF INTENT TO DEMAND PAYMENT. A United Bancorp shareholder who
wishes to perfect his rights as a dissenting shareholder if the merger is
approved:
(a) must not vote his United Bancorp common stock in favor of the
merger; and
(b) before the vote on the merger is taken at the United Bancorp
special meeting, he must deliver to United Bancorp a written
notice of his intent to demand payment for his United Bancorp
shares.
A vote against the merger will not satisfy the requirements of a
written demand for payment. Any written demand for payment should be mailed or
delivered to United Bancorp, 555 S.E. Kane Street, Roseburg, Oregon 97470,
Attention: Ms. Becky Carpenter, Assistant Secretary, or hand delivered to the
presiding officer of the Meeting before the vote on the merger is taken. United
Bancorp recommends that a shareholder using the mails use certified or
registered mail, return receipt requested, to confirm that he has made a timely
delivery.
UNITED BANCORP'S DISSENTERS' NOTICE. If the merger is approved at the
meeting, within 10 days after the meeting United Bancorp must send a dissenters'
notice to each shareholder who notified United Bancorp of his intention to
demand payment for his United Bancorp shares. The dissenters' notice must:
(a) state where the shareholder should send his demand for payment
and where and when his United Bancorp share certificates
should be deposited;
(b) supply a form for demanding payment. The form must state the
date on which the transaction proposal was first publicly
announced and it must require the dissenting shareholder to
certify whether he acquired beneficial ownership of his United
Bancorp shares before that date. The transaction was first
publicly announced on October 8, 1999;
(c) set a date by which the dissenter's demand for payment must be
received by United Bancorp. The date may be no fewer than 30
and no more than 60 days after United Bancorp's dissenters'
notice is delivered to the dissenting shareholder; and
(d) be accompanied by a copy of Oregon Revised Statutes section
60.551 to section 60.594.
DEMAND FOR PAYMENT. After he receives United Bancorp's dissenters'
notice, a dissenting shareholder must then demand payment for his United Bancorp
shares, certifying whether he acquired those shares before the public
announcement date (October 8, 1999) set forth in United Bancorp's dissenters'
notice. The dissenter must also deposit his United Bancorp share certificates as
instructed in United Bancorp's dissenters' notice. A dissenting shareholder will
retain his other rights as a shareholder until the transaction is completed. If
the transaction is not completed within 60 days after the deadline for demanding
payment and depositing certificates,
50
<PAGE> 58
which date must be set forth in United Bancorp's dissenters' notice, United
Bancorp must return the certificates to dissenters. If the transaction is later
completed, United Bancorp must repeat the dissenters' notice process anew.
PAYMENT. When the transaction is completed, or when the demand for
payment is received by United Bancorp, United Bancorp (or PremierWest Bancorp
after the transaction is completed) must pay to each dissenter who has complied
with the dissenters' rights provisions of the Oregon Business Corporation Act
the amount estimated by United Bancorp (or PremierWest Bancorp) to be the fair
value of the dissenter's shares, with interest. Payment must be accompanied by
(a) United Bancorp's balance sheet and income statement as of or
for the year ended December 31, 1999 and United Bancorp's most
recent interim financial statements;
(b) a statement of United Bancorp's (or PremierWest Bancorp's)
estimate of the shares' fair value;
(c) an explanation of how interest was calculated;
(d) a statement of the dissenter's right to demand payment of his
estimate of the shares' value and interest; and
(e) a copy of Oregon Revised Statutesss.60.551 toss.60.594.
Although payment may be withheld for shares acquired by a dissenter
after the October 8, 1999 public announcement of the transaction, after the
transaction is completed PremierWest Bancorp would be required to
- provide the dissenter with PremierWest Bancorp's estimate of
the shares' fair value and interest,
- pay this amount to the dissenter, provided the dissenter
agrees to accept payment in full satisfaction of his demand,
- explain how interest was calculated, and
- advise the dissenter of his right to demand payment of his own
estimate of the shares' fair value.
DISSENTER'S ESTIMATE OF VALUE. If the dissenter's estimate of the
shares' fair value and interest exceeds the amount paid to him by United Bancorp
(or PremierWest Bancorp), he has 30 days within which to demand payment of the
excess, or otherwise demand payment of his estimate of the shares' fair value
and interest if United Bancorp (or PremierWest Bancorp) has not complied with
its obligations under the dissenters' rights statute.
CIRCUIT COURT PROCEEDING. Unless the dissenting shareholder and United
Bancorp agree on the fair value and interest per share for the United Bancorp
common stock, United Bancorp (or PremierWest Bancorp) must bring a proceeding
within 60 days after receiving the dissenters' estimate of fair value,
petitioning the court to determine fair value and accrued interest. The
proceeding must be commenced in the Circuit Court of Douglas County, or Jackson
County if PremierWest Bancorp commences the proceeding. If this proceeding is
not commenced within 60 days, the dissenter will be entitled to payment of his
estimate of the shares' fair value and interest. All dissenters' whose demand
for payment remains unsettled will be made a party to the proceeding.
ASSESSMENT OF COSTS. Costs of the proceeding will be assessed against
United Bancorp or PremierWest Bancorp, unless the court finds that the
dissenters acted arbitrarily, vexatiously or not in good faith.
Because a proxy that does not contain voting instructions will be voted
in favor of the merger, a shareholder who wishes to exercise his dissenters'
rights must either not sign and return his proxy or, if he signs and returns his
proxy, vote against or abstain from voting on the merger.
51
<PAGE> 59
DISSENTERS' RIGHTS OF BANK OF SOUTHERN OREGON SHAREHOLDERS
Holders of Bank of Southern Oregon common stock are entitled to
exercise dissenters' rights under ss.711.175 through ss.711.185 of the Oregon
Bank Act. A shareholder of Bank of Southern Oregon will be entitled to relief as
a dissenting shareholder if and only if he or she complies strictly with all of
the procedural and other requirements of ss.711.175 through ss.711.185 of the
Oregon Bank Act. A copy of ss.711.175 through ss.711.185 of the Oregon Bank Act
is also included in Appendix D. The following summary does not purport to be a
complete statement of the method of compliance with the dissenters' rights
provisions of the Oregon Bank Act included in Appendix D. The following summary
is qualified in its entirety by reference to the copy of ss.711.175 through
ss.711.185 included in Appendix D.
NOTICE OF DISSENT. A Bank of Southern Oregon shareholder who wishes to
perfect his rights as a dissenting shareholder if the merger proposal or holding
company reorganization proposal is adopted:
(a) must not vote his Bank of Southern Oregon common stock in
favor of the merger proposal or the holding company
reorganization proposal; and
(b) must deliver to Bank of Southern Oregon a notice of his
dissent before or at the Bank of Southern Oregon annual
meeting, or vote against the merger proposal and the holding
company reorganization proposal.
DISSENTING SHAREHOLDER'S WRITTEN DEMAND FOR PAYMENT. Within 30 days
after the meeting, the dissenting shareholder must make a written demand for
payment. The written demand must be accompanied by the dissenter's share
certificates, properly indorsed. Any written demand for payment or other
communications from dissenting shareholders must be mailed or delivered to Bank
of Southern Oregon, 1455 East McAndrews Road, Medford, Oregon 97504, Attention:
Mr. Richard R. Hieb, Executive Vice President, Chief Operating Officer and
Secretary. Because the written demand must be delivered within 30 days after the
annual meeting, Bank of Southern Oregon recommends that a shareholder using the
mails use certified or registered mail, return receipt requested, to confirm
that he has made a timely delivery.
WRITTEN NOTICE AND OFFER TO THE DISSENTER AFTER THE TRANSACTION IS
COMPLETED. Within 30 days after the transaction is completed, whether the
transaction is the merger with United Bancorp or solely the holding company
reorganization of Bank of Southern Oregon, Bank of Southern Oregon (PremierWest
Bank) or PremierWest Bancorp must give written notice to each dissenting
shareholder who has made a demand for payment, offering to pay in cash to the
dissenter a price determined by Bank of Southern Oregon to be the fair cash
value of those shares on the day the transaction was completed. This notice must
be accompanied by Bank of Southern Oregon's most recent statement of condition
and income statement.
ACCEPTANCE OF OFFER AND PAYMENT. Dissenting shareholders then have 30
days from the date on which the written notice and offer was mailed or delivered
to accept or decline the offer of payment. If accepted by a dissenting
shareholder, he will be paid in cash the price offered by PremierWest Bank or
PremierWest Bancorp. Payment must be made to a dissenting shareholder who
accepts the offer of payment. Payment must be made within 30 days after the
dissenter communicates his acceptance in writing.
FAILURE TO ACCEPT THE OFFER -- APPRAISAL PROCEEDING. If a dissenter
does not accept the offer, or if no offer is made, the value of the dissenter's
shares will be determined by an independent, qualified appraiser selected by the
Director of the Oregon Department of Consumer and Business Services. The
appraiser's determination of the value of the shares as of the date the
transaction was completed will be final and binding, although an appeal may be
allowed in circumstances set forth in Oregon Revised Statutes section 36.355(1),
provided the appeal is made within 30 days after the date of the appraiser's
valuation. Within 30 days after the appraiser sends to PremierWest Bank or
PremierWest Bancorp notice of the appraiser's valuation, PremierWest Bank or
PremierWest Bancorp
52
<PAGE> 60
must pay the appraised value to each dissenter who has not accepted PremierWest
Bank or PremierWest Bancorp's offer.
ASSESSMENT OF COSTS. If the amount offered by PremierWest Bank or
PremierWest Bancorp to dissenters is within 85% to 115% of the value determined
by the appraiser, costs and expenses of the appraisal proceeding will be divided
by the Director of the Oregon Department of Consumer and Business Services
equally between PremierWest Bank, on one hand, and to the dissenters as a group,
on the other. If the amount offered to dissenters is 115% or more than the value
determined by the appraiser, costs and expenses of the appraisal proceeding and
reasonable costs and expenses of PremierWest Bank or PremierWest Bancorp,
including attorney fees, will be assessed to the dissenters as a group. If the
amount offered to dissenters is 85% or less than the value determined by the
appraiser, costs and expenses of the appraisal proceeding and reasonable costs
and expenses of the dissenters, as a group, including attorney fees, will be
assessed to PremierWest Bank or PremierWest Bancorp. Fees assessed in this
manner by the Director of the Oregon Department of Consumer and Business
Services must be paid within 30 days after the Director's assessment becomes
final.
WITHDRAWAL OF DISSENT. A dissenting shareholder may withdraw his demand
for payment if PremierWest Bank or PremierWest Bancorp consents to the
withdrawal and if the dissenting shareholder pays his proportionate share of the
costs of the appraisal and PremierWest Bank's reasonable costs and expenses,
including attorney fees and costs. If the demand for payment is withdrawn in
this manner, the dissenter's status as a shareholder will be restored.
POSSIBLE REPLACEMENT OF SHAREHOLDERS' EQUITY EXPENDED IN PAYMENT TO
DISSENTERS. As a condition to approving the transaction, the Director of the
Oregon Department of Consumer and Business Services may require that all or any
portion of the shareholders' equity of PremierWest Bank expended in making
payment(s) to dissenters be replaced.
Because a proxy that does not contain voting instructions will be voted
for the merger proposal and for the separate holding company reorganization
proposal, a shareholder who wishes to exercise his dissenters' rights must
either not sign and return his proxy or, if he signs and returns his proxy, vote
against or abstain from voting on the merger proposal and the holding company
reorganization proposal.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements give effect to the transaction with United Bancorp and Bank of
Southern Oregon under the pooling of interests method of accounting. For a
description of the effect of the pooling of interests accounting on the
transaction and the historical consolidated financial statements of Bank of
Southern Oregon and United Bancorp, see "TERMS OF THE TRANSACTION - ACCOUNTING
TREATMENT OF THE TRANSACTION." These pro forma financial statements are
presented for illustrative purposes only and, therefore, are not necessarily
indicative of the operating results and financial position that might have been
achieved had the transaction occurred as of an earlier date, nor are they
necessarily indicative of operating results and financial position that may
occur in the future. The pro forma amounts do not include any adjustments for
merger-related costs or estimated operating efficiencies or revenue enhancements
resulting from the transaction.
A pro forma condensed combined balance sheet is provided as of December
31, 1999, giving effect to the transaction as though it had been consummated on
that date. Pro forma condensed combined income statements are provided for the
years ended December 31, 1999, 1998 and 1997, giving effect to the transaction
as though it had occurred at the beginning of the earliest period presented.
The condensed historical consolidated balance sheets as of December 31,
1999 and statements of income for 1999, 1998 and 1997 are derived from the
historical consolidated financial statements of Bank of Southern Oregon and
United Bancorp and should be read in conjunction with historical consolidated
financial statements and
53
<PAGE> 61
notes thereto for Bank of Southern Oregon and United Bancorp included elsewhere
in this prospectus/joint proxy statement.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
December 31, 1999
---------------------------------------------------------------------------------
PREMIERWEST
BANK OF BANCORP PRO
SOUTHERN UNITED PRO FORMA FORMA
OREGON BANCORP NOTES ADJUSTMENTS COMBINED
---------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks...................... $ 7,164,000 $ 5,429,000 $ 12,593,000
Federal funds sold & interest-earning deposits 8,250,000 25,000 8,275,000
------------ ------------ --------------
Total cash and cash equivalents.......... 15,414,000 5,454,000 20,868,000
Investment securities........................ 23,045,000 59,304,000 82,349,000
Loans, net of allowance for loan losses...... 109,629,000 61,791,000 171,420,000
Federal Home Loan Bank stock................. 3,881,000 1,937,000 5,818,000
Premises and equipment, net.................. 6,069,000 4,227,000 10,296,000
Other assets................................. 2,946,000 2,955,000 5,901,000
------------ ------------ --------------
Total assets........................... $ 160,984,000 $ 135,668,000 $ 296,652,000
============ ============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing checking................ $ 28,184,000 $ 15,605,000 $ 43,789,000
Savings and interest bearing demand.......... 67,692,000 47,627,000 115,319,000
Time......................................... 44,108,000 26,529,000 70,637,000
------------- ------------- --------------
Total deposit accounts................... 139,984,000 89,761,000 229,745,000
FHLB advances................................ 5,245,000 12,157,000 17,402,000
Repurchase Agreements/Federal Funds Purchased -- 18,600,000 18,600,000
Other borrowings............................. -- 604,000 604,000
------------- ------------- --------------
Total borrowings......................... 5,245,000 31,361,000 36,606,000
Other liabilities............................ 998,000 1,079,000 2,077,000
------------- ------------- --------------
Total liabilities...................... 146,227,000 122,201,000 268,428,000
Shareholders' equity:
Preferred stock.............................. -- -- --
Common stock................................. 12,452,000 4,528,000 Note 1 938,000 17,918,000
Surplus...................................... -- 938,000 Note 1 (938,000) --
Retained earnings............................ 2,787,000 9,923,000 12,710,000
Unearned ESOP compensation................... -- (604,000) (604,000)
Accumulated other comprehensive loss......... (482,000) (1,318,000) (1,800,000)
------------ ------------- -------------
Total shareholders' equity............... 14,757,000 13,467,000 28,224,000
------------ ------------- ------------- -------------
Total liabilities and shareholders' equity $ 160,984,000 $ 135,668,000 $ -- $ 296,652,000
============ ============= ============= =============
</TABLE>
- -------------------------
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
54
<PAGE> 62
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------
BANK OF PREMIERWEST
SOUTHERN UNITED PRO FORMA BANCORP PRO
OREGON BANCORP NOTES ADJUSTMENTS FORMA COMBINED
---------------- --------------- -------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Interest income
Loans................................. $ 9,490,000 $ 4,980,000 $ 14,470,000
Federal funds sold and interest-bearing
deposits............................ 1,223,000 23,000 1,246,000
Securities............................ 1,403,000 3,693,000 5,096,000
------------ ------------- --------------
Total interest income............. 12,116,000 8,696,000 20,812,000
Interest expense
Deposits.............................. 4,507,000 2,172,000 6,679,000
Interest on other borrowings.......... 324,000 1,077,000 1,401,000
------------ ------------- --------------
Total interest expense............ 4,831,000 3,249,000 8,080,000
------------ ------------- --------------
Net interest income.......... 7,285,000 5,447,000 12,732,000
Loan loss provision...................... 640,000 195,000 835,000
------------ ------------- --------------
Net interest income after
loan loss provision...... 6,645,000 5,252,000 11,897,000
Noninterest income....................... 491,000 1,588,000 2,079,000
Noninterest expense
Salaries and employee benefits........ 2,768,000 3,608,000 6,376,000
Occupancy and equipment, net.......... 557,000 996,000 1,553,000
Advertising........................... 188,000 263,000 451,000
Other................................. 1,614,000 1,547,000 3,161,000
------------ ------------- --------------
Total noninterest expense......... 5,127,000 6,414,000 11,541,000
------------ ------------- --------------
Income before income taxes... 2,009,000 426,000 2,435,000
Income tax expense (benefit)............. 768,000 (61,000) 707,000
------------ ------------- --------------
Net Income...................... $ 1,241,000 $ 487,000 $ 1,728,000
============ ============= ==============
Earnings per common share
Basic................................. $ 0.26 $ 0.29 $ 0.21
Diluted............................... $ 0.25 $ 0.28 $ 0.21
</TABLE>
- --------------------
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
55
<PAGE> 63
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------------------
BANK OF PREMIERWEST
SOUTHERN UNITED PRO FORMA BANCORP PRO
OREGON BANCORP NOTES ADJUSTMENTS FORMA COMBINED
---------------- --------------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Interest income
Loans................................. $ 9,915,000 $ 4,556,000 $ 14,471,000
Federal funds sold and interest-bearing
deposits............................ 1,074,000 224,000 1,298,000
Securities............................ 737,000 3,514,000 4,251,000
------------ ------------- --------------
Total interest income............. 11,726,000 8,294,000 20,020,000
Interest expense
Deposits.............................. 4,828,000 1,948,000 6,776,000
Interest on other borrowings.......... 89,000 1,103,000 1,192,000
------------ ------------- --------------
Total interest expense............ 4,917,000 3,051,000 7,968,000
------------ ------------- --------------
Net interest income.......... 6,809,000 5,243,000 12,052,000
Loan loss provision...................... 1,652,000 50,000 1,702,000
------------ ------------- --------------
Net interest income after
loan loss provision..... 5,157,000 5,193,000 10,350,000
Noninterest income....................... 531,000 1,631,000 2,162,000
Noninterest expense
Salaries and employee benefits........ 1,898,000 2,808,000 4,706,000
Occupancy and equipment, net.......... 426,000 869,000 1,295,000
Advertising........................... 84,000 89,000 173,000
Other................................. 1,350,000 1,538,000 2,888,000
------------ ------------- --------------
Total noninterest expense......... 3,758,000 5,304,000 9,062,000
------------ ------------- --------------
Income before income taxes... 1,930,000 1,520,000 3,450,000
Income tax expense....................... 748,000 466,000 1,214,000
------------ ------------- --------------
Net Income...................... $ 1,182,000 $ 1,054,000 $ 2,236,000
============ ============= ==============
Earnings per common share
Basic................................. $ 0.25 $ 0.65 $ 0.28
Diluted............................... $ 0.24 $ 0.61 $ 0.27
</TABLE>
- -------------------
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
56
<PAGE> 64
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------
BANK OF PREMIERWEST
SOUTHERN UNITED PRO FORMA BANCORP PRO
OREGON BANCORP NOTES ADJUSTMENTS FORMA COMBINED
---------------- --------------- -------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Interest income
Loans................................. $ 9,715,000 $ 4,310,000 $ 14,025,000
Federal funds sold and interest-bearing
deposits............................ 736,000 86,000 822,000
Securities............................ 809,000 3,993,000 4,802,000
------------ ------------- --------------
Total interest income............. 11,260,000 8,389,000 19,649,000
Interest expense
Deposits.............................. 4,287,000 1,712,000 5,999,000
Interest on other borrowings.......... -- 1,556,000 1,556,000
------------ ------------- --------------
Total interest expense............ 4,287,000 3,268,000 7,555,000
------------ ------------- --------------
Net interest income.......... 6,973,000 5,121,000 12,094,000
Loan loss provision...................... 1,731,000 140,000 1,871,000
------------ ------------- --------------
Net interest income after
loan loss provision..... 5,242,000 4,981,000 10,223,000
Noninterest income....................... 402,000 1,113,000 1,515,000
Noninterest expense
Salaries and employee benefits........ 1,694,000 2,671,000 4,365,000
Occupancy and equipment, net.......... 299,000 673,000 972,000
Advertising........................... 52,000 56,000 108,000
Other................................. 871,000 1,314,000 2,185,000
------------ ------------- --------------
Total noninterest expense......... 2,916,000 4,714,000 7,630,000
------------ ------------- --------------
Income before income taxes... 2,728,000 1,380,000 4,108,000
Income tax expense....................... 986,000 376,000 1,362,000
------------ ------------- --------------
Net Income...................... $ 1,742,000 $ 1,004,000 $ 2,746,000
============ ============= ==============
Earnings per common share
Basic................................. $ 0.37 $ 0.61 $ 0.35
Diluted............................... $ 0.36 $ 0.60 $ 0.33
</TABLE>
- -----------------------
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Adjustments
The unaudited pro forma combined balance sheet reflects the issuance of
3,570,139 shares of PremierWest Bancorp (holding company for Bank of
Southern Oregon) common stock with no par value to United Bancorp
shareholders (assuming no dissenting shareholders) using the exchange
ratio of 1.971, in addition to the 4,837,740 shares outstanding to Bank
of Southern Oregon's shareholders. These shares were derived by using
the respective companies' outstanding shares at December 31, 1999. An
adjustment of $938,000 to common stock and capital surplus is necessary
to reflect the difference between PremierWest Bancorp common stock with
no par value and United Bancorp common stock that has a par value of
$2.50 which will be cancelled when the transaction is consummated.
There were no other significant adjustments made to the historical
consolidated balance sheets or statements of income of Bank of Southern
Oregon and United Bancorp to arrive at the unaudited pro forma combined
balance sheet or statements of income.
2. Transaction Costs
Total costs to be incurred by Bank of Southern Oregon (and PremierWest
Bancorp) and United Bancorp in connection with the transaction are
estimated to be approximately $645,000. These costs, relating to
financial advisor fees and legal, accounting, printing and other
related expenses, will be charged against
57
<PAGE> 65
net income of the combined organization in the period the transaction
is consummated. The effect of the costs has not been reflected in the
Pro Forma Condensed Combined Financial Statements.
3. Earnings Per Common Share
Earnings per share computations are based on the weighted average
common shares outstanding during the years presented. The shares used
in calculating earnings per share have been restated to reflect the
exchange ratio of 1.971.
BANK OF SOUTHERN OREGON ANNUAL MEETING
This prospectus/joint proxy statement is being furnished in connection
with the solicitation of proxies by Bank of Southern Oregon's board of directors
for use at the annual meeting.
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT
RELATING TO PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON HAS BEEN
FURNISHED BY BANK OF SOUTHERN OREGON, AND ALL INFORMATION RELATING TO
UNITED BANCORP AND DOUGLAS NATIONAL BANK HAS BEEN FURNISHED BY UNITED
BANCORP. THE PARTY FURNISHING INFORMATION IS RESPONSIBLE FOR ITS
ACCURACY.
PURPOSE OF THE MEETING
At the Bank of Southern Oregon meeting, holders of Bank of Southern
Oregon common stock will consider and vote upon:
(1) a proposal to approve and adopt the merger agreement and the
transactions contemplated thereby;
(2) a proposal to approve the holding company reorganization of
Bank of Southern Oregon through a direct share exchange if the
United Bancorp merger is not approved;
(3) a proposal to elect 8 individuals to serve as directors until
the 2001 annual meeting; and
(4) a proposal to ratify the board of directors' selection of
independent auditors for the year ending December 31, 2000.
Proposals 3 and 4 are discussed below. Proposal 1 and 2 are discussed
in this prospectus/joint proxy statement under the caption, "THE MERGER AND
HOLDING COMPANY REORGANIZATION."
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The record date for the determination of holders of Bank of Southern
Oregon common stock entitled to notice of and to vote at the meeting has been
fixed by the board as the close of business on March 17, 2000. As of the March
17 record date, there were 4,857,540 shares of Bank of Southern Oregon common
stock issued and outstanding. The Bank of Southern Oregon common stock was held
of record on that date by approximately 248 shareholders. Each share of Bank of
Southern Oregon common stock is entitled to one vote. All holders of Bank of
Southern Oregon common stock are entitled to exercise dissenters' rights. See,
"RIGHTS OF DISSENTING SHAREHOLDERS."
58
<PAGE> 66
VOTE REQUIRED
Directors are elected by plurality vote. The individuals receiving the
most votes are elected to serve as directors. The merger proposal will be
approved by shareholders if and only if the holders of at least two thirds of
the shares of Bank of Southern Oregon common stock vote in favor of it.
Likewise, the separate holding company reorganization proposal will be approved
by shareholders if and only if the holders of at least two thirds of the shares
vote in favor of it.
Directors and executive officers of Bank of Southern Oregon own or
exercise voting power over approximately 728,998 shares of Bank of Southern
Oregon's issued and outstanding common stock (excluding shares acquirable upon
exercise of options), or 15% of the voting power. See, " - VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF." The directors and executive officers of Bank of
Southern Oregon have indicated their intention to vote in favor of the merger
and in favor of the holding company reorganization.
VOTING AND REVOCATION OF PROXIES
The enclosed proxy is solicited by Bank of Southern Oregon's board and
may be used by shareholders to vote at the annual meeting. Bank of Southern
Oregon requests shareholders to complete, date and sign the accompanying proxies
and promptly return them in the accompanying postage-paid envelope. A
shareholder may revoke a proxy at any time before it is voted by
- attending the meeting and voting in person (but attendance
will not by itself constitute revocation),
- filing with the Secretary another proxy duly executed and
bearing a later date, or
- giving to the Secretary of Bank of Southern Oregon written
notice of the proxy revocation at or before the meeting.
Please provide any written notice of revocation to Mr. Richard R. Hieb,
Executive Vice President, Chief Operating Officer and Secretary of Bank of
Southern Oregon, 1455 East McAndrews Road, Medford, Oregon 97504.
Unless revoked, shares represented by proxy will be voted at the annual
meeting. Shares represented by valid proxies will be voted at the meeting in
accordance with the instructions noted thereon. If no instructions are given,
proxies will be voted in favor of the merger proposal, in favor of the holding
company reorganization proposal and in favor of election of the designated
nominees to serve as directors.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the meeting is a
majority of the shares of Bank of Southern Oregon common stock issued and
outstanding on the March 17, 2000 record date, whether represented in person or
by proxy. Abstentions and broker non-votes will count as present for purposes of
determining whether there is a quorum at the meeting, but will not be voted.
Because approval of the merger proposal requires the affirmative vote of at
least two thirds of the outstanding shares of Bank of Southern Oregon common
stock, abstentions and broker non-votes will be equivalent to votes against the
merger. For the same reason, abstentions and broker non-votes will be equivalent
to votes against the holding company reorganization proposal. Abstentions and
broker non-votes will not affect the election of directors.
If a quorum is not present, or if fewer shares of Bank of Southern
Oregon common stock than the number required therefor vote in favor of the
merger and in favor of the holding company reorganization, Bank of Southern
Oregon may postpone or adjourn the meeting to solicit additional proxies or
votes. When Bank of Southern Oregon reconvenes the meeting, all proxies will be
voted in the same manner as they would have been
59
<PAGE> 67
voted at the original convening of the meeting, except for any proxies that have
been effectively revoked or withdrawn.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table indicates the beneficial ownership of Bank of
Southern Oregon common stock as of the March 17, 2000 record date
- by directors and executive officers of Bank of Southern
Oregon,
- by each person who is known by Bank of Southern Oregon to own
beneficially more than 5% of the outstanding shares of Bank of
Southern Oregon common stock, which information has been
derived by Bank of Southern Oregon from beneficial ownership
reports filed by those persons with the Federal Deposit
Insurance Corporation under Section 13(d) of the Securities
Exchange Act of 1934, and
- by all directors and executive officers of Bank of Southern
Oregon as a group.
Unless otherwise stated, voting and investment power are exercised
solely by the person named or are shared with members of his or her household.
For purposes of the table, a person is considered to own beneficially any shares
for which he or she exercises sole or shared voting or investment power, plus
the number of shares the individual has the right to acquire within 60 days.
Shares deemed to be outstanding are calculated on the basis of 4,857,540 shares
outstanding on the record date, plus the number of shares a person or group has
the right to acquire within 60 days.
<TABLE>
<CAPTION>
SHARES
SHARES OF ACQUIRABLE PERCENT OF
COMMON WITHIN 60 COMMON
NAME OF BENEFICIAL OWNER POSITION WITH BANK OF SOUTHERN OREGON STOCK OWNED DAYS STOCK
- ----------------------------- ---------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
John L. Anhorn............... Director, President and Chief Executive 7,000 0 (1)
Officer
Jeffrey L. Chamberlain....... Director 66,720 31,200 2.0%
John A. Duke................. Chairman of the Board and Director 467,440 (2) 2,400 9.7%
P.O. Box 430
Rogue River, Oregon 97537
John C. and Penny D. Esser... None 356,698 0 7.3%
1544 Nottingham Circle
Medford, Oregon 97504
Tammy D. Glass............... Vice President of Operations/Human 10,500 3,726 (1)
Resources and Marketing
Richard R. Hieb.............. Director Nominee, Executive Vice President, 4,000 0 (1)
Chief Operating Officer and Secretary
Dennis N. Hoffbuhr........... Director 26,368 26,200 1.1%
Patrick G. Huycke............ Vice Chairman and Director 103,634 0 2.1%
Robert A. Johnson............ Senior Vice President and Credit 0 0 0.0%
Administrator
Richard K. Karchmer.......... Director 42,336 31,200 1.5%
Bruce R. McKee............... Vice President and Chief Financial Officer 0 0 0.0%
James L. Patterson........... Director 1,000 0 (1)
All directors, nominees and
executive officers as a group
(11 persons)................. N/A 728,998 94,726 16.6%
</TABLE>
- -----------------------
(1) Less than one percent.
(2) Includes 447,440 shares held by the John A. Duke Trust, of which Mr.
Duke is co-trustee. Excludes 77,800 shares held by Mr. Duke's adult
daughters.
60
<PAGE> 68
ELECTION OF DIRECTORS
BANK OF SOUTHERN OREGON DIRECTORS. Under Article V of Bank of Southern
Oregon's Articles of Incorporation and Section 2.1 of its Bylaws, the board may
consist of no fewer than 3 and no more than 15 members. The board may fix the
number of directors from time to time within that range by resolution. The
number of directors is currently fixed at 8. Proxies solicited for the annual
meeting cannot be voted for a greater number of persons than the number of
nominees identified in this prospectus/joint proxy statement. Under Article VIII
of Bank of Southern Oregon's Articles of Incorporation, a director may not stand
for election after he has reached the age of 70. All directors of Bank of
Southern Oregon are elected annually and hold office until the following annual
meeting or until their successors are elected and qualified.
The board held 12 regular monthly meetings and one special meeting in
1999. Every director attended at least 75% of the regular and special meetings
of the board and meetings of committees on which he served.
Except as noted, there are no family relationships among any of the
directors or executive officers. No director was selected or serves pursuant to
any arrangement or understanding with any other person. Except as disclosed,
none of the directors and executive officers of Bank of Southern Oregon serves
as a director of any company that has a class of securities registered under, or
that is subject to the periodic reporting requirements of, the Securities
Exchange Act of 1934 or any investment company registered under the Investment
Company Act of 1940. None of the directors or executive officers of Bank of
Southern Oregon has been involved in any legal proceedings concerning
bankruptcy, either individually or in respect of any businesses with which they
have been involved. None of them have been convicted of any crime, excluding
traffic violations and similar minor offenses.
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<PAGE> 69
NOMINEES. The following table identifies the individuals nominated to
serve as directors until the 2001 annual meeting.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR NOMINEE'S NAME AND POSITION AGE SINCE PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
- ------------------------------------- -------- ---------- ----------------------------------------------------------------
<S> <C> <C> <C>
John L. Anhorn....................... 57 1998 John L. Anhorn has more than 35 years of banking experience. He
Director, President and Chief Executive has served as President and Chief Executive Officer since May
Officer 1998. Previously, Mr. Anhorn served for 25 years with First
Interstate Bank of Oregon. In August 1989 he joined Western
Bank, serving as President until April 1997, when Western
Bank merged into Washington Mutual Bank. At the time of its
acquisition by Washington Mutual Bank, Western bank had total
assets of approximately $950 million.
Jeffrey L. Chamberlain............... 55 1990 Jeffrey L. Chamberlain is a self-employed private investor and
Director developer, specializing in the development of healthcare
facilities . Mr. Chamberlain has a B.S. in Business
Administration from Portland State University.
John A. Duke......................... 61 1990 John A. Duke is a self-employed investment manager. He served
Chairman of the Board and Director as Chairman of the Board of Jefferson State Bank in Medford,
Oregon from inception until sale to First Interstate Bank of
Oregon in May 1989. Mr. Duke has been Chairman of the Board of
Bank of Southern Oregon since its organization in 1990.
Richard R. Hieb...................... 55 N/A Richard R. Hieb has more than 35 years of experience in
Director Nominee, Executive Vice commercial banking. He became Executive Vice President and
President, Chief Operating Officer and Chief Operating Officer of Bank of Southern Oregon in May 1998,
Secretary having previously served for 10 years as Executive Vice
President and Chief Administrative Officer of Western Bank,
which was acquired by and became a division of Washington
Mutual Bank in April 1997.
Dennis N. Hoffbuhr................... 51 1990 Dennis N. Hoffbuhr is the owner and President of Hoffbuhr and
Director Associates, Inc., a land surveying and land use planning firm
in Medford, Oregon. Mr. Hoffbuhr is a registered land surveyor
certified by the Oregon State Board of Engineering Examiners.
Patrick G. Huycke.................... 50 1994 Patrick G. Huycke is an attorney with Huycke, Boyd & Maulding
Vice Chairman and Director LLP. Mr. Huycke received his law degree from Willamette
University and has practiced law for 23 years. Mr. Huycke also
served as a director of Jefferson State Bank from 1983 to
1989.
Richard K. Karchmer.................. 56 1990 Richard K. Karchmer is a physician in the practice of medical
Director oncology and hematology.
James L. Patterson................... 60 1999 James L. Patterson is a self-employed business consultant. He
Director retired after serving for 34 years with Pacific Power.
</TABLE>
REMUNERATION OF DIRECTORS. In addition to reimbursement of reasonable
expenses of attendance at board and committee meetings, each director receives
monthly cash compensation of $1,000 for service on the board and committees,
except that the Vice Chairman's cash compensation is $1,300 monthly. For each
board meeting other than the regular monthly meetings each director also
receives a fee of $150. Directors of PremierWest Bancorp will not receive cash
compensation in addition to the compensation they receive as directors of Bank
of Southern Oregon (PremierWest Bank) after the transaction. Bank of Southern
Oregon granted to directors options to acquire common stock under its1992
Combined Incentive and Non-Qualified Stock Option Plan.
BOARD COMMITTEES. In intervals between meetings of the full board, the
Executive Committee possesses and may exercise the power of the full board in
the management and direction of Bank of Southern Oregon's affairs in all cases
in which specific direction shall not have been given by the full board, except
as may otherwise be provided by applicable law and except insofar as the board
shall have delegated power to another committee.
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<PAGE> 70
The Executive Committee consists of Messrs. John L. Anhorn, John A. Duke,
Patrick G. Huycke and Richard K. Karchmer.
The directors eligible to serve on the Audit Committee are those who
are not also officers or employees of Bank of Southern Oregon. The Audit
Committee is charged with examining or superintending the examination or audit
of Bank of Southern Oregon's assets, liabilities and results of operations on at
least an annual basis, reporting the results thereof to the board. The Audit
Committee consists of Messrs. Jeffrey L. Chamberlain, Dennis N. Hoffbuhr and
James L. Patterson. The Audit Committee held three meetings in 1999.
The board does not have nominating or compensation committees. The full
board acts as a nominating committee, selecting nominees for election as
director. The Executive Committee of the board exercises authority over
officers' compensation. Mr. Anhorn does not participate in deliberations of and
voting by the Executive Committee concerning his compensation.
POST-TRANSACTION DIRECTORS: PREMIERWEST BANCORP. PremierWest Bancorp's
board includes 5 of the 8 nominees for election as director of Bank of Southern
Oregon, serving identical terms as directors of Bank of Southern Oregon. The
current directors of PremierWest Bancorp are John L. Anhorn, John A. Duke,
Dennis N. Hoffbuhr, Patrick G. Huycke and James L. Patterson. Along with 3
individuals designated by United Bancorp, these individuals will continue to
serve as 5 of 8 directors of PremierWest Bancorp after the merger with United
Bancorp. United Bancorp has designated three of its directors-- Messrs. Peter
Martini, Rickar D. Watkins and Thomas Becker-- to serve as directors of
PremierWest Bancorp if the merger is completed.
POST-TRANSACTION DIRECTORS: PREMIERWEST BANK. If elected by
shareholders at the annual meeting, the nominees will continue to serve as
directors of Bank of Southern Oregon (PremierWest Bank) after the transaction
with United Bancorp is completed. After the transaction, PremierWest Bank's
board will consist of 13 members, including the 8 directors elected at the
annual meeting. The other 5 members will be designated by United Bancorp. The
individuals designated by United Bancorp to serve as directors of PremierWest
Bank if the merger with United Bancorp is completed are the 3 persons designated
by United Bancorp to serve as directors of PremierWest Bancorp, and David A.
Emmett and Brian R. Pargeter.
63
<PAGE> 71
BANK OF SOUTHERN OREGON EXECUTIVE OFFICERS. The executive officers of
Bank of Southern Oregon are:
<TABLE>
<CAPTION>
NAME AND POSITION AGE BACKGROUND
- ----------------------------------- --------- --------------------------------------------------------------------------------
<S> <C> <C>
John L. Anhorn..................... 57 See above
President and Chief Executive Officer
Tammy D. Glass..................... 40 Tammy D. Glass has 20 years of experience in banking. She served as
Vice President of Operations/Human operations officer of the main office of Jefferson State Bank when it was
Resources and Marketing acquired by First Interstate Bank of Oregon in May 1989, after having begun her
service with Jefferson State Bank as a teller. After one year with First
Interstate Bank, she joined Bank of Southern Oregon as Operations Officer when
it opened in 1990.
Richard R. Hieb.................... 55 See above
Executive Vice President, Chief
Operating Officer and Secretary
Robert A. Johnson.................. 61 Robert A. Johnson has been engaged in the banking business for 39 years, for 34
Senior Vice President and Credit years with First Interstate Bank of Oregon and for 5 years thereafter with
Administrator Western Bank, which was acquired by and became a division of Washington
Mutual Bank in April 1997. Mr. Johnson was a regional credit administrator
with Western Bank. In January 1999, when he left Western Bank to join Bank of
Southern Oregon, Mr. Johnson was Team Leader for commercial lenders, with
responsibility for a commercial loan portfolio of approximately $40 million.
Bruce R. McKee..................... 49 Bruce R. McKee is a certified public accountant licensed both in Oregon and
Vice President and Chief Financial California. Before joining Bank of Southern Oregon in December 1998, he
Officer served for six years as Chief Financial Officer and Director of Finance for a
healthcare company located on the West Coast. Before that, he served for eleven
years with Grant Thornton International, an international accounting and
consulting firm.
</TABLE>
EXECUTIVE COMPENSATION. The following table shows compensation for
services in all capacities for the fiscal years ended December 31, 1999, 1998,
and 1997 for the President and Chief Executive Officer and any other executive
officer who received compensation in excess of $100,000 during 1999, including
salary and bonus.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-------------------------------
Annual Compensation Awards
------------------------------------------------------------- -------------------------------
($) (#)
($) Restricted Securities
Name and ($) ($) Other Annual Stock Underlying
Principal Position Year Salary (1) Bonus Compensation (2) Awards Options
- -------------------- -------- ----------- ----------- ------------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John L. Anhorn, 1999 $ 152,000 $ 20,000 $ (2) $ 0 0
President and Chief 1998 $ 98,700 $ 0 $ (2) $ 0 75,000
Executive Officer 1997 N/A (4) N/A N/A N/A N/A
Richard R. Hieb, 1999 $ 110,000 $ 15,000 $ (2) $ 0 0
Executive Vice 1998 $ 58,000 $ 0 $ (2) $ 0 60,000
President, Chief 1997 N/A (4) N/A N/A N/A N/A
Operating Officer
and Secretary
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------
Payouts
------------------------
($) ($)
Name and LTIP All Other
Principal Position Payouts Compensation(3)
- -------------------- ---------- -------------------
<S> <C> <C>
John L. Anhorn, $ 0 $ 3,000
President and Chief $ 0 $ 1,500
Executive Officer N/A N/A
Richard R. Hieb, $ 0 $ 2,000
Executive Vice $ 0 $ 1,000
President, Chief N/A N/A
Operating Officer
and Secretary
</TABLE>
- -------------------------
(1) Includes amounts deferred at the election of the named executive
officers pursuant to the 401(k) Plan of Bank of Southern Oregon.
(2) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of total salary and bonus.
(3) Represents matching contributions of Bank of Southern Oregon under its
401(k) plan.
(4) Mr. Anhorn and Mr. Hieb joined Bank of Southern Oregon effective May 1,
1998.
64
<PAGE> 72
INCENTIVE COMPENSATION PLANS. Bank of Southern Oregon has an Officer
Incentive Compensation Plan for officers and a Non-Exempt Staff Incentive Plan
for other staff. The bank pays incentive compensation under the Officer
Incentive Compensation Plan in the form of cash bonuses at year end, based upon
achievement of a structured set of objectives determined by the board and the
affected executives each year. Performance is monitored by the board throughout
the year, and payment is conditional upon meeting objectives established at the
beginning of the year. Generally, the objectives have to do with specified
targets for return-on-assets, audit compliance, achievement of Bank of Southern
Oregon's strategic plan objectives and overall management of the bank. Incentive
bonuses cannot exceed 15% of annual salary. Executive management are not
participants in these incentive plans. Instead, they are entitled to bonuses as
the board determines, in its discretion.
STOCK OPTION PLAN. Bank of Southern Oregon's 1992 Combined Incentive
and Non-Qualified Stock Option Plan provides for the grant of options to acquire
shares of common stock. The number of shares acquirable by exercise of options
granted under the plan was increased to 723,900 shares by shareholder action on
May 14, 1998. Options granted under the plan can be either incentive stock
options or non-qualified stock options. Options to acquire 324,000 shares of
Bank of Southern Oregon common stock were issued and outstanding as of February
1, 2000. When the holding company reorganization occurs, all unexercised options
to purchase shares of Bank of Southern Oregon common stock will become options
to purchase an identical number of shares of PremierWest Bancorp common stock,
with the same terms, conditions and exercise prices.
Under the stock option plan, incentive and non-qualified stock options
have been and may be granted by Bank of Southern Oregon to director, officer and
employee participants. Non-qualified stock options may be granted to directors
of Bank of Southern Oregon as well. An incentive stock option is an option that
satisfies the terms of Section 422 of the Internal Revenue Code of 1986. All
other options granted under the stock option plan are non-qualified options. The
exercise price of incentive stock options must be no less than the fair market
value of the shares on the date of grant (or 110% of fair market value in the
case of any incentive stock option grant to a holder of more than 10% of Bank of
Southern Oregon's common stock), and the exercise price of non-qualified stock
options must be no less than book value at the end of the most recent fiscal
year. Options granted under the plan generally vest and become exercisable in
20% annual increments beginning one year after the date of grant, expiring after
10 years (or 5 years in the case of any incentive stock option grant to a holder
of more than 10% of Bank of Southern Oregon's common stock). Options granted
under the plan are not transferable except by will or the laws of descent and
distribution, and are exercisable during the option grantee's lifetime by the
option grantee only. Exercisable options not exercised within 60 days after
termination of the option grantee's service expire, except in the case of
disability or death, in which case they expire after one year.
The plan may be administered by the full board or by a committee of at
least 2 directors. The stock option plan provides for a 30-day period before any
merger or acquisition of Bank of Southern Oregon in which Bank of Southern
Oregon is not the surviving entity during which the committee administering the
plan may allow all options to be exercised, regardless of whether the options
are vested and otherwise exercisable.
Although non-qualified stock options may be granted to directors,
officers and employees, Bank of Southern Oregon's practice to date has been to
issue incentive stock options to executive officers, non-qualified stock options
to employees, and non-qualified stock options to directors who are not also
executive officers of Bank of Southern Oregon.
65
<PAGE> 73
The following table shows the number of shares of Bank of Southern
Oregon common stock acquired during 1999 or acquirable upon exercise of options
by the individuals named in the Summary Compensation Table. The table also
indicates the extent to which the options were exercisable at December 31, 1999,
as well as the approximate value of the options based on the estimated fair
market value of Bank of Southern Oregon common stock on December 31, 1999.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR END (#)
-----------------------------------
SHARES ACQUIRED
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE
- ------------------ ----------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
John L. Anhorn.... 0 $ 0 0 75,000
Richard R. Hieb... 0 $ 0 0 60,000
</TABLE>
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY OPTIONS
AT FISCAL YEAR END ($) (1)
----------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ------------------ --------------- ----------------
<S> <C> <C>
John L. Anhorn.... $ 0 $ 0
Richard R. Hieb... $ 0 $ 0
</TABLE>
- -----------------------
(1) None of the stock options held by Mr. Anhorn or Mr. Hieb are
"in-the-money." In general, a stock option is "in-the-money" when the
stock's fair market value exceeds the option exercise price. Value of
unexercised options equals the estimated fair market value of a share
acquirable upon exercise of an option at December 31, 1999, less the
exercise price per share, multiplied by the number of shares acquirable
upon exercise of the options. The stock options held by Mr. Anhorn and
Mr. Hieb are exercisable at the price of $8.25 per share. Bank of
Southern Oregon common stock is quoted on the OTC Bulletin Board, but
it is not actively traded. Solely for purposes of the table and for no
other purpose, Bank of Southern Oregon estimated the per share fair
market value of Bank of Southern Oregon common stock at December 31,
1999 as $6.50, the closing price on December 29, 1999. This is an
estimate only and does not necessarily reflect actual transactions in
Bank of Southern Oregon common stock. The estimate does not necessarily
reflect the price shareholders could obtain upon sale of their stock or
the price at which shares of Bank of Southern Oregon common stock may
be acquired. The estimate should not be taken to represent management
or the board's estimate of the intrinsic value or fair market value of
the common stock.
RETIREMENT PLAN. Bank of Southern Oregon adopted a 401(k) Profit
Sharing Plan effective January 1, 1990. The plan covers full-time employees over
18 years of age. At Bank of Southern Oregon's discretion, employee voluntary
contributions may be partially matched by Bank of Southern Oregon, up to 6% of
the employee's contribution. Bank of Southern Oregon does not have a pension or
other retirement plan under which benefits are determined based on final or
average compensation and years of service.
EMPLOYMENT AGREEMENTS. Mr. Anhorn serves as President and Chief
Executive Officer under an April 2, 1998 employment agreement that became
effective May 1, 1998. The term of the employment agreement is indefinite, and
Mr. Anhorn's service is terminable at any time by Bank of Southern Oregon with
or without cause. The employment agreement provides for an annual salary of
$150,000, adjustable annually by the Board (but not to an amount less than
$150,000). The benefits provided to Mr. Anhorn under the employment agreement
include health insurance coverage, paid vacation of at least 4 weeks annually,
participation in incentive compensation and 401(k) plans, use of a bank-owned
vehicle, term life insurance, disability insurance and paid membership in a
country club. At the time Mr. Anhorn and Bank of Southern Oregon entered into
the employment agreement, Bank of Southern Oregon had begun the process of
reorganizing into the holding company form of ownership. Accordingly, the
employment agreement provides by its terms that the rights and obligations of
Bank of Southern Oregon will be assumed by the holding company of Bank of
Southern Oregon.
The employment agreement also grants to Mr. Anhorn an option to acquire
75,000 shares of Bank of Southern Oregon common stock, which may be increased
based on subsequent changes in the issued and outstanding common stock of Bank
of Southern Oregon as a result of stock splits or stock dividends. The stock
options' exercise price is the fair market value of the stock on the date of
grant. The stock options vest and become exercisable in increments over 7 years,
with 30% (22,500 shares) vesting on the 3rd anniversary of his service, 20%
(15,000 shares) at the end of each of the 4th, 5th and 6th years and 10% (7,500
shares) after the 7th year. Vesting and exercisability accelerate if a change in
control of Bank of Southern Oregon occurs.
If a change in control occurs before Mr. Anhorn completes 3 years of
service, one half of the 75,000-share option grant vests. The entire option
grant vests if a change in control occurs after 3 years. Unvested
66
<PAGE> 74
options terminate if Mr. Anhorn's service is terminated with cause, or if he
terminates his service without cause. If his service is terminated without cause
by Bank of Southern Oregon, or if he terminates his service for cause, he will
have 90 days to exercise vested options. If he dies or becomes disabled, he or
his estate will have one year to exercise his options. For purposes of the
employment agreement, a "change in control" means a sale or change in ownership
of more than 40% of Bank of Southern Oregon common stock to any one entity other
than in a holding company reorganization. If Mr. Anhorn is terminated without
cause, or if he terminates his service for cause, he will be entitled to
severance in an amount equal to his current base salary. If a change in control
occurs, the severance payment will be reduced by any amounts he receives through
ordinary compensation, noncompetition payments or other benefits payable by the
acquiring company.
The agreement also provides that Mr. Anhorn may not compete with Bank
of Southern Oregon for a period of one year if he is terminated for cause or if
he terminates his service without cause, provided that Bank of Southern Oregon
continues to pay Mr. Anhorn's annual salary and maintains continued health
insurance coverage for Mr. Anhorn during the noncompetition period.
Mr. Hieb serves as Chief Operating Officer of Bank of Southern Oregon
under an employment agreement also dated April 2, 1998, which became effective
May 1, 1998. The terms of Mr. Hieb's employment agreement are largely identical
to those in Mr. Anhorn's employment agreement, except that Mr. Hieb's initial
annual salary is $100,000, and his stock option grant gives him the right to
acquire 60,000 shares.
Mr. Anhorn and Mr. Hieb have executed and delivered to Bank of Southern
Oregon and PremierWest Bancorp a written acknowledgment that the merger with
United Bancorp and the holding company reorganization of Bank of Southern Oregon
do not constitute a change in control for purposes of their employment
agreements.
AGREEMENTS WITH FORMER EXECUTIVES. On May 14, 1998 Bank of Southern
Oregon entered into employment agreements with two former executive officers:
Michael B. Neyt and Richard D. Larson. Mr. Neyt had been the bank's President
and Chief Executive Officer. After Mr. Anhorn joined Bank of Southern Oregon
effective May 1, 1998, Mr. Neyt remained as President under the terms of his May
14, 1998 employment agreement. He resigned as President effective August 20,
1998, but remains employed with the bank as Senior Vice President and loan
officer. Mr. Larson had been the bank's Vice President, Cashier and Secretary.
Mr. Larson serves as a consultant to Bank of Southern Oregon on an occasional
basis.
The term of Mr. Neyt's employment agreement ends on April 30, 2003. It
provides for basic annual compensation of $90,000, as well as eligibility to
participate in employee benefit programs, an automobile allowance and retention
of stock options previously granted to him. Mr. Neyt's May 14, 1998 employment
agreement superseded previous agreements with Bank of Southern Oregon, including
an arrangement for payment of benefits after a change in control of the bank. As
compensation for surrendering the potential change-in-control benefit, Bank of
Southern Oregon agreed to pay Mr. Neyt the sum of $116,912, payable in 3 equal
annual installments of $38,970 in January 1999 through January 2001. The
employment agreement also provides that Mr. Neyt may not compete against Bank of
Southern Oregon for 2 years after termination of his employment. As compensation
for that noncompete agreement, Bank of Southern Oregon will pay Mr. Neyt the sum
of $77,942, payable in 2 equal installments of $38,971 in January 2002 and
January 2003. All of the foregoing payment obligations would survive termination
of Mr. Neyt's employment by Bank of Southern Oregon without cause. Likewise, the
payment obligations would survive termination by Mr. Neyt with cause, except
that his basic compensation amount would be offset by compensation received from
another employer. If Bank of Southern Oregon terminates his employment with
cause, or if Mr. Neyt terminates his employment without cause, the bank would
have to make the noncompete payments only.
The term of Mr. Larson's employment under his May 14, 1998 employment
agreement ended June 30, 1998. Mr. Larson also surrendered his right to receive
change-in-control benefits, and in exchange Bank of Southern Oregon agreed to
pay him $170,066, payable in 5 equal annual installments in January of each
year. Mr. Larson's agreement provides that Mr. Larson may not compete with Bank
of Southern Oregon for a period of 5
67
<PAGE> 75
years from June 30, 1998. The agreement provides that Mr. Larson may retain
stock options previously granted to him, but the agreement provides for no
additional payments in exchange for his agreement not to compete with Bank of
Southern Oregon.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS. Bank of Southern
Oregon has deposit and lending relationships with directors and officers of Bank
of Southern Oregon, as well as with their affiliates. All loans to directors,
officers and their affiliates were made in the ordinary course of business, on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal credit risk or present other unfavorable
features. Refer to Note 12 of Notes to Consolidated Financial Statements of Bank
of Southern Oregon.
None of the loans to directors, officers or their affiliates is or has
been nonperforming, nor have any of the loans been restructured or subject to
special mention due to potential credit problems known to Bank of Southern
Oregon. All of the loans are current and all required payments thereon have been
made. As of December 31, 1999, the aggregate outstanding amount of all loans to
officers and directors was approximately $4.561 million, which represented 30.9%
of Bank of Southern Oregon's shareholders' equity on that date. During 1999, the
aggregate indebtedness of all directors and officers as a group to Bank of
Southern Oregon exceeded 20% of Bank of Southern Oregon's equity capital, and
the indebtedness of Directors Jeffrey L. Chamberlain and John A. Duke to Bank of
Southern Oregon exceeded the lesser of $5 million or 10% of Bank of Southern
Oregon's equity capital. The following table shows the largest aggregate
indebtedness outstanding at any time in 1999 on the part of Messrs. Chamberlain
and Duke and all directors and officers as a group, as well as the amount
outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
PERCENT OF
SHAREHOLDERS' AMOUNT
LARGEST AMOUNT EQUITY AS OF OUTSTANDING AS OF
OUTSTANDING DATE DECEMBER 31, 1999 DECEMBER 31, 1999
------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Mr. Jeffrey L. Chamberlain... $ 1,917,000 December 31, 1999 13.0% $ 1,917,000
Mr. John A. Duke............. $ 1,747,000 January 1, 1999 11.8% $ 1,572,000
All Directors and Officers as a
Group........................ $ 4,561,000 December 31, 1999 30.9% $ 4,561,000
</TABLE>
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ELECTION OF EACH OF
THE IDENTIFIED NOMINEES TO SERVE AS DIRECTORS
RATIFICATION OF INDEPENDENT AUDITOR
Bank of Southern Oregon's independent auditor for the fiscal year ended
December 31, 1999 was Symonds, Evans & Larson, P.C. The board appointed Symonds,
Evans & Larson as independent auditor for the fiscal year ending December 31,
2000. The board seeks shareholder ratification of this appointment.
Bank of Southern Oregon expects one or more members of the firm of
Symonds, Evans & Larson to be present at the annual meeting. The
representative(s) of the independent auditor will have the opportunity to make a
statement if desired, and will be available to respond to appropriate questions.
At the recommendation of the Audit Committee, effective July 22, 1999
Bank of Southern Oregon's board selected Symonds, Evans & Larson, P.C. to serve
as independent auditors for the year ended December 31, 1999. The accounting
firm of Kosmatka Donnelly & Co., LLP had served as the bank's independent
auditors since December 31, 1990, but Kosmatka Donnelly & Co., LLP chose not to
submit a bid for engagement as Bank of Southern Oregon's independent auditors
for fiscal year 1999. The audit reports of Kosmatka Donnelly & Co., LLP on the
consolidated financial statements of Bank of Southern Oregon and subsidiary as
of and for the years ended December 31, 1998 and 1997 did not contain any
adverse opinion or disclaimer of opinion, nor were they
68
<PAGE> 76
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the two fiscal years ended December 31, 1998
and the subsequent interim period through July 22, 1999, there were no
disagreements with Kosmatka Donnelly & Co., LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused Kosmatka Donnelly & Co., LLP to make reference to the subject matters of
the disagreement in connection with Kosmatka Donnelly & Co., LLP's opinions.
Additionally, there were no disagreements with Kosmatka Donnelly & Co., LLP
regarding any of these matters, either those resolved to their satisfaction or
those not resolved to their satisfaction. None of the events listed in Item
304(a)(1)(v)(A) through (D) of Regulation S-K of the Securities and Exchange
Commission occurred during the fiscal years ended December 31, 1998 or 1997 or
the subsequent interim period from January 1, 1999 through July 22, 1999. During
the fiscal years ended December 31, 1998 and 1997 and the subsequent interim
period from January 1, 1999 through July 22, 1999, there was no consultation
with Symonds, Evans & Larson, P.C. regarding: (1) application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on Bank of Southern Oregon's financial
statements; or (2) any matter that was the subject of disagreement (as defined
in paragraph 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined
in paragraph 304(a)(1)(v) of Regulation S-K).
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF SYMONDS, EVANS & LARSON, P.C. AS INDEPENDENT AUDITOR FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2000
EXPENSES; SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by Bank of Southern
Oregon. Brokerage houses, nominees, fiduciaries and other custodians are
requested to forward soliciting materials to beneficial owners. Bank of Southern
Oregon will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to the beneficial owners of Bank of Southern Oregon common stock.
In addition to solicitation by mail, directors, officers and employees
of Bank of Southern Oregon may solicit proxies from the shareholders of Bank of
Southern Oregon personally or by telephone, telegram or other forms of
communication. However, they will not be specifically compensated for those
services.
OTHER MATTERS
The board is not aware of any business to come before the annual
meeting other than those matters described in this prospectus/joint proxy
statement. However, if any other matters do properly come before the meeting,
proxies will be voted in accordance with the judgment of the person or persons
voting the proxies, including matters relating to the conduct of the meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Bank of
Southern Oregon's directors and executive officers, as well as persons who own
more than 10% of a registered class of Bank of Southern Oregon's equity
securities, to file initial reports of ownership and later reports of changes in
ownership of Bank of Southern Oregon common stock. Based solely on review of
copies of the reports furnished to Bank of Southern Oregon and written
representations to the bank, to the best of Bank of Southern Oregon's knowledge
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with in 1999,
except that Director Huycke reported a stock option exercise in an untimely
manner on one occasion.
69
<PAGE> 77
SHAREHOLDER PROPOSALS
The Proxy is solicited by the board and confers discretionary authority
to vote on any matters that properly come before the meeting or any adjournments
thereof. If any matter not set forth in the Notice of Annual Meeting of
Shareholders is properly brought before the meeting, the persons named as
proxies will vote in accordance with their best judgment.
A shareholder desiring to submit a proposal for inclusion in Bank of
Southern Oregon's proxy statement for the 2001 annual meeting -- assuming the
merger and holding company reorganization transactions are not completed by that
time -- must submit the proposal to the Secretary at Bank of Southern Oregon's
office at 1455 East McAndrews Road, Medford, Oregon 97504 no later than November
3, 2000. Bank of Southern Oregon will exclude from its proxy materials for the
2001 annual meeting a proposal submitted after that date. If a shareholder
intends to present a proposal at the 2001 annual meeting without seeking to
include the proposal in Bank of Southern Oregon's proxy materials, the
shareholder must give prior notice of the proposal to Bank of Southern Oregon.
The shareholder must give notice at least 45 days before the date in 2001
corresponding to the mailing date of this prospectus/joint proxy statement for
the 2000 annual meeting. If the shareholder fails to do so, Bank of Southern
Oregon's management proxies for the 2001 annual meeting will be entitled to use
their discretionary voting authority on that proposal, without any discussion of
the matter in Bank of Southern Oregon's proxy materials.
70
<PAGE> 78
BANK OF SOUTHERN OREGON'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bank of Southern Oregon conducts a general commercial banking business,
gathering deposits from the general public and applying those funds to the
origination of loans for commercial, real estate and consumer loans and
investments.
Bank of Southern Oregon's profitability depends primarily on net interest
income, which is the difference between (a) interest income generated by
interest-earning assets (principally loans and investments) and (b) interest
expense incurred on interest-bearing liabilities (principally customer deposits
and borrowed funds). Net interest income is affected by the difference (the
"interest rate spread") between rates of interest earned on interest-earning
assets and rates of interest paid on interest-bearing liabilities, as well as
the relative amounts of interest-earning assets and interest-bearing
liabilities. Financial institutions have traditionally used interest rate
spreads as a measure of net interest income. Another indication of an
institution's net interest income is its "net yield on interest-earning assets"
or "net interest margin," which is net interest income divided by average
interest-earning assets.
To a lesser extent, Bank of Southern Oregon's profitability is also
affected by such factors as the level of noninterest income and expenses, the
provision for loan losses, and the provision for income taxes. Noninterest
income consists primarily of service charges on deposit accounts. Noninterest
expense consists primarily of salaries and employee benefits, professional fees,
equipment, occupancy-related expenses, data processing, advertising and other
operating expenses.
Bank of Southern Oregon's management's discussion and analysis of
financial condition and results of operations is presented herein to assist
investors in understanding the consolidated financial condition and results of
operations of Bank of Southern Oregon for the fiscal years ended December 31,
1999, 1998 and 1997. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere
herein.
RESULTS OF OPERATIONS
Net income of $1.24 million in 1999 represents an increase of 5% over
1998. Net income of $1.18 million in 1998 represents a decrease of 32% as
compared to 1997. The increase in net income in 1999 is primarily due to a
$476,000 increase in net interest income and a $1 million decrease in the loan
loss provision, offset by a $1.37 million increase in noninterest expense. The
decrease in net income in 1998 is primarily due to a $164,000 decrease in net
interest income and a $841,000 increase in noninterest expense, offset by a
reduced loan loss provision, higher noninterest income and a reduced provision
for income taxes. A new management team joined Bank of Southern Oregon in
mid-1998, including the Bank's President and Chief Executive Officer, its
Executive Vice President and Chief Operating Officer and its Chief Financial
Officer. The Bank also began the process of reorganizing into a holding company
structure in 1998, although that was later deferred to allow new management more
time to familiarize itself with the Bank's operations and to address the Bank's
asset-quality issues. These factors contributed to the Bank's decreased loan
loss provision in 1999 and the increases in noninterest expense in 1999 and
1998.
71
<PAGE> 79
NET INTEREST INCOME
1999 Compared to 1998. Net interest income for 1999 was $7.29 million, an
increase of $476,000, or 7%, over 1998. Interest income of $12.1 million in 1999
represents an increase of $390,000, or 3.3%, over 1998. Interest expense of $4.8
million in 1999 decreased by $86,000, or 1.7%, over 1998. The increase in net
interest income is attributable primarily to an increase in the volume of
average earning assets of $13.5 million, outpacing growth in the volume of
average interest-bearing liabilities of $8.7 million and increases in rates
paid. Average loans decreased by $2.6 million, while average federal funds sold
grew by $18.1 million. As a result of the change in asset mix, the Bank's
interest rate spread declined to 4.18% in 1999 from 4.32% in 1998, and the
Bank's net interest margin also declined in 1999 to 4.99% from 5.14% in 1998.
1998 Compared to 1997. Net interest income for 1998 was $6.8 million, a
decrease of $164,000, or 2.3%, over 1997. Interest income of $11.7 million in
1998 represents an increase of $467,000, or 4.1%, over 1997. Interest expense of
$4.9 million for 1998 increased by $630,000, or 14.7%, over 1997. The decrease
in net interest income was caused primarily by a narrower interest rate spread.
The volume of average earning assets increased by $18.1 million, or 15.9%, in
1998 in comparison to 1997, while the average yield decreased by 94 basis
points. Over the same period, the volume of average interest-bearing liabilities
increased by $14.2 million, or 15.0%, while average rates paid stayed relatively
the same. Accordingly, the Bank's interest rate spread decreased to 4.32% in
1998 from 5.31% in 1997. The Bank's net interest margin also decreased in 1998
to 5.14% from 6.11% in 1997.
72
<PAGE> 80
Average Balances, Interest Rates and Yields. The following tables set
forth certain information relating to Bank of Southern Oregon's consolidated
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the years
indicated. Such yields and costs are derived by dividing income or expense by
the average daily balance of assets or liabilities, respectively, for the
periods presented. During the periods indicated, nonaccruing loans, if any, are
included in the net loan category. The yields and costs include fees, premiums
and discounts, which are considered adjustments to yield. The table does not
reflect any effect of income taxes.
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- ---------------------------------------
(Dollars in thousands) AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD OR
OR RATES RATES
------------- ------------ --------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities .................... $ 22,355 $ 1,436 6.42% $ 24,327 $ 1,417 5.82%
Federal funds sold and interest-bearing
deposits with FHLB ............. 25,852 1,190 4.60% 7,789 394 5.06%
Loans (1), (2) ........................ 97,673 9,490 9.72% 100,229 9,915 9.89%
-------- ------- --------- ------
Total interest-earnings assets ..... 145,880 12,116 8.31% 132,345 11,726 8.86%
Reserve for loan losses ............... (2,420) (1,561)
Cash and due from banks ............... 5,510 5,339
Premises and equipment, net ........... 3,630 2,619
Other assets .......................... 2,396 1,270
-------- ---------
Total assets ....................... $ 154,996 $ 140,012
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits ...... $ 14,622 328 2.24% $ 13,275 329 2.48%
Money market accounts ................. 49,107 1,811 3.69% 47,303 1,955 4.13%
Savings accounts ...................... 3,702 109 2.94% 2,514 74 2.94%
Time deposits ......................... 43,928 2,259 5.14% 43,367 2,470 5.70%
FHLB borrowings ....................... 5,732 324 5.65% 1,948 89 4.57%
-------- ------- --------- ------
Total interest-bearing liabilities.. 117,091 4,831 4.13% 108,407 4,917 4.54%
Non interest-bearing liabilities:
Demand deposits .................... 23,069 17,738
Other liabilities .................. 440 181
-------- ---------
Total liabilities ..................... 23,509 126,326
Stockholders' equity .................. 14,396 13,686
-------- ---------
Total liabilities and stockholders'
equity .......................... $ 154,996 $ 140,012
======== ------- ========= ------
Net interest income ................... 7,285 6,809
Interest rate spread .................. ======= 4.18% ====== 4.32%
===== =====
Net interest margin ................... 4.99% 5.14%
===== =====
Ratio of average interest-earning
assets to average interest-bearing
average interest-bearing
liabilities ..................... 124.59% 122.08%
Return on average assets .............. 0.80% 0.84%
Return on average equity .............. 8.62% 8.64%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1997
---------------------------------------
(Dollars in thousands) AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE YIELD OR
RATES
------------- ------------ ----------
<S> <C> <C> <C>
ASSETS:
Taxable securities .................... $ 18,102 $ 1,147 6.34%
Federal funds sold and interest-bearing
deposits with FHLB ............. 7,479 398 5.32%
Loans (1), (2) ........................ 88,611 9,715 10.96%
--------- --------
Total interest-earnings assets ..... 114,192 11,260 9.86%
Reserve for loan losses ............... (1,072)
Cash and due from banks ............... 4,362
Premises and equipment, net ........... 2,521
Other assets .......................... 1,373
---------
Total assets ....................... $ 121,376
=========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits ...... $ 11,739 277 2.36%
Money market accounts ................. 49,154 2,145 4.36%
Savings accounts ...................... 2,387 71 2.97%
Time deposits ......................... 30,958 1,794 5.79%
FHLB borrowings ....................... 0 0 0.00%
--------- --------
Total interest-bearing liabilities.. 94,238 4,287 4.55%
Non interest-bearing liabilities:
Demand deposits .................... 15,209
Other liabilities .................. 597
---------
Total liabilities ..................... 110,039
Stockholders' equity .................. 11,337
---------
Total liabilities and stockholders'
equity .......................... $ 121,376
========= --------
Net interest income ................... 6,973
Interest rate spread .................. ======== 5.31%
=====
Net interest margin ................... 6.11%
=====
Ratio of average interest-earning
assets to average interest-bearing
average interest-bearing
liabilities ..................... 121.17%
Return on average assets .............. 1.44%
Return on average equity .............. 15.36%
</TABLE>
(1) Average nonaccrual loans included in the computation of average loans was
$4.1 million for 1999, $7.2 million for 1998 and $2.3 million for 1997.
(2) Loan-related fees included in the above yield calculations were $649,000
in 1999, $579,000 in 1998 and $663,000 in 1997.
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<PAGE> 81
Rate/Volume Analysis. The following tables analyze net interest income in
terms of changes in the volume of interest-earning assets and interest-bearing
liabilities, and changes in net interest income that are attributable to changes
in yields earned on interest-earning assets and rates paid on interest-bearing
liabilities. The table reflects the extent to which changes in interest income
and changes in interest expense are attributable to changes in volume (changes
in volume multiplied by the prior year rate) and changes in rate (changes in
rate multiplied by prior year volume). Changes attributable to the combined
impact of volume and rate have been allocated equally.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------------- ------------------------------------------
(Dollars in thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL
------------ ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest and fees on loans ............ $ (254) $ (171) $ (425) $ 1,211 $ (1,011) $ 200
Taxable securities .................... (121) 140 19 379 (109) 270
Federal funds sold and
interest-bearing deposits with ....... 872 (76) 796 16 (20) (4)
FHLB
-------- -------- -------- -------- ---------- ---------
Total interest income ................ 497 (107) 390 1,606 (1,140) 466
Interest expense attributable to:
Interest on deposits:
Interest-bearing demand and money
market accounts ...................... 111 (256) (145) (11) (127) (138)
Savings .............................. 35 0 35 4 (1) 23
Time ................................. 32 (243) (211) 711 (35) 676
Other borrowings ......................... 193 42 235 89 0 89
-------- -------- -------- -------- ---------- ---------
Total interest expense ............... 371 (457) (86) 793 (163) 630
-------- -------- -------- -------- ---------- ---------
Increase (decrease) in net interest
income................................ $ 126 $ 350 $ 476 $ 813 $ (977) $ (164)
======== ======== ========= ========= ========== =========
</TABLE>
74
<PAGE> 82
LOAN LOSS PROVISION
1999 Compared to 1998. The loan loss provision was $640,000 in 1999,
compared to $1,652,000 in 1998, a decrease of $1,012,000, or 61%. The loan loss
provision is based upon management's assessment of various relevant factors,
including types and amounts of nonperforming loans, historical loss experience,
collectibility of collateral values and guaranties, pending legal action for
collection of loans and related guaranties, and current economic conditions. The
loan loss provision reflects management's judgment of the current period cost of
credit risk inherent in the loan portfolio. Although management believes the
loan loss provision has been sufficient to maintain an adequate reserve for loan
losses, there can be no assurance that actual loan losses will not exceed the
amounts that have been charged to operations. See, " - FINANCIAL CONDITION -
Reserve for Loan Losses." The change in the loan loss provision in 1999 was
principally a result of new management's efforts to improve loan underwriting
and loan collection discipline and to identify, monitor and resolve problem
credits. Accordingly, there was an improvement in asset quality reflected by a
decrease in nonperforming loans from $4.9 million at the end of 1998 to $2.8
million at the end of 1999.
1998 Compared to 1997. The provision for loan losses was $1,652,000 in
1998, compared to $1,731,000 in 1997, a 4.6% decrease. Again, new management's
efforts as discussed above contributed to a decreased loan loss provision in
1998 even though average loans in 1998 increased by $11.6 million over 1997.
The loan loss provision in 1999, 1998 and 1997 was primarily related to
commercial loans that were past-due and not adequately collateralized. As a
result, in 1998 and 1997 the bank needed to allocate a larger portion of its
reserve to commercial loans. Subsequently, a portion of these loans was
charged-off. Since late 1998, management has required adherence to stringent
loan policies and procedures and may require real estate to serve as additional
commercial loan collateral, reducing credit risk and, as a consequence, reducing
the need for additional reserve allocations for commercial loans. See, "BUSINESS
OF PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON - NONPERFORMING LOANS."
NONINTEREST INCOME
1999 Compared to 1998. Total noninterest income was $492,000 in 1999, a
decrease of $40,000, or 7%, over 1998. The principal change was a $115,000
decrease in gains on sale of investment securities.
As a result of liquidity needs in 1998 and a stable interest rate
environment, the Bank sold approximately $11.6 million of available-for-sale
securities and recognized a $115,000 gain. Due to a rising interest rate market
in 1999 and the consequential unrealized losses on securities
available-for-sale, the Bank did not sell any securities in 1999.
1998 Compared to 1997. Total noninterest income was $531,000 in 1998, an
increase of $129,000, or 32%, over 1997. The increase was attributable
principally to gains on sales of investment securities as described above.
Transaction deposit accounts and related service charges remained
relatively constant in 1999, 1998 and 1997. In general, management prices
deposits at rates competitive with rates offered by the leading commercial banks
in Bank of Southern Oregon's market area, which rates tend to be somewhat lower
than rates offered by thrift institutions and credit unions. The Bank generally
has not imposed service charges and fees to the same extent as other local
institutions. Although a wider range of service charges and fees and higher
service charges and fees would yield more income for each dollar of deposits,
imposing service charges and fees on a basis equivalent to those imposed by many
other area commercial banks might adversely affect deposit growth. To promote
deposit growth and provide cross-selling opportunities to customers, Bank of
Southern Oregon has not adopted an aggressive fee structure. Deposit growth has
been generated by developing strong customer relationships and cross-selling
deposit relationships to loan customers, and to a lesser extent from the Bank's
new
75
<PAGE> 83
branch office opened in 1999. Management intends to continue promoting demand
deposit products, particularly noninterest bearing deposit products, in order to
obtain additional interest-free lendable funds.
NONINTEREST EXPENSE
1999 Compared to 1998. Total noninterest expense was $5,127,000 in 1999,
an increase of $1,369,000, or 36.4% over 1998. The largest component of
noninterest expense was salaries and employee benefits, which increased
$870,000, or 45.8%. This increase was the result of the overall growth of the
Bank, a new branch office opened in 1999 and an increase in management and staff
personnel and related benefits. Fees for professional services decreased by
8.2%, due principally to lower legal fees associated with the reduction of
collection efforts needed on problem loans. Equipment costs increased by 17.6%
and occupancy costs increased by 58.2% as a result of added capital
expenditures, such as bank proof and optical reading equipment, computers,
upgraded software, ATM machines and a new full service branch office.
Advertising costs increased by 124% in order to adequately market new Bank
products and promote growth in the Bank's customer base. Other noninterest
expenses increased in 1999 as compared to 1998 primarily due to the general
overall growth of the Bank.
1998 Compared to 1997. Total noninterest expense was $3,758,000 in 1998,
an increase of $841,000, or 28.9% over 1997. The larger components of
noninterest expense included salary and employee benefits, which increased
$204,000, or 12%. The increase in salary and employee benefits was due
principally to hiring of a new management team in mid-year, increases in staff,
higher insurance benefit costs and normal merit raises. Professional fees
increased $161,000, or 59%, in 1998, with additional legal expense incurred in
connection with the collection of problem loans and the holding company
reorganization process begun in 1998. Equipment expense increased $122,000, or
74%, in 1998 primarily due to purchase of an initial phase of equipment and
additional maintenance costs. Other noninterest expenses increased in 1998 due
primarily to the general overall growth of the Bank.
PROVISION FOR INCOME TAXES
The provision for income taxes fluctuated in 1999, 1998 and 1997
primarily due to the changing level of pre-tax income.
FINANCIAL CONDITION
Assets and Liabilities. Bank of Southern Oregon's total assets at
December 31, 1999 were $160,984,000, compared to $146,850,000 at December 31,
1998. Cash and cash equivalents decreased by $15.5 million, investment
securities available-for-sale increased by $16.6 million, net loans increased by
$12.9 million and premises and equipment, net increased by $3.2 million in 1999
as compared to 1998. As of December 31, 1999 the Bank had decreased its
interest-bearing deposits with FHLB and its federal funds sold to invest in one-
and two-year callable U.S. Government Agency securities maturing in 3 to 5
years. Although loans increased by $12.9 million in 1999, or 13.3%, management
seeks to reduce concentrations of credit in construction real estate loans and
this has somewhat slowed loan growth.
Bank of Southern Oregon's premises and equipment, net increased by $3.2
million in 1999 primarily due to the new administrative offices purchased in
December 1999 and a new branch in Central Point, Oregon, which opened in March
1999. Other capital expenditures in 1999 included computer equipment acquired to
upgrade banking technology and prepare for the Y2K date conversion.
Asset growth in 1999 was primarily funded by a $13.3 million, or 10.5%,
increase in customer deposits. Specifically, noninterest bearing demand deposits
increased $7.7 million, or 38%, at December 31, 1999 as compared to December 31,
1998.
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<PAGE> 84
Reserve for Loan Losses. The loan loss provision represents a charge to
earnings for maintaining the reserve for loan losses at a level management
believes is adequate. The provision charged to operating expense is based on
loan loss experience and other factors that, in management's judgment, should be
recognized to estimate losses. Management monitors the loan portfolio to ensure
that the reserve for loan losses remains adequate to absorb losses identified by
the portfolio review process, including loans on nonaccrual status and current
loans whose repayment according to the loan's repayment plan is considered by
management to be in serious doubt. Bank of Southern Oregon takes into account
loan growth and the level of delinquent and nonperforming loans in its review of
the portfolio, considering also such external factors as current economic
conditions in the primary market area, collectibility of collateral values and
guaranties and the current status of legal action for collection of loans and
related guaranties.
Bank of Southern Oregon's reserve for loan losses totaled $2,396,000 at
December 31, 1999 and $2,278,000 at December 31, 1998, representing 2.13% of
total loans at December 31, 1999 and 2.29% of total loans at December 31, 1998.
See the discussion of the allocation of reserves for loan losses in "BUSINESS OF
PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON - NONPERFORMING LOANS." The
Bank's loan loss reserve represented 86% of nonperforming loans at December 31,
1999 and 46% of nonperforming loans at December 31, 1998. Although management
believes that it uses the best information available in providing for estimated
loan losses and believes that the reserve was adequate at December 31, 1999,
future adjustments could be necessary and net earnings could be negatively
affected if circumstances and/or economic conditions differ substantially from
the assumptions used in making the initial determinations.
CAPITAL
Shareholders' equity was $14,757,000 at December 31, 1999, an increase of
$913,000 or 6.6% from December 31, 1998. As of December 31, 1999, Bank of
Southern Oregon was in compliance with applicable regulatory capital
requirements, as shown in the following table (see "SUPERVISION AND REGULATION -
CAPITAL"):
<TABLE>
<CAPTION>
BANK OF SOUTHERN OREGON MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
AT DECEMBER 31, 1999 WELL CAPITALIZED ADEQUATELY CAPITALIZED
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio 13.1% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio 11.9% 6.00% 4.00%
Leverage Ratio 9.5% 5.00% 4.00%
</TABLE>
Based on capital levels at December 31, 1999, Bank of Southern Oregon
qualifies as a "well-capitalized" institution, the highest of five tiers under
applicable regulatory definitions. It is PremierWest Bancorp's intention to
operate Bank of Southern Oregon (PremierWest Bank) as a well-capitalized
institution within the meaning of applicable regulatory definitions. However,
the Bank could from time to time fall below the highest level.
LIQUIDITY
Like other financial institutions, Bank of Southern Oregon must ensure
that sufficient funds are available to meet deposit withdrawals, loan
commitments and expenses. Control of cash flow requires that Bank of Southern
Oregon anticipate deposit flows and loan payments. The primary sources of funds
are deposits, principal and interest payments on loans, proceeds of loan sales,
federal funds and FHLB borrowings. These funds are used principally to originate
loans and acquire investment securities.
At December 31, 1999, certificates of deposit represented 31.5% of total
deposits, while DDA ("demand deposit accounts," or checking accounts)
represented 20.1%, savings accounts 3.0% and interest-bearing demand accounts
45.4%. Of the total $44 million certificates of deposit at December 31, 1999,
certificates totaling $35 million will mature in 2000, and certificates totaling
$8 million mature in 2001. Together, these figures represent 97% of the total
certificates of deposit at December 31, 1999. Management believes that,
consistent with experience, the majority of maturing certificates of deposit
will be renewed at market rates of interest.
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<PAGE> 85
Bank of Southern Oregon has a line of credit with the FHLB of Seattle,
which allows the Bank to borrow from the FHLB in an amount up to 10% of Bank of
Southern Oregon's total assets. Interest and principal are payable monthly, and
the line of credit is secured by a blanket pledge collateral agreement. Bank of
Southern Oregon also has established a secured credit line through the discount
window with the Federal Reserve Bank of San Francisco. At December 31, 1999, the
Bank had $5.2 million FHLB borrowings outstanding. As of December 31, 1999, the
Bank could have borrowed an additional $10.8 million from the FHLB. See
"SUPERVISION AND REGULATION - FEDERAL HOME LOAN BANKS."
As of December 31, 1999, Bank of Southern Oregon had commitments to fund
loans of $32 million, compared to commitments at December 31, 1998 to fund $20.8
million of loans. Included within these commitments are unused commercial lines
of credit and standby letters of credit, consisting of $3.4 million unused
commercial lines of credit and $1.3 million standby letters of credit at
December 31, 1999. At December 31, 1999 Bank of Southern Oregon had outstanding
commitments of approximately $12.5 million to extend credit for construction in
progress. Those commitments are included in the $32 million total commitments.
Under the terms of the construction commitments, completion of specified
benchmarks must be certified by the borrower before additional funds will be
advanced by the Bank. Finally, it is typical for a portion of loan commitments
to expire or terminate without funding. Management believes Bank of Southern
Oregon has adequate resources to meet its normal funding requirements.
ASSET/LIABILITY MANAGEMENT
Like other financial institutions, Bank of Southern Oregon is subject to
interest rate risk. The Bank's interest-earning assets could mature or reprice
more rapidly than, or on a different basis from, its interest-bearing
liabilities (primarily borrowings and deposits with short- and medium-term
maturities) in a period of declining interest rates. Although having assets that
mature or reprice more frequently on average than liabilities will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net interest income during periods of declining interest rates.
Interest rate sensitivity, or interest rate risk, relates to the effect of
changing interest rates on net interest income. Interest-earning assets with
interest rates tied to the prime rate for example, or that mature in relatively
short periods of time, are considered interest-rate sensitive. Interest-bearing
liabilities with interest rates that can be repriced in a discretionary manner,
or that mature in relatively short periods of time, are also considered
interest-rate sensitive. The differences between interest-sensitive assets and
interest-sensitive liabilities over various time horizons are commonly referred
to as sensitivity gaps. As interest rates change, the sensitivity gap will have
either a favorable effect or an adverse effect on net interest income. A
negative gap -- with liabilities repricing more rapidly than assets -- generally
should have a favorable effect when interest rates are falling, and an adverse
effect when rates are rising. A positive gap -- with assets repricing more
rapidly than liabilities -- generally should have the opposite effect: an
adverse effect when rates are falling and a favorable effect when rates are
rising.
Bank of Southern Oregon monitors its interest rate sensitivity position
and attempts to limit exposure to interest rate risk. The Bank's policy is that
the one-year cumulative interest rate sensitivity gap should generally be within
a range of negative 25% to positive 25%. As the following table illustrates, the
one-year gap was within this range as of December 31, 1999, with a positive
one-year gap of 18%.
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<PAGE> 86
The following table illustrates the maturities or repricing of Bank of
Southern Oregon's assets and liabilities at December 31, 1999, based upon the
contractual maturity or contractual repricing dates of loans and the contractual
maturities of time deposits. Prepayment assumptions have not been applied to
fixed-rate mortgage loans. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Allocation of deposits other than time deposits to the various
maturity and repricing periods is based upon management's best estimate, taking
into account, among other things, the proposed policy statement issued by
federal bank regulators on August 4, 1995.
<TABLE>
<CAPTION>
MATURING OR REPRICING PERIODS
-----------------------------------------------------------------------
(Dollars in thousands) WITHIN 3 4 - 12 1 - 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Commercial loans (1)(2)(3) ................... $ 17,409 $ 1,801 $ 4,425 $ 894 $ 24,529
Real estate loans (3) ........................ 17,700 39,663 11,304 11,473 80,140
Installment loans (1)(2)(3) .................. 685 1,076 4,327 1,269 7,356
Securities available for sale ................ -- -- 22,827 -- 22,827
FHLB stock ................................... -- -- -- 3,881 3,881
Interest-bearing deposit with FHLB ........... -- 1,000 -- -- 1,000
Federal funds sold, interest-bearing .........
deposits with FHLB and securities
purchased under agreements to resell ...... 8,250 -- -- -- 8,250
------- ------ ------ ------ -------
Total interest-earning assets ........... $ 44,044 $ 43,540 $ 42,882 $ 17,516 $ 147,983
======= ====== ====== ====== =======
INTEREST-BEARING LIABILITIES:
Certificates of deposit ...................... $ 14,367 $ 20,151 $ 9,590 $ -- $ 44,108
Money market ................................. -- 23,394 23,394 -- 46,788
DDA interest-bearing ......................... -- -- 13,406 3,351 16,757
Savings accounts ............................. -- -- 3,318 829 4,147
Borrowings ................................... $ 114 $ 353 $ 2,169 $ 2,609 $ 5,245
------- ------ ------ ------ -------
Total interest-bearing liabilities .............. 14,481 43,898 51,877 6,789 $ 117,045
======= ====== ====== ====== =======
Interest sensitivity gap ........................ $ 29,563 $ (358) $(8,995) $ 10,727 $ 30,937
Cumulative interest sensitivity gap ............. 29,563 29,205 20,210 30,937 30,937
Cumulative interest sensitivity gap
as a percent of total assets ................. 18.4% 18.1% 12.6% 19.2%
</TABLE>
- -------------------------
(1) For purposes of the gap analysis, loans are not reduced by the allowance
for loan losses and nonperforming loans.
(2) For purposes of the gap analysis, premiums, unearned discounts and
deferred loan fees are excluded.
(3) Loans have been classified in this schedule based on the purpose of the
loan (regulatory reporting basis) and not on the underlying collateral
(financial statement reporting basis).
This analysis of interest-rate sensitivity has a number of limitations.
The "gap" analysis above is based upon assumptions concerning such matters as
when assets and liabilities will reprice in a changing interest rate
environment. Because these assumptions are no more than estimates, certain
assets and liabilities indicated as maturing or repricing within a stated period
might actually mature or reprice at different times and at different volumes
from those estimated. The actual prepayments and withdrawals experienced by Bank
of Southern Oregon after a change in interest rates could deviate significantly
from those assumed in calculating the data shown in the table. Certain assets,
adjustable-rate loans for example, commonly have provisions that limit changes
in interest rates each time the interest rate changes and on a cumulative basis
over the life of the loan. Also, the renewal or repricing of certain assets and
liabilities can be discretionary and subject to competitive and other pressures.
The ability of many borrowers to service their debt could diminish after an
interest rate increase. Therefore, the gap table above does not and cannot
necessarily indicate the actual future impact of general interest movements on
net interest income.
In addition to a static gap analysis of interest rate sensitivity, Bank
of Southern Oregon also attempts to monitor interest rate risk from the
perspective of changes in the economic value of equity, also referred to as net
portfolio value (NPV), and changes in net interest income. Changes to Bank of
Southern Oregon's NPV and net
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<PAGE> 87
interest income are simulated using instant and permanent rate shocks of plus
and minus 200 basis points, in increments of 50 basis points. These results are
then compared to prior periods to determine the effect of previously implemented
strategies. If estimated changes to NPV or net interest income are not within
acceptable limits, the Board may direct management to adjust its asset and
liability mix to bring interest rate risk within acceptable limits. Bank of
Southern Oregon's NPV calculations are based on the net present value of
discounted cash flows, using market prepayment assumptions and market rates of
interest for each asset and liability product type based on its characteristics.
The theoretical projected change in NPV and net interest income over a 12-month
period under each of the instantaneous and permanent rate shocks have been
calculated by Bank of Southern Oregon using computer simulation.
CHANGE IN NET
CHANGE IN PORTFOLIO VALUE
BASIS POINTS AT DECEMBER 31, 1999
-------------- ----------------------
200 - 2.5%
150 - 1.9%
100 - 1.3%
50 - 0.7%
0 0%
-50 0.8%
- 100 1.6%
- 150 2.2%
- 200 2.0%
The bank's simulation analysis forecasts net interest income and earnings
given unchanged interest rates (stable rate scenario). The model then estimates
a percentage change from the stable rate scenario under scenarios of rising and
falling market interest rates over various time horizons. The simulation model
estimates that if a decline of 200 basis points occurs, earnings could be
adversely affected up to approximately 13.6%, while a similar increase in market
rates would have a favorable impact of approximately 9.4%. Because of
uncertainties about customer behavior, refinance activity, absolute and relative
loan and deposit pricing levels, competitor pricing and market behavior, product
volumes and mix, and other unexpected changes in economic events affecting
movements and volatility in market rates, there can be no assurance that
simulation results are reliable indicators of earnings under such conditions.
It is Bank of Southern Oregon's policy to manage interest rate risk to
maximize long-term profitability under the range of likely interest-rate
scenarios. The Board of Directors oversees implementation of strategies to
control interest rate risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133," an amendment of SFAS No. 133, which establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for all quarterly
and annual financial statements of fiscal years beginning after June 15, 2000.
The Bank had no significant derivatives as of December 31, 1999, nor does the
Bank engage in any hedging activities. Accordingly, the Bank does not anticipate
that the adoption of SFAS No. 133, as amended by SFAS No. 137, will have a
material effect on its consolidated financial position or results of operations.
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IMPACT OF INFLATION AND CHANGING PRICES
Bank of Southern Oregon's consolidated financial statements and related
data herein have been prepared in accordance with generally accepted accounting
principles, which require measurement of financial condition and results of
operations in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Because the primary assets and liabilities of PremierWest Bancorp and
Bank of Southern Oregon are monetary in nature, changes in the general level of
prices for goods and services have a relatively minor impact on total expenses.
Increases in operating expenses such as salaries and maintenance are in part
attributable to inflation. However, interest rates have a far more significant
effect than inflation on the performance of financial institutions, including
Bank of Southern Oregon. See " - ASSET/LIABILITY MANAGEMENT."
BUSINESS OF PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON
PREMIERWEST BANCORP
PremierWest Bancorp was incorporated on November 26, 1999 for the purpose
of becoming the holding company for Bank of Southern Oregon. PremierWest Bancorp
is a corporate entity legally separate and distinct from Bank of Southern
Oregon. However, a bank holding company is expected to act as a source of
financial strength to its subsidiary bank or banks, according to policy of the
Board of Governors of the Federal Reserve System. See, "SUPERVISION AND
REGULATION - REGULATION OF BANK HOLDING COMPANIES." The principal source of
PremierWest Bancorp's income will be dividends from Bank of Southern Oregon.
There are certain regulatory restrictions on the extent to which Bank of
Southern Oregon may pay dividends or otherwise supply funds to PremierWest
Bancorp. See, "SUPERVISION AND REGULATION - LIMITS ON DIVIDENDS AND OTHER
PAYMENTS."
PremierWest Bancorp has had no operations. Its activities have been
limited to taking such actions as are necessary for the holding company
reorganization of Bank of Southern Oregon.
BANK OF SOUTHERN OREGON
Bank of Southern Oregon began operations in June 1990. Bank of Southern
Oregon offers its customers a broad range of banking services, including
checking, savings and negotiable order of withdrawal (NOW) accounts; money
market accounts; time certificates of deposit, commercial loans, real estate
loans and various types of consumer loans; safe deposit facilities and
travelers' checks.
Bank of Southern Oregon engages in a general commercial banking business
in southern Oregon, offering commercial banking services principally to small
and medium-sized businesses, professional and retail customers. The bank has
developed and continues to monitor and update a marketing program to attract and
retain consumer accounts, and to offer banking services and facilities
compatible with the needs of its customers. With population and income levels in
the bank's primary trade area expected to grow, management believes that
consumer lending will represent an increasingly significant lending opportunity
for Bank of Southern Oregon, and it intends to pursue this opportunity
aggressively.
Bank of Southern Oregon's loan services include operational and working
capital loans; loans to finance capital purchases; term business loans;
residential construction loans; selected guaranteed or subsidized loan programs
for small businesses; professional loans; consumer installment loans to purchase
automobiles, boats, aircraft and for home improvement and other personal
expenditures. Although Bank of Southern Oregon has made agricultural loans, it
currently has no significant agricultural loans.
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MARKET AREA
The bank's trade area is those portions of Jackson and Josephine Counties
that are within approximately 30 miles of the bank's Medford headquarters,
including the communities of Ashland, Central Point, Eagle Point, Jacksonville,
White City, Phoenix and Talent. Medford is the fourth largest city in the state
of Oregon and is the center for commerce, medicine and transportation in
southwestern Oregon. The principal industries in the area include lumber and
wood products, manufacturing and agriculture. Other manufacturing segments
include electrical equipment and supplies, computing equipment, printing and
publishing, fabricated metal products and machinery, and stone and concrete
products. In the non-manufacturing sector, significant industries include the
recreation, wholesale and retail trades, as well as medical care, particularly
in connection with the growing retirement community in the Medford area.
COMPETITION
There are many bank, savings bank, savings association and credit union
offices located within Bank of Southern Oregon's primary market area. Many of
the competitor institutions are branches of larger institutions headquartered
outside of the Medford area. In addition to banks, savings banks, savings
associations and credit unions, Bank of Southern Oregon competes with finance
companies, insurance companies, mortgage companies, securities brokerage firms,
money market funds and other providers of financial services. Many competitors
are larger and have substantially greater resources than Bank of Southern
Oregon, which offer those competitors advantages such as the ability to price
services at lower, more attractive levels and the ability to provide larger
credit facilities than Bank of Southern Oregon is able to provide. Many of these
competitors are more geographically diversified than Bank of Southern Oregon and
are therefore less vulnerable than Bank of Southern Oregon to adverse changes in
the local economy. Some competitors also offer products and services that are
not offered by the bank. And some of the competitors are not subject to the same
kind and amount of regulatory restrictions and supervision to which Bank of
Southern Oregon is subject. Because Bank of Southern Oregon is a community bank
that is smaller than other commercial lenders, the bank's legal lending limit
does not allow it to make commercial loans in amounts other competitors can
offer. Bank of Southern Oregon may from time to time accommodate loan volumes in
excess of its lending limit through the sale of participations in loans to other
banks.
The banking industry has been changing for many reasons. Industry
consolidation through mergers and acquisitions has increased the level of
competition among financial institutions and other financial service
organizations. Additionally, recent legislative and regulatory changes could
have the effect of increasing competition even more. For example, Congress'
recent elimination of many restrictions on interstate branching could have the
effect of increasing competition from large banks headquartered outside of
southwestern Oregon. Congress' even more recent repeal of the Glass-Steagall Act
(which had separated the commercial and investment banking industries) and
elimination of the barriers between the banking and insurance industries can be
expected to make competition even more intense. See, "SUPERVISION AND
REGULATION." Additionally, the percentage of household financial assets held in
the form of deposits has been shrinking. Banking customers have been investing a
growing portion of their financial assets in stocks, bonds, mutual funds and
retirement accounts.
To more effectively and efficiently deliver banking products and
services, banks are opening in-store branches, installing more automated teller
machines (ATMs) and investing in technology to permit telephone, personal
computer and internet banking. While all banks are experiencing the effects of
the changing environment, the manner in which banks choose to compete is
increasing the gap between large super-regional and national banks, on one hand,
and community banks on the other. Large institutions are committed to becoming
national or regional "brand names," providing a broad selection of products at
low cost and with advanced technology, while community banks provide most of the
same products but with a commitment to personal service and with local ties to
the customers and communities they serve. Bank of Southern Oregon seeks to take
competitive advantage of its local orientation and community banking profile. It
competes for loans principally through responsiveness to customers and its
ability to communicate effectively with them and understand and
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address their needs. Bank of Southern Oregon competes for deposits principally
by offering customers personal attention, a variety of banking services,
attractive rates and strategically located banking facilities. The bank seeks to
provide high quality banking service to professionals and small and mid-sized
businesses, as well as individuals, emphasizing quick and flexible responses to
customer demands.
LENDING
LOAN PORTFOLIO COMPOSITION AND ACTIVITY. Bank of Southern Oregon makes
commercial and real estate loans, construction loans for owner-occupied and
rental properties, and secured and unsecured consumer installment loans.
Commercial and real estate-based lending has been the primary focus of the
bank's lending activities. One of Bank of Southern Oregon's objectives is to
diversify its commercial loan portfolio with additional focus on accounts
receivable and working capital loans, and to expand its consumer loan portfolio.
Bank of Southern Oregon offers specialized loans for business and
commercial customers, including equipment and inventory financing, real estate
construction loans and Small Business Administration loans for qualified
businesses. A substantial portion of Bank of Southern Oregon's commercial loans
are designated as real estate loans for regulatory reporting purposes because
they are secured by mortgages and trust deeds on real property. Loans of that
type may be made for purpose of financing commercial activities, such as
accounts receivable, equipment purchases and leasing, but they are secured by
real estate to provide the bank with an extra measure of security. Although
these loans may be secured in whole or in part by real estate, they are treated
in the discussions to follow as commercial loans. Bank of Southern Oregon's
consumer installment loans include secured or unsecured loans to individual
borrowers for a variety of purposes, including personal, home improvements,
revolving credit lines, autos, boats, and recreational vehicles.
The following tables sets forth the composition of the loan portfolio in
dollar amounts and in percentages at December 31, 1999, 1998 and 1997, along
with a reconciliation to loans receivable, net.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
(Dollars in thousands) 1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Type of loan:
Commercial................................ $ 22,303 $ 30,599 $ 25,557
Real estate construction ................. 25,416 24,879 26,308
Real estate - other ...................... 60,758 39,037 35,987
Installment .............................. 4,033 5,002 4,586
---------- ---------- ---------
Total loans ................................. $ 112,510 99,517 92,438
Less:
Deferred loan fees ....................... 485 466 359
Reserve for loan losses .................. 2,396 2,278 1,079
---------- ---------- ---------
Net loans ................................... $ 109,629 $ 96,773 $ 91,000
========== ========== =========
Net loans as a percent of total assets ...... 68.1% 65.9% 68.6%
</TABLE>
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The following table presents maturity information for the loan portfolio
at December 31, 1999. The table does not include prepayments or scheduled
principal repayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------------------------------------------------
(Dollars in thousands) REAL ESTATE REAL ESTATE -
COMMERCIAL CONSTRUCTION OTHER INSTALLMENT TOTAL
--------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Amount due:
In one year or less*........... $ 16,453 $ 16,414 $ 23,586 $ 1,631 $ 58,083
After one year through
five years.................. 3,754 5,017 21,843 2,117 32,731
After five years ............. 2,097 3,984 15,330 285 21,696
----------- --------- --------- --------- ----------
Total amount due ........... $ 22,303 $ 25,416 $ 60,758 $ 4,033 $ 112,510
=========== ========= ========= ========= ==========
</TABLE>
* Loans due on demand and overdrafts are included in the amount due in
one year or less. Bank of Southern Oregon has no loans without a stated
schedule of repayment or a stated maturity.
The following table shows the dollar amount of all loans due after
December 31, 1999 that have pre-determined interest rates and the dollar amount
of all loans due after December 31, 1999 that have variable interest rates.
<TABLE>
<CAPTION>
(Dollars in thousands) Fixed Rates Variable Rates Total
----------- -------------- ----------
<S> <C> <C> <C>
Commercial ........................... $ 8,829 $ 13,475 $ 22,303
Real estate construction ............. 15,875 9,541 25,416
Real estate - other .................. 29,009 31,749 60,758
Installment .......................... 3,510 524 4,033
-------- -------- --------
Total ............................ $ 57,222 $ 55,288 $112,510
======== ======== ========
</TABLE>
COMMERCIAL LOANS AND COMMERCIAL REAL ESTATE LOANS. Bank of Southern
Oregon's commercial loan services include accounts receivable, inventory and
working capital loans; renewable operating lines of credit; loans to finance
capital equipment; term business loans; short-term notes; selected guaranteed or
subsidized loan programs for small businesses; loans to professionals; and
commercial real estate loans.
Although a risk of nonpayment exists for all loans, certain specific
types of risks are associated with various types of loans. One of the primary
risks associated with commercial loans is the risk that the commercial borrower
might not generate sufficient income to repay the loan. To control this risk,
Bank of Southern Oregon attempts to assess carefully the quality of the
borrower's management. The bank also does not lend to start-up businesses, and
the bank generally requires personal guarantees and secondary sources of
repayment, such as real estate collateral. In the process of considering a
commercial loan application, Bank of Southern Oregon reviews the financial
statements of the commercial borrower, appraisals of the collateral and other
documentation in order to determine
- whether there will be sufficient income to cover payments on the
proposed loan as well as other existing debt of the commercial
loan applicant,
- whether the collateral is of adequate liquidation value, and
- whether the applicant has a good payment history and is capable
of performing the requirements of the loan.
Other reviews and analyses are undertaken as appropriate, depending upon
the complexity of the credit request.
Real estate is commonly a material component of collateral for Bank of
Southern Oregon's loans, including commercial loans. Although the expected
source of repayment of these loans is generally the operations of the borrower's
business or personal income, real estate collateral provides an additional
measure of security. Risks associated with loans secured by real estate include
fluctuating land values, changing local economic conditions, changes in tax
policies, and a concentration of loans within a limited geographic area.
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Commercial real estate loans primarily include owner-occupied commercial
properties occupied by the proprietor of the business conducted on the premises,
and income producing or farm properties. Although Bank of Southern Oregon has
made agricultural loans, it currently has no significant agricultural loans. The
primary risks of commercial real estate loans is loss of income of the owner or
occupier of the property and the inability of the market to sustain rent levels.
The bank mitigates commercial real estate risk by making the majority of
commercial real estate loans on owner-occupied properties. Bank of Southern
Oregon's underwriting standards also require a minimum of 3 consecutive years of
income equal to or greater than 1.2 times combined debt service, insurance and
taxes from the owner or occupier or from rental income. In addition, the maximum
loan-to-value ratio is 75%.
Bank of Southern Oregon's commercial real estate loans are priced in
relation to the prime rate. These loans generally have note terms of 5 to 15
years, amortizing over a term of 15 to 20 years. Although commercial and
commercial real estate loans generally bear somewhat more risk than
single-family residential mortgage loans, commercial and commercial real estate
loans tend to be higher yielding, tend to have shorter terms and generally
provide for interest-rate adjustments as prevailing rates change. Accordingly,
commercial and commercial real estate loans enhance a lender's interest rate
risk management and, in management's opinion, promote more rapid asset and
income growth than a loan portfolio comprised strictly of residential real
estate mortgage loans.
At December 31, 1999, commercial loans that were more than 90 days
delinquent or nonaccruing totaled $1,729,000 in aggregate outstanding balances,
or 7.8% of the commercial loan portfolio. At December 31, 1999, real estate
loans that were more than 90 days delinquent or nonaccruing totaled $88,000 in
aggregate outstanding balances, or 0.1% of the real estate loan portfolio.
REAL ESTATE CONSTRUCTION. Bank of Southern Oregon originates several
different types of loans that it categorizes as construction loans, including
- residential construction loans to borrowers who will occupy the
premises upon completion of construction,
- residential construction loans to builders,
- commercial construction loans, and
- real estate acquisition and development loans.
Because of the complex nature of construction lending, these loans are
generally recognized as having a higher degree of risk than other forms of real
estate lending. The bank mitigates its risk on construction loans by generally
lending funds to customers who have been pre-qualified for long-term financing
and who are using contractors acceptable to Bank of Southern Oregon. The bank's
fixed-rate and adjustable-rate construction loans provide for the same interest
rate terms on the construction loan and on the permanent mortgage loan that
follows completion of the construction phase, provided that the borrower pays at
origination of the loan an additional one percentage point of the total loan
amount in the case of fixed-rate construction loans, and one-half percentage
point in the case of adjustable-rate construction loans.
Bank of Southern Oregon makes construction loans for single-family
residences to borrowers who will occupy the home following completion of
construction, or "owner-built" construction. These loans are typically made with
a six- to nine-month construction term. Upon completion of construction, the
loans convert to permanent mortgage loans with regularly amortizing principal
and interest payments, usually over a fifteen- to thirty-year term. These
owner-built construction loans are made with both fixed and adjustable interest
rates.
Bank of Southern Oregon also lends to builders for the construction of
single-family residences as models or under contract for sale. Builder
construction loans are typically six to nine months in duration, and are usually
made with adjustable interest rates from one to one and one-half percent above
the bank's prime rate. Loans for the acquisition and development of residential
and commercial acreage are made with adjustable rates that are one
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<PAGE> 93
to two percentage points above the bank's prime rate. Acquisition and
development loans are typically made with terms of one to two years.
Bank of Southern Oregon makes construction loans to individuals and
businesses for the purpose of constructing commercial properties. These loans
are ordinarily made with a 6- to 12-month construction term. Upon completion of
the project, commercial construction loans convert to permanent commercial loans
with regularly amortizing principal and interest payments, generally on the same
terms as a commercial real estate loan. Adjustable-rate commercial construction
loans generally are made with interest rates that adjust every three to five
years. Variable-rate commercial construction loans generally are made with
interest rates that vary according to changes in the bank's prime rate, with
interest rates ranging generally from one-half to one point over prime.
At December 31, 1999, real estate construction loans with outstanding
balances more than 90 days delinquent or nonaccruing amounted to $996,000, or
3.9% of the real estate construction loan portfolio.
INSTALLMENT LOANS. Bank of Southern Oregon's installment loans include
secured or unsecured loans to individual borrowers for a variety of purposes,
including personal, home improvements, revolving credit lines, autos, boats, and
recreational vehicles. The bank does not currently do any indirect lending.
Unsecured consumer loans carry significantly higher interest rates than secured
loans. Bank of Southern Oregon maintains a higher loss reserve for consumer
loans, while maintaining strict credit guidelines when considering consumer loan
applications.
Bank of Southern Oregon's home equity loan policy generally allows for a
loan of up to 80% of a property's appraised value less the principal balance of
the outstanding first mortgage loan. The interest rate generally ranges from
prime to one and one-half percentage points over the prime rate, depending on
the size of the loan. Home equity loans are repayable monthly, with the monthly
payment calculated as one and one-half percent of the outstanding balance. The
bank's home equity loans generally have terms of ten to fifteen years, with
borrowing permitted in the first five to ten years, respectively, and the last
five years being dedicated solely to repayment of the loan.
In addition to home equity loans, Bank of Southern Oregon also offers
installment loans for the purchase of automobiles and for other consumer
purposes. Automobile loans are made with fixed interest rates with a term of two
to five years. Installment loans are made for other consumer purposes, generally
on a secured basis, with fixed interest rates and terms ranging from one to ten
years. The bank also provides overdraft protection to checking account
depositors, but only if the checking account is linked to another account from
which the bank may debit funds to pay the overdraft.
Bank of Southern Oregon underwrites consumer installment loans in a
manner designed to assure compliance with applicable regulations and the bank's
underwriting standards. Payment history on applicants is very important on these
smaller loans, and is checked through in-house records as well as credit
bureaus. On automobile loans, the value of the collateral is checked through the
N.A.D.A. book (the "blue book") or another valuation service. The borrower's
income must be adequate to cover all of his or her debt payments and other
monthly payment obligations, including the proposed loan.
At December 31, 1999, Bank of Southern Oregon had approximately $4.0
million in its installment loan portfolio, representing 3.7% of total loans.
Installment loans totaling approximately $15,000 were over 90 days delinquent or
nonaccruing on that date, representing 0.4% of the installment loan portfolio.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by Bank of Southern Oregon
personnel and walk-in customers.
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<PAGE> 94
When a loan request is made, Bank of Southern Oregon reviews the
application, as well as credit bureau reports, appraisals, financial
information, verifications of income, and other documentation concerning the
creditworthiness of the borrower, as applicable to each loan type. The bank's
underwriting guidelines are set by senior management. Loan applications are
generally processed and underwritten by designated loan officers. Residential
real estate loans are underwritten consistent with FNMA and FHLMC standards, but
exceptions are made on a case-by-case basis.
At the time of an application for a residential mortgage loan, an
appraisal of the property and a borrower credit report are ordered. In addition,
the borrower's employment, income and financial information are obtained and
verified. When all of the necessary information is received, the information is
reviewed and analyzed with reference to the bank's underwriting worksheet, which
includes pertinent data such as debt-to-income ratios, the loan-to-value ratio,
credit history highlights and details concerning funds available for down
payment and closing costs.
At the time of application for a commercial loan, a commercial loan
officer obtains financial information of the borrower, including business
financial statements and, as appropriate, personal financial statements and
income tax records. In those circumstances in which real estate will serve as
collateral for the commercial loan, an appraisal is ordered as well. Credit
reports are obtained for individual borrowers, and Dun and Bradstreet reports
are ordered for business borrowers. If the borrower has had previous borrowings
from or deposit accounts with Bank of Southern Oregon, payment and balance
histories are reviewed as well. The commercial loan officer analyzes the
financial information and assesses the borrower's ability to repay the proposed
loan. The commercial loan officer will also generally visit the business
location or, in the case of real estate, inspect the property. Individual
officers have authority to approve loans in amounts up to specified lending
limits without the approval of the Loan Committee or Executive Committee.
Applications for loans in excess of the officers' lending limits require
approval of the Loan Committee or Executive Committee.
INCOME FROM LENDING ACTIVITIES. Bank of Southern Oregon earns interest
and fee income from its lending activities. The bank receives fees for
originating loans, which fees, net of origination costs, are amortized over the
life of the respective loan. Bank of Southern Oregon also receives loan fees
related to existing loans, including late charges. Income from loan origination
and commitment fees and discounts varies with the volume and type of loans and
commitments made and with competitive and economic conditions. Note 1 to the
Consolidated Financial Statements included herein contains a discussion of the
manner in which loan fees and income are recognized for financial reporting
purposes.
NONPERFORMING LOANS
A loan is considered by Bank of Southern Oregon to be nonperforming when
it is 90 days or more delinquent or, if sooner, when the bank has determined
that repayment of the loan in full is unlikely. Generally, unless loan
collateral is a one- to four-family residential dwelling, interest accrual
ceases in 90 days (but no later than the date of acquisition by foreclosure,
voluntary deed or other means) and the loan is classified as nonperforming. A
loan placed on nonaccrual status may or may not be contractually past due at the
time the determination is made to place the loan on nonaccrual status, and it
may or may not be secured. When a loan is placed on nonaccrual status, it is the
bank's policy to reverse interest previously accrued but uncollected and charge
it against current income. Interest later collected on the nonaccrual loan is
credited to loan principal if, in management's opinion, full collectibility of
principal is doubtful.
The procedures for addressing delinquencies in commercial loans can vary
from one loan to the next, depending on a variety of factors. Late charges
generally do not apply to commercial loans. With payments generally due on the
first of each month, a commercial borrower will be contacted if a loan payment
has not been received by the tenth day of the month. Late charges on consumer
installment loans are assessed if a payment is not received by the 10th day
following the due date. Immediately thereafter, any borrower whose payment was
not received by this time is mailed a past due notice. Credit card statement
processing is undertaken by a third party
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<PAGE> 95
under contract with Bank of Southern Oregon. Past due notices are generated
automatically, depending on the stage of delinquency of the card holder, with
charge-off occurring after 120 days. As of December 31, 1999 no credit card
loans were nonperforming. Late charges on residential mortgages are assessed if
a payment is not received by the 15th day after the due date. Immediately
thereafter, any borrower whose payment was not received by this time is mailed a
past due notice. The borrower will be contacted by telephone if the delinquency
continues to the 30th day. When an advanced stage of delinquency appears on a
single-family loan (generally about the 60th day of delinquency) and if
repayment cannot be expected within a reasonable amount of time or a repayment
agreement has not been entered into, the bank contacts an attorney and requests
that the required notice of foreclosure or repossession proceedings be prepared
and delivered to the borrower in order that, if necessary, foreclosure
proceedings may be initiated promptly.
When the bank acquires real estate through foreclosure, voluntary deed,
or similar means, it is classified as "other real estate owned" until it is
sold. On December 31, 1999, other real estate owned amounted to $1,209,000. When
property is acquired in this manner, it is recorded at the lower of cost (the
unpaid principal balance at the date of acquisition) or fair value. Any
resulting write-down is charged to expense. All costs incurred from the date of
acquisition to maintain the property are expensed. "Other real estate owned" is
appraised during the foreclosure process, before acquisition. Losses are
recognized for the amount by which the book value of the related mortgage loan
exceeds the estimated net realizable value of the property.
Certain potential problem loans that management believes are adequately
secured and for which no material loss is expected are not categorized as
nonperforming loans. Loans of this type are considered problem loans because
certain circumstances known to management could cause the borrowers to be unable
to comply with the existing loan repayment terms at some future date. At
December 31, 1999 potential problem loans totaled approximately $2,828,000.
Bank of Southern Oregon had nonaccrual loans of $2,772,000 at December
31, 1999, $4,946,000 at December 31, 1998 and $2,246,000 at December 31, 1997.
Interest income that would have been recognized on nonaccrual loans if such
loans had performed in accordance with contractual terms totaled $410,000 in
1999, $720,000 for the year ended December 31, 1998, and $250,000 for the year
ended December 31, 1997. Interest income recognized on such loans during all of
the periods was insignificant.
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<PAGE> 96
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
(Dollars in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Commercial:
Nonaccrual ................................................... $ 1,682 $ 2,311 $ 1,324
Past due 90 days or more(1) .................................. 47 -- 1,511
Real estate construction:
Nonaccrual ................................................... 996 1,159 --
Past due 90 days or more(1) .................................. -- -- 213
Real estate - other:
Nonaccrual ................................................... 88 1,468 922
Past due 90 days or more(1) .................................. -- -- 175
Installment:
Nonaccrual ................................................... 6 8 --
Past due 90 days or more(1) .................................. 9 0 4
-------- -------- --------
Total nonperforming loans ................................. 2,828 4,946 4,149
Other real estate owned ......................................... 1,209 73 257
-------- -------- --------
Total nonperforming assets ................................ $ 4,037 $ 5,019 $ 4,406
======== ======== ========
Loans outstanding, net .......................................... $109,629 $ 96,773 $ 91,000
Nonperforming loans to total net loans .......................... 2.6% 5.1% 4.6%
Nonperforming assets to total assets ............................ 2.5% 3.4% 3.3%
Reserve for loan losses to total loans .......................... 2.13% 2.29% 1.17%
Reserve for loan losses to nonperforming loans .................. 84.7% 46.1% 26.0%
</TABLE>
- --------------
(1) Represents accruing loans delinquent greater than 90 days that are
considered by management to be well secured and that are in the process
of collection.
Impaired loans include all nonaccrual and restructured commercial and
real estate loans. Loan impairment is measured as the present value of expected
future cash flows discounted at the loan's initial interest rate, the fair value
of the collateral of an impaired collateral-dependent loan or an observable
market price. Interest income on impaired loans is recognized on a cash-basis
method. The investment in loans for which impairment had been recognized totaled
$2,772,000 as of December 31, 1999 and $4,946,000 as of December 31, 1998. At
December 31, 1999, the total reserve for loan losses related to impaired loans
was $836,000.
RESERVE FOR LOAN LOSSES. The amount of the reserve for loan losses is
based on a variety of factors, including:
- management's analysis of risks inherent in the various segments
of the loan portfolio;
- management's assessment of known or potential problem credits
that have come to management's attention during the ongoing
analysis of credit quality;
- estimates of the value of underlying collateral and guaranties;
- legal representation regarding the potential outcome of pending
legal actions for collection of loans and related guaranties;
- historical loss experience; and
- current economic conditions and other factors.
If actual circumstances and losses differ substantially from management's
assumptions and estimates, the reserve for loan losses might not be sufficient
to absorb all future losses. Net earnings would be adversely affected if that
occurred. Loan loss estimates are reviewed periodically. Adjustments, if any,
are reported in
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<PAGE> 97
earnings in the period in which they become known. In addition, Bank of Southern
Oregon maintains a portion of the loan loss reserve to cover inherent losses
that have not been specifically identified.
Although management believes that it uses the best information available
to make such determinations and that the reserve for loan losses was adequate at
December 31, 1999, future adjustments could be necessary if circumstances or
economic conditions differ substantially from the assumptions used in making the
initial determinations. A downturn in the local Oregon economy and employment
could result in increased levels of nonperforming assets and charge-offs,
increased loan loss provisions and reductions in income. Additionally, as an
integral part of the examination process bank regulatory agencies periodically
review Bank of Southern Oregon's reserve for loan losses. The banking agencies
could require the recognition of additions to the loan loss reserve based on
their judgment of information available to them at the time of their
examination.
The following is a summary of Bank of Southern Oregon's loan loss
experience and selected ratios for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(Dollars in thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Reserve balance, beginning of period .............. $ 2,278 $ 1,079 $ 936
Loans charged off:
Commercial ..................................... (675) (452) (1,388)
Real estate construction ....................... 0 0 (4)
Real estate - other ............................ (34) (98) (121)
Installment .................................... (31) (9) (103)
--------- --------- ---------
Total loans charged off ..................... (740) (559) (1,616)
Recoveries of loans previously charged off:
Commercial ..................................... 51 106 25
Real estate construction ....................... 0 0 0
Real estate - other ............................ 167 0 0
Installment .................................... 0 0 2
--------- --------- ---------
Total recoveries ............................ 218 106 27
--------- --------- ---------
Net loans charged off ............................. 522 453 1,589
Provision charged to operations ................... 640 1,652 1,731
--------- --------- ---------
Reserve balance, end of period .................... $ 2,396 $ 2,278 $ 1,079
========= ========= =========
Loans outstanding:
Average ........................................ $ 97,673 $ 100,229 $ 88,611
End of period, net ............................. $ 112,510 $ 99,518 $ 92,437
Ratio of reserve for loan losses to loans
outstanding at end of period ............... 2.13% 2.29% 1.17%
Net charge offs to average loans .................. 0.5% 0.5% 1.8%
</TABLE>
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<PAGE> 98
The following table shows the allocation of Bank of Southern Oregon's
reserve for loan losses by category and the percent of loans in each category to
total loans at the dates indicated. The bank allocates its reserve for loan
losses to each loan classification based on relative risk characteristics.
Specific allocations represent estimated losses that are due to current credit
circumstances and other available information. Unallocated portions of the
reserve are intended to compensate for the subjective nature of the
determination of losses inherent in the overall loan portfolio. Because the
total loan loss reserve is a valuation reserve applicable to the entire loan
portfolio, the portion of the reserve allocated to each loan category does not
represent the total available for future losses that may occur within that loan
category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ -------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- -------- ----------- ------ ---------
AT THE END OF PERIOD ALLOCATED TO:
Type of loan:
<S> <C> <C> <C> <C> <C> <C>
Commercial ............................ $ 907 19.8% $1,195 30.8% $ 324 27.6%
Real estate construction .............. 552 22.6% 425 25.0% 395 28.5%
Real estate - other ................... 764 54.0% 531 39.2% 228 38.9%
Installment ........................... 14 3.6% 16 5.0% 17 5.0%
Unallocated ........................... 159 --% 111 --% 115 --%
------ ------- ------ ------- ------ -------
Total .................................... $2,396 100.0% $2,278 100.0% 1,079 100.0%
====== ======= ====== ======= ====== =======
</TABLE>
As of December 31, 1999, Bank of Southern Oregon's specific allocation of its
reserve for loan losses for commercial and real estate construction loans
related primarily to loans on nonaccrual status. Specific allocation of loan
loss reserves for other real estate loans relates to loans for which management
believes the borrower might be unable to comply with loan repayment terms (even
though the loans are not in nonaccrual status) and for which supporting
collateral might not be adequate to recover loan amounts if foreclosure and
subsequent sale of collateral become necessary.
CLASSIFIED ASSETS. FDIC regulations governing classification of assets
require nonmember commercial banks -- including Bank of Southern Oregon -- to
classify their own assets and to establish appropriate general and specific
allowances for losses, subject to FDIC review. The regulations are designed to
encourage management to evaluate assets on a case-by-case basis and to
discourage automatic classifications. Assets classified as watch, substandard or
doubtful must be evaluated by management to determine a reasonable general loss
reserve, which is included in total capital for purposes of the bank's
risk-based capital requirement but which is not included in Tier 1 capital or in
capital under generally accepted accounting principles. Assets classified as
loss must either be written off or reserved for by a specific allowance, which
is not counted toward capital for purposes of any of the regulatory capital
requirements. As of December 31, 1999 classified assets were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ -------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- -------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Classified loans:
Watch ......................... $ 106 0.1% $ 181 0.2% $ 0 0.0%
Substandard ................... 812 0.7% 331 0.3% 156 0.2%
Doubtful ...................... 600 0.5% 19 0.0% 49 0.1%
Specific reserve .............. 0 0% 973 1.0% 0 0.0%
------ ----- ------ ----- ------ -----
Total .................. $1,518 1.3% $1,504 1.5% $ 205 0.3%
====== ===== ====== ===== ====== =====
</TABLE>
The borrowers on a $1.2 million commercial loan made by Bank of Southern
Oregon became insolvent in early 1998. The entire amount of the debt was
personally guaranteed by another individual. Bank of Southern Oregon is seeking
to enforce the guaranty in state court. For financial reporting purposes and for
regulatory reporting purposes, $600,000 has
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<PAGE> 99
been specifically allocated for in the Bank's December 31, 1999 reserve for loan
losses. Although the guarantor has raised defenses to the Bank's attempt to
enforce the guaranty, management believes that there is valid evidence and
documentation to enforce this guaranty and is vigorously prosecuting the claim.
However, Bank of Southern Oregon can give no assurance that its efforts to
enforce the guaranty will be successful. Management uses the best information
available in reserving for loan losses and believes that the reserve for loan
losses is adequate at December 31, 1999. Future adjustments, however, may be
necessary and net earnings could be negatively affected if circumstances differ
substantially from the assumptions used in making the initial determinations.
INVESTMENTS
Investment securities provide a return on residual funds after lending
activities. Investments may be in interest-bearing deposits, U.S. Government and
agency obligations, state and local government obligations and
government-guaranteed, mortgage-backed securities. Bank of Southern Oregon
generally does not invest in securities that are rated less than investment
grade by a nationally recognized statistical rating organization. A goal of the
bank's investment policy is to limit interest-rate risk.
All securities-related activity is reported to the Board of Directors.
General changes in investment strategy are required to be reviewed and approved
by the Board. Senior management can purchase and sell securities in accordance
with Bank of Southern Oregon's stated investment policy.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and Bank of Southern Oregon has
the ability at the time of purchase to hold a security until maturity or on a
long-term basis, the security is classified as held-to-maturity and is reflected
on the balance sheet at historical cost. Securities to be held for indefinite
periods and not intended to be held to maturity or on a long-term basis are
classified as available-for-sale. Available-for-sale securities are reflected on
the balance sheet at their market value.
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<PAGE> 100
The following table sets forth the amortized cost and estimated market
value of Bank of Southern Oregon's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------- -------------------------------------------
(Dollars in thousands) GROSS ESTIMATED GROSS ESTIMATED
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST LOSSES VALUE COST GAINS (LOSSES) VALUE
----------- ----------- ----------- ----------- ------------- -----------
AVAILABLE FOR SALE:
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities ...... $ 0 $ 0 $ 0 $ 2,378,622 $ 216 $ 2,378,838
U.S. Government agency securities 22,826,663 (781,464) 22,045,199 3,054,541 (1,337) 3,053,204
Oregon municipal securities ..... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total ....................... 22,826,663 (781,464) 22,045,199 5,433,163 (1,121) 5,432,042
HELD TO MATURITY:
U.S. Government securities ...... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
U.S. Government agency securities $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- ----------- -----------
Total ....................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT SECURITIES ..... $22,826,663 $ (781,464) $22,045,199 $ 5,433,163 $ (1,121) $ 5,432,042
=========== =========== =========== =========== =========== ===========
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997
--------------------------------------------------
(Dollars in thousands) GROSS
AMORTIZED UNREALIZED ESTIMATED
COST GAINES MARKET
----------- ----------- -----------
AVAILABLE FOR SALE:
U.S. Government securities ...... $ 0 $ 0 $ 0
U.S. Government agency securities 0 0 0
Oregon municipal securities ..... 497,095 3,025 500,120
----------- ----------- -----------
Total ....................... 497,095 3,025 500,120
HELD TO MATURITY:
U.S. Government securities ...... 4,092,499 36,551 4,129,050
U.S. Government agency securities 1,997,217 1,183 1,998,400
----------- ----------- -----------
Total ....................... 6,089,716 37,734 6,127,450
----------- ----------- -----------
TOTAL INVESTMENT SECURITIES ..... $ 6,586,811 $ 40,759 $ 6,627,570
=========== =========== ===========
</TABLE>
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<PAGE> 101
The contractual maturity of investment securities at December 31, 1999
is shown below. Expected maturities of investment securities could differ from
contractual maturities because the borrower, or issuer, may have the right to
call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands) AMORTIZED MARKET WEIGHTED
COST VALUE AVERAGE YIELD
---- ----- -------------
U.S. Government Agency securities:
Due after 1 but within 5 years $22,827 $22,045 6.05%
======= ======= ====
Bank of Southern Oregon sold its U.S. Government securities, U.S.
Government agency securities and Oregon municipal securities in 1998, resulting
in a realized gain of $114,719. Bank of Southern Oregon had no securities sales
in 1999. Government securities may be pledged from time to time to secure public
deposits. At December 31, 1999, $4,656,000 of government securities classified
as available-for-sale were pledged to secure public deposits.
As of December 31, 1999, Bank of Southern Oregon also held 38,807 shares
of $100 par value Federal Home Loan Bank of Seattle stock, which are restricted
securities. FHLB stock represents an equity interest in the FHLB, but it does
not have a readily determinable market value. The stock can be sold at its par
value only, and only to the FHLB or to another member institution. Member
institutions are required to maintain a minimum stock investment in the FHLB,
based on total assets, total mortgages and total mortgage-backed securities.
Bank of Southern Oregon's minimum investment in FHLB stock at December 31, 1999
was approximately $483,000.
From time to time Bank of Southern Oregon also holds government
securities purchased under agreements to resell substantially identical
securities. Securities purchased under agreements to resell, or "fed funds,"
represent short-term loans and are reflected as a receivable on the balance
sheet. The securities underlying the agreements to resell are book-entry
securities. That is, delivery of the securities consists of an entry in Bank of
Southern Oregon's account maintained at a United States bank designated by Bank
of Southern Oregon under a written custodial agreement explicitly recognizing
Bank of Southern Oregon's interest in the securities. All securities purchased
under agreements to resell that were outstanding on December 31, 1999, 1998 and
1997 matured overnight. Securities purchased under agreements to resell averaged
$1,986,000 in 1999, $1,361,000 in 1998 and $599,380 in 1997. The maximum amount
outstanding at any month end in those years was $4,986,000 in 1999, $6,501,000
in 1998 and $1,054,964 in 1997.
SOURCES OF FUNDS
DEPOSIT ACCOUNTS. Deposit accounts are a major source of funds for the
Bank. Bank of Southern Oregon offers a number of deposit products to attract
both commercial and regular consumer checking and savings customers, including
regular and money market savings accounts, NOW accounts, and a variety of
fixed-maturity, fixed-rate certificates with maturities ranging from seven days
to 60 months. These accounts earn interest at rates established by management
based on competitive market factors and management's desire to increase certain
types or maturities of deposit liabilities. The bank also provides travelers'
checks, official checks, money orders, ATM services and IRA accounts. Bank of
Southern Oregon does not solicit or accept brokered deposits.
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<PAGE> 102
The distribution of deposit accounts by type and rate is set forth in the
following tables as of the indicated dates.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- ---------------------
(Dollars in thousands) AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- -------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts .......... $ 23,069 0.00% $ 17,738 0.00% $ 15,209 0.00%
NOW .............................. 14,622 2.24% 13,275 2.48% 11,739 2.36%
Money market ..................... 49,107 3.69% 47,303 4.13% 49,154 4.36%
Savings .......................... 3,702 2.94% 2,514 2.94% 2,387 2.97%
Time deposits .................... 43,928 5.14% 43,367 5.70% 30,958 5.79%
-------- -------- ---------
Total deposits ................... $134,428 $124,197 $ 109,447
======== ======== ==========
</TABLE>
The following table sets forth the amount of time deposits as of December
31, 1999, including certificates of deposit, by time remaining until maturity.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------------------------------------
(Dollars in thousands) TIME DEPOSITS OF $100,000
OR MORE ALL OTHER TIME DEPOSITS
------------------------------ --------------------------
TIME REMAINING TO MATURITY AMOUNT PERCENT AMOUNT PERCENT
----------------------------------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Three months or less ........................... $ 5,694 39.12% $ 10,294 34.84%
Over three through 12 months ................... 5,717 39.26% 12,949 43.82%
Over 12 months ................................. 3,149 21.62% 6,305 21.34%
--------- ------ -------- -------
Total ..................................... $ 14,560 100.00% $ 29,548 100.00%
========= ====== ======== =======
</TABLE>
BORROWINGS. Deposits and repayment of loan principal are the primary
source of funds for lending activities and other general business purposes.
However, when the supply of lendable funds or funds available for general
business purposes cannot meet the demand for loans or such general business
purposes, Bank of Southern Oregon can obtain funds from the FHLB of Seattle. In
addition to borrowing from the FHLB on a term-loan basis, Bank of Southern
Oregon has a line of credit with the FHLB that allows the bank to borrow in an
amount up to 10% of Bank of Southern Oregon's total assets. Interest and
principal are payable monthly, and the line of credit is secured by a blanket
pledge collateral agreement. Bank of Southern Oregon also has established a
secured credit line through the discount window with the Federal Reserve Bank of
San Francisco. At December 31, 1999, the Bank had $5.2 million FHLB borrowings
outstanding. As of December 31, 1999, the Bank could have borrowed an additional
$10.8 million from the FHLB. See "SUPERVISION AND REGULATION - FEDERAL HOME LOAN
BANKS." As of December 31, 1999, the Bank's FHLB's borrowings were secured by an
interest-bearing deposit of $1 million and $5.1 million bond obligation. Bank of
Southern Oregon also has arrangements to borrow additional short-term funds from
other commercial banks.
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<PAGE> 103
PROPERTIES
The following table provides information concerning Bank of Southern
Oregon's banking offices. Each of the offices is equipped with drive-up teller
facilities as well as ATMs.
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED OTHER INFORMATION
------------------------------ ------------------------------------- ------------------------------------
MAIN OFFICE:
<S> <C> <C>
1455 East McAndrews Road Owned Approximately 6,000 square feet
Medford, Oregon 97504 Opened in 1990
BRANCHES:
Black Oak Branch Owned Approximately 5,000 square feet
2600 East Barnett Road Opened in 1994
Medford, Oregon 97504
Central Point Branch Leased, but Bank of Southern Oregon Approximately 5,200 square feet
300 East Pine Street and the lessor have agreed that Opened in March 1999
Central Point, Oregon 97502 Bank of Southern Oregon shall purchase
the property after March 1, 2001
for $550,000
</TABLE>
Bank of Southern Oregon's administrative offices were located in a 1,600
square foot building located next to the main office. The facility is owned by
Bank of Southern Oregon's subsidiary, McAndrews Commercial Property, Inc.
McAndrews Commercial Property, Inc. conducts no business and exists solely to
hold this real property. The bank also owns a 3,500 square foot facility in
Medford, which is used by the compliance department and proof department. In
December 1999 Bank of Southern Oregon acquired a 13,000 square foot facility in
Medford for $1.825 million in cash. The bank's administrative functions were
relocated to the new facility, including its executive offices and a loan
production department. Approximately one half of the new administrative office
located at 503 Airport Road, Medford was leased by Bank of Southern Oregon back
to the seller of the property for a 2-year term, with an annual rent of
approximately $101,000.
At December 31, 1999 the net book value of Bank of Southern Oregon's
investment in premises and equipment totaled $6.1 million.
Bank of Southern Oregon's electronic data processing functions are
performed under contract with an electronic data processing services firm that
performs services for financial institutions nationwide.
LEGAL PROCEEDINGS
From time to time Bank of Southern Oregon is involved in various legal
proceedings that are incidental to its business. In the opinion of management,
no current legal proceedings are material to the financial condition of Bank of
Southern Oregon, either individually or in the aggregate. Currently, Bank of
Southern Oregon is a defendant in a case filed in the U.S. District Court for
the District of Oregon. The case involves collection of a letter of credit
totaling $100,000 issued by Bank of Southern Oregon for the benefit of one of
its customers. The letter of credit was provided by the Bank to a surety
company, enabling the customer to obtain a performance bond. Bank of Southern
Oregon is not insured for this claim. However, management believes that its
position concerning the claim is reasonable and that Bank of Southern Oregon
will prevail if the claim goes to trial.
PERSONNEL
As of December 31, 1999 Bank of Southern Oregon had 71 full-time
equivalent employees. None of the employees is represented by a collective
bargaining group. Management considers its relations with employees to be
excellent.
96
<PAGE> 104
UNITED BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since United Bancorp has no significant operations independent of
Douglas National Bank, the discussion herein will refer to Douglas National
Bank, although the financial schedules will reflect United Bancorp's results of
operations. The reported results of United Bancorp are dependent on a variety of
factors, including the general interest rate environment, competitive conditions
in the industry, government policies and regulations and conditions in the
markets for financial assets. Management of United Bancorp is not aware of any
market or institutional trends, events or uncertainties that are expected to
have a material effect on liquidity, capital resources or operations except as
discussed herein. Management is also not aware of any current recommendations by
its regulatory authorities that would have such effect if implemented.
Management's Discussion and Analysis of Financial Condition and
Results of Operations of United Bancorp contain certain forward-looking
statements. That is, they contain statements that relate to present or future
trends or factors affecting the banking industry and specifically the
operations, markets and products of United Bancorp and its banking subsidiary,
Douglas National Bank. Because of a variety of factors, including but not
limited to those having to do with the economic environment (particularly in the
market areas in which Douglas National Bank operates), competitive products and
pricing, fiscal and monetary policies in the U.S. Government, changes in
government regulation affecting financial institutions, including regulatory
capital requirements, changes in prevailing interest rates, asset/liability and
credit risk management, the financial and securities markets and the
availability of and costs associated with sources of liquidity, actual results
could differ materially from those set forth in forward-looking statements.
Douglas National Bank operates eight offices in Douglas and Jackson
Counties, Oregon. Douglas National Bank's primary source of revenue is derived
from providing loans to customers, who are predominantly small and middle-market
businesses, as well as investing excess deposits in a variety of debt securities
such as Agency issued debt, municipal bonds, and mortgaged-backed agency issued
bonds.
Douglas National Bank's commercial services include acceptance of
demand, savings and other time deposits, lending of money on secured and
unsecured basis to individuals, partnerships and corporations, and purchase of
investment securities and rendering of services generally connected with
commercial banking, except trust services.
Douglas National Bank's profitability depends primarily on net
interest income, which is the difference between (a) interest income generated
by interest-earning assets (i.e., loans and investments) and (b) interest
expense incurred on interest-bearing liabilities (i.e., customer deposits and
borrowed funds). Net interest income is affected by the difference (i.e., the
interest rate spread) between rates of interest earned on interest-earning
assets and rates of interest paid on interest-bearing liabilities, as well as
the relative amounts of interest earning assets and interest-bearing
liabilities. Any positive interest rate spread will generate net interest
income. Financial institutions have traditionally used interest rate spreads as
a measure of net interest income. Another indication of an institution's net
interest income is its "net yield on interest-earning assets" or "net interest
margin," which is net interest income divided by average interest-earning
assets.
To a lesser extent, Douglas National Bank's profitability is also
affected by such factors as the level of non-interest income and expense, the
provision for credit losses, and the effective tax rate. Non-interest income
consists primarily of service charges and other fees on deposit accounts,
commission income from annuity and brokerage sales, as well as mortgage
brokerage fee income. Non-interest expenses consist of compensation and
benefits, occupancy and related expenses, updating technology, and other
operating expenses.
Management's Discussion and Analysis of Financial Condition and
Results of Operations are presented herein to assist shareholders in
understanding the consolidated financial condition and results of operations of
United Bancorp and its non-banking subsidiary, DNB Mortgage Company, and its
banking subsidiary, Douglas National Bank for the periods ending December 31,
1997, 1998, and 1999. Most of the loan schedules are presented for the periods
ending December 31, 1995 through December 31, 1999.
97
<PAGE> 105
RESULTS OF OPERATIONS
1999 Compared to 1998. Net income for the period ended December 31,
1999 was $487,000 compared with $1,054,000 in 1998, a 53.80% decrease. Net
interest income increased $204,000 or 3.90%, and non-interest income decreased
by $43,000 or 2.64% due to a gain on the sale of investments in 1998 of
$264,000. Taking out the impact of the gain on the sale of investments in 1998,
non-interest income actually went up $221,000 or 16.17% for the period ended
December 31, 1999. The increase in non-interest income was attributed to
increased service charges on deposit accounts of $101,000 in 1999 representing a
17.41% increase, increased other service charges of $52,000 representing 10.46%
increase, and other fee income increased by $61,000 or 21.03%. Non- interest
expenses increased by 20.93% to $6,414,000 during 1999 largely due to increased
salaries and employee benefits as well as other non-interest expenses. United
Bancorp expanded the bank personnel by seventeen full- time-equivalent employees
for the period ended December 31, 1999. This was largely attributed to the new
branch opened in Medford, OR in March, which employed about 10
full-time-equivalent employees at December 31, 1999, including the mortgage
lending personnel. The Medford branch is expected to contribute to the
profitability of the bank by the first quarter of the year 2000. The branch had
about $4 million in loans at December 31, 1999 and $1.5 million in deposits. The
bank's subsidiary, DNBIA, which sells non-bank financial products, increased
full-time-equivalent employees by 2 at December 31, 1999. The other new
personnel were hired throughout the bank to support the loan and deposit growth
the bank has experienced. The bank implemented a new marketing program during
1999 which also impacted non-interest expenses. The provision for credit loss
during 1999 was $195,000, representing a 290% increase over 1998. The ratio of
allowance for credit losses to total loans outstanding at year end was 1.09% in
1999 and 1.27% in 1998. The allowance was increased during 1999 based upon the
bank's internal model of calculating loan loss exposure, which was affected by
increasing growth in its commercial real estate portfolio. Deposits increased to
$89.76 million at December 31, 1999 compared to $87.55 million at December 31,
1998, representing 2.52% increase. However, deposits on the average increased to
$87.26 million at December 31, 1999 from $78.01 million at December 31, 1998,
representing an increase of 11.86%. Net interest margin was 5.04% at December
31, 1999 compared with 5.16% at December 31, 1998. Earnings per share decreased
to $.29 at December 31, 1999 from $.65 at December 31, 1998. United Bancorp's
efficiency ratio increased to 91.17% at December 31, 1999 compared to 77.16% at
December 31, 1998, due to increased non-interest expenses without an offset to
revenue.
1998 Compared to 1997. Net income for the period ended December 31,
1998 was $1,054,000 compared with $1,004,000 in 1997, a 4.98% increase. Net
interest income increased $122,000 or 2.38%, and non- interest income increased
by 46.54% to $1,631,000 due to increased mortgage loan fee income, brokerage
income and gain on the sale of investments of $264,000. Non-interest expenses
increased by 12.52% to $5,304,000 due to increased personnel (eight full-time
equivalent employees), increased occupancy expenses and increased other
non-interest expenses. Salary and benefits represented the largest increase in
non-interest expense with a 15% increase or $366,000. United Bancorp had plans
of expanding the bank, especially in the loan area, and hired additional
personnel to accomplish this. Net income per share was $.65 at December 31,
1998, which was a increase of 6.56% from $.61 per share in 1997. The tax
equivalent net interest margin increased slightly in 1998 to 5.16% from 5.03%
through December 31, 1997. United Bancorp's efficiency ratio increased to 77.16%
in 1998, which ratio exceeds industry standards. Actual loans increased to
$43.07 million at December 31, 1998 which was less than a one percent increase
in loans; however, the average balance of loans throughout the year increased by
8.67%. Deposits showed growth of 17.36% from December 31, 1997 to December 31,
1998.
NET INTEREST INCOME
1999 Compared to 1998. Net interest income increased by 3.90% for the
period ended December 31, 1999 to $5,447,000. Total interest income increased by
$402,000 largely due to an increased volume of both loans and investments. Total
investment securities interest income increased by $179,000, largely due to an
increase in the volume of investments on the books. Average investments
increased by 10.72% from 1998 to 1999. Loan interest income increased by
$424,000 for the period ended December 31, 1999. Increased loan volume
attributed $592,000 of the increase in interest income; however, this was
somewhat offset by lower rates earned on the loans of $149,000. Although
interest rates continue to rise, the bank hasn't been able to capture that
increase due to tight competition on pricing loans. The bank had excess Fed
Funds sold during 1998, which contributed $224,000 in interest income. For the
period ended December 31, 1999, Fed Funds sold contributed only $23,000 in
interest income, representing a $201,000 decrease or 89.74%. Total yield on
interest earnings assets was 7.90% for the period ending December 31, 1999,
compared with 8.06% for the period ending December 31, 1998. Total interest
expense increased by $198,000 largely due to the increase in volume in
Certificates of Deposit. The increase in
98
<PAGE> 106
volume was partially offset by a lower cost of funds on interest bearing
deposits and liabilities for the period ended December 31, 1999 of 3.53%
compared to 3.62% during 1998.
1998 Compared to 1997. Total investment securities interest income
decreased by $479,000, largely due to a decrease in the volume of investments.
Average investments decreased by 7.47% from 1997 to 1998. Loan interest income
increased by $246,000, due to volume increases; however average yield on loans
did decrease in 1998 to 10.39% from 10.68%in 1997. Total deposit interest
expense increased by $236,000 largely due to an increase in volume of time
deposits in 1998. Other borrowings interest expense decreased by $453,000 due to
23% lower volume of Federal Home Loan Bank (FHLB) borrowings. As deposits grew,
the company was able to replace FHLB borrowings with customer deposits. Net
interest income increased by $122,000 due to the above.
1997 Compared to 1996. Total investment securities interest income
increased by $1,017,000 due to an increase in volume during 1997. During 1997
there was very little loan growth, hence all of the deposit growth was invested
into the investment portfolio. Deposit interest expense increased by $188,000
due to volume increases of time deposits in 1997. The Company borrowed
approximately $10 million in 1997 from the FHLB to capture an investment
opportunity in the portfolio. This created a large volume increase in the
investment portfolio as well as increase of $481,000 in borrowings interest
expense over 1996. Net interest income increased by $309,000 over 1996 due to
the above reasons.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table provides information concerning average balances
of assets and liabilities as well as the total dollar amounts of interest income
from interest-earning assets and interest expense on interest-bearing
liabilities, resultant yields or costs, net interest income, and net interest
margin for the years ended December 31, 1997, 1998, and 1999. Such yields and
costs are derived by dividing income or expense by the average daily balance of
assets and liabilities, respectively, for the periods presented. During the
periods indicated, non- accruing loans, if any, are included in the net loan
category. Also, included in the interest on loans are loan fees of $507,000,
$348,000, and $428,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------
AVG INC/ AVG AVG INC/ AVG AVG INC/ AVG
BAL EXP RATE BAL EXP RATE BAL EXP RATE
--- --- ---- --- --- ---- --- --- ----
(DOLLARS IN THOUSANDS)
ASSETS
Interest Earning Assets:
Investment securities:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable $ 45,990 $ 2,919 6.35% $ 45,278 $ 2,963 6.54% $ 53,326 $ 3,534 6.63%
Tax-exempt (tax equivalent) 17,272 1,032 6.01% 11,857 738 6.22% 9,603 615 6.40%
---------------------------------------------------- ------------------------
Total investment securities 63,262 3,956 6.26% 57,135 3,701 6.48% 62,929 4,149 6.59%
Loans 49,564 4,980 10.05% 43,862 4,556 10.39% 40,364 4,310 10.68%
Fed funds sold and deposits in banks 501 23 4.59% 4,192 224 5.34% 1,628 86 5.28%
------------------------ ------------------------ ------------------------
TOTAL EARNING ASSETS/INTEREST INCOME $113,327 $ 8,959 7.91% $ 105,189 $ 8,481 8.06% $104,921 $ 8,545 8.14%
Cash and due from banks 4,661 3,770 3,561
Bank premises and equipment (net) 4,291 3,488 2,786
Other assets 1,842 1,327 1,284
Allowance of credit losses (548) (516) (519)
--------- ---------- ---------
TOTAL ASSETS $123,573 $ 113,258 $112,033
========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposits:
Savings and interest bearing demand $ 45,869 $ 962 2.10% $ 42,048 $ 849 2.02% $ 40,651 $ 796 1.96%
Time 25,498 1,210 4.75% 21,614 1,099 5.08% 18,126 916 5.05%
------------------------ ------------------------ ------------------------
Total deposits 71,367 2,172 3.04% 63,662 1,948 3.06% 58,777 1,712 2.91%
Other borrowings 20,756 1,077 5.19% 20,604 1,103 5.35% 27,384 1,556 5.68%
TOTAL INTEREST BEARING LIABILITIES/
------------------------ ------------------------ ------------------------
INTEREST EXPENSE $ 92,123 $ 3,249 3.53% $ 84,266 $ 3,051 3.62% $ 86,161 $3,268 3.79%
Demand deposits 15,899 14,355 12,692
Other liabilities 1,703 858 470
Shareholders' equity 13,848 13,779 12,710
--------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $123,573 $ 113,258 $ 112,033
========= ========== =========
NET INTEREST INCOME (TAX EQUIVALENT) $ 5,710 $ 5,430 $5,277
======== ======= =======
NET INTEREST INCOME AS A PERCENTAGE
</TABLE>
99
<PAGE> 107
<TABLE>
OF AVERAGE EARNING ASSETS
<S> <C> <C> <C>
Interest income 7.91% 8.06% 8.14%
Interest expense 2.87% 2.90% 3.11%
NET INTEREST INCOME 5.04% 5.16% 5.03%
</TABLE>
The following table shows the changes in consolidated net interest
income attributable to changes in volume, to changes in interest rates and to
the combined effect of volume and interest rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 VS. 1998 1998 VS. 1997 1997 VS. 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------- --------------------------------- -------------------------------
RATE/ RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
(DOLLARS IN THOUSANDS)
Interest earned on:
Investment securities:
Taxable $ 47 (89) $ (2) (44) $ (533) $ (45) $ 7 $(571) $ 1,021 1 -- $ 1,022
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-exempt 252 (20) (9) 223 108 (13) (3) 92 (9) (2) -- (11)
--------------------------------- --------------------------------- -------------------------------
Total investment securities 299 (109) (11) 179 (425) (58) 4 (479) 1,012 (1) -- 1,011
Loans 592 (149) (19) 424 374 (117) (11) 246 (3) (36) -- (39)
Fed funds sold and dep
in bank (197) (32) 28 (201) 136 1 1 138 25 (14) (5) 6
--------------------------------- --------------------------------- -------------------------------
TOTAL INTEREST INCOME $ 694 $ (290) $ 2 $ 402 $ 85 $ (174) $ (6) $ (95) $ 1,034 $ (51) $ (5) $ 978
--------------------------------- --------------------------------- -------------------------------
INTEREST PAID ON:
Deposits:
Savings and int bear
demand $ 77 33 $ 3 $ 113 $ 27 $ 25 $ 1 $ 53 $ 60 $ (37) $ (3) $ 20
Time 197 (73) (13) 111 176 6 1 183 154 11 3 168
--------------------------------- --------------------------------- -------------------------------
Total deposits 274 (40) (10) 224 203 31 2 236 214 (26) -- 188
Other borrowings 8 (34) -- (26) (385) (90) 22 (453) 450 22 9 481
--------------------------------- --------------------------------- -------------------------------
TOTAL INTEREST EXPENSE $ 282 $ (74) $ (10) $ 198 $ (182) $ (59) $ 24 (217) $ 664 $ (4) $ 9 $ 669
--------------------------------- --------------------------------- -------------------------------
NET INTEREST INCOME $ 412 $ (216) $ 8 $ 204 $ 267 $ (115) $ (30) 122 $ 370 $ (47) $ (47) $ 309
================================= ================================= ===============================
</TABLE>
FINANCIAL CONDITION, LOAN QUALITY, LIQUIDITY, AND CAPITAL
Assets. Total assets were $135.69 million at December 31, 1999
compared with total assets of $117.94 million at December 31, 1998. Net loans
increased to $61.79 million, which was a 43.45% increase. Deposits increased to
$89.76 million at December 31, 1999 compared to $87.55 million at December 31,
1998, representing 2.52% increase. However, deposits on the average increased to
$87.26 million at December 31, 1999 from $78.01 million at December 31, 1998,
representing an increase of 11.86%. Douglas National Bank's investment portfolio
at December 31, 1999 was $61.24 million, which represents 45.14% of assets. The
portfolio consists of government agency issued debt, municipal bonds, and agency
issued mortgage-backed securities, which have little if any principal or credit
risk. The investments increased in 1999 by $4.08 million from $57.16 million at
December 31, 1998. The loan portfolio represents 68.84% of deposits at December
31, 1999 compared to 49.12% at December 31, 1998. Douglas National Bank's loan
portfolio consists of approximately 60.77% commercial loans and commercial real
estate loans. Loans to fund miscellaneous commercial business represents 17.23%
at December 31, 1998, with commercial real estate representing 43.54%. Douglas
National Bank engages in a small percentage of residential mortgage loans, which
it retains in the portfolio. The majority of the residential mortgage loans are
brokered through DNB Mortgage Company.
Allowance for Credit Loss. The provision for credit losses represents
a charge to earnings for maintaining the allowance at a level management
believes is adequate. Management reviews the allowance monthly to ensure that
the allowance remains adequate to absorb losses identified by the portfolio
review process. Douglas National Bank takes into account loan growth and the
level of delinquent and nonperforming loans in its review of the portfolio,
considering such external factors as current and anticipated economic conditions
in the primary market area.
Douglas National Bank's allowance for credit losses totaled $679,000
at December 31, 1999, $554,000 at December 31, 1997, representing 1.09% of total
of gross loans in 1999 and 1.27% of gross loans in 1998. Its allowance
represented 984.06% of nonperforming loans in 1999 and 215.56% in 1998.
Capital. Shareholders equity was $13.46 million at December 31, 1999,
which represented 9.93% of total assets in 1999 and 12.12% in 1998. The federal
banking regulators have adopted risk based capital guidelines under which one of
four risk weights is applied to balance sheet assets, each with different
capital requirements based on the credit risk of the asset. Total risk-adjusted
capital to asset ratios was 19.16 at December 31, 1999 and
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<PAGE> 108
23.55 at December 31, 1998. The most recent notification from Douglas National
Bank's regulator categorized the bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, a
bank must maintain minimum total Tier 1 risk-based and Tier 1 leverage ratios.
Liquidity. Douglas National Bank's primary sources of funds are
customer deposits, loan repayments, maturities and principal payments from the
investment portfolio, net income, advances from the FHLB of Seattle, and short
term Federal Funds purchased from correspondent banks. Scheduled loan repayments
are relatively stable sources of funds, while deposit inflows and unscheduled
loan prepayments are not. Deposit inflows and unscheduled loan prepayments are
influenced by general interest rate levels, interest rates on other investments,
competition, economic conditions, and other factors.
Total deposits at December 31, 1999 were $89.76 million and at
December 31, 1998 they were $87.55 million. Douglas National Bank increased such
deposits in its market area as a result of competitive pricing and delivery of
quality products. Management anticipates that Douglas National Bank will
continue to rely on customer deposits, loan repayments, maturity and principal
payments of investment securities, net income, FHLB of Seattle borrowings, and
short term Federal Funds purchased from correspondent banks to provide
liquidity. The investment portfolio could also be liquidated if necessary to
fund decreases in deposits or increases in loan demand. Although deposit
balances have shown historical growth, these balances may be influenced by
changes in the banking industry, interest rates available on other investments,
general economic conditions, competition and other factors. Borrowings may be
used on a short-term basis to compensate for reductions in other sources of
funds. Borrowings may also be used on a long-term basis to support expanded
lending activities and to match maturities or repricing intervals on assets. The
sources of these funds would most likely be borrowings from the FHLB of Seattle.
LENDING
Douglas National Bank's policy is to originate loans primarily in its
local market. However, commercial real estate loans are funded throughout the
State of Oregon, which provides a diverse geographic region for changes in
economic conditions. Douglas National Bank's loan underwriting policies focus on
assessment of each borrower's ability to service and repay the debt, and the
availability of collateral that can be used to secure the loan. Depending on the
nature of the borrower and the purpose and amount of the loan, Douglas National
Bank's loans may be secured by a variety of collateral, including business
assets, real estate and personal assets. Many business loans may also be
dependent upon the personal guarantees of the owners of the business. Douglas
National Bank's loans are generally classified by the ability of the borrower to
repay and the principal asset pledged as collateral to secure the loan.
Types of Loans. The composition of the loans at December 31, 1999,
1998, 1997, 1996, and 1995 was as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and agriculture$ $ 10,762 17.23% $ 10,699 24.53% $ 11,026 25.38% $ 11,496 28.72% $ 11,316 28.30%
Real estate mortgage-Commercial 27,202 43.54% 17,816 40.83% 14,764 33.99% 14,821 37.01% 14,451 36.14%
Real estate mortgage-Residential 9,660 15.46% 5,942 13.62% 8,887 20.46% 6,484 16.19% 8,232 20.59%
Real estate construction 9,428 15.09% 4,915 11.26% 4,955 11.41% 3,289 8.21% 1,265 3.16%
Installment 5,418 8.67% 4,259 9.76% %3,807 8.76% 3,952 9.87% 4,721 11.81%
----------------- ------------------ ------------------ ------------------ -----------------
Gross Loans $ 62,470 100.00% $ 43,631 100.00% $ 43,439 100.00% $ 40,042 100.00% $ 39,985 100.00%
Less:
Allowance for credit losses (679) -1.09% (554) -1.27% (491) -1.13% (511) -1.28% (476) -1.19%
----------------- ------------------ ------------------ ------------------ -----------------
Net Loans $ 61,791 98.91% $ 43,077 98.73% $ 42,948 98.87% $ 39,531 98.72% $ 39,509 98.81%
================= ================== ================== ================== ==================
</TABLE>
Loan Maturities and Sensitivities to Changes in Interest Rates. The
following table shows maturity analysis of commercial and real estate
construction loans outstanding as of December 31, 1999, and the amounts of all
loans due after one year classified according to the sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
DUE AFTER
DUE IN ONE ONE THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ----------- ---------- -----
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
</TABLE>
101
<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C>
Commercial and agriculture $ 4,801 $ 4,642 $ 1,319 $10,762
Real estate mortgage-commercial 2,044 5,899 19,259 27,202
Real estate mortgage-residential 862 1,255 7,543 9,660
Real estate construction 7,648 -- 1,780 9,428
Installment * 809 3,073 1,536 5,418
Total $16,164 $14,869 $31,437 $62,470
Total loans maturing after one year with:
Predetermined interest rates (fixed) $ 8,543 $ 7,657 $16,200
Floating or adjustable rates (variable) 6,326 23,780 30,106
Total $14,869 $31,437 $46,306
</TABLE>
* Includes demand loans with no scheduled repayments or maturity.
Risk Elements. The following table shows non-accrual and past-due loans
at December 31, 1999, 1998, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 2 $ 57 $-- $ 82 $ 4
Accruing loans past due 90 days
or more $ 67 $200 $-- $ 97 $134
Restructured Loans $ -- $ -- $-- $ -- $ --
</TABLE>
Interest income on non-accrual loans that would have been recorded in
the year ended December 31, 1999 had those loans performed in accordance with
their initial terms was $177. No interest income on those loans was included in
income in 1999.
Loans are generally placed on non-accrual status when, in
management's opinion, the borrower may be unable to meet payments as they become
due, or when they are past due 90 days as to either principal or interest unless
they are well secured and in the process of collection.
At December 31, 1999, there were no commitments to lend additional
funds to borrowers whose loans were classified as non-accrual. Douglas National
Bank is not aware of any loans continuing to accrue interest at December 31,
1999 that represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of these borrowers to comply with loan repayment terms.
Summary of Credit Loss Experience. The following table shows the
charge-offs and recoveries of loans for the years ended December 31, 1999, 1998,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 554 $ 491 $ 511 $ 476 $ 483
Charge-offs:
Commercial and agriculture 51 - 142 101 87
Real estate mortgage-Commercial - - - - -
Real estate mortgage-Residential - - - - -
Real estate construction - - - - -
Installment 43 63 28 18 43
-------------------------------------------------------------
</TABLE>
102
<PAGE> 110
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
Total charge-offs 94 63 170 119 130
-----------------------------------------------------------
Recoveries:
Commercial and agriculture 12 61 6 88 14
Real estate mortgage-Commercial - - - - -
Real estate mortgage-Residential - - - - -
Real estate construction - - - - -
Installment 12 15 4 6 29
-----------------------------------------------------------
Total recoveries 24 76 10 94 43
-----------------------------------------------------------
Net charge-offs (recoveries) 70 (13) 160 25 87
-----------------------------------------------------------
Provision for credit losses 195 50 140 60 80
-----------------------------------------------------------
Balance at end of year $ 679 $ 554 $ 491 $ 511 $ 476
===========================================================
Ratio of net charge-offs
(recoveries) to average
loans outstanding during year 0.14% -0.03% 0.40% 0.06% 0.22%
Average loans outstanding
during year $49,564 $43,862 $40,364 $40,392 $ 38,740
</TABLE>
The provision for credit losses charged to operating income and the
determination of the appropriate allowance level is based on, among other
things, on-going, monthly analyses of various factors including historical loss
experience, adverse situations that may affect borrowers' ability to repay, the
estimated value of any underlying collateral, economic conditions in its market
area, trends in portfolio growth, the results of examination of individual
loans, the evaluation of the overall portfolio by senior credit personnel and
federal and state regulatory agencies, and trends in delinquencies and
non-accrual loans. Douglas National Bank determines the adequacy of its credit
loss reserves through a formula applying risk factors to outstanding loans and
certain unused commitments, in each case based on the internal risk grade of
those loans or commitments. Changes in the risk grade of both performing and
non-performing loans affect the amount of the allowance. Specific provisions are
made where management has identified significant conditions or circumstances
related to a credit that management believes indicate the possibility that a
loss may be incurred in excess of the amount determined by application of the
amount determined by application of the formula allowance. Based on this
analysis, management considers the allowance for credit losses to be adequate
for the periods indicated. Douglas National Bank's allowance incorporates the
results of measuring impaired loans as provided in Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure."
Allocation of Allowance for Credit Losses. Based on certain
characteristics of the portfolio, probable losses can be anticipated for major
loan categories. In the following table, the allowance for credit losses has
been allocated among major loan categories based primarily on their historical
net charge off experience, along with consideration of factors such as quality,
volume, anticipated economic conditions and other business considerations.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------------------------------------------------------------------------------------
% OF LNS IN % OF LNS IN % OF LNS IN % OF LNS IN
ALLOWANCE EACH CATGY ALLOWANCE EACH CATGY ALLOWANCE EACH CATGY ALLOWANCE EACH CATGY
AMOUNT TO TOTAL LNS AMOUNT TO TOTAL LNS AMOUNT TO TOTAL LN AMOUNT TO TOTAL LNS
---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and agriculture $205 30.19% $226 40.77% $146 29.78% $158 30.89%
Real estate mortg-Commercial 240 35.35% 178 32.06% 153 31.05% 154 30.06%
Real estate mortgage-Residential 46 6.78% 23 4.11% 58 11.83% 117 22.81%
Real estate construction 105 15.46% 47 8.42% 50 10.15% 31 5.99%
Installment 83 12.22% 81 14.64% 84 17.19% 52 10.25%
------------------------ ----------------------- ----------------------- ---------------------
Total $679 100.00% $554 100.00% $491 100.00% $511 100.00%
======================== ======================= ======================= =====================
<CAPTION>
DECEMBER 31,
-------------------------
1995
-------------------------
% OF LNS IN
ALLOWANCE EACH CATGY
AMOUNT TO TOTAL LNS
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial and agriculture $123 25.89%
Real estate mortg-Commercial 145 30.35%
Real estate mortgage-Residential 108 22.58%
Real estate construction 6 1.34%
Installment 94 19.84%
-----------------------
Total $476 100.00%
=======================
</TABLE>
Historical net charge-offs are not necessarily accurate predictors of
future losses, since net charge-offs vary from period to period due to economic
conditions and other factors that cannot be accurately measured. Thus, an
evaluation based on historical loss experience of individual loan categories
will prove valuable in the future, but
103
<PAGE> 111
will only be one of many factors considered by management in evaluating the
adequacy of the overall allowance and in determining the amount of the provision
for credit losses.
ASSET AND LIABILITY MANAGEMENT
Douglas National Bank's results of operations depend substantially on
net interest income. Interest income and interest expense are affected by
general economic conditions, competition in the market place, market interest
rates and re-pricing and maturity characteristics of Douglas National Bank's
assets and liabilities. Exposure of interest rate risk is primarily a function
of differences between the maturity and re-pricing schedules of assets,
principally loans and investment securities, and liabilities, principally
deposits. Assets and liabilities are described as interest sensitive for a given
period of time when they mature or can re-price within that period. The
difference between the amount of interest sensitive assets and interest
sensitive liabilities is referred to as the interest sensitivity "GAP" for any
given period.
Certain shortcomings are inherent in the interest sensitivity GAP
method of analysis presented in the following table. For example, although
certain assets and liabilities may have similar re-pricing characteristics, they
may react in different degrees to changes in market interest rates. The interest
rates on certain types of assets and liabilities may also fluctuate in advance
of changes in market interest rates, while interest rates on other types may lag
behind changes in market rates.
The following table shows the dollar differences of interest
sensitive assets and interest sensitive liabilities at December 31, 1999, and
differences between them for the maturity or repricing periods indicated.
<TABLE>
<CAPTION>
DUE AFTER
DUE IN ONE ONE THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans $ 28,396 $ 26,417 $ 7,657 $ 62,470
Investment Securities 8,563 28,135 24,543 61,241
Fed Funds & interest bearing balances with banks 25 - - 25
Total interest earning assets $ 36,984 $ 54,552 $ 32,200 $123,736
INTEREST BEARING LIABILITIES:
Savings and interest bearing demand deposits $ 19,051 $ 19,051 $ 9,525 $ 47,627
Time deposits 22,463 4,066 - 26,529
Other borrowings 28,600 2,228 533 31,361
Total interest bearing liabilities $ 70,114 $ 25,345 $ 10,058 $105,517
Net interest rate sensitivity GAP $(33,130) $ 29,207 $ 22,142 $ 18,219
</TABLE>
INVESTMENT ACTIVITIES
As of December 31, 1999, Douglas National Bank classified all of its
investment securities as "available for sale." Unrealized gains and losses on
investment securities classified as available-for-sale are excluded from
earnings and reported, net of federal income taxes, as a separate component of
shareholders' equity titled "Accumulated Other Comprehensive Income."
Douglas National Bank's Board of Directors approves its investment
policy. It has been the policy of Douglas National Bank to maintain relatively
high levels of liquidity to meet loan funding and deposit outflow and other
liquidity needs.
104
<PAGE> 112
Douglas National Bank's senior management can purchase and sell
securities on behalf of Douglas National Bank in accordance with the bank's
stated investment policy.
Mortgage-Backed and Related Securities. In the ordinary course of
business, Douglas National Bank purchases mortgage-backed securities for its
Available-for-Sale portfolio. Mortgage-backed securities generally entitle
Douglas National Bank to receive the cash flows from an identified pool of
mortgages underlying the securities. Freddie Mac ("FHLMC"), Ginnie Mae ("GNMA")
and Fannie Mae ("FNMA") mortgage-backed securities owned by Douglas National
Bank are each guaranteed or insured by the respective agencies as to principal
and interest. Douglas National Bank may also invest in collateralized mortgage
obligations ("CMOs"), securities that are backed by pools of mortgages that are,
in most instances, insured or guaranteed by FNMA or FHLMC. A CMO investor has no
ownership interest in the mortgages themselves, except to the extent the
mortgages serve as collateral for the CMO security. Payment streams from the
mortgages serving as collateral are reconfigured with the varying terms and
timing of payments to the CMO investor. Though they can be used for hedging and
investment, CMOs can expose investors to higher risk of loss than direct
investments in mortgage- backed pass-through securities, particularly with
respect to price and average life sensitivity in such securities. The Federal
Financial Institutions Examination Council ("FFIEC") has developed methods of
measuring the suitability of CMOs and other mortgage derivative products
intended for financial institution portfolios. CMOs that do not meet the
standards of the FFIEC test are deemed "high-risk." Douglas National Bank has
not purchased any CMO that fails the FFIEC stress test at date of purchase. At
December 31, 1999 Douglas National Bank held approximately $24.11 million in
CMOs and mortgage-backed securities the vast majority of which are fixed rate
securities. In accordance with Statement of Financial Accounting Standards No.
115 ("SFAS 115"), the mortgage- backed securities, CMOs and other U.S.
government agency-backed securities designated as being held for sale are
carried on Douglas National Bank's balance sheet at estimated fair value, with
unrealized gains and/or losses carried as an adjustment to shareholders' equity,
net of applicable taxes.
Analysis of Investment Securities. Debt and equity securities have
been classified as available for sale. The carrying amount of securities and the
approximate fair values at the dates shown were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
---- ----- ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
AVAILABLE FOR SALE:
U.S. Government and agency securities $18,705 $ - $ 838 $17,867
Collateralized mortgage obligations and
mortgage-backed securities 24,894 5 790 24,109
Obligations of States and political subdivisions 17,394 42 559 16,880
Equity securities 2,385 - - 2,385
---------------------------------------------------
TOTAL INVESTMENT SECURITIES $63,378 $ 47 $ 2,184 $61,241
===================================================
DECEMBER 31, 1998
AVAILABLE FOR SALE:
U.S. Government and agency securities $ 9,227 $ 162 $ 25 $ 9,364
Collateralized mortgage obligations and
mortgage-backed securities 31,432 268 49 31,651
Obligations of States and political subdivisions 13,658 354 51 13,961
Equity securities 2,190 - - 2,190
---------------------------------------------------
TOTAL INVESTMENT SECURITIES $56,507 $ 784 $ 125 $57,166
===================================================
DECEMBER 31, 1997
AVAILABLE FOR SALE:
U.S. Government and agency securities $13,465 $ 245 $ 14 $13,696
</TABLE>
105
<PAGE> 113
<TABLE>
<S> <C> <C> <C> <C>
Collateralized mortgage obligations and
mortgage-backed securities 36,579 451 53 36,977
Obligations of States and political subdivisions 10,329 200 - 10,529
Equity securities 2,040 - - 2,040
---------------------------------------------------
TOTAL INVESTMENT SECURITIEs $62,413 $ 896 $ 67 $63,242
===================================================
</TABLE>
Maturity distribution of Investment Securities. The scheduled
maturities of debt securities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
DUE AFTER DUE AFTER
DUE IN ONE ONE THROUGH FIVE THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
------------ ---------- --------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government and agency securities $ 984 $ 10,262 $ 6,621 $ - $17,867
Weighted average yield 6.87% 5.83% 6.54% 0.00%
Collateralized mortgage obligations and
mortgage-backed securities $ 1,099 $ 8,197 $13,088 $ 1,725 $24,109
Weighted average yield 5.73% 6.57% 6.43% 6.33%
Obligations of States and political subdivisions $ 717 $ 7,403 $ 8,760 $ - $16,880
Weighted average yield 6.59% 6.96% 6.20% 0.00%
TOTAL INVESTMENT SECURITIES $ 2,800 $ 25,862 $28,469 $ 1,725 $58,856
</TABLE>
Note: Yields on tax exempt obligations have been computed on a tax
equivalent basis.
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios
for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average assets 0.39% 0.93% 0.90%
Return on average equity 3.52% 7.65% 7.90%
Dividend payout ratio 61.40% 25.05% 21.91%
Equity to average assets 11.21% 12.17% 11.34%
</TABLE>
DEPOSITS
Following is a summary of the average amount of and average rate paid
on the following deposit categories for the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1999 1998 1997
------------------- ------------------ ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 15,899 0.00% $ 14,355 0.00% $ 12,692 0.00%
Savings and interest-bearing demand deposits 45,869 2.10% 42,048 2.02% 40,651 1.96%
Time deposits 25,498 4.75% 21,614 5.08% 18,126 5.05%
------------ ----------- ------------
Total $ 87,266 $ 78,017 $ 71,469
============ =========== ============
</TABLE>
Certificates of Deposit at December 31, 1999 are scheduled to mature
as follows:
106
<PAGE> 114
<TABLE>
<CAPTION>
UNDER OVER
$100,000 $100,000 TOTAL
-------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
3 months or less $ 9,091 $ 2,169 $11,260
Over 3 through 6 months 3,764 518 4,282
Over 6 through 12 months 5,561 1,284 6,845
Over 12 months 3,813 329 4,142
Total $22,229 $ 4,300 $26,529
</TABLE>
SHORT TERM BORROWINGS
The following is information concerning United Bancorp's short-term
borrowings for the year ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED:
Amount outstanding at end of year $ 1,300 $ - $ 4,460
Weighted average interest rate thereon 4.00% N/A 5.45%
Maximum amount outstanding at any month-end during year $ 6,380 $ 330 $ 4,460
Average amounts outstanding during year $ 2,538 $ 232 $ 367
Weighted average interest rate during year 5.39% 6.00% 6.10%
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE:
Amount outstanding at end of year $17,300 $11,811 $15,421
Weighted average interest rate thereon 5.02% 3.85% 4.05%
Maximum amount outstanding at any month-end during year $17,883 $16,013 $16,005
Average amounts outstanding during year $15,041 $14,076 $13,006
Weighted average interest rate during year 4.50% 4.67% 4.66%
</TABLE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk and Assets and Liability Management. The Company's
profitability, like most financial institutions, depends to a large extent upon
its net interest income, which is the difference between the interest earned on
assets (loans and investments), versus the interest expense paid on its
liabilities (deposits and borrowings). The Company's historical business
activity tends to originate loans with maturities and repricing terms which are
shorter than those of deposit relationships. These maturity and repricing
differences create a natural interest rate risk profile whereby the Company will
tend to generate higher earnings should market interest rates rise and lower
earnings should interest rates fall.
It is the Company's Asset and Liability management policy to manage
interest rate risk to maximize long term profitability under the range of likely
interest rate scenarios. The Board of Directors oversees implementation of
strategies to control interest rate risk. The Company may take steps to alter
its net sensitivity position by offering deposit and/or loan structures that
tend to counter the natural rate risk profile of the Company. In addition, the
Company may acquire investment securities, interest rate swaps or other hedging
instruments with repricing characteristics that tend to moderate interest rate
risk. Because of the volatility of market rates and uncertainties described
above there can be no assurance of the effectiveness of management programs to
achieve a targeted moderation of risk.
The Company analyzes interest rate risk by simulation modeling and by
traditional interest rate gap analysis. While both methods provide an indication
of risk for a given change in interest rates, it is management's opinion that
simulation is the more effective tool for assets and liability management.
Analyses are dependent on assumptions and estimations that management believes
are reasonable, although the actual results may vary substantially.
107
<PAGE> 115
The Bank's simulation analysis forecasts net interest income and
earnings given unchanged interest rates (stable rate scenario). The model then
estimates a percentage change from the stable rate scenario under scenarios of
rising and falling market interest rates over one and two year time horizons.
The simulation model estimates that in the event of a decline of 150 basis
points in market interest rates over a one-year period, earnings could be
adversely impacted up to approximately 1.40%, while a similar increase in market
rates would have an adverse impact of approximately 1.19%. This compares to the
bank's policy of 7% cumulative change in net interest income over one year. The
bank is well within the policy guidelines. Because of uncertainties as to the
extent of customer behavior, refinance activity, absolute and relative loan and
deposit pricing levels, competitor pricing and market behavior, product volumes
and mix, and other unexpected changes in economic events impacting movements and
volatility in market rates, there can be no assurance that simulation results
are reliable indicators of earnings under such conditions.
At year-end 1999 the Company's one year cumulative interest rate gap
analysis indicates that rate sensitive liabilities maturing or available
repricing within one-year exceeded rate sensitive assets by approximately $33.13
million, compared to the cumulative gap of one through five years which is $3.92
million.
It is the Company's policy to manage interest rate risk to maximize
long-term profitability under the range of likely interest rate scenarios. The
Board of Directors oversees implementation of strategies to control interest
rate risk.
Interest Rate Gap Table. Set forth below is a table showing the
interest rate sensitivity Gap of the Company's assets and liabilities over
various repricing periods and maturities, as of December 31, 1999. Maturities
are based on contractual terms and repricing amounts are based on actual
historical experiences.
<TABLE>
<CAPTION>
DUE AFTER 90 DUE AFTER
DUE WITHIN DAYS THROUGH ONE THROUGH DUE AFTER
90 DAYS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------- -------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Fixed rate loans $ 399 $ 3,597 $ 8,543 $ 7,657 $ 20,196
Variable rate loans 16,549 7,851 17,873 - 42,273
Total loans $ 16,948 $ 11,448 $ 26,416 $ 7,657 $ 62,469
Investment Securities 4,042 4,521 28,135 24,543 61,241
Fed Funds & interest bearing balances with banks 25 - - - 25
Total interest earning assets $ 21,015 $ 15,969 $ 54,551 $ 32,200 $123,735
INTEREST BEARING LIABILITIES:
Savings and interest bearing demand deposits $ 9,526 $ 9,525 $ 19,051 $ 9,525 $ 47,627
Time deposits 12,118 10,345 4,066 - 26,529
Other borrowings 28,600 - 2,228 533 31,361
Total interest bearing liabilities $ 50,244 $ 19,870 $ 25,345 $ 10,058 $105,517
Net interest rate sensitivity GAP $(29,229) $ (3,901) $ 29,206 $ 22,142 $ 18,218
Interest rate gap as a percentage
of total interest earning assets -23.62% -3.15% 23.60% 17.89% 14.72%
Cumulative interest rate sensitivity gap $(29,229) $(33,130) $ (3,924) $ 18,218 $ 18,218
Cumulative interest rate gap as a
percentage of total earning assets -23.62% -26.77% -3.17% 14.72% N/A
</TABLE>
YEAR 2000 ISSUES
The Year 2000 issue is the result of the inability of computers to
distinguish "00" as 2000. Computer programs that were written with only
two-digit years may not function accurately or at all when the date changes from
1999 to 2000. Year 2000 issues will potentially affect anything that contains an
embedded microchip.
108
<PAGE> 116
Douglas National Bank successfully completed the December 31, 1999
year, and moved forward into the new millennium with no known computer related
issues. Although, there is the possibility for future Year 2000 computer related
issues, the bank has no reason to believe it would interrupt the ordinary course
of business.
Douglas National Bank completed all phases of testing for Year 2000
readiness and determined that all mission critical systems are Year 2000
compliant. It has specifically tested its loans, deposits, and general ledger;
all processed transactions and accruals accurately. It tested its ACH processing
and Fed Line. It found them compliant. It tested Laser Pro, the software the
bank uses to generate loan documents, for compliance and did not encounter any
problems. It has also tested its telephone-banking module and found it
compliant.
All critical hardware, including the Unisys Clearpath mainframe and
its accompanying operating software, the NDP1100 (which it uses to proof and
capture Douglas National Bank's items), and its proof machines have been tested
and determined to be Year 2000 ready.
Douglas National Bank operates an in-house system utilizing the
"Information Technology" software, which it runs on Unisys hardware. Information
Technology was independently tested by the FFIEC and was determined to be in
compliance. Unisys provided financial institutions with a list of all compliant
and non- compliant hardware. Although assured of compliance, Douglas National
Bank nevertheless tested all critical Unisys equipment and found it to be ready.
Douglas National Bank has prepared a business resumption plan. The
FDIC has accepted the plan. The liquidity and communication plans are in place
and will be reviewed at least monthly and adjusted as necessary through the
first quarter of 2000.
Douglas National Bank initiated a Year 2000 Project late in 1997 to
address Year 2000 issues. Its Year 2000 Project Plan has been set up following
the Federal Financial Institutions Examination Council recommended five-phase
format: Awareness, Assessment, Renovation, Validation, and Implementation. In
addition to the recommended five phases, Douglas National Bank's plan has been
expanded to include contingency year-end plans.
SUPERVISION AND REGULATION OF UNITED BANCORP
United Bancorp is subject to regulation under the Bank Holding
Company Act of 1956 (the "Act"), as amended, and is registered as such with the
Federal Reserve Board. As a bank holding company, United Bancorp is required to
file with the Federal Reserve Board reports and any additional information the
Federal Reserve Board may require. The Federal Reserve Board may make
examinations of United Bancorp and its subsidiaries and it also has the power to
issue cease and desist orders where action or inaction would constitute a threat
to United Bancorp's safety, soundness, or stability.
Under the Act, United Bancorp may not acquire direct or indirect
ownership or control of the voting shares of any company, including a bank,
without the prior approval of the Federal Reserve Board if, after such
acquisition, it would own or control more than 5 percent of the voting shares of
such company, except as specifically authorized. In addition, United Bancorp is
generally prohibited from engaging in or acquiring direct or indirect control
of, voting shares of any company engaged in non-banking activities. Subject to
the approval of the Federal Reserve Board, United Bancorp may acquire shares of
non-banking corporations, the activities of which are deemed by the Federal
Reserve Board to be closely related to banking or managing or controlling banks.
Some of the activities that the Federal Reserve Board has determined
by regulation to be closely related to banking are, making or servicing loans,
performing certain data processing services, acting as fiduciary or investment
or financial advisor, engaging in mortgage banking, making investments in and
operating insurance agencies, or making investments in corporations or projects
designed primarily to promote community welfare. In making any such
determination, the Federal Reserve Board is required to consider whether the
performance of such activities by United Bancorp or its affiliates can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced de
novo and activities commenced by acquisitions, in whole or in part.
109
<PAGE> 117
The Federal Reserve Board is prohibited from approving an application
by the Company to acquire voting shares of any commercial bank in another state
unless the laws of such other state specifically authorize such acquisition.
United Bancorp and its subsidiaries are "affiliates" of Douglas
National Bank within the meaning of the Federal Reserve Act and regulations of
the Federal Deposit Insurance Corporation ("FDIC"). which imposes restrictions
on loans by Douglas National Bank to its affiliates, on investments by Douglas
National Bank in the stock or securities of its affiliates, on taking such stock
or securities as collateral security for loans to any borrower, on the guarantee
of credit of an affiliate and on the purchase of assets from an affiliate.
United Bancorp, Douglas National Bank, and their affiliates are also subject to
restrictions on engaging in the business of underwriting or distributing
securities in the United States.
SUPERVISION AND REGULATION OF DOUGLAS NATIONAL BANK
Douglas National Bank is subject to supervision and regular
examination by the Comptroller of Currency. It is also subject to regulations
issued by the Federal Reserve Board and FDIC.
There are various requirements and restrictions affecting Douglas
National Bank and its operations including requirements to maintain reserves
against deposits, restrictions on the nature and amount of loans which may be
made by Douglas National Bank, restrictions relating to investments, branching,
and other activities of Douglas National Bank, and limitations upon Douglas
National Bank's ability to declare and pay dividends.
Douglas National Bank is a member of the Federal Reserve Bank and
FDIC and deposits of $100,000 or less are insured.
MONETARY POLICIES
United Bancorp and its subsidiaries are affected by the national and
regional economic environment and are also affected directly and indirectly by
the monetary and fiscal policies of the United States Government, including the
Federal Reserve System which regulates the nation's money supply primarily
through control of bank credit. Such regulation has the effect of influencing
the overall growth of bank loans, investments, and deposits and affects interest
rates on loans and deposits. The monetary policies of the Federal Reserve System
have had a significant effect on the operating results of commercial banks in
the past and are expected to do so in the future. The impact of these policies
cannot be accurately predicted.
BUSINESS OF UNITED BANCORP
United Bancorp is an Oregon corporation organized in 1971. Its
principal continuing business is the coordination of the financial resources of
the consolidated enterprise and the making of investments in and advances to its
subsidiaries to fund portions of their capital and credit requirements. Douglas
National Bank, a wholly-owned subsidiary, is the principal source of United
Bancorp's revenues.
THE COMPANY
United Bancorp is a corporation organized under the laws of Oregon in
1971 as a bank holding company. It owns all the capital stock of Douglas
National Bank, a national banking association chartered in 1959.
United Bancorp was formed to permit greater flexibility in the
operation of Douglas National Bank and related financial services. In September
1972, through a plan of reorganization and merger, Douglas National Bank became
a subsidiary of United Bancorp and the stockholders of Douglas National Bank
became the stockholders of United Bancorp. United Bancorp's principal sources of
funds are dividends and interest from Douglas National Bank. There are legal
limitations on the extent to which Douglas National Bank can pay dividends to
United Bancorp or otherwise supply funds to United Bancorp or its affiliates.
United Bancorp's other wholly-owned subsidiary, DNB Mortgage Company,
was formed December 22, 1998 to engage in the making, acquiring, brokering or
servicing of loans or other credits for its account or for the account of
others. DNB Mortgage Company commenced business as of March 1, 1999 principally
to engage in the business of brokering residential mortgage loans.
110
<PAGE> 118
United Bancorp's principal executive offices are located at 555 S.E.
Kane Street, Roseburg, Oregon 97470, and its telephone number is (541) 440-2600.
The economy of Douglas and Jackson Counties, in which United Bancorp's market is
located, is, and always has been closely, linked to the forest products
industry. The availability of deposits and the exposure to credit loss can be
impacted by the economic performance in the forest products industry. Both
Douglas and Jackson Counties have recently attracted growth from the retirement
community, tourism, and relocated medium sized industrial companies.
Douglas National Bank Insurance Agency, Inc. (DNBIA) was incorporated
January 12, 1988. Douglas National Bank owns 100 percent of DNBIA's common
stock. DNBIA provides insurance and related financial products and is licensed
in the State of Oregon to market life, health and general lines of insurance
products. DNBIA's offices are located at the Glide Office of Douglas National
Bank, Glide, Oregon. DNBIA contracts with PrimeVest, who provides full service
brokerage services to DNBIA and its customers. The customers of DNBIA invest
primarily in annuities and mutual funds; however, they may invest in individual
stocks or other insurance and financial products as well. DNBIA employees are
considered dual employees with PrimeVest.
COMPETITION
Competition in the banking industry has intensified as brokerage
companies market their money market accounts and other financial products to
their customers. The banking industry is subject to certain limitations not
applicable to non-bank competitors. Legislation enacted in the 1980s authorized
banks to offer deposit instruments with rates competitive with money market
funds, but subject to restrictions not applicable to those funds. Legislation
has also made non-bank financial institutions more effective competitors. Thrift
associations and credit unions are now permitted to offer checking accounts and
to make commercial loans with certain limitations. Recently enacted legislation,
the Gramm-Leach Bliley Act of 1999, better known as the Financial Services
Modernization Act of 1999, will change the look of the financial services
industry in the years to come. This legislation broke down the barriers between
insurance companies, brokerage companies and financial institutions. These
industries can now merge their products together to provide better service to
their customer which also creates a fiercer competitive market. Although the
industries have slowly become similar as they have evolved from the original
legislation of Glass-Steigel in the early part of the century, this legislation
cuts out the loopholes and enables the industries to become more efficient and
competitive.
All phases of United Bancorp's financial service activities,
including banking and the related businesses in which it is engaged, are highly
competitive. Douglas National Bank competes with independent locally controlled
banks and banks, which are subsidiaries of bank holding companies, based inside
and outside Oregon. Douglas National Bank competes actively with banks, savings
and loans, and credit unions for deposits and loan, and brokerage firms for
deposits. Douglas National Bank also competes with other financial institutions,
including personal loan companies, finance companies and governmental agencies,
all of which are actively engaged in marketing various types of loans and other
financial services.
Quality of service to customers and ease of accessibility to
facilities are among the principal methods of meeting competition in the
financial services industries. United Bancorp has found a niche in providing a
community atmosphere where the customer with needs and concerns can receive
friendly, effective personal service that meets with their expectations.
PROPERTIES
Douglas National Bank is engaged in the general banking business in
Douglas and Jackson Counties, Oregon. Its main office is located at 555 S.E.
Kane Street, Roseburg. It operates seven branch offices, two ATM Kiosks, and
24-Hour ATM locations at five of the branches and at Douglas Community Hospital.
Its branch and ATM locations are as follows:
- - Garden Valley Office, 350 N.E. Garden Valley Boulevard, Roseburg *
- - Linus Oakes Office, 2665 Van Pelt Boulevard, Roseburg
- - Winston-Dillard Office, 40 N.W. Glenhart, Winston *
- - Glide Office, 19421 N. Umpqua Highway, Glide *
- - Drain Office, 257 2nd Street, Drain
- - Sutherlin Office, 1000 W. Central, Sutherlin *
- - Crater Lake Plaza, 3369 Crater Lake Highway, Medford *
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- - 24-Hour ATM Kiosk, 1381 Garden Valley Boulevard, Roseburg
- - Douglas Community Hospital, 738 Harvard, Roseburg (ATM only)
* ATM located at branch
United Bancorp owns all of its branch facilities, except the
Sutherlin Branch and the Linus Oakes Office, which it leases.
LEGAL PROCEEDINGS
United Bancorp is from time to time party to various legal
proceedings arising in the ordinary course of business. Management believes that
there are no threatened or pending proceedings against United Bancorp which, if
determined adversely, would have a material effect on its business or financial
position.
PERSONNEL
As of December 31, 1999, Douglas National Bank had 85 full-time
employees. None of Douglas National Bank's employees are represented by a labor
union. Douglas National Bank considers its relationships with its employees
satisfactory.
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<PAGE> 120
MANAGEMENT OF UNITED BANCORP WHO WILL SERVE AS DIRECTORS OR EXECUTIVE OFFICERS
OF PREMIERWEST BANCORP AND PREMIERWEST BANK
PREMIERWEST BANCORP. Some members of management of United Bancorp will
serve as directors or executive officers of PremierWest Bancorp after the
transaction. United Bancorp has designated three of its directors-- Messrs.
Peter Martini, Rickar D. Watkins and Thomas Becker-- to serve as directors of
PremierWest Bancorp if the transaction is completed. Mr. M. Neil Zick will serve
as Executive Vice President and Chief Administrative Officer of PremierWest
Bancorp. The current directors of PremierWest Bancorp are John L. Anhorn, John
A. Duke, Dennis N. Hoffbuhr, Patrick G. Huycke and James L. Patterson. Along
with Messrs. Peter Martini, Rickar D. Watkins and Thomas Becker designated by
United Bancorp, these individuals will serve as the directors of PremierWest
Bancorp after the merger and holding company reorganization.
Except as noted, there are no family relationships among any of the
directors or executive officers. No director was selected or serves pursuant to
any arrangement or understanding with any other person. Except as disclosed,
none of the directors and executive officers of United Bancorp serves as a
director of any company that has a class of securities registered under, or that
is subject to the periodic reporting requirements of, the Securities Exchange
Act of 1934 or any investment company registered under the Investment Company
Act of 1940. None of the directors or executive officers of United Bancorp has
been involved in any legal proceedings concerning bankruptcy, either
individually or in respect of any businesses with which they have been involved.
None of them have been convicted of any crime, excluding traffic violations and
similar minor offenses.
DIRECTORS AND EXECUTIVE OFFICERS. The following table identifies the
Directors of United Bancorp named to serve as directors of PremierWest Bancorp.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION AGE SINCE PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
- ------------------------------------- -------- ---------- --------------------------------------------------------
<S> <C> <C> <C>
Peter Martini........................ 56 1993 Pete Martini has served as President of Elk River Enterprises for
Director more than 25 years. Elk River Enterprises is a privately held
secondary wood products manufacturing company.
Rickar D. Watkins.................... 54 1989 Rickar D. Watkins is President of Rick's Medical Supply Inc., a
Director medical supply company.
Thomas Becker........................ 48 1998 Thomas Becker has been Executive Director of Rogue Valley
Director Manor, a continuing care retirement community in Medford,
Oregon since 1978. In 1990, he became the Chief
Executive Officer of Pacific Retirement Services,
Inc., the parent corporation of 28 organizations
providing housing and services to over 3,000 seniors
in Oregon, California and Texas. He also is a
director of Lithia Motors Inc.
</TABLE>
M. Neil Zick, age 57, is expected to serve as Executive Vice President
and Chief Administrative Officer of PremierWest Bancorp after the transaction.
Since 1998, Mr. Zick has been the President and Chief Executive Officer of
Douglas National Bank, and Executive Vice President of United Bancorp,
administering the day to day operations of the company. Mr. Zick has also served
as a director of United Bancorp since 1998. From January 1995 to February 1998,
Mr. Zick served as the Senior Vice President and Director of Bank Operations of
Douglas National Bank. Previously he served as Vice President and Chief
Financial Officer of Bank of Livermore.
PREMIERWEST BANK. After the transaction, PremierWest Bank's board will
consist of 13 members, including the 8 directors elected at the Bank of Southern
Oregon annual meeting. The individuals designated by United Bancorp to serve as
directors of PremierWest Bank if the transaction is completed are Peter Martini,
Rickar D. Watkins, Thomas Becker, David A. Emmett, and Brian R. Pargeter.
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<PAGE> 121
DIRECTORS AND EXECUTIVE OFFICERS. The following table identifies the
Directors of United Bancorp named to serve as directors of PremierWest Bank.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITION AGE SINCE PRINCIPAL OCCUPATION IN THE LAST 5 YEARS
- ------------------------------------- -------- ---------- --------------------------------------------------------
<S> <C> <C> <C>
Peter Martini........................ 56 1993 See above.
Director
Rickar D. Watkins.................... 54 1989 See above.
Director
Thomas Becker........................ 48 1998 See above.
Director
Brian R. Pargeter.................... 57 1995 Brian R. Pargeter has been the President of Umpqua Insurance
Director Agency since 1980.
David A. Emmett...................... 57 1998 David A. Emmett is self-employed and the owner and operator of a
Director public accounting firm. Mr. Emmett is a Certified Public
Accountant.
</TABLE>
Mr. Zick will also serve as Executive Vice President and Chief
Administrative Officer of PremierWest Bank after the transaction.
EXECUTIVE COMPENSATION. The following table shows compensation for
services in all capacities for the fiscal years ended December 31, 1999, 1998,
and 1997 for the executive officer who received compensation in excess of
$100,000 during 1999, including salary and bonus, and who will be an executive
officer of PremierWest Bancorp and PremierWest Bank.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ------------------------------------ --------------
($) (#)
($) RESTRICTED SECURITIES ($) ($)
NAME AND ($) ($) OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION (2) AWARDS OPTIONS PAYOUTS COMPENSATION(3)
- ----------------- -------- ----------- ---------- ---------------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M. Neil Zick, 1999 $ 95,455 $ 29,994 $ 4,989 $ 18,000 (4) $ 0 $ 32,500
Executive Vice 1998 $ 87,132 $ 10,169 $ 2,667 $ 0 $ 0 $ 33,709
President 1997 $ 66,634 $ 11,264 $ 2,074 $ 28,000 $ 0 $ 31,324
</TABLE>
(1) Includes amounts deferred at the election of the named executive
officers pursuant to the 401(k) Plan of United Bancorp.
(2) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of total salary and bonus.
(3) Includes the value of the shares of common stock allocated to Mr.
Zick's account under the Employee Stock Ownership Plan (ESOP) and the
amounts of United Bancorp's matching contributions under its 401(k)
plan on behalf of Mr. Zick. The amounts for 1999 are subject to final
year-end adjustments.
INCENTIVE COMPENSATION PLANS. United Bancorp has an Executive Incentive
Plan for officers. Incentive compensation under the Executive Incentive Plan is
paid in the form of cash bonuses at year end, based upon achievement of a
structured set of objectives determined by the board and the affected executives
each year. Performance is monitored by the board throughout the year, and
payment is conditional upon meeting objectives established at the beginning of
the year.
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<PAGE> 122
The following table contains information concerning the grant of
options under United Bancorp's stock option plan to the named executive officer
in the Summary Compensation Table for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term(2)
-------------------------------------------------------- ----------------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise
Options Fiscal Year Price Expiration
Name Granted(1) ($/Sh.) Date 5%($) 10%($)
- --------------------- -------------- --------------- ------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
M. Neil Zick 18,000 22.5% $7.25 July 1, 2009 $82,070.75 $207,483.39
</TABLE>
(1) Mr. Zick has agreed to rescind his Incentive Stock Option Agreement
dated July 27, 1999 for these shares immediately before the merger so
that the merger may qualify as a "pooling of interests" for accounting
purposes.
(2) These calculations are based on assumed annual rates of appreciation as
required by rules adopted by the Securities and Exchange Commission
requiring additional disclosure regarding executive compensation. Under
these rules, an assumption is made that the shares underlying the stock
options shown in this table could appreciate at rates of 5% and 10% per
annum on a compounded basis over the ten year term of the stock
options. Actual gains, if any, on stock option exercises are dependent
on the future performance of United Bancorp's Common Stock and overall
stock market conditions. There can be no assurance that amounts
reflected in this table will be achieved.
The following table shows the number of shares of United Bancorp common
stock acquired during 1999 or acquirable upon exercise of options by the
individual(s) named in the Summary Compensation Table. The table also indicates
the extent to which the options were exercisable at December 31, 1999, as well
as the approximate value of the options based on the estimated fair market value
of United Bancorp common stock at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
Securities Underlying Unexercised Value of Options at Fiscal Year
Options at Fiscal Year End (#)(1)(2) End ($)
----------------------------------- -------------------------------
Shares Acquired
Name on Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------- ----------------- -------------- --------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
M. Neil Zick.... 0 $ 0 22,800 23,200 $ 144,300 $ 161,200
</TABLE>
(1) Mr. Zick has agreed to rescind his Incentive Stock Option Agreement
dated July 27, 1999 for 18,000 shares immediately before the merger so
that the merger may qualify as a "pooling of interests" for accounting
purposes.
(2) Except for the option Mr. Zick has agreed to rescind before the merger,
all of his unexercisable options will become exercisable at the time of
the merger.
RETIREMENT PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN. United Bancorp
adopted a 401(k) Profit Sharing Plan effective January 1, 1984. The plan covers
full-time employees over 21 years of age with at least 12 months of service.
Employee voluntary contributions are partially matched by United Bancorp, up to
2.0% of the employee's annual compensation.
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<PAGE> 123
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS. United Bancorp
and Douglas National Bank have deposit and lending relationships with certain of
the officers, directors and principal stockholders of United Bancorp, and
members of their immediate families, as well as with their affiliates. All loans
to these parties were made in the ordinary course of business, on substantially
the same terms (including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons, and do not involve more
than the normal credit risk or present other unfavorable features. Refer to Note
4 of Notes to Consolidated Financial Statements of United Bancorp.
PRINCIPAL SHAREHOLDERS OF UNITED BANCORP
The following table indicates the beneficial ownership of United
Bancorp common stock as of the March 15, 2000 record date
- by directors and executive officers of United Bancorp,
- by each person who is known by United Bancorp to own
beneficially more than 5% of the outstanding shares of United
Bancorp common stock, and
- by all directors and executive officers of United Bancorp as a
group.
Unless otherwise stated, voting and investment power are exercised
solely by the person named or are shared with members of his or her household.
For purposes of the table, a person is considered to own beneficially any shares
for which he or she exercises sole or shared voting or investment power, plus
the number of shares the individual has the right to acquire within 60 days.
Shares deemed to be outstanding are calculated on the basis of 1,871,334 shares
outstanding on the record date, plus the number of shares a person or group has
the right to acquire within 60 days.
<TABLE>
<CAPTION>
POSITION WITH UNITED SHARES OF SHARES ACQUIRABLE PERCENT OF
NAME OF BENEFICIAL OWNER BANCORP COMMON STOCK WITHIN 60 DAYS COMMON STOCK
- --------------------------------------- -------------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C>
David A. Jackson(1) Director 106,340.8 0 5.7%
P.O. Box 606
Winchester, Oregon 97495-0308
William C. Stiles President, Vice 17,400.0 4,000 1.1%
Chairman of the
Board of Directors,
and Director
M. Neil Zick(2) Executive Vice 9,864.7 25,133 1.9%
President and
Director
Peter Nilsen Secretary and 3,592.0 12,000 *
Director
Linda Ganim(3) Treasurer 25,020.9 2,833 1.5%
Larry Robbins(4) Senior Vice 0.0 1,000 *
President, Credit
Administrator
Rosemarie Baucom(5) Vice President, Area 2,436.9 1,200 *
Sales Manager
Thomas R. Becker(6) Director 4,500.0 1,333 *
David A. Emmett(7) Director 4,700.0 2,667 *
Carol L. Hamlin(8) Director 37,662.0 1,333 2.1%
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
POSITION WITH UNITED SHARES OF SHARES ACQUIRABLE PERCENT OF
NAME OF BENEFICIAL OWNER BANCORP COMMON STOCK WITHIN 60 DAYS COMMON STOCK
- --------------------------------------- -------------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Bradley K. Leiken(9) Director 629.0 1,333 *
Patrick Markham(10) Director 78,378.0 1,333 4.3%
Peter Martini(11) Chairman of the 22,897.3 0 1.2%
Board of Directors
Clinton L. Newell(12) Director 8,660.0 0 *
Brian R. Pargeter(13) Director 12,284.7 10,000 1.2%
Lance C. Short(14) Director 42,745.1 0 2.3%
Rickar D. Watkins(15) Director 8,900.0 12,000 1.1%
Lauren Young Director 17,752.0 0 *
Gary Kjensrud(16) 227,816.0 0 12.2%
P.O. Box 308
Winchester, Oregon 97495-0308
Employee Stock Ownership Plan Trust(17) 299,745.0 0 16.0%
(William C. Stiles, David A. Jackson,
Peter Martini, Lance C. Short,
Patrick Markham, and David A. Emmett, Trustees)
P.O. Box 1007
Roseburg, Oregon 97470
All directors and executive officers as a group (18 403,763.4 76,165 24.6%
persons)(18)
</TABLE>
* Less than one percent.
(1) Includes 36,668 shares held by Jackson Ranch Inc. and 16,100.89 shares
held by Gail E. Jackson.
(2) Includes 9,664.72 shares allocated to Mr. Zick's account under United
Bancorp's Employee Stock Ownership Plan (ESOP) and options for 1,800
shares he has agreed to rescind before the merger. Excludes options for
20,867 shares that become exercisable at the time of the merger
(however, Mr. Zick has agreed to rescind 16,200 of these options).
(3) Includes 13,020.93 shares allocated to Ms. Ganim's account under the
ESOP and options for 1,500 shares she has agreed to rescind immediately
before the merger. Excludes options for 16,167 shares that become
exercisable at the time of the merger (however, Ms. Ganim has agreed to
rescind 13,500 of these options).
(4) Excludes options for 9,000 shares that become exercisable at the time
of the merger.
(5) Includes 2,436.91 shares allocated to Ms. Baucom's account under the
ESOP and 1,200 options that she has agreed to rescind immediately
before the merger. Excludes options for 10,800 shares that become
exercisable at the time of the merger (however, Ms. Baucom has agreed
to rescind all of these options).
(6) Excludes options for 5,333 shares that become exercisable immediately
before the merger.
(7) Includes 4,200 shares held by E & G Investments, LLC in which Mr.
Emmett owns 89% of the membership interests. Excludes options for 5,333
shares that become exercisable at the time of the merger.
(8) Includes 10,616.78 shares held by the Carol L. Hamlin Trust, of which
Ms. Hamlin is co-trustee, 7,775.24 shares held by Ms. Hamlin's
children, and 19,269.95 shares held by Coning Corporation of which Ms.
Hamlin is president. Excludes options for 6,667 shares that become
exercisable at the time of the merger.
(9) Excludes options for 6,667 shares that become exercisable at the time
of the merger.
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<PAGE> 125
(10) Includes 12,232 shares held by Brooke Communications, Inc. and 54,590
shares held by William E. Markham Jr. and Michael J. Markham. Excludes
options for 6,667 shares that become exercisable at the time of the
merger.
(11) Includes 1,563.06 shares held by Elk River Enterprises, Inc.
(12) Excludes options for 4,000 shares that become exercisable at the time
of the merger.
(13) Includes 265.53 shares held by Umpqua Insurance Agency. Excludes
options for 2,000 shares that become exercisable at the time of the
merger.
(14) Includes 2,000 shares held by Ms. Lola Short.
(15) Includes 8,100 shares held by Watkins Trust and 800 shares jointly held
by Rickar and Donna Watkins.
(16) Includes 6,064 shares held by Mrs. Kjensrud.
(17) Includes 219,532 allocated shares and 80,213 unallocated shares.
Trustees must vote the allocated shares only as directed by
participants.
(18) Includes 25,122.56 shares allocated to their accounts under the ESOP
and options for 4,500 shares that they have agreed to rescind
immediately before the merger. Excludes options for 93,501 shares that
become exercisable at the time of the merger (however, they have agreed
to rescind 40,500 of these options).
SUPERVISION AND REGULATION
The following discussion of bank supervision and regulation is
qualified in its entirety by reference to the statutory and regulatory
provisions discussed. Changes in applicable law or in the policies of various
regulatory authorities could affect materially the business and prospects of
PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank.
United Bancorp is a bank holding company within the meaning of the Bank
Holding Company Act of 1956. As such, United Bancorp is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System, acting primarily through the Federal Reserve Bank of San Francisco.
United Bancorp is required to file annual reports with the Federal Reserve Board
and to provide the Federal Reserve Board additional information as the Federal
Reserve Board may require. After the merger with United Bancorp and Bank of
Southern Oregon's holding company reorganization, PremierWest Bancorp will be a
bank holding company and will be subject to regulation, supervision and
examination by the Board of Governors of the Federal Reserve System.
Bank of Southern Oregon is an Oregon-chartered commercial bank. As an
FDIC member institution, the deposits of Bank of Southern Oregon are insured to
a maximum of $100,000 per depositor through the Bank Insurance Fund administered
by the FDIC. As a state-chartered, non-member bank, Bank of Southern Oregon is
primarily regulated by the FDIC and the Oregon Department of Consumer and
Business Services -- Division of Finance and Corporate Securities. Douglas
National Bank, United Bancorp's principal subsidiary, is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency.
Deposits of Douglas National Bank are insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund.
PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and
Douglas National Bank are subject to federal banking laws, and Bank of Southern
Oregon is subject also to the Oregon Bank Act. These federal and state laws are
intended to protect depositors, not shareholders. Federal and state laws
applicable to financial institution holding companies and their financial
institution subsidiaries regulate the range of permissible business activities,
investments, reserves against deposits, capital levels, lending activities and
practices, the nature and amount of collateral for loans, establishment of
branches, mergers, dividends and a variety of other important matters.
Bank of Southern Oregon and Douglas National Bank are subject to
detailed, complex and sometimes overlapping federal and state statutes and
regulations affecting routine banking operations. These statutes and regulations
include but are not limited to state usury and consumer credit laws, the Federal
Truth-in-Lending Act
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<PAGE> 126
and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the
Fair Credit Reporting Act, the Truth in Savings Act and the Community
Reinvestment Act. Bank of Southern Oregon and Douglas National Bank are subject
to Federal Reserve Board regulations that require depository institutions to
maintain reserves against their transaction accounts (principally NOW and
regular checking accounts). Bank of Southern Oregon and Douglas National Bank
are in compliance with this requirement. Because required reserves are commonly
maintained in the form of vault cash or in a noninterest-bearing account (or
pass-through account) at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce an institution's earning assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
expanded significantly the authority of federal agencies to regulate the
activities of federally chartered and state-chartered financial institutions and
their holding companies. The Federal Reserve Board, Office of the Comptroller of
the Currency (OCC) and the FDIC have extensive authority to prevent and to
remedy unsafe and unsound practices and violations of applicable laws and
regulations by institutions and holding companies. The agencies may assess civil
money penalties, issue cease and desist or removal orders, seek injunctions, and
publicly disclose those actions. In addition, the Director of the Oregon
Department of Consumer and Business Services -- Division of Finance and
Corporate Securities possesses enforcement powers to address violations of
Oregon banking law by Oregon-chartered banks.
REGULATION OF BANK HOLDING COMPANIES
BANK AND BANK HOLDING COMPANY ACQUISITIONS. Bank holding companies and
their activities are subject to extensive regulation by the Federal Reserve
Board. The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Federal Reserve Board before
- directly or indirectly acquiring ownership or control of any
voting shares of another bank or bank holding company, if
after the acquisition the acquiring company would own or
control more than 5% of the shares of the other bank or bank
holding company (unless the acquiring company already owns or
controls a majority of the shares);
- acquiring all or substantially all of the assets of another
bank; or
- merging or consolidating with another bank holding company.
The Federal Reserve Board will not approve any acquisition, merger or
consolidation that would have a substantially anticompetitive result, unless the
anticompetitive effects of the proposed transaction are clearly outweighed by a
greater public interest in meeting the convenience and needs of the community to
be served. The Federal Reserve Board also considers capital adequacy and other
financial and managerial factors in its review of acquisitions and mergers.
NONBANKING ACTIVITIES. With some exceptions, the Bank Holding Company
Act has for many years also prohibited a bank holding company from acquiring or
retaining direct or indirect ownership or control of more than 5% of the voting
shares of any company that is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve non-bank activities that, by
statute or by Federal Reserve Board regulation or order, have been determined to
be activities closely related to the business of banking or of managing or
controlling banks. In making this determination, the Federal Reserve Board
considers whether the performance of the activities by a bank holding company
can be expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency in resources, that will outweigh
the risks of possible adverse effects such as decreased or unfair competition,
conflicts of interest or unsound banking practices. Some of the activities
determined by Federal Reserve Board regulation to be incidental to the business
of banking are: making or servicing loans or leases; engaging in insurance and
discount brokerage activities; performing data processing services; acting as a
fiduciary or investment or financial advisor; and making investments in
corporations or projects designed primarily to promote community welfare.
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<PAGE> 127
RECENT LEGISLATION -- FINANCIAL HOLDING COMPANIES. On November 12, 1999
the Gramm-Leach-Bliley Act became law, repealing the 1933 Glass-Steagall Act's
separation of the commercial and investment banking industries. The
Gramm-Leach-Bliley Act expands the range of nonbanking activities a bank holding
company may engage in, while preserving existing authority for bank holding
companies to engage in activities that are closely related to banking. The new
legislation creates a new category of holding company called a "financial
holding company." Financial holding companies may engage in any activity that is
- financial in nature or incidental to that financial activity,
or
- complementary to a financial activity and that does not pose a
substantial risk to the safety and soundness of depository
institutions or the financial system generally.
Activities that are financial in nature include
- acting as principal, agent or broker for insurance;
- underwriting, dealing in or making a market in securities; and
- providing financial and investment advice.
A bank holding company cannot be a financial holding company unless it
satisfies the following criteria:
(1) all of the depository institution subsidiaries must be well
capitalized and well managed;
(2) the holding company must file with the Federal Reserve Board a
declaration that it elects to be a financial holding company
to engage in activities that would not have been permissible
before the Gramm-Leach-Bliley Act; and
(3) all of the depository institution subsidiaries must have a
Community Reinvestment Act rating of "satisfactory" or better.
The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.
The Gramm-Leach-Bliley Act has only recently become law. Regulations of
the banking agencies implementing the legislative changes can be expected in the
near future. Except for the increase in competitive pressures faced by all
banking organizations that is a likely consequence of the Gramm-Leach-Bliley
Act, the legislation and implementing regulations are likely to have a more
immediate impact on large regional and national institutions than on
community-based institutions engaged principally in traditional banking
activities. Because the legislation permits bank holding companies to engage in
activities previously prohibited altogether or severely restricted because of
the risks they posed to the banking system, implementing regulations can be
expected to impose strict and detailed prudential safeguards on affiliations
among banking and nonbanking companies in a holding company organization.
Additionally, because the legislation allows various affiliates within a single
holding company organization to serve a broader array of customers' financial
goals, including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of customer
information among affiliated entities within an organization.
Bank of Southern Oregon and United Bancorp and its subsidiaries and
affiliates are engaged solely in activities that were permissible for a bank
holding company before enactment of the Gramm-Leach-Bliley Act. Although
PremierWest Bancorp might elect to be a financial holding company in the future,
it currently has no plans to do so.
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HOLDING COMPANY CAPITAL AND SOURCE OF STRENGTH. The Federal Reserve
Board considers the adequacy of a bank holding company's capital on essentially
the same risk-adjusted basis as capital adequacy is determined by the FDIC and
OCC at the bank subsidiary level. In the case of a bank holding company with
less than $150 million in total consolidated assets, the Federal Reserve Board's
regulations provide that the capital adequacy requirements will generally be
applied on a bank-only basis, rather than on a consolidated basis. In general,
bank holding companies are required to maintain a minimum ratio of total capital
to risk-weighted assets of 8% and Tier 1 capital -- consisting principally of
shareholders' equity -- of at least 4%. Bank holding companies are also subject
to a leverage ratio requirement. The minimum required leverage ratio for the
highest rated companies is 3%. The minimum required leverage ratio for all other
bank holding companies is 4% or higher. See " - CAPITAL." It is also Federal
Reserve Board policy that bank holding companies serve as a source of strength
for their subsidiary banking institutions.
OREGON DEPARTMENT OF CONSUMER AND BUSINESS SERVICES. Prior approval of
the Director of the Oregon Department of Consumer and Business Services is
necessary to acquire control of an Oregon-chartered bank. An out-of-state bank
holding company may acquire an Oregon bank if the Oregon bank has been engaged
in the business of banking in Oregon for at least 3 years.
FEDERAL DEPOSIT INSURANCE
The FDIC insures deposits of federally insured banks, savings banks and
savings associations and safeguards the safety and soundness of the banking
industry. Two separate insurance funds are maintained and administered by the
FDIC. In general, bank deposits are insured through the Bank Insurance Fund.
Deposits in savings associations are insured through the Savings Association
Insurance Fund.
As FDIC member institutions, deposits in Bank of Southern Oregon and
Douglas National Bank are insured to a maximum of $100,000 per depositor. The
banks are required to pay semiannual deposit insurance premium assessments to
the FDIC. In general terms, each institution is assessed insurance premiums
according to how much risk to the insurance fund the institution represents.
Well-capitalized institutions with few supervisory concerns are assessed lower
premiums than other institutions. The premium range is currently from $0.00, for
the highest-rated institutions (subject to a statutory minimum assessment of
$2,000), to $0.27 per $100 of domestic deposits. Bank of Southern Oregon
currently pays premiums of $0.0053 per $100 of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines that the institution has engaged or is
engaging in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, order or any
condition imposed in writing by, or written agreement with, the FDIC. The FDIC
may also suspend deposit insurance temporarily during the hearing process for a
permanent termination of insurance if the institution has no tangible capital.
INTERSTATE BANKING AND BRANCHING
In 1994 the Reigle-Neal Interstate Banking and Branching Efficiency Act
eased restrictions on interstate banking. The Riegle-Neal Act allows the Federal
Reserve Board to approve an application by an adequately capitalized and
adequately managed bank holding company to acquire a bank located in a state
other than the acquiring company's home state without regard to whether the
transaction is prohibited by the laws of any state. The Federal Reserve Board
may not approve the acquisition of a bank that has not been in existence for the
minimum time period (up to five years) specified by the statutory law of the
acquired, or "target," bank's state. The Riegle-Neal Act also prohibits the
Federal Reserve Board from approving an application if the applicant (and its
depository institution affiliates) controls or would control more than 10% of
the insured deposits in the United States or 30% or more of the deposits in the
target bank's home state or in any state in which the target bank maintains a
branch. The Riegle-Neal Act does not affect the authority of states to limit the
percentage of total insured deposits in the state that may be held or controlled
by a bank or bank holding company if the limitation
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does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% statewide concentration limit contained
in the Riegle-Neal Act.
Branching between states may be accomplished by merging commonly
controlled banks located in different states into one legal entity. Branching
may also be accomplished by establishing de novo branches or acquiring branches
in another state. A branch of an out-of-state bank operating in another state,
or "host state," is subject to the law of the host state regarding community
reinvestment, fair lending, consumer protection (including usury limits) and
establishment of branches. The Riegle-Neal Act authorizes the FDIC to approve
interstate branching de novo by state-chartered banks solely in states that
specifically allow it. The Oregon Bank Act prohibits de novo branching in
Oregon by an out-of-state bank, but it permits branching by merger with an
Oregon bank, provided the Oregon bank has been conducting business for at least
3 years. The FDIC has adopted regulations under the Riegle-Neal Act to prohibit
an out-of-state bank from using the new interstate branching authority
primarily for the purpose of deposit production. These regulations include
guidelines to ensure that interstate branches operated by an out-of-state bank
in a host state are reasonably helping to meet the credit needs of the
communities served by the out-of-state bank.
CAPITAL
The Federal Reserve Board, the FDIC and OCC employ similar risk-based
capital guidelines in their examination and regulation of bank holding companies
and financial institutions. If capital falls below the minimum levels
established by the guidelines, the bank holding company, bank or savings bank
may be denied approval to acquire or establish additional banks or non-bank
businesses or to open new facilities. Failure to satisfy applicable capital
guidelines could subject a banking institution to a variety of enforcement
actions by federal regulatory authorities, including the termination of deposit
insurance by the FDIC and a prohibition on the acceptance of "brokered
deposits."
In the calculation of risk-based capital, assets and off-balance sheet
items are assigned to broad risk categories, each with an assigned weighting
(0%, 20%, 50% and 100%). Most loans are assigned to the 100% risk category,
except for first mortgage loans fully secured by residential property, which
carry a 50% rating. Most investment securities are assigned to the 20% category,
except for municipal or state revenue bonds, which have a 50% risk-weight, and
direct obligations of or obligations guaranteed by the United States Treasury or
United States Government agencies, which have a 0% risk-weight. Off-balance
sheet items are also taken into account in the calculation of risk-based
capital, with each class of off-balance sheet item being converted to a balance
sheet equivalent according to established "conversion factors." From these
computations, the total of risk-weighted assets is derived. Risk-based capital
ratios therefore state capital as a percentage of total risk-weighted assets and
off- balance sheet items. The ratios established by guideline are minimums only.
Current risk-based capital guidelines require bank holding companies
and banks to maintain a minimum risk-based total capital ratio equal to 8% and a
Tier 1 capital ratio of 4%. Intangibles other than readily marketable mortgage
servicing rights are generally deducted from capital. Tier 1 capital includes
common shareholders' equity, qualifying perpetual preferred stock (within limits
and subject to conditions, particularly if the preferred stock is cumulative
preferred stock), and minority interests in equity accounts of consolidated
subsidiaries, less intangibles. Tier 2 capital includes:
- the allowance for loan losses up to 1.25% of risk-weighted
assets;
- any qualifying perpetual preferred stock exceeding the amount
includable in Tier 1 capital;
- hybrid capital instruments;
- perpetual debt;
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<PAGE> 130
- mandatory convertible securities, and
- subordinated debt and intermediate term preferred stock of up
to 50% of Tier 1 capital.
Total capital is the sum of Tier 1 and Tier 2 capital, less reciprocal
holdings of other banking organizations, capital instruments and investments in
unconsolidated subsidiaries.
The FDIC has added a market risk component to the capital requirements
of nonmember banks. The market risk component could require additional capital
for general or specific market risk of trading portfolios of debt and equity
securities and other investments or assets. The FDIC's evaluation of an
institution's capital adequacy takes account of a variety of other factors as
well, including interest rate risks to which the institution is subject, the
level and quality of an institution's earnings, loan and investment portfolio
characteristics and risks, risks arising from the conduct of nontraditional
activities and a variety of other factors. Accordingly, the FDIC's final
supervisory judgment concerning an institution's capital adequacy could differ
significantly from the conclusions that might be drawn from the absolute level
of an institution's risk-based capital ratios. Therefore, institutions generally
are expected to maintain risk-based capital ratios that exceed the minimum
ratios discussed above. This is particularly true for institutions contemplating
significant expansion plans and institutions that are subject to high or
inordinate levels of risk. Moreover, although the FDIC does not impose explicit
capital requirements on holding companies of institutions regulated by the FDIC,
the FDIC can take account of the degree of leverage and risks at the holding
company level. If the FDIC determines that the holding company (or another
affiliate of the institution regulated by the FDIC) has an excessive degree of
leverage or is subject to inordinate risks, the FDIC may require the subsidiary
institution(s) to maintain additional capital or the FDIC may impose limitations
on the subsidiary institution's ability to support its weaker affiliates or
holding company.
The banking agencies have also established a minimum leverage ratio of
3%, which represents Tier 1 capital as a percentage of total assets, less
intangibles. However, for bank holding companies and financial institutions
seeking to expand and for all but the most highly rated banks and bank holding
companies, the banking agencies expect an additional cushion of at least 100 to
200 basis points. At December 31, 1999, Bank of Southern Oregon, United Bancorp
and Douglas National Bank were in compliance with all regulatory capital
requirements.
To resolve the problems of undercapitalized institutions and to prevent
a recurrence of the banking crisis of the 1980s and early 1990s, the Federal
Deposit Insurance Corporation Improvement Act of 1991 established a system known
as "prompt corrective action." Under the prompt corrective action provisions and
implementing regulations, every institution is classified into one of five
categories, depending on its total risk-based capital ratio, Tier 1 risk-based
capital ratio and leverage ratio and subjective factors. The categories are:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A financial institution's
operations can be significantly affected by its capital classification. For
example, an institution that is not "well capitalized" generally is prohibited
from accepting brokered deposits and offering interest rates on deposits higher
than the prevailing rate in its market, and the holding company of any
undercapitalized institution must guarantee, in part, aspects of the
institution's capital plan. Financial institution regulatory agencies generally
are required to appoint a receiver or conservator shortly after an institution
enters the category of weakest capitalization. The Federal Deposit Insurance
Corporation Improvement Act of 1991 also authorizes the regulatory agencies to
reclassify an institution from one category into a lower category if the
institution is in an unsafe or unsound condition or engaging in an unsafe or
unsound practice. Undercapitalized institutions are required to take specified
actions to increase their capital or otherwise decrease the risks to the federal
deposit insurance funds.
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<PAGE> 131
The following table illustrates the capital and prompt corrective
action guidelines applicable to Bank of Southern Oregon and Douglas National
Bank, as well as their total risk-based capital ratios, Tier 1 capital ratios
and leverage ratios as of December 31, 1999.
<TABLE>
<CAPTION>
MINIMUM NECESSARY TO BE MINIMUM NECESSARY TO BE
AT DECEMBER 31, 1999 WELL CAPITALIZED ADEQUATELY CAPITALIZED
---------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
BANK OF SOUTHERN OREGON:
Total Risk-Based Capital Ratio...... 13.1% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio..... 11.9% 6.00% 4.00%
Leverage Ratio...................... 9.5% 5.00% 4.00%
DOUGLAS NATIONAL BANK:
Total Risk-Based Capital Ratio...... 16.08% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio..... 15.27% 6.00% 4.00%
Leverage Ratio...................... 10.49% 5.00% 4.00%
</TABLE>
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The ability of PremierWest Bancorp to obtain funds for the payment of
dividends and for other cash requirements will be dependent on the amount of
dividends that may be declared by Bank of Southern Oregon (PremierWest Bank).
Under the Oregon Bank Act, an Oregon-chartered bank may not pay a cash dividend
if the amount of the dividend exceeds its net unreserved retained earnings,
after first deducting
- bad debts, excepting bad debts that have already been charged
against earnings or reserved for, and excepting bad debts that
are fully secured and in the process of collection;
- all other assets charged off as required by the Director of
the Oregon Department of Consumer and Business Services or by
a state or federal examiner; and
- all accrued expenses, interest and taxes of the bank.
For this purpose, "bad debt" means a debt on which interest is past due and
unpaid for at least six months. Additionally, the Director of the Department of
Consumer and Business Services may require an institution to suspend dividends
if the Director determines that payment of dividends would result in remaining
shareholders' equity being inadequate for the safe and sound operation of the
bank. State-chartered banks' ability to pay dividends may be affected by capital
adequacy guidelines of their primary federal bank regulatory agency as well. See
" - CAPITAL." Moreover, regulatory authorities may prohibit banks and bank
holding companies from paying dividends if payment of dividends would constitute
an unsafe and unsound banking practice.
The Federal Reserve Board's policy statement governing payment of cash
dividends provides that a bank holding company should not pay cash dividends on
common stock unless the organization's net income for the past year is
sufficient to fully fund the dividends and the prospective rate of earnings
retention appears consistent with the organization's capital needs, asset
quality and overall financial condition. PremierWest Bancorp intends to comply
with this Federal Reserve Board policy.
The costs of Bank of Southern Oregon's holding company reorganization
are being funded through a $250,000 line of credit obtained by PremierWest
Bancorp from an unaffiliated bank. The line of credit will be retired by
PremierWest Bancorp after the acquisition and holding company reorganization is
completed. Funds for repayment of the line of credit will be obtained by
PremierWest Bancorp through a special dividend payable after the transaction to
PremierWest Bancorp as sole shareholder of Bank of Southern Oregon (PremierWest
Bank).
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TRANSACTIONS WITH AFFILIATES
Although Bank of Southern Oregon is not a member bank of the Federal
Reserve System, it is required by the Federal Deposit Insurance Act to comply
with section 23A and section 23B of the Federal Reserve Act (pertaining to
transactions with affiliates) in the same manner and to the same extent as
member banks. An affiliate of a bank is any company or entity that controls, is
controlled by or is under common control with the bank. Generally, section 23A
and section 23B of the Federal Reserve Act
- limit the extent to which a bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an
amount equal to 10% of the institution's capital and surplus,
limiting the aggregate of covered transactions with all
affiliates to 20% of capital and surplus, and
- require that the transactions be on terms substantially the
same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate.
The term "covered transaction" includes making loans, purchasing
assets, issuing a guarantee and other similar types of transactions.
Bank of Southern Oregon's authority to extend credit to executive
officers, directors and greater than 10% shareholders, as well as entities
those persons control, is subject to section 22(g) and section 22(h) of the
Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other
things, these laws require insider loans to be made on terms substantially
similar to those offered to unaffiliated individuals, place limits on the
amount of loans a bank may make to insiders based in part on the bank's capital
position, and require specified approval procedures to be followed. Under
section 22(h), loans to an executive officer, director, or greater than 10%
shareholder (a "principal shareholder") of a bank, and affiliated entities of
either, together with all other outstanding loans to these persons and
affiliated entities, may not exceed the bank's loans-to-one-borrower limit,
which in general terms is 15% of tangible capital but can be higher in some
circumstances. Section 22(h) also prohibits loans in excess of the greater of
5% of capital or $25,000 to directors, executive officers and principal
shareholders, and their respective affiliates, unless the loans are approved in
advance by a majority of the board, with any "interested" director not
participating in the voting. A violation of these restrictions could result in
the assessment of substantial civil monetary penalties, the imposition of a
cease and desist order or other regulatory sanctions. Recent regulations now
permit executive officers and directors to receive the same terms through
benefit or compensation plans that are available to other employees, as long as
the director or executive officer is not given preferential treatment compared
to the other participating employees.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act of 1977 and implementing
regulations of the banking agencies, a financial institution has a continuing
and affirmative obligation (consistent with safe and sound operation) to meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions, nor does it limit an institution's
discretion to develop the types of products and services it believes to be best
suited to its particular community. The CRA requires that bank regulatory
agencies conduct regular CRA examinations and provide written evaluations of
institutions' CRA performance. The CRA also requires that an institution's CRA
performance rating be made public. CRA performance evaluations are based on a
four-tiered rating system: Outstanding, Satisfactory, Needs to Improve and
Substantial Noncompliance.
Following Bank of Southern Oregon's CRA examination as of March 29,
1999, Bank of Southern Oregon received a "Satisfactory" rating. Douglas National
Bank was likewise rated "Satisfactory" in its June 7, 1999 CRA Performance
Evaluation. Although CRA examinations occur on a regular basis, CRA performance
evaluations have been used principally in the evaluation of regulatory
applications submitted by an institution. CRA performance evaluations are
considered in evaluating applications for such things as mergers, acquisitions
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and applications to open branches. Over the 22 years that the CRA has existed,
and particularly in the last few years, institutions have faced increasingly
difficult regulatory obstacles and public interest group objections in
connection with their regulatory applications, including institutions that have
received the highest possible CRA ratings.
A bank holding company cannot elect to be a "financial holding company"
- -- with the expanded securities, insurance and other powers that designation
entails -- unless all of the depository institutions owned by the holding
company have a CRA rating of satisfactory or better. The Gramm-Leach-Bliley Act
also provides that any financial institution with total assets of $250 million
or less will be subject to CRA examinations no more frequently than every 5
years if its most recent CRA rating was "outstanding," or every 4 years if its
rating was "satisfactory." Lastly, the Gramm-Leach-Bliley Act requires public
disclosure of private CRA agreements entered into between banking organizations
and other parties, and annual reporting by banking organizations of actions
taken under the private CRA agreements. This last provision of the
Gramm-Leach-Bliley Act addresses the increasingly common practice whereby a bank
or holding company undertaking acquisition of another bank or holding company
would enter into an agreement with parties who might otherwise file with bank
regulators a CRA protest of the acquisition. The details of these agreements
have not been universally disclosed by acquiring institutions in the past.
FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks serve as credit sources for their members.
As a member of the FHLB of Seattle, Bank of Southern Oregon is required to
maintain an investment in the capital stock of the FHLB of Seattle in an amount
calculated by reference to the member institution's assets and the amount of
loans, or "advances," from the FHLB. Bank of Southern Oregon is in compliance
with this requirement, with an investment in FHLB of Seattle stock of $3,880,700
at December 31, 1999. See, "BUSINESS OF PREMIERWEST BANCORP AND BANK OF SOUTHERN
OREGON - SOURCES OF FUNDS."
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLB. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers.
STATE BANKING REGULATION
As an Oregon-chartered bank, Bank of Southern Oregon is subject to
regular examination by the Oregon Department of Consumer and Business Services
- -- Division of Finance and Corporate Securities. State banking regulation
affects the internal organization of Bank of Southern Oregon as well as its
savings, lending, investment and other activities. State banking regulation may
contain limitations on an institution's activities that are in addition to
limitations imposed under federal banking law. The Oregon Department of Consumer
and Business Services may initiate supervisory measures or formal enforcement
actions, and if the grounds provided by law exist, the Oregon Department of
Consumer and Business Services may take possession and control of an
Oregon-chartered bank.
MONETARY POLICY
The earnings of financial institutions are affected by the policies of
regulatory authorities, including monetary policy of the Federal Reserve Board.
An important function of the Federal Reserve System is regulation of aggregate
national credit and money supply. The Federal Reserve Board accomplishes these
goals with measures such as open market dealings in securities, establishment of
the discount rate on bank borrowings and changes in reserve requirements against
bank deposits. These methods are used in varying combinations to influence
overall growth and distribution of financial institutions' loans, investments
and deposits, and they also affect interest rates charged on loans or paid on
deposits. Monetary policy is influenced by many factors, including inflation,
unemployment, short-term and long-term changes in the international trade
balance and fiscal
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policies of the United States government. Federal Reserve Board monetary policy
has had a significant effect on the operating results of financial institutions
in the past, and it can be expected to influence operating results in the
future.
DESCRIPTION OF PREMIERWEST BANCORP CAPITAL STOCK
AND COMPARATIVE RIGHTS OF
UNITED BANCORP AND BANK OF SOUTHERN OREGON SHAREHOLDERS
The rights of shareholders of Bank of Southern Oregon are governed by
Bank of Southern Oregon's Articles of Incorporation and Bylaws and the Oregon
Bank Act. After the holding company reorganization -- whether it is completed as
part of the United Bancorp merger proposal or as an independent transaction --
shareholders of Bank of Southern Oregon who do not exercise dissenters' rights
will be shareholders of PremierWest Bancorp, and their rights as shareholders
will be governed by PremierWest Bancorp's Articles of Incorporation and Bylaws
and by the Oregon Business Corporation Act.
The rights of shareholders of United Bancorp are governed by its
Articles of Incorporation and Bylaws and by the Oregon Business Corporation Act.
After the transaction, shareholders of United Bancorp who do not exercise
dissenters' rights will be shareholders of PremierWest Bancorp, and their rights
as shareholders will be governed by PremierWest Bancorp's Articles of
Incorporation and Bylaws and by the Oregon Business Corporation Act.
The rights of shareholders of PremierWest Bancorp are not identical to
the rights of shareholders of Bank of Southern Oregon or United Bancorp.
Accordingly, your rights as a shareholder will change as a result of the
transaction. You should therefore consider carefully the changes that will
result from the transaction. The analysis to follow summarizes PremierWest
Bancorp's capital stock and important shareholder rights, comparing those rights
among PremierWest Bancorp, Bank of Southern Oregon and United Bancorp. Because
this is a summary only, it does not necessarily contain all of the information
that is important to you. You should read carefully this prospectus/joint proxy
statement and the Articles of Incorporation and Bylaws of PremierWest Bancorp,
which are included as Appendices G and H.
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<TABLE>
<CAPTION>
PREMIERWEST BANCORP BANK OF SOUTHERN OREGON UNITED BANCORP
--------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C>
AUTHORIZED 20,000,000 shares of common 10,000,000 shares of common 5,000,000 shares of common stock, par
CAPITAL STOCK stock, without par value stock, without par value value $2.50 per share
1,000,000 shares of preferred 1,000,000 shares of preferred stock,
stock, also without par value without par value
Authorized shares generally may Authorized shares generally may Authorized shares generally may be issued
be issued and sold without be issued and sold without and sold without further shareholder
further shareholder action, further shareholder action, action, provided that the issuance and
provided that the issuance and provided that the issuance and sale is made in compliance with the
sale is made in compliance with sale is made in compliance with corporate governance documents of United
the corporate governance the corporate governance Bancorp and the Oregon Business
documents of PremierWest documents of Bank of Southern Corporation Act.
Bancorp and the Oregon Business Oregon and the Oregon Bank Act.
Corporation Act.
COMMON STOCK 20,000,000 authorized shares of 10,000,000 authorized shares of 5,000,000 authorized shares of common
common stock, without par value common stock, without par stock, par value $2.50, of which
value, of which 4,857,540 were 1,871,334 were issued and outstanding on
Bank of Southern Oregon issued and outstanding on March March 15, 2000
currently holds 10 shares of 15, 2000
PremierWest Bancorp common
stock, which shares will be
retired and cancelled as part
of the holding company
reorganization of Bank of
Southern Oregon.
The shares of PremierWest
Bancorp common stock to be
issued in the merger and
holding company reorganization
transaction will, when issued,
be fully paid and nonassessable
PREFERRED STOCK 1,000,000 authorized shares of No preferred stock is authorized 1,000,000 authorized shares of preferred
preferred stock, without par stock, without par value
value
There is no preferred stock There is no preferred stock outstanding.
outstanding. Under the The board is authorized by the Articles
Articles of Incorporation, the of Incorporation to establish the number
board is authorized to of shares of preferred stock to be
establish the number of shares issued, and to fix the attributes of the
of preferred stock to be shares, including the dividend rate, the
issued, and to fix the dividend payment dates, whether the
attributes of the shares, dividends will be cumulative, the
including the dividend rate, redemption price, the sinking fund
the dividend payment dates, requirements, liquidation preference and
whether the dividends will be conversion rights.
cumulative, the redemption
price, the sinking fund
requirements, liquidation
preference and conversion
rights.
PAR VALUE No par value shares No par value shares Common stock par value $2.50 per share.
Preferred stock is without par value.
PREEMPTIVE RIGHTS No preemptive rights No preemptive rights No preemptive rights
</TABLE>
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<TABLE>
<CAPTION>
PREMIERWEST BANCORP BANK OF SOUTHERN OREGON UNITED BANCORP
--------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C>
CUMULATIVE VOTING No cumulative voting rights No cumulative voting rights No cumulative voting rights
DIRECTORS Bylaws provide for at least 5 Articles of Incorporation Articles of Incorporation provide for at
and no more than 25 directors, provide for at least 3 and no least 6 and no more than 19 directors, as
as fixed from time to time by more than 15 directors, as fixed from time to time by Board
Board resolution fixed from time to time by resolution
Board resolution
CLASSIFIED BOARD Not classified. All directors Not classified. All directors Directors divided into 3 classes as
are elected annually are elected annually nearly equal in number as possible. Each
class serves a 3-year term
DIRECTOR REMOVAL Governed by the Oregon Business At any meeting of shareholders, Shareholders may remove a director solely
Corporation Act, which provides shareholders may remove any for cause, and only at a meeting called
that shareholders may remove director with or without for that purpose. Articles of
directors with or without cause. Bylaws Section 2.11 Incorporation Article IV, P.C. and Bylaws
cause, but only at a meeting Section 4.10
called for that purpose
The Director of the Department
of Consumer and Business
Services may also order a
director to be removed.
VOTING RIGHTS Holders of common stock are Same Same
entitled to one vote per share
on any matter submitted to a
vote of shareholders.
DIVIDENDS The holders of common stock are The holders of common stock are Same as PremierWest Bancorp
entitled to receive ratably entitled to receive ratably
dividends, if any, as may be dividends, if any, as may be
declared from time to time by declared from time to time by
the board out of funds legally the board out of funds legally
available therefor. Dividends available therefor.
may not be paid if, after
giving effect to the dividend, The Oregon Bank Act provides
- the corporation would be that dividends may not be paid
unable to pay its debts in an amount exceeding retained
as they become due, and earnings, after deducting bad
- the corporation's total debts. The Director of the
assets would be less than Department of Consumer and
the sum of its total Business Services may suspend
liabilities and amounts the payment of dividends if he
needed to satisfy the concludes suspension is
preferential rights of necessary for the safe and
shares having preferential sound operation of the bank.
rights upon dissolution.
Dividends are subject to any
prior or participating rights
of preferred stock that may be
outstanding from time to
time.
Dividends and distributions are
also subject to bank regulatory
restrictions. See,
"SUPERVISION AND REGULATION."
</TABLE>
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<TABLE>
<CAPTION>
PREMIERWEST BANCORP BANK OF SOUTHERN OREGON UNITED BANCORP
--------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C>
SHARE REPURCHASES As authorized by the board, Under the Oregon Bank Act, As authorized by the board, subject to
subject to the restrictions shares may not be redeemed the restrictions discussed above relating
discussed above relating to - if the bank is to dividends
dividends, except that a insolvent, if the redemption
distribution in redemption of would render it insolvent or
shares may be made even if the if redemption would reduce
corporation's total assets net assets below the aggregate
would be less than the sum of amount payable to shareholders
its total liabilities and with prior or equal rights
amounts needed to satisfy the upon dissolution, and
preferential rights of shares - without prior approval
having preferential rights upon of the Director of the
dissolution. Department of Consumer and
Business Services.
AMENDMENT OF Amendment of Articles of Amendment of Articles of Same as PremierWest Bancorp, except that
GOVERNING Incorporation would generally Incorporation would generally amendment of Article IV (number,
DOCUMENTS require the approval of a require the approval of a classification and removal of directors),
majority of shares representing majority of shares entitled to Article VII (Business Combinations) or
a quorum, together with a vote Article VIII (Shareholder nominations of
majority of the votes entitled directors and shareholder proposals for
to be cast on the amendment by action at a meeting) would require
any voting group that would approval of 80% of shares entitled to
have the right to exercise vote.
dissenters' rights as a result
of the amendment.
Amendment of Bylaws by Amendment of Bylaws by shareholders would
Amendment of Bylaws by shareholders would generally generally require the approval of a
shareholders would generally require the approval of a majority of shares representing a
require the approval of a majority of shares representing quorum. The Bylaws may be amended by the
majority of shares representing a quorum. The Bylaws may be directors.
a quorum. The Bylaws may be amended by the directors.
amended by the directors.
INDEMNIFICATION Articles of Incorporation Same as PremierWest Bancorp Same as PremierWest Bancorp
AND LIMITATIONS provide that no director shall
ON LIABILITY be liable for monetary damages
for conduct as a director,
except for breach of duty of
loyalty, action that is not in
good faith, unlawful
distributions or a transaction
in which the director derives
an improper personal benefit
Articles of Incorporation
provide for mandatory
indemnification of directors
and officers for actions taken
as director or officer. The
corporation may also purchase
insurance covering actions of
directors, officers and
employees.
TRANSFER AGENT The transfer agent for Bank of Southern Oregon has The transfer agent for United Bancorp
PremierWest Bancorp common acted as transfer agent for its common stock is Chase Mellon Shareholder
stock is U.S. Stock Transfer common stock Services
Corporation, which is also
acting as Exchange Agent in the
merger and holding company
reorganization
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
PREMIERWEST BANCORP BANK OF SOUTHERN OREGON UNITED BANCORP
--------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C>
SPECIAL MEETINGS Special meetings may be called Same as PremierWest Bancorp Special meetings may be called by the
OF SHAREHOLDERS by the President, by the Board President, by the Board or by the holders
acting at a meeting, by a of at least 10% of the shares outstanding
majority of directors acting and entitled to vote
without a meeting or by any 3
or more shareholders who
together hold at least 1/3 of
the shares outstanding and
entitled to vote
SHAREHOLDER Bylaws Section 1.9 and Section No provision Article VIII of the Articles of
NOMINATIONS AND 2.2 provides that shareholder Incorporation establishes procedures for
SHAREHOLDER nominations for director and shareholders' proposal of business to be
PROPOSALS FOR shareholder proposals for considered at an annual meeting. A
CONSIDERATION AT business to be acted on at an shareholder must provide written notice
MEETINGS annual meeting must be made in to United Bancorp within 10 days after
writing within a range of 60 to notice of the annual meeting is given to
120 days before the corporation shareholders. The notice must describe
mails its proxy statement for the matter proposed by the shareholder(s)
the annual meeting, based on the and provide other specified information,
date of mailing in the including the proponent's name, address,
preceding year. share ownership and any material interest
the shareholder has in the matter
proposed.
</TABLE>
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<PAGE> 139
<TABLE>
<CAPTION>
PREMIERWEST BANCORP BANK OF SOUTHERN OREGON UNITED BANCORP
--------------------------------- --------------------------------- -----------------------------------------
<S> <C> <C> <C>
ANTITAKEOVER No explicit antitakeover No explicit provisions, except The classified board could have the
PROVISIONS provisions, except that that the board could issue effect of delaying or making more
authorized but unissued shares difficult a change in the composition of
- the board's ability to of common stock without further the board. Authorized but unissued
issue authorized but shareholder action, potentially common and preferred stock could be
unissued shares of common defeating, delaying or making issued by the board without further
or preferred stock without more costly an attempt to gain shareholder approval. The Articles of
further shareholder action, control of the bank Incorporation restrict shareholders'
and ability to make director nominations or
propose business to be acted upon at a
- the restrictions in Bylaws meeting. Directors may be removed by
Section 1.9 and Section 2.2 shareholders solely for cause.
on shareholder proposals Amendments of some provisions of the
and shareholder nominations Articles of Incorporation require an 80%
could have an antitakeover supermajority vote.
effect
Article VII of the Articles of
Incorporation prohibits a business
combination with any "interested
shareholder" unless
- the board approved the business
combination before the person became
an interested shareholder,
- the interested shareholder owns at
least 85% of the shares not held by
directors, officers and employee
plans, or
- the business combination is approved
by an 80% supermajority vote of
shares other than those held by the
interested shareholder.
An interested shareholder includes any
person who owns more than 15% of the
corporation's shares, and his
affiliates. The prohibition on business
combinations expires 3 years after the
person became an interested shareholder.
Any other merger or acquisition proposal
not first approved by a majority of the
Board would also require an 80%
supermajority vote.
</TABLE>
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<PAGE> 140
CHANGES IN CONTROL
PREMIERWEST BANCORP'S GOVERNING DOCUMENTS. Although PremierWest
Bancorp's governing documents do not include antitakeover provisions, the
authorized but unissued shares of PremierWest Bancorp common stock may be issued
by the board without further shareholder approval. If a change in control of
PremierWest Bancorp is undertaken by a third party in the future, and if the
board opposes the change in control, the board could issue authorized but
unissued common stock to one or more parties who concur with the board's
position.
The Articles of Incorporation also authorize the board to issue shares
of preferred stock in one or more series with powers, preferences, rights,
restrictions, limitations, and other qualifications that could adversely affect
the voting and other rights of PremierWest Bancorp common stock, and to do so
without further shareholder approval. When in the judgment of the board the
action is in the best interest of the shareholders and PremierWest Bancorp, the
preferred stock could be used by the board for the purpose or with the effect of
creating impediments to or frustrating the attempts of persons seeking to gain
control of PremierWest Bancorp. As a means to oppose a hostile takeover bid,
shares of preferred stock could, like the authorized but unissued shares of
common stock, be privately placed by PremierWest Bancorp with purchasers
selected by the board.
The existence of authorized but unissued capital stock could discourage
unsolicited takeover attempts, and the authorized but unissued stock could be
used to delay, defer or prevent a change in control. This could frustrate
shareholders' desire to receive the premium for stock that is commonly paid in
connection with changes in control. The issuance of new shares could be used by
PremierWest Bancorp to dilute the stock ownership of a person or entity seeking
to obtain control, if the board considers the change in control not to be in the
best interests of shareholders and PremierWest Bancorp.
PremierWest Bancorp's Bylaws require that notice in writing of proposed
shareholder nominations for the election of directors and proposals for
shareholder action be timely given before an annual meeting. The shareholder's
notice of nomination must contain information about the non-incumbent nominee or
shareholder proposal, including the nominee's name, age, business and residence
addresses, principal occupation, the number of shares beneficially owned by the
nominee and any other information as would be required to be included in a proxy
statement soliciting proxies for election of the nominee. If the officer
presiding at a meeting determines that a person was not nominated or a proposal
was not presented in accordance with the foregoing procedures, the nominee would
not be eligible for election as a director and the proposal would not be
presented for shareholder action.
Lastly, Article VIII of PremierWest Bancorp's Articles of Incorporation
permits the board to consider constituencies other than shareholders in the
board's deliberations over a potential change in control. The board may consider
the social, legal and economic consequences of a change in control on employees
and customers and on the communities served by PremierWest Bancorp and its
subsidiaries, in addition to considering the long-term and short-term interests
of shareholders.
OREGON CONTROL SHARE ACT. Contained in Section 60.801 through Section
60.813 of the Oregon Revised Statute, the Oregon Control Share Act requires
prior shareholder approval for transfers of corporate control. The Control Share
Act provides generally that so-called "control shares" acquired in a control
share acquisition do not have voting rights unless voting rights are restored by
- a majority vote of all shares, and
- a majority vote of shares other than the control shares.
A control share acquisition is any acquisition of ownership or voting power over
voting securities resulting in the acquiring shareholder having voting power
over more than 20%, more than 33 1/3%, or more than
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<PAGE> 141
50% of the outstanding voting securities of an issuing public corporation. The
Control Share Act is intended to protect shareholders of Oregon corporations
from coercive tender offers. In general, an issuing public corporation is any
Oregon corporation that has 100 or more shareholders, provided the corporation
has its principal place of business or its principal offices in Oregon or
substantial assets in Oregon, and more than 10% of its shareholders resident in
Oregon or more than 10% of its shares held by Oregon shareholders. PremierWest
Bancorp will be an issuing public corporation.
The Control Share Act will not apply to a company if its corporate
governance documents state that the act will not apply. PremierWest Bancorp's
Articles of Incorporation and Bylaws do not provide that the Control Share Act
will not apply. Therefore, the Control Share Act could apply to a control share
acquisition of PremierWest Bancorp stock. Likewise, United Bancorp's Articles of
Incorporation and Bylaws do not provide that the Control Share Act will not
apply. Therefore, the Control Share Act could apply to a control share
acquisition of United Bancorp stock as well. However, the Control Share Act also
does not apply in the case of a merger or share exchange undertaken in
compliance with the provisions of the Oregon Business Corporation Act governing
mergers and share exchanges, provided the issuing public corporation is a party
to the merger or share exchange. United Bancorp is a party to the merger, and
the Control Share Act therefore does not apply to PremierWest Bancorp's proposed
transaction with United Bancorp.
OREGON MERGER MORATORIUM ACT. Oregon Revised Statutes Section
60.825 through Section 60.845 prevents an issuing public corporation from
entering into a business combination transaction with an interested shareholder
for a period of 3 years after the date of the transaction in which the person
became an interested shareholder. In general, an interested shareholder is one
who owns or has voting power over 15% or more of the issuing public
corporation's voting stock. If the business combination or the interested
shareholder's share acquisition had been approved in advance by the directors,
the 3-year moratorium would not apply. The 3-year moratorium also would not
apply if
- the interested shareholder owns at least 85% of
shares other than those held by officers who are
also directors or by an employee plan, or
- the business combination is approved by the board
and by at least 2/3 of the voting shares not held
by the interested shareholder.
The Merger Moratorium Act generally does not apply to issuing public
corporations whose voting securities are not traded on a national securities
exchange or Nasdaq. PremierWest Bancorp common stock is not traded on an
exchange or Nasdaq. Although PremierWest Bancorp could later become authorized
for trading on Nasdaq, PremierWest Bancorp gives no assurance when or whether
that will occur. Accordingly, for the foreseeable future PremierWest Bancorp
expects that the Merger Moratorium statute will not apply to business
combinations involving PremierWest Bancorp. Like the Control Share Act, the
Merger Moratorium statute provides that an issuing public corporation may elect
not to be subject to the statute by a specific statement to that effect in the
corporation's articles of incorporation or bylaws. PremierWest Bancorp's
Articles of Incorporation and Bylaws do not make this election.
REGULATORY APPROVAL OF ACQUISITIONS. A company seeking to acquire
control of an Oregon bank or bank holding company must obtain approval of the
Federal Reserve Board and the Oregon Department of Consumer and Business
Services -- Division of Finance and Corporate Securities.
INDEMNIFICATION. Article VII of PremierWest Bancorp's Articles of
Incorporation provides for indemnification of directors, officers, employees and
agents. You should consult Article VII for a description of the circumstances
under which directors, officers, employees and agents would be entitled to
indemnification from PremierWest Bancorp. A copy of the Articles of
Incorporation is attached hereto as Appendix G. The indemnification rights set
forth in the Articles of Incorporation and in the Oregon Business Corporation
Act are not
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<PAGE> 142
exclusive of any other indemnification rights to which a director or officer may
be entitled under any resolution or agreement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
PremierWest Bancorp or to an affiliate of PremierWest Bancorp under its Articles
of Incorporation, Bylaws or otherwise, PremierWest Bancorp has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. Accordingly, it is possible that the
indemnification provisions would not apply to liabilities arising under the
Securities Act of 1933 unless the person to be indemnified is successful on the
merits of the claim or proceeding.
LEGAL MATTERS
Grady & Associates in Cleveland, Ohio, counsel to PremierWest Bancorp,
has passed upon the validity of the shares of PremierWest Bancorp common stock
to be issued. As to matters of Oregon law, Grady & Associates relied upon the
opinion of Hornecker, Cowling, Hassen & Heysell, L.L.P., Medford, Oregon.
Farleigh, Wada & Witt, Portland, Oregon, which acts as counsel to United
Bancorp, also passed upon federal tax matters relating to the transaction.
EXPERTS
We have included the consolidated financial statements of Bank of
Southern Oregon as of December 31, 1999 and for the year ended December 31,
1999, in reliance upon the report of Symonds, Evans & Larson, P.C., independent
public accountants, appearing elsewhere in this prospectus/joint proxy statement
and upon the authority of that firm as experts in auditing and accounting.
We have included the consolidated financial statements of Bank of
Southern Oregon as of December 31, 1998 and for each of the years in the
two-year period ended December 31, 1998, in reliance upon the report of Kosmatka
Donnelly & Co., LLP, independent certified public accountants, appearing
elsewhere in this prospectus/joint proxy statement and upon the authority of
that firm as experts in auditing and accounting.
We have included the consolidated financial statements of United
Bancorp as of December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999 in this prospectus/joint proxy statement in
reliance on the report of Knight Vale & Gregory PLLC, independent public
accountants, given on the authority of that firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
Bank of Southern Oregon files reports, proxy statements and other
information with the FDIC under the Securities Exchange Act of 1934. All
information filed by Bank of Southern Oregon with the FDIC under the Securities
Exchange Act of 1934 is available for inspection at:
Registration, Disclosure, and Securities Operations Unit
Division of Supervision
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
PremierWest Bancorp has filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 (Registration Number 333-96209)
under the Securities Act of 1933, covering the offer and sale PremierWest
Bancorp common stock to United Bancorp shareholders in the merger and to Bank of
Southern Oregon shareholders in the holding company reorganization. As allowed
by Securities and Exchange Commission
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<PAGE> 143
rules, this prospectus/joint proxy statement does not contain all of the
information you can find in the Registration Statement or in the exhibits to the
Registration Statement.
When the transaction is completed, the common stock of PremierWest
Bancorp will be registered under the Securities Exchange Act of 1934.
PremierWest Bancorp will be subject to the reporting and informational
requirements of the Securities Exchange Act of 1934, and Bank of Southern Oregon
will not. PremierWest Bancorp will be required to file reports, proxy statements
and other information with the Securities and Exchange Commission.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed hereafter with the
Securities and Exchange Commission by PremierWest Bancorp under the Securities
Exchange Act of 1934, may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at
Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.
Washington, D.C. 20549
and at the regional offices of the Securities and Exchange
Commission located at
Citicorp Center 7 World Trade Center
500 West Madison Street, Suite 1400 13th Floor
Chicago, Illinois 60661 New York, New York 10048.
Copies of this material may also be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
Securities and Exchange Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission.
The address of that site is http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This prospectus/joint proxy statement contains and incorporates some
forward-looking statements, as that term is used in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding "beliefs," "expectations", "anticipations," "intentions" or
similar words. Forward-looking statements are also statements that are not
statements of historical fact. Forward-looking statements necessarily involve
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by forward-looking statements include, among
others, the following possibilities:
(1) expected cost savings from the transaction cannot be fully
realized or realized within the expected time frame;
(2) greater than expected deposit attrition, customer loss or
revenue loss following the transaction;
(3) competitive pressures in the banking industry increase
significantly;
(4) greater than expected costs or difficulties related to
regulatory requirements attendant to the consummation of the
transaction or the integration of the businesses of United
Bancorp and Douglas National Bank;
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<PAGE> 144
(5) actual collection of amounts on liquidation of collateral or
enforcement of guaranties is less than expected;
(6) changes in the interest rate environment reduce margins;
(7) general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in a deterioration
in credit quality, among other things;
(8) legislation or regulatory requirements or changes adversely
affect the businesses in which the combined company would be
engaged;
(9) changes in business conditions and inflation; and
(10) changes in the securities markets.
If one or more of these risks of uncertainties occurs or if the
underlying assumptions prove incorrect, actual results in 2000 and beyond could
differ materially from those expressed in or implied by the forward-looking
statements.
The projections discussed in this prospectus/joint proxy statement may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. They were prepared by Bank of Southern
Oregon solely for the purpose of evaluating the merger. Bank of Southern Oregon
does not make a practice of disclosing internal budgets, plans, estimates,
forecasts or projections of future revenues, earnings or other financial
information. The forward-looking statements are based upon a variety of
estimates and assumptions. The estimates and assumptions involve judgments about
a number of things, including future economic, competitive, and financial market
conditions and future business decisions. These matters are inherently subject
to significant business, economic and competitive uncertainties, all of which
are difficult to predict and many of which are beyond the control of Bank of
Southern Oregon. Although Bank of Southern Oregon believes its estimates and
assumptions are reasonable, actual results may vary materially from those shown.
Inclusion of forward-looking information in this prospectus/joint proxy
statement does not constitute a representation by Bank of Southern Oregon or
PremierWest Bancorp or any other person that the indicated results will be
achieved. Investors are cautioned not to place undue reliance on that
forward-looking information.
The forward-looking statements speak as of the date on which they are
made only. Neither Bank of Southern Oregon nor PremierWest Bancorp undertakes
any obligation to -- and neither of them intends to -- update or revise the
forward-looking information to reflect changed circumstances or to reflect the
occurrence of unanticipated events, even if new information, future events or
other circumstances make the forward-looking statements incorrect or misleading.
For those statements, Bank of Southern Oregon and PremierWest Bancorp claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The independent public accountants of PremierWest Bancorp, Bank of
Southern Oregon and United Bancorp have not examined and did not compile the
forward-looking statements and estimates included in this prospectus/joint proxy
statement, nor have the accountants applied any procedures to those statements
and estimates. Therefore, the accountants do not express an opinion or any other
form of assurance on them.
NO ONE MAY GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ABOUT THE
TRANSACTION OR OUR COMPANIES THAT IS DIFFERENT FROM, OR IN ADDITION TO, THAT
CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT. THEREFORE, IF ANYONE GIVES
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 REPRESENTED BY THIS
PROSPECTUS/JOINT PROXY STATEMENT DOES NOT
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<PAGE> 145
EXTEND TO YOU. THE INFORMATION CONTAINED IN THIS PROSPECTUS/JOINT PROXY
STATEMENT SPEAKS ONLY AS OF THE DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
ALL INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS/JOINT
PROXY STATEMENT HAVING TO DO WITH PREMIERWEST BANCORP AND BANK OF SOUTHERN
OREGON WAS SUPPLIED BY PREMIERWEST BANCORP AND BANK OF SOUTHERN OREGON. ALL
INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS/JOINT PROXY STATEMENT
HAVING TO DO WITH UNITED BANCORP AND ITS SUBSIDIARIES WAS SUPPLIED BY UNITED
BANCORP. ALTHOUGH PREMIERWEST BANCORP, BANK OF SOUTHERN OREGON AND UNITED
BANCORP DO NOT BELIEVE THAT ANY STATEMENTS OR INFORMATION RELATING TO THE OTHER
PARTY CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS INACCURATE OR
INCOMPLETE, PREMIERWEST BANCORP, BANK OF SOUTHERN OREGON AND UNITED BANCORP
CANNOT WARRANT THE ACCURACY OR COMPLETENESS OF STATEMENTS OR INFORMATION HAVING
TO DO WITH THE OTHER PARTY.
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<PAGE> 146
PREMIERWEST BANCORP
FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 26, 1999 (INCEPTION)
THROUGH DECEMBER 31, 1999
<PAGE> 147
REPORT OF SYMONDS, EVANS & LARSON, P.C.,
INDEPENDENT AUDITORS
The Board of Directors of
PremierWest Bancorp
We have audited the accompanying balance sheet of PremierWest Bancorp (Bancorp)
as of December 31, 1999, and the related statement of operations and changes in
shareholder's equity (deficit) for the period from November 26, 1999 (inception)
through December 31, 1999. These financial statements are the responsibility of
Bancorp's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PremierWest Bancorp as of
December 31, 1999, and the results of its operations for the initial period then
ended in conformity with generally accepted accounting principles.
/s/ Symonds, Evans & Larson, P.C.
January 14, 2000
Portland, Oregon
F-1
<PAGE> 148
PREMIERWEST BANCORP
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
Due from Bank of Southern Oregon $ 2,300
================
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
Liabilities -
Accounts payable $ 17,106
Shareholder's equity (deficit):
Preferred stock, no par value; 1,000,000 shares authorized; none issued - -
Common stock, no par value; 20,000,000 shares authorized; 10 shares
issued and outstanding 100
Accumulated deficit (14,906)
----------------
Total shareholder's equity (deficit) (14,806)
----------------
Total liabilities and shareholder's equity (deficit) $ 2,300
================
</TABLE>
See accompanying notes.
F-2
<PAGE> 149
PREMIERWEST BANCORP
STATEMENT OF OPERATIONS
For the period from November 26, 1999 (inception) through December 31, 1999
Organizational costs $ (24,106)
Credit for income taxes 9,200
----------------
Net loss $ (14,906)
================
See accompanying notes.
F-3
<PAGE> 150
PREMIERWEST BANCORP
STATEMENT OF CHANGES IN
SHAREHOLDER'S EQUITY (DEFICIT)
For the period from November 26, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Total
Number of shareholder's
common Common Accumulated equity
shares stock deficit (deficit)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Issuance of common stock $ 10 $ 100 $ -- $ 100
Net loss -- -- (14,906) (14,906)
----------------- ---------------- ----------------- ----------------
Balance at December 31, 1999 $ 10 $ 100 $ (14,906) $ (14,806)
================= ================ ================= ================
</TABLE>
See accompanying notes.
F-4
<PAGE> 151
PREMIERWEST BANCORP
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS: PremierWest Bancorp (Bancorp)
was incorporated in the state of Oregon on November 26, 1999 and has
applied for approval from the Board of Governors of the Federal Reserve
System to become a holding company for Bank of Southern Oregon (the
Bank). Currently, Bancorp is a wholly-owned subsidiary of the Bank.
However, effective with the anticipated merger between the Bank and
United Bancorp (and its wholly-owned subsidiary Douglas National Bank)
during the second quarter of 2000, the Bank - by means of a direct
share exchange with Bancorp - will become a wholly-owned subsidiary of
Bancorp.
BASIS OF PRESENTATION: The accompanying financial statements only
include the accounts and transactions of Bancorp and do not include any
of the accounts and transactions of the Bank. Bancorp's fiscal year-end
for tax and financial reporting purposes is December 31.
METHOD OF ACCOUNTING: Bancorp prepares its financial statements in
conformity with generally accepted accounting principles. Bancorp
utilizes the accrual method of accounting which recognizes income when
earned and expenses when incurred. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
ORGANIZATIONAL COSTS: Costs associated with the organization of Bancorp
have been expensed in the period incurred.
INCOME TAXES: The results of operations of Bancorp are reported for
income tax purposes in consolidated income tax returns filed by the
Bank. The credit for income taxes in the accompanying statement of
operations is computed based upon Bancorp's taxable loss for financial
reporting purposes.
OPERATIONS AND CASH FLOW: During the period from November 26, 1999
(inception) through December 31, 1999, Bancorp had no significant
operations other than organizational activities. During this period,
the Bank paid expenses on behalf of Bancorp and, therefore, Bancorp had
no cash flows. Bancorp intends to use dividends received from the Bank
to help fund operations and service any borrowings under Bancorp's line
of credit agreement (see Note 2).
2. LINE OF CREDIT AGREEMENT
As of December 31, 1999, Bancorp has a line of credit agreement (the
Agreement) with West Coast Bank to pay for organizational costs up to
$250,000. Borrowings under the Agreement will be unsecured and bear
interest at prime rate. As part of the Agreement, certain covenants
will be in existence. Interest will be due monthly, and any outstanding
principal will be due June 1, 2000.
3. DUE FROM THE BANK
The $2,300 due from the Bank as of December 31, 1999 represents
Bancorp's $9,200 credit for income taxes for the period from November
26, 1999 (inception) through December 31, 1999 that will be utilized by
the Bank, offset by $6,900 in organizational costs paid by the Bank on
behalf of Bancorp during this same period.
F-5
<PAGE> 152
[BANK OF SOUTHERN OREGON LOGO]
BANK OF SOUTHERN OREGON
AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
AND FOR EACH OF THE YEARS IN THE
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
<PAGE> 153
REPORT OF SYMONDS, EVANS & LARSON, P.C.,
INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Bank of Southern Oregon
We have audited the accompanying consolidated balance sheet of Bank of Southern
Oregon and subsidiaries as of December 31, 1999, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The consolidated financial
statements of Bank of Southern Oregon and subsidiary as of December 31, 1998,
and for each of the years in the two-year period then ended, were audited by
other auditors whose report dated February 26, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bank of
Southern Oregon and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Symonds, Evans & Larson, P.C.
January 14, 2000
Portland, Oregon
F-6
<PAGE> 154
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
Bank of Southern Oregon and Subsidiary
Medford, Oregon
We have audited the accompanying consolidated balance sheets of Bank of Southern
Oregon (a Corporation) and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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 Bank of Southern
Oregon and Subsidiary as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Kosmatka, Donnelly & Co. LLP
Kosmatka, Donnelly & Co. LLP
Medford, Oregon
February 26, 1999
F-7
<PAGE> 155
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------
-------------------- -------------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks......................................... $ 7,163,535 $ 4,578,193
Interest-bearing deposits with Federal Home Loan Bank........... 2,851,791 14,836,932
Federal funds sold.............................................. 4,900,000 10,000,000
Securities purchased under agreements to resell................. 498,402 1,538,900
-------------------- -------------------
Total cash and cash equivalents............................. 15,413,728 30,954,025
Investment securities available-for-sale............................. 22,045,199 5,432,042
Interest-bearing deposit with Federal Home Loan Bank................. 1,000,000 6,000,000
Federal Home Loan Bank stock......................................... 3,880,700 3,604,200
Loans, net........................................................... 109,628,914 96,773,354
Premises and equipment, net.......................................... 6,068,916 2,907,805
Accrued interest and other assets.................................... 2,946,557 1,178,587
-------------------- -------------------
Total assets................................................ $ 160,984,014 $ 146,850,013
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Demand.......................................................... $ 28,184,424 $ 20,427,614
Interest-bearing demand......................................... 63,544,624 59,987,310
Savings......................................................... 4,146,873 2,571,111
Time............................................................ 44,108,291 43,643,622
-------------------- -------------------
Total deposits.............................................. 139,984,212 126,629,657
Federal Home Loan Bank borrowings.................................... 5,245,161 5,845,161
Accrued interest and other liabilities............................... 997,971 531,928
-------------------- -------------------
Total liabilities........................................... 146,227,344 133,006,746
Commitments and contingencies (Notes 1, 9, 15 and 18)................
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized; 4,837,740 shares
issued and outstanding (4,798,000 in 1998)................. 12,451,359 12,314,260
Retained earnings............................................... 2,787,275 1,530,128
Accumulated other comprehensive loss............................ (481,964) (1,121)
-------------------- -------------------
Total stockholders' equity.................................. 14,756,670 13,843,267
-------------------- -------------------
Total liabilities and stockholders' equity.................. $ 160,984,014 $ 146,850,013
==================== ===================
</TABLE>
See accompanying notes.
F-8
<PAGE> 156
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................. $ 9,489,825 $ 9,915,070 $ 9,714,686
Taxable interest on investment securities.............. 1,126,920 476,952 563,566
Interest-bearing deposits with Federal Home Loan Bank.. 721,824 680,156 337,715
Federal funds sold..................................... 468,490 345,571 374,719
Dividends on Federal Home Loan Bank stock.............. 276,666 259,850 245,386
Securities purchased under agreements to resell........ 32,607 48,795 23,603
----------------- ----------------- ----------------
Total interest income.............................. 12,116,332 11,726,394 11,259,675
Interest expense:
Deposits:
Interest-bearing demand........................... 2,138,722 2,283,542 2,421,683
Savings........................................... 109,182 74,370 70,532
Time.............................................. 2,258,864 2,470,052 1,794,487
----------------- ----------------- ----------------
Total interest expense on deposits................. 4,506,768 4,827,964 4,286,702
Interest on Federal Home Loan Bank borrowings.......... 324,466 89,160 --
----------------- ----------------- ----------------
Total interest expense............................. 4,831,234 4,917,124 4,286,702
----------------- ----------------- ----------------
Net interest income......................................... 7,285,098 6,809,270 6,972,973
Loan loss provision......................................... 640,000 1,652,113 1,731,000
----------------- ----------------- ----------------
Net interest income after loan loss provision............... 6,645,098 5,157,157 5,241,973
Noninterest income:
Service charges on deposit accounts.................... 364,776 373,716 357,046
Gains on sales of investment securities, net........... -- 114,719 34,289
Other.................................................. 127,039 42,912 11,022
----------------- ----------------- ----------------
Total noninterest income........................... 491,815 531,347 402,357
Noninterest expense:
Salaries and employee benefits......................... 2,767,981 1,898,147 1,693,785
Professional fees...................................... 396,482 431,807 271,037
Equipment.............................................. 337,979 287,343 165,156
Occupancy, net......................................... 219,496 138,750 134,441
Data processing........................................ 211,531 208,383 174,202
Advertising............................................ 187,818 84,015 51,669
Other.................................................. 1,006,199 709,572 426,241
----------------- ----------------- ----------------
Total noninterest expense.......................... 5,127,486 3,758,017 2,916,531
----------------- ----------------- ----------------
Income before income taxes.................................. 2,009,427 1,930,487 2,727,799
Provision for income taxes.................................. 768,000 748,000 986,000
----------------- ----------------- ----------------
Net income.................................................. $ 1,241,427 $ 1,182,487 $ 1,741,799
================= ================= ================
Earnings per common share:
Basic.................................................. $ 0.26 $ 0.25 $ 0.37
================= ================= ================
Diluted................................................ $ 0.25 $ 0.24 $ 0.36
================= ================= ================
</TABLE>
See accompanying notes.
F-9
<PAGE> 157
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Number of Comprehensive Common Retained
shares income (loss) stock earnings
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 782,920 $ 9,799,601 $ 648,200
Net income and comprehensive
income............................ -- $ 1,741,799 -- 1,741,799
================
Two-for-one stock split........... 782,920 -- --
Amortization of stock compensation -- -- 36,044
Transfer.......................... -- 2,100,000 (2,100,000)
------------ ------------- ------------
Balances at December 31, 1997..... 1,565,840 11,899,601 326,043
Comprehensive income:
Net income................... -- $ 1,182,487 -- 1,182,487
Other comprehensive loss--
unrealized holding gains arising
during the period on investment
securities of approximately
$69,000 (net of income taxes of
approximately $44,000) net of
reclassification adjustment for
gains included in net income of
approximately $70,000 (net of
income taxes of approximately
$44,000)................ - (1,121) -- --
Comprehensive income.............. -- $ 1,181,366 -- --
================
Three-for-one stock split......... 3,131,680 -- --
Amortization of stock compensation -- -- 21,598
Stock options exercised........... 100,480 96,133 --
Income tax benefit of stock
options exercised............ -- 318,526 --
------------ ------------- ------------
Balances at December 31, 1998..... 4,798,000 12,314,260 1,530,128
Comprehensive income:
Net income................... -- $ 1,241,427 -- 1,241,427
Other comprehensive loss--
unrealized losses on investment
securities available-for-sale, net
of income taxes of
approximately $299,000.. -- (480,843) -- --
----------------
Comprehensive income.............. $ 760,584 -- --
================
Amortization of stock compensation -- -- 15,720
Stock options exercised........... 39,740 42,505 --
Income tax benefit of stock options
exercised.................... -- 94,594 --
------------ ------------- ------------
Balances at December 31, 1999..... 4,837,740 $ 12,451,359 $ 2,787,275
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other Total
comprehensive stockholders'
loss equity
- --------------- -----------------
<S> <C> <C>
Balances at January 1, 1997 $ -- $ 10,447,801
Net income and comprehensive
income............................ -- 1,741,799
Two-for-one stock split........... -- --
Amortization of stock compensation -- 36,044
Transfer.......................... -- --
--------------- -----------------
Balances at December 31, 1997..... -- 12,225,644
Comprehensive income:
Net income................... -- 1,182,487
Other comprehensive loss--
unrealized holding gains arising
during the period on investment
securities of approximately
$69,000 (net of income taxes of
approximately $44,000) net of
reclassification adjustment for
gains included in net income of
approximately $70,000 (net of
income taxes of approximately
$44,000)................ (1,121) (1,121)
Comprehensive income.............. -- --
Three-for-one stock split......... -- --
Amortization of stock compensation -- 21,598
Stock options exercised........... -- 96,133
Income tax benefit of stock
options exercised............ -- 318,526
--------------- -----------------
Balances at December 31, 1998..... (1,121) 13,843,267
Comprehensive income:
Net income................... -- 1,241,427
Other comprehensive loss--
unrealized losses on investment
securities available-for-sale,
of income taxes of
approximately $299,000.. (480,843) (480,843)
Comprehensive income.............. -- --
Amortization of stock compensation -- 15,720
Stock options exercised........... -- 42,505
Income tax benefit of stock options
exercised.................... -- 94,594
--------------- -----------------
Balances at December 31, 1999..... $ (481,964) $ 14,756,670
=============== =================
</TABLE>
See accompanying notes.
F-10
<PAGE> 158
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 1,241,427 $ 1,182,487 $ 1,741,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................. 313,452 205,917 166,846
Amortization of premium (accretion of discount) on
investment securities, net ........................... (105,898) (100,655) 33,323
Dividends on Federal Home Loan Bank stock ................ (276,500) (259,850) (245,386)
Loan loss provision ...................................... 640,000 1,652,113 1,731,000
Gains on sales of investment securities, net ............. -- (114,719) (34,289)
Provision (credit) for deferred income taxes ............. (244,688) (316,102) 71,134
Amortization of deferred compensation .................... 15,720 21,598 36,044
Decrease (increase) in accrued interest and other assets . 6,456 935,134 (934,226)
Increase (decrease) in accrued interest and other liabilit 466,043 63,977 (194,230)
------------ ------------ ------------
Net cash provided by operating activities ... 2,056,012 3,269,900 2,372,015
Cash flows from investing activities:
Purchases of investment securities .............................. (22,777,602) (10,194,995) (596,094)
Proceeds from maturities of investment securities ............... 5,490,000 -- 1,000,000
Proceeds from sales of investment securities .................... -- 11,564,017 1,946,449
Decrease (increase) in interest-bearing deposit with
Federal Home Loan Bank ..................................... 5,000,000 (6,000,000) --
Loan originations, net .......................................... (14,631,204) (7,425,703) (7,497,788)
Purchases of premises and equipment, net ........................ (3,474,563) (392,313) (138,235)
------------ ------------ ------------
Net cash used in investment activities ...... (30,393,369) (12,448,994) (5,285,668)
Cash flows from financing activities:
Net increase in deposits ........................................ 13,354,555 6,888,732 11,335,266
Net borrowings from (payments to) Federal Home Loan Bank ........ (600,000) 5,845,161 --
Proceeds from exercise of stock options ......................... 42,505 96,133 --
------------ ------------ ------------
Net cash provided by financing activities ... 12,797,060 12,830,026 11,335,266
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ..................... (15,540,297) 3,650,932 8,421,613
Cash and cash equivalents at beginning of the year ................... 30,954,025 27,303,093 18,881,480
------------ ------------ ------------
Cash and cash equivalents at end of the year ......................... $ 15,413,728 $ 30,954,025 $ 27,303,093
============ ============ ============
</TABLE>
See accompanying notes.
F-11
<PAGE> 159
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Bank of Southern Oregon, and its wholly-owned subsidiaries, McAndrews
Commercial Property, Inc. ("McAndrews") and PremierWest Bancorp ("PremierWest")
(collectively, "the Bank"). McAndrews owns certain bank premises. PremierWest
was organized effective November 26, 1999 to become the holding company of Bank
of Southern Oregon. Management expects that during the second quarter of 2000
there will be a direct share exchange between Bank of Southern Oregon and
PremierWest whereby PremierWest will become the holding company for Bank of
Southern Oregon and McAndrews. (In addition, see Note 18 regarding the pending
merger with United Bancorp.) All significant intercompany accounts and
transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Bank conducts a general banking business and primarily operates in
one business segment. Its activities include the usual lending and deposit
functions of a commercial bank: commercial, real estate, installment and
mortgage loans; checking and savings accounts; automated teller machines (ATMs)
and safe deposit facilities.
METHOD OF ACCOUNTING
The Bank prepares its consolidated financial statements in conformity
with generally accepted accounting principles and prevailing practices within
the banking industry. The Bank utilizes the accrual method of accounting which
recognizes income when earned and expenses when incurred. The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of income and expenses during the reporting
periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest-bearing deposits with Federal
Home Loan Bank, federal funds sold (which are generally sold for one-day
periods) and securities purchased under agreements to resell.
Securities purchased under agreements to resell are generally overnight
investments fully collateralized by U.S. government securities.
The Bank maintains balances in correspondent bank accounts which, at
times, may exceed federally insured limits. Management believes that its risk of
loss associated with such balances is minimal due to the financial strength of
the correspondent banks. The Bank has not experienced any losses in such
accounts.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During 1999 and 1998, noncash transactions resulted from unrealized
losses on investment securities available- for-sale, net of income taxes and the
income tax benefit of stock options exercised, as disclosed in the accompanying
consolidated statements of changes in stockholders' equity. In addition, noncash
transactions related to transfers of loans to other real estate totaled
approximately $1,136,000, $73,000 and $257,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
F-12
<PAGE> 160
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
During 1999, 1998 and 1997, the Bank paid approximately $4,834,000,
$4,950,000 and $4,219,000, respectively, in interest expense.
INVESTMENT SECURITIES
Investment securities that management has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to maturity.
Investment securities that are purchased and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value, with unrealized gains and losses included in
noninterest income. The Bank had no trading securities as of December 31, 1999
or 1998.
Investment securities that are not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as other comprehensive
income or loss, net of income taxes.
Gains or losses on the sale of available-for-sale securities are
determined using the specific-identification method. Premiums and discounts on
available-for-sale securities are recognized in interest income using the
interest method over the period to maturity.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities 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 earnings as realized losses.
FEDERAL HOME LOAN BANK STOCK
The Bank's investment in Federal Home Loan Bank (FHLB) stock is carried
at par value, which approximates fair value. As a member of the FHLB system, the
Bank is required to maintain a minimum level of investment in FHLB stock based
on specific percentages of its outstanding mortgages, total assets or FHLB
advances. At December 31, 1999, the Bank's minimum required investment was
approximately $483,000. The Bank may request redemption at par value of any FHLB
stock in excess of the minimum required investment. Stock redemptions are at the
discretion of FHLB.
LOANS
Loans are stated at the amount of unpaid principal, reduced by any
deferred loan fees and reserve for loan losses. The reserve for loan losses
represents management's recognition of the assumed risks of extending credit and
the quality of the existing loan portfolio. The reserve is established to absorb
known and inherent losses in the loan portfolio as of the balance sheet date.
The reserve is maintained at a level considered adequate to provide for probable
loan losses based on management's assessment of various factors affecting the
portfolio. Such factors include historical loss experience; review of problem
loans; underlying collateral values and guaranties; current economic conditions;
legal representation regarding the outcome of pending legal action for
collection of loans and related loan guaranties; and an overall evaluation of
the quality, risk characteristics and concentration of loans in the portfolio.
The reserve is based on estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically, and, as adjustments become
necessary, they are reported in earnings in the periods in which they become
known. The reserve is increased by provisions charged to operations and reduced
by loans charged-off, net of recoveries.
F-13
<PAGE> 161
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Bank considers loans to be impaired when management believes that
it is probable that all amounts due will not be collected according to the
contractual terms. An impaired loan must be valued using the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price or the estimated fair value of the loan's
underlying collateral or related guaranty. The Bank primarily measures
impairment on all large balance nonaccrual loans (typically commercial and
commercial real estate loans) based on the estimated fair value of the
underlying collateral or related guaranty. In certain other cases, impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. Amounts deemed impaired are either
specifically allocated for in the reserve for loan losses or reflected as a
partial charge-off of the loan balance. Smaller balance homogeneous loans
(typically installment loans) are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual installment loans
for impairment disclosures. Generally, the Bank evaluates a loan for impairment
when it is placed on nonaccrual status. All of the Bank's impaired loans at
December 31, 1999 and 1998 were on nonaccrual status.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to make payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
Loan origination and commitment fees, net of certain direct loan
origination costs, are generally recognized as an adjustment of the yield of the
related loan.
Interest income on all loans is accrued as earned on the simple
interest method.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's reserve for loan losses. Such agencies
may require the Bank to recognize additions to the reserve based on their
judgment of the information available to them at the time of their examinations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation on premises and equipment is computed on the
straight-line method over the estimated useful lives of the assets.
OTHER REAL ESTATE
Other real estate, acquired through foreclosure or deeds in lieu of
foreclosure, is carried at the lower of cost or estimated net realizable value.
When the property is acquired, any excess of the loan balance over the estimated
net realizable value is charged to the reserve for loan losses. Holding costs,
subsequent write-downs to net realizable value, if any, or any disposition gains
or losses are included in noninterest income and expense. Other real estate at
December 31, 1999 and 1998 totaled approximately $1,209,000 and $73,000,
respectively.
STOCKHOLDERS' EQUITY
The Bank, as a state-chartered bank, is prohibited from declaring or
paying any dividend in an amount greater than retained earnings.
During 1998 and 1997, the Bank declared stock splits. Basic and diluted
earnings per common share (see Note 11) and the stock option plan information
(see Note 14) have been adjusted to give retroactive effect to the stock splits.
F-14
<PAGE> 162
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING
Advertising costs are generally charged to expense during the year in
which they are incurred.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133," an amendment of SFAS No. 133, which establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for all quarterly
and annual financial statements of fiscal years beginning after June 15, 2000.
The Bank had no significant derivatives as of December 31, 1999, nor does the
Bank engage in any hedging activities. Accordingly, the Bank does not anticipate
that the adoption of SFAS No. 133, as amended by SFAS No. 137, will have a
material effect on its consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in 1998 and 1997 have been reclassified to conform with
the 1999 presentation.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain an average reserve balance
(approximately $600,000 and $683,000 at December 31, 1999 and 1998,
respectively) with the Federal Reserve Bank or maintain such reserve balance in
the form of cash. This requirement was met by holding cash and maintaining an
average reserve balance with the Federal Reserve Bank in excess of this amount.
F-15
<PAGE> 163
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
Gross unrealized Gross unrealized Estimated fair
Amortized cost gains losses value
-------------------- -------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
1999
U.S. Government agency securities. $ 22,826,663 $ -- $ (781,464) $ 22,045,199
==================== ==================== ===================== ================
1998
U.S. Treasury securities.......... $ 2,378,622 $ 216 $ -- $ 2,378,838
FHLB Agency Bond.................. 3,054,541 -- (1,337) 3,053,204
-------------------- -------------------- --------------------- ----------------
Total.................... $ 5,433,163 $ 216 $ (1,337) $ 5,432,042
==================== ==================== ===================== ================
</TABLE>
No gains or losses were realized on sales of investment securities in
1999. Gross gains of approximately $129,000 and gross losses of approximately
$14,000 were realized on sales of investment securities in 1998. Gross gains of
approximately $34,000 were realized on sales of investment securities in 1997.
There were no gross losses on sales of investment securities in 1997. The
provision for income taxes applicable to the net gains on sales of investment
securities was approximately $44,000 and $12,000 in 1998 and 1997, respectively.
Investment securities available-for-sale with an estimated fair value
of approximately $4,656,000 and $5,432,000 at December 31, 1999 and 1998,
respectively, were pledged to secure public deposits and for other purposes as
required or permitted by law. In addition, an investment security
available-for-sale with an estimated fair value of approximately $5,066,000 was
pledged to secure FHLB borrowings as of December 31, 1999 (see Note 8).
All investment securities available-for-sale at December 31, 1999, are
due after one year through five years. However, expected maturities will differ
from contractual maturities, because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
4. LOANS
Loans at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Commercial............................................. $ 22,303,499 $ 30,599,262
Real estate - construction............................. 25,415,581 24,879,565
Real estate - other.................................... 60,757,825 39,036,714
Consumer installment................................... 3,590,884 4,419,803
Other.................................................. 442,494 582,179
------------------- -------------------
112,510,283 99,517,523
Less:
Reserve for loan losses........................... 2,396,495 2,278,171
Deferred loan fees................................ 484,874 465,998
------------------- -------------------
2,881,369 2,744,169
------------------- -------------------
Loans, net............................................. $ 109,628,914 $ 96,773,354
=================== ===================
</TABLE>
F-16
<PAGE> 164
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
4. LOANS (CONTINUED)
As of December 31, 1999 and 1998, the Bank's market area consisted
principally of Jackson County, Oregon and, to a lesser extent, Josephine County,
Oregon. A substantial portion of the Bank's loans are collateralized by real
estate in this geographic area and, accordingly, the ultimate collectibility of
a substantial portion of the Bank's loan portfolio is susceptible to changes in
the local market conditions.
5. RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year................ $ 2,278,171 $ 1,078,698 $ 936,175
Loan loss provision......................... 640,000 1,652,113 1,731,000
Loans charged-off........................... (740,155) (559,356) (1,616,023)
Recovery of loans previously charged-off.... 218,479 106,716 27,546
------------------ ------------------- -----------------
Balance at end of year...................... $ 2,396,495 $ 2,278,171 $ 1,078,698
================== =================== =================
</TABLE>
At December 31, 1999 and 1998, the Bank had approximately $2,772,000
and $4,946,000, respectively, in impaired loans. Of these impaired loans,
approximately $2,772,000 and $4,809,000 had a related valuation allowance of
approximately $836,000 and $973,000, respectively. The average recorded
investment in impaired loans for 1999, 1998 and 1997 was approximately
$4,113,000, $7,200,000 and $2,250,000, respectively. Interest income recognized
on impaired loans in 1999, 1998 and 1997 was insignificant.
Loans on nonaccrual status at December 31, 1999 and 1998 were
approximately $2,772,000 and $4,946,000, respectively. Interest income which
would have been realized on nonaccrual loans had they remained current was
approximately $410,000, $720,000 and $250,000 during 1999, 1998 and 1997,
respectively. Loans contractually past due 90 days or more on which the Bank
continued to accrue interest at December 31, 1999 and 1998 were insignificant.
As of December 31, 1999 and 1998, there were no commitments to lend additional
funds to borrowers whose loans had been modified.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Land................................. $ 1,440,151 $ 857,651
Land improvements.................... 230,644 226,385
Buildings............................ 3,405,360 1,423,062
Furniture and equipment.............. 2,119,216 1,349,031
------------------- -------------------
7,195,371 3,856,129
Less accumulated depreciation........ 1,126,455 948,324
------------------- -------------------
Premises and equipment, net.......... $ 6,068,916 $ 2,907,805
=================== ===================
</TABLE>
7. TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit in excess of $100,000 aggregated
approximately $14,560,000 and $14,556,000 at December 31, 1999 and 1998,
respectively. Interest expense on time certificates of deposit in excess of
$100,000 was approximately $655,000, $852,000 and $580,000 in 1999, 1998 and
1997, respectively.
F-17
<PAGE> 165
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. TIME CERTIFICATES OF DEPOSIT (CONTINUED)
At December 31, 1999, the scheduled annual maturities of all time
certificates of deposit were approximately as follows:
2000......................... $ 34,508,000
2001......................... 8,073,000
2002......................... 1,081,000
2003......................... 231,000
2004......................... 212,000
Thereafter................... 3,000
---------------------
$ 44,108,000
=====================
8. BORROWING AGREEMENTS
The Bank participates in the Cash Management Advance Program (the
Program) with FHLB. Under the Program, the Bank has available borrowings of
approximately $10,800,000 as of December 31, 1999, with interest at FHLB's cash
management rate. Borrowings outstanding under the Program are collateralized by
a blanket pledge agreement on FHLB stock, any funds on deposit with FHLB,
investment securities and loans.
On August 28, 1998, the Bank borrowed $6,000,000 from FHLB under a
promissory note agreement. The promissory note is due August 28, 2008, and the
Bank is required to make monthly principal payments of $50,000, plus interest at
a fixed rate of 5.82%. The amount of the promissory note outstanding as of
December 31, 1999 and 1998, was $5,245,161 and $5,845,161, respectively. As of
December 31, 1999, an interest-bearing deposit with FHLB of $1,000,000 and an
investment security available-for-sale with an estimated fair value of
approximately $5,066,000 were pledged as collateral for the promissory note. As
of December 31, 1998, an interest-bearing deposit with FHLB of $6,000,000 was
pledged as collateral for the promissory note.
The Bank also maintains federal funds lines with correspondent banks as
a back-up source of liquidity. As of December 31, 1999, the Bank had
approximately $4,000,000 of federal funds lines available to draw against on an
uncollateralized basis.
F-18
<PAGE> 166
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, the Bank is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest-rate risk in excess of amounts recognized in the
accompanying consolidated balance sheets. The contract amounts of these
instruments reflect the extent of the Bank's involvement in these particular
classes of financial instruments. As of December 31, 1999 and 1998, the Bank
held no significant derivative financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding.
A summary of the Bank's off-balance sheet financial instruments at
December 31, 1999 and 1998 is approximately as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Commitments to extend credit ................ $30,666,000 $18,914,000
Standby letters of credit ................... 1,286,000 1,841,000
----------- -----------
Total off-balance sheet financial instruments $31,952,000 $20,755,000
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of fees. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held for other
commitments varies but may include accounts receivable, inventory, property and
equipment and income- producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Bank to guaranty the performance of a customer to a third party. These
guaranties are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held, if any, varies as specified above.
10. INCOME TAXES
The provision (credit) for income taxes for the years ended December
31, 1999, 1998 and 1997 was approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Current:
Federal............................................... $ 878,345 $ 880,400 $ 822,200
State................................................. 134,343 183,702 92,666
----------------- ------------------ -----------------
1,012,688 1,064,102 914,866
Deferred................................................... (244,688) (316,102) 71,134
----------------- ------------------ -----------------
Provision for income taxes................................. $ 768,000 $ 748,000 $ 986,000
================= ================== =================
</TABLE>
F-19
<PAGE> 167
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. INCOME TAXES (CONTINUED)
The provision for income taxes results in effective tax rates which are
different than the federal income tax statutory rate. The nature of the
differences for the years ended December 31, 1999, 1998 and 1997 were
approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Expected federal income tax at statutory rate of 34%....... $ 683,200 $ 656,400 $ 927,500
State income taxes, net of federal effect.................. 88,400 84,900 66,100
Other, net................................................. (3,600) 6,700 (7,600)
----------------- ------------------ -----------------
Provision for income taxes................................. $ 768,000 $ 748,000 $ 986,000
================= ================== =================
</TABLE>
The components of the net deferred tax assets and liabilities at
December 31, 1999 and 1998 were approximately as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- ------------------
<S> <C> <C>
Assets:
Loan loss provision........................................ $ 568,000 $ 477,000
Net unrealized losses on investment securities available-for-sale 300,000 --
Other...................................................... 23,000 29,000
------------------- ------------------
Total deferred tax assets.............................. 891,000 506,000
Liabilities:
FHLB stock dividends....................................... 307,000 204,000
Accumulated depreciation................................... 110,000 92,000
------------------- ------------------
Total deferred tax liabilities......................... 417,000 296,000
------------------- ------------------
Net deferred tax assets................................ $ 474,000 $ 210,000
=================== ==================
</TABLE>
Management believes, primarily based upon the Bank's historical
performance, that the net deferred tax assets will be recognized in the normal
course of operations and, accordingly, management has not reduced net deferred
tax assets by a valuation allowance.
The Bank made income tax payments of approximately $633,000, $305,000
and $1,460,000 during 1999, 1998 and 1997, respectively.
11. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The Bank's basic earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. The Bank's diluted earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding plus dilutive
common shares related to stock options.
F-20
<PAGE> 168
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. BASIC AND DILUTED EARNINGS PER COMMON SHARE (CONTINUED)
The numerators and denominators used in computing basic and diluted
earnings per common share for the years ended December 31, 1999, 1998 and 1997
can be reconciled as follows:
<TABLE>
<CAPTION>
Net income Shares Per-share
(numerator) (denominator) amount
---------------- --------------- -----------
1999
<S> <C> <C> <C>
Basic earnings per common share -
Income available to common stockholders.......... $ 1,241,427 $ 4,815,612 $ 0.26
===========
Effect of assumed conversion of stock options......... -- 149,469
---------------- ---------------
Diluted earnings per common share..................... $ 1,241,427 $ 4,965,081 $ 0.25
================ =============== ===========
1998
Basic earnings per common share -
Income available to common stockholders.......... $ 1,182,487 $ 4,747,760 $ 0.25
===========
Effect of assumed conversion of stock options ........ -- 238,048
---------------- ---------------
Diluted earnings per common share..................... $ 1,182,487 $ 4,985,808 $ 0.24
================ =============== ===========
1997
Basic earnings per common share -
Income available to common stockholders.......... $ 1,741,799 $ 4,697,520 $ 0.37
===========
Effects of assumed conversion of stock options........ -- 198,967
---------------- ---------------
Diluted earnings per common share..................... $ 1,741,799 $ 4,896,487 $ 0.36
================ =============== ===========
</TABLE>
12. TRANSACTIONS WITH RELATED PARTIES
Some of the officers and directors (and the companies with which they
are associated) are customers of, and have had banking transactions with, the
Bank in the ordinary course of the Bank's business. In addition, the Bank
expects to continue to have such banking transactions in the future. All loans
and commitments to loan to such parties are generally made on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. In the opinion of management, these
transactions do not involve more than the normal risk of collectibility or
present any other unfavorable features.
An analysis of activity with respect to loans to directors and officers
of the Bank for the year ended December 31, 1999 was as follows:
Balance at December 31, 1998.............. $ 3,659,664
Additions............................ 3,492,519
Repayments........................... $ (2,590,865)
-------------------
Balance at December 31, 1999.............. $ 4,561,318
===================
F-21
<PAGE> 169
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
13. 401(k) PROFIT SHARING PLAN
The Bank maintains a 401(k) profit sharing plan (the Plan) that covers
substantially all full-time employees over 18 years of age. Employees may make
voluntary tax-deferred contributions to the Plan, and Bank contributions to the
Plan are at the discretion of the Bank's Board of Directors (the Board), not to
exceed the amount deductible for federal income tax purposes. Employees vest in
the Bank's contributions over a period of seven years. Bank contributions to the
Plan which were charged to operations were approximately $45,000, $32,000 and
$69,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
14. STOCK OPTION PLAN
The Bank has a stock option plan (the Stock Option Plan), whereby the
Bank may grant Incentive Stock Options (ISOs) and Non-qualified Stock Options
(NSOs).
The option price of ISOs is the fair market value of the Bank's common
stock at the date of grant. The option price of NSOs must be at least equal to
the book value per share of the Bank's common stock at the date of the Bank's
most recently completed fiscal year. All options generally expire in ten years
if not exercised; however, the Board has the right to suspend or terminate the
Stock Option Plan at any time, except with respect to the remaining options
outstanding.
SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires companies, such as the Bank, that use the intrinsic value method to
account for employee stock options to provide pro forma disclosures of the net
income and earnings per share effect of applying the fair value-based method of
accounting for stock options. The effect of applying the fair value-based method
to stock options granted in the years ended December 31, 1999 and 1998 resulted
in an estimated weighted-average grant date fair value of $4.22 and $2.40,
respectively. There were no stock options granted in 1997. Had compensation cost
been determined based on the fair value of the options at the date of grant, the
Bank's pro forma net income, pro forma basic earnings per common share and pro
forma diluted earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net income As reported........ $ 1,241,427 $ 1,182,487 $ 1,741,799
Pro forma.......... 1,160,393 1,089,884 1,730,366
Basic earnings per common share As reported........ $ 0.26 $ 0.25 $ 0.37
Pro forma.......... 0.24 0.23 0.37
Diluted earnings per common share As reported........ $ 0.25 $ 0.24 $ 0.36
Pro forma.......... 0.23 0.22 0.35
</TABLE>
The Bank used the Black-Scholes option-pricing model with the following
weighted-average assumptions to value options granted:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Dividend yield..................................... 0% 0%
Expected volatility................................ 37.0% 27.9%
Risk-free interest rate............................ 6.3% 4.6%
Expected option lives.............................. 7 years 5 years
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent
to December 31, 1994, the pro forma effects for 1999, 1998 and 1997 may not be
representative of the effects on reported results in future years.
F-22
<PAGE> 170
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
14. STOCK OPTION PLAN (CONTINUED)
At December 31, 1999, 163,230 shares reserved under the Stock Option
Plan were available for future grant. Activity related to the Stock Option Plan
for the years ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ---------------------------------- --------------------------------
Weighted Weighted Weighted
Options average Options average Options average
outstanding exercise price outstanding exercise price outstanding exercise price
------------- -------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................ 361,240 $ 4.14 311,220 $ 0.99 315,420 $ 1.00
Granted.................. 25,000 8.25 156,260 8.20 -- --
Exercised................ (39,740) 1.07 (100,480) 0.86 -- --
Forfeited................ (2,700) 4.73 (5,760) 1.47 (4,200) 1.07
------------- --------------- ---------------
Balance at end of year... 343,800 $ 4.79 361,240 $ 4.14 311,220 $ 0.99
============= ============== =============== ================ =============== ===============
</TABLE>
Compensation expense for NSOs is recognized over the vesting period
based on the difference between the option price and the fair value of the stock
options at the date of grant. Compensation expense for the years ended December
31, 1999, 1998 and 1997 was approximately $16,000, $22,000 and $36,000,
respectively.
Information regarding the number, weighted-average exercise price and
weighted-average remaining contractual life of options by range of exercise
price at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options outstanding Exercisable options
--------------------------------------------------------- ------------------------------
Weighted- Weighted-average Weighted-
Exercise Number of average remaining contractual Number of average
price range options exercise price life (years) options exercise price
- -------------- -------------- --------------- -------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 0.81 84,000 $ 0.81 2 84,000 $ 0.81
1.07 56,220 1.07 4 56,220 1.07
1.75 23,820 1.75 6 11,412 1.75
7.12 4,760 7.12 8 952 7.12
8.25 175,000 8.25 8 -- 8.25
-------------- ------------
343,800 $ 4.79 5.8 152,584 $ 1.02
============== =============== ==================== ============ ==============
</TABLE>
Exercisable options as of December 31, 1998 and 1997 totaled 172,052
and 248,724, respectively.
15. CONTINGENCIES
In the ordinary course of business, the Bank becomes involved in
various litigation arising from normal banking activities. In the opinion of
management, the ultimate disposition of these actions will not have a material
adverse effect on the Bank's consolidated financial position or results of
operations at December 31, 1999.
16. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the provisions of
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS No.
107), which requires the disclosure of fair value information about financial
instruments where it is practicable to estimate that value.
F-23
<PAGE> 171
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
16. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
In cases where quoted market values are not available, the Bank
primarily uses present value techniques to estimate the fair values of its
financial instruments. Valuation methods require considerable judgment, and the
resulting estimates of fair value can be significantly affected by the
assumptions made and methods used. Accordingly, the estimates provided herein do
not necessarily indicate amounts which could be realized in a current market
exchange.
In addition, as the Bank normally intends to hold the majority of its
financial instruments until maturity, it does not expect to realize many of the
estimated amounts disclosed. The disclosures also do not include estimated fair
value amounts for items which are not defined as financial instruments but which
have significant value. These include such off-balance sheet items as core
deposit intangibles. The Bank does not believe that it would be practicable to
estimate a representational fair value for these types of items as of December
31, 1999 and 1998.
Because SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements, any aggregation of
the fair value amounts presented would not represent the underlying value of the
Bank.
The Bank used the following methods and assumptions to estimate the
fair value of its financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates the
estimated fair value of these instruments.
INVESTMENT SECURITIES AVAILABLE-FOR-SALE: The market value of
investment securities available-for-sale, which is based on quoted
market values or the market values for comparable securities,
represents estimated fair value.
INTEREST-BEARING DEPOSIT WITH FHLB: The carrying amount approximates
the estimated fair value.
FHLB STOCK: The carrying amount approximates the estimated fair value.
LOANS: The estimated fair value of loans is calculated by discounting
the contractual cash flows of the loans using December 31, 1999 and
1998 origination rates. The resulting amounts are adjusted to estimate
the effect of changes in the credit quality of borrowers since the
loans were originated.
DEPOSITS: The estimated fair value of demand deposits, consisting of
checking, savings and certain interest- bearing demand deposit
accounts, is represented by the amounts payable on demand. The
estimated fair value of certificates of deposit is calculated by
discounting the scheduled cash flows using the December 31, 1999 and
1998 rates offered on these instruments.
FHLB BORROWINGS: The estimated fair value of FHLB borrowings is
calculated by discounting the scheduled cash flows using quoted rates
from FHLB as of December 31, 1999 and 1998.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The estimated fair value of
off-balance sheet financial instruments (primarily commitments to
extend credit) is determined based on fees currently charged for
similar commitments. Management estimates that these fees approximate
$230,000 and $142,000 as of December 31, 1999 and 1998, respectively.
F-24
<PAGE> 172
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
16. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's significant on-balance sheet
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
------------------ ----------------- ------------------ -----------------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 15,413,728 $ 15,414,000 $ 30,954,025 $ 30,954,000
Investment securities available-for-sale 22,045,199 22,045,000 5,432,042 5,432,000
Interest-bearing deposit with FHLB. 1,000,000 996,000 6,000,000 6,000,000
FHLB stock......................... 3,880,700 3,881,000 3,604,200 3,604,000
Loans, net......................... 109,628,914 109,357,000 96,773,354 98,065,000
Financial Liabilities:
Deposits........................... 139,984,212 139,956,000 126,629,657 124,959,000
FHLB borrowings.................... 5,245,161 4,990,000 5,845,161 5,845,000
</TABLE>
17. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of Tier 1 capital (as defined in the regulations) to average
assets (as defined), and Tier 1 and total capital (as defined) to risk-weighted
assets (as defined). Management believes that as of December 31, 1999 and 1998,
the Bank met or exceeded all relevant capital adequacy requirements.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt correction action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since the notification from the regulators that management believes would
change the Bank's regulatory capital categorization.
F-25
<PAGE> 173
BANK OF SOUTHERN OREGON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
17. REGULATORY MATTERS (CONTINUED)
The Bank's actual and required capital amounts and ratios are presented
in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Regulatory minimum to be
Regulatory minimum to "well capitalized" under
be "adequately prompt corrective action
Actual capitalized" provisions
--------------------------- -------------------------- -----------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Tier 1 capital (to average assets).... $ 15,238 9.5% $ 6,421 4.0% $ 8,026 5.0%
Tier 1 capital (to risk-weighted assets) 15,238 11.9 5,125 4.0 7,688 6.0
Total capital (to risk-weighted assets) 16,849 13.1 10,251 8.0 12,814 10.0
December 31, 1998:
Tier 1 capital (to average assets).... 13,842 9.9 5,593 4.0 6,991 5.0
Tier 1 capital (to risk-weighted assets) 13,842 11.3 4,900 4.0 7,350 6.0
Total capital (to risk-weighted assets) 16,121 13.2 9,800 8.0 12,250 10.0
</TABLE>
18. PENDING MERGER
Effective October 7, 1999, the Bank entered into a definitive agreement
to acquire United Bancorp and its wholly-owned subsidiary, Douglas National Bank
(collectively, "United"). As part of the proposed merger, the Bank will
reorganize as a subsidiary of PremierWest. Under the terms of the definitive
agreement, United shareholders will receive approximately 1.97 shares of
PremierWest for each share of United common stock. The proposed merger is
expected to be accounted for as a pooling-of-interests to be consummated in the
second quarter of 2000.
In accordance with generally accepted accounting principles, as of
December 31, 1999, the Bank has capitalized approximately $87,000 of costs
incurred to effect the proposed merger. All merger-related costs will be
expensed in the period that the merger is consummated.
F-26
<PAGE> 174
United
Bancorp
and
Subsidiaries
CONSOLIDATED
FINANCIAL
REPORT
December 31
1999
<PAGE> 175
CONTENTS
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT................................................F-27
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets.................................................F-28
Consolidated Statements of Income...........................................F-29
Consolidated Statements of Shareholders' Equity......................F-30 - F-31
Consolidated Statements of Cash Flows................................F-32 - F-33
Notes to Consolidated Financial Statements...........................F-34 - F-54
SUPPLEMENTARY INFORMATION
Three-Year Summary of Operations............................................F-55
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
Board of Directors
UNITED BANCORP
Roseburg, Oregon
We have audited the accompanying consolidated balance sheets of UNITED BANCORP
AND SUBSIDIARIES as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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 UNITED BANCORP AND
SUBSIDIARIES as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
As described in Note 19 to the consolidated financial statements, the 1998 and
1997 consolidated financial statements have been restated to incorporate the
cash out feature of the Company's stock option plan and adjust the accrual for
consulting services.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. The supplementary
information has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
Knight Vale & Gregory PLLC
Tacoma, Washington
January 7, 2000
<PAGE> 177
CONSOLIDATED
FINANCIAL
STATEMENTS
<PAGE> 178
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
United Bancorp and Subsidiaries
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
(As Restated)
Note 19
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,429 $ 5,349
Interest-bearing deposits in banks 25 7,075
Securities available for sale 61,241 57,166
Loans 62,470 43,631
Allowance for credit losses (679) (554)
NET LOANS 61,791 43,077
Premises and equipment 4,227 3,653
Accrued interest receivable 1,000 804
Other assets 1,955 825
TOTAL ASSETS $ 135,668 $ 117,949
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 15,605 $ 16,077
Savings and interest-bearing demand 47,627 44,475
Time 26,529 27,004
TOTAL DEPOSITS 89,761 87,556
Federal funds purchased and securities
sold under agreements to repurchase 18,600 11,811
Short-term note payable 10,000 --
Long-term notes payable 2,157 2,485
ESOP notes payable 604 890
Accrued interest payable 276 182
Other liabilities 803 734
TOTAL LIABILITIES 122,201 103,658
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares
authorized, none issued -- --
Common stock (par value: $2.50); 5,000,000 shares authorized;
issued and outstanding: 1999 - 1,811,334 shares;
1998 - 1,760,708 shares; 1997 - 438,929 shares 4,528 4,402
Surplus 938 638
Retained earnings 9,923 9,735
Unearned ESOP compensation (604) (890)
Accumulated other comprehensive income (loss) (1,318) 406
TOTAL SHAREHOLDERS' EQUITY 13,467 14,291
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 135,668 $ 117,949
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 179
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
United Bancorp and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
(As Restated) (As Restated)
Note 19 Note 19
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 4,980 $ 4,556 $ 4,310
Deposits in banks 23 224 86
Securities available for sale:
Taxable 2,919 2,963 3,534
Tax-exempt 774 551 459
TOTAL INTEREST INCOME 8,696 8,294 8,389
INTEREST EXPENSE
Deposits 2,172 1,948 1,712
Federal funds purchased and securities
sold under agreements to repurchase 813 672 628
Notes payable 264 431 928
TOTAL INTEREST EXPENSE 3,249 3,051 3,268
NET INTEREST INCOME 5,447 5,243 5,121
PROVISION FOR CREDIT LOSSES 195 50 140
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 5,252 5,193 4,981
NON-INTEREST INCOME
Service charges on deposit accounts 681 580 539
Other service charges, commissions and fees 549 497 284
Net gains (losses) on sales of securities available for sale 7 264 (3)
Other 351 290 293
TOTAL NON-INTEREST INCOME 1,588 1,631 1,113
NON-INTEREST EXPENSE
Salaries and employee benefits 3,608 2,808 2,671
Net occupancy and equipment 996 869 673
Advertising 263 89 56
ATM expenses 163 139 152
Other 1,384 1,399 1,162
TOTAL NON-INTEREST EXPENSE 6,414 5,304 4,714
INCOME BEFORE INCOME TAXES 426 1,520 1,380
INCOME TAXES (BENEFIT) (61) 466 376
NET INCOME $ 487 $ 1,054 $ 1,004
EARNINGS PER SHARE
Basic $ .29 $ .65 $ .61
Diluted .28 .61 .60
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 180
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
United Bancorp and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF UNEARNED OTHER
COMMON COMMON RETAINED ESOP COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS COMPENSATION INCOME (LOSS) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 437,258 $ 1,093 $ 3,449 $ 8,161 ($ 553) $ 2 $ 12,152
Comprehensive income:
Net income -- -- -- 1,004 -- -- 1,004
Other comprehensive income,
net of tax:
Change in unrealized gain
on securities -- -- -- -- -- 510 510
COMPREHENSIVE INCOME 1,514
ESOP compensation expense -- -- 69 -- 133 -- 202
Stock purchased for ESOP -- -- -- -- (420) -- (420)
Cash dividends declared
($.125 per share) -- -- -- (220) -- -- (220)
Dividends reinvested 1,670 4 35 -- -- -- 39
Retired stock 1 -- -- -- -- -- --
BALANCE AT DECEMBER 31,
1997 (AS RESTATED) 438,929 1,097 3,553 8,945 (840) 512 13,267
Comprehensive income:
Net income -- -- -- 1,054 -- -- 1,054
Other comprehensive income,
net of tax:
Change in unrealized loss
on securities -- -- -- -- -- (106) (106)
COMPREHENSIVE INCOME 948
Dividends reinvested 1,248 3 40 -- -- -- 43
Stock split - forward
4 to 1 1,320,531 3,302 (3,302) -- -- -- --
ESOP compensation expense -- -- 190 -- 254 -- 444
Stock purchased for ESOP -- -- -- -- (304) -- (304)
Cash dividends declared
($.15 per share) -- -- -- (264) -- -- (264)
Change in stock option plan -- -- 157 -- -- -- 157
BALANCE AT DECEMBER 31,
1998 (AS RESTATED) 1,760,708 4,402 638 9,735 (890) 406 14,291
</TABLE>
(continued)
See notes to consolidated financial statements.
F-30
<PAGE> 181
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(concluded) (Dollars in Thousands, Except Per Share Amounts)
United Bancorp and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF UNEARNED OTHER
COMMON COMMON RETAINED ESOP COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS COMPENSATION INCOME (LOSS) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998 (as restated) 1,760,708 $ 4,402 $ 638 $ 9,735 ($ 890) $ 406 $ 14,291
Comprehensive income:
Net income -- -- -- 487 -- -- 487
Other comprehensive income,
net of tax:
Change in unrealized
loss on securities -- -- -- -- -- (1,724) (1,724)
COMPREHENSIVE INCOME (1,237)
ESOP compensation expense -- -- 78 -- 286 -- 364
Income tax benefit from stock
options exercised -- -- 19 -- -- -- 19
Cash dividends declared
($.17 per share) -- -- -- (299) -- -- (299)
Dividends reinvested 4,626 11 30 -- -- -- 41
Common stock issued 46,000 115 173 -- -- -- 288
BALANCE AT
DECEMBER 31, 1999 1,811,334 $ 4,528 $ 938 $ 9,923 ($ 604) ($ 1,318) $ 13,467
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 182
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(Dollars in Thousands)
United Bancorp and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
(As Restated) (As Restated)
Note 19 Note 19
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 487 $ 1,054 $ 1,004
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses 195 50 140
Depreciation and amortization 555 478 339
Change in stock option plan - - 157 - -
Securities amortization - net of accretion 93 41 42
Net (gains) losses on sales of securities available for sale (7) (264) 3
(Gain) loss on sales of premises and equipment - - 27 (3)
Deferred income tax (benefit) 7 151 (172)
Stock dividends received (136) (132) (122)
(Increase) decrease in interest receivable (196) 151 (154)
Increase (decrease) in interest payable 94 (38) 32
Other, net 102 (258) 591
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,194 1,417 1,700
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks 7,050 (3,854) (2,993)
Proceeds from maturities of securities available for sale 9,867 15,480 8,575
Proceeds from sales of securities available for sale 1,464 15,061 3,110
Purchases of securities available for sale (18,153) (24,280) (15,808)
Increase in loans made to customers,
net of principal collections (18,933) (255) (3,567)
Purchases of premises and equipment (1,160) (1,115) (1,052)
Proceeds from sales of premises and equipment 31 280 39
Other 24 76 10
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (19,810) 1,393 (11,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,205 12,949 6,267
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 6,789 (8,070) 9,337
Proceeds from short-term note payable 10,000 - - - -
Proceeds from long-term notes payable - - - - 1,000
Repayment of long-term notes payable (328) (6,232) (5,312)
Dividends reinvested 41 43 39
Proceeds from issuance of common stock 288 - - - -
Cash dividends paid (299) (264) (220)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,696 (1,574) 11,111
NET INCREASE IN CASH AND DUE FROM BANKS 80 1,236 1,125
CASH AND DUE FROM BANKS
Beginning of year 5,349 4,113 2,988
END OF YEAR $ 5,429 $ 5,349 $ 4,113
</TABLE>
(continued)
See notes to consolidated financial statements.
F-32
<PAGE> 183
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(concluded) (Dollars in Thousands)
United Bancorp and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
(As Restated) (As Restated)
Note 19 Note 19
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 3,155 $ 3,089 $ 3,236
Income taxes paid -- 643 607
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Valuation adjustment of securities available for sale,
net of tax ($1,724) ($ 106) $ 510
Proceeds from issuance of ESOP debt -- 304 420
ESOP compensation expense, including principal
payments on ESOP notes payable (364) (444) (202)
Income tax benefit from stock option exercised 19 -- --
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United Bancorp
(the Company); its wholly owned subsidiaries, Douglas National Bank (the Bank),
and DNB Mortgage Company; and the Bank's wholly owned subsidiary, Douglas
National Bank Insurance Agency, Inc. All significant intercompany transactions
and balances have been eliminated.
NATURE OF OPERATIONS
United Bancorp is a one-bank holding company, with lending and other activities
concentrated in and around Douglas County, Oregon. The Bank has eight branches,
including its main branch. Its primary source of revenue is providing loans to
customers, who are predominately small and middle-market businesses and
middle-income individuals.
CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities, as of the
date of the balance sheet, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for credit losses and deferred tax assets.
Certain prior year amounts have been reclassified to conform to the 1999
presentation. All dollar amounts, except per share information, are stated in
thousands.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of debt securities which may be sold to
implement the Bank's asset/liability management strategies and in response to
changes in interest rates and similar factors, and certain equity securities.
Securities available for sale are reported at fair value. Unrealized gains and
losses, net of the related deferred tax effect, are reported as a net amount in
a separate component of shareholders' equity entitled "accumulated other
comprehensive income (loss)." Realized gains and losses on securities available
for sale, determined using the specific identification method, are included in
earnings. Amortization of premiums and accretion of discounts are recognized in
interest income over the period to maturity.
(continued)
F-34
<PAGE> 185
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LOANS
Loans are stated at the amount of unpaid principal, reduced by an allowance for
credit losses. Interest on loans is accrued daily based on the principal amount
outstanding.
Generally, the accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due or when they are past due 90 days as to either principal or interest, unless
they are well secured and in the process of collection. When interest accrual is
discontinued, all unpaid accrued interest is reversed against current income. If
management determines that the ultimate collectibility of principal is in doubt,
cash receipts on non-accrual loans are applied to reduce the principal balance.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered adequate to
provide for probable losses in the loan portfolio. The allowance is increased by
provisions charged to operations and reduced by loans charged off, net of
recoveries. The allowance is based on management's periodic evaluation of
probable losses in the loan portfolio after consideration of historical loss
experience, adverse situations that may affect the borrowers' ability to repay,
the estimated value of any underlying collateral, economic conditions, the
results of examination of individual loans, the evaluation of the overall
portfolio by senior credit personnel and federal and national regulatory
agencies, and other risks inherent in the portfolio. This evaluation is
inherently subjective, as it requires the use of current estimates, which may
vary from the ultimate collectibility experienced in the future. The estimates
used are reviewed periodically and, as adjustments become necessary, they are
charged to operations in the period in which they become known.
When management determines it is possible that a borrower will be unable to
repay all amounts due according to the terms of the loan agreement, including
scheduled interest payments, the loan is considered impaired. Loans that
experience insignificant payment delays and payment shortfalls are generally not
classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower's prior payment record, and
the amount of shortfall in relation to the principal and interest owed. The
amount of impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, when the primary
source of repayment is provided by real estate collateral, at the fair value of
the collateral less estimated selling costs. The amount of impairment and any
subsequent charges are recorded through the provision for credit losses as an
adjustment to the allowance for credit losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less. Gains or losses on
dispositions are reflected in earnings.
(continued)
F-35
<PAGE> 186
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
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.
Subsidiaries provide for tax on a separate company basis and remit to the
company amounts currently due.
CASH EQUIVALENTS
The Company considers all amounts included in the balance sheets caption "Cash
and due from banks" to be cash equivalents.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method, in accordance with APB No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements. However, the required pro
forma disclosures of the effects of all options granted on or after January 1,
1995 have been provided in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments disclosed in these financial statements:
CASH AND SHORT-TERM INSTRUMENTS
The carrying amounts of cash and short-term instruments approximate
their fair value.
SECURITIES AVAILABLE FOR SALE
Fair values for securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
LOANS
For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair
values for fixed rate loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
(continued)
F-36
<PAGE> 187
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
FAIR VALUES OF FINANCIAL INSTRUMENTS (concluded)
DEPOSIT LIABILITIES
The fair values disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable rate, fixed term
money market accounts and certificates of deposit approximate their
fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow
calculation based on interest rates currently being offered on similar
certificates.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE
The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short-term borrowings maturing within
90 days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on
the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
SHORT-TERM NOTE PAYABLE
The carrying amounts of short-term notes payable maturing within 90
days approximate their fair value.
LONG-TERM NOTES PAYABLE
The fair values of the Company's notes payable are estimated using
discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
EARNINGS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing net
income by the weighted average number of common shares outstanding. The weighted
average number of common shares is adjusted for unallocated ESOP shares (see
Note 9). Diluted earnings per share reflect the potential dilution that could
occur if common shares were issued pursuant to the exercise of options under the
Company's stock option plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This statement is
effective for all fiscal years beginning after June 15, 2000. The Company had no
derivatives as of December 31, 1999, nor does the Company engage in any hedging
activities. The Company does not anticipate that the adoption of SFAS No. 133
will have a material effect on its financial position or results of operations.
F-37
<PAGE> 188
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 2 - DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified as available for sale according
to management's intent. The carrying amount of securities and their approximate
fair values were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
<S> <C> <C> <C>
DECEMBER 31, 1999
U.S. Government and agency securities $18,705 $ -- $ 838 $17,867
Collateralized mortgage obligations and
mortgage-backed securities 24,894 5 790 24,109
Obligations of States and political subdivisions 17,394 42 556 16,880
Restricted equity securities 2,090 -- -- 2,090
Equity securities 295 -- -- 295
TOTAL $63,378 $ 47 $ 2,184 $61,241
DECEMBER 31, 1998
U.S. Government and agency securities $ 9,227 $ 162 $ 25 $ 9,364
Collateralized mortgage obligations and
mortgage-backed securities 31,432 268 49 31,651
Obligations of States and political subdivisions 13,658 354 51 13,961
Restricted equity securities 1,912 -- -- 1,912
Equity securities 278 -- -- 278
TOTAL $56,507 $ 784 $ 125 $57,166
</TABLE>
The carrying amount and approximate market value of debt securities at December
31, 1999 by contractual maturity are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations, with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 2,820 $ 2,800
Due from one year to five years 26,470 25,862
Due from five to ten years 29,893 28,469
Due after ten years 1,810 1,725
TOTAL $60,993 $58,856
</TABLE>
(continued)
F-38
<PAGE> 189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 2 - DEBT AND EQUITY SECURITIES (concluded)
Gross gains realized on sales of securities were $7, $288 and $13 in 1999, 1998
and 1997, respectively, and gross losses realized were $0, $24 and $16 in 1999,
1998 and 1997, respectively.
Securities carried at approximately $24,370 at December 31, 1999 and $22,581 at
December 31, 1998 were pledged to secure public deposits, repurchase agreement
deposit accounts, and for other purposes required or permitted by law.
NOTE 3 - LOANS
Loans at December 31 consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commercial and agriculture $ 10,762 $ 10,699
Real estate mortgage:
Commercial 18,816 15,329
Residential:
Multi-family 8,386 2,487
Single family dwelling 9,660 5,942
Real estate construction loans 9,428 4,915
Consumer 5,418 4,259
TOTAL LOANS $ 62,470 $ 43,631
Changes in the allowance for credit losses for the years ended December 31 are
as follows:
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year $554 $ 491 $ 511
Provision for credit losses 195 50 140
Charge-offs (94) (63) (170)
Recoveries 24 76 10
NET (CHARGE-OFFS) RECOVERIES (70) 13 (160)
BALANCE AT END OF YEAR $679 $ 554 $ 491
</TABLE>
(continued)
F-39
<PAGE> 190
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999, 1998 and 1997
NOTE 3 - LOANS (concluded)
Following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
DECEMBER 31
Impaired loans without a valuation allowance $ 2 $ 57
Impaired loans with a valuation allowance -- --
TOTAL IMPAIRED LOANS $ 2 $ 57
VALUATION ALLOWANCE RELATED TO IMPAIRED LOANS $ -- $ --
YEARS ENDED DECEMBER 31
Average investment in impaired loans $ 30 $ 29
Interest income recognized on a cash basis on impaired loans 5 4
</TABLE>
At December 31, 1999, there were no commitments to lend additional funds to
borrowers whose loans had been modified. Loans 90 days and over past due still
accruing interest totaled $67 and $200 at December 31, 1999 and 1998,
respectively. There were no such loans at December 31, 1997.
Certain related parties of the Bank, principally Bank Directors and their
associates, were loan customers of the Bank in the ordinary course of business.
Total loans outstanding at December 31, 1999 and 1998 to key officers and
Directors were $2,412 and $2,427, respectively. During 1999, loan advances
totaled $279, and loan repayments totaled $294 on these loans.
Commitments to extend credit to related parties were approximately $20 and $198
at December 31, 1999 and 1998, respectively.
NOTE 4 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land, buildings and improvements $ 4,499 $ 4,058
Furniture and equipment 2,870 2,417
7,369 6,475
Less accumulated depreciation and amortization (3,142) (2,822)
TOTAL PREMISES AND EQUIPMENT $ 4,227 $ 3,653
</TABLE>
F-40
<PAGE> 191
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 5 - DEPOSITS
The aggregate amount of certificates of deposit with balances in excess of one
hundred thousand dollars was approximately $3,521 and $5,881 at December 31,
1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
2000 $22,386
2001 2,354
2002 821
2003 363
2004 and thereafter 605
$26,529
</TABLE>
NOTE 6 - FEDERAL FUNDS PURCHASED
Federal funds purchased generally mature within one to four days from the
transaction date. Information concerning federal funds purchased is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Average balance during the year $2,538 $232
Average interest rate during the year 5.39% 6.0%
Maximum month-end balance during the year $6,380 $330
</TABLE>
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase represent short-term borrowings
with maturities which do not exceed 120 days. The following is a summary of such
short-term borrowings for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Average balance during the year $15,041 $14,076
Average interest rate during the year 4.50% 4.67%
Maximum month-end balance during the year $17,883 $16,013
</TABLE>
F-41
<PAGE> 192
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 8 - NOTES PAYABLE
Notes payable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
BANK - SHORT-TERM
An advance from the Federal Home Loan Bank of Seattle, bearing interest at
4.95%, with a seven-day maturity, maturing in January 2000; collateralized by a
blanket pledge arrangement which requires the Bank to maintain unencumbered
collateral (FHLB stock, securities and loans); subject to penalties for prepayments. $10,000 $ - -
BANK - LONG-TERM
Advances from the Federal Home Loan Bank of Seattle, bearing interest at 5.6% to
7.8%, with maturity of individual advances between 2001 and 2014; collateralized
by a blanket pledge arrangement which requires the Bank to maintain unencumbered
collateral (FHLB stock,
securities and loans); subject to penalties for prepayments. 2,157 2,289
Note payable from a third party individual, bearing interest at 7.75%; monthly
principal and interest payments totaling $17 annually through August 2006;
collateralized by other assets, paid in full
during 1999. - - 196
TOTAL BANK NOTES PAYABLE 12,157 2,485
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Notes payable to Bank of America in quarterly installments totaling $44
annually, with interest at 90% of the lender's prime rate,
secured by Company stock, paid in full during 1999. - - 44
Note payable to Key Bank in quarterly installments totaling $110 annually
through March 2002, with interest at 7.7%, secured by
Company stock. 264 374
Note payable to Key Bank in quarterly installments totaling $50 annually through
December 2002, with interest at 7%, secured by
Company stock. 142 192
Note payable to Key Bank in quarterly installments totaling $61 annually through
June 2003, with interest at 7.39%, secured by
Company stock. 198 280
TOTAL ESOP NOTES PAYABLE 604 890
TOTAL NOTES PAYABLE $12,761 $3,375
</TABLE>
(continued)
F-42
<PAGE> 193
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 8 - NOTES PAYABLE (concluded)
The approximate aggregate maturities of long-term notes payable for future years
ending December 31 are as follows:
2000 $ 352
2001 440
2002 375
2003 1,281
2004 62
Thereafter 251
$2,761
NOTE 9 - EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The Company's Employee Profit Sharing Plan covers substantially all employees of
the Company. Annual contributions are determined by the Board of Directors.
During 1999, 1998 and 1997, contributions to the plan were $29, $25 and $25,
respectively.
EXECUTIVE INCENTIVE PLAN
The Executive Incentive Plan rewards key officers for performance and continuity
of service. Awards earned under the plan in years prior to 1998 vest ratably
over four years, earning a prevailing market rate of interest over the vesting
period. Awards earned subsequent to 1998 vest immediately. There were no awards
earned in 1999. Awards earned under the plan were $30 and $29 in 1998 and 1997,
respectively. Expenses recognized under the plan were $11, $51 and $32 in 1999,
1998 and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND DEBT
The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers substantially all employees of the Company. The Company makes annual
contributions to the ESOP. The amount of the annual contribution is
discretionary, except that it must be sufficient to enable the ESOP to service
its debt. The initial ESOP shares were pledged as collateral for the debt. As
the debt is repaid, shares are released and allocated to active employees, based
on the proportion of debt paid. The debt of the ESOP is recorded as a liability,
and the shares pledged as collateral are reported as unearned ESOP compensation
in the equity section of the balance sheet. As shares are released from
collateral, the Company reports compensation expense equal to the current market
price of the shares for all shares acquired by the ESOP. The difference between
the allocated shares' market value and the cost of the allocated shares in 1999,
1998 and 1997 was $78, $190 and $69, respectively, and is reflected as
compensation expense in the consolidated statements of income and in surplus in
the consolidated statements of shareholders' equity. ESOP compensation expense
related to the payment of debt was $286, $254 and $133 in 1999, 1998 and 1997,
respectively. The shares become outstanding for earnings-per-share computations
at the time of allocation to the active employees. Cash dividends paid on
unallocated shares which are collateral for debt are paid to the principal of
the debt. Dividends paid on allocated shares are distributed to the employee
account.
(continued)
F-43
<PAGE> 194
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 9 - EMPLOYEE BENEFIT PLANS (concluded)
Shares held by the ESOP as of December 31 were classified as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Allocated shares:
Prior to January 1, 1993 31,286 31,286
Subsequent to December 31, 1992 188,246 156,892
219,532 188,178
Unallocated shares: 80,213* 122,590*
TOTAL ESOP SHARES 299,745 310,768
</TABLE>
* The approximate fair market value for the Company's unallocated shares at
December 31, 1999 and 1998 is $842 and $1,134, respectively.
NOTE 10 - INCOME TAXES
Income taxes are comprised of the following for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal (benefit) ($99) $208 $468
State 31 107 80
Deferred (benefit) 7 151 (172)
TOTAL INCOME TAXES (BENEFIT) ($61) $466 $376
</TABLE>
The following is a reconciliation between the statutory and the effective
federal income tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory rates $145 34.00% $517 34.00% $469 34.00%
Increase (decrease) resulting from:
State income tax, net of federal
income tax benefit 20 4.69 71 4.67 53 3.84
Tax-exempt income (232) (54.42) (196) (12.89) (155) (11.23)
Other 6 1.41 74 4.88 9 .64
TOTAL INCOME TAX EXPENSE (BENEFIT) ($ 61) (14.32%) $466 30.66% $376 27.25%
</TABLE>
(continued)
F-44
<PAGE> 195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 10 - INCOME TAXES (concluded)
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Accumulated depreciation $ 144 $150 $173
Benefit plans 222 229 326
Allowance for credit losses 150 72 50
Other 2 19 13
Unrealized loss on securities available for sale 821 - - - -
TOTAL DEFERRED TAX ASSETS 1,339 470 562
DEFERRED TAX LIABILITIES
Federal Home Loan Bank stock dividends 301 246 187
Unrealized gain on securities available for sale - - 253 317
TOTAL DEFERRED TAX LIABILITIES 301 499 504
NET DEFERRED TAX ASSETS (LIABILITIES) $1,038 ($ 29) $ 58
</TABLE>
NOTE 11 - STOCK SPLIT
On March 25, 1998, the shareholders of the Company approved a 4 to 1 forward
stock split of the outstanding shares of common stock of the Company for
shareholders of record on April 3, 1998. The Company's outstanding shares were
increased to 1,760,708. This transaction also increased common stock by $3,302
and decreased surplus by the same amount. All references to the number of common
shares and all per share data in these consolidated financial statements have
been restated to reflect the stock split.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
(continued)
F-45
<PAGE> 196
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (concluded)
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commitments to extend credit $9,599 $5,942
Credit card lines of credit 2,438 2,326
Standby letters of credit 886 580
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank's experience has been that approximately 80% to 85% of loan commitments are
drawn upon by customers. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the party. Collateral held varies, but may include accounts receivable,
inventory, property and equipment, residential real estate, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above, and is required in instances where the Bank deems necessary.
The Bank has agreements with commercial banks for lines of credit totaling
$11,000, of which $1,300 was drawn at December 31, 1999. There were no draws on
these credit lines at December 31, 1998 or 1997. The Bank also has a credit line
with the Federal Home Loan Bank totaling 20% of assets, of which approximately
$12,157 and $2,289 had been drawn at December 31, 1999 and 1998, respectively,
(see Note 8).
The Company has entered into an employment contract with its former president,
providing compensation subsequent to retirement. The accrued liability for these
benefits was $555 and $559 at December 31, 1999 and 1998, respectively. The
Company also has a settlement agreement with its former President. An additional
liability of $115 was provided as a result of this agreement, of which $15 was
paid in 1999, and $100 was paid in 1998.
Because of the nature of its activities, the Company is subject to various
pending and threatened legal actions which arise in the ordinary course of
business. In the opinion of management, liabilities arising from these claims,
if any, will not have a material effect on the financial position of the
Company.
F-46
<PAGE> 197
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 13 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located in the State
of Oregon. Investments in state and municipal securities involve governmental
entities primarily within the state. Loans are generally limited, by federal and
state banking regulations, to 15% of the Company's shareholders' equity,
excluding accumulated other comprehensive income (loss).
NOTE 14 - STOCK OPTIONS
During 1996, the Company approved an incentive stock option plan for key
employees and a nonqualified stock option plan for directors of the Company. The
Company applies APB Opinion No. 25 and related interpretations in accounting for
this plan. Had compensation cost for the Company's stock option plan been
determined based upon the fair value at the grant date for awards granted in
1997 under this plan, consistent with the method of FASB 123, the Company's net
income and earnings per share would have been reduced to these pro forma amounts
at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income:
As reported $487 $1,054 $1,004
Pro forma 440 944 592
Earnings per share:
Basic:
As reported $.29 $.65 $.61
Pro forma .26 .58 .36
Diluted:
As reported .28 .61 .60
Pro forma .26 .55 .35
</TABLE>
Under the plans, the Company may grant options for up to 368,000 shares of its
common stock, of which 168,000 shares are reserved for issuance to the Company's
directors and 200,000 shares are reserved for issuance to key employees. The
exercise price of each option equals the fair market value of the Company's
stock on the date of grant. At the date of grant, 16.67% of each option is
exercisable; the remaining portion of each option is exercisable at the rate of
16.67% after each succeeding 12 months of continuous service to the Company.
Options granted to key employees subsequent to July 1, 1999 vest as follows: at
the date of grant 10% of each option is exercisable; the remaining portion of
each option is exercisable at a rate of 10% after each succeeding 12 months of
continuing service to the Company. In the case of options granted to directors,
directors are credited for prior service so that, for each twelve months of
service to the Company prior to the effective date of the option grant, the
vesting schedule is accelerated by 16.67%. During 1998, the vesting schedule was
accelerated by 50% in exchange for key employees waiving their right to cash
distributions for stock options granted in 1997. Stock options exercisable at
December 31, 1999 were 136,399, remaining options vest: 18,400 in 2000 and
18,399 in 2001.
(continued)
F-47
<PAGE> 198
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 14 - STOCK OPTIONS (concluded)
The fair value of each option granted is estimated on the date of grant, based
on the Black-Scholes option-pricing model and using the following
weighted-average assumptions: dividend yield of 1.47%; risk-free interest rate
of 5.76% for options granted in 1999 and 6.56% in 1997; and expected lives of
five and ten years. The weighted average fair value of options granted during
1999 was $1.84. The weighted average fair value of options granted during 1997
was $1.20 for employee options and $2.12 for director options. Management
believes that the assumptions used in the option-pricing model are highly
subjective and represent only one estimate of possible value, as there is no
active market for options granted. No stock options were granted in 1998.
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998 and 1997, and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 204,000 $6.25 260,000 $6.25 - - $ - -
Granted 80,000 7.78 - - - - 280,000 6.25
Exercised (46,000) 6.25 - - - - - - - -
Forfeited (6,000) 6.25 (56,000) 6.25 (20,000) 6.25
OUTSTANDING AT END OF YEAR 232,000 6.78 204,000 6.25 260,000 6.25
Exercisable 136,399 173,000 158,672
</TABLE>
The following summarizes information about stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$6.25 - $8.25 219,000 8 134,233 $6.60
$8.75 - $10.50 13,000 10 2,166 9.83
232,000 136,399 6.78
</TABLE>
F-48
<PAGE> 199
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 15 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines of the regulatory framework for prompt corrective action, the Company
must meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier 1 capital (as defined in the regulations) to total average
assets (as defined), and minimum ratios of Tier 1 and total capital (as defined)
to risk-weighted assets (as defined). Management believes, as of December 31,
1999, that the Company and the Bank meet all capital requirements to which they
are subject.
As of December 31, 1999, the most recent notification from the Bank's regulator
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
Actual capital amounts and ratios are also presented in the table:
<TABLE>
<CAPTION>
BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Tier 1 capital (to average assets):
Consolidated $15,390 12.16% $5,063 4.00% N/A N/A
Douglas National Bank 12,810 10.49 4,883 4.00 $6,103 5.00%
Tier 1 capital (to risk-weighted assets):
Consolidated 15,390 18.35 3,355 4.00 N/A N/A
Douglas National Bank 12,810 15.27 3,355 4.00 4,194 5.00
Total capital (to risk-weighted assets):
Consolidated 16,069 19.16 6,711 8.00 N/A N/A
Douglas National Bank 13,489 16.08 6,711 8.00 8,389 10.00
</TABLE>
(continued)
F-49
<PAGE> 200
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 15 - REGULATORY MATTERS (concluded)
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Tier 1 capital (to average assets):
Consolidated $14,775 13.04% $4,530 4.00% N/A N/A
Douglas National Bank 11,170 9.93 4,497 4.00 $5,621 5.00%
Tier 1 capital (to risk-weighted assets):
Consolidated 14,775 22.70 2,604 4.00 N/A N/A
Douglas National Bank 11,170 17.16 2,604 4.00 3,255 5.00
Total capital (to risk-weighted assets):
Consolidated 15,329 23.55 5,208 8.00 N/A N/A
Douglas National Bank 13,294 20.43 5,208 8.00 6,510 10.00
</TABLE>
RESTRICTIONS ON RETAINED EARNINGS
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years.
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks and
interest bearing deposits
with banks $ 5,454 $ 5,454 $12,424 $12,424
Securities available for sale 61,241 61,241 57,166 57,166
Loans receivable, net 61,791 61,352 43,077 43,814
</TABLE>
(continued)
F-50
<PAGE> 201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (concluded)
The estimated fair values of the Company's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
FINANCIAL LIABILITIES
Deposits $89,761 $89,850 $87,556 $86,258
Federal funds and repurchase
agreements 18,600 18,600 11,811 11,811
Notes payable:
Short-term 10,000 10,000 - - - -
Long-term 2,157 2,109 2,485 2,551
ESOP 604 603 890 897
</TABLE>
NOTE 17 - EARNINGS PER SHARE DISCLOSURES
Following is information regarding the calculation of basic and diluted earnings
per share for the years indicated.
<TABLE>
<CAPTION>
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999 Basic earnings per share:
NET INCOME $487 1,680,151 $.29
Effect of dilutive securities:
Options - - 48,663 (.01)
Diluted earnings per share:
NET INCOME $487 1,728,814 $.28
YEAR ENDED DECEMBER 31, 1998 Basic earnings per share:
NET INCOME $1,054 1,629,129 $.65
Effect of dilutive securities:
Options - - 87,696 (.04)
Diluted earnings per share:
NET INCOME $1,054 1,716,825 $.61
YEAR ENDED DECEMBER 31, 1997 Basic earnings per share:
NET INCOME $1,004 1,642,322 $.61
Effect of dilutive securities:
Options - - 44,436 (.01)
Diluted earnings per share:
NET INCOME $1,004 1,686,758 $.60
</TABLE>
F-51
<PAGE> 202
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 18 - COMPREHENSIVE INCOME
Net unrealized gains (losses) for 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
1999
<S> <C> <C> <C>
Unrealized holding losses arising during the year, net ($2,806) $1,078 ($1,728)
Less reclassification adjustments for gains realized
in net income, net (7) 3 (4)
NET UNREALIZED LOSSES ($2,799) $1,075 ($1,724)
1998
Unrealized holding gains arising during the year, net $ 94 ($ 36) $ 58
Less reclassification adjustments for gains realized
in net income, net (264) 100 (164)
NET UNREALIZED LOSSES ($170) $ 64 ($106)
1997
Unrealized holding gains arising during the year $825 ($313) $512
Less reclassification adjustments for losses realized
in net income (3) 1 (2)
NET UNREALIZED GAINS $822 ($312) $510
</TABLE>
NOTE 19 - RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements of the Company have been restated to incorporate the
cash out feature of the Company's stock option plan and adjust the accrual for
consulting services. In 1997, the expense related to the cash out feature
resulted in an increase in expense of $357, and adjusting the accrual for
consulting expenses resulted in a decrease in expense of $115. An accrued
liability for $242 was recorded. Income tax expense was decreased by $93.
The option plan was amended during 1998 to remove the cash out feature. As a
result of this, 1998 expense was increased by $13, income tax expense decreased
by $5, and surplus increased by $157.
Net income in 1997 was reduced by $149 ($.09 per share) and net income in 1998
was decreased by $8 (no impact on per share). Shareholders' equity at December
31, 1997 was decreased by $149. Shareholders' equity previously reported for
December 31, 1998 was not impacted.
F-52
<PAGE> 203
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 20 - MERGER TRANSACTION
On October 7, 1999 the Company entered into an Agreement and Plan of Merger
(Merger Agreement) with Bank of Southern Oregon. Under the terms of the Merger
Agreement, shareholders of the Company will receive 1.971 shares of Bank of
Southern Oregon stock for each share of the Company's stock they own. It is
anticipated that the merger will be accounted for as a pooling of interests. The
merger is subject to approval by the shareholders of both companies and by
federal and state regulatory agencies. The merger is expected to close in the
second quarter of 2000.
NOTE 21 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY
CONDENSED BALANCE SHEETS - DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash $ 253 $ 340
Investment in subsidiaries 11,602 13,147
Premises and equipment 1,401 1,199
Other assets 871 846
TOTAL ASSETS $14,127 $15,532
LIABILITIES AND SHAREHOLDERS' EQUITY
ESOP notes payable $ 604 $ 890
Notes payable to Bank - - 248
Other liabilities 56 103
Shareholders' equity 13,467 14,291
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,127 $15,532
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31
OPERATING INCOME $196 $ 215
DIVIDENDS FROM BANK 416 1,344
OPERATING EXPENSE 327 714
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 285 845
INCOME TAXES (BENEFIT) (43) (131)
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 328 976
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 159 77
NET INCOME $487 $1,053
</TABLE>
(continued)
F-53
<PAGE> 204
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
United Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 21 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY (concluded)
CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $487 $1,053
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 57 14
ESOP shares earned 364 444
Equity in undistributed income of subsidiaries (159) (77)
Change in stock option plan - - 157
Deferred income tax (benefit) 6 (93)
Other, net 73 (121)
NET CASH PROVIDED BY OPERATING ACTIVITIES 828 1,377
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment (411) (637)
Proceeds from sales of premises and equipment - - 280
NET CASH USED IN INVESTING ACTIVITIES (411) (357)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payables to bank (248) (288)
Repayment of ESOP notes payable (286) (254)
Proceeds from the issuance of common stock 288 - -
Dividends reinvested 41 43
Cash dividends paid (299) (264)
NET CASH USED IN FINANCING ACTIVITIES (504) (763)
NET INCREASE (DECREASE) IN CASH (87) 257
CASH
Beginning of year 340 83
END OF YEAR $253 $ 340
</TABLE>
F-54
<PAGE> 205
SUPPLEMENTARY
INFORMATION
<PAGE> 206
THREE-YEAR SUMMARY OF OPERATIONS
- ------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
United Bancorp and Subsidiaries
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income $8,696 $8,294 $8,389
Interest expense (3,249) (3,051) (3,268)
NET INTEREST INCOME 5,447 5,243 5,121
Provision for credit losses (195) (50) (140)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 5,252 5,193 4,981
Non-interest income 1,588 1,631 1,113
Non-interest expense (6,414) (5,304) (4,714)
INCOME BEFORE INCOME TAXES 426 1,520 1,380
INCOME TAXES (BENEFIT) (61) 466 376
NET INCOME $ 487 $1,054 $1,004
Per share (adjusted for stock split):
Net income - basic $ .29 $ .65 $ .61
Shareholders' equity 8.02 8.77 8.08
Dividends .17 .15 .125
Average number of shares outstanding 1,680,151 1,629,129 1,642,322
Dividends declared $299 $264 $220
Average assets $123,573 $113,258 $112,033
</TABLE>
F-55
<PAGE> 207
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE
THIS AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE dated as of
October 7, 1999 (this "Agreement") is made by and among Bank of Southern Oregon,
an Oregon-chartered bank, PremierWest Bancorp, a wholly owned subsidiary of Bank
of Southern Oregon in formation under Oregon law, United Bancorp, an Oregon
corporation, and Douglas National Bank, a national banking association and
wholly owned subsidiary of United Bancorp.
WHEREAS, the respective Boards of Directors of Bank of Southern Oregon,
United Bancorp and Douglas National Bank have each determined that it is in the
best interests of their respective shareholders for United Bancorp to merge with
and into PremierWest Bancorp and for Douglas National Bank to merge with and
into Bank of Southern Oregon upon the terms and subject to the conditions set
forth herein;
WHEREAS, the respective Boards of Directors of Bank of Southern Oregon,
United Bancorp and Douglas National Bank have each approved the mergers of
United Bancorp with and into PremierWest Bancorp and Douglas National Bank with
and into Bank of Southern Oregon upon the terms and subject to the conditions
set forth herein;
WHEREAS, the Board of Directors of Bank of Southern Oregon has
determined that it is in the best interests of Bank of Southern Oregon and its
shareholders for Bank of Southern Oregon to become a wholly owned subsidiary of
the corporation resulting from the merger of PremierWest Bancorp and United
Bancorp, and for shareholders of Bank of Southern Oregon to exchange their
shares for shares of common stock of the corporation resulting from such merger;
WHEREAS, as a result of completion of the transactions contemplated
hereby, each share of Bank of Southern Oregon common stock will be exchanged for
one share of common stock of the corporation resulting from the merger of United
Bancorp with and into PremierWest Bancorp; the shares of PremierWest Bancorp
common stock held by Bank of Southern Oregon will be cancelled; Bank of Southern
Oregon will then be a wholly owned subsidiary of the corporation resulting from
the merger of United Bancorp with and into PremierWest Bancorp; and shareholders
of United Bancorp will be shareholders of the corporation resulting from the
merger of United Bancorp with and into PremierWest Bancorp;
WHEREAS, the parties to this Agreement intend that the mergers and
share exchange qualify as "reorganizations" within the meaning of ss.368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that the mergers
and share exchange qualify for "pooling of interests" accounting treatment; and
WHEREAS, on or before the date hereof, the Board of Directors of each
of Bank of Southern Oregon, United Bancorp and Douglas National Bank has
approved, adopted and recommended this Agreement and the transactions
contemplated hereby, upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto agree as follows:
<PAGE> 208
ARTICLE 1
THE MERGER AND SHARE EXCHANGE
1.1. MERGER AND SHARE EXCHANGE
1.1.1. MERGER AND SHARE EXCHANGE. Upon the terms and
conditions set forth in this Agreement, at the Effective Time (as hereinafter
defined), (a) PremierWest Bancorp shall acquire all of the issued and
outstanding shares of Bank of Southern Oregon common stock, without par value,
and the holders of shares of Bank of Southern Oregon common stock issued and
outstanding immediately before the Effective Time shall, without any further
action on their part or on the part of PremierWest Bancorp or any other party,
automatically and by operation of law cease to own such shares and shall instead
be and become owners of one share of common stock of the surviving corporation
in the merger of United Bancorp with and into PremierWest Bancorp for each share
of Bank of Southern Oregon common stock held by them immediately before the
Effective Time (the "Share Exchange"), (b) United Bancorp shall be merged with
and into PremierWest Bancorp (the "Merger") and (c) Douglas National Bank shall
be merged with and into Bank of Southern Oregon (the "Subsidiary Merger"), all
in accordance with the applicable provisions of the Oregon Revised Statutes (the
"ORS"), including ss.60.481, ss.60.484 and ss.711.125. The Merger and the
Subsidiary Merger shall have the effects specified in the ORS. PremierWest
Bancorp shall be the surviving corporation in the Merger, and PremierWest
Bancorp will continue after the Merger to be incorporated under the laws of the
State of Oregon (the "Resulting Corporation"). The name of the surviving
corporation in the Merger shall be "PremierWest Bancorp." Bank of Southern
Oregon shall be the surviving corporation in the Subsidiary Merger, and Bank of
Southern Oregon will continue after the Subsidiary Merger to be incorporated
under the laws of the State of Oregon. The name of the surviving corporation in
the Subsidiary Merger shall be "PremierWest Bank."
This Agreement is intended to constitute both a plan of merger with
respect to the Merger and the Subsidiary Merger and a plan of share exchange
with respect to the Share Exchange.
1.1.2. EFFECTIVE TIME. As soon as practicable following the
Closing (as hereinafter defined), PremierWest Bancorp, Bank of Southern Oregon,
United Bancorp and Douglas National Bank (the "Constituent Corporations") shall
cause articles of merger and articles of share exchange complying with the
requirements of ss.60.494 of the ORS to be filed with the Secretary of State of
Oregon, and shall cause the plan of merger represented by this Agreement and
complying with the requirements of Chapter 711 of the ORS, and the plan of share
exchange represented by this Agreement and complying with the requirements of
Chapter 711 of the ORS, to be filed with the Director of the Department of
Consumer and Business Services for the State of Oregon. The Merger and the Share
Exchange will become effective at the later of (i) the time and date the
articles of merger are filed with the Oregon Secretary of State or (ii) the date
set forth in the Certificate of Merger issued by the Director of the Department
of Consumer and Business Services upon approval of the plan of merger and plan
of share exchange represented by this Agreement (the "Effective Time").
1.1.3. CONSUMMATION OF THE MERGERS AND SHARE EXCHANGE.
Provided that this Agreement is not earlier terminated pursuant to Section 8.1
hereof, the closing of the Merger, the Subsidiary Merger and the Share Exchange
(the "Closing") will occur (i) at 10:00 a.m. (local time) at the principal
executive offices of Bank of Southern Oregon as promptly as practicable after
the date on which all of the conditions set forth in Article 6 of this Agreement
are satisfied or duly waived, but not before at least fifteen days have elapsed
since all required Consents (as hereinafter defined) that are necessary for the
consummation of Merger, the Subsidiary Merger and the Share Exchange shall have
been obtained, or (ii) at such other time and place and on such other date as
PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank may agree.
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<PAGE> 209
1.1.4. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of PremierWest Bancorp in effect immediately before the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Resulting Corporation after the Effective Time, until duly amended in accordance
with their respective terms and the ORS. The Articles of Incorporation and
Bylaws of Bank of Southern Oregon in effect immediately before the Effective
Time shall be the Articles of Incorporation and Bylaws of Bank of Southern
Oregon as the resulting corporation in the Subsidiary Merger after the Effective
Time, until duly amended in accordance with their respective terms and the ORS,
except that Article I of the Articles of Incorporation of Bank of Southern
Oregon shall be amended to change its name to "PremierWest Bank."
1.1.5. DIRECTORS AND OFFICERS. The initial Board of Directors
of the Resulting Corporation at and after the Effective Time shall consist of
eight persons, three of whom shall be selected by United Bancorp (and these same
three persons shall also serve as three of the five directors to be selected by
United Bancorp for the Board of Directors of the surviving corporation in the
Subsidiary Merger), the remainder selected by Bank of Southern Oregon. Such
persons shall serve as directors of the Resulting Corporation after the
Effective Time and until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the terms of the Resulting Corporation's Articles of Incorporation and
Bylaws and the ORS. The initial Board of Directors of the surviving corporation
in the Subsidiary Merger at and after the Effective Time shall consist of 14
persons, five of whom shall be selected by United Bancorp, the remainder
selected by Bank of Southern Oregon. Such persons shall serve as directors of
the surviving corporation in the Subsidiary Merger after the Effective Time and
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the surviving corporation's Articles of Incorporation and Bylaws and the ORS.
The President and Chief Executive Officer of Bank of Southern
Oregon and the Executive Vice President, Chief Operating Officer and Secretary
of Bank of Southern Oregon shall serve in the same capacities as officers of the
Resulting Corporation and the surviving corporation in the Subsidiary Merger
after the Effective Time and until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the terms of the Resulting Corporation's Articles of
Incorporation and Bylaws, or the Articles of Incorporation and Bylaws of the
surviving corporation in the Subsidiary Merger, as the case may be, and the ORS.
The Executive Vice President of United Bancorp shall serve as Executive Vice
President and Chief Administrative Officer of the Resulting Corporation and the
surviving corporation in the Subsidiary Merger after the Effective Time, and the
Chief Financial Officer of United Bancorp shall serve as Vice President and
Financial Services Director of the Resulting Corporation and the surviving
corporation in the Subsidiary Merger after the Effective Time, each until his or
her successor shall have been duly elected or appointed and qualified or until
his or her earlier death, resignation or removal in accordance with the terms of
the Resulting Corporation's Articles of Incorporation and Bylaws, or the
Articles of Incorporation and Bylaws of the surviving corporation in the
Subsidiary Merger, as the case may be, and the ORS.
1.2. TAX AND ACCOUNTING TREATMENT. The parties intend that the Merger,
the Subsidiary Merger and the Share Exchange qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. This Agreement is intended to
be a "plan of reorganization" within the meaning of the regulations promulgated
under the Code and for purposes of Section 354 and 361 of the Code. The Merger,
the Subsidiary Merger and the Share Exchange are intended to qualify for
"pooling of interests" accounting treatment.
1.3. CHANGES TO FORM OF MERGER. Whether before or after the Effective
Time, each of the parties hereto, meaning PremierWest Bancorp and Bank of
Southern Oregon on one hand, and United Bancorp and Douglas National Bank on the
other, agrees to cooperate and take such actions as the other party, in its good
faith judgment for commercial, regulatory, tax, accounting or other reasons,
reasonably requests to merge or otherwise consolidate legal entities (effective
at or after the Effective Time); provided, however, that no party shall be
obliged under this provision to change this transaction or take any action
requested by the other party, which is not expressly provided for in this
Agreement, if it would (A) materially alter or change the amount of
consideration for the Merger or provide that such consideration shall take any
form except stock (and cash in lieu
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<PAGE> 210
of fractional shares), (B) adversely affect the tax treatment of the Merger, or
(C) materially impede or delay receipt of any approvals referred to herein or
the consummation of the transactions contemplated hereby.
1.4. FURTHER ACTIONS. From time to time as and when requested by the
Resulting Corporation, or by its successors or assigns, the officers and
directors of United Bancorp, Douglas National Bank and Bank of Southern Oregon
in office immediately before the Effective Time shall execute and deliver such
instruments and shall take or cause to be taken such further or other action as
shall be necessary in order to vest or perfect in the Resulting Corporation or
to confirm of record or otherwise, title to, and possession of, all the assets,
property, interests, rights, privileges, immunities, powers, franchises and
authority of United Bancorp, Douglas National Bank and Bank of Southern Oregon
and otherwise to carry out the purposes of this Agreement.
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES
2.1. CONVERSION AND EXCHANGE OF SHARES. At the Effective Time, by
virtue of the Merger, the Subsidiary Merger and the Share Exchange and without
any action on the part of any party or any shareholder, the following shall
occur:
2.1.1. Subject to the provisions of this Agreement, without
any further action on PremierWest Bancorp's part or on the part of holders of
Bank of Southern Oregon common stock, at the Effective Time PremierWest Bancorp
shall automatically and by operation of law acquire and become the owner for all
purposes of all of the shares of Bank of Southern Oregon common stock, without
par value, issued and outstanding immediately before the Effective Time, and the
holders of shares of Bank of Southern Oregon common stock issued and outstanding
immediately before the Effective Time shall cease to own such shares and shall
instead be and become owners of one share of Resulting Corporation common stock,
without par value, for each share of Bank of Southern Oregon common stock held
by them immediately before the Effective Time. At the Effective Time, each share
of PremierWest Bancorp common stock issued and outstanding or held in treasury
immediately before the Effective Time shall be canceled and extinguished.
2.1.2. Subject to the provisions of this Agreement, at the
Effective Time each share of United Bancorp common stock, par value $2.50 per
share, that is issued and outstanding immediately before the Effective Time
(excluding treasury shares) shall, by virtue of the Merger and without further
action, be converted into 1.971 shares of common stock of the Resulting
Corporation (the "Exchange Ratio"), or cash in lieu thereof for fractional
shares, if any, as described in Section 2.2 below, subject to adjustment as
provided in Section 2.5 below. At the Effective Time, all shares of United
Bancorp common stock held as treasury shares and any shares of United Bancorp
common stock owned by PremierWest Bancorp, Bank of Southern Oregon or their
subsidiaries (other than in a fiduciary, custodial or similar capacity or owned
as a result of a debt previously contracted) shall be canceled and terminated
and no shares of the Resulting Corporation common stock or other consideration
will be issued in exchange therefor. The Resulting Corporation common stock
issuable upon consummation of the Merger to former shareholders of United
Bancorp is hereinafter sometimes referred to as the "Merger Consideration."
2.1.3 Subject to the provisions of this Agreement, at the
Effective Time each share common stock, par value $2.50 per share, each share of
Series A preferred stock, par value $100 per share, and each share of Series B
preferred stock, par value $100 per share, of Douglas National Bank issued and
outstanding or held in treasury shall be canceled and extinguished.
2.1.4. At the Effective Time, all of the shares of United
Bancorp common stock, whether issued or unissued (including treasury shares),
will be canceled and extinguished and the holders of certificates for shares
thereof shall cease to have any rights as shareholders of United Bancorp, other
than the right to receive any dividend or other distribution with respect to
such United Bancorp common stock with a record date occurring
A-4
<PAGE> 211
prior to the Effective Time and the right to receive the Merger Consideration.
After the Effective Time, there shall be no transfers on the stock transfer
books of United Bancorp of shares of United Bancorp common stock.
2.2. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of the Resulting Corporation common stock and no certificates
or scrip therefor, or other evidence of ownership thereof, will be issued.
Instead, the Resulting Corporation will pay to each holder of United Bancorp
common stock who would otherwise be entitled to a fractional share of the
Resulting Corporation common stock an amount in cash (without interest)
determined by multiplying such fraction by the average of the mean between the
closing bid and asked prices of Bank of Southern Oregon common stock, as
reported in the OTC Bulletin Board (as reported in The Wall Street Journal or,
if not reported therein, in another authoritative source), for the ten trading
days immediately preceding the Effective Time on which trades occurred or for
which such bid and asked information is reported.
2.3. EXCHANGE PROCEDURES.
2.3.1. At or promptly after the Effective Time, the Resulting
Corporation shall deposit or cause to be deposited with the Exchange Agent for
the benefit of the holders of certificates for United Bancorp common stock, for
exchange in accordance with this Article 2, certificates representing the shares
of the Resulting Corporation common stock ("New Certificates") in exchange for
outstanding shares of United Bancorp common stock in connection with the Merger,
and certificates representing the shares of the Resulting Corporation common
stock issuable in exchange for shares of Bank of Southern Oregon common stock in
connection with the Share Exchange.
2.3.2. As promptly as practicable after the Effective Time,
the Exchange Agent shall send or cause to be sent to each holder of record of
United Bancorp common stock (other than treasury shares or Dissenting Shares)
transmittal materials for use in exchanging such shareholders' United Bancorp
common stock certificates for the consideration set forth in this Article 2. The
Resulting Corporation shall cause the New Certificates into which a
shareholder's United Bancorp common stock is converted at the Effective Time,
and checks for fractional share interests or dividends or distributions such
person shall be entitled to receive, to be delivered to such shareholder upon
delivery to the Exchange Agent of certificates representing such United Bancorp
common stock (or indemnity reasonably satisfactory to the Resulting Corporation
and the Exchange Agent, if any of such certificates are lost, stolen or
destroyed) owned by such holder. No interest will be paid on any such cash to be
paid pursuant to this Article 2 upon such delivery. The transmittal materials
will specify that delivery of certificates theretofore representing United
Bancorp common stock shall be effected, and risk of loss and title to the United
Bancorp common stock certificates will pass, if and only if proper delivery of
such certificates is made to the Exchange Agent.
2.3.3. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of United
Bancorp common stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
2.3.4. No dividends or other distributions with respect to the
Resulting Corporation common stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered certificates
representing shares of United Bancorp common stock converted in the Merger into
shares of the Resulting Corporation common stock until the holder thereof shall
surrender such certificates in accordance with this Article 2. After the
surrender in accordance with this Article 2, the record holder thereof will be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
the Resulting Corporation common stock represented by such certificate.
2.3.5. Any portion of the exchange fund that remains unclaimed
for twelve months after the Effective Time shall be paid to the Resulting
Corporation, PremierWest Bancorp. Any holders of United Bancorp common stock who
have not theretofore complied with this Article 2 shall thereafter look to
PremierWest Bancorp
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<PAGE> 212
only for payment of the Merger Consideration and unpaid dividends and
distributions (if any) on the common stock deliverable in respect of United
Bancorp common stock such shareholder holds as determined pursuant to this
Agreement, in each case without any interest thereon.
2.3.6. At the Effective Time, holders of shares of common
stock of Bank of Southern Oregon immediately before the Effective Time shall
automatically and without any further action on their part become holders of a
like number of shares of the Resulting Corporation common stock, and their
certificates formerly representing shares of Bank of Southern Oregon common
stock shall automatically represent an identical number of shares of the
Resulting Corporation common stock. After the Effective Time, as certificates
formerly representing shares of Bank of Southern Oregon common stock are
presented to the Exchange Agent or the Resulting Corporation for transfer, or
upon the request of any holder of certificates for the Resulting Corporation
common stock, new certificates representing shares of the Resulting Corporation
common stock shall be issued in exchange for certificates formerly representing
shares of Bank of Southern Oregon common stock.
2.4. DISSENTERS' RIGHTS.
2.41. To the extent provided by the ORS, holders of any shares
of United Bancorp common stock who shall have exercised and perfected
dissenters' rights at the time and in the manner required by ORS ss.60.561
through ss.60.587 ("Dissenting Shares") shall cease at the Effective Time to
have any of the rights of a shareholder in respect of such shares, such
Dissenting Shares shall not be converted into or be exchangeable for the right
to receive the Merger Consideration (unless and until such holders shall have
failed to perfect or shall have effectively withdrawn or lost their dissenters'
rights under the ORS), and such holders shall merely have the right to be paid
the fair value of such shares under the applicable provisions of the ORS, plus
accrued interest. Any former holder of United Bancorp common stock who after the
Effective Time (i) surrenders his certificates representing shares of United
Bancorp common stock for exchange pursuant to Section 2.3 hereof, or (ii)
validly withdraws his written demand for payment of the fair value of such
shares under the applicable provisions of the ORS, will thereupon be entitled to
receive the Merger Consideration (without interest) as of the Effective Time
pursuant to this Agreement. If any such holder shall have failed to perfect or
shall have effectively withdrawn or lost such dissenters' rights, such holder's
shares of United Bancorp common stock shall thereupon be converted into and
become exchangeable for the right to receive, as of the Effective Time, the
Merger Consideration, without any interest thereon, as provided in Section 2.3.
2.4.2 United Bancorp shall give PremierWest Bancorp and Bank
of Southern Oregon (i) prompt notice of any written demands for payment for any
United Bancorp common stock under the ORS, attempted withdrawals of such
demands, and any other instruments served pursuant to the ORS and received by
United Bancorp relating to dissenters' rights, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to the exercise of
dissenters' rights under the ORS. United Bancorp agrees to consult with
PremierWest Bancorp and Bank of Southern Oregon before United Bancorp makes or
agrees to make any payment with respect to any demands for payment for United
Bancorp common stock under the ORS, offers to settle or settles any such demands
or approves any withdrawal of any such demands.
2.4.3 To the extent provided by the ORS, holders of any shares
of Bank of Southern Oregon common stock who shall have exercised and perfected
dissenters' rights at the time and in the manner required by ORS Chapter 711
shall cease at the Effective Time to have any of the rights of a shareholder in
respect of such shares, such holders shall merely have the right to be paid the
fair value of such shares, plus accrued interest, under the applicable
provisions of the ORS (unless and until such holders shall have failed to
perfect or shall have effectively withdrawn or lost their dissenters' rights
under the ORS) and the shares of Bank of Southern Oregon common stock with
respect to which such holder shall have exercised dissenters' rights shall no
longer be deemed to be issued and outstanding. If any such holder validly
withdraws his written demand for payment of the fair value of such shares or
fails to exercise and perfect his dissenters' rights at the time and in the
manner required under the ORS, such holder's shares of Bank of Southern Oregon
common stock shall thereupon be converted
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<PAGE> 213
into and become exchangeable for the right to receive one share of the Resulting
Corporation common stock for each share of Bank of Southern Oregon common stock
held immediately before the Effective Time.
2.4.4 Bank of Southern Oregon shall give United Bancorp and
Douglas National Bank (i) prompt notice of any written demands for payment for
any Bank of Southern Oregon common stock under the ORS, attempted withdrawals of
such demands, and any other instruments served pursuant to the ORS and received
by Bank of Southern Oregon relating to dissenters' rights, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
the exercise of dissenters' rights under the ORS. Bank of Southern Oregon agrees
to consult with United Bancorp and Douglas National Bank before Bank of Southern
Oregon makes or agrees to make any payment with respect to demands for payment
for Bank of Southern Oregon common stock under the ORS, offers to settle or
settles any such demands or approves any withdrawal of any such demands.
2.5. ANTIDILUTION PROVISIONS. If Bank of Southern Oregon changes (or
establishes a record date for changing) the number of shares of Bank of Southern
Oregon 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 Bank of Southern Oregon common stock and the
record date therefor shall be prior to the Effective Date, or exchanges Bank of
Southern Oregon common stock for a different number or kind of shares or
securities or is involved in any transaction resulting in any of the foregoing,
the Exchange Ratio for the Resulting Corporation common stock in the Merger
shall be proportionately adjusted, but each share of Bank of Southern Oregon
common stock shall continue to be exchangeable for one share of the Resulting
Corporation common stock in the Share Exchange.
2.6 TREATMENT OF OPTIONS. Within 14 days after the date hereof, United
Bancorp and Bank of Southern Oregon shall reach agreement concerning the
treatment of options and rights to purchase shares of either of United Bancorp
or Bank of Southern Oregon, whether issued or to be issued by United Bancorp or
Bank of Southern Oregon pursuant to stock option plans or otherwise. Each of
United Bancorp and Bank of Southern Oregon shall use its best efforts to reach
agreement concerning the treatment of such options and rights that is both fair
to the parties hereto and to holders of options and that does not adversely
affect the ability of the Resulting Corporation to treat the Merger, the
Subsidiary Merger and the Share Exchange as a pooling of interests for
accounting purposes or the characterization of the Merger, the Subsidiary Merger
and the Share Exchange as a tax-free reorganization under Section 368(a) of the
Code.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PREMIERWEST BANCORP AND BANK OF
SOUTHERN OREGON
PremierWest Bancorp and Bank of Southern Oregon hereby represent and
warrant to United Bancorp and Douglas National Bank that:
3.1. CORPORATE ORGANIZATION. Bank of Southern Oregon is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oregon. Bank of Southern Oregon is duly licensed as a bank under Oregon
law and has all authority necessary under Oregon law to conduct a banking
business. Bank of Southern Oregon is an insured depository institution under
Section 5 of the Federal Deposit Insurance Act, 12 U.S.C. Section 1815. Bank of
Southern Oregon is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which its ownership or lease of
property or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect (as hereinafter defined) on PremierWest
Bancorp, Bank of Southern Oregon or their subsidiaries, taken as a whole. Bank
of Southern Oregon has the requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as it is now
being conducted.
Bank of Southern Oregon has no subsidiaries other than
McAndrews Commercial Property, Inc. and PremierWest Bancorp (in formation).
McAndrews Commercial Property, Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oregon. McAndrews
Commercial
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<PAGE> 214
Property, Inc. is a wholly owned subsidiary of Bank of Southern Oregon.
McAndrews Commercial Property, Inc. is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which its
ownership or lease of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would not have a Material Adverse Effect (as
hereinafter defined) on McAndrews Commercial Property, Inc., PremierWest
Bancorp, Bank of Southern Oregon and their subsidiaries, taken as a whole.
McAndrews Commercial Property, Inc. has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted.
PremierWest Bancorp is in formation under Oregon law as a
wholly owned subsidiary of Bank of Southern Oregon. Upon completion of its
formation, PremierWest Bancorp will (i) be a corporation duly organized, validly
existing and in good standing under the laws of the State of Oregon, (ii) be
duly qualified to do business as a foreign corporation and in good standing in
each jurisdiction in which its ownership or lease of property or the nature of
the business conducted or to be conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect (as hereinafter defined) on PremierWest
Bancorp, Bank of Southern Oregon and subsidiaries, taken as a whole, and (iii)
have the requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as it is now being conducted
or as it is proposed to be conducted.
3.2. AUTHORITY.
3.2.1 Bank of Southern Oregon has the requisite corporate
power and authority to execute and deliver this Agreement and, except for any
required approval of Bank of Southern Oregon's shareholders and the approval of
the applicable Governmental Entities (as defined hereinafter), to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized and approved by the Board of Directors of Bank of Southern
Oregon, including provisions for the resolution of certain issues by management,
and no other corporate proceedings on the part of Bank of Southern Oregon are
necessary to authorize this Agreement or to consummate the transactions so
contemplated, except for approval by the shareholders of Bank of Southern Oregon
as provided in Article 6. This Agreement has been duly executed and delivered
by, and constitutes a valid and binding obligation of, Bank of Southern Oregon,
enforceable in accordance with its terms, except as enforceability hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought.
3.2.2 Upon completion of its formation, PremierWest Bancorp
will have the requisite corporate power and authority to execute and deliver
this Agreement and, except for the approval of the applicable Governmental
Entities, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will, upon formation of PremierWest Bancorp, be
duly authorized and approved by the Board of Directors of PremierWest Bancorp,
and no other corporate proceedings will be necessary to authorize this Agreement
or to consummate the transactions so contemplated, except for approval by Bank
of Southern Oregon as sole shareholder of PremierWest Bancorp. Upon formation of
PremierWest Bancorp, this Agreement will have been duly executed and delivered
by, and will constitute a valid and binding obligation of, PremierWest Bancorp,
enforceable in accordance with its terms, except as enforceability hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought.
3.3. CAPITALIZATION.
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3.3.1 The authorized capital stock of Bank of Southern Oregon
consists of 10,000,000 shares of common stock, without par value. As of June 30,
1999, 4,810,740 shares of Bank of Southern Oregon common stock were issued and
outstanding (with no shares held in treasury). The issued and outstanding shares
of Bank of Southern Oregon common stock are validly issued and fully paid and
were not issued in violation of any preemptive right of any shareholder of Bank
of Southern Oregon. Since June 30, 1999 and through the date of this Agreement,
Bank of Southern Oregon has not issued any additional shares of Bank of Southern
Oregon common stock, other than any shares of Bank of Southern Oregon common
stock issued pursuant to the exercise of stock options under the stock option
plan(s) of Bank of Southern Oregon outstanding on June 30, 1999. Except as
contemplated by this Agreement or as may be set forth in the PremierWest Bancorp
and Bank of Southern Oregon Disclosure Letter (which letter is dated the date of
this Agreement, from PremierWest Bancorp and Bank of Southern Oregon to United
Bancorp and Douglas National Bank, such letter being identified by United
Bancorp and Douglas National Bank executing a copy thereof), as of the date of
this Agreement there are no shares of capital stock of Bank of Southern Oregon
authorized, issued or outstanding and there are no outstanding subscriptions,
options, warrants, scrip, rights, calls, convertible securities or any other
similar agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock or other securities of Bank of Southern Oregon
obligating, or that may obligate, Bank of Southern Oregon to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Bank of Southern Oregon or obligating, or that may obligate, Bank of
Southern Oregon to grant, extend or enter into any subscription, option,
warrant, scrip, right, call, convertible security or other similar agreement,
arrangement or commitment. Except as may be set forth in the PremierWest Bancorp
and Bank of Southern Oregon Disclosure Letter, there are no voting trusts or
other similar agreements, arrangements or commitments to which Bank of Southern
Oregon is a party with respect to the voting of the capital stock of Bank of
Southern Oregon.
3.3.2 Upon completion of its formation, the authorized capital
stock of PremierWest Bancorp will consist of 10,000,000 shares of common stock,
without par value. Upon completion of formation of PremierWest Bancorp, 100
shares of PremierWest Bancorp common stock will be issued and outstanding (with
no shares held in treasury), all of which will be validly issued and fully paid,
none of which will be issued in violation of any preemptive right of any
shareholder, and all of which will be issued to and held by Bank of Southern
Oregon. At the Effective Time, all of the shares of PremierWest Bancorp common
stock issued and outstanding immediately before the Effective Time will be
cancelled and extinguished. All of the shares of PremierWest Bancorp common
stock issuable in exchange for the United Bancorp common stock or Bank of
Southern Oregon common stock at the Effective Time in accordance with this
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable, and will not be issued in violation of or subject to
preemptive rights. Upon completion of its formation, PremierWest Bancorp will
have reserved for issuance the number of shares of PremierWest Bancorp common
stock necessary to satisfy PremierWest Bancorp's obligations under Section 2.1.
3.3.3 As of the date of this Agreement, there were issued and
outstanding options to acquire a total of 358,680 shares of Bank of Southern
Oregon common stock, consisting of (i) options to acquire 99,600 shares of Bank
of Southern Oregon common stock exercisable at $0.81 per share, all of which are
exercisable, (ii) options to acquire 56,400 shares of Bank of Southern Oregon
common stock exercisable at $1.07 per share, of which 45,120 are exercisable,
(iii) options to acquire 22,920 shares of Bank of Southern Oregon common stock
exercisable at $1.75 per share, of which 10,152 are exercisable, (iv) options to
acquire 4,760 shares of Bank of Southern Oregon common stock exercisable at
$7.12 per share, of which 952 are exercisable, and (v) options to acquire
175,000 shares of Bank of Southern Oregon common stock exercisable at $8.25 per
share, none of which are exercisable. Bank of Southern Oregon has previously
provided to United Bancorp or provided with the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter a copy of the stock option plan(s) under which
the foregoing options were issued or granted, and a copy of each agreement
whereby options were issued or granted (including but not limited to those that
remain outstanding as of the date hereof). Neither PremierWest Bancorp nor Bank
of Southern Oregon has entered into or granted any options other than those
disclosed herein. Through the date hereof, Bank of Southern Oregon has not
breached, violated or otherwise failed to fulfill any of its obligations under
the terms of any option agreements, nor to the best of their knowledge has any
holder of any
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such options asserted that Bank of Southern Oregon has breached, violated or
otherwise failed to fulfill any of its obligations under such option agreements.
3.4. INFORMATION IN PROSPECTUS/JOINT PROXY STATEMENT. None of the
information concerning PremierWest Bancorp or Bank of Southern Oregon provided
by PremierWest Bancorp or Bank of Southern Oregon for inclusion in (i) the
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission for the purpose of registering the offer and sale of shares of
PremierWest Bancorp common stock to be issued in the Merger or the Share
Exchange (the "Registration Statement"), and (ii) the Prospectus/Joint Proxy
Statement (as hereinafter defined) to be mailed to Bank of Southern Oregon
shareholders in connection with the Merger, the Subsidiary Merger and the Share
Exchange will, in the case of the Prospectus/Joint Proxy Statement, at the time
of mailing of the Prospectus/Joint Proxy Statement to shareholders of Bank of
Southern Oregon and at the time of the meeting of Bank of Southern Oregon
shareholders at which the Merger and the Share Exchange will be considered and
voted upon, or, in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act of 1933 and the
rules and regulations promulgated thereunder. Insofar as information about
PremierWest Bancorp or Bank of Southern Oregon is concerned, the
Prospectus/Joint Proxy Statement will comply as to form in all material respects
with the applicable provisions of the Securities Act of 1933 and Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder.
3.5. CONSENTS AND APPROVALS; NO VIOLATION. Except as may be set forth
in the PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter,
neither the execution and delivery of this Agreement by PremierWest Bancorp or
Bank of Southern Oregon, nor consummation by PremierWest Bancorp or Bank of
Southern Oregon of the transactions contemplated hereby or compliance by
PremierWest Bancorp or Bank of Southern Oregon with any of the provisions hereof
will (a) conflict with or result in any breach of any provision of the Articles
of Incorporation or Bylaws of PremierWest Bancorp or Bank of Southern Oregon,
(b) violate, conflict with, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration of, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of PremierWest Bancorp or Bank of Southern Oregon under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
either of PremierWest Bancorp or Bank of Southern Oregon is a party or to which
either of them or any of their properties or assets may be subject, except for
such violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, which, individually or in the
aggregate, will not have a Material Adverse Effect on PremierWest Bancorp, Bank
of Southern Oregon and their subsidiaries, taken as a whole, (c) violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to PremierWest Bancorp or Bank of Southern Oregon or any of their
properties or assets, except for such violations which, individually or in the
aggregate, will not have a Material Adverse Effect on PremierWest Bancorp, Bank
of Southern Oregon and their subsidiaries, taken as a whole, or (d) require any
consent, approval, authorization or permit of or from, or filing with or
notification to, any court, governmental authority or other regulatory or
administrative agency or commission, domestic or foreign ("Governmental
Entity"), except (i) pursuant to the Securities Act of 1933 and the Securities
Exchange Act of 1934, (ii) filing articles of merger, articles of exchange, a
plan of merger or plan of share exchange pursuant to the ORS, (iii) filings
required under the securities or blue sky laws of the various states, (iv)
filings with, and approval by, the Board of Governors of the Federal Reserve
System (the "FRB"), (v) filings with, and approval by, the Federal Deposit
Insurance Corporation (the "FDIC"), (vi) filings with, and approval by, the
Office of the Comptroller of the Currency (the "OCC"), (vii) filings with, and
approval by, the Oregon Department of Consumer and Business Services, (viii)
filings and approvals pursuant to any applicable state takeover laws ("State
Takeover Approvals"), (ix) consents, approvals, authorizations, permits, filings
or notifications in connection with compliance with applicable provisions of
federal and state securities laws relating to the regulation of broker-dealers,
investment advisors, or stock transfer agents, or (x) consents, approvals,
authorizations, permits, filings or notifications which have either
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been obtained or made prior to the Closing or which, if not obtained or made,
will neither, individually or in the aggregate, have a Material Adverse Effect
on PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries, taken as
a whole, nor restrict PremierWest Bancorp's or Bank of Southern Oregon's legal
authority to execute and deliver this Agreement and consummate the transactions
contemplated hereby.
3.6. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1999 Bank of
Southern Oregon has timely filed all reports, registrations and statements,
together with any required amendments thereto, that it was required to file with
the FDIC under the Securities Exchange Act of 1934, including but not limited to
Forms 10- SB, 10-KSB, Forms 10-QSB, Forms 8-K and proxy statements
(collectively, the "Bank of Southern Oregon Reports"). As of their respective
dates (but taking into account any amendments filed prior to the date of this
Agreement), the Bank of Southern Oregon Reports complied or, insofar as Bank of
Southern Oregon Reports filed after the date of this Agreement are concerned,
will comply in all material respects with all the rules and regulations of the
FDIC and did not contain or, insofar as Bank of Southern Oregon Reports filed
after the date of this Agreement are concerned, 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 light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Bank of Southern Oregon included in the Registration Statement and
Prospectus/Joint Proxy Statement (the "Bank of Southern Oregon Financial
Statements") were prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and fairly present the consolidated financial position of
Bank of Southern Oregon at the dates thereof and the consolidated results of
operations and cash flows for the periods then ended, subject (in the case of
the unaudited interim financial statements) to normal year-end audit
adjustments, any other adjustments described therein and the absence of
footnotes.
Except as disclosed in the PremierWest Bancorp and Bank of Southern
Oregon Disclosure Letter, none of PremierWest Bancorp, Bank of Southern Oregon
or their respective subsidiaries has any debt, obligation, guarantee or
liability as of the date of the Bank of Southern Oregon Financial Statements for
the quarter ended June 30, 1999 (the "Bank of Southern Oregon Balance Sheet
Date"), whether absolute, accrued, contingent or otherwise in excess of $50,000
in the aggregate, which is not adequately reflected and reserved in the Bank of
Southern Oregon Financial Statements for the quarter ended June 30, 1999. Except
as disclosed in the PremierWest Bancorp and Bank of Southern Oregon Disclosure
Letter, all debts, liabilities, guarantees and obligations of PremierWest
Bancorp, Bank of Southern Oregon or their respective subsidiaries incurred since
the Bank of Southern Oregon Balance Sheet Date have been incurred in the
ordinary course of business and are usual and normal in amount both individually
and in the aggregate.
3.7. MATERIAL CONTRACTS AND INSURANCE. Except as may be set forth in
the PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter or
disclosed in the Bank of Southern Oregon Reports, as of the date of this
Agreement none of PremierWest Bancorp, Bank of Southern Oregon or their
subsidiaries is a party to or bound by (a) any material lease not made in the
ordinary course of business of PremierWest Bancorp, Bank of Southern Oregon or
their subsidiaries, (b) any agreement, arrangement, or commitment not made in
the ordinary course of business which materially restricts the conduct of any
line of business that is material to PremierWest Bancorp, Bank of Southern
Oregon or their subsidiaries, (c) any material agreement, indenture or other
instrument not specifically disclosed in the Bank of Southern Oregon Financial
Statements relating to the borrowing of money by PremierWest Bancorp, Bank of
Southern Oregon or their subsidiaries or the guarantee by PremierWest Bancorp,
Bank of Southern Oregon or their subsidiaries of any such obligation (other than
trade payables and instruments relating to transactions entered into in the
ordinary course of business), (d) any agreement, arrangement or commitment with
or to a labor union, or (e) any other contract or agreement or amendment thereto
that would be required to be filed as an exhibit to a Form 10-KSB filed by Bank
of Southern Oregon with the FDIC as of the date of this Agreement (the "Bank of
Southern Oregon Contracts"). Without in any way limiting the generality of the
foregoing, the Bank of Southern Oregon Contracts shall be deemed to include any
material agreement or agreements for data processing or similar services. None
of PremierWest Bancorp, Bank of Southern Oregon or their subsidiaries is in
default under any Bank of Southern Oregon
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Contracts, which default is reasonably likely to have, either individually or in
the aggregate with all other such defaults, a Material Adverse Effect on
PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries, taken as a
whole, 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.
Copies of all insurance policies maintained by PremierWest Bancorp or
Bank of Southern Oregon on their business or material properties and assets, as
well as a copy of any director and officer liability insurance policy(ies)
maintained by PremierWest Bancorp or Bank of Southern Oregon, are included as
attachments to or provided with the PremierWest Bancorp and Bank of Southern
Oregon Disclosure Letter.
3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth
in the PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter or
disclosed in Bank of Southern Oregon Reports filed by Bank of Southern Oregon
with the FDIC prior to the date of this Agreement, since January 1, 1999 to the
date of this Agreement, there has not been any change in the financial
condition, results of operations or business of PremierWest Bancorp, Bank of
Southern Oregon or any of their subsidiaries that either individually or in the
aggregate has had or is reasonably likely to have a Material Adverse Effect on
PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries, taken as a
whole. Since June 30, 1999, Bank of Southern Oregon has maintained an adequate
reserve for possible loan losses.
3.9. LITIGATION. Except as may be disclosed in the PremierWest Bancorp
and Bank of Southern Oregon Disclosure Letter or in Bank of Southern Oregon
Reports filed by Bank of Southern Oregon with the FDIC prior to the date of this
Agreement, there is no litigation, action, arbitration or proceeding pending,
or, to the best knowledge of PremierWest Bancorp and Bank of Southern Oregon,
threatened against or affecting PremierWest Bancorp, Bank of Southern Oregon or
any of their subsidiaries that, either individually or in the aggregate, is
having, or insofar as reasonably can be foreseen, will have, a Material Adverse
Effect on PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries,
taken as a whole, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator, outstanding against PremierWest
Bancorp, Bank of Southern Oregon or any of their subsidiaries having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.10. COMPLIANCE WITH LAWS AND ORDERS. Except as may be disclosed in
the PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter or in Bank
of Southern Oregon Reports filed by Bank of Southern Oregon with the FDIC prior
to the date of this Agreement, the business of PremierWest Bancorp, Bank of
Southern Oregon and their subsidiaries is not being conducted, and has not been
conducted since January 1, 1999, in violation of any law, ordinance, regulation,
judgment, order, decree, license or permit of any Governmental Entity
(including, without limitation, zoning ordinances, building codes, and
environmental, civil rights, and occupational health and safety laws and
regulations and, in the case of Bank of Southern Oregon, all statutes, rules and
regulations pertaining to the conduct of such business), except for possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries,
taken as a whole. Except as may be set forth in the PremierWest Bancorp and Bank
of Southern Oregon Disclosure Letter, no investigation or review by any
Governmental Entity with respect to PremierWest Bancorp, Bank of Southern Oregon
or any of their subsidiaries outside the ordinary course of business and not
generally applicable to entities engaged in the same business is pending or, to
the knowledge of PremierWest Bancorp and Bank of Southern Oregon, threatened,
and no Governmental Entity has indicated an intention to conduct the same in
each case other than those the outcome of which will not have a Material Adverse
Effect on PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries,
taken as a whole.
Except as may be disclosed in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, Bank of Southern Oregon has taken or caused
to be taken all actions required to be taken in order to ensure that all
mission-critical internal and external systems of Bank of Southern Oregon are
substantially Year 2000 compliant. Bank of Southern Oregon has not received a
rating of less than satisfactory as a result of any regulatory
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examination or assessment of Bank of Southern Oregon's Year 2000 compliance, and
any deficiencies noted in any report of regulatory examination or assessment of
Bank of Southern Oregon have been or are being addressed in the manner and
within the time frames required by such report.
3.11. AGREEMENTS WITH BANK REGULATORS. As of the date of this
Agreement, except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter or the Bank of Southern Oregon Reports filed
by Bank of Southern Oregon with the FDIC prior to the date of this Agreement,
none of PremierWest Bancorp, Bank of Southern Oregon or their subsidiaries is a
party to any written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
any Governmental Entity outside the ordinary course of business and not
generally applicable to entities engaged in the same business, including,
without limitation, cease-and-desist or other orders of any bank regulatory
authority, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit policies or its management,
nor have any of PremierWest Bancorp, Bank of Southern Oregon or their
subsidiaries been advised by any Governmental Entity that it is contemplating
issuing, requiring or requesting (or is considering the appropriateness of
issuing, requiring or requesting) any such order, directive, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar undertaking. Except as may be set forth in the PremierWest Bancorp
and Bank of Southern Oregon Disclosure Letter, there are no (i) material
violations or (ii) violations with respect to which refunds or restitutions may
be required that are material in amount to PremierWest Bancorp, Bank of Southern
Oregon and their subsidiaries, taken as a whole, cited in any compliance report
to Bank of Southern Oregon as a result of an examination by any bank regulatory
authority.
3.12. OWNERSHIP OF STOCK. Neither PremierWest Bancorp nor Bank of
Southern Oregon or, to the best of their knowledge, any of their subsidiaries,
affiliates or associates (i) beneficially owns, directly or indirectly, or (ii)
are parties to any agreement, arrangement or commitment for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of United
Bancorp common stock (other than any shares of United Bancorp common stock held
in a fiduciary, trust, custodial or agency capacity) which in the aggregate,
represent 1% or more of the outstanding shares of United Bancorp common stock.
3.13. FEES. Neither PremierWest Bancorp nor Bank of Southern Oregon has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement,
except fees paid or payable to Pacific Crest Securities Inc as financial
advisor.
3.14. CORPORATE ACTIONS. The Board of Directors of Bank of Southern
Oregon (at a meeting duly called and held) has by the requisite vote (i)
determined that the Merger and the other transactions contemplated hereby are
advisable and in the best interests of Bank of Southern Oregon and its
shareholders and (ii) authorized and approved this Agreement and the
transactions contemplated hereby, and (iii) directed that this Agreement and the
transactions contemplated hereby be submitted for consideration by the holders
of Bank of Southern Oregon common stock entitled to vote thereon at a meeting of
Bank of Southern Oregon's shareholders. The affirmative vote of the holders of
shares entitling them to exercise two thirds of the voting power of the
outstanding shares of Bank of Southern Oregon common stock is the only vote of
the holders of any class or series of Bank of Southern Oregon capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
Upon completion of formation of PremierWest Bancorp, the Board of Directors of
PremierWest Bancorp (at a meeting duly called and held or by unanimous written
consent) by the requisite vote will have (i) determined that the Merger, the
Subsidiary Merger and the Share Exchange is advisable and in the best interests
of PremierWest Bancorp and its shareholders and (ii) authorized and approved
this Agreement and the transactions contemplated hereby, and (iii) directed that
the Merger and the Share Exchange be submitted for consideration by the
holder(s) of PremierWest Bancorp common stock entitled to vote thereon at a
meeting or by unanimous written consent.
3.15. TAXES. Except as may be set forth in the PremierWest Bancorp and
Bank of Southern Oregon Disclosure Letter, each of PremierWest Bancorp, Bank of
Southern Oregon and their subsidiaries has prepared in good faith and duly and
timely filed or caused to be duly and timely filed all federal, state, local and
foreign
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income, franchise, sales, real and personal property and other tax returns and
reports required to be filed by it on or before the date of this Agreement,
except where the failure to file would not have a Material Adverse Effect on
PremierWest Bancorp, Bank of Southern Oregon and their subsidiaries, taken as a
whole. Except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, each of PremierWest Bancorp, Bank of Southern
Oregon and their subsidiaries has paid or has adequately reserved or has made
adequate accruals (in accordance with generally accepted accounting principles)
with respect to all taxes, interest and penalties shown to be owing on all such
returns and reports. The PremierWest Bancorp and Bank of Southern Oregon
Disclosure Letter sets forth, as of the date of this Agreement, the following
information with respect to PremierWest Bancorp, Bank of Southern Oregon and
their subsidiaries: (i) the most recent tax year through which the IRS has
completed its examination of such corporation, (ii) whether there is an
examination pending by the IRS with respect to such corporation and, if so, the
tax years involved, (iii) whether such corporation has executed or filed with
the IRS any agreement which is still in effect extending the period for
assessment and collection of any federal tax and, if so, the tax years covered
by such agreement and the expiration date of such extension, and (iv) whether
there are any existing material disputes as to state, local or foreign taxes.
Except as may be set forth in the PremierWest Bancorp and Bank of Southern
Oregon Disclosure Letter, there are no liens for federal, state, local or
foreign taxes upon the assets of PremierWest Bancorp, Bank of Southern Oregon or
their subsidiaries, except for statutory liens for taxes and assessments not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings. Except as may be set forth in the PremierWest Bancorp
and Bank of Southern Oregon Disclosure Letter, none of PremierWest Bancorp, Bank
of Southern Oregon or their subsidiaries is a party to any action or proceeding,
nor to the best of PremierWest Bancorp's and Bank of Southern Oregon's knowledge
is any such action or proceeding threatened, by any Governmental Entity for the
assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by PremierWest Bancorp, Bank of
Southern Oregon or their subsidiaries in respect of any material deficiencies
for any tax, assessment, or government charges.
After the date of this Agreement, PremierWest Bancorp and Bank of
Southern Oregon will promptly notify United Bancorp and Douglas National Bank of
(i) the commencement or threat of any such action or proceeding involving an
amount of taxes material to PremierWest Bancorp, Bank of Southern Oregon and
their subsidiaries, taken as a whole, and (ii) the receipt by PremierWest
Bancorp or Bank of Southern Oregon of any such deficiency notices or reports in
respect of any material deficiencies.
3.16. EMPLOYEE PLANS; EMPLOYEES. All employee bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase,
employee stock ownership, stock appreciation rights, savings, consulting,
severance, collective bargaining, group insurance, fringe benefit and other
employee benefit, incentive and welfare plans, policies, contracts and
arrangements and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers or employees of
PremierWest Bancorp, Bank of Southern Oregon or subsidiaries, regardless of
whether described in Section 3(3) of the Employee Retirement Income Security Act
("ERISA") ("Bank of Southern Oregon Employee Plans"), are identified in the
PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter or in the Bank
of Southern Oregon Reports. PremierWest Bancorp and Bank of Southern Oregon have
delivered to United Bancorp and Douglas National Bank with the PremierWest
Bancorp and Bank of Southern Oregon Disclosure Letter copies of all Bank of
Southern Oregon Employee Plans, in each case as in effect on the date of this
Agreement.
All Bank of Southern Oregon Employee Plans have been maintained,
operated and administered in substantial compliance with their terms, and
PremierWest Bancorp, Bank of Southern Oregon and subsidiaries and all of the
Bank of Southern Oregon Employee Plans currently comply and have at all relevant
times complied in all material respects with ERISA, the Internal Revenue Code of
1986 (the "Code"), and any other applicable laws. With respect to each Bank of
Southern Oregon Employee Plan that is a pension plan (as defined in Section 3(2)
of ERISA): (a) except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, each pension plan as amended (and any trust
relating thereto) intended to be a qualified plan under Section 401(a) of the
Code either has been determined by the IRS to be so qualified or is the subject
of a pending application for such determination that was timely filed, (b)
except as may be set forth in the PremierWest
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Bancorp and Bank of Southern Oregon Disclosure Letter, would be fully funded
(calculated using the interest rate and other actuarial assumptions mandated by
the Pension Benefit Guaranty Corporation ("PBGC")) if terminated at the
Effective Time, and there is no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, and no
waiver of the minimum funding standards of such sections has been requested from
the IRS, (c) no reportable event described in Section 4043 of ERISA has
occurred, (d) except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, no defined benefit plan has been terminated,
nor has the PBGC instituted proceedings to terminate a defined benefit plan or
to appoint a trustee or administrator of a defined benefit plan, and no
circumstances exist that constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute any such proceedings, and (e) no pension plan is
a "multi-employer plan" within the meaning of Section 3(37) of ERISA. With
respect to any qualified benefit plan purporting to be an employee stock
ownership plan (as defined in Section 4975(e)(7) of the Code) (a "Bank of
Southern Oregon ESOP Qualified Benefit Plan"), such Bank of Southern Oregon ESOP
Qualified Benefit Plan satisfies the requirements of Section 4975(e)(7) of the
Code and is in material compliance with the applicable qualification
requirements of Section 409 of the Code. Any capital stock of Bank of Southern
Oregon acquired by a Bank of Southern Oregon ESOP Qualified Benefit Plan meets
the definition of "employer securities" set forth in Sections 409(l) and 4975 of
the Code.
Except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, no Bank of Southern Oregon Employee Plan
provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (i) temporary
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2) of
ERISA, (iii) deferred compensation benefits accrued as liabilities on the books
of PremierWest Bancorp or Bank of Southern Oregon, or (iv) benefits the full
cost of which are borne by the current or former employee (or his or her
beneficiary)).
Except as may be set forth in the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter, all employees of PremierWest Bancorp, Bank of
Southern Oregon or their subsidiaries are "at will" and there are no employment,
consulting, severance or like agreements, written or oral, expressed or implied.
Copies of all written employment, consulting, severance or similar contracts
between any of PremierWest Bancorp, Bank of Southern Oregon and their
subsidiaries, on one hand, and any officer, employee or consultant of
PremierWest Bancorp, Bank of Southern Oregon or their subsidiaries, on the
other, are included as attachments to the PremierWest Bancorp and Bank of
Southern Oregon Disclosure Letter. The PremierWest Bancorp and Bank of Southern
Oregon Disclosure Letter contains a summary of the material terms of any and all
such contracts that are not in writing.
3.17. ENVIRONMENTAL MATTERS. The term "loan portfolio properties and
other properties owned" means those properties owned, operated or managed
(including those held in trust) by Bank of Southern Oregon, as the case may be.
For purposes of this Agreement, the following terms shall have the indicated
meanings:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any Governmental Entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, ground water,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term Environmental Law includes, without limitation; the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. Section 9601, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances
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Control Act, as amended, 125 U.S.C. Section 9601, et seq.; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section
11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et
seq.; all comparable state and local laws; and any common law
(including without limitation common law that may impose strict
liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any material containing any such
substance as a component. Hazardous Substances include, without
limitation, petroleum or any derivative or by-product thereof,
asbestos, radioactive material, and polychlorinated biphenyls.
Except as may be set forth in PremierWest Bancorp and Bank of Southern Oregon
Disclosure Letter, to the best of PremierWest Bancorp's and Bank of Southern
Oregon's knowledge: (i) none of PremierWest Bancorp, Bank of Southern Oregon or
their subsidiaries has been and neither is in violation of or liable under any
Environmental Law, except for any such violations or liabilities which would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on PremierWest Bancorp, Bank of Southern Oregon and their
subsidiaries, taken as a whole; and (ii) none of the loan portfolio properties
and other properties owned by PremierWest Bancorp, Bank of Southern Oregon or
subsidiaries has, since such properties have been owned, operated or managed by
any of PremierWest Bancorp, Bank of Southern Oregon or their subsidiaries, been
in violation of any Environmental Law, except for any such violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on PremierWest Bancorp, Bank of Southern Oregon and
their subsidiaries, taken as a whole. Except as may be set forth in PremierWest
Bancorp and Bank of Southern Oregon Disclosure Letter, there are no actions,
suits, demands, notices, claims, investigations or proceedings pending, or to
the best of PremierWest Bancorp's and Bank of Southern Oregon's knowledge
threatened, relating to the liability of the loan portfolio properties and other
properties owned by any of PremierWest Bancorp, Bank of Southern Oregon or
subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or violations
of Environmental Law.
3.18. CONDUCT OF BUSINESS. Except as may be disclosed in the
PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter, from and
after December 31, 1998 to the date of this Agreement: (a) Bank of Southern
Oregon and its subsidiary have carried on their respective businesses in the
ordinary and usual course consistent with their current practices, (b) Bank of
Southern Oregon has not issued or sold any of its capital stock or any corporate
debt securities which would be classified as long-term debt on the balance
sheets of Bank of Southern Oregon, (c) Bank of Southern Oregon has not granted
any option or issued, sold or granted any warrants to acquire any of its capital
stock, effected any stock split, or otherwise changed its authorized
capitalization, (d) Bank of Southern Oregon has not declared, set aside, or paid
any dividend or other distribution in respect of its capital stock, or, directly
or indirectly, redeemed or otherwise acquired any of its capital stock, except
regular quarterly cash dividends (based upon historic precedent), (e) Bank of
Southern Oregon has neither incurred nor prepaid any corporate debt securities
or instruments which are or would be classified as long-term debt on the balance
sheet of Bank of Southern Oregon, (f) neither Bank of Southern Oregon nor its
subsidiary has sold, assigned, transferred, or otherwise disposed of to a third
party (i) equity securities in or issued by Bank of Southern Oregon, (ii) branch
offices of Bank of Southern Oregon, (iii) assets constituting any other line of
business, or (iv) any of its other material properties or assets other than for
a fair consideration in the ordinary course of business, (g) neither Bank of
Southern Oregon nor its subsidiary has purchased or otherwise acquired from a
third party equity securities in or issued by such third party other than in the
ordinary course of business, branch offices of such third party, assets
constituting any other line of business, or any other material properties or
assets outside the ordinary course of its business, (h) neither Bank of Southern
Oregon nor its subsidiary has: increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except under
existing plans and policies, entered into any new, or amended or supplemented
any existing, or
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secured, collateralized, or funded any, employment, management, consulting,
deferred compensation, severance, or other similar contract, entered into,
terminated, or substantially modified any Bank of Southern Oregon Employee Plan
in respect of any of its present or former directors, officers, or other
employees, or agreed to do any of the foregoing, and (i) neither Bank of
Southern Oregon nor its subsidiary has entered into any material transaction,
contract, lease, agreement or commitment requiring the approval of their
respective Boards of Directors, or amended, modified or terminated any contract,
lease or other agreement to which it is a party in a manner requiring the
approval of their respective Boards of Directors.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UNITED BANCORP AND DOUGLAS NATIONAL BANK
United Bancorp and Douglas National Bank hereby represent and warrant
to PremierWest Bancorp and Bank of Southern Oregon that:
4.1. CORPORATE ORGANIZATION. United Bancorp is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oregon and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or lease of property
or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect on United Bancorp. United Bancorp is
registered as a bank holding company under the Bank Holding Company Act of 1956
with the FRB. United Bancorp has the requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its business as
it is now being conducted, as described in the Prospectus/Joint Proxy Statement
(as hereinafter defined). United Bancorp has delivered to PremierWest Bancorp
and Bank of Southern Oregon as attachments to the United Bancorp and Douglas
National Bank Disclosure Letter (as hereinafter defined) true and complete
copies of its Articles of Incorporation, as amended, and its Bylaws, each as
currently in effect.
4.2. AUTHORITY. Each of United Bancorp and Douglas National Bank has
the requisite corporate power and authority to execute and deliver this
Agreement and, except for any required approval of United Bancorp's shareholders
and the approval of the applicable Governmental Entities, 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 and approved by the Board of Directors of each of United Bancorp and
Douglas National Bank. No other corporate proceedings on the part of United
Bancorp or Douglas National Bank are necessary to authorize this Agreement or to
consummate the transactions so contemplated, except for approval by the
shareholders of United Bancorp as provided in Article 6 and approval by United
Bancorp as the sole shareholder of Douglas National Bank. This Agreement has
been duly executed and delivered by, and constitutes a valid and binding
obligation of, each of United Bancorp and Douglas National Bank, enforceable
against each of United Bancorp and Douglas National Bank in accordance with the
terms hereof, except as enforceability hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought, and except as enforceability hereof may be limited by laws
relating to the safety and soundness of insured depository institutions as set
forth in 12 U.S.C. Section 18(b) or to the appointment of a conservator or
receiver by the FDIC or OCC.
4.3. CAPITALIZATION. The authorized capital stock of United Bancorp
consists solely of (i) 5,000,000 shares of common stock, par value $2.50 per
share and (ii) 1,000,000 shares of preferred stock, without par value. As of the
date of this Agreement, (i) 1,799,334 shares of United Bancorp common stock are
issued and outstanding and (ii) no shares of United Bancorp preferred stock are
issued or outstanding. The issued and outstanding shares of United Bancorp
common stock are validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive right of any United Bancorp shareholder.
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Except as contemplated by this Agreement or in the United Bancorp and
Douglas National Bank Disclosure Letter (which letter is dated the date of this
Agreement, from United Bancorp and Douglas National Bank to PremierWest Bancorp
and Bank of Southern Oregon, such letter being identified by PremierWest Bancorp
and Bank of Southern Oregon executing a copy thereof), there are no shares of
capital stock of United Bancorp authorized, issued or outstanding and there are
no outstanding subscriptions, options, warrants, scrip, rights, calls,
convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock or
other securities of United Bancorp obligating, or which may obligate, United
Bancorp to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of United Bancorp or obligating, or which may
obligate, United Bancorp to grant, extend or enter into any subscription,
option, warrant, scrip, right, call, convertible security or other similar
agreement, arrangement or commitment. Except as may be set forth in the United
Bancorp and Douglas National Bank Disclosure Letter, there are no voting trusts
or other similar agreements, arrangements, or commitments to which United
Bancorp or Douglas National Bank is a party with respect to voting of the
capital stock of United Bancorp.
As of the date of this Agreement, there were issued and outstanding
options to acquire a total of 236,000 shares of United Bancorp common stock, all
of which are currently exercisable, consisting of (i) options to acquire 164,000
shares of United Bancorp common stock exercisable at $6.25 per share, (ii)
options to acquire 49,000 shares of United Bancorp common stock exercisable at
$7.25 per share, (iii) options to acquire 10,000 shares of United Bancorp common
stock exercisable at $7.37 per share, (iv) options to acquire 8,000 shares of
United Bancorp common stock exercisable at $8.25 per share and (v) options to
acquire 5,000 shares of United Bancorp common stock exercisable at $8.75 per
share. United Bancorp has previously provided to Bank of Southern Oregon a copy
of the stock option plan(s) under which the foregoing options were issued or
granted, and a copy of each agreement whereby options were issued or granted
(including but not limited to those that remain outstanding as of the date
hereof). United Bancorp has not entered into or granted any options other than
those disclosed herein. The United Bancorp and Douglas National Bank Disclosure
Letter includes a schedule showing all options granted and option agreements
entered into by United Bancorp, identifying (i) the party to whom such options
were issued or granted, (ii) the number of shares acquirable upon exercise
thereof, (iii) the exercise prices thereof, (iv) any conversions or adjustments
that have occurred in the number of shares acquirable upon exercise thereof or
the exercise price therefor as a result of any change in capitalization or any
reorganization or similar event for which a change or adjustment has been made
pursuant to the option agreements' terms (or, if true, an affirmative statement
that no such conversions, changes or adjustments have been made or required to
be made), showing the date(s) of such event(s) and a summary of the change(s) or
adjustment(s), and (v) the number of shares of United Bancorp common stock that
have been issued in respect of the exercise of any such options through the date
hereof. Through the date hereof, United Bancorp has not breached, violated or
otherwise failed to fulfill any of its obligations under the terms of any option
agreements, nor to the best of their knowledge has any holder of any such
options asserted that United Bancorp has breached, violated or otherwise failed
to fulfill any of its obligations under such option agreements.
4.4. SUBSIDIARIES.
4.4.1. The sole banking subsidiary of United Bancorp is
Douglas National Bank. Douglas National Bank is a nationally chartered bank duly
organized, validly existing and in good standing under the National Bank Act and
the rules and regulations of the OCC. Douglas National Bank is duly qualified to
do business as a foreign corporation in each jurisdiction in which its ownership
or lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on United Bancorp,
Douglas National Bank and their respective subsidiaries, taken as a whole.
Douglas National Bank has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted, as described in the Prospectus/Joint Proxy Statement.
United Bancorp and Douglas National Bank have delivered to Bank of Southern
Oregon as attachments to the United Bancorp and Douglas National Bank Disclosure
Letter true and complete copies of Douglas National Bank's Articles of
Association and Bylaws, each as amended and restated and as currently in effect
as of the date of this Agreement.
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4.4.2. The authorized capital stock of Douglas National Bank
consists of (i) 288,401 shares of common stock, par value $2.50 per share, of
which 288,401 shares are issued and outstanding, and none are held in treasury,
(ii) 7,500 shares of Series A preferred stock, par value $100 per share, of
which 7,500 shares are issued and outstanding, and none are held in treasury,
and (iii) 8,202 shares of Series B preferred stock, par value $100 per share, of
which 8,202 shares are issued and outstanding, and none are held in treasury.
All of the issued and outstanding shares of capital stock of Douglas National
Bank are owned beneficially and of record by United Bancorp, free and clear of
all liens, claims, charges, options, encumbrances or agreements with respect
thereto. All of such shares are validly issued, fully paid and nonassessable,
and were not issued in violation of any preemptive right. Except as may be set
forth herein or in the United Bancorp and Douglas National Bank Disclosure
Letter, as of the date of this Agreement neither United Bancorp nor Douglas
National Bank owns beneficially more than 5% of any class of equity securities
or any similar interests of any corporation, bank, business, trust, association
or similar organization. As of the date of this Agreement, there are no
outstanding subscriptions, options, warrants, scrip, rights, calls, convertible
securities or any other similar agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock or other securities
of Douglas National Bank obligating, or which may obligate, Douglas National
Bank to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of its capital stock or obligating, or which may obligate,
Douglas National Bank to grant, extend or enter into any subscription, option,
warrant, scrip, right, call, convertible security or other similar agreement,
arrangement or commitment.
4.4.3. Douglas National Bank is an insured depository
institution under Section 5 of the Federal Deposit Insurance Act, 12
U.S.C. Section 1815.
4.4.4. United Bancorp's only other subsidiary is DNB Mortgage
Company, which is wholly owned by United Bancorp. DNB Mortgage Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oregon and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which its ownership
or lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on United Bancorp,
Douglas National Bank and their respective subsidiaries, taken as a whole. DNB
Mortgage Company has all licenses and authorizations required to be obtained by
it under applicable law in order to conduct the business conducted by it, and
has the requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as it is now being conducted,
all as described in the Prospectus/Joint Proxy Statement. United Bancorp has
delivered to Bank of Southern Oregon as attachments to the United Bancorp and
Douglas National Bank Disclosure Letter true and complete copies of the Articles
of Incorporation, as amended, and Bylaws of DNB Mortgage Company. As of the date
of this Agreement, there are no outstanding subscriptions, options, warrants,
scrip, rights, calls, convertible securities or any other similar agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock or other securities of DNB Mortgage Company obligating, or which
may obligate, DNB Mortgage Company to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its capital stock or obligating,
or which may obligate, DNB Mortgage Company to grant, extend or enter into any
subscription, option, warrant, scrip, right, call, convertible security or other
similar agreement, arrangement or commitment.
4.4.5. Douglas National Bank's sole subsidiary is Douglas
National Bank Insurance Agency, Inc., which is wholly owned by Douglas National
Bank. Douglas National Bank Insurance Agency, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oregon and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or lease of property
or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect on United Bancorp, Douglas National
Bank and their respective subsidiaries, taken as a whole. Douglas National Bank
Insurance Agency, Inc. has all licenses and authorizations required to be
obtained by it under applicable law in order to conduct the insurance agency
business conducted by it, and has the requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its business as
it is now being
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conducted, all as described in the Prospectus/Joint Proxy Statement. United
Bancorp has delivered to Bank of Southern Oregon as attachments to the United
Bancorp and Douglas National Bank Disclosure Letter true and complete copies of
the Articles of Incorporation, as amended, and Bylaws of Douglas National Bank
Insurance Agency, Inc. As of the date of this Agreement, there are no
outstanding subscriptions, options, warrants, scrip, rights, calls, convertible
securities or any other similar agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock or other securities
of Douglas National Bank Insurance Agency, Inc. obligating, or which may
obligate, Douglas National Bank Insurance Agency, Inc. to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating, or which may obligate, Douglas National Bank Insurance
Agency, Inc. to grant, extend or enter into any subscription, option, warrant,
scrip, right, call, convertible security or other similar agreement, arrangement
or commitment.
4.5. INFORMATION IN PROSPECTUS/JOINT PROXY STATEMENT. None of the
information concerning United Bancorp, Douglas National Bank or their
subsidiaries provided by United Bancorp or Douglas National Bank for inclusion
in the Registration Statement or the Prospectus/Joint Proxy Statement will, in
the case of the Registration Statement, at the time it becomes effective, or, in
the case of the Prospectus/Joint Proxy Statement, at the time of mailing of the
Prospectus/Joint Proxy Statement to shareholders of United Bancorp and at the
time of the United Shareholders' Meeting (as hereinafter defined), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Insofar as
information about United Bancorp, Douglas National Bank and their subsidiaries
is concerned, the Prospectus/Joint Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Act of 1933, the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (regardless of whether United Bancorp is required to file periodic or
other reports under the Securities Exchange Act of 1934).
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4.6. CONSENT AND APPROVALS; NO VIOLATION. Except as may be set forth in
the United Bancorp and Douglas National Bank Disclosure Letter, neither the
execution and delivery of this Agreement by United Bancorp and Douglas National
Bank nor consummation by them of the transactions contemplated hereby or
compliance by them with any of the provisions hereof will (a) conflict with or
result in any breach of any provision of their Articles of Incorporation,
Articles of Association or Bylaws, (b) violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of United Bancorp or Douglas
National Bank under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which United Bancorp, Douglas National Bank or any
of their respective subsidiaries is a party or to which they or any of their
respective properties or assets may be subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of liens
or other encumbrances as are set forth in the United Bancorp and Douglas
National Bank Disclosure Letter or which, individually or in the aggregate, will
not have a Material Adverse Effect on United Bancorp, Douglas National Bank and
their respective subsidiaries, taken as a whole, (c) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation applicable
to United Bancorp, Douglas National Bank, any of their subsidiaries, or any of
their respective properties or assets, except for such violations which,
individually or in the aggregate, will not have a Material Adverse Effect on
United Bancorp, Douglas National Bank and their respective subsidiaries, taken
as a whole, or (d) require any consent, approval, authorization or permit of or
from, or filing with or notification to, any Governmental Entity, except (i)
pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934,
(ii) filing articles of merger or a plan of merger pursuant to the ORS, (iii)
filings required under the securities or blue sky laws of the various states,
(iv) filings with, and approval by, the FRB, (v) filings with, and approval by,
the FDIC, (vi) filings with, and approval by, the OCC, (vii) filings with, and
approval by the Department of Consumer and Business Services, (viii) filings and
approvals pursuant to any applicable State Takeover Approvals,(ix) consents,
approvals, authorizations, permits, filings or notifications in connection with
compliance with applicable provisions of federal and state securities laws
relating to the regulation of broker-dealers, investment advisors, or stock
transfer agents, or (x) consents, approvals, authorizations, permits, filings or
notifications which have either been obtained or made prior to the Closing or
which, if not obtained or made, will neither, individually or in the aggregate,
have a Material Adverse Effect on United Bancorp, Douglas National Bank and
their respective subsidiaries, taken as a whole, nor restrict the legal
authority of either United Bancorp or Douglas National Bank to execute and
deliver this Agreement and consummate the transactions contemplated hereby.
4.7. REPORTS AND FINANCIAL STATEMENTS.
4.7.1 Neither United Bancorp nor Douglas National Bank is
required to file any reports under the Securities Exchange Act of 1934. The
audited consolidated financial statements and unaudited interim financial
statements of United Bancorp included in the Registration Statement and
Prospectus/Joint Proxy Statement (the "United Bancorp Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the consolidated financial position of United
Bancorp as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended, subject (in the case of the unaudited
interim financial statements) to normal year-end audit adjustments, any other
adjustments described therein and the absence of footnotes.
4.7.2 All actions taken by United Bancorp under the Securities
Exchange Act of 1934 and Oregon corporate law in connection with suspension of
United Bancorp's reporting obligation under the Securities Exchange Act of 1934
were legally and validly taken; the suspension of United Bancorp's reporting
obligation has remained in effect since September 5, 1996, the date on which
United Bancorp's certification on Form 15 was filed with the Securities and
Exchange Commission; such certification on Form 15 has not been withdrawn by
United Bancorp or denied by the Securities and Exchange Commission; and United
Bancorp has, and on the first
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day of each fiscal year beginning after September 5, 1996 has had, fewer than
300 shareholders of record, as defined in Rule 12g5-1 of the Securities and
Exchange Commission.
4.7.3 Except as disclosed in the United Bancorp and Douglas
National Bank Disclosure Letter, none of United Bancorp, Douglas National Bank
or their respective subsidiaries has any debt, obligation, guarantee or
liability as of the date of the United Bancorp Financial Statements for the
quarter ended June 30, 1999 (the "United Bancorp Balance Sheet Date"), whether
absolute, accrued, contingent or otherwise in excess of $50,000, which is not
adequately reflected and reserved in the United Bancorp Financial Statements for
the quarter ended June 30, 1999. Except as disclosed in the United Bancorp and
Douglas National Bank Disclosure Letter, all debts, liabilities, guarantees and
obligations of United Bancorp, Douglas National Bank or their respective
subsidiaries incurred since the United Bancorp Balance Sheet Date have been
incurred in the ordinary course of business and are usual and normal in amount
both individually and in the aggregate.
4.8. TAXES. Except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, United Bancorp, Douglas National Bank
and their respective subsidiaries have prepared in good faith and duly and
timely filed or caused to be duly and timely filed all federal, state, local and
foreign income, franchise, sales, real and personal property and other tax
returns and reports required to be filed by them on or before the date of this
Agreement, except where the failure to file would not have a Material Adverse
Effect on United Bancorp, Douglas National Bank and their respective
subsidiaries, taken as a whole. Except as may be set forth in the United Bancorp
and Douglas National Bank Disclosure Letter, United Bancorp, Douglas National
Bank and their respective subsidiaries have paid or have adequately reserved or
have made adequate accruals (in accordance with generally accepted accounting
principles) with respect to all taxes, interest and penalties shown to be owing
on all such returns and reports. The United Bancorp and Douglas National Bank
Disclosure Letter sets forth, as of the date of this Agreement, the following
information with respect to United Bancorp, Douglas National Bank and their
respective subsidiaries: (i) the most recent tax year through which the IRS has
completed its examination of such corporation, (ii) whether there is an
examination pending by the IRS with respect to such corporation and, if so, the
tax years involved, (iii) whether such corporation has executed or filed with
the IRS any agreement which is still in effect extending the period for
assessment and collection of any federal tax and, if so, the tax years covered
by such agreement and the expiration date of such extension, and (iv) whether
there are any existing material disputes as to state, local or foreign taxes.
Except as may be set forth in the United Bancorp and Douglas National Bank
Disclosure Letter, there are no liens for federal, state, local or foreign taxes
upon the assets of United Bancorp, Douglas National Bank or their respective
subsidiaries, except for statutory liens for taxes and assessments not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings. Except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, none of United Bancorp, Douglas
National Bank or any of their respective subsidiaries is a party to any action
or proceeding, nor to the best of their knowledge is any such action or
proceeding threatened, by any Governmental Entity for the assessment or
collection of taxes which are material in amount, and no deficiency notices or
reports have been received by United Bancorp, Douglas National Bank or any of
their respective subsidiaries in respect of any material deficiencies for any
tax, assessment, or government charges.
After the date of this Agreement, United Bancorp and Douglas National
Bank will promptly notify PremierWest Bancorp and Bank of Southern Oregon of (i)
the commencement or threat of any such action or proceeding involving an amount
of taxes material to United Bancorp, Douglas National Bank and their respective
subsidiaries, taken as a whole, and (ii) the receipt by United Bancorp, Douglas
National Bank or any of their respective subsidiaries of any such deficiency
notices or reports in respect of any material deficiencies.
4.9. EMPLOYEE PLANS; EMPLOYEES.
4.9.1. All employee bonus, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase, employee stock
ownership, stock appreciation rights, savings, consulting, severance, collective
bargaining, group insurance, fringe benefit and other employee benefit,
incentive and welfare plans, policies, contracts and arrangements and all trust
agreements related thereto, now in effect and relating to any
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present or former directors, officers or employees of United Bancorp, Douglas
National Bank or their respective subsidiaries, regardless of whether described
in Section 3(3) of ERISA ("United Bancorp Employee Plans"), are identified in
the United Bancorp and Douglas National Bank Disclosure Letter. United Bancorp
and Douglas National Bank have delivered to PremierWest Bancorp and Bank of
Southern Oregon with the United Bancorp and Douglas National Bank Disclosure
Letter copies of all United Bancorp Employee Plans, in each case as in effect on
the date of this Agreement.
4.9.2. Except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, all United Bancorp Employee Plans have
been maintained, operated and administered in substantial compliance with their
terms, and United Bancorp, Douglas National Bank, their respective subsidiaries
and all of the United Bancorp Employee Plans currently comply and have at all
relevant times complied in all material respects with ERISA, the Code, and any
other applicable laws. With respect to each United Bancorp Employee Plan that is
a pension plan (as defined in Section 3(2) of ERISA): (a) except as may be set
forth in the United Bancorp and Douglas National Bank Disclosure Letter, each
pension plan (and any trust relating thereto) intended to be a qualified plan
under Section 401(a) of the Code either has been determined by the IRS to be so
qualified or is the subject of a pending application for such determination that
was timely filed, (b) except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, would be fully funded (calculated using
the interest rate and other actuarial assumptions mandated by the PBGC) if
terminated at the Effective Time, and there is no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, and no waiver of the minimum funding standards of such sections has been
requested from the IRS, (c) no reportable event described in Section 4043 of
ERISA has occurred, (d) except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, no defined benefit plan has been
terminated, nor has the PBGC instituted proceedings to terminate a defined
benefit plan or to appoint a trustee or administrator of a defined benefit plan,
and no circumstances exist that constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute any such proceedings, and (e) no pension plan is
a "multi-employer plan" within the meaning of Section 3(37) of ERISA. With
respect to any qualified benefit plan purporting to be an employee stock
ownership plan (as defined in Section 4975(e)(7) of the Code) (an "ESOP
Qualified Benefit Plan"), such ESOP Qualified Benefit Plan satisfies the
requirements of Section 4975(e)(7) of the Code and is in material compliance
with the applicable qualification requirements of Section 409 of the Code. Any
capital stock of United Bancorp acquired by an ESOP Qualified Benefit Plan meets
the definition of "employer securities" set forth in Sections 409(l) and 4975 of
the Code.
4.9.3. Except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, no United Bancorp Employee Plan
provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (i) temporary
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2) of
ERISA, (iii) deferred compensation benefits accrued as liabilities on the books
of United Bancorp or Douglas National Bank, or (iv) benefits the full cost of
which are borne by the current or former employee (or his or her beneficiary)).
4.9.4. United Bancorp has not defaulted in any of its material
obligations to the United Bancorp Employee Stock Ownership Plan, and the United
Bancorp Employee Stock Ownership Plan has not defaulted in any obligations to
which it may be subject, whether as a result of borrowings or otherwise. All
principal, interest and other payments required to be made by the United Bancorp
Employee Stock Ownership Plan under borrowings or other agreements to which it
may be subject have been made as and when due. Except as may be set forth in the
United Bancorp and Douglas National Bank Disclosure Letter, the execution and
delivery of this Agreement by United Bancorp and Douglas National Bank,
consummation by them of the transactions contemplated hereby or compliance by
them with any of the provisions hereof will not (a) conflict with or result in
any breach of any provision of the United Bancorp Employee Stock Ownership Plan
and related trust, (b) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in the creation
of any lien, security interest, charge or other encumbrance
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upon any of the properties or assets of the United Bancorp Employee Stock
Ownership Plan and related trust under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the United Bancorp
Employee Stock Ownership Plan is a party or to which it or any of its properties
or assets may be subject, or (c) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to the United Bancorp
Employee Stock Ownership Plan or any of its properties or assets. Consistent
with Article 5 of this Agreement, the United Bancorp Employee Stock Ownership
Plan and Trust shall be terminated as promptly as practicable after execution of
this Agreement.
4.9.5. Except as may be set forth in the United Bancorp and
Douglas National Bank Disclosure Letter, all employees of United Bancorp,
Douglas National Bank and each of their respective subsidiaries are "at will"
and there are no employment, consulting, severance or like agreements, written
or oral, expressed or implied. Copies of all written employment, consulting,
severance or similar contracts between United Bancorp, Douglas National Bank or
any of their respective subsidiaries, on one hand, and any officer, employee or
consultant of United Bancorp, Douglas National Bank or any of their respective
subsidiaries, on the other, are included as attachments to the United Bancorp
and Douglas National Bank Disclosure Letter. The United Bancorp and Douglas
National Bank Disclosure Letter contains a summary of the material terms of any
and all such contracts that are not in writing.
4.10. MATERIAL CONTRACTS AND INSURANCE. Except as may be set forth in
the United Bancorp and Douglas National Bank Disclosure Letter, none of United
Bancorp, Douglas National Bank or any of their respective subsidiaries is, as of
the date of this Agreement, a party to, or is bound by, (a) any material lease
not made in the ordinary course of business, (b) any agreement, arrangement, or
commitment not made in the ordinary course of business which materially
restricts the conduct of any line of business that is material to United
Bancorp, Douglas National Bank or any of their respective subsidiaries, (c) any
benefit agreements providing for aggregate payments to any person in any
calendar year in excess of $10,000, (d) any material agreement, indenture or
other instrument not specifically disclosed in the United Bancorp Financial
Statements relating to the borrowing of money by United Bancorp, Douglas
National Bank or any of their respective subsidiaries or the guarantee by United
Bancorp, Douglas National Bank or any of their respective subsidiaries of any
such obligation (other than trade payables and instruments relating to
transactions entered into in the ordinary course of business), (e) any
agreement, arrangement or commitment with or to a labor union or (f) any other
contract or agreement or amendment thereto of a kind that would be required to
be filed as an exhibit to a Form 10-K with the Securities and Exchange
Commission by United Bancorp if United Bancorp's duty to file such reports had
not been suspended (the agreements and other documents referred to in clauses
(a) through (e) of this sentence, collectively, the "United Bancorp Contracts").
Without in any way limiting the generality of the foregoing, the United Bancorp
Contracts shall be deemed to include any material agreement or agreements for
data processing or similar services. Except as stated in the United Bancorp and
Douglas National Bank Disclosure Letter, none of United Bancorp, Douglas
National Bank or any of their respective subsidiaries is in default under any
United Bancorp Contract, which default is reasonably likely to have, either
individually or in the aggregate with all other such defaults, a Material
Adverse Effect on United Bancorp, Douglas National Bank and their respective
subsidiaries, taken as a whole, 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.
Copies of all insurance policies maintained by United Bancorp or
Douglas National Bank on their business or material properties and assets, as
well as a copy of any director and officer liability insurance policy(ies)
maintained by United Bancorp or Douglas National Bank, are included as
attachments to the United Bancorp and Douglas National Bank Disclosure Letter.
4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth
in the United Bancorp and Douglas National Bank Disclosure Letter, since
December 31, 1998 to the date of this Agreement, there has not been any change
in the financial condition, results of operations or business of United Bancorp,
Douglas National Bank or any of their respective subsidiaries that either
individually or in the aggregate has had or is
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reasonably expected to have a Material Adverse Effect on United Bancorp, Douglas
National Bank and their respective subsidiaries, taken as a whole. Since June
30, 1999, Douglas National Bank has maintained an adequate reserve for possible
loan losses.
4.12. LITIGATION. Except as may be disclosed in the United Bancorp and
Douglas National Bank Disclosure Letter, there is no litigation, action,
arbitration or proceeding pending or, to the best knowledge of United Bancorp
and Douglas National Bank, threatened against or affecting United Bancorp,
Douglas National Bank or any of their respective subsidiaries which, either
individually or in the aggregate, is having, or insofar as reasonably can be
foreseen will have, a Material Adverse Effect on United Bancorp, Douglas
National Bank and their respective subsidiaries, taken as a whole, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator, outstanding against United Bancorp, Douglas National Bank or any of
their respective subsidiaries having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect.
4.13. COMPLIANCE WITH LAWS AND ORDERS. Except as may be disclosed in
the United Bancorp and Douglas National Bank Disclosure Letter, the businesses
of United Bancorp, Douglas National Bank and their respective subsidiaries are
not being and have not been conducted in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity (including, without limitation, zoning ordinances, building codes, and
environmental, civil rights, and occupational health and safety laws and
regulations and, in the case of Douglas National Bank, all statutes, rules and
regulations pertaining to the conduct of such business), except for possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on United Bancorp, Douglas National Bank and their respective
subsidiaries, taken as a whole. Except as may be set forth in the United Bancorp
and Douglas National Bank Disclosure Letter, no investigation or review by any
Governmental Entity with respect to United Bancorp, Douglas National Bank or any
of their respective subsidiaries outside the ordinary course of business and not
generally applicable to entities engaged in the same business is pending or, to
the knowledge of United Bancorp and Douglas National Bank, threatened, nor has
any Governmental Entity indicated an intention to conduct the same in each case
other than those the outcome of which will not have a Material Adverse Effect on
United Bancorp, Douglas National Bank and their respective subsidiaries, taken
as a whole.
Except as may be disclosed in the United Bancorp and Douglas National
Bank Disclosure Letter, each of United Bancorp, Douglas National Bank and their
respective subsidiaries has taken or caused to be taken all actions required to
be taken in order to ensure that their mission-critical internal and external
systems are substantially Year 2000 compliant. Douglas National Bank has not
received a rating of less than satisfactory as a result of any regulatory
examination or assessment of Douglas National Bank's Year 2000 compliance, and
any deficiencies noted in any report of regulatory examination or assessment of
Douglas National Bank have been or are being addressed in the manner and within
the time frames required by such report.
4.14. AGREEMENTS WITH REGULATORS. As of the date of this Agreement,
except as may be disclosed in the United Bancorp and Douglas National Bank
Disclosure Letter, none of United Bancorp, Douglas National Bank or any of their
respective subsidiaries is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease-and-desist orders of
any regulatory authority, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit policies
or its management, nor have any of United Bancorp, Douglas National Bank or any
of their respective subsidiaries been advised by any Governmental Entity that it
is contemplating issuing, requiring, or requesting (or is considering the
appropriateness of issuing, requiring or requesting) any such order, directive,
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar undertaking. Except as set forth in the United
Bancorp and Douglas National Bank Disclosure Letter, there are no (i) material
violations, or (ii) violations with respect to which refunds or restitutions
which are material in amount to United Bancorp, Douglas National Bank and their
respective subsidiaries, taken as a whole, may be required, cited in any
compliance report to United Bancorp, Douglas National Bank or their
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respective subsidiaries as a result of an examination by any regulatory
authority.
4.15. OWNERSHIP OF BANK OF SOUTHERN OREGON STOCK. Except as may be
disclosed in the United Bancorp and Douglas National Bank Disclosure Letter, as
of the date of this Agreement, none of United Bancorp, Douglas National Bank or
any of their respective subsidiaries nor, to the best of United Bancorp and
Douglas National Bank's knowledge, any of their affiliates or associates (i)
beneficially owns directly or indirectly, or (ii) are parties to any agreement,
arrangement or commitment for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of Bank of Southern Oregon common stock
(other than any shares of Bank of Southern Oregon common stock held in a
fiduciary, trust, custodial or agency capacity by Douglas National Bank) which
in the aggregate, represent 1% or more of the outstanding shares of Bank of
Southern Oregon common stock.
4.16. FEES. Except for fees paid and payable to Hoefer & Arnett
Incorporated, neither United Bancorp nor Douglas National Bank has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
4.17. UNITED BANCORP AND DOUGLAS NATIONAL BANK BOARD AND SHAREHOLDER
ACTIONS; FAIRNESS OPINION; ANTITAKEOVER PROVISIONS.
4.17.1. At a meeting duly called and held, the Board of
Directors of each of United Bancorp and Douglas National Bank has by the
requisite vote (i) determined that the Merger and the other transactions
contemplated hereby are advisable and in the best interests of United Bancorp,
Douglas National Bank and their shareholders, (ii) authorized and approved this
Agreement and the transactions contemplated hereby, and (iii) directed that this
Agreement and the transactions contemplated hereby be submitted for
consideration by the holders of United Bancorp common stock entitled to vote
thereon at the United Bancorp Shareholders' Meeting, and by United Bancorp as
sole shareholder of Douglas National Bank.
4.17.2. Hoefer & Arnett Incorporated, United Bancorp's
financial advisor, has provided the Board of Directors of United Bancorp with
its written opinion that, as of the date of the Board meeting, the Merger
Consideration is fair from a financial point of view to the shareholders of
United Bancorp.
The written opinion of Hoefer & Arnett Incorporated shall be
updated to the date of the Prospectus/Joint Proxy Statement, and it shall be
included in the Registration Statement as an attachment to such Prospectus/Joint
Proxy Statement and delivered therewith to shareholders of United Bancorp.
4.17.3. United Bancorp and its Board of Directors have taken
all requisite action such that the provisions of any applicable "freezeout,"
"fair price," "moratorium," "control share acquisition," "business combination"
or other similar antitakeover statute or regulation enacted under the laws of
Oregon, or similar provisions of United Bancorp's Articles of Incorporation, as
amended, or Bylaws, including but not limited to "fair- price" provisions and
shareholder rights plans, are not applicable to this Agreement or the
transactions contemplated by this Agreement. There is no agreement to which
United Bancorp is a party that (i) prohibits or restricts United Bancorp's
ability to perform its obligations under this Agreement, or its ability to
consummate the transactions contemplated hereby, or (ii) would have the effect
of invalidating or voiding this Agreement or any provisions hereof.
4.18. VOTE REQUIRED. The affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the outstanding
shares of United Bancorp common stock is the only vote of the holders of any
class or series of United Bancorp capital stock necessary to approve this
Agreement and the transactions contemplated hereby. The affirmative vote or
written consent of United Bancorp as sole shareholder of Douglas National Bank
is the only shareholder action necessary to approve this Agreement and the
transactions contemplated hereby on the part of Douglas National Bank.
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4.19. CONDUCT OF BUSINESS. Except as may be disclosed in the United
Bancorp and Douglas National Bank Disclosure Letter, from and after December 31,
1998 to the date of this Agreement: (a) United Bancorp, Douglas National Bank
and their respective subsidiaries have carried on their respective businesses in
the ordinary and usual course consistent with their current practices, (b)
United Bancorp has not issued or sold any of its capital stock or any corporate
debt securities which would be classified as long-term debt on the balance
sheets of United Bancorp, (c) United Bancorp has not granted any option or
issued, sold or granted any warrants to acquire any of its capital stock,
effected any stock split, or otherwise changed its authorized capitalization,
(d) United Bancorp has not declared, set aside, or paid any dividend or other
distribution in respect of its capital stock, or, directly or indirectly,
redeemed or otherwise acquired any of its capital stock, except regular
quarterly cash dividends (based upon historic precedent and consistent with past
practice), (e) United Bancorp has neither incurred nor prepaid any corporate
debt securities or instruments which are or would be classified as long-term
debt on the balance sheet of United Bancorp, (f) none of United Bancorp, Douglas
National Bank or any of their respective subsidiaries has sold, assigned,
transferred, or otherwise disposed of to a third party (i) equity securities in
or issued by Douglas National Bank, (ii) branch offices of Douglas National
Bank, (iii) assets constituting any other line of business, or (iv) any of its
other material properties or assets other than for a fair consideration in the
ordinary course of business, (g) none of United Bancorp, Douglas National Bank
or any of their respective subsidiaries has purchased or otherwise acquired from
a third party equity securities in or issued by such third party other than in
the ordinary course of business, branch offices of such third party, assets
constituting any other line of business, or any other material properties or
assets outside the ordinary course of its business, (h) none of United Bancorp,
Douglas National Bank or any of their respective subsidiaries has: increased the
rate of compensation of, or paid any bonus to, any of its directors, officers,
or other employees, except under existing plans and policies and consistent with
past practices, entered into any new, or amended or supplemented any existing,
or secured, collateralized, or funded any, employment, management, consulting,
deferred compensation, severance, or other similar contract, entered into,
terminated, or substantially modified any United Bancorp Employee Plan in
respect of any of its present or former directors, officers, or other employees,
or agreed to do any of the foregoing, and (i) none of United Bancorp, Douglas
National Bank or any of their respective subsidiaries has entered into any
material transaction, contract, lease, agreement or commitment requiring the
approval of their respective Boards of Directors, or amended, modified or
terminated any material contract, lease or other agreement to which it is a
party in a manner requiring the approval of their respective Boards of
Directors.
4.20. ENVIRONMENTAL MATTERS. When used in this Section, the term loan
portfolio properties and other properties owned means those properties owned,
operated or managed (including those held in trust) by United Bancorp, Douglas
National Bank or any of their respective subsidiaries.
Except as may be set forth in United Bancorp and Douglas National Bank
Disclosure Letter, to the best of United Bancorp and Douglas National Bank's
knowledge: (i) none of United Bancorp, Douglas National Bank or any of their
respective subsidiaries has been or is in violation of or liable under any
Environmental Law, except for any such violations or liabilities which would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on United Bancorp, Douglas National Bank and their respective
subsidiaries, taken as a whole; and (ii) none of the loan portfolio properties
and other properties owned by United Bancorp, Douglas National Bank or their
respective subsidiaries is, or since such properties have been owned, operated
or managed by United Bancorp, Douglas National Bank or their respective
subsidiaries have been, in violation of any Environmental Law, except for any
such violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on United Bancorp, Douglas National
Bank and their respective subsidiaries, taken as a whole. Except as may be set
forth in United Bancorp and Douglas National Bank Disclosure Letter, there are
no actions, suits, demands, notices, claims, investigations or proceedings
pending, or to the best of United Bancorp and Douglas National Bank's knowledge
threatened, relating to the liability of the loan portfolio properties and other
properties owned by United Bancorp, Douglas National Bank or their respective
subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or violations
of Environmental Law.
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4.21. MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in the
United Bancorp and Douglas National Bank Disclosure Letter, no officer or
director of either of United Bancorp or Douglas National Bank, or any
"associate" (as such term is defined in Rule 14a-1 under the Securities Exchange
Act of 1934) of any such officer or director, has any material interest in any
material contracts or property (real or personal), tangible or intangible, used
in or pertaining to the business of United Bancorp, Douglas National Bank or
their respective subsidiaries.
ARTICLE 5
COVENANTS
5.1. ACQUISITION PROPOSALS AND NEGOTIATIONS.
(a) From and after the date hereof, United Bancorp and Douglas National
Bank shall not, directly or indirectly, solicit, initiate, discuss or negotiate
any proposals or offers from any person other than Bank of Southern Oregon
relating to any acquisition or purchase of all or a material amount of the
assets of, or any equity securities of, or any merger, consolidation or business
combination with, United Bancorp or Douglas National Bank (such transactions
being referred to herein as "Acquisition Transactions"), and each of United
Bancorp and Douglas National Bank shall instruct and otherwise use its diligent
efforts to cause their respective officers, directors, employees, agents,
affiliates and advisors not to, directly or indirectly, solicit, initiate,
discuss or negotiate any Acquisition Transactions except with PremierWest
Bancorp and Bank of Southern Oregon; provided, however, that nothing contained
in this Section shall prohibit:
(i) United Bancorp from furnishing information to, or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited proposal of an Acquisition Transaction if and to the extent that,
(a) the Board of Directors of United Bancorp, after
consultation with United Bancorp's counsel and financial advisor, has
determined in good faith that such action is or may reasonably be
required for the directors of United Bancorp to fulfill their fiduciary
duties and obligations to United Bancorp shareholders under Oregon law,
taking into consideration the acquisition process and the transactions
contemplated hereby, and
(b) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity,
United Bancorp provides immediate written notice to PremierWest Bancorp
and Bank of Southern Oregon at least two business days prior to
furnishing information to, or entering into discussions or negotiations
with, such a person or entity, or
(ii) the Board of Directors of United Bancorp from failing to
make, withdrawing or modifying its recommendation referred to in Section 5.14
following receipt of a proposal for an Acquisition Transaction if the
Board of Directors of United Bancorp, after consultation with United Bancorp's
counsel and financial advisor, has determined in good faith that such action is
or may reasonably be required for the directors of United Bancorp to fulfill
their fiduciary duties and obligations to United Bancorp shareholders under
Oregon law, taking into consideration the acquisition process and the
transactions contemplated hereby.
If United Bancorp, Douglas National Bank or any of their officers,
directors or representatives receives any contact, either oral or written, from
a third party or its representative regarding an Acquisition Transaction after
the date of this Agreement and until May 1, 2000, United Bancorp and Douglas
National Bank shall immediately notify PremierWest Bancorp and Bank of Southern
Oregon of such contact, and provide such information requested by PremierWest
Bancorp or Bank of Southern Oregon, including but not limited to the name of the
party or parties, and all details related thereto. United Bancorp and Douglas
National Bank shall have a continuing obligation to provide information to
PremierWest Bancorp and Bank of Southern Oregon regarding
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any additional or continuing contacts. Any writings received by United Bancorp
or Douglas National Bank or by any officer, director or representative thereof,
shall be immediately provided to PremierWest Bancorp and Bank of Southern Oregon
by facsimile, regardless of such writing being marked confidential or otherwise.
If United Bancorp receives an opinion from United Bancorp's counsel
pursuant to this Section 5.1(a), United Bancorp shall provide a copy of such
opinion to PremierWest Bancorp and Bank of Southern Oregon, unless United
Bancorp and its counsel determine that such opinion is protected by the
attorney-client privilege.
For purposes of this Section 5.1, the term "discussions" does not
include conversations at the meeting in which an unsolicited acquisition offer
is first delivered to United Bancorp by a third party.
(b) If, within six months after the date hereof, the Board of Directors
of United Bancorp or Douglas National Bank accepts in any manner a proposal for
an Acquisition Transaction (including any acceptance occurring after the
termination of this Agreement, unless this Agreement is terminated pursuant to
Section 8.1.1(a) through (d), Section 8.1.1(f) or Section 8.1.2), United Bancorp
shall pay to PremierWest Bancorp and Bank of Southern Oregon an aggregate of
$2,000,000 in immediately available federal funds upon the execution of any
agreement with a third party for an Acquisition Transaction (regardless of when
the consummation of such Acquisition Transaction occurs). This payment shall be
in lieu of any other claim against United Bancorp, Douglas National Bank or
their subsidiaries that PremierWest Bancorp or Bank of Southern Oregon may have
at law or in equity arising out of or in connection with this Agreement. If
requested by United Bancorp and Douglas National Bank, PremierWest Bancorp and
Bank of Southern Oregon shall execute and deliver a release of all claims
against United Bancorp, Douglas National Bank and their respective subsidiaries
at the time of such payment by United Bancorp.
5.2. INTERIM OPERATIONS OF UNITED BANCORP AND DOUGLAS NATIONAL BANK.
During the period from the date of this Agreement to the Effective Time, except
as specifically contemplated by this Agreement, as required by law, as set forth
in the United Bancorp and Douglas National Bank Disclosure Letter, or as
otherwise approved in writing by PremierWest Bancorp and Bank of Southern Oregon
(which approval shall not be unreasonably withheld):
5.2.1. CONDUCT OF BUSINESS. United Bancorp and Douglas
National Bank shall, and shall cause their respective subsidiaries to, conduct
their respective businesses only in, and not take any action except in, the
ordinary course of business substantially consistent with current practices
(which practices include any workout arrangements for troubled loans and real
estate development assets). United Bancorp and Douglas National Bank shall use
all reasonably diligent efforts to (i) maintain and preserve intact the business
organization of United Bancorp and Douglas National Bank, keep available the
services of its and their present officers and employees, and keep the branch
operations fully staffed with competent employees, (ii) preserve the goodwill of
those having business relationships with United Bancorp or Douglas National
Bank, (iii) maintain and keep their properties in as good repair and condition
as at present, except for depreciation due to ordinary wear and tear, (iv) keep
in full force and effect insurance and bonds comparable in amount and scope of
coverage to that now maintained by it; provided, however, if any such insurance
(including, without limitation, directors' and officers' liability insurance) is
canceled or not renewable at its expiration at current or standard rates, United
Bancorp and Douglas National Bank shall consult with Bank of Southern Oregon to
determine whether to exercise United Bancorp and Douglas National Bank's right
to extend the discovery period and in evaluating available alternatives to
replace the current insurance; and provided further, that United Bancorp and
Douglas National Bank shall take such action as is reasonably necessary to cause
the directors' and officers' liability insurance coverage of United Bancorp and
Douglas National Bank to include coverage of claims arising from factors or
events that occurred on or before the Effective Time, including but not limited
to claims arising from the transactions contemplated by this Agreement (and with
a rider insuring such persons for any claim arising under the securities laws),
(v) perform in all material respects all obligations required to be performed by
United Bancorp, Douglas National Bank and their respective subsidiaries under
all material contracts, leases and documents relating to or affecting their
assets, properties, and business, and (vi) comply with and perform in all
material respects all obligations and duties
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imposed by all material federal, state, municipal, and local laws, and all
rules, regulations and orders imposed by federal, state, municipal or local
governmental agencies.
5.2.2. NEGATIVE COVENANTS. Except as necessary to perform its
obligations under this Agreement, neither United Bancorp nor Douglas National
Bank shall make any change or amendment to, or to repeal, their articles of
incorporation, articles of association or bylaws. From and after the date of
this Agreement, neither United Bancorp nor Douglas National Bank shall enter
into any loan or credit commitment (including standby letters of credit) with
any person or entity if such loan or commitment would exceed (i) $250,000 as an
unsecured loan or investment, or (ii) $500,000 as a residential, commercial or
commercial real estate loan without first consulting with PremierWest Bancorp
and Bank of Southern Oregon; provided, however, that nothing in this paragraph
shall prohibit United Bancorp or Douglas National Bank from honoring any
contractual obligation in existence on the date of this Agreement. From and
after the date of this Agreement, neither United Bancorp nor Douglas National
Bank shall enter into any venture capital or similar investment, other than the
purchase of mortgage-backed securities from Freddie Mac, Fannie Mae or Ginnie
Mae. After the date upon which all conditions to the obligations of United
Bancorp and Douglas National Bank to consummate the Merger have been waived or
satisfied by the appropriate party, neither United Bancorp, Douglas National
Bank nor DNB Mortgage Company shall enter into any consumer loan or consumer
credit commitment except on a basis that is consistent with the consumer loan
underwriting standards of Bank of Southern Oregon.
Neither United Bancorp nor Douglas National Bank shall sell,
assign, transfer or otherwise dispose of to a third party, (i) branch offices of
Douglas National Bank, or (ii) any of its material properties or assets outside
of the ordinary course of business. Neither United Bancorp nor Douglas National
Bank shall purchase or otherwise acquire from a third party, branch offices of
such third party, assets constituting any other line of business, or any other
material properties or assets outside the ordinary course of its business. None
of United Bancorp, Douglas National Bank or any of their respective subsidiaries
shall enter into any transaction, contract, lease, agreement or commitment (or
any amendment to any transaction, contract, lease, agreement or commitment)
outside of the ordinary course of business which is material to United Bancorp,
Douglas National Bank and their respective subsidiaries, taken as a whole;
provided, however, that nothing in this paragraph shall prohibit United Bancorp
or Douglas National Bank from honoring any contractual commitment in existence
on the date of this Agreement.
5.2.3. CAPITAL STOCK. Other than the issuance of United
Bancorp common stock upon exercise of outstanding options, as set forth in the
Prospectus/Joint Proxy Statement, United Bancorp and Douglas National Bank shall
not issue or sell any shares of capital stock or any other securities of either
of them or issue any securities convertible into or exchangeable for, or
options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or enter into any contract,
commitment or arrangement with respect to the issuance of, any shares of capital
stock or any other securities of either of them or enter into any arrangement,
contract or commitment with respect to the purchase or voting of shares of their
capital stock, or adjust, split, combine or reclassify any of their capital
stock or other securities or make any other changes in their capital structures;
provided, however, that nothing in this Agreement shall be deemed to prohibit
(i) issuance of shares of United Bancorp common stock upon the valid exercise of
options, to the extent such options were issued and outstanding on the date
hereof, or (ii) granting in the normal course of business consistent with past
practice of United Bancorp options to acquire up to 32,000 shares of common
stock of United Bancorp to certain directors. None of United Bancorp, Douglas
National Bank or any of their respective subsidiaries shall acquire beneficial
ownership of any class of equity securities or any similar interests of any
corporation, bank, business, trust, association or similar organization.
5.2.4. DIVIDENDS. United Bancorp and Douglas National Bank
shall not declare, set aside, pay or make any dividend or other distribution or
payment (whether in cash, stock or property) with respect to, or purchase or
redeem, any shares of the capital stock of either of them, except (to the extent
legally permitted) for dividends paid by Douglas National Bank to United Bancorp
with respect to Douglas National Bank's capital stock consistent with past
practice. From the date of this Agreement to the earlier of the Effective Time
or the
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termination of this Agreement, United Bancorp shall not, without the prior
written consent of PremierWest Bancorp and Bank of Southern Oregon, make any
changes in its dividend policies.
5.2.5. EMPLOYEE PLANS, COMPENSATION AND BONUSES. (a) Except as
is necessary to comply with the Code or as contemplated in this Agreement,
United Bancorp and Douglas National Bank shall not: adopt or amend any employee
bonus, deferred compensation, pension, retirement, profit sharing, stock option,
stock purchase, employee stock ownership, stock appreciation rights, savings,
consulting, severance, collective bargaining, group insurance, fringe benefit or
other employee benefit, incentive and welfare plans, policies, contracts and
arrangements and trust agreements related thereto, employment or other employee
benefit agreements, trusts, plans, funds or other arrangements for the benefit
or welfare of any present or former director, officer or employee of United
Bancorp or Douglas National Bank; increase the compensation or fringe benefits
of any present or former director, officer or employee; pay any bonus,
compensation or benefit not required by any existing plan or arrangement or in a
manner inconsistent with past practices (including, without limitation, the
granting of stock options or stock rights) take any action or grant any benefit
not required under the terms of any existing agreements, trusts, plans, funds or
other such arrangements, except as set forth in the United Bancorp and Douglas
National Bank Disclosure Letter; or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
Notwithstanding the restrictions contained in this Section,
United Bancorp and Douglas National Bank may grant individual annual increases
to officers and employees in accordance with past practices, up to a total of 3%
of the total annual compensation of all officers and employees, excluding from
such total the aggregate of the compensation for employees of United Bancorp or
Douglas National Bank who are parties to an employment agreement.
(b) If PremierWest Bancorp or Bank of Southern Oregon so
requests, United Bancorp and Douglas National Bank shall develop a plan and
timetable for terminating any or all of the United Bancorp Employee Plans, and,
with the advance written approval of PremierWest Bancorp and Bank of Southern
Oregon, shall proceed with the implementation of said termination plan and
timetable; provided, however, that such terminations will not adversely affect
qualification of such plans under the Code.
(c) At least sixty (60) days prior to the Effective Time,
United Bancorp and Douglas National Bank shall provide to PremierWest Bancorp
and Bank of Southern Oregon documentation reasonably satisfactory to PremierWest
Bancorp and Bank of Southern Oregon demonstrating that the applicable
requirements of Sections 404, 412, 415, 416, 401(k) and (m) of the Code have
been satisfied by all of United Bancorp Employee Plans for the 1996, 1997 and
1998 plan years.
(d) With respect to any United Bancorp Employee Plan that
provides for vesting of benefits, there shall be no discretionary acceleration
of vesting without PremierWest Bancorp's and Bank of Southern Oregon's consent,
regardless of whether such discretionary acceleration of vesting is provided
under the terms of the plan; provided, however, that a United Bancorp Employee
Plan providing by its terms for an acceleration of vesting upon a change in
control of United Bancorp shall not be deemed to involve a discretionary
acceleration of vesting and vesting thereunder shall accelerate as of the
Effective Time or any later date as provided therein.
(e) If the United Bancorp Employee Stock Ownership Plan has
not been previously terminated, United Bancorp and Douglas National Bank shall
take all actions necessary to freeze the plan as of a date at least thirty (30)
days prior to the Effective Time, such that no further contributions (including
employee 401(k) contributions) shall be made under the plan, and to terminate
the plan and cause distribution of plan assets to beneficiaries prior to the
Effective Time.
5.2.6. CONFORMING ACCOUNTING AND RESERVE POLICIES; EXPENSES.
After the shareholders of Bank of Southern Oregon and United Bancorp have
approved and adopted this Agreement and the transactions contemplated hereby and
after the receipt of necessary regulatory approvals, on or before the Closing,
and at Bank
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of Southern Oregon's request, United Bancorp and Douglas National Bank shall
cause Douglas National Bank to promptly establish and take such reserves and
accruals to conform the Douglas National Bank's loan, accrual and reserve
policies to Bank of Southern Oregon's policies; shall cause Douglas National
Bank to promptly establish and take such accruals, reserves and charges in order
to implement such polices in respect of excess facilities and equipment
capacity, severance costs, litigation matters, write-off or write down of
various assets and other appropriate accounting adjustments; and Douglas
National Bank shall promptly recognize for financial accounting purposes such
expenses of the Merger and restructuring charges related to or to be incurred in
connection with the Merger, to the extent permitted by law and consistent with
generally accepted accounting principles and with the fiduciary duties of the
officers and directors of United Bancorp and Douglas National Bank.
5.3. INTERIM OPERATIONS OF BANK OF SOUTHERN OREGON. During the period
from the date of this Agreement to the Effective Time, except as specifically
contemplated by this Agreement, as required by law, or as otherwise approved by
United Bancorp and Douglas National Bank (which shall not be unreasonably
withheld) in writing, each of PremierWest Bancorp and Bank of Southern Oregon
shall conduct its business in such a manner so as not to materially interfere
with PremierWest Bancorp's or Bank of Southern Oregon's ability to consummate
the Merger, the Subsidiary Merger and the Share Exchange, delay the Effective
Time or have a Material Adverse Effect upon the transactions contemplated by the
Agreement, and shall conduct business only in, and not take any action except
in, the ordinary course of business substantially consistent with current
practices (which practices include any workout arrangements for troubled loans
and real estate development assets). PremierWest Bancorp and Bank of Southern
Oregon shall use all reasonably diligent efforts to (i) maintain and preserve
intact the business organization of PremierWest Bancorp and Bank of Southern
Oregon, keep available the services of its and their present officers and
employees, and keep the branch operations fully staffed with competent
employees, (ii) preserve the goodwill of those having business relationships
with PremierWest Bancorp and Bank of Southern Oregon, (iii) maintain and keep
their properties in as good repair and condition as at present, except for
depreciation due to ordinary wear and tear, (iv) keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that now
maintained by it, (v) perform in all material respects all obligations required
to be performed by PremierWest Bancorp and Bank of Southern Oregon and their
subsidiaries under all material contracts, leases and documents relating to or
affecting their assets, properties, and business, and (vi) comply with and
perform in all material respects all obligations and duties imposed by all
material federal, state, municipal, and local laws, and all rules, regulations
and orders imposed by federal, state, municipal or local governmental agencies.
5.4. EMPLOYMENT MATTERS. Neither PremierWest Bancorp nor Bank of
Southern Oregon is required to hire any employees of United Bancorp or Douglas
National Bank, but may if it so desires; provided, however, that PremierWest
Bancorp and Bank of Southern Oregon shall enter into employment agreements with
up to three officers of United Bancorp designated by United Bancorp to serve as
officers of PremierWest Bancorp and Bank of Southern Oregon after the Effective
Time, and the President and Chief Executive Officer and the Executive Vice
President, Chief Operating Officer and Secretary of Bank of Southern Oregon
shall continue to serve in those capacities with PremierWest Bancorp and Bank of
Southern Oregon after the Effective Time. All persons employed by PremierWest
Bancorp or Bank of Southern Oregon as of the Effective Time who do not have an
employment agreement with PremierWest Bancorp or Bank of Southern Oregon will
remain "at will" employees, meaning that their employment can be terminated for
any reason or no reason.
Following the Effective Time, the employee benefit programs to
be available and applicable to the persons who were employees of United Bancorp
or Douglas National Bank, and who become employees of Bank of Southern Oregon,
are as follows:
(i) Savings Plans. Bank of Southern Oregon maintains the Bank
of Southern Oregon 401(k) Profit Sharing Plan (the "Bank of Southern Oregon 401K
Plan"). At the Effective Time, Bank of Southern Oregon will credit the United
Bancorp and Douglas National Bank employees who become employees of Bank of
Southern Oregon, for purposes of the Bank of Southern Oregon 401K Plan, with all
service with United Bancorp
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or Douglas National Bank for purposes of determining their eligibility to
participate in such plan and the vested portion of their respective accrued
benefits under such plan.
(ii) Health Care Plans. At such time on or after the Effective
Time as Bank of Southern Oregon shall deem appropriate, Bank of Southern Oregon
will provide United Bancorp and Douglas National Bank employees hired by Bank of
Southern Oregon with such coverage under the Bank of Southern Oregon health care
plan as Bank of Southern Oregon then provides its employees, with all service
with United Bancorp and Douglas National Bank credited for purposes of
determining such employee's eligibility to participate in such plan and without
any "prior existing condition" exclusion.
No benefits currently provided United Bancorp or Douglas
National Bank employees that exceed benefits provided by Bank of Southern Oregon
will be grandfathered or provided, unless otherwise specifically agreed to by
Bank of Southern Oregon in writing or unless required by law. Other than
otherwise expressly stated herein, Bank of Southern Oregon shall not assume any
other health care benefit plans or benefits. Bank of Southern Oregon retains any
existing right to amend or terminate any such plan, provided such right has been
reserved by the plan sponsor in the plan document or otherwise and provided that
such right currently exists.
(iii) Other Benefit Plans. At such time on or promptly after
the Effective Time as Bank of Southern Oregon shall deem appropriate, Bank of
Southern Oregon shall provide former United Bancorp or Douglas National Bank
employees with such coverage under the Bank of Southern Oregon benefit plans and
programs as are generally provided to all employees of Bank of Southern Oregon.
All service with United Bancorp or Douglas National Bank shall be credited for
purposes of vesting and determining a former United Bancorp or Douglas National
Bank employee's eligibility to participate in such other benefit plans. No
benefits currently provided to United Bancorp or Douglas National Bank employees
that exceed the benefits provided by Bank of Southern Oregon will be
grandfathered or provided, unless otherwise specifically agreed to by Bank of
Southern Oregon in writing or unless required by law.
Notwithstanding anything contained herein to the contrary, no third
party shall have a right to enforce the provisions of this Section 5.4 or assert
any claim hereunder.
5.5. ACCESS, INFORMATION AND CONFIDENTIALITY. (a) The parties hereto
acknowledge that the PremierWest Bancorp and Bank of Southern Oregon Disclosure
Letter and the United Bancorp and Douglas National Bank Disclosure Letter are
incomplete and have not been delivered as of the date of this Agreement, and
with limited opportunity to conduct customary due diligence investigations of
each other, the parties hereto have relied principally or exclusively upon
publicly available information. PremierWest Bancorp and Bank of Southern Oregon
shall complete and deliver to United Bancorp and Douglas National Bank the
PremierWest Bancorp and Bank of Southern Oregon Disclosure Letter no later than
21 days after the date of execution of this Agreement. United Bancorp and
Douglas National Bank shall complete and deliver to PremierWest Bancorp and Bank
of Southern Oregon the United Bancorp and Douglas National Bank Disclosure
Letter no later than 21 days after the date of execution of this Agreement.
During that 21-day period, each of United Bancorp and Douglas National Bank, on
one hand, and PremierWest Bancorp and Bank of Southern Oregon, on the other, may
conduct such due diligence investigations of the other as reasonably requested,
during normal business hours. Conduct of such investigations by United Bancorp
or Douglas National Bank shall not relieve PremierWest Bancorp or Bank of
Southern Oregon of their obligation to provide to United Bancorp and Douglas
National Bank an accurate and complete PremierWest Bancorp and Bank of Southern
Oregon Disclosure Letter, and conduct of such investigations by PremierWest
Bancorp and Bank of Southern Oregon shall not relieve United Bancorp and Douglas
National Bank of their obligation to provide to PremierWest Bancorp and Bank of
Southern Oregon an accurate and complete United Bancorp and Douglas National
Bank Disclosure Letter. Provided the parties' respective disclosure letters are
delivered on or before the 21st day after execution of this Agreement, (i) the
representations and warranties in this Agreement that are qualified by reference
to the disclosure letters shall, to that extent, not be deemed to have been
breached if information in the disclosure letters is inconsistent with such
representations and warranties, and (ii) the representations and warranties in
this Agreement that are qualified by
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reference to the disclosure letters shall, to that extent, be deemed to have
been made anew on and as of the date of delivery of such disclosure letters.
(b) Without limiting the generality of the foregoing, United Bancorp
and Douglas National Bank shall grant to PremierWest Bancorp and Bank of
Southern Oregon and their representatives (including, without limitation,
directors, officers and employees of PremierWest Bancorp or Bank of Southern
Oregon, their counsel, accountants, environmental consultants and other
professionals retained by PremierWest Bancorp or Bank of Southern Oregon) full
access during normal business hours throughout the period prior to the Effective
Time to the books, contracts, records (including, without limitation, tax
returns), shareholder and customer information, properties, personnel and other
information and documents of United Bancorp and Douglas National Bank. With
prior notice to United Bancorp and Douglas National Bank, PremierWest Bancorp or
Bank of Southern Oregon may have environmental assessments conducted on any
properties owned, managed or controlled by United Bancorp or Douglas National
Bank. PremierWest Bancorp and Bank of Southern Oregon shall grant to United
Bancorp and Douglas National Bank and their representatives (including, without
limitation, directors, officers and employees of United Bancorp or Douglas
National Bank, their counsel, accountants, environmental consultants and other
professionals retained by United Bancorp or Douglas National Bank) full access
during normal business hours throughout the period prior to the Effective Time
to the books, contracts, records (including, without limitation, tax returns),
shareholder and customer information, properties, personnel and other
information and documents of PremierWest Bancorp and Bank of Southern Oregon.
With prior notice to PremierWest Bancorp and Bank of Southern Oregon, United
Bancorp and Douglas National Bank may have environmental assessments conducted
on any properties owned, managed or controlled by PremierWest Bancorp or Bank of
Southern Oregon.
(c) All information furnished by one party to another party in
connection with this Agreement and the transactions contemplated hereby that is
regarded by such furnishing party as confidential (and all information that is
subject to confidentiality requirements under the separate confidentiality
agreement executed by the parties hereto) shall be kept confidential by the
other party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this Agreement
and the transactions contemplated hereby. Nothing contained in this Section
shall restrict or prohibit United Bancorp and Douglas National Bank or
PremierWest Bancorp and Bank of Southern Oregon from disclosing information
required to be disclosed in any document filed with the FRB, FDIC, OCC,
Department of Consumer and Business Services and other Governmental Entities and
bodies. So long as this Agreement has not been terminated pursuant to Article 8
hereof, PremierWest Bancorp and Bank of Southern Oregon may, notwithstanding
this confidentiality provision, disclose such information as PremierWest
Bancorp, Bank of Southern Oregon, United Bancorp and Douglas National Bank agree
in writing is necessary or advisable in connection with explaining or providing
background information to securities analysts and others concerning the
transactions contemplated by this Agreement.
5.6. CERTAIN FILINGS; CONSENTS AND ARRANGEMENTS. PremierWest Bancorp,
Bank of Southern Oregon, United Bancorp and Douglas National Bank shall (a)
promptly file all reports and applications required to be filed with the FRB,
FDIC, OCC, Department of Consumer and Business Services and such other
Governmental Entities as may have jurisdiction for such approvals as may be
required to be obtained from such Governmental Entities in order to carry out
the transactions contemplated by this Agreement, (b) cooperate with one another
(i) in promptly determining whether any other filings are required to be made or
consents, approvals, permits or authorizations are required to be obtained under
any other federal, state or foreign law or regulation, and (ii) in promptly
making any such filings, furnishing information required in connection therewith
and timely seeking to obtain any such consents, approvals, permits or
authorizations, and (c) deliver to the other parties to this Agreement copies of
all such applications and reports promptly after they are filed. PremierWest
Bancorp and Bank of Southern Oregon shall use reasonable efforts to (i) file
with the FRB, FDIC, OCC and Department of Consumer and Business Services within
60 days after the date of this Agreement applications for such approvals as may
be required to be obtained to carry out the transactions contemplated by this
Agreement, and (ii) secure such approvals of the FRB, FDIC, OCC and Department
of Consumer and Business Services as are required.
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In no event shall any party hereto be liable for any untrue statement
of a material fact or omission to state a material fact in any filing made with
any Governmental Entity pursuant to this Section made in reliance upon, and in
conformity with, written information concerning another party hereto furnished
by such other party specifically for use in such filing. Each party hereto shall
advise the other parties promptly of the existence or occurrence of any fact or
event making untrue or misleading any statement of a material fact contained in
any such filing or any amendment or supplement thereto or that requires a change
in any such filing or any amendment or supplement thereto in order to make any
material statement therein accurate and complete in all material respects.
5.7. TAKEOVER STATUTES AND PROVISIONS. United Bancorp and Douglas
National Bank shall use diligent efforts to (i) exempt United Bancorp and
Douglas National Bank, this Agreement, the Merger and the other transactions
contemplated hereby and thereby from the requirements of any state takeover law
(including without limitation, statutes relating to business combinations,
freezeouts, fair price, merger moratorium, control share acquisitions or other
similar antitakeover statutes or regulations enacted under the laws of Oregon)
and from any similar provisions (including but not limited to "fair-price"
provisions and shareholder rights plans) of the Articles of Incorporation,
Articles of Association or Bylaws of either of them, as applicable, by action of
United Bancorp's and Douglas National Bank's Board of Directors, shareholders or
otherwise, and (ii) assist PremierWest Bancorp or Bank of Southern Oregon in
challenging the applicability of any Oregon takeover law to the Merger, the
Subsidiary Merger or the Share Exchange.
5.8. INDEMNIFICATION AND INSURANCE.
5.8.1. (a) From and after the Effective Time, PremierWest
Bancorp and Bank of Southern Oregon shall assume the obligations of United
Bancorp and Douglas National Bank arising under applicable Oregon law or federal
law in existence as of the date hereof, or as amended prior to the Effective
Time, and under United Bancorp's Articles of Incorporation and Bylaws or Douglas
National Bank's Articles of Association and Bylaws as in effect on the date
hereof, to indemnify, defend and hold harmless each person who is now, or has
been at any time prior to the date hereof or who becomes, prior to the Effective
Time, an officer, director or trustee of United Bancorp or Douglas National Bank
and their respective subsidiaries and employee stock ownership plan (the
"Indemnified Parties") against losses, claims, damages, costs, expenses
(including reasonable attorneys' fees), liabilities or judgments or amounts paid
in settlement (which settlement shall require the prior written consent of
PremierWest Bancorp and Bank of Southern Oregon) of or in connection with any
claim, action, suit, proceeding or investigation (a "Claim") in which an
Indemnified Party is, or is threatened to be made, a party or a witness based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of United Bancorp or Douglas National
Bank if such Claim pertains to any act, matter or fact arising, existing or
occurring prior to the Effective Time (including, without limitation, the Merger
and the transactions contemplated by this Agreement), regardless of whether such
Claim is asserted or claimed prior to, at or after the Effective Time.
PremierWest Bancorp and Bank of Southern Oregon shall pay expenses in advance of
the final disposition of any such action or proceeding to each Indemnified Party
to the full extent permitted by law and under United Bancorp's Articles of
Incorporation or Bylaws or Douglas National Bank's Articles of Association or
Bylaws. PremierWest Bancorp's and Bank of Southern Oregon's assumption of the
indemnification obligations of United Bancorp or Douglas National Bank as
provided herein shall continue for a period of two years or for any applicable
statutes of limitations, whichever is longer, after the Effective Time or, in
the case of claims asserted before the second anniversary of the Effective Time,
until such matters are finally resolved. Any Indemnified Party wishing to claim
indemnification under this provision, upon learning of any Claim shall notify
PremierWest Bancorp and Bank of Southern Oregon (but the failure to so notify
PremierWest Bancorp and Bank of Southern Oregon shall not relieve PremierWest
Bancorp and Bank of Southern Oregon from any liability under this section,
except to the extent PremierWest Bancorp or Bank of Southern Oregon is
materially prejudiced thereby). Notwithstanding the foregoing, the Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each matter under this section unless there is, under applicable standards of
professional conduct, a conflict on any one significant issue between the
positions of any two or more Indemnified Parties.
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(b) From and after the Effective Time, the
directors, officers and employees of United Bancorp or Douglas National Bank who
become directors, officers or employees of PremierWest Bancorp or Bank of
Southern Oregon, except for the indemnification rights set forth in subparagraph
(a) above, shall have indemnification rights with prospective application only.
The prospective indemnification rights shall consist of such rights to which
directors, officers or employees of PremierWest Bancorp or Bank of Southern
Oregon are entitled under the provisions of the Articles of Incorporation of
PremierWest Bancorp or Bank of Southern Oregon or similar governing documents of
PremierWest Bancorp or Bank of Southern Oregon, as in effect from time to time
after the Effective Time, as applicable, and provisions of applicable law as in
effect from time to time after the Effective Time.
(c) The obligations of PremierWest Bancorp and Bank
of Southern Oregon provided under this Section 5.8.1 are intended to benefit,
and be enforceable against PremierWest Bancorp and Bank of Southern Oregon
directly by, the Indemnified Parties, and shall be binding on all respective
successors of PremierWest Bancorp and Bank of Southern Oregon.
5.8.2. For a period of three years following the Effective
Time, PremierWest Bancorp and Bank of Southern Oregon will maintain in effect
the current insurance policies maintained by United Bancorp and Douglas National
Bank (or substitute policies with substantially the same coverage and terms)
covering directors', officers' and trustees' liability with respect to claims
arising from acts, factors or events that occurred before the Effective Time,
but only to the extent such insurance may be purchased or kept in full force on
commercially reasonable terms, taking into account the cost thereof and the
benefits provided thereby. It is agreed that such costs shall be commercially
reasonable so long as they do not exceed 150% of the costs currently paid for
such coverage by United Bancorp and Douglas National Bank. United Bancorp and
Douglas National Bank shall notify PremierWest Bancorp and Bank of Southern
Oregon prior to purchasing or continuing any insurance to cover the matters
contained herein. To the extent insurance is available under any of the
provisions in this Section to cover such claims and costs, such insurance shall
be the primary source of funding these obligations.
5.9. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use reasonably diligent efforts
promptly to take or cause to be taken all actions necessary, proper or advisable
under applicable laws to consummate the transactions contemplated by this
Agreement. In addition, without limitation, each party shall from time to time
execute such certificates as to factual matters necessary, proper or advisable
in order to receive the opinions contemplated by Article 6 or Article 7 of this
Agreement.
If at any time after the Effective Time the resulting corporation in
the Merger or the Subsidiary Merger considers or is advised that any further
deeds, bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record its right, title or
interest in and to any of the rights, properties or assets of United Bancorp or
Douglas National Bank acquired or to be acquired by the resulting corporation in
the Merger or the Subsidiary Merger, United Bancorp, Douglas National Bank and
their respective officers and directors shall be deemed to have granted to
PremierWest Bancorp, as Resulting Corporation in the Merger, and Bank of
Southern Oregon, as the corporation resulting from the Subsidiary Merger (and
then known as PremierWest Bank), an irrevocable power of attorney to execute and
deliver all such deeds, bills of sale, assignments and assurances and to take
and do all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in and to such
rights, properties or assets.
5.10. COMPLIANCE WITH ANTITRUST LAWS. Each of PremierWest Bancorp, Bank
of Southern Oregon, United Bancorp and Douglas National Bank shall use diligent
efforts to resolve such objections, if any, as may be asserted with respect to
the Merger by the FRB, the Department of Justice, the FDIC, the OCC or any other
Governmental Entity (including, without limitation, objections under any
antitrust laws and any applicable laws or regulations). If a suit is threatened
or instituted challenging the Merger as violative of the antitrust laws, each of
PremierWest Bancorp, Bank of
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Southern Oregon, United Bancorp and Douglas National Bank shall use reasonably
diligent efforts to resist, resolve or avoid the filing of such suit.
PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank shall use their reasonably diligent efforts to take such action as
may be required: (a) by the FRB, the Department of Justice, or any other
Governmental Entity in order to resolve such objections as any of them may have
to the Merger, or (b) by any federal or state court of the United States, in any
suit brought by a private party or Governmental Entity challenging the Merger as
violative of any antitrust laws, in order to avoid the entry of, or to effect
the dissolution of, any injunction, temporary restraining order or other order
which has the effect of preventing the consummation of the Merger.
5.11. PUBLICITY. The initial press release announcing this Agreement
shall be a joint press release in form and substance mutually agreed upon by the
parties. Thereafter, except as required by law, United Bancorp, PremierWest
Bancorp and Bank of Southern Oregon shall consult with each other and obtain the
consent as to form and substance of any subsequent press release, and provide a
written copy to the other prior to issuing any press releases, or otherwise
making public statements, with respect to the transactions contemplated hereby
and in making any filings with any Governmental Entity.
5.12. PROSPECTUS/JOINT PROXY STATEMENT; COMFORT LETTERS AND BLUE SKY
COMPLIANCE.
(a) PremierWest Bancorp and Bank of Southern Oregon shall prepare and
file with the Securities and Exchange Commission the Registration Statement
(including the Prospectus/Joint Proxy Statement (as hereinafter defined) forming
Part I thereof), together with any amendments required to be made thereto.
PremierWest Bancorp and Bank of Southern Oregon shall use reasonable efforts to
(i) file the Registration Statement with the Securities and Exchange Commission
within 90 days after the date of this Agreement, and (ii) have the Registration
Statement, as the same may be amended, declared effective by the Securities and
Exchange Commission as promptly as practicable thereafter.
(b) Within 60 days after the date hereof, United Bancorp shall prepare
appropriate proxy materials for the United Bancorp Shareholders' Meeting (as
hereinafter defined), which proxy materials shall conform in all material
respects to the provisions of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder, and which will include, without
limitation, a proxy statement of United Bancorp, a Notice of Meeting and form of
proxy (collectively, the "Proxy Statement"). The Proxy Statement shall be issued
by United Bancorp to United Bancorp shareholders together with (i) a prospectus
of PremierWest Bancorp relating to the offer and sale of PremierWest Bancorp
common stock to United Bancorp shareholders in connection with the Merger and to
Bank of Southern Oregon shareholders in connection with the Share Exchange (the
"Prospectus"), and (ii) a proxy statement prepared by Bank of Southern Oregon
for use in connection with the meeting of Bank of Southern Oregon's shareholders
at which they will be asked to consider and vote upon the Merger and the Share
Exchange (such proxy statement, together with United Bancorp's Proxy Statement,
being referred to herein as the "Joint Proxy Statement," and the Prospectus and
Joint Proxy Statement being referred to herein as the "Prospectus/Joint Proxy
Statement"). United Bancorp shall furnish PremierWest Bancorp and Bank of
Southern Oregon all information concerning United Bancorp, Douglas National Bank
and their respective subsidiaries, the United Bancorp Shareholders' Meeting and
the holders of its capital stock that is necessary for inclusion in or for
preparation and mailing of the Prospectus/Joint Proxy Statement, and shall
promptly take any necessary action in connection therewith.
(c) Each of PremierWest Bancorp and Bank of Southern Oregon, on one
hand, and United Bancorp and Douglas National Bank, on the other, agrees to (i)
cooperate with the other in preparation of the Registration Statement and
Prospectus/Joint Proxy Statement and (ii) take such other action so that the
Registration Statement may be filed with and declared effective by the
Securities and Exchange Commission as promptly as practicable and the
Prospectus/Joint Proxy Statement included therein may be mailed to United
Bancorp's shareholders and Bank of Southern Oregon's shareholders promptly
thereafter.
(d) Each of PremierWest Bancorp, Bank of Southern Oregon and United
Bancorp shall cause its respective independent auditors to issue a letter
addressed to PremierWest Bancorp, Bank of Southern Oregon and United Bancorp,
within three business days prior to the effective date of the Registration
Statement and also as of
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Closing, stating among other things, the following: (i) such accountants are
independent public accountants within the meaning of the Securities Act and the
rules and regulations promulgated thereunder; (ii) in the opinion of such
accountants, the financial statements included in the Prospectus/Joint Proxy
Statement and reported on therein by such accountants comply as to form in all
material respects with applicable accounting requirements and Securities and
Exchange Commission Regulation S-X; (iii) on the basis of specified limited
procedures (which procedures do not constitute an examination in accordance with
generally accepted auditing standards), including a reading of the latest
available unaudited financial statements and inquiries of officials responsible
for financial and accounting matters, nothing came to their attention which
caused them to believe that, during the period subsequent to December 31, 1998,
to a specified date not more than three business days prior to the effective
date of the Registration Statement and to a specified date not more than three
business days prior to Closing, there was any change in the shares of its
capital stock or long-term debt, if any, (other than changes due to payments in
accordance with the terms of such debt, or in the event of any such change in
long-term debt, the amount thereof) or any decrease (increase) in the total or
per share amount of its net income (net loss) as compared with the corresponding
period in the preceding year, except in all instances for changes or decreases
(increases) which the Prospectus/Joint Proxy Statement discloses have occurred
or may occur; and (iv) such accountants have read the other data included in the
Prospectus/Joint Proxy Statement with respect to the financial condition and
operations of their respective clients and they find such data to be correctly
computed and in agreement with the respective books and records of PremierWest
Bancorp, Bank of Southern Oregon, United Bancorp and Douglas National Bank.
(e) PremierWest Bancorp and Bank of Southern Oregon shall also take any
action required to be taken under any applicable state securities or Blue Sky
laws in connection with the issuance of PremierWest Bancorp common stock
pursuant to the Merger and the Share Exchange. United Bancorp and Douglas
National Bank shall take such action, and furnish PremierWest Bancorp and Bank
of Southern Oregon all information concerning United Bancorp, Douglas National
Bank, their respective subsidiaries and the holders of United Bancorp's capital
stock, as PremierWest Bancorp or Bank of Southern Oregon may reasonably request
in connection with the issuance, qualification or registration of PremierWest
Bancorp common stock under applicable state securities or Blue Sky laws.
5.13. AFFILIATES' SHARES.
(a) Within 30 days after the date of this Agreement, United Bancorp and
Douglas National Bank shall identify to PremierWest Bancorp and Bank of Southern
Oregon all persons whom United Bancorp and Douglas National Bank reasonably
believes are their "affiliates," as that term is used in paragraphs (c) and (d)
of Rule 145 under the Securities Act of 1933 and/or Accounting Series, Releases
130 and 135, as amended, of the Securities and Exchange Commission ("Rule 145
Affiliates"). Thereafter and until Closing, United Bancorp and Douglas National
Bank shall identify to PremierWest Bancorp and Bank of Southern Oregon each
additional person whom it reasonably believes to have thereafter become Rule 145
Affiliates.
(b) Each of United Bancorp and Douglas National Bank shall use its
diligent efforts to cause each person who is identified as a Rule 145 Affiliate
pursuant to clause (a) above to deliver to PremierWest Bancorp and Bank of
Southern Oregon not later than the date on which the Merger is approved by
United Bancorp's shareholders a written agreement, substantially in the form of
Exhibit 5.13. Because the Merger is intended to qualify for "pooling of
interests" accounting treatment, the shares of PremierWest Bancorp common stock
received by such Rule 145 Affiliates in the Merger shall not be transferable
from 30 days before the date on which the Merger becomes effective until such
time as financial results covering at least 30 days of post-Merger operations
have been published, within the meaning of Section 201.01 of the Securities and
Exchange Commission's Codification of Financial Reporting Policies, regardless
of whether each such Rule 145 Affiliate has provided the written agreement
referred to in this Section. It is acknowledged and agreed by the parties hereto
that the certificates representing shares of PremierWest Bancorp common stock
issued to Rule 145 affiliates will bear an appropriate restrictive legend.
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5.14. SHAREHOLDERS' MEETINGS.
5.14.1 United Bancorp shall take all action necessary, in
accordance with applicable law and its Articles of Incorporation, as amended,
and Bylaws, to convene a special or regular meeting of the holders of United
Bancorp common stock as promptly as practicable after the effective date of the
Registration Statement for the purpose of considering and taking action upon
this Agreement and the transactions contemplated herein (the "United Bancorp
Shareholders' Meeting"). Subject to the fiduciary obligations and duties of the
Board of Directors of United Bancorp under Oregon law and to the provisions of
Section 5.1 and Section 8.1 of this Agreement, the Board of Directors of United
Bancorp shall recommend that the holders of United Bancorp common stock vote in
favor of and approve the Merger and adopt this Agreement at the United Bancorp
Shareholders' Meeting, and in favor of approval of the control share acquisition
represented thereby if a separate vote under the Oregon Control Share Act is
necessary.
5.14.2 Bank of Southern Oregon shall take all action
necessary, in accordance with applicable law and its Articles of Incorporation,
as amended, and Bylaws, to convene a special or regular meeting of the holders
of Bank of Southern Oregon common stock as promptly as practicable after the
effective date of the Registration Statement for the purpose of considering and
taking action upon this Agreement and the transactions contemplated herein.
Subject to the fiduciary obligations and duties of the Board of Directors of
Bank of Southern Oregon under Oregon law and to the provisions of Section 5.1
and Section 8.1 of this Agreement, the Board of Directors of Bank of Southern
Oregon shall recommend that the holders of Bank of Southern Oregon common stock
vote in favor of and approve the Merger and the Share Exchange and adopt this
Agreement at the Bank of Southern Oregon Shareholders' Meeting.
5.15. TAX AND ACCOUNTING TREATMENT. Whether before or after the
Effective Time, neither PremierWest Bancorp and Bank of Southern Oregon, on one
hand, nor United Bancorp and Douglas National Bank, on the other, shall
intentionally take or cause to be taken any action that would adversely affect
the ability of the Resulting Corporation to treat the Merger, the Subsidiary
Merger and the Share Exchange as a pooling of interests for accounting purposes
or the characterization of the Merger, the Subsidiary Merger and the Share
Exchange as a tax-free reorganization under Section 368(a) of the Code, and each
of PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank shall take such action(s) as is necessary to ensure the Merger,
the Subsidiary Merger and the Share Exchange may be treated by the Resulting
Corporation as a pooling of interests for accounting purposes and as a tax-free
reorganization under Section 368(a) of the Code.
5.16. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, United Bancorp and Douglas National Bank, on
one hand, and PremierWest Bancorp and Bank of Southern Oregon, on the other,
will promptly notify the other of (i) any material change in the normal course
of its business, (ii) any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated), or receipt of
any memorandum or understanding or cease and desist order from a regulatory
authority, or (iii) the institution or the threat of material litigation
involving such party and will keep the other party fully informed of such
events. During such period, PremierWest Bancorp and Bank of Southern Oregon
shall promptly provide United Bancorp and Douglas National Bank, and United
Bancorp and Douglas National Bank shall promptly provide PremierWest Bancorp and
Bank of Southern Oregon, with monthly unaudited financial statements as soon as
they are available and each shall promptly provide the other with a copy of all
Reports filed by it after the date of this Agreement through the Effective Time.
Each of PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank agrees to keep the foregoing information strictly confidential.
5.17. INTEGRATION OF OPERATIONS; YEAR 2000 COMPLIANCE. (a) Subject to
applicable laws, regulations and the requirements of Governmental Entities,
during the period from the date of this Agreement to the Effective Time, the
parties will consult and cooperate fully with each other to do all things
advisable to prepare for and facilitate the integration of United Bancorp and
Douglas National Bank operations into and with PremierWest Bancorp's and Bank of
Southern Oregon's operations as rapidly and effectively as possible as of the
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Effective Time, including, without limitation, preparation for the integration
of such branch operations, if any (including, without limitation, the
preparation for the necessary installation of all of Bank of Southern Oregon's
hardware and software systems), management information systems, financial and
accounting operations, employee compensation and benefit matters and similar
matters, and employee training, as requested by PremierWest Bancorp or Bank of
Southern Oregon; provided, however, that United Bancorp and Douglas National
Bank shall not be required prior to the date upon which all conditions to the
obligation of United Bancorp and Douglas National Bank to consummate the Merger
have been waived or satisfied to make any changes in its branch operations,
management information systems, financial and accounting systems or other
operational matters that United Bancorp and Douglas National Bank reasonably
believe should be deferred until all conditions to the obligation of United
Bancorp and Douglas National Bank to consummate the Merger have been waived or
satisfied.
(b) After the date upon which all conditions to the obligation of
United Bancorp and Douglas National Bank to consummate the Merger have been
waived or satisfied, each of United Bancorp, Douglas National Bank and their
respective subsidiaries shall, at their sole expense, take or cause to be taken
such actions as are necessary in order to ensure that all of their
mission-critical internal and external systems are substantially Year 2000
compliant. If Bank of Southern Oregon determines that additional steps should be
taken by any of United Bancorp, Douglas National Bank or their respective
subsidiaries in order to ensure that they are Year 2000 compliant, or if as a
result of a regulatory examination or assessment Douglas National Bank's Year
2000 compliance is rated less than satisfactory, United Bancorp and Douglas
National Bank shall, at their expense, take or cause to be taken such additional
actions as reasonably requested by Bank of Southern Oregon or as may be required
by the FDIC in order to achieve Year 2000 compliance in accordance with
applicable regulatory guidelines and in order to address any deficiencies noted
in the regulatory examination or assessment of Douglas National Bank.
5.18. FORMATION OF PREMIERWEST BANCORP. Bank of Southern Oregon
covenants and agrees to (i) complete formation of PremierWest Bancorp as
promptly as possible after the date hereof (ii) cause PremierWest Bancorp to
execute and deliver this Agreement and agree to be bound by all of the terms and
provisions of this Agreement applicable to it and to affirm all of the
representations and warranties of PremierWest Bancorp set forth herein.
ARTICLE 6
CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party to effect the Merger, the
Subsidiary Merger and the Share Exchange shall be subject to the fulfillment or
waiver at or prior to the Closing of the following conditions:
(a) The Merger and this Agreement shall have been approved and adopted
by the affirmative vote of the holders of United Bancorp common stock required
by law and the Articles of Incorporation and Bylaws of United Bancorp. The
Subsidiary Merger and this Agreement shall have been approved and adopted by the
affirmative vote of United Bancorp (as sole shareholder of Douglas National Bank
common stock) required by law and the Articles of Association and Bylaws of
Douglas National Bank. The Merger, the Subsidiary Merger and the Share Exchange
and this Agreement shall have been approved and adopted by the affirmative vote
of the holders of at least two thirds of the Bank of Southern Oregon common
stock, as required by law and the Articles of Incorporation and Bylaws of Bank
of Southern Oregon.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state or federal
antitrust authority, of the FRB, FDIC, the OCC, the Department of Consumer and
Business Services and any other Governmental Entity (collectively, "Consents")
that are necessary for the consummation of the Merger and the Subsidiary Merger
shall have been obtained or shall have occurred and shall
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be in full force and effect at the Effective Time, and all applicable waiting
periods shall have expired, except for any immaterial Consents that, if not
obtained, would not involve criminal liability, any material civil penalties or
fines, or would not have or reasonably be expected to have a Material Adverse
Effect on the combined businesses, financial condition, or results of operations
of PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and Douglas
National Bank, taken as a whole. A material Consent shall not be deemed to have
been obtained if the Consent includes any conditions or requirements that, in
the reasonable opinion of the Board of Directors of PremierWest Bancorp or Bank
of Southern Oregon, would have a Material Adverse Effect on the anticipated
economic and business benefits to PremierWest Bancorp and Bank of Southern
Oregon of the transactions contemplated by this Agreement.
(c) The Registration Statement shall have become effective under the
Securities Act of 1933, 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, to the knowledge of the parties,
threatened by the Securities and Exchange Commission.
(d) All state securities and Blue Sky permits and other authorizations
and approvals necessary to consummate the Merger and the Share Exchange and the
transactions contemplated hereby shall have been received and shall remain in
full force and effect, no order restraining the ability of PremierWest Bancorp
to issue common stock pursuant to the Merger and the Share Exchange shall have
been issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the parties, threatened by any state securities administrator.
(e) No temporary restraining order, preliminary or permanent injunction
or other order by any federal or state court or agency in the United States
enjoining, prohibiting or materially delaying the consummation of the Merger,
the Subsidiary Merger and the Share Exchange shall have been issued and remain
in effect.
(f) Counsel to United Bancorp (or other counsel acceptable to United
Bancorp, PremierWest Bancorp and Bank of Southern Oregon) shall have delivered
to United Bancorp, Douglas National Bank, PremierWest Bancorp and Bank of
Southern Oregon such counsel's opinion substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion, which
shall be consistent with the state of facts existing at the Effective Time, the
Merger, the Subsidiary Merger and the Share Exchange constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that,
accordingly, (i) no gain or loss will be recognized by United Bancorp, Douglas
National Bank, PremierWest Bancorp and Bank of Southern Oregon as a result
thereof and (ii) no gain or loss will be recognized by a shareholder of United
Bancorp who receives PremierWest Bancorp common stock in exchange for shares of
United Bancorp common stock, except with respect to cash received in lieu of
fractional share interests, or by a shareholder of Bank of Southern Oregon who
receives PremierWest Bancorp common stock in exchange for shares of Bank of
Southern Oregon common stock. In rendering such opinion, counsel may require and
rely upon representations contained in certificates of officers of United
Bancorp, Douglas National Bank, PremierWest Bancorp, Bank of Southern Oregon and
others. The opinion of United Bancorp's counsel (or such other counsel) shall be
dated the date of the Closing.
(g) PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and
Douglas National Bank shall have received a comfort letter from Symonds, Evans &
Larson, independent public accountants of PremierWest Bancorp and Bank of
Southern Oregon, and a comfort letter from Knight, Vale & Gregory, Inc., P.S.,
independent public accountants of United Bancorp and Douglas National Bank, to
the effect set forth in Section 5.12(d). The independent accountants' comfort
letters shall be dated the date of the Closing.
(h) PremierWest Bancorp and United Bancorp a shall have received a
letter from Symonds, Evans & Larson and a letter from Knight, Vale & Gregory,
Inc., P.S. to the effect that the Merger, the Subsidiary Merger and the Share
Exchange qualify for pooling of interests accounting treatment. The independent
accountants' letters shall be dated as of the Closing date.
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6.2. CONDITIONS TO OBLIGATION OF UNITED BANCORP AND DOUGLAS NATIONAL
BANK
The obligation of United Bancorp and Douglas National Bank to effect
the Merger and the Subsidiary Merger shall be subject to the fulfillment or
waiver at or prior to the Closing of the additional following conditions:
(a) Each of PremierWest Bancorp and Bank of Southern Oregon shall have
performed in all material respects all of its obligations contained in this
Agreement required to be performed at or prior to the Closing.
(b) The representations and warranties of each of PremierWest Bancorp
and Bank of Southern Oregon contained in this Agreement shall be true and
correct both: (i) on the date of this Agreement, and (ii) as of the Effective
Time as if made at and as of such time, (x) except, both on the date of this
Agreement and at the Effective Time, as expressly contemplated or permitted by
this Agreement, (y) except, as of the Effective Time, for representations and
warranties relating to a time or times other than the Effective Time, and (z)
except, both on the date of this Agreement and at the Effective Time, to the
extent that the inaccuracy of the representations or warranties of PremierWest
Bancorp or Bank of Southern Oregon, individually or in the aggregate, shall not
have a Material Adverse Effect on PremierWest Bancorp, Bank of Southern Oregon
and their subsidiaries, taken as a whole.
(c) United Bancorp shall have received a letter, dated as of the date
of the Proxy Statement, from Hoefer & Arnett Incorporated to the effect that, in
its opinion as of such date, the terms of the Merger are fair to United
Bancorp's shareholders from a financial point of view.
(d) Since the date of this Agreement, and except as may be explicitly
provided in this Agreement, there shall not have been any change in the
financial condition, results of operations or business of PremierWest Bancorp or
Bank of Southern Oregon that, either individually or in the aggregate, would
have a Material Adverse Effect on PremierWest Bancorp, Bank of Southern Oregon
and their subsidiaries, taken as a whole.
(e) There shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges or seeks to prevent or delay the consummation of the Merger or the
Subsidiary Merger.
(f) On or before the Closing, PremierWest Bancorp and Bank of Southern
Oregon shall have caused all of the following to be delivered to United Bancorp
and Douglas National Bank:
(i) Articles of Merger and Articles of Share Exchange duly
executed and in such other form as is appropriate for filing
with the Oregon Secretary of State or, as necessary, with the
Director of the Department of Consumer and Business Services;
(ii) Certificate of the President and Chief Executive Officer and
the principal financial officer of each of PremierWest Bancorp
and Bank of Southern Oregon certifying in their capacities as
such officers that (i) the warranties and representations of
PremierWest Bancorp and Bank of Southern Oregon set forth in
this Agreement were true and correct on the date of this
Agreement, and are true and correct as of the Effective Time
as if made at and as of such time, except (a) both on the date
of this Agreement and at the Effective Time, as expressly
contemplated or permitted by this Agreement and (b) as of the
Effective Time, for representations and warranties relating to
a time or times other than the Effective Time; and (ii) each
of PremierWest Bancorp and Bank of Southern
Oregon has caused all of its covenants set forth in this
Agreement to be fully performed and satisfied in all material
respects. The certificate shall be dated as of the date of
Closing;
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(iii) Copies of resolutions adopted by the directors and, as
necessary, the shareholders of PremierWest Bancorp and Bank of
Southern Oregon, approving and adopting the Merger and this
Agreement and authorizing the consummation of the transactions
described therein, accompanied by a Certificate of the
Secretary, or Assistant Secretary of each of PremierWest
Bancorp and Bank of Southern Oregon dated as of the date of
Closing and certifying (i) the date and manner of the adoption
of each such resolution, and (ii) that each such resolution is
in full force and effect, without amendment, as of the Closing
date; and
(iv) The written opinion of Grady & Associates, in form and
substance satisfactory to the parties and dated as of the
Closing date.
6.3. CONDITIONS TO OBLIGATION OF PREMIERWEST BANCORP AND BANK OF
SOUTHERN OREGON
The obligation of PremierWest Bancorp and Bank of Southern Oregon to
effect the Merger, the Subsidiary Merger and the Share Exchange shall be subject
to the fulfillment or waiver at or prior to the Closing of the additional
following conditions:
(a) Each of United Bancorp and Douglas National Bank shall have
performed in all material respects all of its obligations contained in this
Agreement required to be performed at or prior to the Closing.
(b) The representations and warranties of each of United Bancorp and
Douglas National Bank contained in this Agreement shall be true and correct
both: (i) on the date of this Agreement, and (ii) as of the Effective Time as if
made on and as of such time, (x) except, both on the date of this Agreement and
at the Effective Time, as expressly contemplated or permitted by this Agreement,
(y) except, as of the Effective Time, for representations and warranties
relating to a time or times other than the Effective Time, and (z) except, both
on the date of this Agreement and at the Effective Time, to the extent that the
inaccuracy of the representations or warranties of United Bancorp or Douglas
National Bank, individually or in the aggregate, shall not have a Material
Adverse Effect on United Bancorp, Douglas National Bank and their subsidiaries,
taken as a whole.
(c) Since the date of this Agreement, and except as may be explicitly
provided in this Agreement, there shall not have been any change in the
financial condition, results of operations or business of United Bancorp or
Douglas National Bank that, either individually or in the aggregate, would have
a Material Adverse Effect on United Bancorp, Douglas National Bank and their
subsidiaries, taken as a whole.
(d) In the aggregate, an amount less than ten percent (10%) of the
total consideration payable in connection with the Merger, the Subsidiary Merger
and the Share Exchange shall be payable (i) for purchase of fractional shares,
(ii) to holders of United Bancorp common stock who have exercised dissenters'
rights with respect to their United Bancorp common stock under the ORS in
connection with the Merger and (iii) to holders of Bank of Southern Oregon
common stock who have exercised dissenters' rights with respect to their Bank of
Southern Oregon common stock under the ORS in connection with the Merger or the
Share Exchange. The parties acknowledge and agree that this condition shall be
deemed not to have been satisfied if, in the reasonable opinion of PremierWest
Bancorp's and Bank of Southern Oregon's independent auditors, the aggregate
consideration payable in respect of fractional shares and dissenting shares
would prevent the Merger, the Subsidiary Merger and the Share Exchange from
being accounted for using the pooling of interests method of accounting.
(e) There shall not be any action or proceeding commenced by or before
any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges or seeks to prevent or delay the consummation of the Merger, the
Subsidiary Merger or the Share Exchange or seeks to impose material limitations
on the ability of PremierWest Bancorp or Bank of
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Southern Oregon to exercise full rights of ownership of the assets or business
of United Bancorp or Douglas National Bank.
(f) There shall not be in effect or proposed any order with respect to
the transactions contemplated by this Agreement that in the reasonable judgment
of PremierWest Bancorp and Bank of Southern Oregon would (i) materially and
adversely affect the ability of PremierWest Bancorp and Bank of Southern Oregon
to enjoy the economic or other benefits of the Merger, the Subsidiary Merger and
the Share Exchange or (ii) impose any material adverse condition, limitation or
requirement on PremierWest Bancorp or Bank of Southern Oregon in connection with
the Merger, the Subsidiary Merger or the Share Exchange.
(g) All Consents that are necessary for the consummation of the Share
Exchange shall have been obtained and shall be in full force and effect at the
Effective Time, and all applicable waiting periods shall have expired, except
for any immaterial Consents that, if not obtained, would not involve criminal
liability, any material civil penalties or fines, or would not have or
reasonably be expected to have a Material Adverse Effect on the combined
businesses, financial condition, or results of operations of PremierWest
Bancorp, Bank of Southern Oregon, United Bancorp and Douglas National Bank,
taken as a whole. A material Consent shall not be deemed to have been obtained
if the Consent includes any conditions or requirements that, in the reasonable
opinion of the Board of Directors of PremierWest Bancorp or Bank of Southern
Oregon, would have a Material Adverse Effect on the anticipated economic and
business benefits to PremierWest Bancorp and Bank of Southern Oregon of the
transactions contemplated by this Agreement.
(h) There shall have been delivered to PremierWest Bancorp and Bank of
Southern Oregon agreements substantially in the form of Exhibit 5.13 by all Rule
145 Affiliates.
(i) On or before the Closing, United Bancorp and Douglas National Bank
shall have caused all of the following to be delivered to PremierWest Bancorp
and Bank of Southern Oregon:
(i) Articles of Merger duly executed by United Bancorp and Douglas
National Bank in accordance with the ORS, in such other form
as is appropriate for filing with the Oregon Secretary of
State or, as necessary, with the Director of the Department of
Consumer and Business Services;
(ii) A certificate of the President and Chief Executive Officer and
the principal financial officer of each of United Bancorp and
Douglas National Bank certifying in their capacities as such
officers that (i) the warranties and representations of United
Bancorp and Douglas National Bank set forth in this Agreement
were true and correct on the date of this Agreement, and are
true and correct as of the Effective Time as if made at and as
of such time, except (a) both on the date of this Agreement
and at the Effective Time, as expressly contemplated or
permitted by this Agreement and (b) as of the Effective Time,
for representations and warranties relating to a time or times
other than the Effective Time; and (ii) each of United Bancorp
and Douglas National Bank has caused all its covenants set
forth in this Agreement to be fully performed and satisfied in
all material respects. The certificate shall be dated as of
the date of Closing;
(iii) Copies of all resolutions adopted by the directors and
shareholders of United Bancorp and Douglas National Bank
approving and adopting this Agreement and authorizing the
consummation of the transactions described herein, accompanied
by a certificate of the secretary or the assistant secretary
of each of United Bancorp and Douglas National Bank, dated as
of the Closing date, and certifying (i) the date and manner of
the adoption of each such resolution, and (ii) that each such
resolution is in full force and effect, without amendment, as
of the Closing date;
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(iv) The written opinion of Farleigh, Wada & Witt, in form and
substance satisfactory to the parties and dated as of the
Closing date; and
(v) The original, complete minute books of United Bancorp
containing at least the Articles of Incorporation, as the same
may have been amended and restated, and Bylaws, and all of the
minutes and actions of the shareholders, directors and
committees or directors and share transfer and registration
records of United Bancorp.
ARTICLE 7
CLOSING
(a) Provided that this Agreement is not earlier terminated pursuant to
Section 8.1 hereof, the Closing will occur (i) at 10:00 a.m. (local time) at the
principal executive offices of Bank of Southern Oregon as promptly as
practicable after the date on which all of the conditions set forth in Article 6
of this Agreement are satisfied or duly waived, but not before at least fifteen
days have elapsed since FRB and FDIC approval of the Merger, the Subsidiary
Merger and the Share Exchange, or (ii) at such other time and place and on such
other date as PremierWest Bancorp, Bank of Southern Oregon, United Bancorp and
Douglas National Bank may agree. Each of PremierWest Bancorp, Bank of Southern
Oregon, United Bancorp and Douglas National Bank acknowledges that time is of
the essence of this Agreement.
(b) Each of PremierWest Bancorp and Bank of Southern Oregon and each of
United Bancorp and Douglas National Bank shall use its best efforts to execute
and deliver, on or prior to Closing, all such instruments, documents and
certificates as may be necessary or advisable in order for the transactions
contemplated by this Agreement to be consummated as soon as practicable.
ARTICLE 8
MISCELLANEOUS
8.1. TERMINATION.
8.1.1. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement by the shareholders of United
Bancorp and the shareholders of Bank of Southern Oregon:
(a) by mutual agreement of all of the parties hereto, by the
vote of a majority of the Board of Directors of each of PremierWest Bancorp,
Bank of Southern Oregon, United Bancorp and Douglas National Bank;
(b) by the vote of a majority of the Board of Directors of
each of United Bancorp and Douglas National Bank (i) if any of the conditions
specified in Sections 6.1 and 6.2 have not been met at such time as such
condition can no longer be satisfied, unless waived by United Bancorp and
Douglas National Bank, (ii) if the Merger shall not have been consummated on or
before July 1, 2000 (provided that United Bancorp and Douglas National Bank are
not in material breach of any representation, warranty, covenant or other
agreement contained herein), or (iii) if any regulatory agency has denied
approval of the Merger or the Subsidiary Merger;
(c) by the vote of a majority of the Board of Directors of
each of PremierWest Bancorp and Bank of Southern Oregon (i) if any of the
conditions specified in Sections 6.1 and 6.3 have not been met at such time as
such condition can no longer be satisfied, unless waived by PremierWest Bancorp
and Bank of Southern Oregon, (ii) if the Merger shall not have been consummated
on or before July 1, 2000 (provided that PremierWest Bancorp and Bank of
Southern Oregon are not in material breach of any representation, warranty,
covenant or other agreement contained herein), or (iii) if any regulatory agency
has denied approval of the Merger, the Subsidiary Merger or the Share Exchange;
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(d) (i) by the vote of a majority of the Board of Directors of
each of PremierWest Bancorp and Bank of Southern Oregon in the event of a
material breach or failure to perform by United Bancorp or Douglas National Bank
of any representation, warranty, covenant or agreement, which breach or failure
is not cured, or cannot be cured, within 30 days after written notice thereof is
given to the party committing such breach or failure, or (ii) by the vote of a
majority of the Board of Directors of each of United Bancorp and Douglas
National Bank in the event of a material breach or failure to perform by
PremierWest Bancorp or Bank of Southern Oregon of any representation, warranty,
covenant or agreement, which breach or failure is not cured, or cannot be cured,
within 30 days after written notice thereof is given to the party committing
such breach or failure;
(e) By a vote of a majority of the Board of Directors of
United Bancorp upon acceptance by United Bancorp of an Acquisition Transaction
pursuant to Section 5.1(b) and the payment to PremierWest Bancorp and Bank of
Southern Oregon required thereunder; or
(f) By the vote of a majority of the Board of Directors of
each of United Bancorp and Douglas National Bank at any time prior to the second
full day immediately prior to the Closing with immediate notice to PremierWest
Bancorp and Bank of Southern Oregon, or by the vote of a majority of the Board
of Directors of each of PremierWest Bancorp and Bank of Southern Oregon at any
time prior to the second full day immediately prior to the Closing with
immediate notice to United Bancorp and Douglas National Bank, if the Bank of
Southern Oregon Closing Price (as hereinafter defined) is less than $5.50 per
share or more than $8.50 per share; provided, however, that United Bancorp and
Douglas National Bank shall pay an aggregate of $500,000 to PremierWest Bancorp
and Bank of Southern Oregon in immediately available federal funds immediately
after termination by United Bancorp and Douglas National Bank under this Section
8.1.1(f), and PremierWest Bancorp and Bank of Southern Oregon shall pay an
aggregate of $500,000 to United Bancorp and Douglas National Bank in immediately
available federal funds immediately after termination by PremierWest Bancorp and
Bank of Southern Oregon under this Section 8.1.1(f). "Bank of Southern Oregon
Closing Price" shall mean the average of the mean between the bid and asked
closing prices per share of Bank of Southern Oregon common stock on the OTC
Bulletin Board (as reported by The Wall Street Journal or, if not reported
thereby, another authoritative source) for the most recent twenty (20) days on
which actual trades of such shares occur ending on the seventh (7th) calendar
day immediately preceding the Closing. If this Agreement is terminated pursuant
to this Section 8.1.1(f) and the payment required by this Section 8.1.1(f) is
made, either party (meaning United Bancorp and Douglas National Bank, on one
hand, and PremierWest Bancorp and Bank of Southern Oregon, on the other) may
enter into an Acquisition Transaction with a third party without further
liability to the other party hereto arising as a result of entry into such an
Acquisition Transaction.
8.1.2. (a) The parties hereto acknowledge that their
respective disclosure letters are not complete and have not been delivered on or
before the date of execution of this Agreement. Under Section 5.5 of this
Agreement, the parties have agreed to complete and deliver their respective
disclosure letters no later than 21 days after the date of execution of this
Agreement. Accordingly, at any time during the seven-day period beginning at
9:00 a.m., Pacific Time, on the 22nd day after execution of this Agreement and
ending at 5:00 p.m., Pacific Time, on the 28th day after execution of this
Agreement, (i) United Bancorp and Douglas National Bank may (by the vote of a
majority of their respective Boards of Directors) terminate this Agreement by
written notice to PremierWest Bancorp and Bank of Southern Oregon, and (ii)
PremierWest Bancorp and Bank of Southern Oregon may (by the vote of a majority
of their respective Boards of Directors) terminate this Agreement by written
notice to United Bancorp and Douglas National Bank. To be effective, such
termination notice must be received no later than 5:00 p.m., Pacific Time, on
the 28th day after execution of this Agreement.
(b) If United Bancorp and Douglas National Bank terminate this
Agreement pursuant to Section 8.1.2(a), United Bancorp shall pay to PremierWest
Bancorp and Bank of Southern Oregon an aggregate of $250,000 in immediately
available federal funds immediately after such termination. If PremierWest
Bancorp and Bank of Southern Oregon terminate this Agreement pursuant to Section
8.1.2(a), PremierWest Bancorp and Bank of Southern Oregon shall pay to United
Bancorp and Douglas National Bank an aggregate of $25,000 in immediately
available federal funds immediately after such termination; provided, however,
that PremierWest
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Bancorp and Bank of Southern Oregon shall not be required to make such payment
if PremierWest Bancorp and Bank of Southern Oregon terminate this Agreement
pursuant to Section 8.1.2(a) because of the United Bancorp Employee Stock
Ownership Plan or the stock option plans of United Bancorp and the consequences
under pooling of interests accounting of the treatment of such Employee Stock
Ownership Plan or stock option plans provided by this Agreement.
If this Agreement is terminated pursuant to this Section
8.1.2(a) and the payment required by this Section 8.1.2(a) is made, either party
(meaning United Bancorp and Douglas National Bank, on one hand, and PremierWest
Bancorp and Bank of Southern Oregon, on the other) may enter into an Acquisition
Transaction with a third party without further liability to the other party
hereto arising as a result of entry into such an Acquisition Transaction.
8.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES; EFFECT OF
TERMINATION.
The representations and warranties set forth in Articles 3 and 4 of
this Agreement will terminate at the Effective Time or the earlier termination
of this Agreement pursuant to Section 8.1, as the case may be. Thereafter, none
of PremierWest Bancorp, Bank of Southern Oregon, United Bancorp, Douglas
National Bank or any of their directors, officers or employees shall have any
liability or obligation with respect thereto.
8.3. WAIVER. United Bancorp and Douglas National Bank may by written
notice to PremierWest Bancorp and Bank of Southern Oregon, and PremierWest
Bancorp and Bank of Southern Oregon may by written notice to United Bancorp and
Douglas National Bank: (a) extend the time for the performance of any of the
obligations or other actions of such other party under this Agreement; (b) waive
any inaccuracies in the representations or warranties of such other party
contained in this Agreement or in any document delivered pursuant to this
Agreement; (c) waive compliance with any of the conditions or covenants of such
other party contained in this Agreement; or (d) waive or modify performance of
any of the obligations of such other party under this Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including without limitation any investigation by or on behalf of either party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any of the representations, warranties, covenants, conditions or
agreements contained in this Agreement. The waiver by either party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
8.4. AMENDMENT. By action of the parties' respective Boards of
Directors, this Agreement may be amended or supplemented by the parties hereto
at any time before or after approval of this Agreement by the shareholders of
United Bancorp and the shareholders of Bank of Southern Oregon; provided
however, that any such amendment or supplement to this Agreement made subsequent
to the adoption of this Agreement by the shareholders of United Bancorp shall
not (a) alter the amount or change the form of the consideration in the Merger
contemplated by this Agreement, (b) alter or change any material term of the
Articles of Incorporation of PremierWest Bancorp to be affected by the Merger,
or (c) alter or change the qualification of the Merger as a tax-free
reorganization under the provisions of Section 368 of the Code.
8.5. ENTIRE AGREEMENT. This Agreement and the agreements referenced and
contemplated herein contain the entire agreement among PremierWest Bancorp, Bank
of Southern Oregon, United Bancorp and Douglas National Bank with respect to the
Merger and the other transactions contemplated hereby, and supersede all prior
agreements among PremierWest Bancorp, Bank of Southern Oregon, United Bancorp
and Douglas National Bank with respect to such matters.
8.6. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Oregon, without giving effect to the
principles of conflicts of law thereof.
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8.7. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective meanings
given in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934;
(ii) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct
or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on United Bancorp, Douglas National
Bank, PremierWest Bancorp or Bank of Southern Oregon means a
material adverse effect (other than as a result of changes (x)
in banking laws or regulations of general applicability or
interpretations thereof by court or governmental entities, and
(y) in generally accepted accounting principles) on the
respective condition (financial and otherwise), results of
operations, or business of United Bancorp, Douglas National
Bank, PremierWest Bancorp or Bank of Southern Oregon, as the
case may be, or on the ability of United Bancorp, Douglas
National Bank, PremierWest Bancorp or Bank of Southern Oregon,
as the case may be, to consummate the transactions
contemplated hereby.
8.8. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed to have been duly given or delivered, if delivered
personally or delivered by facsimile or by a recognized commercial courier, to
each of the parties at the following addresses:
TO UNITED BANCORP TO PREMIERWEST BANCORP
OR DOUGLAS NATIONAL BANK: OR BANK OF SOUTHERN OREGON:
M. Neil Zick, Executive Vice John L. Anhorn, President and
President Chief Executive Officer
United Bancorp Bank of Southern Oregon
555 S.E. Kane Street 1455 East McAndrews Road
Roseburg, Oregon 97470 Medford, Oregon 97504
Fax: (541) 440-2658 Fax: (541) 618-6001
WITH A COPY TO: WITH A COPY TO:
F. Scott Farleigh, Esq. Francis X. Grady, Esq.
Farleigh, Wada & Witt, P.C. Grady & Associates
Bank of America Financial Center 20800 Center Ridge Road, Suite 116
121 SW Morrison Street, Suite 600 Rocky River, Ohio 44116-4306
Portland, Oregon 97204-3192 Fax: (440) 356-7254
Fax: (503) 228-1741
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 8.8.
8.9. COUNTERPARTS; EXHIBITS. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an original but all
of which together will constitute but one agreement. Any
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exhibits or schedules referenced herein and attached hereto shall be
incorporated by reference herein as if fully written out in this Agreement.
8.10. PARTIES IN INTEREST. This Agreement is not intended to nor will
it confer upon any other person any rights or remedies, except as expressly
stated herein.
8.11. EXPENSES. Each party shall be responsible for the costs and
expenses incurred by it in connection with the transactions contemplated by this
Agreement. If, after receipt of the other party's disclosure letter, this
Agreement is terminated by United Bancorp or Douglas National Bank, on one hand,
or by PremierWest Bancorp or Bank of Southern Oregon, on the other, because of
the material breach by the other party of any representation or warranty
contained in this Agreement, or because of the material failure to perform by
the other party of any covenant or agreement contained herein, then the party
that has breached the representation or warranty or failed to perform the
covenant and agreement shall pay all reasonable costs and expenses of the
terminating party, including but not limited to printing, mailing, filing,
registration and related fees, as well as fees for financial advisors,
accountants and legal counsel, provided that the terminating party is not in
material breach of its representations or warranties and has not failed in any
material respect to perform its covenants or agreements contained in this
Agreement.
8.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur if any of the provisions of this Agreement are
not performed in accordance with their specific terms or are otherwise breached,
that it is impossible to measure in money the damages that would result to a
party by reason of the failure of any of the parties to perform any of the
obligations of this Agreement and that money damages would be an inadequate
remedy in this instance. It is accordingly agreed that the parties hereto will
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, it is agreed that if any party should institute an action or
proceeding seeking specific enforcement of this Agreement, the party against
which such action or proceeding is brought hereby waives the claim or defense
that the party instituting such action or proceeding has an adequate remedy at
law and hereby agrees not to assert in any such action or proceeding the claim
or defense that such a remedy at law exists and shall waive or not assert any
requirement to post bond in connection with seeking specific performance.
Notwithstanding anything to the contrary herein, and in addition to any rights
set forth in Section 8.11, a party may seek monetary damages against a breaching
party for any willful breach of this Agreement.
8.13. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced and does not adversely affect
the substance of these transactions in a material way, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
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IN WITNESS WHEREOF, PremierWest Bancorp, Bank of Southern Oregon,
United Bancorp and Douglas National Bank have caused this Agreement and Plan of
Merger and Share Exchange to be signed by their respective officers thereunto
duly authorized, all as of the day and year first written above.
PREMIERWEST BANCORP
Attest:
/s/ Richard R. Hieb /s/ John L. Anhorn
- ---------------------------------- -----------------------------------
Richard R. Hieb, Executive Vice John L. Anhorn, President and Chief
President, Chief Operating Officer Executive Officer
and Secretary
ACKNOWLEDGMENT
STATE OF OREGON )
) SS:
COUNTY OF JACKSON )
BE IT REMEMBERED that on this day of , 1999, personally came before
me, a Notary Public in and for the State and County aforesaid, John L. Anhorn,
President and Chief Executive Officer, and Richard R. Hieb, Executive Vice
President, Chief Operating Officer and Secretary of PremierWest Bancorp, an
Oregon corporation, and they duly executed the Agreement and Plan of Merger and
Share Exchange before me and acknowledged it to be their act and deed and the
act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this _______
day of ___________, 1999.
____________________________________
Notary
BANK OF SOUTHERN OREGON
Attest:
/s/ Richard R. Hieb /s/ John L. Anhorn
- ------------------------------- -------------------------------------
Richard R. Hieb, Executive Vice John L. Anhorn, President and Chief
President, Chief Operating Officer Executive Officer
and Secretary
ACKNOWLEDGMENT
STATE OF OREGON )
) SS:
COUNTY OF JACKSON )
BE IT REMEMBERED that on this day of October, 1999, personally came
before me, a Notary Public in and for the State and County aforesaid, John L.
Anhorn, President and Chief Executive Officer, and Richard R. Hieb, Executive
Vice President, Chief Operating Officer and Secretary of Bank of Southern
Oregon, an Oregon corporation, and they duly executed the Agreement and Plan of
Merger and Share Exchange before me and acknowledged it to be their act and deed
and the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this ___
day of October, 1999.
--------------------------------
Notary
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UNITED BANCORP
Attest:
/s/ Peter Nilsen /s/ M. Neil Zick
- ------------------------------- --------------------------------
Peter Nilsen, Secretary M. Neil Zick, Executive Vice
President
ACKNOWLEDGMENT
STATE OF OREGON )
) SS:
COUNTY OF DOUGLAS )
BE IT REMEMBERED that on this day of October, 1999, personally came
before me, a Notary Public in and for the State and County aforesaid, M. Neil
Zick, Executive Vice President, and Peter Nilsen, Secretary of United Bancorp,
an Oregon corporation, and they duly executed the Agreement and Plan of Merger
and Share Exchange before me and acknowledged it to be their act and deed and
the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
October, 1999.
---------------------------------
Notary
DOUGLAS NATIONAL BANK
Attest:
/s/ Peter Nilsen /s/ M. Neil Zick
- ------------------------------ ------------------------------------------
Peter Nilsen, Secretary M. Neil Zick, President and Chief Executive
Officer
ACKNOWLEDGMENT
STATE OF OREGON )
) SS:
COUNTY OF DOUGLAS )
BE IT REMEMBERED that on this day of October, 1999, personally came
before me, a Notary Public in and for the State and County aforesaid, M. Neil
Zick, President and Chief Executive Officer, and Peter Nilsen, Secretary, of
Douglas National Bank, a national banking association, and they duly executed
the Agreement and Plan of Merger and Share Exchange before me and acknowledged
it to be their act and deed and the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
October, 1999.
--------------------------------
Notary
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<PAGE> 258
AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE dated
as of this 14th day of December, 1999 (this "Amendment") is made by and among
Bank of Southern Oregon, an Oregon-chartered bank, PremierWest Bancorp, an
Oregon corporation, United Bancorp, an Oregon corporation, and Douglas National
Bank, a national banking association and wholly owned subsidiary of United
Bancorp.
WHEREAS, Bank of Southern Oregon, PremierWest Bancorp, United Bancorp
and Douglas National Bank entered into an Agreement and Plan of Merger and Share
Exchange dated as of October 7, 1999, which provides for (i) the acquisition by
PremierWest Bancorp of all of the stock of Bank of Southern Oregon in a holding
company reorganization of Bank of Southern Oregon, which will be accomplished by
a direct share exchange between shareholders of Bank of Southern Oregon and
PremierWest Bancorp, (ii) the acquisition of United Bancorp by merger with and
into PremierWest Bancorp, and (iii) the merger of Douglas National Bank with and
into Bank of Southern Oregon;
WHEREAS, PremierWest Bancorp was incorporated under Oregon law after
the Agreement and Plan of Merger and Share Exchange was entered into;
WHEREAS, the Agreement and Plan of Merger and Share Exchange provides
in Section 2.6 thereof that the parties shall agree within 14 days after
execution of the agreement concerning the treatment of stock options granted by
either United Bancorp or Bank of Southern Oregon, which the parties have now
agreed upon;
WHEREAS, the Agreement and Plan of Merger and Share Exchange provides
in Section 5.1 thereof that United Bancorp shall be restricted from soliciting
acquisition proposals from third parties for a certain period of time, and the
parties desire now to extend such period;
WHEREAS, the Agreement and Plan of Merger and Share Exchange provides
in Section 5.2.4 thereof that United Bancorp shall not make any changes in its
dividend policies, but the parties have agreed that United Bancorp shall not pay
any further cash dividends before closing of the transactions contemplated by
the Agreement and Plan of Merger and Share Exchange;
WHEREAS, the Agreement and Plan of Merger and Share Exchange provides
in Section 5.8.2 thereof that PremierWest Bancorp and Bank of Southern Oregon
shall for three years after the transactions contemplated by the Agreement and
Plan of Merger and Share Exchange maintain in effect the existing directors' and
officers' liability insurance coverage of United Bancorp and Douglas National
Bank for acts, factors or events that occur before the effective time of the
transactions, and the Agreement and Plan of Merger and Share Exchange further
provides in Section 5.2.1 thereof that United Bancorp and Douglas National Bank
shall take action to cause the directors' and officers' liability insurance of
United Bancorp and Douglas National Bank to include coverage for factors or
events occurring before the effective time, and the parties desire to confirm in
this Amendment that PremierWest Bancorp and Bank of Southern Oregon shall
purchase or cause to be purchased a rider to United Bancorp's and Douglas
National Bank's directors' and officers' liability insurance policy(ies)
providing "tail" coverage for acts, factors or events occurring before the
effective time of the transactions; and
WHEREAS, Bank of Southern Oregon, PremierWest Bancorp, United Bancorp
and Douglas National Bank desire to amend the Agreement and Plan of Merger and
Share Exchange to confirm PremierWest Bancorp's agreement to be bound thereby
and to clarify or amend the Agreement and Plan of Merger and Share Exchange with
respect to the foregoing matters, as set forth hereinafter.
NOW THEREFORE, consistent with Section 8.4 of the Agreement and Plan of
Merger and Share Exchange, in consideration of the foregoing premises and
intending to be legally bound hereby, Bank of Southern Oregon, PremierWest
Bancorp, United Bancorp and Douglas National Bank hereby agree to amend the
Agreement and Plan of Merger and Share Exchange as follows and PremierWest
Bancorp hereby agrees to the following terms:
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1. CONFIRMING PREMIERWEST BANCORP'S AGREEMENT TO BE BOUND BY THE AGREEMENT
AND PLAN OF MERGER AND SHARE EXCHANGE
(a) PremierWest Bancorp hereby adopts all of the terms and provisions
of the Agreement and Plan of Merger and Share Exchange by and among Bank of
Southern Oregon, PremierWest Bancorp, United Bancorp and Douglas National Bank
and agrees to be bound thereby, including without limitation (i) the provisions
of Article 1 thereof providing for the merger of United Bancorp with and into
PremierWest Bancorp and the acquisition of all of the stock of Bank of Southern
Oregon by PremierWest Bancorp through a direct share exchange with shareholders
of Bank of Southern Oregon and (ii) the provisions of Article 2 thereof
providing for the conversion and exchange of shares and issuance of shares of
PremierWest Bancorp common stock.
(b) Bank of Southern Oregon, United Bancorp and Douglas National Bank
hereby agree that PremierWest Bancorp shall become a party to the Agreement and
Plan of Merger and Share Exchange upon execution of this Amendment to Agreement
and Plan of Merger and Share Exchange, with the same force and effect as if
PremierWest Bancorp had been in existence as of October 7, 1999 and had executed
the Agreement and Plan of Merger and Share Exchange on that date.
2. TREATMENT OF STOCK OPTIONS
Section 2.6 is hereby amended by deleting existing Section 2.6 in its
entirety and replacing it with the following:
"2.6 TREATMENT OF OPTIONS. (a) At the Effective Time, each
outstanding award, option or right to purchase shares of United Bancorp
common stock granted under United Bancorp's Stock Option Plan,
regardless of whether it is then exercisable, shall be converted into
and become an option to acquire common stock of PremierWest Bancorp,
and PremierWest Bancorp shall assume each such award, option or right
under the terms and provisions of the United Bancorp Stock Option Plan
and the terms and provisions of the agreements under which such awards,
options or rights were issued, except that from and after the Effective
Time (i) PremierWest Bancorp and its Board of Directors or an
appropriate committee thereof shall have all administrative powers
under the United Bancorp Stock Option Plan, (ii) each outstanding
award, option or right granted under the United Bancorp Stock Option
Plan shall represent the right to acquire PremierWest Bancorp common
stock only, (iii) the number of shares of PremierWest Bancorp common
stock acquirable upon exercise of the United Bancorp awards, options or
rights shall equal the number of shares of United Bancorp common stock
acquirable immediately before the Effective Time by exercise thereof
multiplied by the Exchange Ratio; provided, however, that the number of
shares of PremierWest Bancorp common stock acquirable upon exercise of
such United Bancorp awards, options or rights shall not exceed 528,228
shares, and (iv) the per share exercise prices of the United Bancorp
awards, options or rights shall be adjusted by dividing the per share
exercise price under each United Bancorp award, option or right by the
Exchange Ratio and rounding up to the nearest four decimal places.
Under no circumstance shall PremierWest Bancorp issue or be required to
issue any fractional shares of PremierWest Bancorp common stock upon
exercise of the United Bancorp awards, options or rights, but
PremierWest Bancorp shall instead issue cash in lieu of a fraction of a
share. Each United Bancorp award, option or right that is an "incentive
stock option" within the meaning of the Internal Revenue Code of 1986
shall be adjusted as required by Section 424 of the Internal Revenue
Code so that the treatment of stock options provided for herein will
not constitute a modification, extension or renewal of the option,
within the meaning of Section 424 of the Internal Revenue Code.
(b) At the Effective Time, PremierWest Bancorp shall assume
Bank of Southern Oregon's rights and obligations under the Bank of
Southern Oregon Stock Option Plan. Each outstanding award, option or
right to purchase shares of Bank of Southern Oregon common stock
granted under Bank of Southern Oregon's Stock Option Plan, regardless
of whether it is then exercisable, shall be converted into and become
an option to acquire a like number of shares of common stock of
PremierWest Bancorp,
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exercisable at the same price and on the same terms and conditions
applicable to such awards, options or rights before the Effective Time,
and PremierWest Bancorp shall assume each such award, option or right
under the terms and provisions of the Bank of Southern Oregon Stock
Option Plan and the terms and provisions of the agreements under which
such awards, options or rights were issued, except that from and after
the Effective Time (i) PremierWest Bancorp and its Board of Directors
or an appropriate committee thereof shall have all administrative
powers under the Bank of Southern Oregon Stock Option Plan and (ii)
each outstanding award, option or right granted under the Bank of
Southern Oregon Stock Option Plan shall represent the right to acquire
PremierWest Bancorp common stock only."
3. EXTENSION OF NO-SHOP TERM
(a) The May 1, 2000 date appearing in Section 5.1(a) of the Agreement
and Plan of Merger and Share Exchange is hereby extended through and including
July 1, 2000, representing the end of the period during which United Bancorp and
Douglas National Bank must (i) notify PremierWest Bancorp and Bank of Southern
Oregon of the receipt of any contact from a third party or representative of a
third party concerning an Acquisition Transaction and (ii) provide PremierWest
Bancorp and Bank of Southern Oregon information concerning such contact.
(b) The clause reading, "within six months after the date hereof," in
the first sentence of Section 5.1(b) of the Agreement and Plan of Merger and
Share Exchange is hereby deleted and replaced with, "at any time on or before
July 1, 2000," and the remainder of Section 5.1(b) is unaffected by this change.
The parties intend that this change shall extend to July 1, 2000 the period
during which acceptance by United Bancorp or Douglas National Bank of an
Acquisition Transaction would entitle PremierWest Bancorp and Bank of Southern
Oregon to the payment provided by Section 5.1(b), but the parties intend no
other change to the terms and conditions under which PremierWest Bancorp and
Bank of Southern Oregon would be entitled to such payment.
4. NO UNITED BANCORP CASH DIVIDENDS
Section 5.2.4 is hereby amended by deleting the sentence reading, "From
the date of this Agreement to the earlier of the Effective Time or the
termination of this Agreement, United Bancorp shall not, without the prior
written consent of PremierWest Bancorp and Bank of Southern Oregon, make any
changes in its dividend policies," and replacing it with the following:
"From the date of this Agreement to the earlier of the Effective Time
or the termination of this Agreement, United Bancorp shall not, without
the prior written consent of PremierWest Bancorp and Bank of Southern
Oregon, declare, set aside, pay or make any cash dividends or other
distributions or payments with respect to any shares of its capital
stock."
5. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE COVERAGE
PremierWest Bancorp and Bank of Southern Oregon hereby confirm to
United Bancorp and Douglas National Bank that it is PremierWest Bancorp's and
Bank of Southern Oregon's understanding and agreement that, subject to the terms
and provisions of the Agreement and Plan of Merger and Share Exchange, including
but not limited to Section 5.8.2 thereof, PremierWest Bancorp and Bank of
Southern Oregon shall be required for a period of three years after the
Effective Time to maintain in effect the current insurance policies maintained
by United Bancorp and Douglas National Bank (or substitute policies with
substantially the same coverage and terms) covering directors', officers' and
trustees' liability with respect to claims arising from acts, factors or events
that occurred before the Effective Time, including coverage for the benefit of
directors and officers of United Bancorp and Douglas National Bank who do not
continue to serve as directors or officers after the Effective Time or who at
any time within that three-year period no longer serve as directors or officers.
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6. MISCELLANEOUS
(a) Defined terms used but not defined in this Amendment are used as
defined in the Agreement and Plan of Merger and Share Exchange.
(b) The Agreement and Plan of Merger and Share Exchange remains in full
force and effect and shall not be affected by the terms of this Amendment,
except as specifically provided in this Amendment and except to the extent the
terms of this Amendment conflict with the terms of the Agreement and Plan of
Merger and Share Exchange.
IN WITNESS WHEREOF, Bank of Southern Oregon, PremierWest Bancorp,
United Bancorp and Douglas National Bank have caused this Amendment to Agreement
and Plan of Merger and Share Exchange to be signed by their respective officers
thereunto duly authorized, all as of the day and year first written above.
ATTEST: BANK OF SOUTHERN OREGON
/s/ Richard R. Hieb /s/ John L. Anhorn
- ------------------------------------------- ------------------
Richard R. Hieb John L. Anhorn
Executive Vice President, Chief Operating President and Chief Executive
Officer and Secretary Officer
ATTEST: PREMIERWEST BANCORP
/s/ Richard R. Hieb /s/ John L. Anhorn
- ------------------------------------------- ------------------
Richard R. Hieb John L. Anhorn
Executive Vice President, Chief Operating President and Chief Executive
Officer and Secretary Officer
ATTEST: UNITED BANCORP
/s/ Peter Nilsen /s/ M. Neil Zick
- --------------------------------------------- ----------------
Peter Nilsen M. Neil Zick
Secretary Executive Vice President
ATTEST: DOUGLAS NATIONAL BANK
/s/ Peter Nilsen /s/ M. Neil Zick
- --------------------------------------------- ----------------
Peter Nilsen M. Neil Zick
Secretary President and Chief Executive
Officer
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APPENDIX B
HOEFER & ARNETT
INCORPORATED
INVESTMENT BANKERS
101 W. SIXTH STREET, SUITE 416
AUSTIN, TEXAS 78701
March 31, 2000
Members of the Board of Directors
United Bancorp
555 SE Kane
Roseburg, Oregon 97470
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of United Bancorp, Roseburg, Oregon
("United Bancorp") of the terms of the proposed merger of United Bancorp and
Bank of Southern Oregon, Medford, Oregon, with and into newly formed PremierWest
Bancorp, Medford, Oregon ("PremierWest Bancorp"), as defined in the Agreement
and Plan of Merger and Share Exchange, dated as of October 7, 1999 and amended
December 14, 1999 and amended by waivers dated January 5, 2000 and January 24,
2000 (the "Agreement"). Pursuant to the Agreement and subject to the terms and
conditions therein, each share of common stock of United Bancorp outstanding
immediately prior to the Effective Time of the Merger (as that term is defined
in the Agreement) shall be converted into the right to receive 1.971 shares of
common stock of PremierWest Bancorp. Based on 1,871,334 outstanding shares of
United Bancorp Common Stock and a market price of $6.75 per share of PremierWest
Bancorp Common Stock, PremierWest Bancorp will issue 3,688,399 shares of
PremierWest Bancorp Common Stock for a total purchase price of $24.9 million.
Pursuant to the Agreement, each share of common stock of Bank of Southern Oregon
shall be converted into the right to receive one share of common stock of
PremierWest Bancorp. Based on the closing price of $6.75 per share for the
common stock of Bank of Southern Oregon as of March 13, 2000 and based on its
proposed 1:1 exchange ratio with PremierWest Bancorp, we are assuming a $6.75
per share market price for PremierWest Bancorp. All outstanding options of
United Bancorp will be exchanged for options of PremierWest Bancorp based on the
same 1.971:1 exchange ratio. The existing exercise prices for such options will
also be adjusted by the same 1.971:1 exchange ratio.
As part of its investment banking business, Hoefer & Arnett, Incorporated is
continually engaged in the valuation of bank, bank holding company and thrift
securities in connection with mergers and acquisitions nationwide. Prior to
being retained for this assignment, we have provided investment banking and
financial advisory services to United Bancorp. The revenues derived from such
services are insignificant when compared to the firm's total gross revenues.
In connection with this assignment, we have reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) Annual Reports to Shareholders of
Bank of Southern Oregon and United Bancorp for the years ended December 31,
1997, December 31 1998 and December 31, 1999; (iii) Quarterly Reports of
Condition and Income of Douglas National Bank and Bank of Southern Oregon filed
with the Federal Deposit Insurance Corporation for the quarters ended December
31, 1998, March 31, 1999, June 30, 1999, September 30, 1999 and December 31,
1999; (iv) certain other publicly available financial and other information
concerning Bank of Southern Oregon and United Bancorp and the trading markets
for the publicly traded securities of Bank of Southern Oregon; and (v) publicly
available information concerning other banks and holding companies, the trading
markets for their securities and the nature and terms of certain other merger
transactions we believe relevant to our inquiry. We have held discussions with
senior management of United Bancorp and Bank of Southern Oregon concerning their
past and current operations, financial condition and prospects, as well as the
results of regulatory examinations.
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HOEFER & ARNETT
INCORPORATED
We have reviewed with senior management of Bank of Southern Oregon earnings
projections for 2000 through 2003 for Bank of Southern Oregon, assuming the
merger does not occur. We reviewed with senior management of United Bancorp
earnings projections for 2000 through 2003 for United Bancorp as a stand-alone
entity, assuming the merger does not occur, prepared by United Bancorp, as well
as cost savings expected to be achieved in each of the years resulting from the
merger. Certain pro forma financial projections for the years 2000 through 2003
for the combined entity were derived by us based partially upon the projections
discussed above, as well as our own assessment of general economic, market and
financial conditions. In certain cases, such combined pro forma financial
projections included projected operating cost savings derived by us partially
based upon the projections discussed above to be realizable in the merger. Based
on our assessment of such combined pro forma financial projections including
projected cost savings, and based on consistent general economic, market and
financial conditions in the future, the pro forma value of PremierWest Bancorp
should be greater than the pro forma values of United and Bank of Southern
Oregon as stand- alone entities.
In conducting our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and we have not assumed any responsibility for independent
verification of the same. We have relied upon the managements of United Bancorp
and Bank of Southern Oregon as to the reasonableness of the financial and
operating forecasts, projections (and the assumptions and bases therefor)
provided to us, and we have assumed that such forecasts and projections reflect
the best currently available estimates and judgments of the applicable
managements. We have also assumed, without assuming any responsibility for the
independent verification of the same, that the aggregate allowances for loan
losses for United Bancorp and Bank of Southern Oregon are, or will be prior to
consummation of the proposed transaction, adequate to cover such losses. We have
not made or obtained any evaluations or appraisals of the property of United
Bancorp or Bank of Southern Oregon, nor have we examined any individual loan
credit files. For purposes of this opinion, we have assumed that the merger will
have the tax, accounting and legal effects described in the Agreement and
assumed the accuracy of the disclosures set forth in the Agreement. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the holders of shares of United Bancorp Common Stock of the terms of the
proposed merger of United Bancorp with and into PremierWest Bancorp and does not
address United Bancorp's underlying business decision to proceed with the
acquisition.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
United Bancorp and of Bank of Southern Oregon and its subsidiaries, including
interest income, interest expense, net interest income, net interest margin,
provision for loan losses, non-interest income, non-interest expense, earnings,
dividends, internal capital generation, book value, intangible assets, return on
assets, return on shareholders' equity, capitalization, the amount and type of
non-performing assets, loan losses and the reserve for loan losses, all as set
forth in the financial statements for United Bancorp and Bank of Southern
Oregon; (ii) the assets and liabilities of United Bancorp and of Bank of
Southern Oregon, including the loan, investment and mortgage portfolios,
deposits, other liabilities, historical and current liability sources and costs
and liquidity; and (iii) the nature and terms of certain other merger and
acquisition transactions involving banks and bank holding companies. We have
also taken into account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as our experience
in securities valuation and our knowledge of the banking industry generally. Our
opinion is necessarily based upon conditions as they exist and can be evaluated
on the date hereof and the information made available to us through the date
hereof.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the terms of the proposed merger of United
Bancorp with and into PremierWest Bancorp are fair, from a financial point of
view, to the holders of shares of United Bancorp Common Stock.
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HOEFER & ARNETT
INCORPORATED
It is understood that this letter is for the information of the Board of
Directors of United Bancorp and does not constitute a recommendation to the
Board of Directors or to any shareholder of United Bancorp with respect to any
approval of the merger. We hereby consent to the reference to our firm in the
proxy statement or prospectus related to the merger transaction to be included
in the registration statement on Form S-4 to be filed by PremierWest Bancorp
with the Securities and Exchange Commission and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction and in the registration statement.
Respectfully Submitted,
/s/ Hoefer & Arnett, Incorporated
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APPENDIX C
111 SW FIFTH AVENUE
42ND FLOOR
PORTLAND, OR 97204
TEL 503-248-0721
800-314-9837
www.pacific-crest.com
March 31, 2000
Board of Directors
Bank of Southern Oregon
503 Airport Road
Medford, Oregon 97504
Members of the Board:
You have asked us to advise you with respect to the fairness to shareholders of
Bank of Southern Oregon (the "Company"), from a financial point of view, of the
purchase of all of the outstanding shares of United Bancorp ("United") in
exchange for shares of PremierWest Bancorp ("Acquisition"), pursuant to the
proposed Agreement and Plan of Reorganization ("Agreement"), dated as of October
7, 1999 between the Company and United.
Pacific Crest Securities is an investment banking firm that performs financial
advisory services. We have acted as financial advisor to the Board of Directors
in connection with the Acquisition and will receive a fee for our services, a
portion of which is contingent upon delivery of the Opinion and inclusion in
materials to shareholders of the Company. We have in the past provided
investment banking services to the Company and have received customary fees for
the rendering of such services. In addition, in the ordinary course of our
business, we have actively traded the common stock of the Company for the
accounts of customers.
During the course of our engagement, we reviewed and analyzed material bearing
upon the financial and operating conditions of the Company and United, and
material prepared in connection with the proposed transaction, including the
following: the Agreement; certain historical financial information concerning
the Company and United; the terms of recent acquisition transactions involving
banks, and bank holding companies; financial and related valuation information
regarding certain comparable banks and bank holding companies. We also
considered other information, financial studies, analyses, investigations and
financial criteria which we deemed relevant.
In addition, we have conducted meetings with members of the senior management of
the Company and United for the purpose of reviewing the future prospects of the
Company and United. We also evaluated the pro forma combined financial
information of the Company and United. We also took into account our assessment
of general economic, market and financial conditions and our experience in other
transactions, as well as our knowledge of the banking industry and our general
experience in securities valuations.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. With respect to the financial forecasts, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's and United's management as to
the future financial performance of the Company and United. In addition, we have
not made an independent evaluation or appraisal of any of the assets of the
Company or United nor have we examined any individual loan files or been
furnished with any such appraisals.
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We have assumed that the Acquisition is, and will be, in compliance with all
laws and regulations that are applicable to the Company and United. In rendering
this opinion, we have been advised by the Company and United and we have assumed
that there are no factors that would impede any necessary regulatory or
governmental approval for the Acquisition and we have further assumed that in
the course of obtaining the necessary regulatory and governmental approvals, no
restriction will be imposed on the Company or surviving corporation that would
have a material adverse effect on the Company or the contemplated benefits of
the Acquisition. We have also assumed that there would not occur any change in
the applicable law or regulation that would cause a material adverse change in
the prospects or operations of the Company or the surviving corporation after
the Acquisition.
We were retained by the Board of Directors of the Company and our opinion as
expressed herein is limited to the fairness, from a financial point of view to
the common stockholders of the Company, of the Acquisition and does not address
the Company's underlying business decision to proceed with the Acquisition. Our
opinion is necessarily based on conditions as they exist and can be evaluated on
the date hereof and the information made available to us through the date
hereof. This letter does not constitute a recommendation to the Board of
Directors or to any common stockholder of the Company with respect to any
approval of Acquisition.
We agree to the inclusion of this opinion letter in the Proxy
Statement/Prospectus relating to the Acquisition. The opinion may not, however,
be summarized, excerpted from or otherwise publicly referred to without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the consideration to be paid by the Company to the holders of
United common stock is fair, from a financial point of view, to the holders of
the Company's common stock.
Very truly yours,
/s/ PACIFIC CREST SECURITIES INC.
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APPENDIX D
I. DISSENTERS' RIGHTS UNDER THE OREGON BUSINESS CORPORATION ACT
SECTION 60.551 DEFINITIONS FOR SECTION 60.551 TO SECTION 60.594
As used in ORS 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of the issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.
(4) "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 the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 60.554 RIGHT TO DISSENT
(1) Subject to subsection (2) of this section, a shareholder is
entitled to dissent from, and obtain payment of the fair value of the
shareholder's shares in the event of, any of the following corporate acts:
(a) Consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger by ORS 60.487
or the articles of incorporation and the shareholder is entitled to
vote on the merger or if the corporation is a subsidiary that is merged
with its parent under ORS 60.491;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all or substantially all of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
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(A) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; or
(B) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under ORS 60.141; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the
board of directors provided that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under ORS 60.551 to 60.594 may not challenge the corporate
action creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any
class or series if the shares of the class or series were registered on a
national securities exchange or quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System as a National Market System issue on
the record date for the meeting of shareholders at which the corporate action
described in subsection (1) of this section is to be approved or on the date a
copy or summary of the plan of merger is mailed to shareholders under ORS
60.491, unless the articles of incorporation otherwise provide.
SECTION 60.557 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares regarding which
the shareholder dissents and the shareholder's other shares were registered in
the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholders behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
SECTION 60.561 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under ORS 60.551 to 60.594 and be accompanied by a copy of ORS 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.544 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send the shareholders entitled to assert dissenters' rights notice described
in ORS 60.567.
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SECITON 60.564 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before the
vote is taken written notice of the shareholder's intent to demand payment for
the shareholder's shares if the proposed action if effectuated and shall not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section is not entitled to payment for the shareholder's shares
under this chapter.
SECTION 60.567 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied the requirements of
ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after
the corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement of the terms of the proposed corporate action to
news media or to shareholders and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand. This date may not be fewer than 30 nor more than 60 days after
the date the subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594.
SECTION 60.571 DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in ORS 60.567
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to ORS 60.567 (2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
shares under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter.
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SECTION 60.574 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under ORS 60.581.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SECTION 60.577 PAYMENT
(1) Except as provided in ORS 60.584, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with ORS 60.571, the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year and the latest available interim financial
statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594.
SECTION 60.581 FAILURE TO TAKE ACTION
(1) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If another returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
SECTION 60.584 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by ORS 60.577
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
such demand. The 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 dissenter's right to demand payment under ORS
60.587.
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SECTION 60.587 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and amount
of interest due, and demand payment of the dissenter's estimate, less any
payment under ORS 60.577 or reject the corporation's offer under ORS 60.584 and
demand payment of the dissenter's estimate of the fair value of the dissenter's
shares and interest due, if:
(a) the dissenter believes that the amount paid under ORS 60.577 or
offered under ORS 60.577 or offered under ORS 60.584 is less than the
fair value of the dissenter's shares or that the interest due is
incorrectly calculated;
(b) The corporation fails to make payment under ORS 60.577 within 60
days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within 30 days after the
corporation made or offered payment for the dissenter's shares.
SECTION 60.591 COURT ACTION
(1) If a demand for payment under ORS 60.587 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand under ORS 60.587 and petition the court under subsection (2) of
this section to determine the fair value of the shares and accrued interest. If
the corporation does not commence the proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county where a corporation's principal office is located or if the
principal office is not in this state, where the corporation's registered office
is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares. 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 circuit court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the court order appointing the, or in any amendment to the order.
The dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to
judgment for:
(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
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(b) The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under ORS 60.584.
SECTION 60.594 COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under ORS 60.591
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under ORS 60.587.
(2) The court may also assess the fees and expenses of counsel and
experts of the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of ORS 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount awarded
the dissenters who were benefitted.
II. DISSENTERS' RIGHTS UNDER THE OREGON BANK ACT
SECTION 711.175 STOCKHOLDER'S RIGHT TO DISSENT TO MERGER, SHARE
EXCHANGE OR TRANSFER OF ASSETS OR LIABILITIES
(1) A stockholder of an Oregon stock bank may dissent from the
following:
(a) A plan of merger pursuant to which the Oregon stock bank is not the
resulting insured institution;
(b) A plan of merger pursuant to which the Oregon stock bank is the
resulting insured stock institution and the number of its voting shares
outstanding immediately after the merger, plus the number of shares
issuable as a result of the merger, either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will exceed by more than 20
percent the total number of voting shares of the resulting insured
stock institution outstanding immediately before the merger;
(c) A plan of share exchange pursuant to which the Oregon stock bank in
which the stockholder owns shares is acquired; and
(d) An acquisition transaction requiring such stockholder's approval
pursuant to ORS 711.170(5).
(2) To perfect a stockholder's right to dissent to a transaction
described in subsection (1) of this section, the stockholder must send or
deliver a notice of the dissent to the Oregon stock bank prior to or at the
meeting of the stockholders at which the transaction is submitted to a vote, or
the stockholder must vote against such transaction.
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(3) A stockholder shall not dissent as to less than all the shares
registered in the name of the stockholder, except a stockholder holding, as a
fiduciary or nominee, shares registered in the stockholder's name for the
benefit of more than one beneficiary, may dissent as to less than all of the
shares registered in the fiduciary or nominee's name if any dissent as to the
shares held for a beneficiary is made as to all the shares held by the fiduciary
for that beneficiary or nominee. The fiduciary's rights shall be determined as
if the shares to which the fiduciary has dissented and the other shares are
registered in the names of different stockholders.
SECTION 711.180 RIGHTS OF STOCKHOLDER DISSENTING TO MERGER, SHARE
EXCHANGE OR TRANSFER OF ASSETS OR LIABILITIES; DEMAND REQUIRED; NOTICE AND OFFER
TO PAY FOR SHARES; COSTS OF APPRAISAL OF SHARES; WHEN RIGHTS NOT APPLICABLE.
(1) Any stockholder of an Oregon stock bank who dissented to a
transaction listed under ORS 711.175 (1) and who desires to receive the value in
cash of those shares, shall make written demand upon the Oregon stock bank or
its successor and accompany the demand with the surrender of the share
certificates, properly indorsed within 30 days after the stockholder's meeting
at which a vote to approve such transaction involving an Oregon stock bank was
taken. Any stockholder failing to make written demand within the 30-day period
shall be bound by the terms of the proposed plan of merger, plan of share
exchange or acquisition transaction agreement.
(2) Within 30 days after a transaction listed under ORS 711.175 (1) is
effected, the Oregon stock bank or its successor shall give written notice
thereof to each dissenting stockholder who has made demand under this section at
the address of the stockholder on the stock record books of the Oregon stock
bank, and shall make a written offer to each such stockholder to pay for the
shares at a specified price in cash determined by the Oregon stock bank or its
successor to be the fair value of the shares as of the effective date of the
transaction. The notice and offer shall be accompanied by a statement of
condition of the Oregon stock bank, the shares of which the dissenting
stockholder held, as of the latest available date and not more than four months
prior to the consummation of the transaction, and a statement of income of the
Oregon stock bank for the period ending on the date of the statement of
condition.
(3) Any stockholder who accepts the offer of the Oregon stock bank or
its successor within 30 days following the date on which notice of the offer was
mailed or delivered to dissenting stockholders shall be paid the price per share
offered, in cash, within 30 days following the date on which the stockholder
communicates acceptance in writing to the Oregon stock bank or its successor.
Upon payment, the dissenting stockholder shall cease to have any interest in the
shares previously held by the stockholder.
(4) If, within 30 days after notice of the offer, one or more
dissenting stockholders do not accept the offer of the Oregon stock bank or its
successor or if no offer is made, then the value of the shares of the dissenting
stockholders who have not accepted the offer shall be ascertained, as of the
effective date of the transaction, by an independent, qualified appraiser chosen
by the Director of the Department of Consumer and Business Services. The
valuation determined by the appraiser shall govern and the appraiser's valuation
of such shares shall not be appealable except for one or more of the reasons set
forth in ORS 36.355 (1). Any such appeal must be made within 30 days after the
date of the appraiser's valuation and is subject to ORS 183.415 to 183.500. The
Oregon stock bank or its successor shall pay the dissenting shareholders the
appraised value of the shares within 30 days after the date the appraiser sends
the Oregon stock bank or its successor written notice of the appraiser's
valuation.
(5) The director shall assess the reasonable costs and expenses of the
appraisal proceeding equally to the Oregon stock bank or its successor and to
the dissenting shareholders, as a group, if the amount offered by the Oregon
stock bank or its successor is between 85 percent and 115 percent of the
appraised value of the shares. The director shall assess the reasonable costs
and expenses of the appraisal proceeding and the reasonable costs and expenses,
including attorney fees and costs, of the Oregon stock bank or its successor to
the dissenting stockholders, as a group, if the amount offered by the Oregon
stock bank or its successor is 115 percent or more of the appraised value of the
shares. The director shall assess the reasonable costs and expenses of the
appraisal proceeding and the reasonable costs and expenses, including attorney
fees and costs, of the dissenting
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shareholders, as a group, to the Oregon stock bank or its successor if the
amount offered by the Oregon stock bank or its successor is 85 percent or
less of the appraised value of the shares. The director's decision regarding
assessment of fees and costs may be appealed as provided in ORS 183.415 to
183.500.
(6) Amounts required to be paid by the Oregon stock bank or its
successors, or the dissenting shareholders under this section shall be paid
within 30 days after the director's assessment of any fees or costs becomes
final or, if the director's decision is appealed, within 30 days after a final
determination of such fees and costs is made.
(7) The director may require, as a condition of approving a transaction
listed in ORS 711.175 (1), the replacement of all or a portion of the
stockholders' equity of an Oregon stock bank expended in payment to dissenting
stockholders under this section.
(8) A stockholder may not receive the fair value of the stockholder's
shares under this section:
(a) If the plan of merger provides that all stockholders of the
resulting insured stock institution receive common stock of a holding
company pursuant to a merger with an interim Oregon stock bank
chartered under ORS 707.025, and the stockholder's Oregon stock bank
and the interim Oregon stock bank are the only parties to the merger;
or
(b) If the shares held by the dissenting stockholder immediately before
the effective date of a transaction listed in ORS 711.175 (1) are
listed on any national securities exchange or are included on the list
of over- the-counter margin stocks issued by the Board of Governors of
the Federal Reserve System.
SECTION 711.185 STOCKHOLDER WITHDRAWAL OF DEMAND FOR PAYMENT FOR SHARES
MADE UNDER ORS SECTION 711.180
(1) A dissenting stockholder making a demand under ORS 711.180 may
withdraw the demand if:
(a) The Oregon stock bank or its successor consents to the withdrawal;
or
(b) The dissenting stockholder pays such stockholder's pro rata share
of the appraisal costs and the Oregon stock bank's reasonable costs and
expenses, including attorney fees and costs.
(2) When a dissenting stockholder withdraws the demand under subsection
(1) of this section, the stockholder's status as a stockholder shall be
restored, without prejudice to any corporate proceedings taking place in the
interim.
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APPENDIX E
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT dated as of October 7, 1999 (this
"Agreement) is made by and among United Bancorp, an Oregon corporation, Bank of
Southern Oregon, an Oregon-chartered bank, and each of the following
shareholders of United Bancorp (collectively, the "Shareholders"): (i) the
United Bancorp Employee Stock Ownership Plan and Trust, and (ii) each of Thomas
Becker, David Emmett, Carol L. Hamlin, David A. Jackson, Brad Leiken, Patrick A.
Markham, Peter Martini, Clint Newell, Brian A. Pargeter, Lance C. Short, William
C. Stiles, Rickar D. Watkins, Lauren D. Young and M. Neil Zick, each of whom is
a director of United Bancorp.
WHEREAS, Bank of Southern Oregon, United Bancorp and Douglas National
Bank, a national banking association and wholly owned subsidiary of United
Bancorp, are entering into an Agreement and Plan of Merger and Share Exchange
dated the date hereof (the "Merger Agreement"), which provides for, among other
things, the merger of Douglas National Bank with and into Bank of Southern
Oregon and the merger of United Bancorp with and into a newly formed subsidiary
of Bank of Southern Oregon, upon satisfaction of all of the conditions set forth
in the Merger Agreement (the "Merger");
WHEREAS, among other conditions, the Merger Agreement provides that it
is a condition to the Merger that the shareholders of United Bancorp approve the
Merger Agreement at a special or regular meeting of shareholders of United
Bancorp (such meeting, together with any adjournments thereof, the "United
Bancorp Shareholders' Meeting");
WHEREAS, the United Bancorp capital stock consists of 5,000,000
authorized shares of common stock, par value $2.50 per share, and 1,000,000
authorized shares of preferred stock, without par value, of which shares of
common stock are issued and outstanding, and no shares of preferred stock are
issued and outstanding, with common stock being entitled to one vote per share
on all matters submitted to shareholders for a vote;
WHEREAS, excluding options to acquire United Bancorp common stock, on
the date hereof the Shareholders own (including the power to vote) United
Bancorp common stock as follows:
<TABLE>
<CAPTION>
SHARES OF UNITED BANCORP PERCENTAGE OF UNITED BANCORP
NAME COMMON STOCK OWNED COMMON STOCK
- ----------------------------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
United Bancorp Employee Stock Ownership Plan and Trust 122,590 6.82%
Thomas Becker........................................ 3,000 .16%
David Emmett......................................... 4,700 .26%
Carol L. Hamlin...................................... 37,631.98 2.09%
David A. Jackson..................................... 94,340.75 5.24%
Brad Leiken.......................................... 629 .04%
Patrick A. Markham................................... 78,378 4.35%
Peter Martini........................................ 22,897.26 1.27%
Clint Newell......................................... 660 .04%
Brian R. Pargeter.................................... 12,284.688 .68%
Lance C. Short....................................... 30,745.04 1.71%
William C. Stiles.................................... 13,400 .74%
</TABLE>
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<TABLE>
<CAPTION>
Shares of United Bancorp Percentage of United Bancorp
Name Common Stock Owned Common Stock
- --------------------------- ------------------------ ----------------------------
<S> <C> <C>
Rickar D. Watkins.......... 8,100 .45%
Lauren D. Young............ 5,752 .32%
M. Neil Zick............... 200 .01%
------------------------ ----------------------------
Total...................... 435,308.72 24.19%
======================== ============================
</TABLE>
* The shares held by the United Bancorp Employee Stock Ownership Plan and
Trust ("ESOP") are subject to this Agreement only to the extent such
shares have not been allocated to participants' Employee Stock
Ownership Plan and Trust accounts. The figure in the table above
represents the number of such shares not allocated to participants'
accounts. However, the ESOP shares may be redeemed by United Bancorp
prior to the Merger.
WHEREAS, it is the belief of each Shareholder that the Merger is in the
best interests of United Bancorp and its shareholders; and
WHEREAS, Bank of Southern Oregon has made execution and delivery of
this Agreement a condition to entering into the Merger Agreement.
NOW, THEREFORE, in consideration of Bank of Southern Oregon, United
Bancorp and Douglas National Bank entering into the Merger Agreement and to
encourage Bank of Southern Oregon, United Bancorp and Douglas National Bank to
enter into the Merger Agreement and complete the transactions contemplated
thereby, each of the parties hereto agree as follows:
1. WAIVER OF DISSENTERS' RIGHTS AND AGREEMENT TO VOTE. (a) Each
Shareholder hereby waives any and all rights it has or may have under Oregon law
to exercise dissenters' rights with respect to the Merger and the transactions
contemplated by the Merger Agreement. Each Shareholder acknowledges receipt of a
copy of Sections 60.561 through 60.594 of the Oregon revised Statutes,
pertaining to exercise of dissenters' rights, a copy of which is attached
hereto.
(b) Except as set forth in subparagraphs (i) and (ii) of
subsection 5.1(a) of the Merger Agreement or in Section 2 below, each
Shareholder agrees to vote the United Bancorp common stock as follows, and to
vote the United Bancorp common stock of any person controlled by the Shareholder
and any shares of United Bancorp hereafter acquired by the Shareholder or by any
person controlled by the Shareholder as follows:
(i) in favor of the adoption of the Merger Agreement at the United
Bancorp Shareholders' Meeting;
(ii) against the approval of an Acquisition Transaction (as defined
in the Merger Agreement); and
(iii) against any other transaction that is inconsistent with the
obligation of United Bancorp and Douglas National Bank to
consummate the Merger in accordance with the Merger Agreement.
2. LIMITATION ON VOTING POWER. The parties hereto acknowledge and agree
that nothing contained herein is intended to restrict a Shareholder from voting
on any matter, or otherwise from acting, in the Shareholder's capacity as a
director of United Bancorp or Douglas National Bank with respect to any matter,
including but not limited to, the management or operation of United Bancorp or
Douglas National Bank.
3. TERMINATION. This Agreement shall terminate on the earliest of:
(i) July 1, 2000;
(ii) the mutual consent of Bank of Southern Oregon, United Bancorp
and Douglas National Bank;
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(iii) the date on which the Merger Agreement is terminated in
accordance with its terms; or
(iv) the date on which the Merger is consummated.
Upon any such termination, the obligations of each party to this
Agreement shall be extinguished.
4. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF THE
SHAREHOLDERS.
4.1. Each Shareholder hereby represents and warrants to Bank of
Southern Oregon, United Bancorp and Douglas National Bank that:
(i) such Shareholder has the capacity and all necessary power and
authority to vote the Shares;
(ii) this Agreement constitutes a legal, valid and binding
obligation of the Shareholder; and
(iii) this Agreement has been duly authorized, executed and
delivered by the person executing this Agreement on behalf of
the Shareholder.
4.2 This Agreement shall apply to any shares of capital stock of United
Bancorp acquired by the Shareholder after the date of this Agreement, in
addition to the shares of United Bancorp capital stock owned beneficially or of
record by the Shareholder on the date hereof. For purposes of this Agreement,
the Shareholder shall be deemed to have acquired and to own any shares of United
Bancorp common stock held beneficially or of record by the Shareholder and any
shares of United Bancorp common stock over which the Shareholder has voting
power.
4.3. During the term of this Agreement, the Shareholder will not,
without the prior written consent of Bank of Southern Oregon, sell, pledge or
otherwise voluntarily dispose of any of the shares owned by the Shareholder or
take any other voluntary action that would have the effect of removing the
Shareholder's power to vote the shares of United Bancorp common stock or that
would be inconsistent with this Agreement.
4.4. Each Shareholder agrees to use all reasonable efforts to cooperate
with Bank of Southern Oregon in connection with the Merger, to promptly take
such actions as are necessary or appropriate to consummate the Merger, and to
provide any information reasonably requested by Bank of Southern Oregon for any
regulatory application or filing made or approval sought for the transactions
contemplated by the Merger Agreement.
4.5. Each Shareholder agrees that, during the term of this Agreement,
the Shareholder will not, and will not permit affiliates (as that term is
defined in Securities and Exchange Commission Rule 405 under the Securities Act
of 1933) to: (i) acquire, offer to acquire or agree to acquire (directly or
indirectly, beneficially or of record, by purchase or otherwise, alone or in
concert with others) a majority of the United Bancorp common stock; (ii)
undertake any merger, consolidation, asset acquisition or disposition or tender
offer or other takeover action involving United Bancorp, Douglas National Bank,
any of their affiliates or any of their assets, except as expressly permitted by
the Merger Agreement; (iii) other than as a director of United Bancorp, make or
in any way participate, directly or indirectly, in any solicitation of proxies
(as such terms are defined in the proxy rules of the Securities and Exchange
Commission) or seek to advise or influence any person or entity with respect to
the voting, acquisition or disposition of any shares of capital stock of United
Bancorp; (iv) other than as a director of United Bancorp, directly or
indirectly, whether through any employees, agents, affiliates or otherwise,
encourage, initiate, solicit or participate in any inquiries or proposals or
engage in any discussions or negotiations concerning any of the foregoing; or
(v) agree to do any of the foregoing.
5. AFFILIATE'S AGREEMENT. Each Shareholder who is determined by United
Bancorp or Douglas National Bank to be an affiliate of United Bancorp or Douglas
National Bank in accordance with Section 5.13(a)
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of the Merger Agreement agrees to execute and be bound by an agreement in the
form of Exhibit 5.13 to the Merger Agreement.
6. SPECIFIC PERFORMANCE. Each Shareholder hereby acknowledges and
agrees that damages would be an inadequate remedy for any breach of the
provisions of this Agreement, that the obligations of the Shareholder shall be
specifically enforceable and that Bank of Southern Oregon, United Bancorp and
Douglas National Bank shall be entitled to injunctive or other equitable relief
upon such a breach by each Shareholder. Each Shareholder further agrees to waive
any bond in connection with the obtaining of any such injunctive or equitable
relief. This provision is without prejudice to any other rights that Bank of
Southern Oregon, United Bancorp or Douglas National Bank may have against each
Shareholder for any failure to perform the Shareholder's obligations under this
Agreement.
7. REGISTRATION STATEMENT. Each of the Shareholders acknowledges that a
Prospectus/Joint Proxy Statement is in preparation, which will include a
prospectus of the surviving corporation in the merger of United Bancorp with and
into Bank of Southern Oregon's newly formed subsidiary (the "Resulting
Corporation"), as well as a proxy statement of each of Bank of Southern Oregon
and United Bancorp. The prospectus included therein will be used by the
Resulting Corporation for the offer and sale of Resulting Corporation common
stock represented by the Merger. The proxy statements of Bank of Southern Oregon
and United Bancorp are for the purpose of soliciting proxies from shareholders
of Bank of Southern Oregon and United Bancorp for use at those companies'
respective shareholders' meetings at which the Merger will be voted upon. Each
of the Shareholders acknowledges and agrees that (a) it is an accredited
investor, within the meaning of Securities and Exchange Commission Rule 501(a),
or it has had and continues to have, either alone or together with its
representatives, (i) access to all of the information the Prospectus/Joint Proxy
Statement will provide and (ii) sufficient opportunity to make inquiries of Bank
of Southern Oregon, United Bancorp and Douglas National Bank concerning such
information, (b) on its own or together with its representatives, it is able to
evaluate and has evaluated the merits and risks of approval of the Merger
Agreement and the Merger contemplated thereby and investment in Resulting
Corporation common stock, and (c) each of Bank of Southern Oregon, United
Bancorp and Douglas National Bank has relied and may rely upon these
representations in connection with its execution of this Agreement.
8. GOVERNING LAW. This Agreement shall be enforceable under and
construed in accordance with the laws of the State of Oregon.
9. SUCCESSORS AND ASSIGNS. This Agreement shall bind and benefit the
successors, assigns, executors, trustees and heirs of the parties hereto.
10. SEVERABILITY. Any term hereof that is or is held to be invalid or
unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without affecting the
remaining terms or their validity or enforceability in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of such
counterparts together shall constitute one and the same instrument. This
Agreement shall be binding upon each Shareholder who executed and delivers this
Agreement. The failure or refusal of any Shareholder to execute and deliver or
to abide by this Agreement shall not relieve any other Shareholder of his or her
responsibilities or obligations hereunder.
12. UNITED BANCORP EMPLOYEE STOCK OWNERSHIP PLAN SHARES. Anything in
this Agreement to the contrary notwithstanding, the provisions of this Agreement
do not apply to or bind the United Bancorp Employee Stock Ownership Plan or
related trust with respect to any shares of United Bancorp common stock held by
the United Bancorp Employee Stock Ownership Plan and Trust that have been
allocated to participants' Employee Stock Ownership Plan accounts in accordance
with the terms of such plan. Insofar as the
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United Bancorp Employee Stock Ownership Plan is concerned, this Agreement is
intended to be binding solely with respect to shares of United Bancorp common
stock held by the United Bancorp Employee Stock Ownership Plan that have not
been allocated to participants' accounts. The parties hereto agree that, as of
the date hereof and through and including the date on which United Bancorp
shareholders will consider and vote upon the Merger, shares of United Bancorp
common stock are held by the United Bancorp Employee Stock Ownership Plan and
remain unallocated to participants' accounts.
IN WITNESS WHEREOF, each Shareholder has executed this Agreement as of
the date set forth in the first paragraph above.
SHAREHOLDERS:
United Bancorp Employee Stock
Ownership Trust
By: /s/ Lance Short
--------------------------------
Lance Short, Trustee
By: /s/ Dave Jackson
--------------------------------
Dave Jackson, Trustee
By: /s/ William Stiles
--------------------------------
William Stiles, Trustee
By: /s/ Pete Martini
--------------------------------
Pete Martini, Trustee
By: /s/ David Emmett
--------------------------------
Dave Emmett, Trustee
<TABLE>
<S> <C> <C>
By: /s/ Patrick Markham /s/ Thomas Becker /s/ David Emmett
--------------------------- ------------------------ ----------------
Pat Markham, Trustee Thomas Becker David Emmett
/s/ Carol L. Hamlin /s/ David A. Jackson
- ------------------------------- -------------------- ----------------
Carol L. Hamlin David A. Jackson Brad Leiken
/s/ Patrick A. Markham /s/ Peter Martini /s/ Clint Newell
- ------------------------------- ------------------------ ----------------
Patrick A. Markham Peter Martini Clint Newell
/s/ Brian R. Pargeter /s/ Lance C. Short /s/ William C. Stiles
- ------------------------------- ------------------------ ---------------------
Brian R. Pargeter Lance C. Short William C. Stiles
/s/ Rickar D. Watkins /s/ Lauren D. Young /s/ M. Neil Zick
- -------------------------------- ------------------------ ----------------
Rickar D. Watkins Lauren D. Young M. Neil Zick
</TABLE>
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UNITED BANCORP:
By: /s/ Peter Martini and By: /s/ M. Neil Zick
--------------------------------- -------------------------
Peter Martini M. Neil Zick
Chairman of the Board Executive Vice President
BANK OF SOUTHERN OREGON:
By: /s/ John L. Anhorn
------------------------------------
John L. Anhorn
President and Chief Executive Officer
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APPENDIX F
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT dated as of November 3, 1999 (this
"Agreement) is made by and among United Bancorp, an Oregon corporation, Bank of
Southern Oregon, an Oregon-chartered bank, and Gary L. Kjensrud (the
"Shareholder").
WHEREAS, Bank of Southern Oregon, United Bancorp and Douglas National
Bank, a national banking association and wholly owned subsidiary of United
Bancorp, are entering into an Agreement and Plan of Merger and Share Exchange
dated the date hereof (the "Merger Agreement"), which provides for, among other
things, the merger of Douglas National Bank with and into Bank of Southern
Oregon and the merger of United Bancorp with and into a newly formed subsidiary
of Bank of Southern Oregon, upon satisfaction of all of the conditions set forth
in the Merger Agreement (the "Merger");
WHEREAS, among other conditions, the Merger Agreement provides that it
is a condition to the Merger that the shareholders of United Bancorp approve the
Merger Agreement at a special or regular meeting of shareholders of United
Bancorp (such meeting, together with any adjournments thereof, the "United
Bancorp Shareholders' Meeting");
WHEREAS, the United Bancorp capital stock consists of 5,000,000
authorized shares of common stock, par value $2.50 per share, and 1,000,000
authorized shares of preferred stock, without par value, of which 1,799,334
shares of common stock are issued and outstanding, and no shares of preferred
stock are issued and outstanding, with common stock being entitled to one vote
per share on all matters submitted to shareholders for a vote;
WHEREAS, excluding options to acquire United Bancorp common stock, on
the date hereof the Shareholder owns (including the power to vote) United
Bancorp common stock as follows:
<TABLE>
<CAPTION>
SHARES OF UNITED BANCORP PERCENTAGE OF UNITED BANCORP
COMMON STOCK OWNED COMMON STOCK
- ----------------------------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
Gary L. Kjensrud..................................... 227,816 12.67%
</TABLE>
WHEREAS, it is the belief of the Shareholder that the Merger is in the
best interests of United Bancorp and its shareholders; and
NOW, THEREFORE, in consideration of Bank of Southern Oregon, United
Bancorp and Douglas National Bank entering into the Merger Agreement and to
encourage Bank of Southern Oregon, United Bancorp and Douglas National Bank to
enter into the Merger Agreement and complete the transactions contemplated
thereby, the parties hereto agrees as follows:
1. WAIVER OF DISSENTERS' RIGHTS AND AGREEMENT TO VOTE. (a) The
Shareholder hereby waives any and all rights he has or may have under Oregon law
to exercise dissenters' rights with respect to the Merger and the transactions
contemplated by the Merger Agreement. The Shareholder acknowledges receipt of a
copy of Sections 60.551 through 60.594 of the Oregon Revised Statutes,
pertaining to exercise of dissenters' rights, a copy of which is attached
hereto.
(b) Except as set forth in subparagraphs (i) and (ii) of
subsection 5.1(a) of the Merger Agreement or in Section 2 below, the Shareholder
agrees to vote the United Bancorp common stock as follows, and to vote the
United Bancorp common stock of any person controlled by the Shareholder and any
shares of United Bancorp hereafter acquired by the Shareholder or by any person
controlled by the Shareholder as follows:
(i) in favor of the adoption of the Merger Agreement at the United
Bancorp Shareholders' Meeting;
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(ii) against the approval of an Acquisition Transaction (as defined
in the Merger Agreement); and
(iii) against any other transaction that is inconsistent with the
obligation of United Bancorp and Douglas National Bank to
consummate the Merger in accordance with the Merger Agreement.
2. TERMINATION. This Agreement shall terminate on the earliest of:
(i) July 1, 2000;
(ii) the mutual consent of Bank of Southern Oregon, United Bancorp
and Douglas National Bank;
(iii) the date on which the Merger Agreement is terminated in
accordance with its terms; or
(iv) the date on which the Merger is consummated.
Upon any such termination, the obligations of each party to this
Agreement shall be extinguished.
3. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF THE
SHAREHOLDER.
3.1. The Shareholder hereby represents and warrants to Bank of Southern
Oregon, United Bancorp and Douglas National Bank that:
(i) such Shareholder has the capacity and all necessary power and
authority to vote the Shares;
(ii) this Agreement constitutes a legal, valid and binding
obligation of the Shareholder; and
(iii) this Agreement has been duly authorized, executed and
delivered by the person executing this Agreement on behalf of
the Shareholder.
3.2 This Agreement shall apply to any shares of capital stock of United
Bancorp acquired by the Shareholder after the date of this Agreement, in
addition to the shares of United Bancorp capital stock owned beneficially or of
record by the Shareholder on the date hereof. For purposes of this Agreement,
the Shareholder shall be deemed to have acquired and to own any shares of United
Bancorp common stock held beneficially or of record by the Shareholder and any
shares of United Bancorp common stock over which the Shareholder has voting
power.
3.3. During the term of this Agreement, the Shareholder will not,
without the prior written consent of Bank of Southern Oregon, sell, pledge or
otherwise voluntarily dispose of any of the shares owned by the Shareholder or
take any other voluntary action that would have the effect of removing the
Shareholder's power to vote the shares of United Bancorp common stock or that
would be inconsistent with this Agreement; provided, however, that this shall
not prevent Shareholder from transferring some shares to family members for
estate planning purposes, so long as the transfer is subject to the condition
that the transferee shall become a signatory to this Shareholder Voting
Agreement by executing a conformed counterpart hereof whereby such transferee
shall be deemed to have adopted and to have agreed to be bound by all the terms
and provisions of this Shareholder Voting Agreement. Notwithstanding the
foregoing, in no event will Shareholder take any action to transfer or
relinquish voting rights during the period beginning thirty (30) days before
Effective Time of Merger through the date of the first SEC filing that reports
at least thirty (30) days of the combined financial results of the merged
entities.
3.4. The Shareholder agrees to use all reasonable efforts to cooperate
with Bank of Southern Oregon in connection with the Merger, to promptly take
such actions as are necessary or appropriate to consummate the
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Merger, and to provide any information reasonably requested by Bank of Southern
Oregon for any regulatory application or filing made or approval sought for the
transactions contemplated by the Merger Agreement.
3.5. The Shareholder agrees that, during the term of this Agreement,
the Shareholder will not, and will not permit affiliates (as that term is
defined in Securities and Exchange Commission Rule 405 under the Securities Act
of 1933) to: (i) acquire, offer to acquire or agree to acquire (directly or
indirectly, beneficially or of record, by purchase or otherwise, alone or in
concert with others) a majority of the United Bancorp common stock; (ii)
undertake any merger, consolidation, asset acquisition or disposition or tender
offer or other takeover action involving United Bancorp, Douglas National Bank,
any of their affiliates or any of their assets, except as expressly permitted by
the Merger Agreement; (iii) other than as a director of United Bancorp, make or
in any way participate, directly or indirectly, in any solicitation of proxies
(as such terms are defined in the proxy rules of the Securities and Exchange
Commission) or seek to advise or influence any person or entity with respect to
the voting, acquisition or disposition of any shares of capital stock of United
Bancorp; (iv) other than as a director of United Bancorp, directly or
indirectly, whether through any employees, agents, affiliates or otherwise,
encourage, initiate, solicit or participate in any inquiries or proposals or
engage in any discussions or negotiations concerning any of the foregoing; or
(v) agree to do any of the foregoing.
4. AFFILIATE'S AGREEMENT. If the Shareholder is determined by United
Bancorp or Douglas National Bank to be an affiliate of United Bancorp or Douglas
National Bank, in accordance with Section 5.13(a) of the Merger Agreement the
Shareholder agrees to execute and be bound by an agreement in the form of
Exhibit 5.13 to the Merger Agreement.
5. SPECIFIC PERFORMANCE. The Shareholder hereby acknowledges and agrees
that damages would be an inadequate remedy for any breach of the provisions of
this Agreement, that the obligations of the Shareholder shall be specifically
enforceable and that Bank of Southern Oregon, United Bancorp and Douglas
National Bank shall be entitled to injunctive or other equitable relief upon
such a breach by the Shareholder. The Shareholder further agrees to waive any
bond in connection with the obtaining of any such injunctive or equitable
relief. This provision is without prejudice to any other rights that Bank of
Southern Oregon, United Bancorp or Douglas National Bank may have against the
Shareholder for any failure to perform the Shareholder's obligations under this
Agreement.
6. REGISTRATION STATEMENT. The Shareholder acknowledges that a
Prospectus/Joint Proxy Statement is in preparation, which will include a
prospectus of the surviving corporation in the merger of United Bancorp with and
into Bank of Southern Oregon's newly formed subsidiary (the "Resulting
Corporation"), as well as a proxy statement of each of Bank of Southern Oregon
and United Bancorp. The prospectus included therein will be used by the
Resulting Corporation for the offer and sale of Resulting Corporation common
stock represented by the Merger. The proxy statements of Bank of Southern Oregon
and United Bancorp are for the purpose of soliciting proxies from shareholders
of Bank of Southern Oregon and United Bancorp for use at those companies'
respective shareholders' meetings at which the Merger will be voted upon. The
Shareholder acknowledges and agrees that (a) he is an accredited investor,
within the meaning of Securities and Exchange Commission Rule 501(a), or he has
had and continues to have, either alone or together with his representatives,
(i) access to information from Bank of Southern Oregon, United Bancorp, and
Douglas National Bank and (ii) sufficient opportunity to make inquiries of Bank
of Southern Oregon, United Bancorp and Douglas National Bank concerning such
information, (b) on his own or together with his representatives, is able to
evaluate and has evaluated the merits and risks of approval of the Merger
Agreement and the Merger contemplated thereby and investment in Resulting
Corporation common stock, and (c) each of Bank of Southern Oregon, United
Bancorp and Douglas National Bank has relied and may rely upon these
representations in connection with its execution of this Agreement.
7. GOVERNING LAW. This Agreement shall be enforceable under and
construed in accordance with the laws of the State of Oregon.
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8. SUCCESSORS AND ASSIGNS. This Agreement shall bind and benefit the
successors, assigns, executors, trustees and heirs of the parties hereto.
9. SEVERABILITY. Any term hereof that is or is held to be invalid or
unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without affecting the
remaining terms or their validity or enforceability in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of such
counterparts together shall constitute one and the same instrument.
11. INDEMNITY. United Bancorp shall indemnify and hold harmless
Shareholder from any and all claims and liabilities, including reasonable
attorney fees and costs incurred by Shareholder, arising out of or in connection
with Shareholder's execution of this Agreement other than claims based upon
Shareholder's breach of this Agreement. United Bancorp's obligation to indemnify
and hold harmless Shareholder hereunder are subject to prior written thirty (30)
day notice by Shareholder of a claim or liability subject to this
indemnification agreement, unless the claim involves litigation, in which case
Shareholder shall provide United Bancorp with notice of such litigation within
twenty (20) days after receipt of such complaint by Shareholder; provided,
however, that United Bancorp shall have the right to defend any claims made by a
third party and shall have the right to control the defense, settlement or
compromise of such claim and Shareholder shall have the right to be kept
currently informed and to reasonably participate in all aspects of such
litigation. Shareholder shall reasonably cooperate with United Bancorp in
defending such litigation.
IN WITNESS WHEREOF, the Shareholder has executed this Agreement as of
the date set forth in the first paragraph above.
SHAREHOLDER:
/s/ Gary L. Kjensrud
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Gary L. Kjensrud
UNITED BANCORP:
By: /s/ Peter Martini And by: /s/ M. Neil Zick
------------------------------------------- ----------------
Peter Martini M. Neil Zick
Chairman of the Board Executive Vice President
BANK OF SOUTHERN OREGON:
By: /s/ John L. Anhorn
-------------------------------------------
John L. Anhorn
President and Chief Executive Officer
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APPENDIX G
ARTICLES OF INCORPORATION
OF
PREMIERWEST BANCORP
Acting as the incorporator under the Oregon Business Corporation Act,
the undersigned hereby adopts the following Articles of Incorporation.
ARTICLE I
NAME
The name of the corporation is PremierWest Bancorp.
ARTICLE II
PURPOSES AND POWERS
PremierWest Bancorp (the "Corporation") is organized to engage in any
lawful activity for which a corporation may be organized under the Oregon
Business Corporation Act, including but not limited to owning and holding the
capital stock of state or federally chartered banks. The Corporation will have
the same powers as an individual to do all things necessary or convenient to
carry out its business and affairs, including but not limited to the powers
specified in the Oregon Business Corporation Act or which may be hereafter
granted by such law.
ARTICLE III
AUTHORIZED CAPITAL STOCK
A. AUTHORIZED CLASSES OF SHARES. The Corporation may issue 21,000,000
shares of stock, divided into two classes as follows:
1,000,000 shares of preferred stock, no par value ("Preferred Stock").
The Preferred Stock may be further divided into one or more series of Preferred
Stock. Each series of Preferred Stock will have the preferences, limitations and
relative rights as may be set forth for such series either in these Articles or
in an amendment to these Articles ("Preferred Stock Designation"). A Preferred
Stock Designation may be adopted either by action of the Board of Directors of
the Corporation pursuant to Section G of this Article III or by action of the
shareholders of the Corporation; and
20,000,000 shares of common stock, no par value ("Common Stock").
Except as may otherwise be provided in a Preferred Stock Designation,
all shares of a class will have preferences, limitations and relative rights
identical to those of all other shares of the same class. All shares of a series
of Preferred Stock will have preferences, limitations and relative rights
identical to those of all other shares of that series of Preferred Stock.
B. VOTING RIGHTS. The Corporation's capital stock will have voting
rights as follows:
1. COMMON STOCK VOTING RIGHTS. Subject to the voting rights,
if any, of any Preferred Stock that may be outstanding, the outstanding
shares of Common Stock will (a) each have one vote, (b) vote together
as a single voting group and (c) together have unlimited voting rights.
2. PREFERRED STOCK VOTING RIGHTS. Except as otherwise provided
by the Oregon Business Corporation Act or in a Preferred Stock
Designation, each share of Preferred Stock will, on each matter which
that series of Preferred Stock is entitled to vote, (a) either have (i)
one vote if that series of Preferred Stock is not by its terms
convertible into Common Stock, or (ii), if that series of Preferred
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Stock is convertible into Common Stock, one vote for each share of Common Stock
into which that series of Preferred Stock may be converted as of the record date
for the meeting at which the vote is to be taken, and (b) vote together with
shares of the Common Stock as a single voting group.
3. NONVOTING PREFERRED STOCK. Shares of any series of
Preferred Stock that are designated as "nonvoting" will nonetheless
have such voting rights as are required by the Oregon Business
Corporation Act.
4. NONCUMULATIVE VOTING FOR DIRECTORS. The holders of shares
of Common Stock and the holders of shares of any series of Preferred
Stock that is entitled to vote with respect to the election of
directors will not have the right to cumulate votes in the election or
removal of directors.
C. DIVIDENDS. Subject to any priority or participating rights of any
Preferred Stock that may be outstanding, the holders of Common Stock will be
entitled to receive, out of any legally available assets of the Corporation, any
dividends declared by the Board of Directors of the Corporation. Except as may
otherwise be provided in a Preferred Stock Designation, the Board of Directors
of the Corporation will have the sole authority and discretion to determine the
time, amount and terms of payment for any dividend which may be declared.
Nothing in these Articles will be construed as obligating the Board of Directors
of the Corporation to declare a dividend at any time, even though the
Corporation may have assets legally available to pay a dividend.
D. REDEMPTION. Subject to any provision to the contrary contained in
any Preferred Stock Designation, the Corporation may repurchase all or any of
its outstanding shares of Common Stock or Preferred Stock even though the
distribution made to effect that repurchase would cause the difference between
the Corporation's total assets and its total liabilities to be less than the
amount that would be needed to satisfy the preferential liquidation rights of
all outstanding shares of classes or series of a class with liquidation rights
that are prior to those of the shares being repurchased if the Corporation were
to be liquidated at the time of such repurchase.
E. LIQUIDATION. In liquidating, dissolving or winding up the
Corporation, the Board of Directors must first discharge or make adequate
provision for discharging all liabilities of the Corporation. The remaining net
assets of the Corporation shall be distributed to the holders of the Common
Stock according to respective share holdings, subject to the priority and
participating rights of any Preferred Stock that may be outstanding.
F. PREEMPTIVE RIGHTS. No holder of any shares of Common Stock or
Preferred Stock will be entitled to any preemptive right to purchase or
subscribe for any unissued or treasury shares of the Corporation.
G. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF PREFERRED STOCK. The
Board of Directors of the Corporation is expressly authorized to designate, from
time to time by resolution duly adopted, the preferences, limitations and
relative rights of one or more series of Preferred Stock. A Preferred Stock
Designation by the Board of Directors may set forth, with respect to the shares
of the series of Preferred Stock designated, the following preferences,
limitations and relative rights:
1. VOTING. The voting rights of the shares of that series of
Preferred Stock, including whether the shares have special, conditional
or limited voting rights. Alternatively, the Preferred Stock
Designation may include a statement to the effect that the shares of
that series of Preferred Stock are "nonvoting" except to the extent
voting rights are required by the Oregon Business Corporation Act.
2. DIVIDENDS. The dividend rate and preference, if any, of the
shares of that series of Preferred Stock. The Preferred Stock
Designation will also state (a) whether the dividend rights of shares
of that series of Preferred Stock are cumulative, noncumulative or
partially cumulative and (b) whether or not the shares of that series
of Preferred Stock will participate in any dividends that may be
declared with respect to the Common Stock.
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3. LIQUIDATIONS. The amount of the liquidation preference, if
any, of the shares of that series of Preferred Stock. The Preferred
Stock Designation will also state whether, and if so when, the shares
of that series of Preferred Stock will participate with the Common
Stock in any liquidating distributions.
4. REDEMPTION. Whether the shares of that series of Preferred
Stock are redeemable at the option of the Corporation, at the option of
the holder of the shares or another person or upon the occurrence of a
designated event, whether the redemption price for the shares of that
series of Preferred Stock will be a designated amount or determined by
a designated formula or by reference to an extrinsic event or extrinsic
data, and whether the redemption price for the shares of such series of
Preferred Stock will be paid in cash, indebtedness or other property.
The Preferred Stock Designation will also state (a) the terms and
conditions, if any, of any redemption, (b) the procedures for effecting
any redemption and (c) whether, and if so where and in what manner, a
sinking fund must be created by the Corporation for the purpose of
funding any redemption.
5. CONVERSION. Whether the shares of that series of Preferred
Stock are convertible at the option of the Corporation, at the option
of the holder of the shares or another person or upon the occurrence of
a designated event into other securities of the Corporation in a
designated amount or in an amount determined by a designated formula or
by reference to an extrinsic event or extrinsic data. The Preferred
Stock Designation will also state the terms and conditions of the
conversion, if any, and the procedures for effecting such a conversion.
6. OTHER TERMS. Such other preferences, limitations and
relative rights as the Board of Directors of the Corporation may
determine.
Every Preferred Stock Designation must identify that series of
Preferred Stock in a manner that will distinguish that series from all other
series of Preferred Stock and from the undesignated Preferred Stock. The
Preferred Stock Designation must also set forth the number of shares to be
included in that series. All shares of that series that are thereafter redeemed,
converted, or, if so provided in the Preferred Stock Designation, remain
unissued on a designated date or on the occurrence of an event will cease to be
of that series and will automatically become undesignated Preferred Stock.
Any Preferred Stock Designation adopted by the Board of Directors of
the Corporation pursuant to this Section G of Article III will constitute
articles of amendment to these Articles of Incorporation and will become
effective, without shareholder action, upon filing as prescribed by the Oregon
Business Corporation Act. No shares of Preferred Stock or of a series of
Preferred Stock may be issued by the Corporation prior to the filing of articles
of amendment determining the preferences, limitations and relative rights of
such shares.
ARTICLE IV
REGISTERED AGENT AND OFFICE AND ADDRESS FOR NOTICES
The initial registered agent of the Corporation is Mr. John L. Anhorn,
and the street address of the initial registered office and mailing address of
the initial registered agent are 1455 East McAndrews Road, Medford, Oregon
97504. The address where the Secretary of State may mail notices is 1455 East
McAndrews Road, Medford, Oregon 97504, Attention: Mr. John L. Anhorn.
ARTICLE V
BOARD OF DIRECTORS
The number of directors of the Corporation shall be as provided in the
Corporation's bylaws. The names of directors constituting the initial Board of
Directors of the Corporation shall be as appointed by the incorporator of the
Corporation at the organizational meeting of the Corporation.
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ARTICLE VI
LIMITATIONS ON LIABILITY OF DIRECTORS
No director of the Corporation is personally liable to the Corporation
or its shareholders for monetary damages for conduct as a director, except for
the following:
(a) Any breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) Acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) Any distribution to shareholders that is unlawful under the
Oregon Business Corporation Act or successor statute; or
(d) Any transaction from which the director derived an improper
personal benefit.
This Article does not limit or eliminate the liability of a director
for any act or omission occurring before the effective date of this Article.
No amendment to or repeal of this Article may make any director of the
Corporation personally liable to the Corporation or its shareholders for
monetary damages for any act or omission as a director occurring before the
effective date of that amendment or repeal.
This Article is intended to limit the liability of any director of the
Corporation to the greatest extent authorized under the Oregon Business
Corporation Act. Any further limitation on the liability of directors authorized
under any amendment to the Oregon Business Corporation Act is incorporated into
this Article on the effective date of that amendment.
ARTICLE VII
INDEMNIFICATION
A. NON-DERIVATIVE ACTIONS. Subject to the provisions of Sections C, E
and F below, the Corporation shall indemnify any person who was or is a party to
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, (including all appeals) (other than an action by or in the right
of the Corporation) by reason of or arising from the fact that the person is or
was a director or officer of the Corporation or one of its subsidiaries, or is
or was serving at the request of the Corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
reasonable expenses (including attorney's fees), judgments, fines, penalties,
excise taxes assessed with respect to any employee benefit plan and amounts paid
in settlement actually and reasonably incurred by the person to be indemnified
in connection with such action, suit or proceeding if the person acted in good
faith, did not engage in intentional misconduct, and, with respect to any
criminal action or proceeding, did not know the conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith or, with
respect to any criminal action or proceeding, that the person knew the conduct
was unlawful.
B. DERIVATIVE ACTIONS. Subject to the provisions of Sections C, E and F
below, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit (including all appeals) by or in the right of the Corporation to procure a
judgment in its favor by reason of or arising from the fact that the person is
or was a director or officer of the Corporation or one of its subsidiaries, or
is or was serving at the request of the Corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other
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enterprise, against reasonable expenses (including attorney's fees) actually
incurred by the person to be indemnified in connection with the defense or
settlement of such action or suit if the person acted in good faith; provided,
however, that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
deliberate misconduct in the performance of that person's duty to the
Corporation, for any transaction in which the person received an improper
personal benefit, for any breach of the duty of loyalty to the Corporation, or
for any distribution to shareholders which is unlawful under the Oregon Business
Corporation Act, or successor statute, unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
C. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN CASES. Subject
to the provisions of Sections E and F below, indemnification under Sections A
and B of this Article shall not be made by the Corporation unless it is
expressly determined that indemnification of the person who is or was an officer
or director, or is or was serving at the request of the Corporation as a
director, officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, is proper in the circumstances because the person has met the
applicable standard of conduct set forth in Sections A or B. That determination
may be made by any of the following:
(a) By the Board of Directors by majority vote of a quorum
consisting of directors who are not or were not parties to the
action, suit or proceeding;
(b) If a quorum cannot be obtained under paragraph (a) of this
subsection, by majority vote of a committee duly designated by
the Board of Directors consisting solely of two or more
directors not at the time parties to the action, suit or
proceeding (directors who are parties to the action, suit or
proceeding may participate in designation of the committee);
(c) By special legal counsel selected by the Board of Directors or
its committee in the manner prescribed in (a) or (b) or, if a
quorum of the Board of Directors cannot be obtained under (a)
and a committee cannot be designated under (b), the special
legal counsel shall be selected by majority vote of the full
Board of Directors, including directors who are parties to the
action, suit or proceeding;
(d) If referred to them by Board of Directors of the Corporation
by majority vote of a quorum (whether or not such quorum
consists in whole or in part of directors who are parties to
the action, suit or proceeding), by the shareholders; or
(e) By a court of competent jurisdiction.
D. INDEMNIFICATION OF PERSONS OTHER THAN OFFICERS OR DIRECTORS. Subject
to the provisions of Section F, if any person not entitled to indemnification
under Sections A and B of this Article was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
of a type referred to in Sections A or B of this Article by reason of or arising
from the fact that such person is or was an employee or agent (including an
attorney) of the Corporation or one of its subsidiaries, or is or was serving at
the request of the Corporation as an employee or agent (including an attorney)
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, the Board of Directors of the
Corporation by a majority vote of a quorum (whether no not such quorum consists
in whole or in part of directors who were parties to such action, suit or
proceeding) or the shareholders of the Corporation by a majority vote of the
outstanding shares upon referral to them by the Board of Directors of the
Corporation by a majority vote of a quorum (whether or not such quorum consists
in whole or in part of directors who were parties to such action, suit or
proceeding) may, but shall not be required to, grant to such person a right of
indemnification to the extent described in Sections A or B of this Article as if
the person were acting in a capacity referred to therein,
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provided that such person meets the applicable standard of conduct set forth in
such Sections. Furthermore, the Board of Directors may designate by resolution
in advance of any action, suit or proceeding, those employees or agents
(including attorneys) who shall have all rights of indemnification granted under
Sections A and B of this Article.
E. SUCCESSFUL DEFENSE. Notwithstanding any other provision of Sections
A, B, C, or D of this Article, but subject to the provisions of Section F, to
the extent a director, officer or employee is successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
A, B or D of this Article, or in defense of any claim, issue or matter therein,
that person shall be indemnified against expenses (including attorneys fees)
actually and reasonable incurred by him in connection therewith.
F. CONDITION PRECEDENT TO INDEMNIFICATION UNDER SECTIONS A, B, D OR E.
Any person who desires to receive the benefits otherwise conferred by Sections
A, B, D or E of the Article shall promptly notify the Corporation that the
person has been named a defendant to an action, suit or proceeding of a type
referred to in Sections A, B, D or E and intends to rely upon the right of
indemnification described in Sections A, B, D or E of this Article. The notice
shall be in writing and mailed, via registered or certified mail, return receipt
requested, to the President of the Corporation at the executive offices of the
Corporation or, if the notice is from the President, to the registered agent of
the Corporation. Failure to give the notice required hereby shall entitle the
Board of Directors of the Corporation by a majority vote of a quorum (consisting
of directors who, insofar as indemnity of officers or directors is concerned,
were not parties to such action, suit or proceeding, but who, insofar as
indemnity of employees or agents is concerned, may or may not have been parties)
or, if referred to them by the Board of Directors of the Corporation by a
majority vote of a quorum (consisting of directors who, insofar as indemnity of
officers or directors in concerned, were not parties to such action, suit or
proceeding, but who, insofar as indemnity of employees or agents is concerned,
may or may not have been parties), the shareholders of the Corporation by a
majority of the votes entitled to be cast by holders of shares of the
Corporation's stock that have unlimited voting rights to make a determination
that such a failure was prejudicial to the Corporation in the circumstances and
that, therefore, the right to indemnification referred to in Sections A, B or D
of this Article shall be denied in its entirety or reduced in amount.
G. ADVANCES FOR EXPENSES. Expenses incurred by a person indemnified
hereunder in defending a civil, criminal, administrative or investigative
action, suit or proceeding (including all appeals) or threat thereof, may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such person to
repay such expenses if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation and a written affirmation of the
person's good faith belief that he or she has met the applicable standard of
conduct. The undertaking must be a general personal obligation of the party
receiving the advances but need not be secured and may be accepted without
reference to financial ability to make repayment.
H. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or one of its subsidiaries or is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
and incurred by that person in any such capacity, or arising out of his status
as such, whether or not the Corporation would have the power to indemnify that
person against such liability under the provisions of this Article or under the
Oregon Business Corporation Act.
I. PURPOSE AND EXCLUSIVITY. The indemnification referred to in the
various Sections of this Article shall be deemed to be in addition to and not in
lieu of any other rights to which those indemnified may be entitled under any
stature, rule of law or equity, agreement, vote of the shareholders or Board of
Directors or otherwise. The Corporation is authorized to enter into agreements
of indemnification. The purpose of this Article is to augment the provisions of
the Oregon Business Corporation Act dealing with indemnification.
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J. SEVERABILITY. If any of the provisions of this Article are found, in
any action, suit or proceeding, to be invalid or ineffective, the validity and
the effect of the remaining provisions shall not be affected.
ARTICLE VIII
CONSIDERATION OF OTHER CONSTITUENCIES
When evaluating any offer of another party to make a tender or exchange
offer for any equity security of the Corporation, or any proposal to merge or
consolidate the Corporation with another corporation or financial institution,
or to purchase or otherwise acquire all or substantially all of the properties
and assets of the Corporation, the Directors of the Corporation may give due
consideration to the social, legal and economic effects of such offer or
proposal on employees, customers and suppliers of the Corporation and on the
communities and geographical areas in which the Corporation and its subsidiaries
operate, the economy of the state and the nation, the long-term as well as
short-term interests of the Corporation and its shareholders, including the
possibility that these interests may be best served by the continued
independence of the Corporation, and other relevant factors.
ARTICLE IX
INCORPORATOR
The name and address of the incorporator of the Corporation is as
follows:
John L. Anhorn
President and Chief Executive Officer
Bank of Southern Oregon
1455 East McAndrews Road
Medford, Oregon 97504
/s/ John L. Anhorn
-----------------------------
John L. Anhorn, Incorporator
Person to contact about this filing: Mr. John L. Anhorn, daytime phone number
(541) 618-6000
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APPENDIX H
BYLAWS
OF
PREMIERWEST BANCORP
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 SHAREHOLDERS
<S> <C> <C>
Section 1.1 Annual Meeting...........................................................1
Section 1.2 Special Meetings.........................................................1
Section 1.3 Notice...................................................................1
Section 1.4 Waiver of Notice.........................................................1
Section 1.5 Voting...................................................................1
Section 1.6 Quorum; Adjournment......................................................2
Section 1.7 Action Without Meeting...................................................2
Section 1.8 Record Date..............................................................2
Section 1.9 Order of Business........................................................2
ARTICLE 2 BOARD OF DIRECTORS
Section 2.1 Number and Election of Directors.........................................4
Section 2.2 Nominations..............................................................4
Section 2.3 Vacancies................................................................5
Section 2.4 Annual Meeting...........................................................5
Section 2.5 Regular Meetings.........................................................6
Section 2.6 Special Meetings.........................................................6
Section 2.7 Telephonic Meetings......................................................6
Section 2.8 Waiver of Notice.........................................................6
Section 2.9 Quorum...................................................................6
Section 2.10 Voting...................................................................6
Section 2.11 Action Without Meeting...................................................6
Section 2.12 Powers of Directors......................................................6
Section 2.13 Committees...............................................................7
Section 2.14 Chairman and Vice Chairman of the Board..................................7
ARTICLE 3 OFFICERS
Section 3.1 Composition..............................................................8
Section 3.2 Chief Executive Officer..................................................8
Section 3.3 President................................................................8
Section 3.4 Vice President...........................................................8
Section 3.5 Secretary................................................................8
Section 3.6 Treasurer or Chief Financial Officer.....................................9
Section 3.7 Removal..................................................................9
ARTICLE 4 STOCK AND OTHER SECURITIES
Section 4.1 Certificates.............................................................9
Section 4.2 Transfer Agent and Registrar.............................................9
Section 4.3 Transfer.................................................................9
Section 4.4 Necessity for Registration...............................................9
Section 4.5 Lost Certificates.......................................................10
Section 4.6 Shares Without Certificates.............................................10
ARTICLE 5 CORPORATE SEAL.................................................................................10
ARTICLE 6 AMENDMENTS.....................................................................................10
ARTICLE 7 SEVERABILITY...................................................................................10
</TABLE>
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BYLAWS
OF
PREMIERWEST BANCORP
ARTICLE 1
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING. Meetings of the shareholders of the
Corporation shall be held at the principal office of the Corporation, or at such
other place within or without the State of Oregon as may be designated by the
Board of Directors and specified in the notice of such meeting. The Annual
Meeting of the shareholders of the Corporation shall be held within 120 days
after the close of the fiscal year of the Corporation, or at such later date as
the Board of Directors shall determine, and at such hour as the Board of
Directors may determine. The Annual Meeting shall be held for the purpose of
electing directors and transacting such other business as may properly come
before the meeting.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of shareholders of the
Corporation may be held on any business day and may be called by the President,
by the Board acting at a meeting, by a majority of the directors acting without
a meeting or by any three or more shareholders of record who together hold not
less than one third (1/3) of all shares outstanding and entitled to vote at the
special meeting.
SECTION 1.3 NOTICE. Written notice stating the place, date and time of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, will be delivered at least 10 and no more than 60
days before the date of the meeting, either personally or by mail, by or at the
direction of the President or the Secretary, to each shareholder of record
entitled to vote at such meeting. If mailed, the notice will be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at the shareholder's address as it appears on the current shareholder records of
the Corporation, with postage prepaid.
SECTION 1.4 WAIVER OF NOTICE. A shareholder may, at any time, waive any
notice required by these Bylaws, the Articles of Incorporation or the Oregon
Business Corporation Act. Except as otherwise provided by this Section 1.4, the
waiver must be in writing, must be signed by the shareholder and must be
delivered to the Corporation for inclusion in the minutes and filing in the
corporate records. A shareholder's attendance at a meeting waives any objection
to lack of notice or defective notice, unless the shareholder objects at the
beginning of the meeting to holding the meeting or transacting business at the
meeting.
SECTION 1.5 VOTING. On each matter voted on at a shareholder's meeting
each shareholder will be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote on such matter that is outstanding in such
shareholder's name on the records of the Corporation, except as may be otherwise
provided in the Articles of Incorporation. Except as otherwise expressly
required by law, the Articles of Incorporation or these Bylaws, at any meeting
of shareholders at which a quorum is present a majority of the votes cast,
whether in person or by proxy, on any matter properly brought before such
meeting in accordance with these Bylaws will be the act of the shareholders. An
abstention shall not represent a vote cast. The vote upon any question brought
before a meeting of the shareholders may be by voice vote, unless otherwise
required by law, the Articles of Incorporation or these Bylaws or unless the
presiding officer otherwise determines.
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Unless held as trustee or in another fiduciary capacity, shares may not
be voted if held by another corporation in which the Corporation holds a
majority of the shares entitled to vote for directors of such other corporation.
SECTION 1.6 QUORUM; ADJOURNMENT. A majority of the shares entitled to
vote on a matter, represented in person or by proxies, will constitute a quorum
with respect to that matter at any meeting of the shareholders. Unless otherwise
provided in the Articles of Incorporation, a majority of votes represented at a
meeting of shareholders, whether or not a quorum, may adjourn the meeting to a
different time, date, or place. No further notice of the adjourned meeting is
required if the new time, date, and place is announced at the meeting prior to
adjournment and the date is set 120 days or less from the date of the original
meeting.
SECTION 1.7 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of shareholders may be taken without a meeting if a
written consent or consents describing the action taken is signed by all of the
shareholders entitled to vote on the action and is delivered to the Corporation
for inclusion in the minutes and filing with the corporate records. The action
is effective when the last shareholder signs the consent, unless the consent
specifies an earlier or later effective date. A consent signed under this
section has the effect of a meeting vote and may be described as such in any
document. Unless a record date for determining the shareholders entitled to take
action without a meeting is otherwise established, the record date for that
purpose is the date the first shareholder signs the consent. If the Oregon
Business Corporation Act requires that notice of a proposed action be given to
non-voting shareholders and that the action is to be taken by unanimous consent
of the shareholders, at least 10 days written notice of the proposed action will
be given to non-voting shareholders before the action is taken.
SECTION 1.8 RECORD DATE. The Board of Directors may fix in advance a
date as record date for the purpose of determining the registered owners of
stock or other securities (i) entitled to notice of or to vote at any meeting of
the shareholders or any adjournment thereof; (ii) entitled to receive payment of
any interest on a security, or of any ordinary, extraordinary, partial
liquidating, final liquidating, or other dividend, or of any other distribution,
whether paid in cash or in securities or in any other form; or (iii) entitled to
otherwise exercise or enjoy any or all of the rights and powers of an owner, or
in order to make a determination of registered owners for any other proper
purpose. The record date will not be a date earlier than the date on which the
record date is fixed. The record date also will not be more than 70 days and, in
the case of a meeting of shareholders, will be at least 10 days before the date
on which the particular action requiring such determination of registered owners
is to be taken.
A determination of shareholders entitled to notice of or to vote at a
meeting of the shareholders is effective for any adjournment of the meeting,
unless the Board of Directors fixes a new record date. A new record date must be
fixed if a meeting of the shareholders is adjourned to a date more than 120 days
after the date fixed for the original meeting.
SECTION 1.9 ORDER OF BUSINESS. (a) The Chairman of the Board, or in the
Chairman's absence the Vice Chairman, or such other officer of the Corporation
as provided in these Bylaws or designated by a majority of the total number of
directors that the Corporation would have if there were no vacancies on the
Board of Directors, will call meetings of shareholders to order and will act as
presiding officer thereof. Unless otherwise determined by the Board of Directors
prior to the meeting, the presiding officer of the meeting of shareholders will
also determine the order of business and have authority in his or her sole
discretion to regulate the conduct of any such meeting, including without
limitation authority to decide who (other than shareholders of the Corporation
or their duly appointed proxies) may attend shareholders' meeting; authority to
decide
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whether any shareholder or his proxy shall be excluded from a meeting of
shareholders based upon the presiding officer's determination, in his sole
discretion, that the shareholder or his proxy has unduly disrupted or is likely
to disrupt the proceedings of the meeting; and authority to determine the
circumstances in which any person may make a statement or ask questions at any
meeting of shareholders.
(b) At an annual meeting of shareholders, the only business
that will be conducted or considered is such business as is properly brought
before the meeting. Business shall be deemed to have properly come before the
annual meeting of shareholders if and only if (i) such business is set forth in
the Corporation's notice to shareholders, (ii) the Board of Directors of the
Corporation, after mailing of the notice to shareholders of the annual meeting,
determines that it is appropriate for such business to be brought before the
annual meeting of shareholders, or (iii) such business is proposed by a person
who is entitled to vote at that meeting and who has complied with the notice
procedures set forth herein, and the presiding officer of the meeting
determines, in his or her reasonable discretion, that such business is of a
nature that is appropriate for consideration by the shareholders of the
Corporation under the Oregon Business Corporation Act or under the rules of the
Securities and Exchange Commission, as in force from time to time under the
Securities Exchange Act of 1934.
(c) For business to be properly submitted by a shareholder for
a vote at an annual meeting, the shareholder must (i) be a shareholder of record
as of the record date for the meeting, (ii) be entitled to vote at the meeting,
and (iii) have given timely notice in writing of the proposal to be submitted by
the shareholder for a vote. The shareholder's notice must be delivered to the
Secretary at the Corporation's principal executive offices.
(d) To be timely, a shareholder's notice must be received by
the Secretary at least 60 calendar days before the date corresponding to the
date on which the Corporation's proxy materials were mailed to shareholders for
the annual meeting in the preceding year, and no more than 120 calendar days
before that date; provided, however, if the date of the annual meeting is
changed by more than 30 calendar days from the date corresponding to the date of
the preceding year's annual meeting, or if the Corporation did not hold an
annual meeting in the preceding year, then the shareholder's notice will be
considered timely if it is received by the Secretary a reasonable time before
the Corporation mails its proxy materials for the annual meeting, but in any
event at least 30 days before the Corporation mails its proxy materials for the
annual meeting. A shareholder's notice to the Secretary must set forth as to
each matter the shareholder proposes to bring before the annual meeting:
(i) a description in reasonable detail of the business desired to
be brought before the annual meeting and the reasons for
conducting such business at the annual meeting,
(ii) the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and of the
beneficial owner, if any, on whose behalf the proposal is
made,
(iii) the class and number of shares of the Corporation that are
owned beneficially and of record by the shareholder proposing
such business and by the beneficial owner, if any, on whose
behalf the proposal is made, and
(iv) any material interest of such shareholder proposing such
business and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
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Nothing in these Bylaws affects (i) any right of shareholders to
request inclusion of proposals in the Corporation's proxy statement in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934, provided
the Corporation has securities registered under the Securities Exchange Act of
1934, or (ii) the limitations and obligations imposed under Rule 14a-8 on any
shareholder requesting inclusion of a proposal under that rule.
(e) A call for a special meeting by a shareholder or shareholders shall
be in writing and shall set forth
(i) a description in reasonable detail of the business desired to
be brought before the special meeting and the reasons for
conducting such business at the special meeting,
(ii) the name and address, as they appear on the Corporation's
books, of the shareholder(s) proposing such business and of
the beneficial owner, if any, on whose behalf the proposal is
made,
(iii) the class and number of shares of the Corporation that are
owned beneficially and of record by the shareholder(s)
proposing such business and by the beneficial owner, if any,
on whose behalf the proposal is made, and
(iv) any material interest of such shareholder(s) proposing such
business and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
(f) At a special meeting of shareholders, the only business
that will be conducted or considered is such business as is properly brought
before the meeting. To be properly brought before a special meeting, business
must be (i) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the President or the Secretary in accordance
with these Bylaws or (ii) otherwise brought before the meeting by the presiding
officer or by or at the direction of a majority of the Board of Directors.
(g) The determination of whether any business to be brought
before any annual or special meeting of the shareholders is properly brought
before that meeting will be made by the presiding officer of the meeting. If the
presiding officer determines that any business is not properly brought before
the meeting, he or she will so declare to the meeting and that business will not
be conducted or considered.
ARTICLE 2
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of at least 5 but no more than 25 directors, the exact number of
directors being fixed from time to time within this range by resolution of the
Board of Directors. A decrease in the number of directors will not have the
effect of shortening the term of any incumbent director. At each annual meeting,
the shareholders will elect directors by a plurality of the votes cast by the
shares entitled to vote in the election. Election of directors of the
Corporation need not be by written ballot, unless requested by the presiding
officer or by the holders of a majority of the voting power of the Corporation.
Each director will be elected to hold office until the next annual meeting of
shareholders and until the election and qualification of a successor, subject to
prior death, resignation or removal. A director need not be a shareholder of the
Corporation.
SECTION 2.2 NOMINATIONS. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to vote in the
election of directors. However, a
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shareholder may nominate a director if and only if the shareholder gives timely
written notice of his or her intent to make the nomination or nominations. The
shareholder's notice shall be given either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation. To be timely,
a shareholder's notice must be received by the Secretary within the time limits
set forth in these Bylaws for a shareholder's submission of business for a vote
at an annual meeting.
The shareholder's notice of his or her intent to make a nomination must
set forth the following:
(i) the name and address, as they appear on the Corporation's
books, of the shareholder giving the notice and of the
beneficial owner, if any, on whose behalf the nomination is
made, as well as the name and address of each person(s)
nominated by the shareholder;
(ii) a representation that the shareholder giving the notice is a
holder of record of stock of the Corporation entitled to vote
at the annual meeting and that the shareholder intends to
appear in person or by proxy at the annual meeting to nominate
the person(s) specified in the notice;
(iii) the class and number of shares of stock of the Corporation
owned beneficially and of record by the shareholder giving the
notice and by the beneficial owner, if any, on whose behalf
the nomination is made;
(iv) a description of all arrangements or understandings between or
among any of (a) the shareholder giving the notice, (b) the
beneficial owner on whose behalf the notice is given, (c) each
nominee, and (d) any other person(s) (naming such person(s))
pursuant to which the nomination or nominations are to be made
by the shareholder giving the notice;
(v) such other information regarding each nominee proposed by the
shareholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and
(vi) the signed consent of each nominee to serve as a director of
the Corporation if so elected.
If the presiding officer determines that a nomination was not made in
accordance with these Bylaws, he or she will so declare to the meeting, and the
defective nomination will be disregarded. Notwithstanding the foregoing
provision of these Bylaws, a shareholder must also comply with all applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder with respect to the matters set forth in these Bylaws,
provided the Corporation has securities registered under the Securities Exchange
Act of 1934.
SECTION 2.3 VACANCIES. Unless otherwise provided in the Articles of
Incorporation, any vacancy occurring in the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled by
the Board of Directors or, if the remaining directors do not constitute a
quorum, by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy will serve for the unexpired term of the
director's predecessor in office, subject to prior death, resignation or
removal.
SECTION 2.4 ANNUAL MEETING. An annual meeting of the Board of Directors
will be held without notice immediately after the adjournment of the annual
meeting of the shareholders, or at another time designated by the Board of
Directors upon notice in the same manner as provided in Section 2.5. The annual
meeting will be held at the principal office of the Corporation or at such other
place as the Board of Directors may designate.
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SECTION 2.5 REGULAR MEETINGS. The Board of Directors may provide by
resolution for regular meetings. Unless otherwise required by such resolution,
regular meetings may be held without notice of the date, time, place or purpose
of the meeting.
SECTION 2.6 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, the Chief Executive Officer or any
member of the Board of Directors. Notice of each special meeting will be given
to each director, either by oral or written notification actually received at
least 24 hours before the meeting, or by written notice mailed by deposit in the
United States mail, first class postage prepaid, addressed to the director at
the director's address appearing on the records of the Corporation at least 72
hours before the meeting. Special meetings of the directors may also be held at
any time when all members of the Board of Directors are present and consent to a
special meeting. Special meetings of the directors will be held at the principal
office of the Corporation or at any other place designated by a majority of the
Board of Directors.
SECTION 2.7 TELEPHONIC MEETINGS. The Board of Directors may permit
directors to participate in a meeting by any means of communication by which all
of the persons participating in the meeting can hear each other at the same
time. Participation in such a meeting will constitute presence in person at the
meeting.
SECTION 2.8 WAIVER OF NOTICE. A director may, at any time, waive any
notice required by these Bylaws, the Articles of Incorporation or the Oregon
Business Corporation Act. Except as otherwise provided in this Section 2.8, the
waiver must be in writing, must be signed by the director, must specify the
meeting for which notice is waived, and must be delivered to the Corporation for
inclusion in the minutes and filing in the corporate records. A director's
attendance at a meeting waives any required notice, unless at the beginning of
the meeting or promptly upon the director's arrival the director objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting.
SECTION 2.9 QUORUM. A majority of the number of directors that has been
established by the Board of Directors pursuant to Section 2.1 of these Bylaws
will constitute a quorum for the transaction of business.
SECTION 2.10 VOTING. The act of the majority of the directors present
at a meeting at which a quorum is present will for all purposes constitute the
act of the Board of Directors, unless otherwise provided by the Articles of
Incorporation or these Bylaws.
SECTION 2.11 ACTION WITHOUT MEETING. Unless otherwise provided by the
Articles of Incorporation, any action required or permitted to be taken by the
Board of Directors at a meeting may be taken without a meeting if a written
consent or consents describing the action taken is signed by each director and
included in the minutes and filed with the corporate records. The action is
effective when the last director signs the consent, unless the consent specifies
an earlier or later effective date. A consent signed under this section has the
effect of an act of the Board of Directors at a meeting and may be described as
such in any document.
SECTION 2.12 POWERS OF DIRECTORS. The Board of Directors shall have the
sole responsibility for the management of the business of the Corporation. In
the management and control of the property, business and affairs of the
Corporation, the Board of Directors is vested with all of the powers possessed
by the Corporation itself, so far as this delegation of power is not
inconsistent with the Oregon Business Corporation Act, the Articles of
Incorporation or these Bylaws. The Board of Directors will have the power to
determine what amount constitutes net earnings of the Corporation, what amount
will be reserved for working capital and for any other purpose, and what
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amount, if any, will be declared as dividends. Such determinations by the Board
of Directors will be final and conclusive, except as otherwise expressly
provided by the Oregon Business Corporation Act or the Articles of
Incorporation. The Board of Directors may designate one or more officers of the
Corporation who will have the power to sign all deeds, leases, contracts,
mortgages, deeds of trust and other instruments and documents executed by and
binding upon the Corporation. In the absence of a designation of any other
officer or officers, the Chief Executive Officer is so designated.
SECTION 2.13 COMMITTEES. Unless the Articles of Incorporation provide
otherwise, a majority of the Board of Directors may designate from among its
members an Executive Committee and any number of other committees. The Board of
Directors may designate from among its members an Audit Committee consisting of
at least two directors, with the majority of members being directors who are not
employees or executive officers of the Corporation. Each committee must consist
of two or more directors and will have such powers and will perform such duties
as may be delegated and assigned to the committee by the Board of Directors. No
committee will have the authority of the Board of Directors with respect to (a)
approving dividends or other distributions to shareholders, except as permitted
by (h), below, (b) amending the Articles of Incorporation, except as permitted
by (j), below (c) adopting a plan of merger, (d) recommending to the
shareholders the sale, lease, exchange, or other disposition of all or
substantially all the property and assets of the Corporation other than in the
usual and regular course of its business, (e) recommending to the shareholders a
voluntary dissolution of the Corporation or a revocation thereof, (f) approving
or proposing to shareholders other actions required to be approved by the
shareholders, (g) approving a plan of merger which does not require shareholder
approval, (h) authorizing or approving any reacquisition of shares of the
Corporation, except pursuant to a formula or method prescribed by the Board of
Directors, (i) authorizing or approving the issuance, sale or contract for sale
of shares of the Corporation's stock except either pursuant to a stock option or
other stock compensation plan or where the Board of Directors has determined the
maximum number of shares and has expressly delegated this authority to the
committee, (j) determining the designation and relative rights, preferences and
limitations of a class or series of shares, unless the Board of Directors has
determined a maximum number of shares and expressly delegated this authority to
the committee, (k) adopting, amending or repealing Bylaws for the Corporation,
or (l) filling vacancies on the Board of Directors or on any of its committees
or (m) taking any other action which the Oregon Business Corporation Act
prohibits a committee of a board of directors to take. The provisions of
Sections 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, and 2.11 of the Bylaws will also apply
to all committees of the Board of Directors. Each committee will keep written
records of its activities and proceedings. All actions by committees will be
reported to the Board of Directors at the next meeting following the action and
the Board of Directors may ratify, revise or alter such action, provided that no
rights or acts of third parties will be affected by any such revision or
alteration.
SECTION 2.14 CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may elect one of its members to be Chairman of the Board of Directors
and one of its members to be Vice Chairman of the Board of Directors. The
Chairman and Vice Chairman will advise and consult with the Board of Directors
and the officers of the Corporation as to the determination of policies of the
Corporation. The Chairman, or the Vice Chairman in the Chairman's absence, will
preside at all meetings of the Board of Directors and of the shareholders, and
the Chairman and the Vice Chairman will perform such other functions and
responsibilities as the Board of Directors may designate from time to time.
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ARTICLE 3
OFFICERS
SECTION 3.1 COMPOSITION. The officers of this Corporation will consist
of at least a President and a Secretary and may also include a separate Chief
Executive Officer, one or more Vice Presidents and a Treasurer, each of whom
will be elected by the Board of Directors at the annual meeting of the Board of
Directors, at any regular meeting of the Board of Directors, or at any special
meeting called for that purpose. Other officers and assistant officers and
agents may be elected or appointed by or in the manner directed by the Board of
Directors as the Board of Directors may deem necessary or appropriate. Any
vacancies occurring in any office of this Corporation may be filled by election
or appointment by the Board of Directors at any regular meeting or any special
meeting called for that purpose. Each officer will hold his or her office until
the next annual meeting of the Board of Directors and until the election and
qualification of a successor in such office, subject to prior death, resignation
or removal.
SECTION 3.2 CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate one of the officers of the Corporation or the Chairman of the Board of
Directors to serve as the Chief Executive Officer of the Corporation. The Chief
Executive Officer will be responsible for implementing the policies and goals of
the Corporation, as stated by the Board of Directors, and will have general
supervisory responsibility and authority over the property, business and affairs
of the Corporation. Unless otherwise provided by the Board of Directors, the
Chief Executive Officer will have the authority to hire and fire employees and
agents of the Corporation and to take such other actions as the Chief Executive
Officer deems necessary or appropriate to implement the policies, goals and
directions of the Board of Directors.
SECTION 3.3 PRESIDENT. In the absence of a specific designation by the
Board of Directors of a separate Chief Executive Officer, the President will
have all the responsibilities and authority of the Chief Executive Officer, as
set forth in Section 3.2, and may be referred to as the Corporation's Chief
Executive Officer. The President may sign any documents and instruments of the
Corporation that require the signature of the President under the Oregon
Business Corporation Act, the Articles of Incorporation or these Bylaws. The
President will also have such responsibilities and authority as may be delegated
to the President by the Chief Executive Officer or prescribed by the Board of
Directors. At the request of the Chairman of the Board of Directors or in the
Chairman's and Vice Chairman's absence, the President will preside at meetings
of the Board of Directors and at meetings of the shareholders. Upon the death,
resignation or removal of the President, the Board of Directors may appoint a
Vice President or another person to serve as an "acting" or "interim" President
to serve as such until the position is filled by action of the Board of
Directors. Unless otherwise provided by the Board of Directors, an "acting" or
"interim" President will have all responsibilities and authority of the
President.
SECTION 3.4 VICE PRESIDENT. A Vice President will have such
responsibilities and authority as may be prescribed by the Board of Directors or
as may be delegated by the Chief Executive Officer or the President to such Vice
President. If at any time there is more than one Vice President, the Board of
Directors may designate the order of seniority or the areas of responsibility of
such Vice Presidents. A Vice President (or if more than one, the Vice Presidents
in order of seniority by designation or order of appointment) will have all of
the powers and perform all of the duties of the President during the absence or
disability of the President.
SECTION 3.5 SECRETARY. The Secretary will keep the minutes and records
of meetings of the shareholders and directors and of all other official business
of the Corporation. The Secretary will
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give notice of meetings to the shareholders and directors and will perform such
other duties as may be prescribed by the Board of Directors.
SECTION 3.6 TREASURER OR CHIEF FINANCIAL OFFICER. The Treasurer, or if
so designated, the Chief Financial Officer, will receive all moneys and funds of
the Corporation and deposit such moneys and funds in the name of and for the
account of the Corporation with one or more banks designated by the Board of
Directors, or in such other short-term investment vehicles as may from time to
time be designated or approved by the Board of Directors. The Treasurer will
keep accurate books of account and will make reports of financial transactions
of the Corporation to the Board of Directors, and will perform such other duties
as may be prescribed by the Board of Directors. If the Board of Directors elects
a Vice President, Finance or a Chief Financial Officer, the duties of the office
of Treasurer may rest in that officer.
SECTION 3.7 REMOVAL. The directors, at any regular meeting or any
special meeting called for that purpose, may remove any officer from office with
or without cause; provided, however, that no removal will impair the contract
rights, if any, of the officer removed or of this Corporation or of any other
person or entity.
ARTICLE 4
STOCK AND OTHER SECURITIES
SECTION 4.1 CERTIFICATES. All stock and other securities of this
Corporation may be represented by certificates, signed by the President or a
Vice President and the Secretary or an Assistant Secretary of the Corporation,
with the corporate seal, if any, affixed. Each stock certificate shall state
upon the face thereof that it is transferable only on the books of the
Corporation. Certificates for stock shall be numbered and registered in the
order in which they are issued. All certificates shall be issued in consecutive
order, and upon the stub of each certificate shall be entered the name of the
person owning the shares represented thereby, the number of shares represented
thereby, and the date of issuance thereof. All certificates exchanged or
returned to the Corporation shall be marked "cancelled," the date of
cancellation shall be noted thereon and the certificate shall be retained.
SECTION 4.2 TRANSFER AGENT AND REGISTRAR. The Board of Directors may
from time to time appoint one or more Transfer Agents and one or more Registrars
for the stock and other securities of the Corporation. The signatures of the
President or a Vice President and the Secretary or an Assistant Secretary upon a
certificate may be facsimiles if the certificate is manually signed by a
Transfer Agent, or registered by a Registrar.
SECTION 4.3 TRANSFER. The shares of stock of the Corporation shall be
transferable and assignable only upon the books of the Corporation. No new stock
certificate shall be issued until the old certificate has been properly
assigned, transferred and surrendered for cancellation.
SECTION 4.4 NECESSITY FOR REGISTRATION. Prior to presentment for
registration upon the transfer books of the Corporation of a transfer of stock
or other securities of this Corporation, the Corporation or its agent for
purposes of registering transfers of its securities may treat the registered
owner of the security as the person exclusively entitled to vote the securities;
to receive any notices to shareholders; to receive payment of any interest on a
security, or of any ordinary, extraordinary, partial liquidating, final
liquidating, or other dividend, or of any other distribution, whether paid in
cash or in securities or in any other form; and otherwise to exercise or enjoy
any or all of the rights and powers of an owner.
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SECTION 4.5 LOST CERTIFICATES. In case of the loss or destruction of a
certificate of stock or other security of this Corporation, a duplicate
certificate may be issued in its place upon such conditions as the Board of
Directors may prescribe.
SECTION 4.6 SHARES WITHOUT CERTIFICATES. The Corporation may issue
shares of stock without certificates as provided in Oregon Revised Statutes
ss.60.164.
ARTICLE 5
CORPORATE SEAL
If the Corporation has a corporate seal, its size and style is shown by
the impression below:
ARTICLE 6
AMENDMENTS
Unless otherwise provided in the Articles of Incorporation, the Bylaws
of the Corporation may be amended or repealed by the directors, subject to
amendment or repeal by action of the shareholders, at any regular meeting or at
any special meeting called for that purpose, provided notice of the proposed
change is given or notice thereof is waived in writing.
ARTICLE 7
SEVERABILITY
If any provision of these Bylaws is found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of the
remaining provisions will not be affected.
Adopted by action of the Incorporator of PremierWest Bancorp as of
December , 1999.
/s/ Richard R. Hieb
------------------------------------------
Richard R. Hieb, Executive Vice President,
Chief Operating Officer and Secretary
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, PremierWest Bancorp is subject to the Oregon
Business Corporation Act (the "Business Corporation Act"). Under the Business
Corporation Act, a corporation may indemnify its directors and officers against
liability if the director or officer acted in good faith and with a reasonable
belief that his actions were in the best interests of the corporation, or at
least not adverse to the corporation's best interests, and, in a criminal
proceeding, if the individual had no reasonable cause to believe that the
conduct in question was unlawful. Under the Business Corporation Act, a
corporation may not indemnify an officer or director against liability in
connection with a claim by or in the right of the corporation in which such
officer or director was adjudged liable to the corporation or in connection with
any other proceeding in which the officer or director was adjudged liable for
receiving an improper personal benefit. However, a corporation may indemnify
against the reasonable expenses associated with such proceeding. A corporation
may not indemnify against breaches of the duty of loyalty. The Business
Corporation Act provides for mandatory indemnification against all reasonable
expenses incurred in the successful defense of any claim made or threatened,
regardless of whether such claim was by or in the right of the corporation,
unless limited by the corporation's Articles of Incorporation. A court may order
indemnification if it determines that the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, regardless of whether the director or officer met the good faith
and reasonable belief standards of conduct set out in the statute. Unless
otherwise stated in the Articles of Incorporation, officers of the corporation
are also entitled to the benefit of the above statutory provisions.
The Business Corporation Act also provides in section 60.047 that the
corporation may, by its Articles of Incorporation, eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for conduct as a director, provided that the Articles of
Incorporation may not eliminate or limit liability for any breach of the
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, any unlawful distribution,
or any transaction from which the director received an improper personal
benefit.
Consistent with Oregon law, Article VI of the Articles of Incorporation
of PremierWest Bancorp provides for the elimination of personal liability of
directors under certain circumstances, providing as follows:
"ARTICLE VI. LIMITATIONS ON LIABILITY OF DIRECTORS. No
director of the Corporation is personally liable to the Corporation or
its shareholders for monetary damages for conduct as a director, except
for the following:
(a) Any breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) Acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) Any distribution to shareholders that is unlawful under the
Oregon Business Corporation Act or successor statute; or
(d) Any transaction from which the director derived an improper
personal benefit.
"This Article does not limit or eliminate the liability of a
director for any act or omission occurring before the effective date of
this Article.
"No amendment to or repeal of this Article may make any
director of the Corporation personally liable to the Corporation or its
shareholders for monetary damages for any act or omission as a director
occurring before the effective date of that amendment or repeal.
<PAGE> 305
"This Article is intended to limit the liability of any
director of the Corporation to the greatest extent authorized under the
Oregon Business Corporation Act. Any further limitation on the
liability of directors authorized under any amendment to the Oregon
Business Corporation Act is incorporated into this Article on the
effective date of that amendment."
The Articles of Incorporation of PremierWest Bancorp also provide in
Article VII for indemnification of directors and officers, as follows:
"ARTICLE VII. INDEMNIFICATION
"A. NON-DERIVATIVE ACTIONS. Subject to the provisions of
Sections C, E and F below, the Corporation shall indemnify any person
who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, (including all
appeals) (other than an action by or in the right of the Corporation)
by reason of or arising from the fact that the person is or was a
director or officer of the Corporation or one of its subsidiaries, or
is or was serving at the request of the Corporation as a director,
officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against reasonable expenses (including attorney's
fees), judgments, fines, penalties, excise taxes assessed with respect
to any employee benefit plan and amounts paid in settlement actually
and reasonably incurred by the person to be indemnified in connection
with such action, suit or proceeding if the person acted in good faith,
did not engage in intentional misconduct, and, with respect to any
criminal action or proceeding, did not know the conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nol contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith or, with respect to any criminal action or
proceeding, that the person knew that the conduct was unlawful.
"B. DERIVATIVE ACTIONS. Subject to the provisions of Sections
C, E and F below, the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit (including all appeals) by or in
the right of the Corporation to procure a judgment in its favor by
reason of or arising from the fact that the person is or was a director
or officer of the Corporation or one of its subsidiaries, or is or was
serving at the request of the Corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, against reasonable expenses (including attorney's fees)
actually incurred by the person to be indemnified in connection with
the defense or settlement of such action or suit if the person acted in
good faith, provided, however that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for deliberate misconduct in the
performance of that person's duty to the Corporation, for any
transaction in which the person received an improper personal benefit,
for any breach of the duty of loyalty to the Corporation, or for any
distribution to shareholders which is unlawful under the Oregon
Business Corporation Act, or successor statute, unless and only to the
extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
"C. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN
CASES. Subject to the provisions of Sections E and F below,
indemnification under Section A and B of this Article shall not be made
by the Corporation unless it is expressly determined that
indemnification of the person who is or was an officer or director, or
is or was serving at the
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request of the Corporation as a director, officer, partner, or
trustee of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise, is proper in the circumstances because the
person has met the applicable standard of conduct set forth in
Sections A or B. That determination may be made by any of the
following:
(a) By the Board of Directors by majority vote of a
quorum consisting of directors who are not or were
not parties to the action, suit or proceeding;
(b) If a quorum cannot be obtained under paragraph (a) of
this subsection, by majority vote of a committee duly
designated by the Board of Directors consisting
solely of two or more directors not at the time
parties to the action, suit or proceeding (directors
who are parties to the action, suit or proceeding may
participate in designation of the committee);
(c) By special legal counsel selected by the Board of
Directors or its committee in the manner prescribed
in (a) or (b) or, if a quorum of the Board of
Directors cannot be obtained under (a) and a
committee cannot be designated under (b) the special
legal counsel shall be selected by majority vote of
the full Board of Directors, including directors who
are parties to the action, suit or proceeding;
(d) If referred to them by Board of Directors of the
Corporation by majority vote of a quorum (whether or
not such quorum consists in whole or in part of
directors who are parties to the action, suit or
proceeding), by the shareholders; or
(e) By a court of competent jurisdiction.
"D. INDEMNIFICATION OF PERSONS OTHER THAN OFFICERS OR
DIRECTORS. Subject to the provisions of Section F, if any person not
entitled to indemnification under Sections A and B of this Article was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding of a type referred to
in Sections A or B of this Article by reason of or arising from the
fact that such person is or was an employee or agent (including an
attorney) of the Corporation or one of its subsidiaries, or is or was
serving at the request of the Corporation as an employee or agent
(including an attorney) of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, the Board of Directors of the Corporation by a majority
vote of a quorum (whether no not such quorum consists in whole or in
part of directors who were parties to such action, suit or proceeding)
or the shareholders of the Corporation by a majority vote of the
outstanding shares upon referral to them by the Board of Directors of
the Corporation by a majority vote of a quorum (whether or not such
quorum consists in whole or in part of directors who were parties to
such action, suit or proceeding) may, but shall not be required to,
grant to such person a right of indemnification to the extent described
in Sections A or B of this Article as if the person were acting in a
capacity referred to therein, provided that such person meets the
applicable standard of conduct set forth in such Sections. Furthermore,
the Board of Directors may designate by resolution in advance of any
action, suit or proceeding, those employees or agents (including
attorneys) who shall have all rights of indemnification granted under
Sections A and B of this Article.
"E. SUCCESSFUL DEFENSE. Notwithstanding any other provision of
Sections A, B, C, or D of this Article, but subject to the provisions
of Section F, to the extent a director, officer, or employee is
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections A, B or D of this Article, or in
defense of any claim, issue or
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matter therein, that person shall be indemnified against expenses
(including attorneys fees) actually and reasonable incurred by him in
connection therewith.
"F. CONDITION PRECEDENT TO INDEMNIFICATION UNDER SECTIONS A,
B, D OR E. Any person who desires to receive the benefits otherwise
conferred by Sections A, B D or E of the Article shall promptly notify
the Corporation that the person has been named a defendant to an
action, suit or proceeding of a type referred to in Sections A, B, D,
or E and intends to rely upon the right of indemnification described in
Sections A, B, D or E of this Article. The notice shall be in writing
and mailed, via registered or certified mail, return receipt requested,
to the President of the Corporation at the executive offices of the
Corporation or, if the notice is from the President, to the registered
agent of the Corporation. Failure to give the notice required hereby
shall entitle the Board of Directors of the Corporation by a majority
vote of a quorum (consisting of directors who, insofar as indemnity of
officers or directors is concerned, were not parties to such action,
suit or proceeding, but who, insofar as indemnity of employees or
agents is concerned, may or may not have been parties) or, if referred
to them by the Board of Directors of the Corporation by a majority vote
of a quorum (consisting of directors who, insofar as indemnity of
officers or directors in concerned, were not parties to such action,
suit or proceeding, but who, insofar as indemnity of employees or
agents is concerned, may or may not have been parties), the
shareholders of the Corporation by a majority of the votes entitled to
be cast by holders of shares of the Corporation's stock which have
unlimited voting rights to make a determination that such a failure was
prejudicial to the Corporation in the circumstances and that,
therefore, the right to indemnification referred to in Sections A, B or
D of this Article shall be denied in its entirety or reduced in amount.
"G. ADVANCES FOR EXPENSES. Expenses incurred by a person
indemnified hereunder in defending a civil, criminal, administrative or
investigative action, suit or proceeding (including all appeals) or
threat thereof, may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such expenses if it
shall ultimately be determined that the person is not entitled to be
indemnified by the Corporation and a written affirmation of the
person's good faith belief that he or she has met the applicable
standard of conduct. The undertaking must be a general personal
obligation of the party receiving the advances but need not be secured
and may be accepted without reference to financial ability to make
repayment.
"H. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or one of its subsidiaries or is
or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against
and incurred by that person in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify that person against such liability under the provisions of
this Article or under the Oregon Business Corporation Act.
"I. PURPOSE AND EXCLUSIVITY. The indemnification referred to
in the various Sections of this Article shall be deemed to be in
addition to and not in lieu of any other rights to which those
indemnified may be entitled under any stature, rule of law or equity,
agreement, vote of the shareholders or Board of Directors or otherwise.
The Corporation is authorized to enter into agreements of
indemnification. the purpose of this Article is to augment the
provisions of the Oregon Business Corporation Act dealing with
indemnification.
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"J. SEVERABILITY. If any of the provisions of this Article are
found, in any action, suit or proceeding, to be invalid or ineffective,
the validity and the effect of the remaining provisions shall not be
affected."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See the Exhibit Index.
(b) Financial Statement Schedules. Not Applicable.
(c) Reports, Opinions or Appraisals. Furnished as Appendices B and
C to the Prospectus/Joint Proxy Statement and incorporated
herein by this reference.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) Include any additional or changed material
information in the plan of distribution.
(2) For determining liability under the Securities Act of
1933, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of PremierWest Bancorp pursuant to the foregoing provisions, or
otherwise, PremierWest Bancorp 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
PremierWest Bancorp of expenses incurred or paid by a director, officer or
controlling person of PremierWest Bancorp 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, PremierWest Bancorp
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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(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Medford, State of Oregon, on the 3rd day of April, 2000.
PREMIERWEST BANCORP
By: /s/ John L. Anhorn
--------------------------------------------
John L. Anhorn, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement Amendment No. 2 has been signed by the following persons
in the capacities and on the dates indicated.
/s/ John L. Anhorn April 3, 2000
- ------------------------------------------
John L. Anhorn, President,
Chief Executive Officer and Director
/s/ Bruce R. McKee April 3, 2000
- ------------------------------------------
Bruce R. McKee
(Principal Financial and Accounting Officer)
/s/ John A. Duke * April 3, 2000
- ------------------------------------------
John A. Duke, Chairman of the Board and Director
/s/ Dennis N. Hoffbuhr * April 3, 2000
- ------------------------------------------
Dennis N. Hoffbuhr, Director
/s/ Patrick G. Huycke * April 3, 2000
- ------------------------------------------
Patrick G. Huycke, Vice Chairman and Director
/s/ James L. Patterson * April 3, 2000
- ------------------------------------------
James L. Patterson, Director
*The undersigned, by signing his name hereto, does sign and execute this
registration statement on behalf of each of the indicated officers and directors
of PremierWest Bancorp pursuant to a Power of Attorney executed by each such
officer and director and previously filed with this registration statement.
Dated: April 3, 2000 /s/ John L. Anhorn
------------------------
John L. Anhorn
Attorney-in-Fact
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
* 2 Agreement and Plan of Merger and Share Exchange by and among
Bank of Southern Oregon, PremierWest Bancorp, United Bancorp
and Douglas National Bank dated as of October 7, 1999, as
amended by Amendment to Agreement and Plan of Merger and Share
Exchange dated as of December 14, 1999 (included as Appendix A
to the Prospectus/Joint Proxy Statement and incorporated
herein by this reference)
* 3.1 Articles of Incorporation of PremierWest Bancorp (included as
Appendix G to the Prospectus/Joint Proxy Statement and
incorporated herein by this reference)
* 3.2 Bylaws of PremierWest Bancorp (included as Appendix H to the
Prospectus/Joint Proxy Statement and incorporated herein by
this reference)
* 4 Specimen common stock certificate
* 5 Opinion of Grady & Associates regarding legality
* 8 Opinion of Farleigh, Wada & Witt regarding certain tax matters
* 10.1 1992 Combined Incentive and Non-Qualified Stock Option Plan
of Bank of Southern Oregon
* 10.2 April 2, 1998 Employment Agreement of John L. Anhorn
* 10.3 April 2, 1998 Employment Agreement of Richard R. Hieb
* 10.4 Federal Home Loan Bank of Seattle Advances, Security and
Deposit Agreement dated January 21, 1999
* 10.5 Lease and Purchase Agreement dated December 3, 1998 for the
property at 300 E. Pine Street, Central Point, Oregon
* 10.6 Employment Agreement between PremierWest Bancorp and M. Neil
Zick
* 10.7 Release and Agreement between PremierWest Bancorp and Linda
Ganim
* 10.8 Employment Agreement between PremierWest Bancorp and
Rosemarie Baucom
* 16 Letter re Change in Certifying Accountant (included in the
Form 8-K Current Report filed on July 27, 1999 with the FDIC
by Bank of Southern Oregon; a copy of the Form 8-K, including
the accountant's letter, is included in this Exhibit 16)
** 23.1 Consent of Knight Vale & Gregory PLLC (relating to the
audited financial statements of United Bancorp)
** 23.2 Consent of Symonds, Evans & Larson, P.C. (relating to the
audited financial statements of the Registrant and Bank of
Southern Oregon)
** 23.3 Consent of Kosmatka Donnelly & Co. LLP (relating to the
audited financial statements of Bank of
Southern Oregon)
* 23.4 Consent of Grady & Associates (included in Exhibit 5)
* 23.5 Consent of Hornecker, Cowling, Hassen & Heysell, L.L.P.
* 23.6 Consent of Farleigh, Wada & Witt (included in Exhibit 8)
** 23.7 Consent of Hoefer & Arnett, Incorporated
** 23.8 Consent of Pacific Crest Securities Inc.
* 24 Power of Attorney
* 99.1 Form of Proxy for United Bancorp Special Meeting
* 99.2 Form of Proxy for Bank of Southern Oregon Annual Meeting
* 99.3 Shareholder Voting Agreement dated as of October 7, 1999
(included in Appendix E to the Prospectus/Joint Proxy
Statement and incorporated herein by this reference)
* 99.4 Shareholder Voting Agreement with former executive officer of
United Bancorp (included in Appendix F to the Prospectus/Joint
Proxy Statement and incorporated herein by this reference)
* 99.5 Consent of Thomas Becker to being named a Director of
PremierWest Bancorp
* 99.6 Consent of Peter A. Martini to being named a Director of
PremierWest Bancorp
* 99.7 Consent of Rickar D. Watkins to being named a Director of
PremierWest Bancorp
- -------------
* Previously filed
** Filed herewith
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report, dated
January 7, 2000, relating to the consolidated financial statements of United
Bancorp and Subsidiaries, and to the reference to our firm under the caption
"EXPERTS" in the Proxy Statement/Prospectus.
/s/ Knight Vale & Gregory PLLC
Knight Vale & Gregory PLLC
Tacoma, Washington
April 3, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated January 14, 2000 relating to the consolidated financial
statements of Bank of Southern Oregon as of and for the year ended December 31,
1999, and the financial statements of PremierWest Bancorp as of December 31,
1999 and for the period from November 26, 1999 (inception) through December 31,
1999, in Amendment No. 2 to the Registration Statement (Form S-4 No. 333-96209)
of PremierWest Bancorp.
/s/ Symonds, Evans & Larson, P.C.
March 31, 2000
Portland, Oregon
<PAGE> 1
EXHIBIT 23.3
Consent of Kosmatka Donnelly & Co. LLP
The Board of Directors
Bank of Southern Oregon
We consent to the use of our report dated February 26, 1999, with respect to the
consolidated statements of financial condition of Bank of Southern Oregon as of
December 31, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1998, included herein and to the reference to our firm under
the heading "Experts" in the registration statement.
/s/ Kosmatka Donnelly & Co. LLP
Kosmatka Donnelly & Co. LLP
Medford, Oregon
April 3, 2000
<PAGE> 1
EXHIBIT 23.7
CONSENT OF HOEFER & ARNETT, INCORPORATED
April 3, 2000
Hoefer & Arnett, Incorporated has reviewed the summary of our opinion and
consents to the inclusion of our opinion in the Registration Statement on Form
S-4 of PremierWest Bancorp set forth as Appendix B to the Prospectus/Joint Proxy
Statement, which is part of the Registration Statement, and to the reference to
our firm and summarization of our opinion in the Prospectus/Joint Proxy
Statement under the captions "Opinion of United Bancorp's Financial Advisor."
HOEFER & ARNETT, INCORPORATED
AUSTIN, TEXAS
By: /s/ Thomas R. Mecredy
--------------------------
Thomas R. Mecredy
Managing Director
<PAGE> 1
EXHIBIT 23.8
CONSENT OF PACIFIC CREST SECURITIES INC.
April 3, 2000
We have reviewed the summarization of our opinion in the Prospectus/Joint Proxy
Statement, which is part of the Registration Statement. We consent to the
inclusion in the Registration Statement on Form S-4 of PremierWest Bancorp of
our opinion set forth as Appendix C to the Prospectus/Joint Proxy Statement,
which is part of the Registration Statement, and to the reference to our firm
and summarization of our opinion in the Prospectus/Joint Proxy Statement under
the caption "Opinion of Bank of Southern Oregon's Financial Advisor."
/s/ PACIFIC CREST SECURITIES INC.
